<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1997
REGISTRATION NO. 333-19591
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<C> <C>
DELAWARE 75-2683929
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 NORTH PEARL STREET MICHAEL N. MABERRY
SUITE 2400 C/O AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
L.B. NO. 342 700 NORTH PEARL STREET
DALLAS, TEXAS 75201 SUITE 2400, L.B. NO. 342
(214) 953-7700 DALLAS, TEXAS 75201
(Address, including zip code, and telephone (214) 953-7700
number, including area code, of registrant's (Name, address, including zip code, and telephone
principal executive offices) number, including area code, of agent for service
with respect to the Registrant)
</TABLE>
---------------------
Copies to:
DAVID BARBOUR
ANDREWS & KURTH L.L.P.
4400 THANKSGIVING TOWER
DALLAS, TEXAS 75201
(214) 979-4400
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement as determined by
market conditions and pursuant to Rule 415.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. [ ]
If delivery of the Prospectus Supplement is expected to be made pursuant to
Rule 434, please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C> <C> <C>
==================================================================================================================
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
PROPOSED TITLE OF SECURITIES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED UNIT(1) PRICE(1) FEE(2)
- ------------------------------------------------------------------------------------------------------------------
Mortgage Pass-Through
Certificates.................... $1,000,000 100% $1,000,000 $303.03
==================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee on the
basis of the proposed maximum offering price per unit.
(2) Previously paid to the Commission on January 10, 1997 in connection with the
filing of the Registration Statement.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 7, 1997
PROSPECTUS SUPPLEMENT (TO PROSPECTUS DATED , 199 )
$
(APPROXIMATELY)
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 199 -
The Series 199 - Mortgage Pass-Through Certificates (the "CERTIFICATES")
will include the following classes of Certificates, designated as the Class A1,
Class A1X, Class A2, Class A2X, Class B, Class C, Class BCX, Class D and Class E
Certificates (the "OFFERED CERTIFICATES"). In addition to the Offered
Certificates, the Certificates will also include the Class F, Class G, Class NR,
Class R-I, Class R-II and Class R-III Certificates. Only the Offered
Certificates are offered hereby.
---------------------(cover continued on next page)
THE YIELD TO MATURITY ON THE OFFERED CERTIFICATES WILL DEPEND ON THE RATE AND
TIMING OF PRINCIPAL PAYMENTS (INCLUDING PREPAYMENTS, DEFAULTS AND LIQUIDATIONS)
ON THE MORTGAGE LOANS. THE YIELD TO MATURITY ON EACH CLASS OF OFFERED
CERTIFICATES WILL BE SENSITIVE TO LOSSES DUE TO DEFAULTS ON THE MORTGAGE LOANS
(AND THE TIMING THEREOF), TO THE EXTENT THAT SUCH LOSSES ARE NOT COVERED BY ANY
CLASS OF CERTIFICATES HAVING A LOWER PAYMENT PRIORITY, AS DESCRIBED HEREIN. THE
YIELD TO INVESTORS ON THE INTEREST ONLY CERTIFICATES WILL BE SENSITIVE TO THE
RATE AND TIMING OF PREPAYMENTS, DEFAULTS AND LIQUIDATIONS ON THE MORTGAGE LOANS.
THE RATES OF PREPAYMENT, DEFAULTS AND LIQUIDATIONS ON THE MORTGAGE LOANS MAY
FLUCTUATE SIGNIFICANTLY OVER TIME. AN EXTREMELY RAPID RATE OF PREPAYMENT,
DEFAULTS AND LIQUIDATIONS ON THE MORTGAGE LOANS COULD RESULT IN THE FAILURE OF
INVESTORS IN THE INTEREST ONLY CERTIFICATES TO RECOVER THEIR INITIAL
INVESTMENTS. SEE "SUMMARY -- SPECIAL PRINCIPAL PAYMENT CONSIDERATIONS" AND
"-- SPECIAL YIELD CONSIDERATIONS", AND "CERTAIN PREPAYMENT, MATURITY AND YIELD
CONSIDERATIONS" HEREIN AND "YIELD CONSIDERATIONS" IN THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE S-12 HEREIN AND PAGE 13 IN THE
PROSPECTUS BEFORE PURCHASING ANY OFFERED CERTIFICATES.
---------------------
<TABLE>
<CAPTION>
INITIAL CLASS
BALANCE(1) PASS-THROUGH RATE(2)
------------------------ --------------------
<S> <C> <C>
Class A1........................................... $ %
Class A1X.......................................... $ Weighted Average Pass-Through Rate(3)
Class A2........................................... $ %
Class A2X.......................................... $ Weighted Average Pass-Through Rate(3)
Class B............................................ $ Weighted Average Pass-Through Rate
Class C............................................ $ Weighted Average Pass-Through Rate
Class BCX.......................................... $ (3)(4)
Class D............................................ $ Weighted Average Pass-Through Rate
Class E............................................ $ Weighted Average Pass-Through Rate
</TABLE>
- ---------------
(1) Subject to a permitted variance of plus or minus 0.1%.
(2) In addition to distributions of interest and/or principal, holders of the
Certificates will be entitled to receive a portion of any Prepayment
Premiums as described herein.
(3) Based on the related Notional Amount as described herein.
(4) Calculated based on the Pass-Through Rates of two components. The
Pass-Through Rate on the Class BCX component B (as defined herein) is %
and on the Class BCX component C (as defined herein) is %.
---------------------
The Offered Certificates will be purchased from the Depositor by Goldman,
Sachs & Co. (the "UNDERWRITER") and will be offered by the Underwriter from time
to time in negotiated transactions or otherwise at varying prices to be
determined at the time of sale. Proceeds to the Depositor from the sale of the
Offered Certificates, before deducting expenses payable by the Depositor
estimated to be approximately $ , will be % of the initial aggregate
principal balance of the Offered Certificates as of , 199 (the
"CUT-OFF DATE"), plus accrued interest from the Cut-off Date. The Offered
Certificates are offered by the Underwriter subject to prior sale, when, as and
if delivered to and accepted by the Underwriter and subject to certain other
conditions. It is expected that the Offered Certificates will be delivered in
book-entry form through the Same-Day Funds Settlement System of DTC on or about
, 199 (the "DELIVERY DATE"), against payment therefor in
immediately available funds.
GOLDMAN, SACHS & CO.
The date of this Prospectus Supplement is , 199
<PAGE> 3
(continued from previous page)
The Certificates will represent in the aggregate the entire beneficial
interest in a trust fund (the "TRUST FUND") to be established by AMRESCO
Commercial Mortgage Funding I Corporation (the "DEPOSITOR"). The Trust Fund
will consist primarily of a pool (the "MORTGAGE POOL") of fixed rate mortgage
loans with original terms to maturity of not more than 300 months (such
mortgage loans are referred to collectively herein as the "MORTGAGE LOANS"),
secured by first liens on fee simple or leasehold interests in multifamily,
retail, hotel, office, industrial, and other commercial properties. The
Mortgage Loans were originated by several institutions identified herein
(collectively, the "ORIGINATORS"), acquired by an affiliate of the Depositor
and will be sold to the Depositor on or prior to the date of initial issuance
of the Certificates.
Distributions on the Certificates will be made, to the extent of
available funds, on the 25th day of each month or, if any such day is not a
business day, on the next succeeding business day, beginning in ___________
199___ (each, a "DISTRIBUTION DATE"). As more fully described herein,
distributions allocable to interest, if any, on the Offered Certificates on
each Distribution Date will be based on the then applicable pass-through rate
(the "PASS-THROUGH RATE") and the aggregate principal balance (the "CLASS
BALANCE") (or the related notional balance (the "NOTIONAL AMOUNT") in the case
of the Class A1X and Class A2X Certificates and each component of the Class BCX
Certificates (each such class, the "INTEREST ONLY CERTIFICATES")) of such class
or component outstanding immediately prior to such Distribution Date. The
Pass-Through Rates applicable to the Class A1 and Class A2 Certificates and for
each component of the Class BCX Certificates will be as set forth above. The
Pass-Through Rates for the Class A1X, Class A2X, Class B, Class C, Class D and
Class E Certificates will be variable and will be calculated as set forth
herein. Distributions in respect of principal, if any, of the Certificates will
be made as described herein under "Description of the Certificates --
Distributions" and "--Priority of Distributions".
The Class A1, Class A2, Class A1X and Class A2X Certificates will
evidence approximately an initial ___% undivided interest in the Trust Fund.
The Class B and Class BCX component B (as defined herein) will evidence
approximately an initial ___% undivided interest in the Trust Fund. The Class C
and Class BCX component C (as defined herein) will evidence approximately an
initial ___% undivided interest in the Trust Fund. The Class D Certificates
will evidence approximately an initial ___% undivided interest in the Trust
Fund. The Class E Certificates will evidence approximately an initial ___%
undivided interest in the Trust Fund.
It is a condition of the issuance of the Class A1 and Class A2
Certificates that they be rated "____" by_____________________________________
("__________") and _______________________ ("____________"). It is a condition
of the issuance of the Class A1X and Class A2X Certificates that they be rated
"___" by ___________ and "____" by ___________________. It is a condition of
the issuance of the Class B Certificates that they be rated not lower than
"___" by ________________ and ________________ . It is a condition of the
issuance of the Class C Certificates that they be rated not lower than "___" by
________________ and "__" by ________________ . It is a condition of the
issuance of the Class BCX Certificates that they be rated not lower than "___"
by _____________. It is a condition of the issuance of the Class D Certificates
that they be rated not lower than "___" by ________________ and
________________ . It is a condition of the issuance of the Class E
Certificates that they be rated not lower than "____" by ________________ and
________________ . The ratings by ________________ on the Interest Only
Certificates do not address any prepayment or loss scenarios with respect to
the Mortgage Loans or the likelihood of receipt of Prepayment Premiums. See
"Rating" herein.
AMRESCO Management, Inc. will act as master servicer (in such
capacity, the "MASTER SERVICER") and as special servicer (in such capacity, the
"SPECIAL SERVICER") of the Mortgage Loans. The obligations of the Master
Servicer and the Special Servicer with respect to the Certificates will be
limited to their contractual servicing obligations and the obligation under
certain circumstances to make P&I Advances (as defined herein) to the
Certificateholders. See "Servicing." It is possible that the Special Servicer
or one or more of its affiliates may purchase a portion of the Class NR
Certificates.
(continued on following page)
- iii -
<PAGE> 4
(continued from previous page)
As described herein, three separate "real estate mortgage investment
conduit" ("REMIC") elections will be made in connection with the Trust Fund for
federal income tax purposes. The Certificates, other than the Class R-I, Class
R- II and Class R-III Certificates, will constitute "regular interests" in the
related REMIC and the Class R-I, Class R-II and Class R-III Certificates will
constitute the sole class of "residual interest" in the related REMIC. See
"Federal Income Tax Consequences" herein and in the Prospectus.
The Offered Certificates initially will be represented by certificates
registered in the name of Cede & Co., as nominee of The Depository Trust
Company ("DTC"), as further described herein. The interests of beneficial
owners of the Offered Certificates will be represented by book entries on the
records of participating members of DTC. Definitive certificates will be
available for the Offered Certificates only under the limited circumstances
described herein. See "Description of the Certificates -- Book-Entry
Registration of the Offered Certificates" herein.
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF
PAYMENTS ON THE OFFERED CERTIFICATES. THE OFFERED CERTIFICATES DO NOT REPRESENT
AN INTEREST IN OR OBLIGATION OF THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL
SERVICER, THE PRIMARY SERVICERS, AMRESCO, INC., THE TRUSTEE, THE UNDERWRITER OR
ANY OF THEIR AFFILIATES. NEITHER THE OFFERED CERTIFICATES NOR THE UNDERLYING
MORTGAGE LOANS ARE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY THE DEPOSITOR, THE MASTER SERVICER, THE SPECIAL SERVICER,
THE PRIMARY SERVICERS, AMRESCO, INC., THE TRUSTEE, THE UNDERWRITER OR ANY OF
THEIR AFFILIATES.
See "Index of Principal Definitions" in the Prospectus for the
location of meanings of capitalized terms used but not defined herein. See
"Index of Principal Definitions" herein for location of meanings of other
capitalized terms used herein.
There is currently no secondary market for the Offered Certificates.
The Underwriter currently expects to make a secondary market in the Offered
Certificates, but has no obligation to do so. There can be no assurance that
such a market will develop or, if it does develop, that it will continue. See
"Method of Distribution" herein.
THIS PROSPECTUS SUPPLEMENT DOES NOT CONTAIN COMPLETE INFORMATION ABOUT
THE OFFERING OF THE OFFERED CERTIFICATES. ADDITIONAL INFORMATION IS CONTAINED
IN THE PROSPECTUS, DATED _____________, 1997 AND ATTACHED HERETO. PURCHASERS
ARE URGED TO READ BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN FULL.
SALES OF THE CERTIFICATES OFFERED HEREBY MAY NOT BE CONSUMMATED UNLESS THE
PURCHASER HAS RECEIVED BOTH THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR
ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
- iv -
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SUMMARY OF PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . S-1
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-12
DESCRIPTION OF THE MORTGAGE POOL . . . . . . . . . . . . . . . . . . . . .S-18
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-18
Representations and Warranties . . . . . . . . . . . . . . . . . .S-19
Certain Characteristics of the Mortgage Loans . . . . . . . . . .S-27
Related Borrowers and Other Issues . . . . . . . . . . . . . . . .S-37
Escrows . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-37
Underwriting Guidelines . . . . . . . . . . . . . . . . . . . . .S-37
Additional Information . . . . . . . . . . . . . . . . . . . . . .S-37
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . .S-37
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-37
Book-Entry Registration of the Offered Certificates . . . . . . .S-38
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . .S-39
Priority of Distributions . . . . . . . . . . . . . . . . . . . .S-41
Other Certificates . . . . . . . . . . . . . . . . . . . . . . . .S-42
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . .S-42
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-43
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS . . . . . . . . . . .S-44
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-44
Weighted Average Life of the Offered Certificates . . . . . . . .S-45
Interest Only Certificates Yield Considerations . . . . . . . . .S-46
Class C, Class BCX, Class D and Class E Yield Considerations . . .S-48
SERVICING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-48
Servicers . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-48
Responsibilities of Master Servicer and Primary Servicer . . . . .S-49
Responsibilities of Special Servicer . . . . . . . . . . . . . . .S-49
Extension Advisor . . . . . . . . . . . . . . . . . . . . . . . .S-51
Servicing and Other Compensation and Payment of Expenses . . . . .S-51
Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . .S-51
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT . . . . . . . . . . . .S-51
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-51
Assignment of the Mortgage Loans . . . . . . . . . . . . . . . . .S-52
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-52
Collection Accounts and Certificate Account . . . . . . . . . . .S-52
Reports to Certificateholders . . . . . . . . . . . . . . . . . .S-53
Voting Rights . . . . . . . . . . . . . . . . . . . . . . . . . .S-53
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . .S-53
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-54
FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . .S-54
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . .S-55
</TABLE>
- v -
<PAGE> 6
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .S-55
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-56
METHOD OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . .S-57
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-58
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-58
INDEX OF PRINCIPAL DEFINITIONS . . . . . . . . . . . . . . . . . . . . . .S-59
</TABLE>
- vi -
<PAGE> 7
SUMMARY OF PROSPECTUS SUPPLEMENT
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus Supplement and in
the accompanying Prospectus. Certain capitalized terms used in this Summary are
defined elsewhere in this Prospectus Supplement or in the Prospectus. See
"Index of Principal Definitions" herein and in the Prospectus.
Title of Certificates . . . . Mortgage Pass-Through Certificates,
Series 199___-____ (the "CERTIFICATES").
Depositor . . . . . . . . . AMRESCO Commercial Mortgage Funding I
Corporation, a Delaware corporation (the
"DEPOSITOR"), an indirect wholly-owned
limited purpose finance subsidiary of
AMRESCO, Inc. See "The Depositor" in the
Prospectus.
Originators . . . . . . . . _____%, _____%, _____%, _____% and _____% of
the Mortgage Loans by outstanding principal
balance as of the Cut-off Date (as defined
herein) were originated, respectively, by:
AMRESCO CAPITAL CORPORATION, a Texas
corporation ("ACC"); ____________________, a
_______________; _________________, a
____________________;
_______________________, a _____________, and
_____________________, a
____________________.
Master Servicer . . . . . . AMRESCO Management, Inc., a Texas corporation
("AMI"). See "Servicing -- Servicers" and
"Servicing -- Responsibilities of Master
Servicer and Primary Servicer" herein.
Primary Servicers . . . . . The Primary Servicers are AMI, with respect
to each Mortgage Loan originated by its
affiliate, AMRESCO CAPITAL CORPORATION,
____________________ with respect to all of
the Mortgage Loans originated by
_______________________, and
______________________ with respect to all
other Mortgage Loans. See "Servicing --
Servicers" and "Servicing -- Responsibilities
of Master Servicer and Primary Servicer"
herein.
Special Servicer . . . . . AMI, the Master Servicer and one of the
Primary Servicers, will be the Special
Servicer with respect to all the Mortgage
Loans.
Trustee . . . . . . . . . . ______________________________,
a _________________ banking corporation.
Custodian . . . . . . . . . _______________________________,
a _____________ banking corporation, in its
capacity as custodian for the Trustee (the
"CUSTODIAN").
Cut-off Date . . . . . . . _________________ 1, 199___.
Delivery Date . . . . . . . On or about _________________, 199____.
Distribution Dates . . . . Distributions on the Certificates will be
made by the Trustee, to the extent of
available funds, on the [25th] day of each
month or, if any such [25th] day is not a
business day, on the next succeeding business
day, beginning in ________ 199__ (each, a
"DISTRIBUTION DATE"), to the holders of
record as of the close of business on the
[last business day of the month preceding the
month] of each such distribution (each, a
"RECORD DATE"). Notwithstanding the above,
the final distribution on any Certificate
will be made after due notice by the Trustee
of the pendency of such distribution and only
upon presentation and surrender of such
Certificates at the location to be specified
in such notice.
S-1
<PAGE> 8
Rated Final Distribution
Date . . . . . . . . . . . ________________, 20___, which is the second
anniversary of the date at which all the
Mortgage Loans have zero balances, assuming
no prepayments and that the Mortgage Loans
which are Balloon Mortgage Loans fully
amortize according to their amortization
schedule and no Balloon Payment is made.
Registration of the Offered
Certificates . . . . . . . The Offered Certificates (the "DTC REGISTERED
CERTIFICATES") will be represented by one or
more global certificates registered in the
name of Cede & Co., as nominee of The
Depository Trust Company ("DTC"). No person
acquiring an interest in the DTC Registered
Certificates (any such person, a "BENEFICIAL
OWNER") will be entitled to receive a
Certificate of such class in fully
registered, certificated form (a "DEFINITIVE
CERTIFICATE"), except under the limited
circumstances described in the Prospectus
under "Description of the Certificates --
Book-Entry Registration and Definitive
Certificates". Instead, DTC will effect
payments and transfers in respect of the DTC
Registered Certificates by means of its
electronic record keeping services, acting
through certain participating organizations
("PARTICIPANTS"). This may result in certain
delays in receipt of payments by an investor
and may restrict an investor's ability to
pledge its securities. Unless and until
Definitive Certificates are issued, the
rights of Beneficial Owners may only be
exercised through DTC and its Participants
and will be subject to procedures established
thereby, except as otherwise specified
herein. See "Description of the Certificates
-- General" herein and "Description of the
Certificates -- Book-Entry Registration and
Definitive Certificates" in the Prospectus.
Denominations . . . . . . The DTC Registered Certificates will be
issuable on the book-entry records of DTC and
its Participants in denominations of (except
in the case of the Interest Only
Certificates) $___________________ and
integral multiples of $______ in excess
thereof. The Interest Only Certificates will
be issuable in denominations of $_________
Notional Amount and integral multiples of
$_____ Notional Amount.
The Mortgage Pool . . . . The Trust Fund will consist of a pool (the
"MORTGAGE POOL") of ______ [fixed rate]
[floating rate] [partially fixed rate and
partially floating rate] mortgage loans (the
"MORTGAGE LOANS") secured by first liens on
fee simple or leasehold interests in
multifamily, retail, hotel, health
care-related, office, industrial, and other
commercial properties (the "MORTGAGED
PROPERTIES") located in ____ states. See
"Risk Factors -- Ground Leases and Other
Leasehold Interests" herein. The Mortgage
Loans were originated for sale to AMRESCO
Commercial Mortgage Funding, L.P. ("ALP") and
were underwritten generally in conformity
with certain guidelines established by ACC
and approved by ALP. See "Description of the
Mortgage Pool -- General" herein. The
Mortgage Loans will be acquired by ACC from
ALP and then by the Depositor from ACC on or
before the Delivery Date. See "Description of
the Mortgage Pool -- Underwriting Guidelines"
herein. The Mortgage Loans will have an
aggregate principal balance as of the Cut-off
Date of approximately $_______________ and
individual principal balances as of the
Cut-off Date of at least $______________ but
not more than $______________ with an average
principal balance of approximately
$______________. The Mortgage Loans will have
terms to maturity from the Cut-off Date of
not more than _____ months, and a weighted
average remaining term to maturity of
approximately _____ months as of the Cut-off
Date. The Mortgage Loans will bear interest
at Mortgage Interest Rates of at least
________% per annum but not more than
___________% per annum, with a weighted
average Mortgage Interest Rate of
approximately ___________% per annum as of
the Cut- off Date. The Mortgage Loans provide
for
S-2
<PAGE> 9
scheduled payments of principal and/or
interest ("MONTHLY PAYMENTS") to be due on
the first day of each month (the "DUE DATE").
Approximately ______% of the aggregate
principal balance of the Mortgage Loans as of
the Cut-off Date provide for monthly payments
of principal based on an amortization
schedule longer, and in some cases
significantly longer, than the remaining term
of such Mortgage Loan (each, a "BALLOON
MORTGAGE LOAN"), thereby leaving a
substantial outstanding principal amount due
and payable (the "BALLOON PAYMENT") on its
maturity date, unless prepaid prior thereto.
Except in certain limited circumstances, each
Mortgage Loan either prohibits voluntary
prepayments during a certain number of years
following the origination thereof and/or
allows the borrower thereunder (the
"MORTGAGOR") to prepay the principal balance
thereof in whole or in part during a certain
number of years following the origination if
accompanied by payment of a premium (the
"PREPAYMENT PREMIUM"). See Annex A hereto and
the table entitled "Prepayment
Lock-out/Prepayment Premium Analysis" under
"Description of the Mortgage Pool -- Certain
Characteristics of the Mortgage Loans"
herein. Any Prepayment Premium collected on a
Mortgage Loan will be distributed to the
holders of the Certificates as described
herein. See "Special Principal Payment
Considerations" below, "Risk Factors --
Special Prepayment Considerations",
"Description of the Certificates --
Distributions -- Interest Distributions on
the Certificates" and "Certain Prepayment,
Maturity and Yield Considerations" herein and
"Yield Considerations" in the Prospectus.
In connection with its acquisition of the
Mortgage Loans, the Depositor will obtain
certain representations from ACC. ACC will
covenant with the Depositor to cure any
breach of such representations and warranties
or to repurchase any Mortgage Loan in
connection with which there has been a breach
of a representation or warranty which
materially and adversely affects the interest
of the Certificateholders in such Mortgage
Loan. The Depositor will assign such
representations and warranties and covenants
to the Trustee under the Pooling and
Servicing Agreement (as defined below). The
sole remedy available to the Trustee or the
Certificateholders is the obligation of ACC
to cure any such breach or repurchase any
such Mortgage Loan.
For a further description of the Mortgage
Loans, see "Description of the Mortgage Pool"
herein.
The Offered Certificates . The Certificates will be issued pursuant to a
pooling and servicing agreement, to be dated
as of the Cut-off Date, among the Depositor,
the Master Servicer, the Special Servicer and
the Trustee (the "POOLING AND SERVICING
AGREEMENT"). The Offered Certificates will
have the initial Class Balances set forth on
the cover hereof. The Interest Only
Certificates will not have Class Balances.
The Class BCX Certificates consist of the
following components: the Class BCX component
B and the Class BCX component C (each a
"COMPONENT"). The Class BCX component B and
the Class BCX component C are not separately
transferrable.
Pass-Through Rate on the
Certificates . . . . . . . The Pass-Through Rates on the Class A1 and
Class A2 Certificates are fixed and are set
forth on the cover hereof. The Pass-Through
Rates on the Class A1X and Class A2X
Certificates will be equal to the weighted
average of the Remittance Rates in effect
from time to time on the Mortgage Loans minus
the Pass-Through Rates on the Class A1 and
Class A2 Certificates, respectively. The
Pass-Through Rates on the Class B and Class C
Certificates will equal the weighted average
of
S-3
<PAGE> 10
the Remittance Rates in effect from time to
time on the Mortgage Loans minus the Pass-
Through Rates on the Class BCX component B
and the Class BCX component C, respectively.
The Class BCX Certificates will be entitled
to interest at the Pass- Through Rate on the
components. The Pass- Through Rate on the
Class BCX component B is ______% per annum
and on the Class BCX component C is _______%
per annum. The Pass- Through Rates on the
Class D and Class E Certificates will equal
the weighted average of the Remittance Rates
in effect from time to time on the Mortgage
Loans. The Remittance Rate in effect for any
Mortgage Loan as of any date of determination
is equal to the excess of the Mortgage
Interest Rate thereon (without giving effect
to any modification or reduction thereof
following the Cut-off Date) over the sum of
the related Servicing Fee Rate (as defined
herein) and the fee payable to the Trustee.
The Mortgage Interest Rate for each of the
Mortgage Loans which provide for the
computation of interest other than on the
basis of a 360-day year consisting of twelve
30-day months (a "30/360 BASIS") (that is the
basis on which interest on the Certificates
accrues) will be adjusted to reflect that
difference.
Interest Distributions on
the Certificates . . . . Subject to the distribution of the Principal
Distribution Amount to the Holders of classes
of Certificates of a higher priority as
described under "Priority of Distributions"
below, Holders of each class of Offered
Certificates will be entitled to receive on
each Distribution Date in the order described
herein, to the extent of the Available
Distribution Amount (as defined herein) for
such Distribution Date (net of any interest
accrued on any Collateral Value Adjustment
subsequently recovered and any Net Prepayment
Premium (both, as defined herein)) (the
"ADJUSTED AVAILABLE DISTRIBUTION AMOUNT"),
distributions allocable to interest in an
amount (the "INTEREST DISTRIBUTION AMOUNT")
equal to the interest accrued during the
period from and including the first day of
the month preceding the month of the
Distribution Date (or from the Cut-off Date,
in the case of the initial Distribution Date)
to and including the last day of the month
preceding the month of the Distribution Date
(based on a 360-day year consisting of twelve
30-day months) on the related Class Balance
(or the related Notional Amount, in the case
of the Interest Only Certificates, or any
component thereof) immediately prior to such
Distribution Date at the then-applicable
Pass-Through Rate (the "INTEREST ACCRUAL
AMOUNT") less such class' (or component's)
pro rata share, by Interest Accrual Amount,
of any interest shortfall not related to a
Mortgagor delinquency or default, such as
Prepayment Interest Shortfalls to the extent
not offset as described herein, and
shortfalls associated with exemptions
provided by the Relief Act (as defined in the
Prospectus). The Notional Amount of the Class
A1X Certificates will equal the Class Balance
of the Class A1 Certificates. The Notional
Amount of the Class A2X Certificates will
equal the Class Balance of the Class A2
Certificates. The Notional Amount of the
Class BCX component B will equal the Class
Balance of the Class B Certificates. The
Notional Amount of the Class BCX component C
will equal the Class Balance of the Class C
Certificates. A Notional Amount does not
entitle the Interest Only Certificates to any
distributions of principal. If the Adjusted
Available Distribution Amount for any
Distribution Date is less than the Interest
Distribution Amount for such Distribution
Date, the shortfall will be part of the
Interest Distribution Amount distributable to
holders of Offered Certificates on subsequent
Distribution Dates, to the extent of
available funds.
In addition to the related Interest
Distribution Amount, the Interest Only
Certificates will receive ____% of any Net
Prepayment Premium and the remaining Offered
Certificates will receive ____% of any Net
Prepayment Premium, as more fully described
herein, to the extent not necessary to
reimburse
S-4
<PAGE> 11
the Master Servicer for reductions in its
compensation due to Prepayment Interest
Shortfalls. See "-- Special Yield
Considerations" below and "Description of the
Certificates -- Distributions -- Interest
Distributions on the Certificates" herein.
The Available Distribution Amount for any
Distribution Date generally includes: (i)
scheduled payments on the Mortgage Loans due
on or prior to the related Due Date
immediately preceding, and collected as of,
the related Determination Date (to the extent
not distributed on previous Distribution
Dates) and unscheduled payments and other
collections on the Mortgage Loans collected
during the related Remittance Period, net of
amounts payable or reimbursable to the
related Primary Servicer, the Master Servicer
or the Special Servicer therefrom and (ii)
any P&I Advances made by the Master Servicer,
the Special Servicer, or the related Primary
Servicer for the related Distribution Date.
The "DETERMINATION DATE" for any Distribution
Date is the 10th business day preceding such
Distribution Date. The "REMITTANCE PERIOD"
for any Distribution Date is the period
beginning after a Determination Date in the
immediately preceding month (or the Cut-off
Date, in the case of the first Distribution
Date) through the related Determination Date.
See "Description of the Certificates --
Distributions -- Interest Distributions on
the Certificates" herein.
Principal Distributions on
the Certificates . . . . . Holders of the Certificates will be entitled
to receive on each Distribution Date in
reduction of the related Class Balance in the
order described herein until the related
Class Balance is reduced to zero, to the
extent of the balance of the Adjusted
Available Distribution Amount remaining after
the payment of the Interest Distribution
Amount for such Distribution Date for the
classes of Certificates with the highest
priority of payment for interest payments (as
described under "Priority of Distributions"
below) distributions in respect of principal
in an amount (the "PRINCIPAL DISTRIBUTION
AMOUNT") equal to the aggregate of (i) all
scheduled payments of principal (other than
Balloon Payments) due on the Mortgage Loans
on the related Due Date whether or not
received and all scheduled Balloon Payments
received, (ii) if the scheduled Balloon
Payment is not received, with respect to any
Balloon Mortgage Loans on and after the
Maturity Date thereof, the principal payment
that would need to be received in the related
month in order to fully amortize such Balloon
Mortgage Loan with level monthly payments by
the end of the term used to derive scheduled
payments of principal due prior to the
related Maturity Date, (iii) to the extent
not previously advanced, any unscheduled
principal recoveries received during the
related Remittance Period in respect of the
Mortgage Loans, whether in the form of
liquidation proceeds, insurance proceeds,
condemnation proceeds or amounts received as
a result of the purchase of any Mortgage Loan
out of the Trust Fund to the extent not
required to be otherwise applied pursuant to
the terms of the related Mortgage Loan and
(iv) any other portion of the Adjusted
Available Distribution Amount remaining
undistributed after payment of any interest
payable on the Certificates, including any
Prepayment Interest Excess (as defined
herein) not offset by any Prepayment Interest
Shortfall occurring during the related
Remittance Period or otherwise required to
reimburse the Master Servicer, as described
herein, and interest distributions on the
Mortgage Loans, in excess of interest
distributions on the Certificates, resulting
from the application of the amounts described
in this clause (iv) to principal
distributions on the Certificates. See
"Description of the Certificates --
Distributions -- Principal Distributions on
the Offered Certificates" herein. The
Interest Only Certificates do not have a
Class Balance and are therefore not entitled
to any principal distributions.
S-5
<PAGE> 12
Priority of Distributions The Adjusted Available Distribution Amount for
any Distribution Date will be applied (a)
first, to distributions of interest on the
classes of Certificates outstanding with
highest priority for interest payment (as
described below), (b) second, to
distributions of the Principal Distribution
Amount to the classes of Certificates then
entitled to distributions of principal as
described below, and (c) third, to
distributions of interest on each class of
Certificates other than the classes described
in clause (a) above, in the order of priority
described below; provided that on any
Distribution Date on which the Class Balance
of a class of Certificates is reduced to zero
pursuant to clause (b) above, interest
distributions pursuant to clause (a) above
will be made to the class of Certificates
outstanding with the next highest priority
for interest payments prior to making
distributions of the Principal Distribution
Amount thereto pursuant to clause (b) above.
The priority for interest payments for
purposes of clauses (a) and (c), above, is:
first to distributions of interest on the
Class A1, Class A1X, Class A2 and Class A2X
Certificates, pro rata, based on their
respective Interest Accrual Amounts; second,
to the Class B and Class BCX component B
Certificates, pro rata, based on their
respective Interest Accrual Amounts; third,
to the Class C and the Class BCX component C
Certificates, pro rata, based on their
respective Interest Accrual Amounts; fourth,
to the Class D Certificates; fifth, to the
Class E Certificates; and then to the
remaining classes of Certificates up to their
respective Interest Accrual Amounts, all as
described under "Interest Distributions on
the Certificates" above. The Principal
Distribution Amount for such Distribution
Date will be applied to the payment of
principal of the Class A1, Class A2, Class B,
Class C, Class D and Class E Certificates, in
that order, and then to the remaining classes
of Certificates, until their respective Class
Balances have been reduced to zero. Any Net
Prepayment Premium for any Distribution Date
will be applied to reimburse the Master
Servicer for reductions in its compensation
due to Prepayment Interest Shortfalls, as
described herein, and then to distributions
on the Certificates, as described herein. In
addition, to the extent any amounts
corresponding to a Collateral Value
Adjustment are recovered on a Mortgage Loan,
any interest accrued on any class of
Certificates and not paid as a result of such
Collateral Value Adjustment shall be
allocated to such classes as described
herein. See "Description of the Certificates
-- Subordination" herein.
P&I Advances . . . . . . . The Master Servicer, the Special Servicer and
the Primary Servicers (each, a "SERVICER")
are required to make advances ("P&I
ADVANCES") for delinquent Monthly Payments on
the Mortgage Loans, subject to the
limitations described herein. None of the
Servicers will be required to advance the
full amount of any Balloon Payment not made
by the related Mortgagor. To the extent a
Servicer is required to make a P&I Advance on
and after the Due Date for a Balloon Payment,
such P&I Advance shall not exceed an amount
equal to the monthly payment calculated by
the Special Servicer necessary to fully
amortize the related Mortgage Loan over the
period used for purposes of calculating the
scheduled monthly payments thereon prior to
the related Maturity Date. As more fully
described herein, each Servicer making a P&I
Advance (or any other advance) will be
entitled to reimbursement thereof and
interest thereon at the prime rate determined
in accordance with the Pooling and Servicing
Agreement to the extent provided therein. See
"Description of the Certificates -- Advances"
herein and "Description of the Certificates
-- Advances in Respect of Delinquencies" in
the Prospectus.
Other Certificates . . . . The Class F, Class G, Class NR, Class R-I,
Class R-II and Class R-III Certificates are
not offered hereby (the "OTHER
CERTIFICATES"). The Pass-Through Rates on the
Class F, Class G and Class NR Certificates
will equal the weighted average of the
Remittance Rates in effect from time to time
on the Mortgage Loans. The Class Balances on
the Class F, Class G and Class NR
Certificates will equal
S-6
<PAGE> 13
$______________, $_________________ and
$________________, respectively, and
approximately $_____________, in the
aggregate. The Class R-I, Class R-II and
Class R- III Certificates will not have a
Pass-Through Rate or a Class Balance.
Subordination . . . . . . Neither the Offered Certificates nor the
Mortgage Loans are insured or guaranteed
against losses suffered on the Mortgage Loans
by any government agency or instrumentality
or by the Depositor, the Trustee, the
Underwriter, the Master Servicer, the Special
Servicer, the Primary Servicers, or any
affiliate thereof.
Realized Losses and Collateral Valuation
Adjustments (as defined herein) on the
Mortgage Loans will be allocated, first, to
the Other Certificates, second, to the Class
E Certificates, third, to the Class D
Certificates, fourth, to the Class C
Certificates, fifth to the Class B
Certificates, and thereafter, to the Class A1
and Class A2 Certificates, on a pro rata
basis, based on Class Balance, in each case
until the related Class Balance is reduced to
zero. Any allocation of a Realized Loss or a
Collateral Valuation Adjustment to a class of
Certificates will result in a reduction of
the related Class Balance and the Notional
Amount of any of the Interest Only
Certificates (or component thereof)
calculated by reference to such Class
Balance. In addition, the Adjusted Available
Distribution Amount will be applied in the
order set forth under "Priority of
Distributions" above.
In addition to Realized Losses and Collateral
Valuation Adjustments, shortfalls may also
occur as a result of each Servicer's right to
receive payments of interest with respect to
unreimbursed advances, the Special Servicer's
right to compensation with respect to
Mortgage Loans which are or have been
Specially Serviced Mortgage Loans and as a
result of other Trust Fund expenses. Such
shortfalls will be allocated to the classes
of Certificates with the lowest payment
priority for purposes of the application of
the Adjusted Available Distribution Amount in
the order described herein.
Optional Termination . . . At its option, the Master Servicer, the
Special Servicer, any holder of a Class R-I
Certificate, the holders of an aggregate
Percentage Interest in excess of 50% of the
Most Subordinate Class of Certificates (as
defined herein) and (to the extent all of the
remaining Mortgage Loans are being serviced
thereby as Primary Servicer) any Primary
Servicer may purchase all of the Mortgage
Loans, at the price set forth under
"Description of the Pooling and Servicing
Agreement -- Termination" herein, and thereby
effect termination of the Trust Fund and
early retirement of the then outstanding
Certificates, on any Distribution Date on
which the aggregate Stated Principal Balance
(as defined herein) of the Mortgage Loans
remaining in the Trust Fund is less than
____% of the aggregate principal balance of
the Mortgage Loans as of the Cut-off Date.
See "Description of the Pooling and Servicing
Agreement -- Termination" herein and
"Description of the Certificates --
Termination" in the Prospectus.
Special Principal Payment
Considerations . . . . . . The rate and timing of principal payments, if
any, on the Offered Certificates will depend,
among other things, on the rate and timing of
principal payments (including prepayments,
defaults, liquidations and purchases of
Mortgage Loans due to a breach of a
representation and warranty) on the Mortgage
Loans. As described herein, each of the
Mortgage Loans prohibits, and/or requires the
payment of a Prepayment Premium in connection
with, any voluntary prepayment during certain
specified times. See "The Mortgage Pool"
above and "Description of the Mortgage Pool"
herein.
S-7
<PAGE> 14
All classes of Offered Certificates entitled
to payments of principal are subject to
priorities for payment of principal as
described herein. Distributions of principal
on classes having an earlier priority of
payment will be directly affected by the
rates of prepayments of the Mortgage Loans.
The timing of commencement of principal
distributions and the weighted average lives
of classes of Certificates with a later
priority of payment will be affected by the
rates of prepayments experienced both before
and after the commencement of principal
distributions on such classes.
In addition, a portion of collections on the
Mortgage Loan in excess of scheduled and
unscheduled principal distributions will be
allocated to the classes of Certificates then
entitled to distributions of principal. Any
such allocation may result in a faster
amortization of such class of Certificates.
Special Yield
Considerations . . . . . . The yield to maturity on each class of the
Offered Certificates will depend on, among
other things, the rate and timing of
principal payments (including prepayments,
defaults, liquidations and purchases of
Mortgage Loans due to breaches of
representations and warranties) on the
Mortgage Loans and the allocation thereof to
reduce the Class Balance or Notional Amount
of such class (or component thereof). The
yield to maturity on each class of the
Offered Certificates will also depend on the
Pass-Through Rate and the purchase price for
such Certificates. The yield to investors on
any class of Offered Certificates will be
adversely affected by any allocation thereto
of Prepayment Interest Shortfalls on the
Mortgage Loans, which may result from the
distribution of interest only to the date of
a prepayment occurring during any month
following the related Determination Date
(rather than a full month's interest). See
"Description of the Certificates --
Distributions -- Interest Distributions on
the Certificates" herein.
In general, if a class of Offered
Certificates is purchased at a premium and
principal distributions thereon occur at a
rate faster than anticipated at the time of
purchase, the investor's actual yield to
maturity will be lower than that assumed at
the time of purchase. Conversely, if a class
of Offered Certificates is purchased at a
discount and principal distributions thereon
occur at a rate slower than that assumed at
the time of purchase, the investor's actual
yield to maturity will be lower than that
assumed at the time of purchase.
The multiple class structure of the Offered
Certificates causes the yield of certain
classes to be particularly sensitive to
changes in the rates of principal payments
(including prepayments, defaults,
liquidations and purchases of Mortgage Loans
due to a breach of a representation and
warranty) of the Mortgage Loans and other
factors.
The yield to investors on the Interest Only
Certificates will be sensitive to the rate
and timing of prepayments, defaults and
liquidations on the Mortgage Loans. The rate
of such prepayments, defaults and
liquidations on the Mortgage Loans may
fluctuate significantly over time. A
significantly faster than expected rate of
such prepayments, defaults and liquidations
on the Mortgage Pool will have a negative
effect on the yield to such investors and
could result in the failure of investors in
the Interest Only Certificates to recover
their initial investments. In addition,
because holders of the Class A1X and A2X
Certificates have rights to relatively larger
portions of interest payments on Mortgage
Loans with higher Mortgage Interest Rates
than on Mortgage Loans with lower Mortgage
Interest Rates, and because Mortgage Loans
with higher Mortgage Interest Rates are
generally likely to prepay at a faster rate
than Mortgage Loans with lower Mortgage
Interest Rates, the yield on the Class A1X
and A2X Certificates will be materially
adversely
S-8
<PAGE> 15
affected to a greater extent than the yields
on the other Offered Certificates if the
Mortgage Loans with higher Mortgage Interest
Rates prepay faster than the Mortgage Loans
with lower Mortgage Interest Rates. See
"Certain Prepayment, Maturity and Yield
Considerations," especially "--Interest Only
Certificate Yield Considerations" herein.
The yield to investors on any of the
Certificates will be sensitive to losses due
to defaults on the Mortgage Loans (and the
timing thereof), because the amount of such
losses will be allocable to such class to the
extent such losses are not covered by a
subordinate class of Certificates, as
described herein. Furthermore, as described
herein, the timing of receipt of principal
and interest by any such class of
Certificates may be adversely affected by
losses even if such class does not ultimately
bear such loss.
Each Servicer making an advance will be
entitled to interest thereon at the prime
rate determined in accordance with the
Pooling and Servicing Agreement to the extent
provided therein. Therefore losses may be
allocated to a class of Offered Certificates
with respect to any delinquent Monthly
Payment and certain other expenses advanced
by such Servicer.
The Special Servicer will be entitled to
receive compensation in the form of a
percentage of collections of any Mortgage
Loan which is being serviced or has been
serviced by the Special Servicer (a
"SPECIALLY SERVICED MORTGAGE LOAN") prior to
the right of Certificateholders to receive
distributions on the Certificates. Such
compensation will result in shortfalls which
will be allocated to the classes of
Certificates with the lowest payment priority
for purposes of application of the Adjusted
Available Distribution Amount in the order
described herein. Consequently, it is
possible that losses will be allocated to the
Offered Certificates with respect to any
Specially Serviced Mortgage Loan
notwithstanding the fact that such Mortgage
Loan is returned to a performing status. See
"Servicing -- Servicing and Other
Compensation and Payment of Expenses" herein.
See "Certain Prepayment, Maturity and Yield
Considerations," especially "--Class C, Class
BCX, Class D and Class E Yield
Considerations" herein, and "Yield
Considerations" in the Prospectus.
Federal Income Tax
Consequences . . . . . . . Three separate real estate mortgage investment
conduit ("REMIC") elections will be made with
respect to the Trust Fund for federal income
tax purposes. Upon the issuance of the
Offered Certificates, Andrews & Kurth L.L.P.,
counsel to the Depositor, will deliver its
opinion generally to the effect that,
assuming compliance with all provisions of
the Pooling and Servicing Agreement, for
federal income tax purposes, the REMIC I,
REMIC II and REMIC III (each as defined in
the Pooling and Servicing Agreement) will
each qualify as a REMIC under Sections 860A
through 860G of the Internal Revenue Code of
1986 (the "CODE").
For federal income tax purposes, the Class
R-I Certificates will be the sole class of
"residual interests" in REMIC I, the Class
R-II Certificates will be the sole class of
"residual interests" in REMIC II, the Offered
Certificates (or, in the case of the Class
BCX Certificates, each component thereof) and
the Other Certificates will be "regular
interests" of REMIC III and will generally be
treated as debt instruments of REMIC III, and
the Class R-III Certificates will be the sole
class of "residual interests" in REMIC III.
S-9
<PAGE> 16
The Interest Only Certificates will and the
other Offered Certificates may be treated as
having been issued with original issue
discount for federal income tax purposes. For
purposes of computing the accrual of original
issue discount, market discount and premium,
if any, for federal income tax purposes it
will be assumed that there are no prepayments
on the Mortgage Loans. However, no
representation is made that the Mortgage
Loans will not prepay at another rate.
For further information regarding the federal
income tax consequences of investing in the
Offered Certificates, see "Federal Income Tax
Consequences" herein and in the Prospectus.
ERISA Considerations . . . A fiduciary of any employee benefit plan or
other retirement arrangement subject to the
Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975
of the Code and any entity whose underlying
assets include assets of such a plan by
reason of any such plan's investment in the
entity should review carefully with its legal
advisors whether the purchase or holding of
any class of Offered Certificates could give
rise to a transaction that is prohibited or
is not otherwise permitted either under ERISA
or Section 4975 of the Code or whether there
exists any statutory or administrative
exemption applicable to an investment
therein. The U.S. Department of Labor has
issued an individual exemption, Prohibited
Transaction Exemption 89-88(54 Fed. Reg.
42581 (1969)), to Goldman, Sachs & Co. that
generally exempts from the application of
certain of the prohibited transaction
provisions of Section 406 of ERISA, and the
excise taxes imposed on certain such
prohibited transactions by Sections 4975(a)
and (b) of the Code and Section 502(i) of
ERISA, transactions relating to the purchase,
sale and holding of pass-through certificates
underwritten by Goldman, Sachs & Co., such as
the Class A1, Class A1X, Class A2 and Class
A2X Certificates and the servicing and
operation of asset pools, provided that
certain conditions are satisfied. Purchasers
using insurance company general account funds
to effect such purchase should consider the
availability of Prohibited Transaction Class
Exemption 95-60 (60 Fed. Reg. 35925, July 12,
1995) issued by the U.S. Department of Labor.
See "ERISA Considerations" herein and in the
Prospectus.
Rating . . . . . . . . . . It is a condition to the issuance of the Class
A1 and Class A2 Certificates that they be
rated "_______" by ________________
("_____________ ") and __________________
("________________ "). It is a condition of
the issuance of the Class A1X and Class A2X
Certificates that they be rated "______" by
________________ and "_______" by
________________ . It is a condition of the
issuance of the Class B Certificates that
they be rated not lower than "____" by
________________ and ________________. It is
a condition of the issuance of the Class C
Certificate that they be rated not lower than
"___" by ________________ and "____" by
________________. It is a condition of the
issuance of the Class BCX Certificates that
they be rated not lower than "____" by
________________. It is a condition of the
issuance of the Class D Certificates that
they be rated not lower than "_____" by
________________ and ________________. It is
a condition of the issuance of the Class E
Certificates that they be rated not lower
than "________" by ________________ and
________________. A security rating is not a
recommendation to buy, sell or hold
securities and may be subject to revision or
withdrawal at any time by the assigning
rating organization. A security rating does
not address the frequency or likelihood of
prepayments (whether voluntary or
involuntary) of Mortgage Loans, or the degree
to which such prepayments might differ from
those originally anticipated, or the
likelihood of collection of Prepayment
Premiums, or the corresponding effect on
yield to investors. A rating of any of the
Interest Only Certificates does not address
the possibility that the holders of such
Certificates may fail to fully
S-10
<PAGE> 17
recover their initial investments due to a
rapid rate of prepayments, defaults or
liquidations. See "Certain Prepayment,
Maturity and Yield Considerations" herein,
"Risk Factors," and "Rating" herein and in
the Prospectus and "Yield Considerations" in
the Prospectus.
Legal Investment . . . . . The Class ___, Class ___, Class ___, Class
___ and Class ___ Certificates will be
"mortgage related securities" within the
meaning of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA") so long as
they are rated in one of the two highest
rating categories by at least one nationally
recognized statistical rating organization.
The Class ___, Class ___ and Class ___
Certificates will not be "mortgage related
securities" within the meaning of SMMEA. The
appropriate characterization of the Offered
Certificates under various legal investment
restrictions, and thus the ability of
investors subject to these restrictions to
purchase any Class of Offered Certificates,
may be subject to significant interpretative
uncertainties.
In addition, institutions whose investment
activities are subject to review by certain
regulatory authorities may be or may become
subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of
mortgage-backed securities. Furthermore,
certain states have enacted legislation
overriding the legal investment provisions of
SMMEA. Accordingly, investors should consult
their own legal advisors to determine whether
and to what extent the Offered Certificates
constitute legal investments for them. See
"Legal Investment" herein and in the
Prospectus.
S-11
<PAGE> 18
RISK FACTORS
[Description will depend on the particulars of the Mortgage Assets]
Prospective purchasers of the Offered Certificates should consider,
among other things, the following risk factors (as well as the risk factors set
forth under "Risk Factors" in the Prospectus) in connection with an investment
in the Offered Certificates.
Special Prepayment Considerations. The rate and timing of principal
payments on the Offered Certificates will depend, among other things, on the
rate and timing of principal payments (including prepayments, defaults,
liquidations and purchases of Mortgage Loans due to a breach of representation
and warranty) on the Mortgage Loans. The rate at which principal payments occur
on the Mortgage Pool will be affected by a variety of factors, including,
without limitation, the terms of the Mortgage Loans, the level of prevailing
interest rates, the availability of mortgage credit and economic, demographic,
geographic, tax, legal and other factors. In general, however, if prevailing
interest rates fall significantly below the Mortgage Interest Rates on the
Mortgage Loans, such Mortgage Loans are likely to be the subject of higher
principal prepayments than if prevailing rates remain at or above the rates
borne by such Mortgage Loans. The rate of principal payments on the Offered
Certificates will correspond to the rate of principal payments on the Mortgage
Loans and is likely to be affected by the Lock-out Periods (as defined herein)
and Prepayment Premium provisions applicable to the Mortgage Loans and by the
extent to which a Servicer is able to enforce such provisions. Mortgage Loans
with a Lock-out Period or a Prepayment Premium provision, to the extent
enforceable, generally would be expected to experience a lower rate of
principal prepayments than otherwise identical mortgage loans without such
provisions with shorter Lock-out Periods or with lower Prepayment Premiums. See
"Description of the Mortgage Pool," "Description of the Certificates --
Distributions -- Priority of Distributions" and "Certain Prepayment, Maturity
and Yield Considerations" herein and "Yield Considerations" in the Prospectus.
Special Yield Considerations. The yield to maturity on each class of
the Offered Certificates will depend, among other things, on the rate and
timing of principal payments (including prepayments, defaults, liquidations and
purchases of Mortgage Loans due to a breach of representation and warranty) on
the Mortgage Pool and the allocation thereof to reduce the Class Balance of
such class. Mortgage Loans with higher Mortgage Interest Rates will have higher
Remittance Rates, and therefore, the yield on the Class A1X, Class A2X, Class
B, Class C, Class D and Class E Certificates could be adversely affected if
Mortgage Loans with higher Mortgage Interest Rates pay faster than the Mortgage
Loans with lower Mortgage Interest Rates. The yield to investors on the Offered
Certificates will be adversely affected by any allocation thereto of interest
shortfalls on the Mortgage Loans, such as Prepayment Interest Shortfalls.
Neither the Certificates nor the Mortgage Loans are guaranteed by any
governmental entity or instrumentality or any other entity.
In general, if a Certificate is purchased at a premium and principal
distributions thereon occur at a rate faster than anticipated at the time of
purchase, the investor's actual yield to maturity will be lower than that
assumed at the time of purchase. Conversely, if a Certificate is purchased at a
discount and principal distributions thereon occur at a rate slower than that
assumed at the time of purchase, the investor's actual yield to maturity will
be lower than assumed at the time of purchase. See "Prepayment, Maturity and
Yield Considerations" herein and "Yield Considerations" in the Prospectus.
Risks Associated with Certain of the Mortgage Loans and Mortgaged
Properties. The Mortgage Loans are secured by a fee simple or leasehold
interest in multifamily, retail, hotel, health care-related, office, industrial
and other commercial properties. Commercial and multifamily lending is
generally viewed as exposing the lender to a greater risk of loss than one- to
four-family residential lending. Commercial and multifamily lending typically
involves larger loans to single borrowers or groups of related borrowers than
residential one-to four-family mortgage loans. Further, the repayment of loans
secured by income producing properties is typically dependent upon the
successful operation of the related property. If the cash flow from the
property is reduced (for example, if leases are not obtained or renewed), the
borrower's ability to repay the loan may be impaired. Commercial and
multifamily real estate can be affected significantly by the supply and demand
in the market for the type of property securing the loan and, therefore, may be
subject to adverse economic conditions. Market values may vary as a result of
economic events or governmental regulations outside the control of the borrower
or lender, such as rent control laws in the case of multifamily mortgage loans,
which impact the future cash flow of the property. See "Nonrecourse Mortgage
Loans" below.
S-12
<PAGE> 19
The successful operation of a real estate project is also dependent on
the performance and viability of the property manager of such project. The
property manager is responsible for responding to changes in the local market,
planning and implementing the rental structure, including establishing
appropriate rental rates, and advising the borrowers so that maintenance and
capital improvements can be carried out in a timely fashion. There is no
assurance regarding the performance of any operators and/or managers or persons
who may become operators and/or managers upon the expiration or termination of
leases or management agreements or following any default or foreclosure under a
Mortgage Loan.
An appraisal of each of the Mortgaged Properties was made between
___________ 199__ and ___________ 199_. It is possible that the market value of
a Mortgaged Property securing a Mortgage Loan has declined since the most
recent appraisal for such Mortgaged Property. Commercial and multifamily
property values and net operating income are subject to volatility. The net
operating income and value of the Mortgaged Properties may be adversely
affected by a number of factors, including but not limited to the national,
regional and local economic conditions (which may be adversely impacted by
plant closings, industry slowdowns and other factors); local real estate
conditions (such as an oversupply of housing, retail, office or self-storage
space, hotel rooms or nursing homes); changes or continued weakness in specific
industry segments; perceptions by prospective tenants and, in the case of
retail properties, retailers and shoppers, of the safety, convenience, services
and attractiveness of the property; the willingness and ability of the
property's owner to provide capable management and adequate maintenance;
construction quality, age and design; demographic factors; retroactive changes
to building or similar codes; and increases in operating expenses (such as
energy costs). Historical operating results of the Mortgaged Properties may not
be comparable to future operating results. In addition, other factors may
adversely affect the Mortgaged Properties' value without affecting their
current net operating income, including changes in governmental regulations,
zoning or tax laws; potential environmental or other legal liabilities; the
availability of refinancing; and changes in interest rate levels.
Mortgage Loans secured by liens on residential health care facilities
pose risks not associated with loans secured by liens on other types of
income-producing real estate. Providers of long-term nursing care, assisted
living and other medical services are subject to federal and state laws that
relate to the adequacy of medical care, distribution of pharmaceuticals, rate
setting, equipment, personnel, operating policies and additions to facilities
and services and to the reimbursement policies of government programs and
private insurers. The failure of any of such borrower to maintain or renew any
required license or regulatory approval could prevent it from continuing
operations (in which case no revenues would be received from the related
Mortgaged Property or the portion thereof requiring licensing) or, if
applicable, bar it from participation in certain reimbursement programs.
Furthermore, in the event of foreclosure, there can be no assurance that the
Trustee or any other purchaser at a foreclosure sale would be entitled to the
rights under such licenses and such party may have to apply in its own right
for such a license. There can be no assurance that a new license could be
obtained. In addition, to the extent any nursing home receives a significant
portion of its revenues from government reimbursement programs, primarily
Medicaid and Medicare, such revenue may be subject to statutory and regulatory
changes, retroactive rate adjustments, administrative rulings, policy
interpretations, delays by fiscal intermediaries and government funding
restrictions. Moreover, governmental payors have employed cost-containment
measures that limit payments to health care providers, and there are currently
under consideration various proposals in the United States Congress that could
materially change or curtail those payments. Accordingly, there can be no
assurances that payments under government programs will, in the future, be
sufficient to fully reimburse the cost of caring for program beneficiaries. If
not, net operating income of the Mortgaged Properties that receive substantial
revenues from those sources, and consequently the ability of the related
borrowers to meet their Mortgage Loan obligations, could be adversely affected.
Under applicable federal and state laws and regulations, including those that
govern Medicare and Medicaid programs, only the provider who actually furnished
the related medical goods and services may sue for or enforce its rights to
reimbursement. Accordingly, in the event of foreclosure, none of the Trustee,
the Master Servicer, the Special Servicer or a subsequent lessee or operator of
the property would generally be entitled to obtain from federal or state
governments any outstanding reimbursement payments relating to services
furnished at the respective properties prior to such foreclosure.
The aggregate principal balance as of the Cut-off Date related to
Mortgage Loans secured by multifamily, retail, hotel, health care-related,
office, industrial and other properties represent approximately ____%, ____%,
____%,____%, ____%, ____% and ____% of the Cut-off Date aggregate principal
balance of the Mortgage Pool, respectively.
S-13
<PAGE> 20
Risks Particular to Hotel Properties. _______ of the Mortgage Loans
representing____% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date are secured by hotel properties. Like any income producing
property, the income generated by a hotel property is subject to several
factors such as local, regional and national economic conditions and
competition. However, because such income is primarily generated by room
occupancy and such occupancy is usually for short periods of time, the level of
such income may respond more quickly to conditions such as those described
above. This daily mark-to-market also accentuates the highs and lows of
economic cycles. Moreover, as a result of relatively high operating costs,
relatively small decreases in revenue can cause significant stress on a
property's cash flow. Also, sensitivity to competition may require more
frequent improvements and renovations than other properties. To the extent a
hotel is affiliated to, or associated with, a regional, national or
international chain, changes in the public perception of such chain may have
an impact on the income generated by the related property. Finally, the hotel
industry is generally seasonal. This will result in fluctuation in the income
generated by hotel properties.
Risks Particular to Retail Properties. _______ Mortgage Loans,
representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by retail properties. In addition to
risks generally associated with real estate, such Mortgage Loans are also
affected significantly by adverse changes in consumer spending patterns, local
competitive conditions (such as the supply of retail space or the existence or
construction of new competitive shopping centers or shopping malls alternative
forms of retailing (such as direct mail video shopping networks and selling
through the Internet which reduce the need for retail space by retail
companies), the quality and management philosophy of management, the
attractiveness of the properties and the surrounding neighborhood to tenants
and their customers or clients, the public perception of the safety of
customers at shopping malls and shopping centers, and the need to make major
repairs or improvements to satisfy the needs of major tenants.
Retail properties may be adversely affected if a significant tenant
ceases operations at such locations (which may occur on account of a voluntary
decision not to renew a lease, bankruptcy or insolvency of such tenant, such
tenant's general cessation of business activities or for other reasons).
Significant tenants at a retail property play an important part in generating
customer traffic and making a retail property a desirable location for other
tenants at such property. In addition, certain tenants at retail properties may
be entitled to terminate their leases if an anchor tenant ceases operations at
such property. In such cases, there can be no assurance that any such anchor
tenants will continue to occupy space in the related shopping centers.
Risks Particular to Office Properties, Mortgage Loans,
representing % of the aggregate principal balance of the Mortgage Loans
as of the Cut-off Date, are secured by office properties. In addition to risks
generally associated with real estate, Mortgage Loans secured by office
properties are also affected significantly by adverse changes in population and
employment growth (which creates demand for office space), local competitive
conditions (such as the supply of office space or the existence or construction
of new competitive office buildings), the quality and management philosophy of
management, the attractiveness of the properties to tenants and their customers
or clients, the attractiveness of the surrounding neighborhood and the need to
make major repairs or improvements to satisfy the needs of major tenants. In
addition, office properties may be adversely affected by an economic decline in
the business operated by their tenants. Such decline may result in one or more
significant tenants ceasing operations at such locations (which may occur on
account of a voluntary decision not to renew a lease, bankruptcy or insolvency
of such tenants, such tenants' general cessation of business activities or for
other reasons). If office properties have a single tenant or if there is a
significant concentration of tenants in a particular business or industry, the
risk of such an economic decline increases.
Risks Particular to Multifamily Rental Properties. _________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by multifamily rental properties.
Adverse economic conditions, either local or national, may limit the amount of
rent that can be charged for rental units, and may result in a reduction in
timely rent payments or a reduction in occupancy levels without a corresponding
decrease in expenses. Occupancy and rent levels may also be affected by
construction of additional housing units, local military base closings and
national and local politics, including, in the case of multifamily rental
properties, current or future rent stabilization and rent control laws and
agreements. In addition, the level of mortgage interest rates may encourage
tenants in multifamily rental properties to purchase single-family housing.
Further, the cost of operating a multifamily property may increase, including
the cost of utilities and the costs of required capital expenditures.
Furthermore, the rent limitations imposed on Mortgaged Properties eligible to
receive low-income housing tax credits pursuant to Section 42 of the Code
("Section 42 Properties") may adversely affect the ability of the applicable
borrowers to increase rents to maintain such Mortgaged Properties in proper
condition during periods of rapid inflation or declining market value of such
Mortgaged Properties. In addition, the income restrictions on tenants imposed by
Section 42 of the Code may reduce the number of eligible tenants in such
Mortgaged Properties and result in a reduction in occupancy rates applicable
thereto. Furthermore, some eligible tenants may not find any differences in
rents between the Section 42 Properties and other multifamily rental properties
in the same area to be a sufficient economic incentive to reside at a Section 42
Property, which may have fewer amenities or otherwise be less attractive as a
residence. Additionally, the characteristics of a neighborhood may change over
time or in relation to newer developments. All of these conditions and events
may increase the possibility that a borrower may be unable to meet its
obligations under its Mortgage Loan.
Risks Particular to Self-Storage Facilities. ____________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by self-storage properties.
Self-storage properties are considered vulnerable to competition because both
acquisition costs and break-even occupancy are relatively low. The conversion
of self-storage facilities to alternative uses would generally require
substantial capital expenditures. Thus, if the operation of any of the
self-storage Mortgaged Properties becomes unprofitable due to decreased demand,
competition, age of improvements or other factors such that the borrower
becomes unable to meet its obligation on the related Mortgage Loan, the
liquidation value of that self-storage Mortgaged Property may be substantially
less, relative to the amount owing on the Mortgage Loan, than would be the case
if the self-storage Mortgaged Property were readily adaptable to other uses.
Tenant privacy, anonymity and efficient access may heighten environmental
risks. The environmental assessments discussed herein did not include an
inspection of the contents of the self-storage units included in the
self-storage Mortgaged Properties and there is no assurance that all of the
units included in the self-storage Mortgaged Properties are free from hazardous
substances or other pollutants or contaminants or will remain so in the future;
however, substantially all of the lease agreements used in connection with such
Mortgaged Properties prohibit the storage of hazardous substances, pollutants
or contaminants.
Risks Particular to Mobile Home Parks. _______ Mortgage Loans,
representing ______% of the aggregate principal balance of the Mortgage Loans
as of the Cut-off Date, secured by mobile home parks. Loans secured by mobile
home parks pose risks not associated with loans secured by liens on other types
of income-producing real estate. The successful operation of a Mortgaged
Property operated as a mobile home park will generally depend upon the number of
competing mobile home parks and other residential developments in the local
market, as well as upon other factors such as its age, appearance, reputation,
management and the types of services it provides.
Mobile home parks are "special purpose" properties that could not be
readily converted to general residential, retail or office use. Thus, if the
operation of any of the Mortgaged Properties constituting mobile home parks
becomes unprofitable due to competition, age of the improvements or other
factors such that the borrower becomes unable to meet its obligations on the
related Mortgage Loan, the liquidation value of that Mortgaged Property may be
substantially less, relative to the amount owing on the Mortgage Loan, than
would be the case if the Mortgaged Property were readily adaptable to other
uses.
Risks Particular to Health Care-Related Properties. ____________
Mortgage Loans, representing ______% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date, are secured by health care-related
facilities. Health care-related facilities (including nursing homes) typically
receive a substantial portion of their revenues from government reimbursement
programs, primarily Medicaid and Medicare. Medicaid and Medicare are subject to
statutory and regulatory changes, retroactive rate adjustments, administrative
rulings, policy interpretations, delays by fiscal intermediaries and government
funding restrictions, all of which can adversely affect revenues from operation.
Moreover, governmental payors have employed cost-containment measures that limit
payments to health care providers and there are currently under consideration
various proposals for national health care relief that could further limit these
payments. In addition, providers of long-term nursing care and other medical
services are highly regulated by federal, state and local law and are subject
to, among other things, federal and state licensing requirements, facility
inspections, rate setting, reimbursement policies, and laws relating to the
adequacy of medical care, distribution of pharmaceuticals, equipment, personnel
operating policies and maintenance of and additions to facilities and services,
any or all of which factors can increase the cost of operation, limit growth and
in extreme cases, require or result in suspension or cessation of operations.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a Mortgaged Property that
is operated as a health care-related facility, none of the Trustee, the Special
Servicer or a subsequent lessee or operator of the Mortgaged Property would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective Mortgaged Properties prior to such foreclosure. Furthermore, in the
event of foreclosure, there can be no assurance that the Trustee (or Special
Servicer) or purchaser in a foreclosure sale would be entitled to the rights
under any required licenses and regulatory approvals and such party may have to
apply in its own right for such licenses and approvals. There can be no
assurance that a new license could be obtained or that a new approval would be
granted. In addition, health care-related facilities are generally "special
purpose" properties that could not be readily converted to general residential,
retail or office use, and transfers of health care-related facilities are
subject to regulatory approvals under state, and in some cases federal, law not
required for transfers of other types of commercial operations and other types
of real estate, all of which may adversely affect the liquidation value.
Risks Particular to Industrial Properties. ____________ Mortgage
Loans, representing ______% of the aggregate principal balance of the Mortgage
Loans as of the Cut-off Date, are secured by industrial properties. Industrial
properties may be adversely affected by reduced demand for industrial space
occasioned by a decline in a particular industry segment, and an industrial
property that suited the particular needs of its original tenant may be
difficult to relet to another tenant or may become functionally obsolete
relative to newer properties. Furthermore, industrial properties may be
adversely affected by the availability of labor sources or a change in the
proximity of supply sources.
Nonrecourse Mortgage Loans. Each Mortgage Loan is a nonrecourse loan
as to which, in the event of a default under such Mortgage Loan, recourse
generally may be had only against the related Mortgaged Property. Consequently,
payment of each such Mortgage Loan prior to maturity is dependent primarily on
the sufficiency of the net operating income of the related Mortgaged Property,
and at maturity (whether at scheduled maturity or in the event of a default
upon the acceleration of such maturity after default), upon the then market
value of the related Mortgaged Property, or the ability to refinance such
Mortgage Loan.
Concentration of Mortgage Loans. The average principal balance of the
Mortgage Loans as of the Cut-off Date is approximately $____________, which is
equal to ____% of the aggregate principal balance as of the Cut-off Date of the
Mortgage Loans.
A mortgage pool consisting of fewer loans each having a relatively
higher outstanding principal balance may result in losses that are more severe,
relative to the size of the pool, than would be the case if the pool consisted
of a greater number of mortgage loans each having a relatively smaller
outstanding principal balance. In addition, the concentration of any mortgage
pool in one or more loans that have outstanding principal balances that are
substantially larger than the other mortgage loans in such pool can result in
losses that are substantially more severe, relative to the size of the pool,
than would be the case if the aggregate balance of the pool were more evenly
distributed among the loans in such pool. The Mortgage Loan secured by the
__________________________ represents______% of the aggregate principal balance
of the Mortgage Loans. No other Mortgage Loan represents more than ____% of
the aggregate principal balance as of the Cut-off Date of the Mortgage Loans.
Mortgage Loans with related Mortgagors represent in the aggregate _____% of the
aggregate principal balance as of the Cut-off Date of the Mortgage Loans but no
single group of related Mortgagors represents in excess of __% of the aggregate
principal balance of the Mortgage Loans. See "Description of the Mortgage Pool
- -- Certain Characteristics of the Mortgage Loans -- Related Borrowers and Other
Issues" herein.
Risks of Different Timing of Mortgage Loan Amortization. If and as
principal payments, property releases, or prepayments are made on a Mortgage
Loan, the remaining Mortgage Pool may be subject to more concentrated risk with
respect to the diversity of properties, types of properties and property
characteristics and with respect to the number of borrowers. See the table
entitled "Year of Scheduled Maturity" under "Description of the Mortgage Pool
- -- Certain Characteristics of the Mortgage Loans" for a description of the
respective maturity dates of the Mortgage Loans. Because principal on the
Offered Certificates is payable in sequential order, and no class receives
principal until the Class Balance of the preceding class or classes has been
reduced to zero, classes that have a lower sequential priority are more likely
to be exposed to the risk of concentration discussed under "--Concentration of
Mortgage Loans" above than classes with a higher sequential priority.
Geographic Concentration. __, __, __, __ and __ of the Mortgaged
Properties, representing approximately ____%, ____%, ____%, ____% and ____%,
respectively, of the aggregate principal balance of the Mortgage Loans as of
the Cut-off Date, are located in ______________, _________, __________,
_________ and _________, respectively. Except as indicated in the immediately
preceding sentence, no more than ___% of the Mortgage Loans, by aggregate
principal balance of the Mortgage Loans as of the Cut-off Date are secured by
Mortgaged Properties in any one state. Repayments by borrowers and the market
value of the Mortgaged Properties could be affected by economic conditions
generally or in regions where the borrowers and the Mortgaged Properties are
located, conditions in the real estate market where the Mortgaged Properties
are located, changes in governmental rules and fiscal policies, acts of nature,
S-14
<PAGE> 21
including earthquakes (which may result in uninsured losses), and other factors
which are beyond the control of the borrowers.
Environmental Risks. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the costs of removal and
remediation of hazardous or toxic substances on, under, adjacent to or in such
property. Such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. The cost of any required remediation and the owner's liability
therefor as to any property is generally not limited under such enactments and
could exceed the value of the property and/ or the aggregate assets of the
owner. In addition, the presence of hazardous or toxic substances, or the
failure to properly remediate such property, may adversely affect the owner's
or operator's ability to borrow using such property as collateral. Persons who
arrange for the disposal or treatment of hazardous or toxic substances may also
be liable for the costs of removal or remediation of such substances at the
disposal or treatment facility. Certain laws impose liability for release of
asbestos into the air and third parties may seek recovery from owners or
operators of real properties for personal injury associated with exposure to
asbestos.
Under some environmental laws, such as the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended
("CERCLA"), as well as certain state laws, a secured lender (such as the Trust
Fund) may be liable as an "owner" or "operator", for the costs of responding to
a release or threat of a release of hazardous substances on or from a
borrower's property, if agents or employees of a lender are deemed to have
participated in the management of the borrower's property, regardless of
whether a previous owner caused the environmental damage. The Trust Fund's
potential exposure to liability for cleanup costs pursuant to CERCLA may
increase if the Trust Fund actually takes possession of a borrower's property,
or control of its day-to-day operations, as for example through the appointment
of a receiver.
An environmental site assessment ("ESA") of each of the Mortgaged
Properties was performed (or prior assessments were updated) in connection with
the initial underwriting and origination of the Mortgage Loans. In certain
cases, environmental testing in addition to the ESA was performed.
The following information is based on the ESAs and has not been
independently verified by the Depositor, the Servicers, the Trustee, the
Underwriter, or by any of their respective affiliates. With respect to a number
of the Mortgaged Properties, the ESAs revealed the existence of
asbestos-containing materials, possible radon gas and other environmental
matters at the related Mortgaged Properties, none of which constituted a
material violation of any environmental law in the judgment of the assessor. In
these cases, the Mortgagors agreed to establish and maintain operations and
maintenance programs or had other remediation agreements or escrows in place.
With respect to several Mortgaged Properties, the ESAs identified the presence
of above-ground or underground storage tanks and the related Mortgagors have
agreed to make periodic visual inspections or other testing for any petroleum
releases.
It is possible that the ESAs did not reveal all environmental
liabilities, that there are material environmental liabilities of which neither
ACC nor the Depositor are aware and that the environmental condition of the
Mortgaged Properties in the future could be affected by tenants and occupants
or by third parties unrelated to the Mortgagors.
Each Mortgagor has represented that, except as described in the
environmental reports referred to above, each Mortgaged Property either was, or
to the best of its knowledge was, in compliance with applicable environmental
laws and regulations on the date of the origination of the related Mortgage
Loan; that, except as described in the environmental reports referred to above,
no actions, suits or proceedings have been commenced or are pending or, to the
best knowledge of the Mortgagor, are threatened with respect to any applicable
environmental laws and that such Mortgagor has not received notice of any
violation of a legal requirement relating to the use and occupancy of any
Mortgaged Property. The principal security for the obligations under each
Mortgage Loan consists of the Mortgaged Property and, accordingly, if any such
representations are breached, there can be no assurance that any other assets
of the Mortgagor would be available in connection with any exercise of remedies
in respect of such breach. Moreover, most Mortgagors are structured as single
asset entities and therefore have no assets other than the related Mortgaged
Property.
S-15
<PAGE> 22
The Pooling and Servicing Agreement provides that the Special
Servicer, acting on behalf of the Trust Fund, may not acquire, through
foreclosure or deed in lieu thereof, title to a Mortgaged Property or take over
its operation unless the Special Servicer has previously determined, based on a
report prepared by a qualified person who regularly conducts environmental
audits, that (i) the Mortgaged Property is in compliance with applicable
environmental laws or that taking the actions necessary to comply with such
laws is reasonably likely to produce a greater recovery on a present value
basis than not taking such actions and (ii) there are no circumstances known to
the Special Servicer relating to the use of hazardous substances or
petroleum-based materials which require investigation or remediation, or that
if such circumstances exist, taking such remedial actions is reasonably likely
to produce a greater recovery on a present value basis than not taking such
actions.
Litigation. There may be legal proceedings pending and, from time to
time, threatened against the Mortgagors and the managers of the Mortgaged
Properties and their respective affiliates arising out of the ordinary business
of the Mortgagor, the managers and such affiliates. There can be no assurance
that such litigation may not have a material adverse effect on distributions to
Certificateholders.
Other Financings. Each Mortgagor is restricted from incurring any
indebtedness secured by the related Mortgaged Property other than the related
Mortgage Loan without the consent of the lender. With respect to ___ Mortgage
Loans representing ______% of the Mortgage Pool and which were made to single
purpose entities, the Mortgagor is restricted from incurring any indebtedness
other than the Mortgage Loan, normal trade accounts payable and certain
purchase financing debt, except that _____ of these Mortgagors representing
____% of the Mortgage Pool have unsecured subordinate debt that is subject to a
subordination and standstill agreement limiting the rights of the holder of
such additional indebtedness including limitations on its right to commence any
enforcement or foreclosure proceeding.
In cases where one or more junior liens are imposed on a Mortgaged
Property or the Mortgagor incurs other indebtedness, the Trust Fund is
subjected to additional risks, including, without limitation, the risks that
the Mortgagor may have greater incentives to repay the junior or unsecured
indebtedness first and that it may be more difficult for the Mortgagor to
refinance the Mortgage Loan or to sell the Mortgaged Property for purposes of
making the Balloon Payment upon the maturity of the Mortgage Loan.
Effect of Mortgagor Delinquencies and Defaults. The aggregate amount
of distributions on the Offered Certificates, the yield to maturity of the
Offered Certificates, the rate of principal payments on the Offered
Certificates and the weighted average lives of the Offered Certificates will be
affected by the rate and the timing of delinquencies and defaults on the
Mortgage Loans. If a purchaser of a class of Offered Certificates calculates
its anticipated yield based on an assumed rate of default and amount of losses
on the Mortgage Loans that is lower than the default rate and amount of losses
actually experienced and such additional losses are allocable to such class of
Certificates, such purchaser's actual yield to maturity will be lower than that
so calculated and could, under certain extreme scenarios, be negative. The
timing of any loss on a liquidated Mortgage Loan will also affect the actual
yield to maturity of the class of Offered Certificates to which a portion of
such loss is allocable, even if the rate of defaults and severity of losses are
consistent with an investor's expectations. In general, the earlier a loss
borne by an investor occurs, the greater is the effect on such investor's yield
to maturity.
As and to the extent described herein, each Servicer will be entitled
to receive interest on unreimbursed P&I Advances and unreimbursed advances of
servicing expenses until such advances (i) are recovered out of amounts
received on the Mortgage Loan as to which such advances were made pursuant to
the Pooling and Servicing Agreement, which amounts are in the form of late
payments, liquidation proceeds, insurance proceeds, condemnation proceeds or
amounts paid in connection with the purchase of such Mortgage Loan out of the
Trust Fund or (ii) are otherwise recovered following a determination that such
advance is a nonrecoverable advance. Each Servicer's right to receive such
payments of interest is prior to the rights of Certificateholders to receive
distributions on the Certificates and, consequently, is likely to result in
losses being allocated to the Offered Certificates that would not otherwise
have resulted absent the accrual of such interest.
The Special Servicer will be entitled to receive, with respect to each
Mortgage Loan which is or was at some time a Specially Serviced Mortgage Loan,
compensation in the form of a percentage of collections of any such Specially
Serviced Mortgage Loan prior to the right of Certificateholders to receive
distributions on the Certificates. Consequently,
S-16
<PAGE> 23
it is possible that shortfalls will be allocated to the Offered Certificates
with respect to any Mortgage Loan which is or was at some time a Specially
Serviced Mortgage Loan notwithstanding the fact that such Mortgage Loan is
returned to a performing status. See "Servicing -- Servicing and Other
Compensation and Payment of Expenses" herein.
Regardless of whether losses ultimately result, delinquencies and
defaults on the Mortgage Loans may significantly delay the receipt of payments
by the holder of a class of Offered Certificates, to the extent that P&I
Advances or the subordination of another class of Certificates does not fully
offset the effects of any such delinquency or default. The Special Servicer has
the ability to extend and modify Mortgage Loans that are in default or as to
which a payment default is imminent, including the ability to extend the date
on which a Balloon Payment is due, subject to certain conditions described in
the Pooling and Servicing Agreement. A Servicer's obligation to make P&I
Advances in respect of a Mortgage Loan that is delinquent as to its Balloon
Payment is limited, however, to the extent described under "Description of the
Certificates -- Advances." Until such time as any Mortgage Loan delinquent in
respect of its Balloon Payment is liquidated, the entitlement of the holders of
any class of Offered Certificates on each Distribution Date in respect of
principal of such Mortgage Loan will be limited to any payment made by the
related Mortgagor and any related P&I Advance made by a Servicer. Consequently,
any delay in the receipt of a Balloon Payment that is payable, in whole or in
part, to holders of the Offered Certificates will extend the weighted average
life of the Offered Certificates.
As described under "Description of the Certificates -- Distributions"
herein, if the portion of the Adjusted Available Distribution Amount
distributable in respect of interest on any class of Offered Certificates on
any Distribution Date is not sufficient to distribute the Interest Distribution
Amount then payable for such class, the shortfall will be distributable to
holders of such class of Certificates on subsequent Distribution Dates, to the
extent of available funds.
Balloon Payments. __________Mortgage Loans, representing_____% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date, are
Balloon Mortgage Loans. Balloon Mortgage Loans involve a greater degree of risk
because the ability of a Mortgagor to make a Balloon Payment typically depends
on his ability either to refinance the loan or to sell the related Mortgaged
Property. See "Risk Factors -- Balloon Payments" in the Prospectus.
Ground Leases and Other Leasehold Interests. ____ Mortgage Loans,
representing ____ of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date, are secured in part by leasehold interests in two
Mortgaged Properties. Pursuant to Section 365(h) of the Bankruptcy Code,
ground lessees are currently afforded rights not to treat a ground lease as
terminated and to remain in possession of their leased premises upon the
bankruptcy of their ground lessor and the rejection of the ground lease by the
representative of such ground lessor's bankruptcy estate. The leasehold
mortgages provide that the Mortgagor may not elect to treat the ground lease as
terminated on account of any such bankruptcy of, and rejection by, the ground
lessor without the consent of the Servicer. In the event of a bankruptcy of a
ground lessee/borrower, the ground lessee/borrower under the protection of the
Bankruptcy Code has the right to assume (continue) or reject (terminate) any or
all of its ground leases. In the event of concurrent bankruptcy proceedings
involving the ground lessor and the ground lessee/Mortgagor, the Trustee may be
unable to enforce the bankrupt ground lessee/Mortgagor's obligation to refuse
to treat a ground lease rejected by a bankrupt ground lessor as terminated. In
such circumstances, a ground lease could be terminated notwithstanding lender
protection provisions contained therein or in the mortgage.
Attornment Considerations. Some of the tenant leases, including the
anchor tenant leases, contain certain provisions that require the tenant to
attorn to (that is, recognize as landlord under the lease) a successor owner of
the property following foreclosure. Some of the leases, including the anchor
tenant leases, may be either subordinate to the liens created by the Mortgage
Loans or else contain a provision that requires the tenant to subordinate the
lease if the mortgagee agrees to enter into a non-disturbance agreement. In
some states, if tenant leases are subordinate to the liens created by the
Mortgage Loans and such leases do not contain attornment provisions, such
leases may terminate upon the transfer of the property to a foreclosing lender
or purchaser at foreclosure. Accordingly, in the case of the foreclosure of a
Mortgaged Property located in such a state and leased to one or more desirable
tenants under leases that do not contain attornment provisions, such Mortgaged
Property could experience a further decline in value if such tenants' leases
were terminated (e.g., if such tenants were paying above-market rents). If a
Mortgage is subordinate to a lease, the lender will not (unless it has
otherwise agreed with the tenant) possess the right to dispossess the tenant
upon foreclosure of the property, and if the lease contains provisions
inconsistent with the Mortgage (e.g., provisions relating
S-17
<PAGE> 24
to application of insurance proceeds or condemnation awards), the provisions of
the lease will take precedence over the provisions of the Mortgage.
Liquor License Considerations. _______ Mortgage Loans, representing
_____% of the aggregate principal balance of the Mortgage Loans as of the
Cut-off Date are secured by hotel properties. The liquor licenses for some of
such properties may be held by the property manager rather than by the related
Mortgagor. The applicable laws and regulations relating to such licenses
generally prohibit the transfer of such licenses to any person. In the event of
a foreclosure of a hotel property it is unlikely that the Trustee (or Special
Servicer) or purchaser in any such sale would be entitled to the rights under
the liquor license for such hotel property and such party would be required to
apply in its own right for such license.
Special Servicer Actions. In connection with the servicing of
Specially Serviced Mortgage Loans, the Special Servicer may take actions with
respect to such Mortgage Loans that could adversely affect the holders of some
or all of the classes of Offered Certificates. As described herein under
"Servicing -- Responsibilities of Special Servicer," the actions of the Special
Servicer will be subject to review and may be rejected by a representative of
the holders of the Monitoring Certificates (as defined herein), who may have
interests in conflict with those of the holders of the other classes of
Certificates. As a result, it is possible that such representative may cause
the Special Servicer to take actions which conflict with the interests of
certain classes of Certificates.
Servicer May Purchase Certificates. The Special Servicer may
purchase, either directly or through an affiliate, a portion of the Class NR
Certificates. Such a purchase by the Special Servicer could cause a conflict
between the Special Servicer's duties pursuant to the Pooling and Servicing
Agreement and the Special Servicer's interest as a holder of a Certificate. The
Pooling and Servicing Agreement provides that each Servicer shall administer
the Mortgage Loans in accordance with the servicing standard set forth therein
without regard to ownership of any Certificate by such Servicer or any
affiliate of such Servicer.
DESCRIPTION OF THE MORTGAGE POOL
GENERAL
The Trust Fund will consist primarily of a pool of fixed rate Mortgage
Loans with an aggregate principal balance as of the Cut-off Date, after
deducting payments of principal due on such date, of approximately
$_____________. Each Mortgage Loan is evidenced by a promissory note (a
"MORTGAGE NOTE") and secured by a mortgage, deed of trust or other similar
security instrument (a "MORTGAGE") creating a first lien on a fee simple or
leasehold interest in a multifamily, retail, hotel, office, industrial, or
other commercial property (a "MORTGAGED PROPERTY"). All of the Mortgage Loans
are nonrecourse loans. Therefore, in the event of a Mortgagor default, recourse
may be had only against the specific property and such limited other assets as
have been pledged to secure a Mortgage Loan, and not against the Mortgagor's
other assets. Except as otherwise indicated all percentages of the Mortgage
Loans described herein are approximate percentages by aggregate principal
balance as of the Cut-off Date.
Of the Mortgage Loans to be included in the Trust Fund _____% were
originated by ACC, ______% by __________________, a ________________, ______%
by __________________, a ________________, and ___________% by ____________, a
______________. The originators of the Mortgage Loans are referred to herein
as the "ORIGINATORS". The Mortgage Loans originated by ACC were originated for
sale to ALP. All the Mortgage Loans originated by ACC were underwritten
generally in conformity with certain guidelines provided by ACC and approved by
ALP. See "--Underwriting Guidelines" below. ALP purchased the Mortgage Loans
to be included in the Mortgage Pool prior to the Delivery Date from each
Originator pursuant to a mortgage loan purchase agreement (the "MORTGAGE LOAN
PURCHASE AGREEMENT"). ACC will acquire the Mortgage Loans to be included in the
Mortgage Pool from ALP and subsequently the Depositor will acquire such
Mortgage Loans from ACC on or before the Delivery Date. The Depositor will
cause the Mortgage Loans in the Mortgage Pool to be assigned to the Trustee
pursuant to the Pooling and Servicing Agreement. AMI will be the Master
Servicer and Special Servicer with respect to all the Mortgage Loans and the
Primary Servicer with respect to all the Mortgage Loans originated by its
affiliate, ACC. _________________ will be the Primary Servicer with respect to
the Mortgage Loans originated by _________________, and _______________________
will be the Primary Servicer with respect to all of the Mortgage Loans
originated by
S-18
<PAGE> 25
__________________________. Each Servicer will service the Mortgage Loans
pursuant to a servicing agreement (each a "SERVICING AGREEMENT"), among ALP, as
the initial purchaser of the Mortgage Loans, the Master Servicer, the Special
Servicer and the related Primary Servicer, and the Master Servicer and the
Special Servicer will also service the Mortgage Loans pursuant to the Pooling
and Servicing Agreement. Upon transfer of the Mortgage Loans to the Trust Fund,
all of the rights and obligations of ALP with respect to such Mortgage Loans
under the related Servicing Agreement will be assigned to the Trustee.
REPRESENTATIONS AND WARRANTIES
Under a loan sale agreement (the "LOAN SALE AGREEMENT"), ACC will make
certain representations and warranties to the Depositor. Pursuant to the terms
of the Loan Sale Agreement, ACC will be obligated to cure any breach of such
representations and warranties or to repurchase any Mortgage Loan from the
Depositor as to which there exists a breach of any such representation or
warranty that materially and adversely affects the interests of the
Certificateholders in such Mortgage Loan. ACC shall covenant with the
Depositor to repurchase any Mortgage Loan from the Depositor or cure any such
breach within 90 days of receiving notice thereof. Under the Pooling and
Servicing Agreement, the Depositor will assign its rights under the Loan Sale
Agreement to the Trustee for the benefit of the Certificateholders. The sole
remedy available to the Trustee or the Certificateholders is the obligation of
ACC to cure or repurchase any Mortgage Loan in connection with which there has
been a breach of any such representation or warranty which materially and
adversely affects the interest of the Certificateholders in such Mortgage Loan.
ACC has generally represented and warranted as of the Delivery Date
with respect to each Mortgage Loan, among other things, that:
(i) ACC has good and indefeasible title to the related
Mortgage Note and Mortgage and is the sole owner and holder of such
Mortgage Loan, has full right and authority to sell and assign such
Mortgage Loan hereunder, and is transferring such Mortgage Loan to
the Depositor free and clear of any and all liens, claims,
encumbrances, participation interests, equities, pledges, charges or
security interests of any nature.
(ii) Each of the related Mortgage Note, Mortgage and
other agreements executed in connection therewith is genuine and is
the legal, valid and binding obligation of the maker thereof,
enforceable in accordance with its terms except as such enforcement
may be limited by (1) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium, redemption or other similar laws
affecting the enforcement of creditors' rights generally and (2)
general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law); and there is no valid
offset, defense or counterclaim or right of rescission to any Mortgage
Note or Mortgage, including the obligation of the mortgagor to pay the
unpaid principal of and interest on the Mortgage Note.
(iii) The terms of the related Mortgage Note and Mortgage
have not been impaired, waived, altered or modified in any material
respect, except by written instruments which have been recorded, if
necessary, to protect the interest of the Depositor and which have
been delivered to the Depositor. The substance of any such alteration
or modification is reflected on the Mortgage Loan Schedule, if
applicable; the related mortgagor or guarantor has not been released,
in whole or in part, from its obligations under the related Mortgage
Note, Mortgage or any guaranty related to such Mortgage Note, as the
case may be, other than pursuant to releases previously approved in
writing by ACC or any affiliate thereof, copies of which have been
delivered to the Depositor.
(iv) There is no default, breach, violation or event of
acceleration existing under the related Mortgage or Mortgage Note, ACC
has not waived any such default, breach, violation or event of
acceleration, and, to the best of ACC's knowledge, no event has
occurred which, with the passing of time or the giving of notice,
would constitute such a default, breach, violation or event of
acceleration.
(v) All federal, state and local laws, rules and
regulations applicable to such Mortgage Loan, including without
limitation, those relating to usury, equal credit opportunity, real
estate settlement procedures or disclosure, have been satisfied or
complied with in all material respects as of the origination date.
S-19
<PAGE> 26
(vi) To the extent required under applicable law, each
originator and subsequent mortgagee was authorized to transact and do
business in the jurisdiction in which the related Mortgaged Property
is located at all times when it held the Mortgage Loan.
(vii) To the best of ACC's knowledge, there is no
proceeding pending or threatened for the total or partial condemnation
of the related Mortgaged Property as of the applicable closing date.
(viii) As of the applicable closing date the Mortgaged
Property is in good repair and free and clear of any damage that would
affect materially and adversely the value of the Mortgaged Property as
security for the Mortgage Loan or the use for which the premises were
intended or escrows have been established for the purpose of effecting
necessary repairs and maintenance.
(ix) No Mortgage Loan is a participation interest, but
instead is a whole loan, all of the interest in which is conveyed
hereunder.
(x) Neither ACC nor any of its agents or affiliates has,
directly or indirectly, advanced funds, or received any advance of
funds by a party other than the related borrower, for the payment of
any amount required by the related Mortgage Note or Mortgage, except
for interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage Loan proceeds, whichever is later, to the
date which preceded by 30 days the first due date under the related
Mortgage Note.
(xi) No scheduled payment under any Mortgage Loan is more
than 30 days past due as of the Date of Conveyance, nor has any
Mortgage Loan been delinquent more than 30 days during the 12 months
prior to the Date of Conveyance.
(xii) Any related Assignment of Leases and Rents creates a
valid first priority assignment of or security interest in the right
to receive all payments due under the related lease, if any, whether
as rental payments or in respect of any purchase option, subject only
to a license from the mortgagee to the mortgagor allowing such
mortgagor to collect all such payments, which license will be
automatically revoked, or at the option of the mortgagee, may be
revoked, upon a default by the mortgagor under the terms of the
Mortgage; and no Person other than the mortgagor owns any interest in
any payments due under such lease that is superior to or of equal
priority with the mortgagee's interest therein.
(xiii) The Mortgage Note relating to each Mortgage Loan
provides for level monthly payments (exclusive of the initial payment
and any balloon payment on a balloon Mortgage Loan) and does not
provide for any grace period that exceeds 10 days during which
remittance by the mortgagor of any monthly payment may be deferred
without the payment of any default interest or late charge therefor;
there is no difference for any period between the amount of interest
accrued on such Mortgage Loan and the amount of interest payable
thereon; and no Mortgage Loan provides for contingent interest.
(xiv) As of origination of each Mortgage Loan the related
borrower was in possession of all material certificates of occupancy
or other similar licenses, permits and other authorizations necessary
and required by applicable law for the use of the related Mortgaged
Property; and all such certificates of occupancy or other similar
licenses, permits and authorizations are valid and in full force and
effect.
(xv) The information set forth on the Mortgage Loan
Schedule is complete, true and correct in all material respects as of
the date or dates respecting which the information is furnished.
(xvi) To the best of ACC's knowledge in reliance upon the
title policy referred to below and the survey for the Mortgaged
Property, the related Mortgage constitutes a valid and enforceable
first lien upon the related Mortgaged Property, including all
buildings thereon and all fixtures attached thereto, subject only to
(A) the lien of current real property taxes and assessments not yet
due and payable, (B) covenants, conditions and restrictions, rights of
way, easements and other matters of public record, none of which
materially interferes with the security intended to be provided by
such Mortgage, (C) exceptions and exclusions specifically referred to
in the lender's title insurance policy described below, none of which
materially
S-20
<PAGE> 27
interferes with the security intended to be provided by such Mortgage,
and (D) other matters to which like properties are commonly subject,
none of which materially interferes with the security intended to be
provided by such Mortgage ("PERMITTED EXCEPTIONS").
(xvii) The proceeds of each Mortgage Loan have been fully
disbursed, or, in cases of partial disbursement there is no
requirement for future advances thereunder, and any and all
requirements imposed by the mortgagee as to completion of any on-site
or off-site improvements and as to disbursements of any escrow funds
therefor have been complied with as of the Date of Conveyance.
(xviii) On the date of origination of each Mortgage Loan, an
ALTA lender's title insurance policy or a comparable form of lender's
title insurance policy or a binding commitment therefor was issued in
an amount not less than the original principal balance of the Mortgage
Loan, or a favorable opinion of counsel was rendered, insuring or
confirming that the related Mortgage constitutes a valid first lien on
the related Mortgaged Property, subject only to the Permitted
Exceptions described above; such title insurance policy is freely
assignable to the Depositor; on the date of transfer and assignment
of such Mortgage Loan to the Depositor, such title insurance policy
is valid and in full force and effect, and, immediately following the
transfer and assignment of such Mortgage Loan to the Depositor, such
title insurance policy will inure to the benefit of the Depositor, as
mortgagee of record; and no claims have been made under any title
insurance policy and ACC has not taken any action that would cause
such title insurance policy not to be valid and in full force and
effect.
(xix) All taxes, governmental assessments, insurance
premiums, and water, sewer and municipal charges, and ground rents, if
any, which previously became due and owing in respect of the related
Mortgaged Property have been paid, or an escrow of funds in an amount
sufficient to cover such payments has been established.
(xx) Each Mortgage Loan is covered by hazard insurance
(and, if applicable, federal flood insurance) in an amount at least
equal to the greater of (A) the amount of the Mortgage Loan on the
related Mortgaged Property, and (B) an amount sufficient to avoid the
application of any coinsurance clause contained in the related
insurance policy, together with a replacement cost rider or other
provision that does not allow for any reduction due to depreciation;
such insurance requires prior notice to ACC of termination or
cancellation, and no such notice has been received; the Mortgage
obligates the related mortgagee to maintain such insurance and, upon
such mortgagor's failure to do so, authorizes the mortgagee to
maintain such insurance at the mortgagor's cost and expense and to
seek reimbursement therefor from such mortgagor; all premium payments
due and owing have been paid.
(xxi) ACC has received a phase I environmental site
assessment (the "ESA") certified as having been prepared in accordance
with the Standard Practice for Environmental Site Assessments, Phase I
Environmental Site Assessment Process (E1527-94) established by the
American Society for Testing and Materials. To the best of ACC's
knowledge, and in reliance on the ESA, there exist no circumstances or
conditions respecting the Mortgaged Property that might (1) constitute
or result in a material violation of any Environmental Law, (2)
require any expenditure material in relation to the principal balance
of the Mortgage Loans as of the Date of Conveyance to achieve or
maintain compliance therewith, (3) impose any material constraint on
operation of the Mortgaged Property or change in the use thereof or
(4) require cleanup, remedial action or other response under any
Environmental Law by the applicable Borrower or any subsequent owner
of the Mortgaged Property, in each case other than those matters
disclosed in the ESAs and for which operation and management programs
or escrows for anticipated costs have been established, as recommended
in the related ESA. Other than as described in the preceding
sentence, ACC has received no notice of (A) any actual or alleged
failure of the Mortgaged Property to comply with any applicable
Environmental Laws in any material respect, (B) any known or alleged
presence of any material amount of Hazardous Substances on, under or
immediately bordering such Mortgaged Property, or (C) any pending or
threatened claim with respect to material environmental matters
relating to such Mortgaged Property.
S-21
<PAGE> 28
(xxii) (1) Each Mortgage Loan is directly secured by a
mortgage on a commercial or multifamily property, and (2) either (A)
substantially all of the proceeds of such Mortgage Loan were used to
acquire or improve or protect an interest in real property that, at
the origination date, was the only security for the Mortgage Loan or
(B) fair market value of such real property was at least equal to 80%
of the principal amount of the Mortgage Loan at origination.
(xxiii) To the best of ACC's knowledge in reliance on the
related title insurance policy, there are no mechanics' or similar
liens or claims which have been filed for work, labor or material (and
no rights are outstanding that under law could give rise to any such
lien) affecting the Mortgaged Property which are or may be prior or
equal to, or coordinate with, the lien of the Mortgage except those
which are insured against by the mortgagee title insurance policy
referred to above.
(xxiv) The related Assignment of Mortgage constitutes a
legal, valid and binding assignment of such Mortgage to the
Depositor, and the related Reassignment of Assignment of Leases and
Rents, if any, constitutes a legal, valid and binding assignment
thereof to the Depositor.
(xxv) The mortgage instruments relating to such Mortgage
Loan contain provisions protective of the mortgagee's interests
customary in ACC's commercial mortgage loans at the time such Mortgage
Loan was originated; and the related Mortgage Note or the related
Mortgage contains customary and enforceable provisions such as to
render the rights and remedies of the holder thereof adequate for the
realization against the Mortgaged Property of the benefits of the
security, including realization by judicial or, if applicable,
nonjudicial foreclosure, and there is no exemption available to the
borrower which would interfere with such right to foreclose, except as
may be limited by (A) bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium, redemption or other similar laws
affecting the enforcement of creditors' rights generally and (B)
general equity principles (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(xxvi) The related Mortgage Note is not, and has not been
since the date of origination of the Mortgage Loan, secured by any
collateral except the lien of the related Mortgage, any related
Assignment of Leases and Rents and any related security agreement and
escrow agreement; the security for the Mortgage Loan consists only of
the related Mortgaged Property, any leases (including without
limitation any credit leases) thereof any appurtenances, fixtures and
other property located thereon; and such Mortgaged Property does not
secure any mortgage loan other than the Mortgage Loan being
transferred and assigned to the Depositor hereunder except for
Mortgage Loans which are cross-collateralized with other Mortgage
Loans being conveyed to the Depositor or subsequent transferee
hereunder and identified on the Mortgage Loan Schedule.
(xxvii) If the related Mortgage is a deed of trust, a
trustee, duly qualified under applicable law to serve as such, has
been properly designated and currently so serves and is named in the
deed of trust or has been substituted in accordance with applicable
law, and no fees or expenses are or will become payable to the trustee
under the deed of trust, except in connection with a trustee's sale
after default by the mortgagor or in connection with the release of
the Mortgaged Property or related security for the Mortgage Loan
following the payment of the Mortgage Loan in full.
(xxviii) All escrow deposits and payments relating to such
Mortgage Loan are in the possession, or under the control, of ACC, and
all amounts required to be deposited by the related borrower have been
deposited and there are no deficiencies with regard thereto.
(xxix) To the best of ACC's knowledge in reliance upon a
review of the title policy and survey for the Mortgaged Properties,
none of the improvements which were included for the purpose of
determining the appraised value of the related Mortgaged Property at
the time of the origination of such Mortgage Loan lies outside of the
boundaries and building restriction lines of such property in effect
at the time such improvements were constructed, and no improvements on
adjoining properties materially encroach upon such Mortgaged Property.
S-22
<PAGE> 29
(xxx) With respect to any Mortgage which is secured in
whole or in part by the interest of a borrower as a lessee under a
ground lease and based upon the terms of the ground lease or an
estoppel letter from the ground lessor, either (1) the ground lessor's
fee interest is subordinated to the lien of the mortgage or (2) the
following apply to such ground lease:
(A) The ground lease or a memorandum thereof has
been duly recorded, the ground lease permits the interest of
the lessee thereunder to be encumbered by the related
mortgage, does not restrict the use of the mortgaged property,
lessee, its successors and assigns in a manner that would
adversely affect the security provided by the related
mortgage, and there has not been a material change in the
terms of the ground lease since its recordation, with the
exception of written instruments which are part of the related
Mortgage File.
(B) The ground lease is not subject to any liens
or encumbrances superior to, or of equal priority with, the
related Mortgage, other than the related ground lessor's
related fee interest.
(C) The borrower's interest in the ground lease
is assignable to the holder of the Mortgage upon notice to,
but without the consent of, the lessor thereunder and, in the
event that it is so assigned, it is further assignable by the
trustee and its successors and assigns upon notice to, but
without a need to obtain the consent of, such lessor.
(D) As of the Date of Conveyance, the ground
lease is in full force and effect and no default has occurred
under the ground lease and there is no existing condition
which, but for the passage of time or the giving of notice,
would result in a default under the terms of the ground lease.
(E) The ground lease requires the lessor
thereunder to give notice of any default by the lessee to the
mortgagee; and the ground lease, or an estoppel letter
received by the mortgagee from the lessor, further provides
that notice of termination given under the ground lease is not
effective against the mortgagee unless a copy of the notice
has been delivered to the mortgagee in the manner described in
such ground lease or estoppel letter.
(F) The mortgagee is permitted a reasonable
opportunity (including, where necessary, sufficient time to
gain possession of the interest of the lessee under the ground
lease) to cure any default under the ground lease, which is
curable after the receipt of notice of any default before the
lessor thereunder may terminate the ground lease.
(G) The ground lease has a term which extends not
less than 10 years beyond the maturity date of the related
Mortgage Loan.
(H) The ground lease requires the lessor to enter
into a new lease upon termination of the ground lease for any
reason, including rejection of the ground lease in a
bankruptcy proceeding.
(I) Under the terms of the ground lease and the
related Mortgage, taken together, any related insurance
proceeds will be applied either to the repair or restoration
of all or part of the related Mortgaged Property, with the
mortgagee or a trustee appointed by it having the right to
hold and disburse the proceeds as the repair or restoration
progresses, or to the payment of the outstanding principal
balance of the Mortgage Loan together with any accrued
interest thereon.
(J) Such ground lease does not impose
restrictions on subletting.
(K) Either the ground lease or the related
Mortgage contains the borrower's covenant that such ground
lease shall not be amended, canceled or terminated without
the prior written consent of the mortgagee.
(L) In the case of any default under the ground
lease which is not curable by the mortgagee, or in the event
of the bankruptcy or insolvency of the ground lessee, the
mortgagee has
S-23
<PAGE> 30
the right, following termination of the existing ground lease
or rejection thereof by a bankruptcy trustee or similar party,
to enter into a new ground lease with the lessor on
substantially the same terms as the existing ground lease.
(M) The ground lease or an estoppel letter
contains a covenant that the lessor thereunder is not
permitted, in the absence of an uncured default, to disturb
the possession, interest or quiet enjoyment of any lessee in
the relevant portion of the Mortgaged Property subject to such
ground lease for any reason, or in any manner, which would
materially adversely affect the security provided by the
related Mortgage.
(xxxi) To the extent ACC originated the Mortgage Loan,
such Mortgage Loan has been originated in compliance in all material
respects with its underwriting guidelines.
(xxxii) All items required to be included in the Mortgage
File for each Mortgage Loan are so included and each Mortgage File has
been delivered to the Custodian,
(xxxiii) With respect to any Mortgage which is secured by a
senior housing or nursing home facility ("FACILITY"):
(A) Based upon representations by the borrower
and each facility operator or manager (each an "OPERATOR"),
each borrower and each Facility complies with all federal,
state and local laws, regulations, quality and safety
standards, accreditation standards and requirements of the
applicable state Department of Health (each a "DOH") and all
other federal, state or local governmental authorities
including, without limitation, those relating to the quality
and adequacy of medical care, distribution of pharmaceuticals,
rate setting, equipment, personnel, operating policies,
additions to facilities and services and fee splitting.
(B) All governmental licenses, permits,
regulatory agreements or other approvals or agreements
necessary or desirable for the use and operation of each
Facility as intended are held by the applicable borrower or
Operator and are in full force and effect, including, without
limitation, a valid certificate of need ("CON") or similar
certificate, license, or approval issued by the DOH for the
requisite number of beds, and approved provider status in any
approved provider payment program (collectively, the
"LICENSES").
(C) Based upon representations and covenants in
the Mortgage and, where applicable, certificates of government
officials, the Licenses, including, without limitation, the
CON:
(1) May not be, and have not been,
transferred to any location other than the Facility;
(2) Have not been pledged as collateral
security for any other loan or indebtedness; and
(3) Are held free from restrictions or
known conflicts which would materially impair the
use or operation of the Facility as intended, and
are not provisional, probationary or restricted in
any way.
(D) So long as the Mortgage remains outstanding,
no borrower or Operator is permitted pursuant to the terms of
the Mortgage without the consent of the holder of the Mortgage
to:
(1) rescind, withdraw, revoke, amend,
modify, supplement, or otherwise alter the nature,
tenor or scope of the Licenses for any Facility
(other than the addition of services or other
matters expanding or improving the scope of such
license);
S-24
<PAGE> 31
(2) amend or otherwise change any
Facility's authorized bed capacity and/or the number
of beds approved by the DOH; or
(3) replace or transfer all or any part
of any Facility's beds to another site or location.
(E) Based upon representations and covenants in
the Mortgage, each Facility is in compliance with all
requirements for participation in Medicare and Medicaid,
including, without limitation, the Medicare and Medicaid
Patient Protection Act of 1987; each Facility is in
conformance in all material respects with all insurance,
reimbursement and cost reporting requirements, and has a
current provider agreement which is in full force and effect
under Medicare and Medicaid.
(F) To the best of ACC's knowledge, there is no
threatened or pending revocation, suspension, termination,
probation, restriction, limitation, or nonrenewal affecting
any borrower, Operator, or Facility or any participation or
provider agreement with any third-party payor, including
Medicare, Medicaid, Blue Cross and/or Blue Shield, and any
other private commercial insurance managed care and employee
assistance program (such programs, the "THIRD-PARTY PAYORS'
PROGRAMS") to which any borrower or Operator presently is
subject. The Mortgage contains representations and covenants
by the borrower that all Medicaid, Medicare, and private
insurance cost reports and financial reports submitted by the
borrower or Operator are and will be materially accurate and
complete and have not been and will not be misleading in any
material respects, and except as otherwise disclosed, no cost
reports for any Facility remain "open" or unsettled.
(G) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage, no
borrower, Operator or Facility is currently the subject of any
proceeding by any governmental agency, and no notice of any
violation has been received from a governmental agency that
would, directly or indirectly, or with the passage of time:
(1) Have a material adverse impact on
any borrower's ability to accept and/or retain
patients or result in the imposition of a fine, a
sanction, a lower rate certification or a lower
reimbursement rate for services rendered to eligible
patients;
(2) Modify, limit or annul or result in
the transfer, suspension, revocation or imposition
of probationary use of any borrower's Licenses; or
(3) Affect any borrower's continued
participation in the Medicaid or Medicare programs
or any other of the Third-Party Payors' Programs, or
any successor programs thereto, at current rate
certifications.
(H) Based upon representations and covenants in
the Mortgage and, where available, certificates of government
officials, each Facility and the use thereof complies in all
material respects with all applicable local, state and federal
building codes, fire codes, health care, nursing facility and
other similar regulatory requirements (the "PHYSICAL PLANT
STANDARDS") and no waivers of Physical Plant Standards exist
at any of the Facilities.
(I) Based upon representations and covenants in
the Mortgage and, where available, certificates of government
officials, no Facility has received a "Level A" (or
equivalent) violation, and no statement of charges or
deficiencies has been made or penalty enforcement action has
been undertaken against any Facility, Operator or borrower, or
against any officer, director or stockholder of any Operator
or borrower by any governmental agency during the last three
calendar years, and there have been no violations over the
past three years which have threatened any Facility's, any
Operator's or any borrower's certification for participation
in Medicare or Medicaid or the other Third-Party Payors'
Programs.
S-25
<PAGE> 32
(J) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage,
there are no current, pending or outstanding Medicaid,
Medicare or Third-Party Payors' Programs reimbursement audits
or appeals pending at any of the Facilities concerning
allegations of fraud or that might have a material adverse
effect on the operations of the Facility.
(K) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage,
there are no current or pending Medicaid, Medicare or
Third-Party Payors' Programs recoupment efforts at any of the
Facilities that might have a material adverse effect on the
operations of the Facility.
(L) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage, no
borrower has pledged its receivables as collateral security
for any other loan or indebtedness.
(M) To the best of ACC's knowledge and based on
representations by each borrower in the related Mortgage,
there are no patient or resident care agreements with patients
or residents or with any other persons which deviate in any
material adverse respect from the standard form customarily
used at the Facilities.
(N) The borrower has represented in the related
Mortgage that all patient or resident records at each
Facility, including patient or resident trust fund accounts,
are true and correct in all material respects.
(O) The borrower has represented in the related
Mortgage that any existing agreement relating to the
management or operation of any Facility with respect to any
Facility is in full force and effect and is not in default by
any party thereto.
(P) The terms of each Mortgage require that no
Facility, Operator or borrower shall, other than in the normal
course of business, change the terms of any of the Third-Party
Payors' Programs or its normal billing payment or
reimbursement policies and procedures with respect thereto
(including, without limitation, the amount and timing of
finance charges, fees and write-offs) without the prior
written consent of the holder of the Mortgage.
The following terms have the following definitions for purposes of the
above representations and warranties:
"ASSIGNMENT OF LEASES AND RENTS" means, with respect to any Mortgage
Loan, an assignment to the Mortgagee of all of the Borrower's rights to receive
rental payments from the related Tenant pursuant to the related Lease, which
assignment may be contained in the related Mortgage or in one or more separate
documents duly executed by the Borrower in connection with the Mortgage Loan.
In the case of any Mortgage Loan secured by more than one Mortgaged Property,
the term "Assignment of Leases and Rents" shall refer to each Assignment of
Leases and Rents relating to each such Mortgaged Property and such Mortgage
Loan.
"ASSIGNMENT OF MORTGAGE" means, with respect to any Mortgage Loan, an
assignment of the Mortgage or equivalent instrument, in recordable form, by
which ACC assigns such Mortgage in connection with the transfer of the related
Mortgage Loan. In the case of any Mortgage Loan secured by more than one
Mortgage, the term "Assignment of Mortgage" shall refer to each Assignment of
Mortgage relating to such Mortgage and such Mortgage Loan.
"BORROWER" means a borrower or prospective borrower under a Mortgage
Loan.
"MORTGAGE FILE" means, with respect to each Mortgage Loan, the
mortgage loan documents and any other documents relating to such Mortgage Loan,
in each case to the extent they are delivered to the Custodian.
"MORTGAGE LOAN SCHEDULE" means a schedule of Mortgage Loans delivered
to the Custodian.
S-26
<PAGE> 33
"PERSON" means any individual, partnership, corporation, limited
liability company, joint venture, trust or other entity.
"REASSIGNMENT OF ASSIGNMENT OF LEASES AND RENTS" means, with respect
to any Mortgage Loan, an assignment to the Custodian of the related Assignment
of Leases and Rents, duly executed and in suitable form for recording in the
jurisdiction in which the related Mortgaged Property is located. In the case
of any Mortgage Loan secured by more than one Mortgaged Property, the term
"Reassignment of Assignment of Leases and Rents" shall refer to each
Reassignment of Assignment of Leases and Rents relating to each such Mortgaged
Property and such Mortgage Loan.
CERTAIN CHARACTERISTICS OF THE MORTGAGE LOANS
All of the Mortgage Loans have Due Dates that occur on the first day
of each month. All of the Mortgage Loans are secured by first liens on fee
simple or leasehold interests in the related Mortgaged Properties. As of the
Cut-off Date, the Mortgage Loans had characteristics set forth below. The
totals in the following tables may not add due to rounding.
S-27
<PAGE> 34
MORTGAGE INTEREST RATES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent by Percent by
Number Number Aggregate Aggregate
of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
Mortgage Rate Loans Loans the Cut-off Date the Cut-off Date
- ------------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Mortgage Interest Rate: _______%
</TABLE>
PRINCIPAL BALANCES AS OF THE CUT-OFF DATE
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Principal Balances Mortgage Mortgage Balance as of Balance as of
as of the Cut-off Date Loans Loans the Cut-off Date the Cut-off Date
---------------------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Average Principal Balance as of the Cut-off Date: $_____________
</TABLE>
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Original Term Mortgage Mortgage Balance as of Balance as of
in Months Loans Loans the Cut-off Date the Cut-off Date
--------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Original Term to Maturity in Months: ______
</TABLE>
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Term Mortgage Mortgage Balance as of Balance as of
in Months Loans Loans the Cut-off Date the Cut-off Date
--------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Remaining Term to Maturity in Months: _______
</TABLE>
S-28
<PAGE> 35
MONTH AND YEAR OF ORIGINATION
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
Month/Year Loans Loans the Cut-off Date the Cut-off Date
---------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
YEAR OF SCHEDULED MATURITY
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
Year Loans Loans the Cut-off Date the Cut-off Date
---- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
__________ of the Mortgage Loans, representing ______% of the Mortgage
Loans, as a percentage of the aggregate Principal Balance as of the Cut-off
Date, are Balloon Mortgage Loans.
BALLOON MORTGAGE LOANS
ORIGINAL TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Original Term Mortgage Mortgage Balance as of Balance as of
in Months Loans Loans the Cut-off Date the Cut-off Date
--------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Original Term to Maturity in Months: _____
</TABLE>
S-29
<PAGE> 36
BALLOON MORTGAGE LOANS
REMAINING TERM TO MATURITY IN MONTHS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Term Mortgage Mortgage Balance as of Balance as of
in Months Loans Loans the Cut-off Date the Cut-off Date
--------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Remaining Term to Maturity in Months: _____
</TABLE>
The following table sets forth the range of remaining amortization
terms of each Balloon Mortgage Loan. The remaining amortization term of a
Balloon Mortgage Loan represents the number of months required to fully
amortize the Cut-off Balance of each Balloon Mortgage Loan.
BALLOON MORTGAGE LOANS
REMAINING AMORTIZATION TERM
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Remaining Amortization Mortgage Mortgage Balance as of Balance as of
Term in Months Loans Loans the Cut-off Date the Cut-off Date
-------------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Remaining Amortization Term in Months: _____
</TABLE>
The following two tables set forth the range of Cut-off Date LTV
Ratios and Maturity Date LTV Ratios of the Mortgage Loans. A "CUT-OFF DATE LTV
RATIO" is a fraction, expressed as a percentage, the numerator of which is the
Cut- off Date Balance of a Mortgage Loan, and the denominator of which is the
appraised value of the related Mortgaged Property as determined by an appraisal
thereof obtained in connection with the origination of such Mortgage Loan. A
"MATURITY DATE LTV RATIO" is a fraction, expressed as a percentage, the
numerator of which is the principal balance of a Mortgage Loan on the related
Maturity Date assuming all scheduled payments due prior thereto are made and
there are no principal prepayments, and the denominator of which is the
appraised value of the related Mortgaged Property as determined by an appraisal
thereof obtained in connection with the origination of such Mortgage Loan.
Because the value of Mortgaged Properties at the Maturity Date may be different
than such appraisal value, there can be no assurance that the loan-to-value
ratio for any Mortgage Loan determined at any time following origination
thereof will be lower than the Cut-off Date LTV Ratio or Maturity Date LTV
Ratio, notwithstanding any positive amortization of such Mortgage Loan. It is
also possible that the market value of a Mortgaged Property securing a Mortgage
Loan may decline between the origination thereof and the related Maturity Date.
An appraisal of each of the Mortgaged Properties was made between
__________ and ______________. It is possible that the market value of a
Mortgaged Property securing a Mortgage Loan has declined since the most recent
appraisal for such Mortgaged Property. All appraisals were obtained by the
related Originator in accordance with the requirements of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, as amended
("FIRREA").
S-30
<PAGE> 37
CUT-OFF DATE LTV RATIOS
<TABLE>
<CAPTION>
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Cut-off Date Mortgage Mortgage Balance as of Balance as of
LTV Ratio Loans Loans the Cut-off Date the Cut-off Date
- --------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
100.00% $ 100.00%
------- -------
Weighted Average Cut-off Date LTV Ratio: _________.
</TABLE>
BALLOON MORTGAGE LOAN
MATURITY DATE LTV RATIOS
<TABLE>
<CAPTION>
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Maturity Date Mortgage Mortgage Balance as of Balance as of
LTV Ratio Loans Loans the Cut-off Date the Cut-off Date
- --------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
100.00% $ 100.00%
------- -------
Weighted Average Maturity Date LTV Ratio: _________.
</TABLE>
The following table sets forth the range of 199__ Debt Service
Coverage Ratios for the Mortgage Loans. The "DEBT SERVICE COVERAGE RATIO" or
"DSCR" for any Mortgage Loan for any period is the ratio of Net Operating
Income produced by the related Mortgaged Property for such period covered by
the operating statement for such period to the amounts of principal and
interest due under such Mortgage Loan for the same period. The DSCRs for 199__
are for periods of 12 months or annualized based upon periods that range from 3
to 11 months. The DSCRs for 199__ and 199__ for each Mortgage Loan as set forth
in Annex A hereto are for the entire fiscal year. Generally, "NET OPERATING
INCOME" for a Mortgaged Property equals the operating revenues for such
Mortgaged Property minus its operating expenses and replacement reserves, but
without giving effect to debt service, depreciation, non-recurring capital
expenditures, tenant improvements, leasing commissions and similar items. The
operating statements for the Mortgaged Properties used in preparing the
following table were obtained from the respective Mortgagors. The information
contained therein was unaudited, and the Depositor has made no attempt to
verify its accuracy. The information derived from these sources was not uniform
among the Mortgage Loans. In some instances, adjustments were made to such
operating statements principally for real estate tax and insurance expenses
resulting in increases or decreases in net operating income stated therein
based upon the Depositor's evaluation that more appropriate information was
available. In addition, obvious capital expenditures were eliminated and
replacement reserve estimates were incorporated for each
S-31
<PAGE> 38
property based on ACC's standard underwriting ranges considering property age
and improvements. The following ranges were utilized (by property type) in
estimating the replacement reserve: office, $____ to $____ per net rentable
square foot; multifamily (except student housing), $____ to $____ per unit;
student housing, $____ to $____ per unit; retail, $____ to $____ per net
rentable square foot; industrial, $____ to $____ per net rentable square foot;
hotel, _% to _% of gross income; self-storage, $____ to $____ per net rentable
square foot; health care-related, $____ to $____ per bed; and mobile home park,
$___ to $___ per pad.
199___ DEBT SERVICE COVERAGE RATIOS
<TABLE>
<CAPTION>
Percent by
Percent by Aggregate Aggregate
Number of Number of Principal Principal
Debt Service Mortgage Mortgage Balance as of Balance as of
Coverage Ratio Loans Loans the Cut-off Date the Cut-off Date
- -------------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
100.00% $ 100.00%
------- -------
Weighted Average Debt Service Coverage Ratio: _________.
</TABLE>
[Information on certain characteristics of certain specific Mortgage
Loans to be provided here.]
The Mortgage Loans are secured by Mortgaged Properties located in
______ different states. The table below sets forth the states in which the
Mortgaged Properties are located:
GEOGRAPHIC DISTRIBUTION
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
State Loans Loans the Cut-off Date the Cut-off Date
----- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
</TABLE>
S-32
<PAGE> 39
PROPERTY TYPES
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Mortgage Mortgage Balance as of Balance as of
Type Loans Loans the Cut-off Date the Cut-off Date
- ---- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Multi-Family . . . . . . . . . . . . . . . . . .
Retail -- with anchor tenant(1) . . . . . . . . .
Hotel . . . . . . . . . . . . . . . . . . . . . .
Retail -- without anchor tenant(1) . . . . . . .
Health Care-Related . . . . . . . . . . . . . . .
Office . . . . . . . . . . . . . . . . . . . . .
Industrial . . . . . . . . . . . . . . . . . . .
Mobile Home Park . . . . . . . . . . . . . . . .
Self Storage . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . 100.00% $ 100.00%
------- -------
</TABLE>
(1) For purposes of this table, the properties with an anchor tenant are as
designated in Annex A. The anchor tenant, if any, is set forth in Annex A.
YEARS SINCE THE MORTGAGED PROPERTIES WERE BUILT (1)
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Property Age Mortgage Mortgage Balance as of Balance as of
In Years Loans Loans the Cut-off Date the Cut-off Date
- -------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Property Age in Years: _____
</TABLE>
(1) See Annex A for the date on which the Mortgaged Property most recently
underwent some degree of capital improvements.
S-33
<PAGE> 40
PHYSICAL OCCUPANCY PERCENTAGES (1)
MULTIFAMILY AND MOBILE HOME PARKS
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: ________%
</TABLE>
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
RETAIL
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: __________%
</TABLE>
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL DAILY OCCUPANCY PERCENTAGES (1)
HOTEL
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: ______%
</TABLE>
(1) See Annex A for the period over which occupancy percentages were calculated
for each Mortgaged Property.
S-34
<PAGE> 41
PHYSICAL OCCUPANCY PERCENTAGES (1)
OFFICE
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: ___________%
</TABLE>
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
PHYSICAL OCCUPANCY PERCENTAGES (1)
OTHER
<TABLE>
<CAPTION>
Percent by Percent by
Number Aggregate Aggregate
Number of of Principal Principal
Occupancy Mortgage Mortgage Balance as of Balance as of
Percentages Loans Loans the Cut-off Date the Cut-off Date
- ----------- ----- ----- ---------------- ----------------
<S> <C> <C> <C> <C>
Total 100.00% $ 100.00%
------- -------
Weighted Average Occupancy Percentage: ___________%
</TABLE>
(1) See Annex A for dates as of which occupancy percentages were calculated for
each Mortgaged Property.
With certain limited exceptions relating to casualty and condemnation
proceeds, or other prepayments beyond the borrower's control, all of the
Mortgage Loans prohibit the prepayment thereof until a date specified in the
related Mortgage Note (such period, the "LOCK-OUT PERIOD" and the date of
expiration thereof, the "LOCK-OUT DATE") and/or provide that upon any voluntary
principal prepayment of a Mortgage Loan, the related Mortgagor will be required
to pay a prepayment premium or yield maintenance penalty (a "PREPAYMENT
PREMIUM"). The following table sets forth the percentage of the declining
aggregate balance of all the Mortgage Loans that on June 1 of each of the years
indicated will be within their related Lock-out Period and/or in which a
principal prepayment must be accompanied by a Prepayment Premium.
S-35
<PAGE> 42
PREPAYMENT LOCK-OUT/PREPAYMENT PREMIUM ANALYSIS
PERCENTAGE OF MORTGAGE LOANS BY OUTSTANDING PRINCIPAL BALANCE
AS OF THE DATE INDICATED ASSUMING NO PREPAYMENTS
<TABLE>
<CAPTION>
JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE JUNE
CURRENT
------- ------- ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Lock-out . . . . . . . . .
Prepayment Premium
Yield Maintenance (1) . . .
7.00 - 7.99% (2) . . . .
6.00 - 6.99% (2) . . . .
5.00 - 5.99% (2) . . . .
4.00 - 4.99% (2) . . . .
3.00 - 3.99% (2) . . . .
2.00 - 2.99% (2) . . . .
1.00 - 1.99% (2) . . . .
0.01 - 0.99% (2) . . . .
No Prepayment Premium . . .
Total . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Aggregate Principal Balance
of the
Mortgage Loans (3) . . .
Percentage of Cut-off Date
Principal
Balance of the Mortgage
Loans
Outstanding . . . . . . . 100.0%
</TABLE>
(1) The Mortgage Loans generally require the payment of a Prepayment
Premium in connection with any principal prepayment, in whole or in
part. Any Prepayment Premium will equal the present value, as of the
date of prepayment, of the remaining Monthly Payments from such date
of prepayment through the related stated maturity (including the
Balloon Payment), determined by discounting such payments at a U.S.
Treasury rate specified therein, minus the then outstanding balance,
subject to a minimum Prepayment Premium equal to 1% of the principal
balance of such Mortgage Loan being prepaid.
(2) Mortgage Loan requires a Prepayment premium equal to indicated
percentage of amount prepaid.
(3) Millions of dollars.
S-36
<PAGE> 43
RELATED BORROWERS AND OTHER ISSUES
[Description of certain borrowers and issues.]
See Annex A for additional information on the Mortgage Loans.
ESCROWS
All of the Mortgage Loans except for _______ Mortgage Loans,
representing ______% of the Mortgage Loans, provide for monthly escrows to
cover property taxes on the Mortgaged Properties. Monthly escrows to cover
insurance premiums on the Mortgaged Properties are also generally required,
except with respect to Mortgage Loans originated by ________________________
where the Servicer provides force-placed coverage and monitors the related
Mortgagor's compliance.
_______ of the Mortgage Loans, which represent _______% of the
Mortgage Loans also require monthly escrows to cover ongoing replacements and
capital repairs.
_________ of the Mortgage Loans, which represent ______% of the
Mortgage Loans, also required upfront or monthly escrows for the full term or a
portion of the term of the related Mortgage Loan to cover anticipated
re-leasing costs, including tenant improvements and leasing commissions.
See Annex A for additional information on the monthly escrows on the
Mortgage Loans.
UNDERWRITING GUIDELINES
[DESCRIPTION OF UNDERWRITING GUIDELINES]
ADDITIONAL INFORMATION
A Current Report on Form 8-K (the "FORM 8-K") will be available to
purchasers of the Offered Certificates and will be filed, together with the
Pooling and Servicing Agreement, with the Securities and Exchange Commission
within fifteen days after the initial issuance of the Offered Certificates.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates will be issued pursuant to the Pooling and Servicing
Agreement and will include the following nine classes of Offered Certificates
designated as the Class A1, Class A1X, Class A2, Class A2X, Class B, Class C,
Class BCX, Class D and Class E Certificates. In addition to the Offered
Certificates, the Certificates will also include the Class F, Class G, Class
NR, Class R-I, Class R-II and Class R-III Certificates. Only the Offered
Certificates are offered hereby. The Certificates represent in the aggregate
the entire beneficial ownership interest in a Trust Fund consisting of: (i) a
pool of fixed rate Mortgage Loans and all payments under and proceeds of the
Mortgage Loans received after the Cut-off Date (exclusive of payments of
principal and interest due on or before the Cut-off Date); (ii) any Mortgaged
Property acquired on behalf of the Trust Fund through foreclosure or deed in
lieu of foreclosure (upon acquisition, an "REO PROPERTY"); (iii) such funds or
assets as from time to time are deposited in the Collection or Distribution
Accounts or any account established in connection with REO Properties (the "REO
ACCOUNT"); and (iv) the rights of the mortgagee under all insurance policies
with respect to the Mortgage Loans.
The Class A1, Class A1X, Class A2 and Class A2X Certificates will
evidence approximately an initial ___% undivided interest in the Trust Fund.
The Class B Certificates will evidence approximately an initial __% undivided
interest in the Trust Fund. The Class C Certificates will evidence
approximately an initial ___% undivided interest in the Trust Fund. The Class D
Certificates will evidence approximately an initial ____% undivided interest in
the Trust Fund. The Class E Certificates will evidence approximately an initial
___% undivided interest in the Trust Fund.
S-37
<PAGE> 44
The Class BCX Certificates consist of the following components: Class
BCX component B and Class BCX component C. The Class BCX component B and Class
BCX component C are not separately transferrable.
The Offered Certificates (the "DTC REGISTERED CERTIFICATES") will be
issued, maintained and transferred on the book-entry records of The Depository
Trust Company ("DTC") and its Participants (as defined in the Prospectus). The
DTC Registered Certificates, other than the Interest Only Certificates, will be
issued in minimum denominations of $__________ and integral multiples of $____
in excess thereof. The Interest Only Certificates will be issued in
denominations of $100,000 Notional Amount and integral multiples of $_____
Notional Amount.
The DTC Registered Certificates will be represented by one or more
certificates registered in the name of the nominee of DTC. The Company has been
informed by DTC that DTC's nominee will be Cede & Co. ("CEDE"). No person
acquiring an interest in the DTC Registered Certificates (a "BENEFICIAL OWNER")
will be entitled to receive a certificate representing such person's interest
(a "DEFINITIVE CERTIFICATE"), except as set forth below under "--Book-Entry
Registration of Certain of the Senior Certificates -- Definitive Certificates."
Unless and until Definitive Certificates are issued for the DTC Registered
Certificates under the limited circumstances described herein, all references
to actions by Certificateholders with respect to the DTC Registered
Certificates shall refer to actions taken by DTC upon instructions from its
Participants, and all references herein to distributions, notices, reports and
statements to Certificateholders with respect to the DTC Registered
Certificates shall refer to distributions, notices, reports and statements to
DTC or Cede, as the registered holder of the DTC Registered Certificates, for
distribution to Beneficial Owners by DTC in accordance with DTC procedures.
BOOK-ENTRY REGISTRATION OF THE OFFERED CERTIFICATES
General. Beneficial Owners that are not Participants or Intermediaries
(as defined in the Prospectus) but desire to purchase, sell or otherwise
transfer ownership of, or other interests in, the related DTC Registered
Certificates may do so only through Participants and Intermediaries. In
addition, Beneficial Owners will receive all distributions of principal of and
interest on the related DTC Registered Certificates from the Trustee through
DTC and Participants. Accordingly, Beneficial Owners may experience delays in
their receipt of payments. Unless and until Definitive Certificates are issued
for the related DTC Registered Certificates, it is anticipated that the only
registered Certificateholder of such DTC Registered Certificates will be Cede,
as nominee of DTC. Beneficial Owners will not be recognized by the Trustee or
the Master Servicer as Certificateholders, as such term is used in the Pooling
and Servicing Agreement; provided, however, that Beneficial Owners will be
permitted to request and receive information furnished to Certificateholders by
the Trustee subject to receipt by the Trustee of a certification in form and
substance acceptable to the Trustee stating that the person requesting such
information is a Beneficial Owner. Otherwise, the Beneficial Owners will be
permitted to receive information furnished to Certificateholders and to
exercise the rights of Certificateholders only indirectly through DTC, its
Participants and Intermediaries.
Under the rules, regulations and procedures creating and affecting DTC
and its operations (the "RULES"), DTC is required to make book-entry transfers
of DTC Registered Certificates among Participants and to receive and transmit
distributions of principal of, and interest on, such DTC Registered
Certificates. Participants and Intermediaries with which Beneficial Owners have
accounts with respect to such DTC Registered Certificates similarly are
required to make book-entry transfers and receive and transmit such
distributions on behalf of their respective Beneficial Owners. Accordingly,
although Beneficial Owners will not possess physical certificates evidencing
their interests in the DTC Registered Certificates, the Rules provide a
mechanism by which Beneficial Owners, through their Participants and
Intermediaries, will receive distributions and will be able to transfer their
interests in the DTC Registered Certificates.
None of the Depositor or the Trustee will have any liability for any
actions taken by DTC or its nominee, including, without limitation, actions for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the DTC Registered Certificates held by Cede, as nominee
for DTC, or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
Definitive Certificates. Definitive Certificates will be issued to
Beneficial Owners or their nominees, respectively, rather than to DTC or its
nominee, only under the limited conditions set forth in the Prospectus under
"Description of the Certificates -- Book-Entry Registration and Definitive
Certificates."
S-38
<PAGE> 45
Upon the occurrence of an event described in the Prospectus in the
seventh paragraph under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates," the Trustee is required to notify,
through DTC, Participants who have ownership of DTC Registered Certificates as
indicated on the records of DTC of the availability of Definitive Certificates
for their DTC Registered Certificates. Upon surrender by DTC of the definitive
certificates representing the DTC Registered Certificates and upon receipt of
instructions from DTC for re-registration, the Trustee will reissue the DTC
Registered Certificates as Definitive Certificates issued in the respective
principal amounts owned by individual Beneficial Owners, and thereafter the
Trustee and the Master Servicer will recognize the holders of such Definitive
Certificates as Certificateholders under the Pooling and Servicing Agreement.
For additional information regarding DTC and the DTC Registered
Certificates, see "Description of the Certificates -- Book-Entry Registration
and Definitive Certificates" in the Prospectus.
DISTRIBUTIONS
Method, Timing and Amount. Distributions on the Certificates will be
made on the [25th] day of each month or, if such [25th] day is not a business
day, then on the next succeeding business day, commencing in ________ 199__
(each, a "DISTRIBUTION DATE"). All distributions (other than the final
distribution on any Certificate) will be made by the Trustee to the persons in
whose names the Certificates are registered at the close of business on each
Record Date, which will be the last business day of the month preceding the
month in which the related Distribution Date occurs. Such distributions will be
made by wire transfer in immediately available funds to the account specified
by the Certificateholder at a bank or other entity having appropriate
facilities therefor, if such Certificateholder will have provided the Trustee
with wiring instructions as provided in the Pooling and Servicing Agreement and
is the registered holder of Certificates with an initial aggregate denomination
of at least $__________ or, otherwise, by check. The final distribution on any
Certificate will be made in like manner, but only upon presentment or surrender
of such Certificate at the location specified in the notice to the holder
thereof of such final distribution. All distributions made with respect to a
class of Certificates on each Distribution Date will be allocated pro rata
among the outstanding Certificates of such class based on their respective
Percentage Interests. The "PERCENTAGE INTEREST" evidenced by any Certificate is
equal to the initial denomination thereof as of the Delivery Date, divided by
the initial Class Balance or Notional Amount, as applicable, for such class.
The aggregate distribution to be made on the Certificates on any Distribution
Date shall equal the Available Distribution Amount.
The "AVAILABLE DISTRIBUTION AMOUNT" for any Distribution Date is an
amount equal to (a) the sum of (i) the amount on deposit in the Primary
Collection Account (as defined herein) as of the close of business on the
related Determination Date, which amount will include scheduled payments on the
Mortgage Loans due on or prior to the related Due Date immediately preceding,
and collected as of, such Determination Date (to the extent not distributed on
previous Distribution Dates) and unscheduled payments and other collections on
the Mortgage Loans collected during the related Remittance Period and (ii) the
aggregate amount of any P&I Advances made by each Servicer in respect of such
Distribution Date (not otherwise included in clause (i) above) net of (b) the
portion of the amount described in clause (a)(i) hereof that represents (i)
Monthly Payments due on a Due Date subsequent to the end of the related
Remittance Period, (ii) any amounts payable or reimbursable therefrom to any
Servicer or the Trustee or (iii) any servicing and trustee compensation.
Pass-Through Rate on the Certificates. The "PASS-THROUGH RATES" on the
Class A1 and Class A2 Certificates are fixed and are set forth on the cover
hereof. The Pass-Through Rates on the Class A1X, Class A2X, Class B and Class C
Certificates will be equal to the weighted average of the Remittance Rates in
effect from time to time on the Mortgage Loans minus the Pass-Through Rates on
the Class A1 and Class A2 Certificates, respectively. The Class BCX
Certificates will be entitled to interest at the Pass-Through Rate on the
components. The Pass-Through Rate on the Class BCX component B is _______% per
annum and on the Class BCX component C is _______% per annum. The Pass-Through
Rates on the Class D and Class E Certificates will be equal to the weighted
average of the Remittance Rates in effect from time to time on the Mortgage
Loans. The "REMITTANCE RATE" for any Mortgage Loan is equal to the excess of
the Mortgage Interest Rate thereon (without giving effect to any modification
or other reduction thereof following the Cut-off Date) over the sum of the
applicable Servicing Fee Rate and the fee payable to the Trustee. The fee
payable to the Trustee will be _______% per annum. The Mortgage Interest Rate
for each of the Mortgage Loans which provide for the computation of interest
other than on the basis of a 360-day year consisting of twelve 30-day
S-39
<PAGE> 46
months (a "30/360 BASIS") (that is the basis on which interest on the
Certificates accrues) will be adjusted to reflect that difference.
Interest Distributions on the Certificates. Subject to the
distribution of the Principal Distribution Amount to the Holders of classes of
Certificates of a higher priority, as described under "Priority of
Distributions" below, Holders of each class of Certificates will be entitled to
receive on each Distribution Date, to the extent of the Available Distribution
Amount for such Distribution Date (net of any interest accrued on any
Collateral Value Adjustment subsequently recovered and any Net Prepayment
Premium) (the "ADJUSTED AVAILABLE DISTRIBUTION AMOUNT"), distributions
allocable to interest in an amount (the "INTEREST DISTRIBUTION AMOUNT") equal
to the sum of interest accrued during the period from and including the first
day of the month preceding the month of the Distribution Date) (or from the
Cut-off Date in the case of the initial Distribution Date) to and including the
last day of the month preceding the month of the Distribution Date (calculated
on the basis of a 360-day year consisting of twelve 30-day months) on the Class
Balance (or the Notional Amount, in the case of the Interest Only Certificates,
or the related components) of such class of Certificates or such components, as
the case may be, outstanding immediately prior to such Distribution Date, at
the then-applicable Pass-Through Rate (the "INTEREST ACCRUAL AMOUNT") less such
class' (or component's) pro rata share, by Interest Accrual Amount, of any
interest shortfall not related to a Mortgagor delinquency or default, such as
Prepayment Interest Shortfalls (as defined herein) and shortfalls associated
with exemptions provided by the Relief Act (as defined in the Prospectus). The
Notional Amount of the Class A1X Certificates will equal the Class Balance of
the Class A1 Certificates. The Notional Amount of the Class A2X Certificates
will equal the Class Balance of the Class A2 Certificates. The Notional Amount
of the Class BCX component B Certificates will equal the Class Balance of the
Class B Certificates. The Notional Amount of the Class BCX component C
Certificates will equal the Class Balance of the Class C Certificates. A
Notional Amount does not entitle the Interest Only Certificates (or any
component thereof) to any distributions of principal. If the Adjusted Available
Distribution Amount for any Distribution Date is less than the Interest
Distribution Amount for such Distribution Date, the shortfall will be part of
the Interest Distribution Amount distributable to holders of Certificates
affected by such shortfall on subsequent Distribution Dates, to the extent of
available funds. Any such shortfall will bear interest at the related
Pass-Through Rate.
To the extent not necessary to reimburse the Master Servicer for
reductions in its compensation to cover Prepayment Interest Shortfalls, in
addition to the related Interest Distribution Amount, the Interest Only
Certificates will receive _____%, and the remaining Offered Certificates will
receive ____%, of any Net Prepayment Premium paid with respect to the Mortgage
Loans. The Net Prepayment Premium payable to the Interest Only Certificates
will be paid to the holders of the Class A1X Certificates while the Class A1
Certificates are outstanding. On each Distribution Date after the Distribution
Date on which the Class Balances of the Class A1 Certificates has been reduced
to zero, any Net Prepayment Premium payable to the Interest Only Certificates
will be paid to the holders of the Class A2X Certificates while the Class A2
Certificates are outstanding. On each Distribution Date after the Distribution
Date on which the Class Balances of the Class A1 and Class A2 Certificates have
been reduced to zero, any Net Prepayment Premium payable to the Interest Only
Certificates will be paid to the holders of the Class BCX Certificates while
the Class B or Class C Certificates are outstanding. No portion of the Net
Prepayment Premium will be payable to the Interest Only Certificates after the
Distribution Date on which the Class Balances of the Class A1, Class A2, Class
B and Class C Certificates have been reduced to zero. On each Distribution
Date, the Net Prepayment Premium not payable to the Master Servicer or the
holders of the Interest Only Certificates will be paid the holders of the class
of Offered Certificates then outstanding with the highest principal payment
priority.
To the extent any Mortgage Loan is prepaid in full or in part between
a Determination Date and the related Due Date immediately following such
Determination Date, an interest shortfall may result on the second Distribution
Date following such Determination Date because interest on prepayments in full
or in part will only accrue to the date of payment (such shortfall, a
"PREPAYMENT INTEREST SHORTFALL"). To the extent any Mortgage Loan is prepaid in
full or in part between the related Due Date and the Determination Date
immediately following such Due Date, the interest on such prepayment will be
included in the Available Distribution Amount for the immediately succeeding
Distribution Date (the "PREPAYMENT INTEREST EXCESS"). If a Mortgage Loan is
prepaid in full or in part during any Remittance Period, any related Prepayment
Interest Shortfall shall be offset to the extent of any Prepayment Interest
Excess and any Prepayment Premium collected during such Remittance Period. If
the Prepayment Interest Shortfall for any Remittance Period exceeds any
Prepayment Interest Excess and any Prepayment Premiums collected during such
period, such shortfall shall only be offset by an amount up to the portion of
the Servicing Fee payable to the Master Servicer on the related Distribution
Date. To the extent that any such shortfall shall have been offset by a portion
of the Servicing Fee,
S-40
<PAGE> 47
the Master Servicer shall be entitled to any excess of the Prepayment Interest
Excess and Prepayment Premiums over the Prepayment Interest Shortfall for any
subsequent period.
The "NET PREPAYMENT PREMIUM" with respect to any Distribution Date
will equal the excess of (a) the total amount of Prepayment Premiums received
during the related Remittance Period over (b) the Prepayment Interest Shortfall
for any Remittance Period over the Prepayment Interest Excess for any
Remittance Period.
The Pass-Through Rates on the Certificates with variable Pass-Through
Rates will not be affected by the deferral of interest or reduction of the
Mortgage Interest Rate on any Mortgage Loan by the Special Servicer or by the
occurrence of either such event in connection with any bankruptcy proceeding
involving the related borrower. The amount of any resulting interest shortfall
will be allocated to the Certificates, in the order described under
"Subordination" below.
Principal Distributions on the Offered Certificates. Holders of the
Certificates will be entitled to receive on each Distribution Date in reduction
of the related Class Balance in the order described herein until the related
Class Balance is reduced to zero, to the extent of the balance of the Adjusted
Available Distribution Amount remaining after the payment of the Interest
Distribution Amount for such Distribution Date for the classes of Certificates
with the highest priority for interest payments (as described under "Priority
of Distributions' below), distributions in respect of principal in an amount
(the "PRINCIPAL DISTRIBUTION AMOUNT") equal to the aggregate of (i) all
scheduled payments of principal (other than Balloon Payments) due on the
Mortgage Loans on the related Due Date whether or not received and all
scheduled Balloon Payments received, (ii) if the scheduled Balloon Payment is
not received, with respect to any Balloon Mortgage Loans on and after the
Maturity Date thereof, the principal payment that would need to be received in
the related month in order to fully amortize such Balloon Mortgage Loan with
level monthly payments by the end of the term used to derive scheduled payments
of principal due prior to the related Maturity Date, (iii) to the extent not
previously advanced any unscheduled principal recoveries received during the
related Remittance Period in respect of the Mortgage Loans, whether in the form
of liquidation proceeds, insurance proceeds, condemnation proceeds or amounts
received as a result of the purchase of any Mortgage Loan out of the Trust Fund
and (iv) any other portion of the Adjusted Available Distribution Amount
remaining undistributed after payment of any interest payable on the
Certificates for the related or any prior Distribution Date, including any
Prepayment Interest Excess not offset by any Prepayment Interest Shortfall
occurring during the related Remittance Period or otherwise required to
reimburse the Master Servicer, as described herein, and interest distributions
on the Mortgage Loans, in excess of interest distributions on the Certificates,
resulting from the allocation of amounts described in this clause (iv) to
principal distributions on the Certificates. The Interest Only Certificates do
not have a Class Balance and are therefore not entitled to any principal
distributions.
PRIORITY OF DISTRIBUTIONS
The Adjusted Available Distribution Amount for each Distribution Date
will be applied (a) first to distributions of interest on the classes of
Certificates outstanding with the highest priority for interest payment (as
described below), (b) second to distributions of the Principal Distribution
Amount to the classes of Certificates then entitled to distribution of
principal as described below, and (c) third, to distributions of interest on
each class of Certificates other than the classes described in clause (a),
above, in the order of priority described below; provided that on any
Distribution Date on which the Class Balance of a class of Certificates is
reduced to zero pursuant to clause (b) above, interest distributions pursuant
to clause (a) above will be made to the class of Certificates outstanding with
the next highest priority for interest payments prior to making distributions
of the Principal Distribution Amount thereto pursuant to clause (b) above. The
priority for interest payments for purposes of clauses (a) and (c), above, is:
first to distributions of interest on the Class A1, Class A1X, Class A2 and
Class A2X Certificates, pro rata, based on their respective Interest Accrual
Amounts; second to distributions of interest on the Class B and Class BCX
component B Certificates, pro rata, based on their respective Interest Accrual
Amounts; third to distributions of interest on the Class C and Class BCX
component C Certificates, pro rata, based on their respective Interest Accrual
Amounts; fourth to distributions of interest on the Class D Certificates; fifth
to distributions of interest on the Class E Certificates; and then to the
remaining classes of Certificates up to their respective Interest Accrual
Amounts, all as described under "--Distributions -- Interest Distributions on
the Certificates" above. The Principal Distribution Amount for such
Distribution Date will be applied to distributions of principal of the Class
A1, Class A2, Class B, Class C, Class D and Class E Certificates, in that
order,
S-41
<PAGE> 48
and then to distributions of principal of the Other Classes of Certificates
until their respective Class Balances have been reduced to zero.
OTHER CERTIFICATES
The Class F, Class G, Class NR, Class R-I, Class R-II and Class R-III
Certificates are not offered hereby. The Pass-Through Rates on the Class F,
Class G and Class NR Certificates will equal the weighted average of the
Remittance Rates in effect from time to time on the Mortgage Loans. The Class
Balances on the Class F, Class G and Class NR Certificates will equal
$___________, $___________, and $___________, respectively, and approximately
$_____________, in the aggregate. The Class R-I, Class R-II and Class R-III
Certificates will not have a Pass-Through Rate or a Class Balance.
SUBORDINATION
Neither the Offered Certificates nor the Mortgage Loans are insured or
guaranteed against losses suffered on the Mortgage Loans by any government
agency or instrumentality or by the Depositor, the Trustee, the Master
Servicer, the Special Servicer, the Primary Servicers, or any affiliate
thereof.
In addition to the payment priorities described under "--Priority of
Distributions" above, certain Certificates will be subordinated to other
Certificates with respect to the allocation of Realized Losses. Realized Losses
on the Mortgage Loans will be allocated, first, to the Other Certificates,
second, to the Class E Certificates, third, to the Class D Certificates,
fourth, to the Class C Certificates, fifth, to the Class B Certificates, in
each case until the related Class Balance is reduced to zero; and thereafter,
to the Class A1 and Class A2 Certificates. The Class Balance of a class of
Certificates will be reduced by the principal portion of any Realized Losses
allocated to such class.
In addition to Realized Losses, shortfalls will also occur as a result
of each Servicer's right to receive payments of interest with respect to
unreimbursed advances, the Special Servicer's right to compensation with
respect to Mortgage Loans which are or have been Specially Serviced Mortgage
Loans and as a result of other Trust Fund expenses. Such shortfalls will be
allocated as described above to the classes of Certificates with the lowest
payment priority for purposes of the application of Available Distribution
Amount in the order described herein.
Within 30 days after the earliest to occur of (i) 90 days after the
date on which an uncured delinquency occurs in respect of a Mortgage Loan, (ii)
60 days after the date on which a receiver is appointed (if such appointment
remains in effect during such 60-day period) in respect of a Mortgaged
Property, (iii) as soon as reasonably practical after the date on which a
Mortgaged Property becomes an REO Property or (iv) the date on which a change
in the payment rate, Mortgage Interest Rate, principal balance, amortization
terms or Maturity Date of any Specially Serviced Mortgage Loan becomes
effective, an appraisal will be obtained by the Special Servicer from an
independent MAI appraiser at the expense of the Trust Fund (except if an
appraisal has been conducted within the 12 month period preceding such event).
As a result of such appraisal, a Collateral Value Adjustment may result, which
Collateral Value Adjustment will be allocated, for purposes of determining
distributions of interest to the Certificates, in the manner and priority
described above with respect to Realized Losses. Notwithstanding the foregoing,
a Collateral Value Adjustment will be zero with respect to such a Mortgage Loan
if (i) the event giving rise to such Collateral Value Adjustment is the
extension of the maturity of such Mortgage Loan, (ii) the payments on such
Mortgage Loan were not delinquent during the twelve month period immediately
preceding such extension and (iii) the payments on such Mortgage Loan are then
current, provided, that if at any later date there occurs a delinquency in
payment with respect to such Mortgage Loan, the Collateral Value Adjustment
will be recalculated and applied to the same extent as it would have been
previously applied. In addition, in any case, upon the occurrence of any event
giving rise to a subsequent Collateral Value Adjustment (including the
delinquency referred to in the immediately preceding sentence) more than twelve
months after an appraisal was obtained with respect to a Collateral Value
Adjustment, the Special Servicer will order a new appraisal as described above,
within 30 days of the occurrence of any such event giving rise to a subsequent
Collateral Value Adjustment and will adjust the amount of the Collateral Value
Adjustment in accordance therewith.
The "COLLATERAL VALUE ADJUSTMENT" for any Distribution Date with
respect to any Mortgage Loan will be an amount equal to the excess of (a) the
principal balance of such Mortgage Loan over (b) the excess of (i) 90% of the
current appraised value of the related Mortgaged Property as determined by an
independent MAI appraisal of such
S-42
<PAGE> 49
Mortgaged Property over (ii) the sum of (A) to the extent not previously
advanced by a Servicer, all unpaid interest on such Mortgage Loan at a per
annum rate equal to the Mortgage Interest Rate, (B) all unreimbursed Advances
and interest thereon, and (C) any unpaid Servicing and Trustee fees and (D) all
currently due and delinquent real estate taxes and assessments, insurance
premiums and, if applicable, ground rents in respect of such Mortgaged Property
(net of any amount escrowed or otherwise available for payment of the amount
due on such Mortgage Loan). The excess of the principal balance of any Mortgage
Loan over the related Collateral Value Adjustment is referred to herein as the
"ADJUSTED COLLATERAL VALUE". A Collateral Value Adjustment shall result in a
reduction of the Class Balance (or Notional Amount) of any class of
Certificates solely for the purposes specified herein and shall not be a
permanent reduction of the Class Balance (or Notional Amount) of any class of
Certificates prior to the occurrence of a Realized Loss.
A "REALIZED LOSS", in the case of any Mortgage Loan described in
clause (a) or clause (b) of the succeeding sentence, is equal to the sum of (a)
the Stated Principal Balance of any Loss Mortgage Loan, (b) interest thereon
not previously distributed to Certificateholders through the last day of the
month in which such Mortgage Loan became a Loss Mortgage Loan, (c) any advances
made by any Servicer which remain unreimbursed and (d) any interest accrued on
such advances (see "--Advances" below) as of such time, reduced by any amounts
recovered thereon as of such time and, in the case of any Mortgage Loan
described in clause (c) of the succeeding sentence, is the amount determined to
have been permanently forgiven as described in such clause (c). A "LOSS
MORTGAGE LOAN" is any Mortgage Loan (a) which is finally liquidated, (b) with
respect to which the Master Servicer or the Special Servicer has determined
that an advance which has been made or would otherwise be required to be made,
is not, or, if made, would not be, recoverable out of proceeds on such Mortgage
Loan or (c) with respect to which a portion of the principal balance thereof
has been permanently forgiven whether pursuant to a modification or a valuation
resulting from a proceeding initiated under the Bankruptcy Code. The "STATED
PRINCIPAL BALANCE" of any Mortgage Loan as of any date of determination is the
principal balance as of the Cut-off Date minus the sum of (i) the principal
portion of each Monthly Payment due on such Mortgage Loan after the Cut-off
Date, to the extent received from the Mortgagor or advanced and distributed to
Certificateholders, and (ii) any unscheduled amounts of principal received with
respect to such Mortgage Loans, to the extent distributed to
Certificateholders.
To the extent any amount on a Mortgage Loan with respect to which a
Collateral Value Adjustment was required is recovered in excess of the Adjusted
Collateral Value (after giving effect to all other amounts previously collected
with respect thereto), such amount will be distributed to each holder of a
class of Certificates to which a Collateral Value Adjustment has been
allocated, in the order of payment described hereinabove up to an amount equal
to interest accrued on the sum of any Collateral Value Adjustment allocated to
such class of Certificates (or component) in reduction of the Class Balance (or
Notional Amount) thereof at the Pass-Through Rate in effect during such
applicable Collection Period from the date of such allocation to the end of the
Collection Period in which such an amount is recovered. The Class Balance (or
Notional Amount) of each such class (or component) shall be increased by the
amount of such excess over such interest payment in the order of payment
described hereinabove. Any reduction of the Class Balance (or Notional Amount)
of a class (or component) of Certificates following a Collateral Value
Adjustment and any increase thereof following an excess recovery will affect
the Percentage Interest and the calculation of any interest or voting right of
such class of Certificates.
ADVANCES
On the business day immediately preceding each Distribution Date, the
Master Servicer will be obligated to make advances out of its own funds or
funds held in the Master Collection Account (as defined herein) that are not
required to be part of the Available Distribution Amount for such Distribution
Date or to remit any advances made by the related Primary Servicer or the
Special Servicer ("P&I ADVANCES"), in an amount equal to the excess of all
Monthly Payments (net of the Servicing Fee) due over the amount actually
received, subject to the limitations described herein. In addition, each
Servicer will be required to advance certain property related expenses. The
Servicers generally may not advance any amounts, other than P&I Advances,
unless such advance is contemplated in the related Asset Strategy Report (as
defined herein) for the related Mortgage Loan or such advance is for one of
several purposes specified in the Pooling and Servicing Agreement as "PROPERTY
PROTECTION EXPENSES". All such advances will be reimbursable to the related
Servicer from late payments, insurance proceeds, liquidation proceeds,
condemnation proceeds or amounts paid in connection with the purchase of such
Mortgage Loan or, as to any such advance that is deemed not otherwise
recoverable, from any amounts on deposit in the Primary Collection Account or
the Master Collection Account to the
S-43
<PAGE> 50
extent such amounts are not required to be otherwise applied pursuant to the
terms of the related Mortgage Loan. Notwithstanding the foregoing, the Master
Servicer will be obligated to make any such advance only to the extent that it
determines in its reasonable good faith judgment that such advance, if made,
would be recoverable out of net proceeds (including any amounts escrowed with
respect to the related Mortgage Loan net of any reasonably anticipated expenses
payable therefrom) on the related Mortgage Loan. None of the Servicers will be
required to advance the full amount of any Balloon Payment not made by the
related Mortgagor. To the extent a Servicer is required to make a P&I Advance
on and after the Due Date for such Balloon Payment, such P&I Advance shall not
exceed an amount equal to a monthly payment calculated by the Special Servicer
necessary to fully amortize the related Mortgage Loan over the period used for
purposes of calculating the scheduled monthly payments thereon prior to the
related Maturity Date. Any failure by the Master Servicer to make an advance as
required under the Pooling and Servicing Agreement will constitute an event of
default thereunder, in which case the Trustee will be obligated to make any
required advance, in accordance with the terms of the Pooling and Servicing
Agreement.
Each Servicer shall be entitled to interest on the aggregate amount of
all advances made by such Servicer at a per annum rate equal to the prime rate
reported in The Wall Street Journal. See "Risk Factors -- Effect of Mortgagor
Delinquencies and Defaults" herein.
CERTAIN PREPAYMENT, MATURITY AND YIELD CONSIDERATIONS
GENERAL
The yield to maturity on the Offered Certificates will be affected by
the rate of principal payments on the Mortgage Loans including, for this
purpose, prepayments, which may include amounts received by virtue of
repurchase, condemnation, casualty or foreclosure. The rate of principal
payments on the Offered Certificates will correspond to the rate of principal
payments (including prepayments) on the related Mortgage Loans.
Each Mortgage Loan either prohibits voluntary prepayments during a
certain number of years following the origination thereof and/or allows the
related Mortgagor to prepay the principal balance thereof in whole during a
certain number of years following the origination if accompanied by payment of
a Prepayment Premium. See Annex A hereto and the table entitled "Prepayment
Lock-out/Prepayment Premium Analysis" under "Description of the Mortgage Pool
- -- Certain Characteristics of the Mortgage Loans" herein. Any Net Prepayment
Premium collected on a Mortgage Loan will be distributed to the holders of the
Interest Only Certificates as described herein. See "Description of the
Certificates -- Distributions -- Interest Distributions on the Certificates"
and "Certain Prepayment, Maturity and Yield Considerations" herein, and "Yield
Considerations" in the Prospectus.
The yield to maturity on each class of the Offered Certificates will
depend on, among other things, the rate and timing of principal payments
(including prepayments, defaults, liquidations and purchases of Mortgage Loans
due to a breach of a representation and warranty) on the Mortgage Loans and the
allocation thereof to reduce the Class Balance or Notional Amount of such class
or its components. The yield to maturity on each class of the Offered
Certificates will also depend on the Pass-Through Rate and the purchase price
for such Certificates. The yield to investors on any Class of Offered
Certificates will be adversely affected by any allocation thereto of Prepayment
Interest Shortfalls on the Mortgage Loans, which may result from the
distribution of interest only to the date of a prepayment occurring during any
month following the related Determination Date (rather than a full month's
interest) to the extent any such interest shortfall is not offset by Prepayment
Premiums, any Prepayment Interest Excess or the portion of the Servicing Fee
for such Distribution Date allocable to the Master Servicer.
In general, if a class of Offered Certificates is purchased at a
premium and principal distributions thereon occur at a rate faster than
anticipated at the time of purchase, the investor's actual yield to maturity
will be lower than that assumed at the time of purchase. Conversely, if a class
of Offered Certificates is purchased at a discount and principal distributions
thereon occur at a rate slower than that assumed at the time of purchase, the
investor's actual yield to maturity will be lower than that assumed at the time
of purchase.
If a Mortgage Loan becomes a Specially Serviced Mortgage Loan, the
Special Servicer may adopt a servicing strategy which affects the yield to
maturity of one or more classes of Offered Certificates.
S-44
<PAGE> 51
The Rated Final Distribution Date for the Certificates will be
_____________, 20___ which is the second anniversary of the date at which all
the Mortgage Loans have zero balances, assuming no prepayments and that the
Mortgage Loans which are Balloon Loans fully amortize according to their
amortization schedule and no Balloon Mortgage Payment is made.
WEIGHTED AVERAGE LIFE OF THE OFFERED CERTIFICATES
Weighted average life refers to the average amount of time from the
date of issuance of a security until each dollar of principal of such security
will be repaid to the investor. The weighted average life of the Offered
Certificates will be influenced by the rate at which principal payments
(including scheduled payments, principal prepayments and payments made pursuant
to any applicable policies of insurance) on the Mortgage Loans are made.
Principal payments on the Mortgage Loans may be in the form of scheduled
amortization or prepayments (for this purpose, the term "prepayment" includes
prepayments, partial prepayments and liquidations due to a default or other
dispositions of the Mortgage Loans).
The table of Percent of Initial Certificate Balance Outstanding for
the Class A1, Class A2, Class B, Class C, Class D and Class E Certificates at
the respective percentages of CPR set forth below indicates the weighted
average lives of such Certificates and sets forth the percentage of the initial
principal amount of such Certificates that would be outstanding after each of
the dates shown at the indicated percentages of CPR. The table has been
prepared on the basis of the characteristics of the Mortgage Loans set forth in
Annex A and on the basis of the following assumptions: (i) the Mortgage Loans
prepay at the indicated percentage of CPR when the Mortgage Loans are no longer
in their respective Lock-out Periods; (ii) the maturity date of each of the
Balloon Mortgage Loans is not extended; (iii) distributions on the Offered
Certificates are received in cash, on the 25th day of each month, commencing in
______________; (iv) no defaults or delinquencies in, or modifications, waivers
or amendments respecting, the payment by the Mortgagors of principal and
interest on the Mortgage Loans occur; (v) prepayments represent payment in full
of individual Mortgage Loans and are received on the respective Due Dates and
include a month's interest thereon; (vi) there are no repurchases of Mortgage
Loans due to breaches of any representation and warranty, or pursuant to an
optional termination as described under "Description of the Pooling and
Servicing Agreement -- Termination" herein or otherwise; and (vii) the Offered
Certificates are purchased on ______________.
Based on the foregoing assumptions, the table indicates the weighted
average lives of the Class A1, Class A2, Class B, Class C, Class D and Class E
Certificates and sets forth the percentages of the initial Class Balance of
each such class of Offered Certificates that would be outstanding after the
Distribution Date in _________ of each of the years indicated, at various
percentages of CPR. Neither CPR nor any other prepayment model or assumption
purports to be a historical description of prepayment experience or a
prediction of the anticipated rate of prepayment of any pool of mortgage loans,
including the Mortgage Loans included in the Mortgage Pool. Variations in the
actual prepayment experience and the balance of the Mortgage Loans that prepay
may increase or decrease the percentage of initial Class Balance (and weighted
average life) shown in the following table. Such variations may occur even if
the average prepayment experience of all such Mortgage Loans is the same as any
of the specified assumptions.
S-45
<PAGE> 52
PERCENT OF INITIAL CLASS BALANCE OUTSTANDING
AT THE FOLLOWING PERCENTAGES OF CPR
<TABLE>
<CAPTION>
Distribution Class A Class A2 Class B
------- -------- -------
Date 0% % % % 0% % % % 0% % % %
---- -- --- --- --- -- --- --- --- -- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
WAL(1)
</TABLE>
<TABLE>
<CAPTION>
Distribution Class C Class D Class E
------- ------- -------
Date 0% % % % 0% % % % 0% % % %
---- -- --- --- --- -- --- --- --- -- ---- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Initial Percentage
WAL(1)
</TABLE>
(1) The weighted average life of a class of Offered Certificates is determined
by (i) multiplying the amount of each distribution of principal by the
number of years from the date of issuance to the related Distribution Date,
(ii) adding the results and (iii) dividing the sum by the total principal
distributions on such class of Certificates.
INTEREST ONLY CERTIFICATES YIELD CONSIDERATIONS
The sensitivity of the yield to maturity on the Interest Only
Certificates to both the timing of receipt of prepayments and the overall rate
of principal prepayments and defaults on the Mortgage Loans will be offset to
some extent by the payment of a portion of any Net Prepayment Premium to the
Interest Only Certificates entitled thereto. No such offset is available
following a default on a Mortgage Loan.
The following tables indicate the sensitivity of the pre-tax yield to
maturity on the Interest Only Certificates to various constant rates of
prepayment on the Mortgage Loans by projecting the monthly aggregate payments
on the Interest Only Certificates and computing the corresponding pre-tax
yields to maturity on a corporate bond equivalent basis, based on the
assumptions described in clauses (i) through (vii) in the second paragraph
preceding the table entitled "Percent of Initial Class Balance Outstanding at
the Following Percentages of CPR" under the heading "Certain Prepayment,
Maturity and Yield Considerations -- Weighted Average Life of the Offered
Certificates" above, including the assumptions regarding the performance of the
Mortgage Loans which may differ from the actual performance thereof and
assuming the aggregate purchase prices and Pass-Through Rates set forth below
and assuming further that the initial Notional Amounts of the Interest Only
Certificates are as set forth herein. The yield maintenance calculations are
based on the market yield on ____________ of actively traded Treasury
securities of appropriate maturities. ____% of any Net Prepayment Premium will
be allocated to the Class A1X Certificates through the Distribution Date on
which the Class Balance of the Class A1 Certificates has been reduced to zero.
Thereafter, ____% of any Net Prepayment Premium will be allocated to the Class
A2X Certificates through the Distribution Date on which the Class Balance of
the Class A2 Certificates has been reduced to zero. Thereafter, ____% of any
Net Prepayment Premium will be allocated to the Class BCX Certificates through
the Distribution Date on which the Class Balances of the Class B and Class C
Certificates have been reduced to zero. Any differences between such
assumptions and the actual characteristics and performance of the Mortgage
Loans and of the Certificates may result in yields being different from those
shown in such tables. Discrepancies between assumed and actual characteristics
and performance underscore the hypothetical nature of the tables, which are
provided only to give a general sense of the sensitivity of yields in varying
prepayment scenarios.
S-46
<PAGE> 53
PRE-TAX YIELD TO MATURITY OF THE CLASS A1X CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE CPR PREPAYMENT ASSUMPTION RATES
AS A PERCENTAGE OF THE
NOTIONAL AMOUNT ASSUMED PASS-THROUGH RATE(1) 0% % % %
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
(1) Calculated based on the weighted average of the Remittance Rates of the
Mortgage Loans as of the Cut-off Date. The Pass-Through Rate on such
Certificates will be subject to adjustment on each Distribution Date.
PRE-TAX YIELD TO MATURITY OF THE CLASS A2X CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE
AS A PERCENTAGE OF THE CPR PREPAYMENT ASSUMPTION RATES
NOTIONAL AMOUNT ASSUMED PASS-THROUGH RATE(1) 0% % % %
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
(1) Calculated based on the weighted average of the Remittance Rates of the
Mortgage Loans as of the Cut-off Date. The Pass-Through Rate on such
Certificates will be subject to adjustment on each Distribution Date.
PRE-TAX YIELD TO MATURITY OF THE CLASS BCX CERTIFICATES
<TABLE>
<CAPTION>
ASSUMED PURCHASE PRICE
AS A PERCENTAGE OF THE
NOTIONAL AMOUNT CPR PREPAYMENT ASSUMPTION RATES
OF EACH COMPONENT ASSUMED PASS-THROUGH RATE(2) 0% % % %
<S> <C> <C> <C> <C> <C>
% % % % % %
</TABLE>
(2) Calculated based on the initial weighted average of the Pass-Through Rates
of the components. The Pass-Through Rate on the Class BCX Certificates will
be subject to adjustment on each Distribution Date.
Each pre-tax yield to maturity set forth in the preceding tables was
calculated by determining the monthly discount rate which, when applied to the
assumed stream of cash flows to be paid on the Interest Only Certificates would
cause the discounted present value of such assumed stream of cash flows to
equal the assumed purchase price listed in the corresponding table. Accrued
interest is included in the assumed purchase price of each class of Interest
Only Certificates and is used in computing the corporate bond equivalent yields
shown. These yields do not take into account the different interest rates at
which investors may be able to reinvest funds received by them as distributions
on the Interest Only Certificates, and thus do not reflect the return on any
investment in the Interest Only Certificates when, as applicable, any
reinvestment rates other than the discount rates set forth in the preceding
tables are considered.
Notwithstanding the assumed prepayment rates reflected in the
preceding tables, it is highly unlikely that the Mortgage Loans will be prepaid
according to one particular pattern. For this reason and because the timing of
cash flows is critical to determining yields, the pre-tax yield to maturity on
the Interest Only Certificates is likely to differ from those shown in the
tables, even if all of the Mortgage Loans prepay at the indicated constant
percentages of CPR over any given time period or over the entire life of the
Certificates.
There can be no assurance that the Mortgage Loans will prepay at any
particular rate or that the yield on the Interest Only Certificates will
conform to the yields described herein. Moreover, the various remaining terms
to maturity of the Mortgage Loans could produce slower or faster principal
distributions than indicated in the preceding tables at the various constant
percentages of CPR specified, even if the weighted average remaining term to
maturity of the Mortgage Loans is as assumed. Investors are urged to make their
investment decisions based on their determinations as to anticipated rates of
prepayment under a variety of scenarios. Investors in the Interest Only
Certificates should fully consider the risk that an extremely rapid rate of
prepayments on the Mortgage Loans could result in the failure of such investors
to fully recover their investments. In addition, holders of the Class A1X and
Class A2X Certificates generally have rights to relatively larger portions of
interest payments on Mortgage Loans with higher Mortgage Interest Rates; thus,
the yield on the Class A1X and Class A2X Certificates will be materially
adversely affected to a greater extent than
S-47
<PAGE> 54
on the other Interest Only Certificates if the Mortgage Loans with higher
Mortgage Interest Rates prepay faster than the Mortgage Loans with lower
Mortgage Rates.
For additional considerations relating to the yield on the
Certificates, see "Yield Considerations" in the Prospectus.
CLASS C, CLASS BCX, CLASS D AND CLASS E YIELD CONSIDERATIONS
If the Class Balances of the Other Certificates are reduced to zero,
the yield to maturity on the Class E Certificates will become extremely
sensitive to losses on the Mortgage Loans (and the timing thereof), because the
entire amount of such losses will be allocated to the Class E Certificates. The
aggregate initial Class Balance of the Other Certificates is equal to
approximately ____% of the aggregate principal balance of the Mortgage Loans as
of the Cut-off Date. If the Class Balances of the Other Certificates and the
Class E Certificates are reduced to zero, the yield to maturity on the Class D
Certificates will become extremely sensitive to losses on the Mortgage Loans
(and the timing thereof), because the entire amount of such losses will be
allocated to the Class D Certificates. The aggregate initial Class Balance of
the Class E and the Other Certificates is equal to approximately ____% of the
aggregate principal balance of the Mortgage Loans as of the Cut-off Date. If
the Class Balances of the Other Certificates, the Class E and the Class D
Certificates are reduced to zero, the yield to maturity on the Class C and
Class BCX Certificates will become extremely sensitive to losses on the
Mortgage Loans (and the timing thereof), because the entire amount of such
losses will be allocated to the Class C and Class BCX Certificates. The
aggregate initial Class Balance of the Class D, Class E and Other Certificates
is equal to approximately ____% of the aggregate principal balance of the
Mortgage Loans as of the Cut-off Date.
The Special Servicer will be entitled to receive, with respect to each
Specially Serviced Mortgage Loan compensation in the form of a percentage of
collections and a percentage of the outstanding principal balance of any
Specially Serviced Mortgage Loan which is returned to a performing status prior
to the right of Certificateholders to receive distributions on the
Certificates. Such compensation will result in shortfalls which will be
allocated to the Certificates in the manner provided for Realized Losses.
Consequently it is possible that shortfalls will be allocated to the Offered
Certificates with respect to any Specially Serviced Mortgage Loan
notwithstanding the fact that such Mortgage Loan is returned to a performing
status. See "Servicing -- Servicing and Other Compensation and Payment of
Expenses" herein.
The information set forth herein concerning the services has been
provided by the related Servicer. Neither the Depositor nor any other person
makes any representation or warranty as to the accuracy or completeness of such
information.
Investors are urged to make their investment decisions based on their
determinations as to anticipated rates of principal payments and Realized
Losses. Investors in the Class C and Class BCX Certificates and particularly
the Class D and Class E Certificates should fully consider to risk that
Realized Losses on the Mortgage Loans could result in a failure of such
investors to fully recover their investments. See "Yield Considerations" in the
Prospectus.
SERVICING
SERVICERS
AMRESCO Management, Inc. AMRESCO Management, Inc. ("AMI"), a Texas
corporation, will serve as Master Servicer and Special Servicer for all the
Mortgage Loans and as Primary Servicer for all the Mortgage Loans originated by
ACC.
AMI is an indirect wholly owned subsidiary of AMRESCO, INC.
("AMRESCO"). The principal offices of AMI are located at 700 North Pearl
Street, Suite 2400, L.B. No. 342, Dallas, Texas 75201. The servicing of all
performing loans will be performed by the AMRESCO Services Division of AMI
located in Atlanta, Georgia. As of December 31, 1996, AMRESCO's portfolio
consisted of approximately 9,146 loans with an aggregate principal balance of
approximately $16 billion.
S-48
<PAGE> 55
____________________. _________________________ ("_________"), a
__________ corporation, will serve as Primary Servicer for all the Mortgage
Loans originated by ________________________.
__________, an indirect wholly-owned subsidiary of
____________________, is engaged in the asset management, servicing,
liquidation, collection, asset valuation and consulting and related activities
with nonaffiliated companies and governmental entities, including the Federal
Deposit Insurance Corporation and Resolution Trust Corporation.
_____________'s operating office is located in ______________, __________, and
_________ has managed and serviced real estate assets in all 50 states, the
District of Columbia and Puerto Rico.
As of __________________, 199__, ____________ was responsible for
managing and servicing of approximately _______ assets, consisting of loans,
foreclosed real estate assets and other assets with a total principal balance
in excess of $____billion of which $_____billion is administered under special
servicing contracts. ________ has provided servicing in some capacity for ____
portfolios securing commercial mortgage backed securities.
___________________________. _______________________, a __________
corporation ("_________"), will act as Primary Servicer with respect to the
Mortgage Loans originated by ________________. As of ___________, 199__,
___________ had a net worth of approximately $_____ million and a total
commercial and multifamily mortgage loan servicing portfolio (including
mortgage loans serviced for its own account and for others) of approximately
$___________ billion. ____________________'s principal executive offices are
located at _________________________________________________________________,
and its telephone number is (___) ___-____. ________________ conducts
operations from its headquarters in ____________ and from offices located in
_____________, ______________, _____________, ___________, ____________,
____________ and _________________.
The information set forth herein concerning the Servicers has been
provided by the related Servicer. Neither the Depositor nor any other person
makes any representation or warranty as to the accuracy or completeness of such
information.
RESPONSIBILITIES OF MASTER SERVICER AND PRIMARY SERVICER
Under the Servicing Agreements, the Master Servicer and each Primary
Servicer are required to service and administer the Mortgage Loans solely on
behalf of and in the best interests of and for the benefit of the
Certificateholders, in accordance with the terms of the Servicing Agreement and
the Mortgage Loans and to the extent consistent with such terms, with the
higher of (a) the standard of care, skill, prudence and diligence with which
the Master Servicer and each Primary Servicer, respectively, service and
administer mortgage loans that are held for other portfolios that are similar
to the Mortgage Loans and (b) the standard of care, skill, prudence and
diligence with which the Master Servicer and each Servicer, respectively,
service and administer mortgage loans for their own portfolio and are similar
to the Mortgage Loans, in either case, giving due consideration to customary
and usual standards of practice of prudent institutional multifamily and
commercial mortgage lenders, loan servicers and asset managers.
RESPONSIBILITIES OF SPECIAL SERVICER
The servicing responsibility on a particular Mortgage Loan will be
transferred to the Special Servicer upon the occurrence of certain servicing
transfer events (each, a "SERVICING TRANSFER EVENT"), including the following:
(i) the Mortgage Loan becomes a "DEFAULTED MORTGAGE LOAN" because it is more
than 60 days delinquent in whole or in part in respect of any monthly payment
or is delinquent in whole or in part in respect of the related Balloon Payment;
(ii) the related Mortgagor has entered into or consented to bankruptcy,
appointment of a receiver or conservator or a similar insolvency or similar
proceeding, or the Mortgagor has become the subject of a decree or order for
such a proceeding which shall have remained in force undischarged or unstayed
for a period of 60 days; (iii) the Master Servicer or the Primary Servicer
shall have received notice of the foreclosure or proposed foreclosure of any
other lien on the Mortgaged Property; (iv) in the judgment of the Master
Servicer or the Primary Servicer, a payment default has occurred and is not
likely to be cured by the related Mortgagor within 60 days; (v) the related
Mortgagor admits in writing its inability to pay its debts generally as they
become due, files a petition to take advantage of any applicable insolvency or
reorganization statute, makes an assignment for the benefit of its creditors,
or voluntarily suspends payment of its obligations; (vi) any other material
default has in the Master Servicer's or the Primary Servicer's judgment
occurred
S-49
<PAGE> 56
which is not reasonably susceptible to cure within the time periods and on the
conditions specified in the related mortgage; (vii) the related Mortgaged
Property becomes an REO Property; (viii) if for any reason, the Primary
Servicer cannot enter into an assumption agreement upon the transfer by the
related Mortgagor of the mortgage; or (ix) an event has occurred which has
materially and adversely affected the value of the related Mortgaged Property
in the reasonable judgment of the Master Servicer or the Primary Servicer. A
Mortgage Loan serviced by the Special Servicer is referred to herein as a
"SPECIALLY SERVICED MORTGAGE LOAN". The Special Servicer will collect certain
payments on such Specially Serviced Mortgage Loans and make certain remittances
to, and prepare certain reports for the Master Servicer with respect to such
Mortgage Loans. The Master Servicer shall have no responsibility for the
performance by the Special Servicer of its duties under the Pooling and
Servicing Agreement provided that the Master Servicer continues to perform
certain servicing functions on such Specially Serviced Mortgage Loans and,
based on the information provided to it by the Special Servicer, prepares
certain reports to the Trustee with respect to such Specially Serviced Mortgage
Loans. To the extent that any Mortgage Loan, in accordance with its original
terms or as modified in accordance with the Pooling and Servicing Agreement,
becomes a performing Mortgage Loan for a least three consecutive months, the
Special Servicer will return servicing of such Mortgage Loan to the Primary
Servicer.
Under the Pooling and Servicing Agreement the Special Servicer is
required to service, administer and dispose of Specially Serviced Mortgage
Loans solely in the best interests of and for the benefit of the
Certificateholders, in accordance with the Pooling and Servicing Agreement and
the Mortgage Loans and to the extent consistent with such terms, with the
higher of (a) the standard of care, skill, prudence and diligence with which
the Special Servicer services, administers and disposes of, distressed mortgage
loans and related real property that are held for other portfolios that are
similar to the Mortgage Loans, Mortgaged Property and REO Property and (b) the
standard of care, skill, prudence and diligence with which the Special Servicer
services, administers and disposes of distressed mortgage loans and related
real property for its own portfolio and are similar to the Mortgage Loans,
Mortgage Property and REO Property, giving due consideration to customary and
usual standards of practice of prudent institutional multifamily and commercial
mortgage lenders, loan servicers and asset managers, so as to maximize the net
present value of recoveries on the Mortgage Loans.
The Special Servicer shall have full power and authority to do any and
all things in connection with servicing and administering a Mortgage Loan that
it may deem in its best judgment necessary or advisable, including, without
limitation, to execute and deliver on behalf of the Trust Fund any and all
instruments of satisfaction or cancellation or of partial release or full
release or discharge and all other comparable instruments, to reduce the
related Mortgage Interest Rate, and to defer or forgive payment of interest
and/or principal with respect to any Specially Serviced Mortgage Loan or any
Mortgaged Property. The Special Servicer may not permit a modification of any
Mortgage Loan to extend the scheduled maturity date of any Specially Serviced
Mortgage Loan more than three years beyond the scheduled maturity date thereof
as of the Cut-off Date without the consent of the Extension Advisor. See
"--Extension Advisor" below. Notwithstanding the forgoing, the Special Servicer
may not permit any such modification with respect to a Balloon Mortgage Loan if
it results in the extension of such maturity date beyond the amortization term
of such Balloon Mortgage Loan absent the related Balloon Payment. The Special
Servicer will prepare a report (an "ASSET STRATEGY REPORT") for each Mortgage
Loan which becomes a Specially Serviced Mortgage Loan not later than thirty
(30) days after the servicing of such Mortgage Loan is transferred to the
Special Servicer. Each Asset Strategy Report will be delivered to each holder
of a Class F, Class G and Class NR Certificate upon request. The holders of the
fewest number of classes of Certificates representing the most subordinate
interests in the Trust Fund that equals at least a 2% interest therein (the
"MONITORING CERTIFICATEHOLDERS") will designate one Monitoring
Certificateholder pursuant to the Pooling and Servicing Agreement (the
"DIRECTING CERTIFICATEHOLDER"). Each Asset Strategy Report will be delivered to
the Directing Certificateholder. The Directing Certificateholder may object to
any Asset Strategy Report within 10 business days of receipt. If the Directing
Certificateholder does not disapprove an Asset Strategy Report within 10
business days, the Special Servicer shall implement the recommended action as
outlined in such Asset Strategy Report. If the Directing Certificateholder
disapproves such Asset Strategy Report and the Special Servicer has not made
the affirmative determination described below, the Special Servicer will revise
such Asset Strategy Report as soon as practicable. The Special Servicer will
revise such Asset Strategy Report until the Directing Certificateholder fails
to disapprove such revised Asset Strategy Report; provided, however, that the
Special Servicer shall implement the recommended action as outlined in such
Asset Strategy Report if it makes an affirmative determination that such
objection is not in the best interest of all Certificateholders. In connection
with making such affirmative determination, the Special Servicer may request a
vote by all the Certificateholders. Any Certificateholder may request and
obtain a
S-50
<PAGE> 57
copy of any Asset Strategy Report subject to delivery of a certificate
acknowledging certain possible limitations with respect to the use of such
report imposed by U.S. securities laws.
EXTENSION ADVISOR
The Extension Advisor will be responsible for approving any proposed
Mortgage Loan modification that extends the maturity date of a Mortgage Loan by
more than three (3) years beyond the scheduled maturity date of such loan as of
the Cut-off Date. The initial Extension Advisor, acting on behalf of the
holders of the Offered Certificates, shall only grant such approvals if it
shall have determined that the decision of the Special Servicer to so modify
the Mortgage Loan is consistent with the Special Servicer standard set forth in
the Pooling and Servicing Agreement. Any subsequent Extension Advisor may grant
such approvals if it shall have determined that the decision of the Special
Servicer to so modify the Mortgage Loan is in the best interest of the Holders
of the Offered Certificates.
The initial Extension Advisor will be _______________. The
responsibility of _____________ as Extension Advisor shall be carried out by
the Real Estate Division of the Commercial Banking Services Area of such bank.
At any time, the holders of a majority of the outstanding aggregate Certificate
Principal Balance of the Offered Certificates may remove the Extension Advisor.
In such event, the Trustee will so inform such Certificateholders, and a
majority of Certificate Principal Balance of the holders of such Certificates
shall have the right to appoint a replacement Extension Advisor.
SERVICING AND OTHER COMPENSATION AND PAYMENT OF EXPENSES
The principal compensation to be paid to the Master Servicer and each
respective Primary Servicer in respect of their servicing activities will be
the Servicing Fee. The Servicing Fee will be payable monthly and will accrue at
the applicable Servicing Fee Rate and will be computed on the basis of the same
principal amount and for the same period respecting which any related interest
payment on such Mortgage Loan is computed. The Servicing Fee Rate for any
Mortgage Loan will be the sum of the fee payable to the Master Servicer and the
fee payable to the Primary Servicer as described below. The fee payable to the
Master Servicer with respect to the Mortgage Loans will equal _____% per annum.
The fee payable to AMI and ________ as Primary Servicer with respect to the
Mortgage Loans will equal _______% per annum. The fee payable to __________ as
Primary Servicer will equal ______________% per annum.
The principal compensation to be paid to the Special Servicer in
respect of its special servicing activities will be the Special Servicing Fee.
The Special Servicing Fee will be payable monthly only from amounts received in
respect of each Specially Serviced Mortgage Loan. The Special Servicing Fee
will equal 1.00% of all amounts collected with respect to any Specially
Serviced Mortgage Loans and any Mortgage Loan which became a Specially Serviced
Mortgage Loan and was subsequently returned to a performing status.
CONFLICTS OF INTEREST
The Special Servicer or its affiliates own and are in the business of
acquiring assets similar to the Mortgage Loans held by the Trust Fund. To the
extent that any mortgage loans owned and/or serviced by the Special Servicer or
its affiliates are similar to the Mortgage Loans held by the Trust Fund, the
mortgaged properties related to such mortgage loans may, depending upon certain
circumstances such as the location of the mortgaged property, compete with the
Mortgaged Properties related to the Mortgage Loans held by the Trust Fund for
tenants, purchasers, financing and similar resources.
DESCRIPTION OF THE POOLING AND SERVICING AGREEMENT
GENERAL
The Certificates will be issued pursuant to a Pooling and Servicing
Agreement to be dated as of ___________, 199__ (the "POOLING AND SERVICING
AGREEMENT"), by and among the Depositor, the Master Servicer, the Special
Servicer and the Trustee. Following are summaries of certain provisions of the
Pooling and Servicing Agreement. The summaries do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, the
S-51
<PAGE> 58
provisions of the Pooling and Servicing Agreement. The Trustee will provide to
a prospective or actual Certificateholder without charge, upon written request,
a copy (without exhibits) of the Pooling and Servicing Agreement. Requests
should be addressed to __________________________________________,
___________________________, Attention: Corporate Trust Department.
ASSIGNMENT OF THE MORTGAGE LOANS
On or prior to the Delivery Date, ACC will assign or cause to be
assigned the Mortgage Loans, without recourse, to the Trustee for the benefit
of the Certificateholders. On or prior to the Delivery Date, the Depositor
will, as to each Mortgage Loan, deliver to the Trustee (or the Custodian),
among other things, the following documents (collectively, as to such Mortgage
Loan, the "MORTGAGE LOAN FILE"): (i) the original Mortgage, and any intervening
assignments thereof, in each case with evidence of recording thereon or in case
such documents have not been returned by the applicable recording office,
certified copies thereof; (ii) the original or, if accompanied by a "lost note"
affidavit, a copy of the Mortgage Note, endorsed by ACC, without recourse, in
blank or to the order of Trustee; (iii) an assignment of the Mortgage, executed
by ACC, in blank or to the order of the Trustee, in recordable form; (iv)
originals or certified copies of any related assignment of leases, rents and
profits and any related security agreement (if, in either case, such item is a
document separate from the Mortgage) and any intervening assignments of each
such document or instrument; (v) assignments of any related assignment of
leases, rents and profits and any related security agreement (if, in either
case, such item is a document separate from the Mortgage), executed by ACC, in
blank or to the order of the Trustee; (vi) originals or certified copies of all
assumption, modification and substitution agreements in those instances where
the terms or provisions of the Mortgage or Mortgage Note have been modified or
the Mortgage or Mortgage Note has been assumed; and (vii) the originals or
certificates of a lender's title insurance policy issued on the date of the
origination of such Mortgage Loan or, with respect to each Mortgage Loan not
covered by a lender's title insurance policy, an attorney's opinion of title
given by an attorney licensed to practice law in the jurisdiction where the
Mortgaged Property is located; (viii) originals or copies of any UCC financing
statements; (ix) originals or copies of any guaranties related to such Mortgage
Loan; (x) originals or copies of insurance policies related to the Mortgaged
Property; (xi) originals or certified copies of any environmental liabilities
agreement; (xii) originals or copies of any escrow agreements; (xiii) original
or certified copies of any prior assignments of mortgage if the Originator is
not the originator of record; (xiv) any collateral assignments of property
management agreements and other servicing agreements; (xv) the documents
specified in the Underwriting Guidelines for the due diligence investigation to
be performed by or on behalf of the Originator pursuant to the Mortgage Loan
Purchase Agreement; (xvi) any appraisals of the Mortgaged Property; (xvii) a
physical assessment report of the Mortgaged Property; (xviii) an environmental
site assessment of the Mortgaged Property; (xix) originals or certified copies
of any lease subordination agreements and tenant estoppels; and (xx) any
opinions of borrower's counsel. The Pooling and Servicing Agreement will
require the Depositor to cause each assignment of the Mortgage described in
clause (iv) above to be submitted for recording in the real property records of
the jurisdiction in which the related Mortgaged Property is located. Any such
assignment delivered in blank will be completed to the order of the Trustee
prior to recording. The Pooling and Servicing Agreement will also require the
Depositor to cause the endorsements on the Mortgage Notes delivered in blank to
be completed to the order of the Trustee.
TRUSTEE
____________________ shall serve as Trustee under the Pooling and
Servicing Agreement pursuant to which the Certificates are being issued. Except
in circumstances such as those involving defaults (when it might request
assistance from other departments in the bank), its responsibilities as trustee
are carried out by its Corporate Trust Department. Its principal corporate
trust office is located at _________________________________________.
COLLECTION ACCOUNTS AND CERTIFICATE ACCOUNT
The Primary Servicer is required to deposit all amounts received with
respect to the Mortgage Loans, net of certain amounts retained by the Primary
Servicer as additional servicing compensation, into a separate Collection
Account (the "PRIMARY COLLECTION ACCOUNT") maintained by the Primary Servicer
for the Trust Fund. On the third business day preceding each Distribution Date,
the Primary Servicer shall remit all amounts in the Primary Collection Account
to the Master Servicer for deposit into a separate Collection Account (the
"MASTER COLLECTION ACCOUNT") maintained by the Master Servicer for the Trust
Fund. The Master Servicer is required to deposit on the business day
S-52
<PAGE> 59
preceding each Distribution Date all amounts received with respect to the
Mortgage Loans into a separate account (the "CERTIFICATE ACCOUNT") maintained
with the Trustee. Interest or other income earned on funds in the Primary
Collection Account or the Master Collection Account will be paid to the
Servicer maintaining such account as additional servicing compensation. See
"Description of the Trust Funds -- Mortgage Loans" and "Description of the
Agreements -- Accounts -- Distribution Account" and "Description of the
Agreements -- Accounts -- Other Collection Accounts" in the Prospectus.
REPORTS TO CERTIFICATEHOLDERS
On each Distribution Date the Trustee shall furnish to each
Certificateholder, to the Depositor and to each Rating Agency a statement
setting forth certain information with respect to the Mortgage Loans and the
Certificates required pursuant to the Pooling and Servicing Agreement and in
the form of Annex B hereto. In addition, within a reasonable period of time
after each calendar year, the Trustee shall furnish to each person who at any
time during such calendar year was the holder of a Certificate a statement
containing certain information with respect to the Certificates required
pursuant to the Pooling and Servicing Agreement, aggregated for such calendar
year or portion thereof during which such person was a Certificateholder.
Unless and until Definitive Certificates are issued, such statements or reports
will be furnished only to Cede & Co., as nominee for DTC; provided, however,
that the Trustee shall furnish a copy of any such statement or report to any
Beneficial Owner which requests such copy and certifies to the Trustee that it
is the Beneficial Owner of a Certificate. The Trustee shall furnish a copy of
any such statement or report to any person who requests it for a nominal
charge. Any person may call the Master Servicer at ______________ in order to
inquire as to how to obtain such statement or report. Such statement or report
may be available to Beneficial Owners upon request to DTC or their respective
Participant or Indirect Participants. Any Asset Strategy Report shall be
delivered by the Trustee upon request to any Beneficial Owner of an Offered
Certificate subject to the second preceding sentence and the receipt by the
Trustee of a certificate acknowledging certain limitations with respect to the
use of such statement or report. See "Description of the Certificates --
Reports to Certificateholders" in the Prospectus. The Directing
Certificateholder shall receive all reports prepared or received by the Master
Servicer or the Special Servicer. In addition, each other Certificateholder may
obtain all such reports at its expense as described in the Pooling and
Servicing Agreement.
VOTING RIGHTS
At all times during the term of this Agreement, _____% of all Voting
Rights shall be allocated among the classes of Certificates (other than the
Interest Only Certificates) in proportion to the respective Class Balances,
_____% of all Voting Rights shall be allocated to each class of Interest Only
Certificates and _______% of all Voting Rights shall be allocated to each class
of Residual Certificates. Voting Rights allocated to a class of Certificates
shall be allocated among the holders of such class in proportion to the
Percentage Interests evidenced by their respective Certificates.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates" in the Prospectus, unless and until
Definitive Certificates are issued, except as otherwise expressly provided
herein, Certificate Owners may only exercise their rights as owners of
Certificates indirectly through DTC or their respective Participant or Indirect
Participant.
TERMINATION
The obligations created by the Pooling and Servicing Agreement will
terminate following the earliest of (i) the final payment or other liquidation
of the last Mortgage Loan or REO Property subject thereto, and (ii) the
purchase of all of the assets of the Trust Fund by any of the Master Servicer,
the Special Servicer, any holder of a Class R-I Certificate, the holders of an
aggregate Percentage Interest in excess of 50% of the Most Subordinate Class of
Certificates and (to the extent all of the remaining Mortgage Loans are being
serviced thereby as Primary Servicer) any Primary Servicer. The "MOST
SUBORDINATE CLASS OF CERTIFICATES" at the time of determination shall be the
class of Certificates to which Realized Losses would be allocated at such time
as described under "Description of the Certificates -- Subordination" herein.
Written notice of termination of the Pooling and Servicing Agreement will be
given to each Certificateholder, and the final distribution will be made only
upon surrender and cancellation of the Certificates at the office of the
Certificate Registrar specified in such notice of termination.
S-53
<PAGE> 60
Any such purchase of all the Mortgage Loans and other assets in the
Trust Fund is required to be made at a price equal to the greater of (1) the
aggregate fair market value of all the Mortgage Loans and REO Properties then
included in the Trust Fund, determined pursuant to the Pooling and Servicing
Agreement, and (2) the aggregate Class Balance of all the Certificates plus
accrued and unpaid interest thereon. Such purchase will effect early retirement
of the then outstanding Certificates, but the right to effect such termination
is subject to the requirement that the aggregate Stated Principal Balance of
the Mortgage Loans then in the Trust Fund is less than ____% of the aggregate
principal balance of the Mortgage Loans as of the Cut-off Date.
USE OF PROCEEDS
The net proceeds from the sale of the Certificates will be used by the
Depositor to pay the purchase price of the Mortgage Loans.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Andrews & Kurth L.L.P., counsel to the Depositor.
This summary is based on laws, regulations, including the REMIC regulations
promulgated by the Treasury Department (the "REMIC REGULATIONS"), rulings and
decisions now in effect or (with respect to regulations) proposed, all of which
are subject to change either prospectively or retroactively. This summary does
not address the federal income tax consequences of an investment in Offered
Certificates applicable to all categories of investors, some of which (for
example, banks and insurance companies) may be subject to special rules.
Prospective investors should consult their tax advisors regarding the federal,
state, local and any other tax consequences to them of the purchase, ownership
and disposition of Offered Certificates.
Three separate REMIC elections will be made with respect to the Trust
Fund for federal income tax purposes. Upon the issuance of the Certificates,
Andrews & Kurth L.L.P., counsel to the Depositor, is of the opinion that,
assuming compliance with all provisions of the Pooling and Servicing Agreement,
for federal income tax purposes, the REMIC I, REMIC II and REMIC III (each as
defined in the Pooling and Servicing Agreement) will qualify as a REMIC under
the Code.
For federal income tax purposes, the Class R-I Certificates will be
the sole class of "residual interests" in REMIC I, the Class R-II Certificates
will be the sole class of "residual interests" in REMIC II, the Offered
Certificates (or, in the case of the Class BCX Certificates, each component
thereof) and the Class F, Class G and Class NR Certificates will be "regular
interests" of REMIC III and will be treated as debt instruments of the REMIC
III, and the Class R-III Certificates will be the sole class of "residual
interests" in REMIC III.
See " Federal Income Tax Consequences -- REMICs" in the Prospectus.
The Interest Only Certificates will, and the other classes of Offered
Certificates may, be treated as having been issued with original issue discount
for federal income tax reporting purposes. For purposes of computing the rate
of accrual of original issue discount, market discount and premium, if any, for
federal income tax purposes it will be assumed that there are no prepayments on
the Mortgage Loan. No representation is made that the Mortgage Loans will not
prepay at another rate. See " Federal Income Tax Consequences -- REMICs --
Taxation of Owners of REMIC Regular Certificates" and "--Original Issue
Discount and Premium" in the Prospectus.
Prepayment Premiums allocated to the Certificates will be taxable to
the holders of such Certificates on the date the amount of such premiums
becomes fixed.
The Offered Certificates may be treated for federal income tax
purposes as having been issued at a premium. Whether any holder of such a
class of Certificates will be treated as holding a certificate with amortizable
bond premium will depend on such Certificateholder's purchase price and the
distributions remaining to be made on such Certificate at the time of its
acquisition by such Certificateholder. Holders of such class of Certificates
should consult their own
S-54
<PAGE> 61
tax advisors regarding the possibility of making an election to amortize such
premium. See " Federal Income Tax Consequences -- REMICs -- Taxation of Owners
of REMIC Regular Certificates" and "--Premium" in the Prospectus.
The Offered Certificates will be treated as "qualifying real property
loans" within the meaning of Section 593(d) of the Code and "real estate
assets" within the meaning of Section 856(c)(6)(B) of the Code generally in the
same proportion that the assets of the REMIC underlying such Certificates would
be so treated. In addition, interest (including original issue discount) on the
Offered Certificates will be interest described in Section 856(c)(3)(B) of the
Code to the extent that such Offered Certificates are treated as "real estate
assets" under Section 856(c)(6)(B) of the Code. Moreover, the Offered
Certificates will be "obligation[s]...which... [are] principally secured by an
interest in real property" within the meaning of Section 860G(a)(3)(A) of the
Code. The Offered Certificates will not be considered to represent an interest
in "loans...secured by an interest in real property" within the meaning of
Section 7701 (a)(19)(C)(v) of the Code except in the proportion that the assets
of the Trust Fund are represented by Mortgage Loans secured by multifamily
apartment buildings. See " Federal Income Tax Consequences -- REMICs --
Characterization of Investments in REMIC Certificates" in the Prospectus.
For further information regarding the federal income tax consequences
of investing in the Certificates, see " Federal Income Tax Consequences" in the
Prospectus.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "
Federal Income Tax Consequences," potential investors should consider the state
income tax consequences of the acquisition, ownership, and disposition of the
Offered Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
A fiduciary of any employee benefit plan or other retirement plan or
arrangement, including individual retirement accounts and annuities, Keogh
plans and collective investment funds and separate accounts in which such
plans, accounts or arrangements are invested, and any entity whose underlying
assets include assets of such a plan by reason of any such plan's investment in
the entity that is subject to the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the Code (each, a "Plan") should
carefully review with its legal advisors whether the purchase or holding of any
Class of Offered Certificates could give rise to a transaction that is
prohibited or is not otherwise permitted either under ERISA or Section 4975 of
the Code.
The U.S. Department of Labor issued an individual exemption,
Prohibited Transaction Exemption 89-88 (the "EXEMPTION"), on October 11, 1989
to Goldman, Sachs & Co., which generally exempts from the application of
certain prohibited transaction provisions of Section 406 of ERISA, and the
excise taxes imposed on such prohibited transactions pursuant to Sections
4975(a) and (b) of the Code and Section 502(i) of ERISA, certain transactions,
among others, relating to the servicing and operation of mortgage pools and the
purchase, sale and holding of mortgage pass-through certificates underwritten
by an Underwriter (as hereinafter defined), provided that certain conditions
set forth in the Exemption are satisfied. For purposes of this Section "ERISA
Considerations", the term "UNDERWRITER" shall include (a) Goldman, Sachs & Co.,
(b) any person directly or indirectly, through one or more intermediaries,
controlling, controlled by or under common control with Goldman, Sachs & Co.
and (c) any member of the underwriting syndicate or selling group of which a
person described in (a) or (b) is a manager or co-manager with respect to the
Class A1, Class A1X, Class A2 and Class A2X Certificates.
The Exemption sets forth six general conditions which must be
satisfied for a transaction involving the purchase, sale and holding of such
Classes of Offered Certificates to be eligible for exemptive relief thereunder.
First, the acquisition of such Classes of Offered Certificates by a Plan, must
be on terms (including the price) that are at least as favorable to the Plan as
they would be in an arm's-length transaction with an unrelated party. Second,
the rights
S-55
<PAGE> 62
and interests evidenced by such Classes of Offered Certificates must not be
subordinate to the rights and interests evidenced by the other certificates of
the same trust. Third, such Classes of Offered Certificates at the time of
acquisition by the Plan must be rated in one of the three highest generic
rating categories by Standard & Poor's Corporation, Moody's Investors Service,
Inc., Duff & Phelps Credit Rating Co. or Fitch Investors Service, Inc. Fourth,
the Trustee cannot be an affiliate of any member of the "Restricted Group,"
which consists of the Underwriter, the Depositor, the Master Servicer, the
Special Servicer, each Primary Servicer and any Mortgagor with respect to
Mortgage Loans constituting more than 5% of the aggregate unamortized principal
balance of the Mortgage Loans as of the date of initial issuance of such
Classes of Offered Certificates. Fifth, the sum of all payments made to and
retained by the Underwriter must represent not more than reasonable
compensation for underwriting such Classes of Offered Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the assignment
of the Mortgage Loans to the Trust Fund must represent not more than the fair
market value of such obligations; and the sum of all payments made to and
retained by the Master Servicer, the Special Servicer and any Primary Servicer
must represent not more than reasonable compensation for such person's services
under the Agreements and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501 (a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933, as amended.
Because the Class A1, Class A1X, Class A2 and Class A2X Certificates
are not subordinate to any other class of Certificates, the second general
condition set forth above is satisfied with respect to such Certificates. It is
a condition of the issuance of such Classes of Certificates that they be rated
"______" by ________________ and either "____" or "____" by ________________.
A fiduciary of a Plan contemplating purchasing any such Class of Certificates
in the secondary market must make its own determination that at the time of
such acquisition, any such Class of Certificates continues to satisfy the third
general condition set forth above. The Depositor expects that the fourth
general condition set forth above will be satisfied with respect to each of
such Classes of Certificates. A fiduciary of a Plan contemplating purchasing
any such Class of Certificate must make its own determination that the first,
third, fifth and sixth general conditions set forth above will be satisfied
with respect to any such Class of Certificate.
The Class B, Class C, Class BCX, Class D and Class E do not satisfy
the second condition described above because they are subordinated to the Class
A1, Class A1X, Class A2 and Class A2X Certificates, and furthermore the Class D
and Class E Certificates are not expected to satisfy the third condition
described above.
Before purchasing any Class of Certificate, a fiduciary of a Plan
should itself confirm (a) that such Certificates constitute "certificates" for
purposes of the Exemption and (b) that the specific and general conditions of
the Exemption and the other requirements set forth in the Exemption would be
satisfied. In addition to making its own determination as to the availability
of the exemptive relief provided in the Exemption, the Plan fiduciary should
consider the availability of any other prohibited transaction exemptions.
Purchasers using insurance company general account funds to effect
such purchase should consider the availability of Prohibited Transaction Class
Exemption 95-60 (60 Fed. Reg. 35925, July 12, 1995) issued by the U.S.
Department of Labor.
Any Plan fiduciary considering whether to purchase any Class of
Certificate on behalf of a Plan should consult with its counsel regarding the
applicability of the fiduciary responsibility and prohibited transaction
provisions of ERISA and the Code to such investment. See "ERISA Considerations"
in the Prospectus.
LEGAL INVESTMENT
The Class ___, Class ___, Class ___, Class ___ and Class ___
Certificates will be "mortgage related securities" within the meaning of the
Secondary Mortgage Market Enhancement Act of 1984 ("SMMEA") for so long as they
are rated in one of the two highest rating categories by at least one
nationally recognized statistical rating organization. The Class ___, Class
___ and Class ___ Certificates will not be "mortgage related securities" within
the meaning of SMMEA.
In addition, institutions whose investment activities are subject to
review by certain regulatory authorities may be or may become subject to
restrictions, which may be retroactively imposed by such regulatory
authorities, on the
S-56
<PAGE> 63
investment by such institutions in certain forms of mortgage-backed securities.
Furthermore, certain states have enacted legislation overriding the legal
investment provisions of SMMEA.
The Depositor makes no representations as to the proper
characterization of the Offered Certificates for legal investment or other
purposes, or as to the ability of particular investors to purchase the Offered
Certificates under applicable legal investment restrictions. These
uncertainties may adversely affect the liquidity of the Offered Certificates.
Accordingly, all institutions whose investment activities are subject to legal
investment laws and regulations, regulatory capital requirements or review by
regulatory authorities should consult with their own legal advisors in
determining whether and to what extent the Offered Certificates constitute a
legal investment or are subject to investment, capital or other restrictions.
See "Legal Investment" in the Prospectus.
METHOD OF DISTRIBUTION
Subject to the terms and conditions set forth in an Underwriting
Agreement, dated _____________, 199___ (the "UNDERWRITING AGREEMENT"), the
Underwriter has agreed to purchase and the Depositor has agreed to sell to the
Underwriter the Offered Certificates. It is expected that delivery of the
Offered Certificates will be made only in book-entry form through the Same Day
Funds Settlement System of DTC on or about ______________, 199___, against
payment therefor in immediately available funds.
In the Underwriting Agreement, the Underwriter has agreed, subject to
the terms and conditions set forth therein, to purchase all of the Offered
Certificates if any are purchased. In the event of default by the Underwriter,
the Underwriting Agreement provides that, in certain circumstances, the
underwriting may be terminated.
The Underwriting Agreement provides that the obligation of the
Underwriter to pay for and accept delivery of its Certificates is subject to,
among other things, the receipt of certain legal opinions and to the
conditions, among others, that no stop order suspending the effectiveness of
the Depositor's Registration Statement shall be in effect, and that no
proceedings for such purpose shall be pending before or threatened by the
Securities and Exchange Commission.
The distribution of the Offered Certificates by the Underwriter may be
effected from time to time in one or more negotiated transactions, or
otherwise, at varying prices to be determined at the time of sale. Proceeds to
the Depositor from the sale of the Offered Certificates, before deducting
expenses payable by the Depositor, will be approximately ____________% of the
aggregate principal balance of the Offered Certificates as of the Cut-off Date,
plus accrued interest from the Cut-off Date. The Underwriter may effect such
transactions by selling its Certificates to or through dealers, and such
dealers may receive compensation in the form of underwriting discounts,
concessions or commissions from the Underwriter for whom they act as agent. In
connection with the sale of the Offered Certificates, the Underwriter may be
deemed to have received compensation from the Depositor in the form of
underwriting compensation. The Underwriter and any dealers that participate
with the Underwriter in the distribution of the Offered Certificates may be
deemed to be underwriters and any profit on the resale of the Offered
Certificates positioned by them may be deemed to be underwriting discounts and
commissions under the Securities Act of 1933, as amended.
The Underwriting Agreement provides that the Depositor will indemnify
the Underwriter, and that under limited circumstances the Underwriter will
indemnify the Depositor, against certain civil liabilities under the Securities
Act of 1933, as amended, or contribute to payments to be made in respect
thereof.
There can be no assurance that a secondary market for the Offered
Certificates will develop or, if it does develop, that it will continue. The
primary source of ongoing information available to investors concerning the
Offered Certificates will be the reports discussed herein under "Description of
the Pooling and Servicing Agreement --
S-57
<PAGE> 64
Reports to Certificateholders." Except as described herein under "Description
of the Pooling and Servicing Agreement -- Reports to Certificateholders", there
can be no assurance that any additional information regarding the Offered
Certificates will be available through any other source. In addition, the
Depositor is not aware of any source through which price information about the
Offered Certificates will be generally available on an ongoing basis. The
limited nature of such information regarding the Offered Certificates may
adversely affect the liquidity of the Offered Certificates, even if a secondary
market for the Offered Certificates becomes available.
LEGAL MATTERS
Certain legal matters will be passed upon for the Depositor by Andrews
& Kurth L.L.P., Dallas, Texas; and certain legal matters will be passed upon
for the Underwriter by Latham & Watkins, New York, New York.
RATING
It is a condition of issuance of the Class A1 and Class A2
Certificates be rated "____" by ________________ ("________________ ") and
________________ ("________________ "). It is a condition of the issuance of
the Class A1X and Class A2X Certificates that they be rated "______" by
________________ and "_____" by ________________. It is a condition of the
issuance of the Class B Certificates that they be rated not lower than "___" by
________________ and ________________. It is a condition of the issuance of
the Class C Certificates that they be rated not lower than "__" by
________________ and "___" by ________________. It is a condition to the
issuance of the Class BCX Certificates that they be rated not lower than "___"
by ________________. It is a condition of the issuance of the Class D
Certificates that they be rated not lower than "___" by ________________ and
________________. It is a condition to the issuance of the Class E Certificates
that they be rated not lower than "______" by ________________ and
________________.
The ratings on mortgage pass-through certificates address the
likelihood of the receipt by holders thereof of payments to which they are
entitled including the receipt of all principal payments by the Rated Final
Distribution Date. Such ratings take into consideration the credit quality of
the mortgage pool, structural and legal aspects associated with the
certificates, and the extent to which the payment stream in the mortgage pool
is adequate to make payments required under the certificates. Such ratings on
the Offered Certificates do not, however, constitute a statement regarding
frequency or likelihood of prepayments (whether voluntary or involuntary) of
the Mortgage Loans, or the degree to which such prepayments might differ from
those originally anticipated, or the likelihood of the collection of Prepayment
Premiums, and do not address the possibility that Certificateholders might
suffer a lower than anticipated yield. The ratings of the Interest Only
Certificates does not address the possibility that the holders of such
Certificates may fail to fully recover their initial investments due to a rapid
rate of prepayments, defaults or liquidations. See "Risk Factors" herein.
There can be no assurance as to whether any rating agency not
requested to rate the Offered Certificates will nonetheless issue a rating and,
if so, what such rating would be. A rating assigned to the Offered Certificates
by a rating agency that has not been requested by the Depositor to do so may be
lower than the rating assigned by ________________ or ________________
pursuant to the Depositor's request.
The rating of the Offered Certificates should be evaluated
independently from similar ratings on other types of securities. A security
rating is not a recommendation to buy, sell or hold securities and may be
subject to revision or withdrawal at any time by the assigning rating agency.
Each security rating should be evaluated independently of any other security
rating. A security rating does not address the frequency or likelihood of
prepayments (whether voluntary or involuntary) of Mortgage Loans, or the
corresponding effect on the yield to investors.
The ratings do not address the fact that the Pass-Through Rates on the
Offered Certificates, to the extent determined based on the Remittance Rates,
may be affected by changes therein.
S-58
<PAGE> 65
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
"30/360 Basis" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-4, S-40
"ACC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"Adjusted Available Distribution Amount" . . . . . . . . . . . . . . . S-4, S-40
"Adjusted Collateral Value" . . . . . . . . . . . . . . . . . . . . . . . . S-43
"ALP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"AMI" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1, S-48
"AMRESCO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-48
"Asset Strategy Report" . . . . . . . . . . . . . . . . . . . . . . . . . . S-50
"Assignment of Leases and Rents" . . . . . . . . . . . . . . . . . . . . . S-26
"Assignment of Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Available Distribution Amount" . . . . . . . . . . . . . . . . . . . . . . S-39
"Balloon Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Balloon Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Beneficial Owner" . . . . . . . . . . . . . . . . . . . . . . . . . . S-2, S-38
"Borrower" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Cede" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
"CERCLA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15
"Certificate Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-53
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . 1, S-1, S-56
"Class Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
"Collateral Value Adjustment" . . . . . . . . . . . . . . . . . . . . . . . S-42
"Component" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"CON" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
** 1 "Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Cut-off Date LTV Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Debt Service Coverage Ratio" . . . . . . . . . . . . . . . . . . . . . . . S-31
"Defaulted Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . S-49
"Definitive Certificate" . . . . . . . . . . . . . . . . . . . . . . . S-2, S-38
"Delivery Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
"Depositor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-1
"Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Directing Certificateholder" . . . . . . . . . . . . . . . . . . . . . . . S-50
"Distribution Date" . . . . . . . . . . . . . . . . . . . . . . . . ii, S-1, S-39
"DOH" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"DSCR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iii, S-2, S-38
"DTC Registered Certificates" . . . . . . . . . . . . . . . . . . . . . S-2, S-38
"Due Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-10, S-55
"ESA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-15, S-21
"Exemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
"Facility" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"FIRREA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Form 8-K" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
"Interest Accrual Amount" . . . . . . . . . . . . . . . . . . . . . . . . . S-40
"Interest Distribution Amount" . . . . . . . . . . . . . . . . . . . . S-4, S-40
"Interest Only Certificates" . . . . . . . . . . . . . . . . . . . . . . . . ii
</TABLE>
S-59
<PAGE> 66
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Licenses" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-24
"Loan Sale Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
"Lock-out Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
"Lock-out Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-35
"Loss Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Master Collection Account" . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Maturity Date LTV Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . S-30
"Monitoring Certificateholders" . . . . . . . . . . . . . . . . . . . . . . S-50
"Monthly Payments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
** 2 "Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
"Mortgage File" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Mortgage Loan File" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-52
"Mortgage Loan Purchase Agreement" . . . . . . . . . . . . . . . . . . . . S-18
"Mortgage Loan Schedule" . . . . . . . . . . . . . . . . . . . . . . . . . S-26
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-2
"Mortgage Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
"Mortgage Pool" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-2
"Mortgaged Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Mortgaged Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-18
"Mortgagor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
"Most Subordinate Class of Certificates" . . . . . . . . . . . . . . . . . S-53
"Net Operating Income" . . . . . . . . . . . . . . . . . . . . . . . . . . S-31
"Net Prepayment Premium" . . . . . . . . . . . . . . . . . . . . . . . . . S-41
"Notional Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Offered Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Operator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-15, S-24
"Originators" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii, S-18
"Other Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
"P&I Advances" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6, S-43
"Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-2
"Pass-Through Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Percentage Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
"Permitted Exceptions" . . . . . . . . . . . . . . . . . . . . . . . . . . S-21
"Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S- 27
"Physical Plant Standards" . . . . . . . . . . . . . . . . . . . . . . . . S-25
"Plan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-55
"Pooling and Servicing Agreement" . . . . . . . . . . . . . . . . . . . S-3, S-51
"Prepayment Interest Excess" . . . . . . . . . . . . . . . . . . . . . . . S-40
"Prepayment Interest Shortfall" . . . . . . . . . . . . . . . . . . . . . . S-40
"Prepayment Premium" . . . . . . . . . . . . . . . . . . . . . . . . . S-3, S-35
"Primary Collection Account" . . . . . . . . . . . . . . . . . . . . . . . S-52
"Principal Distribution Amount" . . . . . . . . . . . . . . . . . . . . S-5, S-41
"Property Protection Expenses" . . . . . . . . . . . . . . . . . . . . . . S-43
"Realized Loss" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Reassignment of Assignment of Leases and Rents" . . . . . . . . . . . . . S- 27
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-1
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii, S-9
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-54
</TABLE>
S-60
<PAGE> 67
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Remittance Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
"Remittance Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-39
"REO Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
"REO Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-37
"Rules" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-38
"Section 42 Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . S-14
"Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-6
"Servicing Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . S-19
"Servicing Transfer Event" . . . . . . . . . . . . . . . . . . . . . . . . S-49
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .S-11, S-56
"Special Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Specially Serviced Mortgage Loan" . . . . . . . . . . . . . . . . . . S-9, S-50
"Stated Principal Balance" . . . . . . . . . . . . . . . . . . . . . . . . S-43
"Third-Party Payors' Programs" . . . . . . . . . . . . . . . . . . . . . . S-25
"Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ii
"Underwriter" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i, S-55
"Underwriting Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . S-57
</TABLE>
S-61
<PAGE> 68
ANNEX A
CERTAIN CHARACTERISTICS
OF THE MORTGAGE LOANS
[Annex A to follow this page]
A-1
<PAGE> 69
ANNEX B
FORM OF MONTHLY REPORT
[Annex B to follow this page]
B-1
<PAGE> 70
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 7, 1997
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES") offered
hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will be
offered from time to time in one or more series (each, a "SERIES"). The Offered
Certificates of any Series, together with any other mortgage pass-through
certificates of such Series, are collectively referred to herein as the
"CERTIFICATES". Each Series of Certificates will represent in the aggregate the
entire beneficial ownership interest in a trust fund (with respect to any
Series, the "TRUST FUND") consisting of one or more segregated pools of various
types of multifamily or commercial mortgage loans (the "MORTGAGE LOANS"),
mortgage participations, mortgage pass-through certificates or other
mortgage-backed securities evidencing interests in or secured by multifamily or
commercial mortgage loans (collectively, the "CMBS") or a combination of
Mortgage Loans and/or CMBS (with respect to any Series, collectively, the
"MORTGAGE ASSETS"). If so specified in the related Prospectus Supplement, some
or all of the Mortgage Loans will include assignments of the leases of the
related Mortgaged Properties (as defined herein) and/or assignments of the
rental payments due from the lessees under such leases (each type of assignment,
a "LEASE ASSIGNMENT"). A significant or the sole source of payments on certain
Commercial Loans (as defined herein) and, therefore, of distributions on certain
Series of Certificates, will be such rent payments. If so specified in the
related Prospectus Supplement, the Trust Fund for a Series of Certificates may
include letters of credit, insurance policies, guarantees, reserve funds or
other types of credit support, or any combination thereof (with respect to any
Series, collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
Retain this Prospectus for future reference. This Prospectus may not be
used to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
---------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE UNDERWRITER OR
ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE CERTIFICATES NOR ANY ASSETS IN
THE RELATED TRUST FUND WILL BE INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY
OR INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE EXTENT PROVIDED IN THE RELATED
PROSPECTUS SUPPLEMENT. THE ASSETS IN EACH TRUST FUND WILL BE HELD IN TRUST FOR
THE BENEFIT OF THE HOLDERS OF THE RELATED SERIES OF CERTIFICATES PURSUANT TO A
POOLING AND SERVICING AGREEMENT AND ONE OR MORE SERVICING AGREEMENTS, OR A TRUST
AGREEMENT, AS MORE FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 13 HEREIN AND SUCH INFORMATION AS MAY
BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates of
any Series and there can be no assurance that a secondary market for any Offered
Certificates will develop or that, if it does develop, it will continue. This
Prospectus may not be used to consummate sales of the Offered Certificates of
any Series unless accompanied by the Prospectus Supplement for such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
---------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 71
Each Series of Certificates will consist of one or more classes of
Certificates that may (i) provide for the accrual of interest thereon based on
fixed, variable or floating rates; (ii) be senior or subordinate to one or more
other classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions; (iv) be entitled
to interest distributions, with disproportionately low, nominal or no principal
distributions; (v) provide for distributions of accrued interest thereon
commencing only following the occurrence of certain events, such as the
retirement of one or more other classes of Certificates of such Series; (vi)
provide for distributions of principal sequentially, based on specified payment
schedules or other methodologies; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one or more of the
characteristics described in this paragraph, to the extent of available funds,
in each case as described in the related Prospectus Supplement. Any such
classes may include classes of Offered Certificates. See "Description of the
Certificates."
Principal and interest with respect to Certificates will be
distributable monthly, quarterly, semi-annually or at such other intervals and
on the dates specified in the related Prospectus Supplement. Distributions on
the Certificates of any Series will be made only from the assets of the related
Trust Fund.
The yield on each class of Certificates of a Series will be affected by,
among other things, the rate of payment of principal (including prepayments,
repurchase and defaults) on the Mortgage Assets in the related Trust Fund and
the timing of receipt of such payments as described under the caption "Yield
Considerations" herein and under the caption "Certain Prepayment, Maturity and
Yield Considerations" in the related Prospectus Supplement. A Trust Fund may be
subject to early termination under the circumstances described herein and in
the related Prospectus Supplement.
All CMBS will have been acquired for inclusion in a Trust Fund in purely
secondary transactions from a seller other than the issuer thereof and any of
its affiliates. The factors considered by the Registrant in determining that
the CMBS have been acquired in purely secondary market transactions include the
following: the Depositor's historical relationship with the underlying issuer,
whether or not any distribution by the Depositor with respect to other
securities of that issuer is presently occurring or being considered, whether
the Depositor was involved in the initial distribution of the underlying
securities, and the period of time elapsed between initial distribution and the
securitization transaction.
If so provided in the related Prospectus Supplement, one or more
elections may be made to treat the related Trust Fund or a designated portion
thereof as a "real estate mortgage investment conduit" (each, a "REMIC") for
federal income tax purposes. See "Federal Income Tax Consequences" herein.
Until 90 days after the date of each Prospectus Supplement, all dealers
effecting transactions in the Offered Certificates covered by such Prospectus
Supplement, whether or not participating in the distribution thereof, may be
required to deliver such Prospectus Supplement and this Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus and Prospectus
Supplement when acting as underwriters and with respect to their unsold
allotments or subscriptions.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and any
Prospectus Supplement with respect hereto and, if given or made, such
information or representations must not be relied upon. This Prospectus and any
Prospectus Supplement with respect hereto do not constitute an offer to sell or
a solicitation of an offer to buy any securities other than the Offered
Certificates or an offer of the Offered Certificates to any person in any state
or other jurisdiction in which such offer would be unlawful. The delivery of
this Prospectus at any time does not imply that information herein is correct
as of any time subsequent to its date; however, if any material change occurs
while this Prospectus is required by law to be delivered, this Prospectus will
be amended or supplemented accordingly.
PROSPECTUS SUPPLEMENT
As more particularly described herein, the Prospectus Supplement
relating to the Offered Certificates of each Series will, among other things,
set forth with respect to such Certificates, as appropriate: (i) a description
of the class or classes of Certificates, the payment provisions with respect to
each such class and the Pass-Through Rate or method of determining the Pass-
Through Rate with respect to each such class; (ii) the aggregate principal
amount and distribution dates relating to such Series and, if applicable, the
initial and final scheduled distribution dates for each class; (iii)
information as to the assets comprising the Trust Fund, including the general
characteristics of the assets included therein, including the Mortgage Assets
and any Credit Support and Cash Flow Agreements (with respect to the
Certificates of any Series, the "TRUST ASSETS"); (iv) the circumstances, if
any, under which the Trust Fund may be subject to early termination; (v)
additional information with respect to the method of distribution of such
Certificates; (vi) whether one or more REMIC elections will be made and
designation of the regular interests and residual interests;
- 2 -
<PAGE> 72
(vii) the aggregate original percentage ownership interest in the Trust Fund to
be evidenced by each class of Certificates; (viii) information as to any Master
Servicer, any Primary Servicer, any Special Servicer (or provision for the
appointment thereof) and the Trustee, as applicable; (ix) information as to the
nature and extent of subordination with respect to any class of Certificates
that is subordinate in right of payment to any other class; and (x) whether
such Certificates will be initially issued in definitive or book-entry form.
AVAILABLE INFORMATION
The Depositor has filed with the Securities and Exchange Commission (the
"COMMISSION") a Registration Statement (of which this Prospectus forms a part)
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), with
respect to the Offered Certificates. This Prospectus and the Prospectus
Supplement relating to each Series of Certificates contain summaries of the
material terms of the documents referred to herein and therein, but do not
contain all of the information set forth in the Registration Statement pursuant
to the rules and regulations of the Commission. For further information,
reference is made to such Registration Statement and the exhibits thereto. Such
Registration Statement and exhibits can be inspected and copied at prescribed
rates at the public reference facilities maintained by the Commission at its
Public Reference Section, 450 Fifth Street, N.W, Washington, D.C. 20549, and at
its Regional Offices located as follows: Midwest Regional Office, Citicorp
Center, 500 West Madison Street, Chicago, Illinois 60661; and Northeast
Regional Office, Seven World Trade Center, Suite 1300, New York, New York
10048. The Commission maintains a Web site at http://www.sec.gov containing
reports, proxy and information statements and other information regarding
registrants, including the Depositor, that file electronically with the
Commission.
To the extent described in the related Prospectus Supplement, some or
all of the Mortgage Loans may be secured by an assignment of the lessors'
(i.e., the related Mortgagors') rights in one or more leases (each, a "LEASE")
on the related Mortgaged Property. Unless otherwise specified in the related
Prospectus Supplement, no Series of Certificates will represent interests in or
obligations of any lessee (each, a "LESSEE") under a Lease. If indicated,
however, in the Prospectus Supplement for a given Series, a significant or the
sole source of payments on the Mortgage Loans in such Series, and, therefore,
of distributions on such Certificates, will be rental payments due from the
Lessees under the Leases. Under such circumstances, prospective investors in
the related Series of Certificates may wish to consider publicly available
information, if any, concerning the Lessees. Reference should be made to the
related Prospectus Supplement for information concerning the Lessees and
whether any such Lessees are subject to the periodic reporting requirements of
the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT").
A Master Servicer or the Trustee will be required to mail to holders of
Definitive Certificates (as defined herein) of each Series periodic unaudited
reports concerning the related Trust Fund. Unless and until Definitive
Certificates are issued, or to the extent provided in the related Prospectus
Supplement, such reports will be sent on behalf of the related Trust Fund to
Cede & Co. ("CEDE"), as nominee of The Depository Trust Company ("DTC") and
registered holder of the Offered Certificates, pursuant to the applicable
Agreement. Such reports may be available to Beneficial Owners (as defined
herein) in the Certificates upon request to their respective DTC Participants
or Indirect Participants (as defined herein). See "Description of the
Certificates -- Reports to Certificateholders" and "Description of the
Agreements -- Evidence as to Compliance."
The Depositor will file or cause to be filed with the Commission such
periodic reports with respect to each Trust Fund as are required under the
Exchange Act, and the rules and regulations of the Commission thereunder. The
Depositor intends to make a written request to the staff of the Commission that
the staff either (i) issue an order pursuant to Section 12(h) of the Exchange
Act exempting the Depositor from certain reporting requirements under the
Exchange Act with respect to each Trust Fund or (ii) state that the staff will
not recommend that the Commission take enforcement action if the Depositor
fulfills its reporting obligations as described in its written request. If such
request is granted, the Depositor will file or cause to be filed with the
Commission as to each Trust Fund the periodic unaudited reports to holders of
the Offered Certificates referenced in the preceding paragraph; however,
because of the nature of the Trust Funds, it is unlikely that any significant
additional information will be filed. In addition, because of the limited
number of Certificateholders expected for each series, the Depositor
anticipates that a significant portion of such reporting requirements will be
permanently suspended following the first fiscal year for the related Trust
Fund.
- 3 -
<PAGE> 73
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
There are incorporated herein by reference all documents and reports
filed or caused to be filed by the Depositor with respect to a Trust Fund
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of an offering of Offered Certificates evidencing interests
therein. The Depositor will provide or cause to be provided without charge to
each person to whom this Prospectus is delivered in connection with the
offering of one or more classes of Offered Certificates, upon written or oral
request of such person, a copy of any or all documents or reports incorporated
herein by reference, in each case to the extent such documents or reports
relate to one or more of such classes of such Offered Certificates, other than
the exhibits to such documents (unless such exhibits are specifically
incorporated by reference in such documents). Requests to the Depositor should
be directed in writing to AMRESCO Commercial Mortgage Funding I Corporation,
700 North Pearl Street, Suite 2400, L.B. No. 342, Dallas, Texas 75201,
Attention: L. Keith Blackwell. The Depositor has determined that its financial
statements are not material to the offering of any Offered Certificates.
- 4 -
<PAGE> 74
TABLE OF CONTENTS
<TABLE>
<S> <C>
PROSPECTUS SUPPLEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY OF PROSPECTUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Limited Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Limited Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Prepayments and Effect on Average
Life of Certificates and Yields . . . . . . . . . . . . . . . 15
Limited Nature of Ratings . . . . . . . . . . . . . . . . . . . . . . 15
Risks Associated with Mortgage Loans
and Mortgaged Properties . . . . . . . . . . . . . . . . . . 16
Risks Associated with Commercial
Loans and Leases . . . . . . . . . . . . . . . . . . . . . . . 16
Balloon Payments . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Junior Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . 17
Obligor Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Mortgagor Type . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Credit Support Limitations . . . . . . . . . . . . . . . . . . . . . 18
Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Environmental Risks . . . . . . . . . . . . . . . . . . . . . . . . . 19
Delinquent and Non-Performing
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . 19
ERISA Considerations . . . . . . . . . . . . . . . . . . . . . . . . 19
Certain Federal Tax Considerations
Regarding REMIC
Residual Certificates . . . . . . . . . . . . . . . . . . . . 20
Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Book-Entry Registration . . . . . . . . . . . . . . . . . . . . . . . 20
DESCRIPTION OF THE TRUST FUNDS . . . . . . . . . . . . . . . . . . . . . . . 20
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Mortgage Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
CMBS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Credit Support . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Cash Flow Agreements . . . . . . . . . . . . . . . . . . . . . . . . 26
USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
YIELD CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Pass-Through Rate . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Timing of Payment of Interest . . . . . . . . . . . . . . . . . . . . 27
Payments of Principal; Prepayments . . . . . . . . . . . . . . . . . 27
Prepayments -- Maturity and Weighted
Average Life . . . . . . . . . . . . . . . . . . . . . . . . 28
Other Factors Affecting Weighted
Average Life . . . . . . . . . . . . . . . . . . . . . . . . . 29
THE DEPOSITOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
DESCRIPTION OF THE CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . 30
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Available Distribution Amount . . . . . . . . . . . . . . . . . . . . 31
Distributions of Interest on the
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 32
Distributions of Principal of the
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 32
Components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Distributions on the Certificates of
Prepayment Premiums or
in Respect of Equity
Participations . . . . . . . . . . . . . . . . . . . . . . . . 33
Allocation of Losses and Shortfalls . . . . . . . . . . . . . . . . . 33
Advances in Respect of Delinquencies . . . . . . . . . . . . . . . . 33
Reports to Certificateholders . . . . . . . . . . . . . . . . . . . . 34
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Book-Entry Registration and
Definitive Certificates . . . . . . . . . . . . . . . . . . . 36
DESCRIPTION OF THE AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . 38
Assignment of Assets; Repurchases . . . . . . . . . . . . . . . . . . 38
Representations and Warranties;
Repurchases . . . . . . . . . . . . . . . . . . . . . . . . . 39
Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Collection and Other Servicing
Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Hazard Insurance Policies . . . . . . . . . . . . . . . . . . . . . . 46
Rental Interruption Insurance Policy . . . . . . . . . . . . . . . . 47
Fidelity Bonds and Errors and
Omissions Insurance . . . . . . . . . . . . . . . . . . . . . 47
Due-on-Sale and Due-on-Encumbrance
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 47
Retained Interest; Servicing Compensation
and Payment of Expenses . . . . . . . . . . . . . . . . . . . 48
Evidence as to Compliance . . . . . . . . . . . . . . . . . . . . . . 48
Certain Matters Regarding each Servicer
and the Depositor . . . . . . . . . . . . . . . . . . . . . . 49
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Rights Upon Event of Default . . . . . . . . . . . . . . . . . . . . 50
Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
The Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Duties of the Trustee . . . . . . . . . . . . . . . . . . . . . . . . 51
Certain Matters Regarding the Trustee . . . . . . . . . . . . . . . . 51
</TABLE>
- 5 -
<PAGE> 75
<TABLE>
<S> <C>
Resignation and Removal of the
Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
DESCRIPTION OF CREDIT SUPPORT . . . . . . . . . . . . . . . . . . . . . . . . 52
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Subordinate Certificates . . . . . . . . . . . . . . . . . . . . . . 53
Cross-Support Provisions . . . . . . . . . . . . . . . . . . . . . . 53
Insurance or Guarantees with Respect
to the Whole Loans . . . . . . . . . . . . . . . . . . . . . . 53
Letter of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Insurance Policies and Surety Bonds . . . . . . . . . . . . . . . . . 53
Reserve Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Credit Support with respect to CMBS . . . . . . . . . . . . . . . . . 54
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES . . . . . . . . . 54
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Types of Mortgage Instruments . . . . . . . . . . . . . . . . . . . . 55
Interest in Real Property . . . . . . . . . . . . . . . . . . . . . . 55
Leases and Rents . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Personalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Cooperative Loans . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Foreclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Bankruptcy Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Environmental Legislation . . . . . . . . . . . . . . . . . . . . . . 63
Due-on-Sale and Due-on-Encumbrance . . . . . . . . . . . . . . . . . 66
Subordinate Financing . . . . . . . . . . . . . . . . . . . . . . . . 66
Default Interest, Prepayment Charges
and Prepayments . . . . . . . . . . . . . . . . . . . . . . . 67
Acceleration on Default . . . . . . . . . . . . . . . . . . . . . . . 67
Applicability of Usury Laws . . . . . . . . . . . . . . . . . . . . . 67
Certain Laws and Regulations; Types
of Mortgaged Properties . . . . . . . . . . . . . . . . . . . . 68
Americans With Disabilities Act . . . . . . . . . . . . . . . . . . . 68
Soldiers' and Sailors' Civil Relief Act
of 1940 . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Forfeitures in Drug and RICO
Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . 69
FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . 69
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Grantor Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . 69
REMICs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Prohibited Transactions and Other
Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
Liquidation and Termination . . . . . . . . . . . . . . . . . . . . . 89
Administrative Matters . . . . . . . . . . . . . . . . . . . . . . . 89
Tax-Exempt Investors . . . . . . . . . . . . . . . . . . . . . . . . 90
Residual Certificate Payments to
Non-U.S. Persons . . . . . . . . . . . . . . . . . . . . . . . 90
Tax-Related Restrictions on Transfers of
REMIC Residual
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . 90
STATE TAX CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ERISA CONSIDERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
Prohibited Transactions . . . . . . . . . . . . . . . . . . . . . . . 92
Review by Plan Fiduciaries . . . . . . . . . . . . . . . . . . . . . 94
LEGAL INVESTMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
METHOD OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
RATING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
</TABLE>
- 6 -
<PAGE> 76
SUMMARY OF PROSPECTUS
The following summary of certain pertinent information is qualified in its
entirety by reference to the more detailed information appearing elsewhere in
this Prospectus and by reference to the information with respect to each Series
of Certificates contained in the Prospectus Supplement to be prepared and
delivered in connection with the offering of such "Series." An Index of
Principal Definitions is included at the end of this Prospectus.
Title of Certificates . . . . . Mortgage Pass-Through Certificates, issuable
in Series (the "CERTIFICATES").
Depositor . . . . . . . . . . . AMRESCO Commercial Mortgage Funding I
Corporation, an indirect wholly-owned
subsidiary of AMRESCO, INC. (the
"DEPOSITOR"). See "The Depositor."
Master Servicer . . . . . . . . The master servicer (the "MASTER SERVICER"),
if any, for each Series of Certificates,
which may be an affiliate of the Depositor,
will be named in the related Prospectus
Supplement. See "Description of the
Agreements -- Collection and Other Servicing
Procedures."
Special Servicer . . . . . . . The special servicer (the "SPECIAL
SERVICER"), if any, for each Series of
Certificates, which may be an affiliate of
the Depositor, will be named, or the
circumstances in accordance with which a
Special Servicer will be appointed will be
described, in the related Prospectus
Supplement. See "Description of the
Agreements -- Special Servicers."
Primary Servicer . . . . . . . The primary servicer (the "PRIMARY
SERVICER"), if any, for each Series of
Certificates, which may be an affiliate of
the Depositor, will be named in the related
Prospectus Supplement. See "Description of
the Agreements -- Collection and Other
Servicing Procedures."
Trustee . . . . . . . . . . . . The trustee (the "TRUSTEE") for each Series
of Certificates will be named in the related
Prospectus Supplement. See "Description of
the Agreements -- The Trustee."
The Trust Assets. . . . . . . . Each Series of Certificates will represent in
the aggregate the entire beneficial ownership
interest in a Trust Fund consisting of:
(a) Mortgage Assets . . . . . . The Mortgage Assets with respect to each
Series of Certificates will consist of a pool
of multifamily and/or commercial mortgage
loans (collectively, the "MORTGAGE LOANS")
and/or mortgage participations, mortgage
pass-through certificates or other mortgage-
backed securities evidencing interests in or
secured by Mortgage Loans (collectively, the
"CMBS") or a combination of Mortgage Loans
and CMBS. The Mortgage Loans will not be
guaranteed or insured by the Depositor or any
of its affiliates or, unless otherwise
provided in the Prospectus Supplement, by any
governmental agency or instrumentality or
other person. The CMBS may be guaranteed or
insured by an affiliate of the Depositor, the
Federal Home Loan Mortgage Corporation, the
Federal National Mortgage Association, the
Government National Mortgage Association, or
any other person specified in the related
Prospectus Supplement. As more specifically
described herein, the Mortgage Loans will be
secured by first or junior liens on, or
security interests in, properties consisting
of (i) residential properties consisting of
five or more rental or cooperatively owned
dwelling units (the "MULTIFAMILY PROPERTIES")
or (ii) office buildings, retail centers,
hotels or motels, health care-related
facilities, industrial properties, mini-
warehouse facilities or self-storage
facilities, mobile home parks, mixed use or
other types of commercial properties (the
"COMMERCIAL PROPERTIES"). The term "MORTGAGED
PROPERTIES" shall refer to Multifamily
Properties or Commercial Properties, or both.
- 7 -
<PAGE> 77
To the extent described in the related
Prospectus Supplement, some or all of the
Mortgage Loans may also be secured by an
assignment of one or more leases (each, a
"LEASE") of one or more lessees (each, a
"LESSEE") of all or a portion of the related
Mortgaged Properties. To the extent specified
in the related Prospectus Supplement, a
significant or the sole source of payments on
certain Commercial Loans (as defined herein)
will be the rental payments due under the
related Leases. In certain circumstances,
with respect to Commercial Properties, the
material terms and conditions of the related
Leases may be set forth in the related
Prospectus Supplement. See "Description of
the Trust Funds -- Mortgage Loans -- Leases"
and "Risk Factors -- Limited Assets" herein.
The Mortgaged Properties may be located in
the United States or its territories. All
Mortgage Loans will have individual principal
balances at origination of not less than
$250,000 and original terms to maturity of
not more than 40 years. All Mortgage Loans
will have been originated by persons other
than the Depositor, and all Mortgage Assets
will have been purchased, either directly or
indirectly, by the Depositor on or before the
date of initial issuance of the related
Series of Certificates. The related
Prospectus Supplement will indicate if any
such persons are affiliates of the Depositor.
Each Mortgage Loan may provide for no accrual
of interest or for accrual of interest
thereon at an interest rate (a "MORTGAGE
INTEREST RATE") that is fixed over its term
or that adjusts from time to time, or is
partially fixed and partially floating or
that may be converted from a floating to a
fixed Mortgage Interest Rate, or from a fixed
to a floating Mortgage Interest Rate, from
time to time at the Mortgagor's election, in
each case as described in the related
Prospectus Supplement. The floating Mortgage
Interest Rates on the Mortgage Loans in a
Trust Fund may be based on one or more
indices. Each Mortgage Loan may provide for
scheduled payments to maturity, payments that
adjust from time to time to accommodate
changes in the Mortgage Interest Rate or to
reflect the occurrence of certain events, and
may provide for negative amortization or
accelerated amortization, in each case as
described in the related Prospectus
Supplement. Each Mortgage Loan may be fully
amortizing or require a balloon payment due
on its stated maturity date, in each case as
described in the related Prospectus
Supplement. Each Mortgage Loan may contain
prohibitions on prepayment or require payment
of a premium or a yield maintenance penalty
in connection with a prepayment, in each case
as described in the related Prospectus
Supplement. The Mortgage Loans may provide
for payments of principal, interest or both,
on due dates that occur monthly, quarterly,
semi-annually or at such other interval as is
specified in the related Prospectus
Supplement. See "Description of the Trust
Funds -- Assets."
(b) Collection Accounts . . . . Each Trust Fund will include one or more
accounts established and maintained on behalf
of the Certificateholders into which the
person or persons designated in the related
Prospectus Supplement will, to the extent
described herein and in such Prospectus
Supplement, deposit all payments and
collections received or advanced with respect
to the Mortgage Assets and other assets in
the Trust Fund. Such an account may be
maintained as an interest bearing or a non-
interest bearing account, and funds held
therein may be held as cash or invested in
certain short-term, investment grade
obligations, in each case as described in the
related Prospectus Supplement. See
"Description of the Agreements --
Distribution Account and Other Collection
Accounts."
(c) Credit Support . . . . . . If so provided in the related Prospectus
Supplement, partial or full protection
against certain defaults and losses on the
Mortgage Assets in the related Trust Fund may
be provided to one or more classes of
Certificates of the related Series in the
- 8 -
<PAGE> 78
form of subordination of one or more other
classes of Certificates of such Series, which
other classes may include one or more classes
of Offered Certificates, or by one or more
other types of credit support, such as a
letter of credit, insurance policy,
guarantee, reserve fund or another type of
credit support, or a combination thereof (any
such coverage with respect to the
Certificates of any Series, "CREDIT
SUPPORT"). The amount and types of coverage,
the identification of the entity providing
the coverage (if applicable) and related
information with respect to each type of
Credit Support, if any, will be described in
the Prospectus Supplement for a Series of
Certificates. The Prospectus Supplement for
any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS
will describe any similar forms of credit
support that are provided by or with respect
to, or are included as part of the trust fund
evidenced by or providing security for, such
CMBS. See "Risk Factors -- Credit Support
Limitations" and "Description of Credit
Support."
(d) Cash Flow Agreement . . . . If so provided in the related Prospectus
Supplement, the Trust Fund may include
guaranteed investment contracts pursuant to
which moneys held in the funds and accounts
established for the related Series will be
invested at a specified rate. The Trust Fund
may also include certain other agreements,
such as interest rate exchange agreements,
interest rate cap or floor agreements,
currency exchange agreements or similar
agreements provided to reduce the effects of
interest rate or currency exchange rate
fluctuations on the Mortgage Assets of one or
more classes of Certificates. The principal
terms of any such guaranteed investment
contract or other agreement (any such
agreement, a "CASH FLOW AGREEMENT"),
including, without limitation, provisions
relating to the timing, manner and amount of
payments thereunder and provisions relating
to the termination thereof, will be described
in the Prospectus Supplement for the related
Series. In addition, the related Prospectus
Supplement will provide certain information
with respect to the obligor under any such
Cash Flow Agreement. The Prospectus
Supplement for any Series of Certificates
evidencing an interest in a Trust Fund that
includes CMBS will describe any cash flow
agreements that are included as part of the
trust fund evidenced by or providing security
for such CMBS. See "Description of the Trust
Funds -- Cash Flow Agreements."
Description of Certificates . . Each Series of Certificates evidencing an
interest in a Trust Fund that includes
Mortgage Loans as part of its assets will be
issued pursuant to a pooling and servicing
agreement, and each Series of Certificates
evidencing an interest in a Trust Fund that
does not include Mortgage Loans will be
issued pursuant to a trust agreement. To the
extent specified in the Prospectus
Supplement, the Mortgage Loans shall be
serviced pursuant to a pooling and servicing
agreement and one or more servicing
agreements. Pooling and servicing agreements,
servicing agreements and trust agreements are
referred to herein as the "AGREEMENTS". Each
Series of Certificates will include one or
more classes. Each Series of Certificates
(including any class or classes of
Certificates of such Series not offered
hereby) will represent in the aggregate the
entire beneficial ownership interest in the
Trust Fund. Each class of Certificates (other
than certain Stripped Interest Certificates,
as defined below) will have a stated
principal amount (a "CERTIFICATE BALANCE")
and (other than certain Stripped Principal
Certificates, as defined below), will accrue
interest thereon based on a fixed, variable
or floating interest rate (a "PASS-THROUGH
RATE"). The related Prospectus Supplement
will specify the Certificate Balance, if any,
and the Pass-Through Rate, if any, for each
class of Certificates or, in the case of a
variable or floating Pass-Through Rate, the
method for determining the Pass-Through Rate.
- 9 -
<PAGE> 79
Distributions on Certificates . Each Series of Certificates will consist of
one or more classes of Certificates that may
(i) provide for the accrual of interest
thereon based on fixed, variable or floating
rates; (ii) be senior (collectively, "SENIOR
CERTIFICATES") or subordinate (collectively,
"SUBORDINATE CERTIFICATES") to one or more
other classes of Certificates in respect of
certain distributions on the Certificates;
(iii) be entitled to principal distributions,
with disproportionately low, nominal or no
interest distributions (collectively,
"STRIPPED PRINCIPAL CERTIFICATES"); (iv) be
entitled to interest distributions, with
disproportionately low, nominal or no
principal distributions (collectively,
"STRIPPED INTEREST CERTIFICATES"); (v)
provide for distributions of accrued interest
thereon commencing only following the
occurrence of certain events, such as the
retirement of one or more other classes of
Certificates of such Series (collectively,
"ACCRUAL CERTIFICATES"); (vi) provide for
distributions of principal sequentially,
based on specified payment schedules or other
methodologies; and/or (vii) provide for
distributions based on a combination of two
or more components thereof with one or more
of the characteristics described in this
paragraph, including a Stripped Principal
Certificate component and a Stripped Interest
Certificate component, to the extent of
available funds, in each case as described in
the related Prospectus Supplement. Any such
classes may include classes of Offered
Certificates. With respect to Certificates
with two or more components, references
herein to Certificate Balance, notional
amount and Pass-Through Rate refer to the
principal balance, if any, notional amount,
if any, and the Pass-Through Rate, if any,
for any such component.
The Certificates will not be guaranteed or
insured by the Depositor or any of its
affiliates, by any governmental agency or
instrumentality or by any other person,
unless otherwise provided in the related
Prospectus Supplement. See "Risk Factors --
Limited Assets" and "Description of the
Certificates."
(a) Interest . . . . . . . . . Interest on each class of Offered
Certificates (other than Stripped Principal
Certificates and certain classes of Stripped
Interest Certificates) of each Series will
accrue at the applicable Pass-Through Rate on
the outstanding Certificate Balance thereof
and will be distributed to Certificateholders
as provided in the related Prospectus
Supplement (each of the specified dates on
which distributions are to be made, a
"DISTRIBUTION DATE"). Distributions with
respect to interest on Stripped Interest
Certificates may be made on each Distribution
Date on the basis of a notional amount as
described in the related Prospectus
Supplement. Distributions of interest with
respect to one or more classes of
Certificates may be reduced to the extent of
certain delinquencies, losses, prepayment
interest shortfalls, and other contingencies
described herein and in the related
Prospectus Supplement. Stripped Principal
Certificates with no stated Pass-Through Rate
will not accrue interest. See "Risk Factors
-- Prepayments and Effect on Average Life of
Certificates and Yields," "Yield
Considerations" and "Description of the
Certificates -- Distributions of Interest on
the Certificates."
(b) Principal . . . . . . . . . The Certificates of each Series initially
will have an aggregate Certificate Balance no
greater than the outstanding principal
balance of the Mortgage Assets as of, unless
the related Prospectus Supplement provides
otherwise, the close of business on the first
day of the month of formation of the related
Trust Fund (the "CUT-OFF DATE"), after
application of scheduled payments due on or
before such date, whether or not received.
The Certificate Balance of a Certificate
outstanding from time to time represents the
maximum amount that the holder thereof is
then entitled to receive in respect of
principal from future cash flow on the assets
in the related Trust Fund. To the extent
provided in the related Prospectus
Supplement, distributions of principal will
be made on each Distribution Date to the
class or classes of Certificates entitled
thereto until the Certificate Balances of
such
- 10 -
<PAGE> 80
Certificates have been reduced to zero. To
the extent specified in the related
Prospectus Supplement, distributions of
principal of any class of Certificates will
be made on a pro rata basis among all of the
Certificates of such class or by random
selection, as described in the related
Prospectus Supplement or otherwise
established by the related Trustee. Stripped
Interest Certificates with no Certificate
Balance will not receive distributions in
respect of principal. See "Description of the
Certificates -- Distributions of Principal of
the Certificates."
Advances . . . . . . . . . . . To the extent provided in the related
Prospectus Supplement, the Primary Servicer,
the Special Servicer or the Master Servicer
(each, a "SERVICER") will be obligated as
part of its servicing responsibilities to
make certain advances with respect to
delinquent scheduled payments on the Whole
Loans in such Trust Fund which it deems
recoverable. Any such advances will be made
under and subject to any determinations or
conditions set forth in the related
Prospectus Supplement. Neither the Depositor
nor any of its affiliates will have any
responsibility to make such advances.
Advances made by a Master Servicer are
reimbursable generally from subsequent
recoveries in respect of such Whole Loans and
otherwise to the extent described herein and
in the related Prospectus Supplement. If and
to the extent provided in the Prospectus
Supplement for any Series, each Servicer will
be entitled to receive interest on its
outstanding advances, payable from amounts in
the related Trust Fund. The Prospectus
Supplement for any Series of Certificates
evidencing an interest in a Trust Fund that
includes CMBS will describe any corresponding
advancing obligation of any person in
connection with such CMBS. See "Description
of the Certificates -- Advances in Respect of
Delinquencies."
Termination . . . . . . . . . . If so specified in the related Prospectus
Supplement, a Series of Certificates may be
subject to optional early termination through
the repurchase of the Mortgage Assets in the
related Trust Fund by the party specified
therein, under the circumstances and in the
manner set forth therein. If so provided in
the related Prospectus Supplement, upon the
reduction of the Certificate Balance of a
specified class or classes of Certificates by
a specified percentage or amount or on and
after a date specified in such Prospectus
Supplement, the party specified therein will
solicit bids for the purchase of all of the
Mortgage Assets of the Trust Fund, or of a
sufficient portion of such Mortgage Assets to
retire such class or classes, or purchase
such Mortgage Assets at a price set forth in
the related Prospectus Supplement. In
addition, if so provided in the related
Prospectus Supplement, certain classes of
Certificates may be purchased subject to
similar conditions. See "Description of the
Certificates -- Termination."
Registration of Certificates . If so provided in the related Prospectus
Supplement, one or more classes of the
Offered Certificates will initially be
represented by one or more Certificates
registered in the name of Cede & Co., as the
nominee of DTC. No person acquiring an
interest in Offered Certificates so
registered will be entitled to receive a
definitive certificate representing such
person's interest except in the event that
definitive certificates are issued under the
limited circumstances described herein. See
"Risk Factors -- Book-Entry Registration" and
"Description of the Certificates -- Book-
Entry Registration and Definitive
Certificates."
Tax Status of the Certificates . The Certificates of each Series will
constitute either (i) "regular interests"
("REMIC REGULAR CERTIFICATES") or a single
class of "residual interests" ("REMIC
RESIDUAL CERTIFICATES") in a Trust Fund or a
portion of a Trust Fund treated as a real
estate mortgage investment conduit ("REMIC")
under Sections 860A through 860G of the
Internal Revenue Code of 1986, as amended
(the "CODE"), or (ii) interests ("GRANTOR
TRUST CERTIFICATES") in a Trust Fund treated
as a grantor trust under applicable
provisions of the Code.
- 11 -
<PAGE> 81
(a) REMIC . . . . . . . . . . . REMIC Regular Certificates generally will be
treated as debt obligations of the applicable
REMIC for federal income tax purposes.
Certain REMIC Regular Certificates may be
issued with original issue discount for
federal income tax purposes. See "Federal
Income Tax Consequences" herein and in the
related Prospectus Supplement.
The Offered Certificates will be treated as
(i) assets described in section
7701(a)(19)(C) of the Code and (ii) "real
estate assets" within the meaning of section
856(c)(5)(A) of the Code, in each case to the
extent described herein and in the related
Prospectus Supplement. See "Federal Income
Tax Consequences" herein and in the related
Prospectus Supplement.
(b) Grantor Trust . . . . . . . If no election is made to treat the Trust
Fund relating to a Series of Certificates as
a REMIC, the Trust Fund will be classified as
a grantor trust and not as an association
taxable as a corporation for federal income
tax purposes, and therefore holders of
Certificates will be treated as the owners of
undivided pro rata interests in the Mortgage
Pool or pool of securities and any other
assets held by the Trust Fund.
Investors are urged to consult their tax
advisors and to review "Federal Income Tax
Consequences" herein and in the related
Prospectus Supplement.
ERISA Considerations . . . . . A fiduciary of an employee benefit plan and
certain other retirement plans and
arrangements, including individual retirement
accounts, annuities, Keogh plans, and
collective investment funds and separate
accounts in which such plans, accounts,
annuities or arrangements are invested and
any entity whose underlying assets include
assets of such a plan by reason of any such
plan's investment in the entity, that is
subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"),
or Section 4975 of the Code should carefully
review with its legal advisors whether the
purchase or holding of Offered Certificates
could give rise to a transaction that is
prohibited or is not otherwise permissible
either under ERISA or Section 4975 of the
Code. See "ERISA Considerations" herein and
in the related Prospectus Supplement. Certain
classes of Certificates may not be
transferred unless the Trustee and the
Depositor are furnished with a letter of
representations or an opinion of counsel to
the effect that such transfer will not result
in a violation of the prohibited transaction
provisions of ERISA and the Code and will not
subject the Trustee, the Depositor or the
Master Servicer to additional obligations.
See "Description of the Certificates --
General" and "ERISA Considerations."
Legal Investment . . . . . . . The related Prospectus Supplement will
specify whether the Offered Certificates will
constitute "mortgage related securities" for
purposes of the Secondary Mortgage Market
Enhancement Act of 1984. Investors whose
investment authority is subject to legal
restrictions should consult their own legal
advisors to determine whether and to what
extent the Offered Certificates constitute
legal investments for them. See "Legal
Investment" herein and in the related
Prospectus Supplement.
Rating . . . . . . . . . . . . At the date of issuance, as to each Series,
each class of Offered Certificates will be
rated not lower than investment grade by one
or more nationally recognized statistical
rating agencies (each, a "RATING AGENCY").
See "Rating" herein and in the related
Prospectus Supplement.
- 12 -
<PAGE> 82
A security rating is not a recommendation to
buy, sell or hold securities and may be
subject to revision or withdrawal at any time
by the assigning rating organization.
- 13 -
<PAGE> 83
RISK FACTORS
Investors should consider, in connection with the purchase of Offered
Certificates, among other things, the following factors and certain other
factors as may be set forth in "Risk Factors" in the related Prospectus
Supplement.
LIMITED LIQUIDITY
There can be no assurance that a secondary market for the Certificates
of any Series will develop or, if it does develop, that it will provide holders
with liquidity of investment or will continue while Certificates of such Series
remain outstanding. Any such secondary market may provide less liquidity to
investors than any comparable market for securities evidencing interests in
single family mortgage loans. The market value of Certificates will fluctuate
with changes in prevailing rates of interest. Consequently, sale of
Certificates by a holder in any secondary market that may develop may be at a
discount from 100% of their original principal balance or from their purchase
price. Furthermore, secondary market purchasers may look only hereto, to the
related Prospectus Supplement and to the reports to Certificateholders
delivered pursuant to the related Agreement as described herein under the
heading "Description of the Certificates -- Reports to Certificateholders,"
"--Book-Entry Registration and Definitive Certificates" and "Description of the
Agreements -- Evidence as to Compliance" for information concerning the
Certificates. Except to the extent described herein and in the related
Prospectus Supplement, Certificateholders will have no redemption rights and
the Certificates are subject to early retirement only under certain specified
circumstances described herein and in the related Prospectus Supplement. See
"Description of the Certificates -- Termination."
LIMITED ASSETS
The Certificates will not represent an interest in or obligation of the
Depositor, any Servicer, or any of their affiliates. The only obligations with
respect to the Certificates or the Mortgage Assets will be the obligations (if
any) of the Depositor (or, if otherwise provided in the related Prospectus
Supplement, the person identified therein as the person making certain
representations and warranties with respect to the Mortgage Loans, as
applicable, the "WARRANTING PARTY") pursuant to certain limited representations
and warranties made with respect to the Mortgage Loans. Since certain
representations and warranties with respect to the Mortgage Assets may have
been made and/or assigned in connection with transfers of such Mortgage Assets
prior to the Closing Date, the rights of the Trustee and the Certificateholders
with respect to such representations or warranties will be limited to their
rights as an assignee thereof. Unless otherwise specified in the related
Prospectus Supplement, none of the Depositor, any Servicer or any affiliate
thereof will have any obligation with respect to representations or warranties
made by any other entity. Unless otherwise specified in the related Prospectus
Supplement, neither the Certificates nor the underlying Mortgage Assets will be
guaranteed or insured by any governmental agency or instrumentality, or by the
Depositor, any Servicer or any of their affiliates. Proceeds of the assets
included in the related Trust Fund for each Series of Certificates (including
the Mortgage Assets and any form of credit enhancement) will be the sole source
of payments on the Certificates, and there will be no recourse to the Depositor
or any other entity in the event that such proceeds are insufficient or
otherwise unavailable to make all payments provided for under the Certificates.
Unless otherwise specified in the related Prospectus Supplement, a
Series of Certificates will not have any claim against or security interest in
the Trust Funds for any other Series. If the related Trust Fund is insufficient
to make payments on such Certificates, no other assets will be available for
payment of the deficiency. Additionally, certain amounts remaining in certain
funds or accounts, including the Distribution Account, the Collection Account
and any accounts maintained as Credit Support, may be withdrawn under certain
conditions, as described in the related Prospectus Supplement. In the event of
such withdrawal, such amounts will not be available for future payment of
principal of or interest on the Certificates. If so provided in the Prospectus
Supplement for a Series of Certificates consisting of one or more classes of
Subordinate Certificates, on any Distribution Date in respect of which losses
or shortfalls in collections on the Trust Assets have been incurred, the amount
of such losses or shortfalls will be borne first by one or more classes of the
Subordinate Certificates, and, thereafter, by the remaining classes of
Certificates in the priority and manner and subject to the limitations
specified in such Prospectus Supplement.
- 14 -
<PAGE> 84
PREPAYMENTS AND EFFECT ON AVERAGE LIFE OF CERTIFICATES AND YIELDS
Prepayments (including those caused by defaults) on the Mortgage Assets
in any Trust Fund generally will result in a faster rate of principal payments
on one or more classes of the related Certificates than if payments on such
Mortgage Assets were made as scheduled. Thus, the prepayment experience on the
Mortgage Assets may affect the average life of each class of related
Certificates. The rate of principal payments on pools of mortgage loans varies
between pools and from time to time is influenced by a variety of economic,
demographic, geographic, social, tax, legal and other factors. There can be no
assurance as to the rate of prepayment on the Mortgage Assets in any Trust Fund
or that the rate of payments will conform to any model described herein or in
any Prospectus Supplement. If prevailing interest rates fall significantly
below the applicable mortgage interest rates, principal prepayments are likely
to be higher than if prevailing rates remain at or above the rates borne by the
Mortgage Loans underlying or comprising the Mortgage Assets in any Trust Fund.
As a result, the actual maturity of any class of Certificates could occur
significantly earlier than expected. A Series of Certificates may include one
or more classes of Certificates with priorities of payment and, as a result,
yields on other classes of Certificates, including classes of Offered
Certificates, of such Series may be more sensitive to prepayments on Mortgage
Assets. A Series of Certificates may include one or more classes offered at a
significant premium or discount. Yields on such classes of Certificates will be
sensitive, and in some cases extremely sensitive, to prepayments on Mortgage
Assets and, where the amount of interest payable with respect to a class is
disproportionately high, as compared to the amount of principal, as with
certain classes of Stripped Interest Certificates, a holder might, in some
prepayment scenarios, fail to recoup its original investment. A Series of
Certificates may include one or more classes of Certificates, including classes
of Offered Certificates, that provide for distribution of principal thereof
from amounts attributable to interest accrued but not currently distributable
on one or more classes of Accrual Certificates and, as a result, yields on such
Certificates will be sensitive to (a) the provisions of such Accrual
Certificates relating to the timing of distributions of interest thereon and
(b) if such Accrual Certificates accrue interest at a variable or floating
Pass-Through Rate, changes in such rate. See "Yield Considerations" herein and,
if applicable, in the related Prospectus Supplement.
LIMITED NATURE OF RATINGS
Any rating assigned by a Rating Agency to a class of Certificates will
reflect such Rating Agency's assessment solely of the likelihood that holders
of Certificates of such class will receive payments to which such
Certificateholders are entitled under the related Agreement. Such rating will
not constitute an assessment of the likelihood that principal prepayments
(including those caused by defaults) on the related Mortgage Assets will be
made, the degree to which the rate of such prepayments might differ from that
originally anticipated or the likelihood of early optional termination of the
Series of Certificates. Such rating will not address the possibility that
prepayment at higher or lower rates than anticipated by an investor may cause
such investor to experience a lower than anticipated yield or that an investor
purchasing a Certificate at a significant premium might fail to recoup its
initial investment under certain prepayment scenarios. Each Prospectus
Supplement will identify any payment to which holders of Offered Certificates
of the related Series are entitled that is not covered by the applicable
rating.
The amount, type and nature of credit support, if any, established with
respect to a Series of Certificates will be determined on the basis of criteria
established by each Rating Agency rating classes of such Series. Such criteria
are sometimes based upon an actuarial analysis of the behavior of mortgage
loans in a larger group. Such analysis is often the basis upon which each
Rating Agency determines the amount of credit support required with respect to
each such class. There can be no assurance that the historical data supporting
any such actuarial analysis will accurately reflect future experience nor any
assurance that the data derived from a large pool of mortgage loans accurately
predicts the delinquency, foreclosure or loss experience of any particular pool
of Mortgage Assets. No assurance can be given that values of any Mortgaged
Properties have remained or will remain at their levels on the respective dates
of origination of the related Mortgage Loans. Moreover, there is no assurance
that appreciation of real estate values generally will limit loss experiences
on the Mortgaged Properties. If the commercial or multifamily residential real
estate markets should experience an overall decline in property values such
that the outstanding principal balances of the Mortgage Loans underlying or
comprising the Mortgage Assets in a particular Trust Fund and any secondary
financing on the related Mortgaged Properties become equal to or greater than
the value of the Mortgaged Properties, the rates of delinquencies, foreclosures
and losses could be higher than those now generally experienced by
institutional lenders. In addition, adverse economic conditions (which may or
may not affect real property values) may affect the timely payment by
Mortgagors of scheduled payments of principal and interest on the Mortgage
Loans and, accordingly, the rates of
- 15 -
<PAGE> 85
delinquencies, foreclosures and losses with respect to any Trust Fund. To the
extent that such losses are not covered by the Credit Support, if any,
described in the related Prospectus Supplement, such losses will be borne, at
least in part, by the holders of one or more classes of the Certificates of the
related Series. See "Description of Credit Support" and "Rating."
RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGED PROPERTIES
Mortgage loans made with respect to multifamily or commercial property
may entail risks of delinquency and foreclosure, and risks of loss in the event
thereof, that are greater than similar risks associated with single family
property. See "Description of the Trust Funds -- Assets." The ability of a
Mortgagor to repay a loan secured by an income-producing property typically is
dependent primarily upon the successful operation of such property rather than
any independent income or assets of the Mortgagor; thus, the value of an
income-producing property is directly related to the net operating income
derived from such property. In contrast, the ability of a Mortgagor to repay a
single family loan typically is dependent primarily upon the Mortgagor's
household income, rather than the capacity of the property to produce income;
thus, other than in geographical areas where employment is dependent upon a
particular employer or an industry, the Mortgagor's income tends not to reflect
directly the value of such property. A decline in the net operating income of
an income-producing property will likely affect both the performance of the
related loan as well as the liquidation value of such property, whereas a
decline in the income of a Mortgagor on a single family property will likely
affect the performance of the related loan but may not affect the liquidation
value of such property. Moreover, a decline in the value of a Mortgaged
Property will increase the risk of loss particularly with respect to any
related junior Mortgage Loan. See "--Junior Mortgage Loans."
The performance of a mortgage loan secured by an income-producing
property leased by the Mortgagor to tenants as well as the liquidation value of
such property may be dependent upon the business operated by such tenants in
connection with such property, the creditworthiness of such tenants or both;
the risks associated with such loans may be offset by the number of tenants or,
if applicable, a diversity of types of business operated by such tenants.
It is anticipated that a substantial portion of the Mortgage Loans
included in any Trust Fund will be nonrecourse loans or loans for which
recourse may be restricted or unenforceable, as to which, in the event of
Mortgagor default, recourse may be had only against the specific property and
such other assets, if any, as have been pledged to secure the related Mortgage
Loan. With respect to those Mortgage Loans that provide for recourse against
the Mortgagor and its assets generally, there can be no assurance that such
recourse will ensure a recovery in respect of a defaulted Mortgage Loan greater
than the liquidation value of the related Mortgaged Property.
Further, the concentration of default, foreclosure and loss risks in
individual Mortgagors or Mortgage Loans in a particular Trust Fund or the
related Mortgaged Properties will generally be greater than for pools of single
family loans both because the Mortgage Assets in a Trust Fund will generally
consist of a smaller number of loans than would a single family pool of
comparable aggregate unpaid principal balance and because of the higher
principal balance of individual Mortgage Loans. Mortgage Assets in a Trust Fund
may consist of only a single or limited number of Mortgage Loans and/or relate
to Leases to only a single Lessee or a limited number of Lessees.
If applicable, certain legal aspects of the Mortgage Loans for a Series
of Certificates may be described in the related Prospectus Supplement. See also
"Certain Legal Aspects of the Mortgage Loans and the Leases" herein.
RISKS ASSOCIATED WITH COMMERCIAL LOANS AND LEASES
If so described in the related Prospectus Supplement, each Mortgagor
under a Commercial Loan may be an entity created by the owner or purchaser of
the related Commercial Property solely to own or purchase such property, in
part to isolate the property from the debts and liabilities of such owner or
purchaser. To the extent specified in the related Prospectus Supplement, each
such Commercial Loan will represent a nonrecourse obligation of the related
Mortgagor secured by the lien of the related Mortgage and the related Lease
Assignments. Whether or not such loans are recourse or nonrecourse obligations,
it is not expected that the Mortgagors will have any significant assets other
than the Commercial Properties and the related Leases, which will be pledged to
the Trustee under the related Agreement. Therefore, the payment of amounts due
on any such Commercial Loans, and, consequently, the payment of principal of
and interest on the related Certificates, will depend primarily or solely on
rental payments by the Lessees. Such rental
- 16 -
<PAGE> 86
payments will, in turn, depend on continued occupancy by, and/or the
creditworthiness of, such Lessees, which in either case may be adversely
affected by a general economic downturn or an adverse change in their financial
condition. Moreover, to the extent a Commercial Property was designed for the
needs of a specific type of tenant (e.g., a nursing home, hotel or motel), the
value of such property in the event of a default by the Lessee or the early
termination of such Lease may be adversely affected because of difficulty in
re-leasing the property to a suitable substitute lessee or, if re-leasing to
such a substitute is not possible, because of the cost of altering the property
for another more marketable use. As a result, without the benefit of the
Lessee's continued support of the Commercial Property, and absent significant
amortization of the Commercial Loan, if such loan is foreclosed on and the
Commercial Property is liquidated following a lease default, the net proceeds
might be insufficient to cover the outstanding principal and interest owing on
such loan, thereby increasing the risk that holders of the Certificates will
suffer some loss.
BALLOON PAYMENTS
Certain of the Mortgage Loans as of the Cut-off Date may not be fully
amortizing over their terms to maturity and, thus, will require substantial
principal payments (i.e., balloon payments) at their stated maturity (the
"BALLOON MORTGAGE LOANS"). Mortgage Loans with balloon payments involve a
greater degree of risk because the ability of a Mortgagor to make a balloon
payment typically will depend upon its ability either to timely refinance the
loan or to timely sell the related Mortgaged Property. The ability of a
Mortgagor to accomplish either of these goals will be affected by a number of
factors, including the level of available mortgage interest rates at the time
of sale or refinancing, the Mortgagor's equity in the related Mortgaged
Property, the financial condition and operating history of the Mortgagor and
the related Mortgaged Property, tax laws, rent control laws (with respect to
certain Multifamily Properties and mobile home parks), reimbursement rates
(with respect to certain nursing homes), renewability of operating licenses,
prevailing general economic conditions and the availability of credit for
commercial or multifamily real properties, as the case may be, generally.
JUNIOR MORTGAGE LOANS
To the extent specified in the related Prospectus Supplement, certain of
the Mortgage Loans may be secured primarily by junior mortgages. In the case of
liquidation, Mortgage Loans secured by junior mortgages are entitled to
satisfaction from proceeds that remain from the sale of the related Mortgaged
Property after the mortgage loans senior to such Mortgage Loans have been
satisfied. If there are not sufficient funds to satisfy such junior Mortgage
Loans and senior mortgage loans, such Mortgage Loans would suffer a loss and,
accordingly, one or more classes of Certificates would bear such loss.
Therefore, any risks of deficiencies associated with first Mortgage Loans will
be greater with respect to junior Mortgage Loans. See "--Risks Associated with
Mortgage Loans and Mortgaged Properties."
OBLIGOR DEFAULT
If so specified in the related Prospectus Supplement, in order to
maximize recoveries on defaulted Whole Loans, a Master Servicer or a Special
Servicer will be permitted (within prescribed parameters) to extend and modify
Whole Loans that are in default or as to which a payment default is imminent,
including in particular with respect to balloon payments. In addition, a Master
Servicer or a Special Servicer may receive a workout fee based on receipts from
or proceeds of such Whole Loans. While any such entity generally will be
required to determine that any such extension or modification is reasonably
likely to produce a greater recovery on a present value basis than liquidation,
there can be no assurance that such flexibility with respect to extensions or
modifications or payment of a workout fee will increase the present value of
receipts from or proceeds of Whole Loans that are in default or as to which a
payment default is imminent. Additionally, if so specified in the related
Prospectus Supplement, certain of the Mortgage Loans included in the Mortgage
Pool for a Series may have been subject to workouts or similar arrangements
following periods of delinquency and default.
MORTGAGOR TYPE
Mortgage Loans made to partnerships, corporations or other entities may
entail risks of loss from delinquency and foreclosure that are greater than
those of Mortgage Loans made to individuals. The Mortgagor's sophistication and
form of organization may increase the likelihood of protracted litigation or
bankruptcy in default situations.
- 17 -
<PAGE> 87
CREDIT SUPPORT LIMITATIONS
The Prospectus Supplement for a Series of Certificates will describe any
Credit Support in the related Trust Fund, which may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or combinations thereof. Use of Credit Support will be subject to the
conditions and limitations described herein and in the related Prospectus
Supplement. Moreover, such Credit Support may not cover all potential losses or
risks; for example, Credit Support may or may not cover fraud or negligence by
a mortgage loan originator or other parties.
A Series of Certificates may include one or more classes of Subordinate
Certificates (which may include Offered Certificates), if so provided in the
related Prospectus Supplement. Although subordination is intended to reduce the
risk to holders of Senior Certificates of delinquent distributions or ultimate
losses, the amount of subordination will be limited and may decline under
certain circumstances. In addition, if principal payments on one or more
classes of Certificates of a Series are made in a specified order of priority,
any limits with respect to the aggregate amount of claims under any related
Credit Support may be exhausted before the principal of the lower priority
classes of Certificates of such Series has been repaid. As a result, the impact
of significant losses and shortfalls on the Trust Assets may fall primarily
upon those classes of Certificates having a lower priority of payment.
Moreover, if a form of Credit Support covers more than one Series of
Certificates (each, a "COVERED TRUST"), holders of Certificates evidencing an
interest in a Covered Trust will be subject to the risk that such Credit
Support will be exhausted by the claims of other Covered Trusts.
The amount of any applicable Credit Support supporting one or more
classes of Offered Certificates, including the subordination of one or more
classes of Certificates, will be determined on the basis of criteria
established by each Rating Agency rating such classes of Certificates based on
an assumed level of defaults, delinquencies, other losses or other factors.
There can, however, be no assurance that the loss experience on the related
Mortgage Assets will not exceed such assumed levels. See "--Limited Nature of
Ratings," "Description of the Certificates" and "Description of Credit
Support."
Regardless of the form of credit enhancement provided, the amount of
coverage will be limited in amount and in most cases will be subject to
periodic reduction in accordance with a schedule or formula. The Master
Servicer will generally be permitted to reduce, terminate or substitute all or
a portion of the credit enhancement for any Series of Certificates, if the
applicable Rating Agency indicates that the then-current rating thereof will
not be adversely affected. The rating of any Series of Certificates by any
applicable Rating Agency may be lowered following the initial issuance thereof
as a result of the downgrading of the obligations of any applicable credit
support provider, or as a result of losses on the related Mortgage Assets
substantially in excess of the levels contemplated by such Rating Agency at the
time of its initial rating analysis. None of the Depositor, the Master Servicer
or any of their affiliates will have any obligation to replace or supplement
any credit enhancement, or to take any other action to maintain any rating of
any Series of Certificates.
ENFORCEABILITY
Mortgages may contain a due-on-sale clause, which permits the lender to
accelerate the maturity of the Mortgage Loan if the Mortgagor sells, transfers
or conveys the related Mortgaged Property or its interest in the Mortgaged
Property. Mortgages may also include a debt-acceleration clause, which permits
the lender to accelerate the debt upon a monetary or non-monetary default of
the Mortgagor. Such clauses are generally enforceable subject to certain
exceptions. The courts of all states will enforce clauses providing for
acceleration in the event of a material payment default. The equity courts of
any state, however, may refuse the foreclosure of a mortgage or deed of trust
when an acceleration of the indebtedness would be inequitable or unjust or the
circumstances would render the acceleration unconscionable.
If so specified in the related Prospectus Supplement, the Mortgage Loans
will be secured by an assignment of leases and rents pursuant to which the
Mortgagor typically assigns its right, title and interest as landlord under the
leases on the related Mortgaged Property and the income derived therefrom to
the lender as further security for the related Mortgage Loan, while retaining a
license to collect rents for so long as there is no default. In the event the
Mortgagor defaults, the license terminates and the lender is entitled to
collect rents. Such assignments are typically not perfected as security
interests prior to actual possession of the cash flows. Some state laws may
require that the lender take
- 18 -
<PAGE> 88
possession of the Mortgaged Property and obtain a judicial appointment of a
receiver before becoming entitled to collect the rents. In addition, if
bankruptcy or similar proceedings are commenced by or in respect of the
Mortgagor, the lender's ability to collect the rents may be adversely affected.
See "Certain Legal Aspects of the Mortgage Loans and the Leases -- Leases and
Rents."
ENVIRONMENTAL RISKS
Real property pledged as security for a mortgage loan may be subject to
certain environmental risks. Under the laws of certain states, contamination of
a property may give rise to a lien on the property to assure the costs of
cleanup. In several states, such a lien has priority over the lien of an
existing mortgage against such property. In addition, under the laws of some
states and under the federal Comprehensive Environmental Response, Compensation
and Liability Act of 1980 ("CERCLA") a lender may be liable, as an "owner" or
"operator," for costs of addressing releases or threatened releases of
hazardous substances that require remedy at a property, if agents or employees
of the lender have become sufficiently involved in the operations of the
Mortgagor, regardless of whether or not the environmental damage or threat was
caused by a prior owner. A lender also risks such liability on foreclosure of
the mortgage. Each Pooling and Servicing Agreement will provide that no
Servicer, acting on behalf of the Trust Fund, may acquire title to a Mortgaged
Property securing a Mortgage Loan or take over its operation unless such
Servicer has previously determined, based upon a report prepared by a person
who regularly conducts environmental audits, that: (i) the Mortgaged Property
is in compliance with applicable environmental laws or, if not, that taking
such actions as are necessary to bring the Mortgaged Property in compliance
therewith is likely to produce a greater recovery on a present value basis,
after taking into account any risks associated therewith, than not taking such
actions and (ii) there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any Hazardous Materials (as
defined herein) for which investigation, testing, monitoring, containment,
cleanup or remediation could be required under any federal, state or local law
or regulation, or that, if any Hazardous Materials are present for which such
action would be required, taking such actions with respect to the affected
Mortgaged Property is reasonably likely to produce a greater recovery on a
present value basis, after taking into account any risks associated therewith,
than not taking such actions. Any additional restrictions on acquiring title to
a Mortgaged Property may be set forth in the related Prospectus Supplement. See
"Certain Legal Aspects of the Mortgage Loans and the Leases -- Environmental
Legislation."
DELINQUENT AND NON-PERFORMING MORTGAGE LOANS
If so provided in the related Prospectus Supplement, the Trust Fund for
a particular series of Certificates may include Mortgage Loans that are past
due or are non-performing. To the extent described in the related Prospectus
Supplement, the servicing of such Mortgage Loans as to which a specified number
of payments are delinquent will be performed by the Special Servicer; however,
the same entity may act as both Master Servicer and Special Servicer. Credit
Support provided with respect to a particular series of Certificates may not
cover all losses related to such delinquent or nonperforming Mortgage Loans,
and investors should consider the risk that the inclusion of such Mortgage
Loans in the Trust Fund may adversely affect the rate of defaults and
prepayments on the Mortgage Assets in such Trust Fund and the yield on the
Certificates of such series.
ERISA CONSIDERATIONS
Generally, ERISA applies to investments made by employee benefit plans
and transactions involving the assets of such plans. Due to the complexity of
regulations which govern such plans, prospective investors that are subject to
- 19 -
<PAGE> 89
ERISA are urged to consult their own counsel regarding consequences under ERISA
of acquisition, ownership and disposition of the Offered Certificates of any
Series.
CERTAIN FEDERAL TAX CONSIDERATIONS REGARDING REMIC RESIDUAL CERTIFICATES
Holders of REMIC Residual Certificates will be required to report on
their federal income tax returns as ordinary income their pro rata share of the
taxable income of the REMIC, regardless of the amount or timing of their
receipt of cash payments, as described in "Federal Income Tax Consequences --
REMICs." Accordingly, under certain circumstances, holders of Offered
Certificates that constitute REMIC Residual Certificates may have taxable
income and tax liabilities arising from such investment during a taxable year
in excess of the cash received during such period. Individual holders of REMIC
Residual Certificates may be limited in their ability to deduct servicing fees
and other expenses of the REMIC. In addition, REMIC Residual Certificates are
subject to certain restrictions on transfer. Because of the special tax
treatment of REMIC Residual Certificates, the taxable income arising in a given
year on a REMIC Residual Certificate will not be equal to, and may be
substantially more than, the taxable income associated with investment in a
corporate bond or stripped instrument having similar cash flow characteristics
and pre-tax yield. Therefore, the after-tax yield on the REMIC Residual
Certificate may be significantly less than that of a corporate bond or stripped
instrument having similar cash flow characteristics. Additionally, prospective
purchasers of a REMIC Residual Certificate should be aware that under
applicable Treasury regulations REMIC residual interests cannot be marked-to-
market. See "Federal Income Tax Consequences -- REMICs."
CONTROL
Under certain circumstances, the consent or approval of the holders of a
specified percentage of the aggregate Certificate Balance of all outstanding
Certificates of a Series or a similar means of allocating decision-making under
the related Agreement ("VOTING RIGHTS") will be required to direct, and will be
sufficient to bind all Certificateholders of such Series to, certain actions,
including directing the Special Servicer or the Master Servicer with respect to
actions to be taken with respect to certain Mortgage Loans and REO Properties
and amending the related Agreement in certain circumstances. See "Description
of the Agreements -- Events of Default," "--Rights Upon Event of Default" and
"--Amendment."
BOOK-ENTRY REGISTRATION
If so provided in the Prospectus Supplement, one or more classes of the
Certificates will be initially represented by one or more certificates
registered in the name of Cede, the nominee for DTC, and will not be registered
in the names of the Beneficial Owners or their nominees. Because of this,
unless and until Definitive Certificates are issued, Beneficial Owners will not
be recognized by the Trustee as "CERTIFICATEHOLDERS" (as that term is to be
used in the related Agreement). Hence, until such time, Beneficial Owners will
be able to exercise the rights of Certificateholders only indirectly through
DTC and its participating organizations. See "Description of the Certificates
- -- Book-Entry Registration and Definitive Certificates."
DESCRIPTION OF THE TRUST FUNDS
ASSETS
The primary assets of each Trust Fund will include (i) one or more
multifamily and/or commercial mortgage loans (the "MORTGAGE LOANS"), (ii)
mortgage participations, pass-through certificates or other mortgage-backed
securities evidencing interests in or secured by one or more Mortgage Loans or
other similar participations, certificates or securities (collectively, the
"CMBS"), or (iii) a combination of Mortgage Loans and CMBS. As used herein,
"Mortgage Loans" refers to both whole Mortgage Loans and Mortgage Loans
underlying CMBS. Mortgage Loans that secure, or interests in which are
evidenced by, CMBS are herein sometimes referred to as "UNDERLYING MORTGAGE
LOANS". Mortgage Loans that are not Underlying Mortgage Loans are sometimes
referred to as "WHOLE LOANS". Any mortgage participations, pass-through
certificates or other asset-backed certificates in which an CMBS evidences an
interest or which secure an CMBS are sometimes referred to herein also as CMBS
or as "UNDERLYING CMBS". Mortgage Loans and CMBS are sometimes referred to
herein as "MORTGAGE ASSETS". No CMBS originally issued in
- 20 -
<PAGE> 90
a private placement will be included as an asset of a Trust Fund until the
holding period provided for under Rule 144(k) promulgated under the Securities
Act has expired or such CMBS has been registered under the Securities Act. The
Mortgage Assets will not be guaranteed or insured by AMRESCO Commercial
Mortgage Funding I Corporation (the "DEPOSITOR") or any of its affiliates or,
unless otherwise provided in the related Prospectus Supplement, by any
governmental agency or instrumentality or by any other person. Each Mortgage
Asset will be selected by the Depositor for inclusion in a Trust Fund from
among those purchased, either directly or indirectly, from a prior holder
thereof (an "ASSET SELLER"), which may be an affiliate of the Depositor and,
with respect to Mortgage Assets, which prior holder may or may not be the
originator of such Mortgage Loan or the issuer of such CMBS.
To the extent specified in the related Prospectus Supplement, the
Certificates will be entitled to payment only from the assets of the related
Trust Fund and will not be entitled to payments in respect of the assets of any
other trust fund established by the Depositor. If specified in the related
Prospectus Supplement, the assets of a Trust Fund will consist of certificates
representing beneficial ownership interests in another trust fund that contains
the Mortgage Assets.
MORTGAGE LOANS
General
The Mortgage Loans will be secured by liens on, or security interests
in, Mortgaged Properties consisting of (i) residential properties consisting of
five or more rental or cooperatively owned dwelling units in high-rise, mid-
rise or garden apartment buildings ("MULTIFAMILY PROPERTIES" and the related
loans, "MULTIFAMILY LOANS") or (ii) office buildings, retail centers, hotels or
motels, health care-related facilities, industrial properties, mini-warehouse
facilities or self-storage facilities, mobile home parks, mixed use or other
types of commercial properties ("COMMERCIAL PROPERTIES" and the related loans,
"COMMERCIAL LOANS") located, to the extent specified in the related Prospectus
Supplement, in any one of the fifty states, the District of Columbia or any
territories of the United States. To the extent specified in the related
Prospectus Supplement, the Mortgage Loans will be secured by first mortgages or
deeds of trust or other similar security instruments creating a first lien on
Mortgaged Property. Multifamily Properties may include mixed commercial and
residential structures and may include apartment buildings owned by private
cooperative housing corporations ("COOPERATIVES"). The Mortgaged Properties may
include leasehold interests in properties, the title to which is held by third
party lessors. The Prospectus Supplement will specify whether the term of any
such leasehold exceeds the term of the mortgage note by at least ten years.
Each Mortgage Loan will have been originated by a person (the "ORIGINATOR")
other than the Depositor. The related Prospectus Supplement will indicate if
any Originator is an affiliate of the Depositor. The Mortgage Loans will be
evidenced by promissory notes (the "MORTGAGE NOTES") secured by mortgages or
deeds of trust (the "MORTGAGES") creating a lien on the Mortgaged Properties.
Mortgage Loans will generally also be secured by an assignment of leases and
rents and/or operating or other cash flow guarantees relating to the Mortgage
Loan.
Leases
To the extent specified in the related Prospectus Supplement, the
Commercial Properties may be leased to Lessees that respectively occupy all or
a portion of such properties. Pursuant to a Lease Assignment, the related
Mortgagor may assign its rights, title and interest as lessor under each Lease
and the income derived therefrom to the related mortgagee, while retaining a
license to collect the rents for so long as there is no default. If the
Mortgagor defaults, the license terminates and the mortgagee or its agent is
entitled to collect the rents from the related Lessee or Lessees for
application to the monetary obligations of the Mortgagor. State law may limit
or restrict the enforcement of the Lease Assignments by a mortgagee until it
takes possession of the related Mortgaged Property and/or a receiver is
appointed. See "Certain Legal Aspects of the Mortgage Loans and the Leases --
Leases and Rents." Alternatively, to the extent specified in the related
Prospectus Supplement, the Mortgagor and the mortgagee may agree that payments
under Leases are to be made directly to a Servicer.
To the extent described in the related Prospectus Supplement, the Leases
may require the Lessees to pay rent that is sufficient in the aggregate to
cover all scheduled payments of principal and interest on the related Mortgage
Loans and, in certain cases, their pro rata share of the operating expenses,
insurance premiums and real estate taxes associated with the Mortgaged
Properties. Certain of the Leases may require the Mortgagor to bear costs
associated with structural repairs and/or the maintenance of the exterior or
other portions of the Mortgaged Property or provide for certain limits
- 21 -
<PAGE> 91
on the aggregate amount of operating expenses, insurance premiums, taxes and
other expenses that the Lessees are required to pay. If so specified in the
related Prospectus Supplement, under certain circumstances the Lessees may be
permitted to set off their rental obligations against the obligations of the
Mortgagors under the Leases. In those cases where payments under the Leases
(net of any operating expenses payable by the Mortgagors) are insufficient to
pay all of the scheduled principal and interest on the related Mortgage Loans,
the Mortgagors must rely on other income or sources (including security
deposits) generated by the related Mortgaged Property to make payments on the
related Mortgage Loan. To the extent specified in the related Prospectus
Supplement, some Commercial Properties may be leased entirely to one Lessee. In
such cases, absent the availability of other funds, the Mortgagor must rely
entirely on rent paid by such Lessee in order for the Mortgagor to pay all of
the scheduled principal and interest on the related Commercial Loan. To the
extent specified in the related Prospectus Supplement, certain of the Leases
may expire prior to the stated maturity of the related Mortgage Loan. In such
cases, upon expiration of the Leases the Mortgagors will have to look to
alternative sources of income, including rent payment by any new Lessees or
proceeds from the sale or refinancing of the Mortgaged Property, to cover the
payments of principal and interest due on such Mortgage Loans unless the Lease
is renewed. As specified in the related Prospectus Supplement, certain of the
Leases may provide that upon the occurrence of a casualty affecting a Mortgaged
Property, the Lessee will have the right to terminate its Lease, unless the
Mortgagor, as lessor, is able to cause the Mortgaged Property to be restored
within a specified period of time. Certain Leases may provide that it is the
lessor's responsibility, while other Leases provide that it is the Lessee's
responsibility, to restore the Mortgaged Property after a casualty to its
original condition. Certain Leases may provide a right of termination to the
related Lessee if a taking of a material or specified percentage of the leased
space in the Mortgaged Property occurs, or if the ingress or egress to the
leased space has been materially impaired.
Default and Loss Considerations with Respect to the Mortgage Loans
Mortgage loans secured by commercial and multifamily properties are
markedly different from owner-occupied single family mortgage loans. The
repayment of loans secured by commercial or multifamily properties is typically
dependent upon the successful operation of such property rather than upon the
liquidation value of the real estate. To the extent specified in the Prospectus
Supplement, the Mortgage Loans will be non-recourse loans, which means that,
absent special facts, the mortgagee may look only to the Net Operating Income
from the property for repayment of the mortgage debt, and not to any other of
the Mortgagor's assets, in the event of the Mortgagor's default. Lenders
typically look to the Debt Service Coverage Ratio of a loan secured by income-
producing property as an important measure of the risk of default on such a
loan. The "DEBT SERVICE COVERAGE RATIO" of a Mortgage Loan at any given time is
the ratio of the Net Operating Income for a twelve-month period to the
annualized scheduled payments on the Mortgage Loan. "NET OPERATING INCOME"
means, for any given period, to the extent specified in the related Prospectus
Supplement, the total operating revenues derived from a Mortgaged Property
during such period, minus the total operating expenses incurred in respect of
such Mortgaged Property during such period other than (i) non-cash items such
as depreciation and amortization, (ii) capital expenditures and (iii) debt
service on loans secured by the Mortgaged Property. The Net Operating Income of
a Mortgaged Property will fluctuate over time and may be sufficient or
insufficient to cover debt service on the related Mortgage Loan at any given
time.
As the primary component of Net Operating Income, rental income (as well
as maintenance payments from tenant-stockholders of a Cooperative) is subject
to the vagaries of the applicable real estate market and/or business climate.
Properties typically leased, occupied or used on a short-term basis, such as
health care-related facilities, hotels and motels, and mini-warehouse and self-
storage facilities, tend to be affected more rapidly by changes in market or
business conditions than do properties leased, occupied or used for longer
periods, such as (typically) retail centers, office buildings and industrial
properties. Commercial Loans may be secured by owner-occupied Mortgaged
Properties or Mortgaged Properties leased to a single tenant. Accordingly, a
decline in the financial condition of the Mortgagor or single tenant, as
applicable, may have a disproportionately greater effect on the Net Operating
Income from such Mortgaged Properties than would be the case with respect to
Mortgaged Properties with multiple tenants.
Changes in the expense components of Net Operating Income due to the
general economic climate or economic conditions in a locality or industry
segment, such as increases in interest rates, real estate and personal property
tax rates and other operating expenses, including energy costs; changes in
governmental rules, regulations and fiscal policies, including environmental
legislation; and acts of God may also affect the risk of default on the related
Mortgage Loan. As may be further described in the related Prospectus
Supplement, in some cases leases of Mortgaged Properties may provide that the
Lessee rather than the Mortgagor, is responsible for payment of some or all of
these expenses; however,
- 22 -
<PAGE> 92
because leases are subject to default risks as well when a tenant's income is
insufficient to cover its rent and operating expenses, the existence of such
"net of expense" provisions will only temper, not eliminate, the impact of
expense increases on the performance of the related Mortgage Loan. See
"--Mortgage Loans -- Leases" above.
While the duration of leases and the existence of any "net of expense"
provisions are often viewed as the primary considerations in evaluating the
credit risk of mortgage loans secured by certain income-producing properties,
such risk may be affected equally or to a greater extent by changes in
government regulation of the operator of the property. Examples of the latter
include mortgage loans secured by health care-related facilities, the income
from which and the operating expenses of which are subject to state and/or
federal regulations, such as Medicare and Medicaid, and multifamily properties
and mobile home parks, which may be subject to state or local rent control
regulation and, in certain cases, restrictions on changes in use of the
property. Low- and moderate-income housing in particular may be subject to
legal limitations and regulations but, because of such regulations, may also be
less sensitive to fluctuations in market rents generally.
The Debt Service Coverage Ratio should not be relied upon as the sole
measure of the risk of default of any loan, however, since other factors may
outweigh a high Debt Service Coverage Ratio. With respect to a Balloon Mortgage
Loan, for example, the risk of default as a result of the unavailability of a
source of funds to finance the related balloon payment at maturity on terms
comparable to or better than those of such Balloon Mortgage Loans could be
significant even though the related Debt Service Coverage Ratio is high.
The liquidation value of any Mortgaged Property may be adversely
affected by risks generally incident to interests in real property, including
declines in rental or occupancy rates. Lenders generally use the Loan-to-Value
Ratio of a mortgage loan as a measure of risk of loss if a property must be
liquidated upon a default by the Mortgagor.
Appraised values of income-producing properties may be based on the
market comparison method (recent resale value of comparable properties at the
date of the appraisal), the cost replacement method (the cost of replacing the
property at such date), the income capitalization method (a projection of value
based upon the property's projected net cash flow), or upon a selection from or
interpolation of the values derived from such methods. Each of these appraisal
methods presents analytical challenges. It is often difficult to find truly
comparable properties that have recently been sold; the replacement cost of a
property may have little to do with its current market value; and income
capitalization is inherently based on inexact projections of income and expense
and the selection of an appropriate capitalization rate. Where more than one of
these appraisal methods are used and create significantly different results, or
where a high Loan-to-Value Ratio accompanies a high Debt Service Coverage Ratio
(or vice versa), the analysis of default and loss risks is even more difficult.
While the Depositor believes that the foregoing considerations are
important factors that generally distinguish the Multifamily and Commercial
Loans from single family mortgage loans and provide insight to the risks
associated with income-producing real estate, there is no assurance that such
factors will in fact have been considered by the Originators of the Multifamily
and Commercial Loans, or that, for any of such Mortgage Loans, they are
complete or relevant. See "Risk Factors -- Risks Associated with Mortgage Loans
and Mortgaged Properties," " --Balloon Payments," " --Junior Mortgage Loans," "
- --Obligor Default" and " --Mortgagor Type."
Loan-to-Value Ratio
The "LOAN-TO-VALUE RATIO" of a Mortgage Loan at any given time is the
ratio (expressed as a percentage) of the then outstanding principal balance of
the Mortgage Loan to the Value of the related Mortgaged Property. The "VALUE"
of a Mortgaged Property, other than with respect to Refinance Loans, is
generally the lesser of (a) the appraised value determined in an appraisal
obtained by the originator at origination of such loan and (b) the sales price
for such property. "REFINANCE LOANS" are loans made to refinance existing
loans. To the extent set forth in the related Prospectus Supplement, the Value
of the Mortgaged Property securing a Refinance Loan is the appraised value
thereof determined in an appraisal obtained at the time of origination of the
Refinance Loan. The Value of a Mortgaged Property as of the date of initial
issuance of the related Series of Certificates may be less than the value at
origination and will fluctuate from time to time based upon changes in economic
conditions and the real estate market.
- 23 -
<PAGE> 93
Mortgage Loan Information in Prospectus Supplements
Each Prospectus Supplement will contain information, as of the date of
such Prospectus Supplement and to the extent then applicable and specifically
known to the Depositor, with respect to the Mortgage Loans, including (i) the
aggregate outstanding principal balance and the largest, smallest and average
outstanding principal balance of the Mortgage Loans as of the applicable Cut-
off Date, (ii) the type of property securing the Mortgage Loans (e.g.,
Multifamily Property or Commercial Property and the type of property in each
such category), (iii) the weighted average (by principal balance) of the
original and remaining terms to maturity of the Mortgage Loans, (iv) the
earliest and latest origination date and maturity date of the Mortgage Loans,
(v) the weighted average (by principal balance) of the Loan-to-Value Ratios at
origination of the Mortgage Loans, (vi) the Mortgage Interest Rates or range of
Mortgage Interest Rates and the weighted average Mortgage Interest Rate borne
by the Mortgage Loans, (vii) the state or states in which most of the Mortgaged
Properties are located, (viii) information with respect to the prepayment
provisions, if any, of the Mortgage Loans, (ix) the weighted average Retained
Interest, if any, (x) with respect to Mortgage Loans with floating Mortgage
Interest Rates ("ARM LOANS"), the index, the frequency of the adjustment dates,
the highest, lowest and weighted average note margin and pass-through margin,
and the maximum Mortgage Interest Rate or monthly payment variation at the time
of any adjustment thereof and over the life of the ARM Loan and the frequency
of such monthly payment adjustments, (xi) the Debt Service Coverage Ratio
either at origination or as of a more recent date (or both) and (xii)
information regarding the payment characteristics of the Mortgage Loans,
including without limitation balloon payment and other amortization provisions.
The related Prospectus Supplement will also contain certain information
available to the Depositor with respect to the provisions of leases and the
nature of tenants of the Mortgaged Properties and other information referred to
in a general manner under "--Mortgage Loans -- Default and Loss Considerations
with Respect to the Mortgage Loans" above. If specific information respecting
the Mortgage Loans is not known to the Depositor at the time Certificates are
initially offered, more general information of the nature described above will
be provided in the Prospectus Supplement, and specific information will be set
forth in a report which will be available to purchasers of the related
Certificates at or before the initial issuance thereof and will be filed as
part of a Current Report on Form 8-K with the Securities and Exchange
Commission within fifteen days after such initial issuance.
Payment Provisions of the Mortgage Loans
To the extent specified in the related Prospectus Supplement, all of the
Mortgage Loans will (i) have individual principal balances at origination of
not less than $250,000, (ii) have original terms to maturity of not more than
40 years and (iii) provide for payments of principal, interest or both, on due
dates that occur monthly, quarterly or semi-annually or at such other interval
as is specified in the related Prospectus Supplement. Each Mortgage Loan may
provide for no accrual of interest or for accrual of interest thereon at an
interest rate (a "MORTGAGE INTEREST RATE") that is fixed over its term or that
adjusts from time to time, or that is partially fixed and partially floating,
or that may be converted from a floating to a fixed Mortgage Interest Rate, or
from a fixed to a floating Mortgage Interest Rate, from time to time pursuant
to an election or as otherwise specified on the related Mortgage Note, in each
case as described in the related Prospectus Supplement. Each Mortgage Loan may
provide for scheduled payments to maturity or payments that adjust from time to
time to accommodate changes in the Mortgage Interest Rate or to reflect the
occurrence of certain events, and may provide for negative amortization or
accelerated amortization, in each case as described in the related Prospectus
Supplement. Each Mortgage Loan may be fully amortizing or require a balloon
payment due on its stated maturity date, in each case as described in the
related Prospectus Supplement. Each Mortgage Loan may contain prohibitions on
prepayment (a "LOCK-OUT PERIOD" and the date of expiration thereof, a "LOCK-OUT
DATE") or require payment of a premium or a yield maintenance penalty (a
"PREPAYMENT PREMIUM") in connection with a prepayment, in each case as
described in the related Prospectus Supplement. In the event that holders of
any class or classes of Offered Certificates will be entitled to all or a
portion of any Prepayment Premiums collected in respect of Mortgage Loans, the
related Prospectus Supplement will specify the method or methods by which any
such amounts will be allocated. A Mortgage Loan may also contain provisions
entitling the mortgagee to a share of profits realized from the operation or
disposition of the Mortgaged Property ("EQUITY PARTICIPATIONS"), as described
in the related Prospectus Supplement. In the event that holders of any class or
classes of Offered Certificates will be entitled to all or a portion of an
Equity Participation, the related Prospectus Supplement will specify the terms
and provisions of the Equity Participation and the method or methods by which
distributions in respect thereof will be allocated among such Certificates.
- 24 -
<PAGE> 94
CMBS
Any CMBS will have been issued pursuant to a participation and servicing
agreement, a pooling and servicing agreement, a trust agreement, an indenture
or similar agreement (an "CMBS AGREEMENT"). A seller (the "CMBS ISSUER") and/or
servicer (the "CMBS SERVICER") of the underlying Mortgage Loans (or Underlying
CMBS) will have entered into the CMBS Agreement with a trustee or a custodian
under the CMBS Agreement (the "CMBS TRUSTEE"), if any, or with the original
purchaser of the interest in the underlying Mortgage Loans or CMBS evidenced by
the CMBS.
Distributions of any principal or interest, as applicable, will be made
on CMBS on the dates specified in the related Prospectus Supplement. The CMBS
may be issued in one or more classes with characteristics similar to the
classes of Certificates described in this Prospectus. Any principal or interest
distributions will be made on the CMBS by the CMBS Trustee or the CMBS
Servicer. The CMBS Issuer or the CMBS Servicer or another person specified in
the related Prospectus Supplement may have the right or obligation to
repurchase or substitute assets underlying the CMBS after a certain date or
under other circumstances specified in the related Prospectus Supplement.
Enhancement in the form of reserve funds, subordination or other forms
of credit support similar to that described for the Certificates under
"Description of Credit Support" may be provided with respect to the CMBS. The
type, characteristics and amount of such credit support, if any, will be a
function of certain characteristics of the Mortgage Loans or Underlying CMBS
evidenced by or securing such CMBS and other factors and generally will have
been established for the CMBS on the basis of requirements of either any Rating
Agency that may have assigned a rating to the CMBS or the initial purchasers of
the CMBS.
The Prospectus Supplement for a Series of Certificates evidencing
interests in Mortgage Assets that include CMBS will specify, to the extent
available, (i) the aggregate approximate initial and outstanding principal
amount or notional amount, as applicable, and type of the CMBS to be included
in the Trust Fund, (ii) the original and remaining term to stated maturity of
the CMBS, if applicable, (iii) whether such CMBS is entitled only to interest
payments, only to principal payments or to both, (iv) the pass-through or bond
rate of the CMBS or formula for determining such rates, if any, (v) the
applicable payment provisions for the CMBS, including, but not limited to, any
priorities, payment schedules and subordination features, (vi) the CMBS Issuer,
CMBS Servicer and CMBS Trustee, as applicable, (vii) certain characteristics of
the credit support, if any, such as subordination, reserve funds, insurance
policies, letters of credit or guarantees relating to the related Underlying
Mortgage Loans, the Underlying CMBS or directly to such CMBS, (viii) the terms
on which the related Underlying Mortgage Loans or Underlying CMBS for such CMBS
or the CMBS may, or are required to, be purchased prior to their maturity, (ix)
the terms on which Mortgage Loans or Underlying CMBS may be substituted for
those originally underlying the CMBS, (x) the servicing fees payable under the
CMBS Agreement, (xi) to the extent available to the Depositor, the type of
information in respect of the Underlying Mortgage Loans described under
"--Mortgage Loans -- Mortgage Loan Information in Prospectus Supplements"
above, and the type of information in respect of the Underlying CMBS described
in this paragraph, (xii) the characteristics of any cash flow agreements that
are included as part of the trust fund evidenced or secured by the CMBS and
(xiii) whether the CMBS is in certificated form, book-entry form or held
through a depository such as The Depository Trust Company or the Participants
Trust Company.
ACCOUNTS
Each Trust Fund will include one or more accounts established and
maintained on behalf of the Certificateholders into which the person or persons
designated in the related Prospectus Supplement will, to the extent described
herein and in such Prospectus Supplement deposit all payments and collections
received or advanced with respect to the Mortgage Assets and other assets in
the Trust Fund. Such an account may be maintained as an interest bearing or a
non-interest bearing account, and funds held therein may be held as cash or
invested in certain short-term, investment grade obligations, in each case as
described in the related Prospectus Supplement. See "Description of the
Agreements -- Accounts -- Distribution Account" and "--Accounts -- Other
Collection Accounts."
- 25 -
<PAGE> 95
CREDIT SUPPORT
If so provided in the related Prospectus Supplement, partial or full
protection against certain defaults and losses on the Trust Assets in the
related Trust Fund may be provided to one or more classes of Certificates in
the related Series in the form of subordination of one or more other classes of
Certificates in such Series or by one or more other types of credit support,
such as a letter of credit, insurance policy, guarantee, reserve fund or
another type of credit support, or a combination thereof (any such coverage
with respect to the Certificates of any Series, "CREDIT SUPPORT"). The amount
and types of coverage, the identification of the entity providing the coverage
(if applicable) and related information with respect to each type of Credit
Support, if any, will be described in the Prospectus Supplement for a Series of
Certificates. See "Risk Factors -- Credit Support Limitations" and "Description
of Credit Support."
CASH FLOW AGREEMENTS
If so provided in the related Prospectus Supplement, the Trust Fund may
include guaranteed investment contracts pursuant to which moneys held in the
funds and accounts established for the related Series will be invested at a
specified rate. The Trust Fund may also include certain other agreements, such
as interest rate exchange agreements, interest rate cap or floor agreements,
currency exchange agreements or similar agreements provided to reduce the
effects of interest rate or currency exchange rate fluctuations on the Mortgage
Assets or on one or more classes of Certificates. The principal terms of any
such guaranteed investment contract or other agreement (any such agreement, a
"CASH FLOW AGREEMENT"), including, without limitation, provisions relating to
the timing, manner and amount of payments thereunder and provisions relating to
the termination thereof, will be described in the Prospectus Supplement for the
related Series. In addition, the related Prospectus Supplement will provide
certain information with respect to the obligor under any such Cash Flow
Agreement.
USE OF PROCEEDS
The net proceeds to be received from the sale of the Certificates will
be applied by the Depositor to the purchase of Trust Assets and to pay for
certain expenses incurred in connection with such purchase of Trust Assets and
sale of Certificates. The Depositor expects to sell the Certificates from time
to time, but the timing and amount of offerings of Certificates will depend on
a number of factors, including the volume of Mortgage Assets acquired by the
Depositor, prevailing interest rates, availability of funds and general market
conditions.
YIELD CONSIDERATIONS
GENERAL
The yield on any Offered Certificate will depend on the price paid by
the Certificateholder, the Pass-Through Rate of the Certificate, the receipt
and timing of receipt of distributions on the Certificate and the weighted
average life of the Mortgage Assets in the related Trust Fund (which may be
affected by prepayments, defaults, liquidations or repurchases). See "Risk
Factors."
PASS-THROUGH RATE
Certificates of any class within a Series may have fixed, variable or
floating Pass-Through Rates, which may or may not be based upon the interest
rates borne by the Mortgage Assets in the related Trust Fund. The Prospectus
Supplement with respect to any Series of Certificates will specify the Pass-
Through Rate for each class of such Certificates or, in the case of a variable
or floating Pass-Through Rate, the method of determining the Pass-Through Rate;
the effect, if any, of the prepayment of any Mortgage Asset on the Pass-Through
Rate of one or more classes of Certificates; and whether the distributions of
interest on the Certificates of any class will be dependent, in whole or in
part, on the performance of any obligor under a Cash Flow Agreement.
The effective yield to maturity to each holder of Certificates entitled
to payments of interest will be below that otherwise produced by the applicable
Pass-Through Rate and purchase price of such Certificate because, while
interest
- 26 -
<PAGE> 96
may accrue on each Mortgage Asset during a certain period, the distribution of
such interest will be made on a day which may be several days, weeks or months
following the period of accrual.
TIMING OF PAYMENT OF INTEREST
Each payment of interest on the Certificates (or addition to the
Certificate Balance of a class of Accrual Certificates) on a Distribution Date
will include interest accrued during the Interest Accrual Period for such
Distribution Date. As indicated above under "--Pass-Through Rate," if the
Interest Accrual Period ends on a date other than a Distribution Date for the
related Series, the yield realized by the holders of such Certificates may be
lower than the yield that would result if the Interest Accrual Period ended on
such Distribution Date. In addition, if so specified in the related Prospectus
Supplement, interest accrued for an Interest Accrual Period for one or more
classes of Certificates may be calculated on the assumption that distributions
of principal (and additions to the Certificate Balance of Accrual Certificates)
and allocations of losses on the Mortgage Assets may be made on the first day
of the Interest Accrual Period for a Distribution Date and not on such
Distribution Date. Such method would produce a lower effective yield than if
interest were calculated on the basis of the actual principal amount
outstanding during an Interest Accrual Period. The Interest Accrual Period for
any class of Offered Certificates will be described in the related Prospectus
Supplement.
PAYMENTS OF PRINCIPAL; PREPAYMENTS
The yield to maturity on the Certificates will be affected by the rate
of principal payments on the Mortgage Assets (including principal prepayments
on Mortgage Loans resulting from voluntary prepayments by the Mortgagors,
insurance proceeds, condemnations and involuntary liquidations). Such payments
may be directly dependent upon the payments on Leases underlying such Mortgage
Loans. The rate at which principal prepayments occur on the Mortgage Loans will
be affected by a variety of factors, including, without limitation, the terms
of the Mortgage Loans, the level of prevailing interest rates, the availability
of mortgage credit and economic, demographic, geographic, tax, legal and other
factors. In general, however, if prevailing interest rates fall significantly
below the Mortgage Interest Rates on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund, such Mortgage Loans
are likely to be the subject of higher principal prepayments than if prevailing
rates remain at or above the rates borne by such Mortgage Loans. In this
regard, it should be noted that certain Mortgage Assets may consist of Mortgage
Loans with different Mortgage Interest Rates and the stated pass-through or
pay-through interest rate of certain CMBS may be a number of percentage points
higher or lower than certain of the underlying Mortgage Loans. The rate of
principal payments on some or all of the classes of Certificates of a Series
will correspond to the rate of principal payments on the Mortgage Assets in the
related Trust Fund and is likely to be affected by the existence of Lock-out
Periods and Prepayment Premium provisions of the Mortgage Loans underlying or
comprising such Mortgage Assets, and by the extent to which the servicer of any
such Mortgage Loan is able to enforce such provisions. Mortgage Loans with a
Lock-out Period or a Prepayment Premium provision, to the extent enforceable,
generally would be expected to experience a lower rate of principal prepayments
than otherwise identical Mortgage Loans without such provisions, with shorter
Lock-out Periods or with lower Prepayment Premiums.
If the purchaser of a Certificate offered at a discount calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is faster than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. Conversely,
if the purchaser of a Certificate offered at a premium calculates its
anticipated yield to maturity based on an assumed rate of distributions of
principal that is slower than that actually experienced on the Mortgage Assets,
the actual yield to maturity will be lower than that so calculated. In either
case, if so provided in the Prospectus Supplement for a Series of Certificates,
the effect on yield on one or more classes of the Certificates of such Series
of prepayments of the Mortgage Assets in the related Trust Fund may be
mitigated or exacerbated by any provisions for sequential or selective
distribution of principal to such classes.
When a full prepayment is made on a Mortgage Loan, the Mortgagor is
charged interest on the principal amount of the Mortgage Loan so prepaid for
the number of days in the month actually elapsed up to the date of the
prepayment. To the extent specified in the related Prospectus Supplement, the
effect of prepayments in full will be to reduce the amount of interest paid in
the following month to holders of Certificates entitled to payments of interest
because interest on the principal amount of any Mortgage Loan so prepaid will
be paid only to the date of prepayment rather than for a full month. To the
extent specified in the related Prospectus Supplement, a partial prepayment of
principal is applied so as to reduce the outstanding principal balance of the
related Mortgage Loan as of the Due Date
- 27 -
<PAGE> 97
in the month in which such partial prepayment is received. As a result, to the
extent specified in the related Prospectus Supplement, the effect of a partial
prepayment on a Mortgage Loan will be to reduce the amount of interest passed
through to holders of Certificates in the month following the receipt of such
partial prepayment by an amount equal to one month's interest at the applicable
Pass-Through Rate on the prepaid amount.
The timing of changes in the rate of principal payments on the Mortgage
Assets may significantly affect an investor's actual yield to maturity, even if
the average rate of distributions of principal is consistent with an investor's
expectation. In general, the earlier a principal payment is received on the
Mortgage Assets and distributed on a Certificate, the greater the effect on
such investor's yield to maturity. The effect on an investor's yield of
principal payments occurring at a rate higher (or lower) than the rate
anticipated by the investor during a given period may not be offset by a
subsequent like decrease (or increase) in the rate of principal payments.
PREPAYMENTS -- MATURITY AND WEIGHTED AVERAGE LIFE
The rates at which principal payments are received on the Mortgage
Assets included in or comprising a Trust Fund and the rate at which payments
are made from any Credit Support or Cash Flow Agreement for the related Series
of Certificates may affect the ultimate maturity and the weighted average life
of each class of such Series. Prepayments on the Mortgage Loans comprising or
underlying the Mortgage Assets in a particular Trust Fund will generally
accelerate the rate at which principal is paid on some or all of the classes of
the Certificates of the related Series.
If so provided in the Prospectus Supplement for a Series of
Certificates, one or more classes of Certificates may have a final scheduled
Distribution Date, which is the date on or prior to which the Certificate
Balance thereof is scheduled to be reduced to zero, calculated on the basis of
the assumptions applicable to such Series set forth therein.
Weighted average life refers to the average amount of time that will
elapse from the date of issue of a security until each dollar of principal of
such security will be repaid to the investor. The weighted average life of a
class of Certificates of a Series will be influenced by the rate at which
principal on the Mortgage Loans comprising or underlying the Mortgage Assets is
paid to such class, which may be in the form of scheduled amortization or
prepayments (for this purpose, the term "prepayment" includes prepayments, in
whole or in part, and liquidations due to default).
In addition, the weighted average life of the Certificates may be
affected by the varying maturities of the Mortgage Loans comprising or
underlying the CMBS. If any Mortgage Loans comprising or underlying the
Mortgage Assets in a particular Trust Fund have actual terms to maturity of
less than those assumed in calculating final scheduled Distribution Dates for
the classes of Certificates of the related Series, one or more classes of such
Certificates may be fully paid prior to their respective final scheduled
Distribution Dates, even in the absence of prepayments. Accordingly, the
prepayment experience of the Mortgage Assets will, to some extent, be a
function of the mix of Mortgage Interest Rates and maturities of the Mortgage
Loans comprising or underlying such Mortgage Assets. See "Description of the
Trust Funds."
Prepayments on loans are also commonly measured relative to a prepayment
standard or model, such as the Constant Prepayment Rate ("CPR") prepayment
model. CPR represents a constant assumed rate of prepayment each month relative
to the then outstanding principal balance of a pool of loans for the life of
such loans.
Neither CPR nor any other prepayment model or assumption purports to be
a historical description of prepayment experience or a prediction of the
anticipated rate of prepayment of any pool of loans, including the Mortgage
Loans underlying or comprising the Mortgage Assets. Moreover, CPR was developed
based upon historical prepayment experience for single family loans. Thus, it
is likely that prepayment of any Mortgage Loans comprising or underlying the
Mortgage Assets for any Series will not conform to any particular level of CPR.
The Depositor is not aware of any meaningful publicly available
prepayment statistics for multifamily or commercial mortgage loans.
The Prospectus Supplement with respect to each Series of Certificates
will contain tables, if applicable, setting forth the projected weighted
average life of each class of Offered Certificates of such Series and the
percentage of the initial Certificate Balance of each such class that would be
outstanding on specified Distribution Dates based on the
- 28 -
<PAGE> 98
assumptions stated in such Prospectus Supplement, including assumptions that
prepayments on the Mortgage Loans comprising or underlying the related Mortgage
Assets are made at rates corresponding to various percentages of CPR or at such
other rates specified in such Prospectus Supplement. Such tables and
assumptions are intended to illustrate the sensitivity of weighted average life
of the Certificates to various prepayment rates and will not be intended to
predict or to provide information that will enable investors to predict the
actual weighted average life of the Certificates. It is unlikely that
prepayment of any Mortgage Loans comprising or underlying the Mortgage Assets
for any Series will conform to any particular level of CPR or any other rate
specified in the related Prospectus Supplement.
OTHER FACTORS AFFECTING WEIGHTED AVERAGE LIFE
Type of Mortgage Asset
A number of Mortgage Loans may have balloon payments due at maturity,
and because the ability of a Mortgagor to make a balloon payment typically will
depend upon its ability either to refinance the loan or to sell the related
Mortgaged Property, there is a risk that a number of Mortgage Loans having
balloon payments may default at maturity, or that the servicer may extend the
maturity of such a Mortgage Loan in connection with a workout. In the case of
defaults, recovery of proceeds may be delayed by, among other things,
bankruptcy of the Mortgagor or adverse conditions in the market where the
property is located. In order to minimize losses on defaulted Mortgage Loans,
the servicer may, to the extent and under the circumstances set forth in the
related Prospectus Supplement be permitted to modify Mortgage Loans that are in
default or as to which a payment default is imminent. Any defaulted balloon
payment or modification that extends the maturity of a Mortgage Loan will tend
to extend the weighted average life of the Certificates, thereby lengthening
the period of time elapsed from the date of issuance of a Certificate until it
is retired.
Foreclosures and Payment Plans
The number of foreclosures and the principal amount of the Mortgage
Loans comprising or underlying the Mortgage Assets that are foreclosed in
relation to the number and principal amount of Mortgage Loans that are repaid
in accordance with their terms will affect the weighted average life of the
Mortgage Loans comprising or underlying the Mortgage Assets and that of the
related Series of Certificates. Servicing decisions made with respect to the
Mortgage Loans, including the use of payment plans prior to a demand for
acceleration and the restructuring of Mortgage Loans in bankruptcy proceedings,
may also have an effect upon the payment patterns of particular Mortgage Loans
and thus the weighted average life of the Certificates.
Due-on-Sale and Due-on-Encumbrance Clauses
Acceleration of mortgage payments as a result of certain transfers of or
the creation of encumbrances upon underlying Mortgaged Property is another
factor affecting prepayment rates that may not be reflected in the prepayment
standards or models used in the relevant Prospectus Supplement. A number of the
Mortgage Loans comprising or underlying the Mortgage Assets may include "due-
on-sale" clauses or "due-on-encumbrance" clauses that allow the holder of the
Mortgage Loans to demand payment in full of the remaining principal balance of
the Mortgage Loans upon sale or certain other transfers of or the creation of
encumbrances upon the related Mortgaged Property. With respect to any Whole
Loans, to the extent provided in the related Prospectus Supplement, the Master
Servicer or Primary Servicer, on behalf of the Trust Fund, will be required to
exercise (or waive its right to exercise) any such right that the Trustee may
have as mortgagee to accelerate payment of the Whole Loan in a manner
consistent with the Servicing Standard. See "Certain Legal Aspects of the
Mortgage Loans and the Leases -- Due-on-Sale and Due-on-Encumbrance" and
"Description of the Agreements -- Due-on-Sale and Due-on-Encumbrance
Provisions."
Single Mortgage Loan or Single Mortgagor
The Mortgage Assets in a particular Trust Fund may consist of a single
Mortgage Loan or obligations of a single Mortgagor or related Mortgagors as
specified in the related Prospectus Supplement. Assumptions used with respect
to the prepayment standards or models based upon analysis of the behavior of
mortgage loans in a larger group will not necessarily be relevant in
determining prepayment experience on a single Mortgage Loan or with respect to
a single Mortgagor.
- 29 -
<PAGE> 99
THE DEPOSITOR
AMRESCO Commercial Mortgage Funding I Corporation, the Depositor, is an
indirect wholly-owned subsidiary of AMRESCO, INC. and was incorporated in the
State of Delaware on January 10, 1997. The principal executive offices of the
Depositor are located at 700 North Pearl Street, Suite 2400, L.B. No. 342,
Dallas, Texas 75201. Its telephone number is (214) 953-7700.
The Depositor does not have, nor is it expected in the future to have,
any significant assets. The Depositor acquires and holds Mortgage Loans for
subsequent sale or transfer to trusts or for purposes of securitization.
AMRESCO, INC. performs a wide range of commercial mortgage banking
services, including originating, underwriting, placing and selling commercial
real estate loans through its subsidiaries, including AMRESCO CAPITAL
CORPORATION ("ACC"), and servicing commercial real estate loans through AMRESCO
Services, a division of AMRESCO Management, Inc., a subsidiary of AMRESCO, INC.
ACC is a mortgage banker that originates and underwrites commercial real estate
loans that are funded primarily by Conduit Purchasers and the Federal National
Mortgage Association ("FANNIE MAE"). ACC targets mortgage loans for commercial
real estate properties suitable for sale to Conduit Purchasers that accumulate
loans for securitization programs. ACC serves its market directly through ACC's
offices located in Dallas, Miami, Washington, D.C. and Winston-Salem, as well
as through a network of approximately 38 independent mortgage brokers located
throughout the United States. ACC is approved by Fannie Mae to participate in
its Delegated Underwriting and Servicing program, which ACC believes makes it a
more competitive loan originator and underwriter of multifamily mortgages. ACC
is also an approved lender in the Federal Home Loan Mortgage Corporation
multifamily sales/servicer program in the states of Florida, North Carolina and
South Carolina. As used herein, "CONDUIT PURCHASERS" means investment bankers
and other financial intermediaries who purchase or otherwise accumulate pools
or portfolios of loans having common features (e.g., real estate mortgages,
etc.), with the intent of securitizing such loan assets and selling them to a
trust that obtains its funds by selling undivided interests in the revenue
streams generated by the loans to public or private investors. AMRESCO
Management, Inc. serves as a primary servicer for whole loans and as a
master/full servicer for securitized pools of commercial mortgages through
AMRESCO Services. The dominant users of commercial loan servicers are
commercial mortgage-backed bond trusts and similar securitized commercial
asset-backed loan portfolios made up of numerous passive investors.
DESCRIPTION OF THE CERTIFICATES
GENERAL
The Certificates of each Series (including any class of Certificates not
offered hereby) will represent the entire beneficial ownership interest in the
Trust Fund created pursuant to the related Agreement. Each Series of
Certificates will consist of one or more classes of Certificates that may (i)
provide for the accrual of interest thereon based on fixed, variable or
floating rates; (ii) be senior (collectively, "SENIOR CERTIFICATES") or
subordinate (collectively, "SUBORDINATE CERTIFICATES") to one or more other
classes of Certificates in respect of certain distributions on the
Certificates; (iii) be entitled to principal distributions, with
disproportionately low, nominal or no interest distributions (collectively,
"STRIPPED PRINCIPAL CERTIFICATES"); (iv) be entitled to interest distributions,
with disproportionately low, nominal or no principal distributions
(collectively, "STRIPPED INTEREST CERTIFICATES"); (v) provide for distributions
of accrued interest thereon commencing only following the occurrence of certain
events, such as the retirement of one or more other classes of Certificates of
such Series (collectively, "ACCRUAL CERTIFICATES"); (vi) provide for payments
of principal sequentially, based on specified payment schedules, from only a
portion of the Trust Assets in such Trust Fund or based on specified
calculations, to the extent of available funds, in each case as described in
the related Prospectus Supplement; and/or (vii) provide for distributions based
on a combination of two or more components thereof with one
- 30 -
<PAGE> 100
or more of the characteristics described in this paragraph including a Stripped
Principal Certificate component and a Stripped Interest Certificate component.
Any such classes may include classes of Offered Certificates.
Each class of Offered Certificates of a Series will be issued in minimum
denominations corresponding to the Certificate Balances or, in case of Stripped
Interest Certificates, notional amounts or percentage interests specified in
the related Prospectus Supplement. The transfer of any Offered Certificates may
be registered and such Certificates may be exchanged without the payment of any
service charge payable in connection with such registration of transfer or
exchange, but the Depositor or the Trustee or any agent thereof may require
payment of a sum sufficient to cover any tax or other governmental charge. One
or more classes of Certificates of a Series may be issued in definitive form
("DEFINITIVE CERTIFICATES") or in book-entry form ("BOOK-ENTRY CERTIFICATES"),
as provided in the related Prospectus Supplement. See "Risk Factors -- Book-
Entry Registration" and "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates." Definitive Certificates will be
exchangeable for other Certificates of the same class and Series of a like
aggregate Certificate Balance, notional amount or percentage interest but of
different authorized denominations. See "Risk Factors -- Limited Liquidity" and
"--Limited Assets."
DISTRIBUTIONS
Distributions on the Certificates of each Series will be made by or on
behalf of the Trustee on each Distribution Date as specified in the related
Prospectus Supplement from the Available Distribution Amount for such Series
and such Distribution Date. Except as otherwise specified in the related
Prospectus Supplement, distributions (other than the final distribution) will
be made to the persons in whose names the Certificates are registered at the
close of business on the last business day of the month preceding the month in
which the Distribution Date occurs (the "RECORD DATE"), and the amount of each
distribution will be determined as of the close of business on the date
specified in the related Prospectus Supplement (the "DETERMINATION DATE"). All
distributions with respect to each class of Certificates on each Distribution
Date will be allocated pro rata among the outstanding Certificates in such
class or by random selection, as described in the related Prospectus Supplement
or otherwise established by the related Trustee. Payments will be made either
by wire transfer in immediately available funds to the account of a
Certificateholder at a bank or other entity having appropriate facilities
therefor, if such Certificateholder has so notified the Trustee or other person
required to make such payments no later than the date specified in the related
Prospectus Supplement (and, if so provided in the related Prospectus
Supplement, holds Certificates in the requisite amount specified therein), or
by check mailed to the address of the person entitled thereto as it appears on
the Certificate Register; provided, however, that the final distribution in
retirement of the Certificates (whether Definitive Certificates or Book-Entry
Certificates) will be made only upon presentation and surrender of the
Certificates at the location specified in the notice to Certificateholders of
such final distribution.
AVAILABLE DISTRIBUTION AMOUNT
All distributions on the Certificates of each Series on each
Distribution Date will be made from the Available Distribution Amount described
below, in accordance with the terms described in the related Prospectus
Supplement. Unless provided otherwise in the related Prospectus Supplement, the
"AVAILABLE DISTRIBUTION AMOUNT" for each Distribution Date equals the sum of
the following amounts:
(i) the total amount of all cash on deposit in the related Distribution
Account as of the corresponding Determination Date, including Servicer
advances, net of any scheduled payments due and payable after such
Distribution Date;
(ii) interest or investment income on amounts on deposit in the Distribution
Account, including any net amounts paid under any Cash Flow Agreements; and
(iii) to the extent not on deposit in the related Distribution Account as of
the corresponding Determination Date, any amounts collected under, from or
in respect of any Credit Support with respect to such Distribution Date.
As described below, the entire Available Distribution Amount will be
distributed among the related Certificates (including any Certificates not
offered hereby) on each Distribution Date, and accordingly will be released
from the Trust Fund and will not be available for any future distributions.
- 31 -
<PAGE> 101
DISTRIBUTIONS OF INTEREST ON THE CERTIFICATES
Each class of Certificates (other than classes of Stripped Principal
Certificates that have no Pass-Through Rate) may have a different Pass-Through
Rate, which will be a fixed, variable or floating rate at which interest will
accrue on such class or a component thereof (the "PASS-THROUGH RATE"). The
related Prospectus Supplement will specify the Pass-Through Rate for each class
or component or, in the case of a variable or floating Pass-Through Rate, the
method for determining the Pass-Through Rate. To the extent specified in the
related Prospectus Supplement, interest on the Certificates will be calculated
on the basis of a 360-day year consisting of twelve 30-day months.
Distributions of interest in respect of the Certificates of any class
will be made on each Distribution Date (other than any class of Accrual
Certificates, which will be entitled to distributions of accrued interest
commencing only on the Distribution Date, or under the circumstances, specified
in the related Prospectus Supplement, and any class of Stripped Principal
Certificates that are not entitled to any distributions of interest) based on
the Accrued Certificate Interest for such class and such Distribution Date,
subject to the sufficiency of the portion of the Available Distribution Amount
allocable to such class on such Distribution Date. Prior to the time interest
is distributable on any class of Accrual Certificates, the amount of Accrued
Certificate Interest otherwise distributable on such class will be added to the
Certificate Balance thereof on each Distribution Date. With respect to each
class of Certificates and each Distribution Date (other than certain classes of
Stripped Interest Certificates), "ACCRUED CERTIFICATE INTEREST" will be equal
to interest accrued for a specified period on the outstanding Certificate
Balance thereof immediately prior to the Distribution Date, at the applicable
Pass-Through Rate, reduced as described below. To the extent provided in the
Prospectus Supplement, Accrued Certificate Interest on Stripped Interest
Certificates will be equal to interest accrued for a specified period on the
outstanding notional amount thereof immediately prior to each Distribution
Date, at the applicable Pass-Through Rate, reduced as described below. The
method of determining the notional amount for any class of Stripped Interest
Certificates will be described in the related Prospectus Supplement. Reference
to notional amount is solely for convenience in certain calculations and does
not represent the right to receive any distributions of principal. To the
extent provided in the related Prospectus Supplement, the Accrued Certificate
Interest on a Series of Certificates will be reduced in the event of prepayment
interest shortfalls, which are shortfalls in collections of interest for a full
accrual period resulting from prepayments prior to the due date in such accrual
period on the Mortgage Loans comprising or underlying the Mortgage Assets in
the Trust Fund for such Series. The particular manner in which such shortfalls
are to be allocated among some or all of the classes of Certificates of that
Series will be specified in the related Prospectus Supplement.
The related Prospectus Supplement will also describe the extent to which
the amount of Accrued Certificate Interest that is otherwise distributable on
(or; in the case of Accrual Certificates, that may otherwise be added to the
Certificate Balance of) a class of Offered Certificates may be reduced as a
result of any other contingencies, including delinquencies, losses and deferred
interest on or in respect of the Mortgage Loans comprising or underlying the
Mortgage Assets in the related Trust Fund. To the extent provided in the
related Prospectus Supplement, any reduction in the amount of Accrued
Certificate Interest otherwise distributable on a class of Certificates by
reason of the allocation to such class of a portion of any deferred interest on
the Mortgage Loans comprising or underlying the Mortgage Assets in the related
Trust Fund will result in a corresponding increase in the Certificate Balance
of such class. See " Risk Factors -- Prepayments and Effect on Average Life of
Certificates and Yields" and "Yield Considerations."
DISTRIBUTIONS OF PRINCIPAL OF THE CERTIFICATES
The Certificates of each Series, other than certain classes of Stripped
Interest Certificates, will have a "CERTIFICATE BALANCE" which, at any time,
will equal the then maximum amount that the holder will be entitled to receive
in respect of principal out of the future cash flow on the Mortgage Assets and
other assets included in the related Trust Fund. The outstanding Certificate
Balance of a Certificate will be reduced to the extent of distributions of
principal thereon from time to time and, if and to the extent so provided in
the related Prospectus Supplement, by the amount of losses incurred in respect
of the related Mortgage Assets, may be increased in respect of deferred
interest on the related Mortgage Loans to the extent provided in the related
Prospectus Supplement and, in the case of Accrual Certificates prior to the
Distribution Date on which distributions of interest are required to commence,
will be increased by any related Accrued Certificate Interest. Unless otherwise
provided in the related Prospectus Supplement, the initial aggregate
Certificate Balance of all classes of Certificates of a Series will not be
greater than the outstanding aggregate principal balance of the related
Mortgage Assets as of the applicable Cut-off Date. The initial aggregate
Certificate
- 32 -
<PAGE> 102
Balance of a Series and each class thereof will be specified in the related
Prospectus Supplement. To the extent provided in the related Prospectus
Supplement, distributions of principal will be made on each Distribution Date
to the class or classes of Certificates entitled thereto in accordance with the
provisions described in such Prospectus Supplement until the Certificate
Balance of such class has been reduced to zero. Stripped Interest Certificates
with no Certificate Balance are not entitled to any distributions of principal.
COMPONENTS
To the extent specified in the related Prospectus Supplement,
distribution on a class of Certificates may be based on a combination of two or
more different components as described under "--General" above. To such extent,
the descriptions set forth under "--Distributions of Interests on the
Certificates" and "--Distributions of Principal of the Certificates" above also
relate to components of such a class of Certificates. In such case, reference
in such sections to Certificate Balance and Pass-Through Rate refer to the
principal balance, if any, of any such component and the Pass-Through Rate, if
any, on any such component, respectively.
DISTRIBUTIONS ON THE CERTIFICATES OF PREPAYMENT PREMIUMS OR IN RESPECT OF
EQUITY PARTICIPATIONS
If so provided in the related Prospectus Supplement, Prepayment Premiums
or payments in respect of Equity Participations that are collected on the
Mortgage Assets in the related Trust Fund will be distributed on each
Distribution Date to the class or classes of Certificates entitled thereto in
accordance with the provisions described in such Prospectus Supplement.
ALLOCATION OF LOSSES AND SHORTFALLS
If so provided in the Prospectus Supplement for a Series of Certificates
consisting of one or more classes of Subordinate Certificates, on any
Distribution Date in respect of which losses or shortfalls in collections on
the Mortgage Assets have been incurred, the amount of such losses or shortfalls
will be borne first by a class of Subordinate Certificates in the priority and
manner and subject to the limitations specified in such Prospectus Supplement
See "Description of Credit Support" for a description of the types of
protection that may be included in shortfalls on Mortgage Assets comprising
such Trust Fund.
ADVANCES IN RESPECT OF DELINQUENCIES
With respect to any Series of Certificates evidencing an interest in a
Trust Fund, to the extent provided in the related Prospectus Supplement, a
Servicer or another entity described therein will be required as part of its
servicing responsibilities to advance on or before each Distribution Date its
own funds or funds held in the Distribution Account that are not included in
the Available Distribution Amount for such Distribution Date, in an amount
equal to the aggregate of payments of principal (other than any balloon
payments) and interest (net of related servicing fees and Retained Interest)
that were due on the Whole Loans in such Trust Fund and were delinquent on the
related Determination Date, subject to such Servicer's (or another entity's)
good faith determination that such advances will be reimbursable from Related
Proceeds (as defined below). In the case of a Series of Certificates that
includes one or more classes of Subordinate Certificates and if so provided in
the related Prospectus Supplement, each Servicer's (or another entity's)
advance obligation may be limited only to the portion of such delinquencies
necessary to make the required distributions on one or more classes of Senior
Certificates and/or may be subject to such Servicer's (or another entity's)
good faith determination that such advances will be reimbursable not only from
Related Proceeds but also from collections on other Trust Assets otherwise
distributable on one or more classes of such Subordinate Certificates. See
"Description of Credit Support."
Advances are intended to maintain a regular flow of scheduled interest
and principal payments to holders of the class or classes of Certificates
entitled thereto, rather than to guarantee or insure against losses. To the
extent provided in the related Prospectus Supplement, advances of a Servicer's
(or another entity's) funds will be reimbursable only out of related recoveries
on the Mortgage Loans (including amounts received under any form of Credit
Support) respecting which such advances were made (as to any Mortgage Loan,
"RELATED PROCEEDS") and, if so provided in the Prospectus Supplement, out of
any amounts otherwise distributable on one or more classes of Subordinate
Certificates of such Series; provided, however, that any such advance will be
reimbursable from any amounts in the Distribution
- 33 -
<PAGE> 103
Account prior to any distributions being made on the Certificates to the extent
that a Servicer (or such other entity) shall determine in good faith that such
advance (a "NONRECOVERABLE ADVANCE") is not ultimately recoverable from Related
Proceeds or, if applicable, from collections on other Trust Assets otherwise
distributable on such Subordinate Certificates. If advances have been made by a
Servicer from excess funds in the Distribution Account, such Servicer is
required to replace such funds in the Distribution Account on any future
Distribution Date to the extent that funds in the Distribution Account on such
Distribution Date are less than payments required to be made to
Certificateholders on such date. If so specified in the related Prospectus
Supplement, the obligations of a Servicer (or another entity) to make advances
may be secured by a cash advance reserve fund, a surety bond, a letter of
credit or another form of limited guaranty. If applicable, information
regarding the characteristics of, and the identity of any obligor on, any such
surety bond, will be set forth in the related Prospectus Supplement.
If and to the extent so provided in the related Prospectus Supplement, a
Servicer (or another entity) will be entitled to receive interest at the rate
specified therein on its outstanding advances and will be entitled to pay
itself such interest periodically from general collections on the Trust Assets
prior to any payment to Certificateholders or as otherwise provided in the
related Agreement and described in such Prospectus Supplement.
The Prospectus Supplement for any Series of Certificates evidencing an
interest in a Trust Fund that includes CMBS will describe any corresponding
advancing obligation of any person in connection with such CMBS.
REPORTS TO CERTIFICATEHOLDERS
To the extent provided in the Prospectus Supplement, with each
distribution to holders of any class of Certificates of a Series, the Master
Servicer or the Trustee, as provided in the related Prospectus Supplement, will
forward or cause to be forwarded to each such holder, to the Depositor and to
such other parties as may be specified in the related Agreement, a statement
setting forth, in each case to the extent applicable and available:
(i) the amount of such distribution to holders of Certificates of such class
applied to reduce the Certificate Balance thereof;
(ii) the amount of such distribution to holders of Certificates of such
class allocable to Accrued Certificate Interest;
(iii) the amount of such distribution allocable to (a) Prepayment Premiums
and (b) payments on account of Equity Participations;
(iv) the amount of related servicing compensation received by each Servicer
and such other customary information as any such Master Servicer or the
Trustee deems necessary or desirable, or that a Certificateholder reasonably
requests, to enable Certificateholders to prepare their tax returns;
(v) the aggregate amount of advances included in such distribution, and the
aggregate amount of any unreimbursed advances at the close of business on
such Distribution Date;
(vi) the aggregate principal balance of the Mortgage Assets at the close of
business on such Distribution Date;
(vii) the number and aggregate principal balance of Whole Loans in respect
of which (a) one scheduled payment is delinquent, (b) two scheduled payments
are delinquent, (c) three or more scheduled payments are delinquent and (d)
foreclosure proceedings have been commenced; y(viii) with respect to each
Whole Loan that is delinquent two or more months, (a) the loan number
thereof, (b) the unpaid balance thereof, (c) whether the delinquency is in
respect of any balloon payment, (d) the aggregate amount of unreimbursed
servicing expenses and unreimbursed advances in respect thereof, (e) if
applicable, the aggregate amount of any interest accrued and payable on
related servicing expenses and related advances assuming such Mortgage Loan
is subsequently liquidated through foreclosure, (f) whether a notice of
acceleration has been sent to the Mortgagor and, if so, the date of such
notice, (g) whether foreclosure proceedings have been commenced and, if so,
the date so commenced and (h) if such Mortgage Loan is more than three
months delinquent and foreclosure has not been commenced, the reason
therefor;
- 34 -
<PAGE> 104
(ix) with respect to any Whole Loan liquidated during the related Due Period
(other than by payment in full), (a) the loan number thereof, (b) the manner
in which it was liquidated and (c) the aggregate amount of liquidation
proceeds received;
(x) with respect to any Whole Loan liquidated during the related Due Period,
(a) the portion of such liquidation proceeds payable or reimbursable to each
Servicer (or any other entity) in respect of such Mortgage Loan and (b) the
amount of any loss to Certificateholders;
(xi) with respect to each REO Property relating to a Whole Loan and included
in the Trust Fund as of the end of the related Due Period, (a) the loan
number of the related Mortgage Loan and (b) the date of acquisition;
(xii) with respect to each REO Property relating to a Whole Loan and
included in the Trust Fund as of the end of the related Due Period, (a) the
book value, (b) the principal balance of the related Mortgage Loan
immediately following such Distribution Date (calculated as if such Mortgage
Loan were still outstanding taking into account certain limited
modifications to the terms thereof specified in the Agreement), (c) the
aggregate amount of unreimbursed servicing expenses and unreimbursed
advances in respect thereof and (d) if applicable, the aggregate amount of
interest accrued and payable on related servicing expenses and related
advances;
(xiii) with respect to any such REO Property sold during the related Due
Period (a) the loan number of the related Mortgage Loan, (b) the aggregate
amount of sale proceeds, (c) the portion of such sales proceeds payable or
reimbursable to each Servicer in respect of such REO Property or the related
Mortgage Loan and (d) the amount of any loss to Certificateholders in
respect of the related Mortgage Loan;
(xiv) the aggregate Certificate Balance or notional amount, as the case may
be, of each class of Certificates (including any class of Certificates not
offered hereby) at the close of business on such Distribution Date,
separately identifying any reduction in such Certificate Balance due to the
allocation of any loss and increase in the Certificate Balance of a class of
Accrual Certificates in the event that Accrued Certificate Interest has been
added to such balance;
(xv) the aggregate amount of principal prepayments made during the related
Due Period;
(xvi) the aggregate Accrued Certificate Interest and unpaid Accrued
Certificate Interest, if any, on each class of Certificates at the close of
business on such Distribution Date;
(xvii) in the case of Certificates with a variable Pass-Through Rate, the
Pass- Through Rate applicable to such Distribution Date, and, if available,
the immediately succeeding Distribution Date, as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xviii) in the case of Certificates with a floating Pass-Through Rate, for
statements to be distributed in any month in which an adjustment date
occurs, the floating Pass-Through Rate applicable to such Distribution Date
and the immediately succeeding Distribution Date as calculated in accordance
with the method specified in the related Prospectus Supplement;
(xix) as to any Series which includes Credit Support, the amount of coverage
of each instrument of Credit Support included therein as of the close of
business on such Distribution Date; and
(xx) the aggregate amount of payments by the Mortgagors of (a) default
interest, (b) late charges and (c) assumption and modification fees
collected during the related Due Period.
In the case of information furnished pursuant to subclauses (i)-(iv)
above, the amounts shall be expressed as a dollar amount per minimum
denomination of Certificates or for such other specified portion thereof. In
addition, in the case of information furnished pursuant to subclauses (i),
(ii), (xiv), (xvi) and (xvii) above, such amounts shall also be provided with
respect to each component, if any, of a class of Certificates. The Master
Servicer or the Trustee, as specified in the related Prospectus Supplement,
will forward or cause to be forwarded to each holder of any class of
- 35 -
<PAGE> 105
Certificates, to the Depositor and to such other parties as may be specified in
the Agreement, a copy of any statements or reports received by the Master
Servicer or the Trustee, as applicable, with respect to any CMBS. The
Prospectus Supplement for each Series of Offered Certificates will describe any
additional information to be included in reports to the holders of such
Certificates.
Within a reasonable period of time after the end of each calendar year,
the Master Servicer or the Trustee, as provided in the related Prospectus
Supplement, shall furnish to each person who at any time during the calendar
year was a holder of a Certificate a statement containing the information set
forth in subclauses (i)-(iv) above, aggregated for such calendar year or the
applicable portion thereof during which such person was a Certificateholder.
Such obligation of the Master Servicer or the Trustee shall be deemed to have
been satisfied to the extent that substantially comparable information shall be
provided by the Master Servicer or the Trustee pursuant to any requirements of
the Code as are from time to time in force.
Unless and until Definitive Certificates are issued, or to the extent
provided in the related Prospectus Supplement, such statements or reports will
be forwarded by the Master Servicer or the Trustee to Cede. Such statements or
reports may be available to Beneficial Owners upon request to DTC or their
respective Participant or Indirect Participant. In addition, the Trustee shall
furnish a copy of any such statement or report to any Beneficial Owner which
requests such copy and certifies to the Trustee or the Master Servicer, as
applicable, that it is the Beneficial Owner of a Certificate. See "--Book-Entry
Registration and Definitive Certificates."
TERMINATION
The obligations created by the Agreements for each Series of
Certificates will terminate upon the payment to Certificateholders of that
Series of all amounts held in the Distribution Account or by any Servicer, if
any, or the Trustee and required to be paid to them pursuant to such Agreements
following the earlier of (i) the final payment or other liquidation of the last
Mortgage Asset subject thereto or the disposition of all property acquired upon
foreclosure of any Whole Loan subject thereto and (ii) the purchase of all of
the assets of the Trust Fund by the party entitled to effect such termination,
under the circumstances and in the manner set forth in the related Prospectus
Supplement. In no event, however, will the trust created by the Agreements
continue beyond the date specified in the related Prospectus Supplement.
Written notice of termination of the Agreements will be given to each
Certificateholder, and the final distribution will be made only upon
presentation and surrender of the Certificates at the location to be specified
in the notice of termination.
If so specified in the related Prospectus Supplement, a Series of
Certificates may be subject to optional early termination through the
repurchase of the assets in the related Trust Fund by the party specified
therein, under the circumstances and in the manner set forth therein. If so
provided in the related Prospectus Supplement, upon the reduction of the
Certificate Balance of a specified class or classes of Certificates by a
specified percentage or amount, the party specified therein will solicit bids
for the purchase of all assets of the Trust Fund, or of a sufficient portion of
such assets to retire such class or classes or purchase such class or classes
at a price set forth in the related Prospectus Supplement, in each case, under
the circumstances and in the manner set forth therein. In such an event, the
applicable purchase price will be sufficient to pay the aggregate Certificate
Balance and any undistributed shortfall in interest of such class or classes of
Certificates. Further, in such an event, there will be no continuing direct or
indirect liability of the related trust or Certificateholders as sellers of
such assets in connection with any such sale.
BOOK-ENTRY REGISTRATION AND DEFINITIVE CERTIFICATES
If so provided in the related Prospectus Supplement, one or more classes
of the Offered Certificates of any Series will be issued as Book-Entry
Certificates, and each such class will be represented by one or more single
Certificates registered in the name of a nominee for the depository, The
Depository Trust Company ("DTC").
DTC is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the Uniform Commercial Code ("UCC") and a
"clearing agency" registered pursuant to the provisions of Section 17A of the
Exchange Act. DTC was created to hold securities for its participating
organizations ("PARTICIPANTS") and facilitate the clearance and settlement of
securities transactions between Participants through electronic book-entry
changes in their accounts, thereby eliminating the need for physical movement
of certificates. Participants include securities brokers and dealers, banks,
trust companies and
- 36 -
<PAGE> 106
clearing corporations and may include certain other organizations. Indirect
access to the DTC system also is available to others such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly ("INDIRECT
PARTICIPANTS").
Unless otherwise provided in the related Prospectus Supplement,
investors that are not Participants or Indirect Participants but desire to
purchase, sell or otherwise transfer ownership of, or other interests in Book-
Entry Certificates may do so only through Participants and Indirect
Participants. In addition, such investors ("BENEFICIAL OWNERS") will receive
all distributions on the Book-Entry Certificates through DTC and its
Participants. Under a book-entry format, Beneficial Owners will receive
payments after the related Distribution Date because, while payments are
required to be forwarded to Cede & Co., as nominee for DTC ("CEDE"), on each
such date DTC will forward such payments to its Participants which thereafter
will be required to forward them to Indirect Participants or Beneficial Owners.
Unless otherwise provided in the related Prospectus Supplement, the only
"Certificateholder" (as such term is used in the Agreements) will be Cede, as
nominee of DTC, and the Beneficial Owners will not be recognized by the Trustee
as Certificateholders under the Agreements. Beneficial Owners will be permitted
to exercise the rights of Certificateholders under the related Agreements only
indirectly through the Participants who in turn will exercise their rights
through DTC.
Under the rules, regulations and procedures creating and affecting DTC
and its operations, DTC is required to make book-entry transfers among
Participants on whose behalf it acts with respect to the Book-Entry
Certificates and is required to receive and transmit distributions of principal
of and interest on the Book-Entry Certificates. Participants and Indirect
Participants with which Beneficial Owners have accounts with respect to the
Book-Entry Certificates similarly are required to make book-entry transfers and
receive and transmit such payments on behalf of their respective Beneficial
Owners.
Because DTC can act only on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a Beneficial
Owner to pledge its interest in the Book-Entry Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of its interest in the Book-Entry Certificates, may be limited due
to the lack of a physical certificate evidencing such interest.
DTC has advised the Depositor that it will take any action permitted to
be taken by a Certificateholder under an Agreement only at the direction of one
or more Participants to whose account with DTC interests in the Book-Entry
Certificates are credited. Under DTC's procedures, DTC will take actions
permitted to be taken by Holders of any class of Book-Entry Certificates under
the Pooling and Servicing Agreement only at the direction of one or more
Participants to whose account the Book-Entry Certificates are credited and
whose aggregate holdings represent no less than any minimum amount of Voting
Rights required therefor. Therefore, Beneficial Owners will only be able to
exercise their Voting Rights to the extent permitted, and subject to the
procedures established, by their Participant and/or Indirect Participant, as
applicable. DTC may take conflicting actions with respect to any action of
Certificateholders of any Class to the extent that Participants authorize such
actions. None of the Servicers, the Depositor, the Trustee or any of their
respective affiliates will have any liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests in
the Book-Entry Certificates, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
Unless otherwise specified in the related Prospectus Supplement,
Certificates initially issued in book-entry form will be issued in fully
registered, certificated form to Beneficial Owners or their nominees
("DEFINITIVE CERTIFICATES"), rather than to DTC or its nominee only if (i) the
Depositor advises the Trustee in writing that DTC is no longer willing or able
to properly discharge its responsibilities as depository with respect to the
Certificates and the Depositor is unable to locate a qualified successor or
(ii) the Depositor, at its option, elects to terminate the book-entry system
through DTC.
Upon the occurrence of either of the events described in the immediately
preceding paragraph, DTC is required to notify all Participants of the
availability through DTC of Definitive Certificates for the Beneficial Owners.
Upon surrender by DTC of the certificate or certificates representing the Book-
Entry Certificates, together with instructions for reregistration, the Trustee
will issue (or cause to be issued) to the Beneficial Owners identified in such
instructions the Definitive Certificates to which they are entitled, and
thereafter the Trustee will recognize the holders of such Definitive
Certificates as Certificateholders under the Agreement.
- 37 -
<PAGE> 107
DESCRIPTION OF THE AGREEMENTS
The Certificates of each Series evidencing interests in a Trust Fund
including Whole Loans will be issued pursuant to a Pooling and Servicing
Agreement among the Depositor, a Master Servicer, if specified in the related
Prospectus Supplement, a Special Servicer and the Trustee. The Certificates of
each Series evidencing interests in a Trust Fund not including Whole Loans will
be issued pursuant to a Trust Agreement between the Depositor and a Trustee.
The Master Servicer, any Special Servicer and the Trustee with respect to any
Series of Certificates will be named in the related Prospectus Supplement. In
lieu of appointing a Master Servicer, a servicer may be appointed pursuant to
the Pooling and Servicing Agreement for any Trust Fund. The Mortgage Loans
shall be serviced pursuant to the terms of the Pooling and Servicing Agreement
and, to the extent specified in the related Prospectus Supplement, a Servicing
Agreement among the Depositor (or an affiliate thereof), a Master Servicer, a
Special Servicer and a Primary Servicer. A manager or administrator may be
appointed pursuant to the Trust Agreement for any Trust Fund to administer such
Trust Fund. The provisions of each Agreement will vary depending upon the
nature of the Certificates to be issued thereunder and the nature of the
related Trust Fund. A form of a Pooling and Servicing Agreement and a form of
Servicing Agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. Any Trust Agreement will generally conform
to the form of Pooling and Servicing Agreement filed herewith, but will not
contain provisions with respect to the servicing and maintenance of Whole
Loans. The following summaries describe certain provisions that may appear in
each Agreement. The Prospectus Supplement for a Series of Certificates will
describe any provision of the Agreements relating to such Series that
materially differs from the description thereof contained in this Prospectus.
The summaries do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Agreements for each Trust Fund and the description of such provisions in the
related Prospectus Supplement. As used herein with respect to any Series, the
term "Certificate" refers to all of the Certificates of that Series, whether or
not offered hereby and by the related Prospectus Supplement, unless the context
otherwise requires. The Depositor will provide a copy of the Agreements
(without exhibits) relating to any Series of Certificates without charge upon
written request of a holder of a Certificate of such Series addressed to the
Trustee specified in the related Prospectus Supplement.
To the extent specified in the related Prospectus Supplement, the
Mortgage Loans included in each Trust Fund were being serviced prior to the
issuance of the related Series of Certificates pursuant to the terms of a
Servicing Agreement by the Master Servicer, the Special Servicer and/or a
Primary Servicer. To the extent specified in the related Prospectus Supplement,
following the issuance of the related Series of Certificates, such Mortgage
Loans will continue to be serviced pursuant to such Servicing Agreement,
together with the related Pooling and Servicing Agreement. Pursuant to the
terms of each Servicing Agreement, a Primary Servicer or a Special Servicer
will service the Mortgage Loans directly and a Master Servicer may monitor the
activities of each Primary Servicer and Special Servicer. The Depositor shall
assign its rights under each Servicing Agreement to the Trustee for the benefit
of the Certificateholders.
ASSIGNMENT OF ASSETS; REPURCHASES
At the time of issuance of any Series of Certificates, the Depositor
will assign (or cause to be assigned) to the designated Trustee the Trust
Assets to be included in the related Trust Fund, together with all principal
and interest to be received on or with respect to such Trust Assets after the
Cut-off Date, other than principal and interest due on or before the Cut-off
Date and other than any Retained Interest. The Trustee will, concurrently with
such assignment, deliver the Certificates to the Depositor in exchange for the
Trust Assets and the other assets comprising the Trust Fund for such Series.
Each Mortgage Asset will be identified in a schedule appearing as an exhibit to
the related Agreement. To the extent provided in the related Prospectus
Supplement, such schedule will include detailed information (i) in respect of
each Whole Loan included in the related Trust Fund, including without
limitation, the address of the related Mortgaged Property and type of such
property, the Mortgage Interest Rate and, if applicable, the applicable index,
margin, adjustment date and any rate cap information, the original and
remaining term to maturity, the original and outstanding principal balance and
balloon payment, if any, the Value, Loan-to-Value Ratio and the Debt Service
Coverage Ratio as of the date indicated and payment and prepayment provisions,
if applicable, and (ii) in respect of each CMBS included in the related Trust
Fund, including without limitation, the CMBS Issuer, CMBS Servicer and CMBS
Trustee, the pass-through or bond rate or formula for determining such rate,
the issue date and original and remaining term to maturity, if applicable, the
original and outstanding principal amount and payment provisions, if
applicable.
- 38 -
<PAGE> 108
With respect to each Whole Loan, the Depositor will deliver or cause to
be delivered to the Trustee (or to the custodian hereinafter referred to)
certain loan documents, which to the extent specified in the related Prospectus
Supplement will include the original Mortgage Note endorsed, without recourse,
in blank or to the order of the Trustee, the original Mortgage (or a certified
copy thereof) with evidence of recording indicated thereon and an assignment of
the Mortgage to the Trustee in recordable form. Notwithstanding the foregoing,
a Trust Fund may include Mortgage Loans where the original Mortgage Note is not
delivered to the Trustee if the Company delivers to the Trustee or the
custodian a copy or a duplicate original of the Mortgage Note, together with an
affidavit certifying that the original thereof has been lost or destroyed. With
respect to such Mortgage Loans, the Trustee (or its nominee) may not be able to
enforce the Mortgage Note against the related borrower. To the extent provided
in the related Prospectus Supplement, the related Agreements will require that
the Depositor or another party specified therein promptly cause each such
assignment of Mortgage to be recorded in the appropriate public office for real
property records, except in states where, in the opinion of counsel acceptable
to the Trustee, such recording is not required to protect the Trustee's
interest in the related Whole Loan against the claim of any subsequent
transferee or any successor to or creditor of the Depositor, the Master
Servicer, the relevant Asset Seller or any other prior holder of the Whole
Loan.
The Trustee (or a custodian) will review such Whole Loan documents
within a specified period of days after receipt thereof, and the Trustee (or a
custodian) will hold such documents in trust for the benefit of the
Certificateholders. To the extent specified in the related Prospectus
Supplement, if any such document is found to be missing or defective in any
material respect, the Trustee (or such custodian) shall immediately notify the
Depositor. If the Depositor cannot cure the omission or defect within a
specified number of days after receipt of such notice, then to the extent
specified in the related Prospectus Supplement, the Depositor will be
obligated, within a specified number of days of receipt of such notice, to
repurchase the related Whole Loan from the Trustee at the Purchase Price or
substitute for such Mortgage Loan. To the extent specified in the related
Prospectus Supplement, this repurchase or substitution obligation constitutes
the sole remedy available to the Certificateholders or the Trustee for omission
of, or a material defect in, a constituent document. To the extent specified in
the related Prospectus Supplement, in lieu of curing any omission or defect in
the Mortgage Asset or repurchasing or substituting for such Mortgage Asset, the
Depositor may agree to cover any losses suffered by the Trust Fund as a result
of such breach or defect.
If so provided in the related Prospectus Supplement, the Depositor will,
as to some or all of the Mortgage Loans, assign or cause to be assigned to the
Trustee the related Lease Assignments. In certain cases, the Trustee, or
Primary Servicer, as applicable, may collect all moneys under the related
Leases and distribute amounts, if any, required under the Lease for the payment
of maintenance, insurance and taxes, to the extent specified in the related
Lease agreement. The Trustee, or if so specified in the Prospectus Supplement,
the Master Servicer, as agent for the Trustee, may hold the Lease in trust for
the benefit of the Certificateholders.
With respect to each CMBS in certificated form, the Depositor will
deliver or cause to be delivered to the Trustee (or the custodian) the original
certificate or other definitive evidence of such CMBS together with bond power
or other instruments, certifications or documents required to transfer fully
such CMBS to the Trustee for the benefit of the Certificateholders. With
respect to each CMBS in uncertificated or book-entry form or held through a
"clearing corporation" within the meaning of the UCC the Depositor and the
Trustee will cause such CMBS to be registered directly or on the books of such
clearing corporation or of a financial intermediary in the name of the Trustee
for the benefit of the Certificateholders. To the extent provided in the
related Prospectus Supplement, the related Agreement will require that either
the Depositor or the Trustee promptly cause any CMBS in certificated form not
registered in the name of the Trustee to be re-registered, with the applicable
persons, in the name of the Trustee.
REPRESENTATIONS AND WARRANTIES; REPURCHASES
To the extent provided in the related Prospectus Supplement the
Depositor will, with respect to each Whole Loan, make or assign representations
and warranties, as of a specified date (the person making such representations
and warranties, the "WARRANTING PARTY") covering, by way of example, the
following types of matters: (i) the accuracy of the information set forth for
such Whole Loan on the schedule of Mortgage Assets appearing as an exhibit to
the related Agreement; (ii) the existence of title insurance insuring the lien
priority of the Whole Loan; (iii) the authority of the Warranting Party to sell
the Whole Loan; (iv) the payment status of the Whole Loan and the status of
payments of taxes, assessments and other charges affecting the related
Mortgaged Property; (v) the existence of customary provisions in the related
Mortgage Note and Mortgage to permit realization against the Mortgaged Property
of the benefit of the
- 39 -
<PAGE> 109
security of the Mortgage; and (vi) the existence of hazard and extended perils
insurance coverage on the Mortgaged Property.
Any Warranting Party, if other than the Depositor, shall be an Asset
Seller or an affiliate thereof or such other person acceptable to the Depositor
and shall be identified in the related Prospectus Supplement.
Representations and warranties made in respect of a Whole Loan may have
been made as of a date prior to the applicable Cut-off Date. A substantial
period of time may have elapsed between such date and the date of initial
issuance of the related Series of Certificates evidencing an interest in such
Whole Loan. To the extent specified in the related Prospectus Supplement, in
the event of a breach of any such representation or warranty, the Warranting
Party will be obligated to reimburse the Trust Fund for losses caused by any
such breach or either cure such breach or repurchase or replace the affected
Whole Loan as described below. Since the representations and warranties may not
address events that may occur following the date as of which they were made,
the Warranting Party will have a reimbursement, cure, repurchase or
substitution obligation in connection with a breach of such a representation
and warranty only if the relevant event that causes such breach occurs prior to
such date. Such party would have no such obligations if the relevant event that
causes such breach occurs after such date.
To the extent provided in the related Prospectus Supplement, the
Agreements will provide that the Master Servicer and/or Trustee will be
required to notify promptly the relevant Warranting Party of any breach of any
representation or warranty made by it in respect of a Whole Loan that
materially and adversely affects the value of such Whole Loan or the interests
therein of the Certificateholders. If such Warranting Party cannot cure such
breach within a specified period following the date on which such party was
notified of such breach, then such Warranting Party will be obligated to
repurchase such Whole Loan from the Trustee within a specified period from the
date on which the Warranting Party was notified of such breach, at the Purchase
Price therefor. As to any Whole Loan, unless otherwise specified in the related
Prospectus Supplement, the "PURCHASE PRICE" is equal to the sum of the unpaid
principal balance thereof, plus unpaid accrued interest thereon at the Mortgage
Interest Rate from the date as to which interest was last paid to the due date
in the Due Period in which the relevant purchase is to occur, plus certain
servicing expenses that are reimbursable to each Servicer. If so provided in
the Prospectus Supplement for a Series, a Warranting Party, rather than
repurchase a Whole Loan as to which a breach has occurred, will have the
option, within a specified period after initial issuance of such Series of
Certificates, to cause the removal of such Whole Loan from the Trust Fund and
substitute in its place one or more other Whole Loans, in accordance with the
standards described in the related Prospectus Supplement. If so provided in the
Prospectus Supplement for a Series, a Warranting Party, rather than repurchase
or substitute a Whole Loan as to which a breach has occurred, will have the
option to reimburse the Trust Fund or the Certificateholders for any losses
caused by such breach. To the extent specified in the related Prospectus
Supplement, this reimbursement, repurchase or substitution obligation will
constitute the sole remedy available to holders of Certificates or the Trustee
for a breach of representation by a Warranting Party.
Neither the Depositor (except to the extent that it is the Warranting
Party) nor any Servicer will be obligated to purchase or substitute for a Whole
Loan if a Warranting Party defaults on its obligation to do so, and no
assurance can be given that Warranting Parties will carry out such obligations
with respect to Whole Loans.
To the extent provided in the related Prospectus Supplement the
Warranting Party will, with respect to a Trust Fund that includes CMBS, make or
assign certain representations or warranties, as of a specified date, with
respect to such CMBS, covering (i) the accuracy of the information set forth
therefor on the schedule of Mortgage Assets appearing as an exhibit to the
related Agreement and (ii) the authority of the Warranting Party to sell such
Mortgage Assets. The related Prospectus Supplement will describe the remedies
for a breach thereof.
Each Servicer will make certain representations and warranties regarding
its authority to enter into, and its ability to perform its obligations under,
the related Agreement. A breach of any such representation in a Pooling and
Servicing Agreement of a Master Servicer or Special Servicer which materially
and adversely affects the interests of the Certificateholders and which
continues unremedied for thirty days after the giving of written notice of such
breach to such Servicer by the Trustee or the Depositor, or to such Servicer,
the Depositor and the Trustee by the holders of Certificates evidencing not
less than 25% of the Voting Rights (unless otherwise specified in the related
Prospectus Supplement), will constitute an Event of Default under such Pooling
and Servicing Agreement. A breach of any such representation in a Servicing
Agreement of a Servicer which continues unremedied for thirty days after giving
notice
- 40 -
<PAGE> 110
of such breach to such Servicer will constitute an Event of Default under such
Servicing Agreement. See "Events of Default" and "Rights Upon Event of
Default."
ACCOUNTS
General
Each Servicer and/or the Trustee will, as to each Trust Fund, establish
and maintain or cause to be established and maintained one or more separate
accounts for the collection of payments on the related Mortgage Assets
(collectively, the "ACCOUNTS"), which must be either (i) an account or accounts
the deposits in which are insured by the Bank Insurance Fund or the Savings
Association Insurance Fund of the Federal Deposit Insurance Corporation
("FDIC") (to the limits established by the FDIC) and the uninsured deposits in
which are otherwise secured such that the Certificateholders have a claim with
respect to the funds an Account or a perfected first priority security interest
against any collateral securing such funds that is superior to the claims of
any other depositors or general creditors of the institution with which such
Account is maintained or (ii) otherwise maintained with a bank or trust
company, and in a manner, satisfactory to the Rating Agency or Agencies rating
any class of Certificates of such Series. The collateral eligible to secure
amounts in an Account is limited to United States government securities and
other investment grade obligations specified in the Agreement ("PERMITTED
INVESTMENTS"). An Account may be maintained as an interest bearing or a non-
interest bearing account and the funds held therein may be invested pending
each succeeding Distribution Date in certain short-term Permitted Investments.
To the extent provided in the related Prospectus Supplement, any interest or
other income earned on funds in an Account will be paid to a Servicer or its
designee as additional servicing compensation. An Account may be maintained
with an institution that is an affiliate of a Servicer provided that such
institution meets the standards imposed by the Rating Agency or Agencies. If
permitted by the Rating Agency or Agencies and so specified in the related
Prospectus Supplement, an Account may contain funds relating to more than one
Series of mortgage pass-through certificates and may contain other funds
respecting payments on mortgage loans belonging to a Servicer or serviced or
master serviced by it on behalf of others.
Deposits
To the extent provided in the related Prospectus Supplement, the Primary
Servicer will deposit or cause to be deposited in an Account on a daily basis,
to the extent provided in the related Agreement, the following payments and
collections received, or advances made, by the Primary Servicer:
(i) all payments on account of principal, including principal prepayments,
on the Mortgage Assets;
(ii) all payments on account of interest on the Mortgage Assets, including
any default interest collected, in each case net of any portion thereof
retained by a Servicer as its servicing compensation;
(iii) all proceeds of the hazard, business interruption and general
liability insurance policies to be maintained in respect of each Mortgaged
Property securing a Whole Loan in the Trust Fund (to the extent such
proceeds are not applied to the restoration of the property or released to
the Mortgagor in accordance with the normal servicing procedures of a
Servicer, subject to the terms and conditions of the related Mortgage and
Mortgage Note) and all proceeds of rental interruption policies, if any,
insuring against losses arising from the failure of Lessees under a Lease to
make timely rental payments because of certain casualty events
(collectively, "INSURANCE PROCEEDS") and all other amounts received and
retained in connection with the liquidation of defaulted Mortgage Loans in
the Trust Fund, by foreclosure, condemnation or otherwise ("LIQUIDATION
PROCEEDS"), together with the net proceeds on a monthly basis with respect
to any Mortgaged Properties acquired for the benefit of Certificateholders
by foreclosure or by deed in lieu of foreclosure or otherwise;
(iv) any advances made as described under "Description of the Certificates
-- Advances in Respect of Delinquencies";
(v) any amounts representing Prepayment Premiums;
(vi) any amounts received from a Special Servicer;
- 41 -
<PAGE> 111
but excluding any REO Proceeds and penalties or modification fees which
may be retained by the Primary Servicer. REO Proceeds shall be maintained in an
Account by the Special Servicer.
Once a month the Primary Servicer and the Special Servicer remit funds
on deposit in the Account each maintains together with any P&I Advances to the
Master Servicer for deposit in an Account maintained by the Master Servicer.
Withdrawals
A Servicer may, from time to time, to the extent provided in the related
Agreement and described in the related Prospectus Supplement, make withdrawals
from an Account for each Trust Fund for any of the following purposes:
(i) to reimburse a Servicer for unreimbursed amounts advanced as described
under "Description of the Certificates -- Advances in Respect of
Delinquencies," such reimbursement to be made out of amounts received which
were identified and applied by such Servicer as late collections of interest
on and principal of the particular Whole Loans with respect to which the
advances were made;
(ii) to reimburse a Servicer for unpaid servicing fees earned and certain
unreimbursed servicing expenses incurred with respect to Whole Loans and
properties acquired in respect thereof, such reimbursement to be made out of
amounts that represent Liquidation Proceeds and Insurance Proceeds collected
on the particular Whole Loans and properties, and net income collected on
the particular properties, with respect to which such fees were earned or
such expenses were incurred;
(iii) to reimburse a Servicer for any advances described in clause (i) above
and any servicing expenses described in clause (ii) above which, in the
Master Servicer's good faith judgment, will not be recoverable from the
amounts described in clauses (i) and (ii), respectively, such reimbursement
to be made from amounts collected on other Trust Assets or, if and to the
extent so provided by the related Agreement and described in the related
Prospectus Supplement, just from that portion of amounts collected on other
Trust Assets that is otherwise distributable on one or more classes of
Subordinate Certificates, if any, remain outstanding, and otherwise any
outstanding class of Certificates, of the related Series;
(iv) if and to the extent described in the related Prospectus Supplement, to
pay a Servicer interest accrued on the advances described in clause (i)
above and the servicing expenses described in clause (ii) above while such
remain outstanding and unreimbursed;
(v) to the extent provided in the related Prospectus Supplement, to pay a
Servicer, as additional servicing compensation, interest and investment
income earned in respect of amounts held in the Account; and
(vi) to make any other withdrawals permitted by the related Agreement and
described in the related Prospectus Supplement.
If and to the extent specified in the Prospectus Supplement amounts may be
withdrawn from any Account to cover additional costs, expenses or
liabilities associated with: the preparation of environmental site
assessments with respect to, and for containment, clean-up or remediation of
hazardous wastes and materials, the proper operation, management and
maintenance of any Mortgaged Property acquired for the benefit of
Certificateholders by foreclosure or by deed in lieu of foreclosure or
otherwise, such payments to be made out of income received on such property;
if one or more elections have been made to treat the Trust Fund or
designated portions thereof as a REMIC, any federal, state or local taxes
imposed on the Trust Fund or its assets or transactions, as and to the
extent described under "Federal Income Tax Consequences -- REMIC --
Prohibited Transactions and Other Taxes"; retaining an independent appraiser
or other expert in real estate matters to determine a fair sale price for a
defaulted Whole Loan or a property acquired in respect thereof in connection
with the liquidation of such Whole Loan or property; and obtaining various
opinions of counsel pursuant to the related Agreement for the benefit of
Certificateholders.
- 42 -
<PAGE> 112
Distribution Account
To the extent specified in the related Prospectus Supplement, the
Trustee will, as to each Trust Fund, establish and maintain, or cause to be
established and maintained, one or more separate Accounts for the collection of
payments from the Master Servicer immediately preceding each Distribution Date
(the "DISTRIBUTION ACCOUNT"). The Trustee will also deposit or cause to be
deposited in a Distribution Account the following amounts:
(i) any amounts paid under any instrument or drawn from any fund that
constitutes Credit Support for the related Series of Certificates as
described under "Description of Credit Support";
(ii) any amounts paid under any Cash Flow Agreement, as described under
"Description of the Trust Funds -- Cash Flow Agreements";
(iii) all proceeds of any Trust Asset or, with respect to a Whole Loan,
property acquired in respect thereof purchased by the Depositor, any Asset
Seller or any other specified person, and all proceeds of any Mortgage Asset
purchased as described under "Description of the Certificates --
Termination" (also, Liquidation Proceeds); and
(iv) any other amounts required to be deposited in the Distribution Account
as provided in the related Agreement and described in the related Prospectus
Supplement.
The Trustee may, from time to time, to the extent provided in the
related Agreements and described in the related Prospectus Supplement, make a
withdrawal from a Distribution Account to make distributions to the
Certificateholders on each Distribution Date.
Other Collection Accounts
Notwithstanding the foregoing, if so specified in the related Prospectus
Supplement, the Agreement for any Series of Certificates may provide for the
establishment and maintenance of a separate collection account into which the
Master Servicer or any related Primary Servicer or Special Servicer will
deposit on a daily basis the amounts described under "--Accounts -- Deposits"
above for one or more Series of Certificates. Any amounts on deposit in any
such collection account will be withdrawn therefrom and deposited into the
appropriate Distribution Account by a time specified in the related Prospectus
Supplement. To the extent specified in the related Prospectus Supplement, any
amounts which could be withdrawn from the Distribution Account as described
under "--Accounts -- Withdrawals" above, may also be withdrawn from any such
collection account. The Prospectus Supplement will set forth any restrictions
with respect to any such collection account, including investment restrictions
and any restrictions with respect to financial institutions with which any such
collection account may be maintained.
COLLECTION AND OTHER SERVICING PROCEDURES
Primary Servicer
The Primary Servicer is required under each Servicing Agreement to make
reasonable efforts to collect all scheduled payments under the Mortgage Loans
and will follow or cause to be followed such collection procedures as it would
follow with respect to mortgage loans that are comparable to the Mortgage Loans
and held for its own account, provided such procedures are consistent with (i)
the terms of the related Servicing Agreement, (ii) applicable law and (iii) the
general servicing standard specified in the related Prospectus Supplement or,
if no such standard is so specified, its normal servicing practices (in either
case, the "SERVICING STANDARD").
Each Primary Servicer will also be required to perform other customary
functions of a servicer of comparable loans, including maintaining (or causing
the Mortgagor or Lessee on each Mortgage or Lease to maintain) hazard, business
interruption and general liability insurance policies (and, if applicable,
rental interruption policies) as described herein and in any related Prospectus
Supplement, and filing and settling claims thereunder; maintaining escrow or
impoundment accounts of Mortgagors for payment of taxes, insurance and other
items required to be paid by any Mortgagor pursuant to the Mortgage Loan;
processing assumptions or substitutions in those cases where the Primary
Servicer has determined not to enforce any applicable due-on-sale clause;
attempting to cure delinquencies; supervising foreclosures; inspecting and
managing Mortgaged Properties under certain circumstances; and maintaining
accounting records relating to the Mortgage Loans.
- 43 -
<PAGE> 113
Master Servicer
The Master Servicer shall monitor the actions of the Primary Servicer
and the Special Servicer to confirm compliance with the Agreements.
To the extent specified in the related Prospectus Supplement, a Master
Servicer, as servicer of the Mortgage Loans, on behalf of itself, the Trustee
and the Certificateholders, will present claims to the obligor under each
instrument of Credit Support, and will take such reasonable steps as are
necessary to receive payment or to permit recovery thereunder with respect to
defaulted Mortgage Loans. See "Description of Credit Support."
If a Master Servicer or its designee recovers payments under any
instrument of Credit Support with respect to any defaulted Mortgage Loan, the
Master Servicer will be entitled to withdraw or cause to be withdrawn from the
Distribution Account out of such proceeds, prior to distribution thereof to
Certificateholders, amounts representing its normal servicing compensation on
such Mortgage Loan, unreimbursed servicing expenses incurred with respect to
the Mortgage Loan and any unreimbursed advances of delinquent payments made
with respect to the Mortgage Loan. See "--Hazard Insurance Policies" and
"Description of Credit Support."
Special Servicer
A Mortgagor's failure to make required payments may reflect inadequate
income or the diversion of that income from the service of payments due under
the Mortgage Loan, and may call into question such Mortgagor's ability to make
timely payment of taxes and to pay for necessary maintenance of the related
Mortgaged Property. To the extent provided in the related Prospectus
Supplement, upon the occurrence of any of the following events (each a
"SERVICING TRANSFER EVENT") with respect to a Mortgage Loan, servicing for such
Mortgage Loan (thereafter, a "SPECIALLY SERVICED MORTGAGE LOAN") will be
transferred from the Primary Servicer to the Special Servicer:
a) such Mortgage Loan becomes a defaulted Mortgage Loan,
b) the occurrence of certain events indicating the possible insolvency of the
Mortgagor,
c) the receipt by the Primary Servicer of a notice of foreclosure of any other
lien on the related Mortgaged Property,
d) the Master Servicer or the Primary Servicer determines that a payment
default is imminent,
e) with respect to a Balloon Mortgage Loan, no assurances have been given as to
the ability of the Mortgagor to make the final payment thereon, or
f) the occurrence of certain other events constituting defaults under the terms
of such Mortgage Loan.
The Special Servicer is required to monitor any Mortgage Loan which is
in default, contact the Mortgagor concerning the default, evaluate whether the
causes of the default can be cured over a reasonable period without significant
impairment of the value of the Mortgaged Property, initiate corrective action
in cooperation with the Mortgagor if cure is likely, inspect the Mortgaged
Property and take such other actions as are consistent with the Servicing
Standard. A significant period of time may elapse before the Special Servicer
is able to assess the success of such corrective action or the need for
additional initiatives.
The time within which the Special Servicer makes the initial
determination of appropriate action evaluates the success of corrective action,
develops additional initiatives, institutes foreclosure proceedings and
actually forecloses (or takes a deed to a Mortgaged Property in lieu of
foreclosure) on behalf of the Certificateholders, may vary considerably
depending on the particular Mortgage Loan, the Mortgaged Property, the
Mortgagor, the presence of an acceptable party to assume the Mortgage Loan and
the laws of the jurisdiction in which the Mortgaged Property is located. Under
federal bankruptcy law, the Special Servicer in certain cases may not be
permitted to accelerate a Mortgage Loan or to foreclose on a Mortgaged Property
for a considerable period of time. See "Certain Legal Aspects of the Mortgage
Loans and the Leases."
- 44 -
<PAGE> 114
Any Agreement relating to a Trust Fund that includes Mortgage Loans may
grant to the Master Servicer and/or the holder or holders of certain classes of
Certificates a right of first refusal to purchase from the Trust Fund at a
predetermined purchase price any such Mortgage Loan as to which a specified
number of scheduled payments thereunder are delinquent. Any such right granted
to the holder of an Offered Certificate will be described in the related
Prospectus Supplement. The related Prospectus Supplement will also describe any
such right granted to any person if the predetermined purchase price is less
than the Purchase Price described under "--Representations and Warranties;
Repurchases."
The Special Servicer may agree to modify, waive or amend any term of any
Specially Serviced Mortgage Loan in a manner consistent with the Servicing
Standard so long as the modification, waiver or amendment will not (i) affect
the amount or timing of any scheduled payments of principal or interest on the
Mortgage Loan or (ii) in its judgment, materially impair the security for the
Mortgage Loan or reduce the likelihood of timely payment of amounts due
thereon. The Special Servicer also may agree to any modification, waiver or
amendment that would so affect or impair the payments on, or the security for,
a Mortgage Loan if, unless otherwise provided in the related Prospectus
Supplement, (i) in its judgment, a material default on the Mortgage Loan has
occurred or a payment default is imminent and (ii) in its judgment, such
modification, waiver or amendment is reasonably likely to produce a greater
recovery with respect to the Mortgage Loan on a present value basis than would
liquidation. The Special Servicer is required to notify the Trustee in the
event of any modification, waiver or amendment of any Mortgage Loan.
The Special Servicer, on behalf of the Trustee, may at any time
institute foreclosure proceedings, exercise any power of sale contained in any
mortgage, obtain a deed in lieu of foreclosure, or otherwise acquire title to a
Mortgaged Property securing a Mortgage Loan by operation of law or otherwise,
if such action is consistent with the Servicing Standard and a default on such
Mortgage Loan has occurred or, in the Special Servicer's judgment, is imminent.
Unless otherwise specified in the related Prospectus Supplement, the Special
Servicer may not acquire title to any related Mortgaged Property or take any
other action that would cause the Trustee, for the benefit of
Certificateholders, or any other specified person to be considered to hold
title to, to be a "mortgagee-in-possession" of, or to be an "owner" or an
"operator" of such Mortgaged Property within the meaning of certain federal
environmental laws, unless the Special Servicer has previously determined,
based on a report prepared by a person who regularly conducts environmental
audits (which report will be an expense of the Trust Fund), that:
(i) the Mortgaged Property is in compliance with applicable environmental
laws; or if not, that taking such actions as are necessary to bring the
Mortgaged Property in compliance therewith is reasonably likely to produce a
greater recovery on a present value basis, after taking into account any
risks associated therewith, than not taking such actions; and
(ii) and there are no circumstances present at the Mortgaged Property
relating to the use, management or disposal of any hazardous substances,
hazardous materials, wastes, or petroleum-based materials for which
investigation, testing, monitoring, containment, clean-up or remediation
could be required under any federal, state or local law or regulation or
that, if any such materials are present, taking such action with respect to
the affected Mortgaged Property is reasonably likely to produce a greater
recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions.
To the extent provided in the related Prospectus Supplement, if title to
any Mortgaged Property is acquired by a Trust Fund as to which a REMIC election
has been made, the Special Servicer, on behalf of the Trust Fund, will be
required to sell the Mortgaged Property within two years of acquisition, unless
(i) the Internal Revenue Service grants an extension of time to sell such
property or (ii) the Trustee receives an opinion of independent counsel to the
effect that the holding of the property by the Trust Fund subsequent to two
years after its acquisition will not result in the imposition of a tax on the
Trust Fund or cause the Trust Fund to fail to qualify as a REMIC under the Code
at any time that any Certificate is outstanding. Subject to the foregoing, the
Special Servicer will be required to (i) solicit bids for any Mortgaged
Property so acquired in such a manner as will be reasonably likely to realize a
fair price for such property and (ii) accept the first (and, if multiple bids
are contemporaneously received, the highest) cash bid received from any person
that constitutes a fair price.
If the Trust Fund acquires title to any Mortgaged Property, the Special
Servicer, on behalf of the Trust Fund, may retain an independent contractor to
manage and operate such property. The retention of an independent contractor,
- 45 -
<PAGE> 115
however, will not relieve the Special Servicer of any of its obligations with
respect to the management and operation of such Mortgaged Property. To the
extent specified in the related Prospectus Supplement, any such property
acquired by the Trust Fund will be managed in a manner consistent with the
management and operation of similar property by a prudent lending institution.
The limitations imposed by the related Agreement and the REMIC
provisions of the Code (if a REMIC election has been made with respect to the
related Trust Fund) on the operations and ownership of any Mortgaged Property
acquired on behalf of the Trust Fund may result in the recovery of an amount
less than the amount that would otherwise be recovered. See "Certain Legal
Aspects of the Mortgage Loans and the Leases -- Foreclosure."
If recovery on a defaulted Mortgage Loan under any related instrument of
Credit Support is not available, the Special Servicer nevertheless will be
obligated to follow or cause to be followed such normal practices and
procedures as it deems necessary or advisable to realize upon the defaulted
Mortgage Loan. If the proceeds of any liquidation of the property securing the
defaulted Mortgage Loan are less than the outstanding principal balance of the
defaulted Mortgage Loan plus interest accrued thereon at the Mortgage Interest
Rate plus the aggregate amount of expenses incurred by the Special Servicer in
connection with such proceedings and which are reimbursable under the
Agreement, the Trust Fund will realize a loss in the amount of such difference.
The Special Servicer will be entitled to withdraw or cause to be withdrawn from
a related Account out of the Liquidation Proceeds recovered on any defaulted
Mortgage Loan, prior to the distribution of such Liquidation Proceeds to
Certificateholders, amounts representing its normal servicing compensation on
the Mortgage Loan, unreimbursed servicing expenses incurred with respect to the
Mortgage Loan and any unreimbursed advances of delinquent payments made with
respect to the Mortgage Loan.
If any property securing a defaulted Mortgage Loan is damaged and
proceeds, if any, from the related hazard insurance policy are insufficient to
restore the damaged property to a condition sufficient to permit recovery under
the related instrument of Credit Support, if any, the Special Servicer is not
required to expend its own funds to restore the damaged property unless it
determines (i) that such restoration will increase the proceeds to
Certificateholders on liquidation of the Mortgage Loan after reimbursement of
the Master Servicer for its expenses and (ii) that such expenses will be
recoverable by it from related Insurance Proceeds or Liquidation Proceeds.
HAZARD INSURANCE POLICIES
To the extent specified in the related Prospectus Supplement, each
Agreement for a Trust Fund that includes Whole Loans will require the Primary
Servicer to cause the Mortgagor on each Whole Loan to maintain a hazard
insurance policy providing for such coverage as is required under the related
Mortgage. To the extent specified in the related Prospectus Supplement, such
coverage will be in general in an amount equal to the amount necessary to fully
compensate for any damage or loss to the improvements on the Mortgaged Property
on a replacement cost basis, but not less than the amount necessary to avoid
the application of any co-insurance clause contained in the hazard insurance
policy. The ability of the Primary Servicer to assure that hazard insurance
proceeds are appropriately applied may be dependent upon its being named as an
additional insured under any hazard insurance policy and under any other
insurance policy referred to below, or upon the extent to which information in
this regard is furnished by Mortgagors. All amounts collected by the Primary
Servicer under any such policy (except for amounts to be applied to the
restoration or repair of the Mortgaged Property or released to the Mortgagor in
accordance with the Primary Servicer's normal servicing procedures, subject to
the terms and conditions of the related Mortgage and Mortgage Note) will be
deposited in a related Account.
In general, the standard form of fire and extended coverage policy
covers physical damage to or destruction of the improvements of the property by
fire, lightning, explosion, smoke, windstorm and hail, and riot, strike and
civil commotion, subject to the conditions and exclusions specified in each
policy. Although the policies relating to the Whole Loans will be underwritten
by different insurers under different state laws in accordance with different
applicable state forms, and therefore will not contain identical terms and
conditions, the basic terms thereof are dictated by respective state laws, and
most such policies typically do not cover any physical damage resulting from
war, revolution, governmental actions, floods and other water-related causes,
earth movement (including earthquakes, landslides and mudflows), wet or dry
rot, vermin, domestic animals and certain other kinds of uninsured risks.
- 46 -
<PAGE> 116
The hazard insurance policies covering the Mortgaged Properties securing
the Whole Loans will typically contain a co-insurance clause that in effect
requires the insured at all times to carry insurance of a specified percentage
(generally 80% to 90%) of the full replacement value of the improvements on the
property in order to recover the full amount of any partial loss. If the
insured's coverage falls below this specified percentage, such clause generally
provides that the insurer's liability in the event of partial loss does not
exceed the lesser of (i) the replacement cost of the improvements less physical
depreciation and (ii) such proportion of the loss as the amount of insurance
carried bears to the specified percentage of the full replacement cost of such
improvements.
The Agreements for a Trust Fund that includes Whole Loans will require
the Primary Servicer to cause the Mortgagor on each Whole Loan, or, in certain
cases, the related Lessee, to maintain all such other insurance coverage with
respect to the related Mortgaged Property as is consistent with the terms of
the related Mortgage, which insurance may typically include flood insurance (if
the related Mortgaged Property was located at the time of origination in a
federally designated flood area).
In addition, to the extent required by the related Mortgage, the Primary
Servicer may require the Mortgagor or related Lessee to maintain other forms of
insurance including, but not limited to, loss of rent endorsements, business
interruption insurance and comprehensive public liability insurance. Any cost
incurred by the Master Servicer in maintaining any such insurance policy will
be added to the amount owing under the Mortgage Loan where the terms of the
Mortgage Loan so permit; provided, however, that the addition of such cost will
not be taken into account for purposes of calculating the distribution to be
made to Certificateholders. Such costs may be recovered by a Servicer from a
related Account, with interest thereon, as provided by the Agreements.
RENTAL INTERRUPTION INSURANCE POLICY
If so specified in the related Prospectus Supplement, the Primary
Servicer or the Mortgagors will maintain rental interruption insurance policies
in full force and effect with respect to some or all of the Leases. Although
the terms of such policies vary to some degree, a rental interruption insurance
policy typically provides that, to the extent that a Lessee fails to make
timely rental payments under the related Lease due to a casualty event, such
losses will be reimbursed to the insured. If so specified in the related
Prospectus Supplement, the Primary Servicer will be required to pay from its
servicing compensation the premiums on the rental interruption policy on a
timely basis. If so specified in the Prospectus Supplement, if such rental
interruption policy is canceled or terminated for any reason (other than the
exhaustion of total policy coverage), the Primary Servicer will exercise its
best reasonable efforts to obtain from another insurer a replacement policy
comparable to the rental interruption policy with a total coverage that is
equal to the then existing coverage of the terminated rental interruption
policy; provided that if the cost of any such replacement policy is greater
than the cost of the terminated rental interruption policy, the amount of
coverage under the replacement policy will, to the extent specified in the
related Prospectus Supplement, be reduced to a level such that the applicable
premium does not exceed, by a percentage that may be set forth in the related
Prospectus Supplement, the cost of the rental interruption policy that was
replaced. Any amounts collected by the Primary Servicer under the rental
interruption policy in the nature of insurance proceeds will be deposited in a
related Account.
FIDELITY BONDS AND ERRORS AND OMISSIONS INSURANCE
To the extent specified in the related Prospectus Supplement, the
Agreements will require that the Servicers obtain and maintain in effect a
fidelity bond or similar form of insurance coverage (which may provide blanket
coverage) or any combination thereof insuring against loss occasioned by fraud,
theft or other intentional misconduct of the officers, employees and agents of
such Servicer. The related Agreements will allow a Servicer to self-insure
against loss occasioned by the errors and omissions of the officers, employees
and agents of the Master Servicer or the Special Servicer so long as certain
criteria set forth in the Agreements are met.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE PROVISIONS
Certain of the Whole Loans may contain clauses requiring the consent of
the mortgagee to any sale or other transfer of the related Mortgaged Property,
or due-on-sale clauses entitling the mortgagee to accelerate payment of the
Whole Loan upon any sale or other transfer of the related Mortgaged Property.
Certain of the Whole Loans may contain clauses requiring the consent of the
mortgagee to the creation of any other lien or encumbrance on the Mortgaged
- 47 -
<PAGE> 117
Property or due-on-encumbrance clauses entitling the mortgagee to accelerate
payment of the Whole Loan upon the creation of any other lien or encumbrance
upon the Mortgaged Property. To the extent provided in the related Prospectus
Supplement, the Primary Servicer, on behalf of the Trust Fund, will exercise
any right the Trustee may have as mortgagee to accelerate payment of any such
Whole Loan or to withhold its consent to any transfer or further encumbrance.
To the extent specified in the related Prospectus Supplement, any fee collected
by or on behalf of the Primary Servicer for entering into an assumption
agreement will be retained by or on behalf of the Primary Servicer as
additional servicing compensation. See "Certain Legal Aspects of the Mortgage
Loans and the Leases -- Due-on-Sale and Due-on-Encumbrance."
RETAINED INTEREST; SERVICING COMPENSATION AND PAYMENT OF EXPENSES
The Prospectus Supplement for a Series of Certificates will specify
whether there will be any Retained Interest in the Mortgage Assets, and, if so,
the initial owner thereof. If so, the Retained Interest will be established on
a loan-by-loan basis and will be specified on an exhibit to the related
Agreement. A "RETAINED INTEREST" in a Mortgage Asset represents a specified
portion of the interest payable thereon. The Retained Interest will be deducted
from Mortgagor payments as received and will not be part of the related Trust
Fund.
To the extent specified in the related Prospectus Supplement, each
Servicer's primary servicing compensation with respect to a Series of
Certificates will come from the periodic payment to it of a portion of the
interest payment on each Mortgage Asset. Since any Retained Interest and a
Servicer's primary compensation are percentages of the principal balance of
each Mortgage Asset, such amounts will decrease in accordance with the
amortization of the Mortgage Assets. The Prospectus Supplement with respect to
a Series of Certificates evidencing 47 interests in a Trust Fund that includes
Whole Loans may provide that, as additional compensation, a Servicer may retain
all or a portion of assumption fees, modification fees, late payment charges or
Prepayment Premiums collected from Mortgagors and any interest or other income
which may be earned on funds held in a related Account.
The Master Servicer may, to the extent provided in the related
Prospectus Supplement, pay from its servicing compensation certain expenses
incurred in connection with its servicing and managing of the Mortgage Assets,
including, without limitation, payment of the fees and disbursements of the
Trustee and independent accountants, payment of expenses incurred in connection
with distributions and reports to Certificateholders, and payment of any other
expenses described in the related Prospectus Supplement. Certain other
expenses, including certain expenses relating to defaults and liquidations on
the Whole Loans and, to the extent so provided in the related Prospectus
Supplement, interest thereon at the rate specified therein, and the fees of any
Special Servicer, may be borne by the Trust Fund.
EVIDENCE AS TO COMPLIANCE
Each Servicing Agreement will provide that on or before a specified date
in each year, beginning on a date specified therein, a firm of independent
public accountants will furnish a statement to the Trustee to the effect that,
on the basis of the examination by such firm conducted substantially in
compliance with either the Uniform Single Attestation Program for Mortgage
Bankers, the servicing by or on behalf of each Servicer was conducted in
compliance with the terms of such agreements except for any exceptions the
Uniform Single Attestation Program for Mortgage Bankers requires it to report.
Each Servicing Agreement will also provide for delivery to the Trustee,
on or before a specified date in each year, of an annual statement signed by an
officer of each Servicer to the effect that such Servicer has fulfilled its
obligations under the Agreement throughout the preceding calendar year or other
specified twelve-month period.
To the extent provided in the related Prospectus Supplement, copies of
such annual accountants' statement and such statements of officers will be
obtainable by Certificateholders and Beneficial Owners without charge upon
written request to the Master Servicer at the address set forth in the related
Prospectus Supplement; provided that such Beneficial Owner shall have certified
to the Master Servicer that it is the Beneficial Owner of a Certificate.
- 48 -
<PAGE> 118
CERTAIN MATTERS REGARDING EACH SERVICER AND THE DEPOSITOR
The Master Servicer, the Primary Servicer and the Special Servicer, or a
servicer for substantially all the Whole Loans under each Agreement will be
named in the related Prospectus Supplement. Each entity serving as Servicer (or
as such servicer) may be an affiliate of the Depositor and may have other
normal business relationships with the Depositor or the Depositor's affiliates.
Reference herein to a Servicer shall be deemed to be to the servicer of
substantially all of the Whole Loans, if applicable.
To the extent specified in the related Prospectus Supplement, the
related Agreement will provide that any Servicer may resign from its
obligations and duties thereunder only with the consent of the Trustee, which
may not be unreasonably withheld or upon a determination that its duties under
the Agreement are no longer permissible under applicable law. No such
resignation will become effective until a successor servicer has assumed such
Servicer's obligations and duties under the related Servicing Agreement. If a
Primary Servicer resigns, the Master Servicer shall assume the obligations
thereof.
To the extent specified in the related Prospectus Supplement, each
Servicing Agreement will further provide that none of the Servicers, or any
officer, employee, or agent thereof will be under any liability to the related
Trust Fund or Certificateholders for any action taken, or for refraining from
the taking of any action in accordance with the Servicing standards set forth
in the Servicing Agreement, in good faith pursuant to the related Servicing
Agreement; provided, however, that no Servicer nor any such person will be
protected against any breach of a representation or warranty made in such
Agreement, or against any liability specifically imposed thereby, or against
any liability which would otherwise be imposed by reason of willful
misfeasance, bad faith or negligence in the performance of duties thereunder or
by reason of reckless disregard of obligations and duties thereunder. To the
extent specified in the related Prospectus Supplement, the Depositor shall be
liable only to the extent of its obligations specifically imposed upon and
undertaken by the Depositor. To the extent specified in the related Prospectus
Supplement, each Servicing Agreement will further provide that each Servicer
will be entitled to indemnification by the related Trust Fund against any loss,
liability or expense incurred in connection with any legal action relating to
the related Servicing Agreement or the Mortgage Loans; provided, however, that
such indemnification will not extend to any loss, liability or expense incurred
by reason of misfeasance, bad faith or negligence in the performance of
obligations or duties thereunder, or by reason of reckless disregard of such
obligations or duties. In addition, each Servicing Agreement will provide that
no Servicer will be under any obligation to appear in, prosecute or defend any
legal action which is not incidental to its responsibilities under the
Servicing Agreement and which in its opinion may involve it in any expense or
liability. Any Servicer may, however, with the consent of the Trustee undertake
any such action which it may deem necessary or desirable with respect to the
Agreement and the rights and duties of the parties thereto and the interests of
the Certificateholders thereunder. In such event, the legal expenses and costs
of such action and any liability resulting therefrom will be expenses, costs
and liabilities of the Certificateholders, and the Servicer will be entitled to
be reimbursed therefor.
Any person into which a Servicer or the Depositor may be merged or
consolidated, or any person resulting from any merger or consolidation to which
a Servicer or the Depositor is a party, or any person succeeding to the
business of a Servicer or the Depositor will be the successor of such Servicer
or the Depositor, as applicable, under the related Agreements.
EVENTS OF DEFAULT
To the extent provided in the related Prospectus Supplement for a Trust
Fund that includes Whole Loans, "EVENTS OF DEFAULT" with respect to a Servicer
under the related Agreements will include (i) any failure by such Servicer to
distribute or cause to be distributed to the Trustee, another Servicer or the
Certificateholders, any required payment within one Business Day of the date
due; (ii) any failure by such Servicer to timely deliver a report that
continues unremedied for two days after receipt of notice of such failure has
been given to such Servicer by the Trustee or another Servicer; (iii) any
failure by such Servicer duly to observe or perform in any material respect any
of its other covenants or obligations under the Agreement which continues
unremedied for thirty days after written notice of such failure has been given
to such Servicer; (iv) any breach of a representation or warranty made by such
Servicer under the Agreement which materially and adversely affects the
interests of Certificateholders and which continues unremedied for thirty days
after written notice of such breach has been given to such Servicer; (v)
certain events of insolvency, readjustment of
- 49 -
<PAGE> 119
debt, marshalling of assets and liabilities or similar proceedings and certain
actions by or on behalf of such Servicer indicating its insolvency or inability
to pay its obligations; and (vi) any failure by such Servicer to maintain a
required license to do business or service the Mortgage Loans pursuant to the
related Agreements. Material variations to the foregoing Events of Default
(other than to shorten cure periods or eliminate notice requirements) will be
specified in the related Prospectus Supplement. To the extent specified in the
related Prospectus Supplement, the Trustee shall, not later than the later of
60 days after the occurrence of any event which constitutes or, with notice or
lapse of time or both, would constitute an Event of Default and five days after
certain officers of the Trustee become aware of the occurrence of such an
event, transmit by mail to the Depositor and all Certificateholders of the
applicable Series notice of such occurrence, unless such default shall have
been cured or waived.
RIGHTS UPON EVENT OF DEFAULT
So long as an Event of Default under an Agreement remains unremedied,
the Depositor or the Trustee may, and at the direction of holders of
Certificates evidencing not less than 25% of the Voting Rights, the Trustee
shall, terminate all of the rights and obligations of the related Servicer
under the Agreement and in and to the Mortgage Loans (other than as a
Certificateholder or as the owner of any Retained Interest), whereupon the
Master Servicer (or if such Servicer is the Master Servicer, the Trustee) will
succeed to all of the responsibilities, duties and liabilities of such Servicer
under the Agreements (except that if the Trustee is prohibited by law from
obligating itself to make advances regarding delinquent mortgage loans, or if
the related Prospectus Supplement so specifies, then the Trustee will not be
obligated to make such advances) and will be entitled to similar compensation
arrangements. To the extent specified in the related Prospectus Supplement, in
the event that the Trustee is unwilling or unable so to act, it may or, at the
written request of the holders of Certificates entitled to at least 25% of the
Voting Rights, it shall appoint, or petition a court of competent jurisdiction
for the appointment of, a loan servicing institution acceptable to the Rating
Agency with a net worth at the time of such appointment of at least $15,000,000
to act as successor to the Master Servicer under the Agreement. Pending such
appointment, the Trustee is obligated to act in such capacity. The Trustee and
any such successor may agree upon the servicing compensation to be paid, which
in no event may be greater than the compensation payable to the Master Servicer
under the Agreement.
To the extent described in the related Prospectus Supplement, the
holders of Certificates representing at least 66 2/3% of the Voting Rights
allocated to the respective classes of Certificates affected by any Event of
Default will be entitled to waive such Event of Default; provided, however,
that an Event of Default involving a failure to distribute a required payment
to Certificateholders described in clause (i) under "--Events of Default" may
be waived only by all of the Certificateholders. Upon any such waiver of an
Event of Default, such Event of Default shall cease to exist and shall be
deemed to have been remedied for every purpose under the Agreement.
No Certificateholder will have the right under any Agreement to
institute any proceeding with respect thereto unless such holder previously has
given to the Trustee written notice of default and unless the holders of
Certificates evidencing not less than 25% of the Voting Rights have made
written request upon the Trustee to institute such proceeding in its own name
as Trustee thereunder and have offered to the Trustee reasonable indemnity, and
the Trustee for sixty days has neglected or refused to institute any such
proceeding. The Trustee, however, is under no obligation to exercise any of the
trusts or powers vested in it by any Agreement or to make any investigation of
matters arising thereunder or to institute, conduct or defend any litigation
thereunder or in relation thereto at the request, order or direction of any of
the holders of Certificates covered by such Agreement, unless such
Certificateholders have offered to the Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred therein or
thereby.
As described under "Description of the Certificates -- Book-Entry
Registration and Definitive Certificates," unless and until Definitive
Certificates are issued, Beneficial Owners may only exercise their rights as
owners of Certificates indirectly through DTC, or their respective Participants
and Indirect Participants.
AMENDMENT
Each Agreement may be amended by the parties thereto, without the
consent of any of the holders of Certificates covered by the Agreement, (i) to
cure any ambiguity, (ii) to correct, modify or supplement any provision therein
which may be inconsistent with any other provision therein, (iii) to make any
other provisions with respect to
- 50 -
<PAGE> 120
matters or questions arising under the Agreement which are not inconsistent
with the provisions thereof, or (iv) to comply with any requirements imposed by
the Code; provided that such amendment (other than an amendment for the purpose
specified in clause (iv) above) will not (as evidenced by an opinion of counsel
to such effect) adversely affect in any material respect the interests of any
holder of Certificates covered by the Agreement. To the extent specified in the
related Prospectus Supplement, each Agreement may also be amended by the
Depositor, the Master Servicer, if any, and the Trustee, with the consent of
the holders of Certificates affected thereby evidencing not less than 51% of
the Voting Rights, for any purpose; provided, however, that to the extent
specified in the related Prospectus Supplement, no such amendment may (i)
reduce in any manner the amount of or delay the timing of, payments received or
advanced on Mortgage Loans which are required to be distributed on any
Certificate without the consent of the holder of such Certificate, (ii)
adversely affect in any material respect the interests of the holders of any
class of Certificates in a manner other than as described in (i), without the
consent of the holders of all Certificates of such class or (iii) modify the
provisions of such Agreement described in this paragraph without the consent of
the holders of all Certificates covered by such Agreement then outstanding.
However, with respect to any Series of Certificates as to which a REMIC
election is to be made, the Trustee will not consent to any amendment of the
Agreement unless it shall first have received an opinion of counsel to the
effect that such amendment will not result in the imposition of a tax on the
related Trust Fund or cause the related Trust Fund to fail to qualify as a
REMIC at any time that the related Certificates are outstanding.
THE TRUSTEE
The Trustee under each Agreement will be named in the related Prospectus
Supplement. The commercial bank, national banking association, banking
corporation or trust company serving as Trustee may have a banking relationship
with the Depositor and its affiliates and with any Master Servicer and its
affiliates.
DUTIES OF THE TRUSTEE
The Trustee will make no representations as to the validity or
sufficiency of any Agreement, the Certificates or any Trust Asset or related
document and is not accountable for the use or application by or on behalf of
any Servicer of any funds paid to such Servicer or its designee in respect of
the Certificates or the Trust Assets, or deposited into or withdrawn from any
Account or any other account by or on behalf of any Servicer. If no Event of
Default has occurred and is continuing, the Trustee is required to perform only
those duties specifically required under the related Agreements. However, upon
receipt of the various certificates, reports or other instruments required to
be furnished to it, the Trustee is required to examine such documents and to
determine whether they conform to the requirements of the Agreements.
CERTAIN MATTERS REGARDING THE TRUSTEE
To the extent specified in the related Prospectus Supplement, the
Trustee and any director, officer, employee or agent of the Trustee shall be
entitled to indemnification out of the Distribution Account for any loss,
liability or expense (including costs and expenses of litigation, and of
investigation, counsel fees, damages, judgments and amounts paid in settlement)
incurred in connection with the Trustee's (i) enforcing its rights and remedies
and protecting the interests, and enforcing the rights and remedies, of the
Certificateholders during the continuance of an Event of Default, (ii)
defending or prosecuting any legal action in respect of the related Agreement
or Series of Certificates, (iii) being the mortgagee of record with respect to
the Mortgage Loans in a Trust Fund and the owner of record with respect to any
Mortgaged Property acquired in respect thereof for the benefit of
Certificateholders, or (iv) acting or refraining from acting in good faith at
the direction of the holders of the related Series of Certificates entitled to
not less than 25% (or such higher percentage as is specified in the related
Agreement with respect to any particular matter) of the Voting Rights for such
Series; provided, however, that such indemnification will not extend to any
loss, liability or expense that constitutes a specific liability of the Trustee
pursuant to the related Agreement, or to any loss, liability or expense
incurred by reason of willful misfeasance, bad faith or negligence on the part
of the Trustee in the performance of its obligations and duties thereunder, or
by reason of its reckless disregard of such obligations or duties, or as may
arise from a breach of any representation, warranty or covenant of the Trustee
made therein.
- 51 -
<PAGE> 121
RESIGNATION AND REMOVAL OF THE TRUSTEE
The Trustee may at any time resign from its obligations and duties under
an Agreement by giving written notice thereof to the Depositor, the Master
Servicer, if any, and all Certificateholders. Upon receiving such notice of
resignation, the Depositor is required promptly to appoint a successor trustee
acceptable to the Master Servicer, if any. If no successor trustee shall have
been so appointed and have accepted appointment within 30 days after the giving
of such notice of resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor trustee.
If at any time the Trustee shall cease to be eligible to continue as
such under the related Agreements, or if at any time the Trustee shall become
incapable of acting, or shall be adjudged bankrupt or insolvent, or a receiver
of the Trustee or of its property shall be appointed, or any public officer
shall take charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation, then the Depositor
may remove the Trustee and appoint a successor trustee acceptable to the Master
Servicer, if any. Holders of the Certificates of any Series entitled to at
least 51% of the Voting Rights for such Series may at any time remove the
Trustee without cause and appoint a successor trustee.
Any resignation or removal of the Trustee and appointment of a successor
trustee shall not become effective until acceptance of appointment by the
successor trustee.
DESCRIPTION OF CREDIT SUPPORT
GENERAL
For any Series of Certificates, Credit Support may be provided with
respect to one or more classes thereof or the related Mortgage Assets. Credit
Support may be in the form of the subordination of one or more classes of
Certificates, letters of credit, insurance policies, guarantees, the
establishment of one or more reserve funds or another method of Credit Support
described in the related Prospectus Supplement, or any combination of the
foregoing. If so provided in the related Prospectus Supplement, any form of
Credit Support may be structured so as to be drawn upon by more than one Series
to the extent described therein.
Unless otherwise provided in the related Prospectus Supplement for a
Series of Certificates, the Credit Support will not provide protection against
all risks of loss and will not guarantee repayment of the entire Certificate
Balance of the Certificates and interest thereon. If losses or shortfalls occur
that exceed the amount covered by Credit Support or that are not covered by
Credit Support, Certificateholders will bear their allocable share of
deficiencies. Moreover, if a form of Credit Support covers more than one Series
of Certificates (each, a "COVERED TRUST"), holders of Certificates evidencing
interests in any of such Covered Trusts will be subject to the risk that such
Credit Support will be exhausted by the claims of other Covered Trusts prior to
such Covered Trust receiving any of its intended share of such coverage.
If Credit Support is provided with respect to one or more classes of
Certificates of a Series, or the related Mortgage Assets, the related
Prospectus Supplement will include a description of (a) the nature and amount
of coverage under such Credit Support, (b) any conditions to payment thereunder
not otherwise described herein, (c) the conditions (if any) under which the
amount of coverage under such Credit Support may be reduced and under which
such Credit Support may be terminated or replaced and (d) the material
provisions relating to such Credit Support. Additionally, the related
Prospectus Supplement will set forth certain information with respect to the
obligor under any instrument of Credit Support, including (i) a brief
description of its principal business activities, (ii) its principal place of
business, place of incorporation and the jurisdiction under which it is
chartered or licensed to do business, (iii) if applicable, the identity of
regulatory agencies that exercise primary jurisdiction over the conduct of its
business and (iv) its total assets, and its stockholders' or policyholders'
surplus, if applicable, as of the date specified in the Prospectus Supplement.
See "Risk Factors -- Credit Support Limitations."
- 52 -
<PAGE> 122
SUBORDINATE CERTIFICATES
If so specified in the related Prospectus Supplement, one or more
classes of Certificates of a Series may be Subordinate Certificates. To the
extent specified in the related Prospectus Supplement, the rights of the
holders of Subordinate Certificates to receive distributions of principal and
interest from the Distribution Account on any Distribution Date will be
subordinated to such rights of the holders of Senior Certificates. If so
provided in the related Prospectus Supplement, the subordination of a class may
apply only in the event of (or may be limited to) certain types of losses or
shortfalls. The related Prospectus Supplement will set forth information
concerning the amount of subordination of a class or classes of Subordinate
Certificates in a Series, the circumstances in which such subordination will be
applicable and the manner, if any, in which the amount of subordination will be
effected.
CROSS-SUPPORT PROVISIONS
If the Mortgage Assets for a Series are divided into separate groups,
each supporting a separate class or classes of Certificates of a Series, credit
support may be provided by cross-support provisions requiring that
distributions be made on Senior Certificates evidencing interests in one group
of Mortgage Assets prior to distributions on Subordinate Certificates
evidencing interests in a different group of Mortgage Assets within the Trust
Fund. The Prospectus Supplement for a Series that includes a cross-support
provision will describe the manner and conditions for applying such provisions.
INSURANCE OR GUARANTEES WITH RESPECT TO THE WHOLE LOANS
If so provided in the Prospectus Supplement for a Series of
Certificates, the Whole Loans in the related Trust Fund will be covered for
various default risks by insurance policies or guarantees. A copy of any such
material instrument for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed within 15 days of issuance
of the Certificates of the related Series.
LETTER OF CREDIT
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more letters of credit,
issued by a bank or financial institution specified in such Prospectus
Supplement (the "L/C BANK"). Under a letter of credit, the L/C Bank will be
obligated to honor draws thereunder in an aggregate fixed dollar amount, net of
unreimbursed payments thereunder, generally equal to a percentage specified in
the related Prospectus Supplement of the aggregate principal balance of the
Mortgage Assets on the related Cut-off Date or of the initial aggregate
Certificate Balance of one or more classes of Certificates. If so specified in
the related Prospectus Supplement, the letter of credit may permit draws in the
event of only certain types of losses and shortfalls. The amount available
under the letter of credit will, in all cases, be reduced to the extent of the
unreimbursed payments thereunder and may otherwise be reduced as described in
the related Prospectus Supplement. The obligations of the L/C Bank under the
letter of credit for each Series of Certificates will expire at the earlier of
the date specified in the related Prospectus Supplement or the termination of
the Trust Fund. A copy of any such letter of credit for a Series will be filed
with the Commission as an exhibit to a Current Report on Form 8-K to be filed
within 15 days of issuance of the Certificates of the related Series.
INSURANCE POLICIES AND SURETY BONDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by insurance policies and/or surety
bonds provided by one or more insurance companies or sureties. Such instruments
may cover, with respect to one or more classes of Certificates of the related
Series, timely distributions of interest and/or full distributions of principal
on the basis of a schedule of principal distributions set forth in or
determined in the manner specified in the related Prospectus Supplement. A copy
of any such instrument for a Series will be filed with the Commission as an
exhibit to a Current Report on Form 8-K to be filed with the Commission within
15 days of issuance of the Certificates of the related Series.
- 53 -
<PAGE> 123
RESERVE FUNDS
If so provided in the Prospectus Supplement for a Series of
Certificates, deficiencies in amounts otherwise payable on such Certificates or
certain classes thereof will be covered by one or more reserve funds in which
cash, a letter of credit, Permitted Investments, a demand note or a combination
thereof will be deposited, in the amounts so specified in such Prospectus
Supplement. The reserve funds for a Series may also be funded over time by
depositing therein a specified amount of the distributions received on the
related Trust Assets as specified in the related Prospectus Supplement.
Amounts on deposit in any reserve fund for a Series, together with the
reinvestment income thereon, if any, will be applied for the purposes, in the
manner, and to the extent specified in the related Prospectus Supplement. A
reserve fund may be provided to increase the likelihood of timely distributions
of principal of and interest on the Certificates. If so specified in the
related Prospectus Supplement, reserve funds may be established to provide
limited protection against only certain types of losses and shortfalls.
Following each Distribution Date amounts in a reserve fund in excess of any
amount required to be maintained therein may be released from the reserve fund
under the conditions and to the extent specified in the related Prospectus
Supplement and will not be available for further application to the
Certificates.
Moneys deposited in any Reserve Funds will be invested in Permitted
Investments, except as otherwise specified in the related Prospectus
Supplement. To the extent specified in the related Prospectus Supplement, any
reinvestment income or other gain from such investments will be credited to the
related Reserve Fund for such Series, and any loss resulting from such
investments will be charged to such Reserve Fund. However, such income may be
payable to any related Master Servicer or another service provider as
additional compensation. The Reserve Fund, if any, for a Series will not be a
part of the Trust Fund unless otherwise specified in the related Prospectus
Supplement.
Additional information concerning any Reserve Fund will be set forth in
the related Prospectus Supplement, including the initial balance of such
Reserve Fund, the balance required to be maintained in the Reserve Fund, the
manner in which such required balance will decrease over time, the manner of
funding such Reserve Fund, the purposes for which funds in the Reserve Fund may
be applied to make distributions to Certificateholders and use of investment
earnings from the Reserve Fund, if any.
CREDIT SUPPORT WITH RESPECT TO CMBS
If so provided in the Prospectus Supplement for a Series of
Certificates, the CMBS in the related Trust Fund and/or the Mortgage Loans
underlying such CMBS may be covered by one or more of the types of Credit
Support described herein. The related Prospectus Supplement will specify as to
each such form of Credit Support the information indicated above with respect
thereto, to the extent such information is material and available.
CERTAIN LEGAL ASPECTS OF THE MORTGAGE LOANS AND THE LEASES
The following discussion contains general summaries of certain legal
aspects of loans secured by commercial and multifamily residential properties
that are general in nature. Because such legal aspects are governed by
applicable state law (which laws may differ substantially), the summaries do
not purport to be complete nor to reflect the laws of any particular state, nor
to encompass the laws of all states in which the security for the Mortgage
Loans is situated. The summaries are qualified in their entirety by reference
to the applicable federal and state laws governing the Mortgage Loans. See
"Description of the Trust Funds -- Assets."
GENERAL
All of the Mortgage Loans are loans evidenced by a note or bond and
secured by instruments granting a security interest in real property which may
be mortgages, deeds of trust, security deeds or deeds to secure debt, depending
upon the prevailing practice and law in the state in which the Mortgaged
Property is located. Mortgages, deeds of trust and deeds to secure debt are
herein collectively referred to as "mortgages." Any of the foregoing types of
mortgages will create a lien upon, or grant a title interest in, the subject
property, the priority of which will depend
- 54 -
<PAGE> 124
on the terms of the particular security instrument, as well as separate,
recorded, contractual arrangements with others holding interests in the
mortgaged property, the knowledge of the parties to such instrument as well as
the order of recordation of the instrument in the appropriate public recording
office. However, recording does not generally establish priority over
governmental claims for real estate taxes and assessments and other charges
imposed under governmental police powers.
TYPES OF MORTGAGE INSTRUMENTS
A mortgage either creates a lien against or constitutes a conveyance of
real property between two parties -- a Mortgagor (the borrower and usually the
owner of the subject property) and a mortgagee (the lender). In contrast, a
deed of trust is a three-party instrument, among a trustor (the equivalent of a
Mortgagor), a trustee to whom the mortgaged property is conveyed, and a
beneficiary (the lender) for whose benefit the conveyance is made. As used in
this Prospectus, unless the context otherwise requires, "MORTGAGOR" includes
the trustor under a deed of trust and a grantor under a security deed or a deed
to secure debt. Under a deed of trust, the Mortgagor grants the property,
irrevocably until the debt is paid, in trust, generally with a power of sale as
security for the indebtedness evidenced by the related note. A deed to secure
debt typically has two parties. By executing a deed to secure debt, the grantor
conveys title to, as opposed to merely creating a lien upon, the subject
property to the grantee until such time as the underlying debt is repaid,
generally with a power of sale as security for the indebtedness evidenced by
the related mortgage note. In case the Mortgagor under a mortgage is a land
trust, there would be an additional party because legal title to the property
is held by a land trustee under a land trust agreement for the benefit of the
Mortgagor. At origination of a mortgage loan involving a land trust, the
Mortgagor executes a separate undertaking to make payments on the mortgage
note. The mortgagee's authority under a mortgage, the trustee's authority under
a deed of trust and the grantee's authority under a deed to secure debt are
governed by the express provisions of the mortgage, the law of the state in
which the real property is located, certain federal laws (including, without
limitation, the Soldiers' and Sailors' Civil Relief Act of 1940) and, in some
cases, in deed of trust transactions, the directions of the beneficiary.
INTEREST IN REAL PROPERTY
The real property covered by a mortgage, deed of trust, security deed or
deed to secure debt is most often the fee estate in land and improvements.
However, such an instrument may encumber other interests in real property such
as a tenant's interest in a lease of land or improvements, or both, and the
leasehold estate created by such lease. An instrument covering an interest in
real property other than the fee estate requires special provisions in the
instrument creating such interest or in the mortgage, deed of trust, security
deed or deed to secure debt, to protect the mortgagee against termination of
such interest before the mortgage, deed of trust, security deed or deed to
secure debt is paid. The Seller will make certain representations and
warranties in the Agreement with respect to the Mortgage Loans which are
secured by an interest in a leasehold estate. Such representation and
warranties will be set forth in the Prospectus Supplement if applicable.
LEASES AND RENTS
Mortgages that encumber income-producing property often contain an
assignment of rents and leases, pursuant to which the Mortgagor assigns its
right, title and interest as landlord under each lease and the income derived
therefrom to the lender, while the Mortgagor retains a revocable license to
collect the rents for so long as there is no default. Under such assignments,
the Mortgagor typically assigns its right, title and interest as lessor under
each lease and the income derived therefrom to the mortgagee, while retaining a
license to collect the rents for so long as there is no default under the
mortgage loan documentation. The manner of perfecting the mortgagee's interest
in rents may depend on whether the Mortgagor's assignment was absolute or one
granted as security for the loan. Failure to properly perfect the mortgagee's
interest in rents may result in the loss of substantial pool of funds, which
could otherwise serve as a source of repayment for such loan. If the Mortgagor
defaults, the license terminates and the lender is entitled to collect the
rents. Local law may require that the lender take possession of the property
and/or obtain a court-appointed receiver before becoming entitled to collect
the rents. In most states, hotel and motel room rates are considered accounts
receivable under the UCC; generally these rates are either assigned by the
Mortgagor, which remains entitled to collect such rates absent a default, or
pledged by the Mortgagor, as security for the loan. In general, the lender must
file financing statements in order to perfect its security interest in the
rates and must file continuation statements, generally every five years, to
maintain perfection of such security interest. Even if the lender's security
interest in room rates is perfected
- 55 -
<PAGE> 125
under the UCC, the lender will generally be required to commence a foreclosure
or otherwise take possession of the property in order to collect the room rates
after a default.
Even after a foreclosure, the potential rent payments from the property
may be less than the periodic payments that had been due under the mortgage.
For instance, the net income that would otherwise be generated from the
property may be less than the amount that would have been needed to service the
mortgage debt if the leases on the property are at below-market rents, or as
the result of excessive maintenance, repair or other obligations which a lender
succeeds to as landlord.
Lenders that actually take possession of the property, however, may
incur potentially substantial risks attendant to being a mortgagee in
possession. Such risks include liability for environmental clean-up costs and
other risks inherent in property ownership. See "Environmental Legislation"
below.
PERSONALTY
Certain types of Mortgaged Properties, such as hotels, motels and
industrial plants, are likely to derive a significant part of their value from
personal property which does not constitute "fixtures" under applicable state
real property law and, hence, would not be subject to the lien of a mortgage.
Such property is generally pledged or assigned as security to the lender under
the UCC. In order to perfect its security interest therein, the lender
generally must file UCC financing statements and, to maintain perfection of
such security interest, file continuation statements generally every five
years.
COOPERATIVE LOANS
If specified in the Prospectus Supplement relating to a Series of
Offered Certificate, the Mortgage Loans may also consist of cooperative
apartment loans ("COOPERATIVE LOANS") secured by security interests in shares
issued by cooperative housing corporation (a "COOPERATIVE") and in the related
proprietary leases or occupancy agreements granting exclusive rights to occupy
specific dwelling units in the cooperatives' buildings. The security agreement
will create a lien upon, or grant a title interest in, the property which it
covers, the priority of which will depend on the terms of the particular
security agreement as well as the order of recordation of the agreement in the
appropriate recording office. Such a lien or title interest is not prior to the
lien for real estate taxes and assessments and other charges imposed under
governmental police powers.
Each cooperative owns in fee or has a leasehold interest in all the real
property and owns in fee or leases the building and all separate dwelling units
therein. The cooperative is directly responsible for property management and,
in most cases, payment of real estate taxes, other governmental impositions and
hazard and liability insurance. If there is a blanket mortgage or mortgages on
the cooperative apartment building or underlying land, as is generally the
case, or an underlying lease of the land, as is the case in some instances, the
cooperative, as property Mortgagor, or lessee, as the case may be, is also
responsible for meeting these mortgage or rental obligations. A blanket
mortgage is ordinarily incurred by the cooperative in connection with either
the construction or purchase of the cooperative's apartment building or
obtaining of capital by the cooperative. The interest of the occupant under
proprietary leases or occupancy agreements as to which that cooperative is the
landlord are generally subordinate to the interest of the holder of a blanket
mortgage and to the interest of the holder of a land lease. If the cooperative
is unable to meet the payment obligations (i) arising under a blanket mortgage,
the mortgagee holding a blanket mortgage could foreclose on that mortgage and
terminate all subordinate proprietary leases and occupancy agreements or (ii)
arising under its land lease, the holder of the landlord's interest under the
land lease could terminate it and all subordinate proprietary leases and
occupancy agreements. Also, a blanket mortgage on a cooperative may provide
financing in the form of a mortgage that does not fully amortize, with a
significant portion of principal being due in one final payment at maturity.
The inability of the cooperative to refinance a mortgage and its consequent
inability to make such final payment could lead to foreclosure by the
mortgagee. Similarly, a land lease has an expiration date and the inability of
the cooperative to extend its term or, in the alternative, to purchase the land
could lead to termination of the cooperative's interest in the property and
termination of all proprietary leases and occupancy agreement. In either event,
a foreclosure by the holder of a blanket mortgage or the termination of the
underlying lease could eliminate or significantly diminish the value of any
collateral held by whomever financed the purchase by an individual tenant
stockholder of cooperative shares or, in the case of the Mortgage Loans, the
collateral securing the Cooperative Loans.
- 56 -
<PAGE> 126
The cooperative is owned by tenant-stockholders who, through ownership
of stock or shares in the corporation, receive proprietary lease or occupancy
agreements which confer exclusive rights to occupy specific units. Generally, a
tenant-stockholder of a cooperative must make a monthly payment to the
cooperative representing such tenant-stockholder's pro rata share of the
cooperative's payments for its blanket mortgage, real property taxes,
maintenance expenses and other capital or ordinary expenses. An ownership
interest in a cooperative and accompanying occupancy rights are financed
through a cooperative share loan evidenced by a promissory note and secured by
an assignment of and a security interest in the occupancy agreement or
proprietary lease and a security interest in the related cooperative shares.
The lender generally takes possession of the share certificate and a
counterpart of the proprietary lease or occupancy agreement and a financing
statement covering the proprietary lease or occupancy agreement and the
cooperative shares is filed in the appropriate state and local offices to
perfect the lender's interest in its collateral. Subject to the limitations
discussed below, upon default of the tenant-stockholder, the lender may sue for
judgment on the promissory note, dispose of the collateral at a public or
private sale or otherwise proceed against the collateral or tenant-stockholder
as an individual as provided in the security agreement covering the assignment
of the proprietary lease or occupancy agreement and the pledge of cooperative
shares. See "--Foreclosure -- Cooperative Loans" below.
FORECLOSURE
General
Foreclosure is a legal procedure that allows the mortgagee to recover
its mortgage debt by enforcing its rights and available legal remedies under
the mortgage. If the Mortgagor defaults in payment or performance of its
obligations under the note or mortgage, the mortgagee has the right to
institute foreclosure proceedings to sell the mortgaged property at public
auction to satisfy the indebtedness.
Foreclosure procedures with respect to the enforcement of a mortgage
vary from state to state. Two primary methods of foreclosing a mortgage are
judicial foreclosure and non-judicial foreclosure pursuant to a power of sale
granted in the mortgage instrument. There are several other foreclosure
procedures available in some states that are either infrequently used or
available only in certain limited circumstances, such as strict foreclosure.
Judicial Foreclosure
A judicial foreclosure proceeding is conducted in a court having
jurisdiction over the mortgaged property. Generally, the action is initiated by
the service of legal pleadings upon all parties having a subordinate interest
of record in the real property and all parties in possession of the property,
under leases or otherwise, whose interests are subordinate to the mortgage.
Delays in completion of the foreclosure may occasionally result from
difficulties in locating defendants. When the lender's right to foreclose is
contested, the legal proceedings can be time-consuming. Upon successful
completion of a judicial foreclosure proceeding, the court generally issues a
judgment of foreclosure and appoints a referee or other officer to conduct a
public sale of the mortgaged property, the proceeds of which are used to
satisfy the judgment. Such sales are made in accordance with procedures that
vary from state to state.
Equitable Limitations on Enforceability of Certain Provisions
United States courts have traditionally imposed general equitable
principles to limit the remedies available to a mortgagee in connection with
foreclosure. These equitable principles are generally designed to relieve the
Mortgagor from the legal effect of mortgage defaults, to the extent that such
effect is perceived as harsh or unfair. Relying on such principles, a court may
alter the specific terms of a loan to the extent it considers necessary to
prevent or remedy an injustice, undue oppression or overreaching, or may
require the lender to undertake affirmative and expensive actions to determine
the cause of the Mortgagor's default and the likelihood that the Mortgagor will
be able to reinstate the loan. In some cases, courts have substituted their
judgment for the lender's and have required that lenders reinstate loans or
recast payment schedules in order to accommodate Mortgagors who are suffering
from a temporary financial disability. In other cases, courts have limited the
right of the lender to foreclose if the default under the mortgage is not
monetary, e.g., the Mortgagor failed to maintain the mortgaged property
adequately or the Mortgagor executed a junior mortgage on the mortgaged
property. The exercise by the court of its equity powers will depend on the
individual circumstances of each case presented to it. Finally, some courts
have been faced with the issue of whether federal or state constitutional
provisions reflecting due process concerns for adequate notice require that a
Mortgagor receive notice in addition to
- 57 -
<PAGE> 127
statutorily-prescribed minimum notice. For the most part, these cases have
upheld the reasonableness of the notice provisions or have found that a public
sale under a mortgage providing for a power of sale does not involve sufficient
state action to afford constitutional protections to the Mortgagor.
A foreclosure action is subject to most of the delays and expenses of
other lawsuits if defenses are raised or counterclaims are interposed, and
sometimes require several years to complete. Moreover, as discussed below, a
non-collusive, regularly conducted foreclosure sale may be challenged as a
fraudulent conveyance, regardless of the parties' intent, if a court determines
that the sale was for less than fair consideration and such sale occurred while
the Mortgagor was insolvent (or the Mortgagor was rendered insolvent as a
result of such sale) and within one year (or within the state statute of
limitations if the trustee in bankruptcy elects to proceed under state
fraudulent conveyance law) of the filing of bankruptcy.
Non-Judicial Foreclosure/Power of Sale
Foreclosure of a deed of trust is generally accomplished by a non-
judicial trustee's sale pursuant to the power of sale granted in the deed of
trust. A power of sale is typically granted in a deed of trust. It may also be
contained in any other type of mortgage instrument. A power of sale allows a
non-judicial public sale to be conducted generally following a request from the
beneficiary/lender to the trustee to sell the property upon any default by the
Mortgagor under the terms of the mortgage note or the mortgage instrument and
after notice of sale is given in accordance with the terms of the mortgage
instrument, as well as applicable state law. In some states, prior to such
sale, the trustee under a deed of trust must record a notice of default and
notice of sale and send a copy to the Mortgagor and to any other party who has
recorded a request for a copy of a notice of default and notice of sale. In
addition in some states the trustee must provide notice to any other party
having an interest of record in the real property, including junior
lienholders. A notice of sale must be posted in a public place and, in most
states, published for a specified period of time in one or more newspapers. The
Mortgagor or junior lienholder may then have the right, during a reinstatement
period required in some states, to cure the default by paying the entire actual
amount in arrears (without acceleration) plus the expenses incurred in
enforcing the obligation. In other states, the Mortgagor or the junior
lienholder is not provided a period to reinstate the loan, but has only the
right to pay off the entire debt to prevent the foreclosure sale. Generally,
the procedure for public sale, the parties entitled to notice, the method of
giving notice and the applicable time periods are governed by state law and
vary among the states. Foreclosure of a deed to secure debt is also generally
accomplished by a non-judicial sale similar to that required by a deed of
trust, except that the lender or its agent, rather than a trustee, is typically
empowered to perform the sale in accordance with the terms of the deed to
secure debt and applicable law.
Public Sale
A third party may be unwilling to purchase a mortgaged property at a
public sale because of the difficulty in determining the value of such property
at the time of sale, due to, among other things, redemption rights which may
exist and the possibility of physical deterioration of the property during the
foreclosure proceedings. For these reasons, it is common for the lender to
purchase the mortgaged property for an amount equal to or less than the
underlying debt and accrued and unpaid interest plus the expenses of
foreclosure. Generally, state law controls the amount of foreclosure costs and
expenses which may be recovered by a lender. Thereafter, subject to the
Mortgagor's right in some states to remain in possession during a redemption
period, if applicable, the lender will become the owner of the property and
have both the benefits and burdens of ownership of the mortgaged property. For
example, the lender will have the obligation to pay debt service on any senior
mortgages, to pay taxes, obtain casualty insurance and to make such repairs at
its own expense as are necessary to render the property suitable for sale.
Frequently, the lender employs a third party management company to manage and
operate the property. The costs of operating and maintaining a commercial or
multifamily residential property may be significant and may be greater than the
income derived from that property. The costs of management and operation of
those mortgaged properties which are hotels, motels, restaurants, nursing or
convalescent homes or hospitals may be particularly significant because of the
expertise, knowledge and, with respect to nursing or convalescent homes or
hospitals, regulatory compliance, required to run such operations and the
effect which foreclosure and a change in ownership may have on the public's and
the industry's (including franchisors') perception of the quality of such
operations. The lender will commonly obtain the services of a real estate
broker and pay the broker's commission in connection with the sale of the
property. Depending upon market conditions, the ultimate proceeds of the sale
of the property may not equal the lender's investment in the property.
Moreover, a lender commonly incurs substantial legal fees and court costs in
acquiring a mortgaged property through contested foreclosure
- 58 -
<PAGE> 128
and/or bankruptcy proceedings. Furthermore, a few states require that any
environmental contamination at certain types of properties be cleaned up before
a property may be resold. In addition, a lender may be responsible under
federal or state law for the cost of cleaning up a mortgaged property that is
environmentally contaminated. See "Environmental Legislation." Generally state
law controls the amount of foreclosure expenses and costs, including attorneys'
fees, that may be recovered by a lender.
A junior mortgagee may not foreclose on the property securing the junior
mortgage unless it forecloses subject to senior mortgages and any other prior
liens, in which case it may be obliged to make payments on the senior mortgages
to avoid their foreclosure. In addition, in the event that the foreclosure of a
junior mortgage triggers the enforcement of a "due-on-sale" clause contained in
a senior mortgage, the junior mortgagee may be required to pay the full amount
of the senior mortgage to avoid its foreclosure. Accordingly, with respect to
those Mortgage Loans which are junior mortgage loans, if the lender purchases
the property the lender's title will be subject to all senior mortgages, prior
liens and certain governmental liens.
The proceeds received by the referee or trustee from the sale are
applied first to the costs, fees and expenses of sale and then in satisfaction
of the indebtedness secured by the mortgage under which the sale was conducted.
Any proceeds remaining after satisfaction of senior mortgage debt are generally
payable to the holders of junior mortgages and other liens and claims in order
of their priority, whether or not the Mortgagor is in default. Any additional
proceeds are generally payable to the Mortgagor. The payment of the proceeds to
the holders of junior mortgages may occur in the foreclosure action of the
senior mortgage or a subsequent ancillary proceeding or may require the
institution of separate legal proceedings by such holders.
In connection with a Series of Certificates for which an election is
made to qualify the Trust Fund, or a portion thereof, as a REMIC, the REMIC
Provisions and the Agreement may require the Master Servicer to hire an
independent contractor to operate any foreclosed property relating to Whole
Loans.
Rights of Redemption
The purposes of a foreclosure action are to enable the mortgagee to
realize upon its security and to bar the Mortgagor, and all persons who have an
interest in the property which is subordinate to the mortgage being foreclosed,
from exercise of their "equity of redemption." The doctrine of equity of
redemption provides that, until the property covered by a mortgage has been
sold in accordance with a properly conducted foreclosure and foreclosure sale,
those having an interest which is subordinate to that of the foreclosing
mortgagee have an equity of redemption and may redeem the property by paying
the entire debt with interest. In addition, in some states, when a foreclosure
action has been commenced, the redeeming party must pay certain costs of such
action. Those having an equity of redemption must generally be made parties and
joined in the foreclosure proceeding in order for their equity of redemption to
be cut off and terminated.
The equity of redemption is a common-law (non-statutory) right which
exists prior to completion of the foreclosure, is not waivable by the
Mortgagor, must be exercised prior to foreclosure sale and should be
distinguished from the post-sale statutory rights of redemption. In some
states, after sale pursuant to a deed of trust or foreclosure of a mortgage,
the Mortgagor and foreclosed junior lienors are given a statutory period in
which to redeem the property from the foreclosure sale. In some states,
statutory redemption may occur only upon payment of the foreclosure sale price.
In other states, redemption may be authorized if the former Mortgagor pays only
a portion of the sums due. The effect of a statutory right of redemption is to
diminish the ability of the lender to sell the foreclosed property. The
exercise of a right of redemption would defeat the title of any purchaser from
a foreclosure sale or sale under a deed of trust. Consequently, the practical
effect of the redemption right is to force the lender to maintain the property
and pay the expenses of ownership until the redemption period has expired. In
some states, a post-sale statutory right of redemption may exist following a
judicial foreclosure, but not following a trustee's sale under a deed of trust.
Under the REMIC Provisions currently in effect, property acquired by
foreclosure generally must not be held for more than two years. To the extent
provided in the related Prospectus Supplement, with respect to a Series of
Certificates for which an election is made to qualify the Trust Fund or a part
thereof as a REMIC, the Agreement will permit foreclosed property to be held
for more than two years if the Internal Revenue Service grants an extension of
- 59 -
<PAGE> 129
time within which to sell such property or independent counsel renders an
opinion to the effect that holding such property for such additional period is
permissible under the REMIC Provisions.
Anti-Deficiency Legislation
Some or all of the Mortgage Loans may be nonrecourse loans, as to which
recourse may be had only against the specific property securing the related
Mortgage Loan and a personal money judgment may not be obtained against the
Mortgagor. Even if a mortgage loan by its terms provides for recourse to the
Mortgagor, some states impose prohibitions or limitations on such recourse. For
example, statutes in some states limit the right of the lender to obtain a
deficiency judgment against the Mortgagor following foreclosure or sale under a
deed of trust. A deficiency judgment would be a personal judgment against the
former Mortgagor equal to the difference between the net amount realized upon
the public sale of the real property and the amount due to the lender. Some
states require the lender to exhaust the security afforded under a mortgage by
foreclosure in an attempt to satisfy the full debt before bringing a personal
action against the Mortgagor. In certain other states, the lender has the
option of bringing a personal action against the Mortgagor on the debt without
first exhausting such security; however, in some of these states, the lender,
following judgment on such personal action, may be deemed to have elected a
remedy and may be precluded from exercising remedies with respect to the
security. In some cases, a lender will be precluded from exercising any
additional rights under the note or mortgage if it has taken any prior
enforcement action. Consequently, the practical effect of the election
requirement, in those states permitting such election, is that lenders will
usually proceed against the security first rather than bringing a personal
action against the Mortgagor. Finally, other statutory provisions limit any
deficiency judgment against the former Mortgagor following a judicial sale to
the excess of the outstanding debt over the fair market value of the property
at the time of the public sale. The purpose of these statutes is generally to
prevent a lender from obtaining a large deficiency judgment against the former
Mortgagor as a result of low or no bids at the judicial sale.
Leasehold Risks
Mortgage Loans may be secured by a mortgage on a ground lease. Leasehold
mortgages are subject to certain risks not associated with mortgage loans
secured by the fee estate of the Mortgagor. The most significant of these risks
is that the ground lease creating the leasehold estate could terminate, leaving
the leasehold mortgagee without its security. The ground lease may terminate
if, among other reasons, the ground lessee breaches or defaults in its
obligations under the ground lease or there is a bankruptcy of the ground
lessee or the ground lessor. This risk may be minimized if the ground lease
contains certain provisions protective of the mortgagee, but the ground leases
that secure Mortgage Loans may not contain some of these protective provisions,
and mortgages may not contain the other protections discussed in the next
paragraph. Protective ground lease provisions include the right of the
leasehold mortgagee to receive notices from the ground lessor of any defaults
by the Mortgagor; the right to cure such defaults, with adequate cure periods;
if a default is not susceptible of cure by the leasehold mortgagee, the right
to acquire the leasehold estate through foreclosure or otherwise; the ability
of the ground lease to be assigned to and by the leasehold mortgagee or
purchaser at a foreclosure sale and for the concomitant release of the ground
lessee's liabilities thereunder; and the right of the leasehold mortgagee to
enter into a new ground lease with the ground lessor on the same terms and
conditions as the old ground lease in the event of a termination thereof.
In addition to the foregoing protections, a leasehold mortgagee may
require that the ground lease or leasehold mortgage prohibit the ground lessee
from treating the ground lease as terminated in the event of the ground
lessor's bankruptcy and rejection of the ground lease by the trustee for the
debtor-ground lessor. As further protection, a leasehold mortgage may provide
for the assignment of the debtor-ground lessee's right to reject a lease
pursuant to Section 365 of the Bankruptcy Reform Act of 1978, as amended (Title
11 of the United States Code) (the "BANKRUPTCY CODE"), although the
enforceability of such clause has not been established. Without the protections
described above, a leasehold mortgagee may lose the collateral securing its
leasehold mortgage. In addition, terms and conditions of a leasehold mortgage
are subject to the terms and conditions of the ground lease. Although certain
rights given to a ground lessee can be limited by the terms of a leasehold
mortgage, the rights of a ground lessee or a leasehold mortgagee with respect
to, among other things, insurance, casualty and condemnation will be governed
by the provisions of the ground lease.
Cooperative Loans
- 60 -
<PAGE> 130
The cooperative shares owned by the tenant-stockholder and pledged to
the lender are, in almost all cases, subject to restrictions on transfer as set
forth in the Cooperative's Certificate of Incorporation and By- laws, as well
as the proprietary lease or occupancy agreement, and may be cancelled by the
cooperative for failure by the tenant-stockholder to pay rent or other
obligations or charges owed by such tenant-stockholder, including mechanics'
liens against the cooperative apartment building incurred by such tenant-
stockholder. The proprietary lease or occupancy agreement generally permits the
Cooperative to terminate such lease or agreement in the event an obligor fails
to make payments or defaults in the performance of covenants required
thereunder. Typically, the lender and the Cooperative enter into a recognition
agreement which establishes the rights and obligations of both parties in the
event of a default by the tenant-stockholder under the proprietary lease or
occupancy agreement will usually constitute a default under the security
agreement between the lender and the tenant-stockholder.
The recognition agreement generally provides that, in the event that the
tenant-stockholder has defaulted under the proprietary lease or occupancy
agreement is terminated, the Cooperative will recognize the lender's lien
against proceeds from the sale of the Cooperative apartment, subject, however,
to the Cooperative's right to sums due under such proprietary lease or
occupancy agreement. The total amount owed to the Cooperative by the tenant-
stockholder, which the lender generally cannot restrict and does not monitor,
could reduce the value of the collateral below the outstanding principal
balance of the Cooperative Loan and accrued and unpaid interest thereon.
Recognition agreements also provide that in the event of a foreclosure
on a Cooperative Loan, the lender must obtain the approval or consent of the
Cooperative as required by the proprietary lease before transferring the
Cooperative shares or assigning the proprietary lease. Generally, the lender is
not limited in any rights it may have to dispossess the tenant-stockholders.
In some states, foreclosure on the Cooperative shares is accomplished by
a sale in accordance with the provisions of Article 9 of the UCC and the
security agreement relating to those shares. Article 9 of the UCC requires that
a sale be conducted in a "commercially reasonable" manner. Whether a
foreclosure sale has been conducted in a "commercially reasonable" manner will
depend on the facts in each case. In determining commercial reasonableness, a
court will look to the notice given the debtor and the method, manner, time,
place and terms of the foreclosure. Generally, a sale conducted according to
the usual practice of banks selling similar collateral will be considered
reasonably conducted.
Article 9 of the UCC provides that the proceeds of the sale will be
applied first to pay the costs and expenses of the sale and then to satisfy the
indebtedness secured by the lender's security interest. The recognition
agreement, however, generally provides that the lender's right to reimbursement
is subject to the right of the Cooperatives to receive sums due under the
proprietary lease or occupancy agreement. If there are proceeds remaining, the
lender must account to the tenant-stockholder for the surplus. Conversely, if a
portion of the indebtedness remains unpaid, the tenant-stockholder is generally
responsible for the deficiency.
In the case of foreclosure on a building which was converted from a
rental building to a building owned by a Cooperative under a non-eviction plan,
some states require that a purchaser at a foreclosure sale take the property
subject to rent control and rent stabilization laws which apply to certain
tenants who elected to remain in the building was so converted.
BANKRUPTCY LAWS
The Bankruptcy Code and related state laws may interfere with or affect
the ability of a lender to realize upon collateral and/or to enforce a
deficiency judgment. For example, under the Bankruptcy Code, virtually all
actions (including foreclosure actions and deficiency judgment proceedings) are
automatically stayed upon the filing of the bankruptcy petition, and, usually,
no interest or principal payments are made during the course of the bankruptcy
case. The delay and the consequences thereof caused by such automatic stay can
be significant. Also, under the Bankruptcy Code, the filing of a petition in
bankruptcy by or on behalf of a junior lienor may stay the senior lender from
taking action to foreclose out such junior lien.
Under the Bankruptcy Code, provided certain substantive and procedural
safeguards for the lender are met, the amount and terms of a mortgage secured
by property of the debtor may be modified under certain circumstances.
- 61 -
<PAGE> 131
In many jurisdictions, the outstanding amount of the loan secured by the real
property may be reduced to the then-current value of the property (with a
corresponding partial reduction of the amount of lender's security interest)
pursuant to a confirmed plan or lien avoidance proceeding, thus leaving the
lender a general unsecured creditor for the difference between such value and
the outstanding balance of the loan. Other modifications may include the
reduction in the amount of each scheduled payment, which reduction may result
from a reduction in the rate of interest and/or the alteration of the repayment
schedule (with or without affecting the unpaid principal balance of the loan),
and/or an extension (or reduction) of the final maturity date. Some courts with
federal bankruptcy jurisdiction have approved plans, based on the particular
facts of the reorganization case, that effected the curing of a mortgage loan
default by paying arrearages over a number of years. Also, under federal
bankruptcy law, a bankruptcy court may permit a debtor through its
rehabilitative plan to de-accelerate a secured loan and to reinstate the loan
even though the lender accelerated the mortgage loan and final judgment of
foreclosure had been entered in state court (provided no sale of the property
had yet occurred) prior to the filing of the debtor's petition. This may be
done even if the full amount due under the original loan is never repaid.
Federal bankruptcy law provides generally that rights and obligation
under an unexpired lease of the debtor/lessee may not be terminated or modified
at any time after the commencement of a case under the Bankruptcy Code solely
on the basis of a provision in the lease to such effect or because of certain
other similar events. This prohibition on so-called "ipso facto clauses" could
limit the ability of the Trustee for a Series of Certificates to exercise
certain contractual remedies with respect to the Leases. In addition, Section
362 of the Bankruptcy Code operates as an automatic stay of, among other
things, any act to obtain possession of property from a debtor's estate, which
may delay a Trustee's exercise of such remedies for a related Series of
Certificates in the event that a related Lessee or a related Mortgagor becomes
the subject of a proceeding under the Bankruptcy Code. For example, a mortgagee
would be stayed from enforcing a Lease Assignment by a Mortgagor related to a
Mortgaged Property if the related Mortgagor was in a bankruptcy proceeding. The
legal proceedings necessary to resolve the issues could be time-consuming and
might result in significant delays in the receipt of the assigned rents.
Similarly, the filing of a petition in bankruptcy by or on behalf of a Lessee
of a Mortgaged Property would result in a stay against the commencement or
continuation of any state court proceeding for past due rent, for accelerated
rent, for damages or for a summary eviction order with respect to a default
under the Lease that occurred prior to the filing of the Lessee's petition.
Rents and other proceeds of a Mortgage Loan may also escape an assignment
thereof if the assignment is not fully perfected under state law prior to
commencement of the bankruptcy proceeding. See "--Leases and Rents" above.
In addition, the Bankruptcy Code generally provides that a trustee or
debtor-in-possession may, subject to approval of the court, (a) assume the
lease and retain it or assign it to a third party or (b) reject the lease. If
the lease is assumed, the trustee in bankruptcy on behalf of the lessee, or the
lessee as debtor-in-possession, or the assignee, if applicable, must cure any
defaults under the lease, compensate the lessor for its losses and provide the
lessor with "adequate assurance" of future performance. Such remedies may be
insufficient, however, as the lessor may be forced to continue under the lease
with a lessee that is a poor credit risk or an unfamiliar tenant if the lease
was assigned, and any assurances provided to the lessor may, in fact, be
inadequate. If the lease is rejected, such rejection generally constitutes a
breach of the executory contract or unexpired lease immediately before the date
of filing the petition. As a consequence, the other party or parties to such
lease, such as the Mortgagor, as lessor under a Lease, would have only an
unsecured claim against the debtor for damages resulting from such breach,
which could adversely affect the security for the related Mortgage Loan. In
addition, pursuant to Section 502(b)(6) of the Bankruptcy Code, a lessor's
damages for lease rejection in respect of future rent installments are limited
to the rent reserved by the lease, without acceleration, for the greater of one
year or 15%, not to exceed three years, of the remaining term of the lease.
If a trustee in bankruptcy on behalf of a lessor, or a lessor as debtor-
in-possession, rejects an unexpired lease of real property, the lessee may
treat such lease as terminated by such rejection or, in the alternative, the
lessee may remain in possession of the leasehold for the balance of such term
and for any renewal or extension of such term that is enforceable by the lessee
under applicable nonbankruptcy law. The Bankruptcy Code provides that if a
lessee elects to remain in possession after such a rejection of a lease, the
lessee may offset against rents reserved under the lease for the balance of the
term after the date of rejection of the lease, and any such renewal or
extension thereof, any damages occurring after such date caused by the
nonperformance of any obligation of the lessor under the lease after such date.
To the extent provided in the related Prospectus Supplement, the Lessee will
agree under certain Leases to pay all amounts owing thereunder the Master
Servicer without offset. To the extent that such a contractual obligation
remains
- 62 -
<PAGE> 132
enforceable against the Lessee, the Lessee would not be able to avail itself of
the rights of offset generally afforded to lessees of real property under the
Bankruptcy Code.
In a bankruptcy or similar proceeding of a Mortgagor, action may be
taken seeking the recovery, as a preferential transfer or on other grounds, of
any payments made by the Mortgagor, or made directly by the related Lessee,
under the related Mortgage Loan to the Trust Fund. Payments on long-term debt
may be protected from recovery as preferences if they are payments in the
ordinary course of business made on debts incurred in the ordinary course of
business. Whether any particular payment would be protected depends upon the
facts specific to a particular transaction.
A trustee in bankruptcy, in some cases, may be entitled to collect its
costs and expenses in preserving or selling the mortgaged property ahead of
payment to the lender. In certain circumstances, a debtor in bankruptcy may
have the power to grant liens senior to the lien of a mortgage, and analogous
state statutes and general principles of equity may also provide a Mortgagor
with means to halt a foreclosure proceeding or sale and to force a
restructuring of a mortgage loan on terms a lender would not otherwise accept.
Moreover, the laws of certain states also give priority to certain tax liens
over the lien of a mortgage or deed of trust. Under the Bankruptcy Code, if the
court finds that actions of the mortgagee have been unreasonable, the lien of
the related mortgage may be subordinated to the claims of unsecured creditors.
To the extent described in the related Prospectus Supplement, certain of
the Mortgagors may be partnerships. The laws governing limited partnerships in
certain states provide that the commencement of a case under the Bankruptcy
Code with respect to a general partner will cause a person to cease to be a
general partner of the limited partnership, unless otherwise provided in
writing in the limited partnership agreement. This provision may be construed
as an "ipso facto" clause and, in the event of the general partner's
bankruptcy, may not be enforceable. To the extent described in the related
Prospectus Supplement, certain limited partnership agreements of the Mortgagors
may provide that the commencement of a case under the Bankruptcy Code with
respect to the related general partner constitutes an event of withdrawal
(assuming the enforceability of the clause is not challenged in bankruptcy
proceedings or, if challenged, is upheld) that might trigger the dissolution of
the limited partnership, the winding up of its affairs and the distribution of
its assets, unless (i) at the time there was at least one other general partner
and the written provisions of the limited partnership permit the business of
the limited partnership to be carried on by the remaining general partner and
that general partner does so or (ii) the written provisions of the limited
partnership agreement permit the limited partner to agree within a specified
time frame (often 60 days) after such withdrawal to continue the business of
the limited partnership and to the appointment of one or more general partners
and the limited partners do so. In addition, the laws governing general
partnerships in certain states provide that the commencement of a case under
the Bankruptcy Code or state bankruptcy laws with respect to a general partner
of such partnerships triggers the dissolution of such partnership, the winding
up of its affairs and the distribution of its assets. Such state laws, however,
may not be enforceable or effective in a bankruptcy case. The dissolution of a
Mortgagor, the winding up of its affairs and the distribution of its assets
could result in an acceleration of its payment obligation under a related
Mortgage Loan, which may reduce the yield on the related Series of Certificates
in the same manner as a principal prepayment.
In addition, the bankruptcy of the general partner of a Mortgagor that
is a partnership may provide the opportunity for a trustee in bankruptcy for
such general partner, such general partner as a debtor-in-possession, or a
creditor of such general partner to obtain an order from a court consolidating
the assets and liabilities of the general partner with those of the Mortgagor
pursuant to the doctrines of substantive consolidation or piercing the
corporate veil. In such a case, the respective Mortgaged Property, for example,
would become property of the estate of such bankrupt general partner. Not only
would the Mortgaged Property be available to satisfy the claims of creditors of
such general partner, but an automatic stay would apply to any attempt by the
Trustee to exercise remedies with respect to such Mortgaged Property. However,
such an occurrence should not affect the Trustee's status as a secured creditor
with respect to the Mortgagor or its security interest in the Mortgaged
Property.
ENVIRONMENTAL LEGISLATION
Real property pledged as security to a lender may be subject to
unforeseen environmental liabilities. Of particular concern may be those
Mortgaged Properties which are, or have been, the site of manufacturing,
industrial or disposal activity or that are in close proximity to such
properties. Such environmental liabilities may give rise to (i)
- 63 -
<PAGE> 133
a diminution in value of property securing any Mortgage Loan, (ii) limitation
on the ability to foreclose against such property or (iii) in certain
circumstances as more fully described below, liability for clean up costs or
other remedial actions, which liability could exceed the value of the principal
balance of the related Mortgage Loan or of such Mortgaged Property.
Under the laws of many states and to some degree under Federal law,
contamination on a property may give rise to a lien on the property for cleanup
costs. In several states, such a lien has priority over all existing liens (a
"superlien") including those of existing mortgages; in these states, the lien
of a mortgage contemplated by this transaction may lose its priority to such a
superlien.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA"), a lender may be liable either to
the government or to private parties for cleanup costs on a property securing a
loan, even if the lender does not cause or contribute to the contamination.
CERCLA imposes strict, as well as joint and several, liability on several
classes of potentially responsible parties, including current owners and
operators of the property, regardless of whether they caused or contributed to
the contamination. Many states have laws similar to CERCLA.
Lenders may be held liable under CERCLA as owners or operators. Excluded
from CERCLA's definition of "owner or operator," however, is a person "who
without participating in the management of the facility, holds indicia of
ownership primarily to protect his security interest." This exemption for
holders of a security interest such as a secured lender applies only in
circumstances where the lender acts to protect its security interest in the
contaminated facility or property. Thus, if a lender's activities encroach on
the actual management of such facility or property, the lender faces potential
liability as an "owner or operator" under CERCLA. Similarly, when a lender
forecloses and takes title to a contaminated facility or property (whether it
holds the facility or property as an investment or leases it to a third party),
the lender may incur potential CERCLA liability.
A decision in May 1990 of the United States Court of Appeals for the
Eleventh Circuit in United States v. Fleet Factors Corp. very narrowly
construed CERCLA's secured-creditor exemption. The court held that a lender
need not have involved itself in the day-to-day operations of the facility or
participated in decisions relating to hazardous waste to be liable under
CERCLA; rather, liability could attach to a lender if its involvement with the
management of the facility is broad enough to support the inference that the
lender had the capacity to influence the borrower's treatment of hazardous
waste. The court added that a lender's capacity to influence such decision
could be inferred from the extent of its involvement in the facility's
financial management.
On April 29, 1992, in response to the decision in Fleet Factors Corp.,
the United States Environmental Protection Agency (the "EPA") adopted a rule
interpreting and delineating CERCLA's secured-creditor exemption in EPA
enforcement proceedings. The rule attempted to define and specify the range of
permissible actions that may be undertaken by a foreclosing lender/holder of a
contaminated facility without exceeding the bounds of the secured-creditor
exemption. The rule also attempted to specify the circumstances under which
governmental or government-appointed entities that acquire possession or
control of contaminated facilities as conservators or receivers will be
considered "involuntary" owners for purposes of CERCLA's "innocent landowner"
defense to liability. Issuance of this rule by the EPA under CERCLA did not
necessarily affect the potential for liability in actions by either a state or
a private party under CERCLA or in actions under other federal or state laws
which may impose liability on "owners or operators" but did not incorporate the
secured-creditor exemption.
The validity of the EPA rule was challenged in the U.S. Court of Appeals
for the District of Columbia in Kelley v. EPA. In an opinion issued on February
4, 1994, the D.C. Circuit Court invalidated EPA's lender liability rule,
holding that EPA exceeded its authority in enacting the rule. The U.S. Supreme
Court denied certiorari on January 17, 1995. In response, the Department of
Justice ("DOJ") and the Agency issued a policy statement entitled "The Effect
of Superfund on Lenders That Hold Security Interests in Contaminated Property,"
published in the Federal Register in Volume 60, Number 237, at pages 63517 to
63519 (December 11, 1995). That policy statement directed parties to the
voided rule as the Agency's definitive view on CERCLA's secured creditor
exemption, and stated that EPA and DOJ will generally follow the approach of
the Lender Liability Rule and its preamble when exercising their enforcement
discretion with respect to lenders.
- 64 -
<PAGE> 134
Under the Kelley case, the secured-creditor exemption under CERCLA will
be subject to existing case law interpretations. Some of those cases have
interpreted the exemption extremely narrowly, but most of the cases since
promulgation of the EPA rule have held that a lender is entitled to the
protection of the secured-creditor exemption provided that a lender complies
with the provisions set out in the EPA rule and does not itself (or through its
agents) cause or contribute to contamination. As a result of Kelley, the cases
applying the EPA rule have little, if any, precedential value and, thus,
lenders expected a return to the narrower interpretations of the exemption. In
fact, recent judicial opinions indicate that a court facing lender liability
issues is likely to apply principles and rationale that are consistent with EPA
and DOJ's Lender Policy. See, e.g., United States v. Wallace, 893 F. Supp. 627
(N.D. Tex. 1995); Z & Z Leasing, Inc. v. Graying Reel, Inc., 873 F. Supp. 51
(E.D. Mich. 1995); Kemp Industries, Inc. v. Safety Light Corp., 857 F. Supp.
373 (D.N.J. 1994).
The secured-creditor exemption does not protect a lender from liability
under CERCLA in cases where the lender arranges for disposal of hazardous
substances or for transportation of hazardous substances. The definition of
"hazardous substances" under CERCLA specifically excludes petroleum products,
and the secured-creditor exemption does not govern liability for cleanup costs
under federal laws other than CERCLA, in particular Subtitle I of the federal
Resource Conservation and Recovery Act ("RCRA"), which regulates underground
petroleum (other than heating oil) storage tanks. However, the EPA adopted a
lender liability rule for underground storage tanks under Subtitle I of RCRA.
Under such rule, a holder of a security interest in an underground storage tank
or real property containing an underground storage tank is not considered an
operator of the underground storage tank as long as petroleum is not added to,
stored in or dispensed from the tank. It should be noted, however, that
liability for cleanup of petroleum contamination may be governed by state law,
which may not provide for any specific protections for secured creditors.
If a lender is or becomes liable, it may bring an action for
contribution against the owner or operator who created the environmental
hazard, but that person or entity may be bankrupt or otherwise judgment proof.
It is possible that cleanup costs could become a liability of the Trust Fund
and occasion a loss to Certificateholders in certain circumstances described
above if such remedial costs were incurred.
Finally, as part of the Omnibus Consolidated Appropriations Bill for
Fiscal Year 1997 signed by President Clinton on September 30, 1996, Congress
enacted the Asset Conservation, Lender Liability, and Deposit Insurance
Protection Act of 1996 ("the Act"). The Act includes lender and fiduciary
liability amendments to CERCLA, amendments to the secured creditor exemption
set forth in Subtitle I of RCRA, and validation of the portion of the CERCLA
Lender Liability Rule that addresses involuntary acquisitions by government
entities. The amendments made by the Act apply to all claims not finally
adjudicated as of September 30, 1996, which include all cases that are in the
process of being settled, and are generally based on the CERCLA Lender
Liability Rule. However, the amendments do not explicitly describe the steps a
lender can take to avoid liability after foreclosure.
The related Agreement will provide that the Special Servicer, acting on
behalf of the Trustee, may not acquire title to a Mortgaged Property or take
over its operation unless the Special Servicer has previously determined, based
on a report prepared by a person who regularly conducts environmental
assessments, that: (i) such Mortgaged Property is in compliance with applicable
environmental laws, or, if not, that taking such actions as are necessary to
bring the Mortgaged Property in compliance therewith is likely to produce a
greater recovery on a present value basis, after taking into account any risks
associated therewith, than not taking such actions and (ii) there are no
circumstances present at the Mortgaged Property relating to the use, management
or disposal of any Hazardous Materials for which investigation, testing,
monitoring, containment, clean-up or remediation could be required under any
federal, state or local law or regulation. This requirement effectively
precludes enforcement of the security for the related Mortgage Note until a
satisfactory environmental inquiry is undertaken, or that, if any Hazardous
Materials are present for which such action could be required, taking such
actions with respect to the affected Mortgaged Property is reasonably likely to
produce a greater recovery on a present value basis, after taking into account
any risks associated therewith, than not taking such actions, reducing the
likelihood that a given Trust Fund will become liable for any condition or
circumstance that may give rise to any environmental claim (an "ENVIRONMENTAL
HAZARD CONDITION") affecting a Mortgaged Property, but making it more difficult
to realize on the security for the Mortgage Loan. However, there can be no
assurance that any environmental assessment obtained by the Special Servicer
will detect all possible Environmental Hazard Conditions, that any estimate of
the costs of effecting compliance at any Mortgaged Property and the recovery
thereon will be correct, or that the other requirements of the Agreement, even
if fully observed by the Master Servicer or Special
- 65 -
<PAGE> 135
Servicer, as the case may be, will in fact insulate a given Trust Fund from
liability for Environmental Hazard Conditions. Any additional restrictions on
acquiring titles to a Mortgaged Property may be set forth in the related
Prospectus Supplement.
Unless otherwise specified in the related Prospectus Supplement, the
Depositor generally will not have determined whether environmental assessments
have been conducted with respect to the Mortgaged Properties relating to the
Mortgage Loans included in the Mortgage Pool for a Series, and it is likely
that any environmental assessments which would have been conducted with respect
to any of the Mortgaged Properties would have been conducted at the time of the
origination of the related Mortgage Loans and not thereafter. If specified in
the related Prospectus Supplement, a Warranting Party will represent and
warrant that based on an environmental audit commissioned by Warranting Party,
as of the date of the origination of a Mortgage Loan, the related Mortgaged
Property is not affected by a Disqualifying Condition (as defined below). No
such person will however, be responsible for any Disqualifying Condition which
may arise on a Mortgaged Property after the date of origination of the related
Mortgage Loan, whether due to actions of the Mortgagor, the Master Servicer,
the Primary Servicer, the Special Servicer or any other person. It may not
always be possible to determine whether a Disqualifying Condition arose prior
or subsequent to the date of the origination of the related Mortgage Loan.
A "DISQUALIFYING CONDITION" is defined generally as a condition which
would reasonably be expected to (1) constitute or result in a violation of
applicable environmental laws, (2) require any expenditure material in relation
to the principal balance of the related Mortgage Loan to achieve or maintain
compliance in all material respects with any applicable environmental laws, or
(3) require substantial cleanup, remedial action or other extraordinary
response under any applicable environmental laws in excess of a specified
escrowed amount.
"HAZARDOUS MATERIALS" are generally defined under several federal and
state statutes, and include dangerous toxic or hazardous pollutants, chemicals,
wastes or substances, including, without limitation, those so identified
pursuant to CERCLA, and specifically including, asbestos and asbestos
containing materials, polychlorinated biphenyls, radon gas, petroleum and
petroleum products and urea formaldehyde.
DUE-ON-SALE AND DUE-ON-ENCUMBRANCE
Certain of the Mortgage Loans may contain due-on-sale and due-on-
encumbrance clauses. These clauses generally provide that the lender may
accelerate the maturity of the loan if the Mortgagor sells or otherwise
transfers or encumbers the mortgaged property. Certain of these clauses may
provide that, upon an attempted breach thereof by the Mortgagor of an otherwise
non-recourse loan, the Mortgagor becomes personally liable for the mortgage
debt. The enforceability of due-on-sale clauses has been the subject of
legislation or litigation in many states and, in some cases, the enforceability
of these clauses was limited or denied. However, with respect to certain loans
the Garn-St Germain Depository Institutions Act of 1982 preempts state
constitutional, statutory and case law that prohibits the enforcement of due-
on-sale clauses and permits lenders to enforce these clauses in accordance with
their terms subject to certain limited exceptions. To the extent provided in
the related Prospectus Supplement, a Master Servicer or a Primary Servicer, on
behalf of the Trust Fund, will determine whether to exercise any right the
Trustee may have as mortgagee to accelerate payment of any such Mortgage Loan
or to withhold its consent to any transfer or further encumbrance in a manner
consistent with the Servicing Standard.
In addition, under federal bankruptcy laws, due-on-sale clauses may not
be enforceable in bankruptcy proceedings and may, under certain circumstances,
be eliminated in any modified mortgage resulting from such bankruptcy
proceeding.
SUBORDINATE FINANCING
Where the Mortgagor encumbers mortgaged property with one or more junior
liens, the senior lender is subjected to additional risk. First, the Mortgagor
may have difficulty servicing and repaying multiple loans. In addition, if the
junior loan permits recourse to the Mortgagor (as junior loans often do) and
the senior loan does not, a Mortgagor may be more likely to repay sums due on
the junior loan than those on the senior loan. Second, acts of the senior
lender that prejudice the junior lender or impair the junior lender's security
may create a superior equity in favor of the junior lender. For example, if the
Mortgagor and the senior lender agree to an increase in the principal amount of
or the interest
- 66 -
<PAGE> 136
rate payable on the senior loan, the senior lender may lose its priority to the
extent any existing junior lender is harmed or the Mortgagor is additionally
burdened. Third, if the Mortgagor defaults on the senior loan and/or any junior
loan or loans, the existence of junior loans and actions taken by junior
lenders can impair the security available to the senior lender and can
interfere with or delay the taking of action by the senior lender. Moreover,
the bankruptcy of a junior lender may operate to stay foreclosure or similar
proceedings by the senior lender.
DEFAULT INTEREST, PREPAYMENT CHARGES AND PREPAYMENTS
Forms of notes and mortgages used by lenders may contain provisions
obligating the Mortgagor to pay a late charge or additional interest if
payments are not timely made, and in some circumstances may provide for
prepayment fees or yield maintenance penalties if the obligation is paid prior
to maturity or prohibit such prepayment for a specified period. In certain
states, there are or may be specific limitations upon the late charges which a
lender may collect from a Mortgagor for delinquent payments. Certain states
also limit the amounts that a lender may collect from a Mortgagor as an
additional charge if the loan is prepaid. The enforceability, under the laws of
a number of states of provisions providing for prepayment fees or penalties
upon, or prohibition of, an involuntary prepayment is unclear, and no assurance
can be given that, at the time a Prepayment Premium is required to be made on a
Mortgage Loan in connection with an involuntary prepayment, the obligation to
make such payment, or the provisions of any such prohibition, will be
enforceable under applicable state law. The absence of a restraint on
prepayment, particularly with respect to Mortgage Loans having higher Mortgage
Interest Rates, may increase the likelihood of refinancing or other early
retirements of the Mortgage Loans.
ACCELERATION ON DEFAULT
To the extent specified in the related Prospectus Supplement, some of
the Mortgage Loans included in the Mortgage Pool for a Series will include a
"debt-acceleration" clause, which permits the lender to accelerate the full
debt upon a monetary or nonmonetary default of the Mortgagor. The courts of all
states will enforce clauses providing for acceleration in the event of a
material payment default after giving effect to any appropriate notices. The
equity courts of the state, however, may refuse to foreclose a mortgage or deed
of trust when an acceleration of the indebtedness would be inequitable or
unjust or the circumstances would render the acceleration unconscionable.
Furthermore, in some states, the Mortgagor may avoid foreclosure and reinstate
an accelerated loan by paying only the defaulted amounts and the costs and
attorneys' fees incurred by the lender in collecting such defaulted payments.
APPLICABILITY OF USURY LAWS
Title V of the Depository Institutions Deregulation and Monetary Control
Act of 1980, enacted in March 1980 ("TITLE V"), provides that state usury
limitations shall not apply to certain types of residential (including
multifamily but not other commercial) first mortgage loans originated by
certain lenders after March 31, 1980. A similar federal statute was in effect
with respect to mortgage loans made during the first three months of 1980. The
statute authorized any state to reimpose interest rate limits by adopting,
before April 1, 1983, a law or constitutional provision that expressly rejects
application of the federal law. In addition, even where Title V is not so
rejected, any state is authorized by the law to adopt a provision limiting
discount points or other charges on mortgage loans covered by Title V. Certain
states have taken action to reimpose interest rate limits and/or to limit
discount points or other charges.
The Depositor has been advised by counsel that a court interpreting
Title V would hold that residential first mortgage loans that are originated on
or after January 1, 1980 are subject to federal preemption. Therefore, in a
state that has not taken the requisite action to reject application of Title V
or to adopt a provision limiting discount points or other charges prior to
origination of such mortgage loans, any such limitation under such state's
usury law would not apply to such mortgage loans.
In any state in which application of Title V has been expressly rejected
or a provision limiting discount points or other charges is adopted, no
Mortgage Loan originated after the date of such state action will be eligible
for inclusion in a Trust Fund unless (i) such Mortgage Loan provides for such
interest rate, discount points and charges as are permitted in such state or
(ii) such Mortgage Loan provides that the terms thereof shall be construed in
accordance with the laws of another state under which such interest rate,
discount points and charges would not be usurious and the Mortgagor's counsel
has rendered an opinion that such choice of law provision would be given
effect.
- 67 -
<PAGE> 137
Statutes differ in their provisions as to the consequences of a usurious
loan. One group of statutes requires the lender to forfeit the interest due
above the applicable limit or impose a specified penalty. Under this statutory
scheme, the borrower may cancel the recorded mortgage or deed of trust upon
paying its debt with lawful interest, and the lender may foreclose, but only
for the debt plus lawful interest. A second group of statutes is more severe. A
violation of this type of usury law results in the invalidation of the
transaction, thereby permitting the borrower to cancel the recorded mortgage or
deed of trust without any payment or prohibiting the lender from foreclosing.
CERTAIN LAWS AND REGULATIONS; TYPES OF MORTGAGED PROPERTIES
The Mortgaged Properties will be subject to compliance with various
federal, state and local statutes and regulations. Failure to comply (together
with an inability to remedy any such failure) could result in material
diminution in the value of a Mortgage Property which could, together with the
possibility of limited alternative uses for a particular Mortgaged Property
(e.g., a nursing or convalescent home or hospital), result in a failure to
realize the full principal amount of the related Mortgage Loan. Mortgages on
Mortgaged Properties which are owned by the Mortgagor under a condominium form
of ownership are subject to the declaration, by-laws and other rules and
regulations of the condominium association. Mortgaged Properties which are
hotels or motels may present additional risk in that hotels and motels are
typically operated pursuant to franchise, management and operating agreements
which may be terminable by the operator, and the transferability of the hotel's
operating, liquor and other licenses to the entity acquiring the hotel either
through purchases or foreclosure is subject to the vagaries of local law
requirements. In addition, Mortgaged Properties which are multifamily
residential properties may be subject to rent control laws, which could impact
the future cash flows of such properties.
AMERICANS WITH DISABILITIES ACT
Under Title III of the Americans with Disabilities Act of 1990 and rules
promulgated thereunder (collectively, the "ADA"), in order to protect
individuals with disabilities, public accommodations (such as hotels,
restaurants, shopping centers, hospitals, schools and social service center
establishments) must remove architectural and communication barriers which are
structural in nature from existing places of public accommodation to the extent
"readily achievable." In addition, under the ADA, alterations to a place of
public accommodation or a commercial facility are to be made so that, to the
maximum extent feasible, such altered portions are readily accessible to and
usable by disabled individuals. The "readily achievable" standard takes into
account, among other factors, the financial resources of the affected site,
owner, landlord or other applicable person. In addition to imposing a possible
financial burden on the Mortgagor in its capacity as owner or landlord, the ADA
may also impose such requirements on a foreclosing lender who succeeds to the
interest of the Mortgagor as owner of landlord. Furthermore, since the "readily
achievable" standard may vary depending on the financial condition of the owner
or landlord, a foreclosing lender who is financially more capable than the
Mortgagor of complying with the requirements of the ADA may be subject to more
stringent requirements than those to which the Mortgagor is subject.
SOLDIERS' AND SAILORS' CIVIL RELIEF ACT OF 1940
Under the terms of the Soldiers' and Sailors' Civil Relief Act of 1940,
as amended (the "RELIEF ACT"), a Mortgagor who enters military service after
the origination of such Mortgagor's Mortgage Loan (including a Mortgagor who
was in reserve status and is called to active duty after origination of the
Mortgage Loan), may not be charged interest (including fees and charges) above
an annual rate of 6% during the period of such Mortgagor's active duty status,
unless a court orders otherwise upon application of the lender. The Relief Act
applies to Mortgagors who are members of the Army, Navy, Air Force, Marines,
National Guard, Reserves, Coast Guard and officers of the U.S. Public Health
Service assigned to duty with the military. Because the Relief Act applies to
Mortgagors who enter military service (including reservists who are called to
active duty) after origination of the related Mortgage Loan, no information can
be provided as to the number of loans that may be affected by the Relief Act.
Application of the Relief Act would adversely affect, for an indeterminate
period of time, the ability of any servicer to collect full amounts of interest
on certain of the Mortgage Loans. Any shortfalls in interest collections
resulting from the application of the Relief Act would result in a reduction of
the amounts distributable to the holders of the related Series of Certificates,
and would not be covered by advances or, unless otherwise specified in the
related Prospectus Supplement, any form of Credit Support provided in
connection with such Certificates. In addition, the Relief Act imposes
limitations that would impair the ability of the servicer to foreclose on an
affected Mortgage Loan during the Mortgagor's period of
- 68 -
<PAGE> 138
active duty status, and, under certain circumstances, during an additional
three month period thereafter. Thus, in the event that such a Mortgage Loan
goes into default, there may be delays and losses occasioned thereby.
FORFEITURES IN DRUG AND RICO PROCEEDINGS
Federal law provides that property owned by persons convicted of drug-
related crimes or of criminal violations of the Racketeer Influenced and
Corrupt Organizations ("RICO") statute can be seized by the government if the
property was used in, or purchased with the proceeds of, such crimes. Under
procedures contained in the Comprehensive Crime Control Act of 1984 (the "CRIME
CONTROL ACT"), the government may seize the property even before conviction.
The government must publish notice of the forfeiture proceeding and may give
notice to all parties "known to have an alleged interest in the property,"
including the holders of mortgage loans.
A lender may avoid forfeiture of its interest in the property if it
establishes that: (i) its mortgage was executed and recorded before commission
of the crime upon which the forfeiture is based, or (ii) the lender was, at the
time of execution of the mortgage, "reasonably without cause to believe" that
the property was used in, or purchased with the proceeds of, illegal drug or
RICO activities.
FEDERAL INCOME TAX CONSEQUENCES
The following summary of the anticipated material federal income tax
consequences of the purchase, ownership and disposition of Offered Certificates
is based on the advice of Andrews & Kurth L.L.P., counsel to the Depositor.
This summary is based on laws, regulations, including the REMIC regulations
promulgated by the Treasury Department (the "REMIC REGULATIONS"), rulings and
decisions now in effect or (with respect to regulations) proposed, all of which
are subject to change either prospectively or retroactively. Andrews & Kurth
L.L.P. will deliver an opinion to the Depositor that the information set forth
under this caption, "Federal Income Tax Consequences," to the extent that it
constitutes matters of law or legal conclusions, is correct in all material
respects. This summary does not address the federal income tax consequences of
an investment in Certificates applicable to all categories of investors, some
of which (for example, banks and insurance companies) may be subject to special
rules. Prospective investors should consult their tax advisors regarding the
federal, state, local and any other tax consequences to them of the purchase,
ownership and disposition of Certificates.
GENERAL
The federal income tax consequences to Certificateholders will vary
depending on whether an election is made to treat the Trust Fund, or a
segregated portion thereof, relating to a particular Series of Certificates as
a REMIC under the Code. The Prospectus Supplement for each Series of
Certificates will specify whether a REMIC election will be made.
GRANTOR TRUST FUNDS
If a REMIC election is not made, Andrews & Kurth L.L.P. will deliver its
opinion that the Trust Fund will not be classified as an association taxable as
a corporation and that each such Trust Fund will be classified as a grantor
trust under subpart E, Part I of subchapter J of Chapter 1 of Subtitle A of the
Code. In this case, owners of Certificates will be treated for federal income
tax purposes as owners of a portion of the Trust Fund's assets as described
below.
A. SINGLE CLASS OF GRANTOR TRUST CERTIFICATES
Characterization. The Trust Fund may be created with one class of
Grantor Trust Certificates. In this case, each Grantor Trust Certificateholder
will be treated as the owner of a pro rata undivided interest in the interest
and principal portions of the Trust Fund represented by the Grantor Trust
Certificates and will be considered the equitable owner of a pro rata undivided
interest in each of the Mortgage Assets in the Pool. Any amounts received by a
Grantor Trust Certificateholder in lieu of amounts due with respect to any
Mortgage Asset because of a default or delinquency in payment will be treated
for federal income tax purposes as having the same character as the payments
they replace.
- 69 -
<PAGE> 139
Each Grantor Trust Certificateholder will be required to report on its
federal income tax return in accordance with such Grantor Trust
Certificateholder's method of accounting its pro rata share of the entire
income from the Mortgage Loans in the Trust Fund represented by Grantor Trust
Certificates, including interest, original issue discount ("OID"), if any,
prepayment fees, assumption fees, any gain recognized upon an assumption and
late payment charges received by the Master Servicer. Under Code Sections 162
or 212 each Grantor Trust Certificateholder will be entitled to deduct its pro
rata share of servicing fees, prepayment fees, assumption fees, any loss
recognized upon an assumption and late payment charges retained by the Master
Servicer, provided that such amounts are reasonable compensation for services
rendered to the Trust Fund. Grantor Trust Certificateholders that are
individuals, estates or trusts will be entitled to deduct their share of
expenses as itemized deductions only to the extent such expenses plus all other
Code Section 212 expenses exceed two percent of their adjusted gross income. In
addition, the amount of itemized deductions otherwise allowable for the taxable
year for an individual whose adjusted gross income exceeds the applicable
amount under Code Section 68(b) (which amount will be adjusted for inflation)
will be reduced by the lesser of (i) 3% of the excess of adjusted gross income
over the applicable amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. A Grantor Trust Certificateholder
using the cash method of accounting must take into account its pro rata share
of income and deductions as and when collected by or paid to the Master
Servicer. A Grantor Trust Certificateholder using an accrual method of
accounting must take into account its pro rata share of income and deductions
as they become due or are paid to the Master Servicer, whichever is earlier. If
the servicing fees paid to the Master Servicer are deemed to exceed reasonable
servicing compensation, the amount of such excess could be considered as an
ownership interest retained by the Master Servicer (or any person to whom the
Master Servicer assigned for value all or a portion of the servicing fees) in a
portion of the interest payments on the Mortgage Assets. The Mortgage Assets
would then be subject to the "coupon stripping" rules of the Code discussed
below.
Unless otherwise specified in the related Prospectus Supplement, as to
each Series of Certificates Andrews & Kurth L.L.P. will have advised the
Depositor that, except as described below under "b. Multiple Classes of Grantor
Trust Certificates -- Treatment of Certain Owners":
(i) a Grantor Trust Certificate owned by a "domestic building and loan
association" within the meaning of Code Section 7701(a)(19) representing
principal and interest payments on Mortgage Assets will be considered to
represent "loans . . . secured by an interest in real property which is . .
. residential property" within the meaning of Code Section
7701(a)(19)(C)(v), to the extent that the Mortgage Assets represented by
that Grantor Trust Certificate are of a type described in such Code section;
(ii) a Grantor Trust Certificate owned by a real estate investment trust
representing an interest in Mortgage Assets will be considered to represent
"real estate assets" within the meaning of Code Section 856(c)(5)(A), and
interest income on the Mortgage Assets will be considered "interest on
obligations secured by mortgages on real property" within the meaning of
Code Section 856(c)(3)(B), to the extent that the Mortgage Assets
represented by that Grantor Trust Certificate are of a type described in
such Code section; and
(iii) a Grantor Trust Certificate owned by a REMIC will represent
"obligation[s] . . . which [are] principally secured by an interest in real
property" within the meaning of Code Section 860G(a)(3).
Stripped Bonds and Coupons. Certain Trust Funds may consist of
Government Securities which constitute "stripped bonds" or "stripped coupons"
as those terms are defined in Section 1286 of the Code, and, as a result, such
assets would be subject to the stripped bond provisions of the Code. Under
these rules, such Government Securities are treated as having OID based on the
purchase price and the stated redemption price at maturity of each Government
Security. As such, Grantor Trust Certificateholders would be required to
include in income their pro rata share of the OID on each Government Security
recognized in any given year on an economic accrual basis even if the Grantor
Trust Certificateholder is a cash method taxpayer. Accordingly, the sum of the
income includible to the Grantor Trust Certificateholder in any taxable year
may exceed amounts actually received during such year.
- 70 -
<PAGE> 140
Premium. The price paid for a Grantor Trust Certificate by a holder will
be allocated to such holder's undivided interest in each Mortgage Asset based
on each Mortgage Asset's relative fair market value, so that such holder's
undivided interest in each Mortgage Asset will have its own tax basis. A
Grantor Trust Certificateholder that acquires an interest in Mortgage Assets at
a premium may elect to amortize such premium under a constant interest method,
provided that the underlying mortgage loans with respect to such Mortgage
Assets were originated after September 27, 1985. Premium allocable to mortgage
loans originated on or before September 27, 1985 should be allocated among the
principal payments on such mortgage loans and allowed as an ordinary deduction
as principal payments are made. Amortizable bond premium will be treated as an
offset to interest income on such Grantor Trust Certificate. The basis for such
Grantor Trust Certificate will be reduced to the extent that amortizable
premium is applied to offset interest payments. It is not clear whether a
reasonable prepayment assumption should be used in computing amortization of
premium allowable under Code Section 171. A Certificateholder that makes this
election for a Certificate that is acquired at a premium will be deemed to have
made an election to amortize bond premium with respect to all debt instruments
having amortizable bond premium that such Certificateholder holds during the
year of the election or thereafter.
If a premium is not subject to amortization using a reasonable
prepayment assumption, the holder of a Grantor Trust Certificate acquired at a
premium should recognize a loss if a Mortgage Loan (or an underlying mortgage
loan with respect to a Mortgage Asset) prepays in full, equal to the difference
between the portion of the prepaid principal amount of such Mortgage Loan (or
underlying mortgage loan) that is allocable to the Certificate and the portion
of the adjusted basis of the Certificate that is allocable to such Mortgage
Loan (or underlying mortgage loan). If a reasonable prepayment assumption is
used to amortize such premium, it appears that such a loss would be available,
if at all, only if prepayments have occurred at a rate faster than the
reasonable assumed prepayment rate. It is not clear whether any other
adjustments would be required to reflect differences between an assumed
prepayment rate and the actual rate of prepayments.
Original Issue Discount. The Internal Revenue Service (the "IRS") has
stated in published rulings that, in circumstances similar to those described
herein, the special rules of the Code relating to OID (currently Code Sections
1271 through 1273 and 1275) and Treasury regulations issued on January 27,
1994, as amended on June 14, 1996, under such Sections (the "OID REGULATIONS"),
will be applicable to a Grantor Trust Certificateholder's interest in those
Mortgage Assets meeting the conditions necessary for these sections to apply.
Rules regarding periodic inclusion of OID income are applicable to mortgages of
corporations originated after May 27, 1969, mortgages of noncorporate
Mortgagors (other than individuals) originated after July 1, 1982, and
mortgages of individuals originated after March 1, 1984. Such OID could arise
by the financing of points or other charges by the originator of the mortgages
in an amount greater than a statutory de minimis exception to the extent that
the points are not currently deductible under applicable Code provisions or are
not for services provided by the lender. OID generally must be reported as
ordinary gross income as it accrues under a constant interest method. See
"--Grantor Trust Funds -- Multiple Classes of Grantor Trust Certificates --
Accrual of Original Issue Discount" below.
Market Discount. A Grantor Trust Certificateholder that acquires an
undivided interest in Mortgage Assets may be subject to the market discount
rules of Code Sections 1276 through 1278 to the extent an undivided interest in
a Mortgage Asset is considered to have been purchased at a "market discount."
Generally, the amount of market discount is equal to the excess of the portion
of the principal amount of such Mortgage Asset allocable to such holder's
undivided interest over such holder's tax basis in such interest. Market
discount with respect to a Grantor Trust Certificate will be considered to be
zero if the amount allocable to the Grantor Trust Certificate is less than
0.25% of the Grantor Trust Certificate's stated redemption price at maturity
multiplied by the weighted average maturity remaining after the date of
purchase. Treasury regulations implementing the market discount rules have not
yet been issued; therefore, investors should consult their own tax advisors
regarding the application of these rules and the advisability of making any of
the elections allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986 shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of accrued market discount for purposes of
determining the tax treatment of subsequent principal payments or dispositions
of the market discount bond is to be reduced by the amount so treated as
ordinary income.
- 71 -
<PAGE> 141
The Code also grants the Treasury Department authority to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
While the Treasury Department has not yet issued regulations, rules described
in the relevant legislative history will apply. Under those rules, the holder
of a market discount bond may elect to accrue market discount either on the
basis of a constant interest rate or according to one of the following methods.
If a Grantor Trust Certificate is issued with OID, the amount of market
discount that accrues during any accrual period would be equal to the product
of (i) the total remaining market discount and (ii) a fraction, the numerator
of which is the OID accruing during the period and the denominator of which is
the total remaining OID at the beginning of the accrual period. For Grantor
Trust Certificates issued without OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the amount of
stated interest paid during the accrual period and the denominator of which is
the total amount of stated interest remaining to be paid at the beginning of
the accrual period. For purposes of calculating market discount under any of
the above methods in the case of instruments (such as the Grantor Trust
Certificates) that provide for payments that may be accelerated by reason of
prepayments of other obligations securing such instruments, the same prepayment
assumption applicable to calculating the accrual of OID will apply. Because the
regulations described above have not been issued, it is impossible to predict
what effect those regulations might have on the tax treatment of a Grantor
Trust Certificate purchased at a discount or premium in the secondary market.
A holder who acquired a Grantor Trust Certificate at a market discount
also may be required to defer a portion of the excess of the interest paid or
incurred for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry such Grantor Trust Certificate purchased with
market discount over the interest distributable thereon. For these purposes,
the de minimis rule referred to above applies. Any such deferred excess
interest expense would not exceed the market discount that accrues during such
taxable year and is, in general, allowed as a deduction not later than the year
in which such market discount is includible in income. The amount of any
remaining deferred deduction is to be taken into account in the taxable year in
which the Grantor Trust Certificate matures or is disposed of in a taxable
transaction. In the case of a disposition in which gain or loss is not
recognized in whole or in part, any remaining deferred deduction will be
allowed to the extent of gain recognized on the disposition. If such holder
elects to include market discount in income currently as it accrues on all
market discount instruments acquired by such holder in that taxable year or
thereafter, the interest deferral rule described above will not apply.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or OID) and premium in income as interest, based on a constant
yield method. If such an election were to be made with respect to a Grantor
Trust Certificate with market discount, the Certificateholder would be deemed
to have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "--Grantor Trust
Funds -- Single Class of Grantor Trust Certificates -- Premium." The election
to accrue interest, discount and premium on a constant yield method with
respect to a Certificate is irrevocable except with the approval of the IRS.
B. MULTIPLE CLASSES OF GRANTOR TRUST CERTIFICATES
Stripped Bonds and Stripped Coupons
Pursuant to Code Section 1286, the separation of ownership of the right
to receive some or all of the interest payments on an obligation from ownership
of the right to receive some or all of the principal payments results in the
creation of "stripped bonds" with respect to principal payments and "stripped
coupons" with respect to interest payments. For purposes of Code Sections 1271
through 1288, Code Section 1286 treats a stripped bond or a stripped coupon as
an obligation issued on the date that such stripped interest is created. If a
Trust Fund is created with two classes of Grantor Trust Certificates, one class
of Grantor Trust Certificates may represent the right to principal and
interest, or principal only, on all or a portion of the Mortgage Assets (the
"STRIPPED BOND CERTIFICATES"), while the second class of Grantor Trust
Certificates may represent the right to some or all of the interest on such
portion (the "STRIPPED COUPON CERTIFICATES").
- 72 -
<PAGE> 142
Servicing fees in excess of reasonable servicing fees ("excess
servicing") will be treated under the stripped bond rules. If the excess
servicing fee is less than 100 basis points (i.e., 1% interest on the Mortgage
Asset principal balance) or the Certificates are initially sold with a de
minimis discount (assuming no prepayment assumption is required), any non de
minimis discount arising from a subsequent transfer of the Certificates should
be treated as market discount. The IRS appears to require that reasonable
servicing fees be calculated on a Mortgage Asset by Mortgage Asset basis, which
could result in some Mortgage Assets being treated as having more than 100
basis points of interest stripped off.
Although not entirely clear, a Stripped Bond Certificate generally
should be treated as an interest in Mortgage Assets issued on the day such
Certificate is purchased for purposes of calculating any OID. Generally, if the
discount on a Mortgage Asset is larger than a de minimis amount (as calculated
for purposes of the OID rules) a purchaser of such a Certificate will be
required to accrue the discount under the OID rules of the Code. See "--Grantor
Trust Funds -- Single Class of Grantor Trust Certificates -- Original Issue
Discount." However, a purchaser of a Stripped Bond Certificate will be required
to account for any discount on the Mortgage Assets as market discount rather
than OID if either (i) the amount of OID with respect to the Mortgage Assets is
treated as zero under the OID de minimis rule when the Certificate was stripped
or (ii) no more than 100 basis points (including any amount of servicing fees
in excess of reasonable servicing fees) is stripped off of the Trust Fund's
Mortgage Assets.
The precise tax treatment of Stripped Coupon Certificates is
substantially uncertain. The Code could be read literally to require that OID
computations be made for each payment from each Mortgage Asset. However, based
on the recent IRS guidance, it appears that all payments from a Mortgage Asset
underlying a Stripped Coupon Certificate should be treated as a single
installment obligation subject to the OID rules of the Code, in which case, all
payments from such Mortgage Asset would be included in the Mortgage Asset's
stated redemption price at maturity for purposes of calculating income on such
certificate under the OID rules of the Code.
It is unclear under what circumstances, if any, the prepayment of
Mortgage Assets will give rise to a loss to the holder of a Stripped Bond
Certificate purchased at a premium or a Stripped Coupon Certificate. If such
Certificate is treated as a single instrument (rather than an interest in
discrete mortgage loans) and the effect of prepayments is taken into account in
computing yield with respect to such Grantor Trust Certificate, it appears that
no loss will be available as a result of any particular prepayment unless
prepayments occur at a rate faster than the assumed prepayment rate. However,
if such Certificate is treated as an interest in discrete Mortgage Assets, or
if no prepayment assumption is used, then when a Mortgage Asset is prepaid, the
holder of such Certificate should be able to recognize a loss equal to the
portion of the adjusted issue price of such Certificate that is allocable to
such Mortgage Asset.
Holders of Stripped Bond Certificates and Stripped Coupon Certificates
are urged to consult with their own tax advisors regarding the proper treatment
of these Certificates for federal income tax purposes.
Treatment of Certain Owners
Several Code sections provide beneficial treatment to certain taxpayers
that invest in Mortgage Assets of the type that make up the Trust Fund. With
respect to these Code sections, no specific legal authority exists regarding
whether the character of the Grantor Trust Certificates, for federal income tax
purposes, will be the same as that of the underlying Mortgage Assets. While
Code Section 1286 treats a stripped obligation as a separate obligation for
purposes of the Code provisions addressing OID, it is not clear whether such
characterization would apply with regard to these other Code sections. Although
the issue is not free from doubt, based on policy considerations, each class of
Grantor Trust Certificates, unless otherwise specified in the related
Prospectus Supplement, should be considered to represent "real estate assets"
within the meaning of Code Section 856(c)(6)(B) and "loans . . . secured by an
interest in real property which is . . . residential real property" within the
meaning of Code Section 7701(a)(19)(C)(v), and interest income attributable to
Grantor Trust Certificates should be considered to represent "interest on
obligations secured by mortgages on real property" within the meaning of Code
Section 856(c)(3)(B), provided that in each case the underlying Mortgage Assets
and interest on such Mortgage Assets qualify for such treatment. Prospective
purchasers to which such characterization of an investment in Certificates is
material should consult their own tax advisors regarding the characterization
of the Grantor Trust Certificates and the income therefrom. Grantor Trust
Certificates will be "obligation[s] . . . which [are] principally secured by
an interest in real property" within the meaning of Code Section 860G(a)(3).
- 73 -
<PAGE> 143
Grantor Trust Certificates Representing Interests in Loans Other Than
ARM Loans
The OID rules of Code Sections 1271 through 1275 will be applicable to a
Certificateholder's interest in those Mortgage Assets as to which the
conditions for the application of those sections are met. Rules regarding
periodic inclusion of OID in income are applicable to mortgages of corporations
originated after May 27, 1969, mortgages of noncorporate Mortgagors (other than
individuals) originated after July 1, 1982, and mortgages of individuals
originated after March 1, 1984. Under the OID Regulations, such OID could arise
by the charging of points by the originator of the mortgage in an amount
greater than the statutory de minimis exception, including a payment of points
that is currently deductible by the borrower under applicable Code provisions,
or under certain circumstances, by the presence of "teaser" rates on the
Mortgage Assets. OID on each Grantor Trust Certificate must be included in the
owner's ordinary income for federal income tax purposes as it accrues, in
accordance with a constant interest method that takes into account the
compounding of interest, in advance of receipt of the cash attributable to such
income. The amount of OID required to be included in an owner's income in any
taxable year with respect to a Grantor Trust Certificate representing an
interest in Mortgage Assets other than Mortgage Assets with interest rates that
adjust periodically ("ARM LOANS") likely will be computed as described below
under "--Accrual of Original Issue Discount." The following discussion is based
in part on the OID Regulations and in part on the provisions of the Tax Reform
Act of 1986 (the "1986 ACT"). The OID Regulations generally are effective for
debt instruments issued on or after April 4, 1994, but may be relied upon as
authority with respect to debt instruments, such as the Grantor Trust
Certificates, issued after December 21, 1992. Alternatively, proposed Treasury
regulations issued December 21, 1992 may be treated as authority for debt
instruments issued after December 21, 1992 and prior to April 4, 1994, and
proposed Treasury regulations issued in 1986 and 1991 may be treated as
authority for instruments issued before December 21, 1992. In applying these
dates, the issue date of the Mortgage Assets should be used, or, in the case of
Stripped Bond Certificates or Stripped Coupon Certificates, the date such
Certificates are acquired. The holder of a Certificate should be aware,
however, that neither the proposed OID Regulations nor the OID Regulations
adequately address certain issues relevant to prepayable securities.
Under the Code, the Mortgage Assets underlying the Grantor Trust
Certificate will be treated as having been issued on the date they were
originated with an amount of OID equal to the excess of such Mortgage Asset's
stated redemption price at maturity over its issue price. The issue price of a
Mortgage Asset is generally the amount lent to the mortgagee, which may be
adjusted to take into account certain loan origination fees. The stated
redemption price at maturity of a Mortgage Asset is the sum of all payments to
be made on such Mortgage Asset other than payments that are treated as
qualified stated interest payments. The accrual of this OID, as described below
under "--Accrual of Original Issue Discount," will, unless otherwise specified
in the related Prospectus Supplement, utilize the original yield to maturity of
the Grantor Trust Certificate calculated based on a reasonable assumed
prepayment rate for the mortgage loans underlying the Grantor Trust
Certificates (the "PREPAYMENT ASSUMPTION"), and will take into account events
that occur during the calculation period. The Prepayment Assumption will be
determined in the manner prescribed by regulations that have not yet been
issued. The legislative history of the 1986 Act (the "LEGISLATIVE HISTORY")
provides, however, that the regulations will require that the Prepayment
Assumption be the prepayment assumption that is used in determining the
offering price of such Certificate. No representation is made that any
Certificate will prepay at the Prepayment Assumption or at any other rate. The
prepayment assumption contained in the Code literally only applies to debt
instruments collateralized by other debt instruments that are subject to
prepayment rather than direct ownership interests in such debt instruments,
such as the Certificates represent. However, no other legal authority provides
guidance with regard to the proper method for accruing OID on obligations that
are subject to prepayment, and, until further guidance is issued, the Master
Servicer intends to calculate and report OID under the method described below.
Accrual of Original Issue Discount
Generally, the owner of a Grantor Trust Certificate must include in
gross income the sum of the "daily portions," as defined below, of the OID on
such Grantor Trust Certificate for each day on which it owns such Certificate,
including the date of purchase but excluding the date of disposition. In the
case of an original owner, the daily portions of OID with respect to each
component generally will be determined as set forth under the OID Regulations.
A calculation will be made by the Master Servicer or such other entity
specified in the related Prospectus Supplement of the portion of OID that
accrues during each successive monthly accrual period (or shorter period from
the date of original issue) that ends on the day in the calendar year
corresponding to each of the Distribution Dates on the Grantor Trust
Certificates (or the day prior to each such date). This will be done, in the
case of each full month accrual period,
- 74 -
<PAGE> 144
by (i) adding (a) the present value at the end of the accrual period
(determined by using as a discount factor the original yield to maturity of the
respective component under the Prepayment Assumption) of all remaining payments
to be received under the Prepayment Assumption on the respective component and
(b) any payments included in the stated redemption price at maturity received
during such accrual period, and (ii) subtracting from that total the "adjusted
issue price" of the respective component at the beginning of such accrual
period. The adjusted issue price of a Grantor Trust Certificate at the
beginning of the first accrual period is its issue price; the adjusted issue
price of a Grantor Trust Certificate at the beginning of a subsequent accrual
period is the adjusted issue price at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual
period reduced by the amount of any payment other than a payment of qualified
stated interest made at the end of or during that accrual period. The OID
accruing during such accrual period will then be divided by the number of days
in the period to determine the daily portion of OID for each day in the period.
With respect to an initial accrual period shorter than a full monthly accrual
period, the daily portions of OID must be determined according to an
appropriate allocation under any reasonable method.
OID generally must be reported as ordinary gross income as it accrues
under a constant interest method that takes into account the compounding of
interest as it accrues rather than when received. However, the amount of OID
includible in the income of a holder of an obligation is reduced when the
obligation is acquired after its initial issuance at a price greater than the
sum of the original issue price and the previously accrued OID, less prior
payments of principal. Accordingly, if such Mortgage Assets acquired by a
Certificateholder are purchased at a price equal to the then unpaid principal
amount of such Mortgage Asset, no OID attributable to the difference between
the issue price and the original principal amount of such Mortgage Asset (i.e.,
points) will be includible by such holder. Other OID on the Mortgage Assets
(e.g., that arising from a "teaser" rate) would still need to be accrued.
Grantor Trust Certificates Representing Interests in ARM Loans
The OID Regulations do not address the treatment of instruments, such as
the Grantor Trust Certificates, which represent interests in ARM Loans.
Additionally, the IRS has not issued guidance under the Code's coupon stripping
rules with respect to such instruments. In the absence of any authority, the
Master Servicer will report OID on Grantor Trust Certificates attributable to
ARM Loans ("STRIPPED ARM OBLIGATIONS") to holders in a manner it believes is
consistent with the rules described above under "--Grantor Trust Funds --
Multiple Classes of Grantor Trust Certificates -- Grantor Trust Certificates
Representing Interests in Loans Other Than ARM Loans" and with the OID
Regulations. In general, application of these rules may require inclusion of
income on a Stripped ARM Obligation in advance of the receipt of cash
attributable to such income. Further, the addition of interest deferred by
reason of negative amortization ("DEFERRED INTEREST") to the principal balance
of an ARM Loan may require the inclusion of such amount in the income of the
Grantor Trust Certificateholder when such amount accrues. Furthermore, the
addition of Deferred Interest to the Grantor Trust Certificate's principal
balance will result in additional income (including possibly OID income) to the
Grantor Trust Certificateholder over the remaining life of such Grantor Trust
Certificates.
Because the treatment of Stripped ARM Obligations is uncertain,
investors are urged to consult their tax advisors regarding how income will be
includible with respect to such Certificates.
C. SALE OR EXCHANGE OF A GRANTOR TRUST CERTIFICATE
Sale or exchange of a Grantor Trust Certificate prior to its maturity
will result in gain or loss equal to the difference, if any, between the amount
received and the owner's adjusted basis in the Grantor Trust Certificate. Such
adjusted basis generally will equal the seller's purchase price for the Grantor
Trust Certificate, increased by the OID included in the seller's gross income
with respect to the Grantor Trust Certificate, and reduced by principal
payments on the Grantor Trust Certificate previously received by the seller.
Such gain or loss will be capital gain or loss to an owner for which a Grantor
Trust Certificate is a "capital asset" within the meaning of Code Section 1221,
and will be long-term or short-term depending on whether the Grantor Trust
Certificate has been owned for the long-term capital gain holding period
(currently more than one year).
Grantor Trust Certificates will be "evidences of indebtedness" within
the meaning of Code Section 582(c)(1), so that gain or loss recognized from the
sale of a Grantor Trust Certificate by a bank or a thrift institution to which
such section applies will be treated as ordinary income or loss.
- 75 -
<PAGE> 145
D. NON-U.S. PERSONS
Generally, to the extent that a Grantor Trust Certificate evidences
ownership in underlying Mortgage Assets that were issued on or before July 18,
1984, interest or OID paid by the person required to withhold tax under Code
Section 1441 or 1442 to (i) an owner that is not a U.S. Person (as defined
below) or (ii) a Grantor Trust Certificateholder holding on behalf of an owner
that is not a U.S. Person will be subject to federal income tax, collected by
withholding, at a rate of 30% or such lower rate as may be provided for
interest by an applicable tax treaty. Accrued OID recognized by the owner on
the sale or exchange of such a Grantor Trust Certificate also will be subject
to federal income tax at the same rate. Generally, such payments would not be
subject to withholding to the extent that a Grantor Trust Certificate evidences
ownership in Mortgage Assets issued after July 18, 1984, by natural persons if
such Grantor Trust Certificateholder complies with certain identification
requirements (including delivery of a statement, signed by the Grantor Trust
Certificateholder under penalties of perjury, certifying that such Grantor
Trust Certificateholder is not a U.S. Person and providing the name and address
of such Grantor Trust Certificateholder). Additional restrictions apply to
Mortgage Assets where the Mortgagor is not a natural person in order to qualify
for the exemption from withholding.
As used herein, a "U.S. PERSON" means a citizen or resident of the
United States, a corporation or a partnership organized in or under the laws of
the United States or any political subdivision thereof, an estate, the income
of which from sources outside the United States is includible in gross income
for federal income tax purposes regardless of its connection with the conduct
of a trade or business within the United States or a trust if a court within
the United States is able to exercise primary supervision over the
administration of the trust and one or more United States fiduciaries have
authority to control all substantial decisions of the trust.
E. INFORMATION REPORTING AND BACKUP WITHHOLDING
The Master Servicer or Trustee will furnish or make available, within a
reasonable time after the end of each calendar year, to each person who was a
Certificateholder at any time during such year, such information as may be
deemed necessary or desirable to assist Certificateholders in preparing their
federal income tax returns, or to enable holders to make such information
available to beneficial owners or financial intermediaries that hold such
Certificates as nominees on behalf of beneficial owners. If a holder,
beneficial owner, financial intermediary or other recipient of a payment on
behalf of a beneficial owner fails to supply a certified taxpayer
identification number or if the Secretary of the Treasury determines that such
person has not reported all interest and dividend income required to be shown
on its federal income tax return, 31% backup withholding may be required with
respect to any payments. Any amounts deducted and withheld from a distribution
to a recipient would be allowed as a credit against such recipient's federal
income tax liability.
REMICS
The Trust Fund relating to a Series of Certificates may elect to be
treated as a REMIC. Qualification as a REMIC requires ongoing compliance with
certain conditions. The REMIC must fulfill an asset test, which requires that
no more than a de minimis amount of the assets of the REMIC, as of the close of
the third calendar month beginning after the "STARTUP DAY" (which for purposes
of this discussion is the date of issuance of the Certificates by the REMIC
(the "REMIC Certificates")) and at all times thereafter, may consist of assets
other than "qualified mortgages" and "permitted investments." The REMIC
Regulations provide a "safe harbor" pursuant to which the de minimis
requirement will be met if at all times the aggregate adjusted basis of any
nonqualified assets (i.e., assets other than qualified mortgages and permitted
investments) is less than 1% of the aggregate adjusted basis of all the REMIC's
assets. Although a REMIC is not generally subject to federal income tax (see,
however "--REMICs -- Taxation of Owners of REMIC Residual Certificates" and
"--Prohibited Transactions and Other Taxes" below), if a Trust Fund with
respect to which a REMIC election is made fails to comply with one or more of
the ongoing requirements of the Code for REMIC status during any taxable year,
including the implementation of restrictions on the purchase and transfer of
the residual interests in a REMIC as described below under "--REMICs --
Taxation of Owners of REMIC Residual Certificates," the Code provides that a
Trust Fund will not be treated as a REMIC for such year and thereafter. In that
event, the classification of the REMIC for federal income tax purposes is
uncertain. The REMIC might be entitled to treatment as a grantor trust under
the rules described above under "--Grantor Trust Funds". In that case, no
entity-level tax would be imposed on the REMIC. Alternatively, the REMIC
Regular Certificates may continue to be treated as debt instruments for federal
income tax purposes; but the REMIC pool could be treated
- 76 -
<PAGE> 146
as a taxable mortgage pool (a "TMP"). If the REMIC is treated as a TMP, any
residual income of the REMIC (i.e., income from the Mortgage Loans less
interest and OID expense allocable to the REMIC Regular Certificates and any
administrative expenses of the REMIC) would be subject to corporate income tax
at the REMIC level. If such entity is taxable as a separate corporation,
the related Certificates may not be accorded the status or given the tax
treatment described below. While the Code authorizes the Treasury Department to
issue regulations providing relief in the event of an inadvertent termination
of the status of a trust fund as a REMIC, no such regulations have been issued.
Any such relief, moreover, may be accompanied by sanctions, such as the
imposition of a corporate tax on all or a portion of the REMIC's income for the
period in which the requirements for such status are not satisfied. With
respect to each Trust Fund that elects REMIC status, Andrews & Kurth L.L.P.
will deliver its opinion generally to the effect that, under then existing law
and assuming compliance with all provisions of the related Pooling and
Servicing Agreement, such Trust Fund will qualify as a REMIC, and the related
Certificates will be considered to be REMIC Regular Certificates or REMIC
Residual Certificates in the REMIC. The related Prospectus Supplement for each
Series of Certificates will indicate whether the Trust Fund will make a REMIC
election and whether a class of Certificates will be treated as a regular or
residual interest in the REMIC.
A "qualified mortgage" for REMIC purposes is any obligation (including
certificates of participation in such an obligation) that is principally
secured by an interest in real property and that is transferred to the REMIC
within a prescribed time period in exchange for regular or residual interests
in the REMIC.
In general, with respect to each Series of Certificates for which a
REMIC election is made, (i) Certificates held by a thrift institution taxed as
a "domestic building and loan association" will constitute assets described in
Code Section 7701(a)(19)(C); (ii) Certificates held by a real estate investment
trust will constitute "real estate assets" within the meaning of Code Section
856(c)(6)(B); and (iii) interest on Certificates held by a real estate
investment trust will be considered "interest on obligations secured by
mortgages on real property" within the meaning of Code Section 856(c)(3)(B). If
less than 95% of the REMIC's assets are assets qualifying under any of the
foregoing Code sections, the Certificates will be qualifying assets only to the
extent that the REMIC's assets are qualifying assets. In addition, payments on
Mortgage Assets held pending distribution on the REMIC Certificates will be
considered to be "real estate assets" for purposes of Code Section 856(c).
Tiered REMIC Structures. For certain Series of Certificates, two
separate elections may be made to treat designated portions of the related
Trust Fund as REMICs (respectively, the "SUBSIDIARY REMIC" and the "MASTER
REMIC") for federal income tax purposes. Upon the issuance of any such Series
of Certificates, Andrews & Kurth L.L.P., counsel to the Depositor, will deliver
its opinion generally to the effect that, assuming compliance with all
provisions of the related Agreement, the Master REMIC as well as any Subsidiary
REMIC will each qualify as a REMIC, and the REMIC Certificates issued by the
Master REMIC and the Subsidiary REMIC, respectively, will be considered to
evidence ownership of REMIC Regular Certificates or REMIC Residual Certificates
in the related REMIC within the meaning of the REMIC provisions.
Only REMIC Certificates, other than the residual interest in the
Subsidiary REMIC, issued by the Master REMIC will be offered hereunder. The
Subsidiary REMIC and the Master REMIC will be treated as one REMIC solely for
purposes of determining whether the REMIC Certificates will be (i) "real estate
assets" within the meaning of Section 856(c)(6)(B) of the Code; (ii) "loans
secured by an interest in real property" under Section 7701(a)(19)(C) of the
Code; and (iii) whether the income on such Certificates is interest described
in Section 856(c)(3)(B) of the Code. Moreover, the REMIC Regulations provide
that, for purposes of Code Section 856(c)(5)(A), payments of principal and
interest on the mortgage loans that are reinvested pending distribution to
holders of REMIC Certificates constitute qualifying assets for such entities.
Where two REMIC Pools are part of a tiered structure they will be treated as
one REMIC for purposes of the test described above respecting asset ownership
of more or less than 95%. Notwithstanding the foregoing, however, REMIC income
received by a real estate investment trust ("REIT") owning a residual interest
in a REMIC could be treated in part as non-qualifying REIT income if the REMIC
holds mortgage loans with respect to which income is contingent on mortgagor
profits or property appreciation. In addition, if the assets of the REMIC
include buy-own mortgage loans, it is possible that the percentage of such
assets constituting "qualifying real property loans" or "loans . . . secured by
an interest in real property" for
- 77 -
<PAGE> 147
purposes of Code Section 7701(a)(19)(C)(v), may be required to be reduced by
the amount of the related buy-down funds. REMIC Certificates held by a
regulated investment company will not constitute "government securities" within
the meaning of Code Section 851(b)(4)(A)(i). REMIC Certificates held by certain
financial institutions will constitute an "evidence of indebtedness" within the
meaning of Code Section 582(c)(1). However, REMIC Regular Certificates acquired
by another REMIC on its Startup Day in exchange for regular or residual
interests in the REMIC will constitute "qualified mortgages" within the meaning
of Code Section 860G(a)(3).
A. TAXATION OF OWNERS OF REMIC REGULAR CERTIFICATES
General. Except as otherwise stated in this discussion, REMIC Regular
Certificates will be treated for federal income tax purposes as debt
instruments issued by the REMIC and not as ownership interests in the REMIC or
its assets. In general, interest and OID on a REMIC Regular Certificate will be
treated as ordinary income to a holder of the REMIC Regular Certificate (a
"REMIC REGULAR CERTIFICATEHOLDER") as they accrue, and principal payments on a
REMIC Regular Certificate will be treated as a return of capital to the extent
of the REMIC Regular Certificateholder's basis in the REMIC Regular Certificate
allocable thereto. Moreover, holders of REMIC Regular Certificates that
otherwise report income under a cash method of accounting will be required to
report income with respect to REMIC Regular Certificates under an accrual
method.
Original Issue Discount and Premium. The REMIC Regular Certificates may
be issued with OID. Generally, such OID, if any, will equal the difference
between the "stated redemption price at maturity" of a REMIC Regular
Certificate and its "issue price." Holders of any class of Certificates issued
with OID will be required to include such OID in gross income for federal
income tax purposes as it accrues, in accordance with a constant interest
method based on the compounding of interest as it accrues rather than in
accordance with receipt of the interest payments. The following discussion is
based in part on the OID Regulations and in part on the provisions of the 1986
Act. REMIC Regular Certificateholders should be aware, however, that the OID
Regulations do not adequately address certain issues relevant to prepayable
securities, such as the REMIC Regular Certificates.
Rules governing OID are set forth in Code Sections 1271 through 1273 and
1275. These rules require that the amount and rate of accrual of OID be
calculated based on the Prepayment Assumption and the anticipated reinvestment
rate, if any, relating to the REMIC Regular Certificates and prescribe a method
for adjusting the amount and rate of accrual of such discount where the actual
prepayment rate differs from the Prepayment Assumption. Under the Code, the
Prepayment Assumption must be determined in the manner prescribed by
regulations, which regulations have not yet been issued. The Legislative
History provides, however, that Congress intended the regulations to require
that the Prepayment Assumption be the prepayment assumption that is used in
determining the initial offering price of such REMIC Regular Certificates. The
Prospectus Supplement for each Series of REMIC Regular Certificates will
specify the Prepayment Assumption to be used for the purpose of determining the
amount and rate of accrual of OID. No representation is made that the REMIC
Regular Certificates will prepay at the Prepayment Assumption or at any other
rate. Moreover, the OID Regulations include an anti-abuse rule allowing the IRS
to apply or depart from the OID Regulations where necessary or appropriate to
ensure a reasonable tax result in light of the applicable statutory provisions.
A tax result will not be considered unreasonable under the anti-abuse rule in
the absence of a substantial effect on the present value of a taxpayer's tax
liability. Investors are advised to consult their own tax advisors as to the
discussion herein and the appropriate method for reporting interest and
original issue discount with respect to the REMIC Regular Certificates.
In general, each REMIC Regular Certificate will be treated as a single
installment obligation issued with an amount of OID equal to the excess of its
"stated redemption price at maturity" over its "issue price." The issue price
of a REMIC Regular Certificate is the first price at which a substantial amount
of REMIC Regular Certificates of that class are first sold to the public
(excluding bond houses, brokers, underwriters or wholesalers). If less than a
substantial amount of a particular class of REMIC Regular Certificates is sold
for cash on or prior to the date of their initial issuance (the "CLOSING
DATE"), the issue price for such class will be treated as the fair market value
of such class on the Closing Date. The issue price of a REMIC Regular
Certificate also includes the amount paid by an initial Certificateholder for
accrued interest that relates to a period prior to the issue date of the REMIC
Regular Certificate. The stated redemption price at maturity of a REMIC Regular
Certificate includes the original principal amount of the REMIC Regular
Certificate, but generally will not include distributions of interest if such
distributions constitute "qualified stated
- 78 -
<PAGE> 148
interest." Qualified stated interest generally means interest payable at a
single fixed rate or qualified variable rate (as described below) provided that
such interest payments are unconditionally payable at intervals of one year or
less during the entire term of the REMIC Regular Certificate. Interest is
payable at a single fixed rate only if the rate appropriately takes into
account the length of the interval between payments. Distributions of interest
on REMIC Regular Certificates with respect to which Deferred Interest will
accrue will not constitute qualified stated interest payments, and the stated
redemption price at maturity of such REMIC Regular Certificates includes all
distributions of interest as well as principal thereon.
Where the interval between the issue date and the first Distribution
Date on a REMIC Regular Certificate is longer than the interval between
subsequent Distribution Dates, the greater of any OID (disregarding the rate in
the first period) and any interest foregone during the first period is treated
as the amount by which the stated redemption price at maturity of the
Certificate exceeds its issue price for purposes of the de minimis rule
described below. The OID Regulations suggest that all interest on a long first
period REMIC Regular Certificate that is issued with non-de minimis OID, as
determined under the foregoing rule, will be treated as OID. Where the interval
between the issue date and the first Distribution Date on a REMIC Regular
Certificate is shorter than the interval between subsequent Distribution Dates,
interest due on the first Distribution Date in excess of the amount that
accrued during the first period would be added to the Certificates, stated
redemption price at maturity. REMIC Regular Certificateholders should consult
their own tax advisors to determine the issue price and stated redemption price
at maturity of a REMIC Regular Certificate.
Under the de minimis rule, OID on a REMIC Regular Certificate will be
considered to be zero if such OID is less than 0.25% of the stated redemption
price at maturity of the REMIC Regular Certificate multiplied by the weighted
average maturity of the REMIC Regular Certificate. For this purpose, the
weighted average maturity of the REMIC Regular Certificate is computed as the
sum of the amounts determined by multiplying the number of full years (i.e.,
rounding down partial years) from the issue date until each distribution in
reduction of stated redemption price at maturity is scheduled to be made by a
fraction, the numerator of which is the amount of each distribution included in
the stated redemption price at maturity of the REMIC Regular Certificate and
the denominator of which is the stated redemption price at maturity of the
REMIC Regular Certificate. Although currently unclear, it appears that the
schedule of such distributions should be determined in accordance with the
Prepayment Assumption. The Prepayment Assumption with respect to a Series of
REMIC Regular Certificates will be set forth in the related Prospectus
Supplement. Holders generally must report de minimis OID pro rata as principal
payments are received, and such income will be capital gain if the REMIC
Regular Certificate is held as a capital asset. However, accrual method holders
may elect to accrue all de minimis OID as well as market discount under a
constant interest method.
The Prospectus Supplement with respect to a Trust Fund may provide for
certain REMIC Regular Certificates to be issued at prices significantly
exceeding their principal amounts or based on notional principal balances (the
"SUPER-PREMIUM CERTIFICATES"). The income tax treatment of such REMIC Regular
Certificates is not entirely certain. For information reporting purposes, the
Trust Fund intends to take the position that the stated redemption price at
maturity of such REMIC Regular Certificates is the sum of all payments to be
made on such REMIC Regular Certificates determined under the Prepayment
Assumption, with the result that such REMIC Regular Certificates would be
issued with OID. The calculation of income in this manner could result in
negative OID (which delays future accruals of OID rather than being immediately
deductible) when prepayments on the Mortgage Assets exceed those estimated
under the Prepayment Assumption. If the Super Premium Certificates were treated
as contingent payment obligations, it is unclear how holders of those
Certificates would report income or recover their basis. The OID Regulations,
as they relate to the treatment of contingent interest, are by their terms not
applicable to Regular Certificates. However, if final regulations dealing with
contingent interest with respect to Regular Certificates apply the same
principles as the OID Regulations, such regulations may lead to different
timing of income inclusion and different characterization of any gain on the
sale of a Super-Premium Certificate than discussed above. In the alternative,
the IRS could assert that the stated redemption price at maturity of such REMIC
Regular Certificates should be limited to their principal amount (subject to
the discussion below under "--REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Accrued Interest Certificates"), so that such REMIC Regular
Certificates would be considered for federal income tax purposes to be issued
at a premium. If such a position were to prevail, the rules described below
under "--REMICs -- Taxation of Owners of REMIC Regular Certificates -- Premium"
would apply. It is unclear when a loss may be claimed for any unrecovered basis
for a Super-Premium Certificate. It is possible that a holder of a Super-
Premium Certificate may only claim a loss when its remaining basis exceeds the
maximum amount of future payments, assuming no further prepayments or when the
final payment is received with respect to such
- 79 -
<PAGE> 149
Super-Premium Certificate. Investors should consult their tax advisors
regarding the appropriate treatment of Super-Premium Certificates.
Under the REMIC Regulations, if the issue price of a REMIC Regular
Certificate (other than a REMIC Regular Certificate based on a notional amount)
does not exceed 125% of its actual principal amount, the interest rate is not
considered disproportionately high. Accordingly, such REMIC Regular Certificate
generally should not be treated as a Super-Premium Certificate and the rules
described below under "--REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Premium" should apply. However, it is possible that holders of
REMIC Regular Certificates issued at a premium, even if the premium is less
than 25% of such Certificate's actual principal balance, will be required to
amortize the premium under an OID method or contingent interest method even
though no election under Code Section 171 is made to amortize such premium.
Generally, a REMIC Regular Certificateholder must include in gross
income the "daily portions," as determined below, of the OID that accrues on a
REMIC Regular Certificate for each day a Certificateholder holds the REMIC
Regular Certificate, including the purchase date but excluding the disposition
date. In the case of an original holder of a REMIC Regular Certificate, a
calculation will be made of the portion of the OID that accrues during each
successive period ("an accrual period") that ends on the day in the calendar
year corresponding to a Distribution Date (or if Distribution Dates are on the
first day or first business day of the immediately preceding month, interest
may be treated as payable on the last day of the immediately preceding month)
and begins on the day after the end of the immediately preceding accrual period
(or on the issue date in the case of the first accrual period). This will be
done, in the case of each full accrual period, by (i) adding (a) the present
value at the end of the accrual period (determined by using as a discount
factor the original yield to maturity of the REMIC Regular Certificates as
calculated under the Prepayment Assumption) of all remaining payments to be
received on the REMIC Regular Certificates under the Prepayment Assumption and
(b) any payments included in the stated redemption price at maturity received
during such accrual period, and (ii) subtracting from that total the adjusted
issue price of the REMIC Regular Certificates at the beginning of such accrual
period. The adjusted issue price of a REMIC Regular Certificate at the
beginning of the first accrual period is its issue price; the adjusted issue
price of a REMIC Regular Certificate at the beginning of a subsequent accrual
period is the adjusted issue price at the beginning of the immediately
preceding accrual period plus the amount of OID allocable to that accrual
period and reduced by the amount of any payment other than a payment of
qualified stated interest made at the end of or during that accrual period. The
OID accrued during an accrual period will then be divided by the number of days
in the period to determine the daily portion of OID for each day in the accrual
period. The calculation of OID under the method described above will cause the
accrual of OID to either increase or decrease (but never below zero) in a given
accrual period to reflect the fact that prepayments are occurring faster or
slower than under the Prepayment Assumption. With respect to an initial accrual
period shorter than a full accrual period, the daily portions of OID may be
determined according to an appropriate allocation under any reasonable method.
A subsequent purchaser of a REMIC Regular Certificate issued with OID
who purchases the REMIC Regular Certificate at a cost less than the remaining
stated redemption price at maturity will also be required to include in gross
income the sum of the daily portions of OID on that REMIC Regular Certificate.
In computing the daily portions of OID for such a purchaser (as well as an
initial purchaser that purchases at a price higher than the adjusted issue
price but less than the stated redemption price at maturity), however, the
daily portion is reduced by the amount that would be the daily portion for such
day (computed in accordance with the rules set forth above) multiplied by a
fraction, the numerator of which is the amount, if any, by which the price paid
by such holder for that REMIC Regular Certificate exceeds the following amount:
(a) the sum of the issue price plus the aggregate amount of OID that would have
been includible in the gross income of an original REMIC Regular
Certificateholder (who purchased the REMIC Regular Certificate at its issue
price), less (b) any prior payments included in the stated redemption price at
maturity, and the denominator of which is the sum of the daily portions for
that REMIC Regular Certificate for all days beginning on the date after the
purchase date and ending on the maturity date computed under the Prepayment
Assumption. A holder who pays an acquisition premium instead may elect to
accrue OID by treating the purchase as a purchase at original issue.
Variable Rate REMIC Regular Certificates. REMIC Regular Certificates may
provide for interest based on a variable rate. Interest based on a variable
rate will constitute qualified stated interest and not contingent interest if,
generally, (i) such interest is unconditionally payable at least annually, (ii)
the issue price of the debt instrument does not exceed the total noncontingent
principal payments and (iii) interest is based on a "qualified floating rate,"
an "objective rate," a combination of a single fixed rate and one or more
"qualified floating rates," one "qualified inverse
- 80 -
<PAGE> 150
floating rate," or a combination of "qualified floating rates" that do not
operate in a manner that significantly accelerates or defers interest payments
on such REMIC Regular Certificate.
The amount of OID with respect to a REMIC Regular Certificate bearing a
variable rate of interest will accrue in the manner described above under
"--REMICs -- Taxation of Owners of REMIC Regular Certificates -- Original Issue
Discount and Premium" by assuming generally that the index used for the
variable rate will remain fixed throughout the term of the Certificate.
Appropriate adjustments are made for the actual variable rate.
Although unclear at present, the Depositor intends to treat interest on
a REMIC Regular Certificate that is a weighted average of the net interest
rates on Mortgage Loans as qualified stated interest.
In such case, the weighted average rate used to compute the initial
pass-through rate on the REMIC Regular Certificates will be deemed to be the
index in effect through the life of the REMIC Regular Certificates. It is
possible, however, that the IRS may treat some or all of the interest on REMIC
Regular Certificates with a weighted average rate as taxable under the rules
relating to obligations providing for contingent payments. Such treatment may
effect the timing of income accruals on such REMIC Regular Certificates.
Election to Treat All Interest as OID. The OID Regulations permit a
Certificateholder to elect to accrue all interest, discount (including de
minimis market or OID) and premium in income as interest, based on a constant
yield method. If such an election were to be made with respect to a REMIC
Regular Certificate with market discount, the Certificateholder would be deemed
to have made an election to include in income currently market discount with
respect to all other debt instruments having market discount that such
Certificateholder acquires during the year of the election or thereafter.
Similarly, a Certificateholder that makes this election for a Certificate that
is acquired at a premium will be deemed to have made an election to amortize
bond premium with respect to all debt instruments having amortizable bond
premium that such Certificateholder owns or acquires. See "--REMICs -- Taxation
of Owners of REMIC Regular Certificates -- Premium" below. The election to
accrue interest, discount and premium on a constant yield method with respect
to a Certificate is irrevocable except with the approval of the IRS.
Market Discount. A purchaser of a REMIC Regular Certificate may also be
subject to the market discount provisions of Code Sections 1276 through 1278.
Under these provisions and the OID Regulations, "market discount" equals the
excess, if any, of (i) the REMIC Regular Certificate's stated principal amount
or, in the case of a REMIC Regular Certificate with OID, the adjusted issue
price (determined for this purpose as if the purchaser had purchased such REMIC
Regular Certificate from an original holder) over (ii) the price for such REMIC
Regular Certificate paid by the purchaser. A Certificateholder that purchases a
REMIC Regular Certificate at a market discount will recognize income upon
receipt of each distribution representing amounts included in such
certificate's stated redemption price at maturity. In particular, under Section
1276 of the Code such a holder generally will be required to allocate each such
distribution first to accrued market discount not previously included in
income, and to recognize ordinary income to that extent, regardless of whether
the holder is a cash-basis or an accrual basis taxpayer. A Certificateholder
may elect to include market discount in income currently as it accrues rather
than including it on a deferred basis in accordance with the foregoing. If
made, such election will apply to all market discount bonds acquired by such
Certificateholder on or after the first day of the first taxable year to which
such election applies.
Market discount with respect to a REMIC Regular Certificate will be
considered to be zero if the amount allocable to the REMIC Regular Certificate
is less than 0.25% of such REMIC Regular Certificate's stated redemption price
at maturity multiplied by such REMIC Regular Certificate's weighted average
maturity remaining after the date of purchase. If market discount on a REMIC
Regular Certificate is considered to be zero under this rule, the actual amount
of market discount must be allocated to the remaining principal payments on the
REMIC Regular Certificate, and gain equal to such allocated amount will be
recognized when the corresponding principal payment is made. Treasury
regulations implementing the market discount rules have not yet been issued;
therefore, investors should consult their own tax advisors regarding the
application of these rules and the advisability of making any of the elections
allowed under Code Sections 1276 through 1278.
The Code provides that any principal payment (whether a scheduled
payment or a prepayment) or any gain on disposition of a market discount bond
acquired by the taxpayer after October 22, 1986, shall be treated as ordinary
income to the extent that it does not exceed the accrued market discount at the
time of such payment. The amount of
- 81 -
<PAGE> 151
accrued market discount for purposes of determining the tax treatment of
subsequent principal payments or dispositions of the market discount bond is to
be reduced by the amount so treated as ordinary income.
The Code also grants authority to the Treasury Department to issue
regulations providing for the computation of accrued market discount on debt
instruments, the principal of which is payable in more than one installment.
Until such time as regulations are issued by the Treasury, rules described in
the Legislative History will apply. Under those rules, the holder of a market
discount bond may elect to accrue market discount either on the basis of a
constant interest method rate or according to one of the following methods. For
REMIC Regular Certificates issued with OID, the amount of market discount that
accrues during a period is equal to the product of (i) the total remaining
market discount and (ii) a fraction, the numerator of which is the OID accruing
during the period and the denominator of which is the total remaining OID at
the beginning of the period. For REMIC Regular Certificates issued without OID,
the amount of market discount that accrues during a period is equal to the
product of (a) the total remaining market discount and (b) a fraction, the
numerator of which is the amount of stated interest paid during the accrual
period and the denominator of which is the total amount of stated interest
remaining to be paid at the beginning of the period. For purposes of
calculating market discount under any of the above methods in the case of
instruments (such as the REMIC Regular Certificates) that provide for payments
that may be accelerated by reason of prepayments of other obligations securing
such instruments, the same Prepayment Assumption applicable to calculating the
accrual of OID will apply.
A holder who acquired a REMIC Regular Certificate at a market discount
also may be required to defer a portion of the excess of the interest paid or
incurred for the taxable year attributable to any indebtedness incurred or
continued to purchase or carry such Certificate purchased with market discount
over the interest distributable thereon. For these purposes, the de minimis
rule referred to above applies. Any such deferred excess interest expense would
not exceed the market discount that accrues during such taxable year and is, in
general, allowed as a deduction not later than the year in which such market
discount is includible in income. The amount of any remaining deferred
deduction is to be taken into account in the taxable year in which the
Certificate matures or is disposed of in a taxable transaction. In the case of
a disposition in which gain or loss is not recognized in whole or in part, any
remaining deferred deduction will be allowed to the extent of gain recognized
on the disposition. If such holder elects to include market discount in income
currently as it accrues on all market discount instruments acquired by such
holder in that taxable year or thereafter, the interest deferral rule described
above will not apply.
Premium. A purchaser of a REMIC Regular Certificate that purchases the
REMIC Regular Certificate at a cost (not including accrued qualified stated
interest) greater than its remaining stated redemption price at maturity will
be considered to have purchased the REMIC Regular Certificate at a premium and
may elect to amortize such premium under a constant yield method. A
Certificateholder that makes this election for a Certificate that is acquired
at a premium will be deemed to have made an election to amortize bond premium
with respect to all debt instruments having amortizable bond premium that such
Certificateholder holds during the year of the election or thereafter. It is
not clear whether the Prepayment Assumption would be taken into account in
determining the life of the REMIC Regular Certificate for this purpose.
However, the Legislative History states that the same rules that apply to
accrual of market discount (which rules require use of a Prepayment Assumption
in accruing market discount with respect to REMIC Regular Certificates without
regard to whether such Certificates have OID) will also apply in amortizing
bond premium under Code Section 171. The Code provides that amortizable bond
premium will be allocated among the interest payments on such REMIC Regular
Certificates and will be applied as an offset against such interest payment.
Deferred Interest. Certain classes of REMIC Regular Certificates may
provide for the accrual of Deferred Interest with respect to one or more ARM
Loans. Any Deferred Interest that accrues with respect to a class of REMIC
Regular Certificates will constitute income to the holders of such Certificates
prior to the time distributions of cash with respect to such Deferred Interest
are made. It is unclear, under the OID Regulations, whether any of the interest
on such Certificates will constitute qualified stated interest or whether all
or a portion of the interest payable on such Certificates must be included in
the stated redemption price at maturity of the Certificates and accounted for
as OID (which could accelerate such inclusion). Interest on REMIC Regular
Certificates must in any event be accounted for under an accrual method by the
holders of such Certificates and, therefore, applying the latter analysis may
result only in a slight difference in the timing of the inclusion in income of
interest on such REMIC Regular Certificates.
Effects of Defaults and Delinquencies. Certain Series of Certificates
may contain one or more classes of Subordinated Certificates, and in the event
there are defaults or delinquencies on the Mortgage Assets, amounts that
- 82 -
<PAGE> 152
would otherwise be distributed on the Subordinated Certificates may instead be
distributed on the Senior Certificates. Subordinated Certificateholders
nevertheless will be required to report income with respect to such
Certificates under an accrual method without giving effect to delays and
reductions in distributions on such Subordinated Certificates attributable to
defaults and delinquencies on the Mortgage Assets, except to the extent that it
can be established that such amounts are uncollectible. As a result, the amount
of income reported by a Subordinated Certificateholder in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Subordinated Certificate is reduced as a result of
defaults and delinquencies on the Mortgage Assets. Timing and characterization
of such losses is discussed in "--REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Treatment of Realized Losses" below.
Sale, Exchange or Redemption. If a REMIC Regular Certificate is sold,
exchanged, redeemed or retired, the seller will recognize gain or loss equal to
the difference between the amount realized on the sale, exchange, redemption,
or retirement and the seller's adjusted basis in the REMIC Regular Certificate.
Such adjusted basis generally will equal the cost of the REMIC Regular
Certificate to the seller, increased by any OID and market discount included in
the seller's gross income with respect to the REMIC Regular Certificate, and
reduced (but not below zero) by payments included in the stated redemption
price at maturity previously received by the seller and by any amortized
premium. Similarly, a holder who receives a payment that is part of the stated
redemption price at maturity of a REMIC Regular Certificate will recognize gain
equal to the excess, if any, of the amount of the payment over the holder's
adjusted basis in the REMIC Regular Certificate. A REMIC Regular
Certificateholder who receives a final payment that is less than the holder's
adjusted basis in the REMIC Regular Certificate will generally recognize a
loss. Except as provided in the following paragraph and as provided under
"--REMICs -- Taxation of Owners of REMIC Regular Certificates -- Market
Discount" above, any such gain or loss will be capital gain or loss, provided
that the REMIC Regular Certificate is held as a "capital asset" (generally,
property held for investment) within the meaning of Code Section 1221.
Gain from the sale or other disposition of a REMIC Regular Certificate
that might otherwise be capital gain will be treated as ordinary income (i) if
a REMIC Regular Certificate is held as part of a "conversion transaction" as
defined in Code Section 1258(c), up to the amount of interest that would have
accrued on the REMIC Regular Certificateholder's net investment in the
conversion transaction at 120% of the appropriate applicable Federal rate under
Code Section 1274(d) in effect at the time the taxpayer entered into the
transaction minus any amount previously treated as ordinary income with respect
to any prior disposition of property that was held as part of such transaction,
(ii) in the case of a non-corporate taxpayer, to the extent such taxpayer has
made an election under Code Section 163(d)(4) to have net capital gains taxes
as investment income at ordinary income rates, or (iii) in the case of a REMIC
Regular Certificate.
The Certificates will be "evidences of indebtedness" within the meaning
of Code Section 582(c)(1), so that gain or loss recognized from the sale of a
REMIC Regular Certificate by a bank or a thrift institution to which such
Section applies will be ordinary income or loss.
The REMIC Regular Certificate information reports will include a
statement of the adjusted issue price of the REMIC Regular Certificate at the
beginning of each accrual period. In addition, the reports will include
information necessary to compute the accrual of any market discount that may
arise upon secondary trading of REMIC Regular Certificates. Because exact
computation of the accrual of market discount on a constant yield method would
require information relating to the holder's purchase price which the REMIC may
not have, it appears that the information reports will only require information
pertaining to the appropriate proportionate method of accruing market discount.
Accrued Interest Certificates. Certain of the REMIC Regular Certificates
("PAYMENT LAG CERTIFICATES") may provide for payments of interest based on a
period that corresponds to the interval between Distribution Dates but that
ends prior to each such Distribution Date. The period between the Closing Date
for Payment Lag Certificates and their first Distribution Date may or may not
exceed such interval. Purchasers of Payment Lag Certificates for which the
period between the Closing Date and the first Distribution Date does not exceed
such interval could pay upon purchase of the REMIC Regular Certificates accrued
interest in excess of the accrued interest that would be paid if the interest
paid on the Distribution Date were interest accrued from Distribution Date to
Distribution Date. If a portion of the initial purchase price of a REMIC
Regular Certificate is allocable to interest that has accrued prior to the
issue date ("pre-issuance accrued interest") and the REMIC Regular Certificate
provides for a payment of stated interest on the first
- 83 -
<PAGE> 153
payment date (and the first payment date is within one year of the issue date)
that equals or exceeds the amount of the pre-issuance accrued interest, then
the REMIC Regular Certificates' issue price may be computed by subtracting from
the issue price the amount of pre-issuance accrued interest, rather than as an
amount payable on the REMIC Regular Certificate. However, it is unclear under
this method how the OID Regulations treat interest on Payment Lag Certificates.
Therefore, in the case of a Payment Lag Certificate, the Trust Fund intends to
include accrued interest in the issue price and report interest payments made
on the first Distribution Date as interest to the extent such payments
represent interest for the number of days that the Certificateholder has held
such Payment Lag Certificate during the first accrual period.
Investors should consult their own tax advisors concerning the treatment
for federal income tax purposes of Payment Lag Certificates.
Non-Interest Expenses of the REMIC. Under temporary Treasury
regulations, if the REMIC is considered to be a "single-class REMIC," a portion
of the REMIC's servicing, administrative and other non-interest expenses will
be allocated as a separate item to those REMIC Regular Certificateholders that
are "pass-through interest holders." Certificateholders that are pass-through
interest holders should consult their own tax advisors about the impact of
these rules on an investment in the REMIC Regular Certificates. See "--REMICs
- -- Taxation of Owners of REMIC Residual Certificates -- Pass-Through of Non-
Interest Expenses of the REMIC" below.
Treatment of Realized Losses. Although not entirely clear, it appears
that holders of REMIC Regular Certificates that are corporations should in
general be allowed to deduct as an ordinary loss any loss sustained during the
taxable year on account of any such Certificates becoming wholly or partially
worthless, and that, in general, holders of Certificates that are not
corporations should be allowed to deduct as a short-term capital loss any loss
sustained during the taxable year on account of any such Certificates becoming
wholly worthless. Although the matter is not entirely clear, non-corporate
holders of Certificates may be allowed a bad debt deduction at such time that
the principal balance of any such Certificate is reduced to reflect realized
losses resulting from any liquidated Mortgage Assets. The Internal Revenue
Service, however, could take the position that non-corporate holders will be
allowed a bad debt deduction to reflect realized losses only after all Mortgage
Assets remaining in the related Trust Fund have been liquidated or the
Certificates of the related Series have been otherwise retired. Potential
investors and holders of the Certificates are urged to consult their own tax
advisors regarding the appropriate timing, amount and character of any loss
sustained with respect to such Certificates, including any loss resulting from
the failure to recover previously accrued interest or discount income. Special
loss rules are applicable to banks and thrift institutions, including rules
regarding reserves for bad debts. Such taxpayers are advised to consult their
tax advisors regarding the treatment of losses on Certificates.
Non-U.S. Persons. Generally, payments of interest (including any payment
with respect to accrued OID) on the REMIC Regular Certificates to a REMIC
Regular Certificateholder who is not a U.S. Person and is not engaged in a
trade or business within the United States will not be subject to federal
withholding tax if (i) such REMIC Regular Certificateholder does not actually
or constructively own 10 percent or more of the combined voting power of all
classes of equity in the Issuer; (ii) such REMIC Regular Certificateholder is
not a controlled foreign corporation (within the meaning of Code Section 957)
related to the Issuer; and (iii) such REMIC Regular Certificateholder complies
with certain identification requirements (including delivery of a statement,
signed by the REMIC Regular Certificateholder under penalties of perjury,
certifying that such REMIC Regular Certificateholder is a foreign person and
providing the name and address of such REMIC Regular Certificateholder). If a
REMIC Regular Certificateholder is not exempt from withholding, distributions
of interest to such holder, including distributions in respect of accrued OID,
may be subject to a 30% withholding tax, subject to reduction under any
applicable tax treaty.
Further, a REMIC Regular Certificate will not be included in the estate
of a non-resident alien individual and will not be subject to United States
estate taxes. However, Certificateholders who are non-resident alien
individuals should consult their tax advisors concerning this question.
REMIC Regular Certificateholders who are not U.S. Persons and persons
related to such holders should not acquire any REMIC Residual Certificates, and
holders of REMIC Residual Certificates (the "REMIC RESIDUAL CERTIFICATEHOLDER")
and persons related to REMIC Residual Certificateholders should not acquire any
REMIC Regular Certificates without consulting their tax advisors as to the
possible adverse tax consequences of doing so.
- 84 -
<PAGE> 154
Information Reporting and Backup Withholding. The Master Servicer will
furnish or make available, within a reasonable time after the end of each
calendar year, to each person who was a REMIC Regular Certificateholder at any
time during such year, such information as may be deemed necessary or desirable
to assist REMIC Regular Certificateholders in preparing their federal income
tax returns, or to enable holders to make such information available to
beneficial owners or financial intermediaries that hold such REMIC Regular
Certificates on behalf of beneficial owners. If a holder, beneficial owner,
financial intermediary or other recipient of a payment on behalf of a
beneficial owner fails to supply a certified taxpayer identification number or
if the Secretary of the Treasury determines that such person has not reported
all interest and dividend income required to be shown on its federal income tax
return, 31% backup withholding may be required with respect to any payments.
Any amounts deducted and withheld from a distribution to a recipient would be
allowed as a credit against such recipient's federal income tax liability.
B. TAXATION OF OWNERS OF REMIC RESIDUAL CERTIFICATES
Allocation of the Income of the REMIC to the REMIC Residual
Certificates. The REMIC will not be subject to federal income tax except with
respect to income from prohibited transactions and certain other transactions.
See "--Prohibited Transactions and Other Taxes" below. Instead, each original
holder of a REMIC Residual Certificate will report on its federal income tax
return, as ordinary income, its share of the taxable income of the REMIC for
each day during the taxable year on which such holder owns any REMIC Residual
Certificates. The taxable income of the REMIC for each day will be determined
by allocating the taxable income of the REMIC for each calendar quarter ratably
to each day in the quarter. Such a holder's share of the taxable income of the
REMIC for each day will be based on the portion of the outstanding REMIC
Residual Certificates that such holder owns on that day. The taxable income of
the REMIC will be determined under an accrual method and will be taxable to the
holders of REMIC Residual Certificates without regard to the timing or amounts
of cash distributions by the REMIC. Ordinary income derived from REMIC Residual
Certificates will be "portfolio income" for purposes of the taxation of
taxpayers subject to the limitations on the deductibility of "passive losses."
As residual interests, the REMIC Residual Certificates will be subject to tax
rules, described below, that differ from those that would apply if the REMIC
Residual Certificates were treated for federal income tax purposes as direct
ownership interests in the Certificates or as debt instruments issued by the
REMIC.
A REMIC Residual Certificateholder may be required to include taxable
income from the REMIC Residual Certificate in excess of the cash distributed.
For example, a structure where principal distributions are made serially on
regular interests (that is, a fast-pay, slow-pay structure) may generate such a
mismatching of income and cash distributions (that is, "phantom income"). This
mismatching may be caused by the use of certain required tax accounting methods
by the REMIC, variations in the prepayment rate of the underlying Mortgage
Assets and certain other factors. Depending upon the structure of a particular
transaction, the aforementioned factors may significantly reduce the after-tax
yield of a REMIC Residual Certificate to a REMIC Residual Certificateholder.
Investors should consult their own tax advisors concerning the federal income
tax treatment of a REMIC Residual Certificate and the impact of such tax
treatment on the after-tax yield of a REMIC Residual Certificate.
A subsequent REMIC Residual Certificateholder also will report on its
federal income tax return amounts representing a daily share of the taxable
income of the REMIC for each day that such REMIC Residual Certificateholder
owns such REMIC Residual Certificate. Those daily amounts generally would equal
the amounts that would have been reported for the same days by an original
REMIC Residual Certificateholder, as described above. The Legislative History
indicates that certain adjustments may be appropriate to reduce (or increase)
the income of a subsequent holder of a REMIC Residual Certificate that
purchased such REMIC Residual Certificate at a price greater than (or less
than) the adjusted basis such REMIC Residual Certificate would have in the
hands of an original REMIC Residual Certificateholder. See "--REMICs --
Taxation of Owners of REMIC Residual Certificates -- Sale or Exchange of REMIC
Residual Certificates" below. It is not clear, however, whether such
adjustments will in fact be permitted or required and, if so, how they would be
made. The REMIC Regulations do not provide for any such adjustments.
Taxable Income of the REMIC Attributable to Residual Interests. The
taxable income of the REMIC will reflect a netting of (i) the income from the
Mortgage Assets and the REMIC's other assets and (ii) the deductions allowed to
the REMIC for interest and OID on the REMIC Regular Certificates and, except as
described above under "--REMICs -- Taxation of Owners of REMIC Regular
Certificates -- Non-Interest Expenses of the REMIC," other expenses. REMIC
taxable income is generally determined in the same manner as the taxable income
of an individual using the accrual method of accounting, except that (i) the
limitations on deductibility of investment interest expense and expenses
- 85 -
<PAGE> 155
for the production of income do not apply, (ii) all bad loans will be
deductible as business bad debts, and (iii) the limitation on the deductibility
of interest and expenses related to tax-exempt income will apply. The REMIC's
gross income includes interest, OID income, and market discount income, if any,
on the Mortgage Loans, reduced by amortization of any premium on the Mortgage
Loans, plus income on reinvestment of cash flows and reserve assets, plus any
cancellation of indebtedness income upon allocation of realized losses to the
REMIC Regular Certificates. Note that the timing of cancellation of
indebtedness income recognized by REMIC Residual Certificate-holders resulting
from defaults and delinquencies on Mortgage Assets may differ from the time of
the actual loss on the Mortgage Asset. The REMIC's deductions include interest
and OID expense on the REMIC Regular Certificates, servicing fees on the
Mortgage Loans, other administrative expenses of the REMIC and realized losses
on the Mortgage Loans. The requirement that REMIC Residual Certificateholders
report their pro rata share of taxable income or net loss of the REMIC will
continue until there are no Certificates of any class of the related Series
outstanding.
For purposes of determining its taxable income, the REMIC will have an
initial aggregate tax basis in its assets equal to the sum of the issue prices
of the REMIC Regular Certificates and the REMIC Residual Certificates (or, if a
class of Certificates is not sold initially, its fair market value). Such
aggregate basis will be allocated among the Mortgage Assets and other assets of
the REMIC in proportion to their respective fair market value. A Mortgage Asset
will be deemed to have been acquired with discount or premium to the extent
that the REMIC's basis therein is less than or greater than its principal
balance, respectively. Any such discount (whether market discount or OID) will
be includible in the income of the REMIC as it accrues, in advance of receipt
of the cash attributable to such income, under a method similar to the method
described above for accruing OID on the REMIC Regular Certificates. The REMIC
expects to elect under Code Section 171 to amortize any premium on the Mortgage
Assets. Premium on any Mortgage Asset to which such election applies would be
amortized under a constant yield method. It is not clear whether the yield of a
Mortgage Asset would be calculated for this purpose based on scheduled payments
or taking account of the Prepayment Assumption. Additionally, such an election
would not apply to the yield with respect to any underlying mortgage loan
originated on or before September 27, 1985. Instead, premium with respect to
such a mortgage loan would be allocated among the principal payments thereon
and would be deductible by the REMIC as those payments become due.
The REMIC will be allowed a deduction for interest and OID on the REMIC
Regular Certificates. The amount and method of accrual of OID will be
calculated for this purpose in the same manner as described above with respect
to REMIC Regular Certificates except that the 0.25% per annum de minimis rule
and adjustments for subsequent holders described therein will not apply.
A REMIC Residual Certificateholder will not be permitted to amortize the
cost of the REMIC Residual Certificate as an offset to its share of the REMIC's
taxable income. However, REMIC taxable income will not include cash received by
the REMIC that represents a recovery of the REMIC's basis in its assets, and,
as described above, the issue price of the REMIC Residual Certificates will be
added to the issue price of the REMIC Regular Certificates in determining the
REMIC's initial basis in its assets. See "--REMICs -- Taxation of Owners of
REMIC Residual Certificates -- Sale or Exchange of REMIC Residual Certificates"
below. For a discussion of possible adjustments to income of a subsequent
holder of a REMIC Residual Certificate to reflect any difference between the
actual cost of such REMIC Residual Certificate to such holder and the adjusted
basis such REMIC Residual Certificate would have in the hands of an original
REMIC Residual Certificateholder, see "--REMICs -- Taxation of Owners of REMIC
Residual Certificates -- Allocation of the Income of the REMIC to the REMIC
Residual Certificates" above.
Net Losses of the REMIC. The REMIC will have a net loss for any calendar
quarter in which its deductions exceed its gross income. Such net loss would be
allocated among the REMIC Residual Certificateholders in the same manner as the
REMIC's taxable income. The net loss allocable to any REMIC Residual
Certificate will not be deductible by the holder to the extent that such net
loss exceeds such holder's adjusted basis in such REMIC Residual Certificate.
Any net loss that is not currently deductible by reason of this limitation may
only be used by such REMIC Residual Certificateholder to offset its share of
the REMIC's taxable income in future periods (but not otherwise). The ability
of REMIC Residual Certificateholders that are individuals or closely held
corporations to deduct net losses may be subject to additional limitations
under the Code.
Mark to Market Rules. A REMIC Residual Certificate acquired after
January 3, 1995 cannot be marked-to-market.
- 86 -
<PAGE> 156
Pass-Through of Non-Interest Expenses of the REMIC. As a general rule,
all of the fees and expenses of a REMIC will be taken into account by holders
of the REMIC Residual Certificates. In the case of a single class REMIC,
however, the expenses and a matching amount of additional income will be
allocated, under temporary Treasury regulations, among the REMIC Regular
Certificateholders and the REMIC Residual Certificateholders on a daily basis
in proportion to the relative amounts of income accruing to each
Certificateholder on that day. In general terms, a single class REMIC is one
that either (i) would qualify, under existing Treasury regulations, as a
grantor trust if it were not a REMIC (treating all interests as ownership
interests, even if they would be classified as debt for federal income tax
purposes) or (ii) is similar to such a trust and is structured with the
principal purpose of avoiding the single class REMIC rules. Unless otherwise
stated in the applicable Prospectus Supplement, the expenses of the REMIC will
be allocated to holders of the related REMIC Residual Certificates in their
entirety and not to holders of the related REMIC Regular Certificates.
In the case of individuals (or trusts, estates or other persons that
compute their income in the same manner as individuals) who own an interest in
a REMIC Regular Certificate or a REMIC Residual Certificate directly or through
a pass-through interest holder that is required to pass miscellaneous itemized
deductions through to its owners or beneficiaries (e.g., a partnership, an S
corporation or a grantor trust), such expenses will be deductible under Code
Section 67 only to the extent that such expenses, plus other "miscellaneous
itemized deductions" of the individual, exceed 2% of such individual's adjusted
gross income. In addition, Code Section 68 provides that the amount of itemized
deductions otherwise allowable for an individual whose adjusted gross income
exceeds a certain amount (the "APPLICABLE AMOUNT") will be reduced by the
lesser of (i) 3% of the excess of the individual's adjusted gross income over
the Applicable Amount or (ii) 80% of the amount of itemized deductions
otherwise allowable for the taxable year. The amount of additional taxable
income recognized by REMIC Residual Certificateholders who are subject to the
limitations of either Code Section 67 or Code Section 68 may be substantial.
Further, holders (other than corporations) subject to the alternative minimum
tax may not deduct miscellaneous itemized deductions in determining such
holders' alternative minimum taxable income. The REMIC is required to report to
each pass-through interest holder and to the IRS such holder's allocable share,
if any, of the REMIC's non-interest expenses. The term "pass-through interest
holder" generally refers to individuals, entities taxed as individuals and
certain pass-through entities, but does not include real estate investment
trusts. REMIC Residual Certificateholders that are pass-through interest
holders should consult their own tax advisors about the impact of these rules
on an investment in the REMIC Residual Certificates.
Excess Inclusions. A portion of the income on a REMIC Residual
Certificate (referred to in the Code as an "excess inclusion") for any calendar
quarter will be subject to federal income tax in all events. Thus, for example,
an excess inclusion (i) may not be offset by any unrelated losses, deductions
or loss carryovers of a REMIC Residual Certificateholder; (ii) will be treated
as "unrelated business taxable income" within the meaning of Code Section 512
if the REMIC Residual Certificateholder is a pension fund or any other
organization that is subject to tax only on its unrelated business taxable
income (see "--Tax-Exempt Investors" below); and (iii) is not eligible for any
reduction in the rate of withholding tax in the case of a REMIC Residual
Certificateholder that is a foreign investor. See "--Non-U.S. Persons" below.
Except as discussed in the following paragraph, with respect to any
REMIC Residual Certificateholder, the excess inclusions for any calendar
quarter is the excess, if any, of (i) the income of such REMIC Residual
Certificateholder for that calendar quarter from its REMIC Residual Certificate
over (ii) the sum of the "daily accruals" (as defined below) for all days
during the calendar quarter on which the REMIC Residual Certificateholder holds
such REMIC Residual Certificate. For this purpose, the daily accruals with
respect to a REMIC Residual Certificate are determined by allocating to each
day in the calendar quarter its ratable portion of the product of the "adjusted
issue price" (as defined below) of the REMIC Residual Certificate at the
beginning of the calendar quarter and 120 percent of the "Federal long-term
rate" in effect at the time the REMIC Residual Certificate is issued. For this
purpose, the "adjusted issue price" of a REMIC Residual Certificate at the
beginning of any calendar quarter equals the issue price of the REMIC Residual
Certificate, increased by the amount of daily accruals for all prior quarters,
and decreased (but not below zero) by the aggregate amount of payments made on
the REMIC Residual Certificate before the beginning
- 87 -
<PAGE> 157
of such quarter. The "federal long-term rate" is an average of current yields
on Treasury securities with a remaining term of greater than nine years,
computed and published monthly by the IRS.
As an exception to the general rule described above, the Treasury
Department has authority to issue regulations that would treat the entire
amount of income accruing on a REMIC Residual Certificate as excess inclusions
if the REMIC Residual Certificates in the aggregate are considered not to have
"significant value." The Small Business Job Protection Act ("SBJPA") of 1996
has eliminated the special rule permitting Section 593 institutions ("thrift
institutions") to use net operating losses and other allowable deductions to
offset their excess inclusion income from REMIC Residual Certificates that have
"significant value" within the meaning of the REMIC Regulations, effective for
taxable years beginning after December 31, 1995, except with respect to REMIC
Residual Certificates continuously held by thrift institutions since November
1, 1995.
In addition, the SBJPA of 1996 provides three rules for determining the
effect of excess inclusions on the alternative minimum taxable income of a
REMIC Residual Certificateholder. First, alternative minimum taxable income
for a REMIC Residual Certificateholder is determined without regard to the
special rule, discussed above, that taxable income cannot be less than excess
inclusions. Second, a REMIC Residual Certificateholder's alternative minimum
taxable income for a taxable year cannot be less than the excess inclusions for
the year. Third, the amount of any alternative minimum tax net operating loss
deduction must be computed without regard to any excess inclusions. These
rules are effective for taxable years beginning after December 31, 1986, unless
a REMIC Residual Certificateholder elects to have such rules apply only to
taxable years beginning after August 20, 1996.
In the case of any REMIC Residual Certificates held by a real estate
investment trust, the aggregate excess inclusions with respect to such REMIC
Residual Certificates, reduced (but not below zero) by the real estate
investment trust taxable income (within the meaning of Code Section 857(b)(2),
excluding any net capital gain), will be allocated among the shareholders of
such trust in proportion to the dividends received by such shareholders from
such trust, and any amount so allocated will be treated as an excess inclusion
with respect to a REMIC Residual Certificate as if held directly by such
shareholder. Regulated investment companies, common trust funds and certain
cooperatives are subject to similar rules.
Payments. Any distribution made on a REMIC Residual Certificate to a
REMIC Residual Certificateholder will be treated as a non-taxable return of
capital to the extent it does not exceed the REMIC Residual Certificateholder's
adjusted basis in such REMIC Residual Certificate. To the extent a distribution
exceeds such adjusted basis, it will be treated as gain from the sale of the
REMIC Residual Certificate.
Sale or Exchange of REMIC Residual Certificates. If a REMIC Residual
Certificate is sold or exchanged, the seller will generally recognize gain or
loss equal to the difference between the amount realized on the sale or
exchange and its adjusted basis in the REMIC Residual Certificate (except that
the recognition of loss may be limited under the "wash sale" rules described
below). A holder's adjusted basis in a REMIC Residual Certificate generally
equals the cost of such REMIC Residual Certificate to such REMIC Residual
Certificateholder, increased by the taxable income of the REMIC that was
included in the income of such REMIC Residual Certificateholder with respect to
such REMIC Residual Certificate, and decreased (but not below zero) by the net
losses that have been allowed as deductions to such REMIC Residual
Certificateholder with respect to such REMIC Residual Certificate and by the
distributions received thereon by such REMIC Residual Certificateholder. In
general, any such gain or loss will be capital gain or loss provided the REMIC
Residual Certificate is held as a capital asset. However, REMIC Residual
Certificates will be "evidences of indebtedness" within the meaning of Code
Section 582(c)(1), so that gain or loss recognized from sale of a REMIC
Residual Certificate by a bank or thrift institution to which such Section
applies would be ordinary income or loss.
Except as provided in Treasury regulations yet to be issued, if the
seller of a REMIC Residual Certificate reacquires such REMIC Residual
Certificate, or acquires any other REMIC Residual Certificate, any residual
interest in another REMIC or similar interest in a "taxable mortgage pool" (as
defined in Code Section 7701(i)) during the period beginning six months before,
and ending six months after, the date of such sale, such sale will be subject
to the "wash sale" rules of Code Section 1091. In that event, any loss realized
by the REMIC Residual Certificateholder on
- 88 -
<PAGE> 158
the sale will not be deductible, but, instead, will increase such REMIC
Residual Certificateholder's adjusted basis in the newly acquired asset.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions" (the "PROHIBITED TRANSACTIONS TAX"). In general,
subject to certain specified exceptions, a prohibited transaction means the
disposition of a Mortgage Asset, the receipt of income from a source other than
a Mortgage Asset or certain other permitted investments, the receipt of
compensation for services, or gain from the disposition of an asset purchased
with the payments on the Mortgage Assets for temporary investment pending
distribution on the Certificates. It is not anticipated that the Trust Fund for
any Series of Certificates will engage in any prohibited transactions in which
it would recognize a material amount of net income.
In addition, certain contributions to a Trust Fund as to which an
election has been made to treat such Trust Fund as a REMIC made after the day
on which such Trust Fund issues all of its interests could result in the
imposition of a tax on the Trust Fund equal to 100% of the value of the
contributed property (the "CONTRIBUTIONS TAX"). No Trust Fund for any Series of
Certificates will accept contributions that would subject it to such tax.
In addition, a Trust Fund as to which an election has been made to treat
such Trust Fund as a REMIC may also be subject to federal income tax at the
highest corporate rate on "net income from foreclosure property," determined by
reference to the rules applicable to real estate investment trusts. "Net income
from foreclosure property" generally means income from foreclosure property
other than qualifying income for a real estate investment trust.
Where any Prohibited Transactions Tax, Contributions Tax, tax on net
income from foreclosure property or state or local income or franchise tax that
may be imposed on a REMIC relating to any Series of Certificates arises out of
or results from (i) a breach of the related Master Servicer's, Trustee's or
Seller's obligations, as the case may be, under the related Agreement for such
Series, such tax will be borne by such Master Servicer, Trustee or Seller, as
the case may be, out of its own funds or (ii) the Seller's obligation to
repurchase a Mortgage Loan, such tax will be borne by the Seller. In the event
that such Master Servicer, Trustee or Seller, as the case may be, fails to pay
or is not required to pay any such tax as provided above, such tax will be
payable out of the Trust Fund for such Series and will result in a reduction in
amounts available to be distributed to the Certificateholders of such Series.
LIQUIDATION AND TERMINATION
If the REMIC adopts a plan of complete liquidation, within the meaning
of Code Section 860F(a)(4)(A)(i), which may be accomplished by designating in
the REMIC's final tax return a date on which such adoption is deemed to occur,
and sells all of its assets (other than cash) within a 90-day period beginning
on such date, the REMIC will not be subject to any Prohibited Transaction Tax,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than the amounts retained to meet claims) to
holders of Regular and REMIC Residual Certificates within the 90-day period.
The REMIC will terminate shortly following the retirement of the REMIC
Regular Certificates. If a REMIC Residual Certificateholder's adjusted basis in
the REMIC Residual Certificate exceeds the amount of cash distributed to such
REMIC Residual Certificateholder in final liquidation of its interest, then it
would appear that the REMIC Residual Certificateholder would be entitled to a
loss equal to the amount of such excess. It is unclear whether such a loss, if
allowed, will be a capital loss or an ordinary loss.
ADMINISTRATIVE MATTERS
Solely for the purpose of the administrative provisions of the Code, the
REMIC generally will be treated as a partnership and the REMIC Residual
Certificateholders will be treated as the partners. Certain information will be
furnished quarterly to each REMIC Residual Certificateholder who held a REMIC
Residual Certificate on any day in the previous calendar quarter.
- 89 -
<PAGE> 159
Each REMIC Residual Certificateholder is required to treat items on its
return consistently with their treatment on the REMIC's return, unless the
REMIC Residual Certificateholder either files a statement identifying the
inconsistency or establishes that the inconsistency resulted from incorrect
information received from the REMIC. The IRS may assert a deficiency resulting
from a failure to comply with the consistency requirement without instituting
an administrative proceeding at the REMIC level. The REMIC does not intend to
register as a tax shelter pursuant to Code Section 6111 because it is not
anticipated that the REMIC will have a net loss for any of the first five
taxable years of its existence. Any person that holds a REMIC Residual
Certificate as a nominee for another person may be required to furnish the
REMIC, in a manner to be provided in Treasury regulations, with the name and
address of such person and other information.
TAX-EXEMPT INVESTORS
Any REMIC Residual Certificateholder that is a pension fund or other
entity that is subject to federal income taxation only on its "unrelated
business taxable income" within the meaning of Code Section 512 will be subject
to such tax on that portion of the distributions received on a REMIC Residual
Certificate that is considered an excess inclusion. See "--REMICs -- Taxation
of Owners of REMIC Residual Certificates -- Excess Inclusions" above.
RESIDUAL CERTIFICATE PAYMENTS TO NON-U.S. PERSONS
Amounts paid to REMIC Residual Certificateholders who are not U.S.
Persons (see "--REMICs -- Taxation of Owners of REMIC Regular Certificates --
Non-U.S. Persons" above) are treated as interest for purposes of the 30% (or
lower treaty rate) United States withholding tax. Amounts distributed to
holders of REMIC Residual Certificates should qualify as "portfolio interest,"
subject to the conditions described in "--REMICs -- Taxation of Owners of REMIC
Regular Certificates" above, but only to the extent that the underlying
mortgage loans were originated after July 18, 1984. Furthermore, the rate of
withholding on any income on a REMIC Residual Certificate that is excess
inclusion income will not be subject to reduction under any applicable tax
treaties. See "--REMICs -- Taxation of Owners of REMIC Residual Certificates --
Excess Inclusions" above. If the portfolio interest exemption is unavailable,
such amount will be subject to United States withholding tax when paid or
otherwise distributed (or when the REMIC Residual Certificate is disposed of)
under rules similar to those for withholding upon disposition of debt
instruments that have OID. The Code, however, grants the Treasury Department
authority to issue regulations requiring that those amounts be taken into
account earlier than otherwise provided where necessary to prevent avoidance of
tax (for example, where the REMIC Residual Certificates do not have significant
value). See "--REMICs -- Taxation of Owners of REMIC Residual Certificates --
Excess Inclusions" above. If the amounts paid to REMIC Residual
Certificateholders that are not U.S. persons are effectively connected with
their conduct of a trade or business within the United States, the 30% (or
lower treaty rate) withholding will not apply. Instead, the amounts paid to
such non-U.S. Person will be subject to U.S. federal income taxation at regular
graduated rates. For special restrictions on the transfer of REMIC Residual
Certificates, see "--Tax-Related Restrictions on Transfers of REMIC Residual
Certificates" below.
REMIC Regular Certificateholders and persons related to such holders
should not acquire any REMIC Residual Certificates, and REMIC Residual
Certificateholders and persons related to REMIC Residual Certificateholders
should not acquire any REMIC Regular Certificates, without consulting their tax
advisors as to the possible adverse tax consequences of such acquisition.
TAX-RELATED RESTRICTIONS ON TRANSFERS OF REMIC RESIDUAL CERTIFICATES
Disqualified Organizations. An entity may not qualify as a REMIC unless
there are reasonable arrangements designed to ensure that residual interests in
such entity are not held by "disqualified organizations" (as defined below).
Further, a tax is imposed on the transfer of a residual interest in a REMIC to
a "disqualified organization." The amount of the tax equals the product of (A)
an amount (as determined under the REMIC Regulations) equal to the present
value of the total anticipated "excess inclusions" with respect to such
interest for periods after the transfer and (B) the highest marginal federal
income tax rate applicable to corporations. The tax is imposed on the
transferor unless the transfer is through an agent (including a broker or other
middleman) for a disqualified organization, in which event the tax is imposed
on the agent. The person otherwise liable for the tax shall be relieved of
liability for the tax if the transferee furnished to such person an affidavit
that the transferee is not a disqualified organization and, at the time of the
transfer, such person does not have actual knowledge that the affidavit is
false. A "disqualified organization" means (A) the
- 90 -
<PAGE> 160
United States, any State, possession or political subdivision thereof, any
foreign government, any international organization or any agency or
instrumentality of any of the foregoing (provided that such term does not
include an instrumentality if all its activities are subject to tax and, except
for FHLMC, a majority of its board of directors is not selected by any such
governmental agency), (B) any organization (other than certain farmers'
cooperatives) generally exempt from federal income taxes unless such
organization is subject to the tax on "unrelated business taxable income" and
(C) a rural electric or telephone cooperative.
A tax is imposed on a "pass-through entity" (as defined below) holding a
residual interest in a REMIC if at any time during the taxable year of the
pass-through entity a disqualified organization is the record holder of an
interest in such entity. The amount of the tax is equal to the product of (A)
the amount of excess inclusions for the taxable year allocable to the interest
held by the disqualified organization and (B) the highest marginal federal
income tax rate applicable to corporations. The pass-through entity otherwise
liable for the tax, for any period during which the disqualified organization
is the record holder of an interest in such entity, will be relieved of
liability for the tax if such record holder furnishes to such entity an
affidavit that such record holder is not a disqualified organization and, for
such period, the pass-through entity does not have actual knowledge that the
affidavit is false. For this purpose, a "pass-through entity" means (i) a
regulated investment company, real estate investment trust or common trust
fund, (ii) a partnership, trust or estate and (iii) certain cooperatives.
Except as may be provided in Treasury regulations not yet issued, any person
holding an interest in a pass-through entity as a nominee for another will,
with respect to such interest, be treated as a pass-through entity.
In order to comply with these rules, the Agreement will provide that no
record or beneficial ownership interest in a REMIC Residual Certificate may be
purchased, transferred or sold, directly or indirectly, without the express
written consent of the Master Servicer. The Master Servicer will grant such
consent to a proposed transfer only if it receives the following: (i) an
affidavit from the proposed transferee to the effect that it is not a
disqualified organization and is not acquiring the REMIC Residual Certificate
as a nominee or agent for a disqualified organization and (ii) a covenant by
the proposed transferee to the effect that the proposed transferee agrees to be
bound by and to abide by the transfer restrictions applicable to the REMIC
Residual Certificate.
Noneconomic REMIC Residual Certificates. The REMIC Regulations
disregard, for federal income tax purposes, any transfer of a Noneconomic REMIC
Residual Certificate to a "U.S. Person," as defined above, unless no
significant purpose of the transfer is to enable the transferor to impede the
assessment or collection of tax. A Noneconomic REMIC Residual Certificate is
any REMIC Residual Certificate (including a REMIC Residual Certificate with a
positive value at issuance) unless, at the time of transfer, taking into
account the Prepayment Assumption and any required or permitted clean up calls
or required liquidation provided for in the REMIC's organizational documents,
(i) the present value of the expected future distributions on the REMIC
Residual Certificate at least equals the product of the present value of the
anticipated excess inclusions and the highest corporate income tax rate in
effect for the year in which the transfer occurs and (ii) the transferor
reasonably expects that the transferee will receive distributions from the
REMIC at or after the time at which taxes accrue on the anticipated excess
inclusions in an amount sufficient to satisfy the accrued taxes. A significant
purpose to impede the assessment or collection of tax exists if the transferor,
at the time of the transfer, either knew or should have known that the
transferee would be unwilling or unable to pay taxes due on its share of the
taxable income of the REMIC. A transferor is presumed not to have such
knowledge if (i) the transferor conducted a reasonable investigation of the
transferee and (ii) the transferee acknowledges to the transferor that the
residual interest may generate tax liabilities in excess of the cash flow and
the transferee represents that it intends to pay such taxes associated with the
residual interest as they become due. If a transfer of a Noneconomic REMIC
Residual Certificate is disregarded, the transferor would continue to be
treated as the owner of the REMIC Residual Certificate and would continue to be
subject to tax on its allocable portion of the net income of the REMIC. The
Agreement will require the transferee of a REMIC Residual Certificate to state
as part of the affidavit described above under "--Tax-Related Restrictions on
Transfers of REMIC Residual Certificates--Disqualified Organizations" that such
transferee (i) has historically paid its debts as they come due, (ii) intends
to continue to pay its debts as they come due in the future; (iii) understands
that, as the holder of a noneconomic REMIC Residual Certificate, it may incur
tax liabilities in excess of any cash flows generated by the REMIC Residual
Certificate as they become due. The transferor must have no reason to believe
that such statement is untrue.
Foreign Investors. The REMIC Regulations provide that the transfer of a
REMIC Residual Certificate that has a "tax avoidance potential" to a "foreign
person" will be disregarded for federal income tax purposes. This rule appears
- 91 -
<PAGE> 161
to apply to a transferee who is not a U.S. Person unless such transferee's
income in respect of the REMIC Residual Certificate is effectively connected
with the conduct of a United States trade or business. A REMIC Residual
Certificate is deemed to have a tax avoidance potential unless, at the time of
transfer, the transferor reasonably expects that the REMIC will distribute to
the transferee amounts that will equal at least 30 percent of each excess
inclusion, and that such amounts will be distributed at or after the time the
excess inclusion accrues and not later than the end of the calendar year
following the year of accrual. If the non-U.S. Person transfers the REMIC
Residual Certificate to a U.S. Person, the transfer will be disregarded, and
the foreign transferor will continue to be treated as the owner, if the
transfer has the effect of allowing the transferor to avoid tax on accrued
excess inclusions. The Agreement will provide that no record of beneficial
ownership interest in a REMIC Residual Certificate may be transferred, directly
or indirectly, to a non-U.S. Person unless such person provides the Trustee
with a duly completed I.R.S. Form 4224 and the Trustee consents to such
transfer in writing.
Any attempted transfer or pledge in violation of the transfer
restrictions shall be absolutely null and void and shall vest no rights in any
purported transferee. Investors in REMIC Residual Certificates are advised to
consult their own tax advisors with respect to transfers of the REMIC Residual
Certificates and, in addition, pass-through entities are advised to consult
their own tax advisors with respect to any tax which may be imposed on a pass-
through entity.
STATE TAX CONSIDERATIONS
In addition to the federal income tax consequences described in "Federal
Income Tax Consequences," potential investors should consider the state income
tax consequences of the acquisition, ownership, and disposition of the Offered
Certificates. State income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe any
aspect of the income tax laws of any state. Therefore, potential investors
should consult their own tax advisors with respect to the various tax
consequences of investments in the Offered Certificates.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended
("ERISA"), imposes certain restrictions on employee benefit plans subject to
ERISA and on any entity whose underlying assets include assets of such a plan
by reason of any such plan's investment in the entity ("ERISA PLANS") and on
persons who are parties in interest or disqualified persons ("parties in
interest") with respect to such ERISA Plans. Section 4975 of the Code imposes
substantially similar prohibited transaction restrictions on tax qualified
retirement plans described in Section 401(a) of the Code and on individual
retirement accounts described in Section 408 of the Code ("Qualified Plans" and
together with ERISA Plans, "Plans"). Certain employee benefit plans, such as
governmental plans and church plans (if no election has been made under Section
410(d) of the Code), are not subject to the restrictions of ERISA, and assets
of such plans may be invested in the Certificates without regard to the ERISA
considerations described below, subject to other applicable federal and state
law. However, any such governmental or church plan which is qualified under
Section 401(a) of the Code and exempt from taxation under Section 501(a) of the
Code is subject to the prohibited transaction rules set forth in Section 503 of
the Code.
Investments by ERISA Plans are subject to ERISA's general fiduciary
requirements, including the requirement of investment prudence and
diversification and the requirement that an ERISA Plan's investments be made in
accordance with the documents governing the ERISA Plan.
PROHIBITED TRANSACTIONS
General
Section 406 of ERISA prohibits parties in interest with respect to an
ERISA Plan from engaging in certain transactions involving an ERISA Plan and
its assets unless a statutory or administrative exemption applies to the
- 92 -
<PAGE> 162
transaction. Section 4975 of the Code imposes certain excise taxes (and, in
some cases, a civil penalty may be assessed pursuant to Section 502(i) of
ERISA) on parties in interest which engage in nonexempt prohibited
transactions.
The United States Department of Labor ("LABOR") has issued a final
regulation (29 C.F.R. Section 2510.3-101) containing rules for determining what
constitutes the assets of a Plan. This regulation provides that, as a general
rule, the underlying assets and properties of corporations, partnerships,
trusts and certain other entities in which a Plan makes an "equity investment"
will be deemed for purposes of ERISA to be assets of the Plan unless certain
exceptions apply.
Under the terms of the regulation, the Trust may be deemed to hold plan
assets by reason of a Plan's investment in a Certificate; such plan assets
would include an undivided interest in the Mortgage Loans and any other assets
held by the Trust. In such an event, the Depositor, the Servicers, the Trustee
and other persons, in providing services with respect to the assets of the
Trust, may be parties in interest, subject to the fiduciary responsibility
provisions of Title I of ERISA, including the prohibited transaction provisions
of Section 406 of ERISA (and of Section 4975 of the Code), with respect to
transactions involving such assets unless such transactions are subject to a
statutory or administrative exemption.
The regulations contain a de minimis safe-harbor rule that exempts any
entity from plan assets status as long as the aggregate equity investment in
such entity by Plans is not significant. For this purpose, equity participation
in the entity will be significant if immediately after any acquisition of any
equity interest in the entity, "benefit plan investors" in the aggregate, own
at least 25% of the value of any class of equity interest. "Benefit plan
investors" are defined as Plans as well as employee benefit plans not subject
to ERISA (e.g., governmental plans). The 25% limitation must be met with
respect to each class of certificates, regardless of the portion of total
equity value represented by such class, on an ongoing basis.
Availability of Underwriter's Exemption for Certificates
Labor has granted to Goldman, Sachs & Co. Prohibited Transaction
Exemption 89-88 (the "EXEMPTION"), which exempts from the application of the
prohibited transaction rules transactions relating to: (1) the acquisition,
sale and holding by Plans of certain certificates representing an undivided
interest in certain asset-backed pass-through trusts, with respect to which
Goldman, Sachs & Co. or any of its affiliates is the sole underwriter or the
manager or co-manager of the underwriting syndicate; and (2) the servicing,
operation and management of such asset-backed pass-through trusts, provided
that the general conditions and certain other conditions set forth in the
Exemption are satisfied.
General Conditions of the Exemption. Section II of the Exemption sets
forth the following general conditions which must be satisfied before a
transaction involving the acquisition, sale and holding of the Certificates or
a transaction in connection with the servicing, operation and management of the
Trust Fund may be eligible for exemptive relief thereunder:
(1) The acquisition of the Certificates by a Plan is on terms (including the
price for such Certificates) that are at least as favorable to the investing
Plan as they would be in an arm's-length transaction with an unrelated
party;
(2) The rights and interests evidenced by the Certificates acquired by the
Plan are not subordinated to the rights and interests evidenced by other
certificates of the Trust Fund;
(3) The Certificates acquired by the Plan have received a rating at the time
of such acquisition that is in one of the three highest rating categories
from any of Duff & Phelps Inc., Fitch Investors Service, Inc., Moody's
Investors Service, Inc. and Standard & Poor's Ratings Group;
(4) The Trustee is not an affiliate of the Underwriters, the Depositor, the
Servicers, any borrower whose obligations under one or more Mortgage Loans
constitute more than 5% of the aggregate unamortized principal balance of
the assets in the Trust, or any of their respective affiliates (the
"RESTRICTED GROUP");
(5) The sum of all payments made to and retained by the Underwriters in
connection with the distribution of the Certificates represents not more
than reasonable compensation for underwriting such Certificates; the sum of
all payments made to and retained by the Depositor pursuant to the sale of
the Mortgage Loans to the Trust represents
- 93 -
<PAGE> 163
not more than the fair market value of such Mortgage Loans; the sum of all
payments made to and retained by the Servicers represent not more than
reasonable compensation for the Servicers' services under the Agreements and
reimbursement of the Servicer's reasonable expenses in connection therewith;
and
(6) The Plan investing in the Certificates is an "accredited investor" as
defined in Rule 501(a)(1) of Regulation D of the Securities and Exchange
Commission under the Securities Act of 1933 as amended.
Before purchasing a Certificate, a fiduciary of a Plan should itself
confirm (a) that the Certificates constitute "certificates" for purposes of the
Exemption and (b) that the specific and general conditions set forth in the
Exemption and the other requirements set forth in the Exemption would be
satisfied.
REVIEW BY PLAN FIDUCIARIES
Any Plan fiduciary considering whether to purchase any Certificates on
behalf of a Plan should consult with its counsel regarding the applicability of
the fiduciary responsibility and prohibited transaction provisions of ERISA and
the Code to such investment. Among other things, before purchasing any
Certificates, a fiduciary of a Plan subject to the fiduciary responsibility
provisions of ERISA or an employee benefit plan subject to the prohibited
transaction provisions of the Code should make its own determination as to the
availability of the exemptive relief provided in the Exemption, and also
consider the availability of any other prohibited transaction exemptions. The
Prospectus Supplement with respect to a Series of Certificates may contain
additional information regarding the application of the Exemption, PTCE 83-1,
or any other exemption, with respect to the Certificates offered thereby.
LEGAL INVESTMENT
The Prospectus Supplement for each Series of Offered Certificates will
identify those classes of Offered Certificates, if any, which constitute
"mortgage related securities" for purposes of the Secondary Mortgage Market
Enhancement Act of 1984 ("SMMEA"). Such classes will constitute "mortgage
related securities" for so long as they are rated in one of the two highest
rating categories by at least one nationally recognized statistical rating
organization (the "SMMEA CERTIFICATES"). As "mortgage related securities," the
SMMEA Certificates will constitute legal investments for persons, trusts,
corporations, partnerships, associations, business trusts and business entities
(including, but not limited to, state chartered savings banks, commercial
banks, savings and loan associations and insurance companies, as well as
trustees and state government employee retirement systems) created pursuant to
or existing under the laws of the United States or of any state (including the
District of Columbia and Puerto Rico) whose authorized investments are subject
to state regulation to the same extent that, under applicable law, obligations
issued by or guaranteed as to principal and interest by the United States or
any agency or instrumentality thereof constitute legal investments for such
entities. Alaska, Arkansas, Colorado, Connecticut, Delaware, Florida, Georgia,
Illinois, Kansas, Maryland, Michigan, Missouri, Nebraska, New Hampshire, New
York, North Carolina, Ohio, South Dakota, Utah, Virginia and West Virginia
enacted legislation, on or before the October 4, 1991 cutoff established by
SMMEA for such enactments, limiting to varying extents the ability of certain
entities (in particular, insurance companies) to invest in mortgage related
securities, in most cases by requiring the affected investors to rely solely
upon existing state law, and not SMMEA. In addition, pursuant to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "1994
AMENDMENT"), Congress expanded the definition of securities entitled to the
benefits of SMMEA to include those evidencing ownership of, or secured by,
notes secured by a first lien on one or more parcels of real estate, upon which
is located one or more commercial structures. The terms of this amendment
permit states to prohibit or limit, by specific legislation, the authority of
persons, trusts, corporations, partnerships, associations, business trusts or
business entities to purchase, hold or invest, in securities evidencing
ownership of, or secured by, such notes to the extent predicated on the
expansion of SMMEA. The 1994 Amendment permits enactment of such restrictions
until September 23, 2001. It provides, however, that no enactment will affect
the validity of a contractual commitment to purchase, hold or invest in
securities made before such enactment, or require sale of any securities
previously acquired. The Prospectus Supplement for each Series will identify
the states, if any, that have enacted any such limitations through the date of
the Prospectus Supplement. Enactment of such restrictions could adversely
affect the liquidity of any Offered Certificates entitled to the benefits of
SMMEA solely by reason of the 1994 Amendment. Accordingly, the investors
affected by such legislation will be authorized to invest in SMMEA Certificates
only to the extent provided in such legislation. Accordingly, investors whose
investment authority is subject to legal restrictions should consult their own
legal advisors to determine whether and to what extent the Offered Certificates
constitute legal investments for them.
SMMEA also amended the legal investment authority of federally chartered
depository institutions as follows: federal savings and loan associations and
federal savings banks may invest in, sell or otherwise deal with "mortgage
related securities" without limitation as to the percentage of their assets
represented thereby, federal credit unions may invest in such securities, and
national banks may purchase such securities for their own account without
regard to the limitations generally applicable to investment securities set
forth in 12 U.S.C. 24 (Seventh), subject in each case to such regulations as
the applicable federal regulatory authority may prescribe.
Institutions where investment activities are subject to legal investment
laws or regulations or review by certain regulatory authorities may be subject
to restrictions on investment in certain classes of Offered Certificates. Any
- 94 -
<PAGE> 164
financial institution which is subject to the jurisdiction of the Comptroller
of the Currency, the Board of Governors of the Federal Reserve System, the
Federal Deposit Insurance Corporation ("FDIC"), the Office of Thrift
Supervision ("OTS"), the National Credit Union Administration ("NCUA") or other
federal or state agencies with similar authority should review any applicable
rules, guidelines and regulations prior to purchasing any Offered Certificate.
The Federal Financial Institutions Examination Council, for example, has issued
a Supervisory Policy Statement on Securities Activities effective February 10,
1992 (the "POLICY STATEMENT"). The Policy Statement has been adopted by the
Comptroller of the Currency, the Federal Reserve Board, the FDIC, the OTS and
the NCUA (with certain modifications), with respect to the depository
institutions that they regulate. The Policy Statement prohibits depository
institutions from investing in certain "high-risk mortgage securities"
(including securities such as certain classes of Offered Certificates), except
under limited circumstances, and sets forth certain investment practices deemed
to be unsuitable for regulated institutions. The NCUA issued final regulations
effective December 2, 1991 that restrict and in some instances prohibit the
investment by federal credit unions in certain types of mortgage related
securities.
In September 1993 the National Association of Insurance Commissioners
released a draft model investment law (the "MODEL LAW") which sets forth model
investment guidelines for the insurance industry. Institutions subject to
insurance regulatory authorities may be subject to restrictions on investment
similar to those set forth in the Model Law and other restrictions.
If specified in the related Prospectus Supplement, other classes of
Offered Certificates offered pursuant to this Prospectus will not constitute
"mortgage related securities" under SMMEA. The appropriate characterization of
these Offered Certificates under various legal investment restrictions, and
thus the ability of investors subject to these restrictions to purchase such
Offered Certificates, may be subject to significant interpretive uncertainties.
Notwithstanding SMMEA, there may be other restrictions on the ability of
certain investors, including depository institutions, either to purchase any
Offered Certificates or to purchase Offered Certificates representing more than
a specified percentage of the investors' assets.
Except as to the status of SMMEA Certificates identified in the
Prospectus Supplement for a Series as "mortgage related securities" under
SMMEA, the Depositor will make no representations as to the proper
characterization of the Certificates for legal investment or financial
institution regulatory purposes, or as to the ability of particular investors
to purchase any Offered Certificates under applicable legal investment
restrictions. The uncertainties described above (and any unfavorable future
determinations concerning legal investment or financial institution regulatory
characteristics of the Certificates) may adversely affect the liquidity of the
Certificates.
The foregoing does not take into consideration the applicability of
statutes, rules, regulations, orders, guidelines or agreements generally
governing investments made by a particular investor, including, but not limited
to, "prudent investor" provisions, percentage-of-assets limits and provisions
which may restrict or prohibit investment in securities which are not "interest
bearing" or "income paying."
There may be other restrictions on the ability of certain investors,
including depository institutions, either to purchase Offered Certificates or
to purchase Offered Certificates representing more than a specified percentage
of the investor's assets. Investors should consult their own legal advisors in
determining whether and to what extent the Offered Certificates constitute
legal investments for such investors.
METHOD OF DISTRIBUTION
The Certificates offered hereby and by the related Prospectus
Supplements will be offered in series through one or more of the methods
described below. The Prospectus Supplement prepared for each series will
describe the method of offering being utilized for that series and will state
the net proceeds to the Depositor from such sale.
The Depositor intends that Offered Certificates will be offered through
the following methods from time to time and that offerings may be made
concurrently through more than one of these methods or that an offering of the
Offered Certificates of a particular series may be made through a combination
of two or more of these methods. Such methods are as follows:
- 95 -
<PAGE> 165
1. By negotiated firm commitment or best efforts underwriting and
public re-offering by underwriters;
2. By placements by the Depositor with institutional investors
through dealers; and
3. By direct placements by the Depositor with institutional
investors.
In addition, if specified in the related Prospectus Supplement, the
Offered Certificates of a series may be offered in whole or in part to the
seller of the related Mortgage Assets that would comprise the Trust Fund for
such Certificates.
If underwriters are used in a sale of any Offered Certificates (other
than in connection with an underwriting on a best efforts basis), such
Certificates will be acquired by the underwriters for their own account and may
be resold from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices to be
determined at the time of sale or at the time of commitment therefor. Such
underwriters may be broker-dealers affiliated with the Depositor whose
identities and relationships to the Depositor will be as set forth in the
related Prospectus Supplement. The managing underwriter or underwriters with
respect to the offer and sale of Offered Certificates of a particular series
will be set forth on the cover of the Prospectus Supplement relating to such
series and the members of the underwriting syndicate, if any, will be named in
such Prospectus Supplement.
In connection with the sale of Offered Certificates, underwriters may
receive compensation from the Depositor or from purchasers of the Offered
Certificates in the form of discounts, concessions or commissions.
Underwriters and dealers participating in the distribution of the Offered
Certificates may be deemed to be underwriters in connection with such
Certificates, and any discounts or commissions received by them from the
Depositor and any profit on the resale of Offered Certificates by them may be
deemed to be underwriting discounts and commissions under the Securities Act.
It is anticipated that the underwriting agreement pertaining to the sale
of the Offered Certificates of any series will provide that the obligations of
the underwriters will be subject to certain conditions precedent, that the
underwriters will be obligated to purchase all such Certificates if any are
purchased (other than in connection with an underwriting on a best efforts
basis) and that, in limited circumstances, the Depositor will indemnify the
several underwriters and the underwriters will indemnify the Depositor against
certain civil liabilities, including liabilities under the Securities Act or
will contribute to payments required to be made in respect thereof.
The Prospectus Supplement with respect to any series offered by
placements through dealers will contain information regarding the nature of
such offering and any agreements to be entered into between the Depositor and
purchasers of Offered Certificates of such series.
The Depositor anticipates that the Certificates offered hereby will be
sold primarily to institutional investors. Purchasers of Offered Certificates,
including dealers, may, depending on the facts and circumstances of such
purchases, be deemed to be "underwriters" within the meaning of the Securities
Act in connection with reoffers and sales by them of Offered Certificates.
Holders of Offered Certificates should consult with their legal advisors in
this regard prior to any such reoffer or sale.
Goldman, Sachs & Co. is not affiliated with the Depositor. However, an
affiliate of Goldman, Sachs & Co. is a limited partner of AMRESCO Commercial
Mortgage Funding, L.P., the entity that accumulates the Mortgage Loans prior to
their securitization, from which entity the Depositor, through one of its
affiliates, will purchase the Mortgage Loans for transfer to the Trust. The
general partner and the other limited partner of AMRESCO Commercial Mortgage
Funding, L.P. are affiliates of the Depositor.
- 96 -
<PAGE> 166
LEGAL MATTERS
Certain legal matters in connection with the Certificates, including
certain federal income tax consequences, will be passed upon for the Depositor
by Andrews & Kurth L.L.P., Dallas, Texas.
FINANCIAL INFORMATION
A new Trust Fund will be formed with respect to each Series of
Certificates and no Trust Fund will engage in any business activities or have
any assets or obligations prior to the issuance of the related Series of
Certificates. Accordingly, no financial statements with respect to any Trust
Fund will he included in this Prospectus or in the related Prospectus
Supplement.
RATING
It is a condition to the issuance of any class of Offered Certificates
that they shall have been rated not lower than investment grade, that is, in
one of the four highest rating categories, by a Rating Agency.
Ratings on mortgage pass-through certificates address the likelihood of
receipt by certificateholders of all distributions on the underlying mortgage
loans. These ratings address the structural, legal and issuer-related aspects
associated with such certificates, the nature of the underlying mortgage loans
and the credit quality of the guarantor, if any. Ratings on mortgage pass-
through certificates do not represent any assessment of the likelihood of
principal prepayments by Mortgagors or of the degree by which such prepayments
might differ from those originally anticipated. As a result, certificateholders
might suffer a lower than anticipated yield, and, in addition, holders of
stripped interest certificates in extreme cases might fail to recoup their
initial investments.
A security rating is not a recommendation to buy, sell or hold
securities and may be subject to revision or withdrawal at any time by the
assigning rating organization. Each security rating should be evaluated
independently of any other security rating.
- 97 -
<PAGE> 167
INDEX OF PRINCIPAL DEFINITIONS
<TABLE>
<CAPTION>
Page
----
<S> <C>
"1986 Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"1994 Amendment". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Accounts" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Accrual Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . 10, 30
"Accrued Certificate Interest" . . . . . . . . . . . . . . . . . . . . . . . 32
"ACC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"ADA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
"Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Applicable Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
"ARM Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 74
"Asset Seller" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Available Distribution Amount" . . . . . . . . . . . . . . . . . . . . . . . 31
"Balloon Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Bankruptcy Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
"Beneficial Owners" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
"Book-Entry Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Cash Flow Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 26
"Cash Flow Agreements" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Cede" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 37
"CERCLA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19, 64
"Certificate Balance" . . . . . . . . . . . . . . . . . . . . . . . . . . 9, 32
"Certificateholders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
"Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 94
"Closing Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
"CMBS Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"CMBS Issuer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"CMBS Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"CMBS Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"CMBS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 20
"Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Commercial Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Commercial Properties" . . . . . . . . . . . . . . . . . . . . . . . . . 7, 21
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Conduit Purchasers" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Contributions Tax" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
"Cooperative Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"Cooperative" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
"Cooperatives" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Covered Trust" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18, 52
"CPR" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
"Credit Support" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 9, 26
"Crime Control Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
"Cut-off Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Debt Service Coverage Ratio" . . . . . . . . . . . . . . . . . . . . . . . . 22
"Deferred Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
- 98 -
<PAGE> 168
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Definitive Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 31, 37
"Depositor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7, 21
"Determination Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Disqualifying Condition" . . . . . . . . . . . . . . . . . . . . . . . . . . 66
"Distribution Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
"Distribution Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 36
"Environmental Hazard Condition" . . . . . . . . . . . . . . . . . . . . . . 65
"EPA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
"Equity Participations" . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"ERISA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 92
"ERISA Plans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"excess servicing" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Exemption" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
"Fannie Mae" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"FDIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41, 94
"Grantor Trust Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 11
"Hazardous Materials" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
"Holliday Fenoglio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
"Indirect Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
"Insurance Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"IRS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
"L/C Bank" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
"Labor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Lease" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 8
"Lease Assignment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Legislative History" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"Lessee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 8
"Liquidation Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Loan-to-Value Ratio" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Lock-out Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Lock-out Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Master REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Master Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Model Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
"Mortgage Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 20
"Mortgage Interest Rate" . . . . . . . . . . . . . . . . . . . . . . . . 8, 24
"Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1, 7, 20
"Mortgage Notes" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Mortgaged Properties" . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Mortgages" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Mortgagor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
"Multifamily Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Multifamily Properties" . . . . . . . . . . . . . . . . . . . . . . . . 7, 21
"NCUA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Net Operating Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Nonrecoverable Advance" . . . . . . . . . . . . . . . . . . . . . . . . . . 34
"Offered Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"OID" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
"OID Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
- 99 -
<PAGE> 169
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Originator" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"OTS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Participants" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"parties in interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Pass-Through Rate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
"Payment Lag Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . 83
"Permitted Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
"Plans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
"Policy Statement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
"Prepayment Assumption" . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
"Prepayment Premium" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Primary Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Prohibited Transactions Tax" . . . . . . . . . . . . . . . . . . . . . . . . 89
"Prospectus Supplement" . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Purchase Price" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
"Qualified Plans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
"Rating Agency" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"RCRA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
"Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
"Refinance Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"REIT" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Related Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
"Relief Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
"REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 11
"REMIC Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"REMIC Regular Certificateholder" . . . . . . . . . . . . . . . . . . . . . . 78
"REMIC Regular Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 11
"REMIC Regulations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
"REMIC Residual Certificateholder" . . . . . . . . . . . . . . . . . . . . . 84
"REMIC Residual Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 11
"Restricted Group" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
"Retained Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
"RICO" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
"SBJA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
"Securities Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Senior Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 30
"Series" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Servicing Standard" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
"Servicing Transfer Event" . . . . . . . . . . . . . . . . . . . . . . . . . 44
"SMMEA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"SMMEA Certificates" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
"Special Servicer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"Specially Serviced Mortgage Loan" . . . . . . . . . . . . . . . . . . . . . 44
"Startup Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"Stripped ARM Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . 75
"Stripped Bond Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 72
"Stripped Coupon Certificates" . . . . . . . . . . . . . . . . . . . . . . . 72
"Stripped Interest Certificates" . . . . . . . . . . . . . . . . . . . . 10, 30
"Stripped Principal Certificates" . . . . . . . . . . . . . . . . . . . . 10, 30
"Subordinate Certificates" . . . . . . . . . . . . . . . . . . . . . . . 10, 30
</TABLE>
- 100 -
<PAGE> 170
INDEX OF PRINCIPAL DEFINITIONS
(CONTINUED)
<TABLE>
<CAPTION>
Page
----
<S> <C>
"Subsidiary REMIC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
"Super-Premium Certificates" . . . . . . . . . . . . . . . . . . . . . . . . 79
"thrift institutions" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
"Title V" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
"TMP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"Trust Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Trust Fund" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
"U.S. Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
"UCC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
"Underlying CMBS" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Underlying Mortgage Loans" . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Value" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Voting Rights" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Warranting Party" . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 39
"Whole Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
- 101 -
<PAGE> 171
======================================================
NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
DEPOSITOR OR BY THE UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
SECURITIES OFFERED HEREBY TO ANYONE IN ANY JURISDICTION IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SINCE THE DATE OF THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Summary of Prospectus Supplement............... S-1
Risk Factors................................... S-12
Description of the Mortgage Pool............... S-20
Description of the Certificates................ S-39
Certain Prepayment, Maturity and Yield
Considerations............................... S-46
Servicing...................................... S-50
Description of the Pooling and Servicing
Agreement.................................... S-53
Use of Proceeds................................ S-56
Federal Income Tax Consequences................ S-56
State Tax Considerations....................... S-57
ERISA Considerations........................... S-57
Legal Investment............................... S-58
Method of Distribution......................... S-59
Legal Matters.................................. S-60
Rating......................................... S-60
Index of Principal Definitions................. S-61
Annex A: Certain Characteristics of The
Mortgage Loans............................... A-1
Annex B: Form of Monthly Report................ B-1
PROSPECTUS
Prospectus Supplement.......................... 2
Available Information.......................... 3
Incorporation of Certain Information by
Reference.................................... 4
Summary of Prospectus.......................... 7
Risk Factors................................... 13
Description of the Trust Funds................. 19
Use of Proceeds................................ 25
Yield Considerations........................... 25
The Depositor.................................. 28
Description of the Certificates................ 29
Description of the Agreements.................. 36
Description of Credit Support.................. 51
Certain Legal Aspects of Mortgage
Loans and the Leases......................... 53
Federal Income Tax Consequences................ 68
State Tax Considerations....................... 91
ERISA Considerations........................... 91
Legal Investment............................... 93
Method of Distribution......................... 95
Legal Matters.................................. 96
Financial Information.......................... 96
Rating......................................... 96
Index of Principal Definitions................. 97
</TABLE>
======================================================
======================================================
$
(APPROXIMATE)
AMRESCO COMMERCIAL MORTGAGE FUNDING I
CORPORATION
CLASS A1, CLASS A1X, CLASS A2,
CLASS A2X, CLASS B, CLASS C,
CLASS BCX, CLASS D AND CLASS E
MORTGAGE PASS-THROUGH
CERTIFICATES
SERIES 199 -
---------------------
PROSPECTUS SUPPLEMENT
---------------------
GOLDMAN, SACHS & CO.
, 199
======================================================
<PAGE> 172
PART II
INFORMATION NOT REQUIRED TO BE IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Estimated expenses in connection with the issuance and distribution of
the securities, other than underwriting discounts and commissions*, are as
follows:
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission . . . . . . . . . . $ **
Printing and Engraving Expenses . . . . . . . . . . . . . . . . . . . . . . $ **
Accounting Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . $ **
Legal Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . $ **
Trustee Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . $ **
Rating Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ **
Miscellaneous Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . $ **
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ **
</TABLE>
- ---------
* To be provided for each Series of Securities on the cover page of the
related Prospectus Supplement.
** To be provided by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under the proposed form of Underwriting Agreement to be filed as Exhibit
1.1 hereto, the Underwriter will be obligated under certain circumstances to
indemnify officers and directors of AMRESCO Commercial Mortgage Funding I
Corporation (the "Company") who sign the Registration Statement, and certain
controlling persons of the Company, against certain liabilities, including
liabilities under the Securities Act of 1933, as amended and the Securities
Exchange Act of 1934, as amended.
The Company's Certificate of Incorporation provides for indemnification
of directors and officers of the Company to the full extent permitted by
Delaware law.
Section 145 of the Delaware General Corporation Law provides, in
substance, that Delaware corporations shall have the power, under specified
circumstances, to indemnify their directors, officers, employees and agents in
connection with actions, suits or proceedings brought against them by a third
party or in the right of the corporation, by reason of the fact that they are
or were such directors, officers, employees or agents, against expenses,
judgments, fines and amounts paid in settlement actually and reasonably
incurred in any such action, suit or proceeding. The Delaware General
Corporation Law also provides that the Registrant may purchase insurance on
behalf of any such director, officer, employee or agent.
The Pooling and Servicing Agreement will provide that no director,
officer, employee or agent of the Company will be liable to the Trust Fund or
the Certificateholders for any action taken or for refraining from the taking
of any action pursuant to the Pooling and Servicing Agreement, except for such
person's own misfeasance, bad faith or gross negligence in the performance of
duties. The Pooling and Servicing Agreement will provide further that, with
the exceptions stated above, any director, officer, employee or agent of the
Company will be indemnified and held harmless by the Trust Fund against any
loss, liability or expense incurred in connection with any legal action
relating to the Pooling and Servicing Agreement or the Certificates, other than
any loss, liability or expense (i) related to any specific Mortgage Loan or
Mortgage Loans (except as any such loss, liability or expense shall be
otherwise reimbursable pursuant to the Pooling and Servicing Agreement), (ii)
incurred in connection with any violation by him or her of any state or federal
securities law or (iii) imposed by any taxing authority if such loss, liability
or expense is not specifically reimbursable pursuant to the terms of the
Pooling and Servicing Agreement.
II-1
<PAGE> 173
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number
-------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company (1)
3.2 By-Laws of the Company (1)
4.1 Form of Pooling and Servicing Agreement (2)
4.2 Form of Loan Sale Agreement (2)
5.1 Opinion of Andrews & Kurth L.L.P. regarding the legality of the
Certificates (2)
8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters (2)
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits 5.1
and 8.1 hereto) (2)
24.1 Power of Attorney (1)
99.1 Version 1 -- Changes to the Core Prospectus relating to
concentration of Multifamily Properties*
99.2 Version 2 -- Changes to the Core Prospectus relating to
concentration of Office Properties*
99.3 Version 3 -- Changes to the Core Prospectus relating to
concentration of Retail Properties*
99.4 Version 4 -- Changes to the Core Prospectus relating to
concentration of Hotel Properties*
99.5 Version 5 -- Changes to the Core Prospectus relating to
concentration of Health Care-Related Facilities*
99.6 Version 6 -- Changes to the Core Prospectus relating to
concentration of Industrial Properties*
99.7 Version 7 -- Changes to the Core Prospectus relating to
concentration of Self-Storage Facilities*
99.8 Version 8 -- Changes to the Core Prospectus relating to
concentration of Mobile Home Parks*
99.9 Resolutions of the Board of Directors of the Company regarding
the Power of Attorney*
</TABLE>
- ---------------
* Filed herewith.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Form S-3 Registration Statement (File No. 333-19591) on January 10, 1997
and incorporated by reference herein.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 1 to Form S-3 Registration Statement (File No. 333-19591)
on February 24, 1997 and incorporated by reference herein.
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act"); (ii) to reflect in the
Prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement; (iii) to include any material information with respect to the
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the Registration
Statement; provided, however, that no such post-effective amendment
shall be required if the information which would be required by clauses
(i) and (ii) is contained in periodic reports filed by the Registrant
pursuant to Section 13 or Section 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act") that are incorporated by reference in this
Registration Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes
of determining any liability under the Act, each filing of the Registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Exchange Act
that is incorporated by reference in this registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE> 174
(c) Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the provisions
described in Item 15 above, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question of whether such indemnification
by it is against public policy as expressed in the Securities Act and
will be governed by the final adjudication of such issue.
II-3
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
Amendment No. 2 to Registration Statement No. 333-19591 to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Dallas,
State of Texas, on the 7th day of April 1997.
AMRESCO COMMERCIAL MORTGAGE FUNDING I
CORPORATION
By: /s/ Michael N. Maberry
----------------------------------
Michael N. Maberry
President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to the Registration Statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
Robert H. Lutz, Jr.* Director (Chairman of the Board of April 7, 1997
---------------------------------------- Directors) and Chief Executive
Robert H. Lutz, Jr. Officer (Principal Executive
Officer)
/s/ Michael N. Maberry President April 7, 1997
----------------------------------------
Michael N. Maberry
Barry L. Edwards* Director, Executive Vice President April 7, 1997
---------------------------------------- and Chief Financial Officer
Barry L. Edwards (Principal Financial Officer)
Robert L. Adair III* Director and Executive Vice April 7, 1997
---------------------------------------- President
Robert L. Adair III
Ronald B. Kirkland* Vice President and Chief April 7, 1997
---------------------------------------- Accounting Officer
Ronald B. Kirkland (Principal Accounting Officer)
* By: /s/ Michael N. Maberry
----------------------------------
Michael N. Maberry
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 176
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company (1)
3.2 By-Laws of the Company (1)
4.1 Form of Pooling and Servicing Agreement(2)
4.2 Form of Loan Sale Agreement(2)
5.1 Opinion of Andrews & Kurth L.L.P. regarding the legality of the
Certificates(2)
8.1 Opinion of Andrews & Kurth L.L.P. regarding tax matters(2)
23.1 Consent of Andrews & Kurth L.L.P. (included as part of Exhibits 5.1
and 8.1 hereto)(2)
24.1 Power of Attorney (1)
99.1 Version 1 -- Changes to the Core Prospectus relating to
concentration of Multifamily Properties*
99.2 Version 2 -- Changes to the Core Prospectus relating to
concentration of Office Properties*
99.3 Version 3 -- Changes to the Core Prospectus relating to
concentration of Retail Properties*
99.4 Version 4 -- Changes to the Core Prospectus relating to
concentration of Hotel Properties*
99.5 Version 5 -- Changes to the Core Prospectus relating to
concentration of Health Care-Related Facilities*
99.6 Version 6 -- Changes to the Core Prospectus relating to
concentration of Industrial Properties*
99.7 Version 7 -- Changes to the Core Prospectus relating to
concentration of Self-Storage Facilities*
99.8 Version 8 -- Changes to the Core Prospectus relating to
concentration of Mobile Home Parks*
99.9 Resolutions of the Board of Directors of the Company regarding the
Power of Attorney*
</TABLE>
- ---------------
* Filed herewith.
(1) Previously filed with the Commission as an exhibit to the Registrant's
Form S-3 Registration Statement (File No. 333-19591) on January 10, 1997
and incorporated by reference herein.
(2) Previously filed with the Commission as an exhibit to the Registrant's
Amendment No. 1 to Form S-3 Registration Statement (File No. 333-19591)
on February 24, 1997 and incorporated by reference herein.
<PAGE> 1
EXHIBIT 1.1
MORTGAGE PASS-THROUGH CERTIFICATES,
SERIES 199__
and similar Series of which
AMRESCO Commercial Mortgage Funding I Corporation is Seller
Underwriting Agreement
Goldman, Sachs & Co.,
as representative (the "Representative")
of the several Underwriters named in
the respective Pricing Agreements
hereinafter described
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
___________, 199__
Ladies and Gentlemen:
From time to time on one or more occasions AMRESCO Commercial
Mortgage Funding I Corporation, a Delaware corporation (the "Seller"), proposes
(a) to enter into a pooling and servicing agreement (each, a "Pooling and
Servicing Agreement"), in each case with a bank or trust company, as trustee
(the "Trustee"), a Servicer or Master Servicer and, if applicable, a Special
Servicer, and (b) to enter into a Pricing Agreement (each, a "Pricing
Agreement") in the form of Annex A hereto, with such additions and deletions as
the parties thereto may determine, and, subject to the terms and conditions
stated herein and therein, to direct the Trustee pursuant to the applicable
Pooling and Servicing Agreement to issue and sell to the firms named in
Schedule I to the applicable Pricing Agreement (such firms constituting the
"Underwriters" with respect to such Pricing Agreement and the securities
specified therein) certain of its Mortgage Pass-Through Certificates specified
in Schedule II to such Pricing Agreement (the "Designated Securities"). At
their date of issuance, each issuance of Designated Securities will represent
beneficial ownership interests in one or more trust funds (each, a "Trust
Fund") consisting of Mortgage Loans (as defined in the related Pooling and
Servicing Agreement) and other assets. Capitalized terms used but not defined
herein shall have the meanings given to them in the related Pooling and
Servicing Agreement or, if not defined therein, in the related Pricing
Agreement. The terms and conditions of any particular issuance of Designated
Securities shall be as specified in the Pricing Agreement relating thereto and
pursuant to the related Pooling and Servicing Agreement.
1. Particular sales of Designated Securities may be made from time to
time to the Underwriters of such Designated Securities, for whom Goldman, Sachs
& Co. will act as the Representative. This Underwriting Agreement shall not be
construed as an obligation of the
<PAGE> 2
Seller to sell, or as an obligation of any of the Underwriters to purchase, any
of the Designated Securities. The obligation of the Seller to issue and sell
or cause to be issued and sold any of the Designated Securities and the
obligation of any of the Underwriters to purchase any of the Designated
Securities shall be evidenced by the Pricing Agreement with respect to such
Designated Securities. Each Pricing Agreement shall specify the aggregate
principal amount of such Designated Securities, the initial public offering
price or prices of such Designated Securities (if a fixed price offering) , the
purchase price to the Underwriters of such Designated Securities, the names of
the Underwriters of such Designated Securities, the name of the Trustee with
respect to such Designated Securities and the principal amount of such
Designated Securities to be purchased by each Underwriter and shall set forth
the date, time and manner of delivery of such Designated Securities and of
payment therefor. The Pricing Agreement shall also specify (to the extent not
set forth in the Pooling and Servicing Agreement and the registration statement
and prospectus with respect thereto) the terms of such Designated Securities.
The Pricing Agreement shall be in the form of an executed writing (which may be
in counterparts) and may evidenced by an exchange of telegraphic communications
or any other rapid transmission device designed to produce a written record of
communications transmitted. The obligation of the Underwriters under this
Agreement and under each Pricing Agreement shall be several and not joint.
2. Each of the Seller and AMRESCO, Inc. (AMRESCO) represents and
warrants to, and agrees with, each of the Underwriters that, with respect to
each issue of Designated Securities:
(a) The Seller meets the requirements for use of Form S-3 under the
Securities Act of 1933, as amended (the "Act"); a registration statement
(File No. 333-19591) on such form in respect of the Designated Securities,
together with one or more amendments thereto, has been filed with the
Securities and Exchange Commission (the "Commission") in the form
heretofore delivered or to be delivered to the Representative and,
exhibits to such registration statement and all documents incorporated by
reference in the prospectus contained therein, to the Representative for
each of the other Underwriters; such registration statement in such form
has been declared effective by the Commission; no stop order suspending
the effectiveness of such registration statement has been issued and no
proceeding for that purpose has been initiated or threatened by the
Commission; and such registration statement meets the requirements set
forth in subsection (a)(1)(x) of, and complies in all material respects
with, Rule 415 under the Act (any preliminary prospectus included in such
registration statement or filed with the Commission pursuant to Rule
424(a) under the Act being hereinafter called a "Preliminary Prospectus";
the various parts of such registration statement, including all exhibits
thereto and all documents incorporated by reference in the prospectus
contained in the registration statement at the time such part of the
registration statement became effective, each as amended at the time such
became effective, being hereinafter collectively called the "Registration
Statement"; the prospectus relating to the Designated Securities, in the
form in which it has most recently been filed, or mailed for filing, with
the Commission on or prior to the date of this Agreement, being
hereinafter called the "Prospectus"; any reference herein to any
Preliminary Prospectus or the Prospectus shall
2
<PAGE> 3
be deemed to refer to and include all documents incorporated by reference
therein as of the date of such Preliminary Prospectus or Prospectus, as
the case may be; and any reference to the "Prospectus Supplement" shall be
deemed to refer to the Prospectus as amended or supplemented in relation
to the Designated Securities in the form in which it is first filed, or
mailed for filing, with the Commission pursuant to Rule 424 under the Act
following pricing of the Designated Securities, including any documents
incorporated by reference therein as of the date of such filing or
mailing);
(b) The Registration Statement and Prospectus conform, and any
amendments or supplements thereto will conform, in all material respects
to the requirements of the Act and the rules and regulations of the
Commission thereunder and do not and will not, as of the applicable
effective date as to the Registration Statement and any amendment thereto
and as of the applicable filing date as to the Prospectus and any
supplement thereto, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; provided, however, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Seller by an Underwriter of Designated Securities through
the Representative expressly for use in the Prospectus Supplement;
(c) Each of the Seller and AMRESCO Inc., ("AMRESCO") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the State of its organization and has been duly
qualified or registered as a foreign corporation for the transaction of
business and is in good standing under the laws of all jurisdictions in
which it owns or leases property of a nature or transacts business of a
type that would require such qualifications or in which the failure to so
qualify or be in good standing could, individually or in the aggregate,
have a material adverse effect on the business, condition or properties of
the Seller or AMRESCO, as applicable;
(d) The Seller has all requisite power and authority (corporate and
other) and all requisite authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental or regulatory
officials and bodies to own its properties, to conduct its business as
described in the Registration Statement and the Prospectus and to execute,
deliver and perform this Agreement, except such as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution by the Underwriters of the Designated Securities; all such
authorizations, approvals, orders, licenses, certificates and permits are
in full force and effect and contain no unduly burdensome provisions; and,
except as otherwise set forth or contemplated in the Registration
Statement or the Prospectus, there are no legal or governmental
proceedings pending or, to the best of the Seller's knowledge, threatened,
that would result in a material modification, suspension or revocation
thereof;
(e) AMRESCO has all requisite power and authority (corporate and
other) and all requisite authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental or regulatory
officials and bodies to own its properties, to conduct
3
<PAGE> 4
its business and to execute, deliver and perform its obligations under
Section 8 of this Agreement; all such authorizations, approvals, orders,
licenses, certificates and permits are in full force and effect and
contain no unduly burdensome provisions; and there are no legal or
governmental proceedings pending, or, to the best of AMRESCO's knowledge,
threatened, that would result in a material modification, suspension or
revocation thereof;
(f) This Agreement has been duly authorized, executed and delivered
by the Seller and AMRESCO;
(g) At the Time of Delivery (as defined in Section 4 hereof), the
related Pooling and Servicing Agreement will have been duly authorized,
executed and delivered and will constitute a valid and legally binding
obligation of the Seller, enforceable in accordance with its terms,
subject, as to enforcement, to bankruptcy, insolvency, reorganization and
other laws of general applicability relating to or affecting creditors'
rights and to general principles of equity;
(h) When the Designated Securities are issued, executed,
authenticated and delivered pursuant to this Agreement, the Pricing
Agreement and the related Pooling and Servicing Agreement, the Designated
Securities will have been duly authorized, executed, authenticated, issued
and delivered and will be entitled to the benefits of the related Pooling
and Servicing Agreement; and the Designated Securities and the related
Pooling and Servicing Agreement will conform to the descriptions thereof
in the Prospectus Supplement;
(i) The issue and sale of the Designated Securities, the compliance
by the Seller with all of the provisions of this Agreement and the Pricing
Agreement and the related Pooling and Servicing Agreement, and the
consummation of the transactions herein and therein contemplated, will not
conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument to which the
Seller is a party or by which the Seller is bound or to which any of the
property or assets of the Seller is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
the By-Laws of the Seller or any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the
Seller, or any of its properties; and no consent, approval, authorization,
order, registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Designated Securities or the consummation by the Seller of the other
transactions contemplated by this Agreement or the Pricing Agreement or
the related Pooling and Servicing Agreement, except such as have been
obtained under the Act and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Designated Securities by the Underwriters;
(j) Compliance by AMRESCO with Section 8 hereof will not conflict
with or result in a breach of any of the terms or provisions of, or
constitute a default under, any
4
<PAGE> 5
indenture, mortgage, deed of trust, loan agreement or other material
agreement or instrument to which AMRESCO is a party or by which AMRESCO is
bound or to which any of the property or assets of AMRESCO is subject, nor
will such action result in any violation of the provisions of the
Certificate of Incorporation or the By-Laws of AMRESCO or any statute or
any order, rule or regulation of any court or governmental agency or body
having jurisdiction over AMRESCO, or any of its properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
entry by AMRESCO into this Agreement or the performance by AMRESCO of its
obligation under Section 8 of this Agreement, except such as have already
been obtained;
(k) Other than as set forth or contemplated in the Prospectus
Supplement, there are no legal or governmental proceedings pending and at
the Time of Delivery there will be no legal or governmental proceedings
pending to which the Seller is a party or of which any property of the
Seller is the subject which, if determined adversely to the Seller, would
individually or in the aggregate have a material adverse effect on the
condition (financial or otherwise), earnings, affairs, business,
properties or prospects of the Seller, and to the best of the Seller's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(l) There are no legal or governmental proceedings pending and at the
Time of Delivery there will be no legal or governmental proceedings
pending to which AMRESCO is a party or of which any property of AMRESCO is
the subject which, if determined adversely to AMRESCO, would individually
or in the aggregate have a material adverse effect on the condition
(financial or otherwise), earnings, affairs, business, properties or
prospects of AMRESCO, and to the best of AMRESCO's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by others;
(m) The Seller will at the Time of Delivery own the Mortgage Loans to
be sold and delivered to the Trustee under the related Pooling and
Servicing Agreement, free and clear of any lien, mortgage, pledge, charge,
security interest or other encumbrance; and, at the Time of Delivery, the
Seller will have full power and authority to sell and deliver the Mortgage
Loans to the Trustee under the related Pooling and Servicing Agreement and
at the Time of Delivery will have duly authorized such assignment and
delivery to the Trustee by all necessary action;
(n) Any taxes, fees and other governmental charges in connection with
the execution, delivery and performance of this Agreement, the Pricing
Agreement, the related Pooling and Servicing Agreement and the Designated
Securities will have been paid at or prior to the Time of Delivery;
(o) At the Time of Delivery, the Mortgage Loans will have been duly
and validly assigned and delivered by the Seller to the Trustee under the
related Pooling and Servicing Agreement;
5
<PAGE> 6
(p) The Trust Fund created by the related Pooling and Servicing
Agreement will not at the Time of Delivery be required to be registered
under the Investment Company Act of 1940, as amended (the "Investment
Company Act"); and
(q) The Seller is not and at the Time of Delivery will not be an
"investment company", as such term is defined in the Investment Company
Act.
3. Upon the execution of the Pricing Agreement applicable to any
Designated Securities and authorization by the Representative of the release of
the Designated Securities, the several Underwriters propose to offer the
Designated Securities for sale upon the terms and conditions set forth in the
Prospectus Supplement.
4. Designated Securities to be purchased by each Underwriter pursuant
to the Pricing Agreement relating thereto, in definitive or book-entry form as
indicated in the Pricing Agreement, and in such authorized denominations and
registered in such names as the Representative may request upon at least
forty-eight hours' prior notice to the Seller, shall be delivered on behalf of
the Trustee to the Representative for the account of such Underwriter, against
payment by such Underwriter or on its behalf of the purchase price therefor by
wire transfer of immediately available funds to the Seller, or in such other
manner as may be specified in such Pricing Agreement, all at the place and time
and date specified in such Pricing Agreement or at such other place and time
and date as the Representative and the Seller may agree upon in writing, such
time and date being herein called the "Time of Delivery" for such Designated
Securities.
5. The Seller agrees with each of the Underwriters of any Designated
Securities:
(a) To make no further amendment or any supplement to the
Registration Statement, the Prospectus or the Prospectus Supplement after
the date of the Pricing Agreement relating to such Designated Securities
and prior to the Time of Delivery for such Designated Securities which
shall be disapproved by the Representative promptly after reasonable
notice thereof; to advise the Representative promptly of any such
amendment or supplement after such Time of Delivery and furnish the
Representative with copies thereof; for so long as the delivery of a
prospectus is required in connection with the offering or sale of the
Designated Securities, to advise the Representative, promptly after it
receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or become effective or any
supplement to the Prospectus or any amended Prospectus has been filed or
mailed for filing, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any prospectus relating
to the Designated Securities, of the suspension of the qualification of
the Designated Securities for offering or sale in any jurisdiction, of the
initiation or threatened initiation of any proceeding for any such
purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or the Prospectus or for
additional information; and, in the event of the issuance of any such stop
order or of any such order preventing or suspending the use of any
prospectus
6
<PAGE> 7
relating to the Designated Securities or suspending any such
qualification, to use promptly its best efforts to obtain the withdrawal
of any such order;
(b) Promptly from time to time to take such action as the
Representative may reasonably request to qualify such Designated
Securities for offering and sale under the securities laws of such
jurisdictions as the Representative may request and to comply with such
laws so as to permit the continuance of sales and dealings therein in such
jurisdictions for as long as may be necessary to complete the distribution
of such Designated Securities, provided that in connection therewith
neither the Trust Fund issuing such Designated Securities nor the Seller
shall be required to qualify to do business or to file a general consent
to service of process in any jurisdiction;
(c) To cause any Computational Materials and any Structural Term
Sheets (each as defined below) with respect to an issue of Designated
Securities that are delivered by any of the Underwriters to the Seller to
be filed with the Commission on a Form 8-K pursuant to Rule 13a-11 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), on
the business day immediately following the later of (i) the day on which
such Computational Materials and Structural Term Sheets are delivered to
counsel for the Seller by any Underwriter prior to 2 p.m. and (ii) the
date on which the related Pricing Agreement is executed and delivered. If
any Collateral Term Sheet (as defined below) is used by any of the
Underwriters, the Seller will cause each such Collateral Term Sheet with
respect to an issue of Designated Securities that is delivered by the
Underwriters to the Seller to be filed with the Commission on a Form 8-K
pursuant to Rule 13a-11 under the Exchange Act on the business day
immediately following the day on which such Collateral Term Sheet is
delivered to counsel for the Seller by any Underwriter prior to 2 p.m.
"Computational Materials" shall have the meaning assigned to such term in
the no-action letter dated May 20, 1994 issued by the Division of
Corporation Finance of the Commission to Kidder, Peabody Acceptance
Corporation I, Kidder, Peabody & Co. Incorporated and Kidder Structured
Asset Corporation and the related no-action letter dated May 27, 1994
issued by the Division of Corporation Finance of the Commission to the
Public Securities Association, the filing of which material is a condition
of the relief granted in such letter. "Structural Term Sheets" shall have
the meaning assigned to such term in the no-action letter dated February
17, 1995 issued by the Division of Corporation Finance of the Commission
to the Public Securities Association (the "PSA Letter"), the filing of
which material is a condition of the relief granted in such letter.
"Collateral Term Sheets" shall have the meaning assigned to such term in
the PSA Letter, the filing of which material is a condition of the relief
granted in such letter; and
(d) To furnish the Underwriters with copies of the Prospectus and the
Prospectus Supplement in such quantities as the Representative may from
time to time reasonably request, and, if the delivery of a prospectus is
required at any time in connection with the offering or sale of the
Designated Securities and if at any such time any event shall have
occurred as a result of which the Prospectus as then amended or
supplemented would include an untrue statement of a material fact or omit
to state any
7
<PAGE> 8
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in
order to comply with the Act, to notify the Representative and upon its
request to file such document and to prepare and furnish without charge to
each Underwriter and to any dealer in securities as many copies as the
Representative may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such
statement or omission or effect such compliance.
6. The Seller covenants and agrees with the several Underwriters of
any designated Securities that the Seller will pay or cause to be paid the
following: (i) the fees, disbursements and expenses of counsel and accountants
for the Seller in connection with the registration of such Designated
Securities under the Act and all other expenses in connection with the
preparation, printing and filing of the Registration Statement, any Preliminary
Prospectus and the Prospectus and amendments and supplements thereto and the
mailing and delivery of copies thereof to the Underwriters and dealers; (ii)
the cost of printing or producing any Agreement Among Underwriters, this
Agreement, any Pricing Agreement, any Pooling and Servicing Agreement, any Blue
Sky and Legal Investment Memoranda and any other documents in connection with
the offering, purchase, sale and delivery of such Designated Securities; (iii)
all expenses in connection with the qualification of such Designated Securities
for offering and sale under state securities laws as provided in Section 5(b)
hereof, including the fees and disbursements of counsel for the Underwriters in
connection with such qualification and in connection with the Blue Sky and
Legal Investment Memoranda; (iv) any fees charged by securities rating services
for rating such Designated Securities; (v) the cost of preparing such
Designated Securities; (vi) the fees and expenses of any Trustee and of any
agent of such Trustee and the fees and disbursements of counsel for the Trustee
in connection with the related Pooling and Servicing Agreement and such
Designated Securities; (vii) the fees and expenses of counsel for Underwriters;
(viii) the out-of-pocket costs of the Representative; and (ix) all other costs
and expenses incident to the performance of the Seller's obligations hereunder
which are not otherwise specifically provided for in this Section.
7. The obligations of the Underwriters of any Designated Securities
under the Pricing Agreement relating to such Designated Securities shall be
subject, in the discretion of the Representative, to the condition that all
representations and warranties and other statements of the Seller herein are,
at and as of the Time of Delivery for such Designated Securities, true and
correct, the condition that the Seller shall have performed all of its
obligations hereunder theretofore to be performed, and the following additional
conditions:
(a) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information from the Seller on the part of the Commission shall
have been complied with to the Representative's reasonable satisfaction;
8
<PAGE> 9
(b) The related Pooling and Servicing Agreement and all of the other
agreements identified in such Pricing Agreement as "Related Agreements"
shall have been duly entered into by all of the respective parties;
(c) Counsel for the Underwriters shall have furnished to the
Representative such opinion or opinions, dated the Time of Delivery for
such Designated Securities, with respect to the related Pooling and
Servicing Agreement, the Designated Securities, the Registration
Statement, the Prospectus Supplement and other related matters as the
Representative may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;
(d) Counsel for the Seller and AMRESCO satisfactory to the
Representative shall have furnished to the Representative their written
opinion (or, in the case of clause (ix) below, their letter), dated the
Time of Delivery for such Designated Securities, in form and substance
satisfactory to the Representative, to the effect that:
(i) Each of the Seller and AMRESCO has been duly incorporated
and is validly existing as a corporation in good standing under the
laws of the State of its organization;
(ii) The Seller has all requisite corporate power to own its
properties, to conduct its business as described in the Registration
Statement, the Prospectus and the Prospectus Supplement and to
execute, deliver and perform this Agreement, the Pricing Agreement,
the related Pooling and Servicing Agreement and each of the Related
Agreements to which the Seller is a party;
(iii) AMRESCO has all requisite corporate power to own its
properties, to conduct its business and to execute, deliver and
perform its obligations under Section 8 of this Agreement;
(iv) To the best of such counsel's knowledge and other than as
set forth or contemplated in the Prospectus, there are no legal or
governmental proceedings pending to which the Seller is a party or of
which any property of the Seller is the subject which, if determined
adversely to the Seller, would individually or in the aggregate have
a material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, properties or prospects of the Seller
and, to the best of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or threatened
by others;
(v) To the best of such counsel's knowledge, there are no legal
or governmental proceedings pending to which AMRESCO is a party or of
which any property of AMRESCO is the subject which, if determined
adversely to AMRESCO, would individually or in the aggregate have a
material adverse effect on the condition (financial or otherwise),
earnings, affairs, business, properties or prospects of AMRESCO and,
to the best of such counsel's knowledge, no such
9
<PAGE> 10
proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(vi) This Agreement and the Pricing Agreement with respect to
the Designated Securities have been duly authorized, executed and
delivered by each of the Seller and AMRESCO ;
(vii) The related Pooling and Servicing Agreement has been duly
authorized, executed and delivered by the Seller and constitutes a
legal, valid and binding obligation of the Seller, enforceable in
accordance with its terms, subject to applicable bankruptcy,
insolvency and other similar laws affecting creditors' rights
generally and to general principles of equity (whether considered in
a proceeding in equity or at law);
(viii) The related Pooling and Servicing Agreement is not
required to be qualified under the Trust Indenture Act of 1939, as
amended, and the Trust Fund created thereunder is not required to be
registered under the Investment Company Act;
(ix) The Designated Securities, when duly authorized, executed,
authenticated, issued and delivered by the Trustee in accordance with
the related Pooling and Servicing Agreement, will be validly issued
and outstanding and entitled to the benefits of the related Pooling
and Servicing Agreement; and the statements set forth under the
heading "Description of the Certificates" (or similar heading) in the
Prospectus Supplement, insofar as such statements purport to
summarize certain provisions of the Designated Securities and the
related Pooling and Servicing Agreement, provide a fair summary of
such provisions;
(x) The issue and sale of the Designated Securities and the
compliance by the Seller with all of the provisions of this
Agreement, the Pricing Agreement, the Designated Securities and the
related Pooling and Servicing Agreement, and the consummation of the
transactions herein and therein contemplated, do not conflict with or
result in a breach of any of the terms or provisions of, or
constitute a default under any indenture, mortgage, deed of trust,
loan agreement or other material agreement or instrument known to
such counsel to which the Seller is a party, nor do such actions
result in any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Seller or any state or federal
statute applicable to the Seller or any order, rule or regulation
known to such counsel of any state or federal court or governmental
agency or body having jurisdiction over the Seller or any of its
properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for the issue and sale of the
Designated Securities or the consummation by the Seller of the other
transactions contemplated by this Agreement or the Pricing Agreement
with respect to the Designated Securities, the Designated Securities
and the related Pooling and
10
<PAGE> 11
Servicing Agreement, except (A) such as have been obtained under the
Act, (B) such consents, approvals, authorizations, registrations or
qualifications as may be required under state securities, real estate
syndication or Blue Sky laws in connection with the purchase and
distribution of the Designated Securities by the Underwriters and (C)
such recordations or filings as may be required or contemplated by
the related Pooling and Servicing Agreement;
(xi) The compliance by AMRESCO with Section 8 of this Agreement
does not conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under any indenture, mortgage,
deed of trust, loan agreement or other material agreement or
instrument known to such counsel to which AMRESCO is a party, nor do
such actions result in any violation of the provisions of the
Certificate of Incorporation or the By-Laws of AMRESCO or any state
or federal statute applicable to AMRESCO or any order, rule or
regulation known to such counsel of any state or federal court or
governmental agency or body having jurisdiction over AMRESCO or any
of its properties; and no consent, approval, authorization, order,
registration or qualification of or with any such court or
governmental agency or body is required for entry by AMRESCO into
this Agreement or the performance by AMRESCO of its obligations under
Article 8 of this Agreement, except such as already have been
obtained;
(xii) The Registration Statement and the Prospectus, as
supplemented by the Prospectus Supplement and any further amendments
and supplements thereto made by the Seller prior to the Time of
Delivery for the Designated Securities (other than the financial
statements, schedules and other financial and statistical data
therein, as to which such counsel need express no opinion) as of the
date it became effective, as of the date of the Prospectus Supplement
or as of the date of such later amendment or supplement, as the case
may be, appeared on their face to be appropriately responsive in all
material respects to the requirements of the Act and the rules and
regulations thereunder; on the basis of such counsel's participation
in the preparation of the Registration Statement and the Prospectus
(and any further amendment or supplement thereto made by the Seller
prior to the Time of Delivery) and in conferences with
representatives of the Seller, the Seller's independent public
accountants and the Underwriters at which the contents of the
Registration Statement and the Prospectus (and any such further
amendment or supplement thereto) were discussed and without passing
upon, assuring responsibility for or making any independent check or
verification of the factual accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus
(or any such further amendment or supplement thereto) (other than as
set forth in clause (xi) of this Section 7(d)), nothing has come to
the attention of such counsel which causes them to believe that, as
of the effective date of the Registration Statement, the Registration
Statement (or, as of the date thereof, any further amendment thereto)
(other than the financial statements, schedules and other
11
<PAGE> 12
financial and statistical data therein, as to which such counsel need
express no opinion) contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that, as
of the date of the Prospectus Supplement or as of the Time of
Delivery, the Prospectus (or any such further amendment or supplement
thereto) (other than the financial statements, schedules and other
financial and statistical data therein, as to which such counsel need
express no opinion) contained or contains an untrue statement of a
material fact or omitted or omits to state a material fact necessary
to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and such counsel do not
know of any contracts or other documents of a character required to
be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus as
amended or supplemented which are not filed or described as required;
(xiii) The Seller is not required to register as an "investment
company" under, and as such term is defined in, the Investment
Company Act; and
(xiv) The statements set forth in the Prospectus Supplement
under the heading "ERISA Considerations", "Federal Income Tax
Consequences", "Certain Legal Affects of the Mortgage Loans" and
"Legal Investment" (insofar as they relate specifically to the
purchase, ownership and disposition of the Designated Securities), to
the extent that they constitute matters of law or legal conclusions
with respect to the federal law of the United States, have been
prepared or reviewed by such counsel and provide a fair summary of
such law or conclusions;
In rendering their opinion, such counsel may rely, to the extent deemed
proper and as stated therein, as to matters of fact on certificates of
responsible officers of the Seller and the Trustee and public officials;
(e) Counsel for the Servicer or Master Servicer satisfactory to the
Representative shall have furnished to the Representative their written
opinion as set forth in the related Pricing Agreement;
(f) Counsel for the Special Servicer satisfactory to the
Representative shall have furnished to the Representative their written
opinion as set forth in the related Pricing Agreement;
(g) Counsel for the Trustee satisfactory to the Representative shall
have furnished to the Representative their written opinion as set forth in
the related Pricing Agreement;
(h) On the date of the Pricing Agreement for such Designated
Securities and at the Time of Delivery for such Designated Securities, the
independent accountants
12
<PAGE> 13
of the Seller or other accountants acceptable to the Representative shall
have furnished to the Representative a letter or letters, dated the date
of the Pricing Agreement, and a letter or letters, dated such Time of
Delivery, respectively, containing statements and information of the type
customarily included in accountants' "comfort letters" and "agreed upon
procedures letters" with respect to certain financial information
contained in the Registration Statement, the Prospectus and the Prospectus
Supplement, in each case as to such matters as the Representative may
reasonably request and in form and substance satisfactory to the
Representative;
(i) Subsequent to the date of the Pricing Agreement relating to the
Designated Securities, there shall not have occurred any of the following:
(i) a suspension or material limitation in trading in securities generally
on the New York Stock Exchange; (ii) a general moratorium on commercial
banking activities in New York declared by either Federal or New York
State authorities; or (iii) the outbreak or escalation of hostilities
involving the United States or the declaration by the United States of a
national emergency or war, if the effect of any such event specified in
this clause (iii) in the judgment of the Representative makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Designated Securities on the terms and in the manner
contemplated in the Prospectus as amended or supplemented;
(j) Each of the Seller and AMRESCO shall have furnished or caused to
be furnished to the Representative at the Time of Delivery for the
Designated Securities certificates of its officers satisfactory to the
Representative as to the accuracy in all material respects of its
representations and warranties herein at and as of such Time of Delivery,
as to the performance of all of its obligations hereunder to be performed
at or prior to such Time of Delivery, as to the matters set forth in
Section 7(a) above and as to such other matters as the Representative may
reasonably request;
(k) The Servicer or Master Servicer shall have furnished to the
Representative a certificate signed by one or more of its officers
satisfactory to the Representative, dated the Time of Delivery, to the
effect that the representations and warranties of the Servicer or Master
Servicer, as applicable, in the Pooling and Servicing Agreement are true
and correct in all material respects on and as of the Time of Delivery
with the same effect as if made at the Time of Delivery;
(l) The Special Servicer shall have furnished to the Representative a
certificate signed by one or more of its officers satisfactory to the
Representative, dated the Time of Delivery, to the effect that the
representations and warranties of the Special Servicer in the Pooling and
Service Agreement are true and correct in all material respects on and as
of the Time of Delivery with the same effect as if made at the Time of
Delivery;
(m) The Representative shall have received evidence satisfactory to
it that the Designated Securities are rated in the rating category or
categories specified in the Pricing Agreement by the rating agency or
agencies specified in the Pricing Agreement;
13
<PAGE> 14
(n) AMRESCO Capital Corporation ("ACC") shall have furnished to the
Representative a certificate signed by one or more of its officers
satisfactory to the Representative, dated the Time of Delivery, to the
effect that the representations and warranties made by ACC to the Seller
in the applicable Loan Sale Agreement are true and correct in all material
respects on and as of the Time of Delivery with the same effect as if made
at the Time of Delivery;
(o) Any additional conditions specified in the related Pricing
Agreement; and
(p) All opinions (including reliance letters addressed to the rating
agencies), certificates and other documents incident to, and all
proceedings in connection with the transactions contemplated by, this
Agreement, the Pricing Agreement and the related Pooling and Servicing
Agreement shall be satisfactory in form and substance to the
Representative and its special counsel. The Representative and its special
counsel shall have received copies of all documents and other information
as they may reasonably request, in form and substance satisfactory to the
Representative and its special counsel, with respect to such transactions
and the taking of all proceedings in connection therewith.
With respect to any issue of Designated Securities, for purposes of subsections
(b), (c), (d), (g), (k), (l) and (o) of this Section, the terms "Trustee" and
"Pooling and Servicing Agreement" shall be deemed to refer to the Pooling and
Servicing Agreement specified in the Pricing Agreement with respect to such
Designated Securities. All opinions of counsel contemplated by this Section
shall be addressed to the Underwriters. All closing items delivered to the
Representative shall be delivered in sufficient quantity for all of the
Underwriters.
8. (a) Each of the Seller and AMRESCO will jointly and severally
indemnify and hold harmless each Underwriter against any losses, claims,
damages or liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, any preliminary prospectus supplement, the
Registration Statement, the Prospectus as amended or supplemented or any other
prospectus relating to the Designated Securities, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse
each Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim; provided, however, that the Seller and AMRESCO shall not be liable in
any such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in any such document in reliance upon and
in conformity with written information furnished to the Seller by any
Underwriter of Designated Securities through the Representative expressly for
use in the Prospectus Supplement.
14
<PAGE> 15
(b) Each Underwriter will indemnify and hold harmless the
Seller against any losses, claims, damages or liabilities to which the Seller
may become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, any preliminary prospectus supplement,
the Registration Statement, the Prospectus as amended or supplemented or any
other prospectus relating to the Designated Securities or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in any such document in
reliance upon and in conformity with written information furnished to the
Seller by such Underwriter through the Representative expressly for use
therein.
(c) Promptly after receipt by an indemnified party under
subsection (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against
the indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party otherwise than under such subsection. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party; provided,
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it and/or
other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall
have the right to select separate counsel to assert such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying
party to such indemnified party of the indemnifying party's election so to
assume the defense of such action and approval by the indemnified party of
counsel, the indemnifying party will not be liable to such indemnified party
under such subsection for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in connection with the
assertion of legal defenses in accordance with the proviso to the next
preceding sentence, (ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of commencement of the action or (iii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
15
<PAGE> 16
indemnified party as a result of such losses, claims, damages or liabilities
(or actions in respect thereof) in such proportion as is appropriate to reflect
the relative benefits received by the Seller of the Designated Securities on
the one hand and the Underwriters of the Designated Securities on the other
from the offering of the Designated Securities to which such loss, claim,
damage or liability (or actions in respect thereof) relates. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice required
under subsection (c) above, then each indemnifying party shall contribute to
such amount paid or payable by such indemnified party in such proportion as it
is appropriate to reflect not only such relative benefits but also the relative
fault of the Seller of the Designated Securities on the one hand and the
Underwriters of such Designated Securities on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Seller of the
Designated Securities on the one hand and such Underwriters on the other shall
be deemed to be in the same proportion as the total net proceeds from such
offering (before deducting expenses) received by the Seller bear to the total
underwriting discounts and commissions received by such Underwriters. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Seller on the one hand or such Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Seller, AMRESCO and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
subsection (d) were determined by pro rata allocation (even if the Underwriters
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this subsection (d). The amount paid or payable by an indemnified
party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subsection (d), no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
underwriting discounts and commissions received by such Underwriter for the
Designated Securities underwritten by it and distributed to the public exceeds
the amount of any damages which such Underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The obligations of the
Underwriters of Designated Securities in this subsection (d) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(e) The obligations of the Seller and AMRESCO under this
Section 8 shall be in addition to any liability which the Seller and AMRESCO
may otherwise have and shall extend, upon the same terms and conditions, to
each person, if any, who controls any Underwriter within the meaning of the
Act.
16
<PAGE> 17
9. (a) If any Underwriter shall default in its obligation to
purchase such of the Designated Securities as it has agreed to purchase under
the Pricing Agreement relating to such Designated Securities, the
Representative may in its discretion arrange for the Representative or another
or other parties to purchase such Designated Securities on terms contained
herein. If within thirty-six hours after such default by any Underwriter the
Representative does not arrange for the purchase of such Designated Securities,
then the Seller shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to the
Representative to purchase such Designated Securities on such terms. In the
event that, within the respective prescribed period, the Representative
notifies the Seller that it has so arranged for the purchase of such Designated
Securities, or the Seller notifies the Representative that it has so arranged
for the purchase of such Designated Securities, the Representative or the
Seller shall have the right to postpone the Time of Delivery for such
Designated Securities for a period of not more than seven days, in order to
effect whatever changes may be necessary in the Registration Statement or the
Prospectus as amended or supplemented, or in any other documents or
arrangements, and the Seller agrees to file promptly any amendments or
supplements to the Registration Statement or the Prospectus which in the
opinion of the Representative may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to the Pricing Agreement with respect to such Designated Securities.
(b) If, after giving effect to any arrangements made by the
Representative and the Seller for the purchase, of the Designated Securities of
a defaulting Underwriter or Underwriters as provided in subsection (a) above,
the aggregate principal amount of the Designated Securities which remains
unpurchased does not exceed one-eleventh of the aggregate principal amount of
the Designated Securities, then the Seller shall have the right to require each
non-defaulting Underwriter to purchase the principal amount of the Designated
Securities which such Underwriter agreed to purchase under the Pricing
Agreement relating to the Designated Securities and, in addition, to require
each non-defaulting Underwriter to purchase its pro rata share (based on the
principal amount of the Designated Securities which such Underwriter agreed to
purchase under such Pricing Agreement) of the Designated Securities of such
defaulting Underwriter or Underwriters for which such arrangements have not
been made, but nothing herein shall relieve a defaulting Underwriter from
liability for its default.
(c) If, after giving effect to any arrangements made by the
Representative and the Seller for the purchase of the Designated Securities of
a defaulting Underwriter or Underwriters as provided in subsection (a) above,
the aggregate principal amount of the Designated Securities which remains
unpurchased exceeds one-eleventh of the aggregate principal amount of the
Designated Securities, as referred to in subsection (b) above, or if the Seller
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase the Designated Securities of a
defaulting Underwriter or Underwriters, then the related Pricing Agreement
shall thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Seller, except for the expenses to be borne by the Seller
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements
17
<PAGE> 18
in Section 8 hereof, but nothing herein shall relieve a defaulting Underwriter
from liability for its default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Seller and the several Underwriters, as
set forth in this Agreement and/or any Pricing Agreement or made by or on
behalf of any of them, respectively, pursuant to this Agreement and/or any
Pricing Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made in connection
with the issuance of Designated Securities by or on behalf of any Underwriter
or any controlling person of any Underwriter, or the Seller, or any officer or
director or controlling person of the Seller and shall survive delivery of and
payment for the Designated Securities.
11. If any Pricing Agreement shall be terminated pursuant to Section
9 hereof, the Seller shall not be under any liability to any Underwriter with
respect to the Designated Securities covered by such Pricing Agreement except
as provided in Section 6 and Section 8 hereof; but, if for any other reason
Designated Securities are not delivered by or on behalf of the Trustee as
provided herein, the Seller will reimburse the Underwriters through the
Representative for all out-of-pocket expenses approved in writing by the
Representative, including fees and disbursements of counsel, reasonably
incurred by the Underwriters in making preparations for the purchase, sale and
delivery of such Designated Securities, but the Seller shall be under no
further liability to any Underwriter with respect to such Designated Securities
except as provided in Section 6 and Section 8 hereof.
12. In all dealings hereunder, the Representative of the Underwriters
of Designated Securities shall act on behalf of each of such Underwriters, and
the parties hereto shall be entitled to act and rely upon any statement,
request, notice or agreement on behalf of any Underwriter made or given by such
Representative.
All statements, requests, notices and agreements hereunder shall be
in writing or by telegram if promptly confirmed in writing, and shall be
sufficient in all respects, if delivered or sent by registered mail, if to the
Underwriters, to the address of the representative set forth above; if to the
Seller, to the address of the Seller set forth in the Registration Statement,
Attention: President; if to the Trustee, to the address of the Trustee set
forth in the related Pooling and Servicing Agreement, with a copy to the
Seller.
13. This Agreement and each Pricing Agreement shall be binding upon,
and inure solely to the benefit of, the Underwriters of the related Designated
Securities, the Seller and, to the extent provided in Section 8 and Section 10
hereof, the officers and directors of the Seller and each person who controls
the Seller or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement or any such Pricing
Agreement. No purchaser of any of the Securities from any Underwriter shall be
deemed a successor or assign merely by reason of such purchase.
14. Time shall be of the essence of each Pricing Agreement.
18
<PAGE> 19
15. THIS AGREEMENT AND EACH PRICING AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement and each Pricing Agreement may be executed by any
one or more of the parties hereto and thereto in any number of counterparts,
each of which shall be deemed to be an original, but all such respective
counterparts shall together constitute one and the same instrument.
19
<PAGE> 20
If the foregoing is in accordance with your understanding of our
agreement, lease sign and return to the undersigned two counterparts hereof,
whereupon this letter and our acceptance shall represent a binding agreement
between the Seller and each of the several underwriters.
Very truly yours,
AMRESCO COMMERCIAL MORTGAGE FUNDING I
CORPORATION
By:
----------------------------------
Name:
Title:
AMRESCO, INC.
By:
----------------------------------
Name:
Title:
Accepted as of the date hereof:
- ----------------------------------
Goldman, Sachs & Co.
as the Representative
20
<PAGE> 21
ANNEX A
AMRESCO Commercial Mortgage Funding I Corporation
COMMERCIAL MORTGAGE PASS-THROUGH CERTIFICATES
SERIES 199[ ]-[ ]
Pricing Agreement
(to Underwriting Agreement dated ___________, 199__ between
AMRESCO Commercial Mortgage Funding I Corporation, AMRESCO, Inc. and Goldman,
Sachs & Co.,
as the Representative)
Goldman, Sachs & Co.,
as the Representative of the several
Underwriters
c/o Goldman, Sachs & Co.
85 Broad Street
New York, New York 10004
[ ], 199[ ]
Ladies and Gentlemen:
This letter, when countersigned by you, will confirm that Goldman,
Sachs & Co. and __________________ (the "Underwriters") have agreed, subject to
the terms and provisions herein and of the captioned Underwriting Agreement
(the "Underwriting Agreement"), to purchase from the undersigned such Classes
of the captioned Series 199[ ]-[ ] Certificates (the "Certificates") as are
specified in Section 2(a) hereof and Schedule II hereto (the "Designated
Securities"). Each of the provisions of the Underwriting Agreement is
incorporated herein by reference in its entirety, and shall be deemed to be a
part of this Agreement to the same extent as if such provisions had been set
forth in full herein; and each of the representations and warranties set forth
therein shall be deemed to have been made at and as of the date of this
Agreement. This letter supplements and modifies the Underwriting Agreement
solely as it relates to the purchase and sale of the Designated Securities
described below. Capitalized terms used and not defined herein have the
meanings given them in the Underwriting Agreement.
Section 1. The Mortgage Pool: The Certificates shall evidence the
entire beneficial ownership interest in a mortgage pool (the "Mortgage Pool")
of commercial mortgage loans (the "Mortgage Loans") originated by [ ]
("[ ]") having the following characteristics as of [ ],
199[ ] (the "Cut-off Date"):
(a) Aggregate Principal Amount of the Mortgage Pool: $[ ] aggregate
principal balance as of the Cut-off Date, subject to an upward or downward
<PAGE> 22
variance of up to [ ] %, the precise aggregate principal balance to be
determined by the Seller.
(b) The Mortgage Loans shall have such other characteristics as
described in the related Prospectus Supplement.
Section 2. The Designated Securities: The Designated Securities shall
be issued as follows:
(a) Classes: The Designated Securities shall be issued with the
following Class designations, pass-through rates and initial principal
balances (each, an "Initial Certificate Principal Amount"), subject in the
aggregate to the variance referred to in Section l (a) and, as to any
particular Class, to an upward or downward variance of up to[ ]%:
<TABLE>
<CAPTION>
Initial Certificate
Principal Pass-Through Class Purchase
Class Amount Rate Price Percentage
----- ------ ---- ----------------
<S> <C> <C> <C>
Class [ ] $ % %
Class [ ]
</TABLE>
(b) [Beneficial interests in the Designated Services shall be held by
investors through the book-entry facilities of the Depository Trust
Company, as provided in the related Prospectus Supplement.]
(c) The Designated Securities shall have such other characteristics
as described in the related Prospectus Supplement.
Section 3. Purchase Price: The purchase price for each Class of the
Designated Securities shall be the Class Purchase Price Percentage therefor (as
set forth in Section 2(a) above) of the Initial Certificate Principal Amount
thereof plus accrued interest at a per annum rate equal to the respective
pass-through rate from and including the Cut-off Date up to, but not including,
the Time of Delivery.
Section 4. Delivery of Securities: Delivery of the Designated
Securities shall be made at the offices of [ ] on [ ], 199[ ] or at such
other place and time and date as the Representative and the Seller may agree
upon in writing, such time and date being herein called the "Time of Delivery"
for the Designated Securities.
Section 5. Required Ratings: The Designated Securities shall have
received ratings of at least "[ ]" from [ ] and "[ ]" from [ ].
Section 6. Tax Treatment: [A][Two separate] "real estate mortgage
investment conduit" (REMIC) elections will be made with respect to the Trust
Fund for U.S. federal income tax purposes.
2
<PAGE> 23
Section 7. Additional Expenses:
Section 8. Additional Closing Conditions:
Section 9. Related Agreements: The "Related Agreements" shall be the
[ ] and the [ ]
3
<PAGE> 24
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to the undersigned a counterpart hereof, whereupon this
letter and your acceptance shall represent a binding agreement between the
Underwriters and the Seller.
Very truly yours,
AMRESCO COMMERCIAL MORTGAGE FUNDING I
CORPORATION
By:
----------------------------------
Name:
Title:
AMRESCO, INC.
By:
----------------------------------
Name:
Title:
Accepted as of the date hereof:
- --------------------------------
Goldman, Sachs & Co.
as the Representative
4
<PAGE> 25
SCHEDULE I
UNDERWRITERS
<PAGE> 26
SCHEDULE II
DESIGNATED SECURITIES
<PAGE> 1
EXHIBIT 99.1
VERSION 1: MULTIFAMILY PROPERTIES
PROSPECTUS
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will
be offered from time to time in one or more series (each, a "SERIES"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "CERTIFICATES". Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "TRUST FUND") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"MORTGAGE LOANS"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination of Mortgage Loans and/or CMBS (with respect to any Series,
collectively, the "MORTGAGE ASSETS"). Multifamily properties consisting of five
or more rental or cooperatively owned dwellings will represent security for a
material concentration of the Mortgage Loans (or the mortgage loans underlying
the CMBS) in any Trust Fund, based on principal balance at the time such Trust
Fund is formed. If so specified in the related Prospectus Supplement, some or
all of the Mortgage Loans will include assignments of the leases of the related
Mortgaged Properties (as defined herein) and/or assignments of the rental
payments due from the lessees under such leases (each type of assignment, a
"LEASE ASSIGNMENT"). A significant or the sole source of payments on certain
Commercial Loans (as defined herein) and, therefore, of distributions on
certain Series of Certificates, will be such rent payments. If so specified in
the related Prospectus Supplement, the Trust Fund for a Series of Certificates
may include letters of credit, insurance policies, guarantees, reserve funds or
other types of credit support, or any combination thereof (with respect to any
Series, collectively, "CREDIT SUPPORT"), and currency or interest rate exchange
agreements and other financial assets, or any combination thereof (with respect
to any Series, collectively, "CASH FLOW AGREEMENTS"). See "Description of the
Trust Funds," "Description of the Certificates" and "Description of Credit
Support."
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
-------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE
EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF
THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING
AND SERVICING AGREEMENT AND ONE
OR MORE SERVICING AGREEMENTS,
OR A TRUST AGREEMENT, AS MORE
FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN AND SUCH INFORMATION AS
MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any Series unless accompanied by the Prospectus Supplement for
such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 2
VERSION 1: MULTIFAMILY PROPERTIES
[To be inserted in the TABLE OF CONTENTS, immediately following "RISK
FACTORS--RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
Risks Particular to Multifamily Rental Properties . . . . . . . [page no.]
<PAGE> 3
VERSION 1: MULTIFAMILY PROPERTIES
[To be inserted under "RISK FACTORS," immediately following "RISKS ASSOCIATED
WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
RISKS PARTICULAR TO MULTIFAMILY RENTAL PROPERTIES
Adverse economic conditions, either local or national, may limit the
amount of rent that can be charged for rental units, and may result in a
reduction in timely rent payments or a reduction in occupancy levels without a
corresponding decrease in expenses. Occupancy and rent levels may also be
affected by construction of additional housing units, local military base
closings and national and local politics, including, in the case of multifamily
rental properties, current or future rent stabilization and rent control laws
and agreements. In addition, the level of mortgage interest rates may
encourage tenants in multifamily rental properties to purchase single-family
housing. Further, the cost of operating a multifamily property may increase,
including the cost of utilities and the costs of required capital expenditures.
Furthermore, the rent limitations imposed on Mortgaged Properties eligible to
receive low-income housing tax credits pursuant to Section 42 of the Code
("Section 42 Properties") may adversely affect the ability of the applicable
borrowers to increase rents to maintain such Mortgaged Properties in proper
condition during periods of rapid inflation or declining market value of such
Mortgaged Properties. In addition, the income restrictions on tenants imposed
by Section 42 of the Code may reduce the number of eligible tenants in such
Mortgaged Properties and result in a reduction in occupancy rates applicable
thereto. Furthermore, some eligible tenants may not find any differences in
rents between the Section 42 Properties and other multifamily rental properties
in the same area to be a sufficient economic incentive to reside at a Section
42 Property, which may have fewer amenities or otherwise be less attractive as
a residence. Additionally, the characteristics of a neighborhood may change
over time or in relation to newer developments. All of these conditions and
events may increase the possibility that a borrower may be unable to meet its
obligations under its Mortgage Loan.
<PAGE> 4
VERSION 1: MULTIFAMILY PROPERTIES
[To be inserted under "DESCRIPTION OF THE TRUST FUNDS," immediately following
"MORTGAGE LOANS--GENERAL."]
Mortgage Loans Secured by Multifamily Rental Properties
Significant factors determining the value and successful operation of
a multifamily property are the location of the property, the number of
competing residential developments in the local market (such as apartment
buildings, manufactured housing communities and site-built single family
homes), the physical attributes of the multifamily apartment building (such as
its age and appearance) and state and local regulations affecting such
property. In addition, the successful operation of an apartment building will
depend upon other factors such as its reputation, the ability of management to
provide adequate maintenance and insurance, and the types of services it
provides.
Certain states regulate the relationship of an owner and its tenants.
Commonly, these laws require a written lease, good cause for eviction,
disclosure of fees, and notification to residents of changed land use, while
prohibiting unreasonable rules, retaliatory evictions, and restrictions on a
resident's choice of unit vendors. Apartment building owners have been the
subject of suits under state "Unfair and Deceptive Practices Acts" and other
general consumer protection statutes for coercive, abusive or unconscionable
leasing and sales practices. A few states offer more significant protection.
For example, there are provisions that limit the basis on which a landlord may
terminate a tenancy or increase its rent or prohibit a landlord from
terminating a tenancy solely by reason of the sale of the owner's building.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on apartment
buildings. These ordinances may limit rent increases to fixed percentages, to
percentages of increases in the consumer price index, to increases set or
approved by a governmental agency, or to increases determined through mediation
or binding arbitration. In many cases, the rent control laws do not permit
vacancy decontrol. Local authority to impose rent control is pre-empted by
state law in certain states, and rent control is not imposed at the state level
in those states. In some states, however, local rent control ordinances are
not pre-empted for tenants having short-term or month-to-month leases, and
properties there may be subject to various forms of rent control with respect
to those tenants. Any limitations on a borrower's ability to raise property
rents may impair such borrower's ability to repay its Mortgage Loan from its
net operating income or the proceeds of a sale or refinancing of the related
Mortgaged Property.
Adverse economic conditions, either local or national, may limit the
amount of rent that can be charged and may result in a reduction in timely rent
payments or a reduction in occupancy levels. Occupancy and rent levels may
also be affected by construction of additional housing units, local military
base closings and national and local politics, including current or future rent
stabilization and rent control laws and agreements. In addition, the level of
mortgage interest rates may encourage tenants to purchase single-family
housing. The location and construction quality of a particular building may
affect the occupancy level as well as the rents that may be charged for
individual units. The characteristics of a neighborhood may change over time
or in relation to newer developments.
<PAGE> 1
EXHIBIT 99.2
VERSION 2: OFFICE PROPERTIES
PROSPECTUS
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will
be offered from time to time in one or more series (each, a "SERIES"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "CERTIFICATES". Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "TRUST FUND") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"MORTGAGE LOANS"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination of Mortgage Loans and/or CMBS (with respect to any Series,
collectively, the "MORTGAGE ASSETS"). Office buildings will represent security
for a material concentration of the Mortgage Loans (or the mortgage loans
underlying the CMBS) in any Trust Fund, based on principal balance at the time
such Trust Fund is formed. If so specified in the related Prospectus
Supplement, some or all of the Mortgage Loans will include assignments of the
leases of the related Mortgaged Properties (as defined herein) and/or
assignments of the rental payments due from the lessees under such leases (each
type of assignment, a "LEASE ASSIGNMENT"). A significant or the sole source of
payments on certain Commercial Loans (as defined herein) and, therefore, of
distributions on certain Series of Certificates, will be such rent payments. If
so specified in the related Prospectus Supplement, the Trust Fund for a Series
of Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any Series, collectively, "CREDIT SUPPORT"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any Series, collectively, "CASH FLOW
AGREEMENTS"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
-------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE
EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF
THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING
AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A
TRUST AGREEMENT, AS MORE
FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN AND SUCH INFORMATION AS
MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any Series unless accompanied by the Prospectus Supplement for
such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 2
VERSION 2: OFFICE PROPERTIES
[To be inserted in the TABLE OF CONTENTS, immediately following "RISK
FACTORS--RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
Risks Particular to Office Properties . . . . . . . [page no.]
<PAGE> 3
VERSION 2: OFFICE PROPERTIES
[To be inserted under "RISK FACTORS," immediately following "RISKS ASSOCIATED
WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
RISKS PARTICULAR TO OFFICE PROPERTIES
In addition to risks generally associated with real estate, Mortgage
Loans secured by office properties are also affected significantly by adverse
changes in population and employment growth (which creates demand for office
space), local competitive conditions (such as the supply of office space or the
existence or construction of new competitive office buildings), the quality and
management philosophy of management, the attractiveness of the properties to
tenants and their customers or clients, the attractiveness of the surrounding
neighborhood and the need to make major repairs or improvements to satisfy the
needs of major tenants. In addition, office properties may be adversely
affected by an economic decline in the business operated by their tenants.
Such decline may result in one or more significant tenants ceasing operations
at such locations (which may occur on account of a voluntary decision not to
renew a lease, bankruptcy or insolvency of such tenants, such tenants' general
cessation of business activities or for other reasons). If office properties
have a single tenant or if there is a significant concentration of tenants in a
particular business or industry, the risk of such an economic decline
increases.
<PAGE> 4
VERSION 2: OFFICE PROPERTIES
[To be inserted under "DESCRIPTION OF THE TRUST FUNDS," immediately following
"MORTGAGE LOANS--GENERAL."]
Mortgage Loans Secured by Office Properties
Significant factors affecting the value of office properties include,
without limitation, the quality of the tenants in the building, the physical
attributes of the building in relation to competing buildings, the location of
the building with respect to the central business district or population
centers, demographic trends within the metropolitan area to move away from or
towards the central business district, social trends combined with space
management trends (which may change towards options such as telecommuting or
hoteling to satisfy space needs), tax incentives offered to businesses by
cities or suburbs adjacent to or near the city where the building is located
and the strength and stability of the market area as a desirable business
location. Office properties may be adversely affected by an economic decline
in the business operated by their tenants. If office properties have a single
tenant or if there is a significant concentration of tenants in a particular
business or industry, the risk of such an economic decline increases.
Office properties are also subject to competition with other office
properties in the same market. Competition is affected by a building's age,
condition, design (including floor sizes and layout), access to transportation,
availability of parking and ability to offer certain amenities to its tenants
(including sophisticated building systems, such as fiberoptic cables, satellite
communications or other base building technological features).
The success of an office property also depends on the local economy.
Factors such as labor cost and quality, tax environment and such quality of
life matters as schools and cultural amenities are generally considered in the
decision of a business to locate its headquarters in a particular area. A
central business district may have a substantially different economy from that
of a suburb. The local economy will affect an office property's ability to
attract stable tenants on a consistent basis. In addition, the cost of
refitting office space for a new tenant is often higher than for other property
types.
<PAGE> 1
EXHIBIT 99.3
VERSION 3: RETAIL PROPERTIES
PROSPECTUS
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will
be offered from time to time in one or more series (each, a "SERIES"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "CERTIFICATES". Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "TRUST FUND") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"MORTGAGE LOANS"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination of Mortgage Loans and/or CMBS (with respect to any Series,
collectively, the "MORTGAGE ASSETS"). Retail properties will represent security
for a material concentration of the Mortgage Loans (or the mortgage loans
underlying the CMBS) in any Trust Fund, based on principal balance at the time
such Trust Fund is formed. If so specified in the related Prospectus
Supplement, some or all of the Mortgage Loans will include assignments of the
leases of the related Mortgaged Properties (as defined herein) and/or
assignments of the rental payments due from the lessees under such leases (each
type of assignment, a "LEASE ASSIGNMENT"). A significant or the sole source of
payments on certain Commercial Loans (as defined herein) and, therefore, of
distributions on certain Series of Certificates, will be such rent payments. If
so specified in the related Prospectus Supplement, the Trust Fund for a Series
of Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any Series, collectively, "CREDIT SUPPORT"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any Series, collectively, "CASH FLOW
AGREEMENTS"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
-------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE
EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF
THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING
AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A
TRUST AGREEMENT, AS MORE
FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN AND SUCH INFORMATION AS
MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any Series unless accompanied by the Prospectus Supplement for
such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 2
VERSION 3: RETAIL PROPERTIES
[To be inserted in the TABLE OF CONTENTS, immediately following "RISK
FACTORS--RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
Risks Particular to Retail Properties . . . . . . . [page no.]
<PAGE> 3
VERSION 3: RETAIL PROPERTIES
[To be inserted under "RISK FACTORS," immediately following "RISKS ASSOCIATED
WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
RISKS PARTICULAR TO RETAIL PROPERTIES
In addition to risks generally associated with real estate, Mortgage
Loans secured by retail properties are also affected significantly by adverse
changes in consumer spending patterns, local competitive conditions (such as
the supply of retail space or the existence or construction of new competitive
shopping centers or shopping malls), alternative forms of retailing (such as
direct mail, video shopping networks and selling through the Internet which
reduce the need for retail space by retail companies), the quality and
management philosophy of management, the attractiveness of the properties and
the surrounding neighborhood to tenants and their customers, the public
perception of the safety of customers at shopping malls and shopping centers,
and the need to make major repairs or improvements to satisfy the needs of
major tenants.
Retail properties may be adversely affected if a significant tenant
ceases operations at such locations (which may occur on account of a voluntary
decision not to renew a lease, bankruptcy or insolvency of such tenant, such
tenant's general cessation of business activities or for other reasons).
Significant tenants at a retail property play an important part in generating
customer traffic and making a retail property a desirable location for other
tenants at such property. In addition, certain tenants at retail properties
may be entitled to terminate their leases if an anchor tenant ceases operations
at such property. In such cases, there can be no assurance that any such
anchor tenants will continue to occupy space in the related shopping centers.
<PAGE> 4
VERSION 3: RETAIL PROPERTIES
[To be inserted under "DESCRIPTION OF THE TRUST FUNDS," immediately following
"MORTGAGE LOANS--GENERAL."]
Mortgage Loans Secured by Retail Properties
Retail properties generally derive all or a substantial percentage of
their income from lease payments from commercial tenants. Income from and the
market value of retail properties is dependent on various factors including,
but not limited to, the ability to lease space in such properties, the ability
of tenants to meet their lease obligations, the possibility of a significant
tenant becoming a debtor in a bankruptcy case under the Bankruptcy Code, as
well as fundamental aspects of real estate such as location and market
demographics.
The correlation between the success of tenant businesses and property
value is more direct with respect to retail properties than other types of
commercial property because a significant component of the total rent paid by
retail tenants is often tied to a percentage of gross sales. Declines in sales
of tenants of retail properties will likely cause a corresponding decline in
percentage rents and such tenants may become unable to pay their rent or other
occupancy costs. The default by a tenant under its lease could result in
delays and costs in enforcing the lessor's rights. Repayment of the related
mortgage loans will be affected by the expiration of space leases and the
ability of the respective borrowers to renew or relet the space on comparable
terms. Even if vacated space is successfully relet, the costs associated with
reletting, including tenant improvements, leasing commissions and free rent,
could be substantial and could reduce cash flow from the retail properties.
Whether a retail property is "anchored" or "unanchored" is also a
relevant factor. Generally, retail properties that are anchored are perceived
to be less risky. A retail anchor tenant is normally understood to be
proportionately large in size and vital in attracting customers to the
property. Furthermore, the correlation between the success of tenant
businesses and property value is increased when the property is a single tenant
property.
Unlike office or hotel properties, retail properties also face
competition from sources outside a given real estate market. Catalogue
retailers, home shopping networks, telemarketing, selling through the Internet,
and outlet centers all compete with more traditional retail properties for
consumer dollars. Continued growth of these alternative retail outlets (which
are often characterized by lower operating costs) could adversely affect the
rents collectible at retail properties.
<PAGE> 1
EXHIBIT 99.4
VERSION 4: HOTEL PROPERTIES
PROSPECTUS
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will
be offered from time to time in one or more series (each, a "SERIES"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "CERTIFICATES". Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "TRUST FUND") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"MORTGAGE LOANS"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination of Mortgage Loans and/or CMBS (with respect to any Series,
collectively, the "MORTGAGE ASSETS"). Hotel properties will represent security
for a material concentration of the Mortgage Loans (or the mortgage loans
underlying the CMBS) in any Trust Fund, based on principal balance at the time
such Trust Fund is formed. If so specified in the related Prospectus
Supplement, some or all of the Mortgage Loans will include assignments of the
leases of the related Mortgaged Properties (as defined herein) and/or
assignments of the rental payments due from the lessees under such leases (each
type of assignment, a "LEASE ASSIGNMENT"). A significant or the sole source of
payments on certain Commercial Loans (as defined herein) and, therefore, of
distributions on certain Series of Certificates, will be such rent payments. If
so specified in the related Prospectus Supplement, the Trust Fund for a Series
of Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any Series, collectively, "CREDIT SUPPORT"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any Series, collectively, "CASH FLOW
AGREEMENTS"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
-------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE
EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF
THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING
AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A
TRUST AGREEMENT, AS MORE
FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN AND SUCH INFORMATION AS
MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any Series unless accompanied by the Prospectus Supplement for
such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 2
VERSION 4: HOTEL PROPERTIES
[To be inserted in the TABLE OF CONTENTS, immediately following "RISK
FACTORS--RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
Risks Particular to Hotel Properties . . . . . . . [page no.]
<PAGE> 3
VERSION 4: HOTEL PROPERTIES
[To be inserted under "RISK FACTORS," immediately following "RISKS ASSOCIATED
WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
RISKS PARTICULAR TO HOTEL PROPERTIES
Like any income producing property, the income generated by a hotel
property is subject to several factors such as local, regional and national
economic conditions and competition. However, because such income is primarily
generated by room occupancy and such occupancy is usually for short periods of
time, the level of such income may respond more quickly to conditions such as
those described above. This daily mark-to-market also accentuates the highs and
lows of economic cycles. Moreover, as a result of relatively high operating
costs, relatively small decreases in revenue can cause significant stress on a
property's cash flow. Also, sensitivity to competition may require more
frequent improvements and renovations than other properties. To the extent a
hotel is affiliated to, or associated with, a regional, national or
international chain, changes in the public perception of such chain may have an
impact on the income generated by the related property. Finally, the hotel
industry is generally seasonal. This will result in fluctuation in the income
generated by hotel properties.
<PAGE> 4
VERSION 4: HOTEL PROPERTIES
[To be inserted under "DESCRIPTION OF THE TRUST FUNDS," immediately following
"MORTGAGE LOANS--GENERAL."]
Mortgage Loans Secured by Hotel Properties
Hotel properties may involve different types of hotels, including full
service hotels, limited service hotels, hotels associated with national
franchise chains, hotels associated with regional franchise chains and hotels
that are not affiliated with any franchise chain but may have their own brand
identity. Various factors, including location, quality and franchise
affiliation affect the economic performance of a hotel. Adverse economic
conditions, either local, regional or national, may limit the amount that can
be charged for a room and may result in a reduction in occupancy levels. The
construction of competing hotels can have similar effects. To meet competition
in the industry and to maintain economic values, continuing expenditures must
be made for modernizing, refurbishing, and maintaining existing facilities
prior to the expiration of their anticipated useful lives. Because hotel rooms
generally are rented for short periods of time, hotels tend to respond more
quickly to adverse economic conditions and competition than do other commercial
properties. Furthermore, the financial strength and capabilities of the owner
and operator of a hotel may have an impact on such hotel's quality of service
and economic performance. Additionally, the hotel and lodging industry is
generally seasonal in nature and this seasonality can be expected to cause
periodic fluctuations in room and other revenues, occupancy levels, room rates
and operating expenses. The demand for particular accommodations may also be
affected by changes in travel patterns caused by changes in energy prices,
strikes, relocation of highways, the construction of additional highways and
other factors.
The viability of any hotel property that is a franchise of a national
or a regional hotel chain depends in part on the continued existence and
financial strength of the franchisor, the public perception of the franchise
service mark and the duration of the franchise licensing agreement. The
transferability of franchise license agreements may be restricted and, in the
event of a foreclosure on any such hotel property, the consent of the
franchisor for the continued use the franchise license by the hotel property
would be required. Conversely, a lender may be unable to remove a franchisor
that it desires to replace following a foreclosure. Further, in the event of a
foreclosure on a hotel property, it is unlikely that the purchaser (or the
trustee, servicer or special servicer, as the case may be) of such hotel
property may be entitled to the rights under any liquor license for such hotel
property, and such party would be required to apply in its own right for such
license or licenses. There can be no assurance that a new license could be
obtained or that it could be obtained promptly.
<PAGE> 1
EXHIBIT 99.5
VERSION 5: HEALTH CARE-RELATED FACILITIES
PROSPECTUS
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will
be offered from time to time in one or more series (each, a "SERIES"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "CERTIFICATES". Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "TRUST FUND") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"MORTGAGE LOANS"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination of Mortgage Loans and/or CMBS (with respect to any Series,
collectively, the "MORTGAGE ASSETS"). Health care-related facilities will
represent security for a material concentration of the Mortgage Loans (or the
mortgage loans underlying the CMBS) in any Trust Fund, based on principal
balance at the time such Trust Fund is formed. If so specified in the related
Prospectus Supplement, some or all of the Mortgage Loans will include
assignments of the leases of the related Mortgaged Properties (as defined
herein) and/or assignments of the rental payments due from the lessees under
such leases (each type of assignment, a "LEASE ASSIGNMENT"). A significant or
the sole source of payments on certain Commercial Loans (as defined herein)
and, therefore, of distributions on certain Series of Certificates, will be
such rent payments. If so specified in the related Prospectus Supplement, the
Trust Fund for a Series of Certificates may include letters of credit,
insurance policies, guarantees, reserve funds or other types of credit support,
or any combination thereof (with respect to any Series, collectively, "CREDIT
SUPPORT"), and currency or interest rate exchange agreements and other
financial assets, or any combination thereof (with respect to any Series,
collectively, "CASH FLOW AGREEMENTS"). See "Description of the Trust Funds,"
"Description of the Certificates" and "Description of Credit Support."
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
-------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE
EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF
THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING
AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A
TRUST AGREEMENT, AS MORE
FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN AND SUCH INFORMATION AS
MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any Series unless accompanied by the Prospectus Supplement for
such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 2
VERSION 5: HEALTH CARE-RELATED FACILITIES
[To be inserted in the TABLE OF CONTENTS, immediately following "RISK
FACTORS--RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
Risks Particular to Health Care-Related Facilities . . . . . . . [page no.]
<PAGE> 3
VERSION 5: HEALTH CARE-RELATED FACILITIES
[To be inserted under "RISK FACTORS," immediately following "RISKS ASSOCIATED
WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
RISKS PARTICULAR TO HELATH CARE-RELATED PROPERTIES
Certain types of health care-related facilities (including nursing
homes) typically receive a substantial portion of their revenues from
government reimbursement programs, primarily Medicaid and Medicare. Medicaid
and Medicare are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions, all of which can adversely
affect revenues from operation. Moreover, governmental payors have employed
cost-containment measures that limit payments to health care providers and
there are currently under consideration various proposals for national health
care relief that could further limit these payments. In addition, providers of
long-term nursing care and other medical services are highly regulated by
federal, state and local law and are subject to, among other things, federal
and state licensing requirements, facility inspections, rate setting,
reimbursement policies, and laws relating to the adequacy of medical care,
distribution of pharmaceuticals, equipment, personnel operating policies and
maintenance of and additions to facilities and services, any or all of which
factors can increase the cost of operation, limit growth and in extreme cases,
require or result in suspension or cessation of operations.
Under applicable federal and state laws and regulations, Medicare and
Medicaid reimbursements are generally not permitted to be made to any person
other than the provider who actually furnished the related medical goods and
services. Accordingly, in the event of foreclosure on a Mortgaged Property
that is operated as a health care-related facility, none of the Trustee, the
Special Servicer or a subsequent lessee or operator of the Mortgaged Property
would generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at the
respective Mortgaged Properties prior to such foreclosure. Furthermore, in the
event of foreclosure, there can be no assurance that the Trustee (or Special
Servicer) or purchaser in a foreclosure sale would be entitled to the rights
under any required licenses and regulatory approvals and such party may have to
apply in its own right for such licenses and approvals. There can be no
assurance that a new license could be obtained or that a new approval would be
granted. In addition, health care-related facilities are generally "special
purpose" properties that could not be readily converted to general residential,
retail or office use, and transfers of health care-related facilities are
subject to regulatory approvals under state, and in some cases federal, law not
required for transfers of other types of commercial operations and other types
of real estate, all of which may adversely affect the liquidation value.
<PAGE> 4
VERSION 5: HEALTH CARE-RELATED FACILITIES
[To be inserted under "DESCRIPTION OF THE TRUST FUNDS," immediately following
"MORTGAGE LOANS--GENERAL."]
Mortgage Loans Secured by Health Care-Related Properties
The Mortgaged Properties may include Senior Housing, Assisted Living
Facilities, Skilled Nursing Facilities and Acute Care Facilities (any of the
foregoing, "Health Care-Related Facilities"). "Senior Housing" generally
consist of facilities with respect to which the residents are ambulatory,
handle their own affairs and typically are couples whose children have left the
home and at which the accommodations are usually apartment style. "Assisted
Living Facilities" are typically single or double room occupancy,
dormitory-style housing facilities which provide food service, cleaning and
some personal care and with respect to which the tenants are able to medicate
themselves but may require assistance with certain daily routines. "Skilled
Nursing Facilities" provide services to post trauma and frail residents with
limited mobility who require extensive medical treatment. "Acute Care
Facilities" generally consist of hospital and other facilities providing
short-term, acute medical care services.
Certain types of Health Care-Related Facilities, particularly Acute
Care Facilities, Skilled Nursing Facilities and some Assisted Living
Facilities, typically receive a substantial portion of their revenues from
government reimbursement programs, primarily Medicaid and Medicare. Medicaid
and Medicare are subject to statutory and regulatory changes, retroactive rate
adjustments, administrative rulings, policy interpretations, delays by fiscal
intermediaries and government funding restrictions. Moreover, governmental
payors have employed cost-containment measures that limit payments to health
care providers, and there exist various proposals for national health care
reform that could further limit those payments. Accordingly, there can be no
assurance that payments under government reimbursement programs will, in the
future, be sufficient to fully reimburse the cost of caring for program
beneficiaries. If such payments are insufficient, net operating income of
those Health Care-Related Facilities that receive revenues from those sources,
and consequently the ability of the related borrowers to meet their obligations
under any Mortgage Loans secured thereby, could be adversely affected.
Moreover, Health Care-Related Facilities are generally subject to
federal and state laws that relate to the adequacy of medical care,
distribution of pharmaceuticals, rate setting, equipment, personnel, operating
policies and additions to facilities and services. In addition, facilities
where such care or other medical services are provided are subject to periodic
inspection by governmental authorities to determine compliance with various
standards necessary to continued licensing under state law and continued
participation in the Medicaid and Medicare reimbursement programs. Providers
of assisted living services are also subject to state licensing requirements in
certain states. The failure of an operator to maintain or renew any required
license or regulatory approval could prevent it from continuing operations at a
Health Care-Related Facility or, if applicable, bar it from participation in
government reimbursement programs. Furthermore, under applicable federal and
state laws and regulations, Medicare and Medicaid reimbursements are generally
not permitted to be made to any person other than the provider who actually
furnished the related medical goods and services. Accordingly, in the event of
foreclosure, none of the Trustee, the Master Servicer, the Special Servicer or
a subsequent lessee or operator of any Health Care-Related Facility securing a
defaulted Mortgage Loan (a "Health Care-Related Mortgaged Property") would
generally be entitled to obtain from federal or state governments any
outstanding reimbursement payments relating to services furnished at such
property prior to such foreclosure. Any of the aforementioned events may
adversely affect the ability of the related borrowers to meet their Mortgage
Loan obligations.
Government regulation applying specifically to Acute Care Facilities,
Skilled Nursing Facilities and certain types of Assisted Living Facilities
includes health planning legislation, enacted by most states, intended, at
least in part, to regulate the supply of nursing beds. The most common method
of control is the requirement that a state authority first make a determination
of need, evidenced by its issuance of a Certificate of Need ("CON"), before a
long- term care provider can establish a new facility, add beds to an existing
facility or, in some states, take certain other actions (for example, acquire
major medical equipment, make major capital expenditures, add services,
refinance long- term debt,
<PAGE> 5
VERSION 5: HEALTH CARE-RELATED FACILITIES
or transfer ownership of a facility). States also regulate nursing bed supply
in other ways. For example, some states have imposed moratoria on the
licensing of new beds, or on the certification of new Medicaid beds, or have
discouraged the construction of new nursing facilities by limiting Medicaid
reimbursements allocable to the cost of new construction and equipment. In
general, a CON is site specific and operator specific; it cannot be transferred
from one site to another, or to another operator, without the approval of the
appropriate state agency. Accordingly, if a Mortgage Loan secured by a lien on
such a Health Care-Related Mortgaged Property were foreclosed upon, the
purchaser at foreclosure might be required to obtain a new CON or an
appropriate exemption. In addition, compliance by a purchaser with applicable
regulations may in any case require the engagement of a new operator and the
issuance of a new operating license. Upon a foreclosure, a state regulatory
agency may be willing to expedite any necessary review and approval process to
avoid interruption of care to a facility's residents, but there can be no
assurance that any will do so or that any necessary licenses or approvals will
be issued.
Further government regulation applicable to Health Care-Related
Facilities is found in the form of federal and state "fraud and abuse" laws
that generally prohibit payment or fee-splitting arrangements between health
care providers that are designed to induce or encourage the referral of
patients to, or the recommendation of, a particular provider for medical
products or services. Violation of these restrictions can result in license
revocation, civil and criminal penalties, and exclusion from participation in
Medicare or Medicaid programs. The state law restrictions in this area vary
considerably from state to state. Moreover, the federal anti-kickback law
includes broad language that potentially could be applied to a wide range of
referral arrangements, and regulations designed to create "safe harbors" under
the law provide only limited guidance. Accordingly, there can be no assurance
that such laws will be interpreted in a manner consistent with the practices of
the owners or operators of the Health Care-Related Mortgaged Properties that
are subject to such laws.
The operators of Health Care-Related Facilities are likely to compete
on a local and regional basis with others that operate similar facilities, some
of which competitors may be better capitalized, may offer services not offered
by such operators, or may be owned by non-profit organizations or government
agencies supported by endowments, charitable contributions, tax revenues and
other sources not available to such operators. The successful operation of a
Health Care-Related Facility will generally depend upon the number of competing
facilities in the local market, as well as upon other factors such as its age,
appearance, reputation and management, the types of services it provides and,
where applicable, the quality of care and the cost of that care. The inability
of a Health Care-Related Mortgaged Property to flourish in a competitive market
may increase the likelihood of foreclosure on the related Mortgage Loan,
possibly affecting the yield on one or more classes of the related series of
Offered Certificates.
<PAGE> 1
EXHIBIT 99.6
VERSION 6: INDUSTRIAL PROPERTIES
PROSPECTUS
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will
be offered from time to time in one or more series (each, a "SERIES"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "CERTIFICATES". Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "TRUST FUND") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"MORTGAGE LOANS"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination of Mortgage Loans and/or CMBS (with respect to any Series,
collectively, the "MORTGAGE ASSETS"). Industrial properties will represent
security for a material concentration of the Mortgage Loans (or the mortgage
loans underlying the CMBS) in any Trust Fund, based on principal balance at the
time such Trust Fund is formed. If so specified in the related Prospectus
Supplement, some or all of the Mortgage Loans will include assignments of the
leases of the related Mortgaged Properties (as defined herein) and/or
assignments of the rental payments due from the lessees under such leases (each
type of assignment, a "LEASE ASSIGNMENT"). A significant or the sole source of
payments on certain Commercial Loans (as defined herein) and, therefore, of
distributions on certain Series of Certificates, will be such rent payments. If
so specified in the related Prospectus Supplement, the Trust Fund for a Series
of Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any Series, collectively, "CREDIT SUPPORT"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any Series, collectively, "CASH FLOW
AGREEMENTS"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
-------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE
EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF
THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING
AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A
TRUST AGREEMENT, AS MORE
FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN AND SUCH INFORMATION AS
MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any Series unless accompanied by the Prospectus Supplement for
such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 2
VERSION 6: INDUSTRIAL PROPERTIES
[To be inserted in the TABLE OF CONTENTS, immediately following "RISK
FACTORS--RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
Risks Particular to Industrial Properties . . . . . . . [page no.]
<PAGE> 3
VERSION 6: INDUSTRIAL PROPERTIES
[To be inserted under "RISK FACTORS," immediately following "RISKS ASSOCIATED
WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
RISKS PARTICULAR TO INDUSTRIAL PROPERTIES
Industrial properties may be adversely affected by reduced demand for
industrial space occasioned by a decline in a particular industry segment, and
an industrial property that suited the particular needs of its original tenant
may be difficult to relet to another tenant or may become functionally obsolete
relative to newer properties. Furthermore, industrial properties may be
adversely affected by the availability of labor sources or a change in the
proximity of supply sources.
<PAGE> 4
VERSION 6: INDUSTRIAL PROPERTIES
[To be inserted under "DESCRIPTION OF THE TRUST FUNDS," immediately following
"MORTGAGE LOANS--GENERAL."]
Mortgage Loans Secured by Industrial Properties
Significant factors determining the value of industrial properties are
the quality of tenants, building design and adaptability, the functionality of
the finish-out and the location of the property. Concerns about the quality of
tenants, particularly major tenants, are similar in both office properties and
industrial properties, although industrial properties are more frequently
dependent on a single tenant.
Aspects of building site, design and adaptability affect the value of
an industrial property. Site characteristics which are valuable to an
industrial property include clear heights, column spacing, number of bays and
bay depths, divisibility, floor loading capacities, truck turning radius and
overall functionality and accessibility. Nevertheless, site characteristics of
an industrial property suitable for one tenant may not be appropriate for
other potential tenants, which may make it difficult to relet the property.
Location is also important because an industrial property requires the
availability of labor sources, proximity to supply sources and customers and
accessibility to rail lines, major roadways and other distribution channels.
Further, industrial properties may be adversely affected by economic declines
in the industry segment of their tenants.
<PAGE> 1
EXHIBIT 99.7
VERSION 7: SELF-STORAGE FACILITIES
PROSPECTUS
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will
be offered from time to time in one or more series (each, a "SERIES"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "CERTIFICATES". Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "TRUST FUND") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"MORTGAGE LOANS"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination of Mortgage Loans and/or CMBS (with respect to any Series,
collectively, the "MORTGAGE ASSETS"). Self-storage facilities will represent
security for a material concentration of the Mortgage Loans (or the mortgage
loans underlying the CMBS) in any Trust Fund, based on principal balance at the
time such Trust Fund is formed. If so specified in the related Prospectus
Supplement, some or all of the Mortgage Loans will include assignments of the
leases of the related Mortgaged Properties (as defined herein) and/or
assignments of the rental payments due from the lessees under such leases (each
type of assignment, a "LEASE ASSIGNMENT"). A significant or the sole source of
payments on certain Commercial Loans (as defined herein) and, therefore, of
distributions on certain Series of Certificates, will be such rent payments. If
so specified in the related Prospectus Supplement, the Trust Fund for a Series
of Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any Series, collectively, "CREDIT SUPPORT"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any Series, collectively, "CASH FLOW
AGREEMENTS"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
-------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE
EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF
THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING
AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A
TRUST AGREEMENT, AS MORE
FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN AND SUCH INFORMATION AS
MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any Series unless accompanied by the Prospectus Supplement for
such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 2
VERSION 7: SELF-STORAGE FACILITIES
[To be inserted in the TABLE OF CONTENTS, immediately following "RISK
FACTORS--RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
Risks Particular to Self-Storage Facilities . . . . . . . [page no.]
<PAGE> 3
VERSION 7: SELF-STORAGE FACILITIES
[To be inserted under "RISK FACTORS," immediately following "RISKS ASSOCIATED
WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
RISKS PARTICULAR TO SELF-STORAGE FACILITIES
Self-storage properties are considered vulnerable to competition
because both acquisition costs and break-even occupancy are relatively low.
The conversion of self-storage facilities to alternative uses would generally
require substantial capital expenditures. Thus, if the operation of any of the
self-storage Mortgaged Properties becomes unprofitable due to decreased demand,
competition, age of improvements or other factors such that the borrower
becomes unable to meet its obligation on the related Mortgage Loan, the
liquidation value of that self-storage Mortgaged Property may be substantially
less, relative to the amount owing on the Mortgage Loan, than would be the case
if the self-storage Mortgaged Property were readily adaptable to other uses.
Tenant privacy, anonymity and efficient access may heighten environmental
risks. The environmental assessments discussed herein did not include an
inspection of the contents of the self-storage units included in the
self-storage Mortgaged Properties and there is no assurance that all of the
units included in the self-storage Mortgaged Properties are free from hazardous
substances or other pollutants or contaminants or will remain so in the future;
however, substantially all of the lease agreements used in connection with such
Mortgaged Properties prohibit the storage of hazardous substances, pollutants
or contaminants.
<PAGE> 4
VERSION 7: SELF-STORAGE FACILITIES
[To be inserted under "DESCRIPTION OF THE TRUST FUNDS," immediately following
"MORTGAGE LOANS--GENERAL."]
Mortgage Loans Secured by Self-Storage Facilities
Because of relatively low acquisition costs and break-even occupancy
rates, self-storage facilities are considered vulnerable to competition.
Despite their low acquisition costs, and because of their particular building
characteristics, self-storage facilities would require substantial capital
investments in order to adapt them to alternative uses. Such constraint in
adaptability to other uses may substantially reduce the liquidation value of a
self-storage mortgaged property. In addition to competition, other factors
that affect the success of a self-storage facility, and thus the ability of the
borrower to meet its obligations on the related mortgage loan, include the
location and visibility of the facility, its proximity to apartment complexes
or commercial users, trends of apartment tenants in the area moving to
single-family homes, services provided (such as security and accessibility),
age of improvements, the appearance of the improvements and the quality of
management.
<PAGE> 1
EXHIBIT 99.8
VERSION 8: MOBILE HOME PARKS
PROSPECTUS
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
DEPOSITOR
MORTGAGE PASS-THROUGH CERTIFICATES
(ISSUABLE IN SERIES)
The mortgage pass-through certificates (the "OFFERED CERTIFICATES")
offered hereby and by supplements hereto (each, a "PROSPECTUS SUPPLEMENT") will
be offered from time to time in one or more series (each, a "SERIES"). The
Offered Certificates of any Series, together with any other mortgage
pass-through certificates of such Series, are collectively referred to herein
as the "CERTIFICATES". Each Series of Certificates will represent in the
aggregate the entire beneficial ownership interest in a trust fund (with
respect to any Series, the "TRUST FUND") consisting of one or more segregated
pools of various types of multifamily or commercial mortgage loans (the
"MORTGAGE LOANS"), mortgage participations, mortgage pass-through certificates
or other mortgage-backed securities evidencing interests in or secured by
multifamily or commercial mortgage loans (collectively, the "CMBS") or a
combination of Mortgage Loans and/or CMBS (with respect to any Series,
collectively, the "MORTGAGE ASSETS"). Mobile home parks will represent
security for a material concentration of the Mortgage Loans (or the mortgage
loans underlying the CMBS) in any Trust Fund, based on principal balance at the
time such Trust Fund is formed. If so specified in the related Prospectus
Supplement, some or all of the Mortgage Loans will include assignments of the
leases of the related Mortgaged Properties (as defined herein) and/or
assignments of the rental payments due from the lessees under such leases (each
type of assignment, a "LEASE ASSIGNMENT"). A significant or the sole source of
payments on certain Commercial Loans (as defined herein) and, therefore, of
distributions on certain Series of Certificates, will be such rent payments. If
so specified in the related Prospectus Supplement, the Trust Fund for a Series
of Certificates may include letters of credit, insurance policies, guarantees,
reserve funds or other types of credit support, or any combination thereof
(with respect to any Series, collectively, "CREDIT SUPPORT"), and currency or
interest rate exchange agreements and other financial assets, or any
combination thereof (with respect to any Series, collectively, "CASH FLOW
AGREEMENTS"). See "Description of the Trust Funds," "Description of the
Certificates" and "Description of Credit Support."
Retain this Prospectus for future reference. This Prospectus may not be used
to consummate sales of the Offered Certificates of any Series unless
accompanied by the Prospectus Supplement for such Series.
(cover continued on next page)
-------------------------
PROCEEDS OF THE ASSETS IN THE TRUST FUND ARE THE SOLE SOURCE OF PAYMENTS ON THE
OFFERED CERTIFICATES. THE CERTIFICATES OF EACH SERIES WILL NOT REPRESENT AN
INTEREST IN OR OBLIGATION OF THE DEPOSITOR, ANY MASTER SERVICER, ANY SPECIAL
SERVICER, ANY PRIMARY SERVICER, AMRESCO, INC., THE TRUSTEE, THE
UNDERWRITER OR ANY OF THEIR RESPECTIVE AFFILIATES. NEITHER THE
CERTIFICATES NOR ANY ASSETS IN THE RELATED TRUST FUND WILL BE
INSURED OR GUARANTEED BY ANY GOVERNMENTAL AGENCY OR
INSTRUMENTALITY OR BY ANY OTHER PERSON, TO THE
EXTENT PROVIDED IN THE RELATED PROSPECTUS
SUPPLEMENT. THE ASSETS IN EACH TRUST FUND
WILL BE HELD IN TRUST FOR THE BENEFIT OF
THE HOLDERS OF THE RELATED SERIES OF
CERTIFICATES PURSUANT TO A POOLING
AND SERVICING AGREEMENT AND ONE OR
MORE SERVICING AGREEMENTS, OR A
TRUST AGREEMENT, AS MORE
FULLY DESCRIBED HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS OR THE RELATED PROSPECTUS SUPPLEMENT. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------------
PROSPECTIVE INVESTORS SHOULD REVIEW THE INFORMATION APPEARING UNDER
THE CAPTION "RISK FACTORS" BEGINNING ON PAGE ___ HEREIN AND SUCH INFORMATION AS
MAY BE SET FORTH UNDER THE CAPTION "RISK FACTORS" IN THE RELATED PROSPECTUS
SUPPLEMENT BEFORE PURCHASING ANY OFFERED CERTIFICATE.
Prior to issuance there will have been no market for the Certificates
of any Series and there can be no assurance that a secondary market for any
Offered Certificates will develop or that, if it does develop, it will
continue. This Prospectus may not be used to consummate sales of the Offered
Certificates of any Series unless accompanied by the Prospectus Supplement for
such Series.
Offers of the Offered Certificates may be made through one or more
different methods, including offerings through underwriters as more fully
described under "Method of Distribution" herein and in the related Prospectus
Supplement.
-------------------------
THE DATE OF THIS PROSPECTUS IS , 199
<PAGE> 2
VERSION 8: MOBILE HOME PARKS
[To be inserted in the TABLE OF CONTENTS, immediately following "RISK
FACTORS--RISKS ASSOCIATED WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
Risks Particular to Mobile Home Parks . . . . . . . [page no.]
<PAGE> 3
VERSION 8: MOBILE HOME PARKS
[To be inserted under "RISK FACTORS," immediately following "RISKS ASSOCIATED
WITH MORTGAGE LOANS AND MORTGAGE PROPERTIES."]
RISKS PARTICULAR TO MOBILE HOME PARKS
The successful operation of a Mortgaged Property operated as a mobile
home park will generally depend upon the number of competing mobile home parks
and other residential developments in the local market, as well as upon other
factors such as its age, appearance, reputation, management and the types of
services it provides.
Mobile home parks are "special purpose" properties that could not be
readily converted to general residential, retail or office use. Thus, if the
operation of any of the Mortgaged Properties constituting mobile home parks
becomes unprofitable due to competition, age of the improvements or other
factors such that the borrower becomes unable to meet its obligations on the
related Mortgage Loan, the liquidation value of that Mortgaged Property may be
substantially less, relative to the amount owing on the Mortgage Loan, than
would be the case if the Mortgaged Property were readily adaptable to other
uses.
<PAGE> 4
VERSION 8: MOBILE HOME PARKS
[To be inserted under "DESCRIPTION OF THE TRUST FUNDS," immediately following
"MORTGAGE LOANS--GENERAL."]
Mortgage Loans Secured by Mobile Home Parks
For purposes of this discussion, mobile home parks may include mobile
home parks, recreational vehicle parks or combinations thereof. Loans secured
by liens on properties of these types are affected by factors not associated
with loans secured by liens on other types of income-producing real estate.
The successful operation of a mobile home park will generally depend upon the
number of competing mobile home parks and other residential developments in the
local market (such as apartment buildings, other manufactured housing
communities and site-built single family homes), as well as upon other factors
such as its age, appearance, reputation, the ability of management to provide
adequate maintenance and insurance, and the types of services it provides.
Mobile home parks are "special purpose" properties that could not be readily
converted to general residential, retail or office use. Thus, if the operation
of a mobile home park becomes unprofitable due to competition, age of the
improvements or other factors such that the borrower becomes unable to meet its
obligations on the related mortgage loan, the liquidation value of that mobile
home park may be substantially less, relative to the amount owing on the
mortgage loan, than would be the case if the mobile home park were readily
adaptable to other uses.
Certain states regulate the relationship of a mobile home park owner
and its tenants. Commonly, these laws require a written lease, good cause for
eviction, disclosure of fees, and notification to residents of changed land
use, while prohibiting unreasonable rules, retaliatory evictions, and
restrictions on a resident's choice of unit vendors. Mobile home park owners
have been the subject of suits under state "Unfair and Deceptive Practices
Acts" and other general consumer protection statutes for coercive, abusive or
unconscionable leasing and sales practices. A few states offer more
significant protection. For example, there are provisions that limit the basis
on which a landlord may terminate a mobile home owner's tenancy or increase its
rent or prohibit a landlord from terminating a tenancy solely by reason of the
sale of the owner's mobile home. Certain states also regulate changes in mobile
home park use and require that the landlord give written notice to its tenants
a substantial period of time prior to the projected change.
In addition to state regulation of the landlord-tenant relationship,
numerous counties and municipalities impose rent control on mobile home parks.
These ordinances may limit rent increases to fixed percentages, to percentages
of increases in the consumer price index, to increases set or approved by a
governmental agency, or to increases determined through mediation or binding
arbitration. In many cases, the rent control laws do not permit vacancy
decontrol, or permit vacancy decontrol only in the relatively rare event that
the mobile home is removed from the homesite. Local authority to impose rent
control on mobile home parks is pre-empted by state law in certain states, and
rent control is not imposed at the state level in those states. In some
states, however, local rent control ordinances are not pre-empted for tenants
having short-term or month-to-month leases, and properties there may be subject
to various forms of rent control with respect to those tenants. Any
limitations on a borrower's ability to raise property rents may impair such
borrower's ability to repay its mortgage loan from its net operating income or
the proceeds of a sale or refinancing of the related mortgaged property.
<PAGE> 1
EXHIBIT 99.9
CERTIFICATE OF ASSISTANT SECRETARY
OF
AMRESCO COMMERCIAL MORTGAGE FUNDING I CORPORATION
The undersigned hereby certifies that he is the fully elected,
qualified, and serving Assistant Secretary of AMRESCO Commercial Mortgage
Funding I Corporation, a Delaware corporation (the "Company"), and, as such
officer, hereby certifies that set forth below is a true and correct copy of
resolutions which have been duly adopted by the Board of Directors of the
Company, and none of such resolutions has been amended, modified or repealed in
any respect, and all of such resolutions are in full force and effect on the
date hereof:
RESOLVED, that each [of the Chief Executive Officer, the President and
any Vice President] and director be, and hereby is, authorized, in the
name and on behalf of this Company, to execute and deliver a power of
attorney appointing Michael N. Maberry, Mark L. Morganfield and Michael
L. McCoy, individually and with the requirement of the consent of the
others, to act as attorney-in-fact for this Company for the purpose of
executing and filing with the SEC, in its name and on its behalf, any
such Registration Statement and any and all amendments (including,
without limitation, post-effective amendments) or supplements thereto,
with any exhibits thereto and any other documents in connection
therewith.
IN WITNESS WHEREOF, the undersigned has duly executed this certificate
as of this 7th day of April, 1997.
AMRESCO COMMERCIAL MORTGAGE
FUNDING I CORPORATION
By: /s/ Michael L. McCoy
------------------------
Michael L. McCoy
Assistant Secretary
