Document:

PRELIMINARY OFFICIAL STATEMENT DATED  MAY 14 , 1998

In the opinion of Pietrantoni Méndez & Alvarez, Bond Counsel, assuming compliance by Banco Santander Puerto Rico with certain representations and covenants, under existing law (i) the Bonds and the interest thereon are exempt from Commonwealth\ of Puerto Rico (the "Commonwealth" or "Puerto Rico") income taxes and municipal property and license taxes, (ii) under certain circumstances, the Bonds are exempt from Commonwealth gift and estate taxes, (iii) the interest on the Bonds is not subject to income tax under the United States Internal Revenue Code of 1986, as amended (the "Code"), when received by (a) individuals who are bona fide residents of the Commonwealth during the entire taxable year in which such interest is received and (b) under certain circumstances, foreign  corporations, including Commonwealth corporations, and (iv) the interest on the Bonds is not excludable from the gross income of the recipients thereof under Section 103(a) of the Code.  See Tax Matters.

_______________________

	
OFFICIAL STATEMENT
	
	
 RATINGS: 

	
NEW ISSUE - FULL BOOK-ENTRY
	
	
Standard & Poor's:    "AA-" 

	
See Book-Entry Only System under The Bonds
	
	
Moody's:      "A1 "

	
	
	
 See Ratings            

$50,000,000

Puerto Rico Industrial, Tourist, Educational, Medical and

Environmental Control Facilities Financing Authority

Revenue Bonds, Series A

(AFICA - SANTANDER Loan Program)

_______________________

	
Dated: June 1, 1998
	
	
Due: June 1, 2018

 

The Bonds are being issued to fund a loan program established by Banco Santander Puerto Rico for small and medium size qualified projects.  The Bonds are issuable as fully registered bonds without coupons in denominations of $5,000 and any integral multiple thereof.  Interest on the Bonds will accrue from June 1, 1998 and will be payable on the first Business Day of each month commencing on July 1, 1998, until maturity or prior redemption.  The Bonds are subject to mandatory and optional redemption as described herein, provided that the Bonds will not be subject to redemption prior to June 1, 2001, except upon the occurrence of an Event of Taxability (as defined herein).  See The Bonds - Redemption.  

The Bonds are limited obligations of Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (the "Authority"), issued pursuant to the provisions of a trust agreement (the "Trust Agreement") to be dated June 4, 1998, between the Authority and State Street Bank and Trust Company, N.A., as trustee (the "Trustee").  The Bonds will be payable solely from and secured by (a) an assignment of revenues to be derived by the Authority from a loan agreement (the "Loan Agreement") to be dated as of June 1, 1998, between the Authority and

 

 

a banking corporation organized under the laws of Puerto Rico  (the "Borrower") and  (b) moneys deposited with the Trustee in the funds and accounts under the Trust Agreement.   See Sources of Payment and Security for the Bonds and The Loan Agreement.

THE BONDS DO NOT CONSTITUTE AN INDEBTEDNESS OF THE COMMONWEALTH OR ANY OF ITS POLITICAL SUBDIVISIONS AND NEITHER THE COMMONWEALTH NOR ANY OF SUCH SUBDIVISIONS SHALL BE LIABLE THEREON EXCEPT THE AUTHORITY WITH RESPECT TO THE BONDS, AND SUCH BONDS SHALL BE PAYABLE SOLELY OUT OF THOSE FUNDS PLEDGED FOR THE PAYMENT THEREOF.

THE BONDS DO NOT CONSTITUTE SAVINGS ACCOUNTS OR DEPOSITS OF THE BORROWER AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.  THE OBLIGATIONS OF THE BORROWER UNDER THE LOAN AGREEMENT RANK PARI PASSU WITH ALL OTHER SENIOR UNSECURED INDEBTEDNESS OF THE BORROWER, EXCEPT DEPOSIT LIABILITIES AND OTHER OBLIGATIONS THAT ARE SUBJECT TO ANY PRIORITIES OR PREFERENCES.  THE BONDS ARE BEING OFFERED ON THE BASIS OF THE FINANCIAL STRENGTH OF THE BORROWER AND NOT ON THE FINANCIAL STRENGTH OF ANY USERS UNDER THE QUALIFIED LOANS (AS DEFINED HEREIN). 

AN INVESTMENT IN THE BONDS ENTAILS CERTAIN RISKS DESCRIBED HEREIN.  THE YIELD TO MATURITY ON THE BONDS WILL BE SENSITIVE IN VARYING DEGREES, AMONG OTHER THINGS, TO THE RATE AND TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS) ON THE QUALIFIED LOANS.  See "BONDHOLDERS' RISKS" and "REDEMPTION CONSIDERATIONS."

$50,000,000  6.20% Term Bonds  --  Price 99.429%

(plus accrued interest)

_The Bonds are offered, subject to prior sale, when, as and if issued by the Authority and received by the Underwriters, subject to the approval of legality by Pietrantoni Méndez & Alvarez, San Juan, Puerto Rico, Bond Counsel, and certain other conditions.  Certain legal matters will be passed upon for the Borrower by Fiddler, González & Rodríguez,  LLP, San Juan, Puerto Rico.  Certain legal matters will be passed upon for the Underwriters by O'Neill & Borges, San Juan, Puerto Rico. It is expected that the Bonds will be available for delivery to The Depository Trust Company in New York, New York on or about June 4, 1998.

 

Santander SecuritiesMerrill Lynch & Co. 

May 28, 1998

No dealer, broker, sales representative or other person has been authorized by the Authority, the Borrower or the Underwriters to give any information or to make any representations other than those contained herein and, if given or made, any such other information or representations must not be relied upon as having been authorized by any of the foregoing.  This Official Statement does not constitute an offer to sell or solicitation of an offer to buy, nor shall there be any sale of the Bonds, by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.  The information set forth herein with respect to the Authority and DTC has been obtained from the Authority  and DTC, respectively, and all other information contained herein has been obtained from the Borrower and other sources that are believed to be reliable, but the Underwriters do not guarantee the accuracy or completeness of the information, and the information is not to be construed as a representation by the Underwriters or, except for the information concerning the Authority or DTC, as a representation by the Authority, or DTC, as applicable.  The information and expressions of opinion set forth herein are subject to change without notice.  Under no circumstances shall the delivery of this Official Statement or any  sale made after its delivery create any implication that the affairs of the Borrower or the Authority have remained unchanged after the date of this Official Statement.

The order and placement of material in this Official Statement including its appendices, are not to be deemed a determination of relevance, materiality or importance.  Investors must read the entire Official Statement to obtain information essential to the making of an informed investment decision.

IN CONNECTION WITH THE OFFERING OF THE BONDS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICES OF THE BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.  SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

TABLE OF CONTENTS

PagePage

SUMMARYi
Title of Securityi

The Authorityi

The Borroweri

The Programi

Use of Proceedsi

The Bondsi

Sources of Payment and Security for the Bondsiii

Bondholders' Risksiii

Redemption Considerationsiv
Tax Mattersiv

Ratingsiv

Trusteeiv

Underwritersiv

Continuing Disclosureiv

Available Informationv

INTRODUCTION1

THE AUTHORITY AND GOVERNING BOARD2
The Authority2

Governing Board2

Outstanding Revenue Bonds and Notes of the

Authority3
GOVERNMENT DEVELOPMENT BANK FOR

PUERTO RICO3
THE BORROWER3

THE PROGRAM4

SOURCES AND USES4

THE BONDS5
General5

Book-Entry Only System5

Redemption7

Selection and Notice of Redemption9

Additional Interest Upon Event of Taxability9

BONDHOLDERS' RISKS10
Payment Risks10

Prepayment Risks11
Absence of Secondary Market for the Bonds;

Rating Maintenance11

REDEMPTION CONSIDERATIONS11

The Risk of Non-origination11

Prepayment and Yield Considerations12

SOURCES OF PAYMENT AND SECURITY FOR

THE BONDS13

THE LOAN AGREEMENT14
Assignment by Authority14

Implementation of the Program Guide14

Inspections; Reports14

Maintenance of Qualified Projects15

Covenants as to Existence, Disposition of Assets

and Assignments15
Maintenance of Source of Income; Additional

Interest Upon Event of Taxability16
Indemnity16

Events of Default and Remedies16

Amendments17

THE TRUST AGREEMENT17
Program Fund17

Bond Fund18

Investment of Funds18

Events of Default19

Acceleration of Maturities19

Enforcement of Remedies20

Supplemental Trust Agreements20

Amendments and Supplements to the Loan

Agreement 21
Defeasance21

TAX MATTERS21

RATINGS22

LEGAL INVESTMENT23

CERTAIN REGULATORY CONSIDERATIONS23
LITIGATION24

UNDERWRITING24

LEGAL MATTERS24

CONTINUING DISCLOSURE COVENANT25

MISCELLANEOUS26

 

Appendix I - The BorrowerI-1
Appendix II - Borrower's Financial StatementsII-1

Appendix III - Supervision and Regulation III-1

Appendix IV - Form of Opinion of  Bond  

      CounselIV-1

 

 

 

 

 

 

 

SUMMARY

The following Summary is qualified in its entirety by the more detailed information appearing elsewhere in this Official Statement.  No person is authorized to detach this Summary from this Official Statement or otherwise to use it without the entire Official Statement.  Neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that the information contained herein is correct as of any date subsequent to the date hereof.

Title of Security

$50,000,000  Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority Revenue Bonds, Series A (AFICA - SANTANDER Loan Program) (the "Bonds").

The Authority

Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (the "Authority"), a body corporate and politic constituting a public corporation and governmental instrumentality of the Commonwealth of Puerto Rico ("Puerto Rico" or the "Commonwealth") created pursuant to Act No. 121 of June 27, 1977, as amended (the "Act").  See The Authority and Governing Board.

The Borrower

Banco Santander Puerto Rico (the "Borrower") is a banking corporation organized under the laws of Puerto Rico.  See The Borrower and Appendix I - The Borrower.

The Program

The net proceeds from the sale of the Bonds will be used by the Borrower to provide small and medium size loans (the "Qualified Loans") under a loan program (the "Program") established by the Borrower.  The Qualified Loans will be made to borrowers  (the "Users") to finance all or a portion of the costs incurred by such Users for projects which comply with the Program Guide (as defined herein), qualify for financing under the Act and satisfy the loan underwriting criteria of the Borrower (collectively, the "Qualified Projects").  See The Program.

Use of Proceeds

The proceeds from the sale of the Bonds will be loaned by the Authority to the Borrower pursuant to a loan agreement dated as of June 1, 1998 (the "Loan Agreement") between the Borrower and the Authority and will be used by the Borrower to (i) fund Qualified Loans under the Program and (ii) pay a portion of the costs incurred in connection with the issuance of the Bonds.   See Sources and Uses of Funds.

The Bonds

General

The Bonds will be issued pursuant to a trust agreement dated June 4, 1998 (the "Trust Agreement") between the Authority and State Street Bank and Trust Company, N.A., as trustee (the "Trustee").  The Bonds will be issued in the aggregate principal amount of $50,000,000, bearing interest at 6.20% and maturing on June 1, 2018.  The Bonds will be dated June 1, 1998 and will be issued in registered form, without coupons, in denominations of $5,000 and any integral multiple thereof.  See The Bonds.

The principal of the Bonds will be payable on June 1, 2018, subject to earlier redemption or acceleration.  The Bonds are structured so that certain payments of principal made under the Qualified Loans are applied to the redemption of the Bonds.  See The Bonds - Redemption.  Interest on the Bonds will be computed on the basis of a 360-day year consisting of twelve thirty-day months.  Interest on the Bonds will accrue from June 1, 1998 and will be paid on the first Business Day of each month, commencing on July 1, 1998 (each such a date an "Interest Payment Date").  A "Business Day" is any day of the year other than Saturday, Sunday or other day on which commercial banks in Puerto Rico and New York are not open for business to the general public.  The Bonds will be registered under the DTC Book-Entry Only System.  The principal or redemption price of and interest on the Bonds will be payable as described herein under The Bonds - Book-Entry Only System.

Redemption

The Bonds will not be subject to mandatory or optional redemption prior to June 1, 2001, except upon the occurrence of an Event of Taxability  (as defined herein).  Any redemption of the Bonds shall be made on an Interest Payment Date.   See The Bonds - Redemption.

Mandatory Redemption Without Premium.  The Bonds will be subject to mandatory redemption at a price equal to the principal amount thereof plus accrued and unpaid interest to the redemption date, without premium:  (i) in part, after June 1, 2001, to the extent of any net proceeds of the Bonds that are not used by the Borrower to fund Qualified Loans by June 1, 2001 or such later date as may be approved by the Authority; (ii) in whole or in part, on any Interest Payment Date occurring on or after June 1, 2001, to the extent of any Principal Distribution Amount and any Extraordinary Prepayment (each as defined herein) deposited with the Trustee under the Trust Agreement; and (iii) in whole, upon the occurrence of an Event of Taxability.  

Mandatory Redemption With Premium.  The Bonds will be subject to mandatory redemption, in whole or in part, on any Interest Payment Date occurring on or after June 1, 2001, to the extent of any Optional Prepayment (as defined herein) which is not used by the Borrower to originate Qualified Loans within 90 days after receipt of such Optional Prepayment, at the redemption prices set forth below (expressed as a percentage of the outstanding principal amount of such Bonds), plus accrued interest to the redemption date:

                         Redemption PeriodRedemption Price

    (All dates inclusive)

June 1, 2001 to May 31, 2009100 1/2%

June 1, 2009 and thereafter100 1/4

 
Optional Redemption.  The Bonds are subject to redemption at the option of the Borrower, in whole or in part, on June 1, 2003 and any Interest Payment Date thereafter (which date shall not be less than forty-five (45) days from the date that notice of such redemption is received by the Trustee), at the redemption prices set forth below (expressed as a percentage of the outstanding principal amount of such Bonds), plus accrued interest to the redemption date:  

                         Redemption PeriodRedemption Price

    (All dates inclusive)

June 1, 2003 to May 31, 2004  102%

June 1, 2004 to May 31, 2005  101

June 1, 2005 and thereafter                     100

 

Selection and Notice of Redemption

If less than all of the Bonds are called for redemption, DTC shall reduce the credit balances of the applicable DTC Participants in respect of the Bonds, and such Participants (as defined herein) shall in turn select those Beneficial Owners  (as defined herein) whose ownership interests are to be extinguished by such partial redemption, each by such method as DTC or such Participants, as the case may be, in their sole discretion deem fair and appropriate.  Upon the discontinuance of the Book-Entry Only System, the Bonds or portions of Bonds to be redeemed shall be selected by lot by the Trustee.  See The Bonds - Selection and Notice of Redemption.

Additional Interest upon Event of Taxability

If interest received or to be received by certain Bondholders is subject to United States federal income taxation as a result of the Borrower's failure to meet the applicable requirements of the Internal Revenue Code of 1986, as amended and as in effect on the date of execution of the Trust Agreement (the "Code"), for interest paid on the Bonds to constitute income from sources within Puerto Rico, the Borrower will pay Additional Interest (as defined herein) to such Bondholders for such taxes subject to certain limitations and upon satisfaction of certain conditions.  Such Additional Interest and actual interest paid or accrued on the Bonds shall not exceed 12% during any taxable year of the Borrower.  See The Bonds - Additional Interest Upon Event of Taxability.

Sources of Payment and Security for the Bonds

The Bonds are limited obligations of the Authority payable solely from revenues derived pursuant to the Loan Agreement and to the extent provided in the Trust Agreement, moneys and securities in the funds and accounts under the Trust Agreement and certain investment income thereon. The Bonds shall not constitute an indebtedness of the Commonwealth or of any of its political subdivisions, other than the Authority and neither the Commonwealth nor any such political subdivision, other than the Authority, shall be liable thereon.  The Bonds do not constitute savings accounts or deposits of the Borrower and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.  The Bonds are being offered on the basis of the financial strength of the Borrower and not on the financial strength of any User under the Qualified Loans. 

The Borrower will agree in the Loan Agreement to deposit with the Trustee in a bond fund created under the Trust Agreement (the "Bond Fund") amounts sufficient to pay, together with the moneys then on deposit therein, the principal of and premium, if any, and interest on the Bonds when due.  Such deposit must be made on the day immediately preceding the date on which the corresponding amounts of principal of and premium, if any, and interest on the Bonds are due and payable.  Pursuant to the Trust Agreement, the Authority will assign its interest in the Loan Agreement (except for certain reserved rights) to the Trustee as security for the Bonds.  The obligations of the Borrower under the Loan Agreement rank pari passu with all other senior unsecured indebtedness of the Borrower, except deposit liabilities and other obligations that are subject to any priorities or preferences.  The Borrower has the obligation to make the payments required by the Loan Agreement and the Trust Agreement notwithstanding the failure of any User to make the payments required under its  respective Qualified Loan.  The Bonds or the obligations of the Borrower under the Loan Agreement are not secured by any liens on the assets of the Borrower or by any collateral provided by the Users under the Qualified Loans.  See Sources of Payment and Security for the Bonds, The Loan Agreement and Certain Regulatory Considerations.

Bondholders' Risks

The Bonds are subject to certain risks, including some that could affect the ability of the Borrower to meet its obligations to pay the principal of and premium, if any, and interest on, the Bonds.  Prospective Bondholders are instructed to and should review the section entitled Bondholders' Risks for a discussion of certain risks associated with an investment in the Bonds.

Redemption Considerations

The effective yield to holders of the Bonds (the "Bondholders" or "Holders") and the average life of the Bonds may vary depending on certain circumstances which may result in the early redemption of Bonds.  No representations or guarantees are made as to the future rate of principal payments (including prepayments) on the Qualified Loans which may result in the redemption of Bonds.  See Redemption Considerations.

Tax Matters

In the opinion of Pietrantoni Méndez & Alvarez, Bond Counsel, under existing law (i) the Bonds and the interest thereon are exempt from Commonwealth income taxes and municipal property and license taxes, (ii) under certain circumstances, the Bonds are exempt from Commonwealth gift and estate taxes, (iii) the interest on the Bonds is not subject to income tax under the Code, when received by (a) individuals who are bona fide residents of the Commonwealth during the entire taxable year in which such interest is received and (b) under certain circumstances, foreign corporations, including Commonwealth corporations, and (iv) the interest on the Bonds is not excludable from the gross income of the recipients thereof under Section 103(a) of the Code.  See Tax Matters.

Ratings

The Bonds are rated "AA-" by Standard & Poor's Ratings Services, a division of The McGraw- Hill Companies, Inc. ("S&P") and  "A1" by Moody's Investors Service ("Moody's").  There is no assurance that such ratings will be given to the Bonds or that, once given, will remain in effect for any given period or that such ratings will not be revised downward or withdrawn entirely by such organizations if, in their sole judgment, circumstances so warrant.  Any such downward revision or withdrawal of such ratings may have an adverse effect on the market prices of the Bonds.

The ratings given to the Bonds reflects only the views of the above rating organizations.  An explanation of the significance of such ratings may be obtained only from S&P at 25 Broadway, New York, New York  10004, telephone number (212) 208-8000  and from Moody's at 99 Church Street, New York, New York 10007, telephone number (212) 553-0470.  The ratings do not constitute a recommendation to buy, sell or hold the Bonds.

Trustee

The Trustee is State Street Bank and Trust Company, N.A.  The principal corporate trust office of the Trustee is located at 61 Broadway, New York, New York.

Underwriters

The Underwriters of the Bonds are Santander Securities Corporation of Puerto Rico ("Santander Securities") and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch").  The principal offices of Santander Securities are located at 221 Ponce de León Avenue, Suite 600, San Juan, Puerto Rico. The principal offices of Merrill Lynch in Puerto Rico are located at 209 Muñoz Rivera Avenue, Popular Center, San Juan, Puerto Rico.  The Underwriters have agreed to purchase all of the Bonds at the purchase price of $48,839,500.00, plus accrued interest.  See Underwriting.

Continuing Disclosure

The Borrower will enter into an undertaking for the benefit of the Holders of the Bonds to file certain financial and operating information on an annual basis (and the Borrower will provide notice of certain events) to certain nationally recognized municipal securities information repositories and with any Commonwealth information depository pursuant to Rule 15c2-12 adopted by the Securities and Exchange Commission under the Securities and Exchange Act of 1934.  See Continuing Disclosure Covenant.

 

Available Information

The Underwriters will provide without charge during the offering period for the Bonds, to each person to whom copies of this Official Statement are delivered, a copy of the Trust Agreement and the Loan Agreement on the written or oral request of such person.  Requests for such information should be directed to the Underwriters at their principal offices.  After the date of issuance of the Bonds, execution copies of these documents will be available at the offices of the Trustee.

OFFICIAL STATEMENT

 

$50,000,000

Puerto Rico Industrial, Tourist, Educational, Medical and

Environmental Control Facilities Financing Authority

Revenue Bonds, Series A

(AFICA - SANTANDER Loan Program)

 

 

INTRODUCTION

This Official Statement, which includes the cover page and appendices hereto, is provided to furnish information in connection with the offering and sale by Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (the "Authority") of  its $50,000,000 Revenue Bonds, Series A (AFICA - SANTANDER Loan Program) (the "Bonds"), to be issued pursuant to a Trust Agreement (the "Trust Agreement"), dated June 4, 1998, between the Authority and State Street Bank and Trust Company, N.A., as trustee (the "Trustee").  The Bonds will be dated, mature, bear interest and be subject to redemption prior to maturity as more fully described on the cover page and herein.

The Bonds are being issued by the Authority (i) to fund small and medium size loans (the "Qualified Loans") under a loan program established by the Borrower (the "Program") and (ii) pay certain expenses incurred in connection with the issuance and sale of the Bonds.  Pursuant to a loan agreement to be dated as of June 1, 1998 (the "Loan Agreement"), between the Authority and Banco Santander Puerto Rico (the "Borrower"), the Authority will loan the proceeds from the sale of the Bonds to the Borrower.  Under the Loan Agreement, the Borrower will agree to provide Qualified Loans to borrowers (the "Users") to finance all or a portion of the costs incurred by such Users for projects which comply with the Program Guide (as defined herein), qualify for financing under the Act and satisfy the loan underwriting criteria of the Borrower (collectively, the "Qualified Projects").  See The Program and Sources and Uses of Funds.  Payments to be made by the Borrower under the Loan Agreement are to be sufficient, together with other available funds, to pay the principal of and premium, if any, and interest on the Bonds, and will be assigned by the Authority to the Trustee for such purpose.  The obligations of the Borrower under the Loan Agreement are payable solely from the revenues of the Borrower and from any other moneys legally available therefor.  The obligations of the Borrower under the Loan Agreement rank pari passu with all other senior unsecured indebtedness of the Borrower, except deposit liabilities and other obligations that are subject to any priorities or preferences.  See The Loan Agreement and Certain Regulatory Considerations.  The Bonds shall not constitute an indebtedness of the Commonwealth or of any of its political subdivisions, other than the Authority, and neither the Commonwealth nor any such political subdivision, other than the Authority, shall be liable thereon.  The Bonds are payable solely from the revenues and other funds provided therefor in the Trust Agreement and the Loan Agreement.  The Bonds do not constitute savings accounts or deposits of the Borrower and are not insured by the Federal Deposit Insurance Corporation ("FDIC") or any other governmental agency.

The descriptions and summaries under the captions The Program, The Trust Agreement and The Loan Agreement do not purport to be complete and are subject to and qualified by reference to the provisions of the applicable complete documents, copies of which are available at the corporate trust office of the Trustee and, during the offering period of the Bonds, from the Underwriters.  The agreements of the Authority with the Bondholders are fully set forth in the Trust Agreement and neither any advertisement of the Bonds nor this Official Statement is to be construed as constituting an agreement with the purchasers of the Bonds or the Bondholders.  So far as any statements are made in this Official Statement involving matters of opinion, whether or not expressly so stated, they are intended as such and not as representations of fact.  Copies of the documents mentioned in this paragraph are on file at the offices of the Authority and the Trustee.

THE AUTHORITY AND GOVERNING BOARD

The Authority

The Authority is a body corporate and politic constituting a public corporation and governmental instrumentality of  Puerto Rico.  The Legislature of Puerto Rico determined that the development and expansion of commerce, industry, and health and educational services within Puerto Rico is essential to the economic growth of Puerto Rico and to attain full employment and preserve the health, welfare, safety and prosperity of all its citizens.  The Legislature also determined that new methods of financing capital investments were required to promote industry in Puerto Rico and to provide modern and efficient medical facilities for the citizens of Puerto Rico.  Accordingly, the Authority was created under Act No. 121 of the Legislature of Puerto Rico, approved June 27, 1977, as amended (the "Act"), for the purpose of promoting the economic development, health, welfare and safety of the citizens of Puerto Rico.  The Authority is authorized to borrow money through the issuance of revenue bonds and to loan the proceeds thereof to finance the acquisition, development, construction and equipping of industrial, tourist, educational, medical and environmental pollution control and solid waste disposal facilities.  The Authority has no taxing power.  The Authority's offices are located at Minillas Government Center, De Diego Avenue, Stop 22, San Juan, Puerto Rico 00940.  The Authority's telephone number is (787) 782-4060.

Governing Board

The Act provides that the governing board (the "Governing Board") of the Authority shall consist of seven members.  The President of Government Development Bank for Puerto Rico (the "GDB"), the Executive Director of Puerto Rico Industrial Development Company, the Executive Director of Puerto Rico Aqueduct and Sewer Authority, the President of the Puerto Rico Environmental Quality Board and the Executive Director of the Puerto Rico Tourism Company are each ex officio members of the Governing Board.  The remaining two members of the Governing Board are appointed by the Governor of Puerto Rico for terms of four years.  The following individuals are the current members of the Governing Board:

	
 

Name
	

Position
	

Term
	

Occupation

	

Marcos Rodríguez-Ema
	

Chairman
	

Indefinite
	

President, Government Development Bank for Puerto Rico

	

Jaime Morgan Stubbe
	

Member
	

Indefinite
	

Executive Director, Puerto Rico Industrial Development Company

	

Perfecto Ocasio
	

Member
	

Indefinite
	

Executive Director, Puerto Rico Aqueduct and Sewer Authority

	

Héctor Russé-Martínez
	

Member
	

Indefinite
	

President, Puerto Rico Environmental Quality Board

	

Jorge Dávila
	

Member
	

Indefinite
	

Executive Director, Puerto Rico Tourism Company 

	

James Thordsen
	

Member
	

June 27, 1998
	

President, James Thordsen, Inc.

	

José Salas-Soler
	

Member
	

October 22, 2001
	

Attorney-at-Law

The Act provides that the affirmative vote of four members is sufficient for any action taken by the Governing Board.

 

 

The following individuals are currently officers of the Authority:

Lourdes Rovira Rizek, Executive Director of the Authority, is also Executive Vice President of GDB.  Ms. Rovira Rizek has been associated with GDB since 1996 and received a bachelor's degree in Business Administration from the University of Puerto Rico in 1972.  Prior to her appointment at GDB, she was the chief financial officer of the University of Puerto Rico system.

Velmarie Berlingeri, Assistant Executive Director of the Authority, is also a Vice President of GDB.  Ms. Berlingeri has been associated with GDB since 1993 and received a Bachelor of Science in Business Administration degree from the University of Puerto Rico in 1982.  Prior to her appointment, she worked in the investments area of a major private sector corporation in Puerto Rico.

Delfina Betancourt Capó, Secretary and General Counsel of the Authority, is also Senior Vice President and General Counsel of GDB.  Ms. Betancourt has been associated with GDB since 1984 and received a law degree from Cornell University in 1982.

Outstanding Revenue Bonds and Notes of the Authority

As of December 31, 1997, the Authority had revenue bonds and notes issued and outstanding in the principal of approximately $2.2  billion.

All such bond and note issues have been authorized and issued pursuant to trust agreements or resolutions separate from and unrelated to the Trust Agreement relating to the Bonds and are payable from sources other than the payments under the Loan Agreement.

Under the Act, the Authority may issue additional bonds and notes from time to time to finance industrial, tourist, educational, medical or pollution control facilities.  However, any such bonds and notes would be authorized and issued pursuant to other trust agreements or resolutions separate from and unrelated to the Trust Agreement relating to the Bonds and would be payable from sources other than the payments under the Loan Agreement.

GOVERNMENT DEVELOPMENT BANK FOR PUERTO RICO

As required by Act No. 272 of the Legislature of Puerto Rico, approved May 15, 1945, as amended, GDB has acted as a financial advisor to the Authority in connection with the issuance and sale of the Bonds.

GDB is a public corporation with varied governmental financial functions.  Its principal functions are to act as financial advisor to and fiscal agent for Puerto Rico, its municipalities and its public corporations in connection with the issuance of bonds and notes, to make advances to public corporations and to make loans to private enterprises that will aid in the economic development of Puerto Rico.  The Underwriters have been selected by GDB to act from time to time as underwriters of its obligations and the obligations of Puerto Rico, its instrumentalities and public corporations.  The Underwriters or their affiliates also participate in other financial transactions with GDB.

THE BORROWER

The Borrower is a banking corporation organized under the laws of Puerto Rico. For a more detailed description of the Borrower, its business and its financial information, see Appendix I - The Borrower.  Appendix I should be read in its entirety by any prospective purchaser of Bonds.  The audited financial information of the Borrower for the fiscal years ended December 31, 1997 and 1996, together with the report thereon by Arthur Andersen, LLP, independent public accountants, San Juan, Puerto Rico, are contained in Appendix II to this Official Statement.

 

 

 

THE PROGRAM

The Borrower will use the net proceeds from the sale of the Bonds to provide Qualified Loans.  The Qualified Loans will be made by the Borrower to Users for the purpose of paying all or a portion of the costs incurred by the Users related to the Qualified Projects.

The terms and conditions for the origination and administration of the Qualified Loans are contained in a program guide (the "Program Guide") adopted by the Borrower and the Authority.  The Program Guide may be amended by the Authority and the Borrower from time to time as provided in the Trust Agreement.  See The Trust Agreement-Amendments and Supplements to the Loan Agreement.

The terms of the Qualified Loans will be negotiated between the Borrower and each User in accordance with the guidelines set forth in the Program Guide.  The Qualified Loans will bear an annual fixed interest rate and may have terms of up to 20 years.  The Qualified Loans are expected to have different amortization schedules, including balloon payments.  The Borrower anticipates that most Qualified Loans will pay principal and interest on a monthly basis.  The Qualified Loans will be in amounts ranging from $200,000 to $8,000,000, except that the Borrower may originate one loan of up to $10,000,000.  A User and its affiliates may obtain more than one Qualified Loan under the Program provided that no User and its affiliates may, in the aggregate, have more than $10,000,000 in Qualified Loans.  

Optional Prepayments (as defined herein) will be subject to a prepayment penalty imposed by the Borrower.  Upon the partial or full prepayment of a Qualified Loan, the Borrower will have the option to substitute the prepaid Qualified Loan with a new Qualified Loan, provided that no Qualified Loan will have a final maturity beyond the life of the Bonds.

The Qualified Loans may be subject to full or partial prepayment upon certain events of default, including but not limited to the following events: (i) failure by the User to pay  principal or interest when due, (ii) the User contests the validity or enforceability of its obligations under a Qualified Loan, (iii) certain events of bankruptcy or insolvency involving the User, (iv) failure by the User to perform or observe any covenant, condition or agreement on its part contained in its loan contract, (v) any representation or warranty made by a User shall prove to have been incorrect in any material respect, and (vi) failure by the User to operate a Qualified Project in accordance with the Act or the Program Guide.

SOURCES AND USES

Set forth below are the estimated sources and uses of Bond proceeds:

	

Sources
	 
	Principal Amount of the Bonds

	
$   50,000,000.00

	Original Issue Discount

	
   (285,500.00)

	Accrued Interest

	
           25,833.33

	Total Sources

	
$  49,740,333.33

	

Uses
	 
	Deposit to Program Fund(1)

	
$  48,339,500.00 

	Deposit to Bond Fund

	
       25,833.33 

	Underwriters' Discount, Trustee Fee, Legal and Printing Fees 
and Expenses, and other Direct Costs of Issuance of the Bonds

	

     1,375,000.00 

	Total Uses

	
$ 49,740,333.33 

                                                        

(1) Net of all expenses incurred in connection with the issuance and sale of the Bonds.

 

THE BONDS

General

The Bonds will be dated June 1, 1998 and will bear interest at such rate and will mature (subject to the rights of redemption described below), as set forth on the cover page of this Official Statement.  Interest on the Bonds will be computed on the basis of a 360-day year consisting of twelve 30-day months.  Interest on the Bonds will accrue from June 1, 1998 and will be paid on the first Business Day of each month commencing on July 1, 1998 until maturity or prior redemption.  A Business Day is any day of the year other than a Saturday, Sunday, or other day in which commercial banks in Puerto Rico and New York are not open for business to the general public. 

The Bonds are issuable as fully registered bonds without coupons in denominations of $5,000 or any integral multiple thereof.  The Bonds will be registered under the DTC Book-Entry Only System described below.  The principal or redemption price of and interest on the Bonds will be payable as described below under "Book-Entry Only System."

Book-Entry Only System

The following information concerning DTC and DTC's book-entry system has been obtained from DTC, and the Authority, the Borrower, or the Underwriters do not take any responsibility for the accuracy thereof.

DTC will act as securities depository for the Bonds.  The Bonds will be issued as fully registered bonds in the name of Cede & Co., DTC's partnership nominee.  One fully registered Bond will be issued for each maturity of the Bonds in the aggregate principal amount of such maturity, and will be deposited with DTC.

DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking organization" within the meaning of the New York Banking Law, a member of the Federal Reserve System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a "clearing agency" registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934, as amended.  DTC holds securities that its participants (the "Direct Participants") deposit with DTC.  DTC also facilitates the settlement of securities transactions among Direct Participants, such as transfers and pledges, in deposited securities through electronic book-entry changes in accounts of the Direct Participants, thereby eliminating the need for physical movement of securities.  Direct Participants include securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations.  DTC is owned by a number of the Direct Participants and by the New York Stock Exchange, Inc., the American Stock Exchange, Inc. and the National Association of Securities Dealers, Inc.  Access to the DTC system is also available to others such as banks, brokers, dealers and trust companies that clear transactions through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (the "Indirect Participants;" and together with the Direct Participants, the "Participants").  The rules applicable to DTC and its Participants are on file with the Securities and Exchange Commission.

Purchases of Bonds under the DTC system must be made by or through Direct Participants which will receive a credit for the Bonds on DTC's records.  The ownership interest of each actual purchaser of each Bond ("Beneficial Owner") is in turn to be recorded on the Direct and Indirect Participants' records.  Beneficial Owners will not receive written confirmation from DTC of their purchase, but Beneficial Owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction.  Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of Participants acting on behalf of Beneficial Owners.  Beneficial Owners will not receive certificates representing their ownership interests in the Bonds, except in the event that use of the DTC system for the Bonds is discontinued.

To facilitate subsequent transfers, all Bonds deposited by Participants with DTC are registered in the name of DTC's partnership nominee, Cede & Co.  The deposit of Bonds with DTC and their registration in the name of Cede & Co. effect no change in beneficial ownership.  DTC has no knowledge of the actual Beneficial Owners of the Bonds.  DTC's records reflect only the identity of the Direct Participants to whose accounts such Bonds are credited, which may or may not be the Beneficial Owners.  The Participants will remain responsible for keeping account of their holdings on behalf of their customers.

Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

Redemption notices shall be sent to Cede & Co.  If less than all of the Bonds of any maturity are being redeemed, DTC's practice is to determine by lot the amount of the interest of each Direct Participant in such maturity to be redeemed.

Neither DTC nor Cede & Co. will consent or vote with respect to the Bonds.  Under its usual procedures, DTC mails an "Omnibus Proxy" to the Authority as soon as possible after the record date.  The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to whose accounts the Bonds are credited on the record date (identified in a listing attached to the Omnibus Proxy).

Principal of and redemption premium, if any, and interest payments on the Bonds will be made to DTC.  DTC's practice is to credit Direct Participants' accounts on each Payment Date in accordance with their respective holdings shown on DTC's records unless DTC has reason to believe that it will not receive payment on such date.  Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as is the case with securities held for the accounts of customers in bearer form or registered in "street name," and will be the responsibility of such Participant and not of DTC, the Trustee, the Borrower or the Authority, subject to any statutory or regulatory requirements as may be in effect from time to time.  Payment of principal and interest to DTC is the responsibility of the Trustee, disbursement of such payments to Direct Participants is the responsibility of DTC, and disbursement of such payments to the Beneficial Owners is the responsibility of Direct and Indirect Participants.

Each person for which a Participant acquires an interest in the Bonds, as nominee, may desire to make arrangements with such Participant to receive a credit balance in the records of such Participant, and may desire to make arrangements with such Participant to have all notices of redemption or other communications to DTC, which may affect such persons, forwarded in writing by such Participant and to have notification made of all interest payments.

DTC may discontinue providing its services as securities depository with respect to the Bonds at any time by giving reasonable notice to the Authority or the Trustee.  In such event, the Authority will try to find a substitute securities depository and, if unsuccessful, definitive Bonds will be printed and delivered.  In addition, the Authority, in its sole discretion and without the consent of any other person, may terminate the services of DTC as securities depository with respect to the Bonds if the Authority determines that Beneficial Owners of such Bonds shall be able to obtain definitive Bonds.  In such event, definitive Bonds will be printed and delivered as provided in the Trust Agreement and registered in accordance with the instructions of the Beneficial Owners.

So long as Cede & Co., as nominee of DTC (or any other nominee of DTC), is the registered owner of the Bonds, all references herein to the Bondholders or registered owners of the Bonds (other than under the heading "Tax Matters") shall mean Cede & Co., or such other nominee, in the capacity of nominee for DTC, and shall not mean the Beneficial Owners of the Bonds.

When reference is made to any action which is required or permitted to be taken by the Beneficial Owners, such reference shall only relate to those permitted to act (by statute, regulation or otherwise) on behalf of such Beneficial Owners for such purposes.  When notices are given, they shall be sent by the Authority or the Trustee to DTC only.

For every registration of transfer or exchange of the Book-Entry Bonds, the Beneficial Owner may be charged a sum sufficient to cover any tax, fee or other governmental charge that may be imposed in relation thereto.

THE AUTHORITY, THE TRUSTEE AND THE BORROWER SHALL HAVE NO RESPONSIBILITY OR OBLIGATION TO ANY PARTICIPANT OR ANY BENEFICIAL OWNER WITH RESPECT TO (1) THE ACCURACY OF ANY RECORDS MAINTAINED BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT, AS DESCRIBED ABOVE; (2) THE PAYMENT OR TIMELINESS OF PAYMENT BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY AMOUNT DUE TO ANY BENEFICIAL OWNER IN RESPECT OF THE PRINCIPAL AMOUNT OR REDEMPTION PRICE OF OR INTEREST ON THE BONDS; (3) THE DELIVERY OR TIMELINESS OF DELIVERY BY DTC OR ANY DIRECT PARTICIPANT OR INDIRECT PARTICIPANT OF ANY NOTICE TO ANY BENEFICIAL OWNER WHICH IS REQUIRED OR PERMITTED UNDER THE TERMS OF THE TRUST AGREEMENT TO BE GIVEN TO BONDHOLDERS; (4) THE SELECTION OF THE BENEFICIAL OWNERS TO RECEIVE PAYMENT IN THE EVENT OF ANY PARTIAL REDEMPTION OF THE BONDS; OR (5) ANY CONSENT GIVEN OR OTHER ACTION TAKEN BY DTC AS BONDHOLDER.

In the event that the book-entry only system is discontinued and the Beneficial Owners become registered owners of the Bonds, the following provisions will apply:  The principal of the Bonds and premium, if any, thereon when due will be payable upon presentation of the Bonds at the corporate trust office of the Trustee in New York, New York, and interest on the Bonds will be paid by check mailed to the persons who were the registered owners as of the 15th day of the month immediately preceding the related Payment Date, as provided in the Trust Agreement.  Bonds may be exchanged for an equal aggregate principal amount of Bonds in other authorized denominations and of the same maturity and interest rate, upon surrender thereof at the Trustee's corporate trust office in New York, New York.  The transfer of any Bond may be registered only upon surrender thereof to the Trustee along with a duly executed assignment in form satisfactory to the Trustee.  Upon any such registration of transfer, a new Bond or Bonds of authorized denominations in an equal aggregate principal amount, of the same maturity, bearing interest at the same rate and registered in the name of the transferee will be executed by the Authority and authenticated by the Trustee.  No charge may be made to the Bondholders for any exchange or registration of transfer of the Bonds, but any Bondholder requesting any such exchange shall pay any tax or other governmental charge required to be paid with respect to such exchange or registration of transfer.  The Trustee will not be required to exchange or to register the transfer of any Bond during the period of 15 days preceding the date of giving of notice of redemption or after any Bond or portion thereof has been selected for redemption.

Redemption 

The Bonds will not be subject to mandatory or optional redemption prior to June 1, 2001, except upon the occurrence of an Event of Taxability.  Any redemption of the Bonds shall be made on an Interest Payment Date.

Mandatory Redemption Without Premium.  

The Bonds will be subject to mandatory redemption at a price equal to the principal amount thereof plus accrued and unpaid interest up to the redemption date, without premium:  (i) in part, on the Interest Payment Date immediately succeeding June 1, 2001 or such later Interest Payment Date as may be approved by the Authority, to the extent of any net proceeds of the Bonds that are not used by the Borrower to fund Qualified Loans by June 1, 2001 or such later date as may be approved by the Authority (the "Origination Period"); (ii) in whole or in part, on any Interest Payment Date occurring on or after June 1, 2001 (which date shall not be less than seventeen (17) days from the date that notice of such redemption is received by the Trustee), to the extent of any Principal Distribution Amount and any Extraordinary Prepayment (each as defined herein) deposited with the Trustee under the Trust Agreement; (iii) in whole, on the Interest Payment Date occurring not less than forty-five (45) days after the occurrence of an Event of Taxability.  

Mandatory Redemption with Premium.

The Bonds will be subject to mandatory redemption, in whole or in part, on any Interest Payment Date occurring on or after June 1, 2001, to the extent of any Optional Prepayment (as defined herein) not used by the Borrower, at its option, to originate new Qualified Loans within 90 days after receipt of such Optional Prepayment, at the redemption prices set forth below (expressed as a percentage of the outstanding principal amount of such Bonds), plus accrued interest to the redemption date:

                         Redemption PeriodRedemption Price

    (All dates inclusive)

June 1, 2001 to May 31, 2009100 1/2%

June 1, 2009 and thereafter100 1/4

 

Optional Redemption

The Bonds are subject to redemption, at the option of the Borrower, in whole or in part, on June 1, 2003, and any Interest Payment Date thereafter (which date shall not be less than forty-five (45) days from the date that notice of such redemption is received by the Trustee) at the redemption prices set forth below (expressed as percentages of the outstanding principal amount of such Bonds), plus accrued interest to the redemption date:

 

                         Redemption PeriodRedemption Price

    (All dates inclusive)

	

 
	
 

 

	
 
June 1, 2003 to May 31, 2004

June 1, 2004 to May 31, 2005

June 1, 2005 and thereafter

	

          102%

          101

          100

 

To exercise the foregoing optional redemption, the Borrower is required to deposit with the Trustee moneys necessary to effect such redemption on the forty-fifth (45th) day immediately preceding the date on which the corresponding redemption price is due and payable.

"Cut-Off Date" means the last Business Day of each calendar month.

"Scheduled Principal Payment" means, with respect to any Qualified Loan, any payment of principal on such Qualified Loan in accordance with the amortization schedule at the time applicable thereto and any other principal payment received on such Qualified Loan after its due date and not constituting an Extraordinary Prepayment or an Optional Prepayment.

 "Principal Distribution Amount" means, with respect to any Interest Payment Date, an amount equal to the sum of (i) the aggregate Scheduled Principal Payments received by  the Borrower during the period commencing on the day immediately succeeding the Cut-Off Date contained in the second calendar month immediately preceding such Interest Payment Date and ending on the Cut-Off Date contained in the calendar month immediately preceding such Interest Payment Date and (ii) on July 1, 2001 and each Interest Payment Date thereafter, the sum of $8,139.71 paid by the Borrower as partial payment of the costs of issuance of the Bonds.

"Extraordinary Prepayment" means, with respect to any Qualified Loan, any payment or other recovery of principal on such Qualified Loan received by  the Borrower during the period commencing on the day immediately succeeding the Cut-Off Date contained in the second calendar month immediately preceding such Interest Payment Date and ending on the Cut-Off Date contained in the calendar month immediately preceding such Interest Payment Date (other than an Optional Prepayment), consisting of  (i) all proceeds received from any condemnation award or proceeds in lieu of condemnation, proceeds of any insurance or casualty in respect of such Qualified Loan, (ii) proceeds from the sale, assignment or other disposition of such Qualified Loan or the mortgaged property or other collateral securing such loan upon the occurrence of an event of default thereon, including a determination by the Borrower, the Trustee or the Authority, that such loan does not comply with the provisions of the Program Guide or the Act, or (iii) any amounts paid by the Borrower on behalf of the related User after a determination by the Borrower that an event of default has occurred and is continuing under such Qualified Loan.

"Optional Prepayment" means, with respect to any Qualified Loan, any payment of principal which requires the payment of a prepayment penalty under the terms of such Qualified Loan.

Selection and Notice of Redemption

At least fifteen (15) days (or at least thirty (30) days in the case of an optional redemption) before any redemption date, notice thereof will be sent by the Trustee via first-class mail, postage prepaid, to DTC, or if the Book-Entry Only System is discontinued as described above, by first-class mail, postage prepaid, to the registered owners of the Bonds to be redeemed. If less than all of the Bonds are called for redemption, the particular Bonds or portions thereof to be redeemed will be selected as provided below, except that so long as the Book-Entry Only System shall remain in effect, in the event of any such partial redemption, DTC shall reduce the credit balances of the applicable DTC Participants in respect of the Bonds, and such Participants shall in turn select those Beneficial Owners whose ownership interests are to be extinguished by such partial redemption, each by such method as DTC or such Participants, as the case may be, in their sole discretion deem fair and appropriate.

Each notice of redemption shall set forth (a) the redemption date, (b) the redemption price, (c) if fewer than all of the Bonds then outstanding shall be called for redemption, the distinctive numbers and letters, if any, of such Bonds to be redeemed and, in the case of Bonds to be redeemed in part only, the portion of the principal amount thereof to be redeemed, (d) that on the date fixed for redemption such redemption price will become due and payable upon each Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue on and after said redemption date, and (e) the place where such Bonds or portions thereof called for redemption are to be surrendered for payment of such redemption price. In case any Bond is to be redeemed in part only, the notice of redemption shall state also that on or after the redemption date, upon surrender of such Bond, a new Bond or Bonds in principal amount equal to the unredeemed portion of such Bond will be issued. Failure to mail such notice to any Holder or any defect in any notice so mailed shall not affect the validity of the proceedings for the redemption of the Bonds of any other Holders.  If less than all of outstanding Bonds are called for redemption, the Bonds or portions of Bonds to be redeemed shall be selected by lot by the Trustee in such manner as the Trustee in its discretion may determine in integral multiples of $5,000.

If notice of redemption is given and if sufficient funds are on deposit with the Trustee to provide for the payment of the principal of and premium, if any, and interest on the Bonds (or portions thereof) to be redeemed, then the Bonds (or portions thereof) so called for redemption will, on the redemption date, cease to bear interest and shall no longer be deemed outstanding or be entitled to any benefit or security under the Trust Agreement.

Additional Interest Upon Event of Taxability

The Borrower will covenant under the Loan Agreement that under the United States Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder as in effect on the date of issuance of the Bonds (the "Code") (i) during each taxable year of its existence, up to and including the taxable year when all interest on and principal of the Bonds are paid in full, while the Bonds are outstanding it will be engaged in trade or business in Puerto Rico,  (ii)during the three taxable years immediately preceding the taxable year during which interest is paid on the Bonds more than 20% of its total gross income will be attributable to its trade or business in Puerto Rico and will be derived  from sources within Puerto Rico, and (iii) no part of the interest paid on the Bonds will be treated as paid by a trade or business of the Borrower conducted outside of Puerto Rico so that, at all times while the Bonds are outstanding, interest paid or payable thereon will constitute income from sources within Puerto Rico.

Failure to comply with the above covenant will constitute an "Event of Taxability."  Upon the occurrence of an Event of Taxability, the Borrower will be required to pay Additional Interest (as defined below) to each Qualifying Bondholder (as defined below).  "Additional Interest" means (i) an amount equal to the income taxes imposed under the Code (the "Federal Taxes") that a Qualifying Bondholder (as defined below) was required or will be required to pay with respect to interest paid or accrued on the Bonds during an applicable interest period as a result of the occurrence of an Event of Taxability, plus (ii) any Federal Taxes payable with respect to the receipt of such amount, plus (iii) any penalties and interest that have been or will be assessed  against such Bondholder with respect to the late payment of such Federal Taxes; provided, however, that Additional Interest cannot exceed the difference between (x) the amount that is obtained by multiplying 12% times the principal amount of the Bonds then outstanding and (y) the actual interest paid or accrued on the Bonds during the applicable interest period. 

A "Qualifying Bondholder" is (i) an individual who during the entire taxable year with respect to which the Event of Taxability occurred was a bona fide resident of Puerto Rico, or  (ii) a Commonwealth corporation or other foreign corporation (for purposes of the Code) that is not engaged in trade or business in the United States.

BONDHOLDERS' RISKS

Purchase of the Bonds involves a degree of risk.  Prospective purchasers of the Bonds should give careful consideration to the matters referred to in the following summary as well as to other information set forth in this Official Statement.  Such summary should not be considered an exhaustive discussion of all aspects of law and policy, but rather informational only.

Payment Risks

General

The Bonds are subject to certain risks that could affect the ability of the Borrower, under certain circumstances, to cover the full and punctual payment of the principal of and interest on the Bonds.

Financial Condition of Borrower

Payment of the Bonds depends primarily on the financial condition of the Borrower.  Future revenues and expenses of the Borrower are subject to conditions which may change to an extent that cannot be determined at this time.

Factors which may influence the Borrower's ability to meet the requirements of the Loan Agreement include (i) general economic conditions, including changes in interest rates, (ii) regulatory changes such as those affecting reserves, limits in interest rates and the types and amounts of authorized transactions, (iii) repeal of the tax benefits under Section 936 of the Code and (iv) growing competition affecting net interest margins.  Information about the Borrower has been provided by the Borrower and is set forth in Appendix I, Appendix II and Appendix III attached hereto.

Effect of Insolvency

Federal law provides that the claims of certain creditors of an insured depository institution, including claims of holders of the deposits of such an institution and certain claims for administrative expenses, have priority over other general claims of unsecured creditors of such institution in the event of a liquidation or other resolution by a receiver of such institution.  As a result, depositors (including the FDIC, as the subrogee of such depositors) and such other priority claim holders are entitled to priority over the Bondholders in the event of a liquidation or other resolution by a receiver of the Borrower.  A substantial portion of the Borrower's liabilities consists of deposits.

 

 

Restrictions on Enforcement of Remedies; Absence of Liens on Properties of the Borrower

Upon the occurrence of an Event of Default, the Trustee may proceed to enforce any remedies under the Trust Agreement and the Loan Agreement.  The enforcement of such remedies may be limited or restricted by laws relating to bankruptcy or receivership and rights of creditors generally and by application of general principles of equity applicable to the availability of certain remedies and may be substantially delayed and subject to judicial discretion in the event of litigation or statutory remedy procedures.  See The Bonds - Sources of Payment and Security for the Bonds.

The obligations of the Borrower under the Loan Agreement are general obligations thereof.  The Bonds or the obligations of the Borrower under the Loan Agreement are not secured by any liens on the assets of the Borrower or by any collateral provided by the Users under the Qualified Loans.  In the event of the Borrower's bankruptcy, Bondholders will have no greater rights than general unsecured creditors of the Borrower.

Prepayment Risks

The yield to maturity on the Bonds and the average life of the Bonds will be sensitive in varying degrees, among other things, to the rate and timing of principal payments (including prepayments) of the Qualified Loans which may result in the redemption of the Bonds.  No representations or guarantees are made as to the future rate of principal payment (including prepayments) on the Qualified Loans or as to the yield to maturity of any Bonds.  See Redemption Considerations.

Absence of Secondary Market for the Bonds; Rating Maintenance

There is currently no secondary market for the Bonds, and there can be no assurance that a secondary market will develop or if it does develop, that it will provide Bondholders with liquidity for their investment or that it will continue for the life of the Bonds.

There is no assurance that the investment ratings initially assigned to the Bonds will not be lowered or withdrawn, which could adversely affect the value of and market for the Bonds.  See Ratings.

REDEMPTION CONSIDERATIONS

The effective yield to Holders of the Bonds and the average life of the Bonds may vary depending on certain circumstances which may result in the early redemption of Bonds.  Among such circumstances are the risk of non-origination of Qualified Loans, the schedule for the repayment of principal under the Qualified Loans, the timing of Extraordinary Prepayments and Optional Prepayments under the Qualified Loans, the inability of the Borrower to substitute a prepaid Qualified Loan with a new Qualified Loan and the occurrence of an Event of Taxability.

The Risk of Non-origination

Although the Program was structured to provide attractive interest rates for the Qualified Loans, and while the Borrower believes that sufficient Qualified Loans should be originated prior to the end of the Origination Period, there can be no assurance that the foregoing will occur.  The Borrower may be unable to originate Qualified Loans due to various factors, including the potential unattractiveness of the interest rates required under the Program when compared to prevailing market interest rates, economic conditions at the time of the origination of the Qualified Loans or lack of eligible borrowers under the Program.  In addition, the availability of  future financings by the Authority at lower rates may reduce the number of Qualified Projects available for financing under the Program.  Bond proceeds not used to originate Qualified Loans on or before the end of the Origination Period will be applied for the mandatory redemption of the Bonds.  See The Bonds-Redemption.

 

 

Prepayment and Yield Considerations

The prepayment experience of loans is influenced by a variety of economic, social and other  factors, including the prevailing level of interest rates and the rate at which commercial borrowers default on their loans.  There is no readily accessible data or reliable information that could be used to indicate the historical prepayment or foreclosure experience of commercial loans similar to the Qualified Loans.  The rate of prepayment on the Qualified Loans may also be influenced by the terms and structure of each Qualified Loan, the type of business the Users are engaged in, the financial situation of the Users and the type of Qualified Project.  The Bonds have been structured so that on Interest Payment Dates occurring on or after June 1, 2001, Scheduled Principal Payments, Extraordinary Prepayments and Optional Prepayments (excluding Optional Prepayments not used to finance new Qualified Loans) be applied to redeem Bonds.  In addition, the rate of redemption of the Bonds will be affected by the monthly payment required to be made by the Borrower in the amount of $8,139.71.  This amount constitutes the repayment by the Borrower of the costs of issuance of the Bonds and is payable in equal monthly installments during a period of 17 years, commencing on July 1, 2001.  Such repayment by the Borrower of the costs of issuance of the Bonds will also affect the average life of the Bonds by causing an early redemption thereof.

The Borrower expects that the Bonds will be subject to moderate prepayments for the following reasons:  (i) the Qualified Loans will be made to Users at fixed interest rates that generally should be below the interest rates generally available in the market for similar loans, (ii) under the Program Guide, a prepayment penalty is required to be imposed by the Borrower on Optional Prepayments, and (iii) the Borrower has the right to apply Optional Prepayments to finance new Qualified Loans.  No assurance can be given, however, as to the future rate of principal payments (including prepayments) on the Qualified Loans.  Optional Prepayments which are not used by the Borrower to finance new Qualified Loans will be applied to redeem Bonds.  Such redemption would affect the average life of the Bonds.

The Bonds are not subject to redemption prior to June 1, 2001, except upon the occurrence of an Event of Taxability.  On June 1, 2001 and any Interest Payment Date thereafter, the Bonds will be subject to mandatory redemption from (i) Scheduled Principal Payments, Extraordinary Prepayments and Optional Prepayments (excluding Optional Prepayments not used to finance new Qualified Loans) and (ii) the monthly payments by the Borrower of the costs of issuance financed with bond proceeds.  Since the Borrower will not have originated Qualified Loans as of the date of issuance of the Bonds and, since no assurance can be given that all the Bond proceeds will be applied to originated Qualified Loans during the life of the Program, there can be no certainty during any period or over the life of the Bonds as to the amount or rate of the Scheduled Principal Payments, Extraordinary Prepayments and Optional Prepayments that will be received on the Qualified Loans.  The Borrower expects, however, that on June 1, 2001, the first date when the Bonds become subject to redemption, the principal payments on the Qualified Loans received on or before such date will be applied to redeem Bonds, which may result in a larger redemption of Bonds on such date.

The following table is for illustration purposes only, and is intended to demonstrate the effect that the redemption of a Bond may have on the expected yield of such Bond to the redemption dates shown below.  The yields presented below were calculated based on a redemption of a Bond at par and assuming a redemption price of 100 1/2% from June 1, 2001 to May 31, 2009 and at a redemption price of 100 1/4% from June 1, 2009 and thereafter.  The yields are computed based on a coupon of 6.20%, a purchase price of 99.429%, a settlement date of June 4, 1998, a 360-day year consisting of twelve thirty-day months and monthly interest payments on the Bonds.  Such yield computations do not take into account the redemption of the Bonds at various redemption dates or dates other than the ones presented below.

 

Redemption Date            Yield               

(as of June 1 of

 the years below)At Par       With Premium

	
2001
	
   6.410%
	 	
   6.562%

	
2002
	
6.362
	 	
6.473

	
2003
	
6.334
	 	
6.419

	
2004
	
6.315
	 	
6.384

	
2005
	
6.301
	 	
6.358

	
2006
	
6.291
	 	
6.339

	
2007
	
6.283
	 	
6.325

	
2008
	
6.277
	 	
6.313

	
2009
	
6.272
	 	
6.288

	
2010
	
6.268
	 	
6.282

	
2011
	
6.264
	 	
6.277

	
2012
	
6.261
	 	
6.273

	
2013
	
6.259
	 	
6.269

	
2014
	
6.257
	 	
6.266

	
2015
	
6.255
	 	
6.263

	
2016
	
6.253
	 	
6.261

	
2017
	
6.251
	 	
6.258

	
2018
	
6.250
	 	
6.250

                                                                     

Premiums paid upon mandatory redemptions pursuant to Optional Prepayments.

 

The extent to which any Bonds are purchased at a discount or a premium and the timing of principal payments (including prepayments) will determine the extent to which the yield to maturity of a Bond may vary from the anticipated yield.

SOURCES OF PAYMENT AND SECURITY FOR THE BONDS

The Bonds are limited obligations of the Authority payable solely from revenues derived pursuant to the Loan Agreement and from such other amounts as may be available to the Trustee under the Trust Agreement.  Pursuant to the Trust Agreement, the Authority will assign its interest in the Loan Agreement (except certain rights of the Authority to indemnification, exemption from liabilities, notices and the payment of costs and expenses) to the Trustee as security for the Bonds. The Bonds or the obligations of the Borrower under the Loan Agreement are not secured by any liens on the assets of the Borrower or by any collateral provided by the Users under the Qualified Loans.  The Bonds will not constitute a charge against the general credit of the Authority and will not constitute an indebtedness of Puerto Rico or any of its political subdivisions other than the Authority with respect to the Bonds.

Under the Loan Agreement, the Borrower will agree to deposit with the Trustee in the Bond Fund amounts sufficient to pay, together with the amounts then on deposit therein, principal of and premium, if any, and interest on the Bonds.  Such deposit must be made on the day immediately preceding the date on which the corresponding amounts of principal, premium, if any, and interest are due and payable.  Pursuant to the Trust Agreement, the Authority will assign its interest in the Loan Agreement (except certain rights of the Authority to indemnification, exemption from liability, notices and the payment of costs and expenses) to the Trustee as security for the Bonds.  See The Loan Agreement.

THE LOAN AGREEMENT

The following is a summary of certain provisions of the Loan Agreement.  This summary does not purport to be comprehensive or definitive and is qualified by reference to and is subject to the provisions of the Loan Agreement, copies of which may be obtained during the offering period from the Underwriters and thereafter from the Trustee.

The Loan Agreement will provide for the financing of a portion of the costs of the Program.  Pursuant to the Loan Agreement, the Authority will issue the Bonds and loan the proceeds from the sale thereof to the Borrower. The Borrower will agree to make payments directly to the Trustee which, together with amounts then held in the Bond Fund established under the Trust Agreement will be sufficient to make the payments of principal of and premium, if any, and interest on the Bonds as the same become due at maturity, upon redemption or acceleration.  Such deposit must be made on the Business Day immediately preceding the date on which the corresponding amounts of principal, premium, if any, and interest are due and payable. 

The obligations of the Borrower under the Loan Agreement are stated to be absolute and unconditional without right of set-off for any reason.  The obligations of the Borrower under the Loan Agreement rank pari passu with all other senior unsecured indebtedness of the Borrower, except deposit liabilities and other obligations that are subject to any priorities or preferences. See Certain Regulatory Considerations.  In a liquidation or other resolution of the Borrower, the obligations of the Borrower under the Loan Agreement would be treated differently from, and holders of the Bonds could receive, if anything, significantly less than holders of, deposit liabilities of the Borrower.

The Borrower will use the proceeds of the Bonds to (i) fund Qualified Loans under the Program and  (ii) pay a portion of the costs incurred in connection with the issuance of the Bonds.  On the date the Bonds are issued, the Borrower will receive the net proceeds thereof and will be entitled to invest such moneys until Qualified Loans are originated.  Any gain or income realized by the Borrower from such investments will be the property of the Borrower.

Assignment by Authority

The Authority will assign all of its rights, title and interest in the Loan Agreement (except for certain rights reserved under the Loan Agreement) and will pledge and assign to the Trustee any payments, receipts and revenues receivable by it (except as aforesaid) under or pursuant to the Loan Agreement and the income earned by the investment of funds held under the Trust Agreement, as security for payment of the principal of and premium, if any, and interest on the Bonds. Except as provided in the preceding sentence, the Authority will not sell, assign or otherwise dispose of its interest in the Loan Agreement or the payments, receipts and revenues of the Authority derived under the Loan Agreement.

Implementation of the Program Guide

The net proceeds of the Loan shall be applied solely for the purposes and upon the conditions set forth in the Loan Agreement and the Program Guide for the making of Qualified Loans by the Borrower and not for any other purpose; provided, however, that prior to the making of Qualified Loans such moneys may be invested and reinvested by the Borrower.

Inspections; Reports

The Borrower will cause each User to allow the Authority and the Trustee, through their respective officers, employees, consultants and other authorized representatives, to have access, during normal business hours and upon reasonable prior notice, to enter upon and examine and inspect each Qualified Project to determine its compliance with the Act and examine certain books and records of the Borrower for purposes of ascertaining whether the Borrower has complied with the agreements and obligations under the Loan Agreement and the Program Guide.

 

Maintenance of Qualified Projects

The Borrower shall require that each User agree in writing to, at all times, at its sole cost and expense, maintain, preserve and keep such User's Qualified Project in good repair, working order and condition and cause to be made all needed and proper repairs, replacements and renewals; provided, however, that a User will have no obligation to cause to be maintained, preserved, repaired, replaced or renewed any element or unit of such Qualified Project, the maintenance, repair, replacement or renewal of which becomes uneconomic to such User because of damage or destruction or obsolescence or change in economic or business conditions, or change in government standards or regulations.  The Borrower shall further require that each User agree in writing to covenant that it will not permit, commit or suffer any waste of the whole or any major part of such User's Qualified Project, or any part thereof, for any unlawful purpose or permit any nuisance to exist thereon.

Covenants as to Existence, Disposition of Assets and Assignments

The Borrower, so long as the Bonds are outstanding, will maintain its existence, will not dispose of all or substantially all of its assets and will not acquire, consolidate with or merge into another person; provided, however, that the Borrower may acquire, consolidate with or merge into another person, or transfer to another person all or substantially all of its assets and thereafter dissolve, if (i) the successor or transferee is solvent and irrevocably and unconditionally assumes in writing all the obligations of the Borrower under the Loan Agreement and the Trust Agreement; (ii) such consolidation, merger or transfer shall not cause an Event of Taxability; (iii) such consolidation, merger or transfer shall not cause the then current rating of the Bonds to be lowered, suspended or withdrawn; and (iv) immediately after such consolidation, merger or transfer neither the Borrower nor such successor or transferee (if other than the Borrower) shall be in default in the performance or observance of any duties, obligations or covenants under the Loan Agreement.

The Borrower may assign its interest in the Loan Agreement, in whole, without the consent of the Authority or the Trustee, if it meets the following requirements:

(a)prior to the proposed assignment, the Trustee and the Authority are  provided with proof satisfactory to them by the Borrower (which may include an opinion from counsel approved by the Trustee) that, as a result of such  assignment or the terms thereof, interest payable on the Bonds will continue to constitute Puerto Rico source income under the Code;

(b)the Borrower shall at least thirty (30) days prior to such assignment of the Loan Agreement, notify the Authority and the Trustee;

(c)concurrently with such assignment, the Borrower shall assign all rights, title and interest with respect to the Qualified Loans financed with proceeds of the Loan to the assignee;

(d)the assignee shall, in a certificate delivered to the Authority and the Trustee, which certificate shall be in a form reasonably satisfactory to the Authority and the Trustee, expressly assume, and agree to pay and to perform, all of the obligations of the Borrower under the Loan Agreement and the Program Guide or otherwise assumed by the Borrower in connection with Qualified Loans which shall have been assigned to it; and

(e)the assignee shall deliver to the Authority and the Trustee a certificate executed by its chief financial officer (or other executive officer performing similar functions) stating that none of the obligations, covenants and performances under the Loan Agreement and the Program Guide assumed by it will conflict with or constitute on the part of such assignee a breach of, or default under, any indenture, mortgage, agreement or other instrument to which such assignee is a party or by which it is bound, or under any existing law, rule, regulation, judgment, order or decree to which such assignee is subject.

Notwithstanding any of the foregoing, no assignment of the Loan Agreement shall relieve the Borrower of the obligation to make the payments required by the Loan Agreement.

Maintenance of Source of Income; Additional Interest Upon Event of Taxability

The Borrower will covenant under the Loan Agreement that during each taxable year while the Bonds are outstanding it will comply with the source of income requirements, as set forth herein under The Bonds - Additional Interest Upon Event of Taxability, so that all interest paid or payable on the Bonds will constitute income from sources within Puerto Rico under the rules of the Code. Failure to comply with such source of income requirements shall constitute an Event of Taxability. If an Event of Taxability occurs, the Borrower is required to pay Additional Interest to each Qualifying Bondholder who receives or accrues interest on the Bonds during such taxable year.

Under the Loan Agreement the Borrower will be required to cause its independent accountants to submit, no later than the 90th day after the close of each of its taxable years, a report (which shall be made in accordance with generally accepted auditing standards) stating whether in connection with their audit of the books and records of the Borrower, the Borrower failed to comply with any of the source of income requirements described in the preceding paragraph during the taxable year just ended or such other applicable period. If the independent accountants' report should state that in the course of their audit the Borrower failed to comply with any source of income requirements during the immediately preceding taxable year or such other applicable period or if the Borrower provides the Trustee with a certificate that indicates that the Borrower failed to comply with the source of income requirements, the Trustee shall within five (5) Business Days from the date of receipt of such independent accountant's report or Borrower's certificate, send written notice to the Borrower and each person who was a Bondholder during the preceding taxable year stating that an Event of Taxability has occurred. Thereafter, any Qualifying Bondholder who has paid or is required to pay United States income taxes in respect of the interest paid or accrued on the Bonds may submit to the Trustee a written claim for Additional Interest. Such claim must set forth in reasonable detail the basis for such claim and the calculation of the Additional Interest and must be submitted to the Trustee and the Borrower within ninety (90) days from the date of receipt of the Trustee's notice that an Event of Taxability occurred.  The Borrower will agree to pay such claim for Additional Interest to the Trustee within thirty (30) days from the date the Trustee receives the notice of claim from the Bondholder.

Indemnity

Under the Loan Agreement, the Borrower will also agree to indemnify the Authority against any claims or liabilities arising from the operation of a Qualified Project or any part thereof financed with proceeds of Qualified Loans or its participation in the funding of the Program and certain other liabilities, and will agree to pay the fees and expenses of the Authority and the Trustee.

Events of Default and Remedies

Each of the following is an event of default under the Loan Agreement:

(a   failure by the Borrower to pay the principal of and premium, if any, and interest on the Bonds when the same shall become due and payable;

(b   failure by the Borrower to make other payments (excluding (a) above) required by the Loan Agreement if such failure shall continue for a period of thirty (30) days after written notice thereof, unless a written extension is granted by the Authority and the Trustee prior to its expiration;

(c   failure by the Borrower to observe or perform certain other covenants, conditions or agreements under the Loan Agreement or the Program Guide, other than (a) and (b) above, and continuation of such failure for thirty (30) days after written notice thereof, unless a written extension thereof is granted by the Authority and the Trustee prior to its expiration; provided, however, that if such failure cannot be corrected within such thirty-day period, it will not constitute an event of default if corrective action is commenced by the Borrower during such period and diligently pursued until such failure is corrected;

(d   certain events of bankruptcy, receivership, insolvency, liquidation or similar proceedings involving the Borrower.

If by reason of Force Majeure (as defined in the Loan Agreement), the Borrower is unable to perform any of its obligations under (c) above, the Borrower will not be deemed to be in default during the continuance of such inability, including a reasonable time for the removal of the effect thereof.

The Authority has no power to waive any default under the Loan Agreement or extend the time for the correction of any default which could become an event of default without the consent of the Trustee.

Upon the occurrence of the event of default, subject to the provisions of the Trust Agreement, the Trustee, as assignee of the Authority's rights, may declare all unpaid amounts payable under the Loan Agreement in respect of the Bonds to be immediately due and payable and may take any action at law or equity necessary to enforce any obligation of the Borrower under the Loan Agreement.

Amendments

The Loan Agreement and the Program Guide may not be amended, changed, modified, altered or terminated, except in accordance with the terms of the Trust Agreement.

THE TRUST AGREEMENT

The following is a summary of certain provisions of the Trust Agreement.  This summary does not purport to be comprehensive or definitive and is qualified by reference to and is subject to the provisions of the Trust Agreement, copies of which may be obtained during the offering period from the Underwriters and thereafter from the Trustee.

Under the Trust Agreement, the Authority will assign to the Trustee for the benefit of the Bondholders all of the Authority's right, title and interest in the Loan Agreement (except for certain rights of the Authority under the Loan Agreement to indemnification, exemption from liability, notices and the payment of costs and expenses), in trust to provide for the payment of the principal of and premium, if any, and interest on the Bonds.  The Trust Agreement creates a Bond Fund and a Program Fund to be held by the Trustee.  The moneys in each of such funds shall be held in trust and applied as provided in the Loan Agreement and pending application shall be subject to a lien and charge in favor of the Bondholders.

Program Fund

On the date of issuance of the Bonds, the proceeds from the sale of the Bonds (after payment of the costs of issuance of the Bonds) shall be deposited with the Trustee in the Program Fund.  On such date, upon receipt by the Trustee of a requisition signed by an authorized Borrower representative, the Trustee shall deliver the net Bond proceeds  to the Borrower, which shall thereafter be responsible for the disbursement of such funds to Users pursuant to Qualified Loans used to finance Qualified Projects in compliance with the Act and the Program Guide.  On June 1, 2001 (or such later date as may be approved by the Authority), any balance of the proceeds of the Bonds not disbursed by the Borrower to fund Qualified Loans, shall be returned by the Borrower to the Trustee for deposit to the credit of the Program Fund.  Such amounts shall be transferred to the Bond Fund and used to redeem Bonds pursuant to the Trust Agreement.

Moneys in the Program Fund shall be applied also to the payment of expenses incidental to the issuance of the Bonds upon receipt by the Trustee of a requisition signed by an authorized representative of the Borrower.  Optional Prepayments shall be deposited to the credit of the Program Fund within 5 Business Days after receipt by the Borrower.  The Borrower may, at any time within 90 days after receipt of any such Optional Prepayment, use such funds representing Optional Prepayments on deposit in the Program Fund to originate new Qualified Loans.  After such 90-day period or on any other date elected by the Borrower prior to such 90th day, moneys remaining in the Program Fund on such date shall be transferred to the Bond Fund and on the next Interest Payment Date, commencing on June 1, 2001, the Trustee will use such funds to redeem Bonds in accordance with the Trust Agreement.  See The Bonds - Redemption.

Bond Fund

There shall be deposited to the credit of the Bond Fund:  (i) accrued interest, if any, on the Bonds paid by the purchasers thereof; (ii) all amounts paid as repayment or optional or mandatory prepayments under the Loan Agreement; (iii) any amount in the Program Fund to be transferred to the Bond Fund in accordance with the provisions of the Trust Agreement; (iv) any Additional Interest paid by the Borrower; and (v) all other moneys received by the Trustee under and pursuant to any of the provisions of the Loan Agreement or otherwise which are permitted or required or are accompanied by directions from the Borrower or the Authority that such moneys are to be paid into the Bond Fund.

Investment of Funds

Moneys held for the credit of all funds and accounts under the Trust Agreement shall be invested in Investment Obligations in accordance with the instructions of the Borrower.  Any such Investment Obligations shall mature not later than the respective dates when the money held for the credit of such funds or accounts will be required for the purposes intended.

Investment Obligations are defined as Government Obligations and obligations of any agency or instrumentality whose obligations are backed by the full faith and credit of the United States of America and, to the extent from time to time permitted by law, (A) the obligations of (i) Federal National Mortgage Association, (ii) Federal Home Loan Banks, (iii) Federal Farm Credit System, (iv) Federal Home Loan Mortgage Corporation, and (v) Government National Mortgage Association (to the extent not included in Government Obligations); (B) repurchase agreements with financial institutions which are members of the Federal Reserve System or primary dealers in the United States Treasury market the short-term obligations of which institutions or dealers are rated at least "A-1" by S&P and "P-1" by Moody's (or any similar rating to which it may be changed by each such rating agency) or whose long-term obligations are rated in one of the three highest rating categories by S&P and Moody's (without regard to any gradations within such categories) secured by Government Obligations or by securities described in clause (A); provided, that such repurchase agreement must provide that the value of the underlying obligations shall be maintained at a current market value, calculated at least weekly, of not less than 104% of the repurchase price (or in the case such underlying obligations are obligations of the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation, of not less than 105% of the repurchase price), a legal opinion shall be furnished to the Trustee to the effect that the repurchase agreement meets guidelines under the laws of Puerto Rico for the legal investment of public funds, the Trustee shall be given a first priority security interest, no independent third party shall have a lien, such obligations repurchased must be transferred to the Trustee or an independent third party agent by physical delivery or by an entry made on the records of the issuer of such obligations, in either case, the entity should receive confirmation from the independent third party that those securities are being held in a safe-keeping account in the name of the entity (the trust or safe-keeping departments of broker-dealers or financial institutions selling investments or pledging collateral or underlying securities, or their custodial agents, are not considered independent third parties for the foregoing purposes), such repurchase agreement shall constitute a "repurchase agreement" within the meaning of Section 101 of the United States Bankruptcy Code, as amended, and any investment in a repurchase agreement shall mature within thirty (30) days; (C) debt obligations and commercial paper rated "A-1" or better by S&P and "P-1" or better by Moody's; (D) U.S. Treasury Strips, REFCORP Strips and FICO Strips; (E) Investment Agreements; (F) money market funds registered under the Federal Investment Company Act of 1940, whose shares are registered under the Federal Securities Act of 1933, and having a rating by S&P of "A-1" and "P-1" by Moody's; (G) certificates of deposit secured at all times by Government Obligations or collateral described in (A) which certificates are issued by commercial banks, savings and loan associations or mutual savings banks; provided that the collateral must be held by a third party and the Trustee must have a perfected first priority security interest in the collateral; (H) certificates of deposit, savings accounts, deposit accounts or money market deposits which are fully insured by FDIC, including BIF and SAIF; (I) bonds or notes issued by any state, territory or municipality which are rated by S&P and Moody's in one of the two highest rating categories (without regard to any gradations within such categories) assigned by such agencies; (J) federal funds or bankers' acceptances with a maximum term of one year of any bank which has an unsecured, uninsured and unguaranteed obligation rating of "A-1" or better by S&P and "P-1" or better by Moody's; (K) any Puerto Rico administered pool investment fund in which the Authority is statutorily permitted or required to invest; and (L) any other obligation, security or investment for which the Trustee shall have received written confirmation from S&P and Moody's to the effect that no reduction in the rating on the Bonds by either of such rating agencies will result from the addition of such other obligation.  Any investment in Government Obligations or in obligations described in (A) above may be made in the form of an entry made on the records of the issuer of the particular obligation.

Government Obligations are defined as (i) direct obligations of, or obligations the timely payment of principal of and interest on which are unconditionally guaranteed by, the United States of America,  (ii) bonds, debentures or notes issued by Government National Mortgage Association, and (iii) any certificates or other evidences of an ownership of a proportionate interest in obligations or in specified portions thereof (which may consist of specified portions of the principal thereof or the interest thereon) of the character described in clause (i).

Events of Default

Each of the following events is an event of default under the Trust Agreement:

(a   failure to pay the principal of and premium, if any, and interest on the Bonds when the same shall become due and payable by the Authority;

(b   default in the due and punctual performance of any other covenants, conditions, agreements and provisions contained in the Trust Agreement or any agreement supplemental thereto and such default continues for thirty (30) days after receipt by the Authority of a written notice from the Trustee specifying such default and requiring the same to be remedied; provided, however, that if prior to the expiration of such 30-day period the Authority institutes action reasonably designed to cure such default, no event of default shall be deemed to have occurred upon the expiration of such 30-day period for so long as the Authority pursues such curative action with reasonable diligence and provided that such curative action can be completed within a reasonable time; or

(c   any "event of default" shall have occurred under the Loan Agreement and such event of default shall not have been remedied or waived.

Acceleration of Maturities

Upon (i) the happening and continuance of an event of default specified in paragraph (a) above, the Trustee shall, and upon (ii) the happening and continuance of any other event of default specified above, the Trustee may, and upon the written request of Holders of not less than 25% in aggregate principal amount of Bonds then outstanding shall, by notice in writing to the Authority, declare the principal of all the Bonds then outstanding (if not due and payable) to be due and payable immediately, and upon such declaration the same shall become and be immediately due and payable.

If at any time after the principal of Bonds shall have been declared to be due and payable, and before the entry of a final judgment or decree in any suit, action or proceeding instituted on account of such default, or before the completion of the enforcement of any other remedy under the Trust Agreement, moneys shall have accumulated in the Bond Fund sufficient to pay the principal of all Bonds then outstanding (except the principal of any Bonds due and payable solely as a result of such acceleration) and the interest accrued on such Bonds since the last payment date to which interest shall have been paid or duly provided for, interest on overdue installments of interest (to the extent permitted by law) at the rate or rates then borne by the Bonds, and the charges, compensation, expenses, disbursements, advances and liabilities of the Trustee, and all other amounts then payable by the Authority under the Trust Agreement shall have been paid or a sum sufficient to pay the same shall have been deposited with the Trustee,  and every other default known to the Trustee in the observance or  performance of any covenant, condition, agreement or provision contained in the Bonds or in the Trust Agreement shall have been cured or waived, then and in every such case the Trustee may, and upon the written direction of the Holders of not less than a majority in aggregate principal amount of the Bonds then outstanding shall, by a notice in writing to the Authority and the Borrower, rescind and annul such declaration and its consequences, but no such rescission or annulment shall extend to or affect any subsequent default or impair any right consequent thereon.

Enforcement of Remedies

The Holders of a majority of the aggregate principal of Bonds then outstanding will have the right, subject to indemnification of the Trustee, by an instrument or concurrent instruments in writing delivered to the Trustee, to direct the remedial proceedings to be taken by the Trustee under the Trust Agreement provided such directions are in accordance with law and the Trust Agreement and the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such directions.  Except as to the indemnity provided in the Loan Agreement with respect to an Event of Taxability, no Bondholder will have any right to institute any suit, action or proceeding in equity or at law on any Bond or for the execution of any trust under the Trust Agreement, or for any other remedy under the Trust Agreement unless:  (i) such Holder has previously given to the Trustee written notice of the event of default on account of which such suit, action or proceeding is to be instituted; (ii) the Holders of not less than 25% of the aggregate principal of Bonds then outstanding have requested the Trustee, after the right to exercise such powers or right of action, as the case may be, has accrued, and have afforded the Trustee a reasonable opportunity, either to proceed to exercise such powers or to institute such action, suit or proceeding in its or their name; (iii) the Trustee has been offered reasonable security and indemnity against the costs, expenses and liabilities to be incurred (including, without limitation, indemnification for environmental liability); and (iv) the Trustee has refused or neglected to comply with such request within a reasonable time.  No one or more Bondholders will have any right, in any manner, to affect, disturb or prejudice any rights under the Trust Agreement, or to enforce any right thereunder, except in the manner therein provided.  All suits, actions and proceedings at law or in equity must be instituted, had and maintained in the manner provided in the Trust Agreement and for the benefit of the Bondholders.  Any individual right of action or other right given to one or more Bondholders by law is restricted by the Trust Agreement to the rights and remedies therein provided.  

Supplemental Trust Agreements

The Trust Agreement may be amended or supplemented without the consent of the Bondholders: (a) to cure any ambiguity or to make any other provisions with respect to matters or questions arising under the Trust Agreement which shall not be inconsistent with the provisions of the Trust Agreement; or (b) to grant or confer upon the Trustee for the benefit of the Bondholders any additional rights, remedies, powers, benefits, authority or security that may lawfully be so granted or conferred; or (c)  to add to the covenants of the Authority for the benefit of the Bondholders or to surrender any right or power conferred upon the Authority under the Trust Agreement; or (d) to permit the qualification of the Trust Agreement under the Trust Indenture Act of 1939 or any similar Federal statute hereafter in effect or to permit the qualification of the Bonds for sale under the securities laws of any of the states of the United States, and to add to the Trust Agreement or any supplement or amendment thereto such other terms, conditions and provisions as may be required by said Trust Indenture Act of 1939 or similar Federal statute.

The Trust Agreement may be amended or supplemented with the consent of the holders of a majority of the principal of the Bonds at the time outstanding.  However, without the consent of each Bondholder affected, any amendment to the Trust Agreement may not:  (a) extend the time for the payment of the principal of and premium, if any, or the interest on any Bond; or (b) reduce the principal of any Bond or the redemption premium, if any, or the rate of interest thereon; or (c) create any lien or security interest with respect to the Loan Agreement or the payments thereunder, other than the lien created by the Trust Agreement; or (d) give a preference or priority to any Bond or Bonds over any other Bond or Bonds; or (e) modify the Trust Agreement in any way which adversely affects the rights of the Bondholders under the Trust Agreement; or (f) reduce the aggregate principal of the Bonds required for consent to such supplement or amendment or any waiver thereunder.

The Trustee is not obligated to execute any proposed supplement or amendment if its rights, obligations and interests would be affected thereby.  Nothing herein will affect any preexisting rights to create liens set forth in the Trust Agreement.

No amendment or supplement to the Trust Agreement, other than to cure any ambiguity, will become effective without the consent of the Borrower.

Amendments and Supplements to the Loan Agreement 

The Loan Agreement, including the Program Guide, may be amended or supplemented without the consent of the Bondholders:  (a) to cure any ambiguity or formal defect or omission therein or, in any supplement thereto; (b) to grant to or confer upon the Authority or the Trustee for the benefit of the Bondholders any additional rights, remedies, powers, benefits, authority or security that may lawfully be granted to or conferred upon the Authority, the Trustee or the Bondholders; (c) to add to the covenants of the Borrower for the benefit of the Bondholders or to surrender any right or power therein conferred upon the Borrower; or (d) in connection with any other change which, in the judgment of the Trustee, will not restrict, limit or reduce the obligation of the Borrower to make the payments under the Loan Agreement, respectively, or to pay the principal of and premium, if any, and the interest on the Bonds or otherwise impair the security of the Bondholders under the Trust Agreement, provided such action shall not materially adversely affect the interests of the Bondholders.

Other than for the purposes of the above paragraph, the Loan Agreement may be amended or supplemented with the approval of the Holders of not less than a majority of the principal of the Bonds at the time outstanding.  No amendment or supplement to the Loan Agreement will become effective without the consent of the Trustee and, in the case of the Program Guide, the Authority.

Defeasance

Any Bond will be deemed paid and no longer entitled to any security under the Trust Agreement  upon satisfaction of certain conditions and the deposit with the Trustee of sufficient funds, or direct obligations of the United States of America or obligations unconditionally guaranteed by the United States of America, the principal of and the interest on which, when due (without any reinvestment thereof), will provide moneys which will be sufficient to pay when due the principal of and premium, if any, and interest due and to become due on such Bond.  If any Bond is not to be redeemed or does not mature within 60 days after such deposit, the Borrower must give irrevocable instructions to the Trustee to give notice, in the same manner as notice of redemption, that such deposit has been made.  The Bonds shall have not been deemed paid unless the Trustee shall have received an opinion of counsel experienced in bankruptcy matters to the effect that payment to the Bondholders would not constitute a transfer which may be voided under the provisions of the United States Bankruptcy Code, and an opinion of counsel experienced in tax matters under the Code to the effect that the deposit of said obligations or moneys would not adversely affect the interest received by the Bondholders as income from sources within Puerto Rico.

TAX MATTERS

In the opinion of Pietrantoni Méndez & Alvarez, Bond Counsel, under the provisions of the Acts of Congress and the laws of Puerto Rico now in force:

1.  interest on, and gain on the disposition of, the Bonds is exempt from Commonwealth income and withholding taxes including the alternative minimum tax imposed by the Puerto Rico Internal Revenue Code of 1994, as amended (the "PR-Code");

2.  the Bonds are exempt from property taxes imposed by the Municipal Property Tax Act of 1991, as amended, and the interest thereon is exempt from municipal license taxes imposed by the Municipal License Tax Act of 1974, as amended; and

3.  the Bonds are exempt from Commonwealth gift tax with respect to donors who are residents of Puerto Rico at the time the gift is made and exempt from Commonwealth estate tax with respect to estates of decedents who are residents of Puerto Rico at the time of death, except for United States citizens who did not acquire their United States citizenship solely by reason of birth or residence in Puerto Rico.  Other individuals should consult their tax advisors with respect to the precise determination of the estate and gift tax consequences arising from a transfer of the Bonds by inheritance or gift.

The PR-Code does not provide rules with respect to the treatment of the excess of the amount due at maturity of a Bond over its initial offering price ("original issue discount").  Under the current administrative practice followed by the Puerto Rico Department of the Treasury, original issue discount is treated as interest.  Prospective owners of the Bonds, including but not limited to financial institutions, should be aware that ownership of the Bonds may result in having a portion of their interest expense allocable to interest or original issue discount on the Bonds disallowed for purposes of computing the regular tax and the alternative minimum tax for Commonwealth income tax purposes.

In the opinion of Bond Counsel, based upon the provisions of the Code now in force: 

1.  interest on the Bonds is not excludable from the gross income of the recipients thereof for federal income tax purposes under Section 103(a) of the Code;

2.  if  (i) the Borrower is engaged in trade or business in Puerto Rico during each taxable year when interest on the Bonds is paid; (ii) for the three-year period ending with the close of Borrower's taxable year immediately preceding the payment of interest more than 20% of the Borrower's gross income is, was or will be (a) derived from sources within Puerto Rico and (b) attributable to the active conduct of a trade or business within Puerto Rico, such determination to be made under Section 861(c)(1)(B)(ii) of the Code and (iii) such interest is not treated as paid by a trade or business conducted by the Borrower outside Puerto Rico, such determination to be made under Section 884(f)(1)(A) of the Code and the regulations thereunder, then (a) in the case of an individual who is a bona fide resident of Puerto Rico during an entire taxable year, interest on the Bonds received by, or "original issue discount" (within the meaning of the Code and hereafter referred to as "OID") on the Bonds otherwise required to be recognized as gross income and accrued to, such individual during such taxable year, will constitute gross income from sources within Puerto Rico and therefore, is excludable from gross income for purposes of the Code pursuant to section 933(1) thereof, and (b) interest on the Bonds derived by, or OID on the Bonds otherwise required to be recognized as gross income and accrued to, a corporation organized under the laws of Puerto Rico or any other foreign country ("foreign corporations") is not, in the hands of such foreign corporation, subject to taxation under the Code, provided that (w) such foreign corporation is not a foreign personal holding company, a controlled foreign corporation or a passive foreign investment company under the Code, (y) such foreign corporation is not treated as a domestic corporation for purposes of the Code and (z) interest on the Bonds and OID is not effectively connected with the conduct of a trade or business in the United States by such foreign corporation. 

United States taxpayers, other than individuals who are bona fide residents of Puerto Rico during the entire taxable year, may be subject to federal income tax on any gain realized upon the sale or exchange of the Bonds.  Pursuant to Notice 89-40 issued by the United States Internal Revenue Service on March 27, 1989, gain realized on the sale or exchange of the Bonds (excluding OID accrued under the Code as of the date of such sale or exchange) by an individual who is a bona fide resident of Puerto Rico during the entire taxable year and that is a resident of Puerto Rico for purposes of Section 865(g)(1) of the Code will constitute Commonwealth source income and, therefore, qualify for the exclusion provided in Section 933(1) of the Code, provided said Bonds do not constitute inventory in the hands of such individual.

The opinion of Bond Counsel regarding the tax consequences under the Code and the PR-Code arising from ownership or disposition of the Bonds is limited to the above.

RATINGS

The Bonds are rated "AA-" by Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. ("S&P") and "A1" by Moody's Investors Service ("Moody's").  There is no assurance that such ratings will be given to the Bonds or that, once given, will remain in effect for any given period or that they will not be revised downward or withdrawn entirely by such organizations if, in their sole judgment, circumstances so warrant.  Any such downward revision or withdrawal of such ratings may have an adverse effect on the market prices of the Bonds.

The ratings given to the Bonds reflects only the views of the above rating organizations.  An explanation of the significance of such ratings may be obtained only from S&P at 25 Broadway, New York, New York 10004, telephone number (212) 208-8000 and from Moody's at 99 Church Street, New York, New York  10007, telephone number (212) 553-0470.  The ratings do not constitute a recommendation to buy, sell or hold the Bonds.

LEGAL INVESTMENT

The Bonds will be eligible for deposit by banks in Puerto Rico to secure public funds and will be approved investments for insurance companies to qualify them to do business in Puerto Rico as required by law.

CERTAIN REGULATORY CONSIDERATIONS

The Borrower is a commercial bank organized under the laws of Puerto Rico.  The deposits of the Borrower are insured by the FDIC up to applicable limits.  The Borrower is subject to extensive regulation under federal and state law.  The federal and Puerto Rico laws and regulations that apply to banks regulate, among other things, the scope of their business, their investments, their minimum capital requirements, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans.  In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve Board as it attempts to control the money supply and credit availability in order to influence the economy.  

The Borrower is subject to examination and supervision by the Puerto Rico Commissioner of Financial Institutions (the "Commissioner") and the FDIC.  This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors.  The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.  This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined.  In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices.  In addition, certain actions are required by statute and implementing regulations.  Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

Federal law provides that the claims of certain creditors of an insured depository institution, including claims of holders of the deposits of such an institution and certain claims for administrative expenses, have priority over other general claims of unsecured creditors of such institution in the event of a liquidation or other resolution by a receiver of such institution.  As a result, depositors (including the FDIC, as the subrogee of such depositors) and such other priority claim holders are entitled to priority over the Bondholders in the event of a liquidation or other resolution by a receiver of the Borrower.  A substantial portion of the Borrower's liabilities consists of deposits.

Changes in the regulatory framework applicable to the Bank, whether by the Commissioner, the FDIC or the U.S. Congress or Puerto Rico legislature could have a material adverse impact on the Borrower and its operations.  However, the Borrower is not aware of any current recommendations by any federal or state regulatory authority that, if implemented, would have or would be reasonably likely to have a material effect on the liquidity, capital resources or operations of the Borrower.

For additional information regarding regulatory matters, refer to Appendix III to this Official Statement.

LITIGATION

The Borrower is involved as plaintiff or defendant in a variety of routine litigation incidental to the normal course of business.  Management believes, based on the opinion of legal counsel, that it has adequate defense or insurance protection with respect to such litigation and that any losses therefrom, whether or not insured, would not have a material adverse effect on the business or financial condition of the Borrower.

Santander Mortgage Corporation ("Santander Mortgage"), a subsidiary of the Borrower, has been named as a defendant in a class action consolidated by the U.S. Panel on Multidistrict Litigation before the U.S. District Court for the Northern District of Illinois.  Many other mortgage and financial institutions nationwide have been joined in that lawsuit, which alleges that all such entities kept excessively high escrow reserves in the servicing of client mortgages.  Santander Mortgage's believes that it followed generally accepted industry practices in computing the mortgage escrows, and is currently defending against the action.  The Borrower's management believes that in any event the final disposition of this action will not have a material adverse effect on the businesses or financial condition of the Borrower.

UNDERWRITING

The Underwriters of the Bonds are: Santander Securities Corporation of Puerto Rico ("Santander Securities"),  221 Ponce de León Avenue, Suite 600, San Juan, Puerto Rico; and Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), 209 Muñoz Rivera Avenue, Popular Center, San Juan, Puerto Rico.   Santander Securities is an affiliate of the Borrower and from time to time engages in transactions with and performs services for Borrower and its subsidiaries in the ordinary course of business.  Merrill Lynch may from time to time perform services for the Borrower and its subsidiaries in the ordinary course of business.

Subject to the terms and conditions of a certain bond purchase agreement among the Authority, the Borrower and the Underwriters (the "Bond Purchase Agreement"), the Authority has agreed to sell to the Underwriters, and the Underwriters have jointly agreed to purchase from the Authority, all of the  Bonds at the  purchase  price of  $48,839,500.00 plus accrued interest, if any.

The Underwriters proposes initially to offer the Bonds to the public, when, as and if issued by the Authority and accepted by the Underwriters, at the initial public offering price set forth or derived from information shown on the inside front cover page of this Official Statement.  The initial offering price may be changed from time to time by the Underwriters.  The Underwriters may offer and sell the Bonds to certain dealers (including dealers depositing Bonds into investment trusts) and others at prices lower than the initial public reoffering prices stated or derived from information shown on the front cover page hereof.

The Bond Purchase Agreement will provide that the obligations of the Underwriters thereunder are subject to approval of certain legal matters by counsel and to various other conditions.  The Underwriters are committed to purchase all of the Bonds if any are purchased.

The Borrower will agree to indemnify the Underwriters and the Authority against certain civil liabilities, including liabilities under the Securities Act of 1933.

LEGAL MATTERS

Legal matters incident to the authorization, issuance and sale of the Bonds and with regard to the tax-exempt status thereof are subject to the unqualified approving opinion of Pietrantoni Méndez & Alvarez,  San Juan, Puerto Rico, Bond Counsel.  Certain legal matters will be passed upon for the Borrower by Fiddler, González & Rodríguez, LLP,  San Juan, Puerto Rico, and for the Underwriters by O'Neill & Borges, San Juan, Puerto Rico.

CONTINUING DISCLOSURE COVENANT

The Borrower will enter into a Continuing Disclosure Agreement with the Trustee wherein the Borrower will covenant for the benefit of the Bondholders and the Beneficial Owners of the Bonds to file within 120 days after the end of each fiscal year beginning after their year 1998, with each nationally recognized municipal securities information repository ("NRMSIR") and with any Commonwealth state information depository ("SID"), core financial information and operating data for such fiscal year, including (i) audited financial statements, prepared in accordance with generally accepted accounting principles in effect from time to time, and (ii) operating data and data relating to its revenues, expenditures, financial operations and indebtedness of the type generally found in Appendix II to this Official Statement.

The Borrower will covenant also to file in a timely manner, with each NRMSIR or with the Municipal Securities Rulemaking Board ("MSRB"), and with any Commonwealth SID, notice of failure to comply with the covenant to file the core financial information and operating data set forth in the preceding paragraph and notice of any of the following events with respect to the Bonds, if material:

(i)principal and interest payment delinquencies;

(ii)non-payment related defaults;

(iii)unscheduled draws on debt service reserves reflecting financial difficulties;

(iv)unscheduled draws on credit enhancements reflecting financial difficulties;

(v)substitution of credit or liquidity providers, or their failure to perform;
(vi)adverse tax opinions or events affecting the tax-exempt status of the Bonds, including the occurrence of an Event of Taxability;

(vii)modifications to rights of holders of the Bonds;

(viii)bond calls;

(ix)defeasances;
(x)release, substitution, or sale of property securing repayment of the Bonds; and

(xi)rating changes.

These covenants have been made in order to assist the Underwriters in complying with paragraph (b)(5) of Rule 15c2-12 (the "Rule") of the Securities and Exchange Commission (the "SEC").

The Borrower does not undertake to provide the above-described event notice of a scheduled redemption, not otherwise contingent upon the occurrence of an event, if the terms, dates and amounts of redemption are set forth in detail in this Official Statement under The Bonds -- Redemption.

As of May 28, 1998, there was no Commonwealth SID, and the nationally recognized municipal securities information repositories are:  Bloomberg Municipal Repository, P.O. Box 840, Princeton, New Jersey 08542-0840; Kenny Information Systems, Inc., Attn: Kenny Repository Service, 65 Broadway, New York, New York  10006; Thompson NRMSIR, 395 Hudson Street, New York, New York 10004, Attn:  Municipal Disclosure; and DPC Data Inc., One Executive Drive, Fort Lee, New Jersey 07024.

The Borrower may from time to time choose to provide notice of the occurrence of certain other events in addition to those listed above if, in the judgment of the Borrower, such other events are material with respect to the Bonds, but the Borrower does not undertake to provide any such notice of the occurrence of any material event except those events listed above.

The Borrower acknowledges that its undertakings pursuant to the Rule described above are intended to be for the benefit of the Bondholders, and shall be enforceable by any such Bondholders; provided that the right to enforce the provisions of their respective undertakings shall be limited to a right to obtain specific enforcement of their obligations hereunder.  Failure by the Borrower to comply with the undertakings will not constitute an event of default under the Loan Agreement, the Trust Agreement or the Bonds.  Failure by the Borrower to comply with the undertakings must be reported in accordance with the Rule and must be considered by any broker, dealer or municipal securities dealer before recommending the purchase or sale of the Bonds in the secondary market.  Consequently, any such failure may adversely affect the transferability and liquidity of the Bonds and their market prices.

No Bondholder may institute any suit, action or proceeding at law or in equity ("Proceeding") for the enforcement of the foregoing covenants or for any remedy for breach thereof, unless such Bondholder shall have filed with the Borrower written notice of a request to cure such breach, and the Borrower shall have refused to comply within a reasonable time.  All Proceedings shall be instituted only as specified in such Continuing Disclosure Agreement in any Federal or Commonwealth court located in the Municipality of San Juan, and for the equal benefit of all Bondholders of the outstanding Bonds benefited by the same or a substantially similar covenant, and no remedy shall be sought or granted other than specific performance by the Borrower of the covenant at issue.  Notwithstanding the foregoing, no challenge to the adequacy of the information provided in accordance with the filings mentioned above may be prosecuted by any Bondholder except in compliance with the remedial and enforcement provisions contained in the Trust Agreement.  See The Trust Agreement - Enforcement of Remedies. 

The above covenants may only be amended or waived if:

(1)  the amendment or waiver is made in connection with a change in circumstances that arises from a change in legal requirements, change in law, or change in the identity, nature or status of the Borrower; the covenants, as amended, or the provision as waived, would have complied with the requirements of the Rule at the time of award of the Bonds, after taking into account any amendments or change in circumstance; and the amendment does not materially impair the interests of the Bondholders, as determined by parties unaffiliated with the Borrower, or

(2) all or any part of the Rule, as interpreted by the staff of the SEC at the date of the adoption of such interpretation, ceases to be in effect for any reason, and the Borrower elects that the above covenants shall be deemed amended accordingly.

Any assertion of beneficial ownership must be filed, with full documentary support, as part of the written request described above.

MISCELLANEOUS

The information set forth in Appendix I - The Borrower and Appendix III - Supervision and Regulations was prepared by the Borrower, and is included in this Official Statement on its authority.  

Appended as Appendix II to and constituting a part of this Official Statement are the financial statements for the years ended  December 31, 1997 and 1996, together with the independent auditors' report dated  January 9, 1998 of Arthur Andersen LLP, San Juan, Puerto Rico, independent public accountants.

Information relating to DTC and the book-entry system described under the heading The Bonds has been furnished by DTC and is believed to be reliable, but the Authority, the Borrower and the Underwriters make no representations or warranties whatsoever with respect to such information.

Appended as Appendix IV and constituting part of this Official Statement is the opinion of Pietrantoni Méndez & Alvarez, Bond Counsel.

The execution and delivery of this Official Statement have been duly authorized by the Authority, and this Official Statement has been approved by the Borrower. 

This Official Statement will be filed with each NRMSIR and with the repository established by the MSRB.

 
PUERTO RICO INDUSTRIAL, TOURIST, EDUCATIONAL, MEDICAL AND ENVIRONMENTAL CONTROL FACILITIES FINANCING AUTHORITY       

 

 

By:          /s/ Lourdes Rovira                                             

Executive Director                     

APPROVED:

 

BANCO SANTANDER PUERTO RICO

               

 

By:        /s/ Benito Cantalapiedra                  
President

APPENDIX I

 

 

 

THE BORROWER

 

 

Banco Santander Puerto Rico (the "Bank") is Puerto Rico's second largest financial institution based on total assets of approximately $6 billion at December 31, 1997.  At the same date, the Bank had total deposits of $3.5 billion and stockholders' equity of $517 million.  The Bank provides a wide range of corporate and retail financial products and services to a diverse customer base that includes small and medium size businesses, large corporations and individuals through one of Puerto Rico's most extensive branch networks, with 77 branches strategically distributed across the island and one branch in New York City.  In addition, the Bank provides mortgage banking services through its wholly-owned subsidiary, Santander Mortgage Corporation ("Santander Mortgage"), which has four offices in Puerto Rico.

The Bank is currently a 99.6%-owned subsidiary of Banco Santander, S.A. ("Santander Spain").  Santander Spain had total assets of US$171 billion at December 31, 1997.  Santander Spain, along with its consolidated subsidiaries, is Spain's largest banking group and provides a comprehensive range of banking, financial and related services to corporate and individual clients in 32 countries.

The Bank organizes its operations in three principal lines of business: commercial banking, consumer banking and mortgage banking.  At December 31, 1997, the Bank had total commercial loans of $2.1 billion, consumer loans of $752 million and mortgage loans of $815 million.

The Bank delivers financial services to its commercial banking clients through the following units: retail commercial banking, corporate banking and construction lending.  The Bank's retail commercial banking unit focuses primarily on small and medium-size businesses.  The Bank has traditionally competed in the retail commercial sector through the creation of specialized departments focusing in areas such as middle-market, agriculture, small business, factor's lien, public sector and international.  The Bank's corporate banking unit provides banking products to large, locally-owned entities as well as subsidiaries of U.S. mainland and foreign corporations.  The Bank's construction lending unit is dedicated to the financing of residential, commercial and industrial projects.

The Bank offers a wide variety of consumer banking services and products, such as personal loans, automobile loans, credit and debit cards and deposit accounts.

Since 1992, the Bank has engaged in mortgage banking through Santander Mortgage.  At December 31, 1997, Santander Mortgage was the fourth largest mortgage banking operation in Puerto Rico with a servicing portfolio of $1.6 billion and a total or approximately 40,000 loans, representing a 17% market share.  Santander Mortgage originated $100 million in residential mortgage loans during calendar year 1997.

In recent years, the Bank's strategy has enabled it to generate consistent profitability and growth in the various services it provides.  For the year ended December 31, 1997, the Bank reported net income of $67.7 million compared to net income of $45.3 million in 1996.  Net income in 1997 represented returns on average assets and average equity of 1.23% and 14.01%, respectively.

APPENDIX II

 

 

 

BORROWERS' FINANCIAL STATEMENTS

 

 

 

APPENDIX III

 

 

SUPERVISION AND REGULATION

 

Banking Operations-Federal Regulation

General

Banks and bank holding companies are extensively regulated under federal and state law.  References under this heading to applicable statutes or regulations are brief summaries of portions thereof which do not purport to be complete and which are qualified in their entirety by reference to those statutes and regulations.  Any change in applicable laws or regulations may have a material adverse effect on the business of commercial banks and bank holding companies, including the Borrower.  However, management of the Borrower is not aware of any current recommendations by any federal or state regulatory authority that, if implemented, would have or would be reasonably likely to have a material effect on the liquidity, capital resources or operations of the Borrower.

Santander Spain is a bank organized under the laws of Spain, a foreign bank within the meaning of the International Banking Act of 1978 (the "IBA") and, under the Bank Holding Company Act (the "BHCA"), a bank holding company subject to supervision and regulation by the Board of Governors of the Federal Reserve System (the "Federal Reserve").  As a bank holding company, the activities in the United States of Santander Spain and its banking and non-banking subsidiaries are limited to the business of banking and activities closely related to banking, and Santander Spain may not directly or indirectly acquire the ownership or control of more than 5% of any class of voting shares or substantially all of the assets of any company in the United States, including a bank, without the prior approval of the Federal Reserve.  In addition, bank holding companies are generally prohibited under the BHCA from engaging in non-banking activities, subject to certain exceptions.

Santander Spain directly owns 79.27%, and indirectly through Santusa Holding, S.L., a Spanish limited liability company and a bank holding company under the BHCA, owns another 20.33% of the sole class of voting stock of the Borrower.

The Borrower is a bank incorporated under the Puerto Rico Banking Act of 1933, as amended (the "Banking Law"), a "statebank" and "insured depository institution" under the Federal Deposit Insurance Act ("FDIA"), and a "foreign bank" within the meaning of the IBA.  The Borrower is subject to extensive regulation and examination by the Commissioner, the FDIC, and certain requirements established by the Federal Reserve.  The federal and Puerto Rico laws and regulations that apply to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the timing of the availability of deposited funds and the nature and amount of and collateral for certain loans.  In addition to the impact of regulation, commercial banks are affected significantly by the actions of the Federal Reserve as it attempts to control the money supply and credit availability in order to influence the economy.  See "-Banking Operations-Puerto Rico Regulation."

There are periodic examinations by the Commissioner and the FDIC to test the Borrower's compliance with various regulatory requirements.  This regulation and supervision establishes a comprehensive framework of activities in which an institution can engage and is intended primarily for the protection of the insurance fund and depositors.  The regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loan loss reserves for regulatory purposes.  This enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease-and-desist or removal orders and to initiate injunctive actions against banking organizations and institution-affiliated parties, as defined.  In general, these enforcement actions may be initiated for violations of laws and regulations and unsafe or unsound practices.  In addition, certain actions are required by statute and implementing regulations.  See "Banking Operations -Federal Regulations-Prompt Corrective Action."  Other actions or inactions may provide the basis for enforcement action, including misleading or untimely reports filed with regulatory authorities.

Any change in such regulation, whether by the Commissioner, the FDIC or the U.S. Congress or Puerto Rico legislature could have a material adverse impact on the Borrower and its operations.

Ownership and Control

Because of the Borrower's status as a bank, owners of the common stock are subject to certain restrictions and disclosure obligations under various federal laws, including the BHCA and the Change in Bank Control Act (the "CBCA").  Regulations pursuant to the BHCA generally require prior Federal Reserve approval for an acquisition of control of an insured institution (as defined) or holding company thereof by any person (or persons acting in concert).  Control is deemed to exist if, among other things, a person (or persons acting in concert) acquires more than 25% of any class of voting stock of an insured institution or holding company thereof.  Control is presumed to exist subject to rebuttal, if a person (or persons acting in concert) acquires more than 10% of any class of voting stock and either (i) the Company has registered securities under Section 12 of the Securities Exchange Act of 1934, or (ii) no person will own, control or hold the power to vote a greater percentage of that class of voting securities immediately after the transaction.  The concept of acting in concert is very broad and also is subject to certain rebuttable presumptions, including among others, that relatives, business partners, management officials, affiliates and others are presumed to be acting in concert with each other and their businesses.  The FDIC's regulations implementing the CBCA are generally similar.

The Banking Law requires Commissioner approval of changes in control of a bank.  See "-Banking Operations-Puerto Rico Regulation."

FDIC Capital Requirements 

Under authority granted in the FDIA, the FDIC has promulgated regulations and adopted a statement of policy regarding the capital adequacy of state-chartered banks that are not members of the Federal Reserve System.  For purposes of the FDIA, Puerto Rico is treated as a state, and the Borrower is such a state-chartered non-member bank.

The FDIC's capital regulations establish a minimum leverage capital requirement for state-chartered nonmember banks.  For the most highly-rated such banks the requirement is 3% Tier 1 capital, with an additional cushion of at least 100 to 200 basis points for all other state-chartered, non-member banks, which effectively increases the minimum Tier 1 leverage ratio for such other bank to 4% to 5% or more.  Under the FDIC's regulations, the highest-rated banks are those that the FDIC determines are not anticipating or experiencing significant growth and have well diversified risk, including no undue interest rate risk exposure, excellent asset quality, high liquidity, good earnings and, in general, which are considered a strong banking organization and are rated composite 1 under the Uniform Financial Institutions Rating System.  Tier 1 leverage or core capital is defined as the sum of common stockholders' equity (including retained earnings), noncumulative perpetual preferred stock and related surplus, and minority interests in consolidated subsidiaries, minus all intangible assets other than certain qualifying supervisory goodwill and certain purchased mortgage servicing rights.

The FDIC also requires that state-chartered nonmember banks meet a risk-based capital standard.  The risk-based capital standard requires the maintenance of total capital (which is defined as Tier 1 capital and plus supplementary (Tier 2) capital) to risk weighted assets of 8%.  In determining the amount of risk weight of 0% to 100%, based on the risks the FDIC believes are inherent in the type of asset or item.  The components of Tier 1 capital are equivalent to those discussed above under the 3% leverage capital standard.  The components of supplementary capital include certain perpetual preferred stock, certain mandatory convertible securities, certain subordinated debt and intermediate preferred stock and general allowances for loan and lease losses.  Allowance for loan and lease losses includable in supplementary capital is limited to a maximum of 1.25% of risk-weighted assets.  Overall, the amount of capital counted toward supplementary capital cannot exceed 100% of core capital.  As of December 31, 1997, the Borrower exceeded each of its core capital requirements and was a well-capitalized institution as defined in the FDIC regulations. 

In August 1995, the FDIC and other federal banking agencies published a final rule modifying their existing risk-based capital standards to provide for consideration of interest rate risk when assessing the capital adequacy of a bank.  Under the final rule, the FDIC must explicitly include a bank's exposure to declines in the economic value of its capital due to changes in interest rates as a factor in evaluating a bank's capital adequacy.  In June 1996, the FDIC and other federal banking agencies adopted a joint policy statement on interest rate risk policy.  Because market conditions, bank structure, and bank activities vary, the agencies concluded that each bank needs to develop its own interest rate risk management program tailored to its needs and circumstances.  The policy statement describes prudent principles and practices that are fundamental to sound interest rate risk management, including appropriate board and senior management oversight and a comprehensive risk management process that effectively identifies, measures, monitors and controls risk.

Set forth below are the Borrower's capital ratios at December 31, 1997 based on existing FDIC guidelines.

Tier 1 Risk-Based Capital Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.25%

Total Risk-Based Capital Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  . . . . . . . . . . . . . . 14.23%

Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8.36%

Failure to meet capital guidelines could subject an insured bank like the Borrower to a variety of enforcement remedies, including, with respect to an insured bank, the termination of deposit insurance by the FDIC, and to certain restrictions on its business.  See "Banking Operations-Federal Regulations-Prompt Correction Action".

Bank regulators have in the past indicated their desire to raise capital requirements applicable to banking organizations beyond current levels.  However, management is unable to predict whether and when higher capital requirements would be imposed and, if so, at what levels or on what schedule.  

Because Santander Spain is not organized under the laws of the United States, they are not subject to the Federal Reserve's leverage and risk-based capital guidelines for bank holding companies.

Prompt Corrective Action

Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") amendments to the FDIA, the federal banking regulators must take prompt corrective action in respect of depository institutions that do not meet minimum capital requirements.  FDICIA and regulations thereunder established five capital tiers:  "well capitalized", "adequately capitalized" "undercapitalized", "significantly undercapitalized", and "critically undercapitalized".  A depository institution is deemed well capitalized if it maintains a leverage ratio of at least 5%, a risk-based Tier 1 capital ratio of at least 6% and a risk-based total capital ratio of at least 10% and is not subject to any written agreement or directive to meet a specific capital level.  A depository institution is deemed adequately capitalized if it is not well capitalized but maintains a leverage ratio of at least 4% (or at least 3% if given the highest regulatory rating and not experiencing or anticipating significant growth), a risk-based Tier 1 capital ratio of at least 4% and a risk-based total capital ratio of at least 8%.  A depository institution is deemed undercapitalized if it fails to meet the standards for adequately capitalized institutions (unless it is deemed significantly or critically undercapitalized).  An institution is deemed significantly undercapitalized if it has a leverage ratio of less than 3%, a risk-based Tier 1 capital ratio of less than  3% or a risk-based total capital ratio of less than 6%.  An institution is deemed critically undercapitalized if it has tangible equity equal to 2% or less of total assets.  A depository institution may be deemed to be in a capitalization category that is lower than is indicated by its actual capital position if it receives a less than satisfactory examination rating in any one of four categories.

At December 31, 1997, the Borrower was well capitalized.  Like any other institution, the Borrower's capital category, as determined by applying the prompt corrective action provisions of law, may not constitute an accurate representation of the overall financial condition or prospects of the Borrower, and should be considered in conjunction with other available information regarding the Borrower's financial condition and results of operations.

The prompt corrective action rules generally prohibit a depository institution from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the depository institution would thereafter be undercapitalized.  Undercapitalized depository institutions are subject to restrictions on borrowing from the Federal Reserve System.   In addition, undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans.  A depository institution's holding company must guarantee the capital restoration plan, up to an amount equal to the lesser of five percent of the depository institution's assets at the time it becomes undercapitalized or the amount of the capital deficiency when the institution fails to comply with the plan.  The federal banking agencies are not permitted to accept a capital plan without determining, among other things, that the plan is based on realistic assumptions and is likely to succeed in restoring the depository institution's capital.  If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized.  Significantly undercapitalized depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, and cessation of receipt of deposits from correspondent banks.  Critically undercapitalized depository institutions are subject to appointment of a receiver or conservator.  An institution's classification may be lowered by a federal banking agency based on factors other than the institution's capitalization.

The capital-based prompt corrective action provisions of FDICIA and the implementing regulations apply to FDIC-insured depository institutions such as the Borrower, but they are not directly applicable to holding companies, such as Santander Spain, which control such institutions.  However, federal banking agencies have indicated that, in regulating holding companies, they may take appropriate action at the holding company level based on their assessment of the effectiveness of supervisory actions imposed upon subsidiary insured depository institutions pursuant to such provisions and regulations.

Cross-Guarantees

Under the FDIA, a depository institution (which term includes both banks and savings associations), the deposits of which are insured by the FDIC, can be held liable for any loss incurred by, or reasonably expected to be incurred by, the FDIC in connection with (i) the default of a commonly controlled FDIC-insured depository institution or (ii) any assistance provided by the FDIC to any commonly controlled FDIC-insured depository institution "in danger of default."  "Default" is defined generally as the appointment of a conservator or a receiver and "in danger of default" is defined generally as the existence of certain conditions indicating that a default is likely to occur in the absence of regulatory assistance.  In some circumstances (depending upon the amount of the loss or anticipated loss suffered by the FDIC), cross-guarantee liability may result in the ultimate failure or insolvency of one or more insured depository institutions in a holding company structure.  Any obligation or liability owned by a subsidiary depository institution to its parent company is subordinated to the subsidiary bank's cross-guarantee liability with respect to commonly controlled insured depository institutions.  The Borrower is currently the only FDIC-insured depository institution controlled by Santander Spain.

FDIC Deposit Insurance Assessments

The deposits of the Borrower are federally insured in accordance with the rules of the FDIC and the Borrower is a member of the Bank Insurance Fund ("BIF").  Because of prior mergers, the Borrower pays deposit insurance assessments on a pro rated basis, using a formula established by FDIC regulations that relates the deposit assessment base to the deposits that originated in particular merged institutions, to both the BIF and the Savings Association Insurance Fund ("SAIF").  As of December 31, 1997, the Borrower had a BIF deposit assessment base of approximately $3 billion, and a SAIF deposit assessment base of approximately $500 million.

Pursuant to certain provisions of FDICIA, the FDIC has adopted a risk-based assessment system, under which the deposit insurance assessment rate for an insured depository institution varies according to the level of risk incurred in its activities.  An institution's risk category is based partly upon whether the institution is well capitalized, adequately capitalized or less than adequately capitalized.  Each insured depository institution is also assigned to one of the following "supervisory subgroups":  "A", "B" or "C".  Group "A" institutions are financially sound institutions with only a few minor weaknesses; Group "B" institutions are institutions that demonstrate weaknesses that, if not corrected, could result in significant deterioration; and Group "C" institutions are institutions for which there is a substantial probability that the FDIC will suffer a loss in connection with the institution unless effective action is taken to correct the areas of weakness. 

The Borrower was classified as a well capitalized institution as of December 31, 1997.  The supervisory subgroup to which an institution is assigned is considered confidential by the FDIC.

On September 30, 1996, the Deposit Insurance Funds Act of 1996 ("DIFA") was enacted and signed into law as part of the Economic Growth and Regulatory Paperwork Reduction Act of 1996.  DIFA established the framework for the eventual merger of the BIF and the SAIF into a single Deposit Insurance Fund.  It repealed the statutory minimum premium and, under implementing FDIC regulations promulgated in 1997, premiums assessed by both the BIF and the SAIF are to be assessed using the matrix described above at a rates between 0 cents and 27 cents per $100 of deposits.  That is a temporary rate schedule that would automatically increase by 4 cents across the board if the BIF's designated reserve ratio fell below the FDIA statutory target ratio. 

DIFA also separated, effective January 1, 1997, the Financing Corporation ("FICO") assessment to service the interest on its bond obligations from the BIF and SAIF assessments.  The amount assessed on individual institutions by the FICO will be in addition to the amount, if any, paid for deposit insurance according to the FDIC's risk-related assessment rate schedules.  The FICO rate on BIF-assessable deposits must be one-fifth the rate on SAIF-assessable deposits until the insurance funds are merged or until January 1, 2000, whichever occurs first.  FICO assessment rates for the first semiannual period of 1997 were set at 1.30 basis points annually for BIF-assessable deposits and 6.48 basis points annually for SAIF-assessable deposits.  These rates may be adjusted quarterly to reflect changes in assessment bases for the BIF and the SAIF.

DIFA also imposed a special one-time assessment on deposits insured by the SAIF to recapitalize the SAIF to bring it up to statutory required levels.  The Borrower paid that one-time assessment of $4.2 million in the fourth quarter of 1996 on its pro rated deposit base.

The FDIC may terminate the deposit insurance of any insured depository institution, including the Borrower, if it determines after a hearing that the institution has engaged or is engaging in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, order or any condition imposed by an agreement with the FDIC.  It also may suspend deposit insurance temporarily during the hearing process for the permanent termination of insurance, if the institution has no tangible capital.  If insurance of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue to be insured for a period of six months to two years, as determined by the FDIC.  Management is aware of no existing circumstances which would result in termination of the Borrower's deposit insurance.

Transactions with Affiliates

The Borrower is subject to restrictions under federal law that govern certain covered transactions between the Santander Spain or other non-banking subsidiaries of Santander Spain, including loans, other extensions of credit, investments and asset purchases.  In the aggregate, such covered transactions between the Borrower and Santander Spain, or any single nonbanking subsidiary of Santander Spain, are limited to 10% of the Borrower's capital stock and surplus and, with respect to all of its non-banking subsidiaries, they are limited to 20% of the Borrower's capital stock and surplus.  Furthermore, such loans and extensions of credit by Santander Spain are required to be secured in specified amounts and must be on terms that are consistent with safe and sound banking practices.  All other transactions between the Borrower and Santander Spain and its non-banking subsidiaries, while not subject to quantitative or collateral requirements, are subject to the requirement that they be on terms and conditions no less favorable to the Borrower than would be available to unaffiliated third parties.

 

Standards for Safety and Soundness

The FDIA, as amended by FDICIA and the Riegle Community Development and Regulatory Improvement Act of 1994, requires the FDIC and the other federal bank regulatory agencies to prescribe standards of safety and soundness, by regulations or guidelines, relating generally to operations and management, asset growth, asset quality, earnings, stock valuation, and compensation.  The FDIC and the other federal bank regulatory agencies adopted, effective August 9, 1995, a set of guidelines prescribing safety and soundness standards pursuant to FDICIA, as amended.  The guidelines establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, and compensation, fees and benefits.  In general, the guidelines require, among other things, appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.  The guidelines prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. 

Community Reinvestment

Under the Community Reinvestment Act ("CRA"), each insured depository institution has a continuing and affirmative obligation, consistent with the safe and sound operation of such institution, to help meet the credit needs of its entire community, including low and moderate income neighborhoods.  The CRA does not establish specific lending requirements or programs for such institutions nor does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community, consistent with the CRA.  The CRA requires each federal banking agency, in connection with its examination of an insured depository institution, to assess and assign one or four ratings to the institution's record of meeting the credit needs of its community and to take such record into account in its evaluation of certain applications by the institution, including application for charters, branches and other deposit facilities, relocations, mergers, consolidations, acquisitions of assets or assumptions of liabilities, and savings and loan holding company acquisitions.  The CRA also requires that all institutions make public disclosure of their CRA ratings.  The Borrower received a rating of "outstanding" as of the most recent report issued by the FDIC.

Brokered Deposits

Well capitalized institutions are not subject to limitations on brokered deposits, while adequately capitalized institutions are able to accept, renew or rollover brokered deposits only with a waiver from the FDIC and subject to certain restrictions on the yield paid on such deposits.  Undercapitalized institutions are not permitted to accept brokered deposits.  The Borrower does not believe the brokered deposits regulation has had or will have a material effect on the funding or liquidity of the Borrower which is currently a well capitalized institution.

Federal Limitations on Activities and Investments

The equity investments and activities as a principal of FDIC-insured state-chartered banks such as the Borrower are generally limited to those that are permissible for national banks.  Under regulations dealing with equity investments, an insured state bank generally may not directly or indirectly acquire or retain any equity investment of a type, or in an amount, that is not permissible for a national bank.  However, an insured state bank is not prohibited from, among other things, (i) acquiring or retaining a majority interest in a subsidiary, (ii) investing as a limited partner in a partnership the sole purpose of which is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided that such limited partnership investments may not exceed 2% of the bank's total assets, (iii) acquiring up to 10% of the voting stock of a company that solely provides or reinsures directors', trustees' and officers' liability insurance coverage or bankers' blanket bond group insurance coverage for insured depository institutions, and (iv) acquiring or retaining the voting shares of a depository institution if certain requirements are met.  In addition, an insured state-chartered bank may not, directly, or indirectly through a subsidiary, engage as principal in any activity that is not permissible for a national bank unless the FDIC has determined that such activities would pose no risk to the insurance fund of which it is a member and the bank is in compliance with applicable regulatory capital requirements. 

Interstate Branching

Outside Puerto Rico, the Borrower has one branch, licensed under the Bank Law of the state of New York and located in New York City.  That branch was established before the enactment of the IBA in 1978, was grandfathered thereunder, and is subject to regulation and supervision by the Superintendent of Banks of the State of New York.

Effective June 1, 1997, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") amended the FDIA and certain other statutes to permit state and national banks with different home states to merge across state lines, with approval of the appropriate federal banking agency, unless the home state of a participating bank had passed legislation prior to May 31, 1997 expressly prohibiting interstate mergers.  Under the Riegle-Neal Act amendments, once a state or national bank has established branches in a state, that bank may establish and acquire additional branches at any location in the state at which any bank involved in the interstate merger transaction could have established or acquired branches under applicable federal or state law.  If a state opts out of interstate branching within the specified time period, no bank in any other state may establish a branch in the state which has opted out, whether through an acquisition or de novo.

For purposes of the Riegle-Neal Act's amendments to the FDIA, the Borrower is treated as a state bank and is subject to the same restrictions on interstate branching as other state banks.  However, for purposes of the IBA, the Borrower is considered to be a foreign bank and may branch interstate by merger or de novo to the same extent as a domestic bank in the Borrower's home state.  It is not yet possible to determine how these statutes will be harmonized, with respect either to which federal agency will approve interstate transactions or to which "home state" determination rules will apply.

Federal Legislative Proposals

Various other legislation, including proposals to overhaul the bank regulatory system, expand bank and bank holding company powers and limit the investments that a depository institution may make with insured funds, is from time to time introduced in Congress.  The Borrower cannot determine the ultimate effect that such potential legislation, if enacted, or implementing regulations, would have upon its financial condition or results of operations.

Dividend Restrictions

Payment of Dividends.  The ability of the Borrower to pay dividends is restricted by the Banking Law, by the Federal Deposit Insurance Act and by FDIC regulations.  In general terms, the Banking Law provides that when the expenditures of a bank are greater than receipts, the excess of expenditures over receipts shall be charged against the undistributed profits of the bank and the balance, if any, shall be charged against the required reserve fund of the Borrower.  If there is no sufficient reserve fund to cover such balance in whole or in part, the outstanding amount shall be charged against the bank's capital account.  The Banking Law provides that until said capital has been restored to its original amount and the reserve fund is restored to twenty percent (20%) of the original capital, the bank may not declare any dividends.  In general terms, the Federal Deposit Insurance Act and FDIC regulations restrict the payment of dividends when a bank is undercapitalized, when the bank has failed to pay FDIC insurance assessments, or when there are safety and soundness concerns regarding such bank.  See "-Prompt Corrective Action."

See "-Banking Operations-Puerto Rico Regulation" for a description of certain restrictions on the Borrower's ability to pay dividends under Puerto Rico law.

Banking Operations-Puerto Rico Regulation

General

As a commercial bank organized under the laws of the Commonwealth of Puerto Rico (the "Commonwealth" or "Puerto Rico"), the Borrower is subject to the supervision, examination and regulation of the Commissioner, pursuant to the Banking Law.  Certain of those activities are described under "-Banking Operations-Federal Regulation."

Section 12 of the Banking Law requires the prior approval of the Commissioner with respect to a transfer of capital stock of a bank that results in a change of control of the bank.  Under Section 12, a change of control is presumed to occur if a person or group of persons acting in concert, directly or indirectly, acquire more than 5% of the outstanding voting capital stock of the bank.  The Commissioner has interpreted the restrictions of Section 12 as applying to acquisitions of voting securities of entities controlling a bank, such as a bank holding company.  Under the Puerto Rico Banking Act, the determination of the Commissioner whether to approve a change of control filing is final and non-appealable.

Section 16 of the Banking Law requires every bank to maintain a legal reserve which shall not be less than twenty percent (20%) of its demand liabilities, except government deposits (federal, state and municipal) which are secured by actual collateral.  The reserve is required to be composed of any of the following securities or combination thereof:  (1) legal tender of the United States; (2) checks on banks or trust companies located in any part of Puerto Rico, to be presented for collection during the day following that on which they are received; (3) money deposited in other banks or depository institutions, subject to immediate collection; (4) federal funds sold to any Federal Reserve Bank and Securities purchased under agreement to resell executed by the bank with such funds that are subject to be repaid to the bank on or before the close of the next business day; and (5) any other asset that the Commissioner determines from time to time.

Section 17 of the Banking Law permits Puerto Rico commercial banks to make loans to any one person, firm, partnership or corporation, up to an aggregate amount of fifteen percent (15%) of paid-in capital, reserve fund of the commercial bank and any other components that the Commissioner may determine from time to time.  As of December 31, 1997, the legal lending limit for the Borrower under this provision was approximately $37 million.  If such loans are secured by collateral worth at least twenty-five percent (25%) more than the amount of the loan, the aggregate maximum amount may reach one third of the paid-in capital of the commercial bank, plus its reserve fund and any other components that the Commissioner may determine from time to time.  There are no restrictions under Section 17 of the Banking Law on the amount of loans which are wholly secured by bonds, securities and other evidences of indebtedness of the Government of the United States, of the Commonwealth, or by bonds, not in default, of authorities, instrumentalities or dependencies of the Commonwealth or its municipalities.

Section 17 of the Banking Law also prohibits Puerto Rico commercial banks from making loans secured by their own stock, and from purchasing their own stock, unless such purchase is necessary to prevent losses because of a debt previously contracted in good faith.  The stock so purchased by the Puerto Rico commercial bank must be sold by the bank in a public or private sale within one year from the date of purchase.

Section 27 of the Banking Law also requires that at least ten percent (10%) of the yearly net income of a Puerto Rico commercial bank be credited to a reserve fund until the amount deposited to the credit of the reserve fund is equal to 100% of total paid-in capital (common and preferred) of the commercial bank.  As of December 31, 1997, the Borrower had an adequate reserve fund established.

Section 27 of the Banking Law also provides that when the expenditures of a Puerto Rico commercial bank are greater than receipts, the excess of the expenditures over receipts shall be charged against the undistributed profits of the bank, and the balance, if any, shall be charged against the reserve fund, as a reduction thereof.  If there is no reserve fund sufficient to cover such balance in whole or in part, the outstanding amount shall be charged against the capital account and no dividends shall be declared until said capital has been restored to its original amount and the reserve fund to twenty percent (20%) of the original capital.

Section 14 of the Banking Law authorizes the Borrower to conduct certain financial and related activities directly or through subsidiaries, including lease financing of personal property, operating small loans companies and mortgage loans activities.  The Borrower currently has one subsidiary, Santander Mortgage, a mortgage company.

Puerto Rico Usury Law

The rate of interest that the Borrower may charge on real estate and other types of loans to individuals in Puerto Rico is subject to Puerto Rico's usury law.  That law is administered by the Financial Board, which consists of the Secretaries of the Treasury, Commerce and Consumer Affairs Departments, the Commissioner of Financial Institutions, the President of the Planning Board, the President of the Government Development Bank, the Secretary of Economic Development and Commerce Department and a representative of the private financial industry.  The Financial Board promulgates regulations which specify maximum rates on various types of loans to individuals and revises those regulations periodically as general interest rates change.  

Among the most important regulations enforced on interest rates, there are Regulations I-C, 68-1, 68-2 and 5722.  Pursuant to Regulation 1-C, there is no limitation on interest rates that may be charged on small loans.  The same rule applies to auto loans as provided by Regulation 69-1.  The rates on these loans are established as a result of the market and competition.  On the other hand, Regulation 68-2 imposes restriction up to a maximum rate of 26% on credit card loans.  However, the current rate of 16.90% offered by the Borrower responds to market condition.

Interest rates that may be charged on personal loans, personal lines of credit, cash advances on credit cards, commercial loans or commercial lines of credit and residential and commercial mortgage loans arc not restricted by Regulation 5722.  The rates on these loans are established as a result of the market and competition.  Regulation 5722 does establish restrictions on prepayment penalties and late charges.

Mortgage Banking Operations

Santander Mortgage is subject to  the rules and regulations of FHA, VA, FNMA, FHLMC and GNMA with respect to originating, processing, selling and servicing mortgage loans and the issuance and sale of mortgage-backed securities.  Those rules and regulations, among other things, prohibit discrimination and establish underwriting guidelines which include provisions for inspections and appraisals, require credit reports on prospective borrowers and fix maximum loan amounts, and with respect to VA loans, fix maximum interest rates.  Moreover, lenders such as Santander Mortgage are required annually to submit to FHA, VA, FNMA, FHLMC, GNMA and HUD audited financial statements, and each regulatory entity has its own financial requirements.  Santander Mortgage's affairs are also subject to supervision and examination by FHA, VA, FNMA, FHLMC, GNMA and HUD at all times to assure compliance with the applicable regulations, policies and procedures.  Mortgage origination activities are subject to, among others, the Equal Credit Opportunity Act, Federal Truth-in-Lending Act and the Real Estate Settlement Procedures Act and the regulations promulgated thereunder which, among other things, prohibit discrimination and require the disclosure of certain basic information to mortgagors concerning credit terms and settlement costs.  Santander Mortgage is also subject to regulation by the Commissioner, with respect to, among other things, licensing requirements and establishment of maximum origination fees on certain types of mortgage loan products.  Although Santander Mortgage believes that it is in compliance in all material respects with applicable Federal and Puerto Rico laws, rules and regulations, there can be no assurance that more restrictive laws or rules will not be adopted in the future, which could make compliance more difficult or expensive, restrict  Santander Mortgage's ability to originate or sell mortgage loans or sell mortgage-backed securities, further limit or restrict the amount of interest and other fees earned from the origination of loans, or otherwise adversely affect the business or prospects of Santander Mortgage.

 

 

APPENDIX IV

 

[FORM OF OPINION OF BOND COUNSEL]

 

 

 

 

 

 

, 1998

Puerto Rico Industrial, Tourist,

  Educational, Medical and Environmental

  Control Facilities Financing Authority

San Juan, Puerto Rico

Ladies and Gentlemen:

We have examined Act No. 121 of the Legislature of Puerto Rico, approved June 27, 1977, as amended (the "Act"), creating Puerto Rico Industrial, Tourist, Educational, Medical and Environmental Control Facilities Financing Authority (the "Authority"), a body corporate and politic constituting a public corporation and governmental instrumentality of the Commonwealth of Puerto Rico (the "Commonwealth").

We have also examined certified copies of the resolution of the Authority authorizing the execution and delivery of the Trust Agreement and the Loan Agreement, each hereinafter referred to, and certified copies of the proceedings and other proofs submitted relative to the authorization, issuance and sale of the following bonds (the "Bonds"):

$50,000,000   

Puerto Rico Industrial, Tourist, Educational, Medical and 

Environmental Control Facilities Financing Authority

Revenue Bonds, Series A

(AFICA - SANTANDER Loan Program)

Dated:  June 1, 1998.

Maturing on June 1, 2018, bearing interest at the rate, subject to redemption and having such other details, all as set forth in a Trust Agreement, dated June 4, 1998 (the "Trust Agreement"), by and between the Authority and State Street Bank and Trust Company, N.A., New York, New York, trustee (the "Trustee"), and the resolution of the Authority authorizing the issuance and sale of the Bonds.

The Bonds are being issued for the purpose of providing funds to Banco Santander Puerto Rico (the "Borrower") to make small and medium size loans to qualified projects under a loan program established by the Borrower and pay certain expenses incurred in connection with the issuance and sale of the Bonds.

The Authority will lend the proceeds of the Bonds to the Borrower pursuant to a Loan Agreement, dated as of June 1, 1998 (the "Loan Agreement"), by and between the Authority and the Borrower.  Pursuant to the Loan Agreement, the Borrower  is obligated to make payments in installments sufficient to pay the principal of, premium, if any, and the interest on the Bonds as the same shall become due and payable.  The Loan Agreement and the Trust Agreement provide that the installments shall be paid directly to the Trustee and shall be deposited to the credit of a special fund created by the Trust Agreement and designated "Revenue Bonds, Series A (AFICA-SANTANDER Loan Program) Bond Fund (the "Bond Fund"), which special fund is charged with the payment of the principal of, premium, if any, and interest on the Bonds.  In addition, the rights of the Authority under the Loan Agreement, except for certain rights of the Authority, have been assigned to the Trustee.

Reference is made to the opinion of even date hereunder of Fiddler, González & Rodríguez, LLP, San Juan, Puerto Rico, counsel to the Borrower, with respect to, among other matters, the organization and good standing of the Borrower, the power of the Borrower to enter into and perform the Loan Agreement, the due authorization, execution and delivery of said agreement by the Borrower and as to the valid and binding nature and effect thereof with respect to the Borrower. 

As to any questions of fact material to our opinion, we have relied upon representations of the Authority and the Borrower contained in the Trust Agreement and the Loan Agreement, the certified proceedings and other certifications of the Borrower (including certifications as to the use of Bond proceeds), without undertaking to verify the same by independent investigation.  For purposes of this opinion, we assume that the Borrower shall comply with all of its covenants in the Loan Agreement, particularly those dealing with the source of income and that the proceeds of the Bonds will be used in accordance with the provisions of the Trust Agreement.

We have also examined one of the Bonds as executed and authenticated.

From such examination and based on the provisions of the laws of the Commonwealth and the United States as now in force, we are of the opinion that:

1.The Act is valid.

2.The proceedings of the Authority in connection with the authorization, issuance and sale of the Bonds and the authorization, execution and delivery by the Authority of the Loan Agreement and the Trust Agreement have been validly and legally taken.

3.The Trust Agreement and the Loan Agreement have been duly authorized, executed and delivered by the Authority and constitute legal, valid and binding obligations of the Authority enforceable in accordance with their terms.

4.The Bonds have been duly authorized, executed and delivered by the Authority and constitute legal, valid and binding obligations of the Authority, payable solely from the Bond Fund and other available funds to the extent provided in the Trust Agreement, and are entitled to the benefit and security of the Trust Agreement.

5.All rights, title and interest of the Authority in and to the Loan Agreement (except certain rights of the Authority, including its rights to payment of expenses and indemnity) have been validly assigned to the Trustee.

6.The Bonds are not a debt of either the Commonwealth or any of its political subdivisions, other than the Authority, and neither the Commonwealth nor any such political subdivision, other than the Authority, shall be liable thereon.

7.Interest on, and gain on the disposition of, the Bonds is exempt from Commonwealth income and withholdings taxes, including the alternative minimum tax imposed by the Puerto Rico Internal Revenue Code of 1994, as amended (the "PR-Code").

8.The Bonds are exempt from Commonwealth property taxes imposed by the Municipal Property Tax Act of 1991, as amended, and interest thereon is exempt from municipal license taxes imposed by the Municipal License Tax Act of 1974, as amended.

9.The Bonds are exempt from Commonwealth gift tax with respect to donors who are residents of the Commonwealth at the time the gift is made and exempt from Commonwealth estate tax with respect to estates of decedents who are residents of the Commonwealth at the time of death, except for United States citizens who did not acquire their United States citizenship solely by reason of birth or residence in the Commonwealth.  Other individuals should consult their tax advisors with respect to the precise determination of the estate and gift tax consequences arising from a transfer of the Bonds by inheritance or gift.

10.Interest on the Bonds is not excludable from the gross income of the recipients thereof for federal income tax purposes under Section 103(a) of the United States Internal Revenue Code of 1986, as amended (the "Code").

11.If  (i) the Borrower is engaged in trade or business in the Commonwealth during each taxable year when interest on the Bonds is paid; (ii) for the three-year period ending with the close of Borrower's taxable year immediately preceding the payment of interest more than 20% of the Borrower's gross income is, was or will be (a) derived from sources within the Commonwealth and (b) attributable to the active conduct of a trade or business within the Commonwealth, such determination to be made under Section 861(c)(1)(B)(ii) of the Code and (iii) such interest is not treated as paid by a trade or business conducted by the Borrower outside the Commonwealth, such determination to be made under Section 884(f)(1)(A) of the Code and the regulations thereunder, then (a) in the case of an individual who is a bona fide resident of the Commonwealth during an entire taxable year, interest on the Bonds received by, or  "original issue discount" (within the meaning of the Code and hereafter referred to as "OID") on the Bonds otherwise required to be recognized as gross income and accrued to, such individual during such taxable year, will constitute gross income from sources within the Commonwealth and therefore, is excludable from gross income for purposes of the Code pursuant to section 933(1) thereof, and (b) interest on the Bonds derived by, or OID on the Bonds otherwise required to be recognized as gross income and accrued to, a corporation organized under the laws of the Commonwealth or any other foreign country ("foreign corporations") is not, in the hands of such foreign corporation, subject to taxation under the Code, provided that (w) such foreign corporation is not a foreign personal holding company, a controlled foreign corporation or a passive foreign investment company under the Code, (y) such foreign corporation is not treated as a domestic corporation for purposes of the Code and (z) interest on the Bonds and OID is not effectively connected with the conduct of a trade or business in the United States by such foreign corporation. 

United States taxpayers, other than individuals who are bona fide residents of the Commonwealth during the entire taxable year, may be subject to federal income tax on any gain realized upon the sale or exchange of the Bonds.  Pursuant to Notice 89-40, issued by the United States Internal Revenue Service on March 27, 1989, realized gain on the sale or exchange of Bonds (excluding OID accrued under the Code as of the date of such sale or exchange) by an individual who is a bona fide resident of the Commonwealth during the entire taxable year and that is a resident of the Commonwealth for purposes of Section 865(g)(1) of the Code will constitute Commonwealth source income and, therefore, qualify for the exclusion under Section 933(1) of the Code, provided said Bonds do not constitute inventory in the hands of such individual.

The PR-Code does not provide rules with respect to the treatment of the excess of the amount due at maturity of a Bond over its initial offering price ("original issue discount").  Under the current administrative practice followed by the Puerto Rico Department of the Treasury, original issue discount is treated as interest.  Prospective owners of the Bonds, including but not limited to financial institutions, should be aware that ownership of the Bonds may result in having a portion of their interest expense allocable to interest or original issue discount on the Bonds disallowed for purposes of computing the regular tax and the alternative minimum tax for Commonwealth income tax purposes.

Other than as described herein, we have not addressed, and we are not opining upon, the federal or Commonwealth income tax consequences to any investor of the ownership of, receipt or accrual on interest on, or disposition of the Bonds.

The enforceability of the Trust Agreement and the Loan Agreement and the obligations of the parties thereto with respect to such documents are subject to bankruptcy, insolvency, fraudulent conveyance, moratorium or reorganization laws and other laws affecting creditors' rights generally.  To the extent that the remedies under the Trust Agreement and the Loan Agreement require or may require enforcement by a court of equity, the enforceability thereof may be limited by such principles of equity as the court having jurisdiction may impose.

Respectfully yours,

[To be signed "Pietrantoni Méndez & Alvarez"]

INDEX OF DEFINED TERMS

 

 

TermPage

Acti

Additional Interest10

Authority ii, 1

BankAppendix I

Beneficial Owners5

Bond Fundiii

Bondholdersiv

Bondsi

Borrowercover, i, 1

Business Dayii

Codeiii

Commissioner23

Commonwealthi

Cut-Off Date8

Direct Participants5

DTC5

Event of Taxability10

Extraordinary Prepayment8

FDIC1

Federal Taxes10

GDB3

Governing Board2

Holdersiv

Indirect Participants5

Interest Payment Dateii

Loan Agreementi

Merrill Lynchiv

Moody'siv

MSRB25

NRMSIR25

Optional Prepayment9

Origination Period7

Participants5

PR-Code21

Principal Distribution Amount8

Programi

Program Guide4

Puerto Ricoi

Qualified Loansi

Qualified Projectsi

Qualifying Bondholder10

Rule25

S&Piv

Santander Mortgage24

Santander Securitiesiv

Santander SpainAppendix III-1

Scheduled Principal Payment8

SEC25

SID25

Trust Agreementi

Trusteei

Underwriters23

Usersi

[This page intentionally left blank]

[This page intentionally left blank]

[This page intentionally left blank]Exhibit
10.1

 

	
   

  	
  Execution Copy

  

 

 

TRUST AGREEMENT

 

dated as of June 30, 2004

 

between

 

CRIIMI MAE CLASS D
DEPOSITOR LLC

(Depositor)

 

and

 

LASALLE BANK
NATIONAL  ASSOCIATION

(Trustee)

 

 

 

CRIIMI MAE Class D Trust

 

 

TABLE OF CONTENTS

 

	
  ARTICLE I  DEFINITIONS AND INTERPRETATION  

  	
   

  
	
   

  	
   

  
	
   

  	
  SECTION

  	
  1.01  Definitions

  	
   

  
	
   

  	
  SECTION

  	
  1.02  Interpretation.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE II  THE TRUST

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION

  	
  2.01  Declaration of Trust.

  	
   

  
	
   

  	
  SECTION

  	
  2.02  Name.

  	
   

  
	
   

  	
  SECTION

  	
  2.03  Purposes, Authority and Powers.

  	
   

  
	
   

  	
  SECTION

  	
  2.04  Term and Termination; Unclaimed Moneys.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE III  THE UNDERLYING ASSETS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION

  	
  3.01  Transfer of Underlying Assets.

  	
   

  
	
   

  	
  SECTION

  	
  3.02  No Liability of the Depositor or the
  Trustee on Underlying Assets.

  	
   

  
	
   

  	
  SECTION

  	
  3.03  Notice of Underlying Default.

  	
   

  
	
   

  	
  SECTION

  	
  3.04  Enforcement of Rights, Votes, Consent and
  Waivers with Respect to Underlying Assets.

  	
   

  
	
   

  	
   

  
	
  ARTICLE IV  THE CERTIFICATES  

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION

  	
  4.01  Authorization of Certificates.

  	
   

  
	
   

  	
  SECTION

  	
  4.02  Issuance of the Certificates; Initial
  Principal Balances; Certificates Represent Beneficial Interest in Underlying
  Assets.

  	
   

  
	
   

  	
  SECTION

  	
  4.03  Form, Denomination and Delivery of
  Certificates.

  	
   

  
	
   

  	
  SECTION

  	
  4.04  Certificates Identical.

  	
   

  
	
   

  	
  SECTION

  	
  4.05  Certificateholder as Owner.

  	
   

  
	
   

  	
  SECTION

  	
  4.06  Certificateholders Bound by Agreement.

  	
   

  
	
   

  	
  SECTION

  	
  4.07  Registrar and Register.

  	
   

  
	
   

  	
  SECTION

  	
  4.08  Restrictions and Procedures Relating to
  Certificate Transfers.

  	
   

  
	
   

  	
  SECTION

  	
  4.09  Lost Certificates, Etc.

  	
   

  
	
   

  	
  SECTION

  	
  4.10  Conditions to Deliveries, Transfers and
  Exchanges.

  	
   

  
	
   

  	
  SECTION

  	
  4.11  List of Certificateholders.

  	
   

  
	
   

  	
  SECTION

  	
  4.12  Standard of Conduct.

  	
   

  
	
   

  	
  SECTION

  	
  4.13  Provision of Copies of this Agreement to
  Certificateholders.

  	
   

  
	
   

  	
  SECTION

  	
  4.14  Optional Repurchase By Depositor.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE V  DISTRIBUTIONS

  	
   

  
	
   

  	
   

  
	
   

  	
  SECTION

  	
  5.01  Distributions.

  	
   

  
	
   

  	
  SECTION

  	
  5.02  Method of Payment.

  	
   

  
	
   

  	
  SECTION

  	
  5.03  Withholdings and other Taxes and
  Governmental Charges.

  	
   

  
	
   

  	
  SECTION

  	
  5.04  Subordination.

  	
   

  
									

 

i

 

	
  ARTICLE VI  DOCUMENT DISTRIBUTION AND REPORTING

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION

  	
  6.01  Document Distributions.

  	
   

  
	
   

  	
  SECTION

  	
  6.02  Rule 144A Reporting.

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
  ARTICLE VII  CERTAIN TAX MATTERS

  	
   

  
	
   

  	
   

  
	
   

  	
  SECTION

  	
  7.01  Intended Tax Treatment.

  	
   

  
	
   

  	
  SECTION

  	
  7.02  Grantor Trust Administration.

  	
   

  
	
   

  	
   

  
	
  ARTICLE VIII  ACCOUNTS

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SECTION

  	
  8.01  Custodial Account.

  	
   

  
	
   

  	
  SECTION

  	
  8.02  Collection Account.

  	
   

  
	
   

  	
  SECTION

  	
  8.03  Accounts and Assets To Be Held in Trust,
  Etc.

  	
   

  
	
   

  	
   

  
	
  ARTICLE IX  THE TRUSTEE

  	
   

  
	
   

  	
   

  
	
   

  	
  SECTION

  	
  9.01  Use of Agents; Appointment of Additional
  Trustees.

  	
   

  
	
   

  	
  SECTION

  	
  9.02  Limited Authority of the Trustee.

  	
   

  
	
   

  	
  SECTION

  	
  9.03  Waiver of Claims.

  	
   

  
	
   

  	
  SECTION

  	
  9.04  Prevention or Delay in Performance by the
  Trustee.

  	
   

  
	
   

  	
  SECTION

  	
  9.05  Ownership of and Transactions in
  Underlying Assets and Certificates.

  	
   

  
	
   

  	
  SECTION

  	
  9.06  Exculpation of the Trustee and Related
  Matters.

  	
   

  
	
   

  	
  SECTION

  	
  9.07  Fidelity Bond.

  	
   

  
	
   

  	
  SECTION

  	
  9.08  Resignation and Removal of the Trustee;
  Appointment of Successor Trustee.

  	
   

  
	
   

  	
  SECTION

  	
  9.09  Fees and Expenses of the Trustee.

  	
   

  
	
   

  	
  SECTION

  	
  9.10  Indemnification of the Trustee.

  	
   

  
	
   

  	
  SECTION

  	
  9.11  Limitation of Liability.

  	
   

  
	
   

  	
   

  
	
  ARTICLE X  THE DEPOSITOR

  	
   

  
	
   

  	
   

  
	
   

  	
  SECTION

  	
  10.01  Prevention or Delay in Performance by the
  Depositor.

  	
   

  
	
   

  	
  SECTION

  	
  10.02  Ownership of and Transactions in
  Underlying Assets and Certificates.

  	
   

  
	
   

  	
  SECTION

  	
  10.03  Exculpation of the Depositor.

  	
   

  
	
   

  	
   

  
	
  ARTICLE XI  MISCELLANEOUS

  	
   

  
	
   

  	
   

  
	
   

  	
  SECTION

  	
  11.01  Amendment.

  	
   

  
	
   

  	
  SECTION

  	
  11.02  Counterparts.

  	
   

  
	
   

  	
  SECTION

  	
  11.03  Exclusive Benefit of Parties.

  	
   

  
	
   

  	
  SECTION

  	
  11.04  Invalidity of Provisions.

  	
   

  
	
   

  	
  SECTION

  	
  11.05  Notices and Other Communications.

  	
   

  
	
   

  	
  SECTION

  	
  11.06  GOVERNING LAW.

  	
   

  
	
   

  	
  SECTION

  	
  11.07  Headings.

  	
   

  
	
   

  	
  SECTION

  	
  11.08  No Petition Covenant.

  	
   

  
								

 

ii

 

	
  Appendix
  A

  	
  Definitions

  	
   

  
	
   

  	
   

  	
   

  
	
  EXHIBITS

  	
   

  	
   

  
	
  Exhibit
  A

  	
  Form
  of Certificate

  	
   

  
	
  Exhibit
  B

  	
  Form
  of Transferring Certificateholder’s Certificate

  	
   

  
	
  Exhibit
  C

  	
  Form
  of Transferee’s Certificate

  	
   

  
	
  Exhibit
  D

  	
  Form
  of Initial Certificateholder’s Representation Letter

  	
   

  
	
  Exhibit E

  	
  Form of
  Certification of CRIIMI MAE Inc.

  	
   

  

 

iii

 

TRUST AGREEMENT (this “Agreement”) dated as of June,
30, 2004 between CRIIMI MAE CLASS D DEPOSITOR LLC, a Delaware limited liability
company, and LaSalle Bank National Association, a national banking association,
as Trustee.

 

For good and
valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged by the parties hereto, the parties hereto hereby agree as follows:

 

ARTICLE I

DEFINITIONS AND INTERPRETATION

 

SECTION   1.01  Definitions.  Capitalized
terms used herein shall have the meanings ascribed to them in Appendix A
Attached hereto.

 

SECTION   1.02  Interpretation.

 

Except as
otherwise specified herein or as the context may otherwise require, as used
herein:  (i) the definitions of
terms are equally applicable both to the singular and plural forms of such
terms and to the masculine, feminine and neuter genders of such terms; (ii) the
words “herein”, “hereof” and “hereunder” and other words of similar import
refer to this Agreement as a whole and not to any particular Article, Section
or other subdivision; (iii) the word “including” and correlative phrases shall
be deemed to be followed by the phrase “without limitation” unless actually
followed by such phrase or a phrase of like import; (iv) a reference to an
agreement or other document is to such agreement or other document as amended
or otherwise modified from time to time; and (v) a reference to a statute,
regulation or other governmental rule is a reference to it as amended or
replaced from time to time (and references to provisions thereof are references
to corresponding provisions of any such replacement).

 

ARTICLE II

THE TRUST

 

SECTION   2.01  Declaration of Trust.

 

The Trust is
hereby formed as a New York common law trust. 
The Trustee is hereby appointed to hold and agrees to hold the
Underlying Assets upon the trusts set forth herein and for the use and benefit
of the Certificateholders.

 

SECTION   2.02  Name.

 

The name of the
Trust shall be “CRIIMI MAE Class D Trust”, in which name the Trustee, on behalf
of the Trust, may do the following: (i) engage in the transactions contemplated
hereby; (ii) make and execute contracts and other instruments; (iii) acquire
the Underlying Assets; (iv) sue and be sued; and (v), subject to Section 2.03,
enter into such other transactions and take such other actions as are necessary
or desirable to carry out the provisions hereof.

 

SECTION   2.03  Purposes, Authority and Powers.

 

The purposes for
which the Trust is created and established are (i) to acquire and hold the
Underlying Assets and (ii) to issue the Certificates.  In addition to all authority, express or implied, otherwise granted
to the Trustee hereunder and under applicable law, the Trustee shall have the
authority on behalf of the Trust to enter into all transactions and agreements
described in the immediately preceding sentence and to perform all acts in
furtherance thereof, including, without limitation, the execution and

 

 

delivery of the Certificates and the exercise and enforcement of all
rights and remedies under the Underlying Assets; provided, however, that the
Trust shall not have power to perform any act or engage in any business
whatsoever except for the foregoing and any activity reasonably incidental
thereto or appropriate therefor.  The
investments to be made by the Trust are in the Underlying Assets and, as
provided herein, Eligible Investments. 
After the Closing Date, the Trust shall not issue additional
Certificates (other than upon transfer of existing Certificates) or purchase or
otherwise acquire any additional securities or other assets (other than
Eligible Investments) and shall not dispose of Underlying Assets, in each case
except as provided herein.  The Trust
shall not incur any indebtedness.

 

SECTION   2.04  Term and Termination; Unclaimed
Moneys.

 

(a)           This Agreement shall
remain in effect until the date upon which all the Underlying Assets of the
Trust have been retired and the payments on such Underlying Assets have been
distributed to Certificateholders in accordance with this Agreement; provided,
however, that in no event shall the trusts created hereby continue beyond the
expiration of 21 years from the death of the survivor of the descendants of
Prescott Sheldon Bush, the late United States Senator, living on the date
hereof.

 

(b)           If any moneys payable
in respect of any Certificates are not claimed by the Certificateholder
entitled thereto, the Trustee shall segregate and hold such moneys in trust,
without liability for interest thereon, for the account of the
Certificateholder entitled thereto.  All
such moneys that remain unclaimed on the date that is two years after the date
on which such moneys were originally due shall be disbursed to the Depositor
and such Certificateholder shall thereafter look only to the Depositor for
payment.

 

(c)           Upon the dissolution of
the Trust, the Trustee shall proceed as promptly as practicable to wind up the
affairs of the Trust and distribute any remaining assets thereof in an orderly
and businesslike manner.  As part of the
winding up of the affairs of the Trust, the following steps shall be taken in
the following order:

 

(i)            If on the Underlying
Final Payment Date any assets remain in the Trust, the Trustee shall take, or
cause to be taken, appropriate action to sell or distribute all such assets on
the instructions of the Certificateholders holding a majority of the aggregate
outstanding principal balance of both Classes. 
The proceeds of any such sale shall be distributed as promptly as
practicable thereafter pursuant to Section 5.01.  Any such distribution shall be made in accordance with such
instructions.

 

(ii)           The Depositor shall pay
all liabilities of the Trust.

 

(d)           No Certificateholder
shall be entitled to revoke the Trust.

 

ARTICLE III

THE UNDERLYING ASSETS

 

SECTION   3.01  Transfer of Underlying Assets.

 

(a)           Simultaneously with the
execution and delivery of this Agreement, the Depositor, in exchange for all
the Certificates, is hereby transferring to the Trust, and depositing into the
Trust, forever, all right, title and interest of the Depositor in and to the
Underlying Assets, to have and to hold all of the same, together with all
revenues, issues, profits and proceeds thereof and therefrom and appurtenances
thereto to the Trust, in each case for the common and equal use, benefit and
security of all Persons who shall from time to time be Certificateholders and
without preference of any of the Certificates over any of 

 

2

 

the others by reason of priority in the time of issue, sale or
negotiation thereof except as provided herein. The parties hereto agree and
intend that the Underlying Assets Transfer shall be a transfer and not a loan
or a pledge to secure a loan.

 

(b)           The Depositor shall, in
connection with the Underlying Assets Transfer, be deemed to have represented
to the Trustee that (i) the Depositor or its nominee was the sole owner of the
Underlying Assets, and (ii) the Underlying Assets Transfer results in the
transfer, sale, conveyance and assignment to the Trust, and the deposit into
the Trust, of all right, title and interest of the Depositor in and to the
Underlying Assets free and clear of
any lien, security interest, pledge, claim or other encumbrance created by or
through the Depositor.  EXCEPT AS STATED
IN THE PRECEDING SENTENCE, THE UNDERLYING ASSETS TRANSFER IS MADE WITHOUT
RECOURSE OR WARRANTY OF ANY KIND, EXPRESS OR IMPLIED, ALL OF WHICH ARE HEREBY
WAIVED BY THE TRUSTEE AND EACH CERTIFICATEHOLDER.

 

(c)           To further protect the
Trustee’s interest in the Underlying Assets, the Depositor hereby grants to the
Trustee a security interest in all of the Depositor’s right, title and interest
in, to and under the Underlying Assets to secure all of the Depositor’s
obligations under this Agreement.

 

SECTION  
3.02  No
Liability of the Depositor or the Trustee on Underlying Assets.

 

The obligor with
respect to the Underlying Assets is the Underlying Issuer.  The Depositor (without limiting the
generality of Section 3.01(b)) and the Trustee shall have no obligation on or
with respect to the payment of any amount payable with respect to any
Underlying Asset, except for the obligation of the Trustee to make
distributions from Available Funds as provided herein.

 

SECTION  
3.03  Notice of
Underlying Default.

 

If a Responsible
Officer of the Trustee has actual knowledge or receives written notice of the
happening of an Underlying Default, the Trustee shall promptly give notice
thereof to the Depositor, and each Certificateholder.  Such notice shall set forth (i) to the extent that a Responsible
Officer of the Trustee has such knowledge or notice, the date and nature of
such Underlying Default and (ii) any other information that the Trustee may deem
appropriate.

 

SECTION  
3.04  Enforcement
of Rights, Votes, Consent and Waivers with Respect to Underlying Assets.

 

(a)           The Trustee shall seek
written instructions from the Relevant Instructing Certificateholders (as
defined below) in connection with any (i) enforcement of rights of the Trustee
as holder of the Underlying Assets, whether in connection with an Underlying
Default or otherwise, and (ii) any direction, vote, consent, waiver or other
similar authorization required or permitted in respect of the Underlying
Assets, whether in connection with an Underlying Default or otherwise (any such
enforcement, direction, vote, consent, waiver or other similar authorization,
an “Underlying Holder Action”).  The
Trustee shall take such Underlying Holder Action solely as directed by the
Relevant Instructing Certificateholders, and, in the absence of such written
direction, the Trustee shall not take such Underlying Holder Action (and each
Certificateholder acknowledges and agrees that the Trustee shall have no
responsibility for the consequences of the absence of such Underlying Holder
Action in relation to the rights of the Trust as owner of the Underlying
Assets).  As used in this Section 3.04,
the following terms shall have the following meanings:

 

“Relevant Instructing Certificateholders” means (i) with respect to any
Underlying Holder Action in respect of the Underlying Collateral, the
Certificateholders holding a majority of

 

3

 

the aggregate outstanding Principal Balance of the
Controlling Class, (ii) with respect to any other Underlying Holder Action
relating to the Class D-1 Bonds, the Certificateholders holding a majority of
the aggregate outstanding Principal Balance of the Class A Certificates, (iii)
with respect to any other Underlying Holder Action relating to the Class A
Percentage of the Class D-2 Bonds, the Certificateholders holding a majority of
the aggregate outstanding Principal Balance of the Class A Certificates and
(iv) with respect to any other Underlying Holder Action relating to the Class B
Percentage of the Class D-2 Bonds, the Certificateholders holding a majority of
the aggregate outstanding Principal Balance of the Class B Certificates;
provided, however, that, in any case in which any Underlying Holder Action
shall be subject to a Unanimity Requirement (as defined below), “Relevant
Instructing Certificateholders” means all the Certificateholders of both
Classes.

 

“Class A Percentage” means, on any date, a fraction (expressed as a
percentage), (a) the numerator of which is equal to the lesser of (i)
$100,500,000 and (ii) the aggregate outstanding Principal Balance of the Class
A Certificates as of such date, and (b) the denominator of which is equal to
the outstanding principal balance of the Class D-2 Bonds as of such date.

 

“Class B Percentage” means, on any date, 100% minus the Class A
Percentage.

 

“Controlling Class” means the Class B Certificates, unless the Net
Aggregate Principal Balance of the Class B Certificates is less than 25% of the
initial Principal Balance of the Class B Certificates, in which case the
“Controlling Class” shall be the Class with the largest Net Aggregate Principal
Balance then outstanding.

 

“Net Aggregate Principal Balance” means, as of any date of determination:

 

(a)           in the
case of the Class A Certificates, an amount equal to the lesser of (i) the
aggregate outstanding Principal Balance of the Class A Certificates as of such
date and (ii) the sum of the “Net Aggregate Principal Amounts” (as defined in
the Underlying Indenture) of the Class D-1 Bonds and the Class D-2 Bonds; and

 

(b)           in the
case of the Class B Certificates, an amount equal to the lesser of (i) the
aggregate outstanding Principal Balance of the Class B Certificates as of such
date and (ii) the sum of the “Net Aggregate Principal Amounts” (as defined in
the Underlying Indenture) of the Class D-1 Bonds and the Class D-2 Bonds,
reduced (to not less than zero) by the aggregate outstanding Principal Balance
of the Class A Certificates as of such date.

 

“Unanimity Requirement” means a requirement under the Underlying
Indenture to the effect that an Underlying Holder Action be directed, consented
to, waived, voted on or otherwise similarly authorized by (i) all the holders
of the Underlying Assets or (ii) each such holder affected thereby.

 

(b)           In connection with
enforcement of rights of the Trustee as holder of the Underlying Assets in
connection with an Underlying Default, such written direction by the Relevant
Instructing Certificateholders may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee as holder of
the Underlying Assets.

 

(c)           Notwithstanding the
foregoing, the Trustee shall be under no obligation to exercise or enforce any
of its rights with respect to the Underlying Assets (i) unless the Relevant
Instructing Certificateholders have offered to the Trustee security or
indemnity satisfactory to it against loss, liability or expense incurred in
compliance with such direction or (ii) if such direction is in conflict with
any law

 

4

 

or would involve the Trustee in any personal liability
for which the Trustee is not satisfied that the foregoing security or indemnity
is adequate.

 

ARTICLE IV

THE CERTIFICATES

 

SECTION  
4.01  Authorization
of Certificates.

 

The authorized
amount of Certificates that may be issued by the Trust shall be limited to the
initial aggregate Face Amount thereof issued on the Closing Date as provided in
Section 4.02, together with Certificates issued pursuant to Sections 4.08, 4.09
and 4.14.

 

SECTION  
4.02  Issuance
of the Certificates; Initial Principal Balances; Certificates Represent
Beneficial Interest in Underlying Assets.

 

(a)           On the Closing Date,
the Certificates shall be issued in two Classes, consisting of $260,000,000
aggregate Face Amount of Class A Certificates and $59,001,000 aggregate Face
Amount of Class B Certificates.  The
Principal Balance of each Certificate on the Closing Date shall equal the Face
Amount thereof.

 

(b)           On the Closing Date,
the Trustee shall, in connection with the Transfer, (i) issue all the
Certificates to the Depositor; and (ii) register all the Certificates in such
name.

 

(c)           Each Certificate shall
evidence the related Certificateholder’s beneficial interest in the Underlying
Assets, upon the terms and subject to the conditions hereof.

 

(d)           In connection with the
initial issuance of the Certificates on the Closing Date, (i) the Depositor, as
the initial Certificateholder, shall provide a representation letter
substantially in the form of Exhibit D, and (ii) the Depositor shall, if the
Trustee so requests, provide to the Trustee a certificate setting forth
incumbency information relating to the officers of the Depositor.

 

SECTION  
4.03  Form, Denomination
and Delivery of Certificates.

 

(a)           The Certificates shall
be issued substantially in the form of Exhibit A, in each case with appropriate
completions (including by the selection of “A” or “B” in the provisions thereof
relating to Class designation), insertions, modifications and omissions to
comply with any applicable law or regulation or any applicable rules or
procedures of any applicable depositary.

 

(b)           All Certificates shall
be in registered form only.

 

(c)           Each Certificate shall
bear legends substantially as set forth in Exhibit A, in each case with
appropriate insertions, modifications and omissions to comply with any
applicable law or regulation or any applicable rules or procedures of any
applicable depositary.

 

(d)           Each Certificate shall
be issued and maintained in a Face Amount of $250,000 or an integral multiple
of $1 in excess thereof, notwithstanding any reduction in the Principal Balance
thereof.

 

(e)           Certificates shall be
typewritten or otherwise produced in written form in accordance with custom.

 

5

 

(f)            Each Certificate shall
be executed on behalf of the Trust by the Trustee by the manual or facsimile
signature of one of its duly authorized officers. The Trustee shall duly
authenticate by manual signature and deliver all Certificates issued on the
Closing Date or issued pursuant to Section 4.08, 4.09 or 4.14.  No Certificate of a Class shall be entitled
to any benefits under this Agreement  or
be valid or obligatory for any purpose unless such Certificate shall have been
authenticated by a duly authorized officer of the Trustee.  If an officer of the Trustee whose signature
is on a Certificate ceases to hold office with the Trustee while the Certificate
is still outstanding, the Certificate shall nonetheless remain valid for all
purposes described herein.

 

SECTION  
4.04  Certificates
Identical.

 

Except for Class
designation, Face Amount and Principal Balance, all Certificates shall be
substantially identical and shall be in all respects equally and ratably
entitled to the benefits of this Agreement without preference, priority or
distinction on account of the actual time or times of authentication and
delivery, all in accordance with, and subject to, the terms and provisions of
this Agreement.

 

SECTION  
4.05  Certificateholder
as Owner.

 

The
Certificateholder of a Certificate shall be treated as the owner of such
Certificate for all purposes (including for purposes of making payments with
respect to such Certificate and effecting the transfer, exchange or surrender
of such Certificate), and neither the Trustee nor the Depositor shall be
affected by any notice to the contrary.

 

SECTION  
4.06  Certificateholders
Bound by Agreement.

 

By accepting a
Certificate, a Certificateholder thereof shall have and shall be deemed to have
acknowledged and agreed that such Certificateholder is familiar with all the
terms of this Agreement and is bound by all the terms of this Agreement
applicable to such Certificateholder.

 

SECTION  
4.07  Registrar
and Register.

 

(a)           The Trustee is hereby
initially appointed (and hereby agrees to act in accordance with the terms
hereof) as Registrar (located as of the Closing Date at the Designated Office)
for the purpose of registering Certificates and transfers and exchanges of
Certificates as provided herein.  The
Trustee may appoint, by a written instrument delivered to the Depositor and
each Certificateholder, any other bank or trust company to act as Registrar
under such conditions as the Trustee may prescribe; provided, however, that the
Trustee shall not be relieved of any of its duties or responsibilities
hereunder as Registrar by reason of such appointment.  If the Trustee resigns or is removed in accordance with the terms
hereof, the successor trustee shall immediately succeed to its predecessor’s
duties as Registrar.

 

(b)           At all times during the
term of this Agreement, there shall be maintained at the office of the
Registrar (located as of the Closing Date at the Designated Office) the
Register, in which, subject to such reasonable regulations as the Registrar may
prescribe, the Registrar shall provide for the registration of Certificates and
of transfers and exchanges of Certificates as provided herein.

 

(c)           The Depositor, the
Trustee (if it is no longer the Registrar) and each Certificateholder shall
have the right to inspect the Register or to obtain a copy thereof at all
reasonable times and to rely conclusively upon a certificate of the Registrar
as to the information set forth in the Register.

 

6

 

SECTION  
4.08  Restrictions
and Procedures Relating to Certificate Transfers.

 

(a)           A Certificate Transfer
shall not be made unless each of the following conditions is satisfied:

 

(i)            the Certificate
Transfer relates to Certificates in the Proper Transfer Amount;

 

(ii)           (A) the transferee is a
Qualified Institutional Buyer or (B) the transferee is a Permitted
Institutional Investor and the Certificate Transfer is otherwise exempt from
the registration requirements of the Securities Act and the registration and/or
qualification requirements of any applicable state securities laws (it being
understood that the Trust and the Depositor have no obligation or intention to
effect any registration or qualification of the Certificates under any federal
or state securities laws);

 

(iii)          the transferee is not a
Plan or  a Person who is directly or
indirectly acquiring a Certificate or interest therein on behalf of, as named
fiduciary of, as trustee of, or with assets of a Plan, unless the prospective
transferee of such Certificate or interest therein provides the Registrar and
the Depositor with a certification of facts and an Opinion of Counsel which
establish to the satisfaction of the Trustee and the Depositor that such
Certificate Transfer and holding of such Certificate or interest therein will
not constitute or result in a non-exempt prohibited transaction under ERISA or
Section 4975 of the Code or result in the imposition of an excise tax under
Section 4975 of the Code and will not subject the Trust, the Depositor, the
Underlying Issuer, the Underlying Owner Trustee, the Manager (as defined in the
Underlying Indenture), the Company (as defined in the Underlying Indenture),
the Bond Registrar (as defined in the Underlying Indenture) or the Underlying
Indenture Trustee to any obligation in addition to those undertaken in the
Underlying Indenture or this Agreement, as applicable; and

 

(iv)          in the case of a
transfer of a Class B Certificate, the Trustee has received an Opinion of Counsel
to the effect that such Certificate Transfer: (1) will not adversely effect the
characterization for federal income tax purposes of the Debt Instruments as
indebtedness, or the portion of the Trust consisting of the Debt Instruments as
a “grantor trust” within the meaning of section 671 through 679 of the Internal
Revenue Code of 1986, and of the Class A Certificates as representing the
beneficial ownership of the Debt Instruments, and (2) will not cause the
Underlying Issuer or the Trust to be subject to an entity level tax to which
REITs and QRSs are not otherwise subject; provided that no such Opinion
of Counsel shall be required to the extent the Trustee receives a certification
from the transferor in the form of Exhibit E that such transfer is in connection
with (x) any pledge by CRIIMI MAE Inc. or any subsidiary thereof to secure
indebtedness of CRIIMI MAE Inc. or such subsidiary or any repurchase
transaction treated as indebtedness of CRIIMI MAE Inc. or such subsidiary for
federal income tax purposes or (y) any sale of the Class B Certificates by the
related lender under the related pledge or repurchase transaction described in
clause (x) upon a default under any such indebtedness.

 

(b)           The Registrar shall
refuse to register any Certificate Transfer unless it receives (and, upon
receipt, may conclusively rely upon):

 

(i)            a certificate from the
Certificateholder desiring to effect such Certificate Transfer substantially in
the form of Exhibit B; and

 

(ii)           a certificate from such
Certificateholder’s prospective transferee substantially in the form of Exhibit
C;

 

7

 

provided,
however, that certifications may, with the consent of the Depositor and
the Registrar, be omitted from a certificate described in the preceding clause
(i) or (ii) to the extent that one or more Opinions of Counsel shall be
delivered in lieu of such certifications.

 

(c)           None of the Trust, the
Trustee and the Depositor is obligated to register or qualify, as applicable,
any Certificates under the Securities Act or any other securities law or to
take any action not otherwise required under this Agreement to permit any
Certificate Transfer without registration or qualification.  Any Certificateholder desiring to effect a
Certificate Transfer hereby indemnifies the Trust, the Trustee and the
Depositor from and against any loss, claim, damage, liability and expense
(including attorneys’ fees and disbursements) that may result if such transfer,
sale, pledge or other disposition is effected other than in compliance with all
applicable laws and this Agreement.

 

(d)           If the transferee in a
Certificate Transfer is a fiduciary or agent for one or more accounts, such
transferee shall be required to deliver to the Registrar a certification to the
effect that, and such other evidence as may be reasonably required by the
Trustee to confirm that, it has (i) sole investment discretion with respect to
each such account and (ii) full power to make any certifications,
representations, warranties and other agreements or undertakings with respect
to each such account as set forth in this Section 4.08.  The Registrar and the Trustee shall have no
obligation to act with respect to the preceding sentence unless and except to
the extent it has actual knowledge that a proposed transferee is acting in such
an agency or fiduciary capacity.

 

(e)           Subject to the
preceding provisions of this Section 4.08, upon surrender for registration of
transfer of any Certificate at the offices of the Registrar, the Trustee shall
execute, authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Certificates of the same Class having an aggregate
Face Amount equal the Face Amount of the Certificate surrendered.

 

(f)            Any Certificateholder
shall have the right to exchange any Certificate held by it for other
Certificates of authorized denominations of the same Class in each case having
an aggregate Face Amount equal the Face Amount of the Certificate exchanged, in
which case the Trustee shall execute, authenticate and deliver the Certificates
that the Certificateholder making the exchange is entitled to receive.

 

(g)           Every Certificate
presented or surrendered for transfer or exchange shall be duly endorsed by, or
be accompanied by a written instrument of transfer in the form satisfactory to
the Registrar duly executed by, the Certificateholder thereof or his attorney
duly authorized in writing.

 

(h)           No service charge shall
be imposed for any transfer or exchange of Certificates, but the Trustee or the
Registrar may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any transfer or
exchange of Certificates.

 

(i)            All Certificates
surrendered for transfer and exchange shall be physically canceled by the
Trustee, and the Trustee shall dispose of such canceled Certificates in
accordance with its standard procedures.

 

(j)            The provisions of this
Section 4.08 shall not apply to any repurchase of Class A Certificates by the
Depositor pursuant to Section 4.14.

 

SECTION  
4.09  Lost
Certificates, Etc.

 

If any Certificate
shall be lost, stolen, mutilated or destroyed, the Trustee shall execute and
deliver a Certificate of like form and tenor in exchange and substitution for
such mutilated Certificate, or

 

8

 

in lieu of and in substitution for such destroyed, lost or stolen
Certificate, upon the provision by the Certificateholder thereof to the Trustee
of evidence satisfactory to the Trustee of such destruction or loss or theft of
such Certificate, of the authenticity thereof and of such Certificateholder’s
entitlement thereto.  The Trustee may,
as a condition to recognizing the Person claiming to be the Certificateholder
of a destroyed, lost or stolen Certificate as the Certificateholder of such
Certificate, request such Person to provide to the Trustee indemnification and
documentation reasonably satisfactory to the Trustee.

 

SECTION  
4.10  Conditions
to Deliveries, Transfers and Exchanges.

 

As a condition
precedent to the execution and delivery, issuance, transfer, exchange or
surrender of any Certificate, the Trustee may require:  (i) payment by the applicable
Certificateholder or its transferee to the Trustee of a sum sufficient for the
payment (or, in the event that the Trustee shall have made such payment, the
reimbursement to it) of any tax or other governmental charge with respect
thereto; (ii) payment by the applicable Certificateholder or its transferee to
the Trustee of such service charges expressly required to be paid hereunder in
connection with any such action; (iii) provision by the applicable
Certificateholder or its transferee to the Trustee of such proof of identity or
residence, or other information (including the number of an account for wire
transfer of funds and the taxpayer identification number of any transferee), or
such representations and warranties or such assurances (including a signature
guaranty), or execution by the applicable Certificateholder or its transferee
of such certificates, as the Trustee may reasonably deem necessary or proper
including but not limited to the delivery of all opinions and certificates
prescribed in any provisions restricting the transfer of Certificates; and (iv)
compliance by the applicable Certificateholder and its transferee with such
regulations, if any, as the Trustee may reasonably establish that are not
inconsistent with the provisions of this Agreement.

 

SECTION  
4.11  List of
Certificateholders.

 

Any
Certificateholder may, by written application to the Trustee, request access to
the list maintained by the Trustee of Certificateholders (of both Classes) for
purposes of communicating with other Certificateholders with respect to their
rights hereunder or under the Certificates, which request shall be accompanied
by a copy of the communication that such Certificateholder proposes to
transmit.  If any Certificateholder
makes a written request to the Trustee, and such request states that such
Certificateholder desires to communicate with other Certificateholders with
respect to their rights under this Agreement or under the Certificates and is
accompanied by a copy of the communication that such Certificateholder proposes
to transmit, then the Trustee shall, within 30 days after the receipt of such
request, afford (or, if it is not the Registrar, cause the Registrar to afford)
the requesting Certificateholder access during normal business hours to the
most recent list of Certificateholders held by the Registrar.  Every Certificateholder, by receiving such
access, acknowledges that neither the Trustee nor the Registrar will not be
held accountable in any way by reason of the disclosure of any information as
to the names and addresses of any Certificateholder regardless of the source
from which such information was derived.

 

SECTION  
4.12  Standard
of Conduct.

 

In exercising any
of its rights as a Certificateholder hereunder, subject to the terms and
conditions hereof, a Certificateholder shall not have any obligation or duty to
any other Person (including any other Certificateholder of either Class) or to
consider or take into account the interests of any such other Person and shall
not be liable to any such other Person for any action taken by it or them or at
its or their direction or any failure by it or them to act or to direct that an
action be, without regard to whether such action or inaction benefits or
adversely effects any such other Person, except for any liability to which such
Certificateholder may be subject to the extent that the same results from such
Certificateholder’s taking or directing an action, or failing to take or direct
an action, in violation of the express terms hereof.

 

9

 

The foregoing shall be equally applicable to a Certificateholder that
is, or that is an Affiliate of a Person that is, the Depositor or the Trustee.

 

SECTION  
4.13  Provision
of Copies of this Agreement to Certificateholders.

 

The Trustee shall
furnish, without charge, but at the reasonable expense of the Depositor, to
each Certificateholder that so requests in writing an electronic copy of this
Agreement and any amendments or other modifications thereto.

 

SECTION  
4.14  Optional
Repurchase By Depositor.

 

(a)           The
Depositor may in its sole discretion, on any Distribution Date on or after the
June 2009 Distribution Date, repurchase all the Class A Certificates from the
existing Certificateholders thereof (the “Existing Class A Certificateholders”)
at the Optional Repurchase Price.  Any
such repurchase shall be made upon not less than thirty (30) days’ written
notice from an Authorized Officer of the Depositor to the Trustee (any such
notice a “Repurchase Notice” and the date of any such repurchase specified in
such notice being an “Optional Repurchase Date”).  Promptly upon its receipt of a Repurchase Notice, the Trustee
shall notify the Existing Class A Certificateholders of its receipt thereof and
the Optional Repurchase Date specified therein.

 

(b)           Not
later than the third Business Day prior to the Optional Repurchase Date, the
Depositor shall calculate the Optional Repurchase Price and shall notify the
Trustee thereof (which notice shall be accompanied by a certificate setting
forth in reasonable detail the calculation of the Remaining Average Life, the
calculation of the Remaining Scheduled Payments, and the mathematical formula
used to calculate the Discounted Value). 
Promptly upon its receipt of such notice and confirmation of the
Optional Repurcahse Price as so calculated by the Depositor, the Trustee shall
notify the Existing Class A Certificateholders of such Optional Repurchase
Price.   The calculation of the Optional
Repurchase Price by the Depositor, as so confirmed by the Trustee, shall be
conclusive and binding absent manifest error. 
For purposes of calculating and confirming the Optional Repurchase
Price, the Trustee shall be entitled to rely on the calculation of the
Remaining Average Life, the calculation of the Remaining Scheduled Payments and
the mathematical formula for determining the Discounted Value furnished to it
by the Depositor, in each case absent manifest error.

 

(c)           Before
12:00 p.m. New York time on the Optional Repurchase Date, the Depositor shall
deposit the Optional Repurchase Price with the Trustee.  If the Optional Repurchase Price shall have
been so deposited with the Trustee, then, on the Optional Repurchase Date and
notwithstanding anything in this Agreement to the contrary:

 

(i)            the Trustee shall pay
the Optional Repurchase Price to the Existing Class A Certificateholders pro rata
based on the respective Face Amounts of the Class A Certificates held by
each;  provided that no such
Existing Class A Certificateholder shall be entitled to receive its pro rata
share of the Optional Repurchase Price unless and until it shall have surrendered
its Class A Certificate (each a “Repurchased Certificate”) to the Trustee or
furnished to the Trustee (x) evidence satisfactory to the Trustee that such
Repurchased Certificate has been lost, stolen, mutilated or destroyed and (y)
such indemnification and documentation as the Trustee or the Depositor may
reasonably request as a condition to recognizing such Existing Class A
Certificateholder as the holder of such Repurchased Certificate;

 

(ii)           all Class A
Certificates shall be deemed to have been transferred to the Depositor and,
accordingly, (x) the Trustee shall execute, authenticate and deliver, in the
name of the 

 

10

 

Depositor, one or more new Class A Certificates having
an aggregate Face Amount equal to the Face Amount of the Class A Certificates
immediately prior to the Optional Repurchase Date, (y) the Depositor shall be
deemed to be the sole Certificateholder of the Class A Certificates for all
purposes (except that any distributions to be made in respect of the Class A
Certificates pursuant to Section 5.01 on the Optional Repurchase Date shall
continue to be made to the Existing Class A Certificateholders) and (z) the
Registrar shall register the Depositor as the Certificateholder of all Class A
Certificates in the Register effective as of the Optional Repurchase Date; and

 

(iii)          regardless of whether
the Repurchased Certificates held by each such Existing Class A
Certificateholder shall have been surrendered to the Trustee, such Repurchased
Certificates shall be deemed to have been canceled in exchange for the new
Class A Certificates issued to the Depositor pursuant to clause (ii), and no
holder of such Repurchased Certificates shall have any further right to receive
any distributions hereunder other than (x) distributions that would otherwise
be made to such holder on such Optional Repurchase Date pursuant to Section
5.01 and (y) the right to receive payment of its pro rata share of the
Optional Repurchase Price upon surrender of such Repurchased Certificate as set
forth in clause (i).

 

ARTICLE V

DISTRIBUTIONS

 

SECTION  
5.01  Distributions.

 

(a)           On each Distribution
Date, subject to the other applicable provisions of this Agreement, so long as
(i) the Underlying Assets have not been declared to be or automatically become
due and payable following the occurrence of an Underlying Event of Default
(excluding any such declaration that has been rescinded in accordance with the
Underlying Indenture) and (ii) all accrued interest in respect to the Underlying
Assets for the related Underlying Payment Date and all prior Underlying Payment
Dates has been paid in full, the Trustee shall distribute any Underlying
Payments with respect to any Distribution Date to the Certificateholders as of
the related Record Date as follows:

 

(i)            First:  To the Class A Certificateholders, as
interest, an amount equal to (i) the amount of interest accrued at the
Certificate Rate on the aggregate Principal Balances of the Class A
Certificates during the Certificate Accrual Period with respect to such
Distribution Date plus (ii) any such interest accrued during any preceding
Certificate Accrual Period but not paid on any preceding Distribution Date;

 

(ii)           Second:  To the Class B Certificateholders, as
interest, an amount equal to (i) the amount of interest accrued at the
Certificate Rate on the aggregate Principal Balances of the Class B
Certificates during the Certificate Accrual Period with respect to such
Distribution Date plus (ii) any such interest accrued during any preceding
Certificate Accrual Period but not paid on any preceding Distribution Date;

 

(iii)          Third:  To the Class A Certificateholders, as
principal, until the aggregate Principal Balance of the Class A Certificates
shall have been reduced to zero; and

 

(iv)          Fourth:  To the Class B Certificateholders, as
principal, until the aggregate Principal Balance of the Class B Certificates
shall have been reduced to zero.

 

(b)           On each Distribution
Date where (i) the Underlying Assets have been declared to be or have automatically
become due and payable following the occurrence of an Underlying Event of
Default (excluding any such declaration that has been rescinded in accordance
with the Underlying Indenture) or

 

11

 

(ii) all accrued interest in respect to the Underlying Assets for the
related Underlying Payment Date and all prior Underlying Payment Dates has not
been paid in full, subject to the other applicable provisions of this
Agreement, the Trustee shall distribute any Underlying Payments with respect to
any Distribution Date to the Certificateholders as of the related Record Date
as follows:

 

(i)            First:  To the Class A Certificateholders, as
interest, an amount equal to (i) the amount of interest accrued at the
Certificate Rate on the aggregate Principal Balances of the Class A
Certificates during the Certificate Accrual Period ending on or most recently
preceding such Distribution Date plus (ii) any such interest accrued during any
preceding Certificate Accrual Period but not paid on any preceding Distribution
Date;

 

(ii)           Second:  To the Class A Certificateholders, as
principal, until the aggregate Principal Balance of the Class A Certificates
shall have been reduced to zero;

 

(iii)          Third:  To the Class B Certificateholders, as
interest, an amount equal to (i) the amount of interest accrued at the
Certificate Rate on the aggregate Principal Balances of the Class B
Certificates during the Certificate Accrual Period ending on or most recently
preceding such Distribution Date plus (ii) any such interest accrued during any
preceding Certificate Accrual Period but not paid on any preceding Distribution
Date; and

 

(iv)          Fourth:  To the Class B Certificateholders, as
principal, until the aggregate Principal Balance of the Class B Certificates
shall have been reduced to zero.

 

(c)           All distributions
pursuant to this Section 5.01 shall be made to the Certificateholders of each
Class in proportion to the Principal Balances of the Certificates of such Class
held by them.

 

(d)           On each Distribution
Date, subject to the other applicable provisions of this Agreement, the Trustee
shall distribute any Reinvestment Income with respect to such Distribution Date
to the Certificateholders, as interest, in proportion to the amounts
distributed to them pursuant to Section 5.01(a) or 5.01(b), as applicable.

 

(e)           On each Distribution
Date, subject to the other applicable provisions of this Agreement, the Trustee
shall distribute any Underlying Make-Whole Payments to the Certificateholders
in proportion to the payments of principal distributed to them pursuant to
Section 5.01(a) or 5.01(b), as applicable.

 

(f)            For purposes of making
distributions under this Section 5.01, the Trustee shall not be deemed to have
notice or knowledge of any Underlying Event of Default unless a Responsible
Officer assigned to and working in the Designated Office has actual knowledge
thereof or unless written notice of any event which is in fact such an
Underlying Event of Default is received by the Trustee at the Designated Office,
and such notice references the Underlying Assets.

 

SECTION  
5.02  Method of Payment.

 

All distributions
pursuant to Section 5.01 shall be made by the Trustee to the
Certificateholders, in lawful money of the United States of America, by wire
transfer of immediately available funds to the respective accounts in the
United States of America of such Certificateholders; provided, however, that,
if any Certificateholder has not provided to the Trustee, at least 15 days
prior to the date of such payment, information as to an account in the United
States to which such payment may be wire transferred, the Trustee shall mail,
by first class mail, a check for the amount of such payment to the most recent
address of such Certificateholder set forth in the Register.

 

12

 

SECTION  
5.03  Withholdings and other Taxes and Governmental Charges.

 

If the Trustee
shall be required to withhold from any amount otherwise distributable pursuant
to Section 5.01 an amount on account of taxes, the Trustee shall withhold the
amount so required to be withheld and the amount distributed in respect of such
amount shall be reduced accordingly.  If
any other tax or other governmental charge shall become payable by or on behalf
of the Trustee with respect to any Certificate, such tax or governmental charge
shall be payable by the related Certificateholder and may be withheld by the
Trustee from distributions to such Certificateholder.

 

SECTION   5.04  Subordination.

 

Anything in this
Agreement or the Certificates to the contrary notwithstanding, the Class B
Certificateholders agree for the benefit of the Class A Certificateholders that
the rights of the Class B Certificateholders to distributions shall be
subordinate and junior to the rights of the Class A Certificateholders to
distributions to the extent and in the manner set forth in Section 5.01.  If, notwithstanding Section 5.01, any Class
B Certificateholder shall have received any distribution contrary to Section
5.01, then, unless and until the aggregate Principal Balance of the Class A
Certificates shall have been reduced to zero, such distribution shall be
received and held in trust for the benefit of, and shall forthwith be paid over
and delivered to, the Trustee, which shall pay and deliver the same to the
Class A Certificateholders consistent with Section 5.01.

 

ARTICLE VI

DOCUMENT DISTRIBUTION AND REPORTING

 

SECTION  
6.01  Document Distributions.

 

(a)           On each Distribution
Date or as promptly thereafter as is practicable, the Trustee shall prepare and
make available on its internet website (initially located at www.etrustee.net)
to each Certificateholder (whether or not such Certificateholder receives a
payment on such Distribution Date) and the Depositor a statement setting forth:

 

(i)            the amount of
Available Funds with respect to such Distribution Date, separately identifying
the amount thereof attributable to Underlying Payments, Underlying Make-Whole
Payments  and Reinvestment Income;

 

(ii)           the aggregate amount
distributed pursuant to Sections 5.01(a), 5.01(b), (d) and 5.01(e), separately
identifying the amount pursuant to each subparagraph of Section 5.01(a) and
5.01(b) and, if applicable, the amount thereof attributable to sale proceeds
pursuant to Section 2.04(c);

 

(iii)          the aggregate Principal
Balance of each Class of Certificates before and after giving effect to the
amounts distributed on such Distribution Date;

 

(iv)          if applicable, the
amount of any shortfall between the amount that would have been distributed
with respect to either Class of Certificates if interest had been distributed
in full at the applicable Certificate Rate; and

 

(v)           such other information
as the Trustee shall decide to include.

 

13

 

(b)           Promptly after the
Trustee receives it, the Trustee shall make available to the Certificateholders
and the Depositor a copy of any material document received by the Trustee, as a
holder of the Underlying Assets.

 

SECTION  
6.02  Rule 144A Reporting.

 

If the Trust is
not or ceases to be subject to Section 13 or 15(d) of the Exchange Act and is
not subject to the reporting requirements of Rule 12g3-2(b) under the Exchange
Act, the Depositor shall prepare and furnish to the Trustee for further
delivery to the Certificateholders upon the written request of any
Certificateholder the information described under paragraph (d)(4)(i) of Rule
144A under the Securities Act as contemplated thereby.  The Trustee shall have no responsibility for
reviewing or for the accuracy or sufficiency of such information for any
purpose.

 

ARTICLE VII

CERTAIN TAX MATTERS

 

SECTION  
7.01  Intended Tax Treatment.

 

It is the
intention of the parties hereto that the Class D-1 Bonds and the portion of the
Class D-2 Bonds, the Ownership of which is evidenced by the Class A
Certificates (the “Debt Instruments”) constitute a Grantor Trust for federal
income tax purposes.  The Trust is
intended to qualify as one or more fixed investment trusts within the meaning
of Treasury Regulation §301.7701-4(c), and it is neither the purpose nor the
intent of the parties hereto to create a partnership, joint venture or
association taxable as a corporation between or among any or all of the
Certificateholders, the Depositor or the Trustee.  In furtherance of the foregoing, the purpose of the Trust shall
be to protect and conserve the assets of the Trust, and the Trust shall not at
any time engage in or carry on any kind of business or any kind of commercial
or investment activity, except as provided in this Agreement.  In no event shall the Trustee have any power
to vary the investment of the Certificateholders in the Certificates or to
substitute new investments or reinvest so as to enable the Trust to take
advantage of variations in the market to improve the investment of the
Certificateholders in the Certificates. 
Neither the foregoing nor any other
provision of this Agreement precludes the treatment of the Underlying Assets
represented by the Class B Certificates as indebtedness for federal income tax
purposes if sold to a party other than the Depositor.

 

SECTION  
7.02  Grantor Trust Administration.

 

(a)           The Debt Instruments
will be characterized as indebtedness for federal income tax purposes. The
Trustee shall treat the portion of the Trust consisting of the Debt Instruments,
for tax return preparation purposes, as a Grantor Trust under the Grantor Trust
Provisions and, if necessary, under applicable state law and shall file
appropriate federal or state tax returns for each taxable year ending on or
after the last day of the calendar year in which the Class A Certificates are
issued.

 

(b)           The Trustee shall
prepare, sign and file all of the tax returns in respect of the Trust.  The out-of-pocket expenses of preparing and
filing such returns shall be borne by the Trustee, and the Trustee shall not
employ any external service providers that have not been approved for such
purpose by the Depositor.  The Trustee
shall comply with such requirement by filing Form 1041, indicating the name and
address of the Trust and signed by the Trustee but otherwise left blank.  There shall be appended to each such form a
schedule for each Certificateholder indicating such Certificateholder’s share
of income and expenses of the Trust for the portion of the preceding calendar
year in which such Certificateholder was a Certificateholder.  Such form shall be prepared in sufficient
detail to enable reporting on the cash or accrual method of accounting, as
applicable, and to report on such Certificateholder’s fiscal year if other than
the calendar year.  The Depositor shall
provide on a timely basis to the Trustee or its designee such

 

14

 

information with respect to the Trust as is in its possession and
reasonably requested by the Trustee to enable it to perform its obligations
under this Section 7.02(b).  Without
limiting the generality of the foregoing, the Depositor, within 30 days
following the Trustee’s request therefor, shall provide in writing to the
Trustee such information as is reasonably requested by the Trustee for tax
purposes, and the Trustee’s duty to perform its reporting and other tax
compliance obligations under this Section 7.02(b) shall be subject to the
condition that it receives from the Depositor such information possessed by the
Depositor that is necessary to permit the Trustee to perform such obligations.

 

(c)           The Trustee shall
perform on behalf of the Trust all reporting and other tax compliance duties
that are required in respect thereof under the Code, the Grantor Trust Provisions
or other compliance guidance issued by the Internal Revenue Service or any
state or local taxing authority, including the furnishing to Certificateholders
of the schedules described in Section 7.02(b).

 

(d)           The Trustee shall
perform its duties hereunder so as to maintain the status of the Trust as a
Grantor Trust under the Grantor Trust Provisions.  The Trustee, and the Depositor each shall not knowingly take (or,
as applicable, cause the Trust to take) any action or (in the case of the
Trustee) fail to take or fail to cause to be taken any action that, under the
Grantor Trust Provisions, if taken or not taken, as the case may be, could
endanger the status of the portion of the Trust consisting of the Debt
Instruments as a Grantor Trust or result in the imposition of a tax upon the
Trust or its assets or transactions.

 

(e)           If any tax is imposed
on the Trust, such tax, together with all incidental costs and expenses
(including interest and penalties), shall be charged to and paid by (i) by the
Trustee, if such tax arises out of or results from a breach by the Trustee of
any of its obligations hereunder or (ii) otherwise, the Depositor.

 

ARTICLE VIII

ACCOUNTS

 

SECTION  
8.01  Custodial Account.

 

The Trustee shall
hold the Underlying Assets in a custodial account in the name of the Trust or
the Trustee (or in the name of a nominee for either thereof) at the Trustee or
at an Eligible Institution selected by the Trustee (the “Custodial Account”);
provided, however, that the Custodial Account may be a segregated subaccount of
another account or of another subaccount.

 

SECTION  
8.02  Collection Account.

 

(a)           The Trustee shall
establish an account at the Trustee or at an Eligible Institution into which
all Underlying Payments, Underlying Make-Whole Payments and all Reinvestment
Income shall be received and deposited from time to time and from which
Available Funds shall be distributed pursuant to Section 5.01 (the “Collection
Account”); provided, however, that the Collection Account may be a segregated
subaccount of another account or of another subaccount.  The Collection Account shall be held by and
in the name of the Trust or the Trustee (or in the name of a nominee for either
thereof).  To facilitate the
identification of Underlying Payments as distinguished from Reinvestment
Income, the Trustee shall have the authority to designate separate subaccounts
in the Collection Account relating to Underlying Payments, Underlying
Make-Whole Payments and Reinvestment Income.

 

(b)           The Trustee shall, at
the direction of the Depositor, invest moneys in the Collection Account on
behalf of the Trust in Eligible Investments selected by the Trustee, which
shall mature not later than the Business Day immediately preceding the
Distribution Date next following the date of such

 

15

 

investment at which time such moneys shall be
distributed to Certificateholders in accordance with Section 5.01.  The Trustee shall select investments for the
investment of the Collection Account from among Eligible Investments.  If an investment ceases to meet the
requirements of an Eligible Investment as specified in the definition thereof,
the Trustee shall cause all moneys in such investment to be withdrawn and invested
in an Eligible Investment as promptly as practicable, but in any event within
five Business Days, after the Trustee’s actual knowledge or receipt of written
notice of the occurrence of such investment’s ceasing to meet such
requirements.  All net income and gain
realized from any such investments shall be added to the Collection Account as
Reinvestment Income, and the Trustee shall have no liability therefor.

 

SECTION  
8.03  Accounts and Assets To Be Held in Trust, Etc.

 

The Trustee’s
interest in the Accounts and the assets therein shall be solely that of the
Trustee.  The Trustee shall keep the
Accounts and the assets therein held separate from the general assets of the
Trustee by notations in its records in accordance with its trust practices.  For the avoidance of doubt, the
establishment of either or both Accounts as subaccounts as contemplated by
Section 8.01 or the first sentence of Section 8.02(a) shall not be deemed to be
a violation of the immediately preceding sentence of this Section 8.03.  The Trustee shall not subject either Account
or the assets therein to any right, charge, security interest, lien or claim of
any kind in favor of the Trustee or any Person claiming by or through the
Trustee or assign, transfer, pledge or otherwise dispose of or extend credit or
advance funds against either Account or the assets therein.  Without limiting the generality of the
foregoing, the Trustee shall not reduce (including by way of setoff), withhold
or delay any distribution to any Certificateholder on account of any amount
owed to the Trustee pursuant to Section 9.09 or 9.10 or otherwise.

 

ARTICLE IX

THE TRUSTEE

 

SECTION  
9.01  Use of Agents; Appointment of Additional Trustees.

 

(a)           The Trustee may perform
its obligations hereunder through one or more agents, which shall be chosen
with due care by the Trustee, taking into account, among other factors, the
services to be performed by such agent and such agent’s qualifications and
financial status.  The use of such
agents shall not alter or diminish the Trustee’s responsibilities as Trustee
hereunder, and the Trustee shall not be responsible for any willful misconduct
or negligence on the part of any agent appointed with due care.

 

(b)           For the purpose of
meeting the legal requirements of certain local jurisdictions, the Trustee will
have the power to appoint co-trustees or separate trustees of all or any part
of the Trust.  In the event of such
appointment, all rights, powers, duties and obligations conferred or imposed
upon the Trustee by this Agreement will be conferred or imposed upon the
Trustee and each such separate trustee or co-trustee jointly, or, in any
jurisdiction in which the Trustee shall be incompetent or unqualified to
perform certain acts, singly upon such separate trustee or co-trustee who shall
exercise and perform such rights, powers, duties and obligations solely at the
direction of the Trustee but which shall be independently responsible to the
Trustee for compliance with the requirements of such local jurisdiction.

 

SECTION  
9.02  Limited Authority of the Trustee.

 

(a)           The Trustee is to act
solely in a trustee capacity hereunder. 
Although the Trustee will act as a limited agent of the
Certificateholders in safekeeping and bookkeeping for the Underlying Assets,
the Trustee will have no authority to act for or assert any right on behalf of
any Certificateholder except as otherwise provided in this Agreement.

 

16

 

(b)           The Trustee shall take
no action in respect of any Certificateholder or either Account or any
Underlying Assets not explicitly provided for herein; in particular, and not by
way of limitation, the Trustee shall not, except as provided herein:

 

(i)            fail to distribute
Available Funds as required hereby, except as otherwise provided herein;

 

(ii)           take any action with
respect to an Underlying Default;

 

(iii)          provide any investment
advice, investment counseling or portfolio management to any Certificateholder,
in a Certificateholder’s capacity as such; or

 

(iv)          guarantee or otherwise
enhance the creditworthiness of any Underlying Asset.

 

SECTION  
9.03  Waiver of Claims.

 

The Trustee hereby
waives all claims, liens, charges, equities and rights of setoff that it may
now or at any time hereafter have against any of the Underlying Assets.

 

SECTION  
9.04  Prevention or Delay in Performance by the Trustee.

 

The Trustee shall
not incur any liability to any Certificateholder if, by reason of any provision
of any present or future law or regulation thereunder, of any governmental
authority, or by reason of any act of God or war or other circumstance beyond
the control of the Trustee, the Trustee shall be prevented or forbidden from
doing or performing any act or thing which the terms of this Agreement provide
shall be done or performed.

 

SECTION  
9.05  Ownership of and Transactions in Underlying Assets and
Certificates.

 

The Trustee and
its Affiliates may own and deal in securities of the same issue as the
Underlying Assets, other securities issued under the Underlying Indenture and
any Certificates.

 

SECTION  
9.06  Exculpation of the Trustee and Related Matters.

 

(a)           The duties and
obligations of the Trustee shall be determined solely by the express provisions
of this Agreement.

 

(b)           The Trustee assumes no
obligation or liability hereunder to Certificateholders other than by reason of
the Trustee’s willful misconduct, bad faith or negligence in the performance of
such duties as are specifically set forth herein.

 

(c)           None of the provisions
of this Agreement shall require the Trustee to expend or risk its own funds or
otherwise to incur any liability, financial or otherwise, in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers
if it shall have reasonable grounds for believing that repayment of such funds
or indemnity satisfactory to it against such risk or liability is not assured
to it.

 

(d)           The Trustee shall not
be liable with respect to any action taken or omitted to be taken by it in good
faith in accordance with any direction of the Depositor or the
Certificateholders given under this Agreement.

 

17

 

(e)           Whenever in the
administration of the provisions of this Agreement the Trustee shall deem it
necessary or desirable that a matter be proved or established before the
Trustee takes or permits any action to be taken hereunder, such matter shall
(except as otherwise may be expressly provided herein), in the absence of
negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by a certificate signed by one of the
Depositor’s officers, and delivered to the Trustee, and such certificate, in
the absence of negligence or bad faith on the part of the Trustee, shall be
full warrant to the Trustee for any action taken, permitted or omitted by it
under the provisions of this Agreement in reliance thereon.

 

(f)            The Trustee shall not
be liable for any action or any failure to act by it in reliance upon the
advice of or information from legal counsel or accountants or any other person
believed by it in good faith to be competent to give such advice or
information.  The Trustee may
conclusively rely and shall be fully protected in acting or refraining from
acting upon any resolution, certificate, statement, instrument, opinion,
report, notice, request, consent, order, approval or other paper or document
believed by it to be genuine and to have been signed or presented by the proper
party or parties.  The Trustee shall not
be required to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, entitlement order, approval or other paper or document.

 

(g)           Without limiting the
generality of Section 3.02, in no event shall the Trustee be liable for the
selection of investments of the Trust or for investment losses incurred
thereon.  The Trustee shall have no
liability in respect of losses incurred as a result of the liquidation of any
investment before its stated maturity or the failure of any Person to provide
timely investment directions to the Trustee.

 

(h)           No bank in which an
Account is maintained shall be deemed an agent of the Trustee.

 

(i)            The Trustee shall have
no responsibility for any statements contained in this Agreement, the
Certificates and any descriptive documentation relating thereto, except for the
express agreements of the Trustee herein or in the Certificates.

 

SECTION   9.07  Fidelity Bond.

 

The Trustee shall
maintain one or more fidelity bonds (which may be maintained through
self-insurance) in customary amounts to cover transactions of the kind
contemplated hereby.

 

SECTION  
9.08  Resignation and Removal of the Trustee; Appointment of
Successor Trustee.

 

(a)           The Trustee may at any
time resign as Trustee hereunder by written notice thereof delivered to the Depositor
and each Certificateholder, such resignation to take effect only upon the
appointment of a qualified successor Trustee and its acceptance of such
appointment as hereinafter provided.  If
the Trustee resigns hereunder, the Trustee shall use its best efforts to assist
the Depositor in obtaining a successor Trustee.

 

(b)           The Trustee may at any
time be removed, with or without cause, by the Depositor or by all the
Certificateholder upon 30 days’ written notice of such removal delivered to the
Trustee (and in the case of removal by Certificateholders, to the Depositor),
such removal to take effect only upon the appointment of a qualified successor
Trustee and its acceptance of such appointment as hereinafter provided.

 

18

 

(c)           If the Trustee becomes
incapable of acting, is adjudged to be bankrupt or insolvent, or a receiver of
the Trustee or of its property is appointed, or any public officer takes charge
or control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation, then the Trustee may be removed by
court action instituted by the Depositor or any Certificateholder.

 

(d)           Any entity into which
the Trustee may be merged or converted or with which it may be consolidated, or
any entity resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any entity succeeding to all or substantially all
of the corporate trust business of the Trustee, shall be the successor of the
Trustee hereunder without the execution or delivery of any paper or any further
act on the part of the parties hereto; provided, however, that, if, upon the
occurrence of such event, such entity shall not be eligible to serve as trustee
pursuant to Section 9.08(e), such event shall be deemed to be an act of
resignation by the Trustee pursuant to Section 9.08(a), and such Trustee shall
deliver notice thereof pursuant to Section 9.08(a) upon the occurrence of such
event.

 

(e)           In case at any time the
Trustee acting hereunder shall resign or be removed, the Depositor may appoint
a successor trustee within 90 days after the delivery of a notice of
resignation or a notice of removal.  Any
successor trustee shall be a bank or trust company organized and doing business
under the laws of the United States of America or of any State thereof,
authorized to act as trustee, having a combined capital and surplus of at least
$200,000,000, rated at least BBB+ by S&P and Baa2 by Moody’s and subject to
supervision or examination by federal or state authority.  If no successor trustee has been appointed
as successor trustee within 90 days after the Trustee has given written notice
of its election to resign, the resigning Trustee may, at the expense of the
Depositor, petition any court of competent jurisdiction for the appointment of
a successor trustee.

 

(f)            Any successor trustee
appointed hereunder shall execute and deliver to the Depositor and the retiring
Trustee an instrument accepting such appointment and thereupon the resignation
or removal of the retiring Trustee shall become effective and such successor
trustee shall become vested with all the rights and duties of the retiring
Trustee.  The retiring Trustee shall (i)
upon payment of its charges, duly cause the assets of the Trust to be
transferred to such successor trustee which shall deposit the same in separate
Accounts held by such successor trustee and duly assign, transfer and deliver
to such successor trustee all records, Certificates and rights to all moneys
held by such retiring Trustee hereunder, and (ii) pay over to such
successor trustee any fees or charges previously paid to the Trustee in respect
of duties not yet performed under this Agreement which remain to be performed
by such successor trustee.  Any successor
Trustee shall (i) promptly mail notice of its appointment to all affected
Certificateholders, (ii) automatically be bound by all terms of this Agreement
and (iii) promptly take such steps and establish such books and records as
may be necessary or appropriate for it to comply with the provisions of this
Agreement.

 

SECTION  
9.09  Fees and Expenses of the Trustee.

 

The reasonable
charges, fees and reimbursements for services provided by the Trustee hereunder
shall be determined by mutual written agreement of the Depositor and the
Trustee, and the Depositor shall pay all such agreed charges, fees and
reimbursements of the Trustee; provided, however, that (i) the Depositor shall
not pay or be liable for the charges, fees and reimbursements that are expressly
required by this Agreement to be paid by Certificateholders or the Trustee, and
(ii) the Trustee shall not be released from any of its duties hereunder as a
result of the failure of the Depositor to pay any such agreed charges, fees or
reimbursements.

 

19

 

SECTION  
9.10  Indemnification of the Trustee.

 

(a)           The Depositor agrees to
indemnify the Trustee and any of its agents, officers, directors or employees
against, to defend, and to hold them harmless from, any losses, claims,
damages, expenses or other liabilities, joint or several, arising for any
reason (the “Trustee Liabilities”), and any related out-of-pocket expenses
(including reasonable attorneys’ fees and disbursements) (the “Trustee
Expenses”), which may arise out of acts performed by the Trustee and any of its
agents, officers, directors or employees in accordance with this Agreement or
as a result of its participation in the transactions contemplated hereby, other
than any Trustee Liabilities and Trustee Expenses arising out of
(i) negligence, willful misconduct or bad faith on the part of the Trustee
and any of its agents, officers, directors or employees or (ii) the breach
of any of the Trustee’s express covenants set forth in this Agreement.

 

(b)           Promptly after receipt
by the Trustee of actual knowledge or notice of any demand, claim or
circumstances which gives rise or which, with the lapse of time, would or might
give rise to a claim or the commencement (or threatened commencement) of any action,
proceeding or investigation that may result in a liability for which indemnity
may be sought hereunder, the Trustee shall give notice thereof to the
Depositor.  Such notice shall describe
the claim, action, proceeding or investigation in reasonable detail, and shall
indicate, to the extent known, the amount (estimated, if necessary and to the
extent feasible) of the Trustee Liabilities and Trustee Expenses that have been
or may be incurred by the Trustee.  The
Depositor may elect to compromise or assume the defense of, at its own expense
and by its own counsel, any such claim, action, proceeding or investigation and
the Trustee shall cooperate in the compromise of, or defense against, such
claim, action, proceeding or investigation. 
The Trustee shall not enter into any settlement without the consent of
the Depositor.

 

SECTION  
9.11  Limitation of Liability.

 

It is expressly
acknowledged and agreed by the parties hereto that (i) this Agreement is
executed and delivered by the institution (initially, LaSalle Bank National
Association) serving as Trustee, not individually or personally but solely as
the Trustee, in the exercise of the powers and authority conferred and vested
in it, (ii) any  representations, undertakings
and agreements herein or pursuant hereto made on the part of the Trust are made
and intended not as personal representations, undertakings and agreements by
the institution (initially, LaSalle Bank National Association) serving as
Trustee but are made and intended for the purpose of binding only the Trust,
(iii) nothing herein contained shall be construed as creating any liability on
the institution (initially, LaSalle Bank National Association) serving as
Trustee, individually or personally, to perform any covenant of the Trust
either expressed or implied contained herein, all such liability, if any, being
expressly waived by the parties to this Agreement and by any Person claiming
by, through or under such parties, and (iv) under no circumstances shall the
institution (initially, LaSalle Bank National Association) serving as Trustee
be personally liable for the payment of any indebtedness or expenses of the
Trust or be liable for the breach or failure of any obligation, representation,
warranty or covenant made or undertaken by the Trust under this Agreement.

 

ARTICLE X

THE DEPOSITOR

 

SECTION  
10.01  Prevention or Delay in Performance by the Depositor.

 

The Depositor
shall not incur any liability to the Trustee or any Certificateholder if, by
reason of any provision of any present or future law or regulation thereunder,
of any governmental authority, or by reason of any act of God or war or other
circumstance beyond the control of the Depositor, the Depositor

 

20

 

shall be prevented or forbidden from doing or performing any act or
thing which the terms of this Agreement provide shall be done or performed.

 

SECTION  
10.02  Ownership of and Transactions in Underlying Assets and
Certificates.

 

The Depositor, the
Trustee and their respective Affiliates may own and deal in securities of the
same issue as the Underlying Assets, other securities issued under the
Underlying Indenture and any Certificates.

 

SECTION  
10.03  Exculpation of the Depositor.

 

The Trustee hereby
agrees, and each Certificateholder, by and upon accepting a Certificate agrees
and shall be deemed to agree, that except as expressly provided herein, the
Depositor shall not be obligated or liable to the Trustee or the
Certificateholders with respect to (i) any payment with respect to the
Underlying Assets or any Underlying Default, (ii) any breach by the Trustee of
its obligations under this Agreement or (iii) any other event or circumstance
relating to the execution, delivery, issuance, transfer, exchange or surrender
of Certificates, the distribution of Available Funds or the enforcement of the
rights of the Certificateholders against the Trustee or with respect to the
Underlying Assets.

 

ARTICLE XI

MISCELLANEOUS

 

SECTION   11.01  Amendment.

 

This Agreement may
be amended or otherwise modified by the Trustee and the Depositor but only in
writing and subject to the conditions that (i) Certificateholders representing
a majority of the aggregate outstanding Principal Balance of the Certificates
of both Classes shall have consented to such amendment or other modification
and (ii) the Trustee shall have received such opinions and other documentation
in connection with such amendment or other modification as the Trustee shall
reasonably request; provided, however, that, if the sole effect of any such
amendment or modification is to change the name of the Trust (without requiring
any Certificateholder to exchange any Certificates in connection therewith), no
consent of Certificateholders shall be required pursuant to the preceding
clause (i), and the Trustee shall (subject to the next sentence) agree to such
amendment or modification if it is otherwise in proper form and each other
applicable provision of this Agreement relating thereto is complied with; and
provided further that no such amendment or modification shall (x) without the consent of all Certificateholders
adversely affected thereby, directly or indirectly (a) alter the amount or
timing of distributions on the Certificates, (b) change the
Principal Balance of any Certificates, (c) modify any provisions hereof
relating to a repurchase of  the Class A
Certificates pursuant to Section 4.14, (d) reduce the percentage of the
aggregate Principal Balance of Certificates the consent or direction of the
Certificateholders of which is required to allow or direct the Trustee to take
any action with respect to the Underlying Assets pursuant to Section 3.04  or (e) amend this Section 11.01, or (y)
without the consent of all Certificateholders, be inconsistent with the
treatment for federal income tax purposes of the Trust as described in Section
7.01 hereof.  Notwithstanding the
foregoing, the Trustee shall not be required to agree to any such amendment or
other modification that affects its rights, duties or immunities.

 

SECTION   11.02  Counterparts.

 

This Agreement may
be executed in any number of counterparts, and by the Depositor and the Trustee
on separate counterparts, each of which counterparts, when so executed and
delivered, shall be

 

21

 

deemed
an original, but all such counterparts taken together shall constitute one and
the same instrument.  By and upon
acceptance of a Certificate, each Certificateholder shall have agreed and be
deemed to have agreed to be bound by all the terms and conditions of this
Agreement.

 

SECTION  
11.03  Exclusive Benefit of Parties.

 

This Agreement is
for the exclusive benefit of the parties hereto and the Certificateholders, and
their respective successors and permitted assigns hereunder, and shall not be
deemed to give any legal or equitable right, remedy or claim to any other
Person whatsoever.  The Depositor may at
any time assign all or any portion of its rights or obligations hereunder to
any Affiliate or (with the consent of the Trustee, such consent not to be
unreasonably withheld) to any other Person.

 

SECTION  
11.04  Invalidity of Provisions.

 

If any one or more
of the provisions contained in this Agreement or the Certificates should be or
become invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein or therein
shall in no way be affected, prejudiced or disturbed thereby, provided that the
intent of the parties hereto is not thereby materially altered.

 

SECTION  
11.05  Notices and Other Communications.

 

All notices and
other communications required or permitted to be given hereunder shall be
deemed to have been duly given if sent by first class mail, postage prepaid,
personally delivered, delivered by overnight courier or sent by facsimile
transmission, addressed to the Depositor, the Trustee, any Certificateholder to
the address specified below, or to any other address furnished by such party to
each other party (or, in the case of a Certificateholder, to the Trustee).  Any such notice shall be deemed given when
received.

 

Address for the Depositor:

 

CRIIMI MAE CLASS D DEPOSITOR LLC

11200 Rockville Pike

Rockville, Maryland 20825

Attention: General Counsel

Telecopy:  301-231-0334

Reference:  CRIIMI MAE Class D Trust

 

Address for the Trustee:

 

LaSalle Bank National Association

135 S. LaSalle Street, Suite 1625

Chicago, Illinois 60603

Attention:  Global Securitization Trust
Services

Telecopy:  312-904-2084

Reference:  CRIIMI MAE Class D Trust

 

Address for any Certificateholder:

 

As specified in the Register

 

22

 

SECTION   11.06  GOVERNING LAW.

 

THIS AGREEMENT AND
ALL RIGHTS HEREUNDER AND PROVISIONS HEREOF SHALL BE GOVERNED BY, AND CONSTRUED
IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF
CONSTRUCTION, VALIDITY AND PERFORMANCE.

 

SECTION   11.07  Headings.

 

The headings of
Articles and Sections have been inserted for convenience only and are not to be
regarded as a part of this Agreement, or to have any bearing upon the meaning
or interpretation of any provision contained herein or in the Certificates.

 

SECTION  
11.08  No Petition Covenant.

 

Notwithstanding
any prior termination of this Agreement, the Trustee (in its individual
capacity) and the Depositor shall not, prior to the date which is one year and
one day after the termination of this Agreement acquiesce, petition or
otherwise invoke or cause the Trust to invoke the process of any court or
governmental authority for the purpose of commencing or sustaining a case
against the Trust under any federal or state bankruptcy, insolvency or similar
law or appointing a receiver, liquidator, assignee, trustee, custodian,
sequestrator or other similar official of the Trust or any substantial part of
its property, or ordering the winding up or liquidation of the affairs of the
Trust.

 

23

 

IN WITNESS
WHEREOF, the parties hereto have executed and delivered this Agreement as of
the date first set forth above.  By and
upon acceptance of a Certificate, each Certificateholder shall have agreed and
be deemed to have agreed to be bound by all the terms and conditions of this
Agreement.

 

	
   

  	
  CRIIMI MAE CLASS D DEPOSITOR LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Libera

  	
   

  
	
   

  	
   

  	
  Name: Mark Libera

  
	
   

  	
   

  	
  Title: Vice President and Acting General

  Counsel

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  LASALLE BANK NATIONAL ASSOCIATION,

  
	
   

  	
  Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian D. Ames

  	
   

  
	
   

  	
   

  	
  Name: Brian D. Ames

  
	
   

  	
   

  	
  Title: First Vice President

  

 

 

APPENDIX A

 

DEFINITIONS

 

As used herein,
the following terms shall have the following meanings:

 

“Account” means
the Custodial Account or the Collection Account.

 

“Affiliate” means,
with respect to any specified Person, any other Person controlling or
controlled by or under common control with such specified Person.  For the purposes of this definition,
“control”, when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms “controlling” and “controlled” have meanings correlative to the
foregoing. “Affiliate” has the meaning specified in Rule 405 under the
Securities Act.

 

“Authorized
Officer” means any officer of the Depositor who is identified on the most
recent list of authorized officers delivered by the Depositor to the Trustee
(as such list may be modified or supplemented from time to time by the
Depositor).

 

“Available Funds”
means, with respect to each Distribution Date, (i) the aggregate amount
of  Underlying Payments, and Underlying
Make-Whole Payments with respect to such Distribution Date plus (ii) the
aggregate Reinvestment Income with respect to such Distribution Date.

 

“Business Day” has
the meaning provided in the Underlying Indenture; provided that for purposes of
calculating the Optional Repurchase Price and any notices required to be
delivered in connection therewith, “Business Day” shall mean a “U.S. Government
Securities Business Day” as defined in the 2000 ISDA Definitions published by
the International Swaps and Derivatives Association, Inc.

 

“Certificate”
means a Class A Certificate or a Class B Certificate.

 

“Certificate
Accrual Period” means an “Interest Accrual Period” as defined in the Underlying
Indenture as in effect on the Closing Date.

 

“Certificate Rate”
means the interest rate (and basis of application thereof) at which the
Underlying Assets bear interest from time to time pursuant to the Underlying
Indenture.

 

“Certificate
Transfer” means a transfer, sale, pledge or other disposition of any
Certificate or any interest therein.

 

“Certificateholder”
means each Person identified as a holder of a Certificate in the Register.

 

“Class” means, as
applicable, a class of Certificates (being the Class A Certificates or the
Class B Certificates) or a class of Certificateholders (being the Class A
Certificateholders or the Class B Certificateholders).

 

“Class A
Certificate” means a Class A Certificate issued by the Trust as evidenced by a
trust certificate in the form of Exhibit A, properly completed (including by
the selection of “A” in lieu of “B” in the provisions thereof relating to Class
designation) and executed, delivered and authenticated by the Trustee.

 

A-1-1

 

“Class A Certificateholder”
means a Certificateholder of a Class A Certificate.

 

“Class B
Certificate” means a Class B Certificate issued by the Trust as evidenced by a
trust certificate in the form of Exhibit A, properly completed (including by
the selection of “B” in lieu of “A” in the provisions thereof relating to Class
designation) and executed, delivered and authenticated by the Trustee.

 

“Class B
Certificateholder” means a Certificateholder of a Class B Certificate.

 

“Class D-1 Bonds”
means $159,500,000 initial aggregate principal amount of Class D-1 Commercial
Mortgage Bonds, Series 1998-C1 issued by the Underlying Issuer under the
Underlying Indenture

 

“Class D-2 Bonds”
means $159,501,000 initial aggregate principal amount of Class D-2 Commercial
Mortgage Bonds, Series 1998-C1 issued by the Underlying Issuer under the
Underlying Indenture.

 

“Closing Date”
means June 30, 2004.

 

“Code” means the
Internal Revenue Code of 1986.

 

“Collection
Account” has the meaning specified in Section 8.02.

 

“Custodial
Account” has the meaning specified in Section 8.01.

 

“Debt Instruments”
has the meaning specified in Section 7.01

 

“Depositor” means
CRIIMI MAE Class D Depositor LLC, a Delaware limited liability company.

 

“Designated
Office” means the principal corporate trust office of the Trustee at 135 S.
LaSalle Street, Suite 1625, Chicago, Illinois, 60603 or such other office of
which notice is provided to the Certificateholders in connection with the
change of such office or of the Trustee.

 

“Distribution
Date” means each Underlying Payment Date.

 

“Eligible Account”
means a segregated trust account maintained with the Trustee or an Eligible
Institution selected by the Trustee, in each case in which funds are either
uninvested or invested solely in Eligible Investments.

 

“Eligible Institution”
means a depository institution the long-term deposit rating or the long-term
unsecured debt obligations of which (or in the case of the principal bank in a
bank holding company system, the long-term unsecured debt obligations of such
bank holding company) have been rated at least A+/Aa3 by Standard & Poor’s
and Moody’s, respectively, or maintained with a depository institution the
commercial paper of which (or, in the case of a principal bank in a bank
holding company system, the commercial paper of such bank holding company) is
rated at least A-1/P-1 by Standard & Poor’s and Moody’s, respectively.

 

“Eligible
Investments” means one or more of the following:

 

(i)            obligations of, or
guaranteed as to both full and timely payment of principal and interest by, the
United States or any agency or instrumentality thereof when such obligations
are

 

A-1-2

 

backed by the full faith
and credit of the United States and repurchase agreements with respect to any such
obligations entered into with an Eligible Institution;

 

(ii)           federal funds,
certificates of deposit, time deposits and bankers’ acceptances, each of which
shall not have an original maturity of more than 90 days, of any depository
institution or trust company incorporated under the laws of the United States
or any state; provided, however, that the short-term obligations of such
depository institution or trust company shall be rated at least A-1/P-1 by
Standard & Poor’s and Moody’s, respectively;

 

(iii)          commercial paper (having
original maturities of not more than 180 days) of any corporation incorporated
under the laws of the United States or any state thereof; provided, however,
that such commercial paper shall be rated at least A-1+/P-1 by Standard & Poor’s
and Moody’s, respectively; and

 

(iv)          money market funds or
money market mutual funds (excluding any closed-end funds but, for the
avoidance of doubt, including any funds (other than closed-end funds) for which
the Trustee or its Affiliates may act as manager or advisor, whether or not for
a fee); provided, however, that any such fund:

 

(A)          shall be rated AAA/Aaa
by Standard & Poor’s and Moody’s, respectively;

 

(B)           shall have a stated
objective of maintaining a constant net asset value; and

 

(C)           either (x) shall not be
an obligation of an investment company registered under Section 8 of the
Investment Company Act or (y) shall be an obligation of (1) an entity which has
at least 95% of its assets continuously invested in exempted securities (within
the meaning of Section 3 of the Securities Act) or (2) a company which issues
face-amount certificates as defined in Section 2(a)(15) of the Investment
Company Act but excluding any such security which would cause the Trust to
violate Section 12(d)(1) of the Investment Company Act;

 

provided, however, that
(X) no instrument shall be an Eligible Investment if such instrument evidences
a right to receive only interest payments with respect to the obligations
underlying such instrument or if such instrument has a maturity date after the
next scheduled Distribution Date and (Y) no overnight instrument shall be an
Eligible Investment unless it is an investment in overnight federal funds or in
an overnight time deposit described in clause (ii) of this definition.

 

“ERISA” means the
Employee Retirement Income Security Act of 1974.

 

“ERISA Plan” means
an “employee benefit plan” as defined in Section 3(3) of ERISA that is subject
to Title 1 of ERISA.

 

“Exchange Act”
means the Securities Exchange Act of 1934.

 

“Existing Class A
Certificateholders” has the meaning specified in Section 4.14.

 

“Face Amount”
means the amount specified on each Certificate as the Face Amount thereof,
which amount shall be at least $250,000 or an integral multiple of $1 in excess
thereof.  The Face Amount of a
Certificate is not necessarily the Principal Balance thereof at any particular
time.

 

A-1-3

 

“Grantor Trust”
means a grantor trust as defined under the Grantor Trust Provisions.

 

“Grantor Trust
Provisions” means provisions of the Code relating to grantor trusts, which
appear in subpart E, part 1 of Subchapter J, Treasury Regulation Section
301.7701-4(c)(2), and related provisions, and proposed, temporary and final
Treasury regulations and any published rulings, notice and announcements
promulgated thereunder, as the foregoing may be in effect from time to time.

 

“Investment
Company Act” means the Investment Company Act of 1940.

 

“Institutional
Accredited Investor” means an “accredited investor” as defined in any of
paragraphs (1), (2), (3) and (7) of Rule 501(a) under the Securities Act or any
entity in which all of the equity owners come within such paragraphs.

 

“Moody’s” means
Moody’s Investors Service, Inc.

 

“Opinion of
Counsel” means a written opinion of internationally recognized counsel.

 

“Optional
Repurchase Date” has the meaning specified in Section 4.14.

 

“Optional
Repurchase Price” means, with respect to any Optional Repurchase Date, a price
(calculated after taking into account payments of principal and interest made
or to be made on the Class A Certificates out of Available Funds on such
Optional Repurchase Date) equal to the Discounted Value of the Class A
Certificates, plus accrued and unpaid interest thereon at the applicable Certificate
Rate to but not including the Optional Repurchase Date.  For purposes of this definition, the
following terms shall have the following meanings:

 

“Discounted Value” means,
with respect to Optional Repurchase Date, the amount obtained by discounting
all Remaining Scheduled Payments with respect to the Class A Certificates from
their respective scheduled payment dates (determined based on the assumptions
set forth in the definition of “Remaining Scheduled Payments”) to the Optional
Repurchase Date, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which interest
on the Underlying Assets is payable) equal to the Discount Rate.

 

“Discount Rate” means,
with respect to any Optional Repurchase Date, the sum of 1.65% plus the
Swap Rate.  The “Swap Rate” for any
Optional Repurchase Date shall be the rate for U.S. Dollar swaps with a
maturity equal to the Remaining Average Life of the Class A Certificates as of
such Optional Repurchase Date, expressed as a percentage, which appears on the
Reuters Screen ISDAFIX1 Page as of 11:00 a.m., New York city time, on the date
that is three Business Days preceding the Optional Repurchase Date.  Such rate will be determined, if necessary,
by interpolating linearly between (1) the rate for the maturity closest to and
greater than the Remaining Average Life and (2) the rate for the maturity
closest to and less than the Remaining Average Life.  If such rate cannot be determined by reference to the Reuters
Screen ISDA FIX1 Page, then the “Swap Rate” for such Optional Repurchase Date
will be a percentage determined on the basis of the mid-market semi-annual swap
rate quotations provided by the Reference Banks at approximately 11:00 a.m.,
New York City time, on the day that is three Business Days preceding such
Optional Repurchase Date, and, for this purpose, the semi-annual swap rate
means the mean of the bid and offered rates for the semi-annual fixed leg,
calculated on a 30/360 day count basis, of a fixed-for-floating U.S. Dollar
interest rate swap transaction with a term equal to the Remaining Average Life
of the Class A Certificates

 

A-1-4

 

commencing on the Optional Repurchase Date with an
acknowledged dealer of good credit in the swap market, where the floating leg,
calculated on an Actual/360 day count basis, is equivalent to
“USD-LIBOR-BBA”  with a maturity equal
to the Remaining Average Life of the Class A Certificates. The Depositor will
request the principal New York City office of each of the Reference Banks to
provide a quotation of its rate. If at least three quotations are provided, the
Swap Rate will be the arithmetic mean of the quotations, eliminating the
highest quotation (or, in the event of equality, one of the highest) and the
lowest quotation (or, in the event of equality, one of the lowest).

 

“Reference Banks” means
five leading swap dealers in the New York City interbank market.

 

“Remaining Average
Life”  means, with respect to the Class
A Certificates at any time, the number of years (calculated to the nearest
one-twelfth year) obtained by dividing (i) the Principal Balance of the Class A
Certificates into (ii) the sum of the products obtained by multiplying (a) the
principal component of each Remaining Scheduled Payment with respect to the
Class A Certificates by (b) the number of years (calculated to the nearest
one-twelfth year) that will elapse between the Optional Repurchase Date and the
scheduled payment date of such Remaining Scheduled Payment (determined based on
the assumptions set forth in the definition of such term).

 

“Remaining Scheduled
Payments” means, with respect to the Class A Certificates at any time, all
payments of principal on the Class A Certificates and interest thereon that would
be paid to the Certificateholders of the Class A Certificates after the
Optional Repurchase Date assuming that each Mortgage Loan (or Mortgage Loan
underlying any Mortgage Participation) pays any remaining principal on its
scheduled due date (or in the case of a Hyper-Amortization Loan, on its
Anticipated Repayment Date); provided that if such Optional Repurchase Date is
not a Distribution Date, then the amount of the next succeeding scheduled
interest payment on the Class A Certificates will be deemed to be reduced by
the amount of interest accrued to such Optional Repurchase Date.  As used herein, the terms “Mortgage Loan”,
“Mortgage Participation”, “Hyper-Amortization Loan” and “Anticipated Repayment
Date” have the meanings specified in the Underlying Indenture.  All references herein to a “scheduled due
date” shall be determined after giving effect to any modifications of the
payment terms of the relevant Mortgage Loan.

 

“Reuters Screen” means,
when used in connection with any designated page, the display page so
designated on the Reuters Money 3000 Service (or such other page as may replace
that page on that service for the purpose of displaying comparable rates or
prices).

 

“Permitted
Institutional Investor” means a Person that is an Institutional Accredited
Investor or a Qualified Institutional Buyer.

 

“Person” means any
individual, corporation, partnership, joint venture, association, joint stock
company, trust (including any beneficiary thereof), unincorporated
organization, government or any agency or political subdivision thereof.

 

“Plan” means a
“Plan” as defined in the Underlying Indenture.

 

A-1-5

 

“Principal
Balance” means, with respect to any Certificate at any time, the Principal
Balance thereof on the Closing Date as provided in Section 4.02 minus
reductions of such Principal Balance as a result of distributions pursuant to
Section 5.01; provided, however, that the Principal Balance of any Certificate
(the “successor Certificate”) issued upon registration of transfer of a
predecessor Certificate or in substitution for a predecessor Certificate shall
equal the Principal Balance of the predecessor Certificate multiplied by the
Face Amount of the successor Certificate and divided by the Face Amount of the
predecessor Certificate.

 

“Proper Transfer
Amount” means $250,000 Face Amount of Certificates or any integral multiple of
$1 in excess thereof.

 

“Qualified
Institutional Buyer” means a “qualified institutional buyer” as defined in Rule
144A under the Securities Act.

 

“Record Date”
means, with respect to any Distribution Date, the first day of the month in
which the Distribution Date falls.

 

“Register” means a
register for the registration of Certificates and of transfers and exchanges of
Certificates as provided in Section 4.07.

 

“Registrar” means
the Person appointed pursuant to Section 4.07 for the purpose of registering
Certificates and transfers and exchanges of Certificates as provided herein.

 

“Responsible
Officer” means, with respect to the Trustee, any officer assigned to the
Designated Office of the Trustee, or assigned to any other office referred to
in, or pursuant to, Section 11.05 with respect to the Trustee, including any
managing director, principal, vice president, assistant vice president,
assistant treasurer, assistant secretary, trust officer or any other officer of
the Trustee customarily performing functions similar to those performed by any
of the above designated officers and having direct responsibility for the
administration of this Agreement and also, with respect to a particular matter,
any other officer to whom such matter is referred because of such officer’s
knowledge of and familiarity with the particular subject.

 

“Reinvestment
Income” means any reinvestment income earned on the investment of any funds
held in the Collection Account pending distribution to Certificateholders; and
Reinvestment Income with respect to any Distribution Date means the aggregate
amount of Reinvestment Income so earned and not theretofore distributed to
Certificateholders.

 

“Securities Act”
means the Securities Act of 1933.

 

“Standard &
Poor’s” means Standard & Poor’s Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor thereto.

 

“Trust” means
CRIIMI MAE Class D Trust, a New York common law trust established pursuant to
this Agreement.

 

“Trustee” means
LaSalle Bank National Association, a national bank association.

 

“Underlying
Assets” means the Class D-1 Bonds, the Class D-2 Bonds and, where the context
so requires, all proceeds thereof.

 

A-1-6

 

“Underlying Assets
Transfer” means the transfer to the Trust, and the deposit into the Trust, of
all right, title and interest of the Depositor in and to the Underlying Assets
pursuant to Section 3.01(a).

 

“Underlying
Collateral” means the “Collateral” as defined in the Underlying Indenture.

 

“Underlying
Default” means a “Default” or an “Event of Default” as defined in the
Underlying Indenture.

 

“Underlying Event
of Default” means an “Event of Default” as defined in the Underlying Indenture.

 

“Underlying Final
Payment Date” means the “Final Payment Date” for the Underlying Assets as
defined in the Underlying Indenture.

 

“Underlying
Indenture” means the Terms Indenture dated as of May 8, 1998, between the
Underlying Owner Trustee, on behalf of the Underlying Issuer, and the
Underlying Indenture Trustee, as amended from time to time.

 

“Underlying
Indenture Trustee” means LaSalle Bank National Association, a nationally
chartered bank, as indenture trustee with respect to the Underlying Assets, and
any successor thereto.

 

“Underlying
Issuer” means CRIIMI MAE Commercial Mortgage Trust, a Delaware statutory trust.

 

“Underlying Owner
Trustee” means Wilmington Trust Company, a Delaware Corporation.

 

“Underlying
Make-Whole Payment” means any payment of a “Make-Whole Amount” (as defined in
the Underlying Indenture) received by the Trustee as holder of the Underlying
Assets.

 

“Underlying
Payment Date” means a “Payment Date” for the Underlying Assets as defined in
the Underlying Indenture.

 

“Underlying
Payments” means payments (whether of principal or interest or otherwise, but
excluding any Underlying Make-Whole Payment), or proceeds of sale pursuant to
Section 2.04(c), received by the Trustee as holder of the Underlying Assets;
and Underlying Payments with respect to any Distribution Date means the
aggregate amount of Underlying Payments so received and not theretofore
distributed to Certificateholders.

 

A-1-7

 

EXHIBIT A TO TRUST
AGREEMENT

(FORM OF CERTIFICATE)

 

CRIIMI MAE CLASS D TRUST

 

CERTIFICATE

 

THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR QUALIFIED UNDER
ANY OTHER SECURITIES LAW.  NONE OF THE
PARTIES TO THE TRUST AGREEMENT REFERRED TO BELOW IS OBLIGATED TO REGISTER OR
QUALIFY, AS APPLICABLE, ANY CERTIFICATES UNDER THE SECURITIES ACT OF 1933 OR
ANY OTHER SECURITIES LAW OR TO TAKE ANY ACTION NOT OTHERWISE REQUIRED UNDER
THIS AGREEMENT TO PERMIT ANY TRANSFER, SALE, PLEDGE OR OTHER DISPOSITION OF
THIS CERTIFICATE OR INTEREST THEREIN WITHOUT REGISTRATION OR QUALIFICATION.

 

AS SET FORTH IN THE TRUST AGREEMENT
REFERRED TO BELOW, THIS CERTIFICATE IS SUBJECT TO SUBSTANTIAL RESTRICTIONS ON
TRANSFER.  ANY TRANSFER, SALE, PLEDGE OR
OTHER DISPOSITION OF THIS CERTIFICATE OR INTEREST THEREIN MAY BE MADE ONLY IN
COMPLIANCE WITH SUCH TRUST AGREEMENT, INCLUDING SECTION 4.08 THEREOF.

 

CERTIFICATE INFORMATION:

 

Class: [A][B]

Face Amount: 
$[                ]

Certificate Number [A][B]-[    ]

Name of Certificateholder:
[                        
]

 

 

Reference is made
to the Trust Agreement dated as of  June
30, 2004 (the “Agreement”) between CRIIMI MAE Class D Depositor LLC (the
“Depositor”) and LaSalle Bank National Association, Trustee, relating to CRIIMI
MAE Class D Trust, a New York common law trust.  Terms used but not defined in this Certificate are used as
defined in the Agreement.

 

This certifies
that the Certificateholder specified above under “Certificate Information” is
the registered owner of a Certificate issued under the Agreement and having the
Class designation, Face Amount and Certificate number specified above under
“Certificate Information”.

 

The Principal
Balance of this Certificate is not the Face Amount of this Certificate.  Current information relating to the
Principal Balance of this Certificate should be obtained by the
Certificateholder hereof and any prospective transferee.

 

[THE CLASS A CERTIFICATES ARE SUBJECT
TO OPTIONAL REPURCHASE BY THE DEPOSITOR ON ANY BUSINESS DAY ON AND AFTER THE
[JUNE 2009] DISTRIBUTION DATE IN ACCORDANCE WITH THE TERMS OF THE
AGREEMENT.   UPON THE CONSUMMATION OF
ANY SUCH REPURCHASE, AND REGARDLESS OF WHETHER THE CLASS A CERTIFICATES HELD BY
THE PRIOR HOLDERS THEREOF (THE “REPURCHASED CERTIFICATES”) SHALL HAVE BEEN
SURRENDERED TO THE TRUSTEE, SUCH REPURCHASED CERTIFICATES SHALL BE DEEMED TO
HAVE BEEN

 

A-1

 

CANCELED
IN EXCHANGE FOR NEW CLASS A CERTIFICATES ISSUED TO THE DEPOSITOR PURSUANT TO
THE AGREEMENT, AND NO HOLDER OF SUCH REPURCHASED CERTIFICATES SHALL HAVE ANY
FURTHER RIGHT TO RECEIVE ANY DISTRIBUTIONS UNDER THE AGREEMENT OTHER THAN (X)
DISTRIBUTIONS THAT WOULD OTHERWISE BE MADE TO SUCH HOLDER ON THE DATE OF SUCH
REPURCHASE PURSUANT TO SECTION 5.01 OF THE AGREEMENT AND (Y) THE RIGHT TO
RECEIVE PAYMENT OF ITS PRO RATA SHARE OF THE OPTIONAL REPURCHASE
PRICE UPON SURRENDER OF SUCH CANCELED REPURCHASED CERTIFICATE AS SET FORTH IN
THE AGREEMENT.  ACCORDINGLY, PRIOR TO
ACCEPTING ANY TRANSFER OF A CLASS A CERTIFICATE OR ANY INTEREST THEREIN, THE
TRANSFEREE SHOULD CONFIRM WITH THE TRUSTEE THAT THE CLASS A CERTIFICATES HAVE
NOT ALREADY BEEN REPURCHASED BY THE DEPOSITOR PURSUANT TO THE AGREEMENT.]*

 

This Certificate
is issued under and is subject to the terms, provisions and conditions of the
Agreement. By accepting this Certificate, the Certificateholder hereof has and
shall be deemed to have acknowledged and agreed that such Certificateholder is
familiar with all the terms of the Agreement and is bound by all the terms of
the Agreement applicable to such Certificateholder.

 

If there is any
conflict between any provision of this Certificate and any provision of the
Agreement, the Agreement shall control to the extent of such inconsistency.

 

The Agreement sets
forth all the economic and other rights of the Certificates, including the
relative rights of the Class A Certificates and the Class B Certificates and
certain indemnities, reimbursement obligations and other obligations of the Certificateholder
hereof, along with certain exculpatory provisions relating to the parties to
the Agreement.  Without limiting the
generality of the foregoing, any distribution made with respect to this
Certificate shall be made in accordance with the Agreement in the amount, on
the Distribution Date and with respect to the Certificateholder of record on
the Record Date in each case determined pursuant to the Agreement, and any such
distribution shall be made only from the assets of the Trust available therefor
in accordance with the priorities of distribution set forth in the Agreement.

 

THIS CERTIFICATE
AND ALL RIGHTS HEREUNDER AND PROVISIONS HEREOF SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, INCLUDING ALL
MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE.

 

IN WITNESS
WHEREOF, the Trustee has executed and delivered this Certificate

 

*  This
paragraph is to be included only in the Class A Certificates.

 

A-2

 

	
   

  	
  LASALLE BANK NATIONAL ASSOCIATION,

  not in its individual capacity but solely

  as Trustee on behalf of the Trust

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  
	
   

  
	
  CERTIFICATE OF AUTHENTICATION:

  
	
   

  
	
  This is one of the Class [A] [B] Certificates
  referred to in the within-mentioned Agreement.

  
	
   

  
	
  Dated:

  	
   

  	
   

  
	
   

  
	
  LASALLE BANK NATIONAL ASSOCIATION,

  
	
  Trustee

  
	
   

  
	
   

  
	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  
	
   

  	
  Title:

  
								

 

A-3

 

EXHIBIT
B TO TRUST AGREEMENT

(FORM OF CERTIFICATE OF TRANSFERRING CERTIFICATEHOLDER)

 

CRIIMI MAE CLASS D TRUST

 

CERTIFICATE OF TRANSFERRING CERTIFICATEHOLDER

 

To the Registrar under
the Trust Agreement referred to below:

 

Reference is made
to the Trust Agreement dated as of  June
30, 2004 (the “Agreement”) between CRIIMI MAE Class D Depositor LLC and LaSalle
Bank National Association, Trustee, relating to CRIIMI MAE Class D Trust, a New
York common law trust.  Terms used but
not defined in this Transferring Certificateholder’s Certificate are used as
defined in the Agreement.

 

This Certificate
of Transferring Certificateholder relates to
$[                     ]
Face Amount of Class [A][B] Certificates (the “Specified Certificates”, which
may be one Certificate or more than one Certificate) registered in the name of
the undersigned (the “Transferring Certificateholder”).  The Transferring Certificateholder proposes
to effect a Certificate Transfer with respect to the Specified Certificates to
[                 ]
(the “Transferee”).

 

The Transferring
Certificateholder hereby certifies, represents and warrants to the Registrar as
follows:

 

1.             The Transferring
Certificateholder is the lawful owner of the Specified Certificates with the
full right to transfer the Specified Certificates free from any and all claims
and encumbrances.

 

2.             Neither the
Transferring Certificateholder nor anyone acting on its behalf has taken any of
the following actions or any other action so as to cause such action to
constitute a distribution of the Specified Certificates under the Securities
Act, to cause such Certificate Transfer to be a violation of Section 5 of the
Securities Act or any state securities laws or to require registration or
qualification of the Specified Certificates or such Certificate Transfer
pursuant to the Securities Act or any state securities laws:

 

(a)           offered, transferred,
pledged, sold or otherwise disposed of any Specified Certificate, any interest
in a Specified Certificate or any other similar security to any Person;

 

(b)           solicited any offer to
buy or accept a transfer, pledge or other disposition of any Specified
Certificate, any interest in a Specified Certificate or any other similar
security from any Person;

 

(c)           otherwise approached or
negotiated with respect to any Specified Certificate, any interest in a
Specified Certificate or any other similar security with any Person;

 

(d)           made any general
solicitation with respect to any Specified Certificate, any interest in a
Specified Certificate or any other similar security by means of general
advertising or in any other manner; or

 

B-1

 

(e)           taken any other action
with respect to any Specified Certificate, any interest in a Specified
Certificate or any other similar security.

 

IN WITNESS
WHEREOF, this Transferring Certificateholder’s Certificate has been executed
and delivered of the date set forth below.

 

Dated:
[                   ]

 

 

	
   

  	
  [Name of Transferring Certificateholder]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

B-2

 

EXHIBIT
C TO TRUST AGREEMENT

(FORM OF TRANSFEREE’S CERTIFICATE)

 

CRIIMI MAE CLASS D TRUST

 

TRANSFEREE’S CERTIFICATE

 

To the Registrar under
the Trust Agreement referred to below:

 

Reference is made
to the Trust Agreement dated as of  June
30, 2004 (the “Agreement”) between CRIIMI MAE Class D Depositor LLC and LaSalle
Bank National Association, Trustee, relating to CRIIMI MAE Class D Trust, a New
York common law trust.  Terms used but
not defined in this Transferee’s Certificate are used as defined in the Agreement.

 

This Transferee’s
Certificate relates to
$[               ]
Face Amount of Class [A][B] Certificates (the “Specified Certificates”, which
may be one Certificate or more than one Certificate) registered in the name of
[           ](the
“Transferring Certificateholder”).  The
Transferring Certificateholder proposes to effect a Certificate Transfer with
respect to the Specified Certificates to the undersigned (the “Transferee”).

 

The Transferee
hereby certifies, represents and warrants to the Registrar and the Depositor as
follows:

 

1.             Either (A) the
Transferee is a Qualified Institutional Buyer or (B) the Transferee is a
Permitted Institutional Investor and the Certificate Transfer is otherwise
exempt from the registration requirements of the Securities Act and the
registration and/or qualification requirements of any applicable state
securities laws (and the Transferee understands that the Trust and the
Depositor have no obligation or intention to effect any registration or
qualification of the Specified Certificates under any securities laws).

 

2.             The transferee is not
a Plan or a Person who is directly or indirectly acquiring a Certificate or
interest therein on behalf of, as named fiduciary of, as trustee of, or with
assets of a Plan, unless the prospective transferee of such Certificate or
interest therein has provided the Registrar and the Depositor with a
certification of facts and an Opinion of Counsel which establish to the
satisfaction of the Underlying Indenture Trustee and the Depositor that such
Certificate Transfer and holding of such Certificate or interest therein will
not constitute or result in a non-exempt prohibited transaction under ERISA or
Section 4975 of the Code or result in the imposition of an excise tax under
Section 4975 of the Code and will not subject the Trust, the Depositor, the
Underlying Issuer, the Underlying Owner Trustee, the Manager (as defined in the
Underlying Indenture), the Company (as defined in the Underlying Indenture),
the Bond Registrar (as defined in the Underlying Indenture) or the Underlying Indenture
Trustee to any obligation in addition to those undertaken in the Underlying
Indenture or this Agreement, as applicable.

 

C-1

 

3.             The attached
Transferee’s Questionnaire has been completed so as to be true, accurate and
complete.

 

4.             The Transferee has
carefully read and understands the final private offering memorandum dated May
6, 1998 relating to the CRIIMI MAE Commercial Mortgage Trust Commercial
Mortgage Bonds, Series 1998-C1. including without limitation the “Risk Factors”
section in such offering memorandum, and has based its decision to hold the
Certificates upon the information contained therein and not upon any other
information, if any, provided to it with respect to the Underlying Assets.  The Transferee has also been furnished with
all information regarding (a) the Certificates and payments thereon, (b) the
nature and performance of the Certificates and (c) the Trust Agreement, that it
has requested.

 

5.             The Transferee is
aware that the sale to it of the Specified Certificates is being made in
reliance on Rule 144A. The Transferee is acquiring the Specified Certificates
for its own account or for the account of a Qualified Institutional Buyer, and
understands that such Specified Certificates may be resold, pledged or
transferred only (i) to a person reasonably believed to be a Qualified
Institutional Buyer that purchases for its own account or for the account of a
Qualified Institutional Buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, or (ii) as evidenced by an
Opinion of Counsel, to another Permitted Institutional Investor pursuant to
another exemption from registration under the Securities Act.

 

IN WITNESS
WHEREOF, this Transferring Certificateholder’s Certificate has been executed
and delivered of the date set forth below.

 

Dated:
[                     ]

 

 

	
   

  	
  [Name of Transferee]

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

C-2

 

CRIIMI MAE CLASS D TRUST

 

TRANSFEREE’S QUESTIONNAIRE

ACCOMPANYING TRANSFEREE’S CERTIFICATE

 

Note:  This Transferee’s Questionnaire must be
completed and attached to the related Transferee’s Certificate.

 

A.            Status as “Permitted Institutional
Investor”

 

Please check the applicable
statement:

 

The Transferee is:

 

(1)                       
a “qualified institutional buyer” as defined in Rule 144A under the Securities
Act; or

 

(2)                       
an “accredited investor” as defined in any of paragraphs (1), (2), (3) and (7)
of Rule 501(a) under the Securities Act or any entity in which all of the
equity owners come within such paragraphs.

 

B.            Status as
“Qualified Institutional Buyer”

 

If the Transferee
has indicated that it is a qualified institutional buyer above, the Transferee
certifies that (i) the Transferee owned and/or invested on a discretionary
basis $
                      
(1)in securities (other than the excluded securities referred to below) as of
the end of the Transferee’s most recent fiscal year (such amount being
calculated in accordance with Rule 144A under the Securities Act) and (ii) the
Transferee satisfies the criteria in the category marked below.

 

o            Corporation,
etc.  The Transferee is a
corporation (other than a bank, savings and loan association or similar
institution), Massachusetts or similar business trust, partnership, or any
organization described in Section 501(c)(3) of the Internal Revenue Code of
1986.

 

o            Bank.  The Transferee (a) is a national bank or a
banking institution organized under the laws of any State, U.S. territory or
the District of Columbia, the business of which is substantially confined to
banking and is supervised by the State or territorial banking commission or
similar official or is a foreign bank or equivalent institution, and (b) has an
audited net worth of at least $25,000,000 as demonstrated in its latest annual
financial statements, a copy of which is attached hereto, as of a date
not more than 16 months preceding the date of sale of the Bond in the case of a
U.S. bank, and not more than 18 months preceding such date of sale for a
foreign bank or equivalent institution.

 

o            Savings
and Loan.  The Transferee (a) is a
savings and loan association, building and loan association, cooperative bank,
homestead association or similar institution, which is supervised and examined
by a State or Federal authority having supervision over any

 

(1)           Transferee
must own and/or invest on a discretionary basis at least $100,000,000 in
securities unless Transferee is a dealer, and, in that case, Transferee must
own and/or invest on a discretionary basis at least $10,000,000 in securities.

 

CQ-1

 

such institutions or is a foreign savings and loan
association or equivalent institution and (b) has an audited net worth of at
least $25,000,000 as demonstrated in its latest annual financial statements, a
copy of which is attached hereto, as of a date not more than 16 months
preceding the date of sale of the Bond in the case of a U.S. savings and loan
association, and not more than 18 months preceding such date of sale for a
foreign savings and loan association or equivalent institution.

 

o            Broker-dealer.  The Transferee is a dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934, as amended.

 

o            Insurance
Company.  The Transferee is an
insurance company whose primary and predominant business activity is the
writing of insurance or the reinsuring of risks underwritten by insurance
companies and which is subject to supervision by the insurance commissioner or
a similar official or agency of a State, U.S. territory or the District of
Columbia.

 

o            State
or Local Plan.  The Transferee is a
plan established and maintained by a State, its political subdivisions, or any
agency or instrumentality of the State or its political subdivisions, for the
benefit of its employees.

 

o            ERISA
Plan.  The Transferee is an employee
benefit plan within the meaning of Title I of the Employee Retirement Income
Security Act of 1974.

 

o            Investment
Advisor.  The Transferee is an
investment advisor registered under the Investment Advisers Act of 1940, as
amended.

 

o            Other.  (Please supply a brief description of the
entity and a cross-reference to the paragraph and subparagraph under subsection
(a)(1) of Rule 144A of the Securities Act pursuant to which it qualifies)

 

 

3.             The term “securities”
as used herein does not include (i) securities of issuers that are
affiliated with the Transferee, (ii) securities that are part of an unsold
allotment to or subscription by the Transferee, if the Transferee is a dealer,
(iii) bank deposit notes and certificates of deposit, (iv) loan participations,
(v) repurchase agreements, (vi) securities owned but subject to a repurchase
agreement and (vii) currency, interest rate and commodity swaps. For purposes
of determining the aggregate amount of securities owned and/or invested on a
discretionary basis by the Transferee, the Transferee did not include any of
the securities referred to in this paragraph.

 

4.             For purposes of
determining the aggregate amount of securities owned and/or invested on a
discretionary basis by the Transferee, the Transferee used the cost of such
securities to the Transferee, unless the Transferee reports its securities
holdings in its financial statements on the basis of their market value, and no
current information with respect to the cost of those securities has been
published, in which case the securities were valued at market. Further, in
determining such aggregate amount, the Transferee may have included securities
owned by subsidiaries of the Transferee, but only if such subsidiaries are
consolidated with the Transferee in its financial statements prepared in
accordance with generally accepted accounting principles and if the investments
of such subsidiaries are managed under the Transferee’s direction. However,
such securities were not included if the Transferee is a majority-owned,

 

CQ-2

 

consolidated subsidiary of another enterprise and the Transferee is not
itself a reporting company under the Securities Exchange Act of 1934, as
amended.

 

5.             The Transferee
acknowledges that it is familiar with Rule 144A of the Securities Act and
understands that the Transferring Certificateholder and other parties related
to the Specified Certificates are relying and will continue to rely on the
statements made herein because one or more sales to the Transferee may be in
reliance on Rule 144A.

 

	
  o

  	
   

  	
  o

  	
   

  	
  Will the Transferee be purchasing the Specified
  Certificates

  
	
  Yes

  	
   

  	
  No

  	
   

  	
  only for the Transferee’s own account?

  

 

6.             If the answer to the
foregoing question is “no”, then in each case where the Transferee is
purchasing for an account other than its own, such account belongs to a third
party that is itself a “qualified institutional buyer” within the meaning of
Rule 144A, and the “qualified institutional buyer” status of such third party
has been established by the Transferee through one or more of the appropriate
methods contemplated by Rule 144A.

 

C.            Other Certifications
for all Transferees

 

1.             a.             Is the Transferee an insurance company
acquiring its Certificates with the assets of its general account?

 

	
   

  	
  o

  	
  Yes

  
	
   

  	
  o

  	
  No

  

 

b.             If the Transferee
answers “Yes”
to (a) above, does the percentage of the reserves and liabilities of
such general account that are held on behalf of any ERISA Plan (i.e., an
“employee benefit plan” as defined in Section 3(3) of ERISA that is subject to
Title 1 of ERISA) or another Plan (i.e., a “plan” as defined in and subject to
Section 4975 of the Code) or an entity the underlying assets of which include
the assets of any such ERISA Plan or other Plan exceed 10% of the total
reserves and liabilities of such general account as determined in accordance
with Department of Labor Prohibited Class Exemption 95-60?

 

	
   

  	
  o

  	
  Yes

  
	
   

  	
  o

  	
  No

  

 

NOTE:            If the Transferee answers “Yes” to
(3)(b) above, the Certificate Transfer may not occur.  From time to time after the Certificate Transfer, the Transferee
shall provide to the Registrar an accurately updated answer to 3(b) above.

 

If the Transferee
is acting for the account of another Person, set forth below is a list of each
such other Person, and attached hereto is a completed Transferee’s
Questionnaire for each such other Person.

 

CQ-3

 

D.            General Information

 

Wire Instructions
for Payments:

 

Bank:

Address:

Bank ABA #:

Account No.:

FAO:

Attention:

 

 

Address for
Notices:

 

Tel:

Fax:

Attn.:

 

Registered Name
(if Nominee):

 

CQ-4

 

EXHIBIT
D TO TRUST AGREEMENT

(FORM OF INITIAL
CERTIFICATE

HOLDER’S REPRESENTATION
LETTER)

 

CRIIMI MAE CLASS D TRUST

 

INITIAL
CERTIFICATEHOLDER’S REPRESENTATION LETTER

 

[Date]

 

Re:          Class A
and B Certificates of CRIIMI MAE Class D Trust

 

Ladies and Gentlemen:

 

In connection with
the proposed transfer to us of U.S.
$[       ] face amount of Class A
Certificates and U.S. $[     ] face amount of Class B
Certificates of CRIIMI MAE Class D Trust (the “Issuer”), pursuant to Section
4.02 of the Trust Agreement (the “Trust Agreement”) dated as of June 30, 2004
between CRIIMI MAE Class D Depositor LLC (the “Depositor”), and LaSalle Bank
National Association, Trustee (the “Trustee”), we (the “Initial
Certificateholder”) acknowledge, represent, agree and confirm, as of the date
hereof, for your benefit and the benefit of the Issuer and its counsel, that:

 

1.             Either (a) the
Initial Certificateholder is a Qualified Institutional Investor or (b)  a Permitted Institutional Investor and the
transfer of the Certificates to the Initial Certificateholder is otherwise
exempt from the registration requirements of the Securities Act and the
registration and/or qualification requirements of any applicable state
securities laws (and the Initial Certificateholder understands that neither the
Trust nor the Depositor have any obligation or intention to effect any
registration or qualification of the Certificates under any securities laws).

 

2.             Either (a) the
Initial Certificateholder is not an ERISA Plan (i.e., an “employee benefit
plan” as defined in Section 3(3) of ERISA that is subject to Title 1 of ERISA)
or another Plan (i.e., a “plan” as defined in and subject to Section 4975 of
the Code), a governmental plan that is subject to any federal, state or local
law which is substantially similar to the provisions of Section 406 of ERISA or
Section 4975 of the Code or an entity the underlying assets of which include
the assets of any such ERISA Plan, other Plan or governmental plan or (b) the
Initial Certificateholder’s acquisition, holding and disposition of the Certificate
will not result in a prohibited transaction or excise tax, as applicable, under
Section 406 of ERISA or Section 4975 of the Code (or, in the case of a
governmental plan, any substantially similar federal, state or local law) for
which an exemption is not available.

 

3.             The attached Initial
Certificateholder Questionnaire has been completed so as to be true, accurate
and complete.

 

4.             The Initial
Certificateholder has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of its investment
in the Certificates, and the Initial Certificateholder and any accounts for
which it is acting are each able to bear the economic risk of investing in the
Certificates and can afford the complete loss of such investment.

 

D-1

 

5.             The Initial
Certificateholder has carefully read and understands the final private offering
memorandum dated May 6, 1998 relating to the CRIIMI MAE Commercial Mortgage
Trust Commercial Mortgage Bonds, Series 1998-C1. including without limitation
the “Risk Factors” section in such offering memorandum, and has based its
decision to hold the Certificates upon the information contained therein and
not upon any other information, if any, provided to it with respect to the
Underlying Assets.  The Initial
Certificateholder has also been furnished with all information regarding (a)
the Certificates and payments thereon, (b) the nature and performance of the
Certificates and (c) the Trust Agreement, that it has requested.

 

6.             The Initial
Certificateholder will not, at any time, offer to buy or offer to sell the
Certificates by any form of general solicitation or advertising, including, but
nor limited to, any advertisement, article, notice or other communication
published in any newspaper, magazine or similar medium or broadcast over
television or radio or seminar or meeting whose attendees have been invited by
general solicitations or advertising.

 

7.             The Initial
Certificateholder understands that prior to any proposed transfer of
Certificates, it may be required to furnish to the Issuer such certifications,
legal opinions or other information as it may reasonably require to confirm
that the proposed transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and applicable state securities laws.

 

8.             The Initial
Certificateholder shall preserve copies of this letter and all related letters,
certificates, legal opinions, notices and other documents, and upon request
shall furnish you with copies thereof. 
You are entitled to rely on such documents, and we irrevocably authorize
you to produce such documents in connection with any administrative or legal
proceeding or official inquiry with respect to the matters covered hereby.

 

9.             Capitalized terms
used and not defined herein shall have the meanings assigned to them in the
Trust Agreement.

 

	
   

  	
  [Name of Initial
  Certificateholder]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

D-2

 

CRIIMI MAE CLASS D TRUST

 

INITIAL
CERTIFICATEHOLDER’S QUESTIONNAIRE

ACCOMPANYING THE INITIAL CERTIFICATEHOLDER’S 

REPRESENTATION LETTER

 

Note:  This Initial Certificateholder’s
Questionnaire must be completed and attached to the related Initial
Certificateholder’s Representation Letter.

 

A.            Status as “Permitted Institutional
Investor”

 

Please check the
applicable statement:

 

The Initial
Certificateholder is:

 

(1)                       
a “qualified institutional buyer” as defined in Rule 144A under the Securities
Act.;

 

(2)                       
an “accredited investor” as defined in any of paragraphs (1), (2), (3) and (7)
of Rule 501(a) under the Securities Act or any entity in which all of the
equity owners come within such paragraphs.

 

B.            Other Certifications
for all Initial Certificateholders

 

1.             a.             Is the Initial Certificateholder an
insurance company acquiring its Certificates with the assets of its general
account?

 

	
   

  	
  o

  	
  Yes

  
	
   

  	
  o

  	
  No

  

 

b.             If the Initial
Certificateholder answers “Yes” to (a) above, does the percentage of
the reserves and liabilities of such general account that are held on behalf of
any ERISA Plan (i.e., an “employee benefit plan” as defined in Section 3(3) of
ERISA that is subject to Title 1 of ERISA) or another Plan (i.e., a “plan” as
defined in and subject to Section 4975 of the Code) or an entity the underlying
assets of which include the assets of any such ERISA Plan or other Plan exceed
10% of the total reserves and liabilities of such general account as determined
in accordance with Department of Labor Prohibited Class Exemption 95-60?

 

	
   

  	
  o

  	
  Yes

  
	
   

  	
  o

  	
  No

  

 

NOTE:            If the Initial Certificateholder answers “Yes” to
(3)(b) above, the Certificate Transfer may not occur.  From time to time after the Certificate Transfer, the Initial
Certificateholder shall provide to the Registrar an accurately updated answer
to 3(b) above.

 

DQ-1

 

If the Initial
Certificateholder is acting for the account of another Person, set forth below
is a list of each such other Person, and attached hereto is a completed Initial
Certificateholder’s Questionnaire for each such other Person.

 

C.            General Information

 

Wire Instructions for Payments:

 

Bank:

Address:

Bank ABA #:

Account No.:

FAO:

Attention:

 

 

Address for Notices:

 

Tel:

Fax:

Attn.:

 

Registered Name (if Nominee):

 

DQ-2

 

EXHIBIT
E TO TRUST AGREEMENT

(CERTIFICATION OF CRIIMI
MAE INC.)

 

CRIIMI MAE CLASS D TRUST

 

CERTIFICATION

 

[Date]

 

Ladies and Gentlemen:

 

In connection with the
proposed transfer by us of U.S. $[   ] face amount of Class B
Certificates of CRIIMI MAE Class D Trust to
[                  ]
(the “Proposed Transfer”), pursuant to Section 4.02 of the Trust Agreement
dated as of June 30, 2004 between CRIIMI MAE Class D Depositor LLC, and LaSalle
Bank National Association, Trustee, we represent and confirm, as of the date
hereof, that the Proposed Transfer by us is being made in connection with (x) a
pledge by us or any of our subsidiaries to secure indebtedness of CRIIMI MAE
Inc. or one or more of our subsidiaries or any repurchase transaction treated
as indebtedness of CRIIMI MAE Inc. or any such subsidiary for federal income
tax purposes or (y) a sale of the Class B Certificates by the related lender
under the related pledge or repurchase transaction described in clause (x) upon
a default under any such indebtedness.

 

9.             Capitalized terms
used and not defined herein shall have the meanings assigned to them in the
Trust Agreement.

 

 

	
   

  	
  CRIIMI MAE INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
  Name:

  
	
   

  	
   

  	
  Title:

  

 

E-1

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