As filed with the Securities and Exchange Commission on January 13, 1998
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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ICIFC SECURED ASSETS CORP.
(Exact name of Registrant as specified in its charter)
CALIFORNIA 33-071587 1
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20371 IRVINE AVENUE WILLIAM ASHMORE
SUITE 200 20371 IRVINE AVENUE
SANTA ANA HEIGHTS, CALIFORNIA 92707 SANTA ANA HEIGHTS, CALIFORNIA 92707
(714) 556-0122 (714) 556-0122
(Address, including zip code, and (Name, address, including zip code, and
telephone number, telephone number,
including area code, of Registrant's including area code, of agent for
principal executive offices) service with respect to the Registrant)
--------------
COPIES TO:
PAUL D. TVETENSTRAND DAVID BARBOUR
THACHER PROFFITT & WOOD ANDREWS & KURTH L.L.P.
TWO WORLD TRADE CENTER 1717 MAIN STREET, SUITE 3700
NEW YORK, NEW YORK 10048 DALLAS, TEXAS 75201
(214) 659-4400
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Approximate date of commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement as
determined by market conditions and pursuant to Rule 415.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. /_/
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box./X/
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 number of the earlier effective registration statement for the
same offering. /_/
If the delivery of the Prospectus Supplement is expected to be made
pursuant to Rule 434, please check the following box. /_/
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CALCULATION OF REGISTRATION FEE
================================ ==================== ====================== =========================== ====================
Proposed Maximum Proposed Amount of
Proposed Title of Securities to Amount to Be Offering Price Per Maximum Aggregate Registration
be Registered Registered Unit (1) Offering Price (1) Fee (2)
- -------------------------------- -------------------- ---------------------- --------------------------- --------------------
Pass-Through Certificates and
Mortgage-Backed Notes, issued $1,000,000 100% $1,000,000 $295.00
in series......................
================================ ==================== ====================== =========================== ====================
(1) Estimated solely for the purpose of calculating the registration fee on
the basis of the proposed maximum offering price per unit.
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THIS REGISTRATION 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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
EXPLANATORY NOTE
This Registration Statement contains (i) a form of Prospectus (the
"RESIDENTIAL LOAN PROSPECTUS") relating to the offering of one or more series of
Pass-Through Certificates and/or Mortgage-Backed Notes, secured by one-to-four
family and/or multifamily residential first and/or junior mortgage loans or
manufactured housing conditional sales contracts and installment loan agreements
and (ii) a form of Prospectus (the "COMMERCIAL LOAN PROSPECTUS") relating to the
offering of one or more series of Pass-Through Certificates, secured by one or
more segregated pools of various types of multifamily or commercial mortgage
loans, mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by multifamily or
commercial mortgage loans.
Three versions of prospectus supplements relating to the Residential
Loan Prospectus have been incorporated by reference into this Registration
Statement, and nine versions of prospectus supplements relating to the
Commercial Loan Prospectus and replacement pages to the Commercial Loan
Prospectus with respect to such versions are included in this Registration
Statement.
Immediately preceding the Commercial Loan Prospectus, there are nine
sets of pages labeled in the upper right corner as follows: "Version 1:
Multifamily Properties", "Version 2: Office Properties", "Version 3: Retail
Properties", "Version 4: Hotel Properties", "Version 5: Health Care-Related
Facilities", "Version 6: Industrial Properties", "Version 7: Self-Storage
Facilities," "Version 8: Mobile Home Parks," and Version 9: Condominium
Properties". Each such "version" contains a cover page to be substituted in the
Commercial Loan Prospectus and five pages with inserts to the Commercial Loan
Prospectus and related prospectus supplement showing the text specific to
concentration in each of the nine types of properties contemplated by the
Registrant for purposes of the Commercial Loan Prospectus (i.e. multifamily
properties, office properties, retail properties, health care-related
facilities, industrial properties, self-storage facilities, mobile home parks
and condominiums).
The above described nine "versions" of changes to the Commercial Loan
Prospectus and prospectus supplement are being filed with this Registration
Statement for purposes of identifying changes that will be made to the
Commercial Loan Prospectus and related prospectus supplement as a result of
concentrations in any specific securitization transaction. Depending on the
types of properties that involve concentration in any particular transaction,
the respective changes to the Commercial Loan Prospectus and related prospectus
supplement from one or more of the above described "versions" will be included
in the Commercial Loan Prospectus and related prospectus supplement for that
transaction. The Commercial Loan Prospectus and related prospectus supplement
reflecting such changes will be filed at the time and in the manner provided by
Rule 424 under the Securities Act of 1933.
VERSION 1: MULTIFAMILY PROPERTIES
PROSPECTUS
ICIFC SECURED ASSETS CORP.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Multifamily properties consisting of five or more rental or cooperatively owned
dwellings will represent security for a material concentration of the Mortgage
Loans (or the mortgage loans underlying the CMBS) in any Trust Fund, based on
principal balance at the time such Trust Fund is formed. If so specified in the
related Prospectus Supplement, some or all of the Mortgage Loans will include
assignments of the leases of the related Mortgaged Properties (as defined
herein) and/or assignments of the rental payments due from the lessees under
such leases (each type of assignment, a "LEASE ASSIGNMENT"). A significant or
the sole source of payments on certain Commercial Loans (as defined herein) and,
therefore, of distributions on certain Series of Certificates, will be such rent
payments. If so specified in the related Prospectus Supplement, the Trust Fund
for a Series of Certificates may include letters of credit, insurance policies,
guarantees, reserve funds or other types of credit support, or any combination
thereof (with respect to any Series, collectively, "CREDIT SUPPORT"), and
currency or interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any Series, collectively, "CASH FLOW
AGREEMENTS"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES. (COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 1: MULTIFAMILY PROPERTIES
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Multifamily properties consisting of five or more rental or
cooperatively owned dwellings will represent security for a material
concentration of the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is formed.
-2-
VERSION 1: MULTIFAMILY PROPERTIES
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Multifamily Rental Properties............[page no.]
-3-
VERSION 1: MULTIFAMILY PROPERTIES
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Multifamily Rental Properties......[page no.]
-4-
VERSION 1: MULTIFAMILY PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged
Properties":
RISKS PARTICULAR TO MULTIFAMILY RENTAL PROPERTIES
Adverse economic conditions, either local or national, may
limit the amount of rent that can be charged for rental units, and may
result in a reduction in timely rent payments or a reduction in
occupancy levels without a corresponding decrease in expenses.
Occupancy and rent levels may also be affected by construction of
additional housing units, local military base closings and national and
local politics, including, in the case of multifamily rental
properties, current or future rent stabilization and rent control laws
and agreements. In addition, the level of mortgage interest rates may
encourage tenants in multifamily rental properties to purchase
single-family housing. Further, the cost of operating a multifamily
property may increase, including the cost of utilities and the costs of
required capital expenditures. Furthermore, the rent limitations
imposed on Mortgaged Properties eligible to receive low-income housing
tax credits pursuant to Section 42 of the Code ("Section 42
Properties") may adversely affect the ability of the applicable
borrowers to increase rents to maintain such Mortgaged Properties in
proper condition during periods of rapid inflation or declining market
value of such Mortgaged Properties. In addition, the income
restrictions on tenants imposed by Section 42 of the Code may reduce
the number of eligible tenants in such Mortgaged Properties and result
in a reduction in occupancy rates applicable thereto. Furthermore, some
eligible tenants may not find any differences in rents between the
Section 42 Properties and other multifamily rental properties in the
same area to be a sufficient economic incentive to reside at a Section
42 Property, which may have fewer amenities or otherwise be less
attractive as a residence. Additionally, the characteristics of a
neighborhood may change over time or in relation to newer developments.
All of these conditions and events may increase the possibility that a
borrower may be unable to meet its obligations under its Mortgage Loan.
-5-
VERSION 1: MULTIFAMILY PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY MULTIFAMILY RENTAL PROPERTIES
Significant factors determining the value and successful
operation of a multifamily property are the location of the property,
the number of competing residential developments in the local market
(such as apartment buildings, manufactured housing communities and
site-built single family homes), the physical attributes of the
multifamily apartment building (such as its age and appearance) and
state and local regulations affecting such property. In addition, the
successful operation of an apartment building will depend upon other
factors such as its reputation, the ability of management to provide
adequate maintenance and insurance, and the types of services it
provides.
Certain states regulate the relationship of an owner and its
tenants. Commonly, these laws require a written lease, good cause for
eviction, disclosure of fees, and notification to residents of changed
land use, while prohibiting unreasonable rules, retaliatory evictions,
and restrictions on a resident's choice of unit vendors. Apartment
building owners have been the subject of suits under state "Unfair and
Deceptive Practices Acts" and other general consumer protection
statutes for coercive, abusive or unconscionable leasing and sales
practices. A few states offer more significant protection. For example,
there are provisions that limit the basis on which a landlord may
terminate a tenancy or increase its rent or prohibit a landlord from
terminating a tenancy solely by reason of the sale of the owner's
building.
In addition to state regulation of the landlord-tenant
relationship, numerous counties and municipalities impose rent control
on apartment buildings. These ordinances may limit rent increases to
fixed percentages, to percentages of increases in the consumer price
index, to increases set or approved by a governmental agency, or to
increases determined through mediation or binding arbitration. In many
cases, the rent control laws do not permit vacancy decontrol. Local
authority to impose rent control is preempted 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
preempted 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.
Adverse economic conditions, either local or national, may
limit the amount of rent that can be charged and may result in a
reduction in timely rent payments or a reduction in occupancy levels.
Occupancy and rent levels may also be affected by construction of
additional housing units, local military base closings and national and
local politics, including current or future rent stabilization and rent
control laws and agreements. In addition, the level of mortgage
interest rates may encourage tenants to purchase single-family housing.
The location and construction quality of a particular building may
affect the occupancy level as well as the rents that may be charged for
individual units. The characteristics of a neighborhood may change over
time or in relation to newer developments.
-6-
VERSION 2: OFFICE PROPERTIES
PROSPECTUS
ICIFC SECURED ASSETS CORP.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Office buildings will represent security for a material concentration of the
Mortgage Loans (or the mortgage loans underlying the CMBS) in any Trust Fund,
based on principal balance at the time such Trust Fund is formed. If so
specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "LEASE ASSIGNMENT"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 2: OFFICE PROPERTIES
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Office buildings will represent security for a material concentration
of the Mortgage Loans in any Trust Fund, based on principal balance at
the time such Trust Fund is formed.
-2-
VERSION 2: OFFICE PROPERTIES
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Office Properties........................[page no.]
-3-
VERSION 2: OFFICE PROPERTIES
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Office Properties..................[page no.]
-4-
VERSION 2: OFFICE PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged Properties":
RISKS PARTICULAR TO OFFICE PROPERTIES
In addition to risks generally associated with real estate,
Mortgage Loans secured by office properties are also affected
significantly by adverse changes in population and employment growth
(which creates demand for office space), local competitive conditions
(such as the supply of office space or the existence or construction of
new competitive office buildings), the quality and management
philosophy of management, the attractiveness of the properties to
tenants and their customers or clients, the attractiveness of the
surrounding neighborhood and the need to make major repairs or
improvements to satisfy the needs of major tenants. In addition, office
properties may be adversely affected by an economic decline in the
business operated by their tenants. Such decline may result in one or
more significant tenants ceasing operations at such locations (which
may occur on account of a voluntary decision not to renew a lease,
bankruptcy or insolvency of such tenants, such tenants' general
cessation of business activities or for other reasons). If office
properties have a single tenant or if there is a significant
concentration of tenants in a particular business or industry, the risk
of such an economic decline increases.
-5-
VERSION 2: OFFICE PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY OFFICE PROPERTIES
Significant factors affecting the value of office properties
include, without limitation, the quality of the tenants in the
building, the physical attributes of the building in relation to
competing buildings, the location of the building with respect to the
central business district or population centers, demographic trends
within the metropolitan area to move away from or towards the central
business district, social trends combined with space management trends
(which may change towards options such as telecommuting or hoteling to
satisfy space needs), tax incentives offered to businesses by cities or
suburbs adjacent to or near the city where the building is located and
the strength and stability of the market area as a desirable business
location. Office properties may be adversely affected by an economic
decline in the business operated by their tenants. If office properties
have a single tenant or if there is a significant concentration of
tenants in a particular business or industry, the risk of such an
economic decline increases.
Office properties are also subject to competition with other
office properties in the same market. Competition is affected by a
building's age, condition, design (including floor sizes and layout),
access to transportation, availability of parking and ability to offer
certain amenities to its tenants (including sophisticated building
systems, such as fiberoptic cables, satellite communications or other
base building technological features).
The success of an office property also depends on the local
economy. Factors such as labor cost and quality, tax environment and
such quality of life matters as schools and cultural amenities are
generally considered in the decision of a business to locate its
headquarters in a particular area. A central business district may have
a substantially different economy from that of a suburb. The local
economy will affect an office property's ability to attract stable
tenants on a consistent basis. In addition, the cost of refitting
office space for a new tenant is often higher than for other property
types.
-6-
VERSION 3: RETAIL PROPERTIES
PROSPECTUS
ICIFC SECURED ASSETS CORP.
Depositor
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Retail properties will represent security for a material concentration of the
Mortgage Loans (or the mortgage loans underlying the CMBS) in any Trust Fund,
based on principal balance at the time such Trust Fund is formed. If so
specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "LEASE ASSIGNMENT"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 3: RETAIL PROPERTIES
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Retail properties will represent security for a material concentration
of the Mortgage Loans in any Trust Fund, based on principal balance at
the time such Trust Fund is formed.
-2-
VERSION 3: RETAIL PROPERTIES
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Retail Properties........................[page no.]
-3-
VERSION 3: RETAIL PROPERTIES
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Retail Properties..................[page no.]
-4-
VERSION 3: RETAIL PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged Properties":
RISKS PARTICULAR TO RETAIL PROPERTIES
In addition to risks generally associated with real estate,
Mortgage Loans secured by retail properties are also affected
significantly by adverse changes in consumer spending patterns, local
competitive conditions (such as the supply of retail space or the
existence or construction of new competitive shopping centers or
shopping malls), alternative forms of retailing (such as direct mail,
video shopping networks and selling through the Internet which reduce
the need for retail space by retail companies), the quality and
management philosophy of management, the attractiveness of the
properties and the surrounding neighborhood to tenants and their
customers, the public perception of the safety of customers at shopping
malls and shopping centers, and the need to make major repairs or
improvements to satisfy the needs of major tenants.
Retail properties may be adversely affected if a significant
tenant ceases operations at such locations (which may occur on account
of a voluntary decision not to renew a lease, bankruptcy or insolvency
of such tenant, such tenant's general cessation of business activities
or for other reasons). Significant tenants at a retail property play an
important part in generating customer traffic and making a retail
property a desirable location for other tenants at such property. In
addition, certain tenants at retail properties may be entitled to
terminate their leases if an anchor tenant ceases operations at such
property. In such cases, there can be no assurance that any such anchor
tenants will continue to occupy space in the related shopping centers.
-5-
VERSION 3: RETAIL PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY RETAIL PROPERTIES
Retail properties generally derive all or a substantial
percentage of their income from lease payments from commercial tenants.
Income from and the market value of retail properties is dependent on
various factors including, but not limited to, the ability to lease
space in such properties, the ability of tenants to meet their lease
obligations, the possibility of a significant tenant becoming a debtor
in a bankruptcy case under the Bankruptcy Code, as well as fundamental
aspects of real estate such as location and market demographics.
The correlation between the success of tenant businesses and
property value is more direct with respect to retail properties than
other types of commercial property because a significant component of
the total rent paid by retail tenants is often tied to a percentage of
gross sales. Declines in sales of tenants of retail properties will
likely cause a corresponding decline in percentage rents and such
tenants may become unable to pay their rent or other occupancy costs.
The default by a tenant under its lease could result in delays and
costs in enforcing the lessor's rights. Repayment of the related
mortgage loans will be affected by the expiration of space leases and
the ability of the respective borrowers to renew or relet the space on
comparable terms. Even if vacated space is successfully relet, the
costs associated with reletting, including tenant improvements, leasing
commissions and free rent, could be substantial and could reduce cash
flow from the retail properties.
Whether a retail property is "anchored" or "unanchored" is
also a relevant factor. Generally, retail properties that are anchored
are perceived to be less risky. A retail anchor tenant is normally
understood to be proportionately large in size and vital in attracting
customers to the property. Furthermore, the correlation between the
success of tenant businesses and property value is increased when the
property is a single tenant property.
Unlike office or hotel properties, retail properties also face
competition from sources outside a given real estate market. Catalogue
retailers, home shopping networks, telemarketing, selling through the
Internet, and outlet centers all compete with more traditional retail
properties for consumer dollars. Continued growth of these alternative
retail outlets (which are often characterized by lower operating costs)
could adversely affect the rents collectible at retail properties.
-6-
VERSION 4: HOTEL PROPERTIES
PROSPECTUS
ICIFC SECURED ASSETS CORP.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Hotel properties will represent security for a material concentration of the
Mortgage Loans (or the mortgage loans underlying the CMBS) in any Trust Fund,
based on principal balance at the time such Trust Fund is formed. If so
specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "LEASE ASSIGNMENT"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 4: HOTEL PROPERTIES
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Hotel properties will represent security for a material concentration
of the Mortgage Loans in any Trust Fund, based on principal balance at
the time such Trust Fund is formed.
-2-
VERSION 4: HOTEL PROPERTIES
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Hotel Properties.........................[page no.]
-3-
VERSION 4: HOTEL PROPERTIES
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Hotel Properties...................[page no.]
-4-
VERSION 4: HOTEL PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged Properties":
RISKS PARTICULAR TO HOTEL PROPERTIES
Like any income producing property, the income generated by a
hotel property is subject to several factors such as local, regional
and national economic conditions and competition. However, because such
income is primarily generated by room occupancy and such occupancy is
usually for short periods of time, the level of such income may respond
more quickly to conditions such as those described above. This daily
mark-to-market also accentuates the highs and lows of economic cycles.
Moreover, as a result of relatively high operating costs, relatively
small decreases in revenue can cause significant stress on a property's
cash flow. Also, sensitivity to competition may require more frequent
improvements and renovations than other properties. To the extent a
hotel is affiliated to, or associated with, a regional, national or
international chain, changes in the public perception of such chain may
have an impact on the income generated by the related property.
Finally, the hotel industry is generally seasonal. This will result in
fluctuation in the income generated by hotel properties.
-5-
VERSION 4: HOTEL PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY HOTEL PROPERTIES
Hotel properties may involve different types of hotels,
including 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. 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.
The viability of any hotel property that is a franchise of a
national or a regional hotel chain 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 agreement. The transferability of franchise license
agreements may be restricted and, in the event of a foreclosure on any
such hotel property, the consent of the franchisor for the continued
use the franchise license by the hotel property would be required.
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 purchaser (or
the trustee, servicer or special servicer, as the case may be) 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.
-6-
VERSION 5: HEALTH CARE-RELATED FACILITIES
PROSPECTUS
ICIFC SECURED ASSETS CORP.
Depositor
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Health care-related facilities will represent security for a material
concentration of the Mortgage Loans (or the mortgage loans underlying the CMBS)
in any Trust Fund, based on principal balance at the time such Trust Fund is
formed. If so specified in the related Prospectus Supplement, some or all of the
Mortgage Loans will include assignments of the leases of the related Mortgaged
Properties (as defined herein) and/or assignments of the rental payments due
from the lessees under such leases (each type of assignment, a "LEASE
ASSIGNMENT"). A significant or the sole source of payments on certain Commercial
Loans (as defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 5: HEALTH CARE-RELATED FACILITIES
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Health care-related facilities will represent security for a material
concentration of the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is formed.
-2-
VERSION 5: HEALTH CARE-RELATED FACILITIES
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Health Care-Related Facilities...........[page no.]
-3-
VERSION 5: HEALTH CARE-RELATED FACILITIES
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Health Care-Related Properties.....[page no.]
-4-
VERSION 5: HEALTH CARE-RELATED FACILITIES
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged Properties":
RISKS PARTICULAR TO HEALTH CARE-RELATED PROPERTIES
Certain types of health care-related facilities (including
nursing homes) typically receive a substantial portion of their
revenues from government reimbursement programs, primarily Medicaid and
Medicare. Medicaid and Medicare are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions, all of which can adversely affect revenues from
operation. Moreover, governmental payors have employed cost-containment
measures that limit payments to health care providers and there are
currently under consideration various proposals for national health
care relief that could further limit these payments. In addition,
providers of long-term nursing care and other medical services are
highly regulated by federal, state and local law and are subject to,
among other things, federal and state licensing requirements, facility
inspections, rate setting, reimbursement policies, and laws relating to
the adequacy of medical care, distribution of pharmaceuticals,
equipment, personnel operating policies and maintenance of and
additions to facilities and services, any or all of which factors can
increase the cost of operation, limit growth and in extreme cases,
require or result in suspension or cessation of operations.
Under applicable federal and state laws and regulations,
Medicare and Medicaid reimbursements are generally not permitted to be
made to any person other than the provider who actually furnished the
related medical goods and services. Accordingly, in the event of
foreclosure on a Mortgaged Property that is operated as a health
care-related facility, none of the Trustee, the Special Servicer or a
subsequent lessee or operator of the Mortgaged Property would generally
be entitled to obtain from federal or state governments any outstanding
reimbursement payments relating to services furnished at the respective
Mortgaged Properties prior to such foreclosure. Furthermore, in the
event of foreclosure, there can be no assurance that the Trustee (or
Special Servicer) or purchaser in a foreclosure sale would be entitled
to the rights under any required licenses and regulatory approvals and
such party may have to apply in its own right for such licenses and
approvals. There can be no assurance that a new license could be
obtained or that a new approval would be granted. In addition, health
care-related facilities are generally "special purpose" properties that
could not be readily converted to general residential, retail or office
use, and transfers of health care-related facilities are subject to
regulatory approvals under state, and in some cases federal, law not
required for transfers of other types of commercial operations and
other types of real estate, all of which may adversely affect the
liquidation value.
-5-
VERSION 5: HEALTH CARE-RELATED FACILITIES
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY HEALTH CARE-RELATED PROPERTIES
The Mortgaged Properties may include Senior Housing, Assisted
Living Facilities, Skilled Nursing Facilities and Acute Care Facilities
(any of the foregoing, "Health Care-Related Facilities"). "Senior
Housing" generally consist of facilities with respect to which the
residents are ambulatory, handle their own affairs and typically are
couples whose children have left the home and at which the
accommodations are usually apartment style. "Assisted Living
Facilities" are typically single or double room occupancy,
dormitory-style housing facilities which provide food service, cleaning
and some personal care and with respect to which the tenants are able
to medicate themselves but may require assistance with certain daily
routines. "Skilled Nursing Facilities" provide services to post trauma
and frail residents with limited mobility who require extensive medical
treatment. "Acute Care Facilities" generally consist of hospital and
other facilities providing short-term, acute medical care services.
Certain types of Health Care-Related Facilities, particularly
Acute Care Facilities, Skilled Nursing Facilities and some Assisted
Living Facilities, typically receive a substantial portion of their
revenues from government reimbursement programs, primarily Medicaid and
Medicare. Medicaid and Medicare are subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers,
and there exist various proposals for national health care reform that
could further limit those payments. Accordingly, there can be no
assurance that payments under government reimbursement programs will,
in the future, be sufficient to fully reimburse the cost of caring for
program beneficiaries. If such payments are insufficient, net operating
income of those Health Care-Related Facilities that receive revenues
from those sources, and consequently the ability of the related
borrowers to meet their obligations under any Mortgage Loans secured
thereby, could be adversely affected.
Moreover, Health Care-Related Facilities are generally 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. 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 to continued
licensing under state law and continued participation in the Medicaid
and Medicare reimbursement programs. Providers of assisted living
services are also subject to state licensing requirements in certain
states. The failure of an operator to maintain or renew any required
license or regulatory approval could prevent it from continuing
operations at a Health Care-Related Facility or, if applicable, bar it
from participation in government reimbursement programs. Furthermore,
under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any
person other than the provider who actually furnished the related
medical goods and services. Accordingly, in the event of foreclosure,
none of the Trustee, the Master Servicer, the Special Servicer or a
subsequent lessee or operator of any Health Care-Related Facility
securing a defaulted Mortgage Loan (a "Health Care-Related Mortgaged
Property") would generally be entitled to obtain from federal or state
governments any outstanding reimbursement payments relating to services
furnished at such property prior to such foreclosure. Any of the
aforementioned events may adversely affect the ability of the related
borrowers to meet their Mortgage Loan obligations.
Government regulation applying specifically to Acute Care
Facilities, Skilled Nursing Facilities and certain types of Assisted
Living Facilities includes health planning legislation, enacted by most
states, intended, at least in part, to regulate the supply of nursing
beds. The most common method of control is the requirement that a state
authority first make a determination of need, evidenced by its issuance
of a Certificate of Need ("CON"), before a long-term care provider can
establish a new facility, add beds to an existing facility or, in some
states, take certain other actions (for example, acquire major medical
equipment, make major capital expenditures, add services, refinance
long-term debt, or transfer ownership of a facility). States also
regulate nursing bed supply in other ways. For example, some states
have imposed moratoria on the licensing of new beds, or on the
certification of new Medicaid beds, or have discouraged the
construction of new nursing facilities by limiting Medicaid
reimbursements allocable to the cost of new construction and equipment.
In general, a CON is site specific and operator specific; it cannot be
transferred from one site to another, or to another operator, without
the approval of the appropriate state agency. Accordingly, if a
Mortgage Loan secured by a lien on such a Health Care-Related Mortgaged
Property were foreclosed upon, the purchaser at
-6-
VERSION 5: HEALTH CARE-RELATED FACILITIES
foreclosure might be required to obtain a new CON or an appropriate
exemption. In addition, compliance by a purchaser with applicable
regulations may in any case require the engagement of a new operator
and the issuance of a new operating license. Upon a foreclosure, a
state regulatory agency may be willing to expedite any necessary review
and approval process to avoid interruption of care to a facility's
residents, but there can be no assurance that any will do so or that
any necessary licenses or approvals will be issued.
Further government regulation applicable to Health
Care-Related Facilities is found in the form of federal and state
"fraud and abuse" laws that generally prohibit payment or fee-splitting
arrangements between health care providers that are designed to induce
or encourage the referral of patients to, or the recommendation of, a
particular provider for medical products or services. Violation of
these restrictions can result in license revocation, civil and criminal
penalties, and exclusion from participation in Medicare or Medicaid
programs. The state law restrictions in this area vary considerably
from state to state. Moreover, the federal anti-kickback law includes
broad language that potentially could be applied to a wide range of
referral arrangements, and regulations designed to create "safe
harbors" under the law provide only limited guidance. Accordingly,
there can be no assurance that such laws will be interpreted in a
manner consistent with the practices of the owners or operators of the
Health Care-Related Mortgaged Properties that are subject to such laws.
The operators of Health Care-Related Facilities are likely to
compete on a local and regional basis with others that operate similar
facilities, some of which competitors may be better capitalized, may
offer services not offered by such operators, or may be owned by
non-profit organizations or government agencies supported by
endowments, charitable contributions, tax revenues and other sources
not available to such operators. The successful operation of a Health
Care-Related Facility 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. The inability of a Health Care-Related Mortgaged
Property to flourish in a competitive market may increase the
likelihood of foreclosure on the related Mortgage Loan, possibly
affecting the yield on one or more classes of the related series of
Offered Certificates.
-7-
VERSION 6: INDUSTRIAL PROPERTIES
PROSPECTUS
ICIFC SECURED ASSETS CORP.
Depositor
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Industrial properties will represent security for a material concentration of
the Mortgage Loans (or the mortgage loans underlying the CMBS) in any Trust
Fund, based on principal balance at the time such Trust Fund is formed. If so
specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "LEASE ASSIGNMENT"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 6: INDUSTRIAL PROPERTIES
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Industrial properties will represent security for a material
concentration of the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is formed.
-2-
VERSION 6: INDUSTRIAL PROPERTIES
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Industrial Properties....................[page no.]
-3-
VERSION 6: INDUSTRIAL PROPERTIES
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Industrial Properties..............[page no.]
-4-
VERSION 6: INDUSTRIAL PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged Properties":
RISKS PARTICULAR TO INDUSTRIAL PROPERTIES
Industrial properties may be adversely affected by reduced
demand for industrial space occasioned by a decline in a particular
industry segment, and an industrial property that suited the particular
needs of its original tenant may be difficult to relet to another
tenant or may become functionally obsolete relative to newer
properties. Furthermore, industrial properties may be adversely
affected by the availability of labor sources or a change in the
proximity of supply sources.
-5-
VERSION 6: INDUSTRIAL PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY INDUSTRIAL PROPERTIES
Significant factors determining the value of industrial
properties are the quality of tenants, building design and
adaptability, the functionality of the finish-out and the location of
the property. Concerns about the quality of tenants, particularly major
tenants, are similar in both office properties and industrial
properties, although industrial properties are more frequently
dependent on a single tenant.
Aspects of building site, design and adaptability affect the
value of an industrial property. Site characteristics which are
valuable to an industrial property include clear heights, column
spacing, number of bays and bay depths, divisibility, floor loading
capacities, truck turning radius and overall functionality and
accessibility. Nevertheless, site characteristics of an industrial
property suitable for one tenant may not be appropriate for other
potential tenants, which may make it difficult to relet the property.
Location is also important because an industrial property
requires the availability of labor sources, proximity to supply sources
and customers and accessibility to rail lines, major roadways and other
distribution channels. Further, industrial properties may be adversely
affected by economic declines in the industry
segment of their tenants.
-6-
VERSION 7: SELF-STORAGE FACILITIES
PROSPECTUS
ICIFC SECURED ASSETS CORP.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Self-storage facilities will represent security for a material concentration of
the Mortgage Loans (or the mortgage loans underlying the CMBS) in any Trust
Fund, based on principal balance at the time such Trust Fund is formed. If so
specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "LEASE ASSIGNMENT"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 7: SELF-STORAGE FACILITIES
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Self-storage facilities will represent security for a material
concentration of the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is formed.
-2-
VERSION 7: SELF-STORAGE FACILITIES
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Self-Storage Facilities..................[page no.]
-3-
VERSION 7: SELF-STORAGE FACILITIES
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Self-Storage Facilities............[page no.]
-4-
VERSION 7: SELF-STORAGE FACILITIES
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged Properties":
RISKS PARTICULAR TO SELF-STORAGE FACILITIES
Self-storage properties are considered vulnerable to
competition because both acquisition costs and break-even occupancy are
relatively low. The conversion of self-storage facilities to
alternative uses would generally require substantial capital
expenditures. Thus, if the operation of any of the self-storage
Mortgaged Properties becomes unprofitable due to decreased demand,
competition, age of improvements or other factors such that the
borrower becomes unable to meet its obligation on the related Mortgage
Loan, the liquidation value of that self-storage Mortgaged Property may
be substantially less, relative to the amount owing on the Mortgage
Loan, than would be the case if the self-storage Mortgaged Property
were readily adaptable to other uses. Tenant privacy, anonymity and
efficient access may heighten environmental risks. The environmental
assessments discussed herein did not include an inspection of the
contents of the self-storage units included in the self-storage
Mortgaged Properties and there is no assurance that all of the units
included in the self-storage Mortgaged Properties are free from
hazardous substances or other pollutants or contaminants or will remain
so in the future; however, substantially all of the lease agreements
used in connection with such Mortgaged Properties prohibit the storage
of hazardous substances, pollutants or contaminants.
-5-
VERSION 7: SELF-STORAGE FACILITIES
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY SELF-STORAGE FACILITIES
Because of relatively low acquisition costs and break-even
occupancy rates, self-storage facilities are considered vulnerable to
competition. Despite their low acquisition costs, and because of their
particular building characteristics, self-storage facilities would
require substantial capital investments in order to adapt them to
alternative uses. Such constraint in adaptability to other uses may
substantially reduce the liquidation value of a self-storage mortgaged
property. In addition to competition, other factors that affect the
success of a self-storage facility, and thus the ability of the
borrower to meet its obligations on the related mortgage loan, include
the location and visibility of the facility, its proximity to apartment
complexes or commercial users, trends of apartment tenants in the area
moving to single-family homes, services provided (such as security and
accessibility), age of improvements, the appearance of the improvements
and the quality of management.
-6-
VERSION 8: MOBILE HOME PARKS
PROSPECTUS
ICIFC SECURED ASSETS CORP.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Mobile home parks will represent security for a material concentration of the
Mortgage Loans (or the mortgage loans underlying the CMBS) in any Trust Fund,
based on principal balance at the time such Trust Fund is formed. If so
specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "LEASE ASSIGNMENT"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 8: MOBILE HOME PARKS
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Mobile home parks will represent security for a material concentration
of the Mortgage Loans in any Trust Fund, based on principal balance at
the time such Trust Fund is formed.
-2-
VERSION 8: MOBILE HOME PARKS
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Mobile Home Parks........................[page no.]
-3-
VERSION 8: MOBILE HOME PARKS
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Mobile Home Parks..................[page no.]
-4-
VERSION 8: MOBILE HOME PARKS
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged Properties":
RISKS PARTICULAR TO MOBILE HOME PARKS
The successful operation of a Mortgaged Property operated as a
mobile home park will generally depend upon the number of competing
mobile home parks and other residential developments in the local
market, as well as upon other factors such as its age, appearance,
reputation, management and the types of services it provides.
Mobile home parks 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 Mortgaged Properties constituting
mobile home parks 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 Mortgaged Property may be substantially less, relative to
the amount owing on the Mortgage Loan, than would be the case if the
Mortgaged Property were readily adaptable to other uses.
-5-
VERSION 8: MOBILE HOME PARKS
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY MOBILE HOME PARKS
For purposes of this discussion, mobile home parks may include
mobile home parks, recreational vehicle parks or combinations thereof.
Loans secured by liens on properties of these types are affected by
factors 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. Mobile home parks are "special purpose" properties that could
not be readily converted to general residential, retail or office use.
Thus, if the operation of a mobile home park becomes unprofitable due
to competition, age of the improvements or other factors such that the
borrower becomes unable to meet its obligations on the related mortgage
loan, the liquidation value of that mobile home park may be
substantially less, relative to the amount owing on the mortgage loan,
than would be the case if the mobile home park were readily adaptable
to other uses.
Certain states regulate the relationship of a mobile home park
owner and its tenants. Commonly, these laws require a written lease,
good cause for eviction, disclosure of fees, and notification to
residents of changed land use, while prohibiting unreasonable rules,
retaliatory evictions, and restrictions on a resident's choice of unit
vendors. Mobile home park owners have been the subject of suits under
state "Unfair and Deceptive Practices Acts" and other general consumer
protection statutes for coercive, abusive or unconscionable leasing and
sales practices. A few states offer more significant protection. For
example, there are provisions that limit the basis on which a landlord
may terminate a mobile home owner's tenancy or increase its rent or
prohibit a landlord from terminating a tenancy solely by reason of the
sale of the owner's mobile home. Certain states also regulate changes
in mobile home park use and require that the landlord give written
notice to its tenants a substantial period of time prior to the
projected change.
In addition to state regulation of the landlord-tenant
relationship, numerous counties and municipalities impose rent control
on mobile home parks. These ordinances may limit rent increases to
fixed percentages, to percentages of increases in the consumer price
index, to increases set or approved by a governmental agency, or to
increases determined through mediation or binding arbitration. In many
cases, the rent control laws do not 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 preempted 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
preempted 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.
-6-
VERSION 9: CONDOMINIUM PROPERTIES
PROSPECTUS
ICIFC SECURED ASSETS CORP.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
Condominium properties will represent security for a material concentration of
the Mortgage Loans (or the mortgage loans underlying the CMBS) in any Trust
Fund, based on principal balance at the time such Trust Fund is formed. If so
specified in the related Prospectus Supplement, some or all of the Mortgage
Loans will include assignments of the leases of the related Mortgaged Properties
(as defined herein) and/or assignments of the rental payments due from the
lessees under such leases (each type of assignment, a "LEASE ASSIGNMENT"). A
significant or the sole source of payments on certain Commercial Loans (as
defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
---------------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT
REPRESENT AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER,
ANY SPECIAL SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE
TRUSTEE, THE UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR
GUARANTEED BY ANY GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON,
TO THE EXTENT PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH
TRUST FUND WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED
SERIES OF CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------------------
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
VERSION 9: CONDOMINIUM PROPERTIES
The following will be inserted on page ii of the Prospectus Supplement,
immediately following the second sentence of the first paragraph:
Condominium properties will represent security for a material
concentration of the Mortgage Loans in any Trust Fund, based on
principal balance at the time such Trust Fund is formed.
-2-
VERSION 9: CONDOMINIUM PROPERTIES
The following will be inserted in the Table of Contents of the Commercial Loan
Prospectus, immediately following "Risk Factors--Risks Associated with Mortgage
Loans and Mortgaged Properties":
Risks Particular to Condominium Properties...................[page no.]
-3-
VERSION 9: CONDOMINIUM PROPERTIES
The following will be inserted in the Table of Contents of the Prospectus
Supplement, immediately following "Description of the Mortgage Pool--General":
Mortgage Loans Secured by Condominium Properties.............[page no.]
-4-
VERSION 9: CONDOMINIUM PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under "RISK
FACTORS," immediately following "Risks Associated with Mortgage Loans and
Mortgaged Properties" and in the Prospectus Supplement under "RISK FACTORS,"
immediately following "Risks Associated with Certain of the Mortgage Loans and
Mortgaged Properties":
RISKS PARTICULAR TO CONDOMINIUM PROPERTIES
With respect to Mortgage Loans secured by units in a
condominium project, the related Mortgagor initially controls the
owner's association related to the condominium project securing such
loans, either by voting preference or numerical majority. However, with
the sale of the individual condominium units, the Mortgagor will
eventually relinquish voting control over the condominium association.
Without voting control of the owner's association, the Mortgagor may be
limited in its ability to direct the operation of the Mortgaged
Property and to make improvements to common areas that may be necessary
or desirable to enhance the marketability of the remaining units or
otherwise preserve the Mortgaged Property. The value of the condominium
units securing the Mortgage Loans could be adversely affected if and
when the Mortgagor no longer possesses such control rights, and the
value of the Mortgagor's security would be likewise affected.
Additionally, all Mortgage Loans related to a single condominium
project are generally cross-collateralized and cross-defaulted. Thus,
if the Mortgagor is unable to make timely payments, all related
Mortgage Loans will become defaulted Mortgage Loans at the same time.
-5-
VERSION 9: CONDOMINIUM PROPERTIES
The following will be inserted in the Commercial Loan Prospectus under
"DESCRIPTION OF THE TRUST FUNDS," immediately following "Mortgage
Loans--General" and in the Prospectus Supplement under "DESCRIPTION OF THE
MORTGAGE POOL," immediately following "General":
MORTGAGE LOANS SECURED BY CONDOMINIUMS
Mortgage Loans secured by condominium properties are typically
pooled in connection with a distinct condominium development project.
All such Mortgage Loans related to a single project are generally
cross-collateralized and cross-defaulted with each other. Such Mortgage
Loans are typically made to provide financing to single asset borrowers
to refurbish existing projects that have an active sales program. While
the financing is provided on a long-term, fully-amortizing basis, the
project's sales program is evaluated with the objective of obtaining
sales of all individual condominium units over a short-term period.
Upon completion of the improvements, the units in the condominium
properties will be sold to third-party purchasers and the related
Mortgage Loans will be paid off with the proceeds. The single asset
entity that is the Mortgagor on each pool of Mortgage Loans for a
particular condominium project generally makes only one monthly payment
representing the entire monthly payment on all of the related Mortgage
Loans. Failure to make such payment will result in a default on all of
the related Mortgage Loans to such entity.
Significant factors determining the value and successful
operation of a condominium project are the location of the property,
the number of competing residential developments in the local market
(such as apartment buildings, manufactured housing communities,
site-built single family homes and other condominium projects), the
physical attributes of the condominium (such as its age and appearance)
and state and local regulations affecting such property.
The ability of the Mortgagor to repay these Mortgage Loans
will likely be dependent on the ability of such Mortgagor to sell the
individual condominium units to a third party purchaser. The ability of
the Mortgagor to sell the individual units may be affected by
construction of additional housing units, local or regional economic
factors and national and local politics. The location and construction
quality of a particular building may affect the marketability and price
charged for individual units. The characteristics of a neighborhood may
change over time or in relation to newer developments.
-6-
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED ___________________, 1998)
$-------------------
(Approximately)
ICIFC SECURED ASSETS CORP.
DEPOSITOR
PASS-THROUGH CERTIFICATES, SERIES 199___-___
The Series 199___-___ Pass-Through Certificates (the "CERTIFICATES")
will include the following classes of Certificates, designated as the Class A1,
Class A1X, Class A2, Class A2X, Class B, Class C, Class BCX, Class D and Class E
Certificates (the "OFFERED CERTIFICATES"). In addition to the Offered
Certificates, the Certificates will also include the Class F, Class G, Class NR,
Class R-I, Class R-II and Class R-III Certificates. Only the Offered
Certificates are offered hereby.
(COVER CONTINUED ON NEXT PAGE)
THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON THE
RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND
LIQUIDATIONS) ON THE MORTGAGE LOANS. THE YIELD TO MATURITY ON EACH CLASS OF
OFFERED CERTIFICATES WILL BE SENSITIVE TO LOSSES DUE TO DEFAULTS ON THE MORTGAGE
LOANS (AND THE TIMING THEREOF), TO THE EXTENT THAT SUCH LOSSES ARE NOT COVERED
BY ANY CLASS OF CERTIFICATES HAVING A LOWER PAYMENT PRIORITY, AS DESCRIBED
HEREIN. THE YIELD TO INVESTORS ON THE INTEREST ONLY CERTIFICATES WILL BE
SENSITIVE TO THE RATE AND TIMING OF PREPAYMENTS, DEFAULTS AND LIQUIDATIONS ON
THE MORTGAGE LOANS. THE RATES OF PREPAYMENT, DEFAULTS AND LIQUIDATIONS ON THE
MORTGAGE LOANS MAY FLUCTUATE SIGNIFICANTLY OVER TIME. AN EXTREMELY RAPID RATE OF
PREPAYMENT, DEFAULTS AND LIQUIDATIONS ON THE MORTGAGE LOANS COULD RESULT IN THE
FAILURE OF INVESTORS IN THE INTEREST ONLY CERTIFICATES TO RECOVER THEIR INITIAL
INVESTMENTS. SEE "SUMMARY -- SPECIAL PRINCIPAL PAYMENT CONSIDERATIONS" AND
"--SPECIAL YIELD CONSIDERATIONS", AND "CERTAIN PREPAYMENT, MATURITY AND YIELD
CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE S-___ HEREIN AND PAGE ____ IN THE
PROSPECTUS BEFORE PURCHASING ANY OFFERED CERTIFICATES.
-----------------------------
INITIAL CLASS BALANCE(1) PASS-THROUGH RATE (2)
Class A1.............................. $__________________ __________%
Class A1X............................. $__________________ Weighted Average Pass-Through Rate(3)
Class A2.............................. $__________________ __________%
Class A2X............................. $__________________ Weighted Average Pass-Through Rate(3)
Class B............................... $__________________ Weighted Average Pass-Through Rate
Class C............................... $__________________ Weighted Average Pass-Through Rate
Class BCX............................. $__________________ (3)(4)
Class D............................... $__________________ Weighted Average Pass-Through Rate
Class E............................... $__________________ Weighted Average Pass-Through Rate
(1) Subject to a permitted variance of plus or minus 0.1%.
(2) In addition to distributions of interest and/or principal, holders of the
Certificates will be entitled to receive a portion of any Prepayment
Premiums as described herein.
(3) Based on the related Notional Amount as described herein.
(4) Calculated based on the Pass-Through Rates of two components. The
Pass-Through Rate on the Class BCX component B (as defined herein) is
__________% and on the Class BCX component C (as defined herein) is
___________%.
The Offered Certificates will be purchased from the Depositor by
______________________(the "UNDERWRITER") and will be offered by the Underwriter
from time to time 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, before deducting expenses payable by the Depositor
estimated to be approximately $__________, will be ___% of the initial aggregate
principal balance of the Offered Certificates as of __________, 199___ (the
"CUT-OFF DATE"), plus accrued interest from the Cut-off Date. The Offered
Certificates are offered by the Underwriter subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to certain other
conditions. It is expected that the Offered Certificates will be delivered in
book-entry form through the Same-Day Funds Settlement System of DTC on or about
___________, 199___ (the "DELIVERY DATE"), against payment therefor in
immediately available funds.
The date of this Prospectus Supplement is ______________, 199____
(CONTINUED FROM PREVIOUS PAGE)
The Certificates will represent in the aggregate the entire beneficial
interest in a trust fund (the "TRUST FUND") to be established by ICIFC Secured
Assets Corp. (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 not more than 300 months (such mortgage loans are referred to
collectively herein as the "MORTGAGE LOANS"), secured by first liens on fee
simple or leasehold interests in multifamily, retail, hotel, office, industrial,
and other commercial properties. The Mortgage Loans were originated by several
institutions identified herein (collectively, the "ORIGINATORS"), acquired by an
affiliate of the Depositor and will be sold to the Depositor on or prior to the
date of initial issuance of the Certificates.
Distributions on the Certificates will be made, to the extent of
available funds, on the 25th day of each month or, if any such day is not a
business day, on the next succeeding business day, beginning in ___________
199___ (each, a "DISTRIBUTION DATE"). As more fully described herein,
distributions allocable to interest, if any, on the Offered Certificates on each
Distribution Date will be based on the then applicable pass-through rate (the
"PASS-THROUGH RATE") and the aggregate principal balance (the "CLASS BALANCE")
(or the related notional balance (the "NOTIONAL AMOUNT") in the case of the
Class A1X and Class A2X Certificates and each component of the Class BCX
Certificates (each such class, the "INTEREST ONLY CERTIFICATES")) of such class
or component outstanding immediately prior to such Distribution Date. The
Pass-Through Rates applicable to the Class A1 and Class A2 Certificates and for
each component of the Class BCX Certificates will be as set forth above. The
Pass-Through Rates for the Class A1X, Class A2X, Class B, Class C, Class D and
Class E Certificates will be variable and will be calculated as set forth
herein. Distributions in respect of principal, if any, of the Certificates will
be made as described herein under "Description of the Certificates --
Distributions" and "--Priority of Distributions".
The Class A1, Class A2, Class A1X and Class A2X Certificates will
evidence approximately an initial
- ---%
undivided interest in the Trust Fund. The Class B and Class BCX component B (as
defined herein) will evidence approximately an initial ___% undivided interest
in the Trust Fund. The Class C and Class BCX component C (as defined herein)
will evidence approximately an initial ___% undivided interest in the Trust
Fund. The Class D Certificates will evidence approximately an initial ___%
undivided interest in the Trust Fund. The Class E Certificates will evidence
approximately an initial ___% undivided interest in the Trust Fund.
It is a condition of the issuance of the Class A1 and Class A2
Certificates that they be rated "____" by_____________________________________
("__________") and _______________________ ("------------"). It is a condition
of the issuance of the Class A1X and Class A2X Certificates that they be rated
"___" by ----------- and "____" by ___________________. It is a condition of the
issuance of the Class B Certificates that they be rated not lower than "___" by
________________ and ________________ . It is a condition of the issuance of the
Class C Certificates that they be rated not lower than "___" by ________________
and "__" by ________________ . It is a condition of the issuance of the Class
BCX Certificates that they be rated not lower than "___" by _____________. It is
a condition of the issuance of the Class D Certificates that they be rated not
lower than "___" by ---------------- and ________________ . It is a condition of
the issuance of the Class E Certificates that they be rated not lower than
"____" by ________________ and ________________ . The ratings by
________________ on the Interest Only Certificates do not address any prepayment
or loss scenarios with respect to the Mortgage Loans or the likelihood of
receipt of Prepayment Premiums. See "Rating" herein.
_________________________________ will act as master servicer (in such
capacity, the "MASTER SERVICER") and as special servicer (in such capacity, the
"SPECIAL SERVICER") of the Mortgage Loans. The obligations of the Master
Servicer and the Special Servicer with respect to the Certificates will be
limited to their contractual servicing obligations and the obligation under
certain circumstances to make P&I Advances (as defined herein) to the
Certificateholders. See "Servicing." It is possible that the Special Servicer or
one or more of its affiliates may purchase a portion of the Class NR
Certificates.
(CONTINUED ON FOLLOWING PAGE)
- ii -
(CONTINUED FROM PREVIOUS PAGE)
As described herein, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made in connection with the Trust Fund for
federal income tax purposes. The Certificates, other than the Class R-I, Class
R-II and Class R-III Certificates, will constitute "regular interests" in the
related REMIC and the Class R-I, Class R-II and Class R-III Certificates will
constitute the sole class of "residual interest" in the related REMIC. See
"Federal Income Tax Consequences" herein and in the Prospectus.
The Offered Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of The Depository Trust Company
("DTC"), as further described herein. The interests of beneficial owners of the
Offered Certificates will be represented by book entries on the records of
participating members of DTC. Definitive certificates will be available for the
Offered Certificates only under the limited circumstances described herein. See
"Description of the Certificates -- Book-Entry Registration of the Offered
Certificates" herein.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL
SERVICER, THE PRIMARY SERVICERS, ICI FUNDING CORPORATION, THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE
UNDERLYING MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL
SERVICER, THE PRIMARY SERVICERS, ICI FUNDING CORPORATION, THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR AFFILIATES.
See "Index of Principal Definitions" in the Prospectus for the location
of meanings of capitalized terms used but not defined herein. See "Index of
Principal Definitions" herein for location of meanings of other capitalized
terms
used herein.
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.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED IN
THE PROSPECTUS, DATED _________________________ AND ATTACHED HERETO. PURCHASERS
ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL.
SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
- iii -
TABLE OF CONTENTS
(CONTINUED)
TABLE OF CONTENTS
PAGE
----
SUMMARY OF PROSPECTUS SUPPLEMENT.................................S-1
RISK FACTORS....................................................S-12
DESCRIPTION OF THE MORTGAGE POOL................................S-20
General....................................................S-20
Representations and Warranties.............................S-21
Certain Characteristics of the
Mortgage Loans.........................................S-29
Related Borrowers and Other Issues.........................S-39
Escrows....................................................S-39
Underwriting Guidelines....................................S-39
Additional Information.....................................S-39
DESCRIPTION OF THE CERTIFICATES.................................S-39
General....................................................S-39
Book-Entry Registration of the
Offered Certificates..................................S-40
Distributions..............................................S-41
Priority of Distributions..................................S-43
Other Certificates.........................................S-44
Subordination..............................................S-44
Advances...................................................S-45
CERTAIN PREPAYMENT, MATURITY AND
YIELD CONSIDERATIONS.......................................S-46
General....................................................S-46
Weighted Average Life of the
Offered Certificates..................................S-47
Interest Only Certificates
Yield Considerations..................................S-48
Class C, Class BCX, Class D and
Class E Yield Considerations...........................S-50
SERVICING.......................................................S-50
Servicers..................................................S-50
Responsibilities of Master Servicer and
Primary Servicer.......................................S-51
Responsibilities of Special Servicer.......................S-51
Extension Advisor..........................................S-53
Servicing and Other Compensation and
Payment of Expenses....................................S-53
Conflicts of Interest......................................S-53
DESCRIPTION OF THE POOLING AND
SERVICING AGREEMENT........................................S-53
General....................................................S-53
Assignment of the Mortgage Loans...........................S-54
Trustee....................................................S-54
Collection Accounts and Certificate
Account...............................................S-54
Reports to Certificateholders..............................S-55
Voting Rights..............................................S-55
Termination................................................S-55
USE OF PROCEEDS.................................................S-56
FEDERAL INCOME TAX CONSEQUENCES.................................S-56
STATE TAX CONSIDERATIONS........................................S-57
ERISA CONSIDERATIONS............................................S-57
LEGAL INVESTMENT................................................S-58
METHOD OF DISTRIBUTION..........................................S-59
LEGAL MATTERS...................................................S-60
RATING..........................................................S-60
INDEX OF PRINCIPAL DEFINITIONS..................................S-61
- iv -
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. CERTAIN CAPITALIZED TERMS USED IN THIS SUMMARY ARE
DEFINED ELSEWHERE IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS. See "Index
of Principal Definitions" herein and in the Prospectus.
Title of Certificates......... Pass-Through Certificates, Series
199___-____ (the "CERTIFICATES").
Depositor...................... ICIFC Secured Assets Corp., a California
corporation (the "DEPOSITOR"), a wholly-
owned limited purpose finance subsidiary of
ICI Funding Corporation ("ICI FUNDING"). See
"The Depositor" in the Prospectus.
Originators.................... _____%, _____%, _____%, _____% and _____% of
the Mortgage Loans by outstanding principal
balance as of the Cut-off Date (as defined
herein) were originated, respectively, by:
(i) Imperial Commercial Capital ("ICCC");
(ii) ______________________, a
______________________________; (iii)
_______________________, a
______________________________; and (iv)
_____________________, a
______________________________.
Master Servicer............... _____________________________. See
"Servicing -- Servicers" and "Servicing --
Responsibilities of Master Servicer and
Primary Servicer" herein.
Primary Servicers............. The Primary Servicers are
_________________________, with respect to
each Mortgage Loan originated by
_______________________ and
_______________________________ with respect
to all other Mortgage Loans. See "Servicing
-- Servicers" and "Servicing --
Responsibilities of Master Servicer and
Primary Servicer" herein.
Special Servicer.............. _____________________________________, will
be the Special Servicer with respect to all
the Mortgage Loans.
Trustee........................ ______________________________, a
_________________ banking corporation.
Custodian...................... _______________________________, a
_____________ banking corporation, in its
capacity as custodian for the Trustee (the
"CUSTODIAN").
Cut-off Date.................. _________________ 1, 199___.
Delivery Date................. On or about _________________, 199____.
Distribution Dates............ Distributions on the Certificates will be
made by the Trustee, to the extent of
available funds, on the [25th] day of each
month or, if any such [25th] day is not a
business day, on the next succeeding
business day, beginning in ________ 199__
(each, a "DISTRIBUTION DATE"), to the
holders of record as of the close of
business on the [last business day of the
month preceding the month] of each such
distribution (each, a "RECORD DATE").
Notwithstanding the above, the final
distribution on any Certificate will be made
after due notice by the Trustee of the
pendency of such distribution and only upon
presentation and surrender of such
Certificates at the location to be specified
in such notice.
Rated Final Distribution
Date........................... ________________, 20___, which is the second
anniversary of the date at which all the
Mortgage Loans have zero balances, assuming
no prepayments and that the Mortgage Loans
which are Balloon Mortgage Loans fully
amortize according to their amortization
schedule and no Balloon Payment is made.
S-1
Registration of the Offered
Certificates................... The Offered Certificates (the "DTC
REGISTERED CERTIFICATES") will be
represented by one or more global
certificates registered in the name of Cede
& Co., as nominee of The Depository Trust
Company ("DTC"). No person acquiring an
interest in the DTC Registered Certificates
(any such person, a "BENEFICIAL OWNER") will
be entitled to receive a Certificate of such
class in fully registered, certificated form
(a "DEFINITIVE CERTIFICATE"), except under
the limited circumstances described in the
Prospectus under "Description of the
Certificates -- Book-Entry Registration and
Definitive Certificates". Instead, DTC will
effect payments and transfers in respect of
the DTC Registered Certificates by means of
its electronic record keeping services,
acting through certain participating
organizations ("PARTICIPANTS"). This may
result in certain delays in receipt of
payments by an investor and may restrict an
investor's ability to pledge its securities.
Unless and until Definitive Certificates are
issued, the rights of Beneficial Owners may
only be exercised through DTC and its
Participants and will be subject to
procedures established thereby, except as
otherwise specified herein. See "Description
of the Certificates-- General" herein and
"Description of the Certificates--
Book-Entry Registration and Definitive
Certificates" in the Prospectus.
Denominations ................. The DTC Registered
Certificates will be issuable on the
book-entry records of DTC and its
Participants in denominations of (except in
the case of the Interest Only Certificates)
$___________________ and integral multiples
of $______ in excess thereof. The Interest
Only Certificates will be issuable in
denominations of $_________ Notional Amount
and integral multiples of $_____ Notional
Amount.
The Mortgage Pool........... The Trust Fund will consist of a pool (the
"MORTGAGE POOL") of ______ [fixed rate]
[floating rate] [partially fixed rate and
partially floating rate] mortgage loans (the
"MORTGAGE LOANS") secured by first liens on
fee simple or leasehold interests in
multifamily, retail, hotel, health
care-related, office, industrial and other
commercial properties (the "MORTGAGED
PROPERTIES") located in ____ states. See
"Risk Factors-- Ground Leases and Other
Leasehold Interests" herein. The Mortgage
Loans were originated or acquired by ICCC
and were underwritten generally in
conformity with certain guidelines
established by ICCC. See "Description of the
Mortgage Pool-- General" herein. The
Mortgage Loans will be acquired by the
Depositor from ICCC on or before the
Delivery Date. See "Description of the
Mortgage Pool-- Underwriting Guidelines"
herein. The Mortgage Loans will have an
aggregate principal balance as of the
Cut-off Date of approximately
$_______________ and individual principal
balances as of the Cut- off Date of at least
$______________ but not more than
$______________ with an average principal
balance of approximately $______________.
The Mortgage Loans will have terms to
maturity from the Cut-off Date of not more
than _____ months, and a weighted average
remaining term to maturity of approximately
_____ months as of the Cut-off Date. The
Mortgage Loans will bear interest at
Mortgage Interest Rates of at least
________% per annum but not more than
___________% per annum, with a weighted
average Mortgage Interest Rate of
approximately ___________% per annum as of
the Cut-off Date. The Mortgage Loans provide
for scheduled payments of principal and/or
interest ("MONTHLY PAYMENTS") to be due on
the first day of each month (the "DUE
DATE").
Approximately ______% of the aggregate
principal balance of the Mortgage Loans as
of the Cut-off Date provide for monthly
payments of principal based on an
amortization schedule longer, and in some
cases significantly longer, than the
remaining term of such Mortgage Loan (each,
a "BALLOON MORTGAGE LOAN"),
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thereby leaving a substantial outstanding
principal amount due and payable (the
"BALLOON PAYMENT") on its maturity date,
unless prepaid prior thereto.
Except in certain limited circumstances,
each Mortgage Loan either prohibits
voluntary prepayments during a certain
number of years following the origination
thereof and/or allows the borrower
thereunder (the "MORTGAGOR") to prepay the
principal balance thereof in whole or in
part during a certain number of years
following the origination if accompanied by
payment of a premium (the "PREPAYMENT
PREMIUM"). See Annex A hereto and the table
entitled "Prepayment Lock-out/Prepayment
Premium Analysis" under "Description of the
Mortgage Pool -- Certain Characteristics of
the Mortgage Loans" herein. Any Prepayment
Premium collected on a Mortgage Loan will be
distributed to the holders of the
Certificates as described herein. See
"Special Principal Payment Considerations"
below, "Risk Factors -- Special Prepayment
Considerations", "Description of the
Certificates -- Distributions -- Interest
Distributions on the Certificates" and
"Certain Prepayment, Maturity and Yield
Considerations" herein and "Yield
Considerations" in the Prospectus.
In connection with its acquisition of the
Mortgage Loans, the Depositor will obtain
certain representations from ICCC. ICCC will
covenant with the Depositor to cure any
breach of such representations and
warranties or to repurchase any Mortgage
Loan in connection with which there has been
a breach of a representation or warranty
which materially and adversely affects the
interest of the Certificateholders in such
Mortgage Loan. The Depositor will assign
such representations and warranties and
covenants to the Trustee under the Pooling
and Servicing Agreement (as defined below).
The sole remedy available to the Trustee or
the Certificateholders is the obligation of
ICCC to cure any such breach or repurchase
any such Mortgage Loan.
For a further description of the Mortgage
Loans, see "Description of the Mortgage
Pool" herein.
The Offered Certificates.... The Certificates will be issued pursuant to
a pooling and servicing agreement, to be
dated as of the Cut-off Date, among the
Depositor, the Master Servicer, the Special
Servicer and the Trustee (the "POOLING AND
SERVICING AGREEMENT"). The Offered
Certificates will have the initial Class
Balances set forth on the cover hereof. The
Interest Only Certificates will not have
Class Balances. The Class BCX Certificates
consist of the following components: the
Class BCX component B and the Class BCX
component C (each a "COMPONENT"). The Class
BCX component B and the Class BCX component
C are not separately transferrable.
Pass-Through Rate on the
Certificates.................. The Pass-Through Rates on the Class A1 and
Class A2 Certificates are fixed and are set
forth on the cover hereof. The Pass-Through
Rates on the Class A1X and Class A2X
Certificates will be equal to the weighted
average of the Remittance Rates in effect
from time to time on the Mortgage Loans
minus the Pass-Through Rates on the Class A1
and Class A2 Certificates, respectively. The
Pass-Through Rates on the Class B and Class
C Certificates will equal the weighted
average of the Remittance Rates in effect
from time to time on the Mortgage Loans
minus the Pass-Through Rates on the Class
BCX component B and the Class BCX component
C, respectively. The Class BCX Certificates
will be entitled to interest at the
Pass-Through Rate on the components. The
Pass- Through Rate on the Class BCX
component B is ______% per annum and on the
Class BCX component C is _______% per annum.
The Pass-Through Rates on the Class D and
Class E Certificates will equal the weighted
average of the Remittance Rates in effect
from time to time on the Mortgage Loans. The
Remittance Rate in effect for any
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Mortgage Loan as of any date of
determination is equal to the excess of the
Mortgage Interest Rate thereon (without
giving effect to any modification or
reduction thereof following the Cut-off
Date) over the sum of the related Servicing
Fee Rate (as defined herein) and the fee
payable to the Trustee. The Mortgage
Interest Rate for each of the Mortgage Loans
which provide for the computation of
interest other than on the basis of a
360-day year consisting of twelve 30-day
months (a "30/360 BASIS") (that is the basis
on which interest on the Certificates
accrues) will be adjusted to reflect that
difference.
Interest Distributions on
the Certificates............. Subject to the distribution of the Principal
Distribution Amount to the Holders of
classes of Certificates of a higher priority
as described under "Priority of
Distributions" below, Holders of each class
of Offered Certificates will be entitled to
receive on each Distribution Date in the
order described herein, to the extent of the
Available Distribution Amount (as defined
herein) for such Distribution Date (net of
any interest accrued on any Collateral Value
Adjustment subsequently recovered and any
Net Prepayment Premium (both, as defined
herein)) (the "ADJUSTED AVAILABLE
DISTRIBUTION AMOUNT"), distributions
allocable to interest in an amount (the
"INTEREST DISTRIBUTION AMOUNT") equal to the
interest accrued during the period from and
including the first day of the month
preceding the month of the Distribution Date
(or from the Cut-off Date, in the case of
the initial Distribution Date) to and
including the last day of the month
preceding the month of the Distribution Date
(based on a 360-day year consisting of
twelve 30-day months) on the related Class
Balance (or the related Notional Amount, in
the case of the Interest Only Certificates,
or any component thereof) immediately prior
to such Distribution Date at the
then-applicable Pass-Through Rate (the
"INTEREST ACCRUAL AMOUNT") less such class'
(or component's) pro rata share, by Interest
Accrual Amount, of any interest shortfall
not related to a Mortgagor delinquency or
default, such as Prepayment Interest
Shortfalls to the extent not offset as
described herein, and shortfalls associated
with exemptions provided by the Relief Act
(as defined in the Prospectus). The Notional
Amount of the Class A1X Certificates will
equal the Class Balance of the Class A1
Certificates. The Notional Amount of the
Class A2X Certificates will equal the Class
Balance of the Class A2 Certificates. The
Notional Amount of the Class BCX component B
will equal the Class Balance of the Class B
Certificates. The Notional Amount of the
Class BCX component C will equal the Class
Balance of the Class C Certificates. A
Notional Amount does not entitle the
Interest Only Certificates to any
distributions of principal. If the Adjusted
Available Distribution Amount for any
Distribution Date is less than the Interest
Distribution Amount for such Distribution
Date, the shortfall will be part of the
Interest Distribution Amount distributable
to holders of Offered Certificates on
subsequent Distribution Dates, to the extent
of available funds.
In addition to the related Interest
Distribution Amount, the Interest Only
Certificates will receive ____% of any Net
Prepayment Premium and the remaining Offered
Certificates will receive ____% of any Net
Prepayment Premium, as more fully described
herein, to the extent not necessary to
reimburse the Master Servicer for reductions
in its compensation due to Prepayment
Interest Shortfalls. See "-- Special Yield
Considerations" below and "Description of
the Certificates -- Distributions --
Interest Distributions on the Certificates"
herein.
The Available Distribution Amount for any
Distribution Date generally includes: (i)
scheduled payments on the Mortgage Loans due
on or prior to the related Due Date
immediately preceding, and collected as of,
the related Determination Date (to the
extent not distributed on previous
Distribution Dates) and unscheduled payments
and other collections on the Mortgage Loans
collected during the related
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Remittance Period, net of amounts payable or
reimbursable to the related Primary
Servicer, the Master Servicer or the Special
Servicer therefrom and (ii) any P&I Advances
made by the Master Servicer, the Special
Servicer, or the related Primary Servicer
for the related Distribution Date. The
"DETERMINATION DATE" for any Distribution
Date is the 10th business day preceding such
Distribution Date. The "REMITTANCE PERIOD"
for any Distribution Date is the period
beginning after a Determination Date in the
immediately preceding month (or the Cut-off
Date, in the case of the first Distribution
Date) through the related Determination
Date. See "Description of the Certificates
-- Distributions -- Interest Distributions
on the Certificates" herein.
Principal Distributions on
the Certificates.............. Holders of the Certificates will be entitled
to receive on each Distribution Date in
reduction of the related Class Balance in
the order described herein until the related
Class Balance is reduced to zero, to the
extent of the balance of the Adjusted
Available Distribution Amount remaining
after the payment of the Interest
Distribution Amount for such Distribution
Date for the classes of Certificates with
the highest priority of payment for interest
payments (as described under "Priority of
Distributions" below) distributions in
respect of principal in an amount (the
"PRINCIPAL DISTRIBUTION AMOUNT") equal to
the aggregate of (i) all scheduled payments
of principal (other than Balloon Payments)
due on the Mortgage Loans on the related Due
Date whether or not received and all
scheduled Balloon Payments received, (ii) if
the scheduled Balloon Payment is not
received, with respect to any Balloon
Mortgage Loans on and after the Maturity
Date thereof, the principal payment that
would need to be received in the related
month in order to fully amortize such
Balloon Mortgage Loan with level monthly
payments by the end of the term used to
derive scheduled payments of principal due
prior to the related Maturity Date, (iii) to
the extent not previously advanced, any
unscheduled principal recoveries received
during the related Remittance Period in
respect of the Mortgage Loans, whether in
the form of liquidation proceeds, insurance
proceeds, condemnation proceeds or amounts
received as a result of the purchase of any
Mortgage Loan out of the Trust Fund to the
extent not required to be otherwise applied
pursuant to the terms of the related
Mortgage Loan and (iv) any other portion of
the Adjusted Available Distribution Amount
remaining undistributed after payment of any
interest payable on the Certificates,
including any Prepayment Interest Excess (as
defined herein) not offset by any Prepayment
Interest Shortfall occurring during the
related Remittance Period or otherwise
required to reimburse the Master Servicer,
as described herein, and interest
distributions on the Mortgage Loans, in
excess of interest distributions on the
Certificates, resulting from the application
of the amounts described in this clause (iv)
to principal distributions on the
Certificates. See "Description of the
Certificates-- Distributions-- Principal
Distributions on the Offered Certificates"
herein. The Interest Only Certificates do
not have a Class Balance and are therefore
not entitled to any principal distributions.
Priority of Distributions..... The Adjusted Available Distribution Amount
for any Distribution Date will be applied
(a) first, to distributions of interest on
the classes of Certificates outstanding with
highest priority for interest payment (as
described below), (b) second, to
distributions of the Principal Distribution
Amount to the classes of Certificates then
entitled to distributions of principal as
described below, and (c) third, to
distributions of interest on each class of
Certificates other than the classes
described in clause (a) above, in the order
of priority described below; provided that
on any Distribution Date on which the Class
Balance of a class of Certificates is
reduced to zero pursuant to clause (b)
above, interest distributions pursuant to
clause (a) above will be made to the class
of Certificates outstanding with the next
highest priority for interest payments prior
to making distributions of
S-5
the Principal Distribution Amount thereto
pursuant to clause (b) above. The priority
for interest payments for purposes of
clauses (a) and (c), above, is: first to
distributions of interest on the Class A1,
Class A1X, Class A2 and Class A2X
Certificates, pro rata, based on their
respective Interest Accrual Amounts; second,
to the Class B and Class BCX component B
Certificates, pro rata, based on their
respective Interest Accrual Amounts; third,
to the Class C and the Class BCX component C
Certificates, pro rata, based on their
respective Interest Accrual Amounts; fourth,
to the Class D Certificates; fifth, to the
Class E Certificates; and then to the
remaining classes of Certificates up to
their respective Interest Accrual Amounts,
all as described under "Interest
Distributions on the Certificates" above.
The Principal Distribution Amount for such
Distribution Date will be applied to the
payment of principal of the Class A1, Class
A2, Class B, Class C, Class D and Class E
Certificates, in that order, and then to the
remaining classes of Certificates, until
their respective Class Balances have been
reduced to zero. Any Net Prepayment Premium
for any Distribution Date will be applied to
reimburse the Master Servicer for reductions
in its compensation due to Prepayment
Interest Shortfalls, as described herein,
and then to distributions on the
Certificates, as described herein. In
addition, to the extent any amounts
corresponding to a Collateral Value
Adjustment are recovered on a Mortgage Loan,
any interest accrued on any class of
Certificates and not paid as a result of
such Collateral Value Adjustment shall be
allocated to such classes as described
herein. See "Description of the Certificates
-- Subordination" herein.
P&I Advances .................. The Master Servicer, the Special Servicer
and the Primary Servicers (each, a
"SERVICER") are required to make advances
("P&I ADVANCES") for delinquent Monthly
Payments on the Mortgage Loans, subject to
the limitations described herein. None of
the Servicers will be required to advance
the full amount of any Balloon Payment not
made by the related Mortgagor. To the extent
a Servicer is required to make a P&I Advance
on and after the Due Date for a Balloon
Payment, such P&I Advance shall not exceed
an amount equal to the monthly payment
calculated by the Special Servicer necessary
to fully amortize the related Mortgage Loan
over the period used for purposes of
calculating the scheduled monthly payments
thereon prior to the related Maturity Date.
As more fully described herein, each
Servicer making a P&I Advance (or any other
advance) will be entitled to reimbursement
thereof and interest thereon at the prime
rate determined in accordance with the
Pooling and Servicing Agreement to the
extent provided therein. See "Description of
the Certificates -- Advances" herein and
"Description of the Certificates -- Advances
in Respect of Delinquencies" in the
Prospectus.
Other Certificates ............ The Class F, Class G, Class NR, Class R-I,
Class R-II and Class R-III Certificates are
not offered hereby (the "OTHER
CERTIFICATES"). The Pass-Through Rates on
the Class F, Class G and Class NR
Certificates will equal the weighted average
of the Remittance Rates in effect from time
to time on the Mortgage Loans. The Class
Balances on the Class F, Class G and Class
NR Certificates will equal $______________,
$_________________ and $________________,
respectively, and approximately
$_____________, in the aggregate. The Class
R-I, Class R-II and Class R-III Certificates
will not have a Pass-Through Rate or a Class
Balance.
Subordination ................. Neither the Offered Certificates nor the
Mortgage Loans are insured or guaranteed
against losses suffered on the Mortgage
Loans by any government agency or
instrumentality or by the Depositor, the
Trustee, the Underwriter, the Master
Servicer, the Special Servicer, the Primary
Servicers, or any affiliate thereof.
Realized Losses and Collateral Valuation
Adjustments (as defined herein) on the
Mortgage Loans will be allocated, first, to
the Other Certificates, second, to the Class
E Certificates, third, to the Class D
Certificates, fourth, to the Class
C
S-6
Certificates, fifth to the Class B
Certificates, and thereafter, to the Class
A1 and Class A2 Certificates, on a pro rata
basis, based on Class Balance, in each case
until the related Class Balance is reduced
to zero. Any allocation of a Realized Loss
or a Collateral Valuation Adjustment to a
class of Certificates will result in a
reduction of the related Class Balance and
the Notional Amount of any of the Interest
Only Certificates (or component thereof)
calculated by reference to such Class
Balance. In addition, the Adjusted Available
Distribution Amount will be applied in the
order set forth under "Priority of
Distributions" above.
In addition to Realized Losses and
Collateral Valuation Adjustments, shortfalls
may also occur as a result of each
Servicer's right to receive payments of
interest with respect to unreimbursed
advances, the Special Servicer's right to
compensation with respect to Mortgage Loans
which are or have been Specially Serviced
Mortgage Loans and as a result of other
Trust Fund expenses. Such shortfalls will be
allocated to the classes of Certificates
with the lowest payment priority for
purposes of the application of the Adjusted
Available Distribution Amount in the order
described herein.
Optional Termination .......... At its option, the Master Servicer, the
Special Servicer, any holder of a Class R-I
Certificate, the holders of an aggregate
Percentage Interest in excess of 50% of the
Most Subordinate Class of Certificates (as
defined herein) and (to the extent all of
the remaining Mortgage Loans are being
serviced thereby as Primary Servicer) any
Primary Servicer may purchase all of the
Mortgage Loans, at the price set forth under
"Description of the Pooling and Servicing
Agreement-- Termination" herein, 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
(as defined herein) of the Mortgage Loans
remaining in the Trust Fund is less than
____% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date.
See "Description of the Pooling and
Servicing Agreement-- Termination" herein
and "Description of the Certificates --
Termination" in the Prospectus.
Special Principal Payment
Considerations ................ The rate and timing of principal payments,
if any, on the Offered Certificates will
depend, among other things, on the rate and
timing of principal payments (including
prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach
of a representation and warranty) on the
Mortgage Loans. As described herein, each of
the Mortgage Loans prohibits, and/or
requires the payment of a Prepayment Premium
in connection with, any voluntary prepayment
during certain specified times. See "The
Mortgage Pool" above and "Description of the
Mortgage Pool" herein.
All classes of Offered Certificates entitled
to payments of principal are subject to
priorities for payment of principal as
described herein. Distributions of principal
on classes having an earlier priority of
payment will be directly affected by the
rates of prepayments of the Mortgage Loans.
The timing of commencement of principal
distributions and the weighted average lives
of classes of Certificates with a later
priority of payment will be affected by the
rates of prepayments experienced both before
and after the commencement of principal
distributions on such classes.
In addition, a portion of collections on the
Mortgage Loan in excess of scheduled and
unscheduled principal distributions will be
allocated to the classes of Certificates
then entitled to distributions of principal.
Any such allocation may result in a faster
amortization of such class of Certificates.
Special Yield
S-7
Considerations ................ The yield to maturity on each class of the
Offered Certificates will depend on, among
other things, the rate and timing of
principal payments (including prepayments,
defaults, liquidations and purchases of
Mortgage Loans due to breaches of
representations and warranties) on the
Mortgage Loans and the allocation thereof to
reduce the Class Balance or Notional Amount
of such class (or component thereof). The
yield to maturity on each class of the
Offered Certificates will also depend on the
Pass-Through Rate and the purchase price for
such Certificates. The yield to investors on
any class of Offered Certificates will be
adversely affected by any allocation thereto
of Prepayment Interest Shortfalls on the
Mortgage Loans, which may result from the
distribution of interest only to the date of
a prepayment occurring during any month
following the related Determination Date
(rather than a full month's interest). See
"Description of the Certificates--
Distributions-- Interest Distributions on
the Certificates" herein.
In general, if a class of Offered
Certificates is purchased at a premium and
principal distributions thereon occur at a
rate faster than anticipated at the time of
purchase, the investor's actual yield to
maturity will be lower than that assumed at
the time of purchase. Conversely, if a class
of Offered Certificates 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 that
assumed at the time of purchase.
The multiple class structure of the Offered
Certificates causes the yield of certain
classes to be particularly sensitive to
changes in the rates of principal payments
(including prepayments, defaults,
liquidations and purchases of Mortgage Loans
due to a breach of a representation and
warranty) of the Mortgage Loans and other
factors.
The yield to investors on the Interest Only
Certificates will be sensitive to the rate
and timing of prepayments, defaults and
liquidations on the Mortgage Loans. The rate
of such prepayments, defaults and
liquidations on the Mortgage Loans may
fluctuate significantly over time. A
significantly faster than expected rate of
such prepayments, defaults and liquidations
on the Mortgage Pool will have a negative
effect on the yield to such investors and
could result in the failure of investors in
the Interest Only Certificates to recover
their initial investments. In addition,
because holders of the Class A1X and A2X
Certificates have rights to relatively
larger portions of interest payments on
Mortgage Loans with higher Mortgage Interest
Rates than on Mortgage Loans with lower
Mortgage Interest Rates, and because
Mortgage Loans with higher Mortgage Interest
Rates are generally likely to prepay at a
faster rate than Mortgage Loans with lower
Mortgage Interest Rates, the yield on the
Class A1X and A2X Certificates will be
materially adversely affected to a greater
extent than the yields on the other Offered
Certificates if the Mortgage Loans with
higher Mortgage Interest Rates prepay faster
than the Mortgage Loans with lower Mortgage
Interest Rates. See "Certain Prepayment,
Maturity and Yield Considerations,"
especially "--Interest Only Certificate
Yield Considerations" herein.
The yield to investors on any of the
Certificates will be sensitive to losses due
to defaults on the Mortgage Loans (and the
timing thereof), because the amount of such
losses will be allocable to such class to
the extent such losses are not covered by a
subordinate class of Certificates, as
described herein. Furthermore, as described
herein, the timing of receipt of principal
and interest by any such class of
Certificates may be adversely affected by
losses even if such class does not
ultimately bear such loss.
S-8
Each Servicer making an advance will be
entitled to interest thereon at the prime
rate determined in accordance with the
Pooling and Servicing Agreement to the
extent provided therein. Therefore losses
may be allocated to a class of Offered
Certificates with respect to any delinquent
Monthly Payment and certain other expenses
advanced by such Servicer.
The Special Servicer will be entitled to
receive compensation in the form of a
percentage of collections of any Mortgage
Loan which is being serviced or has been
serviced by the Special Servicer (a
"SPECIALLY SERVICED MORTGAGE LOAN") prior to
the right of Certificateholders to receive
distributions on the Certificates. Such
compensation will result in shortfalls which
will be allocated to the classes of
Certificates with the lowest payment
priority for purposes of application of the
Adjusted Available Distribution Amount in
the order described herein. Consequently, it
is possible that losses will be allocated to
the Offered Certificates with respect to any
Specially Serviced Mortgage Loan
notwithstanding the fact that such Mortgage
Loan is returned to a performing status. See
"Servicing --Servicing and Other
Compensation and Payment of Expenses"
herein.
See "Certain Prepayment, Maturity and Yield
Considerations," especially "--Class C,
Class BCX, Class D and Class E Yield
Considerations" herein, and "Yield
Considerations" in the Prospectus.
Federal Income Tax
Consequences .................. Three separate real estate mortgage
investment conduit ("REMIC") elections will
be made with respect to the Trust Fund for
federal income tax purposes. Upon the
issuance of the Offered Certificates,
Andrews & Kurth L.L.P., counsel to the
Depositor, will deliver its opinion
generally to the effect that, assuming
compliance with all provisions of the
Pooling and Servicing Agreement, for federal
income tax purposes, the REMIC I, REMIC II
and REMIC III (each as defined in the
Pooling and Servicing Agreement) will each
qualify as a REMIC under Sections 860A
through 860G of the Internal Revenue Code of
1986 (the "CODE").
For federal income tax purposes, the Class
R-I Certificates will be the sole class of
"residual interests" in REMIC I, the Class
R-II Certificates will be the sole class of
"residual interests" in REMIC II, the
Offered Certificates (or, in the case of the
Class BCX Certificates, each component
thereof) and the Other Certificates will be
"regular interests" of REMIC III and will
generally be treated as debt instruments of
REMIC III, and the Class R-III Certificates
will be the sole class of "residual
interests" in REMIC III.
The Interest Only Certificates will and the
other Offered Certificates may be treated as
having been issued with original issue
discount for federal income tax
purposes.
For purposes of computing the accrual of
original issue discount, market discount and
premium, if any, for federal income tax
purposes it will be assumed that there are
no prepayments on the Mortgage Loans.
However, no representation is made that the
Mortgage Loans will not prepay at another
rate.
For further information regarding the
federal income tax consequences of investing
in the Offered Certificates, see "Federal
Income Tax Consequences" herein and in
the Prospectus.
ERISA Considerations .......... A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code and any entity whose underlying
assets include assets of such a plan by
reason of any such plan's investment in the
entity should review carefully with its
legal advisors whether the purchase or
holding of any class of
S-9
Offered Certificates could give rise to a
transaction that is prohibited or is not
otherwise permitted either under ERISA or
Section 4975 of the Code or whether there
exists any statutory or administrative
exemption applicable to an investment
therein. The U.S. Department of Labor has
issued an individual exemption to the
underwriter that generally exempts from the
application of certain of the prohibited
transaction provisions of Section 406 of
ERISA, and the excise taxes imposed on
certain prohibited transactions by Sections
4975(a) and (b) of the Code and Section
502(i) of ERISA, transactions relating to
the purchase, sale and holding of
pass-through certificates underwritten by
the underwriter, such as the Class A1, Class
A1X, Class A2 and Class A2X Certificates and
the servicing and operation of asset pools,
provided that certain conditions are
satisfied. Purchasers using insurance
company general account funds to effect such
purchase should consider the availability of
Prohibited Transaction Class Exemption 95-60
(60 Fed. Reg. 35925, July 12, 1995) issued
by the U.S. Department of Labor. See "ERISA
Considerations" herein and in the
Prospectus.
Rating ........................ It is a condition to the issuance of the
Class A1 and Class A2 Certificates that they
be rated "_______" by ________________
("_____________ ") and __________________
("________________ "). It is a condition of
the issuance of the Class A1X and Class A2X
Certificates that they be rated "______" by
________________ and "_______" by
________________ . It is a condition of the
issuance of the Class B Certificates that
they be rated not lower than "____" by
________________ and ________________. It is
a condition of the issuance of the Class C
Certificate that they be rated not lower
than "___" by ________________ and "____" by
________________. It is a condition of the
issuance of the Class BCX Certificates that
they be rated not lower than "____" by
________________. It is a condition of the
issuance of the Class D Certificates that
they be rated not lower than "_____" by
________________ and ________________. It is
a condition of the issuance of the Class E
Certificates that they be rated not lower
than "________" by ________________ and
________________. 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. A security rating does
not address the frequency or likelihood of
prepayments (whether voluntary or
involuntary) of Mortgage Loans, or the
degree to which such prepayments might
differ from those originally anticipated, or
the likelihood of collection of Prepayment
Premiums, or the corresponding effect on
yield to investors. A rating of any of the
Interest Only Certificates does not address
the possibility that the holders of such
Certificates may fail to fully recover their
initial investments due to a rapid rate of
prepayments, defaults or liquidations. See
"Certain Prepayment, Maturity and Yield
Considerations" herein, "Risk Factors," and
"Rating" herein and in the Prospectus and
"Yield Considerations" in the Prospectus.
Legal Investment .............. The Class ___, Class ___, Class ___, Class
___ and Class ___ Certificates will be
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as
they are rated in one of the two highest
rating categories by at least one nationally
recognized statistical rating organization.
The Class ___, Class ___ and Class ___
Certificates will not be "mortgage related
securities" within the meaning of SMMEA. The
appropriate characterization of the Offered
Certificates under various legal investment
restrictions, and thus the ability of
investors subject to these restrictions to
purchase any Class of Offered Certificates,
may be subject to significant interpretative
uncertainties.
In addition, institutions whose investment
activities are subject to review by certain
regulatory authorities may be or may become
subject to restrictions, which may be
S-10
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of
mortgage-backed securities. Furthermore,
certain states have enacted legislation
overriding the legal investment provisions
of SMMEA. 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 and in the Prospectus.
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RISK FACTORS
[Description will depend on the particulars of the Mortgage Assets]
PROSPECTIVE PURCHASERS OF THE OFFERED CERTIFICATES SHOULD CONSIDER,
AMONG OTHER THINGS, THE FOLLOWING RISK FACTORS (AS WELL AS THE RISK FACTORS SET
FORTH UNDER "RISK FACTORS" IN THE PROSPECTUS) IN CONNECTION WITH AN INVESTMENT
IN THE OFFERED CERTIFICATES.
SPECIAL PREPAYMENT CONSIDERATIONS. The rate and timing of principal
payments on the Offered Certificates will depend, among other things, on the
rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of representation
and warranty) on the Mortgage Loans. The rate at which principal payments 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,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Interest 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 (as defined herein)
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 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. See "Description of
the Mortgage Pool," "Description of the Certificates -- Distributions --
Priority of Distributions" and "Certain Prepayment, Maturity and Yield
Considerations" herein and "Yield Considerations" in the Prospectus.
SPECIAL YIELD CONSIDERATIONS. The yield to maturity on each class of
the Offered Certificates will depend, among other things, on the rate and timing
of principal payments (including prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of representation and warranty) on
the Mortgage Pool and the allocation thereof to reduce the Class Balance of such
class. Mortgage Loans with higher Mortgage Interest Rates will have higher
Remittance Rates, and therefore, the yield on the Class A1X, Class A2X, Class B,
Class C, Class D and Class E Certificates could be adversely affected if
Mortgage Loans with higher Mortgage Interest Rates pay faster than the Mortgage
Loans with lower Mortgage Interest Rates. The yield to investors on the Offered
Certificates will be adversely affected by any allocation thereto of interest
shortfalls on the Mortgage Loans, such as Prepayment Interest Shortfalls.
Neither the Certificates nor the Mortgage Loans are guaranteed by any
governmental entity or instrumentality or any other entity.
In general, if a Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a 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. See "Prepayment, Maturity and Yield
Considerations" herein and "Yield Considerations" in the Prospectus.
RISKS ASSOCIATED WITH CERTAIN OF THE MORTGAGE LOANS AND MORTGAGED
PROPERTIES. The Mortgage Loans are secured by a fee simple or leasehold interest
in multifamily, retail, hotel, health care-related, office, industrial and other
commercial properties. Commercial and multifamily lending is generally viewed as
exposing the lender to a greater risk of loss than one- to four-family
residential lending. Commercial and multifamily lending typically involves
larger loans to single borrowers or groups of related borrowers than residential
one-to four-family mortgage loans. Further, the repayment of loans secured by
income producing properties is typically dependent upon the successful operation
of the related property. If the cash flow from the property is reduced (for
example, if leases are not obtained or renewed), the borrower's ability to repay
the loan may be impaired. Commercial and multifamily real estate can be affected
significantly by the supply and demand in the market for the type of property
securing the loan and, therefore, may be subject to adverse economic conditions.
Market values may vary as a result of economic events or governmental
regulations outside the control of the borrower or lender, such as rent control
laws in the case of multifamily mortgage loans, which impact the future cash
flow of the property. See "Nonrecourse Mortgage Loans" below.
S-12
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
appropriate rental rates, 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.
An appraisal of each of the Mortgaged Properties was made between
___________ 199__ and ___________ 199_. It is possible that the market value of
a Mortgaged Property securing a Mortgage Loan has declined since the most recent
appraisal for such Mortgaged Property. Commercial and multifamily property
values and net operating income are subject to volatility. 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, office or self-storage space, hotel rooms or
nursing homes); changes or continued weakness in specific industry segments;
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; construction quality, age and
design; demographic factors; retroactive changes to building or similar codes;
and increases in operating expenses (such as energy costs). Historical operating
results of the Mortgaged Properties may not be comparable to future operating
results. In addition, other factors may adversely affect 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.
Mortgage Loans secured by liens on residential health care facilities
pose risks not associated with loans secured by liens on other types of
income-producing real estate. Providers of long-term nursing care, assisted
living 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 reimbursement policies of government programs and
private insurers. The failure of any of such borrower to maintain or renew any
required license or regulatory approval could prevent it from continuing
operations (in which case no revenues would be received from the related
Mortgaged Property or the portion thereof requiring licensing) or, if
applicable, bar it from participation in certain reimbursement programs.
Furthermore, in the event of foreclosure, there can be no assurance that the
Trustee or any other purchaser at 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.
In addition, to the extent any nursing home receives a significant portion of
its revenues from government reimbursement programs, primarily Medicaid and
Medicare, such revenue may be 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 in the United States Congress that could materially change or curtail
those payments. Accordingly, there can be no assurances that payments under
government 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 substantial revenues from those sources, and
consequently the ability of the related borrowers to meet their Mortgage Loan
obligations, could be adversely affected. Under applicable federal and state
laws and regulations, including those that govern Medicare and Medicaid
programs, only the provider who actually furnished the related medical goods and
services may sue for or enforce its rights to reimbursement. Accordingly, in the
event of foreclosure, none of the Trustee, the Master 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 aggregate principal balance as of the Cut-off Date related to
Mortgage Loans secured by multifamily, retail, hotel, health care-related,
office, industrial and other properties represent approximately ____%, ____%,
- ----%,----%,
____%, ____% and ____% of the Cut-off Date aggregate principal balance of the
Mortgage Pool, respectively.
RISKS PARTICULAR TO HOTEL PROPERTIES. _______ of the Mortgage Loans
representing____% of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date are secured by hotel properties. Like any income
S-13
producing property, the income generated by a hotel property is subject to
several factors such as local, regional and national economic conditions and
competition. However, because such income is primarily generated by room
occupancy and such occupancy is usually for short periods of time, the level of
such income may respond more quickly to conditions such as those described
above. This daily mark-to-market also accentuates the highs and lows of economic
cycles. Moreover, as a result of relatively high operating costs, relatively
small decreases in revenue can cause significant stress on a property's cash
flow. Also, sensitivity to competition may require more frequent improvements
and renovations than other properties. To the extent a hotel is affiliated to,
or associated with, a regional, national or international chain, changes in the
public perception of such chain may have an impact on the income generated by
the related property. Finally, the hotel industry is generally seasonal. This
will result in fluctuation in the income generated by hotel properties.
RISKS PARTICULAR TO RETAIL PROPERTIES. _______ Mortgage Loans,
representing ______% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date, are secured by retail properties. In addition to risks
generally associated with real estate, such Mortgage Loans are also affected
significantly by adverse changes in consumer spending patterns, local
competitive conditions (such as the supply of retail space or the existence or
construction of new competitive shopping centers or shopping malls), alternative
forms of retailing (such as direct mail, video shopping networks and selling
through the Internet which reduce the need for retail space by retail
companies), the quality and management philosophy of management, the
attractiveness of the properties and the surrounding neighborhood to tenants and
their customers, the public perception of the safety of customers at shopping
malls and shopping centers, and the need to make major repairs or improvements
to satisfy the needs of major tenants.
Retail properties may be adversely affected if a significant tenant
ceases operations at such locations (which may occur on account of a voluntary
decision not to renew a lease, bankruptcy or insolvency of such tenant, such
tenant's general cessation of business activities or for other reasons).
Significant tenants at a retail property play an important part in generating
customer traffic and making a retail property a desirable location for other
tenants at such property. In addition, certain tenants at retail properties may
be entitled to terminate their leases if an anchor tenant ceases operations at
such property. In such cases, there can be no assurance that any such anchor
tenants will continue to occupy space in the related shopping centers.
RISKS PARTICULAR TO OFFICE PROPERTIES. _____________ Mortgage Loans,
representing ______% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date, are secured by office properties. In addition to risks
generally associated with real estate, Mortgage Loans secured by office
properties are also affected significantly by adverse changes in population and
employment growth (which creates demand for office space), local competitive
conditions (such as the supply of office space or the existence or construction
of new competitive office buildings), the quality and management philosophy of
management, the attractiveness of the properties to tenants and their customers
or clients, the attractiveness of the surrounding neighborhood and the need to
make major repairs or improvements to satisfy the needs of major tenants. In
addition, office properties may be adversely affected by an economic decline in
the business operated by their tenants. Such decline may result in one or more
significant tenants ceasing operations at such locations (which may occur on
account of a voluntary decision not to renew a lease, bankruptcy or insolvency
of such tenants, such tenants' general cessation of business activities or for
other reasons). If office properties have a single tenant or if there is a
significant concentration of tenants in a particular business or industry, the
risk of such an economic decline increases.
RISKS PARTICULAR TO MULTIFAMILY RENTAL PROPERTIES. _________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by multifamily rental properties.
Adverse economic conditions, either local or national, may limit the amount of
rent that can be charged for rental units, and may result in a reduction in
timely rent payments or a reduction in occupancy levels without a corresponding
decrease in expenses. Occupancy and rent levels may also be affected by
construction of additional housing units, local military base closings and
national and local politics, including, in the case of multifamily rental
properties, current or future rent stabilization and rent control laws and
agreements. In addition, the level of mortgage interest rates may encourage
tenants in multifamily rental properties to purchase single-family housing.
Further, the cost of operating a multifamily property may increase, including
the cost of utilities and the costs of required capital expenditures.
Furthermore, the rent limitations imposed on Mortgaged Properties eligible to
receive low-income housing tax credits pursuant to Section 42 of the Code
("Section 42 Properties") may adversely affect the ability of the applicable
borrowers to increase rents to maintain such Mortgaged Properties in proper
condition during periods of rapid inflation or declining market value of such
Mortgaged Properties. In addition, the income restrictions on tenants imposed by
Section 42 of
S-14
the Code may reduce the number of eligible tenants in such Mortgaged Properties
and result in a reduction in occupancy rates applicable thereto. Furthermore,
some eligible tenants may not find any differences in rents between the Section
42 Properties and other multifamily rental properties in the same area to be a
sufficient economic incentive to reside at a Section 42 Property, which may have
fewer amenities or otherwise be less attractive as a residence. Additionally,
the characteristics of a neighborhood may change over time or in relation to
newer developments. All of these conditions and events may increase the
possibility that a borrower may be unable to meet its obligations under its
Mortgage Loan.
RISKS PARTICULAR TO SELF-STORAGE FACILITIES. ____________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by self-storage properties. Self-
storage properties are considered vulnerable to competition because both
acquisition costs and break-even occupancy are relatively low. The conversion of
self-storage facilities to alternative uses would generally require substantial
capital expenditures. Thus, if the operation of any of the self-storage
Mortgaged Properties becomes unprofitable due to decreased demand, competition,
age of improvements or other factors such that the borrower becomes unable to
meet its obligation on the related Mortgage Loan, the liquidation value of that
self-storage Mortgaged Property may be substantially less, relative to the
amount owing on the Mortgage Loan, than would be the case if the self-storage
Mortgaged Property were readily adaptable to other uses. Tenant privacy,
anonymity and efficient access may heighten environmental risks. The
environmental assessments discussed herein did not include an inspection of the
contents of the self-storage units included in the self-storage Mortgaged
Properties and there is no assurance that all of the units included in the
self-storage Mortgaged Properties are free from hazardous substances or other
pollutants or contaminants or will remain so in the future; however,
substantially all of the lease agreements used in connection with such Mortgaged
Properties prohibit the storage of hazardous substances, pollutants or
contaminants.
RISKS PARTICULAR TO MOBILE HOME PARKS. _______ Mortgage Loans,
representing ______% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date, secured by mobile home parks. Loans secured by mobile home
parks pose risks not associated with loans secured by liens on other types of
income-producing real estate. The successful operation of a Mortgaged Property
operated as a mobile home park will generally depend upon the number of
competing mobile home parks and other residential developments in the local
market, as well as upon other factors such as its age, appearance, reputation,
management and the types of services it provides.
Mobile home parks 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 Mortgaged Properties constituting mobile home parks
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 Mortgaged Property may be
substantially less, relative to the amount owing on the Mortgage Loan, than
would be the case if the Mortgaged Property were readily adaptable to other
uses.
RISKS PARTICULAR TO HEALTH CARE-RELATED PROPERTIES. ____________
Mortgage Loans, representing ------% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, are secured by health care-related
facilities. Health care-related facilities (including nursing homes) typically
receive a substantial portion of their revenues from government reimbursement
programs, primarily Medicaid and Medicare. Medicaid and Medicare are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings, policy interpretations, delays by fiscal intermediaries and government
funding restrictions, all of which can adversely affect revenues from operation.
Moreover, governmental payors have employed cost-containment measures that limit
payments to health care providers and there are currently under consideration
various proposals for national health care relief that could further limit these
payments. In addition, providers of long-term nursing care and other medical
services are highly regulated by federal, state and local law and are subject
to, among other things, federal and state licensing requirements, facility
inspections, rate setting, reimbursement policies, and laws relating to the
adequacy of medical care, distribution of pharmaceuticals, equipment, personnel
operating policies and maintenance of and additions to facilities and services,
any or all of which factors can increase the cost of operation, limit growth and
in extreme cases, require or result in suspension or cessation of operations.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a Mortgaged Property that
is operated as a health care-related facility, none of the Trustee, the Special
Servicer or a subsequent lessee or operator of the Mortgaged Property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to
S-15
services furnished at the respective Mortgaged Properties prior to such
foreclosure. Furthermore, in the event of foreclosure, there can be no assurance
that the Trustee (or Special Servicer) or purchaser in a foreclosure sale would
be entitled to the rights under any required licenses and regulatory approvals
and such party may have to apply in its own right for such licenses and
approvals. There can be no assurance that a new license could be obtained or
that a new approval would be granted. In addition, health care-related
facilities are generally "special purpose" properties that could not be readily
converted to general residential, retail or office use, and transfers of health
care-related facilities are subject to regulatory approvals under state, and in
some cases federal, law not required for transfers of other types of commercial
operations and other types of real estate, all of which may adversely affect the
liquidation value.
RISKS PARTICULAR TO INDUSTRIAL PROPERTIES. ____________ Mortgage Loans,
representing ______% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date, are secured by industrial properties. Industrial properties
may be adversely affected by reduced demand for industrial space occasioned by a
decline in a particular industry segment, and an industrial property that suited
the particular needs of its original tenant may be difficult to relet to another
tenant or may become functionally obsolete relative to newer properties.
Furthermore, industrial properties may be adversely affected by the availability
of labor sources or a change in the proximity of supply sources.
RISKS PARTICULAR TO CONDOMINIUM PROPERTIES. ____________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by condominium properties. With
respect to Mortgage Loans secured by units in a condominium project, the related
Mortgagor initially controls the owner's association related to the condominium
project securing such loans, either by voting preference or numerical majority.
However, with the sale of the individual condominium units, the Mortgagor will
eventually relinquish voting control over the condominium association. Without
voting control of the owner's association, the Mortgagor may be limited in its
ability to direct the operation of the Mortgaged Property and to make
improvements to common areas that may be necessary or desirable to enhance the
marketability of the remaining units or otherwise preserve the Mortgaged
Property. The value of the condominium units securing the Mortgage Loans could
be adversely affected if and when the Mortgagor no longer possesses such control
rights, and the value of the Mortgagor's security would be likewise affected.
Additionally, all Mortgage Loans related to a single condominium project are
generally cross-collateralized and cross-defaulted. Thus, if the Mortgagor is
unable to make timely payments, all related Mortgage Loans will become defaulted
Mortgage Loans at the same time.
NONRECOURSE MORTGAGE LOANS. 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 related Mortgaged Property. Consequently, payment of
each such 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 upon the
acceleration of such maturity after default), upon the then market value of the
related Mortgaged Property, or the ability to refinance such Mortgage Loan.
CONCENTRATION OF MORTGAGE LOANS. The average principal balance of the
Mortgage Loans as of the Cut-off Date is approximately $____________, which is
equal to ____% of the aggregate principal balance as of the Cut-off Date of the
Mortgage Loans.
A mortgage pool consisting of fewer loans each having a relatively
higher outstanding principal balance may result in losses that are more severe,
relative to the size of the pool, than would be the case if the pool consisted
of a greater number of mortgage loans each having a relatively smaller
outstanding principal balance. In addition, the concentration of any mortgage
pool in 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 substantially more severe, relative to the size of the pool,
than would be the case if the aggregate balance of the pool were more evenly
distributed among the loans in such pool. The Mortgage Loan secured by the
__________________________ represents______% of the aggregate principal balance
of the Mortgage Loans. No other Mortgage Loan represents more than ____% of the
aggregate principal balance as of the Cut-off Date of the Mortgage Loans.
Mortgage Loans with related Mortgagors represent in the aggregate _____% of the
aggregate principal balance as of the Cut-off Date of the Mortgage Loans but no
single group of related Mortgagors represents in excess of __% of the aggregate
principal balance of the Mortgage Loans. See "Description of the Mortgage Pool
- -- Certain Characteristics of the Mortgage Loans -- Related Borrowers and Other
Issues" herein.
S-16
RISKS OF DIFFERENT TIMING OF MORTGAGE LOAN AMORTIZATION. If and as
principal payments, property releases, or prepayments are made on a Mortgage
Loan, the remaining Mortgage Pool may be subject to more concentrated risk with
respect to the diversity of properties, types of properties and property
characteristics and with respect to the number of borrowers. See the table
entitled "Year of Scheduled Maturity" under "Description of the Mortgage Pool --
Certain Characteristics of the Mortgage Loans" for a description of the
respective maturity dates of the Mortgage Loans. Because principal on the
Offered Certificates is payable in sequential order, and no class receives
principal until the Class Balance of the preceding class or classes has been
reduced to zero, classes that have a lower sequential priority are more likely
to be exposed to the risk of concentration discussed under "--Concentration of
Mortgage Loans" above than classes with a higher sequential priority.
GEOGRAPHIC CONCENTRATION. __, __, __, __ and __ of the Mortgaged
Properties, representing approximately ____%, ____%, ____%, ____% and ____%,
respectively, of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date, are located in ______________, _________, __________, _________
and _________, respectively. Except as indicated in the immediately preceding
sentence, no more than ___% of the Mortgage Loans, by aggregate principal
balance of the Mortgage Loans as of the Cut-off Date are secured by Mortgaged
Properties in any one state. Repayments by borrowers and the market value of the
Mortgaged Properties could be affected by economic conditions generally or in
regions where the borrowers and the Mortgaged Properties are located, conditions
in the real estate market where the Mortgaged Properties are located, changes in
governmental rules and fiscal policies, acts of nature, including earthquakes
(which may result in uninsured losses), and other factors which are beyond the
control of the borrowers.
ENVIRONMENTAL RISKS. 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 and 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 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. 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 borrow 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 into
the air and third parties may seek recovery from owners or operators of real
properties for personal injury associated with exposure to asbestos.
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 agents or employees of a lender are deemed to have participated in
the management of the borrower's property, 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.
An environmental site assessment ("ESA") of each of the Mortgaged
Properties was performed (or prior assessments were updated) in connection with
the initial underwriting and origination of the Mortgage Loans. In certain
cases, environmental testing in addition to the ESA was performed.
The following information is based on the ESAs and has not been
independently verified by the Depositor, the Servicers, the Trustee, the
Underwriter, or by any of their respective affiliates. With respect to a number
of the Mortgaged Properties, the ESAs revealed the existence of
asbestos-containing materials, possible radon gas and other environmental
matters at the related Mortgaged Properties, none of which constituted a
material violation of any environmental law in the judgment of the assessor. In
these cases, the Mortgagors agreed to establish and maintain operations and
maintenance programs or had other remediation agreements or escrows in place.
With respect to several Mortgaged Properties, the ESAs identified the presence
of above-ground or underground storage tanks and the related Mortgagors have
agreed to make periodic visual inspections or other testing for any petroleum
releases.
S-17
It is possible that the ESAs did not reveal all environmental
liabilities, that there are material environmental liabilities of which neither
ICCC nor the Depositor are aware and that the environmental condition of the
Mortgaged Properties in the future could be affected by tenants and occupants or
by third parties unrelated to the
Mortgagors.
Each Mortgagor has represented that, except as described in the
environmental reports referred to above, each Mortgaged Property either was, or
to the best of its knowledge was, in compliance with applicable environmental
laws and regulations on the date of the origination of the related Mortgage
Loan; that, except as described in the environmental reports referred to above,
no actions, suits or proceedings have been commenced or are pending or, to the
best knowledge of the Mortgagor, are threatened with respect to any applicable
environmental laws and that such Mortgagor has not received notice of any
violation of a legal requirement relating to the use and occupancy of any
Mortgaged Property. The principal security for the obligations under each
Mortgage Loan consists of the Mortgaged Property and, accordingly, if any such
representations are breached, there can be no assurance that any other assets of
the Mortgagor would be available in connection with any exercise of remedies in
respect of such breach. Moreover, most Mortgagors are structured as single asset
entities and therefore have no assets other than the related Mortgaged Property.
The Pooling and Servicing Agreement provides that the Special Servicer,
acting on behalf of the Trust Fund, may not acquire, through foreclosure or deed
in lieu thereof, title to a Mortgaged Property or take over its operation unless
the Special Servicer has previously determined, based on a report prepared by a
qualified person who regularly conducts environmental audits, that (i) the
Mortgaged Property is in compliance with applicable environmental laws or that
taking the actions necessary to comply with such laws is reasonably likely to
produce a greater recovery on a present value basis than not taking such actions
and (ii) there are no circumstances known to the Special Servicer relating to
the use of hazardous substances or petroleum-based materials which require
investigation or remediation, or that if such circumstances exist, taking such
remedial actions is reasonably likely to produce a greater recovery on a present
value basis than not taking such actions.
LITIGATION. There may be legal proceedings pending and, from time to
time, threatened against the Mortgagors and the managers of the Mortgaged
Properties and their respective affiliates arising out of the ordinary business
of the Mortgagor, the managers and such affiliates. There can be no assurance
that such litigation may not have a material
adverse effect on distributions to Certificateholders.
OTHER FINANCINGS. Each Mortgagor is restricted from incurring any
indebtedness secured by the related Mortgaged Property other than the related
Mortgage Loan without the consent of the lender. With respect to ___ Mortgage
Loans representing ______% of the Mortgage Pool and which were made to single
purpose entities, the Mortgagor is restricted from incurring any indebtedness
other than the Mortgage Loan, normal trade accounts payable and certain purchase
financing debt, except that _____ of these Mortgagors representing ____% of the
Mortgage Pool have unsecured subordinate debt that is subject to a subordination
and standstill agreement limiting the rights of the holder of such additional
indebtedness including limitations on its right to commence any enforcement or
foreclosure proceeding.
In cases where one or more junior liens are imposed on a Mortgaged
Property or the Mortgagor incurs other indebtedness, the Trust Fund is subjected
to additional risks, including, without limitation, the risks that the Mortgagor
may have greater incentives to repay the junior or unsecured indebtedness first
and that it may be more difficult for the Mortgagor to refinance the Mortgage
Loan or to sell the Mortgaged Property for purposes of making the Balloon
Payment upon the maturity of the Mortgage Loan.
EFFECT OF MORTGAGOR DELINQUENCIES AND 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 lives of the Offered Certificates will be affected by the rate
and the timing of delinquencies and defaults on the Mortgage Loans. If a
purchaser of a class of Offered Certificates 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
class of 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.
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As and to the extent described herein, each Servicer will be entitled
to receive interest on unreimbursed P&I Advances and unreimbursed advances of
servicing expenses until such advances (i) are recovered out of amounts received
on the Mortgage Loan as to which such advances were made pursuant to the Pooling
and Servicing Agreement, which amounts are in the form of late payments,
liquidation proceeds, insurance proceeds, condemnation proceeds or amounts paid
in connection with the purchase of such Mortgage Loan out of the Trust Fund or
(ii) are otherwise recovered following a determination that such advance is a
nonrecoverable advance. Each Servicer's right to receive such payments of
interest is prior to the rights of Certificateholders to receive distributions
on the Certificates and, consequently, is likely to result in losses being
allocated to the Offered Certificates that would not otherwise have resulted
absent the accrual of such interest.
The Special Servicer will be entitled to receive, with respect to each
Mortgage Loan which is or was at some time a Specially Serviced Mortgage Loan,
compensation in the form of a percentage of collections of any such Specially
Serviced Mortgage Loan prior to the right of Certificateholders to receive
distributions on the Certificates. Consequently, it is possible that shortfalls
will be allocated to the Offered Certificates with respect to any Mortgage Loan
which is or was at some time a Specially Serviced Mortgage Loan notwithstanding
the fact that such Mortgage Loan is returned to a performing status. See
"Servicing -- Servicing and Other Compensation and Payment of Expenses" herein.
Regardless of whether losses ultimately result, delinquencies and
defaults on the Mortgage Loans may significantly delay the receipt of payments
by the holder of a class of Offered Certificates, to the extent that P&I
Advances or the subordination of another class of Certificates does not fully
offset the effects of any such delinquency or default. The Special Servicer has
the ability to extend and modify Mortgage Loans that are in default or as to
which a payment default is imminent, including the ability to extend the date on
which a Balloon Payment is due, subject to certain conditions described in the
Pooling and Servicing Agreement. A Servicer's obligation to make P&I Advances in
respect of a Mortgage Loan that is delinquent as to its Balloon Payment is
limited, however, to the extent described under "Description of the Certificates
- -- Advances." Until such time as any Mortgage Loan delinquent in respect of its
Balloon Payment is liquidated, the entitlement of the holders of any class of
Offered Certificates on each Distribution Date in respect of principal of such
Mortgage Loan will be limited to any payment made by the related Mortgagor and
any related P&I Advance made by a Servicer. Consequently, any delay in the
receipt of a Balloon Payment that is payable, in whole or in part, to holders of
the Offered Certificates will extend the weighted average life of the Offered
Certificates.
As described under "Description of the Certificates -- Distributions"
herein, if the portion of the Adjusted Available Distribution Amount
distributable in respect of interest on any class of Offered Certificates on any
Distribution Date is not sufficient to distribute 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.
BALLOON PAYMENTS. __________Mortgage Loans, representing_____% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, are
Balloon Mortgage Loans. Balloon Mortgage Loans involve a greater degree of risk
because the ability of a Mortgagor to make a Balloon Payment typically depends
on his ability either to refinance the loan or to sell the related Mortgaged
Property. See "Risk Factors -- Balloon Payments" in the Prospectus.
GROUND LEASES AND OTHER LEASEHOLD INTERESTS. ____ Mortgage Loans,
representing ____ of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date, are secured in part by leasehold interests in two Mortgaged
Properties. Pursuant to Section 365(h) of the Bankruptcy Code, ground lessees
are currently afforded rights not to treat a ground lease as terminated and to
remain in possession of their leased premises upon the bankruptcy of their
ground lessor and the rejection of the ground lease by the representative of
such ground lessor's bankruptcy estate. The leasehold mortgages provide that the
Mortgagor may not elect to treat the ground lease as terminated on account of
any such bankruptcy of, and rejection by, the ground lessor without the consent
of the Servicer. In the event of a bankruptcy of a ground lessee/borrower, the
ground lessee/borrower under the protection of the Bankruptcy Code has the right
to assume (continue) or reject (terminate) any or all of its ground leases. In
the event of concurrent bankruptcy proceedings involving the ground lessor and
the ground lessee/Mortgagor, the Trustee may be unable to enforce the bankrupt
ground lessee/Mortgagor'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.
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ATTORNMENT CONSIDERATIONS. Some of the tenant leases, including the
anchor tenant leases, contain certain provisions that require the tenant to
attorn to (that is, recognize as landlord under the lease) a successor owner of
the property following foreclosure. Some of the leases, including the anchor
tenant leases, may be either subordinate to the liens created by the Mortgage
Loans or else contain a provision that requires the tenant to subordinate the
lease if the mortgagee agrees to enter into a non-disturbance agreement. In some
states, if tenant leases are subordinate to the liens created by the Mortgage
Loans and such leases do not contain attornment provisions, such leases may
terminate upon the transfer of the property to a foreclosing lender or purchaser
at foreclosure. Accordingly, in the case of the foreclosure of a Mortgaged
Property located in such a state and leased to one or more desirable tenants
under leases that do not contain attornment provisions, such Mortgaged Property
could experience a further decline in value if such tenants' leases were
terminated (e.g., if such tenants were paying above-market rents). If a Mortgage
is subordinate to a lease, the lender will not (unless it has otherwise agreed
with the tenant) possess the right to dispossess the tenant upon foreclosure of
the property, and if the lease contains provisions inconsistent with the
Mortgage (e.g., provisions relating to application of insurance proceeds or
condemnation awards), the provisions of the lease will take precedence over the
provisions of the Mortgage.
LIQUOR LICENSE CONSIDERATIONS. _______ Mortgage Loans, representing
_____% of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date are secured by hotel properties. The liquor licenses for some of
such properties may be held by the property manager rather than by the related
Mortgagor. The applicable laws and regulations relating to such licenses
generally prohibit the transfer of such licenses to any person. In the event of
a foreclosure of a hotel property it is unlikely that the Trustee (or Special
Servicer) or purchaser in any such sale would be entitled to the rights under
the liquor license for such hotel property and such party would be required to
apply in its own right for such license.
SPECIAL SERVICER ACTIONS. In connection with the servicing of Specially
Serviced Mortgage Loans, the Special Servicer may take actions with respect to
such Mortgage Loans that could adversely affect the holders of some or all of
the classes of Offered Certificates. As described herein under "Servicing --
Responsibilities of Special Servicer," the actions of the Special Servicer will
be subject to review and may be rejected by a representative of the holders of
the Monitoring Certificates (as defined herein), who may have interests in
conflict with those of the holders of the other classes of Certificates. As a
result, it is possible that such representative may cause the Special Servicer
to take actions which conflict with the interests of certain classes of
Certificates.
SERVICER MAY PURCHASE CERTIFICATES. The Special Servicer may purchase,
either directly or through an affiliate, a portion of the Class NR Certificates.
Such a purchase by the Special Servicer could cause a conflict between the
Special Servicer's duties pursuant to the Pooling and Servicing Agreement and
the Special Servicer's interest as a holder of a Certificate. The Pooling and
Servicing Agreement provides that each Servicer shall administer the Mortgage
Loans in accordance with the servicing standard set forth therein without regard
to ownership of any Certificate by such Servicer or any affiliate of such
Servicer.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of a pool of fixed rate Mortgage
Loans with an aggregate principal balance as of the Cut-off Date, after
deducting payments of principal due on such date, of approximately
$_____________. Each Mortgage Loan is evidenced by a promissory note (a
"MORTGAGE NOTE") and secured by a mortgage, deed of trust or other similar
security instrument (a "MORTGAGE") creating a first lien on a fee simple or
leasehold interest in a multifamily, retail, hotel, office, industrial, or other
commercial property (a "MORTGAGED PROPERTY"). All of the Mortgage Loans are
nonrecourse loans. Therefore, in the event of a Mortgagor default, recourse may
be had only against the specific property and such limited other assets as have
been pledged to secure a Mortgage Loan, and not against the Mortgagor's other
assets. Except as otherwise indicated all percentages of the Mortgage Loans
described herein are approximate percentages by aggregate principal balance as
of the Cut-off Date.
Of the Mortgage Loans to be included in the Trust Fund ___% were
originated by ICCC, ___% by _________________________, a
_________________________, __% by ___________________________________, a
______________________________, and ___% by _________________________, a
_________________________.
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The originators of the Mortgage Loans are referred to herein as the
"ORIGINATORS". All the Mortgage Loans were underwritten generally in conformity
with certain guidelines provided by ICCC. See "--Underwriting Guidelines" below.
ICCC purchased the Mortgage Loans to be included in the Mortgage Pool prior to
the Delivery Date from each Originator pursuant to a mortgage loan purchase
agreement (the "MORTGAGE LOAN PURCHASE AGREEMENT"). The Depositor will acquire
such Mortgage Loans from ICCC on or before the Delivery Date. The Depositor will
cause the Mortgage Loans in the Mortgage Pool to be assigned to the Trustee
pursuant to the Pooling and Servicing Agreement. _________________________ will
be the Master Servicer and Special Servicer with respect to all the Mortgage
Loans. The Primary Servicers are _________________________, with respect to each
Mortgage Loan originated by _______________________ and
_____________________________ with respect to all other Mortgage Loans. Each
Servicer will service the Mortgage Loans pursuant to a servicing agreement (each
a "SERVICING AGREEMENT"), among the initial purchaser of the Mortgage Loans, the
Master Servicer, the Special Servicer and the related Primary Servicer, and the
Master Servicer and the Special Servicer will also service the Mortgage Loans
pursuant to the Pooling and Servicing Agreement. Upon transfer of the Mortgage
Loans to the Trust Fund, all of the rights and obligations of the initial
purchaser with respect to such Mortgage Loans under the related Servicing
Agreement will be assigned to the Trustee.
REPRESENTATIONS AND WARRANTIES
Under a loan sale agreement (the "LOAN SALE AGREEMENT"), ICCC will make
certain representations and warranties to the Depositor. Pursuant to the terms
of the Loan Sale Agreement, ICCC will be obligated to cure any breach of such
representations and warranties or to repurchase any Mortgage Loan from the
Depositor as to which there exists a breach of any such representation or
warranty that materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan. ICCC shall covenant with the Depositor
to repurchase any Mortgage Loan from the Depositor or cure any such breach
within 90 days of receiving notice thereof. Under the Pooling and Servicing
Agreement, the Depositor will assign its rights under the Loan Sale Agreement to
the Trustee for the benefit of the Certificateholders. The sole remedy available
to the Trustee or the Certificateholders is the obligation of ICCC to cure or
repurchase any Mortgage Loan in connection with which there has been a breach of
any such representation or warranty which materially and adversely affects the
interest of the Certificateholders in such Mortgage Loan.
ICCC has generally represented and warranted as of the Delivery Date
with respect to each Mortgage Loan, among other things, that:
(i) ICCC has good and indefeasible title to the related
Mortgage Note and Mortgage and is the sole owner and holder of such
Mortgage Loan, has full right and authority to sell and assign such
Mortgage Loan hereunder, and is transferring such Mortgage Loan to the
Depositor free and clear of any and all liens, claims, encumbrances,
participation interests, equities, pledges, charges or security
interests of any nature.
(ii) Each of the related Mortgage Note, Mortgage and other
agreements executed in connection therewith is genuine and is the
legal, valid and binding obligation of the maker thereof, enforceable
in accordance with its terms except as such enforcement may be limited
by (1) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, redemption or other similar laws affecting the enforcement
of creditors' rights generally and (2) general equity principles
(regardless of whether such enforcement is considered in a proceeding
in equity or at law); and there is no valid offset, defense or
counterclaim or right of rescission to any Mortgage Note or Mortgage,
including the obligation of the mortgagor to pay the unpaid principal
of and interest on the Mortgage Note.
(iii) The terms of the related Mortgage Note and Mortgage have
not been impaired, waived, altered or modified in any material respect,
except by written instruments which have been recorded, if necessary,
to protect the interest of the Depositor and which have been delivered
to the Depositor. The substance of any such alteration or modification
is reflected on the Mortgage Loan Schedule, if applicable; the related
mortgagor or guarantor has not been released, in whole or in part, from
its obligations under the related Mortgage Note, Mortgage or any
guaranty related to such Mortgage Note, as the case may be, other than
pursuant to releases previously approved in writing by ICCC or any
affiliate thereof, copies of which have been delivered to the
Depositor.
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(iv) There is no default, breach, violation or event of
acceleration existing under the related Mortgage or Mortgage Note, ICCC
has not waived any such default, breach, violation or event of
acceleration, and, to the best of ICCC's knowledge, no event has
occurred which, with the passing of time or the giving of notice, would
constitute such a default, breach, violation or event of acceleration.
(v) All federal, state and local laws, rules and regulations
applicable to such Mortgage Loan, including without limitation, those
relating to usury, equal credit opportunity, real estate settlement
procedures or disclosure, have been satisfied or complied with in all
material respects as of the origination date.
(vi) To the extent required under applicable law, each
originator and subsequent mortgagee was authorized to transact and do
business in the jurisdiction in which the related Mortgaged Property is
located
at all times when it held the Mortgage Loan.
(vii) To the best of ICCC's knowledge, there is no proceeding
pending or threatened for the total or partial condemnation of the
related Mortgaged Property as of the applicable closing date.
(viii) As of the applicable closing date the Mortgaged
Property is in good repair and free and clear of any damage that would
affect materially and adversely the value of the Mortgaged Property as
security for the Mortgage Loan or the use for which the premises were
intended or escrows have been established for the purpose of effecting
necessary repairs and maintenance.
(ix) No Mortgage Loan is a participation interest, but instead
is a whole loan, all of the interest
in which is conveyed hereunder.
(x) Neither ICCC nor any of its agents or affiliates has,
directly or indirectly, advanced funds, or received any advance of
funds by a party other than the related borrower, for the payment of
any amount required by the related Mortgage Note or Mortgage, except
for interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage Loan proceeds, whichever is later, to the
date which preceded by 30 days the first due date under the related
Mortgage Note.
(xi) No scheduled payment under any Mortgage Loan is more than
30 days past due as of the Date of Conveyance, nor has any Mortgage
Loan been delinquent more than 30 days during the 12 months prior to
the Date of Conveyance.
(xii) Any related Assignment of Leases and Rents creates a
valid first priority assignment of or security interest in the right to
receive all payments due under the related lease, if any, whether as
rental payments or in respect of any purchase option, subject only to a
license from the mortgagee to the mortgagor allowing such mortgagor to
collect all such payments, which license will be automatically revoked,
or at the option of the mortgagee, may be revoked, upon a default by
the mortgagor under the terms of the Mortgage; and no Person other than
the mortgagor owns any interest in any payments due under such lease
that is superior to or of equal priority with the mortgagee's interest
therein.
(xiii) The Mortgage Note relating to each Mortgage Loan
provides for level monthly payments (exclusive of the initial payment
and any balloon payment on a balloon Mortgage Loan) and does not
provide for any grace period that exceeds 10 days during which
remittance by the mortgagor of any monthly payment may be deferred
without the payment of any default interest or late charge therefor;
there is no difference for any period between the amount of interest
accrued on such Mortgage Loan and the amount of interest payable
thereon; and no Mortgage Loan provides for contingent interest.
(xiv) As of origination of each Mortgage Loan the related
borrower was in possession of all material certificates of occupancy or
other similar licenses, permits and other authorizations necessary and
required by applicable law for the use of the related Mortgaged
Property; and all such certificates of occupancy or other similar
licenses, permits and authorizations are valid and in full force and
effect.
(xv) The information set forth on the Mortgage Loan Schedule
is complete, true and correct in all material respects as of the date
or dates respecting which the information is furnished.
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(xvi) To the best of ICCC's knowledge in reliance upon the
title policy referred to below and the survey for the Mortgaged
Property, the related Mortgage constitutes a valid and enforceable
first lien upon the related Mortgaged Property, including all buildings
thereon and all fixtures attached thereto, subject only to (A) the lien
of current real property taxes 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 materially interferes
with the security intended to be provided by such Mortgage, (C)
exceptions and exclusions specifically referred to in the lender's
title insurance policy described below, none of which materially
interferes with the security intended to be provided by such Mortgage,
and (D) other matters to which like properties are commonly subject,
none of which materially interferes with the security intended to be
provided by such Mortgage ("PERMITTED EXCEPTIONS").
(xvii) The proceeds of each Mortgage Loan have been fully
disbursed, or, in cases of partial disbursement there is no requirement
for future advances thereunder, and any and all requirements imposed by
the mortgagee as to completion of any on-site or off-site improvements
and as to disbursements of any escrow funds therefor have been complied
with as of the Date of Conveyance.
(xviii) On the date of origination of each Mortgage Loan, an
ALTA lender's title insurance policy or a comparable form of lender's
title insurance policy or a binding commitment therefor was issued in
an amount not less than the original principal balance of the Mortgage
Loan, or a favorable opinion of counsel was rendered, insuring or
confirming that the related Mortgage constitutes a valid first lien on
the related Mortgaged Property, subject only to the Permitted
Exceptions described above; such title insurance policy is freely
assignable to the Depositor; on the date of transfer and assignment of
such Mortgage Loan to the Depositor, such title insurance policy is
valid and in full force and effect, and, immediately following the
transfer and assignment of such Mortgage Loan to the Depositor, such
title insurance policy will inure to the benefit of the Depositor, as
mortgagee of record; and no claims have been made under any title
insurance policy and ICCC has not taken any action that would cause
such title insurance policy not to be valid and in full force and
effect.
(xix) All taxes, governmental assessments, insurance premiums,
and water, sewer and municipal charges, and ground rents, if any, which
previously became due and owing in respect of the related Mortgaged
Property have been paid, or an escrow of funds in an amount sufficient
to cover such payments has been
established.
(xx) Each Mortgage Loan is covered by hazard insurance (and,
if applicable, federal flood insurance) in an amount at least equal to
the greater of (A) the amount of the Mortgage Loan on the related
Mortgaged Property, and (B) an amount sufficient to avoid the
application of any coinsurance clause contained in the related
insurance policy, together with a replacement cost rider or other
provision that does not allow for any reduction due to depreciation;
such insurance requires prior notice to ICCC of termination or
cancellation, and no such notice has been received; the Mortgage
obligates the related mortgagee to maintain such insurance and, upon
such mortgagor's failure to do so, authorizes the mortgagee to maintain
such insurance at the mortgagor's cost and expense and to seek
reimbursement therefor from such mortgagor; all premium payments due
and owing have been paid.
(xxi) ICCC has received a phase I environmental site
assessment (the "ESA") certified as having been prepared in accordance
with the Standard Practice for Environmental Site Assessments, Phase I
Environmental Site Assessment Process (E1527-94) established by the
American Society for Testing and Materials. To the best of ICCC's
knowledge, and in reliance on the ESA, there exist no circumstances or
conditions respecting the Mortgaged Property that might (1) constitute
or result in a material violation of any Environmental Law, (2) require
any expenditure material in relation to the principal balance of the
Mortgage Loans as of the Date of Conveyance to achieve or maintain
compliance therewith, (3) impose any material constraint on operation
of the Mortgaged Property or change in the use thereof or (4) require
cleanup, remedial action or other response under any Environmental Law
by the applicable Borrower or any subsequent owner of the Mortgaged
Property, in each case other than those matters disclosed in the ESAs
and for which operation and management programs or escrows for
anticipated costs have been established, as recommended in the related
ESA. Other than as described in the preceding sentence, ICCC has
received no notice of (A) any actual or alleged failure of the
Mortgaged Property to comply with any applicable Environmental Laws in
any
S-23
material respect, (B) any known or alleged presence of any material
amount of Hazardous Substances on, under or immediately bordering such
Mortgaged Property, or (C) any pending or threatened claim with respect
to material environmental matters relating to such Mortgaged Property.
(xxii) (1) Each Mortgage Loan is directly secured by a
mortgage on a commercial or multifamily property, and (2) either (A)
substantially all of the proceeds of such Mortgage Loan were used to
acquire or improve or protect an interest in real property that, at the
origination date, was the only security for the Mortgage Loan or (B)
fair market value of such real property was at least equal to 80% of
the principal amount of the Mortgage Loan at origination.
(xxiii) To the best of ICCC's knowledge in reliance on the
related title insurance policy, there are no mechanics' or similar
liens or claims which have been filed for work, labor or material (and
no rights are outstanding that under law could give rise to any such
lien) affecting the Mortgaged Property which are or may be prior or
equal to, or coordinate with, the lien of the Mortgage except those
which are insured against by the mortgagee title insurance policy
referred to above.
(xxiv) The related Assignment of Mortgage constitutes a legal,
valid and binding assignment of such Mortgage to the Depositor, and the
related Reassignment of Assignment of Leases and Rents, if any,
constitutes a legal, valid and binding assignment thereof to the
Depositor.
(xxv) The mortgage instruments relating to such Mortgage Loan
contain provisions protective of the mortgagee's interests customary in
ICCC's commercial mortgage loans at the time such Mortgage Loan was
originated; and the related Mortgage Note or the related Mortgage
contains customary and enforceable provisions such as to render the
rights and remedies of the holder thereof adequate for the realization
against the Mortgaged Property of the benefits of the security,
including realization by judicial or, if applicable, nonjudicial
foreclosure, and there is no exemption available to the borrower which
would interfere with such right to foreclose, except as may be limited
by (A) bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, redemption or other similar laws affecting the enforcement
of creditors' rights generally and (B) general equity principles
(regardless of whether such enforcement is considered in a proceeding
in equity or at law).
(xxvi) The related Mortgage Note is not, and has not been
since the date of origination of the Mortgage Loan, secured by any
collateral except the lien of the related Mortgage, any related
Assignment of Leases and Rents and any related security agreement and
escrow agreement; the security for the Mortgage Loan consists only of
the related Mortgaged Property, any leases (including without
limitation any credit leases) thereof any appurtenances, fixtures and
other property located thereon; and such Mortgaged Property does not
secure any mortgage loan other than the Mortgage Loan being transferred
and assigned to the Depositor hereunder except for Mortgage Loans which
are cross-collateralized with other Mortgage Loans being conveyed to
the Depositor or subsequent transferee hereunder and identified on the
Mortgage Loan Schedule.
(xxvii) If the related Mortgage is a deed of trust, a trustee,
duly qualified under applicable law to serve as such, has been properly
designated and currently so serves and is named in the deed of trust or
has been substituted in accordance with applicable law, and no fees or
expenses are or will become payable to the trustee under the deed of
trust, except in connection with a trustee's sale after default by the
mortgagor or in connection with the release of the Mortgaged Property
or related security for the Mortgage Loan following the payment of the
Mortgage Loan in full.
(xxviii) All escrow deposits and payments relating to such
Mortgage Loan are in the possession, or under the control, of ICCC, and
all amounts required to be deposited by the related borrower have been
deposited and there are no deficiencies with regard thereto.
(xxix) To the best of ICCC's knowledge in reliance upon a
review of the title policy and survey for the Mortgaged Properties,
none of the improvements which were included for the purpose of
determining the appraised value of the related Mortgaged Property at
the time of the origination of such Mortgage Loan lies outside of the
boundaries and building restriction lines of such property in effect at
the time such improvements
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were constructed, and no improvements on adjoining properties
materially encroach upon such Mortgaged Property.
(xxx) With respect to any Mortgage which is secured in whole
or in part by the interest of a borrower as a lessee under a ground
lease and based upon the terms of the ground lease or an estoppel
letter from the ground lessor, either (1) the ground lessor's fee
interest is subordinated to the lien of the mortgage
or (2) the following apply to such ground lease:
(A) The ground lease or a memorandum thereof has been duly recorded,
the ground lease permits the interest of the lessee thereunder to be encumbered
by the related mortgage, does not restrict the use of the mortgaged property,
lessee, its successors and assigns in a manner that would adversely affect the
security provided by the related mortgage, and there has not been a material
change in the terms of the ground lease since its recordation, with the
exception of written instruments which are part of the related Mortgage File.
(B) The ground lease is not subject to any liens or encumbrances
superior to, or of equal priority with, the related Mortgage, other than the
related ground lessor's related fee interest.
(C) The borrower's interest in the ground lease is assignable to the
holder of the Mortgage upon notice to, but without the consent of, the lessor
thereunder and, in the event that it is so assigned, it is further assignable by
the trustee and its successors and assigns upon notice to, but without a need to
obtain the consent of, such lessor.
(D) As of the Date of Conveyance, the ground lease is in full force and
effect and no default has occurred under the ground lease and there is no
existing condition which, but for the passage of time or the giving of notice,
would result in a default under the terms of the ground
lease.
(E) The ground lease requires the lessor thereunder to give notice of
any default by the lessee to the mortgagee; and the ground lease, or an estoppel
letter received by the mortgagee from the lessor, further provides that notice
of termination given under the ground lease is not effective against the
mortgagee unless a copy of the notice has been delivered to the mortgagee in the
manner described in such ground lease or estoppel letter.
(F) The mortgagee is permitted a reasonable opportunity (including,
where necessary, sufficient time to gain possession of the interest of the
lessee under the ground lease) to cure any default under the ground lease, which
is curable after the receipt of notice of any default before the lessor
thereunder may terminate the ground lease.
(G) The ground lease has a term which extends not less than 10 years
beyond the maturity date of the related Mortgage Loan.
(H) The ground lease requires the lessor to enter into a new lease upon
termination of the ground lease for any reason, including rejection of the
ground lease in a bankruptcy proceeding.
(I) Under the terms of the ground lease and the related Mortgage, taken
together, any related insurance proceeds will be applied either to the repair or
restoration of all or part of the related Mortgaged Property, with the mortgagee
or a trustee appointed by it having the right to hold and disburse the proceeds
as the repair or restoration progresses, or to the payment of the outstanding
principal balance of the Mortgage Loan together with any accrued interest
thereon.
(J) Such ground lease does not impose restrictions on subletting.
(K) Either the ground lease or the related Mortgage contains the
borrower's covenant that such ground lease shall not be amended, canceled or
terminated without the prior written consent
of the mortgagee.
S-25
(L) In the case of any default under the ground lease which is not
curable by the mortgagee, or in the event of the bankruptcy or insolvency of the
ground lessee, the mortgagee has the right, following termination of the
existing ground lease or rejection thereof by a bankruptcy trustee or similar
party, to enter into a new ground lease with the lessor on substantially the
same terms as the existing ground lease.
(M) The ground lease or an estoppel letter contains a covenant that the
lessor thereunder is not permitted, in the absence of an uncured default, to
disturb the possession, interest or quiet enjoyment of any lessee in the
relevant portion of the Mortgaged Property subject to such ground lease for any
reason, or in any manner, which would materially adversely affect the security
provided by the related Mortgage.
(xxxi) To the extent ICCC originated the Mortgage Loan, such
Mortgage Loan has been originated in compliance in all material
respects with its underwriting guidelines.
(xxxii) All items required to be included in the Mortgage File
for each Mortgage Loan are so included and each Mortgage File has been
delivered to the Custodian,
(xxxiii) With respect to any Mortgage which is secured by a
senior housing or nursing home facility
("FACILITY"):
(A) Based upon representations by the borrower and each facility
operator or manager (each an "OPERATOR"), each borrower and each Facility
complies with all federal, state and local laws, regulations, quality and safety
standards, accreditation standards and requirements of the applicable state
Department of Health (each a "DOH") and all other federal, state or local
governmental authorities including, without limitation, those relating to the
quality and adequacy of medical care, distribution of pharmaceuticals, rate
setting, equipment, personnel, operating policies, additions to facilities and
services and fee splitting.
(B) All governmental licenses, permits, regulatory agreements or other
approvals or agreements necessary or desirable for the use and operation of each
Facility as intended are held by the applicable borrower or Operator and are in
full force and effect, including, without limitation, a valid certificate of
need ("CON") or similar certificate, license, or approval issued by the DOH for
the requisite number of beds, and approved provider status in any approved
provider payment program (collectively, the "LICENSES").
(C) Based upon representations and covenants in the Mortgage and, where
applicable, certificates of government officials, the Licenses, including,
without limitation, the CON:
(1) May not be, and have not been, transferred to any location
other than the Facility;
(2) Have not been pledged as collateral security for any other
loan or indebtedness; and
(3) Are held free from restrictions or known conflicts which
would materially impair the use or operation of the Facility as
intended, and are not provisional, probationary
or restricted in any way.
(D) So long as the Mortgage remains outstanding, no borrower or
Operator is permitted pursuant to the terms of the Mortgage without the consent
of the holder of the Mortgage to:
(1) rescind, withdraw, revoke, amend, modify, supplement, or
otherwise alter the nature, tenor or scope of the Licenses for any
Facility (other than the addition of services or other matters
expanding or improving the scope of such license);
S-26
(2) amend or otherwise change any Facility's authorized bed
capacity and/or the number of beds approved by the DOH; or
(3) replace or transfer all or any part of any Facility's beds
to another site or location.
(E) Based upon representations and covenants in the Mortgage, each
Facility is in compliance with all requirements for participation in Medicare
and Medicaid, including, without limitation, the Medicare and Medicaid Patient
Protection Act of 1987; each Facility is in conformance in all material respects
with all insurance, reimbursement and cost reporting requirements, and has a
current provider agreement which is in full force and effect under Medicare and
Medicaid.
(F) To the best of ICCC's knowledge, there is no threatened or pending
revocation, suspension, termination, probation, restriction, limitation, or
nonrenewal affecting any borrower, Operator, or Facility or any participation or
provider agreement with any third-party payor, including Medicare, Medicaid,
Blue Cross and/or Blue Shield, and any other private commercial insurance
managed care and employee assistance program (such programs, the "THIRD-PARTY
PAYORS' PROGRAMS") to which any borrower or Operator presently is subject. The
Mortgage contains representations and covenants by the borrower that all
Medicaid, Medicare, and private insurance cost reports and financial reports
submitted by the borrower or Operator are and will be materially accurate and
complete and have not been and will not be misleading in any material respects,
and except as otherwise disclosed, no cost reports for any Facility remain
"open" or unsettled.
(G) To the best of ICCC's knowledge and based on representations by
each borrower in the related Mortgage, no borrower, Operator or Facility is
currently the subject of any proceeding by any governmental agency, and no
notice of any violation has been received from a governmental agency that would,
directly or indirectly, or with the passage of time:
(1) Have a material adverse impact on any borrower's ability
to accept and/or retain patients or result in the imposition of a fine,
a sanction, a lower rate certification or a lower reimbursement rate
for services rendered to eligible patients;
(2) Modify, limit or annul or result in the transfer,
suspension, revocation or imposition of probationary use of any
borrower's Licenses; or
(3) Affect any borrower's continued participation in the
Medicaid or Medicare programs or any other of the Third-Party Payors'
Programs, or any successor programs
thereto, at current rate certifications.
(H) Based upon representations and covenants in the Mortgage and, where
available, certificates of government officials, each Facility and the use
thereof complies in all material respects with all applicable local, state and
federal building codes, fire codes, health care, nursing facility and other
similar regulatory requirements (the "PHYSICAL PLANT STANDARDS") and no waivers
of Physical Plant Standards exist at any of the Facilities.
(I) Based upon representations and covenants in the Mortgage and, where
available, certificates of government officials, no Facility has received a
"Level A" (or equivalent) violation, and no statement of charges or deficiencies
has been made or penalty enforcement action has been undertaken against any
Facility, Operator or borrower, or against any officer, director or stockholder
of any Operator or borrower by any governmental agency during the last three
calendar years, and there have been no violations over the past three years
which have threatened any Facility's, any Operator's or any borrower's
certification for participation in Medicare or Medicaid or the other Third-Party
Payors' Programs.
(J) To the best of ICCC's knowledge and based on representations by
each borrower in the related Mortgage, there are no current, pending or
outstanding Medicaid, Medicare or
Third-
S-27
Party Payors' Programs reimbursement audits or appeals pending at any of the
Facilities concerning allegations of fraud or that might have a material adverse
effect on the operations of the
Facility.
(K) To the best of ICCC's knowledge and based on representations by
each borrower in the related Mortgage, there are no current or pending Medicaid,
Medicare or Third-Party Payors' Programs recoupment efforts at any of the
Facilities that might have a material adverse effect on the operations of the
Facility.
(L) To the best of ICCC's knowledge and based on representations by
each borrower in the related Mortgage, no borrower has pledged its receivables
as collateral security for any other
loan or indebtedness.
(M) To the best of ICCC's knowledge and based on representations by
each borrower in the related Mortgage, there are no patient or resident care
agreements with patients or residents or with any other persons which deviate in
any material adverse respect from the standard form
customarily used at the Facilities.
(N) The borrower has represented in the related Mortgage that all
patient or resident records at each Facility, including patient or resident
trust fund accounts, are true and correct in all
material respects.
(O) The borrower has represented in the related Mortgage that any
existing agreement relating to the management or operation of any Facility with
respect to any Facility is in full force and
effect and is not in default by any party thereto.
(P) The terms of each Mortgage require that no Facility, Operator or
borrower shall, other than in the normal course of business, change the terms of
any of the Third-Party Payors' Programs or its normal billing payment or
reimbursement policies and procedures with respect thereto (including, without
limitation, the amount and timing of finance charges, fees and write-offs)
without the prior written consent of the holder of the Mortgage.
The following terms have the following definitions for purposes of the
above representations and warranties:
"ASSIGNMENT OF LEASES AND RENTS" means, with respect to any Mortgage
Loan, an assignment to the Mortgagee of all of the Borrower's rights to receive
rental payments from the related Tenant pursuant to the related Lease, which
assignment may be contained in the related Mortgage or in one or more separate
documents duly executed by the Borrower in connection with the Mortgage Loan. In
the case of any Mortgage Loan secured by more than one Mortgaged Property, the
term "Assignment of Leases and Rents" shall refer to each Assignment of Leases
and Rents relating to each such Mortgaged Property and such Mortgage Loan.
"ASSIGNMENT OF MORTGAGE" means, with respect to any Mortgage Loan, an
assignment of the Mortgage or equivalent instrument, in recordable form, by
which ICCC assigns such Mortgage in connection with the transfer of the related
Mortgage Loan. In the case of any Mortgage Loan secured by more than one
Mortgage, the term "Assignment of Mortgage" shall refer to each Assignment of
Mortgage relating to such Mortgage and such Mortgage Loan.
"BORROWER" means a borrower or prospective borrower under a Mortgage
Loan.
"MORTGAGE FILE" means, with respect to each Mortgage Loan, the mortgage
loan documents and any other documents relating to such Mortgage Loan, in each
case to the extent they are delivered to the Custodian.
"MORTGAGE LOAN SCHEDULE" means a schedule of Mortgage Loans delivered
to the Custodian.
"PERSON" means any individual, partnership, corporation, limited
liability company, joint venture, trust or other entity.
S-28
"REASSIGNMENT OF ASSIGNMENT OF LEASES AND RENTS" means, with respect to
any Mortgage Loan, an assignment to the Custodian of the related Assignment of
Leases and Rents, duly executed and in suitable form for recording in the
jurisdiction in which the related Mortgaged Property is located. In the case of
any Mortgage Loan secured by more than one Mortgaged Property, the term
"Reassignment of Assignment of Leases and Rents" shall refer to each
Reassignment of Assignment of Leases and Rents relating to each such Mortgaged
Property and such Mortgage Loan.
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day of
each month. All of the Mortgage Loans are secured by first liens on fee simple
or leasehold interests in the related Mortgaged Properties. As of the Cut-off
Date, the Mortgage Loans had characteristics set forth below. The totals in the
following tables may not add due to rounding.
S-29
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE
Percent by
Percent by Aggregate Aggregate
Number Number Principal Principal
of of Balance as of Balance as of
Mortgage Mortgage the Cut-off the Cut-off
MORTGAGE RATE LOANS LOANS DATE DATE
- ------------- ----- ----- ---- ----
Total 100.00% $ 100.00%
------- -------
Weighted Average Mortgage Interest Rate: _______%
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Principal Balances Mortgage Mortgage Balance as of Balance as of
AS OF THE CUT-OFF DATE LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
---------------------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- -------
Average Principal Balance as of the Cut-off Date: $_____________
ORIGINAL TERM TO MATURITY IN MONTHS
PERCENT BY PERCENT BY
NUMBER AGGREGATE AGGREGATE
NUMBER OF OF PRINCIPAL PRINCIPAL
ORIGINAL TERM MORTGAGE MORTGAGE BALANCE AS OF BALANCE AS OF
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
--------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- -------
WEIGHTED AVERAGE ORIGINAL TERM TO MATURITY IN MONTHS: ______
REMAINING TERM TO MATURITY IN MONTHS
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Term Mortgage Mortgage Balance as of Balance as of
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
--------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- -------
Weighted Average Remaining Term to Maturity in Months: _______
S-30
MONTH AND YEAR OF ORIGINATION
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
MONTH/YEAR LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
---------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- ------
YEAR OF SCHEDULED MATURITY
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
YEAR LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
---- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- ------
__________ of the Mortgage Loans, representing ______% of the Mortgage
Loans, as a percentage of the aggregate Principal Balance as of the Cut-off
Date, are Balloon Mortgage Loans.
BALLOON MORTGAGE LOANS
ORIGINAL TERM TO MATURITY IN MONTHS
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Original Term Mortgage Mortgage Balance as of Balance as of
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
--------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- ------
Weighted Average Original Term to Maturity in Months: _____
S-31
BALLOON MORTGAGE LOANS
REMAINING TERM TO MATURITY IN MONTHS
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Term Mortgage Mortgage Balance as of Balance as of
IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
--------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- ------
Weighted Average Remaining Term to Maturity in Months: _____
The following table sets forth the range of remaining amortization
terms of each Balloon Mortgage Loan. The remaining amortization term of a
Balloon Mortgage Loan represents the number of months required to fully amortize
the Cut-off Balance of each Balloon Mortgage Loan.
BALLOON MORTGAGE LOANS
REMAINING AMORTIZATION TERM
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Amortization Mortgage Mortgage Balance as of Balance as of
TERM IN MONTHS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
-------------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- ------
Weighted Average Remaining Amortization Term in Months: _____
The following two tables set forth the range of Cut-off Date LTV Ratios
and Maturity Date LTV Ratios of the Mortgage Loans. A "CUT-OFF DATE LTV RATIO"
is a fraction, expressed as a percentage, the numerator of which is the Cut-off
Date Balance of a Mortgage Loan, and the denominator of which is the appraised
value of the related Mortgaged Property as determined by an appraisal thereof
obtained in connection with the origination of such Mortgage Loan.
A
"MATURITY DATE LTV RATIO" is a fraction, expressed as a percentage, the
numerator of which is the principal balance of a Mortgage Loan on the related
Maturity Date assuming all scheduled payments due prior thereto are made and
there are no principal prepayments, and the denominator of which is the
appraised value of the related Mortgaged Property as determined by an appraisal
thereof obtained in connection with the origination of such Mortgage Loan.
Because the value of Mortgaged Properties at the Maturity Date may be different
than such appraisal value, there can be no assurance that the loan-to-value
ratio for any Mortgage Loan determined at any time following origination thereof
will be lower than the Cut-off Date LTV Ratio or Maturity Date LTV Ratio,
notwithstanding any positive amortization of such Mortgage Loan. It is also
possible that the market value of a Mortgaged Property securing a Mortgage Loan
may decline between the origination thereof and the related Maturity Date.
An appraisal of each of the Mortgaged Properties was made between
__________ and ______________. It is possible that the market value of a
Mortgaged Property securing a Mortgage Loan has declined since the most recent
appraisal for such Mortgaged Property. All appraisals were obtained by the
related Originator in accordance with the requirements of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA").
S-32
CUT-OFF DATE LTV RATIOS
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Cut-off Date Mortgage Mortgage Balance as of Balance as of
LTV RATIO LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------- ----- ----- ---------------- ----------------
100.00% $ 100.00%
------- -------
Weighted Average Cut-off Date LTV Ratio: _________.
BALLOON MORTGAGE LOAN
MATURITY DATE LTV RATIOS
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Maturity Date Mortgage Mortgage Balance as of Balance as of
LTV RATIO LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- --------- ----- ----- ---------------- ----------------
100.00% $ 100.00%
------- -------
Weighted Average Maturity Date LTV Ratio: _________.
The following table sets forth the range of 199__ Debt Service Coverage
Ratios for the Mortgage Loans. The "DEBT SERVICE COVERAGE RATIO" or "DSCR" for
any Mortgage Loan for any period is the ratio of Net Operating Income produced
by the related Mortgaged Property for such period covered by the operating
statement for such period to the amounts of principal and interest due under
such Mortgage Loan for the same period. The DSCRs for 199__ are for periods of
12 months or annualized based upon periods that range from 3 to 11 months. The
DSCRs for 199__ and 199__ for each Mortgage Loan as set forth in Annex A hereto
are for the entire fiscal year. Generally, "NET OPERATING INCOME" for a
Mortgaged Property equals the operating revenues for such Mortgaged Property
minus its operating expenses and replacement reserves, but without giving effect
to debt service, depreciation, non-recurring capital expenditures, tenant
improvements, leasing commissions and similar items. The operating statements
for the Mortgaged Properties used in preparing the following table were obtained
from the respective Mortgagors. The information contained therein was unaudited,
and the Depositor has made no attempt to verify its accuracy. The information
derived from these sources was not uniform among the Mortgage Loans. In some
instances, adjustments were made to such operating statements principally for
real estate tax and insurance expenses resulting in increases or decreases in
net operating income stated therein based upon the Depositor's evaluation that
more appropriate information was available. In addition, obvious capital
expenditures were eliminated and replacement reserve estimates were incorporated
for each
S-33
property based on ICCC's standard underwriting ranges considering property age
and improvements. The following ranges were utilized (by property type) in
estimating the replacement reserve: office, $_______ to $_______ per net
rentable square foot; multifamily (except student housing), $_______ to $_______
per unit; student housing,
$-------
to $_______ per unit; retail, $_______ to $_______ per net rentable square foot;
industrial, $_______ to $_______ per net rentable square foot; hotel, ___% to
___% of gross income; self-storage, $_______ to $_______ per net rentable square
foot; health care-related, $_______ to $_______ per bed; mobile home park,
$_______ to $_______ per pad;
and condominium, $_______ to $_______ per unit.
199___ DEBT SERVICE COVERAGE RATIOS
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Debt Service Mortgage Mortgage Balance as of Balance as of
COVERAGE RATIO LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------------- ----- ----- ---------------- ----------------
100.00% $ 100.00%
------- -------
Weighted Average Debt Service Coverage Ratio: _________.
[Information on certain characteristics of certain specific Mortgage
Loans to be provided here.]
The Mortgage Loans are secured by Mortgaged Properties located in
______ different states. The table below sets forth the states in which the
Mortgaged Properties are located:
GEOGRAPHIC DISTRIBUTION
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
STATE LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
----- ----- ----- ---------------- ----------------
100.00% $ 100.00%
------- -------
S-34
PROPERTY TYPES
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
TYPE LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ---- ----- ----- ---------------- ----------------
Multi-Family.......................................
Retail -- with anchor tenant(1).....................
Hotel..............................................
Retail -- without anchor tenant(1)..................
Health Care-Related................................
Office.............................................
Industrial.........................................
Mobile Home Park...................................
Self-Storage.......................................
Condominium
Total.............................................. 100.00% $ 100.00%
------- -------
(1) For purposes of this table, the properties with an anchor tenant are as
designated in Annex A. The anchor tenant, if any, is set forth in Annex A.
YEARS SINCE THE MORTGAGED PROPERTIES WERE BUILT (1)
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Property Age Mortgage Mortgage Balance as of Balance as of
IN YEARS LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- -------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
Weighted Average Property Age in Years: _____
(1) See Annex A for the date on which the Mortgaged Property most recently
underwent some degree of capital improvements.
S-35
PHYSICAL OCCUPANCY PERCENTAGES (1)
MULTIFAMILY AND MOBILE HOME PARKS
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: ________%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
RETAIL
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
Weighted Average Occupancy Percentage: __________%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL DAILY OCCUPANCY PERCENTAGES (1)
HOTEL
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: ______%
(1) See Annex A for the period over which occupancy percentages were calculated
for each Mortgaged Property.
S-36
PHYSICAL OCCUPANCY PERCENTAGES (1)
OFFICE
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: ___________%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
OTHER
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
PERCENTAGES LOANS LOANS THE CUT-OFF DATE THE CUT-OFF DATE
- ----------- ----- ----- ---------------- ----------------
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: ___________%
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
With certain limited exceptions relating to casualty and condemnation
proceeds, or other prepayments beyond the borrower's control, all of the
Mortgage Loans prohibit the prepayment thereof until a date specified in the
related Mortgage Note (such period, the "LOCK-OUT PERIOD" and the date of
expiration thereof, the "LOCK-OUT DATE") and/or provide that upon any voluntary
principal prepayment of a Mortgage Loan, the related Mortgagor will be required
to pay a prepayment premium or yield maintenance penalty (a "PREPAYMENT
PREMIUM"). The following table sets forth the percentage of the declining
aggregate balance of all the Mortgage Loans that on June 1 of each of the years
indicated will be within their related Lock-out Period and/or in which a
principal prepayment must be accompanied by a Prepayment Premium.
S-37
PREPAYMENT LOCK-OUT/PREPAYMENT PREMIUM ANALYSIS
PERCENTAGE OF MORTGAGE LOANS BY OUTSTANDING PRINCIPAL BALANCE
AS OF THE DATE INDICATED ASSUMING NO PREPAYMENTS
JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
CURRENT
-------
Lock-out...................
PREPAYMENT PREMIUM
YIELD MAINTENANCE (1)......
7.00 - 7.99% (2).........
6.00 - 6.99% (2).........
5.00 - 5.99% (2).........
4.00 - 4.99% (2).........
3.00 - 3.99% (2).........
2.00 - 2.99% (2).........
1.00 - 1.99% (2).........
0.01 - 0.99% (2).........
NO PREPAYMENT PREMIUM......
TOTAL...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
======
AGGREGATE PRINCIPAL
BALANCE OF THE
MORTGAGE LOANS (3).......
PERCENTAGE OF CUT-OFF
DATE PRINCIPAL
BALANCE OF THE MORTGAGE
LOANS
OUTSTANDING.............. 100.0%
(1) THE MORTGAGE LOANS GENERALLY REQUIRE THE PAYMENT OF A PREPAYMENT
PREMIUM IN CONNECTION WITH ANY PRINCIPAL PREPAYMENT, IN WHOLE OR IN
PART. ANY PREPAYMENT PREMIUM WILL EQUAL THE PRESENT VALUE, AS OF THE
DATE OF PREPAYMENT, OF THE REMAINING MONTHLY PAYMENTS FROM SUCH DATE OF
PREPAYMENT THROUGH THE RELATED STATED MATURITY (INCLUDING THE BALLOON
PAYMENT), DETERMINED BY DISCOUNTING SUCH PAYMENTS AT A U.S. TREASURY
RATE SPECIFIED THEREIN, MINUS THE THEN OUTSTANDING BALANCE, SUBJECT TO
A MINIMUM PREPAYMENT PREMIUM EQUAL TO 1% OF THE PRINCIPAL BALANCE OF
SUCH MORTGAGE LOAN BEING PREPAID.
(2) MORTGAGE LOAN REQUIRES A PREPAYMENT PREMIUM EQUAL TO INDICATED PERCENTAGE OF
AMOUNT PREPAID.
(3) MILLIONS OF DOLLARS.
S-38
RELATED BORROWERS AND OTHER ISSUES
[Description of certain borrowers and issues.]
See Annex A for additional information on the Mortgage Loans.
ESCROWS
All of the Mortgage Loans except for _______ Mortgage Loans,
representing ______% of the Mortgage Loans, provide for monthly escrows to cover
property taxes on the Mortgaged Properties. Monthly escrows to cover insurance
premiums on the Mortgaged Properties are also generally required, except with
respect to Mortgage Loans originated by ________________________ where the
Servicer provides force-placed coverage and monitors the related Mortgagor's
compliance.
_______ of the Mortgage Loans, which represent _______% of the Mortgage
Loans also require monthly escrows to cover ongoing replacements and capital
repairs.
_________ of the Mortgage Loans, which represent ______% of the
Mortgage Loans, also required upfront or monthly escrows for the full term or a
portion of the term of the related Mortgage Loan to cover anticipated re-leasing
costs, including tenant improvements and leasing commissions.
See Annex A for additional information on the monthly escrows on the
Mortgage Loans.
UNDERWRITING GUIDELINES
[DESCRIPTION OF UNDERWRITING GUIDELINES]
ADDITIONAL INFORMATION
A Current Report on Form 8-K (the "FORM 8-K") will be available to
purchasers of the Offered Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Offered Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will include the following nine classes of Offered Certificates
designated as the Class A1, Class A1X, Class A2, Class A2X, Class B, Class C,
Class BCX, Class D and Class E Certificates. In addition to the Offered
Certificates, the Certificates will also include the Class F, Class G, Class NR,
Class R-I, Class R-II and Class R-III Certificates. Only the Offered
Certificates are offered hereby. The Certificates represent in the aggregate the
entire beneficial ownership interest in a Trust Fund consisting of: (i) a pool
of fixed rate Mortgage Loans and all payments under and proceeds of the Mortgage
Loans received after the Cut-off Date (exclusive of payments of principal and
interest due on or before the Cut-off Date); (ii) any Mortgaged Property
acquired on behalf of the Trust Fund through foreclosure or deed in lieu of
foreclosure (upon acquisition, an "REO PROPERTY"); (iii) such funds or assets as
from time to time are deposited in the Collection or Distribution Accounts or
any account established in connection with REO Properties (the "REO ACCOUNT");
and (iv) the rights of the mortgagee under all insurance policies with respect
to the Mortgage Loans.
The Class A1, Class A1X, Class A2 and Class A2X Certificates will
evidence approximately an initial ---% undivided interest in the Trust Fund. The
Class B Certificates will evidence approximately an initial __% undivided
interest in the Trust Fund. The Class C Certificates will evidence approximately
an initial ___% undivided interest in the Trust Fund. The Class D Certificates
will evidence approximately an initial ____% undivided interest in the Trust
Fund. The Class E Certificates will evidence approximately an initial ___%
undivided interest in the Trust Fund.
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The Class BCX Certificates consist of the following components: Class
BCX component B and Class BCX component C. The Class BCX component B and Class
BCX component C are not separately transferrable.
The Offered Certificates (the "DTC REGISTERED CERTIFICATES") will be
issued, maintained and transferred on the book-entry records of The Depository
Trust Company ("DTC") and its Participants (as defined in the Prospectus). The
DTC Registered Certificates, other than the Interest Only Certificates, will be
issued in minimum denominations of $__________ and integral multiples of $____
in excess thereof. The Interest Only Certificates will be issued in
denominations of $100,000 Notional Amount and integral multiples of $_____
Notional Amount.
The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Company has been
informed by DTC that DTC's nominee will be Cede & Co. ("CEDE"). No person
acquiring an interest in the DTC Registered Certificates (a "BENEFICIAL OWNER")
will be entitled to receive a certificate representing such person's interest (a
"DEFINITIVE CERTIFICATE"), except as set forth below under "--Book-Entry
Registration of Certain of the Senior Certificates -- Definitive Certificates."
Unless and until Definitive Certificates are issued for the DTC Registered
Certificates under the limited circumstances described herein, all references to
actions by Certificateholders with respect to the DTC Registered Certificates
shall refer to actions taken by DTC upon instructions from its Participants, and
all references herein to distributions, notices, reports and statements to
Certificateholders with respect to the DTC Registered Certificates shall refer
to distributions, notices, reports and statements to DTC or Cede, as the
registered holder of the DTC Registered Certificates, for distribution to
Beneficial Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
GENERAL. Beneficial Owners that are not Participants or Intermediaries
(as defined in the Prospectus) but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, the related DTC Registered
Certificates may do so only through Participants and Intermediaries. In
addition, Beneficial Owners will receive all distributions of principal of and
interest on the related DTC Registered Certificates from the Trustee through DTC
and Participants. Accordingly, Beneficial Owners may experience delays in their
receipt of payments. Unless and until Definitive Certificates are issued for the
related DTC Registered Certificates, it is anticipated that the only registered
Certificateholder of such DTC Registered Certificates will be Cede, as nominee
of DTC. Beneficial Owners will not be recognized by the Trustee or the Master
Servicer as Certificateholders, as such term is used in the Pooling and
Servicing Agreement; provided, however, that Beneficial Owners will be permitted
to request and receive information furnished to Certificateholders by the
Trustee subject to receipt by the Trustee of a certification in form and
substance acceptable to the Trustee stating that the person requesting such
information is a Beneficial Owner. Otherwise, the Beneficial Owners will be
permitted to receive information furnished to Certificateholders and to exercise
the rights of Certificateholders only indirectly through DTC, its Participants
and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "RULES"), DTC is required to make book-entry transfers
of DTC Registered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such DTC Registered
Certificates. Participants and Intermediaries with which Beneficial Owners have
accounts with respect to such DTC Registered Certificates similarly are required
to make book-entry transfers and receive and transmit such distributions on
behalf of their respective Beneficial Owners. Accordingly, although Beneficial
Owners will not possess physical certificates evidencing their interests in the
DTC Registered Certificates, the Rules provide a mechanism by which Beneficial
Owners, through their Participants and Intermediaries, will receive
distributions and will be able to transfer their interests in the DTC Registered
Certificates.
None of the Depositor or the Trustee will have any liability for any
actions taken by DTC or its nominee, including, without limitation, actions for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the DTC Registered Certificates held by Cede, as nominee
for DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
DEFINITIVE CERTIFICATES. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates -- Book-Entry Registration and Definitive
Certificates."
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Upon the occurrence of an event described in the Prospectus in the
seventh paragraph under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates," the Trustee is required to notify,
through DTC, Participants who have ownership of DTC Registered Certificates as
indicated on the records of DTC of the availability of Definitive Certificates
for their DTC Registered Certificates. Upon surrender by DTC of the definitive
certificates representing the DTC Registered Certificates and upon receipt of
instructions from DTC for re-registration, the Trustee will reissue the DTC
Registered Certificates as Definitive Certificates issued in the respective
principal amounts owned by individual Beneficial Owners, and thereafter the
Trustee and the Master Servicer will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC and the DTC Registered
Certificates, see "Description of the Certificates -- Book-Entry Registration
and Definitive Certificates" in the Prospectus.
DISTRIBUTIONS
METHOD, TIMING AND AMOUNT. Distributions on the Certificates will be
made on the [25th] day of each month or, if such [25th] day is not a business
day, then on the next succeeding business day, commencing in ________ 199__
(each, a "DISTRIBUTION DATE"). All distributions (other than the final
distribution on any Certificate) will be made by the Trustee to the persons in
whose names the Certificates are registered at the close of business on each
Record Date, which will be the last business day of the month preceding the
month in which the related Distribution Date occurs. Such distributions will be
made 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 will have provided the Trustee with wiring
instructions as provided in the Pooling and Servicing Agreement and is the
registered holder of Certificates with an initial aggregate denomination of at
least $__________ or, otherwise, by check. The final distribution on any
Certificate will be made in like manner, but only upon presentment or surrender
of such Certificate at the location specified in the notice to the holder
thereof of such final distribution. All distributions made with respect to a
class of Certificates on each Distribution Date will be allocated pro rata among
the outstanding Certificates of such class based on their respective Percentage
Interests. The "PERCENTAGE INTEREST" evidenced by any Certificate is equal to
the initial denomination thereof as of the Delivery Date, divided by the initial
Class Balance or Notional Amount, as applicable, for such class. The aggregate
distribution to be made on the Certificates on any Distribution Date shall equal
the Available Distribution Amount.
The "AVAILABLE DISTRIBUTION AMOUNT" for any Distribution Date is an
amount equal to (a) the sum of (i) the amount on deposit in the Primary
Collection Account (as defined herein) as of the close of business on the
related Determination Date, which amount will include scheduled payments on the
Mortgage Loans due on or prior to the related Due Date immediately preceding,
and collected as of, such Determination Date (to the extent not distributed on
previous Distribution Dates) and unscheduled payments and other collections on
the Mortgage Loans collected during the related Remittance Period and (ii) the
aggregate amount of any P&I Advances made by each Servicer in respect of such
Distribution Date (not otherwise included in clause (i) above) net of (b) the
portion of the amount described in clause (a)(i) hereof that represents (i)
Monthly Payments due on a Due Date subsequent to the end of the related
Remittance Period, (ii) any amounts payable or reimbursable therefrom to any
Servicer or the Trustee or (iii) any servicing and trustee compensation.
PASS-THROUGH RATE ON THE CERTIFICATES. The "PASS-THROUGH RATES" on the
Class A1 and Class A2 Certificates are fixed and are set forth on the cover
hereof. The Pass-Through Rates on the Class A1X, Class A2X, Class B and Class C
Certificates will be equal to the weighted average of the Remittance Rates in
effect from time to time on the Mortgage Loans minus the Pass-Through Rates on
the Class A1 and Class A2 Certificates, respectively. The Class BCX Certificates
will be entitled to interest at the Pass-Through Rate on the components. The
Pass-Through Rate on the Class BCX component B is _______% per annum and on the
Class BCX component C is _______% per annum. The Pass-Through Rates on the Class
D and Class E Certificates will be equal to the weighted average of the
Remittance Rates in effect from time to time on the Mortgage Loans. The
"REMITTANCE RATE" for any Mortgage Loan is equal to the excess of the Mortgage
Interest Rate thereon (without giving effect to any modification or other
reduction thereof following the Cut-off Date) over the sum of the applicable
Servicing Fee Rate and the fee payable to the Trustee. The fee payable to the
Trustee will be _______% per annum. The Mortgage Interest Rate for each of the
Mortgage Loans which provide for the computation of interest other than on the
basis of a 360-day year consisting of twelve 30-day months (a "30/360 BASIS")
(that is the basis on which interest on the Certificates accrues) will be
adjusted to reflect that difference.
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INTEREST DISTRIBUTIONS ON THE CERTIFICATES. Subject to the distribution
of the Principal Distribution Amount to the Holders of classes of Certificates
of a higher priority, as described under "Priority of Distributions" below,
Holders of each class of Certificates will be entitled to receive on each
Distribution Date, to the extent of the Available Distribution Amount for such
Distribution Date (net of any interest accrued on any Collateral Value
Adjustment subsequently recovered and any Net Prepayment Premium) (the "ADJUSTED
AVAILABLE DISTRIBUTION AMOUNT"), distributions allocable to interest in an
amount (the "INTEREST DISTRIBUTION AMOUNT") equal to the sum of interest accrued
during the period from and including the first day of the month preceding the
month of the Distribution Date) (or from the Cut-off Date in the case of the
initial Distribution Date) to and including the last day of the month preceding
the month of the Distribution Date (calculated on the basis of a 360-day year
consisting of twelve 30-day months) on the Class Balance (or the Notional
Amount, in the case of the Interest Only Certificates, or the related
components) of such class of Certificates or such components, as the case may
be, outstanding immediately prior to such Distribution Date, at the
then-applicable Pass-Through Rate (the "INTEREST ACCRUAL AMOUNT") less such
class' (or component's) pro rata share, by Interest Accrual Amount, of any
interest shortfall not related to a Mortgagor delinquency or default, such as
Prepayment Interest Shortfalls (as defined herein) and shortfalls associated
with exemptions provided by the Relief Act (as defined in the Prospectus). The
Notional Amount of the Class A1X Certificates will equal the Class Balance of
the Class A1 Certificates. The Notional Amount of the Class A2X Certificates
will equal the Class Balance of the Class A2 Certificates. The Notional Amount
of the Class BCX component B Certificates will equal the Class Balance of the
Class B Certificates. The Notional Amount of the Class BCX component C
Certificates will equal the Class Balance of the Class C Certificates. A
Notional Amount does not entitle the Interest Only Certificates (or any
component thereof) to any distributions of principal. If the Adjusted Available
Distribution Amount for any Distribution Date is less than the Interest
Distribution Amount for such Distribution Date, the shortfall will be part of
the Interest Distribution Amount distributable to holders of Certificates
affected by such shortfall on subsequent Distribution Dates, to the extent of
available funds. Any such shortfall will bear interest at the related
Pass-Through Rate.
To the extent not necessary to reimburse the Master Servicer for
reductions in its compensation to cover Prepayment Interest Shortfalls, in
addition to the related Interest Distribution Amount, the Interest Only
Certificates will receive _____%, and the remaining Offered Certificates will
receive ____%, of any Net Prepayment Premium paid with respect to the Mortgage
Loans. The Net Prepayment Premium payable to the Interest Only Certificates will
be paid to the holders of the Class A1X Certificates while the Class A1
Certificates are outstanding. On each Distribution Date after the Distribution
Date on which the Class Balances of the Class A1 Certificates has been reduced
to zero, any Net Prepayment Premium payable to the Interest Only Certificates
will be paid to the holders of the Class A2X Certificates while the Class A2
Certificates are outstanding. On each Distribution Date after the Distribution
Date on which the Class Balances of the Class A1 and Class A2 Certificates have
been reduced to zero, any Net Prepayment Premium payable to the Interest Only
Certificates will be paid to the holders of the Class BCX Certificates while the
Class B or Class C Certificates are outstanding. No portion of the Net
Prepayment Premium will be payable to the Interest Only Certificates after the
Distribution Date on which the Class Balances of the Class A1, Class A2, Class B
and Class C Certificates have been reduced to zero. On each Distribution Date,
the Net Prepayment Premium not payable to the Master Servicer or the holders of
the Interest Only Certificates will be paid the holders of the class of Offered
Certificates then outstanding with the highest principal payment priority.
To the extent any Mortgage Loan is prepaid in full or in part between a
Determination Date and the related Due Date immediately following such
Determination Date, an interest shortfall may result on the second Distribution
Date following such Determination Date because interest on prepayments in full
or in part will only accrue to the date of payment (such shortfall, a
"PREPAYMENT INTEREST SHORTFALL"). To the extent any Mortgage Loan is prepaid in
full or in part between the related Due Date and the Determination Date
immediately following such Due Date, the interest on such prepayment will be
included in the Available Distribution Amount for the immediately succeeding
Distribution Date (the "PREPAYMENT INTEREST EXCESS"). If a Mortgage Loan is
prepaid in full or in part during any Remittance Period, any related Prepayment
Interest Shortfall shall be offset to the extent of any Prepayment Interest
Excess and any Prepayment Premium collected during such Remittance Period. If
the Prepayment Interest Shortfall for any Remittance Period exceeds any
Prepayment Interest Excess and any Prepayment Premiums collected during such
period, such shortfall shall only be offset by an amount up to the portion of
the Servicing Fee payable to the Master Servicer on the related Distribution
Date. To the extent that any such shortfall shall have been offset by a portion
of the Servicing Fee, the Master Servicer shall be entitled to any excess of the
Prepayment Interest Excess and Prepayment Premiums over the Prepayment Interest
Shortfall for any subsequent period.
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The "NET PREPAYMENT PREMIUM" with respect to any Distribution Date will
equal the excess of (a) the total amount of Prepayment Premiums received during
the related Remittance Period over (b) the Prepayment Interest Shortfall for any
Remittance Period over the Prepayment Interest Excess for any Remittance Period.
The Pass-Through Rates on the Certificates with variable Pass-Through
Rates will not be affected by the deferral of interest or reduction of the
Mortgage Interest Rate on any Mortgage Loan by the Special Servicer or by the
occurrence of either such event in connection with any bankruptcy proceeding
involving the related borrower. The amount of any resulting interest shortfall
will be allocated to the Certificates, in the order described under
"Subordination" below.
PRINCIPAL DISTRIBUTIONS ON THE OFFERED CERTIFICATES. Holders of the
Certificates will be entitled to receive on each Distribution Date in reduction
of the related Class Balance in the order described herein until the related
Class Balance is reduced to zero, to the extent of the balance of the Adjusted
Available Distribution Amount remaining after the payment of the Interest
Distribution Amount for such Distribution Date for the classes of Certificates
with the highest priority for interest payments (as described under "Priority of
Distributions' below), distributions in respect of principal in an amount (the
"PRINCIPAL DISTRIBUTION AMOUNT") equal to the aggregate of (i) all scheduled
payments of principal (other than Balloon Payments) due on the Mortgage Loans on
the related Due Date whether or not received and all scheduled Balloon Payments
received, (ii) if the scheduled Balloon Payment is not received, with respect to
any Balloon Mortgage Loans on and after the Maturity Date thereof, the principal
payment that would need to be received in the related month in order to fully
amortize such Balloon Mortgage Loan with level monthly payments by the end of
the term used to derive scheduled payments of principal due prior to the related
Maturity Date, (iii) to the extent not previously advanced any unscheduled
principal recoveries received during the related Remittance Period in respect of
the Mortgage Loans, whether in the form of liquidation proceeds, insurance
proceeds, condemnation proceeds or amounts received as a result of the purchase
of any Mortgage Loan out of the Trust Fund and (iv) any other portion of the
Adjusted Available Distribution Amount remaining undistributed after payment of
any interest payable on the Certificates for the related or any prior
Distribution Date, including any Prepayment Interest Excess not offset by any
Prepayment Interest Shortfall occurring during the related Remittance Period or
otherwise required to reimburse the Master Servicer, as described herein, and
interest distributions on the Mortgage Loans, in excess of interest
distributions on the Certificates, resulting from the allocation of amounts
described in this clause (iv) to principal distributions on the Certificates.
The Interest Only Certificates do not have a Class Balance and are therefore not
entitled to any principal distributions.
PRIORITY OF DISTRIBUTIONS
The Adjusted Available Distribution Amount for each Distribution Date
will be applied (a) first to distributions of interest on the classes of
Certificates outstanding with the highest priority for interest payment (as
described below), (b) second to distributions of the Principal Distribution
Amount to the classes of Certificates then entitled to distribution of principal
as described below, and (c) third, to distributions of interest on each class of
Certificates other than the classes described in clause (a), above, in the order
of priority described below; provided that on any Distribution Date on which the
Class Balance of a class of Certificates is reduced to zero pursuant to clause
(b) above, interest distributions pursuant to clause (a) above will be made to
the class of Certificates outstanding with the next highest priority for
interest payments prior to making distributions of the Principal Distribution
Amount thereto pursuant to clause (b) above. The priority for interest payments
for purposes of clauses (a) and (c), above, is: first to distributions of
interest on the Class A1, Class A1X, Class A2 and Class A2X Certificates, pro
rata, based on their respective Interest Accrual Amounts; second to
distributions of interest on the Class B and Class BCX component B Certificates,
pro rata, based on their respective Interest Accrual Amounts; third to
distributions of interest on the Class C and Class BCX component C Certificates,
pro rata, based on their respective Interest Accrual Amounts; fourth to
distributions of interest on the Class D Certificates; fifth to distributions of
interest on the Class E Certificates; and then to the remaining classes of
Certificates up to their respective Interest Accrual Amounts, all as described
under "--Distributions -- Interest Distributions on the Certificates" above. The
Principal Distribution Amount for such Distribution Date will be applied to
distributions of principal of the Class A1, Class A2, Class B, Class C, Class D
and Class E Certificates, in that order, and then to distributions of principal
of the Other Classes of Certificates until their respective Class Balances have
been reduced to zero.
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OTHER CERTIFICATES
The Class F, Class G, Class NR, Class R-I, Class R-II and Class R-III
Certificates are not offered hereby. The Pass-Through Rates on the Class F,
Class G and Class NR Certificates will equal the weighted average of the
Remittance Rates in effect from time to time on the Mortgage Loans. The Class
Balances on the Class F, Class G and Class NR Certificates will equal
$___________, $___________, and $___________, respectively, and approximately
$_____________, in the aggregate. The Class R-I, Class R-II and Class R-III
Certificates will not have a Pass-Through Rate or a Class Balance.
SUBORDINATION
Neither the Offered Certificates nor the Mortgage Loans are insured or
guaranteed against losses suffered on the Mortgage Loans by any government
agency or instrumentality or by the Depositor, the Trustee, the Master Servicer,
the Special Servicer, the Primary Servicers, or any affiliate thereof.
In addition to the payment priorities described under "--Priority of
Distributions" above, certain Certificates will be subordinated to other
Certificates with respect to the allocation of Realized Losses. Realized Losses
on the Mortgage Loans will be allocated, first, to the Other Certificates,
second, to the Class E Certificates, third, to the Class D Certificates, fourth,
to the Class C Certificates, fifth, to the Class B Certificates, in each case
until the related Class Balance is reduced to zero; and thereafter, to the Class
A1 and Class A2 Certificates. The Class Balance of a class of Certificates will
be reduced by the principal portion of any Realized Losses allocated to such
class.
In addition to Realized Losses, shortfalls will also occur as a result
of each Servicer's right to receive payments of interest with respect to
unreimbursed advances, the Special Servicer's right to compensation with respect
to Mortgage Loans which are or have been Specially Serviced Mortgage Loans and
as a result of other Trust Fund expenses. Such shortfalls will be allocated as
described above to the classes of Certificates with the lowest payment priority
for purposes of the application of Available Distribution Amount in the order
described herein.
Within 30 days after the earliest to occur of (i) 90 days after the
date on which an uncured delinquency occurs in respect of a Mortgage Loan, (ii)
60 days after the date on which a receiver is appointed (if such appointment
remains in effect during such 60-day period) in respect of a Mortgaged Property,
(iii) as soon as reasonably practical after the date on which a Mortgaged
Property becomes an REO Property or (iv) the date on which a change in the
payment rate, Mortgage Interest Rate, principal balance, amortization terms or
Maturity Date of any Specially Serviced Mortgage Loan becomes effective, an
appraisal will be obtained by the Special Servicer from an independent MAI
appraiser at the expense of the Trust Fund (except if an appraisal has been
conducted within the 12 month period preceding such event). As a result of such
appraisal, a Collateral Value Adjustment may result, which Collateral Value
Adjustment will be allocated, for purposes of determining distributions of
interest to the Certificates, in the manner and priority described above with
respect to Realized Losses. Notwithstanding the foregoing, a Collateral Value
Adjustment will be zero with respect to such a Mortgage Loan if (i) the event
giving rise to such Collateral Value Adjustment is the extension of the maturity
of such Mortgage Loan, (ii) the payments on such Mortgage Loan were not
delinquent during the twelve month period immediately preceding such extension
and (iii) the payments on such Mortgage Loan are then current, provided, that if
at any later date there occurs a delinquency in payment with respect to such
Mortgage Loan, the Collateral Value Adjustment will be recalculated and applied
to the same extent as it would have been previously applied. In addition, in any
case, upon the occurrence of any event giving rise to a subsequent Collateral
Value Adjustment (including the delinquency referred to in the immediately
preceding sentence) more than twelve months after an appraisal was obtained with
respect to a Collateral Value Adjustment, the Special Servicer will order a new
appraisal as described above, within 30 days of the occurrence of any such event
giving rise to a subsequent Collateral Value Adjustment and will adjust the
amount of the Collateral Value Adjustment in accordance therewith.
The "COLLATERAL VALUE ADJUSTMENT" for any Distribution Date with
respect to any Mortgage Loan will be an amount equal to the excess of (a) the
principal balance of such Mortgage Loan over (b) the excess of (i) 90% of the
current appraised value of the related Mortgaged Property as determined by an
independent MAI appraisal of such Mortgaged Property over (ii) the sum of (A) to
the extent not previously advanced by a Servicer, all unpaid interest on such
Mortgage Loan at a per annum rate equal to the Mortgage Interest Rate, (B) all
unreimbursed Advances and interest thereon, and (C) any unpaid Servicing and
Trustee fees and (D) all currently due and delinquent real estate taxes and
assessments, insurance premiums and, if applicable, ground rents in respect of
such Mortgaged Property (net of any
S-44
amount escrowed or otherwise available for payment of the amount due on such
Mortgage Loan). The excess of the principal balance of any Mortgage Loan over
the related Collateral Value Adjustment is referred to herein as the "ADJUSTED
COLLATERAL VALUE". A Collateral Value Adjustment shall result in a reduction of
the Class Balance (or Notional Amount) of any class of Certificates solely for
the purposes specified herein and shall not be a permanent reduction of the
Class Balance (or Notional Amount) of any class of Certificates prior to the
occurrence of a Realized Loss.
A "REALIZED LOSS", in the case of any Mortgage Loan described in clause
(a) or clause (b) of the succeeding sentence, is equal to the sum of (a) the
Stated Principal Balance of any Loss Mortgage Loan, (b) interest thereon not
previously distributed to Certificateholders through the last day of the month
in which such Mortgage Loan became a Loss Mortgage Loan, (c) any advances made
by any Servicer which remain unreimbursed and (d) any interest accrued on such
advances (see "--Advances" below) as of such time, reduced by any amounts
recovered thereon as of such time and, in the case of any Mortgage Loan
described in clause (c) of the succeeding sentence, is the amount determined to
have been permanently forgiven as described in such clause (c). A "LOSS MORTGAGE
LOAN" is any Mortgage Loan (a) which is finally liquidated, (b) with respect to
which the Master Servicer or the Special Servicer has determined that an advance
which has been made or would otherwise be required to be made, is not, or, if
made, would not be, recoverable out of proceeds on such Mortgage Loan or (c)
with respect to which a portion of the principal balance thereof has been
permanently forgiven whether pursuant to a modification or a valuation resulting
from a proceeding initiated under the Bankruptcy Code. The "STATED PRINCIPAL
BALANCE" of any Mortgage Loan as of any date of determination is the principal
balance as of the Cut-off Date minus the sum of (i) the principal portion of
each Monthly Payment due on such Mortgage Loan after the Cut-off Date, to the
extent received from the Mortgagor or advanced and distributed to
Certificateholders, and (ii) any unscheduled amounts of principal received with
respect to such Mortgage Loans, to the extent distributed to Certificateholders.
To the extent any amount on a Mortgage Loan with respect to which a
Collateral Value Adjustment was required is recovered in excess of the Adjusted
Collateral Value (after giving effect to all other amounts previously collected
with respect thereto), such amount will be distributed to each holder of a class
of Certificates to which a Collateral Value Adjustment has been allocated, in
the order of payment described hereinabove up to an amount equal to interest
accrued on the sum of any Collateral Value Adjustment allocated to such class of
Certificates (or component) in reduction of the Class Balance (or Notional
Amount) thereof at the Pass-Through Rate in effect during such applicable
Collection Period from the date of such allocation to the end of the Collection
Period in which such an amount is recovered. The Class Balance (or Notional
Amount) of each such class (or component) shall be increased by the amount of
such excess over such interest payment in the order of payment described
hereinabove. Any reduction of the Class Balance (or Notional Amount) of a class
(or component) of Certificates following a Collateral Value Adjustment and any
increase thereof following an excess recovery will affect the Percentage
Interest and the calculation of any interest or voting right of such class of
Certificates.
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances out of its own funds or funds
held in the Master Collection Account (as defined herein) that are not required
to be part of the Available Distribution Amount for such Distribution Date or to
remit any advances made by the related Primary Servicer or the Special Servicer
("P&I ADVANCES"), in an amount equal to the excess of all Monthly Payments (net
of the Servicing Fee) due over the amount actually received, subject to the
limitations described herein. In addition, each Servicer will be required to
advance certain property related expenses. The Servicers generally may not
advance any amounts, other than P&I Advances, unless such advance is
contemplated in the related Asset Strategy Report (as defined herein) for the
related Mortgage Loan or such advance is for one of several purposes specified
in the Pooling and Servicing Agreement as "PROPERTY PROTECTION EXPENSES". All
such advances will be reimbursable to the related Servicer from late payments,
insurance proceeds, liquidation proceeds, condemnation proceeds or amounts paid
in connection with the purchase of such Mortgage Loan or, as to any such advance
that is deemed not otherwise recoverable, from any amounts on deposit in the
Primary Collection Account or the Master Collection Account to the extent such
amounts are not required to be otherwise applied pursuant to the terms of the
related Mortgage Loan. Notwithstanding the foregoing, the Master Servicer will
be obligated to make any such advance only to the extent that it determines in
its reasonable good faith judgment that such advance, if made, would be
recoverable out of net proceeds (including any amounts escrowed with respect to
the related Mortgage Loan net of any reasonably anticipated expenses payable
therefrom) on the related Mortgage Loan. None of the Servicers will be required
to advance the full amount
S-45
of any Balloon Payment not made by the related Mortgagor. To the extent a
Servicer is required to make a P&I Advance on and after the Due Date for such
Balloon Payment, such P&I Advance shall not exceed an amount equal to a monthly
payment calculated by the Special Servicer necessary to fully amortize the
related Mortgage Loan over the period used for purposes of calculating the
scheduled monthly payments thereon prior to the related Maturity Date. Any
failure by the Master Servicer to make an advance as required under the Pooling
and Servicing Agreement will constitute an event of default thereunder, in which
case the Trustee will be obligated to make any required advance, in accordance
with the terms of the Pooling and Servicing Agreement.
Each Servicer shall be entitled to interest on the aggregate amount of
all advances made by such Servicer at a per annum rate equal to the prime rate
reported in The Wall Street Journal. See "Risk Factors -- Effect of Mortgagor
Delinquencies and Defaults" herein.
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity on the Offered Certificates will be affected by
the rate of principal payments on the Mortgage Loans including, for this
purpose, prepayments, which may include amounts received by virtue of
repurchase, condemnation, casualty or foreclosure. The rate of principal
payments on the Offered Certificates will correspond to the rate of principal
payments (including prepayments) on the related Mortgage Loans.
Each Mortgage Loan either prohibits voluntary prepayments during a
certain number of years following the origination thereof and/or allows the
related Mortgagor to prepay the principal balance thereof in whole during a
certain number of years following the origination if accompanied by payment of a
Prepayment Premium. See Annex A hereto and the table entitled "Prepayment
Lock-out/Prepayment Premium Analysis" under "Description of the Mortgage Pool --
Certain Characteristics of the Mortgage Loans" herein. Any Net Prepayment
Premium collected on a Mortgage Loan will be distributed to the holders of the
Interest Only Certificates as described herein. See "Description of the
Certificates -- Distributions -- Interest Distributions on the Certificates" and
"Certain Prepayment, Maturity and Yield Considerations" herein, and "Yield
Considerations" in the Prospectus.
The yield to maturity on each class of the Offered Certificates will
depend on, among other things, the rate and timing of principal payments
(including prepayments, defaults, liquidations and purchases of Mortgage Loans
due to a breach of a representation and warranty) on the Mortgage Loans and the
allocation thereof to reduce the Class Balance or Notional Amount of such class
or its components. The yield to maturity on each class of the Offered
Certificates will also depend on the Pass-Through Rate and the purchase price
for such Certificates. The yield to investors on any Class of Offered
Certificates will be adversely affected by any allocation thereto of Prepayment
Interest Shortfalls on the Mortgage Loans, which may result from the
distribution of interest only to the date of a prepayment occurring during any
month following the related Determination Date (rather than a full month's
interest) to the extent any such interest shortfall is not offset by Prepayment
Premiums, any Prepayment Interest Excess or the portion of the Servicing Fee for
such Distribution Date allocable to the Master Servicer.
In general, if a class of Offered Certificates is purchased at a
premium and principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if a class
of Offered Certificates 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 that assumed at the time
of purchase.
If a Mortgage Loan becomes a Specially Serviced Mortgage Loan, the
Special Servicer may adopt a servicing strategy which affects the yield to
maturity of one or more classes of Offered Certificates.
The Rated Final Distribution Date for the Certificates will be
_____________, 20___ which is the second anniversary of the date at which all
the Mortgage Loans have zero balances, assuming no prepayments and that the
Mortgage Loans which are Balloon Loans fully amortize according to their
amortization schedule and no Balloon Mortgage Payment is made.
S-46
WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Offered
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments and payments made pursuant
to any applicable policies of insurance) on the Mortgage Loans are made.
Principal payments on the Mortgage Loans may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments, partial prepayments and liquidations due to a default or other
dispositions of the Mortgage Loans).
The table of Percent of Initial Certificate Balance Outstanding for the
Class A1, Class A2, Class B, Class C, Class D and Class E Certificates at the
respective percentages of CPR set forth below indicates the weighted average
lives of such Certificates and sets forth the percentage of the initial
principal amount of such Certificates that would be outstanding after each of
the dates shown at the indicated percentages of CPR. The table has been prepared
on the basis of the characteristics of the Mortgage Loans set forth in Annex A
and on the basis of the following assumptions: (i) the Mortgage Loans prepay at
the indicated percentage of CPR when the Mortgage Loans are no longer in their
respective Lock-out Periods; (ii) the maturity date of each of the Balloon
Mortgage Loans is not extended; (iii) distributions on the Offered Certificates
are received in cash, on the 25th day of each month, commencing in
______________; (iv) no defaults or delinquencies in, or modifications, waivers
or amendments respecting, the payment by the Mortgagors of principal and
interest on the Mortgage Loans occur; (v) prepayments represent payment in full
of individual Mortgage Loans and are received on the respective Due Dates and
include a month's interest thereon; (vi) there are no repurchases of Mortgage
Loans due to breaches of any representation and warranty, or pursuant to an
optional termination as described under "Description of the Pooling and
Servicing Agreement -- Termination" herein or otherwise; and (vii) the Offered
Certificates are purchased on ______________.
Based on the foregoing assumptions, the table indicates the weighted
average lives of the Class A1, Class A2, Class B, Class C, Class D and Class E
Certificates and sets forth the percentages of the initial Class Balance of each
such class of Offered Certificates that would be outstanding after the
Distribution Date in _________ of each of the years indicated, at various
percentages of CPR. Neither CPR nor any other prepayment model or assumption
purports to be a historical description of prepayment experience or a prediction
of the anticipated rate of prepayment of any pool of mortgage loans, including
the Mortgage Loans included in the Mortgage Pool. Variations in the actual
prepayment experience and the balance of the Mortgage Loans that prepay may
increase or decrease the percentage of initial Class Balance (and weighted
average life) shown in the following table. Such variations may occur even if
the average prepayment experience of all such Mortgage Loans is the same as any
of the specified assumptions.
S-47
PERCENT OF INITIAL CLASS BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR
CLASS A CLASS A2 CLASS B
DISTRIBUTION ------- -------- -------
DATE 0% % % % 0% % % % 0% % % %
---- -- -- -- -- -- -- -- -- -- -- -- --
Initial Percentage
WAL(1)
CLASS A CLASS A2 CLASS B
DISTRIBUTION ------- -------- -------
DATE 0% % % % 0% % % % 0% % % %
---- -- -- -- -- -- -- -- -- -- -- -- --
Initial Percentage
WAL(1)
(1) The weighted average life of a class of Offered Certificates is determined
by (i) multiplying the amount of each distribution of principal by the
number of years from the date of issuance to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the total principal
distributions on such class of Certificates.
INTEREST ONLY CERTIFICATES YIELD CONSIDERATIONS
The sensitivity of the yield to maturity on the Interest Only
Certificates to both the timing of receipt of prepayments and the overall rate
of principal prepayments and defaults on the Mortgage Loans will be offset to
some extent by the payment of a portion of any Net Prepayment Premium to the
Interest Only Certificates entitled thereto. No such offset is available
following a default on a Mortgage Loan.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Interest Only Certificates to various constant rates of
prepayment on the Mortgage Loans by projecting the monthly aggregate payments on
the Interest Only Certificates and computing the corresponding pre-tax yields to
maturity on a corporate bond equivalent basis, based on the assumptions
described in clauses (i) through (vii) in the second paragraph preceding the
table entitled "Percent of Initial Class Balance Outstanding at the Following
Percentages of CPR" under the heading "Certain Prepayment, Maturity and Yield
Considerations -- Weighted Average Life of the Offered Certificates" above,
including the assumptions regarding the performance of the Mortgage Loans which
may differ from the actual performance thereof and assuming the aggregate
purchase prices and Pass-Through Rates set forth below and assuming further that
the initial Notional Amounts of the Interest Only Certificates are as set forth
herein. The yield maintenance calculations are based on the market yield on
____________ of actively traded Treasury securities of appropriate maturities.
____% of any Net Prepayment Premium will be allocated to the Class A1X
Certificates through the Distribution Date on which the Class Balance of the
Class A1 Certificates has been reduced to zero. Thereafter, ____% of any Net
Prepayment Premium will be allocated to the Class A2X Certificates through the
Distribution Date on which the Class Balance of the Class A2 Certificates has
been reduced to zero. Thereafter, ____% of any Net Prepayment Premium will be
allocated to the Class BCX Certificates through the Distribution Date on which
the Class Balances of the Class B and Class C Certificates have been reduced to
zero. Any differences between such assumptions and the actual characteristics
and performance of the Mortgage Loans and of the Certificates may result in
yields being different from those shown in such tables. Discrepancies between
assumed and actual characteristics and performance underscore the hypothetical
nature of the tables, which are provided only to give a general sense of the
sensitivity of yields in varying prepayment scenarios.
S-48
PRE-TAX YIELD TO MATURITY OF THE CLASS A1X CERTIFICATES
ASSUMED PURCHASE PRICE
AS A PERCENTAGE OF THE CPR PREPAYMENT ASSUMPTION RATES
NOTIONAL AMOUNT ASSUMED PASS-THROUGH RATE(1) 0% % % %
% % % % % %
(1) Calculated based on the weighted average of the Remittance Rates of the
Mortgage Loans as of the Cut-off Date. The Pass-Through Rate on such
Certificates will be subject to adjustment on each Distribution Date.
PRE-TAX YIELD TO MATURITY OF THE CLASS A2X CERTIFICATES
ASSUMED PURCHASE PRICE
CPR PREPAYMENT ASSUMPTION RATES
AS A PERCENTAGE OF THE
NOTIONAL AMOUNT ASSUMED PASS-THROUGH RATE(1) 0% % % %
% % % % % %
(1) Calculated based on the weighted average of the Remittance Rates of the
Mortgage Loans as of the Cut-off Date. The Pass-Through Rate on such
Certificates will be subject to adjustment on each Distribution Date.
PRE-TAX YIELD TO MATURITY OF THE CLASS BCX CERTIFICATES
ASSUMED PURCHASE PRICE
AS A PERCENTAGE OF THE
CPR PREPAYMENT ASSUMPTION RATES
NOTIONAL AMOUNT
OF EACH COMPONENT ASSUMED PASS-THROUGH RATE(2) 0% % % %
% % % % % %
(2) Calculated based on the initial weighted average of the Pass-Through Rates
of the components. The Pass-Through Rate on the Class BCX Certificates will
be subject to adjustment on each Distribution Date.
Each pre-tax yield to maturity set forth in the preceding tables was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Interest Only Certificates would
cause the discounted present value of such assumed stream of cash flows to equal
the assumed purchase price listed in the corresponding table. Accrued interest
is included in the assumed purchase price of each class of Interest Only
Certificates and is used in computing the corporate bond equivalent yields
shown. These yields do not take into account the different interest rates at
which investors may be able to reinvest funds received by them as distributions
on the Interest Only Certificates, and thus do not reflect the return on any
investment in the interest only Certificates when, as applicable, any
reinvestment rates other than the discount rates set forth in the preceding
tables are considered.
Notwithstanding the assumed prepayment rates reflected in the preceding
tables, it is highly unlikely that the Mortgage Loans will be prepaid according
to one particular pattern. For this reason and because the timing of cash flows
is critical to determining yields, the pre-tax yield to maturity on the Interest
Only Certificates is likely to differ from those shown in the tables, even if
all of the Mortgage Loans prepay at the indicated constant percentages of CPR
over any given time period or over the entire life of the Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Interest Only Certificates will conform
to the yields described herein. Moreover, the various remaining terms to
maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding tables at the various constant
percentages of CPR specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed. Investors are urged to make their
investment decisions based on their determinations as to anticipated rates of
prepayment under a variety of scenarios. Investors in the Interest Only
Certificates should fully consider the risk that an extremely rapid rate of
prepayments on the Mortgage Loans could result in the failure of such investors
to fully recover their investments. In addition, holders of the class A1X and
Class A2X Certificates generally have rights to relatively larger portions of
interest payments on Mortgage Loans with higher mortgage interest rates; thus,
the yield on the Class A1X and Class A2X Certificates will be materially
adversely affected to a greater extent
s-49
than on the other Interest Only Certificates if the Mortgage Loans with higher
Mortgage Interest Rates prepay faster than
the Mortgage Loans with lower Mortgage Rates.
FOR ADDITIONAL CONSIDERATIONS RELATING TO THE YIELD ON THE
CERTIFICATES, SEE "YIELD CONSIDERATIONS" IN THE PROSPECTUS.
CLASS C, CLASS BCX, CLASS D AND CLASS E YIELD CONSIDERATIONS
If the Class Balances of the Other Certificates are reduced to zero,
the yield to maturity on the Class E Certificates will become extremely
sensitive to losses on the Mortgage Loans (and the timing thereof), because the
entire amount of such losses will be allocated to the Class E Certificates. The
aggregate initial Class Balance of the Other Certificates is equal to
approximately ____% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date. If the Class Balances of the Other Certificates and the
Class E Certificates are reduced to zero, the yield to maturity on the Class D
Certificates will become extremely sensitive to losses on the Mortgage Loans
(and the timing thereof), because the entire amount of such losses will be
allocated to the Class D Certificates. The aggregate initial Class Balance of
the Class E and the Other Certificates is equal to approximately ____% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date. If the
Class Balances of the Other Certificates, the Class E and the Class D
Certificates are reduced to zero, the yield to maturity on the Class C and Class
BCX Certificates will become extremely sensitive to losses on the Mortgage Loans
(and the timing thereof), because the entire amount of such losses will be
allocated to the Class C and Class BCX Certificates. The aggregate initial Class
Balance of the Class D, Class E and Other Certificates is equal to approximately
____% of the aggregate principal balance of the Mortgage Loans as of the Cut-off
Date.
The Special Servicer will be entitled to receive, with respect to each
Specially Serviced Mortgage Loan compensation in the form of a percentage of
collections and a percentage of the outstanding principal balance of any
Specially Serviced Mortgage Loan which is returned to a performing status prior
to the right of Certificateholders to receive distributions on the Certificates.
Such compensation will result in shortfalls which will be allocated to the
Certificates in the manner provided for Realized Losses. Consequently it is
possible that shortfalls will be allocated to the Offered Certificates with
respect to any Specially Serviced Mortgage Loan notwithstanding the fact that
such Mortgage Loan is returned to a performing status. See "Servicing --
Servicing and Other Compensation and Payment of Expenses" herein.
The information set forth herein concerning the services has been
provided by the related Servicer. Neither the Depositor nor any other person
makes any representation or warranty as to the accuracy or completeness of such
information.
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of principal payments and Realized
Losses. Investors in the Class C and Class BCX Certificates and particularly the
Class D and Class E Certificates should fully consider to risk that Realized
Losses on the Mortgage Loans could result in a failure of such investors to
fully recover their investments. See "Yield Considerations" in the Prospectus.
SERVICING
SERVICERS
___________________________________________ will serve as Master
Servicer and Special Servicer for all the Mortgage Loans and as Primary Servicer
for all the Mortgage Loans originated by ________________________.
_______________________ is a wholly owned subsidiary of
______________________________. The principal offices of ___________________ are
located at _________________________________________. The servicing of all
performing loans will be performed by the ___________________________, a
division of ____________________ located in ___________________________. As of
________________________, _________________________ portfolio consisted of
approximately ___________ loans with an aggregate principal balance of
approximately $________________.
S-50
____________________. _________________________ ("_________"), a
__________ corporation, will serve as Primary Servicer for all the Mortgage
Loans originated by ________________________.
__________, an indirect wholly-owned subsidiary of
____________________, is engaged in the asset management, servicing,
liquidation, collection, asset valuation and consulting and related activities
with nonaffiliated companies and governmental entities, including the Federal
Deposit Insurance Corporation and Resolution Trust Corporation. _____________'s
operating office is located in ______________, __________, and _________ has
managed and serviced real estate assets in all 50 states, the District of
Columbia and Puerto Rico.
As of __________________, 199__, ____________ was responsible for
managing and servicing of approximately _______ assets, consisting of loans,
foreclosed real estate assets and other assets with a total principal balance in
excess of $____billion of which $_____billion is administered under special
servicing contracts.
- --------
has provided servicing in some capacity for ____ portfolios securing commercial
mortgage backed securities.
___________________________. _______________________, a __________
corporation ("_________"), will act as Primary Servicer with respect to the
Mortgage Loans originated by ________________. As of ___________, 199__,
___________ had a net worth of approximately $_____ million and a total
commercial and multifamily mortgage loan servicing portfolio (including mortgage
loans serviced for its own account and for others) of approximately $___________
billion. ____________________'s principal executive offices are located at
_________________________________________________________________, and its
telephone number is (___) ___-____. ________________ conducts operations from
its headquarters in ____________ and from offices located in _____________,
______________, _____________, ___________, ____________, ____________ and
_________________.
The information set forth herein concerning the Servicers has been
provided by the related Servicer. Neither the Depositor nor any other person
makes any representation or warranty as to the accuracy or completeness of such
information.
RESPONSIBILITIES OF MASTER SERVICER AND PRIMARY SERVICER
Under the Servicing Agreements, the Master Servicer and each Primary
Servicer are required to service and administer the Mortgage Loans solely on
behalf of and in the best interests of and for the benefit of the
Certificateholders, in accordance with the terms of the Servicing Agreement and
the Mortgage Loans and to the extent consistent with such terms, with the higher
of (a) the standard of care, skill, prudence and diligence with which the Master
Servicer and each Primary Servicer, respectively, service and administer
mortgage loans that are held for other portfolios that are similar to the
Mortgage Loans and (b) the standard of care, skill, prudence and diligence with
which the Master Servicer and each Servicer, respectively, service and
administer mortgage loans for their own portfolio and are similar to the
Mortgage Loans, in either case, giving due consideration to customary and usual
standards of practice of prudent institutional multifamily and commercial
mortgage lenders, loan servicers and asset managers.
RESPONSIBILITIES OF SPECIAL SERVICER
The servicing responsibility on a particular Mortgage Loan will be
transferred to the Special Servicer upon the occurrence of certain servicing
transfer events (each, a "SERVICING TRANSFER EVENT"), including the following:
(i) the Mortgage Loan becomes a "DEFAULTED MORTGAGE LOAN" because it is more
than 60 days delinquent in whole or in part in respect of any monthly payment or
is delinquent in whole or in part in respect of the related Balloon Payment;
(ii) the related Mortgagor has entered into or consented to bankruptcy,
appointment of a receiver or conservator or a similar insolvency or similar
proceeding, or the Mortgagor has become the subject of a decree or order for
such a proceeding which shall have remained in force undischarged or unstayed
for a period of 60 days; (iii) the Master Servicer or the Primary Servicer shall
have received notice of the foreclosure or proposed foreclosure of any other
lien on the Mortgaged Property; (iv) in the judgment of the Master Servicer or
the Primary Servicer, a payment default has occurred and is not likely to be
cured by the related Mortgagor within 60 days; (v) the related Mortgagor admits
in writing its inability to pay its debts generally as they become due, files a
petition to take advantage of any applicable insolvency or reorganization
statute, makes an assignment for the benefit of its creditors, or voluntarily
suspends payment of its obligations; (vi) any other material default has in the
Master Servicer's or the Primary Servicer's judgment occurred which is not
reasonably susceptible to cure within the time periods and on the conditions
specified in the related
S-51
mortgage; (vii) the related Mortgaged Property becomes an REO Property; (viii)
if for any reason, the Primary Servicer cannot enter into an assumption
agreement upon the transfer by the related Mortgagor of the mortgage; or (ix) an
event has occurred which has materially and adversely affected the value of the
related Mortgaged Property in the reasonable judgment of the Master Servicer or
the Primary Servicer. A Mortgage Loan serviced by the Special Servicer is
referred to herein as a "SPECIALLY SERVICED MORTGAGE LOAN". The Special Servicer
will collect certain payments on such Specially Serviced Mortgage Loans and make
certain remittances to, and prepare certain reports for the Master Servicer with
respect to such Mortgage Loans. The Master Servicer shall have no responsibility
for the performance by the Special Servicer of its duties under the Pooling and
Servicing Agreement provided that the Master Servicer continues to perform
certain servicing functions on such Specially Serviced Mortgage Loans and, based
on the information provided to it by the Special Servicer, prepares certain
reports to the Trustee with respect to such Specially Serviced Mortgage Loans.
To the extent that any Mortgage Loan, in accordance with its original terms or
as modified in accordance with the Pooling and Servicing Agreement, becomes a
performing Mortgage Loan for a least three consecutive months, the Special
Servicer will return servicing of such Mortgage Loan to the Primary Servicer.
Under the Pooling and Servicing Agreement the Special Servicer is
required to service, administer and dispose of Specially Serviced Mortgage Loans
solely in the best interests of and for the benefit of the Certificateholders,
in accordance with the Pooling and Servicing Agreement and the Mortgage Loans
and to the extent consistent with such terms, with the higher of (a) the
standard of care, skill, prudence and diligence with which the Special Servicer
services, administers and disposes of, distressed mortgage loans and related
real property that are held for other portfolios that are similar to the
Mortgage Loans, Mortgaged Property and REO Property and (b) the standard of
care, skill, prudence and diligence with which the Special Servicer services,
administers and disposes of distressed mortgage loans and related real property
for its own portfolio and are similar to the Mortgage Loans, Mortgage Property
and REO Property, giving due consideration to customary and usual standards of
practice of prudent institutional multifamily and commercial mortgage lenders,
loan servicers and asset managers, so as to maximize the net present value of
recoveries on the Mortgage Loans.
The Special Servicer shall have full power and authority to do any and
all things in connection with servicing and administering a Mortgage Loan that
it may deem in its best judgment necessary or advisable, including, without
limitation, to execute and deliver on behalf of the Trust Fund any and all
instruments of satisfaction or cancellation or of partial release or full
release or discharge and all other comparable instruments, to reduce the related
Mortgage Interest Rate, and to defer or forgive payment of interest and/or
principal with respect to any Specially Serviced Mortgage Loan or any Mortgaged
Property. The Special Servicer may not permit a modification of any Mortgage
Loan to extend the scheduled maturity date of any Specially Serviced Mortgage
Loan more than three years beyond the scheduled maturity date thereof as of the
Cut-off Date without the consent of the Extension Advisor. See "--Extension
Advisor" below. Notwithstanding the forgoing, the Special Servicer may not
permit any such modification with respect to a Balloon Mortgage Loan if it
results in the extension of such maturity date beyond the amortization term of
such Balloon Mortgage Loan absent the related Balloon Payment. The Special
Servicer will prepare a report (an "ASSET STRATEGY REPORT") for each Mortgage
Loan which becomes a Specially Serviced Mortgage Loan not later than thirty (30)
days after the servicing of such Mortgage Loan is transferred to the Special
Servicer. Each Asset Strategy Report will be delivered to each holder of a Class
F, Class G and Class NR Certificate upon request. The holders of the fewest
number of classes of Certificates representing the most subordinate interests in
the Trust Fund that equals at least a 2% interest therein (the "MONITORING
CERTIFICATEHOLDERS") will designate one Monitoring Certificateholder pursuant to
the Pooling and Servicing Agreement (the "DIRECTING CERTIFICATEHOLDER"). Each
Asset Strategy Report will be delivered to the Directing Certificateholder. The
Directing Certificateholder may object to any Asset Strategy Report within 10
business days of receipt. If the Directing Certificateholder does not disapprove
an Asset Strategy Report within 10 business days, the Special Servicer shall
implement the recommended action as outlined in such Asset Strategy Report. If
the Directing Certificateholder disapproves such Asset Strategy Report and the
Special Servicer has not made the affirmative determination described below, the
Special Servicer will revise such Asset Strategy Report as soon as practicable.
The Special Servicer will revise such Asset Strategy Report until the Directing
Certificateholder fails to disapprove such revised Asset Strategy Report;
provided, however, that the Special Servicer shall implement the recommended
action as outlined in such Asset Strategy Report if it makes an affirmative
determination that such objection is not in the best interest of all
Certificateholders. In connection with making such affirmative determination,
the Special Servicer may request a vote by all the Certificateholders. Any
Certificateholder may request and obtain a copy of any Asset Strategy Report
subject to delivery of a certificate acknowledging certain possible limitations
with respect to the use of such report imposed by U.S. securities laws.
S-52
EXTENSION ADVISOR
The Extension Advisor will be responsible for approving any proposed
Mortgage Loan modification that extends the maturity date of a Mortgage Loan by
more than three (3) years beyond the scheduled maturity date of such loan as of
the Cut-off Date. The initial Extension Advisor, acting on behalf of the holders
of the Offered Certificates, shall only grant such approvals if it shall have
determined that the decision of the Special Servicer to so modify the Mortgage
Loan is consistent with the Special Servicer standard set forth in the Pooling
and Servicing Agreement. Any subsequent Extension Advisor may grant such
approvals if it shall have determined that the decision of the Special Servicer
to so modify the Mortgage Loan is in the best interest of the Holders of the
Offered Certificates.
The initial Extension Advisor will be _______________. The
responsibility of _____________ as Extension Advisor shall be carried out by the
Real Estate Division of the Commercial Banking Services Area of such bank. At
any time, the holders of a majority of the outstanding aggregate Certificate
Principal Balance of the Offered Certificates may remove the Extension Advisor.
In such event, the Trustee will so inform such Certificateholders, and a
majority of Certificate Principal Balance of the holders of such Certificates
shall have the right to appoint a replacement Extension Advisor.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer and each
respective Primary Servicer in respect of their servicing activities will be the
Servicing Fee. The Servicing Fee will be payable monthly and will accrue at the
applicable Servicing Fee Rate and will be computed on the basis of the same
principal amount and for the same period respecting which any related interest
payment on such Mortgage Loan is computed. The Servicing Fee Rate for any
Mortgage Loan will be the sum of the fee payable to the Master Servicer and the
fee payable to the Primary Servicer as described below. The fee payable to the
Master Servicer with respect to the Mortgage Loans will equal _____% per annum.
The fee payable to __________________ and _____________________ as Primary
Servicer with respect to the Mortgage Loans will equal _______% per annum. The
fee payable to __________ as Primary Servicer will equal ______________% per
annum.
The principal compensation to be paid to the Special Servicer in
respect of its special servicing activities will be the Special Servicing Fee.
The Special Servicing Fee will be payable monthly only from amounts received in
respect of each Specially Serviced Mortgage Loan. The Special Servicing Fee will
equal 1.00% of all amounts collected with respect to any Specially Serviced
Mortgage Loans and any Mortgage Loan which became a Specially Serviced Mortgage
Loan and was subsequently returned to a performing status.
CONFLICTS OF INTEREST
The Special Servicer or its affiliates own and are in the business of
acquiring assets similar to the Mortgage Loans held by the Trust Fund. To the
extent that any mortgage loans owned and/or serviced by the Special Servicer or
its affiliates are similar to the Mortgage Loans held by the Trust Fund, the
mortgaged properties related to such mortgage loans may, depending upon certain
circumstances such as the location of the mortgaged property, compete with the
Mortgaged Properties related to the Mortgage Loans held by the Trust Fund for
tenants, purchasers, financing and similar resources.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ___________, 199__ (the "POOLING AND SERVICING
AGREEMENT"), by and among the Depositor, the Master Servicer, the Special
Servicer and the Trustee. Following are summaries of certain provisions of the
Pooling and Servicing Agreement. The summaries do not purport to be complete and
are subject to, and are qualified in their entirety by reference to, the
provisions of the Pooling and Servicing Agreement. The Trustee will provide to a
prospective or actual Certificateholder without charge, upon written request, a
copy (without exhibits) of the Pooling and Servicing Agreement. Requests
S-53
should be addressed to ________________________________, _____________________,
Attention: Corporate Trust Department.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Delivery Date, ICCC will assign or cause to be
assigned the Mortgage Loans, without recourse, to the Trustee for the benefit of
the Certificateholders. On or prior to the Delivery Date, the Depositor will, as
to each Mortgage Loan, deliver to the Trustee (or the Custodian), among other
things, the following documents (collectively, as to such Mortgage Loan, the
"MORTGAGE LOAN FILE"): (i) the original Mortgage, and any intervening
assignments thereof, in each case with evidence of recording thereon or in case
such documents have not been returned by the applicable recording office,
certified copies thereof; (ii) the original or, if accompanied by a "lost note"
affidavit, a copy of the Mortgage Note, endorsed by ICCC, without recourse, in
blank or to the order of Trustee; (iii) an assignment of the Mortgage, executed
by ICCC, in blank or to the order of the Trustee, in recordable form; (iv)
originals or certified copies of any related assignment of leases, rents and
profits and any related security agreement (if, in either case, such item is a
document separate from the Mortgage) and any intervening assignments of each
such document or instrument; (v) assignments of any related assignment of
leases, rents and profits and any related security agreement (if, in either
case, such item is a document separate from the Mortgage), executed by ICCC, in
blank or to the order of the Trustee; (vi) originals or certified copies of all
assumption, modification and substitution agreements in those instances where
the terms or provisions of the Mortgage or Mortgage Note have been modified or
the Mortgage or Mortgage Note has been assumed; and (vii) the originals or
certificates of a lender's title insurance policy issued on the date of the
origination of such Mortgage Loan or, with respect to each Mortgage Loan not
covered by a lender's title insurance policy, an attorney's opinion of title
given by an attorney licensed to practice law in the jurisdiction where the
Mortgaged Property is located; (viii) originals or copies of any UCC financing
statements; (ix) originals or copies of any guaranties related to such Mortgage
Loan; (x) originals or copies of insurance policies related to the Mortgaged
Property; (xi) originals or certified copies of any environmental liabilities
agreement; (xii) originals or copies of any escrow agreements; (xiii) original
or certified copies of any prior assignments of mortgage if the Originator is
not the originator of record; (xiv) any collateral assignments of property
management agreements and other servicing agreements; (xv) the documents
specified in the Underwriting Guidelines for the due diligence investigation to
be performed by or on behalf of the Originator pursuant to the Mortgage Loan
Purchase Agreement; (xvi) any appraisals of the Mortgaged Property; (xvii) a
physical assessment report of the Mortgaged Property; (xviii) an environmental
site assessment of the Mortgaged Property; (xix) originals or certified copies
of any lease subordination agreements and tenant estoppels; and (xx) any
opinions of borrower's counsel. The Pooling and Servicing Agreement will require
the Depositor to cause each assignment of the Mortgage described in clause (iv)
above to be submitted for recording in the real property records of the
jurisdiction in which the related Mortgaged Property is located. Any such
assignment delivered in blank will be completed to the order of the Trustee
prior to recording. The Pooling and Servicing Agreement will also require the
Depositor to cause the endorsements on the Mortgage Notes delivered in blank to
be completed to the order of the Trustee.
TRUSTEE
____________________ shall serve as Trustee under the Pooling and
Servicing Agreement pursuant to which the Certificates are being issued. Except
in circumstances such as those involving defaults (when it might request
assistance from other departments in the bank), its responsibilities as trustee
are carried out by its Corporate Trust Department. Its principal corporate trust
office is located at _________________________________________.
COLLECTION ACCOUNTS AND CERTIFICATE ACCOUNT
The Primary Servicer is required to deposit all amounts received with
respect to the Mortgage Loans, net of certain amounts retained by the Primary
Servicer as additional servicing compensation, into a separate Collection
Account (the "PRIMARY COLLECTION ACCOUNT") maintained by the Primary Servicer
for the Trust Fund. On the third business day preceding each Distribution Date,
the Primary Servicer shall remit all amounts in the Primary Collection Account
to the Master Servicer for deposit into a separate Collection Account (the
"MASTER COLLECTION ACCOUNT") maintained by the Master Servicer for the Trust
Fund. The Master Servicer is required to deposit on the business day preceding
each Distribution Date all amounts received with respect to the Mortgage Loans
into a separate account (the "CERTIFICATE ACCOUNT") maintained with the Trustee.
Interest or other income earned on funds in the Primary Collection Account or
the Master Collection Account will be paid to the Servicer maintaining such
account as additional servicing
S-54
compensation. See "Description of the Trust Funds -- Mortgage Loans" and
"Description of the Agreements --Accounts -- Distribution Account" and
"Description of the Agreements -- Accounts -- Other Collection Accounts" in the
Prospectus.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the Trustee shall furnish to each
Certificateholder, to the Depositor and to each Rating Agency a statement
setting forth certain information with respect to the Mortgage Loans and the
Certificates required pursuant to the Pooling and Servicing Agreement and in the
form of Annex B hereto. In addition, within a reasonable period of time after
each calendar year, the Trustee shall furnish to each person who at any time
during such calendar year was the holder of a Certificate a statement containing
certain information with respect to the Certificates required pursuant to the
Pooling and Servicing Agreement, aggregated for such calendar year or portion
thereof during which such person was a Certificateholder. Unless and until
Definitive Certificates are issued, such statements or reports will be furnished
only to Cede & Co., as nominee for DTC; provided, however, that the Trustee
shall furnish a copy of any such statement or report to any Beneficial Owner
which requests such copy and certifies to the Trustee that it is the Beneficial
Owner of a Certificate. The Trustee shall furnish a copy of any such statement
or report to any person who requests it for a nominal charge. Any person may
call the Master Servicer at ______________ in order to inquire as to how to
obtain such statement or report. Such statement or report may be available to
Beneficial Owners upon request to DTC or their respective Participant or
Indirect Participants. Any Asset Strategy Report shall be delivered by the
Trustee upon request to any Beneficial Owner of an Offered Certificate subject
to the second preceding sentence and the receipt by the Trustee of a certificate
acknowledging certain limitations with respect to the use of such statement or
report. See "Description of the Certificates -- Reports to Certificateholders"
in the Prospectus. The Directing Certificateholder shall receive all reports
prepared or received by the Master Servicer or the Special Servicer. In
addition, each other Certificateholder may obtain all such reports at its
expense as described in the Pooling and Servicing Agreement.
VOTING RIGHTS
At all times during the term of this Agreement, _____% of all Voting
Rights shall be allocated among the classes of Certificates (other than the
Interest Only Certificates) in proportion to the respective Class Balances,
_____% of all Voting Rights shall be allocated to each class of Interest Only
Certificates and _______% of all Voting Rights shall be allocated to each class
of Residual Certificates. Voting Rights allocated to a class of Certificates
shall be allocated among the holders of such class in proportion to the
Percentage Interests evidenced by their respective Certificates.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates" in the Prospectus, unless and until
Definitive Certificates are issued, except as otherwise expressly provided
herein, Certificate Owners may only exercise their rights as owners of
Certificates indirectly through DTC or their respective Participant or Indirect
Participant.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment or other liquidation
of the last Mortgage Loan or REO Property subject thereto, and (ii) the purchase
of all of the assets of the Trust Fund by any of the Master Servicer, the
Special Servicer, any holder of a Class R-I Certificate, the holders of an
aggregate Percentage Interest in excess of 50% of the Most Subordinate Class of
Certificates and (to the extent all of the remaining Mortgage Loans are being
serviced thereby as Primary Servicer) any Primary Servicer. The "MOST
SUBORDINATE CLASS OF CERTIFICATES" at the time of determination shall be the
class of Certificates to which Realized Losses would be allocated at such time
as described under "Description of the Certificates -- Subordination" herein.
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 the office of the
Certificate Registrar specified in such notice of termination.
Any such purchase of all the Mortgage Loans and other assets in the
Trust Fund is required to be made at a price equal to the greater of (1) the
aggregate fair market value of all the Mortgage Loans and REO Properties then
included in the Trust Fund, determined pursuant to the Pooling and Servicing
Agreement, and (2) the aggregate Class
S-55
Balance of all the Certificates plus accrued and unpaid interest thereon. Such
purchase will effect early retirement of the then outstanding Certificates, but
the right to effect such termination is subject to the requirement that the
aggregate Stated Principal Balance of the Mortgage Loans then in the Trust Fund
is less than ____% of the aggregate principal
balance of the Mortgage Loans as of the Cut-off Date.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Andrews & Kurth L.L.P., counsel to the Depositor. This
summary is based on laws, regulations, including the REMIC regulations
promulgated by the Treasury Department (the "REMIC REGULATIONS"), rulings and
decisions now in effect or (with respect to regulations) proposed, all of which
are subject to change either prospectively or retroactively. This summary does
not address the federal income tax consequences of an investment in Offered
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Offered Certificates.
Three separate REMIC elections will be made with respect to the Trust
Fund for federal income tax purposes. Upon the issuance of the Certificates,
Andrews & Kurth L.L.P., counsel to the Depositor, is of the opinion that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, the REMIC I, REMIC II and REMIC III (each as
defined in the Pooling and Servicing Agreement) will qualify as a REMIC under
the Code.
For federal income tax purposes, the Class R-I Certificates will be the
sole class of "residual interests" in REMIC I, the Class R-II Certificates will
be the sole class of "residual interests" in REMIC II, the Offered Certificates
(or, in the case of the Class BCX Certificates, each component thereof) and the
Class F, Class G and Class NR Certificates will be "regular interests" of REMIC
III and will be treated as debt instruments of the REMIC III, and the Class
R-III Certificates will be the sole class of "residual interests" in REMIC III.
See "Federal Income Tax Consequences -- REMICs" in the Prospectus.
The Interest Only Certificates will, and the other classes of Offered
Certificates may, be treated as having been issued with original issue discount
for federal income tax reporting purposes. For purposes of computing the rate of
accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes it will be assumed that there are no prepayments on
the Mortgage Loan. No representation is made that the Mortgage Loans will not
prepay at another rate. See "Federal Income Tax Consequences -- REMICs --
Taxation of Owners of REMIC Regular Certificates" and "--Original Issue Discount
and Premium" in the Prospectus.
Prepayment Premiums allocated to the Certificates will be taxable to
the holders of such Certificates on the date the amount of such premiums becomes
fixed.
The Offered Certificates may be treated for federal income tax purposes
as having been issued at a premium. Whether any holder of such a class of
Certificates will be treated as holding a certificate with amortizable bond
premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such class of Certificates
should consult their own tax advisors regarding the possibility of making an
election to amortize such premium. See "Federal Income Tax Consequences --
REMICs -- Taxation of Owners of REMIC Regular Certificates" and "--Premium" in
the Prospectus.
S-56
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code and "real estate assets"
within the meaning of Section 856(c)(6)(B) of the Code generally in the same
proportion that the assets of the REMIC underlying such Certificates would be so
treated. In addition, interest (including original issue discount) on the
Offered Certificates will be interest described in Section 856(c)(3)(B) of the
Code to the extent that such Offered Certificates are treated as "real estate
assets" under Section 856(c)(6)(B) of the Code. Moreover, the Offered
Certificates will be "obligation[s]...which... [are] principally secured by an
interest in real property" within the meaning of Section 860G(a)(3)(A) of the
Code. The Offered Certificates will not be considered to represent an interest
in "loans...secured by an interest in real property" within the meaning of
Section 7701 (a)(19)(C)(v) of the Code except in the proportion that the assets
of the Trust Fund are represented by Mortgage Loans secured by multifamily
apartment buildings. See "Federal Income Tax Consequences -- REMICs
- --Characterization of Investments in REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences
of investing in the Certificates, see "Federal Income Tax Consequences" in the
Prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh plans
and collective investment funds and separate accounts in which such plans,
accounts or arrangements are invested, and any entity whose underlying assets
include assets of such a plan by reason of any such plan's investment in the
entity that is subject to the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), or Section 4975 of the Code (each, a "PLAN") should
carefully review with its legal advisors whether the purchase or holding of any
Class of Offered Certificates could give rise to a transaction that is
prohibited or is not otherwise permitted either under ERISA or Section 4975 of
the Code.
The U.S. Department of Labor issued an individual exemption (the
"EXEMPTION") to the Underwriter, which generally exempts from the application of
certain prohibited transaction provisions of Section 406 of ERISA, and the
excise taxes imposed on such prohibited transactions pursuant to Sections
4975(a) and (b) of the Code and Section 502(i) of ERISA, certain transactions,
among others, relating to the servicing and operation of mortgage pools and the
purchase, sale and holding of mortgage pass-through certificates underwritten by
an Underwriter (as hereinafter defined), provided that certain conditions set
forth in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations", the term "UNDERWRITER" shall include (a)
________________________, (b) any person directly or indirectly, through one or
more intermediaries, controlling, controlled by or under common control with
______________________, and (c) any member of the underwriting syndicate or
selling group of which a person described in (a) or (b) is a manager or
co-manager with respect to the Class A1, Class A1X, Class A2 and Class A2X
Certificates.
The Exemption sets forth six general conditions which must be satisfied
for a transaction involving the purchase, sale and holding of such Classes of
Offered Certificates to be eligible for exemptive relief thereunder. First, the
acquisition of such Classes of Offered Certificates by a Plan, must be on terms
(including the price) that are at least as favorable to the Plan as they would
be in an arm's-length transaction with an unrelated party. Second, the rights
and interests evidenced by such Classes of Offered Certificates must not be
subordinate to the rights and interests evidenced by the other certificates of
the same trust. Third, such Classes of Offered Certificates at the time of
acquisition by the Plan must be rated in one of the three highest generic rating
categories by Standard & Poor's Corporation, Moody's Investors Service, Inc.,
Duff & Phelps Credit Rating Co. or Fitch Investors Service, Inc. Fourth, the
Trustee cannot be
S-57
an affiliate of any member of the "Restricted Group," which consists of the
Underwriter, the Depositor, the Master Servicer, the Special Servicer, each
Primary Servicer and any Mortgagor with respect to Mortgage Loans constituting
more than 5% of the aggregate unamortized principal balance of the Mortgage
Loans as of the date of initial issuance of such Classes of Offered
Certificates. Fifth, the sum of all payments made to and retained by the
Underwriter must represent not more than reasonable compensation for
underwriting such Classes of Offered Certificates; the sum of all payments made
to and retained by the Depositor pursuant to the assignment of the Mortgage
Loans to the Trust Fund must represent not more than the fair market value of
such obligations; and the sum of all payments made to and retained by the Master
Servicer, the Special Servicer and any Primary Servicer must represent not more
than reasonable compensation for such person's services under the Agreements and
reimbursement of such person's reasonable expenses in connection therewith.
Sixth, the investing Plan must be an accredited investor as defined in Rule 501
(a)(1) of Regulation D of the Securities and Exchange Commission under the
Securities Act of 1933, as amended.
Because the Class A1, Class A1X, Class A2 and Class A2X Certificates
are not subordinate to any other class of Certificates, the second general
condition set forth above is satisfied with respect to such Certificates. It is
a condition of the issuance of such Classes of Certificates that they be rated
"______" by ________________ and either "----" or "____" by ________________. A
fiduciary of a Plan contemplating purchasing any such Class of Certificates in
the secondary market must make its own determination that at the time of such
acquisition, any such Class of Certificates continues to satisfy the third
general condition set forth above. The Depositor expects that the fourth general
condition set forth above will be satisfied with respect to each of such Classes
of Certificates. A fiduciary of a Plan contemplating purchasing any such Class
of Certificate must make its own determination that the first, third, fifth and
sixth general conditions set forth above will be satisfied with respect to any
such Class of Certificate.
The Class B, Class C, Class BCX, Class D and Class E do not satisfy the
second condition described above because they are subordinated to the Class A1,
Class A1X, Class A2 and Class A2X Certificates, and furthermore the Class D and
Class E Certificates are not expected to satisfy the third condition described
above.
Before purchasing any Class of Certificate, a fiduciary of a Plan
should itself confirm (a) that such Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions of
the Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination as to the availability of
the exemptive relief provided in the Exemption, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions.
Purchasers using insurance company general account funds to effect such
purchase should consider the availability of Prohibited Transaction Class
Exemption 95-60 (60 Fed. Reg. 35925, July 12, 1995) issued by the U.S.
Department of Labor.
Any Plan fiduciary considering whether to purchase any Class of
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. See "ERISA Considerations"
in the Prospectus.
LEGAL INVESTMENT
The Class ___, Class ___, Class ___, Class ___ and Class ___
Certificates will be "mortgage related securities" within the meaning of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") for so long as they
are rated in one of the two highest rating categories by at least one nationally
recognized statistical rating organization. The Class ___, Class ___ and Class
___ Certificates will not be "mortgage related securities" within the meaning of
SMMEA.
In addition, institutions whose investment activities are subject to
review by certain regulatory authorities may be or may become subject to
restrictions, which may be retroactively imposed by such regulatory authorities,
on the investment by such institutions in certain forms of mortgage-backed
securities. Furthermore, certain states have enacted legislation overriding the
legal investment provisions of SMMEA.
The Depositor makes no representations as to the proper
characterization of the Offered Certificates for legal investment or other
purposes, or as to the ability of particular investors to purchase the Offered
Certificates under
S-58
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.
See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting
Agreement, dated _____________, 199___ (the "UNDERWRITING AGREEMENT"), the
Underwriter has agreed to purchase and the Depositor has agreed to sell to the
Underwriter the Offered Certificates. It is expected that delivery of the
Offered Certificates will be made only in book-entry form through the Same Day
Funds Settlement System of DTC on or about ______________, 199___, against
payment therefor in immediately available funds.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates if any are purchased. In the event of default by the Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the
underwriting may be terminated.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of its Certificates is subject to,
among other things, the receipt of certain legal opinions and to the conditions,
among others, that no stop order suspending the effectiveness of the Depositor's
Registration Statement shall be in effect, and that no proceedings for such
purpose shall be pending before or threatened by the Securities and Exchange
Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more 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, before deducting expenses
payable by the Depositor, will be approximately ____________% of the aggregate
principal balance of the Offered Certificates as of the Cut-off Date, plus
accrued interest from the Cut-off Date. The Underwriter may effect such
transactions by selling its Certificates to or through dealers, and such dealers
may receive compensation in the form of underwriting discounts, concessions or
commissions from the Underwriter for whom they act as agent. In connection with
the sale of the Offered Certificates, the Underwriter may be deemed to have
received compensation from the Depositor in the form of underwriting
compensation. The Underwriter and any dealers that participate with the
Underwriter in the distribution of the Offered Certificates may be deemed to be
underwriters and any profit on the resale of the Offered Certificates positioned
by them may be deemed to be underwriting discounts and commissions under the
Securities Act of 1933, as amended.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter, and that under limited circumstances the Underwriter will
indemnify the Depositor, against certain civil liabilities under the Securities
Act of 1933, as amended, or contribute to payments to be made in respect
thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of ongoing information available to investors concerning the
Offered Certificates will be the reports discussed herein under "Description of
the Pooling and Servicing Agreement --Reports to Certificateholders." Except as
described herein under "Description of the Pooling and Servicing Agreement
- --Reports to Certificateholders", there can be no assurance that any additional
information regarding the Offered Certificates will be available through any
other source. In addition, the Depositor is not aware of any source through
which price information about the Offered Certificates will be generally
available on an ongoing basis. The limited nature of such information regarding
the Offered Certificates may adversely affect the liquidity of the Offered
Certificates, even if a secondary market for the Offered Certificates becomes
available.
S-59
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Andrews
& Kurth L.L.P., Dallas, Texas; and certain legal matters will be passed upon for
the Underwriter by ____________________________________________.
RATING
It is a condition of issuance of the Class A1 and Class A2 Certificates
be rated "____" by ________________ ("________________ ") and ________________
("________________ "). It is a condition of the issuance of the Class A1X and
Class A2X Certificates that they be rated "______" by ________________ and
"_____" by ________________. It is a condition of the issuance of the Class B
Certificates that they be rated not lower than "---" by ________________ and
________________. It is a condition of the issuance of the Class C Certificates
that they be rated not lower than "__" by ________________ and "___" by
________________. It is a condition to the issuance of the Class BCX
Certificates that they be rated not lower than "___" by ________________. It is
a condition of the issuance of the Class D Certificates that they be rated not
lower than "___" by ________________ and ________________. It is a condition to
the issuance of the Class E Certificates that they be rated not lower than
"______" by ________________ and ________________.
The ratings on mortgage pass-through certificates address the
likelihood of the receipt by holders thereof of payments to which they are
entitled including the receipt of all principal payments by the Rated Final
Distribution Date. Such 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. Such ratings on the
Offered Certificates do not, however, constitute a statement regarding frequency
or likelihood of prepayments (whether voluntary or involuntary) of the Mortgage
Loans, or the degree to which such prepayments might differ from those
originally anticipated, or the likelihood of the collection of Prepayment
Premiums, and do not address the possibility that Certificateholders might
suffer a lower than anticipated yield. The ratings of the Interest Only
Certificates does not address the possibility that the holders of such
Certificates may fail to fully recover their initial investments due to a rapid
rate of prepayments, defaults or liquidations. See "Risk Factors" herein.
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 ________________ or ________________ 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.
Each security rating should be evaluated independently of any other security
rating. A security rating does not address the frequency or likelihood of
prepayments (whether voluntary or involuntary) of Mortgage Loans, or the
corresponding effect on the yield to investors.
The ratings do not address the fact that the Pass-Through Rates on the
Offered Certificates, to the extent determined based on the Remittance Rates,
may be affected by changes therein.
S-60
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
PAGE
INDEX OF PRINCIPAL DEFINITIONS
PAGE
----
"30/360 basis" ..................................................S-4, S-42
"Adjusted Available Distribution Amount"............................S-4, S-42
"Adjusted Collateral Value"..............................................S-45
"Assignment of Leases and Rents".........................................S-28
"Assignment of Mortgage".................................................S-28
"Available Distribution Amount"..........................................S-41
"Balloon Mortgage Loan"...................................................S-3
"Balloon Payment" ........................................................S-3
"Beneficial Owner"..................................................S-2, S-40
"Borrower" .......................................................S-28
"Cede" .......................................................S-40
"CERCLA" .......................................................S-17
"Certificate Account"....................................................S-55
"Certificates" ...............................................1, S-1, S-58
"Class Balance" .........................................................ii
"Code" ........................................................S-9
"Collateral Value Adjustment"............................................S-44
"CON" .......................................................S-26
"Custodian" ........................................................S-1
"Cut-off Date LTV Ratio".................................................S-32
"Cut-off Date" ..........................................................i
"Debt Service Coverage Ratio"............................................S-33
"Defaulted Mortgage Loan"................................................S-51
"Definitive Certificate"............................................S-2, S-40
"Delivery Date" ..........................................................i
"Depositor" ....................................................ii, S-1
"Determination Date"......................................................S-5
"Distribution Date"..............................................i, S-1, S-41
"DOH" .......................................................S-26
"DSCR" .......................................................S-33
"DTC Registered Certificates".......................................S-2, S-40
"DTC" ...............................................i, S-2, S-40
"Due Date" ........................................................S-3
"ERISA" .................................................S-10, S-57
"ESA" .................................................S-17, S-23
"Exemption" .......................................................S-57
"Facility" .......................................................S-26
"FIRREA" .......................................................S-32
"Form 8-K" .......................................................S-39
"ICCC" ........................................................S-1
"Interest Accrual Amount"................................................S-42
"Interest Distribution Amount"......................................S-4, S-42
"Licenses" .......................................................S-26
"Lock-out Date" .......................................................S-37
"Lock-out Period" .......................................................S-37
"Loss Mortgage Loan".....................................................S-45
"Master Servicer" .........................................................ii
"Maturity Date LTV Ratio"................................................S-32
"Monitoring Certificateholders"..........................................S-52
"Monthly Payments"........................................................S-3
PAGE
"Mortgage File" .......................................................S-28
"Mortgage Loan File".....................................................S-54
"Mortgage Loan Purchase Agreement".......................................S-20
"Mortgage Loan Schedule".................................................S-29
"Mortgage Loans" ....................................................ii, S-2
"Mortgage Note" .......................................................S-20
"Mortgage Pool" ....................................................ii, S-2
"Mortgaged Properties"....................................................S-2
"Mortgaged Property".....................................................S-20
"Mortgage" .......................................................S-20
"Mortgagor" ........................................................S-3
"Most Subordinate Class of Certificates".................................S-55
"Net Prepayment Premium".................................................S-43
"Offered Certificates"......................................................1
"Operator" .................................................S-17, S-26
"Originators" ...................................................ii, S-20
"Other Certificates"......................................................S-6
"P&I Advances" ..................................................S-6, S-45
"Pass-Through Rate"........................................................ii
"Percentage Interest"....................................................S-41
"Permitted Exceptions"...................................................S-23
"Person" .......................................................S-29
"Physical Plant Standards"...............................................S-27
"Plan" .......................................................S-57
"Pooling and Servicing Agreement"...................................S-3, S-53
"Prepayment Interest Excess".............................................S-42
"Prepayment Interest Shortfall"..........................................S-42
"Prepayment Premium"................................................S-3, S-37
"prepayment" .......................................................S-47
"Principal Distribution Amount".....................................S-5, S-43
"Property Protection Expenses"...........................................S-45
"Realized Loss" .......................................................S-45
"Reassignment of Assignment of Leases and Rents".........................S-29
"Record Date" ........................................................S-1
"REMIC Regulations"......................................................S-56
"REMIC" ...................................................iii, S-9
"Remittance Rate" .......................................................S-41
"REO Account" .......................................................S-39
"REO Property" .......................................................S-39
"Rules" .......................................................S-40
"Section 42 Properties"..................................................S-15
"Servicing Transfer Event"...............................................S-51
"SMMEA" .................................................S-11, S-58
"Special Servicer".........................................................ii
"Specially Serviced Mortgage Loan"..................................S-9, S-52
"Stated Principal Balance"...............................................S-45
"Third-Party Payors' Programs"...........................................S-27
"Trust Fund" .........................................................ii
"Underwriter" ....................................................i, S-57
"Underwriting Agreement".................................................S-59
S-61
ANNEX A
CERTAIN CHARACTERISTICS
OF THE MORTGAGE LOANS
[Annex A to follow this page]
A-1
ANNEX B
FORM OF MONTHLY REPORT
[Annex B to follow this page]
B-1
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 13, 1998
ICIFC SECURED ASSETS CORP.
DEPOSITOR
PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other pass-through certificates of
such Series, are collectively referred to herein as the "CERTIFICATES". Each
Series of Certificates will represent in the aggregate the entire beneficial
ownership interest in a trust fund (with respect to any Series, the "TRUST
FUND") consisting of one or more segregated pools of various types of
multifamily or commercial mortgage loans (the "MORTGAGE LOANS"), mortgage
participations, mortgage pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by multifamily or commercial
mortgage loans (collectively, the "CMBS") or a combination of Mortgage Loans
and/or CMBS (with respect to any Series, collectively, the "MORTGAGE ASSETS").
If so specified in the related Prospectus Supplement, some or all of the
Mortgage Loans will include assignments of the leases of the related Mortgaged
Properties (as defined herein) and/or assignments of the rental payments due
from the lessees under such leases (each type of assignment, a "LEASE
ASSIGNMENT"). A significant or the sole source of payments on certain Commercial
Loans (as defined herein) and, therefore, of distributions on certain Series of
Certificates, will be such rent payments. If so specified in the related
Prospectus Supplement, the Trust Fund for a Series of Certificates may include
letters of credit, insurance policies, guarantees, reserve funds or other types
of credit support, or any combination thereof (with respect to any Series,
collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
RETAIN THIS PROSPECTUS FOR FUTURE REFERENCE. THIS PROSPECTUS MAY NOT BE USED TO
CONSUMMATE SALES OF THE OFFERED CERTIFICATES OF ANY SERIES UNLESS ACCOMPANIED BY
THE PROSPECTUS SUPPLEMENT FOR SUCH SERIES.
(COVER CONTINUED ON NEXT PAGE)
_________________________________
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, ICI FUNDING CORPORATION, THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR
ANY ASSETS IN THE RELATED TRUST FUND WILL BE INSURED OR GUARANTEED BY ANY
GOVERNMENTAL AGENCY OR INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE EXTENT
PROVIDED IN THE RELATED PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING AND SERVICING AGREEMENT AND ONE OR MORE
SERVICING AGREEMENTS, OR A TRUST AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
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 OR THE RELATED PROSPECTUS
SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
_________________________________
Prospective investors should review the information appearing under the
caption "Risk Factors" beginning on page __ herein and such information as may
be set forth under the caption "Risk Factors" in the related Prospectus
Supplement before purchasing any Offered Certificate.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will continue.
This Prospectus may not be used to consummate sales of the Offered Certificates
of any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
THE DATE OF THIS PROSPECTUS IS __________________, 1998
Each Series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or floating rates; (ii) be senior or subordinate to one or more
other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such Series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such classes
may include classes of Offered Certificates. See "Description of the
Certificates."
Principal and interest with respect to Certificates will be
distributable monthly, quarterly, semi-annually or at such other intervals and
on the dates specified in the related Prospectus Supplement. Distributions on
the Certificates of any Series will be made only from the assets of the related
Trust Fund.
The yield on each class of Certificates of a Series will be affected
by, among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and under the caption "Certain Prepayment, Maturity and
Yield Considerations" in the related Prospectus Supplement. A Trust Fund may be
subject to early termination under the circumstances described herein and in the
related Prospectus Supplement.
All CMBS will have been acquired for inclusion in a Trust Fund in
purely secondary transactions from a seller other than the issuer thereof and
any of its affiliates. The factors considered by the Registrant in determining
that the CMBS have been acquired in purely secondary market transactions include
the following: the Depositor's historical relationship with the underlying
issuer, whether or not any distribution by the Depositor with respect to other
securities of that issuer is presently occurring or being considered, whether
the Depositor was involved in the initial distribution of the underlying
securities, and the period of time elapsed between initial distribution and the
securitization transaction.
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" (each, a "REMIC") for
federal income tax purposes. See "Federal Income Tax Consequences" herein.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any Prospectus
Supplement with respect hereto and, if given or made, such information or
representations must not be relied upon. This Prospectus and any Prospectus
Supplement with respect hereto do 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.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Offered Certificates of each Series will, among other things,
set forth with respect to such Certificates, as appropriate: (i) a description
of the class or classes of Certificates, the payment provisions with respect to
each such class and the Pass-Through Rate or method of determining the
Pass-Through Rate with respect to each such class; (ii) the aggregate principal
amount and distribution dates relating to such Series and, if applicable, the
initial and final scheduled distribution dates for each class; (iii) information
as to the assets comprising the Trust Fund, including the general
characteristics of the assets included therein, including the Mortgage Assets
and any Credit Support and Cash Flow Agreements (with respect to the
Certificates of any Series, the "TRUST ASSETS"); (iv) the circumstances, if any,
under which the Trust Fund may be subject to early termination; (v) additional
information with respect to the method of distribution of such Certificates;
- 2 -
(vi) whether one or more REMIC elections will be made and designation of the
regular interests and residual interests; (vii) the aggregate original
percentage ownership interest in the Trust Fund to be evidenced by each class of
Certificates; (viii) information as to any Master Servicer, any Primary
Servicer, any Special Servicer (or provision for the appointment thereof) and
the Trustee, as applicable; (ix) information as to the nature and extent of
subordination with respect to any class of Certificates that is subordinate in
right of payment to any other class; and (x) whether such Certificates will be
initially issued in definitive or book-entry form.
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 (the "SECURITIES ACT"), with
respect to the Offered Certificates. This Prospectus and the Prospectus
Supplement relating to each Series of Certificates contain summaries of the
material terms of the documents referred to herein and therein, but do 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: Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661; and Northeast Regional
Office, Seven World Trade Center, Suite 1300, New York, New York 10048. The
Commission maintains a Web site at http://www.sec.gov containing reports, proxy
and information statements and other information regarding registrants,
including the Depositor, that file electronically with the Commission.
To the extent described in the related Prospectus Supplement, some or
all of the Mortgage Loans may be secured by an assignment of the lessors' (I.E.,
the related Mortgagors') rights in one or more leases (each, a "LEASE") on the
related Mortgaged Property. Unless otherwise specified in the related Prospectus
Supplement, no Series of Certificates will represent interests in or obligations
of any lessee (each, a "LESSEE") under a Lease. If indicated, however, in the
Prospectus Supplement for a given Series, a significant or the sole source of
payments on the Mortgage Loans in such Series, and, therefore, of distributions
on such Certificates, will be rental payments due from the Lessees under the
Leases. Under such circumstances, prospective investors in the related Series of
Certificates may wish to consider publicly available information, if any,
concerning the Lessees. Reference should be made to the related Prospectus
Supplement for information concerning the Lessees and whether any such Lessees
are subject to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended (the "EXCHANGE ACT").
A Master Servicer or the Trustee will be required to mail to holders of
Definitive Certificates (as defined herein) of each Series periodic unaudited
reports concerning the related Trust Fund. Unless and until Definitive
Certificates are issued, or to the extent provided in the related Prospectus
Supplement, such reports will be sent on behalf of the related Trust Fund to
Cede & Co. ("CEDE"), as nominee of The Depository Trust Company ("DTC") and
registered holder of the Offered Certificates, pursuant to the applicable
Agreement. Such reports may be available to Beneficial Owners (as defined
herein) in the Certificates upon request to their respective DTC Participants or
Indirect Participants (as defined herein). See "Description of the Certificates
- -- Reports to Certificateholders" and "Description of the Agreements -- Evidence
as to Compliance."
The Depositor will file or cause to be filed with the Commission such
periodic reports with respect to each Trust Fund as are required under the
Exchange Act, and the rules and regulations of the Commission thereunder. The
Depositor intends to make a written request to the staff of the Commission that
the staff either (i) issue an order pursuant to Section 12(h) of the Exchange
Act exempting the Depositor from certain reporting requirements under the
Exchange Act with respect to each Trust Fund or (ii) state that the staff will
not recommend that the Commission take enforcement action if the Depositor
fulfills its reporting obligations as described in its written request. If such
request is granted, the Depositor will file or cause to be filed with the
Commission as to each Trust Fund the periodic unaudited reports to holders of
the Offered Certificates referenced in the preceding paragraph; however, because
of the nature of the Trust Funds, it is unlikely that any significant additional
information will be filed. In addition, because of the limited number of
Certificateholders expected for each series, the Depositor anticipates that a
significant portion of such reporting requirements will be permanently suspended
following the first fiscal year for the related Trust Fund.
- 3 -
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests therein.
The Depositor will provide or cause to be provided without charge to each person
to whom this Prospectus is delivered in connection with the offering of one or
more classes of Offered Certificates, upon written or oral request of such
person, a copy of any or all documents or reports incorporated herein by
reference, in each case to the extent such documents or reports relate to one or
more of such classes of such Offered Certificates, other than the exhibits to
such documents (unless such exhibits are specifically incorporated by reference
in such documents). Requests to the Depositor should be directed in writing to
ICIFC Secured Assets Corp., 20371 Irvine Avenue, Suite 200, Santa Ana Heights,
California 92707, Attention: ________________________. The Depositor has
determined that its financial statements are not material to the offering of any
Offered Certificates.
- 4 -
TABLE OF CONTENTS
(continued)
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT.........................................................2
AVAILABLE INFORMATION.........................................................3
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE......................................................4
SUMMARY OF PROSPECTUS.........................................................8
RISK FACTORS.................................................................14
Limited Liquidity.......................................................14
Limited Assets..........................................................14
Prepayments and Effect on Average Life
of Certificates and Yields..........................................14
Limited Nature of Ratings...............................................15
Risks Associated with Mortgage Loans
and Mortgaged Properties............................................15
Risks Associated with Commercial Loans
and Leases..........................................................16
Balloon Payments........................................................16
Junior Mortgage Loans...................................................17
Obligor Default.........................................................17
Mortgagor Type..........................................................17
Credit Support Limitations..............................................17
Enforceability..........................................................18
Environmental Risks.....................................................18
Delinquent and Non-Performing
Mortgage Loans......................................................19
ERISA Considerations....................................................19
Certain Federal Tax Considerations Re-
garding REMIC Residual Certificates.................................19
Control.................................................................19
Book-Entry Registration.................................................19
DESCRIPTION OF THE TRUST FUNDS...............................................19
Assets..................................................................20
Mortgage Loans..........................................................20
CMBS....................................................................23
Accounts................................................................24
Credit Support..........................................................24
Cash Flow Agreements....................................................25
USE OF PROCEEDS..............................................................25
YIELD CONSIDERATIONS.........................................................25
General.................................................................25
Pass-Through Rate.......................................................25
Timing of Payment of Interest...........................................25
Payments of Principal; Prepayments......................................26
Prepayments -- Maturity and Weighted
Average Life........................................................26
Other Factors Affecting Weighted
Average Life........................................................27
THE DEPOSITOR................................................................28
DESCRIPTION OF THE CERTIFICATES..............................................28
General.................................................................28
Distributions...........................................................29
Available Distribution Amount...........................................29
Distributions of Interest on the Certificates...........................30
Distributions of Principal of the Certificates..........................30
Components..............................................................31
Distributions on the Certificates of
Prepayment Premiums or in Respect of
Equity Participations...............................................31
Allocation of Losses and Shortfalls.....................................31
Advances in Respect of Delinquencies....................................31
Reports to Certificateholders...........................................32
Termination.............................................................34
Book-Entry Registration and
Definitive Certificates.............................................34
DESCRIPTION OF THE AGREEMENTS................................................35
Assignment of Assets; Repurchases.......................................36
Representations and Warranties;
Repurchases.........................................................37
Accounts................................................................38
Collection and Other Servicing Procedures...............................40
Hazard Insurance Policies...............................................43
Rental Interruption Insurance Policy....................................44
Fidelity Bonds and Errors and
Omissions Insurance.................................................44
Due-on-Sale and Due-on-Encumbrance
Provisions..........................................................44
Retained Interest; Servicing Compensation
and Payment of Expenses.............................................44
Evidence as to Compliance...............................................45
Certain Matters Regarding each Servicer
and the Depositor...................................................45
Events of Default.......................................................46
Rights Upon Event of Default............................................46
Amendment...............................................................47
The Trustee.............................................................47
Duties of the Trustee...................................................47
Certain Matters Regarding the Trustee...................................48
Resignation and Removal of the Trustee..................................48
DESCRIPTION OF CREDIT SUPPORT................................................48
General.................................................................48
Subordinate Certificates................................................49
Cross-Support Provisions................................................49
Insurance or Guarantees with Respect
to the Whole Loans..................................................49
Letter of Credit........................................................49
Insurance Policies and Surety Bonds.....................................50
Reserve Funds...........................................................50
Credit Support with respect to CMBS.....................................50
CERTAIN LEGAL ASPECTS OF THE
MORTGAGE LOANS AND THE LEASES................................................50
General.................................................................51
Types of Mortgage Instruments...........................................51
- 5 -
TABLE OF CONTENTS
(continued)
Interest in Real Property...............................................51
Leases and Rents........................................................51
Personalty..............................................................52
Cooperative Loans.......................................................52
Foreclosure.............................................................53
Bankruptcy Laws.........................................................57
Environmental Legislation...............................................59
Due-on-Sale and Due-on-Encumbrance......................................61
Subordinate Financing...................................................62
Default Interest, Prepayment Charges
and Prepayments.....................................................62
Acceleration on Default.................................................62
Applicability of Usury Laws.............................................62
Certain Laws and Regulations; Types
of Mortgaged Properties.............................................63
Americans With Disabilities Act.........................................63
Soldiers' and Sailors' Civil Relief
Act of 1940.........................................................63
Forfeitures in Drug and RICO Proceedings................................64
FEDERAL INCOME TAX CONSEQUENCES..............................................64
General.............................................................64
Grantor Trust Funds.....................................................64
REMICs..................................................................70
Prohibited Transactions and Other Taxes.................................82
Liquidation and Termination.............................................82
Administrative Matters..................................................82
Tax-Exempt Investors....................................................83
Residual Certificate Payments to
Non-U.S. Persons....................................................83
Tax-Related Restrictions on Transfers of
REMIC Residual Certificates.........................................83
STATE TAX CONSIDERATIONS.....................................................85
ERISA CONSIDERATIONS.........................................................85
General.................................................................85
Prohibited Transactions.................................................85
Review by Plan Fiduciaries..............................................86
LEGAL INVESTMENT.............................................................87
METHOD OF DISTRIBUTION.......................................................88
LEGAL MATTERS................................................................89
FINANCIAL INFORMATION........................................................89
RATING.......................................................................89
- 6 -
SUMMARY OF PROSPECTUS
THE FOLLOWING SUMMARY OF CERTAIN PERTINENT INFORMATION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROSPECTUS AND BY REFERENCE TO THE INFORMATION WITH RESPECT TO EACH SERIES
OF CERTIFICATES CONTAINED IN THE PROSPECTUS SUPPLEMENT TO BE PREPARED AND
DELIVERED IN CONNECTION WITH THE OFFERING OF SUCH "SERIES." AN INDEX OF
PRINCIPAL DEFINITIONS IS INCLUDED AT THE END OF THIS PROSPECTUS.
Title of Certificates.......... Mortgage Pass-Through Certificates, issuable
in Series (the "CERTIFICATES").
Depositor...................... ICIFC Secured Assets Corp. (the
"DEPOSITOR"), a wholly-owned subsidiary of
ICI Funding Corporation. See "The
Depositor."
Master Servicer................ The master servicer (the "MASTER SERVICER"),
if any, for each Series of Certificates,
which may be an affiliate of the Depositor,
will be named in the related Prospectus
Supplement. See "Description of the
Agreements-- Collection and Other Servicing
Procedures."
Special Servicer............... The special servicer (the "SPECIAL
SERVICER"), if any, for each Series of
Certificates, which may be an affiliate of
the Depositor, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus
Supplement. See "Description of the
Agreements -- Special Servicers."
Primary Servicer............... The primary servicer (the "PRIMARY
SERVICER"), if any, for each Series of
Certificates, which may be an affiliate of
the Depositor, will be named in the related
Prospectus Supplement. See "Description of
the Agreements-- Collection and Other
Servicing Procedures."
Trustee ...................... The trustee (the "TRUSTEE") for each Series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Agreements -- The Trustee."
The Trust Assets............... Each Series of Certificates will represent
in the aggregate the entire beneficial
ownership interest in a Trust Fund
consisting of:
(a) Mortgage Assets............ The Mortgage Assets with respect to each
Series of Certificates will consist of a
pool of multifamily and/or commercial
mortgage loans (collectively, the "MORTGAGE
LOANS") and/or mortgage participations,
mortgage pass-through certificates or other
mortgage-backed securities evidencing
interests in or secured by Mortgage Loans
(collectively, the "CMBS") or a combination
of Mortgage Loans and CMBS. The Mortgage
Loans will not be guaranteed or insured by
the Depositor or any of its affiliates or,
unless otherwise provided in the Prospectus
Supplement, by any governmental agency or
instrumentality or other person. The CMBS
may be guaranteed or insured by an affiliate
of the Depositor, the Federal Home Loan
Mortgage Corporation, the Federal National
Mortgage Association, the Government
National Mortgage Association, or any other
person specified in the related Prospectus
Supplement. As more specifically described
herein, the Mortgage Loans will be secured
by first or junior liens on, or security
interests in, properties consisting of (i)
residential properties consisting of five or
more rental or cooperatively owned dwelling
units (the "MULTIFAMILY PROPERTIES") or (ii)
office buildings, retail centers, hotels or
motels, health care-related facilities,
industrial properties, mini-warehouse
facilities or self-storage facilities,
mobile home parks, condominiums, mixed use
or other types of commercial properties (the
"COMMERCIAL PROPERTIES"). The term
"MORTGAGED PROPERTIES" shall refer to
Multifamily Properties or Commercial
Properties, or both.
To the extent described in the related
Prospectus Supplement, some or all of the
Mortgage Loans may also be secured by an
assignment of one or more leases (each, a
"LEASE") of one or more lessees (each, a
"LESSEE") of all or a portion of the related
Mortgaged Properties. To the extent
specified in the related Prospectus
- 7 -
Supplement, a significant or the sole source
of payments on certain Commercial Loans (as
defined herein) will be the rental payments
due under the related Leases. In certain
circumstances, with respect to Commercial
Properties, the material terms and
conditions of the related Leases may be set
forth in the related Prospectus Supplement.
See "Description of the Trust Funds --
Mortgage Loans -- Leases" and "Risk Factors
-- Limited Assets" herein.
The Mortgaged Properties may be located in
the United States or its territories. All
Mortgage Loans will have individual
principal balances at origination of not
less than $250,000 and original terms to
maturity of not more than 40 years. All
Mortgage Loans will have been originated by
persons other than the Depositor, and all
Mortgage Assets will have been purchased,
either directly or indirectly, by the
Depositor on or before the date of initial
issuance of the related Series of
Certificates. The related Prospectus
Supplement will indicate if any such persons
are affiliates of the Depositor.
Each Mortgage Loan may provide for no
accrual of interest or for accrual of
interest thereon at an interest rate (a
"MORTGAGE INTEREST RATE") that is fixed over
its term or that adjusts from time to time,
or is partially fixed and partially floating
or that may be converted from a floating to
a fixed Mortgage Interest Rate, or from a
fixed to a floating Mortgage Interest Rate,
from time to time at the Mortgagor's
election, in each case as described in the
related Prospectus Supplement. The floating
Mortgage Interest Rates on the Mortgage
Loans in a Trust Fund may be based on one or
more indices. Each Mortgage Loan may provide
for scheduled payments to maturity, payments
that adjust from time to time to accommodate
changes in the Mortgage Interest Rate or to
reflect the occurrence of certain events,
and may provide for negative amortization or
accelerated amortization, in each case as
described in the related Prospectus
Supplement. Each Mortgage Loan may be fully
amortizing or require a balloon payment due
on its stated maturity date, in each case as
described in the related Prospectus
Supplement. Each Mortgage Loan may contain
prohibitions on prepayment or require
payment of a premium or a yield maintenance
penalty in connection with a prepayment, in
each case as described in the related
Prospectus Supplement. The Mortgage Loans
may provide for payments of principal,
interest or both, on due dates that occur
monthly, quarterly, semi-annually or at such
other interval as is specified in the
related Prospectus Supplement. See
"Description of the Trust Funds -- Assets."
(b) Collection Accounts........ Each Trust Fund will include one or more
accounts established and maintained on
behalf of the Certificateholders into which
the person or persons designated in the
related Prospectus Supplement will, to the
extent described herein and in such
Prospectus Supplement, deposit all payments
and collections received or advanced with
respect to the Mortgage Assets and other
assets in the Trust Fund. Such an account
may be maintained as an interest bearing or
a non-interest bearing account, and funds
held therein may be held as cash or invested
in certain short-term, investment grade
obligations, in each case as described in
the related Prospectus Supplement. See
"Description of the Agreements--
Distribution Account and Other Collection
Accounts."
(c) Credit Support............. If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund
may be provided to one or more classes of
Certificates of the related Series in the
form of subordination of one or more other
classes of Certificates of such Series,
which other classes may include one or more
classes of Offered Certificates, or by one
or more other types of credit support, such
as a letter of credit, insurance policy,
guarantee, reserve fund or another type of
credit support, or a combination thereof
(any such coverage with respect to the
Certificates of any Series, "CREDIT
SUPPORT"). The amount and types of coverage,
the identification of the entity providing
the coverage (if applicable) and related
information with respect to each type of
Credit Support, if any, will be described in
the Prospectus Supplement for a Series of
Certificates. The Prospectus Supplement for
any Series of Certificates
- 8 -
evidencing an interest in a Trust Fund that
includes CMBS will describe any similar
forms of credit support that are provided by
or with respect to, or are included as part
of the trust fund evidenced by or providing
security for, such CMBS. See "Risk Factors
-- Credit Support Limitations" and
"Description of Credit Support."
(d) Cash Flow Agreement........ If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related Series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements,
such as interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects of
interest rate or currency exchange rate
fluctuations on the Mortgage Assets of one
or more classes of Certificates. The
principal terms of any such guaranteed
investment contract or other agreement (any
such agreement, a "CASH FLOW AGREEMENT"),
including, without limitation, provisions
relating to the timing, manner and amount of
payments thereunder and provisions relating
to the termination thereof, will be
described in the Prospectus Supplement for
the related Series. In addition, the related
Prospectus Supplement will provide certain
information with respect to the obligor
under any such Cash Flow Agreement. The
Prospectus Supplement for any Series of
Certificates evidencing an interest in a
Trust Fund that includes CMBS will describe
any cash flow agreements that are included
as part of the trust fund evidenced by or
providing security for such CMBS. See
"Description of the Trust Funds-- Cash Flow
Agreements."
Description of Certificates.... Each Series of Certificates evidencing an
interest in a Trust Fund that includes
Mortgage Loans as part of its assets will be
issued pursuant to a pooling and servicing
agreement, and each Series of Certificates
evidencing an interest in a Trust Fund that
does not include Mortgage Loans will be
issued pursuant to a trust agreement. To the
extent specified in the Prospectus
Supplement, the Mortgage Loans shall be
serviced pursuant to a pooling and servicing
agreement and one or more servicing
agreements. Pooling and servicing
agreements, servicing agreements and trust
agreements are referred to herein as the
"AGREEMENTS". Each Series of Certificates
will include one or more classes. Each
Series of Certificates (including any class
or classes of Certificates of such Series
not offered hereby) will represent in the
aggregate the entire beneficial ownership
interest in the Trust Fund. Each class of
Certificates (other than certain Stripped
Interest Certificates, as defined below)
will have a stated principal amount (a
"CERTIFICATE BALANCE") and (other than
certain Stripped Principal Certificates, as
defined below), will accrue interest thereon
based on a fixed, variable or floating
interest rate (a "PASS- THROUGH RATE"). The
related Prospectus Supplement will specify
the Certificate Balance, if any, and the
Pass-Through Rate, if any, for each class of
Certificates or, in the case of a variable
or floating Pass-Through Rate, the method
for determining the Pass-Through Rate.
Distributions on Certificates.. Each Series of Certificates will consist of
one or more classes of Certificates that may
(i) provide for the accrual of interest
thereon based on fixed, variable or floating
rates; (ii) be senior (collectively, "SENIOR
CERTIFICATES") or subordinate (collectively,
"SUBORDINATE CERTIFICATES") to one or more
other classes of Certificates in respect of
certain distributions on the Certificates;
(iii) be entitled to principal
distributions, with disproportionately low,
nominal or no interest distributions
(collectively, "STRIPPED PRINCIPAL
CERTIFICATES"); (iv) be entitled to interest
distributions, with disproportionately low,
nominal or no principal distributions
(collectively, "STRIPPED INTEREST
CERTIFICATES"); (v) provide for
distributions of accrued interest thereon
commencing only following the occurrence of
certain events, such as the retirement of
one or more other classes of Certificates of
such Series (collectively, "ACCRUAL
CERTIFICATES"); (vi) provide for
distributions of principal sequentially,
based on specified payment schedules or
other methodologies; and/or (vii) provide
for distributions based on a combination of
two or more components thereof with one or
more of the characteristics described in
- 9 -
this paragraph, including a Stripped
Principal Certificate component and a
Stripped Interest Certificate component, to
the extent of available funds, in each case
as described in the related Prospectus
Supplement. Any such classes may include
classes of Offered Certificates. With
respect to Certificates with two or more
components, references herein to Certificate
Balance, notional amount and Pass-Through
Rate refer to the principal balance, if any,
notional amount, if any, and the
Pass-Through Rate, if any, for any such
component.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person,
unless otherwise provided in the related
Prospectus Supplement. See "Risk Factors --
Limited Assets" and "Description of the
Certificates."
(a) Interest................... Interest on each class of Offered
Certificates (other than Stripped Principal
Certificates and certain classes of Stripped
Interest Certificates) of each Series will
accrue at the applicable Pass-Through Rate
on the outstanding Certificate Balance
thereof and will be distributed to
Certificateholders as provided in the
related Prospectus Supplement (each of the
specified dates on which distributions are
to be made, a "DISTRIBUTION DATE").
Distributions with respect to interest on
Stripped Interest Certificates may be made
on each Distribution Date on the basis of a
notional amount as described in the related
Prospectus Supplement. Distributions of
interest with respect to one or more classes
of Certificates may be reduced to the extent
of certain delinquencies, losses, prepayment
interest shortfalls, and other contingencies
described herein and in the related
Prospectus Supplement. Stripped Principal
Certificates with no stated Pass-Through
Rate will not accrue interest. See "Risk
Factors-- Prepayments and Effect on Average
Life of Certificates and Yields," "Yield
Considerations" and "Description of the
Certificates-- Distributions of Interest on
the Certificates."
(b) Principal.................. The Certificates of each Series initially
will have an aggregate Certificate Balance
no greater than the outstanding principal
balance of the Mortgage Assets as of, unless
the related Prospectus Supplement provides
otherwise, the close of business on the
first day of the month of formation of the
related Trust Fund (the "CUT-OFF DATE"),
after application of scheduled payments due
on or before such date, whether or not
received. The Certificate Balance of a
Certificate outstanding from time to time
represents the maximum amount that the
holder thereof is then entitled to receive
in respect of principal from future cash
flow on the assets in the related Trust
Fund. To the extent provided in the related
Prospectus Supplement, distributions of
principal will be made on each Distribution
Date to the class or classes of Certificates
entitled thereto until the Certificate
Balances of such Certificates have been
reduced to zero. To the extent specified in
the related Prospectus Supplement,
distributions of principal of any class of
Certificates will be made on a pro rata
basis among all of the Certificates of such
class or by random selection, as described
in the related Prospectus Supplement or
otherwise established by the related
Trustee. Stripped Interest Certificates with
no Certificate Balance will not receive
distributions in respect of principal. See
"Description of the Certificates--
Distributions of Principal of the
Certificates."
Advances....................... To the extent provided in the related
Prospectus Supplement, the Primary Servicer,
the Special Servicer or the Master Servicer
(each, a "SERVICER") will be obligated as
part of its servicing responsibilities to
make certain advances with respect to
delinquent scheduled payments on the Whole
Loans in such Trust Fund which it deems
recoverable. Any such advances will be made
under and subject to any determinations or
conditions set forth in the related
Prospectus Supplement. Neither the Depositor
nor any of its affiliates will have any
responsibility to make such advances.
Advances made by a Master Servicer are
reimbursable generally from subsequent
recoveries in respect of such Whole Loans
and otherwise to the extent described herein
and in the related Prospectus Supplement. If
and to the extent provided in the Prospectus
Supplement for any Series, each Servicer
will be entitled to receive interest on its
outstanding advances, payable from amounts
in the
- 10 -
related Trust Fund. The Prospectus
Supplement for any Series of Certificates
evidencing an interest in a Trust Fund that
includes CMBS will describe any
corresponding advancing obligation of any
person in connection with such CMBS. See
"Description of the Certificates -- Advances
in Respect of Delinquencies."
Termination.................... If so specified in the related Prospectus
Supplement, a Series of Certificates may be
subject to optional early termination
through the repurchase of the Mortgage
Assets in the related Trust Fund by the
party specified therein, under the
circumstances and in the manner set forth
therein. If so provided in the related
Prospectus Supplement, upon the reduction of
the Certificate Balance of a specified class
or classes of Certificates by a specified
percentage or amount or on and after a date
specified in such Prospectus Supplement, the
party specified therein will solicit bids
for the purchase of all of the Mortgage
Assets of the Trust Fund, or of a sufficient
portion of such Mortgage Assets to retire
such class or classes, or purchase such
Mortgage Assets at a price set forth in the
related Prospectus Supplement. In addition,
if so provided in the related Prospectus
Supplement, certain classes of Certificates
may be purchased subject to similar
conditions. See "Description of the
Certificates-- Termination."
Registration of Certificates... If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an
interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event that
definitive certificates are issued under the
limited circumstances described herein. See
"Risk Factors-- Book-Entry Registration" and
"Description of the Certificates --
Book-Entry Registration and Definitive
Certificates."
Tax Status of the Certificates. The Certificates of each Series will
constitute either (i) "regular interests"
("REMIC REGULAR CERTIFICATES") or a single
class of "residual interests" ("REMIC
RESIDUAL CERTIFICATES") in a Trust Fund or a
portion of a Trust Fund treated as a real
estate mortgage investment conduit ("REMIC")
under Sections 860A through 860G of the
Internal Revenue Code of 1986, as amended
(the "CODE"), or (ii) interests ("GRANTOR
TRUST CERTIFICATES") in a Trust Fund treated
as a grantor trust under applicable
provisions of the Code.
(a) REMIC...................... REMIC Regular Certificates generally will be
treated as debt obligations of the
applicable REMIC for federal income tax
purposes. Certain REMIC Regular Certificates
may be issued with original issue discount
for federal income tax purposes. See
"Federal Income Tax Consequences" herein and
in the related Prospectus Supplement.
The Offered Certificates will be treated as
(i) assets described in section
7701(a)(19)(C) of the Code and (ii) "real
estate assets" within the meaning of section
856(c)(5)(A) of the Code, in each case to
the extent described herein and in the
related Prospectus Supplement. See "Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
(b) Grantor Trust.............. If no election is made to treat the Trust
Fund relating to a Series of Certificates as
a REMIC, the Trust Fund will be classified
as a grantor trust and not as an association
taxable as a corporation for federal income
tax purposes, and therefore holders of
Certificates will be treated as the owners
of undivided pro rata interests in the
Mortgage Pool or pool of securities and any
other assets held by the Trust Fund.
Investors are urged to consult their tax
advisors and to review "Federal Income Tax
Consequences" herein and in the related
Prospectus Supplement.
ERISA Considerations........... A fiduciary of an employee benefit plan and
certain other retirement plans and
arrangements, including individual
retirement accounts, annuities, Keogh plans,
- 11 -
and collective investment funds and separate
accounts in which such plans, accounts,
annuities or arrangements are invested and
any entity whose underlying assets include
assets of such a plan by reason of any such
plan's investment in the entity, that is
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Code should carefully
review with its legal advisors whether the
purchase or holding of Offered Certificates
could give rise to a transaction that is
prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the
Code. See "ERISA Considerations" herein and
in the related Prospectus Supplement.
Certain classes of Certificates may not be
transferred unless the Trustee and the
Depositor are furnished with a letter of
representations or an opinion of counsel to
the effect that such transfer will not
result in a violation of the prohibited
transaction provisions of ERISA and the Code
and will not subject the Trustee, the
Depositor or the Master Servicer to
additional obligations. See "Description of
the Certificates -- General" and "ERISA
Considerations."
Legal Investment............... The related Prospectus Supplement will
specify whether the Offered Certificates
will constitute "mortgage related
securities" for purposes of the Secondary
Mortgage Market Enhancement Act of 1984.
Investors whose investment authority is
subject to legal restrictions 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 and
in the related Prospectus Supplement.
Rating......................... At the date of issuance, as to each Series,
each class of Offered Certificates will be
rated not lower than investment grade by one
or more nationally recognized statistical
rating agencies (each, a "RATING AGENCY").
See "Rating" herein and in the related
Prospectus Supplement.
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.
- 12 -
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any Series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such Series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of Certificates
by a holder in any secondary market that may develop may be at a discount from
100% of their original principal balance or from their purchase price.
Furthermore,
secondary market purchasers may look only hereto, to the related Prospectus
Supplement and to the reports to Certificateholders delivered pursuant to the
related Agreement as described herein under the heading "Description of the
Certificates -- Reports to Certificateholders," "--Book-Entry Registration and
Definitive Certificates" and "Description of the Agreements -- Evidence as to
Compliance" for information concerning the Certificates. Except to the extent
described herein and in the related Prospectus Supplement, Certificateholders
will have no redemption rights and the Certificates are subject to early
retirement only under certain specified circumstances described herein and in
the related Prospectus Supplement. See "Description of the Certificates --
Termination."
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, any Servicer, or any of their affiliates. The only obligations with
respect to the Certificates or the Mortgage Assets will be the obligations (if
any) of the Depositor (or, if otherwise provided in the related Prospectus
Supplement, the person identified therein as the person making certain
representations and warranties with respect to the Mortgage Loans, as
applicable, the "WARRANTING PARTY") pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans. Since certain
representations and warranties with respect to the Mortgage Assets may have been
made and/or assigned in connection with transfers of such Mortgage Assets prior
to the Closing Date, the rights of the Trustee and the Certificateholders with
respect to such representations or warranties will be limited to their rights as
an assignee thereof. Unless otherwise specified in the related Prospectus
Supplement, none of the Depositor, any Servicer or any affiliate thereof will
have any obligation with respect to representations or warranties made by any
other entity. Unless otherwise specified in the related Prospectus Supplement,
neither the Certificates nor the underlying Mortgage Assets will be guaranteed
or insured by any governmental agency or instrumentality, or by the Depositor,
any Servicer or any of their affiliates. Proceeds of the assets included in the
related Trust Fund for each Series of Certificates (including the Mortgage
Assets and any form of credit enhancement) will be the sole source of payments
on the Certificates, and there will be no recourse to the Depositor or any other
entity in the event that such proceeds are insufficient or otherwise unavailable
to make all payments provided for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a
Series of Certificates will not have any claim against or security interest in
the Trust Funds for any other Series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Distribution Account, the Collection Account
and any accounts maintained as Credit Support, may be withdrawn under certain
conditions, as described in the related Prospectus Supplement. In the event of
such withdrawal, such amounts will not be available for future payment of
principal of or interest on the Certificates. If so provided in the Prospectus
Supplement for a Series of Certificates consisting of one or more classes of
Subordinate Certificates, on any Distribution Date in respect of which losses or
shortfalls in collections on the Trust Assets have been incurred, the amount of
such losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by the remaining classes of
Certificates in the priority and manner and subject to the limitations specified
in such Prospectus Supplement.
PREPAYMENTS AND EFFECT ON AVERAGE LIFE OF CERTIFICATES AND YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets
in any Trust Fund generally will result in a faster rate of principal payments
on one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or
- 13 -
that the rate of payments will conform to any model described herein or in any
Prospectus Supplement. If prevailing interest rates fall significantly below the
applicable mortgage interest rates, principal prepayments are likely to be
higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A Series of Certificates may include one or
more classes of Certificates with priorities of payment and, as a result, yields
on other classes of Certificates, including classes of Offered Certificates, of
such Series may be more sensitive to prepayments on Mortgage Assets. A Series of
Certificates may include one or more classes offered at a significant premium or
discount. Yields on such classes of Certificates will be sensitive, and in some
cases extremely sensitive, to prepayments on Mortgage Assets and, where the
amount of interest payable with respect to a class is disproportionately high,
as compared to the amount of principal, as with certain classes of Stripped
Interest Certificates, a holder might, in some prepayment scenarios, fail to
recoup its original investment. A Series of Certificates may include one or more
classes of Certificates, including classes of Offered Certificates, that provide
for distribution of principal thereof from amounts attributable to interest
accrued but not currently distributable on one or more classes of Accrual
Certificates and, as a result, yields on such Certificates will be sensitive to
(a) the provisions of such Accrual Certificates relating to the timing of
distributions of interest thereon and (b) if such Accrual Certificates accrue
interest at a variable or floating Pass-Through Rate, changes in such rate. See
"Yield Considerations" herein and, if applicable, in the related Prospectus
Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders of
Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
Series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates of
the related Series are entitled that is not covered by the applicable rating.
The amount, type and nature of credit support, if any, established with
respect to a Series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage loans
in a larger group. Such analysis is often the basis upon which each Rating
Agency determines the amount of credit 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 any particular pool
of Mortgage Assets. 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 Assets in a particular Trust Fund and any secondary
financing on the related Mortgaged Properties become equal to or greater than
the value of the Mortgaged Properties, the rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced by institutional
lenders. In addition, adverse economic conditions (which may or may not affect
real property values) may affect the timely payment by Mortgagors of scheduled
payments of principal and interest on the Mortgage Loans and, accordingly, the
rates of delinquencies, foreclosures and losses with respect to any Trust Fund.
To the extent that such losses are not covered by the Credit Support, if any,
described in the related Prospectus Supplement, such losses will be borne, at
least in part, by the holders of one or more classes of the Certificates of the
related Series. See "Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds -- Assets." The ability of a
Mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the Mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a Mortgagor to repay a
single family
- 14 -
loan typically is dependent primarily upon the Mortgagor's household income,
rather than the capacity of the property to produce income; thus, other than in
geographical areas where employment is dependent upon a particular employer or
an industry, the Mortgagor's income tends not to reflect directly the value of
such property. A decline in the net operating income of an income-producing
property will likely affect both the performance of the related loan as well as
the liquidation value of such property, whereas a decline in the income of a
Mortgagor on a single family property will likely affect the performance of the
related loan but may not affect the liquidation value of such property.
Moreover,
a decline in the value of a Mortgaged Property will increase the risk of loss
particularly with respect to any related junior Mortgage Loan. See "--Junior
Mortgage Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the Mortgagor to tenants as well as the liquidation value of
such property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both; the
risks associated with such loans may be offset by the number of tenants or, if
applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which recourse
may be restricted or unenforceable, as to which, in the event of Mortgagor
default, recourse may be had only against the specific property and such other
assets, if any, as have been pledged to secure the related Mortgage Loan. With
respect to those Mortgage Loans that provide for recourse against the Mortgagor
and its assets generally, there can be no assurance that such recourse will
ensure a recovery in respect of a defaulted Mortgage Loan greater than the
liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual Mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a single or limited number of Mortgage Loans and/or relate
to Leases to only a single Lessee or a limited number of Lessees.
If applicable, certain legal aspects of the Mortgage Loans for a Series
of Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each Mortgagor
under a Commercial Loan may be an entity created by the owner or purchaser of
the related Commercial Property solely to own or purchase such property, in part
to isolate the property from the debts and liabilities of such owner or
purchaser. To the extent specified in the related Prospectus Supplement, each
such Commercial Loan will represent a nonrecourse obligation of the related
Mortgagor secured by the lien of the related Mortgage and the related Lease
Assignments. Whether or not such loans are recourse or nonrecourse obligations,
it is not expected that the Mortgagors will have any significant assets other
than the Commercial Properties and the related Leases, which will be pledged to
the Trustee under the related Agreement. Therefore, the payment of amounts due
on any such Commercial Loans, and, consequently, the payment of principal of and
interest on the related Certificates, will depend primarily or solely on rental
payments by the Lessees. Such rental payments will, in turn, depend on continued
occupancy by, and/or the creditworthiness of, such Lessees, which in either case
may be adversely affected by a general economic downturn or an adverse change in
their financial condition. Moreover, to the extent a Commercial Property was
designed for the needs of a specific type of tenant (e.g., a nursing home, hotel
or motel), the value of such property in the event of a default by the Lessee or
the early termination of such Lease may be adversely affected because of
difficulty in re-leasing the property to a suitable substitute lessee or, if
releasing to such a substitute is not possible, because of the cost of altering
the property for another more marketable use. As a result, without the benefit
of the Lessee's continued support of the Commercial Property, and absent
significant amortization of the Commercial Loan, if such loan is foreclosed on
and the Commercial Property is liquidated following a lease default, the net
proceeds might be insufficient to cover the outstanding principal and interest
owing on such loan, thereby increasing the risk that holders of the Certificates
will suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (I.E., balloon payments) at their stated maturity (the
"BALLOON MORTGAGE LOANS"). Mortgage Loans with balloon payments involve a
greater degree of risk because the ability of a Mortgagor to make a balloon
payment typically will depend upon its ability either to timely refinance the
loan or to timely sell the related Mortgaged Property. The ability of a
Mortgagor to accomplish either of these goals will be
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affected by a number of factors, including the level of available mortgage
interest rates at the time of sale or refinancing, the Mortgagor's equity in the
related Mortgaged Property, the financial condition and operating history of the
Mortgagor and the related Mortgaged Property, tax laws, rent control laws (with
respect to certain Multifamily Properties and mobile home parks), reimbursement
rates (with respect to certain nursing homes), renewability of operating
licenses, prevailing general economic conditions and the availability of credit
for commercial or multifamily real properties, as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain
of the Mortgage Loans may be secured primarily by junior mortgages. In the case
of liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loans would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to
maximize recoveries on defaulted Whole Loans, a Master Servicer or a Special
Servicer will be permitted (within prescribed parameters) to extend and modify
Whole Loans that are in default or as to which a payment default is imminent,
including in particular with respect to balloon payments. In addition, a Master
Servicer or a Special Servicer may receive a workout fee based on receipts from
or proceeds of such Whole Loans. While any such entity generally will be
required to determine that any such extension or modification is reasonably
likely to produce a greater recovery on a present value basis than liquidation,
there can be no assurance that such flexibility with respect to extensions or
modifications or payment of a workout fee will increase the present value of
receipts from or proceeds of Whole Loans that are in default or as to which a
payment default is imminent. Additionally, if so specified in the related
Prospectus Supplement, certain of the Mortgage Loans included in the Mortgage
Pool for a Series may have been subject to workouts or similar arrangements
following periods of delinquency and default.
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.
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe
any Credit Support in the related Trust Fund, which may include letters of
credit, insurance policies, guarantees, reserve funds or other types of credit
support, or combinations thereof. Use of Credit Support will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Support may not cover all potential losses or
risks; for example, Credit Support may or may not cover fraud or negligence by a
mortgage loan originator or other parties.
A Series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more classes
of Certificates of a Series are made in a specified order of priority, any
limits with respect to the aggregate amount of claims under any related Credit
Support may be exhausted before the principal of the lower priority classes of
Certificates of such Series has been repaid. As a result, the impact of
significant losses and shortfalls on the Trust Assets may fall primarily upon
those classes of Certificates having a lower priority of payment. Moreover, if a
form of Credit Support covers more than one Series of Certificates (each, a
"COVERED TRUST"), holders of Certificates evidencing an interest in a Covered
Trust will be subject to the risk that such Credit Support will be exhausted by
the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria established
by each Rating Agency rating such classes of Certificates based on an assumed
level of defaults, delinquencies, other losses or
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other factors. There can, however, be no assurance that the loss experience on
the related Mortgage Assets will not exceed such assumed levels. See "--Limited
Nature of Ratings," "Description of the Certificates" and "Description of Credit
Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to periodic
reduction in accordance with a schedule or formula. The Master Servicer will
generally be permitted to reduce, terminate or substitute all or a portion of
the credit enhancement for any Series of Certificates, if the applicable Rating
Agency indicates that the then-current rating thereof will not be adversely
affected. The rating of any Series of Certificates by any applicable Rating
Agency may be lowered following the initial issuance thereof as a result of the
downgrading of the obligations of any applicable credit support provider, or as
a result of losses on the related Mortgage Assets substantially in excess of the
levels contemplated by such Rating Agency at the time of its initial rating
analysis. None of the Depositor, the Master Servicer or any of their affiliates
will have any obligation to replace or supplement any credit enhancement, or to
take any other action to maintain any rating of any Series of Certificates.
ENFORCEABILITY
Mortgages may 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. 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. Such clauses are generally enforceable subject to certain exceptions.
The courts of all states will enforce clauses providing for acceleration in the
event of a material payment default. The equity courts of any state, however,
may refuse the foreclosure of a mortgage or deed of trust when an acceleration
of the indebtedness would be inequitable or unjust or the circumstances would
render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage
Loans will be secured by an assignment of leases and rents pursuant to which the
Mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to the
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 are typically not 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 the Mortgage Loans and the Leases --
Leases and Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of hazardous
substances that require remedy at a property, if agents or employees of the
lender have become sufficiently involved in the operations of the Mortgagor,
regardless of whether or not the environmental damage or threat was caused by a
prior owner. A lender also risks such liability on foreclosure of the mortgage.
Each Pooling and Servicing Agreement will provide that no Servicer, acting on
behalf of the Trust Fund, may acquire title to a Mortgaged Property securing a
Mortgage Loan or take over its operation unless such Servicer has previously
determined, based upon a report prepared by a person who regularly conducts
environmental audits, that: (i) the Mortgaged Property is in compliance with
applicable environmental laws or, if not, that taking such actions as are
necessary to bring the Mortgaged Property in compliance therewith is likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions and (ii) there are
no circumstances present at the Mortgaged Property relating to the use,
management or disposal of any Hazardous Materials (as defined herein) for which
investigation, testing, monitoring, containment, cleanup or remediation could be
required under any federal, state or local law or regulation, or that, if any
Hazardous Materials are present for which such action would be required, taking
such actions with respect to the affected Mortgaged Property is reasonably
likely to produce a greater recovery on a present value basis, after taking into
account any risks associated therewith, than not taking such actions. Any
additional restrictions on acquiring title to a Mortgaged Property may be set
forth in the related Prospectus Supplement. See "Certain Legal Aspects of the
Mortgage Loans and the Leases -- Environmental Legislation."
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DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for
a particular series of Certificates may include Mortgage Loans that are past due
or are non-performing. To the extent described in the related Prospectus
Supplement, the servicing of such Mortgage Loans as to which a specified number
of payments are delinquent will be performed by the Special Servicer; however,
the same entity may act as both Master Servicer and Special Servicer. Credit
Support provided with respect to a particular series of Certificates may not
cover all losses related to such delinquent or nonperforming Mortgage Loans, and
investors should consider the risk that the inclusion of such Mortgage Loans in
the Trust Fund may adversely affect the rate of defaults and prepayments on the
Mortgage Assets in such Trust Fund and the yield on the Certificates of such
series.
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 of any Series.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on
their federal income tax returns as ordinary income their PRO RATA share of the
taxable income of the REMIC, regardless of the amount or timing of their receipt
of cash payments, as described in "Federal Income Tax Consequences -- REMICs."
Accordingly, under certain circumstances, holders of Offered Certificates that
constitute REMIC Residual Certificates may have taxable income and tax
liabilities arising from such investment during a taxable year in excess of the
cash received during such period. Individual holders of REMIC Residual
Certificates may be limited in their ability to deduct servicing fees and other
expenses of the REMIC. In addition, REMIC Residual Certificates are subject to
certain restrictions on transfer. Because of the special tax treatment of REMIC
Residual Certificates, the taxable income arising in a given year on a REMIC
Residual Certificate will not be equal to, and may be substantially more than,
the taxable income associated with investment in a corporate bond or stripped
instrument having similar cash flow characteristics and pre-tax yield.
Therefore, the after-tax yield on the REMIC Residual Certificate may be
significantly less than that of a corporate bond or stripped instrument having
similar cash flow characteristics. Additionally, prospective purchasers of a
REMIC Residual Certificate should be aware that under applicable Treasury
regulations REMIC residual interests cannot be marked-to-market. See "Federal
Income Tax Consequences -- REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of
a specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a Series or a similar means of allocating decision-making under
the related Agreement ("VOTING RIGHTS") will be required to direct, and will be
sufficient to bind all Certificateholders of such Series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description of
the Agreements -- Events of Default," "--Rights Upon Event of Default" and
"--Amendment."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Beneficial Owners or their nominees. Because of this, unless
and until Definitive Certificates are issued, Beneficial Owners will not be
recognized by the Trustee as "CERTIFICATEHOLDERS" (as that term is to be used in
the related Agreement). Hence, until such time, Beneficial Owners will be able
to exercise the rights of Certificateholders only indirectly through DTC and its
participating organizations. See "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
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ASSETS
The primary assets of each Trust Fund will include (i) one or more
multifamily and/or commercial mortgage loans (the "MORTGAGE LOANS"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities (collectively, the
"CMBS"), or (iii) a combination of Mortgage Loans and CMBS. As used herein,
"Mortgage Loans" refers to both whole Mortgage Loans and Mortgage Loans
underlying CMBS. Mortgage Loans that secure, or interests in which are evidenced
by, CMBS are herein sometimes referred to as "UNDERLYING MORTGAGE LOANS".
Mortgage Loans that are not Underlying Mortgage Loans are sometimes referred to
as "WHOLE LOANS". Any mortgage participations, pass-through certificates or
other asset-backed certificates in which an CMBS evidences an interest or which
secure an CMBS are sometimes referred to herein also as CMBS or as "UNDERLYING
CMBS". Mortgage Loans and CMBS are sometimes referred to herein as "MORTGAGE
ASSETS". No CMBS originally issued in a private placement will be included as an
asset of a Trust Fund until the holding period provided for under Rule 144(k)
promulgated under the Securities Act has expired or such CMBS has been
registered under the Securities Act. The Mortgage Assets will not be guaranteed
or insured by ICIFC Secured Assets Corp. (the "DEPOSITOR") or any of its
affiliates or, unless otherwise provided in the related Prospectus Supplement,
by any governmental agency or instrumentality or by any other person. Each
Mortgage Asset will be selected by the Depositor for inclusion in a Trust Fund
from among those purchased, either directly or indirectly, from a prior holder
thereof (an "ASSET SELLER"), which may be an affiliate of the Depositor and,
with respect to Mortgage Assets, which prior holder may or may not be the
originator of such Mortgage Loan or the issuer of such CMBS.
To the extent specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Mortgage Assets.
MORTGAGE LOANS
GENERAL
The Mortgage Loans will be secured by liens on, or security interests
in, Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively owned dwelling units in high-rise, mid-rise
or garden apartment buildings ("MULTIFAMILY PROPERTIES" and the related loans,
"MULTIFAMILY LOANS") or (ii) office buildings, retail centers, hotels or motels,
health care-related facilities, industrial properties, mini-warehouse facilities
or self-storage facilities, mobile home parks, condominiums, mixed use or other
types of commercial properties ("COMMERCIAL PROPERTIES" and the related loans,
"COMMERCIAL LOANS") located, to the extent specified in the related Prospectus
Supplement, in any one of the fifty states, the District of Columbia or any
territories of the United States. To the extent specified in the related
Prospectus Supplement, the Mortgage Loans will be secured by first mortgages or
deeds of trust or other similar security instruments creating a first lien on
Mortgaged Property. Multifamily Properties may include mixed commercial and
residential structures and may include apartment buildings owned by private
cooperative housing corporations ("COOPERATIVES"). The Mortgaged Properties may
include leasehold interests in properties, the title to which is held by third
party lessors. The Prospectus Supplement will specify whether the term of any
such leasehold exceeds the term of the mortgage note by at least ten years. Each
Mortgage Loan will have been originated by a person (the "ORIGINATOR") other
than the Depositor. The related Prospectus Supplement will indicate if any
Originator is an affiliate of the Depositor. The Mortgage Loans will be
evidenced by promissory notes (the "MORTGAGE NOTES") secured by mortgages or
deeds of trust (the "MORTGAGES") creating a lien on the Mortgaged Properties.
Mortgage Loans will generally also be secured by an assignment of leases and
rents and/or operating or other cash flow guarantees relating to the Mortgage
Loan.
LEASES
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or a
portion of such properties. Pursuant to a Lease Assignment, the related
Mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
Mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for application
to the monetary obligations of the Mortgagor. State law may limit or restrict
the enforcement of the Lease Assignments by a mortgagee until it takes
possession of the related Mortgaged Property and/or a receiver is appointed. See
"Certain Legal Aspects of the Mortgage Loans and the Leases -- Leases and
Rents." Alternatively,
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to the extent specified in the related Prospectus Supplement, the Mortgagor and
the mortgagee may agree that payments under Leases are to be made directly to a
Servicer.
To the extent described in the related Prospectus Supplement, the
Leases may require the Lessees to pay rent that is sufficient in the aggregate
to cover all scheduled payments of principal and interest on the related
Mortgage Loans and, in certain cases, their pro rata share of the operating
expenses, insurance premiums and real estate taxes associated with the Mortgaged
Properties. Certain of the Leases may require the Mortgagor to bear costs
associated with structural repairs and/or the maintenance of the exterior or
other portions of the Mortgaged Property or provide for certain limits on the
aggregate amount of operating expenses, insurance premiums, taxes and other
expenses that the Lessees are required to pay. If so specified in the related
Prospectus Supplement, under certain circumstances the Lessees may be permitted
to set off their rental obligations against the obligations of the Mortgagors
under the Leases. In those cases where payments under the Leases (net of any
operating expenses payable by the Mortgagors) are insufficient to pay all of the
scheduled principal and interest on the related Mortgage Loans, the Mortgagors
must rely on other income or sources (including security deposits) generated by
the related Mortgaged Property to make payments on the related Mortgage Loan. To
the extent specified in the related Prospectus Supplement, some Commercial
Properties may be leased entirely to one Lessee. In such cases, absent the
availability of other funds, the Mortgagor must rely entirely on rent paid by
such Lessee in order for the Mortgagor to pay all of the scheduled principal and
interest on the related Commercial Loan. To the extent specified in the related
Prospectus Supplement, certain of the Leases may expire prior to the stated
maturity of the related Mortgage Loan. In such cases, upon expiration of the
Leases the Mortgagors will have to look to alternative sources of income,
including rent payment by any new Lessees or proceeds from the sale or
refinancing of the Mortgaged Property, to cover the payments of principal and
interest due on such Mortgage Loans unless the Lease is renewed. As specified in
the related Prospectus Supplement, certain of the Leases may provide that upon
the occurrence of a casualty affecting a Mortgaged Property, the Lessee will
have the right to terminate its Lease, unless the Mortgagor, as lessor, is able
to cause the Mortgaged Property to be restored within a specified period of
time. Certain Leases may provide that it is the lessor's responsibility, while
other Leases provide that it is the Lessee's responsibility, to restore the
Mortgaged Property after a casualty to its original condition. Certain Leases
may provide a right of termination to the related Lessee if a taking of a
material or specified percentage of the leased space in the Mortgaged Property
occurs, or if the ingress or egress to the leased space has been materially
impaired.
DEFAULT AND LOSS CONSIDERATIONS WITH RESPECT TO THE MORTGAGE LOANS
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. To the extent specified in the Prospectus
Supplement, the Mortgage Loans will be non-recourse loans, which means that,
absent special facts, the mortgagee may look only to the Net Operating Income
from the property for repayment of the mortgage debt, and not to any other of
the Mortgagor's assets, in the event of the Mortgagor's default. Lenders
typically look to the Debt Service Coverage Ratio of a loan secured by
income-producing property as an important measure of the risk of default on such
a loan. The "DEBT SERVICE COVERAGE RATIO" of a Mortgage Loan at any given time
is the ratio of the Net Operating Income for a twelve-month period to the
annualized scheduled payments on the Mortgage Loan. "NET OPERATING INCOME"
means, for any given period, to the extent specified in the related Prospectus
Supplement, the total operating revenues derived from a Mortgaged Property
during such period, minus the total operating expenses incurred in respect of
such Mortgaged Property during such period other than (i) non-cash items such as
depreciation and amortization, (ii) capital expenditures and (iii) debt service
on loans secured by the Mortgaged Property. The Net Operating Income of a
Mortgaged Property will fluctuate over time and may be sufficient or
insufficient to cover debt service on the related Mortgage Loan at any given
time.
As the primary component of Net Operating Income, rental income (as
well as maintenance payments from tenant-stockholders of a Cooperative) is
subject to the vagaries of the applicable real estate market and/or business
climate. Properties typically leased, occupied or used on a short-term basis,
such as health care-related facilities, hotels and motels, and mini-warehouse
and self-storage facilities, tend to be affected more rapidly by changes in
market or business conditions than do properties leased, occupied or used for
longer periods, such as (typically) retail centers, office buildings and
industrial properties. Commercial Loans may be secured by owner-occupied
Mortgaged Properties or Mortgaged Properties leased to a single tenant.
Accordingly, a decline in the financial condition of the Mortgagor or single
tenant, as applicable, may have a disproportionately greater effect on the Net
Operating Income from such Mortgaged Properties than would be the case with
respect to Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies,
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including environmental legislation; and acts of God may also affect the risk of
default on the related Mortgage Loan. As may be further described in the related
Prospectus Supplement, in some cases leases of Mortgaged Properties may provide
that the Lessee rather than the Mortgagor, is responsible for payment of some or
all of these expenses; however, because leases are subject to default risks as
well when a tenant's income is insufficient to cover its rent and operating
expenses, the existence of such "net of expense" provisions will only temper,
not eliminate, the impact of expense increases on the performance of the related
Mortgage Loan. See "--Mortgage Loans -- Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities, the income
from which and the operating expenses of which are subject to state and/or
federal regulations, such as Medicare and Medicaid, and multifamily properties
and mobile home parks, which may be subject to state or local rent control
regulation and, in certain cases, restrictions on changes in use of the
property. Low- and moderate-income housing in particular may be subject to legal
limitations and regulations but, because of such regulations, may also be less
sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon Mortgage
Loan, for example, the risk of default as a result of the unavailability of a
source of funds to finance the related balloon payment at maturity on terms
comparable to or better than those of such Balloon Mortgage Loans could be
significant even though the related Debt Service Coverage Ratio is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the Loan-to-Value
Ratio of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the Mortgagor.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are complete
or relevant. See "Risk Factors -- Risks Associated with Mortgage Loans and
Mortgaged Properties," " --Balloon Payments," " --Junior Mortgage Loans," "
- --Obligor Default" and " --Mortgagor Type."
LOAN-TO-VALUE RATIO
The "LOAN-TO-VALUE RATIO" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance of
the Mortgage Loan to the Value of the related Mortgaged Property. The "VALUE" of
a Mortgaged Property, other than with respect to Refinance Loans, is generally
the lesser of (a) the appraised value determined in an appraisal obtained by the
originator at origination of such loan and (b) the sales price for such
property. "REFINANCE LOANS" are loans made to refinance existing loans. To the
extent set forth in the related Prospectus Supplement, the Value of the
Mortgaged Property securing a Refinance Loan is the appraised value thereof
determined in an appraisal obtained at the time of origination of the Refinance
Loan. The Value of a Mortgaged Property as of the date of initial issuance of
the related Series of Certificates may be less than the value at origination and
will fluctuate from time to time based upon changes in economic conditions and
the real estate market.
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MORTGAGE LOAN INFORMATION IN PROSPECTUS SUPPLEMENTS
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-off
Date, (ii) the type of property securing the Mortgage Loans (e.g., Multifamily
Property or Commercial Property and the type of property in each such category),
(iii) the weighted average (by principal balance) of the original and remaining
terms to maturity of the Mortgage Loans, (iv) the earliest and latest
origination date and maturity date of the Mortgage Loans, (v) the weighted
average (by principal balance) of the Loan-to-Value Ratios at origination of the
Mortgage Loans, (vi) the Mortgage Interest Rates or range of Mortgage Interest
Rates and the weighted average Mortgage Interest Rate borne by the Mortgage
Loans, (vii) the state or states in which most of the Mortgaged Properties are
located, (viii) information with respect to the prepayment provisions, if any,
of the Mortgage Loans, (ix) the weighted average Retained Interest, if any, (x)
with respect to Mortgage Loans with floating Mortgage Interest Rates ("ARM
LOANS"), the index, the frequency of the adjustment dates, the highest, lowest
and weighted average note margin and pass-through margin, and the maximum
Mortgage Interest Rate or monthly payment variation at the time of any
adjustment thereof and over the life of the ARM Loan and the frequency of such
monthly payment adjustments, (xi) the Debt Service Coverage Ratio either at
origination or as of a more recent date (or both) and (xii) information
regarding the payment characteristics of the Mortgage Loans, including without
limitation balloon payment and other amortization provisions. The related
Prospectus Supplement will also contain certain information available to the
Depositor with respect to the provisions of leases and the nature of tenants of
the Mortgaged Properties and other information referred to in a general manner
under "--Mortgage Loans -- Default and Loss Considerations with Respect to the
Mortgage Loans" above. If specific information respecting the Mortgage Loans is
not known to the Depositor at the time Certificates are initially offered, more
general information of the nature described above will be provided in the
Prospectus Supplement, and specific information will be set forth in a report
which will be available to purchasers of the related Certificates at or before
the initial issuance thereof and will be filed as part of a Current Report on
Form 8-K with the Securities and Exchange Commission within fifteen days after
such initial issuance.
PAYMENT PROVISIONS OF THE MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, all of
the Mortgage Loans will (i) have individual principal balances at origination of
not less than $250,000, (ii) have original terms to maturity of not more than 40
years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "MORTGAGE INTEREST RATE") that is fixed over its term or that
adjusts from time to time, or that is partially fixed and partially floating, or
that may be converted from a floating to a fixed Mortgage Interest Rate, or from
a fixed to a floating Mortgage Interest Rate, from time to time pursuant to an
election or as otherwise specified on the related Mortgage Note, in each case as
described in the related Prospectus Supplement. Each Mortgage Loan may provide
for scheduled payments to maturity or payments that adjust from time to time to
accommodate changes in the Mortgage Interest Rate or to reflect the occurrence
of certain events, and may provide for negative amortization or accelerated
amortization, in each case as described in the related Prospectus Supplement.
Each Mortgage Loan may be fully amortizing or require a balloon payment due on
its stated maturity date, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may contain prohibitions on prepayment (a
"LOCK-OUT PERIOD" and the date of expiration thereof, a "LOCK-OUT DATE") or
require payment of a premium or a yield maintenance penalty (a "PREPAYMENT
PREMIUM") in connection with a prepayment, in each case as described in the
related Prospectus Supplement. In the event that holders of any class or classes
of Offered Certificates will be entitled to all or a portion of any Prepayment
Premiums collected in respect of Mortgage Loans, the related Prospectus
Supplement will specify the method or methods by which any such amounts will be
allocated. A Mortgage Loan may also contain provisions entitling the mortgagee
to a share of profits realized from the operation or disposition of the
Mortgaged Property ("EQUITY PARTICIPATIONS"), as described in the related
Prospectus Supplement. In the event that holders of any class or classes of
Offered Certificates will be entitled to all or a portion of an Equity
Participation, the related Prospectus Supplement will specify the terms and
provisions of the Equity Participation and the method or methods by which
distributions in respect thereof will be allocated among such Certificates.
CMBS
Any CMBS will have been issued pursuant to a participation and
servicing agreement, a pooling and servicing agreement, a trust agreement, an
indenture or similar agreement (an "CMBS AGREEMENT"). A seller (the "CMBS
ISSUER") and/or servicer (the "CMBS SERVICER") of the underlying Mortgage Loans
(or Underlying CMBS) will have
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entered into the CMBS Agreement with a trustee or a custodian under the CMBS
Agreement (the "CMBS Trustee"), if any, or with the original purchaser of the
interest in the underlying Mortgage Loans or CMBS evidenced by the CMBS.
Distributions of any principal or interest, as applicable, will be made
on CMBS on the dates specified in the related Prospectus Supplement. The CMBS
may be issued in one or more classes with characteristics similar to the classes
of Certificates described in this Prospectus. Any principal or interest
distributions will be made on the CMBS by the CMBS Trustee or the CMBS Servicer.
The CMBS Issuer or the CMBS Servicer or another person specified in the related
Prospectus Supplement may have the right or obligation to repurchase or
substitute assets underlying the CMBS after a certain date or under other
circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the CMBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying CMBS
evidenced by or securing such CMBS and other factors and generally will have
been established for the CMBS on the basis of requirements of either any Rating
Agency that may have assigned a rating to the CMBS or the initial purchasers of
the CMBS.
The Prospectus Supplement for a Series of Certificates evidencing
interests in Mortgage Assets that include CMBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the CMBS to be included in
the Trust Fund, (ii) the original and remaining term to stated maturity of the
CMBS, if applicable, (iii) whether such CMBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or bond
rate of the CMBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the CMBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the CMBS Issuer,
CMBS Servicer and CMBS Trustee, as applicable, (vii) certain characteristics of
the credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the related Underlying
Mortgage Loans, the Underlying CMBS or directly to such CMBS, (viii) the terms
on which the related Underlying Mortgage Loans or Underlying CMBS for such CMBS
or the CMBS may, or are required to, be purchased prior to their maturity, (ix)
the terms on which Mortgage Loans or Underlying CMBS may be substituted for
those originally underlying the CMBS, (x) the servicing fees payable under the
CMBS Agreement, (xi) to the extent available to the Depositor, the type of
information in respect of the Underlying Mortgage Loans described under
"--Mortgage Loans -- Mortgage Loan Information in Prospectus Supplements" above,
and the type of information in respect of the Underlying CMBS described in this
paragraph, (xii) the characteristics of any cash flow agreements that are
included as part of the trust fund evidenced or secured by the CMBS and (xiii)
whether the CMBS is in certificated form, book-entry form or held through a
depository such as The Depository Trust Company or the Participants Trust
Company.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Mortgage Assets and other assets in the
Trust Fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreements -- Accounts -- Distribution Account" and "--Accounts -- Other
Collection Accounts."
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Trust Assets in the
related Trust Fund may be provided to one or more classes of Certificates in the
related Series in the form of subordination of one or more other classes of
Certificates in such Series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee, reserve fund or another
type of credit support, or a combination thereof (any such coverage with respect
to the Certificates of any Series, "CREDIT SUPPORT"). The amount and types of
coverage, the identification of the entity providing the coverage (if
applicable) and related information with respect to each type of Credit Support,
if any, will be described in the Prospectus Supplement for a Series of
Certificates. See "Risk Factors -- Credit Support Limitations" and "Description
of Credit Support."
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CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related Series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Mortgage
Assets or on one or more classes of Certificates. The principal terms of any
such guaranteed investment contract or other agreement (any such agreement, a
"CASH FLOW AGREEMENT"), including, without limitation, provisions relating to
the timing, manner and amount of payments thereunder and provisions relating to
the termination thereof, will be described in the Prospectus Supplement for the
related Series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Trust Assets and to pay for
certain expenses incurred in connection with such purchase of Trust Assets and
sale of Certificates. The Depositor expects to sell the Certificates from time
to time, but the timing and amount of offerings of Certificates will depend on a
number of factors, including the volume of Mortgage Assets acquired by the
Depositor, prevailing interest rates, availability of funds and general market
conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt and
timing of receipt of distributions on the Certificate and the weighted average
life of the Mortgage Assets in the related Trust Fund (which may be affected by
prepayments, defaults, liquidations or repurchases). See "Risk Factors."
PASS-THROUGH RATE
Certificates of any class within a Series may have fixed, variable or
floating Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Assets in the related Trust Fund. The Prospectus
Supplement with respect to any Series of Certificates will specify the
Pass-Through Rate for each class of such Certificates or, in the case of a
variable or floating Pass-Through Rate, the method of determining the
Pass-Through Rate; the effect, if any, of the prepayment of any Mortgage Asset
on the Pass-Through Rate of one or more classes of Certificates; and whether the
distributions of interest on the Certificates of any class will be dependent, in
whole or in part, on the performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while interest
may accrue on each Mortgage Asset during a certain period, the distribution of
such interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related Series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Mortgage Assets may be made on the first day of
the Interest Accrual Period for a Distribution Date and not on such Distribution
Date. Such method would produce a lower effective yield than if interest were
calculated on the basis of the actual principal amount outstanding during an
Interest Accrual Period. The Interest Accrual Period for any class of Offered
Certificates will be described in the related Prospectus Supplement.
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PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Mortgage Assets (including principal prepayments on
Mortgage Loans resulting from voluntary prepayments by the Mortgagors, insurance
proceeds, condemnations and involuntary liquidations). Such payments may be
directly dependent upon the payments on Leases underlying such Mortgage Loans.
The rate at which principal prepayments occur on the Mortgage Loans will be
affected by a variety of factors, including, without limitation, the terms of
the Mortgage Loans, the level of prevailing interest rates, the availability of
mortgage credit and economic, demographic, geographic, tax, legal and other
factors. In general, however, if prevailing interest rates fall significantly
below the Mortgage Interest Rates on the Mortgage Loans comprising or underlying
the Mortgage Assets in a particular Trust Fund, 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. In this regard, it
should be noted that certain Mortgage Assets may consist of Mortgage Loans with
different Mortgage Interest Rates and the stated pass-through or pay-through
interest rate of certain CMBS may be a number of percentage points higher or
lower than certain of the underlying Mortgage Loans. The rate of principal
payments on some or all of the classes of Certificates of a Series will
correspond to the rate of principal payments on the Mortgage Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Mortgage Assets, and by the extent to which the servicer of any
such Mortgage Loan is able to enforce 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.
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 Assets,
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 of
principal that is slower than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. In either
case, if so provided in the Prospectus Supplement for a Series of Certificates,
the effect on yield on one or more classes of the Certificates of such Series of
prepayments of the Mortgage Assets in the related Trust Fund may be mitigated or
exacerbated by any provisions for sequential or selective distribution of
principal to such classes.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for the
number of days in the month actually elapsed up to the date of the
prepayment.
To the extent specified in the related Prospectus Supplement, the effect of
prepayments in full will be to reduce the amount of interest paid in the
following month to holders of Certificates entitled to payments of interest
because interest on the principal amount of any Mortgage Loan so prepaid will be
paid only to the date of prepayment rather than for a full month. To the extent
specified in the related Prospectus Supplement, a partial prepayment of
principal is applied so as to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date in the month in which such partial
prepayment is received. As a result, to the extent specified in the related
Prospectus Supplement, the effect of a partial prepayment on a Mortgage Loan
will be to reduce the amount of interest passed through to holders of
Certificates in the month following the receipt of such partial prepayment by an
amount equal to one month's interest at the applicable Pass-Through Rate on the
prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on such
investor's yield to maturity. The effect on an investor's yield of principal
payments occurring at a rate higher (or lower) than the rate anticipated by the
investor during a given period may not be offset by a subsequent like decrease
(or increase) in the rate of principal payments.
PREPAYMENTS -- MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage
Assets included in or comprising a Trust Fund and the rate at which payments are
made from any Credit Support or Cash Flow Agreement for the related Series of
Certificates may affect the ultimate maturity and the weighted average life of
each class of such Series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related Series.
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If so provided in the Prospectus Supplement for a Series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such Series set forth
therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a Series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the CMBS. If any Mortgage Loans comprising or underlying the Mortgage
Assets in a particular Trust Fund have actual terms to maturity of less than
those assumed in calculating final scheduled Distribution Dates for the classes
of Certificates of the related Series, one or more classes of such Certificates
may be fully paid prior to their respective final scheduled Distribution Dates,
even in the absence of prepayments. Accordingly, the prepayment experience of
the Mortgage Assets will, to some extent, be a function of the mix of Mortgage
Interest Rates and maturities of the Mortgage Loans comprising or underlying
such Mortgage Assets. See "Description of the Trust Funds."
Prepayments on loans are also commonly measured relative to a
prepayment standard or model, such as the Constant Prepayment Rate ("CPR")
prepayment model. CPR represents a constant assumed rate of prepayment each
month relative to the then outstanding principal balance of a pool of loans for
the life of such loans.
Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it is
likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any Series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each Series of Certificates
will contain tables, if applicable, setting forth the projected weighted average
life of each class of Offered Certificates of such Series and the percentage of
the initial Certificate Balance of each such class that would be outstanding on
specified Distribution Dates based on the assumptions stated in such Prospectus
Supplement, including assumptions that prepayments on the Mortgage Loans
comprising or underlying the related Mortgage Assets are made at rates
corresponding to various percentages of CPR or at such other rates specified in
such Prospectus Supplement. Such tables and assumptions are intended to
illustrate the sensitivity of weighted average life of the Certificates to
various prepayment rates and will not be intended to predict or to provide
information that will enable investors to predict the actual weighted average
life of the Certificates. It is unlikely that prepayment of any Mortgage Loans
comprising or underlying the Mortgage Assets for any Series will conform to any
particular level of CPR or any other rate specified in the related Prospectus
Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
TYPE OF MORTGAGE ASSET
A number of Mortgage Loans may 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. In order to minimize losses on defaulted Mortgage Loans, the servicer
may, to the extent and under the circumstances set forth in the related
Prospectus Supplement be permitted to modify Mortgage Loans that are in default
or as to which a payment default is imminent. 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.
FORECLOSURES AND PAYMENT PLANS
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The number of foreclosures and the principal amount of the Mortgage
Loans comprising or underlying the Mortgage Assets that are foreclosed in
relation to the number and principal amount of Mortgage Loans that are repaid in
accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related Series of 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.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE CLAUSES
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 that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Mortgage Assets 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. With respect to any Whole
Loans, to the extent provided in the related Prospectus Supplement, the Master
Servicer or Primary Servicer, on behalf of the Trust Fund, will be required to
exercise (or waive its right to exercise) any such right that the Trustee may
have as mortgagee to accelerate payment of the Whole Loan in a manner consistent
with the Servicing Standard. See "Certain Legal Aspects of the Mortgage Loans
and the Leases -- Due-on-Sale and Due-on-Encumbrance" and "Description of the
Agreements -- Due-on-Sale and Due-on-Encumbrance Provisions."
SINGLE MORTGAGE LOAN OR SINGLE MORTGAGOR
The Mortgage Assets in a particular Trust Fund may consist of a single
Mortgage Loan or obligations of a single Mortgagor or related Mortgagors as
specified in the related Prospectus Supplement. Assumptions used with respect to
the prepayment standards or models based upon analysis of the behavior of
mortgage loans in a larger group will not necessarily be relevant in determining
prepayment experience on a single Mortgage Loan or with respect to a single
Mortgagor.
THE DEPOSITOR
ICIFC Secured Assets Corp., the Depositor, is a wholly-owned subsidiary
of ICI Funding Corporation and was incorporated in the State of California on
May 6, 1996. The Depositor was organized for the purpose of serving as a private
secondary mortgage market conduit. The Depositor does not have, nor is it
expected in the future to have, any significant assets.
The Depositor maintains its principal office at 20371 Irvine Avenue,
Suite 200, Santa Ana Heights, California 92707. Its telephone number is (714)
556-0122.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each Series (including any class of Certificates
not offered hereby) will represent the entire beneficial ownership interest in
the Trust Fund created pursuant to the related Agreement. Each Series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or floating
rates; (ii) be senior (collectively, "SENIOR CERTIFICATES") or subordinate
(collectively, "SUBORDINATE CERTIFICATES") to one or more other classes of
Certificates in respect of certain distributions on the Certificates; (iii) be
entitled to principal distributions, with disproportionately low, nominal or no
interest distributions (collectively, "STRIPPED PRINCIPAL CERTIFICATES"); (iv)
be entitled to interest distributions, with disproportionately low, nominal or
no principal distributions (collectively, "STRIPPED INTEREST CERTIFICATES"); (v)
provide for distributions of accrued interest thereon commencing only following
the occurrence of certain events, such as the retirement of one or more other
classes of Certificates of such Series (collectively, "ACCRUAL CERTIFICATES");
(vi) provide for payments of principal sequentially, based on specified payment
schedules, from only a portion of the Trust Assets in such Trust Fund or based
on specified calculations, to the extent of available funds, in each case as
described in the related Prospectus Supplement; and/or (vii) provide for
distributions based on a combination of two or more components thereof with one
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or more of the characteristics described in this paragraph including a Stripped
Principal Certificate component and a Stripped Interest Certificate component.
Any such classes may include classes of Offered Certificates.
Each class of Offered Certificates of a Series will be issued in
minimum denominations corresponding to the Certificate Balances or, in case of
Stripped Interest Certificates, notional amounts or percentage interests
specified in the related Prospectus Supplement. The transfer of any Offered
Certificates may be registered and such Certificates may be exchanged without
the payment of any service charge payable in connection with such registration
of transfer or exchange, but the Depositor or the Trustee or any agent thereof
may require payment of a sum sufficient to cover any tax or other governmental
charge. One or more classes of Certificates of a Series may be issued in
definitive form ("DEFINITIVE CERTIFICATES") or in book-entry form ("BOOK-ENTRY
CERTIFICATES"), as provided in the related Prospectus Supplement. See "Risk
Factors -- Book-Entry Registration" and "Description of the Certificates --
Book-Entry Registration and Definitive Certificates." Definitive Certificates
will be exchangeable for other Certificates of the same class and Series of a
like aggregate Certificate Balance, notional amount or percentage interest but
of different authorized denominations. See "Risk Factors -- Limited Liquidity"
and "--Limited Assets."
DISTRIBUTIONS
Distributions on the Certificates of each Series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such Series and
such Distribution Date. Except as otherwise specified in the related Prospectus
Supplement, distributions (other than the final distribution) will be made to
the persons in whose names the Certificates are registered at the close of
business on the last business day of the month preceding the month in which the
Distribution Date occurs (the "RECORD DATE"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "DETERMINATION DATE"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such class
or by random selection, as described in the related Prospectus Supplement or
otherwise established by the related Trustee. Payments will be made either by
wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus Supplement,
holds Certificates in the requisite amount specified therein), or by check
mailed to the address of the person entitled thereto as it appears on the
Certificate Register; PROVIDED, HOWEVER, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each Series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"AVAILABLE DISTRIBUTION AMOUNT" for each Distribution Date equals the sum of the
following amounts:
(i) the total amount of all cash on deposit in the related Distribution
Account as of the corresponding Determination Date, including Servicer advances,
net of any scheduled payments due and payable after such Distribution Date;
(ii) interest or investment income on amounts on deposit in the
Distribution Account, including any net amounts paid under any Cash Flow
Agreements; and
(iii) to the extent not on deposit in the related Distribution Account
as of the corresponding Determination Date, any amounts collected under, from or
in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released from
the Trust Fund and will not be available for any future distributions.
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or floating rate at which interest will
accrue
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on such class or a component thereof (the "PASS-THROUGH RATE"). The related
Prospectus Supplement will specify the Pass-Through Rate for each class or
component or, in the case of a variable or floating Pass-Through Rate, the
method for determining the Pass-Through Rate. To the extent specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest is
distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "ACCRUED CERTIFICATE INTEREST" will be equal to
interest accrued for a specified period on the outstanding Certificate Balance
thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. To the extent provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution Date,
at the applicable Pass-Through Rate, reduced as described below. The method of
determining the notional amount for any class of Stripped Interest Certificates
will be described in the related Prospectus Supplement. Reference to notional
amount is solely for convenience in certain calculations and does not represent
the right to receive any distributions of principal. To the extent provided in
the related Prospectus Supplement, the Accrued Certificate Interest on a Series
of Certificates will be reduced in the event of prepayment interest shortfalls,
which are shortfalls in collections of interest for a full accrual period
resulting from prepayments prior to the due date in such accrual period on the
Mortgage Loans comprising or underlying the Mortgage Assets in the Trust Fund
for such Series. The particular manner in which such shortfalls are to be
allocated among some or all of the classes of Certificates of that Series will
be specified in the related Prospectus Supplement.
The related Prospectus Supplement will also describe the extent to
which the amount of Accrued Certificate Interest that is otherwise distributable
on (or; in the case of Accrual Certificates, that may otherwise be added to the
Certificate Balance of) a class of Offered Certificates may be reduced as a
result of any other contingencies, including delinquencies, losses and deferred
interest on or in respect of the Mortgage Loans comprising or underlying the
Mortgage Assets in the related Trust Fund. To the extent provided in the related
Prospectus Supplement, any reduction in the amount of Accrued Certificate
Interest otherwise distributable on a class of Certificates by reason of the
allocation to such class of a portion of any deferred interest on the Mortgage
Loans comprising or underlying the Mortgage Assets in the related Trust Fund
will result in a corresponding increase in the Certificate Balance of such
class. See " Risk Factors -- Prepayments and Effect on Average Life of
Certificates and Yields" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each Series, other than certain classes of Stripped
Interest Certificates, will have a "CERTIFICATE BALANCE" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Mortgage Assets and
other assets included in the related Trust Fund. The outstanding Certificate
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon from time to time and, if and to the extent so provided in the
related Prospectus Supplement, by the amount of losses incurred in respect of
the related Mortgage Assets, may be increased in respect of deferred interest on
the related Mortgage Loans to the extent provided in the related Prospectus
Supplement and, in the case of Accrual Certificates prior to the Distribution
Date on which distributions of interest are required to commence, will be
increased by any related Accrued Certificate Interest. Unless otherwise provided
in the related Prospectus Supplement, the initial aggregate Certificate Balance
of all classes of Certificates of a Series will not be greater than the
outstanding aggregate principal balance of the related Mortgage Assets as of the
applicable Cut-off Date. The initial aggregate Certificate Balance of a Series
and each class thereof will be specified in the related Prospectus Supplement.
To the extent provided in the related Prospectus Supplement, distributions of
principal will be made on each Distribution Date to the class or classes of
Certificates entitled thereto in accordance with the provisions described in
such Prospectus Supplement until the Certificate Balance of such class has been
reduced to zero. Stripped Interest Certificates with no Certificate Balance are
not entitled to any distributions of principal.
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COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference in
such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF EQUITY
PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment
Premiums or payments in respect of Equity Participations that are collected on
the Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a Series of
Certificates consisting of one or more classes of Subordinate Certificates, on
any Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or shortfalls
will be borne first by a class of Subordinate Certificates in the priority and
manner and subject to the limitations specified in such Prospectus Supplement
See "Description of Credit Support" for a description of the types of protection
that may be included in shortfalls on Mortgage Assets comprising such Trust
Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any Series of Certificates evidencing an interest in a
Trust Fund, to the extent provided in the related Prospectus Supplement, a
Servicer or another entity described therein will be required as part of its
servicing responsibilities to advance on or before each Distribution Date its
own funds or funds held in the Distribution Account that are not included in the
Available Distribution Amount for such Distribution Date, in an amount equal to
the aggregate of payments of principal (other than any balloon payments) and
interest (net of related servicing fees and Retained Interest) that were due on
the Whole Loans in such Trust Fund and were delinquent on the related
Determination Date, subject to such Servicer's (or another entity's) good faith
determination that such advances will be reimbursable from Related Proceeds (as
defined below). In the case of a Series of Certificates that includes one or
more classes of Subordinate Certificates and if so provided in the related
Prospectus Supplement, each Servicer's (or another entity's) advance obligation
may be limited only to the portion of such delinquencies necessary to make the
required distributions on one or more classes of Senior Certificates and/or may
be subject to such Servicer's (or another entity's) good faith determination
that such advances will be reimbursable not only from Related Proceeds but also
from collections on other Trust Assets otherwise distributable on one or more
classes of such Subordinate Certificates. See "Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. To the
extent provided in the related Prospectus Supplement, advances of a Servicer's
(or another entity's) funds will be reimbursable only out of related recoveries
on the Mortgage Loans (including amounts received under any form of Credit
Support) respecting which such advances were made (as to any Mortgage Loan,
"RELATED PROCEEDS") and, if so provided in the Prospectus Supplement, out of any
amounts otherwise distributable on one or more classes of Subordinate
Certificates of such Series; PROVIDED, HOWEVER, that any such advance will be
reimbursable from any amounts in the Distribution Account prior to any
distributions being made on the Certificates to the extent that a Servicer (or
such other entity) shall determine in good faith that such advance (a
"NONRECOVERABLE ADVANCE") is not ultimately recoverable from Related Proceeds
or, if applicable, from collections on other Trust Assets otherwise
distributable on such Subordinate Certificates. If advances have been made by a
Servicer from excess funds in the Distribution Account, such Servicer is
required to replace such funds in the Distribution Account on any future
Distribution Date to the extent that funds in the Distribution Account on such
Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligations of a Servicer (or another entity) to make advances
may be secured by a cash advance reserve fund, a surety bond, a letter of credit
or another form of limited guaranty. If applicable, information regarding the
characteristics of, and the identity of any obligor on, any such surety bond,
will be set forth in the related Prospectus Supplement.
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If and to the extent so provided in the related Prospectus Supplement,
a Servicer (or another entity) will be entitled to receive interest at the rate
specified therein on its outstanding advances and will be entitled to pay itself
such interest periodically from general collections on the Trust Assets prior to
any payment to Certificateholders or as otherwise provided in the related
Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will describe any corresponding
advancing obligation of any person in connection with such CMBS.
REPORTS TO CERTIFICATEHOLDERS
To the extent provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a Series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such
class applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment
Premiums and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by each
Servicer and such other customary information as any such Master Servicer or the
Trustee deems necessary or desirable, or that a Certificateholder reasonably
requests, to enable Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and
the aggregate amount of any unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the
close of business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in
respect of which (a) one scheduled payment is delinquent, (b) two scheduled
payments are delinquent, (c) three or more scheduled payments are delinquent
and (d) foreclosure proceedings have been commenced;
(viii) with respect to each Whole Loan that is delinquent two or more
months, (a) the loan number thereof, (b) the unpaid balance thereof, (c) whether
the delinquency is in respect of any balloon payment, (d) the aggregate amount
of unreimbursed servicing expenses and unreimbursed advances in respect thereof,
(e) if applicable, the aggregate amount of any interest accrued and payable on
related servicing expenses and related advances assuming such Mortgage Loan is
subsequently liquidated through foreclosure, (f) whether a notice of
acceleration has been sent to the Mortgagor and, if so, the date of such notice,
(g) whether foreclosure proceedings have been commenced and, if so, the date so
commenced and (h) if such Mortgage Loan is more than three months delinquent and
foreclosure has not been commenced, the reason therefor;
(ix) with respect to any Whole Loan liquidated during the related Due
Period (other than by payment in full), (a) the loan number thereof, (b) the
manner in which it was liquidated and (c) the aggregate amount of liquidation
proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due
Period, (a) the portion of such liquidation proceeds payable or reimbursable to
each Servicer (or any other entity) in respect of such Mortgage Loan
and (b) the amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the loan
number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the book
value, (b) the principal balance of the related Mortgage Loan immediately
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following such Distribution Date (calculated as if such Mortgage Loan were still
outstanding taking into account certain limited modifications to the terms
thereof specified in the Agreement), (c) the aggregate amount of unreimbursed
servicing expenses and unreimbursed advances in respect thereof and (d) if
applicable, the aggregate amount of interest accrued and payable on related
servicing expenses and related advances;
(xiii) with respect to any such REO Property sold during the related
Due Period (a) the loan number of the related Mortgage Loan, (b) the aggregate
amount of sale proceeds, (c) the portion of such sales proceeds payable or
reimbursable to each Servicer in respect of such REO Property or the related
Mortgage Loan and (d) the amount of any loss to Certificateholders in respect of
the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case
may be, of each class of Certificates (including any class of Certificates not
offered hereby) at the close of business on such Distribution Date, separately
identifying any reduction in such Certificate Balance due to the allocation of
any loss and increase in the Certificate Balance of a class of Accrual
Certificates in the event that Accrued Certificate Interest has been added to
such balance;
(xv) the aggregate amount of principal prepayments made during the
related Due Period;
(xvi) the aggregate Accrued Certificate Interest and unpaid Accrued
Certificate Interest, if any, on each
class of Certificates at the close of business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate,
the Pass-Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance with
the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with a floating Pass-Through Rate,
for statements to be distributed in any month in which an adjustment date
occurs, the floating Pass-Through Rate applicable to such Distribution Date and
the immediately succeeding Distribution Date as calculated in accordance with
the method specified in the related
Prospectus Supplement;
(xix) as to any Series which includes Credit Support, the amount of
coverage of each instrument of Credit Support included therein as of the close
of business on such Distribution Date; and
(xx) the aggregate amount of payments by the Mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees collected
during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i), (ii),
(xiv), (xvi) and (xvii) above, such amounts shall also be provided with respect
to each component, if any, of a class of Certificates. The Master Servicer or
the Trustee, as specified in the related Prospectus Supplement, will forward or
cause to be forwarded to each holder of any class of Certificates, to the
Depositor and to such other parties as may be specified in the Agreement, a copy
of any statements or reports received by the Master Servicer or the Trustee, as
applicable, with respect to any CMBS. The Prospectus Supplement for each Series
of Offered Certificates will describe any additional information to be included
in reports to the holders of such Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force.
Unless and until Definitive Certificates are issued, or to the extent
provided in the related Prospectus Supplement, such statements or reports will
be forwarded by the Master Servicer or the Trustee to Cede. Such statements or
reports may be available to Beneficial Owners upon request to DTC or their
respective Participant or Indirect Participant. In addition, the Trustee shall
furnish a copy of any such statement or report to any Beneficial Owner which
requests such copy and certifies to the Trustee or the Master Servicer, as
applicable, that it is the Beneficial Owner of a Certificate. See "--Book-Entry
Registration and Definitive Certificates."
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TERMINATION
The obligations created by the Agreements for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the Distribution Account or by any Servicer, if
any, or the Trustee and required to be paid to them pursuant to such Agreements
following the earlier of (i) the final payment or other liquidation of the last
Mortgage Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such termination,
under the circumstances and in the manner set forth in the related Prospectus
Supplement. In no event, however, will the trust created by the Agreements
continue beyond the date specified in the related Prospectus Supplement. Written
notice of termination of the Agreements will be given to each Certificateholder,
and the final distribution will be made only upon presentation and surrender of
the Certificates at the location to be specified in the notice of termination.
If so specified in the related Prospectus Supplement, a Series of
Certificates may be subject to optional early termination through the repurchase
of the assets in the related Trust Fund by the party specified therein, under
the circumstances and in the manner set forth therein. If so provided in the
related Prospectus Supplement, upon the reduction of the Certificate Balance of
a specified class or classes of Certificates by a specified percentage or
amount, the party specified therein will solicit bids for the purchase of all
assets of the Trust Fund, or of a sufficient portion of such assets to retire
such class or classes or purchase such class or classes at a price set forth in
the related Prospectus Supplement, in each case, under the circumstances and in
the manner set forth therein. In such an event, the applicable purchase price
will be sufficient to pay the aggregate Certificate Balance and any
undistributed shortfall in interest of such class or classes of Certificates.
Further, in such an event, there will be no continuing direct or indirect
liability of the related trust or Certificateholders as sellers of such assets
in connection with any such sale.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more
classes of the Offered Certificates of any Series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations ("PARTICIPANTS") and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in their accounts, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and may include certain other organizations.
Indirect access to the DTC system also is available to 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").
Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in Book-
Entry Certificates may do so only through Participants and Indirect
Participants. In addition, such investors ("BENEFICIAL OWNERS") will receive all
distributions on the Book-Entry Certificates through DTC and its Participants.
Under a book-entry format, Beneficial Owners will receive payments after the
related Distribution Date because, while payments are required to be forwarded
to Cede & Co., as nominee for DTC ("CEDE"), on each such date DTC will forward
such payments to its Participants which thereafter will be required to forward
them to Indirect Participants or Beneficial Owners. Unless otherwise provided in
the related Prospectus Supplement, the only "Certificateholder" (as such term is
used in the Agreements) will be Cede, as nominee of DTC, and the Beneficial
Owners will not be recognized by the Trustee as Certificateholders under the
Agreements. Beneficial Owners will be permitted to exercise the rights of
Certificateholders under the related Agreements only indirectly through the
Participants who in turn will exercise their rights through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry Certificates
and is required to receive and transmit distributions of principal of and
interest on the Book-Entry Certificates. Participants and Indirect Participants
with which Beneficial Owners have accounts with respect to the Book-Entry
Certificates similarly are required to make book-entry transfers and receive and
transmit such payments on behalf of their respective Beneficial Owners.
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Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Beneficial
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions in
respect of its interest in the Book-Entry Certificates, may be limited due to
the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited. Under DTC's procedures, DTC will take actions
permitted to be taken by Holders of any class of Book-Entry Certificates under
the Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account the Book-Entry Certificates are credited and whose
aggregate holdings represent no less than any minimum amount of Voting Rights
required therefor. Therefore, Beneficial Owners will only be able to exercise
their Voting Rights to the extent permitted, and subject to the procedures
established, by their Participant and/or Indirect Participant, as applicable.
DTC may take conflicting actions with respect to any action of
Certificateholders of any Class to the extent that Participants authorize such
actions. None of the Servicers, the Depositor, the Trustee or any of their
respective affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in the
Book-Entry Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Beneficial Owners or their nominees
("DEFINITIVE CERTIFICATES"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or (ii)
the Depositor, at its option, elects to terminate the book-entry system through
DTC.
Upon the occurrence of either of the events described in the
immediately preceding paragraph, DTC is required to notify all Participants of
the availability through DTC of Definitive Certificates for the Beneficial
Owners. Upon surrender by DTC of the certificate or certificates representing
the Book-Entry Certificates, together with instructions for re-registration, the
Trustee will issue (or cause to be issued) to the Beneficial Owners identified
in such instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
DESCRIPTION OF THE AGREEMENTS
The Certificates of each Series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, if specified in the related
Prospectus Supplement, a Special Servicer and the Trustee. The Certificates of
each Series evidencing interests in a Trust Fund not including Whole Loans will
be issued pursuant to a Trust Agreement between the Depositor and a Trustee. The
Master Servicer, any Special Servicer and the Trustee with respect to any Series
of Certificates will be named in the related Prospectus Supplement. In lieu of
appointing a Master Servicer, a servicer may be appointed pursuant to the
Pooling and Servicing Agreement for any Trust Fund. The Mortgage Loans shall be
serviced pursuant to the terms of the Pooling and Servicing Agreement and, to
the extent specified in the related Prospectus Supplement, a Servicing Agreement
among the Depositor (or an affiliate thereof), a Master Servicer, a Special
Servicer and a Primary Servicer. A manager or administrator may be appointed
pursuant to the Trust Agreement for any Trust Fund to administer such Trust
Fund. The provisions of each Agreement will vary depending upon the nature of
the Certificates to be issued thereunder and the nature of the related Trust
Fund. A form of a Pooling and Servicing Agreement and a form of Servicing
Agreement has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. Any Trust Agreement will generally conform to the
form of Pooling and Servicing Agreement filed herewith, but will not contain
provisions with respect to the servicing and maintenance of Whole Loans. The
following summaries describe certain provisions that may appear in each
Agreement. The Prospectus Supplement for a Series of Certificates will describe
any provision of the Agreements relating to such Series that materially differs
from the description thereof contained in this Prospectus. The summaries do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of the Agreements for each Trust Fund and
the description of such provisions in the related Prospectus Supplement. As used
herein with respect to any Series, the term "CERTIFICATE" refers to all of the
Certificates of that Series, whether or not offered hereby and by the related
Prospectus Supplement, unless the context otherwise requires. The Depositor will
provide a copy of the Agreements (without exhibits) relating to any Series of
Certificates without charge upon written request of a holder of a Certificate of
such Series addressed to the Trustee specified in the related Prospectus
Supplement.
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To the extent specified in the related Prospectus Supplement, the
Mortgage Loans included in each Trust Fund were being serviced prior to the
issuance of the related Series of Certificates pursuant to the terms of a
Servicing Agreement by the Master Servicer, the Special Servicer and/or a
Primary Servicer. To the extent specified in the related Prospectus Supplement,
following the issuance of the related Series of Certificates, such Mortgage
Loans will continue to be serviced pursuant to such Servicing Agreement,
together with the related Pooling and Servicing Agreement. Pursuant to the terms
of each Servicing Agreement, a Primary Servicer or a Special Servicer will
service the Mortgage Loans directly and a Master Servicer may monitor the
activities of each Primary Servicer and Special Servicer. The Depositor shall
assign its rights under each Servicing Agreement to the Trustee for the benefit
of the Certificateholders.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any Series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Trust Assets
to be included in the related Trust Fund, together with all principal and
interest to be received on or with respect to such Trust Assets after the
Cut-off Date, other than principal and interest due on or before the Cut-off
Date and other than any Retained Interest. The Trustee will, concurrently with
such assignment, deliver the Certificates to the Depositor in exchange for the
Trust Assets and the other assets comprising the Trust Fund for such Series.
Each Mortgage Asset will be identified in a schedule appearing as an exhibit to
the related Agreement. To the extent provided in the related Prospectus
Supplement, such schedule will include detailed information (i) in respect of
each Whole Loan included in the related Trust Fund, including without
limitation, the address of the related Mortgaged Property and type of such
property, the Mortgage Interest Rate and, if applicable, the applicable index,
margin, adjustment date and any rate cap information, the original and remaining
term to maturity, the original and outstanding principal balance and balloon
payment, if any, the Value, Loan-to-Value Ratio and the Debt Service Coverage
Ratio as of the date indicated and payment and prepayment provisions, if
applicable, and (ii) in respect of each CMBS included in the related Trust Fund,
including without limitation, the CMBS Issuer, CMBS Servicer and CMBS Trustee,
the pass-through or bond rate or formula for determining such rate, the issue
date and original and remaining term to maturity, if applicable, the original
and outstanding principal amount and payment provisions, if applicable.
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which to the extent specified in the related Prospectus
Supplement will include the original Mortgage Note endorsed, without recourse,
in blank or to the order of the Trustee, the original Mortgage (or a certified
copy thereof) with evidence of recording indicated thereon and an assignment of
the Mortgage to the Trustee in recordable form. Notwithstanding the foregoing, a
Trust Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Company delivers to the Trustee or the custodian
a copy or a duplicate original of the Mortgage Note, together with an affidavit
certifying that the original thereof has been lost or destroyed. With respect to
such Mortgage Loans, the Trustee (or its nominee) may not be able to enforce the
Mortgage Note against the related borrower. To the extent provided in the
related Prospectus Supplement, the related Agreements will require that the
Depositor or another party specified therein promptly cause each such assignment
of Mortgage to be recorded in the appropriate public office for real property
records, except in states where, in the opinion of counsel acceptable to the
Trustee, such recording is not required to protect the Trustee's interest in the
related Whole Loan against the claim of any subsequent transferee or any
successor to or creditor of the Depositor, the Master Servicer, the relevant
Asset Seller or any other prior holder of the Whole Loan.
The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or a
custodian) will hold such documents in trust for the benefit of the
Certificateholders. To the extent specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Depositor. If the Depositor cannot cure the omission or defect within a
specified number of days after receipt of such notice, then to the extent
specified in the related Prospectus Supplement, the Depositor will be obligated,
within a specified number of days of receipt of such notice, to repurchase the
related Whole Loan from the Trustee at the Purchase Price or substitute for such
Mortgage Loan. To the extent specified in the related Prospectus Supplement,
this repurchase or substitution obligation constitutes the sole remedy available
to the Certificateholders or the Trustee for omission of, or a material defect
in, a constituent document. To the extent specified in the related Prospectus
Supplement, in lieu of curing any omission or defect in the Mortgage Asset or
repurchasing or substituting for such Mortgage Asset, the Depositor may agree to
cover any losses suffered by the Trust Fund as a result of such breach or
defect.
If so provided in the related Prospectus Supplement, the Depositor
will, as to some or all of the Mortgage Loans, assign or cause to be assigned to
the Trustee the related Lease Assignments. In certain cases, the Trustee, or
Primary Servicer, as applicable, may collect all moneys under the related Leases
and distribute amounts, if any, required under the Lease for the payment of
maintenance, insurance and taxes, to the extent specified in the related Lease
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agreement. The Trustee, or if so specified in the Prospectus Supplement, the
Master Servicer, as agent for the Trustee, may hold the Lease in trust for the
benefit of the Certificateholders.
With respect to each CMBS in certificated form, the Depositor will
deliver or cause to be delivered to the Trustee (or the custodian) the original
certificate or other definitive evidence of such CMBS together with bond power
or other instruments, certifications or documents required to transfer fully
such CMBS to the Trustee for the benefit of the Certificateholders. With respect
to each CMBS in uncertificated or book-entry form or held through a "clearing
corporation" within the meaning of the UCC the Depositor and the Trustee will
cause such CMBS to be registered directly or on the books of such clearing
corporation or of a financial intermediary in the name of the Trustee for the
benefit of the Certificateholders. To the extent provided in the related
Prospectus Supplement, the related Agreement will require that either the
Depositor or the Trustee promptly cause any CMBS in certificated form not
registered in the name of the Trustee to be re-registered, with the applicable
persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
To the extent provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign representations
and warranties, as of a specified date (the person making such representations
and warranties, the "WARRANTING PARTY") covering, by way of example, the
following types of matters: (i) the accuracy of the information set forth for
such Whole Loan on the schedule of Mortgage Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warranting Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related Mortgaged
Property; (v) the existence of customary provisions in the related Mortgage Note
and Mortgage to permit realization against the Mortgaged Property of the benefit
of the security of the Mortgage; and (vi) the existence of hazard and extended
perils insurance coverage on the Mortgaged Property.
Any Warranting Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related Series of Certificates evidencing an interest in such
Whole Loan. To the extent specified in the related Prospectus Supplement, in the
event of a breach of any such representation or warranty, the Warranting Party
will be obligated to reimburse the Trust Fund for losses caused by any such
breach or either cure such breach or repurchase or replace the affected Whole
Loan as described below. Since the representations and warranties may not
address events that may occur following the date as of which they were made, the
Warranting Party will have a reimbursement, cure, repurchase or substitution
obligation in connection with a breach of such a representation and warranty
only if the relevant event that causes such breach occurs prior to such date.
Such party would have no such obligations if the relevant event that causes such
breach occurs after such date.
To the extent provided in the related Prospectus Supplement, the
Agreements will provide that the Master Servicer and/or Trustee will be required
to notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that materially
and adversely affects the value of such Whole Loan or the interests therein of
the Certificateholders. If such Warranting Party cannot cure such breach within
a specified period following the date on which such party was notified of such
breach, then such Warranting Party will be obligated to repurchase such Whole
Loan from the Trustee within a specified period from the date on which the
Warranting Party was notified of such breach, at the Purchase Price therefor. As
to any Whole Loan, unless otherwise specified in the related Prospectus
Supplement, the "PURCHASE PRICE" is equal to the sum of the unpaid principal
balance thereof, plus unpaid accrued interest thereon at the Mortgage Interest
Rate from the date as to which interest was last paid to the due date in the Due
Period in which the relevant purchase is to occur, plus certain servicing
expenses that are reimbursable to each Servicer. If so provided in the
Prospectus Supplement for a Series, a Warranting Party, rather than repurchase a
Whole Loan as to which a breach has occurred, will have the option, within a
specified period after initial issuance of such Series of Certificates, to cause
the removal of such Whole Loan from the Trust Fund and substitute in its place
one or more other Whole Loans, in accordance with the standards described in the
related Prospectus Supplement. If so provided in the Prospectus Supplement for a
Series, a Warranting Party, rather than repurchase or substitute a Whole Loan as
to which a breach has occurred, will have the option to reimburse the Trust Fund
or the Certificateholders for any losses caused by such breach. To the extent
specified in the related Prospectus Supplement, this reimbursement, repurchase
or substitution obligation will constitute the sole remedy available to holders
of Certificates or the Trustee for a breach of representation by a Warranting
Party.
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Neither the Depositor (except to the extent that it is the Warranting
Party) nor any Servicer will be obligated to purchase or substitute for a Whole
Loan if a Warranting Party defaults on its obligation to do so, and no assurance
can be given that Warranting Parties will carry out such obligations with
respect to Whole Loans.
To the extent provided in the related Prospectus Supplement the
Warranting Party will, with respect to a Trust Fund that includes CMBS, make or
assign certain representations or warranties, as of a specified date, with
respect to such CMBS, covering (i) the accuracy of the information set forth
therefor on the schedule of Mortgage Assets appearing as an exhibit to the
related Agreement and (ii) the authority of the Warranting Party to sell such
Mortgage Assets. The related Prospectus Supplement will describe the remedies
for a breach thereof.
Each Servicer will make certain representations and warranties
regarding its authority to enter into, and its ability to perform its
obligations under, the related Agreement. A breach of any such representation in
a Pooling and Servicing Agreement of a Master Servicer or Special Servicer which
materially and adversely affects the interests of the Certificateholders and
which continues unremedied for thirty days after the giving of written notice of
such breach to such Servicer by the Trustee or the Depositor, or to such
Servicer, the Depositor and the Trustee by the holders of Certificates
evidencing not less than 25% of the Voting Rights (unless otherwise specified in
the related Prospectus Supplement), will constitute an Event of Default under
such Pooling and Servicing Agreement. A breach of any such representation in a
Servicing Agreement of a Servicer which continues unremedied for thirty days
after giving notice of such breach to such Servicer will constitute an Event of
Default under such Servicing Agreement. See "Events of Default" and "Rights Upon
Event of Default."
ACCOUNTS
GENERAL
Each Servicer and/or the Trustee will, as to each Trust Fund, establish
and maintain or cause to be established and maintained one or more separate
accounts for the collection of payments on the related Mortgage Assets
(collectively, the "ACCOUNTS"), which must be either (i) an account or accounts
the deposits in which are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation ("FDIC")
(to the limits established by the FDIC) and the uninsured deposits in which are
otherwise secured such that the Certificateholders have a claim with respect to
the funds an Account or a perfected first priority security interest against any
collateral securing such funds that is superior to the claims of any other
depositors or general creditors of the institution with which such Account is
maintained or (ii) otherwise maintained with a bank or trust company, and in a
manner, satisfactory to the Rating Agency or Agencies rating any class of
Certificates of such Series. The collateral eligible to secure amounts in an
Account is limited to United States government securities and other investment
grade obligations specified in the Agreement ("PERMITTED INVESTMENTS"). An
Account may be maintained as an interest bearing or a non-interest bearing
account and the funds held therein may be invested pending each succeeding
Distribution Date in certain short-term Permitted Investments. To the extent
provided in the related Prospectus Supplement, any interest or other income
earned on funds in an Account will be paid to a Servicer or its designee as
additional servicing compensation. An Account may be maintained with an
institution that is an affiliate of a Servicer provided that such institution
meets the standards imposed by the Rating Agency or Agencies. If permitted by
the Rating Agency or Agencies and so specified in the related Prospectus
Supplement, an Account may contain funds relating to more than one Series of
mortgage pass-through certificates and may contain other funds respecting
payments on mortgage loans belonging to a Servicer or serviced or master
serviced by it on behalf of others.
DEPOSITS
To the extent provided in the related Prospectus Supplement, the
Primary Servicer will deposit or cause to be deposited in an Account on a daily
basis, to the extent provided in the related Agreement, the following payments
and collections received, or advances made, by the Primary Servicer:
(i) all payments on account of principal, including principal
prepayments, on the Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets,
including any default interest collected, in each case net of any portion
thereof retained by a Servicer as its servicing compensation;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each Mortgaged
Property securing a Whole Loan in the Trust Fund (to the extent such proceeds
are not applied to the restoration of the property or released to the Mortgagor
in accordance with the normal servicing procedures of a Servicer, subject to the
terms and conditions of the related Mortgage and Mortgage Note) and all
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proceeds of rental interruption policies, if any, insuring against losses
arising from the failure of Lessees under a Lease to make timely rental payments
because of certain casualty events (collectively, "INSURANCE PROCEEDS") and all
other amounts received and retained in connection with the liquidation of
defaulted Mortgage Loans in the Trust Fund, by foreclosure, condemnation or
otherwise ("LIQUIDATION PROCEEDS"), together with the net proceeds on a monthly
basis with respect to any Mortgaged Properties acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise;
(iv) any advances made as described under "Description of the
Certificates -- Advances in Respect of Delinquencies";
(v) any amounts representing Prepayment Premiums;
(vi) any amounts received from a Special Servicer;
but excluding any REO Proceeds and penalties or modification fees which
may be retained by the Primary Servicer. REO Proceeds shall be maintained in an
Account by the Special Servicer.
Once a month the Primary Servicer and the Special Servicer remit funds
on deposit in the Account each maintains together with any P&I Advances to the
Master Servicer for deposit in an Account maintained by the Master
Servicer.
WITHDRAWALS
A Servicer may, from time to time, to the extent provided in the
related Agreement and described in the related Prospectus Supplement, make
withdrawals from an Account for each Trust Fund for any of the following
purposes:
(i) to reimburse a Servicer for unreimbursed amounts advanced as
described under "Description of the Certificates -- Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which were
identified and applied by such Servicer as late collections of interest on and
principal of the particular Whole Loans with respect to which the advances were
made;
(ii) to reimburse a Servicer for unpaid servicing fees earned and
certain unreimbursed servicing expenses incurred with respect to Whole Loans and
properties acquired in respect thereof, such reimbursement to be made out of
amounts that represent Liquidation Proceeds and Insurance Proceeds collected on
the particular Whole Loans and properties, and net income collected on the
particular properties, with respect to which such fees were earned or such
expenses were incurred;
(iii) to reimburse a Servicer for any advances described in clause (i)
above and any servicing expenses described in clause (ii) above which, in the
Master Servicer's good faith judgment, will not be recoverable from the amounts
described in clauses (i) and (ii), respectively, such reimbursement to be made
from amounts collected on other Trust Assets or, if and to the extent so
provided by the related Agreement and described in the related Prospectus
Supplement, just from that portion of amounts collected on other Trust Assets
that is otherwise distributable on one or more classes of Subordinate
Certificates, if any, remain outstanding, and otherwise any outstanding class of
Certificates, of the related Series;
(iv) if and to the extent described in the related Prospectus
Supplement, to pay a Servicer interest accrued on the advances described in
clause (i) above and the servicing expenses described in clause (ii) above while
such remain outstanding and unreimbursed;
(v) to the extent provided in the related Prospectus Supplement, to pay
a Servicer, as additional servicing compensation, interest and investment income
earned in respect of amounts held in the Account; and
(vi) to make any other withdrawals permitted by the related Agreement
and described in the related Prospectus Supplement.
If and to the extent specified in the Prospectus Supplement amounts may be
withdrawn from any Account to cover additional costs, expenses or liabilities
associated with: the preparation of environmental site assessments with respect
to, and for containment, clean-up or remediation of hazardous wastes and
materials, the proper operation, management and maintenance of any Mortgaged
Property acquired for the benefit of Certificateholders by foreclosure or by
deed in lieu of foreclosure or otherwise, such payments to be made out of income
received on such property; if one or more
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elections have been made to treat the Trust Fund or designated portions thereof
as a REMIC, any federal, state or local taxes imposed on the Trust Fund or its
assets or transactions, as and to the extent described under "Federal Income Tax
Consequences -- REMIC -- Prohibited Transactions and Other Taxes"; retaining an
independent appraiser or other expert in real estate matters to determine a fair
sale price for a defaulted Whole Loan or a property acquired in respect thereof
in connection with the liquidation of such Whole Loan or property; and obtaining
various opinions of counsel pursuant to the related Agreement for the benefit of
Certificateholders.
DISTRIBUTION ACCOUNT
To the extent specified in the related Prospectus Supplement, the
Trustee will, as to each Trust Fund, establish and maintain, or cause to be
established and maintained, one or more separate Accounts for the collection of
payments from the Master Servicer immediately preceding each Distribution Date
(the "DISTRIBUTION ACCOUNT"). The Trustee will also deposit or cause to be
deposited in a Distribution Account the following amounts:
(i) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related Series of Certificates as
described under "Description of Credit Support";
(ii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds --Cash Flow Agreements";
(iii) all proceeds of any Trust Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person, and all proceeds of any Mortgage Asset
purchased as described under "Description of the Certificates --
Termination" (also, Liquidation Proceeds); and
(iv) any other amounts required to be deposited in the Distribution Account
as provided in the related Agreement and described in the related Prospectus
Supplement.
The Trustee may, from time to time, to the extent provided in the
related Agreements and described in the related Prospectus Supplement, make a
withdrawal from a Distribution Account to make distributions to the
Certificateholders on each Distribution Date.
OTHER COLLECTION ACCOUNTS
Notwithstanding the foregoing, if so specified in the related
Prospectus Supplement, the Agreement for any Series of Certificates may provide
for the establishment and maintenance of a separate collection account into
which the Master Servicer or any related Primary Servicer or Special Servicer
will deposit on a daily basis the amounts described under "--Accounts --
Deposits" above for one or more Series of Certificates. Any amounts on deposit
in any such collection account will be withdrawn therefrom and deposited into
the appropriate Distribution Account by a time specified in the related
Prospectus Supplement. To the extent specified in the related Prospectus
Supplement, any amounts which could be withdrawn from the Distribution Account
as described under "--Accounts --Withdrawals" above, may also be withdrawn from
any such collection account. The Prospectus Supplement will set forth any
restrictions with respect to any such collection account, including investment
restrictions and any restrictions with respect to financial institutions with
which any such collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
PRIMARY SERVICER
The Primary Servicer is required under each Servicing Agreement to make
reasonable efforts to collect all scheduled payments under the Mortgage Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Mortgage Loans
and held for its own account, provided such procedures are consistent with (i)
the terms of the related Servicing Agreement, (ii) applicable law and (iii) the
general servicing standard specified in the related Prospectus Supplement or, if
no such standard is so specified, its normal servicing practices (in either
case, the "SERVICING STANDARD").
Each Primary Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the Mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of Mortgagors for payment of taxes, insurance and other
items required to be paid by any
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Mortgagor pursuant to the Mortgage Loan; processing assumptions or substitutions
in those cases where the Primary Servicer has determined not to enforce any
applicable due-on-sale clause; attempting to cure delinquencies; supervising
foreclosures; inspecting and managing Mortgaged Properties under certain
circumstances; and maintaining accounting records relating to the Mortgage
Loans.
MASTER SERVICER
The Master Servicer shall monitor the actions of the Primary Servicer
and the Special Servicer to confirm compliance with the Agreements.
To the extent specified in the related Prospectus Supplement, a Master
Servicer, as servicer of the Mortgage Loans, on behalf of itself, the Trustee
and the Certificateholders, will present claims to the obligor under each
instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Mortgage Loans. See "Description of Credit Support."
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Mortgage Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Distribution Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Mortgage Loan, unreimbursed servicing expenses incurred with respect to the
Mortgage Loan and any unreimbursed advances of delinquent payments made with
respect to the Mortgage Loan. See "--Hazard Insurance Policies" and "Description
of Credit Support."
SPECIAL SERVICER
A Mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such Mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. To the extent provided in the related Prospectus Supplement,
upon the occurrence of any of the following events (each a "SERVICING TRANSFER
EVENT") with respect to a Mortgage Loan, servicing for such Mortgage Loan
(thereafter, a "SPECIALLY SERVICED MORTGAGE LOAN") will be transferred from the
Primary Servicer to the Special Servicer:
(a) such Mortgage Loan becomes a defaulted Mortgage Loan,
(b) the occurrence of certain events indicating the possible insolvency
of the Mortgagor,
(c) the receipt by the Primary Servicer of a notice of foreclosure of
any other lien on the related Mortgaged Property,
(d) the Master Servicer or the Primary Servicer determines that a
payment default is imminent,
(e) with respect to a Balloon Mortgage Loan, no assurances have been
given as to the ability of the Mortgagor to make the final payment thereon, or
(f) the occurrence of certain other events constituting defaults under
the terms of such Mortgage Loan.
The Special Servicer is required to monitor any Mortgage Loan which is
in default, contact the Mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action in
cooperation with the Mortgagor if cure is likely, inspect the Mortgaged Property
and take such other actions as are consistent with the Servicing Standard. A
significant period of time may elapse before the Special Servicer is able to
assess the success of such corrective action or the need for additional
initiatives.
The time within which the Special Servicer makes the initial
determination of appropriate action evaluates the success of corrective action,
develops additional initiatives, institutes foreclosure proceedings and actually
forecloses (or takes a deed to a Mortgaged Property in lieu of foreclosure) on
behalf of the Certificateholders, may vary considerably depending on the
particular Mortgage Loan, the Mortgaged Property, the Mortgagor, the presence of
an acceptable party to assume the Mortgage Loan and the laws of the jurisdiction
in which the Mortgaged Property is located. Under federal bankruptcy law, the
Special Servicer in certain cases may not be permitted to accelerate a Mortgage
Loan or to foreclose on a Mortgaged Property for a considerable period of time.
See "Certain Legal Aspects of the Mortgage Loans and the Leases."
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Any Agreement relating to a Trust Fund that includes Mortgage Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Mortgage Loan as to which a specified
number of scheduled payments thereunder are delinquent. Any such right granted
to the holder of an Offered Certificate will be described in the related
Prospectus Supplement. The related Prospectus Supplement will also describe any
such right granted to any person if the predetermined purchase price is less
than the Purchase Price described under "--Representations and Warranties;
Repurchases."
The Special Servicer may agree to modify, waive or amend any term of
any Specially Serviced Mortgage Loan in a manner consistent with the Servicing
Standard so long as the modification, waiver or amendment will not (i) affect
the amount or timing of any scheduled payments of principal or interest on the
Mortgage Loan or (ii) in its judgment, materially impair the security for the
Mortgage Loan or reduce the likelihood of timely payment of amounts due thereon.
The Special Servicer also may agree to any modification, waiver or amendment
that would so affect or impair the payments on, or the security for, a Mortgage
Loan if, unless otherwise provided in the related Prospectus Supplement, (i) in
its judgment, a material default on the Mortgage Loan has occurred or a payment
default is imminent and (ii) in its judgment, such modification, waiver or
amendment is reasonably likely to produce a greater recovery with respect to the
Mortgage Loan on a present value basis than would liquidation. The Special
Servicer is required to notify the Trustee in the event of any modification,
waiver or amendment of any Mortgage Loan.
The Special Servicer, on behalf of the Trustee, may at any time
institute foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to a
Mortgaged Property securing a Mortgage Loan by operation of law or otherwise, if
such action is consistent with the Servicing Standard and a default on such
Mortgage Loan has occurred or, in the Special Servicer's judgment, is imminent.
Unless otherwise specified in the related Prospectus Supplement, the Special
Servicer may not acquire title to any related Mortgaged Property or take any
other action that would cause the Trustee, for the benefit of
Certificateholders, or any other specified person to be considered to hold title
to, to be a "mortgagee-in-possession" of, or to be an "owner" or an "operator"
of such Mortgaged Property within the meaning of certain federal environmental
laws, unless the Special Servicer has previously determined, based on a report
prepared by a person who regularly conducts environmental audits (which report
will be an expense of the Trust Fund), that:
(i) the Mortgaged Property is in compliance with applicable
environmental laws; or if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is reasonably likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions; and
(ii) and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation could
be required under any federal, state or local law or regulation or that, if any
such materials are present, taking such action with respect to the affected
Mortgaged Property is reasonably likely to produce a greater recovery on a
present value basis, after taking into account any risks associated therewith,
than not taking such actions.
To the extent provided in the related Prospectus Supplement, if title
to any Mortgaged Property is acquired by a Trust Fund as to which a REMIC
election has been made, the Special Servicer, on behalf of the Trust Fund, will
be required to sell the Mortgaged Property before the close of the third
calendar year following the calendar year in which the Mortgaged Property is
acquired, unless (i) the Internal Revenue Service grants an extension of time to
sell such property or (ii) the Trustee receives an opinion of independent
counsel to the effect that the holding of the property by the Trust Fund
subsequent to such period 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. Subject to the foregoing, the
Special Servicer will be required to (i) solicit bids for any Mortgaged Property
so acquired in such a manner as will be reasonably likely to realize a fair
price for such property and (ii) accept the first (and, if multiple bids are
contemporaneously received, the highest) cash bid received from any person that
constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Special
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
however, will not relieve the Special Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. To the
extent specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
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The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) 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 the Mortgage Loans and the Leases -- Foreclosure."
If recovery on a defaulted Mortgage Loan under any related instrument
of Credit Support is not available, the Special Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and procedures
as it deems necessary or advisable to realize upon the defaulted Mortgage Loan.
If the proceeds of any liquidation of the property securing the defaulted
Mortgage Loan are less than the outstanding principal balance of the defaulted
Mortgage Loan plus interest accrued thereon at the Mortgage Interest Rate plus
the aggregate amount of expenses incurred by the Special Servicer in connection
with such proceedings and which are reimbursable under the Agreement, the Trust
Fund will realize a loss in the amount of such difference. The Special Servicer
will be entitled to withdraw or cause to be withdrawn from a related Account out
of the Liquidation Proceeds recovered on any defaulted Mortgage Loan, prior to
the distribution of such Liquidation Proceeds to Certificateholders, amounts
representing its normal servicing compensation on the Mortgage Loan,
unreimbursed servicing expenses incurred with respect to the Mortgage Loan and
any unreimbursed advances of delinquent payments made with respect to the
Mortgage Loan.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
the related instrument of Credit Support, if any, the Special Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
HAZARD INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Primary
Servicer to cause the Mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage. To the extent specified in the related Prospectus Supplement, such
coverage will be in general in an amount equal to the amount necessary to fully
compensate for any damage or loss to the improvements on the Mortgaged Property
on a replacement cost basis, but not less than the amount necessary to avoid the
application of any co-insurance clause contained in the hazard insurance policy.
The ability of the Primary Servicer to assure that hazard insurance proceeds are
appropriately applied may be dependent upon its being named as an additional
insured under any hazard insurance policy and under any other insurance policy
referred to below, or upon the extent to which information in this regard is
furnished by Mortgagors. All amounts collected by the Primary Servicer under any
such policy (except for amounts to be applied to the restoration or repair of
the Mortgaged Property or released to the Mortgagor in accordance with the
Primary Servicer's normal servicing procedures, subject to the terms and
conditions of the related Mortgage and Mortgage Note) will be deposited in a
related Account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be underwritten
by different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do 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.
The hazard insurance policies covering the Mortgaged Properties
securing the Whole Loans will typically contain a co-insurance clause that in
effect requires the insured at all times to carry insurance of a specified
percentage (generally 80% to 90%) of the full replacement value of the
improvements on the property in order to recover the full amount of any partial
loss. If the insured's coverage falls below this specified percentage, such
clause generally provides that the insurer's liability in the event of partial
loss does not exceed the lesser of (i) the replacement cost of the improvements
less physical depreciation and (ii) such proportion of the loss as the amount of
insurance carried bears to the specified percentage of the full replacement cost
of such improvements.
The Agreements for a Trust Fund that includes Whole Loans will require
the Primary Servicer to cause the Mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of the
related Mortgage, which insurance
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may typically include flood insurance (if the related Mortgaged Property was
located at the time of origination in a federally designated flood area).
In addition, to the extent required by the related Mortgage, the
Primary Servicer may require the Mortgagor or related Lessee to maintain other
forms of insurance including, but not limited to, loss of rent endorsements,
business interruption insurance and comprehensive public liability insurance.
Any cost incurred by the Master Servicer in maintaining any such insurance
policy will be added to the amount owing under the Mortgage Loan where the terms
of the Mortgage Loan so permit; PROVIDED, HOWEVER, that the addition of such
cost will not be taken into account for purposes of calculating the distribution
to be made to Certificateholders. Such costs may be recovered by a Servicer from
a related Account, with interest thereon, as provided by the Agreements.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Primary
Servicer or the Mortgagors will maintain rental interruption insurance policies
in full force and effect with respect to some or all of the Leases. Although the
terms of such policies vary to some degree, a rental interruption insurance
policy typically provides that, to the extent that a Lessee fails to make timely
rental payments under the related Lease due to a casualty event, such losses
will be reimbursed to the insured. If so specified in the related Prospectus
Supplement, the Primary Servicer will be required to pay from its servicing
compensation the premiums on the rental interruption policy on a timely basis.
If so specified in the Prospectus Supplement, if such rental interruption policy
is canceled or terminated for any reason (other than the exhaustion of total
policy coverage), the Primary Servicer will exercise its best reasonable efforts
to obtain from another insurer a replacement policy comparable to the rental
interruption policy with a total coverage that is equal to the then existing
coverage of the terminated rental interruption policy; provided that if the cost
of any such replacement policy is greater than the cost of the terminated rental
interruption policy, the amount of coverage under the replacement policy will,
to the extent specified in the related Prospectus Supplement, be reduced to a
level such that the applicable premium does not exceed, by a percentage that may
be set forth in the related Prospectus Supplement, the cost of the rental
interruption policy that was replaced. Any amounts collected by the Primary
Servicer under the rental interruption policy in the nature of insurance
proceeds will be deposited in a related Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
To the extent specified in the related Prospectus Supplement, the
Agreements will require that the Servicers obtain and maintain in effect a
fidelity bond or similar form of insurance coverage (which may provide blanket
coverage) or any combination thereof insuring against loss occasioned by fraud,
theft or other intentional misconduct of the officers, employees and agents of
such Servicer. The related Agreements will allow a Servicer to self-insure
against loss occasioned by the errors and omissions of the officers, employees
and agents of the Master Servicer or the Special Servicer so long as certain
criteria set forth in the Agreements are met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged Property,
or due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. To the extent provided in the related Prospectus
Supplement, the Primary Servicer, on behalf of the Trust Fund, will exercise any
right the Trustee may have as mortgagee to accelerate payment of any such Whole
Loan or to withhold its consent to any transfer or further encumbrance. To the
extent specified in the related Prospectus Supplement, any fee collected by or
on behalf of the Primary Servicer for entering into an assumption agreement will
be retained by or on behalf of the Primary Servicer as additional servicing
compensation. See "Certain Legal Aspects of the Mortgage Loans and the Leases
- --Due-on-Sale and Due-on-Encumbrance."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in the Mortgage Assets, and, if so,
the initial owner thereof. If so, the Retained Interest will be established on a
loan-by-loan basis and will be specified on an exhibit to the related Agreement.
A "RETAINED INTEREST" in a Mortgage Asset represents a specified portion of the
interest payable thereon. The Retained Interest will be deducted from Mortgagor
payments as received and will not be part of the related Trust Fund.
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To the extent specified in the related Prospectus Supplement, each
Servicer's primary servicing compensation with respect to a Series of
Certificates will come from the periodic payment to it of a portion of the
interest payment on each Mortgage Asset. Since any Retained Interest and a
Servicer's primary compensation are percentages of the principal balance of each
Mortgage Asset, such amounts will decrease in accordance with the amortization
of the Mortgage Assets. The Prospectus Supplement with respect to a Series of
Certificates evidencing interests in a Trust Fund that includes Whole Loans may
provide that, as additional compensation, a Servicer may retain all or a portion
of assumption fees, modification fees, late payment charges or Prepayment
Premiums collected from Mortgagors and any interest or other income which may be
earned on funds held in a related Account.
The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Mortgage Assets,
including, without limitation, payment of the fees and disbursements of the
Trustee and independent accountants, payment of expenses incurred in connection
with distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement. Certain other expenses,
including certain expenses relating to defaults and liquidations on the Whole
Loans and, to the extent so provided in the related Prospectus Supplement,
interest thereon at the rate specified therein, and the fees of any Special
Servicer, may be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Servicing Agreement will provide that on or before a specified
date in each year, beginning on a date specified therein, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers, the servicing by or on behalf of each Servicer was conducted in
compliance with the terms of such agreements except for any exceptions the
Uniform Single Attestation Program for Mortgage Bankers requires it to report.
Each Servicing Agreement will also provide for delivery to the Trustee,
on or before a specified date in each year, of an annual statement signed by an
officer of each Servicer to the effect that such Servicer has fulfilled its
obligations under the Agreement throughout the preceding calendar year or other
specified twelve-month period.
To the extent provided in the related Prospectus Supplement, copies of
such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders and Beneficial Owners without charge upon
written request to the Master Servicer at the address set forth in the related
Prospectus Supplement; provided that such Beneficial Owner shall have certified
to the Master Servicer that it is the Beneficial Owner of a Certificate.
CERTAIN MATTERS REGARDING EACH SERVICER AND THE DEPOSITOR
The Master Servicer, the Primary Servicer and the Special Servicer, or
a servicer for substantially all the Whole Loans under each Agreement will be
named in the related Prospectus Supplement. Each entity serving as Servicer (or
as such servicer) may be an affiliate of the Depositor and may have other normal
business relationships with the Depositor or the Depositor's affiliates.
Reference herein to a Servicer shall be deemed to be to the servicer of
substantially all of the Whole Loans, if applicable.
To the extent specified in the related Prospectus Supplement, the
related Agreement will provide that any Servicer may resign from its obligations
and duties thereunder only with the consent of the Trustee, which may not be
unreasonably withheld or upon a determination that its duties under the
Agreement are no longer permissible under applicable law. No such resignation
will become effective until a successor servicer has assumed such Servicer's
obligations and duties under the related Servicing Agreement. If a Primary
Servicer resigns, the Master Servicer shall assume the obligations thereof.
To the extent specified in the related Prospectus Supplement, each
Servicing Agreement will further provide that none of the Servicers, or any
officer, employee, or agent thereof will be under any liability to the related
Trust Fund or Certificateholders for any action taken, or for refraining from
the taking of any action in accordance with the Servicing standards set forth in
the Servicing Agreement, in good faith pursuant to the related Servicing
Agreement; PROVIDED, HOWEVER, that no Servicer nor any such person will be
protected against any breach of a representation or warranty made in such
Agreement, or against any liability specifically imposed thereby, or against any
liability which would otherwise be imposed by reason of willful misfeasance, bad
faith or negligence in the performance of duties thereunder or by reason of
reckless disregard of obligations and duties thereunder. To the extent specified
in the related Prospectus Supplement, the Depositor shall be liable only to the
extent of its obligations specifically imposed upon and
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undertaken by the Depositor. To the extent specified in the related Prospectus
Supplement, each Servicing Agreement will further provide that each Servicer
will be entitled to indemnification by the related Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
the related Servicing Agreement or the Mortgage Loans; PROVIDED, HOWEVER, that
such indemnification will not extend to any loss, liability or expense incurred
by reason of misfeasance, bad faith or negligence in the performance of
obligations or duties thereunder, or by reason of reckless disregard of such
obligations or duties. In addition, each Servicing Agreement will provide that
no Servicer will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its responsibilities under the Servicing
Agreement and which in its opinion may involve it in any expense or liability.
Any Servicer may, however, with the consent of the Trustee undertake any such
action which it may deem necessary or desirable with respect to the Agreement
and the rights and duties of the parties thereto and the interests of the
Certificateholders 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 Certificateholders, and the Servicer will be entitled to be
reimbursed therefor.
Any person into which a Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
a Servicer or the Depositor is a party, or any person succeeding to the business
of a Servicer or the Depositor will be the successor of such Servicer or the
Depositor, as applicable, under the related Agreements.
EVENTS OF DEFAULT
To the extent provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, "EVENTS OF DEFAULT" with respect to a Servicer
under the related Agreements will include (i) any failure by such Servicer to
distribute or cause to be distributed to the Trustee, another Servicer or the
Certificateholders, any required payment within one Business Day of the date
due; (ii) any failure by such Servicer to timely deliver a report that continues
unremedied for two days after receipt of notice of such failure has been given
to such Servicer by the Trustee or another Servicer; (iii) any failure by such
Servicer duly to observe or perform in any material respect any of its other
covenants or obligations under the Agreement which continues unremedied for
thirty days after written notice of such failure has been given to such
Servicer; (iv) any breach of a representation or warranty made by such Servicer
under the Agreement which materially and adversely affects the interests of
Certificateholders and which continues unremedied for thirty days after written
notice of such breach has been given to such Servicer; (v) certain events of
insolvency, readjustment of debt, marshaling of assets and liabilities or
similar proceedings and certain actions by or on behalf of such Servicer
indicating its insolvency or inability to pay its obligations; and (vi) any
failure by such Servicer to maintain a required license to do business or
service the Mortgage Loans pursuant to the related Agreements. Material
variations to the foregoing Events of Default (other than to shorten cure
periods or eliminate notice requirements) will be specified in the related
Prospectus Supplement. To the extent specified in the related Prospectus
Supplement, the Trustee shall, not later than the later of 60 days after the
occurrence of any event which constitutes or, with notice or lapse of time or
both, would constitute an Event of Default and five days after certain officers
of the Trustee become aware of the occurrence of such an event, transmit by mail
to the Depositor and all Certificateholders of the applicable Series notice of
such occurrence, unless such default shall have been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Certificates evidencing not less than 25% of the Voting Rights, the Trustee
shall, terminate all of the rights and obligations of the related Servicer under
the Agreement and in and to the Mortgage Loans (other than as a
Certificateholder or as the owner of any Retained Interest), whereupon the
Master Servicer (or if such Servicer is the Master Servicer, the Trustee) will
succeed to all of the responsibilities, duties and liabilities of such Servicer
under the Agreements (except that if the Trustee is prohibited by law from
obligating itself to make advances regarding delinquent mortgage loans, or if
the related Prospectus Supplement so specifies, then the Trustee will not be
obligated to make such advances) and will be entitled to similar compensation
arrangements. To the extent specified in the related Prospectus Supplement, in
the event that the Trustee is unwilling or unable so to act, it may or, at the
written request of the holders of Certificates entitled to at least 25% of the
Voting Rights, it shall appoint, or petition a court of competent jurisdiction
for the appointment of, a loan servicing institution acceptable to the Rating
Agency with a net worth at the time of such appointment of at least $15,000,000
to act as successor to the Master Servicer under the 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, which
in no event may be greater than the compensation payable to the Master Servicer
under the Agreement.
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To the extent described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; PROVIDED, HOWEVER, that
an Event of Default involving a failure to distribute a required payment to
Certificateholders described in clause (i) under "--Events of Default" may be
waived only by all of the Certificateholders. Upon any such waiver of an Event
of Default, such Event of Default shall cease to exist and shall be deemed to
have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made written
request upon the Trustee to institute such proceeding in its own name as Trustee
thereunder and have offered to the Trustee reasonable indemnity, and the Trustee
for sixty days has neglected or refused to institute any such proceeding. The
Trustee, however, is under no obligation to exercise any of the trusts or powers
vested in it by any Agreement or to make any investigation of matters arising
thereunder or to institute, conduct or defend any litigation thereunder or in
relation thereto at the request, order or direction of any of the holders of
Certificates covered by such Agreement, unless such Certificateholders have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which may be incurred therein or thereby.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates," unless and until Definitive
Certificates are issued, Beneficial Owners may only exercise their rights as
owners of Certificates indirectly through DTC, or their respective Participants
and Indirect Participants.
AMENDMENT
Each Agreement may be amended by the parties thereto, without the
consent of any of the holders of Certificates covered by the Agreement, (i) to
cure any ambiguity, (ii) to correct, modify or supplement any provision therein
which may be inconsistent with any other provision therein, (iii) to make any
other provisions with respect to matters or questions arising under the
Agreement which are not inconsistent with the provisions thereof, or (iv) to
comply with any requirements imposed by the Code; provided that such amendment
(other than an amendment for the purpose specified in clause (iv) above) will
not (as evidenced by an opinion of counsel to such effect) adversely affect in
any material respect the interests of any holder of Certificates covered by the
Agreement. To the extent specified in the related Prospectus Supplement, each
Agreement may also be amended by the Depositor, the Master Servicer, if any, and
the Trustee, with the consent of the holders of Certificates affected thereby
evidencing not less than 51% of the Voting Rights, for any purpose; PROVIDED,
HOWEVER, that to the extent specified in the related Prospectus Supplement, no
such amendment may (i) reduce in any manner the amount of or delay the timing
of, payments received or advanced on Mortgage Loans which are required to be
distributed on any Certificate without the consent of the holder of such
Certificate, (ii) adversely affect in any material respect the interests of the
holders of any class of Certificates in a manner other than as described in (i),
without the consent of the holders of all Certificates of such class or (iii)
modify the provisions of such Agreement described in this paragraph without the
consent of the holders of all Certificates covered by such Agreement then
outstanding. However, with respect to any Series of Certificates as to which a
REMIC election is to be made, the Trustee will not consent to any amendment of
the Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a REMIC
at any time that the related Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related
Prospectus Supplement. The commercial bank, national banking association,
banking corporation or trust company serving as Trustee may have a banking
relationship with the Depositor and its affiliates and with any Master Servicer
and its affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Trust Asset or related
document and is not accountable for the use or application by or on behalf of
any Servicer of any funds paid to such Servicer or its designee in respect of
the Certificates or the Trust Assets, or deposited into or withdrawn from any
Account or any other account by or on behalf of any Servicer. If no Event of
Default has occurred and is continuing, the Trustee is required to perform only
those duties specifically required under the related Agreements. However, upon
receipt of the various certificates, reports or other instruments required to be
furnished to
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it, the Trustee is required to examine such documents and to determine whether
they conform to the requirements of the Agreements.
CERTAIN MATTERS REGARDING THE TRUSTEE
To the extent specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Distribution Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii) defending
or prosecuting any legal action in respect of the related Agreement or Series of
Certificates, (iii) being the mortgagee of record with respect to the Mortgage
Loans in a Trust Fund and the owner of record with respect to any Mortgaged
Property acquired in respect thereof for the benefit of Certificateholders, or
(iv) acting or refraining from acting in good faith at the direction of the
holders of the related Series of Certificates entitled to not less than 25% (or
such higher percentage as is specified in the related Agreement with respect to
any particular matter) of the Voting Rights for such Series; PROVIDED, HOWEVER,
that such indemnification will not extend to any loss, liability or expense that
constitutes a specific liability of the Trustee pursuant to the related
Agreement, or to any loss, liability or expense incurred by reason of willful
misfeasance, bad faith or negligence on the part of the Trustee in the
performance of its obligations and duties thereunder, or by reason of its
reckless disregard of such obligations or duties, or as may arise from a breach
of any representation, warranty or covenant of the Trustee made therein.
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties
under an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreements, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any Series entitled to at least
51% of the Voting Rights for such Series may at any time remove the Trustee
without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a
successor trustee shall not become effective until acceptance of appointment by
the successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any Series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies, guarantees, the
establishment of one or more reserve funds or another method of Credit Support
described in the related Prospectus Supplement, or any combination of the
foregoing. If so provided in the related Prospectus Supplement, any form of
Credit Support may be structured so as to be drawn upon by more than one Series
to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
Series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one Series
of Certificates (each, a "COVERED TRUST"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will
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be exhausted by the claims of other Covered Trusts prior to such Covered Trust
receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a Series, or the related Mortgage Assets, the related Prospectus
Supplement will include a description of (a) the nature and amount of coverage
under such Credit Support, (b) any conditions to payment thereunder not
otherwise described herein, (c) the conditions (if any) under which the amount
of coverage under such Credit Support may be reduced and under which such Credit
Support may be terminated or replaced and (d) the material provisions relating
to such Credit Support. Additionally, the related Prospectus Supplement will set
forth certain information with respect to the obligor under any instrument of
Credit Support, including (i) a brief description of its principal business
activities, (ii) its principal place of business, place of incorporation and the
jurisdiction under which it is chartered or licensed to do business, (iii) if
applicable, the identity of regulatory agencies that exercise primary
jurisdiction over the conduct of its business and (iv) its total assets, and its
stockholders' or policyholders' surplus, if applicable, as of the date specified
in the Prospectus Supplement. See "Risk Factors -- Credit Support Limitations."
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a Series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the holders
of Subordinate Certificates to receive distributions of principal and interest
from the Distribution Account on any Distribution Date will be subordinated to
such rights of the holders of Senior Certificates. If so provided in the related
Prospectus Supplement, the subordination of a class may apply only in the event
of (or may be limited to) certain types of losses or shortfalls. The related
Prospectus Supplement will set forth information concerning the amount of
subordination of a class or classes of Subordinate Certificates in a Series, the
circumstances in which such subordination will be applicable and the manner, if
any, in which the amount of subordination will be effected.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a Series are divided into separate groups,
each supporting a separate class or classes of Certificates of a Series, credit
support may be provided by cross-support provisions requiring that distributions
be made on Senior Certificates evidencing interests in one group of Mortgage
Assets prior to distributions on Subordinate Certificates evidencing interests
in a different group of Mortgage Assets within the Trust Fund. The Prospectus
Supplement for a Series that includes a cross-support provision will describe
the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a Series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any such
material instrument for a Series will be filed with the Commission as an exhibit
to a Current Report on Form 8-K to be filed within 15 days of issuance of the
Certificates of the related Series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit, issued
by a bank or financial institution specified in such Prospectus Supplement (the
"L/C BANK"). Under a letter of credit, the L/C Bank will be obligated to honor
draws thereunder in an aggregate fixed dollar amount, net of unreimbursed
payments thereunder, generally equal to a percentage specified in the related
Prospectus Supplement of the aggregate principal balance of the Mortgage Assets
on the related Cut-off Date or of the initial aggregate Certificate Balance of
one or more classes of Certificates. If so specified in the related Prospectus
Supplement, the letter of credit may permit draws in the event of only certain
types of losses and shortfalls. The amount available under the letter of credit
will, in all cases, be reduced to the extent of the unreimbursed payments
thereunder and may otherwise be reduced as described in the related Prospectus
Supplement. The obligations of the L/C Bank under the letter of credit for each
Series of Certificates will expire at the earlier of the date specified in the
related Prospectus Supplement or the termination of the Trust Fund. A copy of
any such letter of credit for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related Series.
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INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided by one or more insurance companies or sureties. Such instruments
may cover, with respect to one or more classes of Certificates of the related
Series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or determined
in the manner specified in the related Prospectus Supplement. A copy of any such
instrument for a Series will be filed with the Commission as an exhibit to a
Current Report on Form 8-K to be filed with the Commission within 15 days of
issuance of the Certificates of the related Series.
RESERVE FUNDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more reserve funds in which
cash, a letter of credit, Permitted Investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in such Prospectus
Supplement. The reserve funds for a Series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Trust Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a Series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the related
Prospectus Supplement, reserve funds may be established to provide limited
protection against only certain types of losses and shortfalls. Following each
Distribution Date amounts in a reserve fund in excess of any amount required to
be maintained therein may be released from the reserve fund under the conditions
and to the extent specified in the related Prospectus Supplement and will not be
available for further application to the Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, any reinvestment
income or other gain from such investments will be credited to the related
Reserve Fund for such Series, and any loss resulting from such investments will
be charged to such Reserve Fund. However, such income may be payable to any
related Master Servicer or another service provider as additional compensation.
The Reserve Fund, if any, for a Series will not be a part of the Trust Fund
unless otherwise specified in the related Prospectus Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such Reserve
Fund, the balance required to be maintained in the Reserve Fund, the manner in
which such required balance will decrease over time, the manner of funding such
Reserve Fund, the purposes for which funds in the Reserve Fund may be applied to
make distributions to Certificateholders and use of investment earnings from the
Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO CMBS
If so provided in the Prospectus Supplement for a Series of
Certificates, the CMBS in the related Trust Fund and/or the Mortgage Loans
underlying such CMBS may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify as to
each such form of Credit Support the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
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. See "Description
of the Trust Funds -- Assets."
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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, security deeds 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 security deed or 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. 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
Sailors' Civil Relief Act of 1940) and, in some cases, in deed of trust
transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed
or deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The Seller will make certain representations and warranties
in the Agreement with respect to the Mortgage Loans which are secured by an
interest in a leasehold estate. Such representation and warranties will be set
forth in the Prospectus Supplement if applicable.
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 default. Under such assignments,
the Mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the Mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the Mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect the
rents. In most states, hotel and motel room rates are considered accounts
receivable under the 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 loan. 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
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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.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership. See "Environmental Legislation"
below.
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.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Offered Certificate, the Mortgage Loans may also consist of cooperative
apartment loans ("COOPERATIVE LOANS") secured by security interests in shares
issued by cooperative housing corporation (a "COOPERATIVE") and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the cooperatives' buildings. The security agreement
will create a lien upon, or grant a title interest in, the property which it
covers, the priority of which will depend on the terms of the particular
security agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the
real property and owns in fee or leases the building and all separate dwelling
units therein. The cooperative is directly responsible for property management
and, in most cases, payment of real estate taxes, other governmental impositions
and hazard and liability insurance. If there is a blanket mortgage or mortgages
on the cooperative apartment building or underlying land, as is generally the
case, or an underlying lease of the land, as is the case in some instances, the
cooperative, as property Mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket mortgage
is ordinarily incurred by the cooperative in connection with either the
construction or purchase of the cooperative's apartment building or obtaining of
capital by the cooperative. The interest of the occupant under proprietary
leases or occupancy agreements as to which that cooperative is the landlord are
generally subordinate to the interest of the holder of a blanket mortgage and to
the interest of the holder of a land lease. If the cooperative is unable to meet
the payment obligations (i) arising under a blanket mortgage, the mortgagee
holding a blanket mortgage could foreclose on that mortgage and terminate all
subordinate proprietary leases and occupancy agreements or (ii) arising under
its land lease, the holder of the landlord's interest under the land lease could
terminate it and all subordinate proprietary leases and occupancy agreements.
Also, a blanket mortgage on a cooperative may provide financing in the form of a
mortgage that does not fully amortize, with a significant portion of principal
being due in one final payment at maturity. The inability of the cooperative to
refinance a mortgage and its consequent inability to make such final payment
could lead to foreclosure by the mortgagee. Similarly, a land lease has an
expiration date and the inability of the cooperative to extend its term or, in
the alternative, to purchase the land could lead to termination of the
cooperative's interest in the property and termination of all proprietary leases
and occupancy agreement. In either event, a foreclosure by the holder of a
blanket mortgage or the termination of the underlying lease could eliminate or
significantly diminish the value of any collateral held by whomever financed the
purchase by an individual tenant stockholder of cooperative shares or, in the
case of the Mortgage Loans, the collateral securing the Cooperative Loans.
The cooperative is owned by tenant-stockholders who, through ownership
of stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-
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stockholder's pro rata share of the cooperative's payments for its blanket
mortgage, real property taxes, maintenance expenses and other capital or
ordinary expenses. An ownership interest in a cooperative and accompanying
occupancy rights are financed through a cooperative share loan evidenced by a
promissory note and secured by an assignment of and a security interest in the
occupancy agreement or proprietary lease and a security interest in the related
cooperative shares. The lender generally takes possession of the share
certificate and a counterpart of the proprietary lease or occupancy agreement
and a financing statement covering the proprietary lease or occupancy agreement
and the cooperative shares is filed in the appropriate state and local offices
to perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "--Foreclosure -- Cooperative Loans" below.
FORECLOSURE
GENERAL
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, 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 several 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 foreclose is contested, the
legal proceedings can be 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.
EQUITABLE LIMITATIONS ON ENFORCEABILITY OF CERTAIN PROVISIONS
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 or remedy 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. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the Mortgagor
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was insolvent (or the Mortgagor was rendered insolvent as a result of such sale)
and within one year (or within the state statute of limitations if the trustee
in bankruptcy elects to proceed under state fraudulent conveyance law) of the
filing of bankruptcy.
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
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.
PUBLIC SALE
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. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than 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 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, restaurants, 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.
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The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale 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 a Series of Certificates for which an election is
made to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
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 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 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 Provisions currently in effect, property acquired by
foreclosure generally must not be held after the close of the third calendar
year following the calendar year in which the property is acquired. To the
extent provided in the related Prospectus Supplement, with respect to a Series
of Certificates for which an election is made to qualify the Trust Fund or a
part thereof as a REMIC, the Agreement will permit foreclosed property to be
held for more than such period if the Internal Revenue Service grants an
extension of time within which to sell such property or independent counsel
renders an opinion to the effect that holding such property for such additional
period is permissible under the REMIC Provisions.
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
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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
liabilities thereunder; and the right of the leasehold mortgagee to enter into a
new ground lease with the ground lessor on the same terms and conditions as the
old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground lessor's
bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "BANKRUPTCY CODE"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed by
the provisions of the ground lease.
COOPERATIVE LOANS
The cooperative shares owned by the tenant-stockholder and pledged to
the lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's Certificate of Incorporation and By- laws, as well as
the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such
tenant-stockholder. The proprietary lease or occupancy agreement generally
permits the Cooperative to terminate such lease or agreement in the event an
obligor fails to make payments or defaults in the performance of covenants
required thereunder. Typically, the lender and the Cooperative enter into a
recognition agreement which establishes the rights and obligations of both
parties in the event of a default by the tenant-stockholder under the
proprietary lease or occupancy agreement will usually constitute a default under
the security agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that
the tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement is terminated, the Cooperative will recognize the lender's lien
against proceeds from the sale of the Cooperative apartment, subject, however,
to the Cooperative's right to sums due under such proprietary lease or occupancy
agreement. The total amount owed to the Cooperative by the tenant-stockholder,
which the lender generally cannot restrict and does not monitor, could reduce
the value of the collateral below the outstanding principal balance of the
Cooperative Loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
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In some states, foreclosure on the Cooperative shares is accomplished
by a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a foreclosure
sale has been conducted in a "commercially reasonable" manner will depend on the
facts in each case. In determining commercial reasonableness, a court will look
to the notice given the debtor and the method, manner, time, place and terms of
the foreclosure. Generally, a sale conducted according to the usual practice of
banks selling similar collateral will be considered reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperatives to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building was so converted.
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. In many
jurisdictions, 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.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or modified
at any time after the commencement of a case under the Bankruptcy Code solely on
the basis of a provision in the lease to such effect or because of certain other
similar events. This prohibition on so-called "ipso facto clauses" could limit
the ability of the Trustee for a Series of Certificates to exercise certain
contractual remedies with respect to the Leases. In addition, Section 362 of the
Bankruptcy Code operates as an automatic stay of, among other things, any act to
obtain possession of property from a debtor's estate, which may delay a
Trustee's exercise of such remedies for a related Series of Certificates in the
event that a related Lessee or a related Mortgagor becomes the subject of a
proceeding under the Bankruptcy Code. For example, a mortgagee would be stayed
from enforcing a Lease Assignment by a Mortgagor related to a Mortgaged Property
if the related Mortgagor was in a bankruptcy proceeding. The legal proceedings
necessary to resolve the issues could be time-consuming and might result in
significant delays in the receipt of the assigned rents. Similarly, the filing
of a petition in bankruptcy by or on behalf of a Lessee of a Mortgaged Property
would result in a stay 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. Rents and other proceeds
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of a Mortgage Loan may also escape an assignment thereof if the assignment is
not fully perfected under state law prior to commencement of the bankruptcy
proceeding. See "--Leases and Rents" above.
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 in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the 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, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the Mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach, which
could adversely affect the security for the related Mortgage Loan. 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.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as
debtor-in-possession, rejects an unexpired lease of real property, the lessee
may treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable non-bankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or extension
thereof, any damages occurring after such date caused by the nonperformance of
any obligation of the lessor under the lease after such date. To the extent
provided in the related Prospectus Supplement, the Lessee will agree under
certain Leases to pay all amounts owing thereunder the Master Servicer without
offset. To the extent that such a contractual obligation remains enforceable
against the Lessee, the Lessee would not be able to avail itself of the rights
of offset generally afforded to lessees of real property under the Bankruptcy
Code.
In a bankruptcy or similar proceeding of a Mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the Mortgagor, or made directly by the related Lessee,
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.
To the extent described in the related Prospectus Supplement, certain
of the Mortgagors may be partnerships. The laws governing limited partnerships
in certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in writing
in the limited partnership agreement. This provision may be construed as an
"ipso facto" clause and, in the event of the general partner's bankruptcy, may
not be enforceable. To the extent described in the related Prospectus
Supplement, certain limited partnership agreements of the Mortgagors may provide
that the commencement of a case under the Bankruptcy Code with respect to the
related general partner constitutes an event of withdrawal (assuming the
enforceability of the clause is not challenged in bankruptcy proceedings or, if
challenged, is upheld) that might trigger the dissolution of the limited
partnership, the winding up of its affairs and the distribution of its assets,
unless (i) at the time there was at least one other general partner and the
written provisions of the limited partnership permit the business of the limited
partnership to be carried on by the remaining general partner and that general
partner does so or (ii) the written provisions of the limited partnership
agreement permit the limited partner to agree within a specified time frame
(often 60 days) after such withdrawal to continue the business of the limited
partnership and to the appointment of one or more general partners and the
limited partners do so. In addition, the laws governing general partnerships in
certain states provide that the commencement of a case under the Bankruptcy Code
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or state bankruptcy laws with respect to a general partner of such partnerships
triggers the dissolution of such partnership, the winding up of its affairs and
the distribution of its assets. Such state laws, however, may not be enforceable
or effective in a bankruptcy case. The dissolution of a Mortgagor, the winding
up of its affairs and the distribution of its assets could result in an
acceleration of its payment obligation under a related Mortgage Loan, which may
reduce the yield on the related Series of Certificates in the same manner as a
principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the corporate
veil. In such a case, the respective Mortgaged Property, for example, would
become property of the estate of such bankrupt general partner. Not only would
the Mortgaged Property be available to satisfy the claims of creditors of such
general partner, but an automatic stay would apply to any attempt by the Trustee
to exercise remedies with respect to such Mortgaged Property. However, such an
occurrence should not affect the Trustee's status as a secured creditor with
respect to the Mortgagor or its security interest in the Mortgaged Property.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity or that are in close proximity to such
properties. Such environmental liabilities may give rise to (i) a diminution in
value of property securing any Mortgage Loan, (ii) limitation on the ability to
foreclose against such property or (iii) in certain circumstances as more fully
described below, liability for clean up costs or other remedial actions, which
liability could exceed the value of the principal balance of the related
Mortgage Loan or of such Mortgaged Property.
Under the laws of many states and to some degree under Federal law,
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 these states, the lien of
a mortgage contemplated by this
transaction may lose its priority to such a superlien.
Under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either
to the government or to private parties for cleanup costs on a property securing
a loan, even if the lender does not cause or contribute to the contamination.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed to
the contamination. Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators.
Excluded from CERCLA's definition of "owner or operator," however, is a person
"who without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
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
CERCLA's secured-creditor exemption. The court held that a lender need not have
involved itself in the day-to-day operations of the facility or participated in
decisions relating to hazardous waste to be liable under CERCLA; rather,
liability could attach to a lender if its involvement with the management of the
facility is broad enough to support the inference that the lender had the
capacity to influence the borrower's treatment of hazardous waste. The court
added that a lender's capacity to influence such decision could be inferred from
the extent of its involvement in the facility's financial management.
On April 29, 1992, in response to the decision in FLEET FACTORS CORP.,
the United States Environmental Protection Agency (the "EPA") adopted a rule
interpreting and delineating CERCLA's secured-creditor exemption in EPA
enforcement proceedings. The rule attempted to define and specify the range of
permissible actions that may be undertaken by a foreclosing lender/holder of a
contaminated facility without exceeding the bounds of the secured-creditor
exemption. The rule also attempted to specify the circumstances under which
governmental or government-
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appointed entities that acquire possession or control of contaminated facilities
as conservators or receivers will be considered "involuntary" owners for
purposes of CERCLA's "innocent landowner" defense to liability. Issuance of this
rule by the EPA under CERCLA did not necessarily affect the potential for
liability in actions by either a state or a private party under CERCLA or in
actions under other federal or state laws which may impose liability on "owners
or operators" but did not incorporate the secured-creditor exemption.
The validity of the EPA rule was challenged in the U.S. Court of
Appeals for the District of Columbia in KELLEY V. EPA. In an opinion issued on
February 4, 1994, the D.C. Circuit Court invalidated EPA's lender liability
rule, holding that EPA exceeded its authority in enacting the rule. The U.S.
Supreme Court denied certiorari on January 17, 1995. In response, the Department
of Justice ("DOJ") and the Agency issued a policy statement entitled "The Effect
of Superfund on Lenders That Hold Security Interests in Contaminated Property,"
published in the Federal Register in Volume 60, Number 237, at pages 63517 to
63519 (December 11, 1995). That policy statement directed parties to the voided
rule as the Agency's definitive view on CERCLA's secured creditor exemption, and
stated that EPA and DOJ will generally follow the approach of the Lender
Liability Rule and its preamble when exercising their enforcement discretion
with respect to lenders.
Under the KELLEY case, the secured-creditor exemption under CERCLA will
be subject to existing case law interpretations. Some of those cases have
interpreted the exemption extremely narrowly, but most of the cases since
promulgation of the EPA rule have held that a lender is entitled to the
protection of the secured-creditor exemption provided that a lender complies
with the provisions set out in the EPA rule and does not itself (or through its
agents) cause or contribute to contamination. As a result of KELLEY, the cases
applying the EPA rule have little, if any, precedential value and, thus, lenders
expected a return to the narrower interpretations of the exemption. In fact,
recent judicial opinions indicate that a court facing lender liability issues is
likely to apply principles and rationale that are consistent with EPA and DOJ's
Lender Policy. SEE, E.G., UNITED STATES V. WALLACE, 893 F. Supp. 627 (N.D. Tex.
1995); Z & Z LEASING, INC. V. GRAYING REEL, INC., 873 F. Supp. 51 (E.D. Mich.
1995); KEMP INDUSTRIES, INC. V. SAFETY LIGHT CORP., 857 F. Supp. 373 (D.N.J.
1994).
The secured-creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. The definition of
"hazardous substances" under CERCLA specifically excludes petroleum products,
and the secured-creditor exemption does not govern liability for cleanup costs
under federal laws other than CERCLA, in particular Subtitle I of the federal
Resource Conservation and Recovery Act ("RCRA"), which regulates underground
petroleum (other than heating oil) storage tanks. However, the EPA adopted a
lender liability rule for underground storage tanks under Subtitle I of RCRA.
Under such rule, a holder of a security interest in an underground storage tank
or real property containing an underground storage tank is not considered an
operator of the underground storage tank as long as petroleum is not added to,
stored in or dispensed from the tank. It should be noted, however, that
liability for cleanup of petroleum contamination may be governed by state law,
which may not provide for any specific protections for secured creditors.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental hazard,
but that person or entity may be bankrupt or otherwise judgment proof. It is
possible that cleanup costs could become a liability of the Trust Fund and
occasion a loss to Certificateholders in certain
circumstances described above if such remedial costs were incurred.
Finally, as part of the Omnibus Consolidated Appropriations Bill for
Fiscal Year 1997 signed by President Clinton on September 30, 1996, Congress
enacted the Asset Conservation, Lender Liability, and Deposit Insurance
Protection Act of 1996 ("the Act"). The Act includes lender and fiduciary
liability amendments to CERCLA, amendments to the secured creditor exemption set
forth in Subtitle I of RCRA, and validation of the portion of the CERCLA Lender
Liability Rule that addresses involuntary acquisitions by government entities.
The amendments made by the Act apply to all claims not finally adjudicated as of
September 30, 1996, which include all cases that are in the process of being
settled, and are generally based on the CERCLA Lender Liability Rule. However,
the amendments do not explicitly describe the steps a lender can take to avoid
liability after foreclosure.
The related Agreement will provide that the Special Servicer, acting on
behalf of the Trustee, may not acquire title to a Mortgaged Property or take
over its operation unless the Special Servicer has previously determined, based
on a report prepared by a person who regularly conducts environmental
assessments, that: (i) such Mortgaged Property is in compliance with applicable
environmental laws, or, if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is likely to produce a
greater recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions and (ii) there are no
circumstances present at the 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
federal, state or local law or
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regulation. This requirement effectively precludes enforcement of the security
for the related Mortgage Note until a satisfactory environmental inquiry is
undertaken, or that, if any Hazardous Materials are present for which such
action could be required, taking such actions with respect to the affected
Mortgaged Property is reasonably likely to produce a greater recovery on a
present value basis, after taking into account any risks associated therewith,
than not taking such actions, reducing the likelihood that a given Trust Fund
will become liable for any condition or circumstance that may give rise to any
environmental claim (an "ENVIRONMENTAL HAZARD CONDITION") affecting a Mortgaged
Property, but making it more difficult to realize on the security for the
Mortgage Loan. However, there can be no assurance that any environmental
assessment obtained by the Special Servicer will detect all possible
Environmental Hazard Conditions, that any estimate of the costs of effecting
compliance at any Mortgaged Property and the recovery thereon will be correct,
or that the other requirements of the Agreement, even if fully observed by the
Master Servicer or Special Servicer, as the case may be, will in fact insulate a
given Trust Fund from liability for Environmental Hazard Conditions. Any
additional restrictions on acquiring titles to a Mortgaged Property may be set
forth in the related Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely that
any environmental assessments which would have been conducted with respect to
any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warranting Party will represent and warrant
that based on an environmental audit commissioned by Warranting Party, as of the
date of the origination of a Mortgage Loan, the related Mortgaged Property is
not affected by a Disqualifying Condition (as defined below). No such person
will however, be responsible for any Disqualifying Condition which may arise on
a Mortgaged Property after the date of origination of the related Mortgage Loan,
whether due to actions of the Mortgagor, the Master Servicer, the Primary
Servicer, the Special Servicer or any other person. It may not always be
possible to determine whether a Disqualifying Condition arose prior or
subsequent to the date of the origination of the related Mortgage Loan.
A "DISQUALIFYING CONDITION" is defined generally as a condition which
would reasonably be expected to (1) constitute or result in a violation of
applicable environmental laws, (2) require any expenditure material in relation
to the principal balance of the related Mortgage Loan to achieve or maintain
compliance in all material respects with any applicable environmental laws, or
(3) require substantial cleanup, remedial action or other extraordinary response
under any applicable environmental laws in excess of a specified escrowed
amount.
"HAZARDOUS MATERIALS" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA, and specifically including, asbestos and asbestos containing
materials, polychlorinated biphenyls, radon gas, petroleum and petroleum
products and urea formaldehyde.
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. To the extent provided
in the related Prospectus Supplement, a Master Servicer or a Primary 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 a manner
consistent with the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
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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.
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 Interest Rates, may increase the
likelihood of refinancing or other early retirements of the Mortgage Loans.
ACCELERATION ON DEFAULT
To the extent specified in the related Prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full debt
upon a monetary or nonmonetary default of the Mortgagor. 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 the 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 Mortgagor 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.
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 residential first mortgage loans 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.
In any state in which application of Title V has been expressly
rejected or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state action will be eligible
for inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are
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permitted in such state or (ii) such Mortgage Loan provides that the terms
thereof shall be construed in accordance with the laws of another state under
which such interest rate, discount points and charges would not be usurious and
the Mortgagor's counsel has rendered an opinion that such choice of law
provision would be given effect.
Statutes differ in their provisions as to the consequences of a
usurious loan. One group of statutes requires the lender to forfeit the interest
due above the applicable limit or impose a specified penalty. Under this
statutory scheme, the borrower may cancel the recorded mortgage or deed of trust
upon paying its debt with lawful interest, and the lender may foreclose, but
only for the debt plus lawful interest. A second group of statutes is more
severe. A violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
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 Mortgage Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages on
Mortgaged Properties which are owned by the Mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential 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 Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "RELIEF ACT"), a Mortgagor who enters military service after the
origination of such Mortgagor's Mortgage Loan (including a Mortgagor who was in
reserve status and is called to active duty after origination of the Mortgage
Loan), may not be charged interest (including fees and charges) above an annual
rate of 6% during the period of such Mortgagor's active duty status, unless a
court orders otherwise upon application of the lender. The Relief Act applies to
Mortgagors who are members of the Army, Navy, Air Force, Marines, National
Guard, Reserves, Coast Guard and officers of the U.S. Public Health Service
assigned to duty with the military. Because the Relief Act applies to Mortgagors
who enter military service (including reservists who are called to active duty)
after origination of the related Mortgage Loan, no information can be provided
as to the number of loans that may be affected by the Relief Act. Application of
the Relief Act would adversely affect, for an indeterminate period of time, the
ability of any servicer to collect full amounts of interest on certain of the
Mortgage Loans. Any shortfalls in interest collections resulting from the
application of the Relief Act would result in a reduction of the amounts
distributable to the holders of the related Series of Certificates, and would
not be covered by advances or, unless otherwise specified in the related
Prospectus Supplement, any form of Credit Support provided in connection with
such Certificates. In addition, the Relief Act imposes limitations that would
impair the ability of the servicer to foreclose on an affected Mortgage Loan
during the Mortgagor's period of active duty status,
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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.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Andrews & Kurth L.L.P., counsel to the Depositor. This
summary is based on laws, regulations, including the REMIC regulations
promulgated by the Treasury Department (the "REMIC REGULATIONS"), rulings and
decisions now in effect or (with respect to regulations) proposed, all of which
are subject to change either prospectively or retroactively. Andrews & Kurth
L.L.P. will deliver an opinion to the Depositor that the information set forth
under this caption, "Federal Income Tax Consequences," to the extent that it
constitutes matters of law or legal conclusions, is correct in all material
respects. This summary does not address the federal income tax consequences of
an investment in Certificates applicable to all categories of investors, some of
which (for example, banks and insurance companies) may be subject to special
rules. Prospective investors should consult their tax advisors regarding the
federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund, or a
segregated portion thereof, relating to a particular Series of Certificates as a
REMIC under the Code. The Prospectus Supplement for each Series of Certificates
will specify whether a REMIC election will be
made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Andrews & Kurth L.L.P. will deliver
its opinion that the Trust Fund will not be classified as an association taxable
as a corporation and that each such Trust Fund will be classified as a grantor
trust under subpart E, Part I of subchapter J of Chapter 1 of Subtitle A of the
Code. In this case, owners of Certificates will be treated for federal income
tax purposes as owners of a portion of the Trust Fund's assets as described
below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
CHARACTERIZATION. The Trust Fund may be created with one class of
Grantor Trust Certificates. In this case, each Grantor Trust Certificateholder
will be treated as the owner of a pro rata undivided interest in the interest
and principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire income
from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges
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received by the Master Servicer. Under Code Sections 162 or 212 each Grantor
Trust Certificateholder will be entitled to deduct its pro rata share of
servicing fees, prepayment fees, assumption fees, any loss recognized upon an
assumption and late payment charges retained by the Master Servicer, provided
that such amounts are reasonable compensation for services rendered to the Trust
Fund. Grantor Trust Certificateholders that are individuals, estates or trusts
will be entitled to deduct their share of expenses as itemized deductions only
to the extent such expenses plus all other Code Section 212 expenses exceed two
percent of their adjusted gross income. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount under Code Section 68(b)
(which amount will be adjusted for inflation) will be reduced by the lesser of
(i) 3% of the excess of adjusted gross income over the applicable amount or (ii)
80% of the amount of itemized deductions otherwise allowable for such taxable
year. A Grantor Trust Certificateholder using the cash method of accounting must
take into account its pro rata share of income and deductions as and when
collected by or paid to the Master Servicer. A Grantor Trust Certificateholder
using an accrual method of accounting must take into account its pro rata share
of income and deductions as they become due or are paid to the Master Servicer,
whichever is earlier. If the servicing fees paid to the Master Servicer are
deemed to exceed reasonable servicing compensation, the amount of such excess
could be considered as an ownership interest retained by the Master Servicer (or
any person to whom the Master Servicer assigned for value all or a portion of
the servicing fees) in a portion of the interest payments on the Mortgage
Assets. The Mortgage Assets would then be subject to the "coupon stripping"
rules of the Code discussed below.
Unless otherwise specified in the related Prospectus Supplement, as to
each Series of Certificates Andrews & Kurth L.L.P. will have advised the
Depositor that, except as described below under "b. Multiple Classes of Grantor
Trust Certificates -- Treatment of Certain Owners":
(i) a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans . . . secured by an interest in real property which is . . .
residential property" within the meaning of Code Section 7701(a)(19)(C)(v), to
the extent that the Mortgage Assets represented by that Grantor Trust
Certificate are of a type described in such Code section;
(ii) a Grantor Trust Certificate owned by a real estate investment
trust representing an interest in Mortgage Assets will be considered to
represent "real estate assets" within the meaning of Code Section 856(c)(5)(A),
and interest income on the Mortgage Assets will be considered "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), to the extent that the Mortgage Assets represented by that
Grantor Trust Certificate are of a type described in such Code section; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3).
STRIPPED BONDS AND COUPONS. Certain Trust Funds may consist of
Government Securities which constitute "stripped bonds" or "stripped coupons" as
those terms are defined in Section 1286 of the Code, and, as a result, such
assets would be subject to the stripped bond provisions of the Code. Under these
rules, such Government Securities are treated as having OID based on the
purchase price and the stated redemption price at maturity of each Government
Security. As such, Grantor Trust Certificateholders would be required to include
in income their pro rata share of the OID on each Government Security recognized
in any given year on an economic accrual basis even if the Grantor Trust
Certificateholder is a cash method taxpayer. Accordingly, the sum of the income
includible to the Grantor Trust Certificateholder in any taxable year may exceed
amounts actually received during such year.
PREMIUM. The price paid for a Grantor Trust Certificate by a holder
will be allocated to such holder's undivided interest in each Mortgage Asset
based on each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A Grantor
Trust Certificateholder that acquires an interest in Mortgage Assets at a
premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage Assets
were originated after September 27, 1985. Premium allocable to mortgage loans
originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable premium
is applied to offset interest payments. It is not clear whether a reasonable
prepayment assumption should be used in computing amortization of premium
allowable under Code Section 171. A Certificateholder that makes this election
for a Certificate that is acquired at a premium will be deemed to have made an
election to amortize bond premium with respect to all debt instruments having
amortizable bond premium that such Certificateholder holds during the year of
the election or thereafter.
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If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at a
premium should recognize a loss if a Mortgage Loan (or an underlying mortgage
loan with respect to a Mortgage Asset) prepays in full, equal to the difference
between the portion of the prepaid principal amount of such Mortgage Loan (or
underlying mortgage loan) that is allocable to the Certificate and the portion
of the adjusted basis of the Certificate that is allocable to such Mortgage Loan
(or underlying mortgage loan). If a reasonable prepayment assumption is used to
amortize such premium, it appears that such a loss would be available, if at
all, only if prepayments have occurred at a rate faster than the reasonable
assumed prepayment rate. It is not clear whether any other adjustments would be
required to reflect differences between an assumed prepayment rate and the
actual rate of prepayments.
ORIGINAL ISSUE DISCOUNT. The Internal Revenue Service (the "IRS") has
stated in published rulings that, in circumstances similar to those described
herein, the special rules of the Code relating to OID (currently Code Sections
1271 through 1273 and 1275) and Treasury regulations issued on January 27, 1994,
as amended on June 14, 1996, under such Sections (the "OID REGULATIONS"), will
be applicable to a Grantor Trust Certificateholder's interest in those Mortgage
Assets meeting the conditions necessary for these sections to apply. Rules
regarding periodic inclusion of OID income are applicable to mortgages of
corporations originated after May 27, 1969, mortgages of noncorporate Mortgagors
(other than individuals) originated after July 1, 1982, and mortgages of
individuals originated after March 1, 1984. Such OID could arise by the
financing of points or other charges by the originator of the mortgages in an
amount greater than a statutory DE MINIMIS exception to the extent that the
points are not currently deductible under applicable Code provisions or are not
for services provided by the lender. OID generally must be reported as ordinary
gross income as it accrues under a constant interest method. See "--Grantor
Trust Funds -- Multiple Classes of Grantor Trust Certificates -- Accrual of
Original Issue Discount" below.
MARKET DISCOUNT. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than 0.25%
of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described in
the relevant legislative history will apply. Under those rules, the holder of a
market discount bond may elect to accrue market discount either on the basis of
a constant interest rate or according to one of the following methods. If a
Grantor Trust Certificate is issued with OID, the amount of market discount that
accrues during any accrual period would be equal to the product of (i) the total
remaining market discount and (ii) a fraction, the numerator of which is the OID
accruing during the period and the denominator of which is the total remaining
OID at the beginning of the accrual period. For Grantor Trust Certificates
issued without OID, the amount of market discount that accrues during a period
is equal to the product of (i) the total remaining market discount and (ii) a
fraction, the numerator of which is the amount of stated interest paid during
the accrual period and the denominator of which is the total amount of stated
interest remaining to be paid at the beginning of the accrual period. For
purposes of calculating market discount under any of the above methods in the
case of instruments (such as the Grantor Trust Certificates) that provide for
payments that may be accelerated by reason of prepayments of other obligations
securing such instruments, the same prepayment assumption applicable to
calculating the accrual of OID will apply. Because the regulations described
above have not been issued, it is impossible to predict what effect those
regulations might have on the tax treatment of a Grantor Trust Certificate
purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of the excess of the interest paid or
incurred for the taxable year attributable to any indebtedness incurred or
continued
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to purchase or carry such Grantor Trust Certificate purchased with market
discount over the interest distributable thereon. For these purposes, the DE
MINIMIS rule referred to above applies. Any such deferred excess interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includible in income. The amount of any remaining
deferred deduction is to be taken into account in the taxable year in which the
Grantor Trust Certificate matures or is disposed of in a taxable transaction. In
the case of a disposition in which gain or loss is not recognized in whole or in
part, any remaining deferred deduction will be allowed to the extent of gain
recognized on the disposition. If such holder elects to include market discount
in income currently as it accrues on all market discount instruments acquired by
such holder in that taxable year or thereafter, the interest deferral rule
described above will not apply.
ELECTION TO TREAT ALL INTEREST AS OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including DE
MINIMIS market or OID) and premium in income as interest, based on a constant
yield method. If such an election were to be made with respect to a Grantor
Trust Certificate with market discount, the Certificateholder would be deemed to
have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "--Grantor Trust Funds
- -- Single Class of Grantor Trust Certificates -- Premium." The election to
accrue interest, discount and premium on a constant yield method with respect to
a Certificate is irrevocable except with the approval of the IRS.
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
STRIPPED BONDS AND STRIPPED COUPONS
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and interest,
or principal only, on all or a portion of the Mortgage Assets (the "STRIPPED
BOND CERTIFICATES"), while the second class of Grantor Trust Certificates may
represent the right to some or all of the interest on such portion (the
"STRIPPED COUPON CERTIFICATES").
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Asset principal balance) or the Certificates are initially sold with a DE
MINIMIS discount (assuming no prepayment assumption is required), any non DE
MINIMIS discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Asset by Mortgage Asset basis, which
could result in some Mortgage Assets being treated as having more than 100 basis
points of interest stripped off.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a Mortgage Asset is larger than a DE MINIMIS amount (as calculated
for purposes of the OID rules) a purchaser of such a Certificate will be
required to accrue the discount under the OID rules of the Code. See "--Grantor
Trust Funds -- Single Class of Grantor Trust Certificates -- Original Issue
Discount." However, a purchaser of a Stripped Bond Certificate will be required
to account for any discount on the Mortgage Assets as market discount rather
than OID if either (i) the amount of OID with respect to the Mortgage Assets is
treated as zero under the OID DE MINIMIS rule when the Certificate was stripped
or (ii) no more than 100 basis points (including any amount of servicing fees in
excess of reasonable servicing fees) is stripped off of the Trust Fund's
Mortgage Assets.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that OID
computations be made for each payment from each Mortgage Asset. However, based
on the recent IRS guidance, it appears that all payments from a Mortgage Asset
underlying a Stripped Coupon Certificate should be treated as a single
installment obligation subject to the OID rules of the Code, in which case, all
payments from such Mortgage Asset would be included in the Mortgage Asset's
stated redemption price at maturity for purposes of calculating income on such
certificate under the OID rules of the Code.
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It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to such Grantor Trust Certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate faster than the assumed prepayment rate. However, if
such Certificate is treated as an interest in discrete Mortgage Assets, or if no
prepayment assumption is used, then when a Mortgage Asset is prepaid, the holder
of such Certificate should be able to recognize a loss equal to the portion of
the adjusted issue price of such Certificate that is allocable to such Mortgage
Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper treatment
of these Certificates for federal income tax purposes.
TREATMENT OF CERTAIN OWNERS
Several Code sections provide beneficial treatment to certain taxpayers
that invest in Mortgage Assets of the type that make up the Trust Fund. With
respect to these Code sections, no specific legal authority exists regarding
whether the character of the Grantor Trust Certificates, for federal income tax
purposes, will be the same as that of the underlying Mortgage Assets. While Code
Section 1286 treats a stripped obligation as a separate obligation for purposes
of the Code provisions addressing OID, it is not clear whether such
characterization would apply with regard to these other Code sections. Although
the issue is not free from doubt, based on policy considerations, each class of
Grantor Trust Certificates, unless otherwise specified in the related Prospectus
Supplement, should be considered to represent "real estate assets" within the
meaning of Code Section 856(c)(6)(B) and "loans . . . secured by an interest in
real property which is . . . residential real property" within the meaning of
Code Section 7701(a)(19)(C)(v), and interest income attributable to Grantor
Trust Certificates should be considered to represent "interest on obligations
secured by mortgages on real property" within the meaning of Code Section
856(c)(3)(B), provided that in each case the underlying Mortgage Assets and
interest on such Mortgage Assets qualify for such treatment. Prospective
purchasers to which such characterization of an investment in Certificates is
material should consult their own tax advisors regarding the characterization of
the Grantor Trust Certificates and the income therefrom. Grantor Trust
Certificates will be "obligation[s] . . . which [are] principally secured by an
interest in real property" within the meaning of Code Section 860G(a)(3).
GRANTOR TRUST CERTIFICATES REPRESENTING INTERESTS IN LOANS OTHER THAN ARM LOANS
The OID rules of Code Sections 1271 through 1275 will be applicable to
a Certificateholder's interest in those Mortgage Assets as to which the
conditions for the application of those sections are met. Rules regarding
periodic inclusion of OID in income are applicable to mortgages of corporations
originated after May 27, 1969, mortgages of noncorporate Mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 1, 1984. Under the OID Regulations, such OID could arise
by the charging of points by the originator of the mortgage in an amount greater
than the statutory DE MINIMIS exception, including a payment of points that is
currently deductible by the borrower under applicable Code provisions, or under
certain circumstances, by the presence of "teaser" rates on the Mortgage Assets.
OID on each Grantor Trust Certificate must be included in the owner's 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 amount of OID
required to be included in an owner's income in any taxable year with respect to
a Grantor Trust Certificate representing an interest in Mortgage Assets other
than Mortgage Assets with interest rates that adjust periodically ("ARM LOANS")
likely will be computed as described below under "--Accrual of Original Issue
Discount." The following discussion is based in part on the OID Regulations and
in part on the provisions of the Tax Reform Act of 1986 (the "1986 ACT"). The
OID Regulations generally are effective for debt instruments issued on or after
April 4, 1994, but may be relied upon as authority with respect to debt
instruments, such as the Grantor Trust Certificates, issued after December 21,
1992. Alternatively, proposed Treasury regulations issued December 21, 1992 may
be treated as authority for debt instruments issued after December 21, 1992 and
prior to April 4, 1994, and proposed Treasury regulations issued in 1986 and
1991 may be treated as authority for instruments issued before December 21,
1992. In applying these dates, the issue date of the Mortgage Assets should be
used, or, in the case of Stripped Bond Certificates or Stripped Coupon
Certificates, the date such Certificates are acquired. The holder of a
Certificate should be aware, however, that neither the proposed OID Regulations
nor the OID Regulations adequately address certain issues relevant to prepayable
securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the
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mortgagee, which may be adjusted to take into account certain loan origination
fees. The stated redemption price at maturity of a Mortgage Asset is the sum of
all payments to be made on such Mortgage Asset other than payments that are
treated as qualified stated interest payments. The accrual of this OID, as
described below under "--Accrual of Original Issue Discount," will, unless
otherwise specified in the related Prospectus Supplement, utilize the original
yield to maturity of the Grantor Trust Certificate calculated based on a
reasonable assumed prepayment rate for the mortgage loans underlying the Grantor
Trust Certificates (the "PREPAYMENT ASSUMPTION"), and will take into account
events that occur during the calculation period. The Prepayment Assumption will
be determined in the manner prescribed by regulations that have not yet been
issued. The legislative history of the 1986 Act (the "LEGISLATIVE HISTORY")
provides, however, that the regulations will require that the Prepayment
Assumption be the prepayment assumption that is used in determining the offering
price of such Certificate. No representation is made that any Certificate will
prepay at the Prepayment Assumption or at any other rate. The prepayment
assumption contained in the Code literally only applies to debt instruments
collateralized by other debt instruments that are subject to prepayment rather
than direct ownership interests in such debt instruments, such as the
Certificates represent. However, no other legal authority provides guidance with
regard to the proper method for accruing OID on obligations that are subject to
prepayment, and, until further guidance is issued, the Master Servicer intends
to calculate and report OID under the method described below.
ACCRUAL OF ORIGINAL ISSUE DISCOUNT
Generally, the owner of a Grantor Trust Certificate must include in
gross income the sum of the "daily portions," as defined below, of the OID on
such Grantor Trust Certificate for each day on which it owns such Certificate,
including the date of purchase but excluding the date of disposition. In the
case of an original owner, the daily portions of OID with respect to each
component generally will be determined as set forth under the OID Regulations. A
calculation will be made by the Master Servicer or such other entity specified
in the related Prospectus Supplement of the portion of OID that accrues during
each successive monthly accrual period (or shorter period from the date of
original issue) that ends on the day in the calendar year corresponding to each
of the Distribution Dates on the Grantor Trust Certificates (or the day prior to
each such date). This will be done, in the case of each full month accrual
period, by (i) adding (a) the present value at the end of the accrual period
(determined by using as a discount factor the original yield to maturity of the
respective component under the Prepayment Assumption) of all remaining payments
to be received under the Prepayment Assumption on the respective component and
(b) any payments included in the stated redemption price at maturity received
during such accrual period, and (ii) subtracting from that total the "adjusted
issue price" of the respective component at the beginning of such accrual
period. The adjusted issue price of a Grantor Trust Certificate at the beginning
of the first accrual period is its issue price; the adjusted issue price of a
Grantor Trust Certificate at the beginning of a subsequent accrual period is the
adjusted issue price at the beginning of the immediately preceding accrual
period plus the amount of OID allocable to that accrual period reduced by the
amount of any payment other than a payment of qualified stated interest made at
the end of or during that accrual period. The OID accruing during such accrual
period will then be divided by the number of days in the period to determine the
daily portion of OID for each day in the period. With respect to an initial
accrual period shorter than a full monthly accrual period, the daily portions of
OID must be determined according to an appropriate allocation under any
reasonable method.
OID generally must be reported as ordinary gross income as it accrues
under a constant interest method that takes into account the compounding of
interest as it accrues rather than when received. However, the amount of OID
includible in the income of a holder of an obligation is reduced when the
obligation is acquired after its initial issuance at a price greater than the
sum of the original issue price and the previously accrued OID, less prior
payments of principal. Accordingly, if such Mortgage Assets acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Asset, no OID attributable to the difference between the
issue price and the original principal amount of such Mortgage Asset (i.e.,
points) will be includible by such holder. Other OID on the Mortgage Assets
(e.g., that arising from a "teaser" rate) would still need to be accrued.
GRANTOR TRUST CERTIFICATES REPRESENTING INTERESTS IN ARM LOANS
The OID Regulations do not address the treatment of instruments, such
as the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("STRIPPED ARM OBLIGATIONS") to holders in a manner it believes is
consistent with the rules described above under "--Grantor Trust Funds --
Multiple Classes of Grantor Trust Certificates -- Grantor Trust Certificates
Representing Interests in Loans Other Than ARM Loans" and with the OID
Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("DEFERRED INTEREST") to the principal balance
of an ARM Loan may require the inclusion of such amount
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in the income of the Grantor Trust Certificateholder when such amount accrues.
Furthermore, the addition of Deferred Interest to the Grantor Trust
Certificate's principal balance will result in additional income (including
possibly OID income) to the Grantor Trust Certificateholder over the remaining
life of such Grantor Trust Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal payments
on the Grantor Trust Certificate previously received by the seller. Such gain or
loss will be capital gain or loss to an owner for which a Grantor Trust
Certificate is a "capital asset" within the meaning of Code Section 1221, and
will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period. For
noncorporate taxpayers, different tax rates apply to long-term capital gains
depending on the type of assets, whether the assets have been held for more than
one year or more than eighteen months and the maximum ordinary income tax rate
applicable to the taxpayer's income.
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for interest
by an applicable tax treaty. Accrued OID recognized by the owner on the sale or
exchange of such a Grantor Trust Certificate also will be subject to federal
income tax at the same rate. Generally, such payments would not be subject to
withholding to the extent that a Grantor Trust Certificate evidences ownership
in Mortgage Assets issued after July 18, 1984, by natural persons if such
Grantor Trust Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor Trust
Certificateholder is not a U.S. Person and providing the name and address of
such Grantor Trust Certificateholder). Additional restrictions apply to Mortgage
Assets where the Mortgagor is not a natural person in order to qualify for the
exemption from withholding.
As used herein, a "U.S. PERSON" means (i) a citizen or resident of the
United States, (ii) a corporation or a partnership (including an entity treated
as a corporation or a partnership for U.S. federal income tax purposes) created
or organized in or under the laws of the United States or any political
subdivision thereof (unless, in the case of a partnership, Treasury regulations
are adopted that provide otherwise), (iii) an estate, the income of which from
sources outside the United States is includible in gross income for federal
income tax purposes regardless of its connection with the conduct of a trade or
business within the United States or (iv) a trust if a court within the United
States is able to exercise primary supervision over the administration of the
trust and one or more United States persons have authority to control all
substantial decisions of the trust.
Final regulations dealing with withholding tax on income paid to
foreign persons and related matters (the "New Withholding Regulations") were
issued by the Treasury Department on October 6, 1997. The New Withholding
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Non-U.S. Persons are strongly urged
to consult their own tax advisors with respect to the New Withholding
Regulations.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer or Trustee will furnish or make available, within a
reasonable time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder, beneficial
owner, financial intermediary or other recipient of
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a payment on behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that such
person has not reported all interest and dividend income required to be shown on
its federal income tax return, 31% backup withholding may be required with
respect to any payments. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against such recipient's federal
income tax liability.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be
treated as one or more REMICs. Qualification as a REMIC requires ongoing
compliance with certain conditions. The REMIC must fulfill an asset test, which
requires that no more than a de minimis amount of the assets of the 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 issuance of the Certificates by
the REMIC (the "REMIC CERTIFICATES") and at all times thereafter, may consist of
assets other than "qualified mortgages" and "permitted investments." The REMIC
Regulations provide a "safe harbor" pursuant to which the de minimis requirement
will be met if at all times the aggregate adjusted basis of any nonqualified
assets (i.e., assets other than qualified mortgages and permitted investments)
is less than 1% of the aggregate adjusted basis of all the REMIC's assets.
Although a REMIC is not generally subject to federal income tax (see, however
"--REMICs --Taxation of Owners of REMIC Residual Certificates" and "--Prohibited
Transactions and Other Taxes" below), if a Trust Fund with respect to which a
REMIC election is made fails to comply with one or more of the ongoing
requirements of the Code for REMIC status during any taxable year, including the
implementation of restrictions on the purchase and transfer of the residual
interests in a REMIC as described below under "--REMICs -- Taxation of Owners of
REMIC Residual Certificates," the Code provides that a Trust Fund will not be
treated as a REMIC for such year and thereafter. In that event, the
classification of the REMIC for federal income tax purposes is uncertain. The
REMIC might be entitled to treatment as a grantor trust under the rules
described above under "--Grantor Trust Funds". In that case, no entity-level tax
would be imposed on the REMIC. Alternatively, the REMIC Regular Certificates may
continue to be treated as debt instruments for federal income tax purposes; but
the REMIC pool could be treated as a taxable mortgage pool (a "TMP"). If the
REMIC is treated as a TMP, any residual income of the REMIC (i.e., income from
the Mortgage Loans less interest and OID expense allocable to the REMIC Regular
Certificates and any administrative expenses of the REMIC) would be subject to
corporate income tax at the REMIC level. If such entity is taxable as a separate
corporation, the related Certificates may not be accorded the status or given
the tax treatment described below. While the Code authorizes the Treasury
Department to issue regulations providing relief in the event of an inadvertent
termination of the status of a trust fund as a REMIC, no such regulations have
been issued. Any such relief, moreover, may be accompanied by sanctions, such as
the imposition of a corporate tax on all or a portion of the REMIC's income for
the period in which the requirements for such status are not satisfied. With
respect to each Trust Fund that elects REMIC status, Andrews & Kurth L.L.P. will
deliver its opinion generally to the effect that, under then existing law and
assuming compliance with all provisions of the related Pooling and Servicing
Agreement, such Trust Fund will qualify as a REMIC, and the related Certificates
will be considered to be REMIC Regular Certificates or REMIC Residual
Certificates in the REMIC. The related Prospectus Supplement for each Series of
Certificates will indicate whether the Trust Fund will make a REMIC election and
whether a class of Certificates will be treated as a regular or residual
interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally secured
by an interest in real property and that is transferred to the REMIC within a
prescribed time period in exchange for regular or residual interests in the
REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed as a
"domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(6)(B); and (iii) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Assets held pending distribution on the REMIC Certificates will be
considered to be "real estate assets" for purposes of Code Section 856(c).
TIERED REMIC STRUCTURES. For certain Series of Certificates, two
separate elections may be made to treat designated portions of the related Trust
Fund as REMICs (respectively, the "SUBSIDIARY REMIC" and the "MASTER REMIC") for
federal income tax purposes. Upon the issuance of any such Series of
Certificates, Andrews & Kurth L.L.P., counsel to the Depositor, will deliver its
opinion generally to the effect that, assuming compliance with all provisions of
the related Agreement, the Master REMIC as well as any Subsidiary REMIC will
each qualify as a
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REMIC, and the REMIC Certificates issued by the Master REMIC and the Subsidiary
REMIC, respectively, will be considered to evidence ownership of REMIC Regular
Certificates or REMIC Residual Certificates in the related REMIC within the
meaning of the REMIC provisions.
Only REMIC Certificates, other than the residual interest in the
Subsidiary REMIC, issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC and the Master REMIC will be treated as one REMIC solely for
purposes of determining whether the REMIC Certificates will be (i)"real estate
assets" within the meaning of Section 856(c)(6)(B) of the Code; (ii) "loans
secured by an interest in real property" under Section 7701(a)(19)(C) of the
Code; and (iii) whether the income on such Certificates is interest described in
Section 856(c)(3)(B) of the Code. Moreover, the REMIC Regulations provide that,
for purposes of Code Section 856(c)(5)(A), payments of principal and interest on
the mortgage loans that are reinvested pending distribution to holders of REMIC
Certificates constitute qualifying assets for such entities. Where two REMIC
Pools are part of a tiered structure they will be treated as one REMIC for
purposes of the test described above respecting asset ownership of more or less
than 95%. Notwithstanding the foregoing, however, REMIC income received by a
real estate investment trust ("REIT") owning a residual interest in a REMIC
could be treated in part as non-qualifying REIT income if the REMIC holds
mortgage loans with respect to which income is contingent on mortgagor profits
or property appreciation. In addition, if the assets of the REMIC include
buy-own mortgage loans, it is possible that the percentage of such assets
constituting "qualifying real property loans" or "loans . . . secured by an
interest in real property" for purposes of Code Section 7701(a)(19)(C)(v), may
be required to be reduced by the amount of the related buy-down funds. REMIC
Certificates held by a regulated investment company will not constitute
"government securities" within the meaning of Code Section 851(b)(4)(A)(i).
REMIC Certificates held by certain financial institutions will constitute an
"evidence of indebtedness" within the meaning of Code Section 582(c)(1).
However, REMIC Regular Certificates acquired by another REMIC on its Startup Day
in exchange for regular or residual interests in the REMIC will constitute
"qualified mortgages" within the meaning of Code Section 860G(a)(3).
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
GENERAL. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt instruments
issued by the REMIC and not as ownership interests in the REMIC or its assets.
In general, interest and OID on a REMIC Regular Certificate will be treated as
ordinary income to a holder of the REMIC Regular Certificate (a "REMIC REGULAR
CERTIFICATEHOLDER") as they accrue, and principal payments on a REMIC Regular
Certificate will be treated as a return of capital to the extent of the REMIC
Regular Certificateholder's basis in the REMIC Regular Certificate allocable
thereto. Moreover, holders of REMIC Regular Certificates that otherwise report
income under a cash method of accounting will be required to report income with
respect to REMIC Regular Certificates under an accrual method.
ORIGINAL ISSUE DISCOUNT AND PREMIUM. The REMIC Regular Certificates may
be issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular Certificate
and its "issue price." Holders of any class of Certificates issued with OID will
be required to include such OID in gross income for federal income tax purposes
as it accrues, in accordance with a constant interest method based on the
compounding of interest as it accrues rather than in accordance with receipt of
the interest payments. The following discussion is based in part on the OID
Regulations and in part on the provisions of the 1986 Act. REMIC Regular
Certificateholders should be aware, however, that the OID Regulations do not
adequately address certain issues relevant to prepayable securities, such as the
REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273
and 1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative History
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such REMIC Regular Certificates. The Prospectus
Supplement for each Series of REMIC Regular Certificates will specify the
Prepayment Assumption to be used for the purpose of determining the amount and
rate of accrual of OID. No representation is made that the REMIC Regular
Certificates will prepay at the Prepayment Assumption or at any other rate.
Moreover, the OID Regulations include an anti-abuse rule allowing the IRS 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
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discussion herein and the appropriate method for reporting interest and original
issue discount with respect to the REMIC Regular Certificates.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price of
a REMIC Regular Certificate is the first price at which a substantial amount of
REMIC Regular Certificates of that class are first sold to the public (excluding
bond houses, brokers, underwriters or wholesalers). If less than a substantial
amount of a particular class of REMIC Regular Certificates is sold for cash on
or prior to the date of their initial issuance (the "CLOSING DATE"), the issue
price for such class will be treated as the fair market value of such class on
the Closing Date. The issue price of a REMIC Regular Certificate also includes
the amount paid by an initial Certificateholder for accrued interest that
relates to a period prior to the issue date of the REMIC Regular Certificate.
The stated redemption price at maturity of a REMIC Regular Certificate includes
the original principal amount of the REMIC Regular Certificate, but generally
will not include distributions of interest if such distributions constitute
"qualified stated interest." Qualified stated interest generally means interest
payable at a single fixed rate or qualified variable rate (as described below)
provided that such interest payments are unconditionally payable at intervals of
one year or less during the entire term of the REMIC Regular Certificate.
Interest is payable at a single fixed rate only if the rate appropriately takes
into account the length of the interval between payments. Distributions of
interest on REMIC Regular Certificates with respect to which Deferred Interest
will accrue will not constitute qualified stated interest payments, and the
stated redemption price at maturity of such REMIC Regular Certificates includes
all distributions of interest as well as principal thereon.
Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is longer than the interval between
subsequent Distribution Dates, the greater of any OID (disregarding the rate in
the first period) and any interest foregone during the first period is treated
as the amount by which the stated redemption price at maturity of the
Certificate exceeds its issue price for purposes of the DE MINIMIS rule
described below. The OID Regulations suggest that all interest on a long first
period REMIC Regular Certificate that is issued with non-DE MINIMIS OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first Distribution Date on a REMIC Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
interest due on the first Distribution Date in excess of the amount that accrued
during the first period would be added to the Certificates, stated redemption
price at maturity. REMIC Regular Certificateholders should consult their own tax
advisors to determine the issue price and stated redemption price at maturity of
a REMIC Regular Certificate.
Under the DE MINIMIS rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until 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 REMIC Regular Certificate and the
denominator of which is the stated redemption price at maturity of the REMIC
Regular Certificate. Although currently unclear, it appears that the schedule of
such distributions should be determined in accordance with the Prepayment
Assumption. The Prepayment Assumption with respect to a Series of REMIC Regular
Certificates will be set forth in the related Prospectus Supplement. Holders
generally must report DE MINIMIS OID pro rata as principal payments are
received, and such income will be capital gain if the REMIC Regular Certificate
is held as a capital asset. However, accrual method holders may elect to accrue
all DE MINIMIS OID as well as market discount under a constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"SUPER-PREMIUM CERTIFICATES"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be issued
with OID. The calculation of income in this manner could result in negative OID
(which delays future accruals of OID rather than being immediately deductible)
when prepayments on the Mortgage Assets exceed those estimated under the
Prepayment Assumption. If the Super Premium Certificates were treated as
contingent payment obligations, it is unclear how holders of those Certificates
would report income or recover their basis. The OID Regulations, as they relate
to the treatment of contingent interest, are by their terms not applicable to
Regular Certificates. However, if final regulations dealing with contingent
interest with respect to Regular Certificates apply the same principles as the
OID Regulations, such regulations may lead to different timing of income
inclusion and different characterization of any gain on the sale of a
Super-Premium Certificate than discussed above. In the alternative, the IRS
could assert that the stated
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redemption price at maturity of such REMIC Regular Certificates should be
limited to their principal amount (subject to the discussion below under
"--REMICs -- Taxation of Owners of REMIC Regular Certificates -- Accrued
Interest Certificates"), so that such REMIC Regular Certificates would be
considered for federal income tax purposes to be issued at a premium. If such a
position were to prevail, the rules described below under "--REMICs -- Taxation
of Owners of REMIC Regular Certificates -- Premium" would apply. It is unclear
when a loss may be claimed for any unrecovered basis for a Super-Premium
Certificate. It is possible that a holder of a Super-Premium Certificate may
only claim a loss when its remaining basis exceeds the maximum amount of future
payments, assuming no further prepayments or when the final payment is received
with respect to such Super-Premium Certificate. Investors should consult their
tax advisors regarding the appropriate treatment of Super-Premium Certificates.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than a REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Premium" should apply. However, it is possible that holders of
REMIC Regular Certificates issued at a premium, even if the premium is less than
25% of such Certificate's actual principal balance, will be required to amortize
the premium under an OID method or contingent interest method even though no
election under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on a
REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the disposition
date. In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on the
first day or first business day of the immediately preceding month, interest may
be treated as payable on the last day of the immediately preceding month) and
begins on the day after the end of the immediately preceding accrual period (or
on the issue date in the case of the first accrual period). This will be done,
in the case of each full accrual period, by (i) adding (a) the present value at
the end of the accrual period (determined by using as a discount factor the
original yield to maturity of the REMIC Regular Certificates as calculated under
the Prepayment Assumption) of all remaining payments to be received on the REMIC
Regular Certificates under the Prepayment Assumption and (b) any payments
included in the stated redemption price at maturity received during such accrual
period, and (ii) subtracting from that total the adjusted issue price of the
REMIC Regular Certificates at the beginning of such accrual period. The adjusted
issue price of a REMIC Regular Certificate at the beginning of the first accrual
period is its issue price; the adjusted issue price of a REMIC Regular
Certificate at the beginning of a subsequent accrual period is the adjusted
issue price at the beginning of the immediately preceding accrual period plus
the amount of OID allocable to that accrual period and reduced by the amount of
any payment other than a payment of qualified stated interest made at the end of
or during that accrual period. The OID accrued during an accrual period will
then be divided by the number of days in the period to determine the daily
portion of OID for each day in the accrual period. The calculation of OID under
the method described above will cause the accrual of OID to either increase or
decrease (but never below zero) in a given accrual period to reflect the fact
that prepayments are occurring faster or slower than under the Prepayment
Assumption. With respect to an initial accrual period shorter than a full
accrual period, the daily portions of OID may be determined according to an
appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue price
but less than the stated redemption price at maturity), however, the daily
portion is reduced by the amount that would be the daily portion for such day
(computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for that
REMIC Regular Certificate for all days beginning on the date after the purchase
date and ending on the maturity date computed under the Prepayment Assumption. A
holder who pays an acquisition premium instead may elect to accrue OID by
treating the purchase as a purchase at original issue.
VARIABLE RATE REMIC REGULAR CERTIFICATES. REMIC Regular Certificates
may provide for interest based on a variable rate. Interest based on a variable
rate will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does
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not exceed the total non-contingent principal payments and (iii) interest is
based on a "qualified floating rate," an "objective rate," a combination of a
single fixed rate and one or more "qualified floating rates," one "qualified
inverse floating rate," or a combination of "qualified floating rates" that do
not operate in a manner that significantly accelerates or defers interest
payments on such REMIC Regular Certificate.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--REMICs -- Taxation of Owners of REMIC Regular Certificates --Original Issue
Discount and Premium" by assuming generally that the index used for the variable
rate will remain fixed throughout the term of the Certificate. Appropriate
adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on
a REMIC Regular Certificate that is a weighted average of the net interest rates
on Mortgage Loans as qualified stated interest.
In such case, the weighted average rate used to compute the initial
pass-through rate on the REMIC Regular Certificates will be deemed to be the
index in effect through the life of the REMIC Regular Certificates. It is
possible, however, that the IRS may treat some or all of the interest on REMIC
Regular Certificates with a weighted average rate as taxable under the rules
relating to obligations providing for contingent payments. Such treatment may
effect the timing of income accruals on such REMIC Regular Certificates.
ELECTION TO TREAT ALL INTEREST AS OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including DE
MINIMIS market or OID) and premium in income as interest, based on a constant
yield method. If such an election were to be made with respect to a REMIC
Regular Certificate with market discount, the Certificateholder would be deemed
to have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "--REMICs -- Taxation
of Owners of REMIC Regular Certificates -- Premium" below. The election to
accrue interest, discount and premium on a constant yield method with respect to
a Certificate is irrevocable except with the approval of the IRS.
MARKET DISCOUNT. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such certificate's
stated redemption price at maturity. In particular, under Section 1276 of the
Code such a holder generally will be required to allocate each such distribution
first to accrued market discount not previously included in income, and to
recognize ordinary income to that extent, regardless of whether the holder is a
cash-basis or an accrual basis taxpayer. A Certificateholder may elect to
include market discount in income currently as it accrues rather than including
it on a deferred basis in accordance with the foregoing. If made, such election
will apply to all market discount bonds acquired by such Certificateholder on or
after the first day of the first taxable year to which such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
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The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at the
beginning of the period. For REMIC Regular Certificates issued without OID, the
amount of market discount that accrues during a period is equal to the product
of (a) the total remaining market discount and (b) a fraction, the numerator of
which is the amount of stated interest paid during the accrual period and the
denominator of which is the total amount of stated interest remaining to be paid
at the beginning of the period. For purposes of calculating market discount
under any of the above methods in the case of instruments (such as the REMIC
Regular Certificates) that provide for payments that may be accelerated by
reason of prepayments of other obligations securing such instruments, the same
Prepayment Assumption applicable to calculating the accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of the excess of the interest paid or
incurred for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry such Certificate purchased with market discount
over the interest distributable thereon. For these purposes, the DE MINIMIS rule
referred to above applies. Any such deferred excess interest expense would not
exceed the market discount that accrues during such taxable year and is, in
general, allowed as a deduction not later than the year in which such market
discount is includible in income. The amount of any remaining deferred deduction
is to be taken into account in the taxable year in which the Certificate matures
or is disposed of in a taxable transaction. In the case of a disposition in
which gain or loss is not recognized in whole or in part, any remaining deferred
deduction will be allowed to the extent of gain recognized on the disposition.
If such holder elects to include market discount in income currently as it
accrues on all market discount instruments acquired by such holder in that
taxable year or thereafter, the interest deferral rule described above will not
apply.
PREMIUM. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will be
considered to have purchased the REMIC Regular Certificate at a premium and may
elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired at
a premium will be deemed to have made an election to amortize bond premium with
respect to all debt instruments having amortizable bond premium that such
Certificateholder holds during the year of the election or thereafter. It is not
clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose. However,
the Legislative History states that the same rules that apply to accrual of
market discount (which rules require use of a Prepayment Assumption in accruing
market discount with respect to REMIC Regular Certificates without regard to
whether such Certificates have OID) will also apply in amortizing bond premium
under Code Section 171. The Code provides that amortizable bond premium will be
allocated among the interest payments on such REMIC Regular Certificates and
will be applied as an offset against such interest payment.
DEFERRED INTEREST. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all or
a portion of the interest payable on such Certificates must be included in the
stated redemption price at maturity of the Certificates and accounted for as OID
(which could accelerate such inclusion). Interest on REMIC Regular Certificates
must in any event be accounted for under an accrual method by the holders of
such Certificates and, therefore, applying the latter analysis may result only
in a slight difference in the timing of the inclusion in income of interest on
such REMIC Regular Certificates.
EFFECTS OF DEFAULTS AND DELINQUENCIES. Certain Series of Certificates
may contain one or more classes of Subordinated Certificates, and in the event
there are defaults or delinquencies on the Mortgage Assets, amounts that would
otherwise be distributed on the Subordinated Certificates may instead be
distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such Certificates
under an accrual method without giving effect to delays and reductions in
distributions on such Subordinated Certificates attributable to defaults and
delinquencies on the Mortgage Assets, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of defaults
and delinquencies on the Mortgage Assets.
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Timing and characterization of such losses is discussed in "--REMICs -- Taxation
of Owners of REMIC Regular Certificates -- Treatment of Realized Losses" below.
SALE, EXCHANGE OR REDEMPTION. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption, or
retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption price
at maturity previously received by the seller and by any amortized premium.
Similarly, a holder who receives a payment that is part of the stated redemption
price at maturity of a REMIC Regular Certificate will recognize gain equal to
the excess, if any, of the amount of the payment over the holder's adjusted
basis in the REMIC Regular Certificate. A REMIC Regular Certificateholder who
receives a final payment that is less than the holder's adjusted basis in the
REMIC Regular Certificate will generally recognize a loss. Except as provided in
the following paragraph and as provided under "--REMICs -- Taxation of Owners of
REMIC Regular Certificates --Market Discount" above, any such gain or loss will
be capital gain or loss, provided that the REMIC Regular Certificate is held as
a "capital asset" (generally, property held for investment) within the meaning
of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income (i) if a
REMIC Regular Certificate is held as part of a "conversion transaction" as
defined in Code Section 1258(c), up to the amount of interest that would have
accrued on the REMIC Regular Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate under
Code Section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction,
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxes as
investment income at ordinary income rates, or (iii) in the case of a REMIC
Regular Certificate.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
Section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC may
not have, it appears that the information reports will only require information
pertaining to the appropriate proportionate method of accruing market discount.
ACCRUED INTEREST CERTIFICATES. Certain of the REMIC Regular
Certificates ("PAYMENT LAG CERTIFICATES") may provide for payments of interest
based on a period that corresponds to the interval between Distribution Dates
but that ends prior to each such Distribution Date. The period between the
Closing Date for Payment Lag Certificates and their first Distribution Date may
or may not exceed such interval. Purchasers of Payment Lag Certificates for
which the period between the Closing Date and the first Distribution Date does
not exceed such interval could pay upon purchase of the REMIC Regular
Certificates accrued interest in excess of the accrued interest that would be
paid if the interest paid on the Distribution Date were interest accrued from
Distribution Date to Distribution Date. If a portion of the initial purchase
price of a REMIC Regular Certificate is allocable to interest that has accrued
prior to the issue date ("pre-issuance accrued interest") and the REMIC Regular
Certificate provides for a payment of stated interest on the first payment date
(and the first payment date is within one year of the issue date) that equals or
exceeds the amount of the pre-issuance accrued interest, then the REMIC Regular
Certificates' issue price may be computed by subtracting from the issue price
the amount of pre-issuance accrued interest, rather than as an amount payable on
the REMIC Regular Certificate. However, it is unclear under this method how the
OID Regulations treat interest on Payment Lag Certificates. Therefore, in the
case of a Payment Lag Certificate, the Trust Fund intends to include accrued
interest in the issue price and report interest payments made on the first
Distribution Date as interest to the extent such payments represent interest for
the number of days that the Certificateholder has held such Payment Lag
Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the
treatment for federal income tax purposes of Payment Lag Certificates.
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NON-INTEREST EXPENSES OF THE REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will be
allocated as a separate item to those REMIC Regular Certificateholders that are
"pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of these
rules on an investment in the REMIC Regular Certificates. See "--REMICs --
Taxation of Owners of REMIC Residual Certificates -- Pass-Through of
Non-Interest Expenses of the REMIC" below.
TREATMENT OF REALIZED LOSSES. Although not entirely clear, it appears
that holders of REMIC Regular Certificates that are corporations should in
general be allowed to deduct as an ordinary loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly or partially
worthless, and that, in general, holders of Certificates that are not
corporations should be allowed to deduct as a short-term capital loss any loss
sustained during the taxable year on account of any such Certificates becoming
wholly worthless. Although the matter is not entirely clear, non-corporate
holders of Certificates may be allowed a bad debt deduction at such time that
the principal balance of any such Certificate is reduced to reflect realized
losses resulting from any liquidated Mortgage Assets. The Internal Revenue
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect realized losses only after all Mortgage
Assets remaining in the related Trust Fund have been liquidated or the
Certificates of the related Series have been otherwise retired. Potential
investors and holders of the Certificates are urged to consult their own tax
advisors regarding the appropriate timing, amount and character of any loss
sustained with respect to such Certificates, including any loss resulting from
the failure to recover previously accrued interest or discount income. 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 Certificates.
NON-U.S. PERSONS. Generally, payments of interest (including any
payment with respect to accrued OID) on the REMIC Regular Certificates to a
REMIC Regular Certificateholder who is not a U.S. Person and is not engaged in a
trade or business within the United States will not be subject to federal
withholding tax if (i) such REMIC Regular Certificateholder does not actually or
constructively own 10 percent or more of the combined voting power of all
classes of equity in the Issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the Issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding, distributions of
interest to such holder, including distributions in respect of accrued OID, may
be subject to a 30% withholding tax, subject to reduction under any applicable
tax treaty.
Further, a REMIC Regular Certificate will not be included in the estate
of a non-resident alien individual and will not be subject to United States
estate taxes. However, Certificateholders who are non-resident alien individuals
should consult their tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC RESIDUAL CERTIFICATEHOLDER")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
Final regulations dealing with withholding tax on income paid to
foreign persons and related matters (the "New Withholding Regulations") were
issued by the Treasury Department on October 6, 1997. The New Withholding
Regulations will generally be effective for payments made after December 31,
1998, subject to certain transition rules. Non-U.S. Persons are strongly urged
to consult their own tax advisors with respect to the New Withholding
Regulations.
INFORMATION REPORTING AND BACKUP WITHHOLDING. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income tax
returns, or to enable holders to make such information available to beneficial
owners or financial intermediaries that hold such REMIC Regular Certificates on
behalf of beneficial owners. If a holder, beneficial owner, financial
intermediary or other recipient of a payment on behalf of a beneficial owner
fails to supply a certified taxpayer identification number or if the Secretary
of the Treasury determines that such person has not reported all interest and
dividend income required to be shown on its federal income tax return, 31%
backup withholding may be required with respect to any payments. Any amounts
deducted and withheld from a distribution to a recipient would be allowed as a
credit against such recipient's federal income tax liability.
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B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
ALLOCATION OF THE INCOME OF THE REMIC TO THE REMIC RESIDUAL
CERTIFICATES. The REMIC will not be subject to federal income tax except with
respect to income from prohibited transactions and certain other transactions.
See "--Prohibited Transactions and Other Taxes" below. Instead, each original
holder of a REMIC Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined by
allocating the taxable income of the REMIC for each calendar quarter ratably to
each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder.
Investors should consult their own tax advisors concerning the federal income
tax treatment of a REMIC Residual Certificate and the impact of such tax
treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder owns
such REMIC Residual Certificate. Those daily amounts generally would equal the
amounts that would have been reported for the same days by an original REMIC
Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that purchased
such REMIC Residual Certificate at a price greater than (or less than) the
adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder. See "--REMICs -- Taxation of Owners
of REMIC Residual Certificates -- Sale or Exchange of REMIC Residual
Certificates" below. It is not clear, however, whether such adjustments will in
fact be permitted or required and, if so, how they would be made. The REMIC
Regulations do not provide for any such adjustments.
TAXABLE INCOME OF THE REMIC ATTRIBUTABLE TO RESIDUAL INTERESTS. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Non-Interest Expenses of the REMIC," other expenses. REMIC
taxable income is generally determined in the same manner as the taxable income
of an individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses for the
production of income do not apply, (ii) all bad loans will be deductible as
business bad debts, and (iii) the limitation on the deductibility of interest
and expenses related to tax-exempt income will apply. The REMIC's gross income
includes interest, OID income, and market discount income, if any, on the
Mortgage Loans, reduced by amortization of any premium on the Mortgage Loans,
plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
REMIC Regular Certificates. Note that the timing of cancellation of indebtedness
income recognized by REMIC Residual Certificate- holders resulting from defaults
and delinquencies on Mortgage Assets may differ from the time of the actual loss
on the Mortgage Asset. The REMIC's deductions include interest and OID expense
on the REMIC Regular Certificates, servicing fees on the Mortgage Loans, other
administrative expenses of the REMIC and realized losses on the Mortgage Loans.
The requirement that REMIC Residual Certificateholders report their pro rata
share of taxable income or net loss of the REMIC will continue until there are
no Certificates of any class of the related Series outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the
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Mortgage Assets and other assets of the REMIC in proportion to their respective
fair market value. A Mortgage Asset will be deemed to have been acquired with
discount or premium to the extent that the REMIC's basis therein is less than or
greater than its principal balance, respectively. Any such discount (whether
market discount or OID) will be includible in the income of the REMIC as it
accrues, in advance of receipt of the cash attributable to such income, under a
method similar to the method described above for accruing OID on the REMIC
Regular Certificates. The REMIC expects to elect under Code Section 171 to
amortize any premium on the Mortgage Assets. Premium on any Mortgage Asset to
which such election applies would be amortized under a constant yield method. It
is not clear whether the yield of a Mortgage Asset would be calculated for this
purpose based on scheduled payments or taking account of the Prepayment
Assumption. Additionally, such an election would not apply to the yield with
respect to any underlying mortgage loan originated on or before September 27,
1985. Instead, premium with respect to such a mortgage loan would be allocated
among the principal payments thereon and would be deductible by the REMIC as
those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be calculated
for this purpose in the same manner as described above with respect to REMIC
Regular Certificates except that the 0.25% per annum DE MINIMIS rule and
adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize
the cost of the REMIC Residual Certificate as an offset to its share of the
REMIC's taxable income. However, REMIC taxable income will not include cash
received by the REMIC that represents a recovery of the REMIC's basis in its
assets, and, as described above, the issue price of the REMIC Residual
Certificates will be added to the issue price of the REMIC Regular Certificates
in determining the REMIC's initial basis in its assets. See "--REMICs --
Taxation of Owners of REMIC Residual Certificates -- Sale or Exchange of REMIC
Residual Certificates" below. For a discussion of possible adjustments to income
of a subsequent holder of a REMIC Residual Certificate to reflect any difference
between the actual cost of such REMIC Residual Certificate to such holder and
the adjusted basis such REMIC Residual Certificate would have in the hands of an
original REMIC Residual Certificateholder, see "--REMICs -- Taxation of Owners
of REMIC Residual Certificates -- Allocation of the Income of the REMIC to the
REMIC Residual Certificates" above.
NET LOSSES OF THE REMIC. The REMIC will have a net loss for any
calendar quarter in which its deductions exceed its gross income. Such net loss
would be allocated among the REMIC Residual Certificateholders in the same
manner as the REMIC's taxable income. The net loss allocable to any REMIC
Residual Certificate will not be deductible by the holder to the extent that
such net loss exceeds such holder's adjusted basis in such REMIC Residual
Certificate. Any net loss that is not currently deductible by reason of this
limitation may only be used by such REMIC Residual Certificateholder to offset
its share of the REMIC's taxable income in future periods (but not otherwise).
The ability of REMIC Residual Certificateholders that are individuals or closely
held corporations to deduct net losses may be subject to additional limitations
under the Code.
MARK TO MARKET RULES. A REMIC Residual Certificate acquired after
January 3, 1995 cannot be marked-to- market.
PASS-THROUGH OF NON-INTEREST EXPENSES OF THE REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders of
the REMIC Residual Certificates. In the case of a single class REMIC, however,
the expenses and a matching amount of additional income will be allocated, under
temporary Treasury regulations, among the REMIC Regular Certificateholders and
the REMIC Residual Certificateholders on a daily basis in proportion to the
relative amounts of income accruing to each Certificateholder on that day. In
general terms, a single class REMIC is one that either (i) would qualify, under
existing Treasury regulations, as a grantor trust if it were not a REMIC
(treating all interests as ownership interests, even if they would be classified
as debt for federal income tax purposes) or (ii) is similar to such a trust and
is structured with the principal purpose of avoiding the single class REMIC
rules. Unless otherwise stated in the applicable Prospectus Supplement, the
expenses of the REMIC will be allocated to holders of the related REMIC Residual
Certificates in their entirety and not to holders of the related REMIC Regular
Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in a
REMIC Regular Certificate or a REMIC Residual Certificate directly or through a
pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g., a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the
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"APPLICABLE AMOUNT") will be reduced by the lesser of (i) 3% of the excess of
the individual's adjusted gross income over the Applicable Amount or (ii) 80% of
the amount of itemized deductions otherwise allowable for the taxable year. The
amount of additional taxable income recognized by REMIC Residual
Certificateholders who are subject to the limitations of either Code Section 67
or Code Section 68 may be substantial. Further, holders (other than
corporations) subject to the alternative minimum tax may not deduct
miscellaneous itemized deductions in determining such holders' alternative
minimum taxable income. The REMIC is required to report to each pass-through
interest holder and to the IRS such holder's allocable share, if any, of the
REMIC's non-interest expenses. The term "pass-through interest holder" generally
refers to individuals, entities taxed as individuals and certain pass-through
entities, but does not include real estate investment trusts. REMIC Residual
Certificateholders that are pass-through interest holders should consult their
own tax advisors about the impact of these rules on an investment in the REMIC
Residual Certificates.
EXCESS INCLUSIONS. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any calendar
quarter will be subject to federal income tax in all events. Thus, for example,
an excess inclusion (i) may not be offset by any unrelated losses, deductions or
loss carryovers of a REMIC Residual Certificateholder; (ii) will be treated as
"unrelated business taxable income" within the meaning of Code Section 512 if
the REMIC Residual Certificateholder is a pension fund or any other organization
that is subject to tax only on its unrelated business taxable income (see
"--Tax-Exempt Investors" below); and (iii) is not eligible for any reduction in
the rate of withholding tax in the case of a REMIC Residual Certificateholder
that is a foreign investor. See "--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar quarter
is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days during
the calendar quarter on which the REMIC Residual Certificateholder holds such
REMIC Residual Certificate. For this purpose, the daily accruals with respect to
a REMIC Residual Certificate are determined by allocating to each day in the
calendar quarter its ratable portion of the product of the "adjusted issue
price" (as defined below) of the REMIC Residual Certificate at the beginning of
the calendar quarter and 120 percent of the "Federal long-term rate" in effect
at the time the REMIC Residual Certificate is issued. For this purpose, the
"adjusted issue price" of a REMIC Residual Certificate at the beginning of any
calendar quarter equals the issue price of the REMIC Residual Certificate,
increased by the amount of daily accruals for all prior quarters, and decreased
(but not below zero) by the aggregate amount of payments made on the REMIC
Residual Certificate before the beginning of such quarter. The "federal
long-term rate" is an average of current yields on Treasury securities with a
remaining term of greater than nine years, computed and published monthly by the
IRS.
As an exception to the general rule described above, the Treasury
Department has authority to issue regulations that would treat the entire amount
of income accruing on a REMIC Residual Certificate as excess inclusions if the
REMIC Residual Certificates in the aggregate are considered not to have
"significant value." The Small Business Job Protection Act ("SBJPA") of 1996 has
eliminated the special rule permitting Section 593 institutions ("THRIFT
INSTITUTIONS") to use net operating losses and other allowable deductions to
offset their excess inclusion income from REMIC Residual Certificates that have
"significant value" within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to REMIC
Residual Certificates continuously held by thrift institutions since November 1,
1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a REMIC
Residual Certificateholder. First, alternative minimum taxable income for a
REMIC Residual Certificateholder is determined without regard to the special
rule, discussed above, that taxable income cannot be less than excess
inclusions. Second, a REMIC Residual Certificateholder's alternative minimum
taxable income for a taxable year cannot be less than the excess inclusions for
the year. Third, the amount of any alternative minimum tax net operating loss
deduction must be computed without regard to any excess inclusions. These rules
are effective for taxable years beginning after December 31, 1986, unless a
REMIC Residual Certificateholder elects to have such rules apply only to taxable
years beginning after August 20, 1996.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
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PAYMENTS. Any distribution made on a REMIC Residual Certificate to a
REMIC Residual Certificateholder will be treated as a non-taxable return of
capital to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
exceeds such adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
SALE OR EXCHANGE OF REMIC RESIDUAL CERTIFICATES. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or exchange
and its adjusted basis in the REMIC Residual Certificate (except that the
recognition of loss may be limited under the "wash sale" rules described below).
A holder's adjusted basis in a REMIC Residual Certificate generally equals the
cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC Residual
Certificates will be "evidences of indebtedness" within the meaning of Code
Section 582(c)(1), so that gain or loss recognized from sale of a REMIC Residual
Certificate by a bank or thrift institution to which such Section applies would
be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool" (as
defined in Code Section 7701(i)) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject to
the "wash sale" rules of Code Section 1091. In that event, any loss realized by
the REMIC Residual Certificateholder on the sale will not be deductible, but,
instead, will increase such REMIC Residual Certificateholder's adjusted basis in
the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income
derived from "prohibited transactions" (the "PROHIBITED TRANSACTIONS TAX"). In
general, subject to certain specified exceptions, a prohibited transaction means
the disposition of a Mortgage Asset, the receipt of income from a source other
than a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day on
which such Trust Fund issues all of its interests could result in the imposition
of a tax on the Trust Fund equal to 100% of the value of the contributed
property (the "CONTRIBUTIONS TAX"). No Trust Fund for any Series of Certificates
will accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to
treat such Trust Fund as a REMIC may also 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. "Net
income from foreclosure property" generally means income from foreclosure
property other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Master Servicer's, Trustee's or
Seller's obligations, as the case may be, under the related Agreement for such
Series, such tax will be borne by such Master Servicer, Trustee or Seller, as
the case may be, out of its own funds or (ii) the Seller's obligation to
repurchase a Mortgage Loan, such tax will be borne by the Seller. In the event
that such Master Servicer, Trustee or Seller, as the case may be, fails to pay
or is not required to pay any such tax as provided above, such tax will be
payable out of the Trust Fund for such Series and will result in a reduction in
amounts available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the 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
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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 subject to any Prohibited
Transaction Tax, provided that the REMIC credits or distributes in liquidation
all of the sale proceeds plus its cash (other than the amounts retained to meet
claims) to holders of Regular and REMIC Residual Certificates within the 90-day
period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code,
the REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the REMIC
Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting an
administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--REMICs -- Taxation of
Owners of REMIC Residual Certificates -- Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS TO NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--REMICs --Taxation of Owners of REMIC Regular Certificates --
Non-U.S. Persons" above) are treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Amounts distributed to holders
of REMIC Residual Certificates should qualify as "portfolio interest," subject
to the conditions described in "--REMICs -- Taxation of Owners of REMIC Regular
Certificates" above, but only to the extent that the underlying mortgage loans
were originated after July 18, 1984. Furthermore, the rate of withholding on any
income on a REMIC Residual Certificate that is excess inclusion income will not
be subject to reduction under any applicable tax treaties. See "--REMICs --
Taxation of Owners of REMIC Residual Certificates -- Excess Inclusions" above.
If the portfolio interest exemption is unavailable, such amount will be subject
to United States withholding tax when paid or otherwise distributed (or when the
REMIC Residual Certificate is disposed of) under rules similar to those for
withholding upon disposition of debt instruments that have OID. The Code,
however, grants the Treasury Department authority to issue regulations requiring
that those amounts be taken into account earlier than otherwise provided where
necessary to prevent avoidance of tax (for example, where the REMIC Residual
Certificates do not have significant value). See "--REMICs -- Taxation of Owners
of REMIC Residual Certificates -- Excess Inclusions" above. If the amounts paid
to REMIC Residual Certificateholders that are not U.S. persons are effectively
connected with their conduct of a trade or business within the United States,
the 30% (or lower treaty rate) withholding will not apply. Instead, the amounts
paid to such non-U.S. Person will be subject to U.S. federal income taxation at
regular graduated rates. For special restrictions on the transfer of REMIC
Residual Certificates, see "--Tax-Related Restrictions on Transfers of REMIC
Residual Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax
consequences of such acquisition.
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TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
DISQUALIFIED ORGANIZATIONS. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to a
"disqualified organization." The amount of the tax equals the product of (A) an
amount (as determined under the REMIC Regulations) equal to the present value of
the total anticipated "excess inclusions" with respect to such interest for
periods after the transfer and (B) the highest marginal federal income tax rate
applicable to corporations. The tax is imposed on the transferor unless the
transfer is through an agent (including a broker or other middleman) for a
disqualified organization, in which event the tax is imposed on the agent. The
person otherwise liable for the tax shall be relieved of liability for the tax
if the transferee furnished to such person an affidavit that the transferee is
not a disqualified organization and, at the time of the transfer, such person
does not have actual knowledge that the affidavit is false. A "disqualified
organization" means (A) the United States, any State, possession or political
subdivision thereof, any foreign government, any international organization or
any agency or instrumentality of any of the foregoing (provided that such term
does not include an instrumentality if all its activities are subject to tax
and, except for FHLMC, a majority of its board of directors is not selected by
any such governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding
a residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization is
the record holder of an interest in such entity, will be relieved of liability
for the tax if such record holder furnishes to such entity an affidavit that
such record holder is not a disqualified organization and, for such period, the
pass-through entity does not have actual knowledge that the affidavit is false.
For this purpose, a "pass-through entity" means (i) a regulated investment
company, real estate investment trust or common trust fund, (ii) a partnership,
trust or estate and (iii) certain cooperatives. Except as may be provided in
Treasury regulations not yet issued, any person holding an interest in a
pass-through entity as a nominee for another will, with respect to such
interest, be treated as a pass-through entity.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate as
a nominee or agent for a disqualified organization and (ii) a covenant by the
proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
For taxable years beginning after December 31, 1997, if an "electing
large partnership" holds a REMIC Residual Certificate, all interests in the
electing large partnership are treated as held by disqualified organizations for
purposes of the tax imposed upon a pass-through entity by section 860(E)(e) of
the Code. An exception to this tax, otherwise available to a pass-through entity
that is furnished certain affidavits by record holders of interests in the
entity that does not know such affidavits are false, is not available to an
electing large partnership. An "electing large partnership" is a partnership
that had 100 or more partners during the preceding taxable year and that has
filed an election with the Internal Revenue Service to be so treated.
NONECONOMIC REMIC RESIDUAL CERTIFICATES. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a Noneconomic REMIC
Residual Certificate to a "U.S. Person," as defined above, unless no significant
purpose of the transfer is to enable the transferor to impede the assessment or
collection of tax. A Noneconomic REMIC Residual Certificate is any REMIC
Residual Certificate (including a REMIC Residual Certificate with a positive
value at issuance) unless, at the time of transfer, taking into account the
Prepayment Assumption and any required or permitted clean up calls or required
liquidation provided for in the REMIC's organizational documents, (i) the
present value of the expected future distributions on the REMIC Residual
Certificate at least equals the product of the present value of the anticipated
excess inclusions and the highest corporate income tax rate in effect for the
year in which the transfer occurs and (ii) the transferor reasonably expects
that the transferee will receive distributions from the REMIC at or after the
time at which taxes accrue on the anticipated excess inclusions in an amount
sufficient to satisfy the accrued taxes. A significant purpose to impede the
assessment or collection of tax exists if the transferor, at the time of the
transfer, either knew or should have known that the transferee would be
unwilling or unable to pay taxes
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due on its share of the taxable income of the REMIC. A transferor is presumed
not to have such knowledge if (i) the transferor conducted a reasonable
investigation of the transferee and (ii) the transferee acknowledges to the
transferor that the residual interest may generate tax liabilities in excess of
the cash flow and the transferee represents that it intends to pay such taxes
associated with the residual interest as they become due. If a transfer of a
Noneconomic REMIC Residual Certificate is disregarded, the transferor would
continue to be treated as the owner of the REMIC Residual Certificate and would
continue to be subject to tax on its allocable portion of the net income of the
REMIC. The Agreement will require the transferee of a REMIC Residual Certificate
to state as part of the affidavit described above under "--Tax-Related
Restrictions on Transfers of REMIC Residual Certificates--Disqualified
Organizations" that such transferee (i) has historically paid its debts as they
come due, (ii) intends to continue to pay its debts as they come due in the
future; (iii) understands that, as the holder of a noneconomic REMIC Residual
Certificate, it may incur tax liabilities in excess of any cash flows generated
by the REMIC Residual Certificate as they become due. The transferor must have
no reason to believe that such statement is untrue.
FOREIGN INVESTORS. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United States trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and the
foreign transferor will continue to be treated as the owner, if the transfer has
the effect of allowing the transferor to avoid tax on accrued excess inclusions.
The Agreement will provide that no record of beneficial ownership interest in a
REMIC Residual Certificate may be transferred, directly or indirectly, to a
non-U.S. Person unless such person provides the Trustee with a duly completed
I.R.S. Form 4224 and the Trustee consents to such transfer in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in REMIC Residual Certificates are advised to
consult their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a
pass-through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in
"Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans subject to
ERISA and on any entity whose underlying assets include assets of such a plan by
reason of any such plan's investment in the entity ("ERISA PLANS") and on
persons who are parties in interest or disqualified persons ("parties in
interest") with respect to such ERISA Plans. Section 4975 of the Code imposes
substantially similar prohibited transaction restrictions on tax qualified
retirement plans described in Section 401(a) of the Code and on individual
retirement accounts described in Section 408 of the Code ("QUALIFIED PLANS" and
together with ERISA Plans, "PLANS"). Certain employee benefit plans, such as
governmental plans and church plans (if no election has been made under Section
410(d) of the Code), are not subject to the restrictions of ERISA, and assets of
such plans may be invested in the Certificates without regard to the ERISA
considerations described below, subject to other applicable federal and state
law. However, any such governmental or church plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of the
Code is subject to the prohibited transaction rules set forth in Section 503 of
the Code.
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Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
GENERAL
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving an ERISA Plan and its
assets unless a statutory or administrative exemption applies to the
transaction. Section 4975 of the Code imposes certain excise taxes (and, in some
cases, a civil penalty may be assessed pursuant to Section 502(i) of ERISA) on
parties in interest which engage in nonexempt prohibited transactions.
The United States Department of Labor ("LABOR") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships, trusts
and certain other entities in which a Plan makes an "equity investment" will be
deemed for purposes of ERISA to be assets of the Plan unless certain exceptions
apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets would
include an undivided interest in the Mortgage Loans and any other assets held by
the Trust. In such an event, the Depositor, the Servicers, the Trustee and other
persons, in providing services with respect to the assets of the Trust, may be
parties in interest, subject to the fiduciary responsibility provisions of Title
I of ERISA, including the prohibited transaction provisions of Section 406 of
ERISA (and of Section 4975 of the Code), with respect to transactions involving
such assets unless such transactions are subject to a statutory or
administrative exemption.
The regulations contain a DE MINIMIS safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by Plans is not significant. For this purpose, equity participation
in the entity will be significant if immediately after any acquisition of any
equity interest in the entity, "benefit plan investors" in the aggregate, own at
least 25% of the value of any class of equity interest. "Benefit plan investors"
are defined as Plans as well as employee benefit plans not subject to ERISA
(e.g., governmental plans). The 25% limitation must be met with respect to each
class of certificates, regardless of the portion of total equity value
represented by such class, on an ongoing basis.
AVAILABILITY OF UNDERWRITER'S EXEMPTION FOR CERTIFICATES
Labor has granted an exemption (the "EXEMPTION") to the underwriter,
which exempts from the application of the prohibited transaction rules
transactions relating to: (1) the acquisition, sale and holding by Plans of
certain certificates representing an undivided interest in certain asset-backed
pass-through trusts, with respect to which the underwriter or any of its
affiliates is the sole underwriter or the manager or co-manager of the
underwriting syndicate; and (2) the servicing, operation and management of such
asset-backed pass-through trusts, provided that the general conditions and
certain other conditions set forth in the Exemption are satisfied.
GENERAL CONDITIONS OF THE EXEMPTION. Section II of the Exemption sets
forth the following general conditions which must be satisfied before a
transaction involving the acquisition, sale and holding of the Certificates or a
transaction in connection with the servicing, operation and management of the
Trust Fund may be eligible for exemptive
relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms
(including the price for such Certificates) that are at least as favorable to
the investing Plan as they would be in an arm's-length transaction with an
unrelated party;
(2) The rights and interests evidenced by the Certificates acquired by
the Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust Fund;
(3) The Certificates acquired by the Plan have received a rating at the
time of such acquisition that is in one of the three highest rating categories
from any of Duff & Phelps Inc., Fitch Investors Service, Inc., Moody's Investors
Service, Inc. and Standard & Poor's Ratings Group;
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(4) The Trustee is not an affiliate of the Underwriters, the Depositor,
the Servicers, any borrower whose obligations under one or more Mortgage Loans
constitute more than 5% of the aggregate unamortized principal balance of the
assets in the Trust, or any of their respective affiliates (the "RESTRICTED
GROUP");
(5) The sum of all payments made to and retained by the Underwriters in
connection with the distribution of the Certificates represents not more than
reasonable compensation for underwriting such Certificates; the sum of all
payments made to and retained by the Depositor pursuant to the sale of the
Mortgage Loans to the Trust represents not more than the fair market value of
such Mortgage Loans; the sum of all payments made to and retained by the
Servicers represent not more than reasonable compensation for the Servicers'
services under the Agreements and reimbursement of the Servicer's reasonable
expenses in connection therewith; and
(6) The Plan investing in the Certificates is an "accredited investor"
as defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption
and the other requirements set forth in the Exemption would be satisfied.
THE GENERAL ACCOUNT EXEMPTION
Labor has issued Prohibited Transaction Class Exemption 95-60, 60
Federal Register 35925, July 12, 1995 (the "General Account Exemption), which
exempts certain transactions involving insurance company general accounts from
certain of the prohibited transaction provisions of ERISA and Section 4975 of
the Code. Section III of the General Account Exemption applies to transactions
in connection with the servicing, management and operation of a trust in which
an insurance company general account has an interest as a result of its
acquisition of certificates issued by the trust, provided that (i) the trust is
described in an exemption such as the Exemption, (ii) the relevant conditions of
the Exemption are met, other than the requirements that (a) the rights and
interests evidenced by the certificates acquired by the general account are not
subordinated to the rights and interests evidenced by other certificates of the
same trust, and (b) the certificates acquired by the general account have
received a rating at the time of acquisition that is in one of the three highest
generic rating categories from one of the applicable rating agencies, and (iii)
the general conditions of Section IV of the General Account Exemption are
satisfied.
SPECIAL CONSIDERATIONS APPLICABLE TO INSURANCE COMPANY GENERAL ACCOUNTS
The SBJPA added new Section 401(c) of ERISA relating to the status of
the assets of insurance company general accounts under ERISA and Section 4975 of
the Code. Pursuant to Section 401(c), Labor is required to issue final
regulations (the "General Account Regulations") not later than December 31, 1997
with respect to insurance policies issued on or before December 31, 1998 that
are supported by an insurer's general account. The General Account Regulations
are to provide guidance on which assets held by the insurer constitute "plan
assets" for purposes of the fiduciary responsibility provisions of ERISA and
Section 4975 of the Code. Section 401(c) also provides that, except in the case
of avoidance of the General Account Regulation and actions brought by the
Secretary of Labor relating to certain breaches of fiduciary duties that also
constitute breaches of state or federal criminal law, until the date that is 18
months after the General Account Regulations become final, no liability under
the fiduciary responsibility and prohibited transaction provisions of ERISA and
Section 4975 may result on the basis of a claim that the assets of the general
account of an insurance company constitute the plan assets of any Plan. The plan
assets status of insurance company separate accounts is unaffected by new
Section 401(c) of ERISA, and separate account assets continue to be treated as
the plan assets of any Plan invested in a separate account.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. The
Prospectus Supplement with respect to a Series of Certificates may contain
additional information regarding the application of the Exemption, PTCE 83-1, or
any other exemption, with respect to the Certificates offered thereby.
- 86 -
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Such classes will constitute "mortgage
related securities" for so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization (the "SMMEA CERTIFICATES"). As "mortgage related securities," the
SMMEA Certificates will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including, but not limited to, state chartered savings banks, commercial banks,
savings and loan associations and insurance companies, as well as trustees and
state government employee retirement systems) created pursuant to or existing
under the laws of the United States or of any state (including the District of
Columbia and Puerto Rico) whose authorized investments are subject to state
regulation to the same extent that, under applicable law, obligations issued by
or guaranteed as to principal and interest by the United States or any agency or
instrumentality thereof constitute legal investments for such entities. Alaska,
Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia, Illinois, Kansas,
Maryland, Michigan, Missouri, Nebraska, New Hampshire, New York, North Carolina,
Ohio, South Dakota, Utah, Virginia and West Virginia enacted legislation, on or
before the October 4, 1991 cutoff established by SMMEA for such enactments,
limiting to varying extents the ability of certain entities (in particular,
insurance companies) to invest in mortgage related securities, in most cases by
requiring the affected investors to rely solely upon existing state law, and not
SMMEA. In addition, pursuant to the Riegle Community Development and Regulatory
Improvement Act of 1994 (the "1994 AMENDMENT"), Congress expanded the definition
of securities entitled to the benefits of SMMEA to include those evidencing
ownership of, or secured by, notes secured by a first lien on one or more
parcels of real estate, upon which is located one or more commercial structures.
The terms of this amendment permit states to prohibit or limit, by specific
legislation, the authority of persons, trusts, corporations, partnerships,
associations, business trusts or business entities to purchase, hold or invest,
in securities evidencing ownership of, or secured by, such notes to the extent
predicated on the expansion of SMMEA. The 1994 Amendment permits enactment of
such restrictions until September 23, 2001. It provides, however, that no
enactment will affect the validity of a contractual commitment to purchase, hold
or invest in securities made before such enactment, or require sale of any
securities previously acquired. The Prospectus Supplement for each Series will
identify the states, if any, that have enacted any such limitations through the
date of the Prospectus Supplement. Enactment of such restrictions could
adversely affect the liquidity of any Offered Certificates entitled to the
benefits of SMMEA solely by reason of the 1994 Amendment. Accordingly, the
investors affected by such legislation will be authorized to invest in SMMEA
Certificates only to the extent provided in such legislation. Accordingly,
investors whose investment authority is subject to legal restrictions should
consult their own legal advisors to determine whether and to what extent the
Offered Certificates constitute legal investments for them.
SMMEA also amended the legal investment authority of federally
chartered depository institutions as follows: federal savings and loan
associations and federal savings banks may invest in, sell or otherwise deal
with "mortgage related securities" without limitation as to the percentage of
their assets represented thereby, federal credit unions may invest in such
securities, and national banks may purchase such securities for their own
account without regard to the limitations generally applicable to investment
securities set forth in 12 U.S.C. 24 (Seventh), subject in each case to such
regulations as the applicable federal regulatory authority may prescribe.
Institutions where investment activities are subject to legal
investment laws or regulations or review by certain regulatory authorities may
be subject to restrictions on investment in certain classes of Offered
Certificates. Any financial institution which is subject to the jurisdiction of
the Comptroller of the Currency, the Board of Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation ("FDIC"), the Office of Thrift
Supervision ("OTS"), the National Credit Union Administration ("NCUA") or other
federal or state agencies with similar authority should review any applicable
rules, guidelines and regulations prior to purchasing any Offered Certificate.
The Federal Financial Institutions Examination Council, for example, has issued
a Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "POLICY STATEMENT"). The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement prohibits depository
institutions from investing in certain "high-risk mortgage securities"
(including securities such as certain classes of Offered Certificates), except
under limited circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "MODEL LAW") which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
- 87 -
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
these Offered Certificates under various legal investment restrictions, and thus
the ability of investors subject to these restrictions to purchase such Offered
Certificates, may be subject to significant interpretive uncertainties.
Notwithstanding SMMEA, there may be other restrictions on the ability
of certain investors, including depository institutions, either to purchase any
Offered Certificates or to purchase Offered Certificates representing more than
a specified percentage of the investors' assets.
Except as to the status of SMMEA Certificates identified in the
Prospectus Supplement for a Series as "mortgage related securities" under SMMEA,
the Depositor will make no representations as to the proper characterization of
the Certificates for legal investment or financial institution regulatory
purposes, or as to the ability of particular investors to purchase any Offered
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.
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 and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or to
purchase Offered Certificates representing more than a specified percentage of
the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the
Offered Certificates constitute legal investments for such investors.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the methods
described below. The Prospectus Supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds to the Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination of
two or more of these methods. Such methods are as follows:
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Depositor with institutional investors
through dealers; and
3. By direct placements by the Depositor with institutional
investors.
In addition, if specified in the related Prospectus Supplement, the
Offered Certificates of a series may be offered in whole or in part to the
seller of the related Mortgage Assets that would comprise the Trust Fund for
such Certificates.
If underwriters are used in a sale of any Offered Certificates (other
than in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of Offered Certificates of a particular series
will be set forth on the cover of the Prospectus Supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions. Underwriters
and dealers participating in the distribution of the Offered Certificates may be
deemed to be underwriters in connection with
- 88 -
such Certificates, and any discounts or commissions received by them from the
Depositor and any profit on the resale of Offered Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities
Act.
It is anticipated that the underwriting agreement pertaining to the
sale of the Offered Certificates of any series will provide that the obligations
of the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of such
offering and any agreements to be entered into between the Depositor and
purchasers of Offered Certificates of such series.
The Depositor anticipates that the Certificates offered hereby will be
sold primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act in connection with reoffers and sales by them of Offered Certificates.
Holders of Offered Certificates should consult with their legal advisors in this
regard prior to any such reoffer or sale.
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Andrews & Kurth L.L.P., Dallas, Texas.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will he included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in one
of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage
pass-through certificates do not represent any assessment of the likelihood of
principal prepayments by Mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
- 89 -
INDEX OF PRINCIPAL DEFINITIONS
Page
----
"1986 Act" ..........................................................68
"1994 Amendment" ..........................................................87
"Accounts" ..........................................................38
"Accrual Certificates"..................................................10, 10
"Accrued Certificate Interest"..............................................30
"ADA" ..........................................................63
"Agreements" ..........................................................10
"Applicable Amount".........................................................80
"ARM Loans" ......................................................23, 68
"Asset Seller" ..........................................................20
"Available Distribution Amount".............................................29
"Balloon Mortgage Loans"....................................................16
"Bankruptcy Code" ..........................................................56
"Beneficial Owners".........................................................34
"Book-Entry Certificates"...................................................29
"Cash Flow Agreements".......................................................1
"Cash Flow Agreement"...................................................10, 25
"Cede" .......................................................3, 34
"CERCLA" ......................................................18, 59
"Certificate Balance"...................................................10, 30
"Certificateholders"........................................................19
"Certificates" ....................................................1, 8, 86
"Certificate" ..........................................................35
"Closing Date" ..........................................................72
"CMBS Agreement" ..........................................................23
"CMBS Issuer" ..........................................................23
"CMBS Servicer" ..........................................................23
"CMBS Trustee" ..........................................................24
"CMBS" ....................................................1, 8, 20
"Code" ..........................................................12
"Commercial Loans"..........................................................20
"Commercial Properties"..................................................8, 20
"Commission" ...........................................................3
"Contributions Tax".........................................................82
"Cooperative Loans".........................................................52
"Cooperatives" ..........................................................20
"Cooperative" ..........................................................52
"Covered Trust" ......................................................17, 48
"CPR" ..........................................................27
"Credit Support" ....................................................1, 9, 24
"Crime Control Act".........................................................64
"Cut-off Date" ..........................................................11
"Debt Service Coverage Ratio"...............................................21
"Deferred Interest".........................................................69
"Definitive Certificates"...............................................29, 35
"Depositor" .......................................................8, 20
"Determination Date"........................................................29
"Disqualifying Condition"...................................................61
"Distribution Account"......................................................40
"Distribution Date".........................................................11
"DTC" .......................................................3, 34
"Environmental Hazard Condition"............................................61
"EPA" ..........................................................59
"Equity Participations".....................................................23
"ERISA Plans" ..........................................................85
"ERISA" ......................................................13, 85
"excess servicing"..........................................................67
"Exchange Act" ...........................................................3
"Exemption" ..........................................................86
"FDIC" ......................................................38, 87
"Grantor Trust Certificates"................................................12
"Hazardous Materials".......................................................61
"Indirect Participants".....................................................34
"Insurance Proceeds"........................................................39
"IRS" ..........................................................66
"L/C Bank" ..........................................................49
"Labor" ..........................................................85
"Lease Assignment"...........................................................1
"Lease" ........................................................3, 8
"Legislative History".......................................................69
"Lessee" ........................................................3, 8
"Liquidation Proceeds"......................................................39
"Loan-to-Value Ratio".......................................................22
"Lock-out Date" ..........................................................23
"Lock-out Period" ..........................................................23
"Master REMIC" ..........................................................71
"Master Servicer" ...........................................................8
"Model Law" ..........................................................88
"Mortgage Assets" .......................................................1, 20
"Mortgage Interest Rate".................................................9, 23
"Mortgage Loans" ........................................................1, 8
"Mortgage Notes" ..........................................................20
"Mortgaged Properties".......................................................8
"Mortgages" ..........................................................20
"Mortgagor" ..........................................................51
"Multifamily Loans".........................................................20
"Multifamily Properties".................................................8, 20
"NCUA" ..........................................................87
"Net Operating Income"......................................................21
"Nonrecoverable Advance"....................................................31
"Offered Certificates"....................................................1, 1
"OID Regulations" ..........................................................66
"OID" ..........................................................64
"Originator" ..........................................................20
"OTS" ..........................................................87
"Participants" ..........................................................34
"parties in interest".......................................................85
"Pass-Through Rate".........................................................30
"Payment Lag Certificates"..................................................77
"Permitted Investments".....................................................38
"Plans" ..........................................................85
"Policy Statement"..........................................................87
"Prepayment Assumption".....................................................69
"Prepayment Premium"........................................................23
"Primary Servicer"...........................................................8
"Prohibited Transactions Tax"...............................................82
"Prospectus Supplement"......................................................1
"Purchase Price" ..........................................................37
"Qualified Plans" ..........................................................85
"Rating Agency" ..........................................................13
"RCRA" ..........................................................60
"Record Date" ..........................................................29
"Refinance Loans" ..........................................................22
"REIT" ..........................................................72
"Related Proceeds"..........................................................31
"Relief Act" ..........................................................63
"REMIC Certificates"........................................................71
"REMIC Regular Certificateholder"...........................................72
"REMIC Regular Certificates"................................................12
"REMIC Regulations".........................................................64
- 90 -
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED) Page
----
"REMIC Residual Certificateholder"..........................................78
"REMIC Residual Certificates"...............................................12
"REMIC" .......................................................2, 12
"Restricted Group"..........................................................86
"Retained Interest".........................................................44
"RICO" ..........................................................64
"SBJPA" ..........................................................81
"Securities Act" ...........................................................3
"Senior Certificates"...................................................10, 28
"Series" ...........................................................1
"Servicer" ..........................................................11
"Servicing Standard"........................................................40
"Servicing Transfer Event"..................................................41
"SMMEA Certificates"........................................................87
"SMMEA" ..........................................................87
"Special Servicer"...........................................................8
"Specially Serviced Mortgage Loan"..........................................41
"Startup Day" ..........................................................71
"Stripped ARM Obligations"..................................................69
"Stripped Bond Certificates"................................................67
"Stripped Coupon Certificates"..............................................67
"Stripped Interest Certificates"........................................10, 28
"Stripped Principal Certificates".......................................10, 28
"Subordinate Certificates"..............................................10, 28
"Subsidiary REMIC"..........................................................71
"Super-Premium Certificates"................................................73
"thrift institutions".......................................................81
"Title V" ..........................................................62
"TMP" ..........................................................71
"Trust Assets" ...........................................................2
"Trust Fund" ...........................................................1
"Trustee" ...........................................................8
"U.S. Person" ..........................................................70
"UCC" ..........................................................34
"Underlying CMBS" ..........................................................20
"Underlying Mortgage Loans".................................................20
"Value" ..........................................................22
"Voting Rights" ..........................................................19
"Warranting Party"......................................................14, 37
"Whole Loans" ..........................................................20
- 91 -
================================================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
-------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
Page
----
Summary of Prospectus Supplement.............................................
Risk Factors.................................................................
Description of the Mortgage Pool.............................................
Description of the Certificates..............................................
Certain Prepayment, Maturity and
Yield Considerations.......................................................
Servicing....................................................................
Description of the Pooling and
Servicing Agreement........................................................
Use of Proceeds..............................................................
Federal Income Tax Consequences.............................................
State Tax Considerations.....................................................
ERISA Considerations.........................................................
Legal Investment.............................................................
Method of Distribution.......................................................
Legal Matters................................................................
Rating.......................................................................
Index of Principal Definitions...............................................
Annex A: Certain Characteristics of
the Mortgage Loans.........................................................
Annex B: Form of Monthly Report.............................................
PROSPECTUS
Prospectus Supplement........................................................
Available Information........................................................
Incorporation of Certain Information
by Reference...............................................................
Summary of Prospectus........................................................
Risk Factors.................................................................
Description of the Trust Funds...............................................
Use of Proceeds..............................................................
Yield Considerations.........................................................
The Depositor ...............................................................
Description of the Certificates..............................................
Description of the Agreements................................................
Description of Credit Support................................................
Certain Legal Aspects of Mortgage
Loans and the Leases.......................................................
Federal Income Tax Consequences..............................................
State Tax Considerations.....................................................
ERISA Considerations.........................................................
Legal Investment.............................................................
Method of Distribution.......................................................
Legal Matters................................................................
Financial Information........................................................
Rating.......................................................................
Index of Principal Definitions...............................................
================================================================================
================================================================================
$------------
(APPROXIMATE)
ICIFC SECURED ASSETS CORP.
CLASS A1, CLASS A1X, CLASS A2,
CLASS A2X, CLASS B, CLASS C,
CLASS BCX, CLASS D AND CLASS E
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199___-___
---------------
PROSPECTUS SUPPLEMENT
---------------
_____________, 199__
================================================================================
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of
the securities, other than underwriting discounts and commissions*, are as
follows:
Registration Fee -- Securities and Exchange Commission.............. $ 295.00
Printing and Engraving Expenses.......................................... **
Accounting Fees and Expenses........................................... **
Legal Fees and Expenses................................................ **
Trustee Fees and Expenses.............................................. **
Rating Agency Fees..................................................... **
Miscellaneous Expenses................................................. **
Total...................................................... $ 295.00
======
- ---------
* To be provided for each Series of Securities on the cover page of the
related Prospectus Supplement.
** To be provided by Amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the proposed form of Underwriting Agreement to be filed as
Exhibit 1.1 hereto, the Underwriter will be obligated under certain
circumstances to indemnify officers and directors of ICIFC Secured Assets Corp.
(the "COMPANY") who sign the Registration Statement, and certain controlling
persons of the Company, against certain liabilities, including liabilities under
the Securities Act of 1933, as amended and the Securities Exchange Act of 1934,
as amended.
The Company's Certificate of Incorporation provides for indemnification
of directors and officers of the Company to the full extent permitted by
California law.
Section 317 of the California General Corporation Law provides, in
substance, that California corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with threatened, pending or completed actions or proceedings brought
against them (other than an action by or in the right of the Company to procure
a judgment in its favor) by reason of the fact that such persons are or were
directors, officers, employees or agents, against (i) expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any such action, suit or proceeding and (ii) with respect to
actions by or in the right of the Company to procure a judgment in its favor,
against expenses actually and reasonably incurred in connection with any such
action, suit or proceeding. The California General Corporation Law also provides
that the Company may purchase insurance on behalf of any such director, officer,
employee or agent. The Company has entered into agreements with its directors
and executive officers that would require the Company, among other things, to
indemnify them against certain liabilities that may arise by reason of their
status or service as directors to the fullest extent not prohibited by law. The
Company does not maintain liability insurance for its officers or directors.
The Pooling and Servicing Agreement will provide that no director,
officer, employee or agent of the Company will be liable to the Trust Fund, the
Certificateholders or the Noteholders for any action taken or for refraining
from the taking of any action pursuant to the Pooling and Servicing Agreement,
the Servicing Agreement, Indenture or Owner Trust Agreement, as applicable,
except for such person's own misfeasance, bad faith or gross negligence in the
performance of duties. The Pooling and Servicing Agreement with respect to each
series of Certificates, and the Servicing Agreements, Indentures, and Owner
Trust Agreements with respect to each series of Notes, will provide further
that, with the exceptions stated above, any director, officer, employee or agent
of the Company will be
II-1
indemnified and held harmless against any loss, liability or expense incurred in
connection with any legal action relating to such Pooling and Servicing
Agreement, Servicing Agreements, Indentures and Owner Trust Agreements, the
related Certificates and Notes, other than any loss, liability or expense (i)
related to any specific Mortgage Loan or Mortgage Loans (except as any such
loss, liability or expense shall be otherwise reimbursable pursuant to such
agreements), (ii) incurred in connection with any violation by him or her of any
state or federal securities law or (iii) imposed by any taxing authority if such
loss, liability or expense is not specifically reimbursable pursuant to the
terms of such agreements.
ITEM 16. EXHIBITS
Exhibit
Number
------
*1.1 Form of Underwriting Agreement
*3.1 Amended Articles of Incorporation of the Company
*3.2 Bylaws of the Company
*4.1 Form of Pooling and Servicing Agreement for an offering of
Pass-Through Certificates consisting of senior and subordinated
classes related to the Residential Loan Prospectus
*4.2 Form of Pooling and Servicing Agreement for alternate forms of
credit support (single class) related to the Residential Loan
Prospectus
**4.3 Form of Servicing Agreement for an offering of Mortgage-Backed
Notes related to the Residential Loan Prospectus
**4.4 Form of Trust Agreement for an offering of Mortgage-Backed Notes
related to the Residential Loan Prospectus
**4.5 Form of Indenture for an offering of Mortgage-Backed Notes
related to the Residential Loan Prospectus
***4.6 Form of Pooling and Servicing Agreement related to the Commercial
Loan Prospectus
***4.7 Form of Loan Sale Agreement related to the Commercial Loan
Prospectus
***5.1 Opinion of Thacher Proffitt & Wood regarding the legality of the
Certificates and the Notes issued pursuant to the Residential
Loan Prospectus
***5.2 Opinion of Andrews & Kurth L.L.P. regarding the legality of the
Certificates issued pursuant to the Commercial Loan Prospectus
***8.1 Opinion of Thacher Proffitt & Wood regarding certain tax matters
related to the Certificates and the Notes issued pursuant to
Residential Loan Prospectus (included with Exhibit 5.1)
***8.2 Opinion of Andrews & Kurth L.L.P. regarding tax matters related
to the Certificates issued pursuant to the Commercial Loan
Prospectus
***23.1 Consent of Thacher Proffitt & Wood (included as part of Exhibit
5.1)
***23.2 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits
5.2 and 8.2)
24.1 Power of Attorney (included on the signature page hereto)
**99.1 Form of Prospectus Supplement for use in an offering of
Certificates, under the Residential Loan Prospectus, consisting
of senior and subordinate certificate classes
II-2
**99.2 Form of Prospectus Supplement for use in an offering of
Certificates, under the Residential Loan Prospectus, which
provides for credit support in the form of a letter of credit
**99.3 Form of Prospectus Supplement for use in an offering of Notes
under the Residential Loan Prospectus
- ----------
* Incorporated by reference from the Registration Statement on Form S-3
(File No. 333-8439)
** Incorporated by reference from the Registration Statement on Form S-3
(File No. 333-40125)
*** Filed herewith.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act"); (ii) to reflect in the
Prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement; (iii) to include any material information with respect to
the plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement; provided, however, that no such post-effective
amendment shall be required if the information which would be required
by clauses (i) and (ii) is contained in periodic reports filed by the
Registrant pursuant to Section 13 or Section 15(d) of the Securities
Exchange Act of 1934 (the "Exchange Act") that are incorporated by
reference in this Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Act, each filing of the Registrant's annual
report pursuant to Section 13(a) or Section 15(d) of the Exchange Act that is
incorporated by reference in this registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the Registrant pursuant to the provisions described in Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities 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 will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Irvine, State of California on the 8th day of January,
1998.
ICIFC SECURED ASSETS CORP.
By: /s/ William Ashmore
----------------------------------------
William Ashmore, Chief Executive Officer
Each person whose signature appears below does hereby make, constitute
and appoint William Ashmore and Richard Johnson and each of them his or her true
and lawful attorney with full power of substitution to execute, deliver and file
with the Securities and Exchange Commission, for and on his or her behalf, and
in his or her capacity or capacities as stated below, any amendment (including
post-effective amendments) to the Registration Statement with all exhibits
thereto, making such changes in the Registration Statement as the Registrant
deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William Ashmore Director, Chairman of the Board, January 8, 1998
- --------------------------------------------- Chief Executive Officer, (Principal
William Ashmore Executive Officer)
/s/ Richard Johnson Director, Chief Financial Officer January 8, 1998
- --------------------------------------------- (Principal Financial Officer and
Richard Johnson Principal Accounting Officer) and
Secretary
/s/ Blaine Ung Director January 8, 1998
- ---------------------------------------------
Blaine Ung
II-4
INDEX TO EXHIBITS
Exhibit
Number
------
*1.1 Form of Underwriting Agreement
*3.1 Amended Articles of Incorporation of the Company
*3.2 Bylaws of the Company
*4.1 Form of Pooling and Servicing Agreement for an offering of
Pass-Through Certificates consisting of senior and subordinated
classes related to the Residential Loan Prospectus
*4.2 Form of Pooling and Servicing Agreement for alternate forms of
credit support (single class) related to the Residential Loan
Prospectus
**4.3 Form of Servicing Agreement for an offering of Mortgage-Backed
Notes related to the Residential Loan Prospectus
**4.4 Form of Trust Agreement for an offering of Mortgage-Backed Notes
related to the Residential Loan Prospectus
**4.5 Form of Indenture for an offering of Mortgage-Backed Notes
related to the Residential Loan Prospectus
***4.6 Form of Pooling and Servicing Agreement related to the Commercial
Loan Prospectus
***4.7 Form of Loan Sale Agreement related to the Commercial Loan
Prospectus
***5.1 Opinion of Thacher Proffitt & Wood regarding the legality of the
Certificates and the Notes issued pursuant to the Residential
Loan Prospectus
***5.2 Opinion of Andrews & Kurth L.L.P. regarding the legality of the
Certificates issued pursuant to the Commercial Loan Prospectus
***8.1 Opinion of Thacher Proffitt & Wood regarding certain tax matters
related to the Certificates and the Notes issued pursuant to
Residential Loan Prospectus (included with Exhibit 5.1)
***8.2 Opinion of Andrews & Kurth L.L.P. regarding tax matters related
to the Certificates issued pursuant to the Commercial Loan
Prospectus
***23.1 Consent of Thacher Proffitt & Wood (included as part of Exhibit
5.1)
***23.2 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits
5.2 and 8.2)
24.1 Power of Attorney (included on the signature page hereto)
**99.1 Form of Prospectus Supplement for use in an offering of
Certificates, under the Residential Loan Prospectus, consisting
of senior and subordinate certificate classes
**99.2 Form of Prospectus Supplement for use in an offering of
Certificates, under the Residential Loan Prospectus, which
provides for credit support in the form of a letter of credit
**99.3 Form of Prospectus Supplement for use in an offering of Notes
under the Residential Loan Prospectus
----------
* Incorporated by reference from the Registration Statement on Form S-3 (File
No. 333-8439)
** Incorporated by reference from the Registration Statement on Form S-3 (File
No. 333-40125)
*** Filed herewith.