-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Fx1Wt9u3jIVHRT29dn0YWhLVVXCBEJT0tHdylLhavUet29hP9+p6YhBTuzWsWrl5 RZMJX6kXo/C4MBlhM1qvnA== 0000950124-94-001109.txt : 19940609 0000950124-94-001109.hdr.sgml : 19940609 ACCESSION NUMBER: 0000950124-94-001109 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 17 FILED AS OF DATE: 19940608 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KMART CORP CENTRAL INDEX KEY: 0000056824 STANDARD INDUSTRIAL CLASSIFICATION: 5331 IRS NUMBER: 380729500 STATE OF INCORPORATION: MI FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: S-3 SEC ACT: 1933 Act SEC FILE NUMBER: 033-54043 FILM NUMBER: 94533438 BUSINESS ADDRESS: STREET 1: 3100 W BIG BEAVER RD CITY: TROY STATE: MI ZIP: 48084 BUSINESS PHONE: 3136431000 MAIL ADDRESS: STREET 1: 3100 W. BIG BEAVER ROAD CITY: TROY STATE: MI ZIP: 48084 FORMER COMPANY: FORMER CONFORMED NAME: KRESGE S S CO DATE OF NAME CHANGE: 19770921 S-3 1 KMART S-3 1 As filed with the Securities and Exchange Commission on June 8, 1994 REGISTRATION NO. 33- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------- KMART CORPORATION (Exact Name of Registrant as Specified in its Charter) MICHIGAN (State or other jurisdiction of incorporation or organization) 38-0729500 (I.R.S. Employer Identification No.) 3100 WEST BIG BEAVER ROAD TROY, MICHIGAN 48084 (810) 643-1000 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------------- A. N. PALIZZI EXECUTIVE VICE PRESIDENT AND GENERAL COUNSEL KMART CORPORATION 3100 WEST BIG BEAVER ROAD TROY, MICHIGAN 48084 (810) 643-1000 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) Copies to: Verne C. Hampton, II Dickinson, Wright, Moon, Van Dusen & Freeman 500 Woodward Avenue, Suite 4000 Detroit, Michigan 48226 Norman C. Storey Squire, Sanders & Dempsey Two Renaissance Square 40 North Central Avenue, Suite 2700 Phoenix, Arizona 85004 James L. Purcell Paul, Weiss, Rifkind, Wharton & Garrison 1285 Avenue of the Americas New York, New York 10019 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to time after the effective date of this Registration Statement. If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, 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/ --------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AGGREGATE AMOUNT OF TITLE OF AMOUNT BEING OFFERING PRICE OFFERING REGISTRATION SECURITIES BEING REGISTERED REGISTERED PER UNIT PRICE FEE - --------------------------------------------------------------------------------------------------- Mortgage Pass-Through Certificates................... $250,000,000 100% $250,000,000 $86,206.90
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 by 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 JUNE 8, 1994 PROSPECTUS KMART CORPORATION $250,000,000 MORTGAGE PASS-THROUGH CERTIFICATES (ISSUABLE IN SERIES) ------------------------- The Mortgage Pass-Through Certificates (the "Certificates") offered hereby and by the related Prospectus Supplements will be offered from time to time in one or more Series in amounts, at prices and on terms to be determined at the time of the offering. Capitalized terms used herein and not defined herein shall have the respective meanings assigned to them in the glossary set forth on pages through of this Prospectus (the "Glossary"). Each Certificate of each Series offered hereby will evidence a fractional undivided beneficial ownership interest in the assets of a single separate Trust to be created pursuant to the related Trust Agreement between National Tenant Finance Corporation, a Delaware corporation (the "Depositor"), and the Trustee identified in the related Prospectus Supplement. If more than one Series of Certificates is offered by a related Prospectus Supplement, each such Series will be issued pursuant to a single separate Trust. The Trust Property of each Trust will include, but not be limited to, one or more Mortgage Notes (each, a "Mortgage Note," and collectively, the "Mortgage Notes"). Generally, each such Mortgage Note will evidence the non-recourse obligation of a Borrower under a Loan Agreement between such Borrower and the Depositor pursuant to which the Depositor will loan a portion of the proceeds of the offering of the related Series of Certificates to such Borrower to finance the acquisition or the acquisition and construction of, or to provide permanent financing for, a facility described in the Prospectus Supplement (a "Facility") which will be leased for use as a retail store to a tenant ("Tenant") which will be Kmart Corporation ("Kmart") or a subsidiary (a "Subsidiary") of Kmart identified in the Prospectus Supplement. The Trust Property will generally also include, with respect to each Facility, the following Collateral for the related Mortgage Note(s): (i) a Mortgage on such Facility securing each such Mortgage Note; (ii) all of the Depositor's rights under the Loan Agreement pursuant to which the related Mortgage Note(s) were issued; (iii) an assignment of the related Lease, Lease Payments and (if the Tenant is a Subsidiary) Lease Guaranty; (iv) a pledge of certain moneys held in certain funds established pursuant to the Trust Agreement, or Collateral Trust Agreement, if applicable; (v) a Note Put Agreement requiring the Tenant and Kmart (if the Tenant is a Subsidiary) to purchase the related Mortgage Note(s) upon the occurrence of a Triggering Event; (vi) an assignment of the Borrower's right, title and interest in and to any Construction Fund Disbursement Agreement and Construction Fund Disbursement Agreement-Common Area related to such Facility; (vii) a pledge of certain investments of fund balances held in the Trust, or the Collateral Trust if applicable, and income earned thereon; and (viii) any other Loan Documents. In some cases a Loan Agreement may provide that a Mortgage Loan will be evidenced by two or more Mortgage Notes having different maturities. In such event, (i) each such Mortgage Note (and, if Mortgage Notes of different maturities are issued pursuant to two or more Loan Agreements, all of such Mortgage Notes having the same maturity) will be held by a separate Pass-Through Trust, and, in the case of Mortgage Notes issued under two or more Loan Agreements, all Mortgage Notes held by each separate Pass-Through Trust will have the same maturity, (ii) each Certificate will evidence a fractional undivided beneficial ownership interest in the assets of the related Pass-Through Trust and will have no rights, benefits or interests in respect of any other Pass-Through Trust or the Pass-Through Trust Property held in any other Pass-Through Trust, and (iii) the Collateral securing such Mortgage Notes will be held by a Collateral Trustee for the benefit, pari passu, of all Pass-Through Trusts holding any of the Mortgage Notes secured by such Collateral. Scheduled Payments on the Mortgage Notes will be passed through to the Certificateholders of each Trust on the dates set forth in the related Prospectus Supplement until the final scheduled Remittance Date for such Trust. The maturity date of the Mortgage Notes acquired by each Trust will correspond to the final scheduled Remittance Date applicable to the Certificates evidencing interests in such Trust. Each Trust will acquire Mortgage Notes having an interest rate higher than the interest rate on the Certificates evidencing interests in such Trust. The aggregate principal amount of the Certificates evidencing interests in each Trust will be equal to the aggregate principal amount of the Mortgage Notes held in such Trust, plus the costs of issuance of the Certificates. The difference between the interest rates on the Mortgage Notes and the Certificates over the term of the Mortgage Notes, when added to the payment of the principal of the Mortgage Notes, will be scheduled to result in an amount equal to the full principal amount of the Certificates being distributed to the Certificateholders. If the Mortgage Notes are prepaid in full or if they are sold pursuant to the related Note Put Agreement, the Make-Whole Premium or Termination Premium required to be paid in connection with such prepayment or sale will, if paid, result in an amount equal to the full principal amount of the Certificates being distributed to the Certificateholders. However, if prepayment of the Mortgage Notes is required as the result of a permissible lease termination by the related Tenant, there may be insufficient funds available to pay such full principal amount, including the Make-Whole Premium. The Prospectus Supplement relating to a Series of Certificates will set forth, among other things, the following information if applicable to such Series: (i) the aggregate principal amount, interest rate and authorized denominations of such Certificates, (ii) certain information concerning the Mortgage Notes and the nature of the related Facilities, (iii) the Remittance Dates on which periodic distributions will be made to Certificateholders, (iv) the terms on which other distributions will be made to Certificateholders and (v) additional information with respect to the plan of distribution of such Certificates. The Prospectus Supplement will also set forth whether the Mortgage Note(s) have the same maturity, in which case the Collateral will be held by the related Trust, or whether the Mortgage Notes have different maturities, in which case the Collateral will be held by the related Collateral Trust. ALTHOUGH LEASE PAYMENTS IN AMOUNTS NECESSARY TO PERMIT THE TIMELY PAYMENT OF THE REGULARLY SCHEDULED INSTALLMENTS OF PRINCIPAL OF AND INTEREST ON THE MORTGAGE NOTE(S) WILL BE A DIRECT OBLIGATION OF A TENANT, WHICH LEASE PAYMENTS WILL BE GUARANTEED BY KMART IF IT IS NOT THE TENANT, NEITHER THE CERTIFICATES NOR THE MORTGAGE NOTES WILL REPRESENT AN INTEREST IN OR A DIRECT OBLIGATION OF, OR BE GUARANTEED BY, KMART, ANY SUBSIDIARY, ANY TRUSTEE, ANY PASS-THROUGH TRUSTEE, ANY COLLATERAL TRUSTEE, ANY BORROWER OR THE DEPOSITOR. THE CERTIFICATES WILL REPRESENT AN INTEREST IN THE RELATED TRUST ONLY, AND WILL NOT BE GUARANTEED BY ANY GOVERNMENTAL AGENCY OR DEPARTMENT, OR BY THE DEPOSITOR, KMART, ANY SUBSIDIARY, THE TRUSTEE, THE COLLATERAL TRUSTEE, THE PASS-THROUGH TRUSTEE, OR BY ANY OF THEIR RESPECTIVE AFFILIATES, OR BY ANY OTHER PERSON OR ENTITY. SEE "SPECIAL CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BEFORE PURCHASING THE CERTIFICATES OF ANY SERIES. ------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ------------------------- THE 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. ------------------------- The Certificates are offered when, as and if delivered to and accepted by Sutro & Co. Incorporated and the other underwriters, if any, subject to prior sale, withdrawal or modification of the offer without notice, the approval of counsel and other conditions. Retain this Prospectus for future reference. This Prospectus may not be used to consummate sales of the Certificates offered hereby unless accompanied by a Prospectus Supplement. SUTRO & CO. INCORPORATED THE DATE OF THIS PROSPECTUS IS , 1994 3 AVAILABLE INFORMATION Kmart Corporation ("Kmart" or the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information can be inspected and copied at the public reference facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices at 7 World Trade Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 upon payment of prescribed rates. Kmart's common stock is listed on the New York Stock Exchange, the Chicago Stock Exchange and the Pacific Stock Exchange. Such reports, proxy statements and other information can also be inspected and copied at the New York Stock Exchange, 20 Broad Street, 7th Floor, New York, New York 10005. Kmart has filed with the Commission a registration statement on Form S-3 (herein, together with all amendments and exhibits, referred to as the "Registration Statement") under the Securities Act of 1933, as amended (the "Securities Act"), with respect to the Certificates. This Prospectus does not contain all of the information set forth in the Registration Statement, certain parts of which are omitted in accordance with the rules and regulations of the Commission. The Registration Statement may be inspected without charge at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies thereof may be obtained from the Commission upon payment of prescribed rates. ------------------------- REPORTS TO CERTIFICATEHOLDERS The Trustee will furnish to Certificateholders of each Series periodic statements containing information with respect to principal and interest distributions on the Certificates of that Series. Any financial information contained in such reports will not have been examined or reported upon by an independent public accountant. See "THE TRUSTS, PASS-THROUGH TRUSTS AND COLLATERAL TRUSTS -- The Trust Agreements and Pass-Through Trust Agreements -- Reports to Certificateholders." Unless and until Definitive Certificates are issued, such statements will be sent to Cede & Co., the nominee of The Depository Trust Company, as registered holder of the Certificates. See "THE CERTIFICATES -- Book-Entry Registration." ------------------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission (File No. 1-327) pursuant to the Exchange Act are incorporated or deemed to be incorporated herein by reference. 1. The Company's Annual Report on Form 10-K for the fiscal year ended January 26, 1994, its Quarterly Report on Form 10-Q for the quarter ended April 27, 1994, and its Form 8-K filed on June 8, 1994; and 2. All other documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to the termination of the offering of the Certificates. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for all purposes to the extent that a statement contained in any other subsequently filed document which is also, or is deemed to be, incorporated by reference, modifies or replaces such statement. Any such statement so modified or superseded shall not be deemed to constitute a part of this Prospectus, except as so modified or superseded. The Company will provide without charge to each person to whom this Prospectus has been delivered, on written or oral request of such person, a copy (without exhibits, unless such exhibits are specifically incorporated by reference into such document(s)) of any or all documents incorporated by reference in this Prospectus. Requests for such copies should be addressed to Kmart Corporation, Corporate Reporting Department, 3100 West Big Beaver Road, Troy, Michigan 48084, telephone number (810) 643-1093. 2 4 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to detailed information appearing elsewhere in, or incorporated by reference in, this Prospectus and by reference to the information with respect to each Series of Certificates contained in the related Prospectus Supplement and in the Trust Agreement, the Pass-Through Trust Agreement, the Collateral Trust Agreement, if applicable, the Mortgage Note(s) and the Loan Documents with respect to such Series. The forms of the Trust Agreement, the Pass-Through Trust Agreement, the Collateral Trust Agreement and certain of the Loan Documents, each in substantially the form in which it will be used, have been filed as exhibits to the Registration Statement of which this Prospectus is a part. Capitalized terms used herein and not defined herein shall have the respective meanings assigned to them in the Glossary. CERTIFICATES OFFERED........... Mortgage Pass-Through Certificates (the "Certificates"), issuable in Series, all as more fully described in the related Prospectus Supplement. The Certificates of each Series will represent fractional undivided beneficial ownership interests in a single separate Trust established for the benefit of the Certificateholders of such Series. If more than one Series is offered by a related Prospectus Supplement, such Series will be issued pursuant to separate Trusts and each Certificate will represent a fractional undivided beneficial ownership interest in one of such separate Trusts. Each Certificate will evidence a fractional undivided beneficial ownership interest in the assets of one Trust and will have no rights, benefits or interests in respect of any other Trust or the Trust Property held in any other Trust. The Certificates will mature on the date specified, and will be subject to prepayment distributions, as described in the related Prospectus Supplement, as a consequence of the prepayment, sale or other liquidation of the Mortgage Note(s) held by the related Trust. See "THE CERTIFICATES." BOOK-ENTRY REGISTRATION........ The Certificates will be issued in fully-registered form only and in denominations of $1,000 or integral multiples thereof unless otherwise specified in the related Prospectus Supplement. Each Series will be represented by one or more global Certificates registered in the name of Cede & Co. as the nominee of The Depository Trust Company. No person acquiring an interest in the Certificates of such Series will be entitled to receive a Definitive Certificate representing such person's interest in the related Trust, except in the event that Definitive Certificates are issued under the limited circumstances described herein. See "THE CERTIFICATES -- Book-Entry Registration." DISTRIBUTIONS.................. Distributions from funds held in the Certificate Account established pursuant to each Trust Agreement will be made by the Trustee to the Certificateholders to pay Debt Service on the Remittance Dates specified in the related Prospectus Supplement. Interest will be paid on each Certificate at the rate of interest specified in the related Prospectus Supplement and will be calculated on the basis of a 360-day year consisting of twelve 30-day months. See "THE CERTIFICATES -- Distribution of Scheduled Payments." THE COMPANY.................... Kmart is one of the world's largest mass-merchandise retailers. The Subsidiaries consist of five companies which are subsidiaries of 3 5 Kmart: Borders, Inc., which operates large format book superstores; Walden Book Company Inc., which operates mall-based bookstores; Builders Square, Inc., which operates home improvement superstores; OfficeMax Inc., which operates office supply superstores; and The Sports Authority, Inc., which operates large format sporting goods megastores. See "KMART." DEPOSITOR The Depositor is a limited purpose finance corporation formed solely for the purpose of facilitating the financing and sale of mortgage loans. See "THE DEPOSITOR." THE TRUSTS, PASS-THROUGH TRUSTS AND COLLATERAL TRUSTS Each Series of Certificates will be issued pursuant to a Trust Agreement between the Depositor and the Trustee identified in the related Prospectus Supplement. Each Trust will hold one or more Mortgage Notes, evidencing one or more Mortgage Loans. Each Mortgage Loan will be made to a separate Borrower, pursuant to a separate Loan Agreement, and with respect to a separate Facility. If the Loan Agreement(s) provide for Mortgage Loan(s) evidenced by Mortgage Note(s) of one maturity, then, pursuant to a single Trust Agreement, the Depositor will convey to the Trustee, without recourse, all of its right, title and interest in and to such Mortgage Loan(s) and the related Mortgage Note(s) and Loan Documents. If the Loan Agreement(s) provide for Mortgage Notes having different maturities, then (i) all of such Mortgage Notes having the same maturity will be conveyed to a separate Trust ("Pass-Through Trust") which will be established pursuant to a form of Trust Agreement sometimes referred to herein as a "Pass-Through Trust Agreement" and (ii) the Collateral for all of the Mortgage Notes issued pursuant to such Loan Agreement(s) will be conveyed by the Depositor to a single Collateral Trust pursuant to a Collateral Trust Agreement for the benefit, pari passu, of all Pass-Through Trusts holding any of the Mortgage Notes secured by such Collateral. If the Mortgage Notes are issued pursuant to more than one Loan Agreement, the Mortgage Notes relating to separate Loan Agreements will not be cross-collateralized or subject to cross-default provisions. See "THE TRUSTS, PASS-THROUGH TRUSTS AND COLLATERAL TRUSTS." The maturity date of the Mortgage Notes acquired by each Trust will correspond to the final scheduled Remittance Date applicable to the Certificates evidencing interests in such Trust. Each Trust will acquire Mortgage Notes having an interest rate higher than the interest rate on the Certificates evidencing interests in such Trust. The aggregate principal amount of the Certificates evidencing interests in each Trust will be equal to the aggregate principal amount of the Mortgage Notes held in such Trust, plus the costs of issuance of the Certificates. The difference between the interest rates on the Mortgage Notes and the Certificates over the term of the Mortgage Notes, when added to the payment of the principal of the Mortgage Notes, will be scheduled to result in an amount equal to the full principal amount of the Certificates being distributed to the Certificateholders. If the Mortgage Notes are prepaid in full or if they are sold pursuant to the related Note Put Agreement, the 4 6 Make-Whole Premium or Termination Premium required to be paid in connection with such prepayment or sale will, if paid, result in an amount equal to the full principal amount of the Certificates being distributed to the Certificateholders. However, if prepayment of the Mortgage Notes is required as the result of a permissible Lease termination by the related Tenant, there may be insufficient funds available to pay such full principal amount, including the Make-Whole Premium. The Trust Property held by either the Trust or the Collateral Trust will generally also include, with respect to each Facility, the following Collateral for the related Mortgage Note(s): (i) a Mortgage on such Facility; (ii) all of the Depositor's rights under the Loan Agreement pursuant to which the related Mortgage Note(s) were issued; (iii) an assignment of the related Lease, Lease Payments and, if the related Tenant is a Subsidiary, Lease Guaranty; (iv) a pledge of certain moneys held in certain funds established pursuant to the Trust Agreement, or Collateral Trust Agreement if applicable, (v) a Note Put Agreement requiring the Tenant and Kmart (if the Tenant is a Subsidiary) to purchase the related Mortgage Note(s) upon the occurrence of a Triggering Event; (vi) an assignment of the Borrower's right, title and interest in and to any Construction Fund Disbursement Agreement and any Construction Fund Disbursement Agreement-Common Area related to such Facility; (vii) a pledge of certain investments of fund balances held in the Trust or the Collateral Trust, if applicable, and income earned thereon; and (viii) any other Loan Documents. See "STRUCTURE OF THE FINANCINGS" and "THE TRUSTS, PASS-THROUGH TRUSTS AND COLLATERAL TRUSTS." MORTGAGE NOTES Each Mortgage Note will evidence the non-recourse obligation of a Borrower under a Loan Agreement between such Borrower and the Depositor pursuant to which the Depositor will loan a portion of the proceeds of the offering of the related Series of Certificates to such Borrower to finance the acquisition or the acquisition and construction of, or to provide permanent financing for, a Facility which will be leased to a Tenant. Scheduled Payments on the Mortgage Notes will be passed through to the Certificateholders of each Trust on the dates set forth in the related Prospectus Supplement until the final scheduled Remittance Date for such Trust. The Mortgage Notes will be subject to prepayment prior to maturity as described herein. Although the Mortgage Note(s) will not be a direct obligation of, or guaranteed by, Kmart or a Subsidiary, Lease Payments payable by the Tenant of the related Facility (the payment of which will be guaranteed by Kmart if a Subsidiary is the Tenant), together with any payments to be made from funds on deposit in any related Capitalized Debt Service Account, will be scheduled to be sufficient to pay the Scheduled Payments on the Mortgage Notes which, in turn, will be scheduled to be sufficient to pay Debt Service on the Certificates. See "THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS." 5 7 NOTE PUT AGREEMENT Kmart, a Subsidiary (if it is the Tenant) and the Depositor will enter into a Note Put Agreement with respect to each Mortgage Loan. Each Note Put Agreement will provide that, in the event (a)(i) a Tenant fails to pay when due any Lease Payment within 10 days (or 30 days if the Tenant is Kmart) after notice to the Tenant of such default and (ii) if the Tenant is a Subsidiary, Kmart fails to pay any such Lease Payment within 30 days after notice to Kmart of such Subsidiary's failure to do so (which notice may be given concurrently with the corresponding notice to such Subsidiary), (b) completion of construction of the Facility to be leased to the Tenant does not occur prior to the Completion Date, or (c) if the Tenant is a Subsidiary, a Lease Guaranty Termination occurs (each, a Triggering Event), the Trustee, or the Collateral Trustee if applicable, will have the right to require the Tenant, and in the event of the Tenant's failure to do so when the Tenant is a Subsidiary, to require Kmart to purchase the related Mortgage Note(s) in whole (but not in part) at the Purchase Price (which Purchase Price will include the Make-Whole Premium or, under certain circumstances, the Termination Premium). In the event the Trustee, or the Collateral Trustee if applicable, exercises such right, the Purchase Price will be deposited with the Trustee, or initially with the Collateral Trustee if applicable, and on the next Business Day with the Pass-Through Trustee, and such amount, less any costs and expenses incurred by the Trustee, the Pass- Through Trustee or the Collateral Trustee in connection with the exercise of their rights under the Note Put Agreement, will be distributed to the related Certificateholders. If the Trust holds no other Mortgage Notes, such distribution will be the final distribution with respect to that Series of Certificates. If the Trust holds other Mortgage Notes, subsequent Debt Service on the Certificates will be adjusted as provided in the Trust Agreement. All of the Depositor's right, title and interest in and to the Note Put Agreement will be assigned to the Trustee, or to the Collateral Trustee if applicable. See "THE NOTE PUT AGREEMENTS." LEASE Each Facility will be leased to a Tenant by the related Borrower. The term of each Lease, excluding renewal or extension terms, will expire on or after maturity of the related Mortgage Loan unless earlier terminated due to certain bankruptcy, casualty loss or condemnation events. Lease Payments will be scheduled to be in amounts sufficient to pay the Scheduled Payments on the related Mortgage Notes, and such Scheduled Payments will be scheduled to be in amounts sufficient to pay Debt Service on the related Certificates. The Lease Payments will be made by the related Tenant directly to the Trustee or, if Mortgage Notes of different maturities are issued by the related Borrower, to the Collateral Trustee. The obligation of the Tenant to make Lease Payments will commence on the date the related Mortgage Loan is made, if no construction of the Facility is required, or, if construction of the Facility is required, on the date specified in the Lease regardless of whether construction has been completed. All of the Borrower's right, title and interest in and to the Lease will be assigned to the Trustee, or the Collateral Trustee if applicable. See "THE 6 8 LEASES, LEASE GUARANTIES AND RELATED DOCUMENTS" and "THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS -- The Assignments of Leases and Rents." LEASE GUARANTY Kmart will enter into a Lease Guaranty with respect to each Facility leased by a Borrower to a Subsidiary. Pursuant to such Lease Guaranty, Kmart will guarantee to the Borrower the full and punctual payment, performance and observance by the related Subsidiary of all of the terms, conditions, covenants and obligations to be performed and observed by the Subsidiary under the related Lease. Except for Kmart's or the Subsidiary's right to terminate the Lease Guaranty in certain specific circumstances stated in the Lease Guaranty, the liability of Kmart under the Lease Guaranty will be irrevocable so long as the Lease is not terminated as permitted in the Lease. All of the Borrower's right, title and interest in and to the Lease Guaranty will be assigned to the Trustee, or the Collateral Trustee if applicable. See "THE LEASES, THE LEASE GUARANTIES AND RELATED DOCUMENTS -- The Lease Guaranty Agreements" and "THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS -- The Assignments of Leases and Rents." FEDERAL INCOME TAX CONSEQUENCES A Trust should be classified as a grantor trust and not as an association taxable as a corporation for federal income tax purposes. Each Beneficial Owner will be treated as the owner of a fractional undivided interest in the Trust Property and, as such, will be required to report a pro rata share of the income of such Trust on its federal income tax return in accordance with such Beneficial Owner's method of accounting. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES." ERISA CONSIDERATIONS A fiduciary of any employee benefit plan subject to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or the Internal Revenue Code of 1986, as amended (the "Code"), should review carefully with its legal counsel whether the purchase or holding of the Certificates could give rise to a transaction prohibited or otherwise not permissible under ERISA or the Code. See "ERISA CONSIDERATIONS." LEGAL INVESTMENT Institutions whose investment authority is subject to review by federal or state regulatory authorities should consult with their counsel or the applicable authorities to determine whether and to what extent the Certificates constitute legal investments for them. The Certificates will not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984, as amended. See "LEGAL INVESTMENT CONSIDERATIONS." USE OF PROCEEDS The proceeds from the sale of each Series of Certificates, net of certain issuance costs will be used by the Depositor to make Mortgage Loans to Borrowers to finance the acquisition or acquisition and construction of, or to provide permanent financing for, 7 9 Facilities. In the case of Mortgage Loans made to finance the construction of Facilities, a portion of the Mortgage Loan proceeds will be deposited in a Capitalized Debt Service Account maintained in a Trust or Collateral Trust, if applicable. See "USE OF PROCEEDS." RATING Unless otherwise specified in the related Prospectus Supplement, each Series of Certificates offered by means of this Prospectus and the related Prospectus Supplement will have an Investment Grade Rating from the rating agency or rating agencies identified in such Prospectus Supplement. See "SPECIAL CONSIDERATIONS -- Limited Nature of Credit Ratings." 8 10 SPECIAL CONSIDERATIONS Investors should consider, among other things, the following factors in connection with the purchase of Certificates. NON-RECOURSE OBLIGATIONS OF SPECIAL PURPOSE BORROWER; RELIANCE ON LEASE PAYMENTS Each Borrower will be a special purpose entity without assets other than the related Facility and its interest as landlord under the related Lease, and the related Mortgage Note(s) will be non-recourse obligation(s) of such Borrower. Accordingly, the only source of payments under, or with respect to, any Mortgage Note will be the related Lease Payments (which will be guaranteed by Kmart if the Tenant is a Subsidiary), the proceeds of any foreclosure of the related Facility, the right, under certain circumstances, to sell such Mortgage Note to the related Tenant or to Kmart (if the Tenant is a Subsidiary) pursuant to the related Note Put Agreement, and, under certain other circumstances, Insurance Proceeds or Condemnation Proceeds payable in respect of such Facility. Although the Lease Payments under each Lease, together with amounts in the related Capitalized Debt Service Account, if any, will be scheduled to be in amounts sufficient to pay the Scheduled Payments under the related Mortgage Note(s), there can be no assurance, in the event of a default under such Lease and the related Lease Guaranty and Note Put Agreement, or a termination of such Lease in connection with a casualty, condemnation or Borrower bankruptcy, that the value of the related Facility, and, if applicable, the amount of Insurance Proceeds or Condemnation Proceeds, will be sufficient to permit the payment in full of all amounts due under the Mortgage Note(s). OPTION OF TENANT TO TERMINATE LEASE UNDER CERTAIN CIRCUMSTANCES Each Lease will provide that in the event that all of the related Facility is permanently expropriated, the Lease will automatically terminate. If (i) the points of ingress and egress to the public roadways are materially impaired by a permanent expropriation by a public or quasi-public authority (with no reasonable replacement points of ingress and egress provided) so as to render such Facility unsuitable for its intended use, (ii) less than the whole, but more than 10% or such other higher percentage specified in the Prospectus Supplement, of the square footage of the building or land constituting the Facility is permanently expropriated by public or quasi-public authority, or (iii) damage or destruction to the Facility takes place within two years prior to the expiration date of the initial term of the Lease and the cost of restoration exceeds 50% of the fair market value of the Facility immediately prior to the time such damage or destruction took place, the Tenant will have the right to terminate the Lease. If the Lease automatically terminates or the Tenant exercises its right to terminate the Lease, the Tenant will have no further obligation to make Lease Payments, the related Lease Guaranty (if the Tenant is a Subsidiary) will be terminated, and the related Mortgage Note(s) will automatically become due and payable, together with accrued but unpaid interest and the Make-Whole Premium. Such termination of the Lease and Lease Guaranty (if the Tenant is a Subsidiary) and the acceleration of the maturity of the related Mortgage Note(s) will not give the Trustee or Collateral Trustee, if applicable, the right to sell such Mortgage Note(s) under the related Note Put Agreement. Accordingly, the only source from which to pay the amounts due under such Mortgage Note(s) will be any Condemnation Proceeds or Insurance Proceeds and the proceeds of foreclosure or other sale. There can be no assurance that such proceeds will be sufficient to pay all amounts then due under the Mortgage Note(s), although, in the case of a termination resulting from damage or destruction during the last two years of the term of the Lease, the resulting Insurance Proceeds may, in light of the fact that each Mortgage Note fully amortizes during its term, be sufficient to pay all amounts due under such Mortgage Note, except in the case of extraordinary devaluation of the Facility during the term of such Mortgage Note. BANKRUPTCY In the event that a bankruptcy petition should be filed by or against a Borrower under the Bankruptcy Code, the rights of Certificateholders may be adversely affected as a result of the Borrower's exercise of certain rights and remedies available to a debtor-in-possession under the Bankruptcy Code. If a Borrower is in bankruptcy and rejects the related Lease, the related Consent and Agreement will require the related Tenant to elect under Section 365(h) of the Bankruptcy Code to remain in possession of the Facility, and to continue 9 11 making Lease Payments, for the remaining term of the Lease. However, if notwithstanding such election, the Tenant is deprived of possession of the Facility as a result of the Lease having been rejected by such Borrower in the bankruptcy proceeding, such Tenant and Kmart (if the Tenant is a Subsidiary) will have no further obligation to make Lease Payments or any further obligations under such Lease, the related Lease Guaranty or the related Note Put Agreement. In the event that a Tenant should become the subject of a bankruptcy proceeding, such Tenant as a debtor-in-possession, or its bankruptcy trustee, may reject the related Lease, thereby leaving the Borrower with an unsecured claim for damages limited to an amount equal to the rent reserved under such Lease, without acceleration, for the greater of one year or 15 percent (not to exceed three years) of the remaining term of such Lease (plus rent already due but unpaid). Alternatively, such Lease may be recharacterized by the bankruptcy court as a secured loan to such Tenant, thereby subjecting the Borrower (and, indirectly, the Trustee or Collateral Trustee) to certain risks associated with being a secured creditor of such Tenant. In the event of bankruptcy proceedings instituted by or against a Subsidiary which is a Tenant, Kmart would continue to be obligated under the related Lease Guaranty for the payment of the Subsidiary's obligations under the Lease, and Kmart would remain obligated under the Note Put Agreement to purchase the related Mortgage Note(s) upon the occurrence of a Triggering Event. See "CONSEQUENCES OF BANKRUPTCY OF A TENANT OR A BORROWER." 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 Certificateholders with liquidity of their investment or will continue for the life of the Certificates. In addition, the market value of Certificates of each Series will fluctuate with changes in prevailing interest rates. Consequently, sale of the Certificates in any secondary market which may develop may be at a discount from par value or from their purchase price. Certificateholders have no optional redemption rights. LIMITED NATURE OF CREDIT RATINGS Any rating assigned to the Certificates by a rating agency will reflect only such rating agency's assessment of the likelihood that timely distributions will be made with respect to such Certificates. Such rating will not constitute an assessment of the risk that the Leases will be terminated, or of the likelihood that principal prepayments on the Mortgage Notes comprising part of the Trust Property will be made by Borrowers, or address the effect of any Make-Whole Premium or Termination Premium on the anticipated yield for any Series. As a result, such rating will not address the possibility that a prepayment of a Mortgage Loan may cause such investor to experience a lower than anticipated yield. 10 12 KMART BACKGROUND Kmart Corporation ("Kmart" or "Company") is one of the world's largest mass merchandise retailers. The dominant portion of Kmart's business consists of the Kmart Group which as of January 26, 1994 operated a chain of 2,323 Kmart discount stores with locations in each of the 50 United States and Puerto Rico. The Kmart Group's international operations consisted primarily of 127 Kmart stores in Canada and 13 department stores located in the Czech Republic and Slovakia as of January 26, 1994. The Central European stores were acquired in mid-1992 and represent Kmart's entry into that market. Kmart is developing advanced distribution methods and merchandising skills to modernize, refurbish and streamline operations in the two Central European countries. As part of its international expansion strategy, the Kmart Group has formed joint ventures in Mexico and Singapore and expects to open stores in those countries in 1994. Kmart also holds significant equity interest in Coles Myer Ltd., Australia's largest retailer, and substantially all of the Meldisco subsidiaries of Melville Corporation, which operate the footwear departments in domestic Kmart stores. The Kmart Group also includes the operations of PayLess Drug Stores Northwest, Inc., which was sold in the first quarter of 1994, and PACE Membership Warehouse, Inc., substantially all of the assets of which were sold in January 1994, each of which has been presented as a discontinued operation in the Company's consolidated financial statements. Kmart's Specialty Retail Groups consist of the Borders-Walden Group, the Builders Square Group, the OfficeMax Group and The Sports Authority Group. The Borders-Walden Group is a leading book retailer in the United States, and is comprised of the Company's Borders, Inc. ("Borders") and Walden Book Company, Inc. ("Walden") subsidiaries. As of January 23, 1994, Borders operated 44 large format superstores in 22 states and the District of Columbia, each of which is designed to be the premier book retailer in its market, and Walden, which is the largest operator of mall-based bookstores in the United States, operated 1,159 book stores in 50 states and the District of Columbia. Although Borders and Walden will continue to operate independently, Borders and Walden recently have been combined under common executive leadership in order to realize synergies in certain areas, including in the development of inventory control systems and in merchandise distribution. The Builders Square Group, comprised of the Company's Builders Square, Inc. subsidiary operated 177 home improvement stores in 26 states and Puerto Rico at January 23, 1994, of which 130 were Builders Square I Stores and 47 were Builders Square II Stores. The business strategy of Builders Square is to phase out its self-service warehouse-style home improvement stores and operate large format superstores that emphasize customer service and provide an extensive selection of quality products and services to repair, remodel, redecorate and maintain both home and garden. The OfficeMax Group is one of the largest operators of high-volume, deep discount office products superstores in the United States, and is comprised of the Company's OfficeMax, Inc. subsidiary. It operated 328 superstores in 38 states as of January 22, 1994. The Sports Authority Group is the largest operator of large format sporting goods stores in the United States in terms of both sales and number of stores and is also the largest full-line sporting goods retailer in the United States in terms of sales. It is comprised of the Company's The Sports Authority, Inc. subsidiary which operated 80 sporting goods megastores at January 23, 1994. Kmart was incorporated under the laws of the State of Michigan on March 9, 1916. The principal executive offices of Kmart are located at 3100 West Big Beaver Road, Troy, Michigan 48084, and its telephone number is (810) 643-1000. FINANCIAL INFORMATION On January 5, 1994, the Board of Directors approved a restructuring plan involving the Kmart Group (including Kmart Canada), the Builders Square Group and the Borders-Walden Group. As a result, in the fourth quarter of 1993, Kmart recorded a charge (Store Restructuring and Other Charges) to earnings of $1,348 million before taxes. Net of taxes, the charge was $862 million. The provision included anticipated costs associated with Kmart stores which will be closed and relocated, enlarged or refurbished in the United States and Canada, the closing and relocation of certain Builders Square stores and the closing of underperforming Walden stores. These costs, which represent approximately 85% of the total, include lease 11 13 obligations for store closings as well as fixed asset writedowns, primarily furniture and fixtures, and inventory dispositions for all affected stores. The remainder of the charge is for costs related to certain changes to Walden's accounting policies in connection with its combination with Borders, re-engineering programs (principally severance) and non-routine legal contingency accrual. In January 1994, PACE Membership Warehouse, Inc. ("PACE") sold the assets and lease obligations of 93 of its warehouses and virtually all of the inventory and membership files in the 34 warehouses not included in the transaction to Sam's Club, a division of Wal-Mart, Stores, Inc. for $774 million. The book value of the assets sold to Wal-Mart was $624 million. Operations of the 34 remaining PACE sites not included in the transaction were discontinued and PACE is in the process of evaluating and marketing these leased sites as well as leased premises for unopened warehouses and corporate facilities. Included in the loss on the disposition of PACE was unamortized goodwill of $395 million, expected remaining lease obligations in the warehouses not sold, other PACE liabilities and a provision for additional costs anticipated during the wind- down of PACE operations. The Company has accounted for PACE as a discontinued operation in its financial statements. In addition, Kmart sold its PayLess Drug Stores Northwest, Inc. ("PayLess") subsidiary to Thrifty PayLess Holdings, Inc. ("TPH") and its subsidiary Thrifty PayLess, Inc. for approximately $595 million in cash, $100 million in senior notes of TPH and approximately 46% of the common equity of TPH. The book value of PayLess' net assets sold was $1,186 million at January 26, 1994. The structure of the sale was designed to maximize value received for PayLess. It is Kmart's intention to divest substantially all of its interest in TPH within one year. Management expects the disposition to be achieved either through a private offering or other alternative means. Accordingly, Kmart has reported PayLess as a discontinued operation in its financial statements and has recorded its investment in TPH at anticipated net realizable value. Kmart has called for early redemption $300 million of its 8 3/8% debentures due January 15, 2017, using the proceeds of the sale of PayLess to redeem the issue. The resulting redemption premium and associated cost of $18 million, net of applicable income taxes, was recorded in 1993 as part of the loss on disposal of the discontinued operations. The $300 million principal amount has been included in the current portion of long-term debt. Kmart believes the effect of recognizing the charge in 1993 rather than in the first quarter of 1994 would not have a material effect on the results of operations for its 1993 or 1994 fiscal years. Net income (loss) from continuing retail operations in 1993 was $(328) million, as compared to $882 million and $789 million in 1992 and 1991, respectively. Excluding the net of tax $862 million store restructuring and other charges, 1993 net income from continuing retail operations was $534 million. The decrease in net income from continuing retail operations in 1993, exclusive of the store restructuring and other charges, resulted primarily from the inventory reduction program and gross margin pressure in U.S. Kmart stores. Net income (loss) from discontinued operations in 1993 was $(81) million, as compared to $59 million and $70 million in 1992 and 1991, respectively. Discontinued operations include the results of PayLess and PACE, which have been reclassified to reflect their respective dispositions announced in the fourth quarter of 1993. The $81 million after-tax loss from the operation of discontinued businesses in 1993 was the result of a significant net operating loss at PACE which more than offset net income from PayLess. Additionally, in 1993, an after-tax loss of $521 million was realized from the disposal of discontinued businesses. Sales in 1993 were $34.16 billion, an increase of 10.1% from the $31.03 billion in the preceding year, as restated to exclude the PACE and PayLess businesses. Net income from continuing retail operations for the 13 weeks ended April 27, 1994 declined to $18 million from $58 million for the 13 weeks ended April 28, 1993 as restated to exclude the discontinued PACE and PayLess businesses and before an extraordinary item and accounting changes. First-quarter sales reached $7.81 billion, an increase of 6.2% from $7.35 billion for the same period of 1993. As of April 25, 1994, Moody's, S&P and Duff & Phelps Credit Rating Co. ("D&P") assigned the ratings of "A3," "BBB+" and "A," respectively, to the senior unsecured debt of Kmart. D&P has informed Kmart that it has placed Kmart on its "credit watch" list. There can be no assurance that the ratings set forth above may not be changed by the respective rating agency at any time. 12 14 KMART CORPORATION SELECTED FINANCIAL INFORMATION (DOLLARS IN MILLIONS)
13 WEEKS ENDED ---------------------- APRIL 27, APRIL 28, 1989(1) 1990 1991 1992 1993(2) 1994 1993 ------- ------- ------- ------- ------- --------- --------- (UNAUDITED) Summary of Operations Sales...................... $27,670 $28,133 $29,042 $31,031 $34,156 $ 7,810 $ 7,352 Cost of merchandise sold... 20,310 20,614 21,243 22,800 25,646 5,840 5,466 Selling, general and administrative expenses................ 6,277 6,435 6,603 6,875 7,636 1,886 1,744 Interest expense -- net.... 353 384 384 414 477 124 122 Income (loss) from continuing retail operations before income taxes................... 444 1,070 1,189 1,327 (550) 28 83 Net income (loss) from continuing retail operations.............. 282 712 789 882 (328) 18 58 Ratio of earnings from continuing retail operations to fixed charges................. 1.8 2.9 3.0 3.0 (3) (4) (4) Balance Sheet (at end of period): Working capital............ $ 3,685 $ 3,519 $ 4,682 $ 5,014 $ 4,123 $ 4,042 $ 4,593 Merchandise inventories.... 6,933 6,891 7,546 8,752 7,252 7,815 9,747 Total assets............... 13,145 13,899 15,999 18,931 17,504 17,963 20,090 Long-term debt............. 1,480 1,701 2,287 3,237 2,227 2,224 3,041 Capital leases............. 1,549 1,598 1,638 1,698 1,720 1,764 1,762 Shareholders' equity....... 4,972 5,384 6,891 7,536 6,093 6,010 7,464
- ------------------------- (1) Results of operations for 1989 include a pre-tax provision of $640 million ($422 million net of tax) for store restructuring and other charges. (2) Results of operations for 1993 include a pre-tax provision of $1,348 million ($862 million net of tax) for store restructuring and other charges. (3) Fixed charges represent total interest charges, a portion of operating rentals representative of the interest factor and amortization of debt discount and expense. The deficiency of income from continuing retail operations versus fixed charges was $581 million for the fiscal year ended January 26, 1994. (4) Due to the seasonality of Kmart's business, the ratio of earnings from continuing retail operations to fixed charges for the interim period computed as described in (3) above using 52 weeks ended April 28, 1993 was 2.8. The deficiency of income from continuing retail operations versus fixed charges was $663 million for the 52 weeks ended April 27, 1994. THE DEPOSITOR National Tenant Finance Corporation is a Delaware corporation formed on , 1994. The Depositor is a limited purpose financing corporation formed solely for the purpose of facilitating the origination and sale of Mortgage Loans. The Depositor's certificate of incorporation limits its business to the foregoing and places certain other restrictions on its activities. The mailing address of the Depositor's principal executive offices is Phoenix, Arizona , and its telephone number is (602) . USE OF PROCEEDS The proceeds from the sale of each Series of Certificates (net of expenses incurred in connection with the issuance of such Series) will be used by the Depositor to make Mortgage Loans to Borrowers for permanent financing of, or for the acquisition or acquisition and construction of, Facilities. 13 15 DIAGRAM OF TRANSACTION STRUCTURE INVOLVING A MORTGAGE NOTE WITH ONE MATURITY 100 100 100 120 100 100 100 100 100 100 100 100
14 16 FOOTNOTES TO DIAGRAM WITH SINGLE MATURITY: (1) On the Closing Date, the Certificates will be issued to the Certificateholders by the Trust in exchange for the proceeds thereof. (2) On the Closing Date, the Trust will provide funds to the Depositor to make a Mortgage Loan to a Borrower. (3) On the Closing Date, the Depositor will enter into a Loan Agreement with a Borrower pursuant to which such Borrower will deliver to the Depositor a Mortgage Note equal to the amount of the Mortgage Loan, a Mortgage on the Facility to be leased to the Tenant, and an assignment of the Lease and Lease Guaranty, if applicable. (4) On the Closing Date, if construction of the Facility is complete, the net proceeds of the Mortgage Loan will be disbursed to the Borrower. If the Facility will be constructed with such proceeds, then such proceeds (net of land costs and the amount placed in the Capitalized Debt Service Account) will be disbursed to the Escrow Agent pursuant to a Construction Fund Disbursement Agreement among the Borrower, the Depositor, the Tenant, Kmart (if the Tenant is a Subsidiary), the Escrow Agent, and, if applicable, the Construction Monitor. (5) On the Closing Date, the Borrower will enter into a Lease with the Tenant pursuant to which the Tenant will lease the Facility for use as a retail store. (6) On the Closing Date, if the Tenant is a Subsidiary, the Borrower will enter into a Lease Guaranty with Kmart pursuant to which Kmart will guaranty the payment and performance of the Subsidiary's obligations under the Lease. (7) On the Closing Date, the Depositor, the Tenant and Kmart (if the Tenant is a Subsidiary) will enter into a Note Put Agreement pursuant to which the Depositor, upon the occurrence of a Triggering Event, will be entitled to require the Tenant and, if the Tenant is a Subsidiary and fails to perform, to require Kmart to purchase the related Mortgage Note(s) at the Purchase Price. (8) On the Closing Date, if the Tenant is a Subsidiary, the Depositor and Kmart will enter into an Indemnity Agreement pursuant to which Kmart will indemnify the Depositor in the event any Lease Payments under the Lease or Lease Guaranty are asserted to be voidable in any bankruptcy proceeding filed by or against the Subsidiary. (9) On the Closing Date, the Depositor will assign to the Trust for the benefit of the Certificateholders the Depositor's interest in the Mortgage Note and the related Loan Documents including the Loan Agreement, the Mortgage, the Lease, the Lease Guaranty, if applicable, the Note Put Agreement, the Construction Fund Disbursement Agreement, if applicable, and the Indemnity Agreement, if applicable. (10) On the Closing Date, if the Facility will be constructed with the proceeds of a Mortgage Loan, the Borrower will grant the Tenant a second mortgage on the Facility to secure the Borrower's obligation to construct the Facility and also will grant the Tenant an option to purchase the Facility in the event Borrower does not complete such construction on or before the Completion Date. If the Tenant is a Subsidiary, it will assign its rights under the second mortgage and the option to purchase to Kmart to secure the performance by the Subsidiary of its reimbursement obligations to Kmart with respect to payments made by Kmart under the Lease Guaranty and the Note Put Agreement. (11) As construction of the Facility continues, the Borrower will receive drawdowns from the Escrow Agent pursuant to the Construction Fund Disbursement Agreement. Each drawdown will require the approval of the Tenant. (12) The Tenant will make Lease Payments directly to the Trust. (13) On each Due Date, the Trustee will use such Lease Payments to pay Scheduled Payments on the Mortgage Note and, on each Remittance Date, will use such Scheduled Payments on the Mortgage Note to pay Debt Service on the Certificates. As long as no Event of Default exists under any of the related Loan Documents (other than a non-monetary default by the Tenant under the Lease), on every Due Date, Lease Payments received by the Trustee in excess of amounts needed to pay Scheduled Payments on the Mortgage Note and certain other expenses will be remitted to the Borrower. NOTE: If the proceeds of the sale of Certificates are used to finance more than one Facility, then each Facility will be owned and, if applicable, constructed by a different Borrower, each Loan Agreement, the Mortgage Note issued thereunder, and related Loan Documents will relate to only one Facility, the Facilities may be leased by the same Tenant or by different Tenants, and the foregoing structure will apply to each Mortgage Loan except that only a portion of the proceeds of the sale of Certificates will be used to finance such Mortgage Loan. See "STRUCTURE OF THE FINANCINGS" herein for a more detailed description of the transaction set forth in the foregoing diagram. 15 17 DIAGRAM OF TRANSACTION STRUCTURE INVOLVING MORTGAGE NOTES WITH TWO MATURITIES 100 100 100 100 100 100 100 100 100
16 18 FOOTNOTES TO DIAGRAM WITH TWO MATURITIES: (1) On the Closing Date, the Certificates Series A will be issued to the Certificateholders Series A by the Pass-Through Trust Series A in exchange for the proceeds thereof, and the Certificates Series B will be issued to the Certificateholders Series B by the Pass-Through Trust Series B in exchange for the proceeds thereof. The Certificates Series A and the Certificates Series B will have different maturities. (2) On the Closing Date, the Pass-Through Trust Series A and the Pass-Through Trust Series B will provide funds to the Depositor to make a Mortgage Loan to a Borrower. (3) On the Closing Date, the Depositor will enter into a Loan Agreement with the Borrower pursuant to which the Borrower will deliver to the Depositor the Mortgage Note Series A and the Mortgage Note Series B, the aggregate principal amount of which will equal the principal amount of the Mortgage Loan, a Mortgage on the Facility to be leased to the Tenant, and an assignment of the Lease and Lease Guaranty, if applicable. (4) On the Closing Date, if construction of the Facility is complete, the net proceeds of the Mortgage Loan will be disbursed to the Borrower. If the Facility will be constructed with such proceeds, then such proceeds (net of land costs and the amount placed in the Capitalized Debt Service Account) will be disbursed to the Escrow Agent pursuant to a Construction Fund Disbursement Agreement among the Borrower, the Depositor, the Tenant, Kmart (if the Tenant is a Subsidiary), the Escrow Agent, and, if applicable, the Construction Monitor. (5) On the Closing Date, the Borrower will enter into a Lease with the Tenant pursuant to which the Tenant will lease the Facility for use as a retail store. (6) On the Closing Date, if the Tenant is a Subsidiary, the Borrower will enter into a Lease Guaranty with Kmart pursuant to which Kmart will guaranty the payment and performance of the Subsidiary's obligations under the Lease. (7) On the Closing Date, the Depositor, the Tenant and Kmart (if the Tenant is a Subsidiary) will enter into a Note Put Agreement pursuant to which the Depositor, upon the occurrence of a Triggering Event, will be entitled to require the Tenant and, if the Tenant is a Subsidiary and fails to perform, to require Kmart to purchase the Mortgage Note Series A and the Mortgage Note Series B at the Purchase Price for each Mortgage Note. (8) On the Closing Date, if the Tenant is a Subsidiary, the Depositor and Kmart will enter into an Indemnity Agreement pursuant to which Kmart will indemnify the Depositor in the event any Lease Payments under the Lease or Lease Guaranty are asserted to be voidable in any bankruptcy proceeding filed by or against the Subsidiary. (9) On the Closing Date, the Depositor will assign to the Pass-Through Trust Series A for the benefit of Certificateholders Series A the Mortgage Note Series A and will assign to the Pass-Through Trust Series B for the benefit of Certificateholders Series B the Mortgage Note Series B. The Mortgage Note Series A and the Mortgage Note Series B will have different maturities that correspond, respectively, to the maturities of the Certificates Series A and of the Certificates Series B. (10) On the Closing Date, the Depositor will assign to the Collateral Trustee for the benefit of the Pass-Through Trust Series A and the Pass-Through Trust Series B the Depositor's interest in the Loan Documents including the Loan Agreement, the Mortgage, the Lease, the Lease Guaranty, if applicable, the Note Put Agreement, the Construction Fund Disbursement Agreement, if applicable, and the Indemnity Agreement, if applicable. (11) On the Closing Date, if the Facility will be constructed with the proceeds of a Mortgage Loan, the Borrower will grant the Tenant a second mortgage on the Facility to secure the Borrower's obligation to construct the Facility and also will grant the Tenant an option to purchase the Facility in the event Borrower does not complete such construction on or before the Completion Date. If the Tenant is a Subsidiary, it will assign its rights under the second mortgage and the option to purchase to Kmart to secure the performance by the Subsidiary of its reimbursement obligations to Kmart with respect to payments made by Kmart pursuant to the Lease Guaranty and the Note Put Agreement. (12) As construction of the Facility continues, the Borrower will receive drawdowns from the Escrow Agent pursuant to the Construction Fund Disbursement Agreement. Each drawdown will require the approval of the Tenant. (13) The Tenant will make Lease Payments directly to the Collateral Trust. (14) On each Due Date, the Collateral Trustee will use such Lease Payments to pay to the Pass-Through Trust Series A Scheduled Payments due on the Mortgage Note Series A and to the Pass-Through Trust Series B Scheduled Payments due on the Mortgage Note Series B. As long as no Event of Default exists under any of the related Loan Documents (other than a non-monetary default by the Tenant under the Lease), on every Due Date, Lease Payments received by the Collateral Trustee in excess of amounts needed to pay Scheduled Payments on the Mortgage Note Series A and on the Mortgage Note Series B and certain other expenses will be remitted to the Borrower. (15) On each Remittance Date, the Pass-Through Trustee Series A will use such Scheduled Payments on the Mortgage Note Series A to pay Debt Service on the Certificates Series A, and the Pass-Through Trustee Series B will use such Scheduled Payments on the Mortgage Note Series B to pay Debt Service on the Certificates Series B. NOTE: If the proceeds of the sale of Certificates are used to finance more than one Facility, then each Facility will be owned and, if applicable, constructed by a different Borrower, each Loan Agreement, the Mortgage Notes issued thereunder and related Loan Documents will relate to only one Facility, the Facilities may be leased by the same Tenant or by different Tenants and the foregoing structure will apply to each Mortgage Loan except that only a portion of the proceeds of the sale of Certificates will be used to finance such Mortgage Loan. If a Mortgage Loan is evidenced by Mortgage Notes of more than two maturities, there will be a different Pass-Through Trust and a different series of Certificates for each maturity. In all other respects, the foregoing structure will apply. See "STRUCTURE OF THE FINANCINGS" herein for a more detailed description of the transaction set forth in the foregoing diagram. 17 19 STRUCTURE OF THE FINANCINGS Concurrently with the issuance of each Series of Certificates, the Depositor will make a Mortgage Loan to a Borrower or multiple Mortgage Loans, each to a different Borrower, with the net proceeds from the sale of the Certificates to be used as permanent financing for, or for the financing of the acquisition or the acquisition and construction of, one or more Facilities. Each Facility will be owned or owned and constructed by a different Borrower (provided that in certain cases the Borrower may have a ground leasehold interest in, and not fee simple title to, the Demised Premises) and will be a retail facility to be leased to a Tenant pursuant to a Lease between such Borrower and such Tenant. Lease Payments will be guaranteed by Kmart pursuant to a Lease Guaranty (if the Tenant is a Subsidiary). Lease Payments will be made by the Tenant directly to the Trustee or to the Collateral Trustee, if applicable, and will be scheduled to be sufficient to pay Scheduled Payments on the related Mortgage Note(s) for the period from and after the commencement of such Lease Payments. If the Facility is constructed when the Mortgage Loan is made, Lease Payments will commence immediately. If the Facility is to be constructed with the proceeds of the Mortgage Loan, Lease Payments will commence on a date specified in the Lease even if construction of the Facility is not complete. With respect to each Mortgage Loan when Lease Payments do not commence immediately, a portion of such Mortgage Loan will be deposited in a related Capitalized Debt Service Account, and such amount will be sufficient to pay Scheduled Payments that become due or accrue prior to the commencement of Lease Payments. In connection with each Mortgage Loan, the related Borrower will execute and deliver, or cause to be executed and delivered, to the Depositor (i) a Mortgage Note or Mortgage Notes and Mortgage (ii) an assignment of the Lease, Lease Payments and, if the Tenant is a Subsidiary, the Lease Guaranty and (iii) other Loan Documents. With respect to each Mortgage Loan, the related Tenant and Kmart (if the Tenant is a Subsidiary) will enter into a Note Put Agreement with the Depositor giving the Depositor the right to require such Tenant and Kmart, if applicable, to purchase the related Mortgage Note(s) at the Purchase Price upon the occurrence of (i) a default in the payment of Lease Payments by such Tenant after 10 days notice (or 30 days notice if the Tenant is Kmart) of such default and, if the Tenant is a Subsidiary, by Kmart after 30 days notice of such default (which notice may be given concurrently with the corresponding notice to such Subsidiary), (ii) a failure to complete construction of the related Facility by the Completion Date or (iii) if the Tenant is a Subsidiary, the occurrence of a Lease Guaranty Termination of the related Lease Guaranty (each, a Triggering Event). In consideration for the proceeds of the sale of the Certificates, and if the related Loan Agreements provide for Mortgage Notes of a single maturity, the Depositor will convey to the Trustee, without recourse, such Mortgage Notes and all of the Depositor's right, title and interest in and to the related Loan Documents, including the related Lease, Lease Guaranty, if applicable, Indemnity Agreement, if applicable, Loan Agreement, Mortgage and Note Put Agreement. When the Loan Agreements provide for Mortgage Notes of different maturities, the Depositor will convey the Mortgage Notes to different Pass-Through Trustees such that each Pass-Through Trustee will hold only Mortgage Notes having the same maturity. All of the Depositor's right, title and interest in and to the related Loan Documents, including the related Lease, Lease Guaranty, if applicable, Indemnity Agreement, if applicable, Loan Agreement, Mortgage and Note Put Agreement, will be conveyed by the Depositor to the Collateral Trustee which will hold such property in trust for the benefit, pari passu, of the Pass-Through Trustees as holders of the related Mortgage Notes. In no case will Mortgage Notes issued under different Loan Agreements be cross-collateralized or subject to cross-default provisions. If the proceeds of a Mortgage Loan will be used to construct a Facility, the Depositor, the related Borrower, the related Tenant, Kmart (if the Tenant is a Subsidiary), an Escrow Agent and, in some cases, a Construction Monitor engaged at the request of such Tenant will enter into a Construction Fund Disbursement Agreement, which will provide that the Borrower will deposit the net proceeds of the Mortgage Loan (less amounts used to acquire land or ground leasehold interest, amounts used to fund the related Capitalized Debt Service Account and amounts deposited in the related Escrow Account-Common Area, if any) into the Escrow Account created pursuant to such Construction Fund Disbursement Agreement. Amounts deposited in each Escrow Account will be disbursed to a Borrower in connection with the acquisition and construction of 18 20 a Facility upon approval by the related Tenant and the Construction Monitor, if one is appointed, of draw requests submitted by such Borrower. In certain instances, Borrowers may own or acquire, or may lease, contiguous but separate parcels of land for the purpose of constructing a shopping center to be occupied by more than one Tenant. If the Common Area of such a shopping center is to be built using a portion of the proceeds of the Mortgage Loans related to such Facilities, then, in addition to the Construction Fund Disbursement Agreement, there will be a Construction Fund Disbursement Agreement -- Common Area among the same parties together with each additional Borrower and each additional Tenant that is leasing a Facility that will be utilizing such Common Area. The portion of the related Mortgage Loans that will be used to construct such Common Area will be deposited in an Escrow Account -- Common Area established pursuant to such Construction Fund Disbursement Agreement -- Common Area, and will be disbursed upon approval of such Tenants and the Construction Monitor, if one is appointed, of draw requests submitted by the Borrowers constructing such Common Area. All of each Borrower's right, title and interest in and to any Construction Fund Disbursement Agreement and any Construction Fund Disbursement Agreement -- Common Area will be pledged, subject to the rights of the Tenants and Kmart under such Agreements, to the Trustee, or to the Collateral Trustee, if applicable. Each Trust Agreement will provide for the establishment of a Certificate Account and, if there is no Collateral Trust, a Rental Payment Account. Each Collateral Trust Agreement will provide for the establishment of a Rental Payment Account and a Mortgage Note Account. The Lease Payments related to the Mortgage Notes held by the Trustee, or Pass-Through Trustees, if applicable, will be paid directly by the related Tenants to such Trustee, or the Collateral Trustee if applicable, and, unless an Event of Default has occurred under any of the Loan Documents (other than a non-monetary default by the related Tenant under the related Lease), deposited in the related Rental Payment Account. Such Lease Payments will be scheduled to be in amounts sufficient to pay Scheduled Payments on such Mortgage Notes. On the Business Day immediately preceding each Remittance Date, amounts on deposit in the Rental Payment Account(s) equal to Scheduled Payments due under the related Mortgage Note or Mortgage Notes will be deposited in the Certificate Account(s) in the related Trust or Pass-Through Trust, as applicable, and will be applied to pay Debt Service on the Certificates as set forth in the related Prospectus Supplement. The Scheduled Payments on the Mortgage Note(s) will be scheduled to be sufficient to pay the interest applicable to the related Series of the Certificates and over the term of such Mortgage Notes to pay the principal of such Series of Certificates, including the amount of such principal expended for issuance costs. The maturity date of each Mortgage Note acquired by a Trust or Pass-Through Trust will correspond to the final Remittance Date applicable to the related Series of the Certificates. THE CERTIFICATES The Certificates described herein and in the related Prospectus Supplements will be issued from time to time in Series pursuant to one or more Trust Agreements or Pass-Through Trust Agreements. Each Pass-Through Trust Agreement (used when there are Mortgage Notes of different maturities) will contain substantially the same terms as each other such Pass-Through Trust Agreement, except that interest rates, scheduled payments of principal, aggregate principal amount and final distribution dates applicable to each Series of Certificates may differ. When there are Mortgage Notes of different maturities, the Collateral for all such Mortgage Notes will be held in a Collateral Trust for the benefit, pari passu, of all Pass-Through Trusts holding any of the Mortgage Notes secured by such Collateral. The following summaries describe certain provisions common to each Series of Certificates. The summaries do not purport to be complete and are subject to, and are qualified in their entirety by reference to, the Prospectus Supplement and the provisions of the Trust Agreement or Pass-Through Trust Agreement relating to each such Series of Certificates, the forms of which have been filed as exhibits to the Registration Statement of which (in substantially the form in which they will be used) this Prospectus is a part. GENERAL The Certificates will be issued in fully registered form only. Each Certificate will represent a fractional undivided beneficial ownership interest in the assets conveyed to the Trust or Pass-Through Trust pursuant to 19 21 which such Series of Certificates was issued. Each Certificate will correspond to a pro rata share of the outstanding principal amount of the Mortgage Notes held in the related Trust or Pass-Through Trust, plus a pro rata share of issuance costs, and will be issued in minimum denominations of $1,000 initial principal amount and integral multiples of $1,000 in excess thereof unless otherwise specified in the related Prospectus Supplement. The Certificates will be registered in the name of Cede & Co. ("Cede") as the nominee of The Depository Trust Company ("DTC"). No person acquiring an interest in the Certificates (a "Beneficial Owner") will be entitled to receive a Certificate representing such person's interest in the Certificates, except as set forth below under "Book-Entry Registration -- Definitive Certificates." Unless and until Definitive Certificates are issued under the limited circumstances described herein, all references to actions by Certificateholders shall refer to actions taken by DTC upon instructions from DTC Participants (as defined below) and all references herein to distributions, notices, reports and statements to Certificateholders shall refer, as the case may be, to distributions, notices, reports and statements to DTC or Cede, as the registered holder of the Certificates, or to DTC Participants for distribution to Beneficial Owners in accordance with DTC procedures. See "Book-Entry Registration." Scheduled Payments made on the Mortgage Notes held in a Trust or a Pass-Through Trust will be passed through to Certificateholders of such Trust or Pass-Through Trust on the dates set forth in the related Prospectus Supplement until the final scheduled Remittance Date for such Trust. Each Certificate will represent a fractional undivided beneficial ownership interest in the related Trust or Pass-Through Trust and will not have any rights, benefits or interest in respect of any other Trust or Pass-Through Trust or in the property held by any other Trust or Pass-Through Trust. All payments and distributions on each Series of Certificates will be made only from the Trust Property in which such Series of Certificates evidences an interest. Although Lease Payments in amounts necessary to permit the timely payment of Scheduled Payments on the Mortgage Notes, and consequently Debt Service on the Certificates, will be direct obligations of one or more Tenants, which Lease Payments will be guaranteed by Kmart if the related Tenant is a Subsidiary, the Certificates themselves will not represent an interest in or obligation of Kmart, any Subsidiary, any Trustee, any Pass-Through Trustee, any Collateral Trustee, any Borrower or the Depositor. Each purchaser of a Certificate will look solely to the income and proceeds from the Trust Property to the extent available for distribution as provided in the Trust Agreement or Pass-Through Trust Agreement. No Trust Agreement, Pass-Through Trust Agreement, Collateral Trust Agreement, Lease, Lease Guaranty, if applicable, Note Put Agreement or other Loan Document will include financial covenants or other provisions that would afford Certificateholders protection in the event of highly leveraged or other transactions involving Kmart. The Certificateholders will have the benefit solely of the Collateral securing the Mortgage Loan held in the related Trust Agreement or Collateral Trust, as applicable. See "THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS." BOOK-ENTRY REGISTRATION General 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 New York Uniform Commercial Code and a "clearing agency" registered pursuant to Section 17A of the Exchange Act. DTC was created to hold securities for its participants ("DTC Participants") and to facilitate the clearance and settlement of securities transactions between DTC Participants through electronic book-entries, thereby eliminating the need for physical movement of certificates. DTC Participants include securities brokers and dealers, banks, trust companies and clearing corporations. Indirect access to the DTC system also is available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a DTC Participant either directly or indirectly ("Indirect Participants"). Beneficial Owners that are not DTC Participants or Indirect Participants but desire to purchase, sell or otherwise transfer ownership of, or other interests in, Certificates may do so only through DTC Participants and Indirect Participants. In addition, Beneficial Owners will receive all distributions of principal and interest from the Trustee through DTC Participants or Indirect Participants, as the case may be. Under a book-entry 20 22 format, Beneficial Owners may experience some delay in their receipt of payments, since such payments will be forwarded by the Trustee to Cede, as nominee for DTC. DTC will forward such payments to DTC Participants, which thereafter will forward them to Indirect Participants or Beneficial Owners, as the case may be, in accordance with customary industry practices. The forwarding of such distributions to the Beneficial Owners will be the responsibility of such DTC Participants and Indirect Participants. When book-entry registration is used, the only "Certificateholder" of a Trust will be Cede, as nominee of DTC. Beneficial Owners will not be recognized by the Trustee as Certificateholders, as such term is used in the Trust Agreement or Pass-Through Trust Agreement, and Beneficial Owners will be permitted to exercise the rights of Certificateholders only indirectly through DTC and DTC Participants. Under the rules, regulations and procedures creating and affecting DTC and its operations (the "Rules"), DTC is required to make book-entry transfers of Certificates among DTC Participants on whose behalf it acts with respect to the Certificates and to receive and transmit distributions of principal of, premium, if any, and interest on, the Certificates to DTC Participants. DTC Participants and Indirect Participants with which Beneficial Owners have accounts with respect to the Certificates similarly are required to make book-entry transfers and receive and transmit such payments on behalf of their respective Beneficial Owners. Accordingly, although Beneficial Owners will not possess Certificates, the Rules provide a mechanism by which Beneficial Owners will receive payments and will be able to transfer their interests. Because DTC can only act on behalf of DTC Participants, who in turn act on behalf of Indirect Participants, the ability of a Beneficial Owner to pledge Certificates to persons or entities that do not participate in the DTC system, or to otherwise act with respect to such Certificates, may be limited due to the absence of a physical certificate for such Certificates. DTC has advised the Depositor that it will take any action permitted to be taken by a Certificateholder under the Trust Agreement only at the direction of one or more DTC Participants to whose accounts with DTC the Certificates are credited. Additionally, DTC has advised the Depositor that it will take such actions with respect to any percentage of Certificateholders of each Trust only at the direction of and on behalf of DTC Participants whose holdings include fractional undivided interests that satisfy any such percentage. DTC may take conflicting actions with respect to other fractional undivided interests to the extent that such actions are taken on behalf of DTC Participants whose holdings include such fractional undivided interests. All notices to Certificateholders under a Trust Agreement or Pass-Through Trust Agreement will be sent to Cede so long as the Series of Certificates issued pursuant to such Trust Agreement or Pass-Through Trust Agreement is represented by a single Certificate registered in the name of Cede. None of the Company, the Depositor, the Trustee or the Pass-Through Trustee will have any liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in the Certificates held by Cede, as nominee for DTC, or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. The information in this section concerning DTC and DTC's book-entry system has been obtained from sources that the Company and the Depositor believe to be reliable, but neither the Company nor the Depositor takes any responsibility for the accuracy thereof. Definitive Certificates The Certificates will be issued in fully registered, certificated form ("Definitive Certificates") to Beneficial Owners or their nominees, rather than to DTC or its nominee, only if (i) the Depositor advises the Trustee or Pass-Through Trustee in writing that DTC is no longer willing or able to discharge properly its responsibilities as depository with respect to the Certificates and the Depositor is unable to appoint a qualified successor or (ii) the Depositor, at its option and only with the prior written consent of Kmart, elects to terminate the book-entry system through DTC. Upon the occurrence of any event described in the immediately preceding paragraph, the Trustee or Pass-Through Trustee will be required to notify all Beneficial Owners through DTC Participants of the availability of Definitive Certificates. Upon surrender by DTC of the global certificates representing the 21 23 Certificates and receipt of instructions for re-registration, the Trustee or Pass-Through Trustee will reissue the Certificates as Definitive Certificates to Beneficial Owners. Definitive Certificates will be freely transferable and exchangeable at the office of the Trustee or Pass-Through Trustee upon compliance with the requirements set forth in the Trust Agreement or Pass-Through Trust Agreement. No service charge will be imposed for any registration of transfer or exchange, but payment of a sum sufficient to cover any tax or other governmental charge will be required. Settlement and Payment So long as the Certificates are registered in the name of Cede, as nominee of DTC, all payments of distributions pursuant to the Trust Agreement or Pass-Through Trust Agreement will be paid to DTC in immediately available funds. Secondary trading in long-term notes and debentures of corporate issuers is generally settled in clearing-house or next-day funds. In contrast, the Certificates will trade in DTC's Same-Day Funds Settlement System until maturity, and secondary market trading activity in the Certificates will therefore be required by DTC to settle in immediately available funds. No assurance can be given as to the effect, if any, of settlement in immediately available funds on trading activity in the Certificates. DISTRIBUTIONS OF SCHEDULED PAYMENTS The Prospectus Supplement for a Series will specify the Due Dates on which payments of interest and principal on each Mortgage Note ("Scheduled Payments") held by a related Trust or Pass-Through Trust are due and the Remittance Dates on which the Trustee or Pass-Through Trustee will distribute to each Certificateholder its pro rata share of the Available Distribution Amount for the payment of Debt Service. Each such distribution will be made by the Trustee to holders of record of the Certificates on the close of business of the fifteenth day preceding the related Remittance Date, except with respect to Scheduled Payments received after the Due Date (the "Record Date"). Lease Payments related to any Mortgage Note will be paid directly to the Trustee, or the Collateral Trustee if applicable. On each Due Date, the Trustee will use such Lease Payments to pay the Scheduled Payments on the related Mortgage Note or the Collateral Trustee will transfer to the Pass-Through Trustee amounts sufficient to pay the Scheduled Payments on the related Mortgage Notes. Such Scheduled Payments will then be used by the Trustee, or Pass-Through Trustee, if applicable, to pay Debt Service to the Certificateholders on the related Remittance Date. See "THE TRUSTS, PASS-THROUGH TRUSTS AND COLLATERAL TRUSTS." Each Mortgage Note will provide for interest at an overdue rate as specified in the related Prospectus Supplement on any Scheduled Payments, or portions thereof, that are not paid when due. The related Lease will provide for a late payment rate applicable to any Lease Payments, or portions thereof, that are not paid when due (including any grace period). The late payment rate in the Lease is scheduled to be sufficient to pay the overdue rate on the related Mortgage Note(s). Any portion of Scheduled Payments and overdue interest thereon received by the Trustee or Pass-Through Trustee after the related Due Date will be distributed to the Certificateholders, based upon their Percentage Interests, within 10 Business Days of receipt of the corresponding late Lease Payments by the Trustee or Collateral Trustee. The Record Date with respect to such distributions will be the close of business on the fifteenth day prior to the Remittance Date on which the related Scheduled Payment would have been distributable to Certificateholders had such Scheduled Payment been timely paid in full. See "THE MORTGAGE NOTES AND THE LOAN AGREEMENTS -- Scheduled Payments." OTHER DISTRIBUTIONS Certificateholders may receive other distributions on the Certificates due to the optional prepayment of a Mortgage Note by the related Borrower, the sale of a Mortgage Note as a result of the occurrence of a Triggering Event under the related Note Put Agreement, the termination of a Lease due to certain casualty or condemnation events, a condemnation that does not result in a termination of the related Lease, or the liquidation of a Mortgage Note. The Trustee or Pass-Through Trustee will send notice of any such distribution 22 24 to the Certificateholders at the address shown on the Certificate Register not less than 10 days prior to the date fixed for such distribution. The reasonable costs of such notices incurred by the Trustee or Pass-Through Trustee will be deducted from the amount of any such distribution. Optional Prepayment Distribution Unless otherwise specified in the related Prospectus Supplement, any Mortgage Note may be prepaid at any time, in whole or in part (but if in part, then in units of $1,000,000 or an integral multiple of $100,000 in excess thereof), at the option of the related Borrower at a price equal to the Purchase Price. See "THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS -- Prepayments -- Optional Prepayments." Any such prepayment will be deposited with the Trustee, or, if applicable, the Collateral Trustee, which will transfer it to the related Pass-Through Trustees on the next Business Day. Any such prepayment will be distributed to the Certificateholders, based on their Percentage Interests, within 30 days of receipt by the Trustee or Collateral Trustee. Subsequent distributions to Certificateholders of Debt Service will be proportionately reduced as a consequence of the reduction of the aggregate outstanding principal balance of the Mortgage Note(s) and the corresponding reduction of Scheduled Payments. Distribution from Proceeds of Purchase of Mortgage Note A distribution will be made with respect to the Certificates of any Series in the event that a Tenant or Kmart (if the Tenant is a Subsidiary) purchases a Mortgage Note pursuant to the related Note Put Agreement. Each Note Put Agreement will provide that, in the event (a)(i) a Tenant fails to pay when due any Lease Payment within 10 days (or 30 days if the Tenant is Kmart) after notice to the Tenant of such default and (ii) if the Tenant is a Subsidiary, Kmart fails to pay any such Lease Payment within 30 days after notice to Kmart of such Subsidiary's failure to do so (which notice may be given concurrently with the corresponding notice to such Subsidiary), (b) completion of construction of the Facility to be leased to the Tenant does not occur prior to the Completion Date, or (c) if the Tenant is a Subsidiary, a Lease Guaranty Termination occurs (each, a Triggering Event), the Trustee, or Collateral Trustee, if applicable, will have the right to require the Tenant, and in the event of the Tenant's failure to do so when the Tenant is a Subsidiary, to require Kmart to purchase the related Mortgage Note(s) in whole (but not in part) at the Purchase Price. In the event the Trustee or Collateral Trustee exercises such right, the Purchase Price will be deposited with the Trustee, or, if applicable, the Collateral Trustee which will transfer it to the related Pass-Through Trustees on the next Business Day. Upon receipt of the Purchase Price with respect to such Mortgage Note(s), the Trustee, or the Pass-Through Trustee if applicable, will endorse the related Mortgage Notes(s), and the Trustee, or the Collateral Trustee if applicable, will assign the related Loan Documents to the purchaser of the Mortgage Note(s), whereupon the Trust, or the Pass-Through Trust and the Collateral Trust if applicable, will terminate as to such Mortgage Note(s) and the related Collateral. Any Purchase Price received by the Trustee or Pass-Through Trustee as a result of its exercise of its rights under a Note Put Agreement, less any expense incurred by the Trustee, or the Pass-Through Trustee and Collateral Trustee, will be distributed to the related Certificateholders within 30 days of the receipt of such Purchase Price by the Trustee, or Collateral Trustee if applicable. If the Trust or Pass-Through Trust holds any other Mortgage Note(s), Debt Service distributable to the Certificateholders will be proportionately reduced to reflect the reduction in the aggregate Scheduled Payments payable to the Trust or Pass-Through Trust after the sale of the Mortgage Note(s) pursuant to the Note Put Agreement. See "THE NOTE PUT AGREEMENTS." Distribution Due to Casualty or Condemnation If a Lease is terminated pursuant to the terms thereof by the related Tenant as a result of casualty loss or condemnation, the Borrower will be required to prepay the related Mortgage Note(s) at the Purchase Price. Any related Condemnation Proceeds or Insurance Proceeds will be used to make such prepayment, but there can be no assurance that such amounts will be sufficient for that purpose. Unless the Borrower prepays the related Mortgage Note(s) at the Purchase Price, the only additional sources of funds to make such prepayment will be any amounts recoverable through foreclosure or other disposition of any remaining part of the Mortgaged Property. Any such Borrower prepayment, Insurance Proceeds or Condemnation Proceeds will 23 25 be deposited with the Trustee, or the Collateral Trustee if applicable which on the next Business Day will transfer a proportionate amount of such prepayment (based upon the respective Purchase Prices of the related Mortgage Notes) to the related Pass-Through Trustees. Any such prepayments will be distributed by the Trustee, or Pass-Through Trustee if applicable, to the Certificateholders within 30 days of receipt of such amounts by the Trustee, or Collateral Trustee if applicable. If the Trust or Pass-Through Trust holds Mortgage Notes relating to other Facilities, subsequent distributions to the Certificateholders of Debt Service will be proportionately reduced to reflect the deduction from aggregate Scheduled Payments of principal and interest payable under the Mortgage Note(s) required to be prepaid. In the event that Condemnation Proceeds or Insurance Proceeds deposited with the Trustee exceed the Purchase Price for the related Mortgage Note(s), such excess amount will be distributed to the related Borrower. If Lease Payments under a Lease are abated due to a condemnation which does not result in a termination of the related Lease, Scheduled Payments on the related Mortgage Note(s) will be reduced in proportion to the reduced Lease Payments, and Debt Service will be correspondingly reduced. Any Condemnation Proceeds resulting from such condemnation will be applied first by the related Tenant toward restoration of the related Facility. In the unlikely event that such Condemnation Proceeds exceed the amount necessary to restore the Facility, such excess will be used to prepay a portion of the related Mortgage Note(s) (including the Make-Whole Premium with respect to such portion). Unless such excess Condemnation Proceeds are sufficient to prepay the portion of the related Mortgage Note(s) that is proportionate to the reduction of Scheduled Payments as a consequence of such Lease Payment abatement, Scheduled Payments following such condemnation will be less than the amounts necessary to amortize the remaining principal balance of the related Mortgage Note and to pay the interest thereon. In that event: (i) subsequent Scheduled Payments will be applied first to pay accrued interest on the related Mortgage Note(s) and then to reduce the principal of such Mortgage Note(s); (ii) if any such Scheduled Payments are insufficient to pay accrued interest on a related Mortgage Note, such unpaid interest will, to the extent permitted under applicable law, be added to principal; and (iii) the unpaid principal balance of the related Mortgage Note(s), together with all accrued and unpaid interest thereon, will, if not already paid, be due and payable at the maturity date of the Mortgage Note with the longest term issued pursuant to the related Loan Agreement. At such maturity date, if such amounts are not paid by the related Borrower, the only source of payment will be the proceeds recovered from a foreclosure on the related Facility, which depends upon the fair market value of the Facility, and there can be no assurance that such proceeds will be sufficient to make such payments. Such modification of the Lease Payments, the related Scheduled Payments and the amortization of the related Mortgage Note(s) will not constitute an Event of Default under such Mortgage Note(s) or any of the related Loan Documents or give rise to any rights under the related Note Put Agreement. See "THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS -- Prepayments -- Mandatory Prepayments and -- Purchase Price" and "THE LEASES, THE LEASE GUARANTIES AND RELATED DOCUMENTS -- The Leases -- Condemnation and Casualty." Distribution Due to Liquidation If any Mortgage Note is liquidated as a result of foreclosure or other disposition pursuant to the terms of the related Loan Documents, any amounts received with respect to such liquidation, net of expenses incurred in connection with such liquidation, will be distributed to the related Certificateholders within 30 days of receipt by the Trustee, or Collateral Trustee if applicable. There can be no assurance that the amounts realized from a foreclosure or other disposition of a Mortgage Note will be sufficient to pay the principal of, interest on and Make-Whole Premium with respect thereto. If the Trust or Pass-Through Trust holds other Mortgage Notes, subsequent distributions to the Certificateholders of Debt Service will be proportionately reduced to reflect the deduction from aggregate Scheduled Payments of principal and interest payable under the liquidated Mortgage Note. See "THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS -- Prepayments -- Liquidation." 24 26 THE TRUSTS, PASS-THROUGH TRUSTS AND COLLATERAL TRUSTS The following summaries describe certain provisions of the Trust Agreements, the Pass-Through Trust Agreements and the Collateral Trust Agreements. The summaries do not purport to be complete and are subject to, and qualified in their entirety by reference to, the provisions of such documents, the forms of which (each in substantially the form in which it will be used) have been filed as exhibits to the Registration Statement of which this Prospectus is a part. The Pass-Through Trust Agreement and the Collateral Trust Agreement will be used when there are Mortgage Notes of more than one maturity issued pursuant to one or more Loan Agreements. A Pass-Through Trust Agreement will provide for the Pass-Through Trustee to hold one or more Mortgage Notes, but Collateral securing such Mortgage Note(s), including, with respect to each such Mortgage Note, the related Loan Agreement, Mortgage, Note Put Agreement, Lease, Lease Guaranty, if applicable, and all other Loan Documents, will be held by the related Collateral Trustee. For purposes of the following summaries, unless otherwise indicated, the Trust Agreements and Pass-Through Trust Agreements are each referred to as a "Trust Agreement," the Trust and Pass-Through Trust are each referred to as a "Trust" and the Trustee and Pass-Through Trustee are each referred to as a "Trustee." GENERAL The Depositor will sell, transfer, assign, set over and convey the Mortgage Note(s) to the Trustee without recourse for the benefit of the Certificateholders of each Series. If the related Loan Agreements provide for Mortgage Notes of a single maturity, then the Trust Property of the Trust will also include, but not be limited to, the following Collateral with respect to each Mortgage Loan: (i) a Mortgage on the Facility securing the related Mortgage Note(s), (ii) all of the Depositor's rights under the Loan Agreement pursuant to which the related Mortgage Note(s) were issued, (iii) an assignment of the related Lease, Lease Payments and Lease Guaranty, if applicable, (iv) a pledge of certain moneys held in certain funds established pursuant to the Trust Agreement, (v) a Note Put Agreement, (vi) an assignment of the Borrower's right, title and interest in and to any Construction Fund Disbursement Agreement and any Construction Fund Disbursement Agreement -- Common Area, (vii) a pledge of certain investments of fund balances held under the Trust Agreement and income earned thereon, and (viii) any other Loan Documents. In some cases a Loan Agreement may provide that a Mortgage Loan will be evidenced by two or more Mortgage Notes having different maturities. In such case, the Depositor will sell, transfer, assign, set over and convey each such Mortgage Note to a different Pass-Through Trust. In the event Mortgage Notes are issued pursuant to more than one Loan Agreement, all Mortgage Notes having the same maturity will be conveyed to a different Pass-Through Trust such that each Pass-Through Trust will hold only Mortgage Notes having the same maturity. Each Certificate will evidence a fractional undivided beneficial ownership interest in the assets of the related Pass-Through Trust and will have no rights, benefits or interests in respect of any other Pass-Through Trust or the Trust Property held in any other Pass-Through Trust. When Mortgage Notes having different maturities are issued, the Collateral with respect to such Mortgage Notes will be held by the Collateral Trustee in a separate Collateral Trust for the benefit, pari passu, of the separate Pass-Through Trusts holding the Mortgage Notes. ACCOUNTS Rental Payment Account Lease Payments (including Lease Payments made after any Due Date), payments pursuant to any Lease Guaranty and payments pursuant to any Indemnity Agreement with respect to each Facility will be deposited in a Rental Payment Account created and maintained pursuant to the Trust Agreement, or, if applicable, pursuant to the Collateral Trust Agreement, for the related Series of Certificates to secure the obligations of the Borrower under the related Loan Documents and Mortgage Note(s). Each Rental Payment Account will be maintained as a fund separate and distinct from other accounts created under the Trust Agreement or Collateral Trust Agreement and will remain the property of the related Borrower subject to the rights of the Trustee, or the Collateral Trustee, as the case may be, under the related Loan Documents, the related Trust Agreement or Collateral Trust Agreement and the pledge of the Rental Payment Account by such Borrower 25 27 to secure the related Mortgage Loan. On each Due Date, amounts on deposit in such Rental Payment Account equal to Scheduled Payments due under the related Mortgage Note will be deposited in the Certificate Account maintained pursuant to the Trust Agreement, or, if such Rental Payment Account is maintained in a Collateral Trust pursuant to a Collateral Trust Agreement, transferred to the Certificate Accounts maintained pursuant to the related Pass-Through Trust Agreements and will be applied on the related Remittance Date to pay Debt Service on the Certificates. On the second scheduled Remittance Date after the Closing Date and on each anniversary thereafter of such Remittance Date, amounts remaining in such Rental Payment Account after such deposit in or transfer to the Certificate Account will be distributed to the related Borrower. If the Trustee, or the Collateral Trustee if applicable, becomes aware of an Event of Default under any of the related Loan Documents (other than a non-monetary default by the related Tenant under the related Lease), amounts in the Rental Payment Account will be transferred to the Certificate Account in the Trust or, if applicable, to the related Mortgage Note Account in the Collateral Trust and will continue to be held as Collateral by the Trustee or, if applicable, the Collateral Trustee. On the next Business Day after receipt, any Lease Payments made after the applicable Due Date will be deposited in the Certificate Account maintained pursuant to the Trust Agreement, or if the Rental Payment Account into which such Lease Payments were initially deposited is maintained in a Collateral Trust pursuant to a Collateral Trust Agreement, transferred to the Certificate Account maintained pursuant to the related Pass-Through Trust Agreements and will be distributed to Certificateholders within ten Business Days of receipt. Certificate Account All Scheduled Payments required to be made by a Borrower pursuant to the terms of the related Mortgage Note(s) and Loan Documents will be paid from the Lease Payments deposited in the related Rental Payment Account and will be transferred to a Certificate Account maintained pursuant to the Trust Agreement or, in the case of Mortgage Notes with different maturities, will be transferred from the Rental Payment Account or Mortgage Note Account, if applicable, maintained in the Collateral Trust to the Certificate Accounts maintained pursuant to the Pass-Through Trust Agreements. On each Remittance Date, the Trustee or Pass-Through Trustee will distribute to each Certificateholder its pro rata share of the Available Distribution Amount for the payment of Debt Service due on such Remittance Date. See "THE CERTIFICATES -- Distribution of Scheduled Payments." In addition, any prepayments on the related Mortgage Note(s), Insurance Proceeds or Condemnation Proceeds (to the extent required for mandatory prepayment of the related Mortgage Note(s) pursuant to the related Loan Agreement), net proceeds from the liquidation of the related Mortgage and the Purchase Price under the Note Put Agreement will be deposited in the Certificate Account, or, if there is a Collateral Trust, deposited in the Mortgage Note Account and the next Business Day deposited in the Certificate Accounts of the related Pass-Through Trusts, for distribution in accordance with the Trust Agreement or Pass-Through Trust Agreements. See "THE CERTIFICATES -- Other Distributions." If an Event of Default occurs and is continuing with respect to any Mortgage Loan (other than a non-monetary default by the related Tenant under the related Lease), all amounts in the related Rental Payment Account will be transferred to the Certificate Account established by such Trust or to the Mortgage Note Account in the Collateral Trust, if applicable. All related Lease Payments subsequently received by the Trustee will be deposited in such Certificate Account, and all related Lease Payments subsequently received by the Collateral Trustee will be deposited in the Mortgage Note Account. All such amounts deposited into the Certificate Account or the Mortgage Note Account after the occurrence of, and during the continuation of, an Event of Default will continue to be held as Collateral by the Trustee or Collateral Trustee. Capitalized Debt Service Account In cases where proceeds of the Certificates are to be used to finance construction of a Facility, Lease Payments will not commence until a date specified in the related Prospectus Supplement. In such event, the Depositor will establish, out of the proceeds of the related Mortgage Loan, a Capitalized Debt Service Account in an amount sufficient to pay Scheduled Payments on the related Mortgage Note(s) before Lease 26 28 Payments commence. Each Capitalized Debt Service Account will be maintained as a fund separate and distinct from other accounts created under the Trust Agreement, or under the Collateral Trust Agreement, if applicable, and will remain the property of the Borrower on whose behalf it was established, subject to the rights of the Trustee, or the Collateral Trustee, as the case may be, under the Loan Documents, the Trust Agreement or the Collateral Trust Agreement, and the pledge of the Capitalized Debt Service Account by such Borrower to secure the related Mortgage Loan. Amounts in the Capitalized Debt Service Account will be transferred to the related Certificate Account(s) on the Due Dates and in the amounts specified in the related Trust Agreement, or Collateral Trust Agreement if applicable, to pay, in whole or in part, the Scheduled Payments on the Mortgage Note(s). After all amounts required to be transferred from a Capitalized Debt Service Account to the related Certificate Account have been so transferred, any amounts remaining in such Capitalized Debt Service Account will be transferred to the related Tenant. If an Event of Default occurs under any of the related Loan Documents (other than a non-monetary default by the related Tenant under the related Lease), all amounts in the related Capitalized Debt Service Account will be transferred to the Certificate Account or, if applicable, the related Mortgage Note Account and will continue to be held as Collateral by the Trustee or, if applicable, the Collateral Trustee. Mortgage Note Account With respect to each Mortgage Loan evidenced by Mortgage Notes of different maturities, the Collateral Trustee will establish a separate Mortgage Note Account. Each Mortgage Note Account will be maintained as a fund separate and distinct from other accounts created under the Collateral Trust Agreement. The Collateral Trustee will deposit in the Mortgage Note Account any prepayments on the related Mortgage Notes, including any Condemnation Proceeds or Insurance Proceeds (to the extent required for mandatory prepayments of the related Mortgage Notes pursuant to the related Loan Agreement), any Purchase Price received pursuant to any Note Put Agreement, and any net proceeds from the liquidation of the related Mortgage. All amounts in the Mortgage Note Account used to pay Scheduled Payments on the Mortgage Notes will be transferred to the Certificate Accounts of the related Pass-Through Trusts on the Due Dates. All other amounts in the Mortgage Note Account will be transferred to the related Pass-Through Trusts the next Business Day after receipt thereof. If an Event of Default occurs and is continuing with respect to any Mortgage Loan or any related Loan Document (other than a non-monetary default by the related Tenant under the related Lease), all amounts in the related Rental Payment Account and any Capitalized Debt Service Account will be transferred to such Mortgage Note Account, and all related Lease Payments subsequently received will be deposited in such Mortgage Note Account. All such amounts transferred or deposited into the Mortgage Note Account will continue to be held as Collateral by the Collateral Trustee. THE TRUST AGREEMENTS AND PASS-THROUGH TRUST AGREEMENTS The Trustee The Trustee under each Trust Agreement will be named in the related Prospectus Supplement. The Trustee must be a corporation or national banking association organized under the laws of the United States of America or of any State, must be authorized to exercise corporate trust powers, must have a combined capital and surplus of at least $50,000,000 in the case of United States Trust Company of New York and of at least $100,000,000 in the case of any other trustee and must be subject to regulation and examination by state or federal regulatory authorities. The Trustee may resign at any time by giving written notice to the Depositor and the Certificateholders. If a Trustee (i) fails to comply with certain requirements of the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") after written request for such compliance by any Certificateholder who has been a bona fide Certificateholder for at least six months, or (ii) ceases to be eligible to continue as Trustee under a Trust Agreement and fails to resign after written request therefor by the Depositor or any such bona fide Certificateholder, or (iii) becomes incapable of acting as Trustee or becomes insolvent, then, in any such case, (i) the Depositor may remove the Trustee and appoint a successor trustee, or (ii) subject to certain provisions of the Trust Agreement, any Certificateholder who has been a bona fide Certificateholder for at least six months may, on behalf of itself and all others similarly situated, petition any court of competent jurisdiction 27 29 for the removal of the Trustee and the appointment of a successor trustee. A Trustee may also be removed at any time by the holders of Certificates evidencing not less than a 66 2/3 Percentage Interest. Any resignation or removal of a Trustee will not become effective until acceptance of the appointment by the successor Trustee. Each Trust Agreement will provide that the Trustee's Fees will be paid by the Tenants pursuant to the Consent and Agreements. See "THE LEASES, LEASE GUARANTIES AND RELATED DOCUMENTS -- The Consent and Agreements." Modification of the Trust Agreements Each Trust Agreement will contain provisions permitting the Depositor and the Trustee to enter into a supplement to the Trust Agreement with the consent of Kmart (except that no consent will be required with respect to (vii) below) but without the consent of the Certificateholders, (i) to evidence the succession of another Person to the Depositor and the assumption by such Person of the Depositor's obligations under such Trust Agreement; (ii) to add to the covenants of the Depositor for the benefit of the Certificateholders; (iii) to cure any ambiguity, to correct or supplement any defective or inconsistent provisions of such Trust Agreement or any supplement, or to make any other provisions with respect to matters or questions arising under such Trust Agreement or any supplement, provided such action will not materially adversely affect the interests of the Certificateholders; (iv) to correct or amplify the description of any property constituting property of the Trust or to acknowledge any change relating to title to a Mortgaged Property that does not materially adversely affect the rights of the Certificateholders; (v) to surrender any rights or powers conferred upon the Depositor or add to the rights of the Certificateholders; (vi) to evidence or provide for the appointment of a successor trustee or to add or change any provision of such Trust Agreement as may be necessary to provide for or facilitate the administration of the Trust created thereby by more than one Trustee; or (vii) to add, eliminate or change any provision under such Trust Agreement to the extent necessary to continue the qualification of the Trust Agreement under the Trust Indenture Act; provided, that in each case such supplement does not cause the Trust to fail to be characterized as a trust for federal income tax purposes or the Collateral Trust, if applicable, to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2. Each Trust Agreement will also contain provisions permitting the Depositor and the Trustee, with the consent of the Certificateholders evidencing fractional undivided beneficial ownership interests aggregating not less than a 66 2/3 Percentage Interest of the Trust, to execute supplements adding any provisions to or changing or eliminating any of the provisions of the Trust Agreement or modifying the rights of the Certificateholders, except that no such supplement may, without the consent of each affected Certificateholder and, with respect to (ii) and (unless there is a monetary default under the related Lease) (iii), Kmart, (i) modify the provision of the Trust Agreement that concerns notifying Certificateholders and Kmart of the occurrence of an Event of Default, modify the provision of the Trust Agreement concerning approval by Certificateholders of supplements to the Trust Agreement, or modify the definition of "Certificateholder" in the Trust Agreement; (ii) modify the definition of "Percentage Interest" in the Trust Agreement or reduce the Percentage Interests, the consent of the Holders of Certificates of which is required for any such supplement to the Trust Agreement, or the consent of the Holders of Certificates of which is required for any waiver provided for in the Trust Agreement; (iii) reduce the amount or extend the time of payment of any amount owing or payable under the Mortgage Note(s) or distributions to be made on any Certificate; (iv) impair the right of any Certificateholder to commence legal proceedings to enforce a right to receive payment under such Certificate or under the Trust Agreement; or (v) create or permit the creation of any lien on the Trust Property or any part thereof, or deprive any Certificateholder of the benefit of the Trust Agreement, whether by disposition of such Trust Property or otherwise; provided however, in each case such supplement does not cause the Trust to fail to be characterized as a trust for federal income tax purposes or the Collateral Trust, if applicable, to become taxable as an association within the meaning of Treasury Regulations Section 301.7701-2. Events of Default Events of Default under a Trust Agreement in respect of a Series of Certificates will consist of the occurrence of any event constituting an Event of Default under any of the Loan Documents or Mortgage 28 30 Note(s) held by the Trustee, or Collateral Trustee if applicable. The Trustee will be obligated to notify the Certificateholders and Kmart of any Event of Default within the later of 90 days from the occurrence thereof or 30 days after obtaining knowledge thereof, unless such Event of Default has been cured or waived before the giving of such notice. Except in the case of a default in the payment of principal of, or interest on, the Mortgage Note(s), the Trustee may withhold such notice so long as its board of directors, the executive committee or a committee of its directors and/or responsible officers in good faith determines that the withholding of such notice is in the interests of the Certificateholders. Rights Upon Event of Default So long as an Event of Default has not been remedied, the Trustee, at the written direction of the holders of Certificates evidencing not less than a 66 2/3 Percentage Interest, will exercise any rights and remedies that it may have against a Borrower, a Tenant or Kmart (if the Tenant is a Subsidiary) pursuant to the related Loan Documents, Mortgage Note(s), Lease or Lease Guaranty, if applicable, or at law or in equity, including injunctive relief and specific performance, subject to the rights of the related Tenant and Kmart (if the Tenant is a Subsidiary) under the related Lease, the related Consent and Agreement, the related Construction Fund Disbursement Agreement, if any, and the related Construction Fund Disbursement Agreement -- Common Area, if any; provided that, if as a result of the occurrence of an Event of Default, the Trustee acquires any property other than cash, whether pursuant to foreclosure or otherwise, the Trustee will be required to sell such property as promptly as is reasonably possible. In addition, the Trustee will not be required to take title to a Facility in a foreclosure or similar proceeding if the Trustee has actual knowledge or reasonably believes that all or any part of such Facility is affected by hazardous or toxic wastes or substances. In the case of an Event of Default which also constitutes a Triggering Event, the Trustee's rights will include the right to require the related Tenant or Kmart (if the Tenant is a Subsidiary) to purchase the related Mortgage Note(s) pursuant to the Note Put Agreement. See "THE NOTE PUT AGREEMENTS." Where there is both a Collateral Trust and a Pass-Through Trust, the Pass-Through Trustee will hold a Mortgage Note but not the related Loan Documents. Consequently, upon an occurrence of an Event of Default under the Pass-Through Trust Agreement with respect to a Mortgage Note, the Pass-Through Trustee's principal right and remedy will be to vote the principal balance of such Mortgage Note, as directed by the Certificateholders of such Pass-Through Trust, in favor of the exercise by the Collateral Trustee of its rights and remedies under the related Loan Documents, and accordingly to direct the related Collateral Trustee to exercise such rights and remedies. The Collateral Trustee will be required to exercise such rights and remedies if such Collateral Trustee receives written directions in favor of such exercise from the related Pass-Through Trustees voting not less than 66 2/3% of the outstanding principal balance of all Mortgage Note(s) affected by such Event of Default. The occurrence of an Event of Default pursuant to the Loan Documents relating to any Mortgage Loan, the related Mortgage Note(s), the related Lease or the related Lease Guaranty, if applicable, will not give rise to an election to terminate the Trust. The occurrence of such an Event of Default will not constitute a cross default with respect to any other Mortgage Loan and will have no effect on any Loan Documents, Mortgage Note, Lease or Lease Guaranty with respect to any such other Mortgage Loan. Consequently, remedies may be exercised only with respect to the related Mortgage Note and Loan Documents. Any amounts realized upon the exercise of such remedies may be less than the Purchase Price for such Mortgage Note. No person or entity, including the related Tenant, Kmart (if the Tenant is a Subsidiary), the related Borrower or the Depositor has any liability for any deficiency which may result from a sale of a Facility upon foreclosure of the related Mortgage. Each Trust Agreement will contain a provision entitling the Trustee, subject to the duty of the Trustee during the continuance of an Event of Default to act with the required standard of care, to be indemnified by the Certificateholders before exercising any right or power under such Trust Agreement or the related Loan Documents. 29 31 Rights Upon Triggering Event If a Triggering Event other than a Lease Guaranty Termination occurs, the Trustee, at the written direction of the holders of Certificates evidencing not less than a 66 2/3 Percentage Interest (which direction must be given within 90 days after the giving by the Trustee to the Certificateholders of a notice stating that such Triggering Event has occurred), will exercise its rights under the Note Put Agreement. If the Triggering Event is a Lease Guaranty Termination, the Trustee will exercise its rights under the Note Put Agreement unless, within 30 days after notice by the Trustee to the Certificateholders of the occurrence of such Lease Guaranty Termination, holders of Certificates evidencing not less than a 66 2/3 Percentage Interest elect not to exercise such rights. In cases where the Note Put Agreement is held in a Collateral Trust, the 66 2/3 Percentage Interest required for the exercise of such rights (or, in the case of a Lease Guaranty Termination, the election not to exercise such rights) will be computed by reference to the outstanding principal amount of all Mortgage Notes issued pursuant to the applicable Loan Agreement. See "THE NOTE PUT AGREEMENTS." Termination Each Trust Agreement and the obligations of the Depositor and the Trustee created thereby will terminate as to any Mortgage Note and the related Loan Documents upon the final payment, prepayment in full or other liquidation of such Mortgage Note, including the disposition of all property acquired upon foreclosure of such Mortgage Note and the remittance of all funds due thereunder with respect to such Mortgage Note. In no event, however, will any Trust continue beyond the expiration of 21 years from the death of the survivor of certain persons described in such Trust Agreement. Written notice of termination of the Trust Agreement will be given to each Certificateholder and the final payment on the Certificates will be made only upon surrender and cancellation of the Certificates at the corporate trust office of the Trustee. Reports to Certificateholders The Trustee will furnish to Certificateholders on each Remittance Date a statement setting forth the following information (per $1,000 aggregate principal amount, as to (i) and (ii) below): (i) that portion of the distribution paid on such Remittance Date which is allocable to principal on the related Mortgage Note(s); (ii) that portion of such distribution which is allocable to interest on the related Mortgage Note(s); (iii) any amounts expended by the Trustee or the Collateral Trustee, if applicable, following an Event of Default under any of the Loan Documents in connection with enforcing the Trustee's or the Collateral Trustee's rights and remedies thereunder for the benefit of the Certificateholders; and (iv) whether any Mortgage Note is delinquent. So long as the Certificates of any Series are registered in the name of Cede, as nominee for DTC, on the Record Date prior to each Remittance Date, the Trustee will request from DTC a securities position listing setting forth the names of all DTC Participants reflected on DTC's books as holding positions in such Certificates on such Record Date. On each Remittance Date, the Trustee will mail to each such DTC Participant the statement described above, and will make available additional copies as requested by such DTC Participant, to be available for forwarding to the related Beneficial Owners. In addition, within 90 days after the end of each calendar year, the Trustee will prepare for each Certificateholder a report setting forth the interest paid on the related Mortgage Note(s) during the year with respect to the Certificates held by such Certificateholder. Such report will be prepared by the Trustee and will be delivered by the Trustee to such DTC Participants to be available for forwarding by DTC Participants to Beneficial Owners in the manner described in the immediately preceding paragraph for so long as the Certificates of any Series are registered in the name of Cede, as nominee for DTC. If the Certificates of any Series are issued as Definitive Certificates, the Trustee will prepare and deliver the information described above to each Certificateholder of record as the name of such Certificateholder appears on the records of the Trustee. 30 32 THE COLLATERAL TRUST AGREEMENTS The Collateral Trustee The Collateral Trustee under each Collateral Trust Agreement, if any, will be named in the related Prospectus Supplement. The Collateral Trustee must be a corporation or national banking association organized under the laws of the United States of America or of any State, authorized to exercise corporate trust powers, must have a combined capital and surplus of at least $50,000,000 in the case of United States Trust Company of New York and of at least $100,000,000 in the case of any other trustee and must be subject to regulation and examination by state or federal regulatory authorities. The same entity may serve both as Trustee, Pass-Through Trustee and Collateral Trustee. The Collateral Trustee may resign at any time by giving written notice to the related Pass-Through Trustees for distribution to their Certificateholders. If a Collateral Trustee (i) ceases to be eligible to continue as Collateral Trustee under the Collateral Trust Agreement, and fails to resign after written request therefor by the Depositor or a related Pass-Through Trustee at the direction of a bona fide Certificateholder who has been a bona fide Certificateholder for at least six months or (ii) becomes incapable of acting as Collateral Trustee or becomes insolvent, then, in any such case, the Depositor or the related Pass-Through Trustees may remove the Collateral Trustee and appoint a successor collateral trustee. A Collateral Trustee may also be removed at any time by the related Pass-Through Trustees, at the direction of holders of Certificates evidencing not less than a 66 2/3 Percentage Interest. Any resignation or removal of a Collateral Trustee will not become effective until acceptance of the appointment by the successor Collateral Trustee. Each Collateral Trust Agreement will provide that the Collateral Trustee's Fees will be paid by the related Tenants pursuant to the Consent and Agreements. See "THE LEASE, THE LEASE GUARANTIES AND RELATED DOCUMENTS -- The Consent and Agreements." Modification of the Collateral Trust Agreements Each Collateral Trust Agreement will contain provisions permitting the Depositor and the Collateral Trustee to enter into a supplement to the Collateral Trust Agreement with the consent of Kmart but without the consent of the Pass-Through Trustees or the Certificateholders, (i) to evidence the succession of another Person to the Depositor and the assumption by such Person of the Depositor's obligations under such Collateral Trust Agreement; (ii) to add to the covenants of the Depositor for the benefit of the Pass-Through Trustees and the Certificateholders; (iii) to cure any ambiguity, to correct or supplement any defective or inconsistent provisions of such Collateral Trust Agreement or any supplement, or to make any other provisions with respect to matters or questions arising under such Collateral Trust Agreement or any supplement, provided such action will not materially adversely affect the interests of the Pass-Through Trustees or the Certificateholders; (iv) to correct or amplify the description of any property constituting property of the Collateral Trust or to acknowledge any change relating to title to the Mortgaged Property that does not materially adversely affect the rights of the Certificateholders; (v) to surrender any rights or powers conferred upon the Depositor or add to the rights of the Pass-Through Trustees for the benefit of the Certificateholders; or (vi) to evidence or provide for a successor Collateral Trustee or to add or change any provision of such Collateral Trust Agreement as may be necessary to provide for or facilitate the administration of the Collateral Trust created thereby by more than one Collateral Trustee; provided, that in each case such supplement does not cause the Collateral Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2 or cause any Trust to fail to be characterized as a trust for federal income tax purposes. Each Collateral Trust Agreement will also contain provisions permitting the Depositor and the Collateral Trustee, with the consent of the Pass-Through Trustees at the direction of holders of Certificates evidencing pass-through ownership of not less than 66 2/3% of the aggregate outstanding principal balance of all Mortgage Notes, to execute supplements adding any provisions to or changing or eliminating any of the provisions of the Collateral Trust Agreement or modifying the rights of the Pass-Through Trustees or the Certificateholders, except that no such supplement may, without the consent of each affected Certificateholder and, with respect to (ii) and (unless there is a monetary default under the related Lease) (iii), Kmart, (i) modify the provision of the Collateral Trust Agreement that concerns notifying the related Pass-Through Trustees and Kmart of 31 33 the occurrence of an Event of Default, modify the provision of the Collateral Trust Agreement concerning approval by the related Pass-Through Trustees and Certificateholders of supplements to the Collateral Trust Agreement, or modify the definitions of "Pass-Through Trust," "Pass-Through Trustee" or "Certificateholder" in the Collateral Trust Agreement, (ii) modify the definition of "Percentage Interest" in the Collateral Trust Agreement or reduce the Percentage Interest vote that is required for any such supplement to the Collateral Trust Agreement, or the consent required from the related Pass-Through Trustees for any waiver provided for in the Collateral Trust Agreement; (iii) reduce the amount or extend the time of payment of any amount owing or payable under the Mortgage Note(s); (iv) impair the right of any related Pass-Through Trustee or Certificateholder to commence legal proceedings to enforce a right to receive payment on a related Mortgage Note; or (v) create or permit the creation of any lien on the Collateral Trust Property or any part thereof, or deprive any Certificateholder of the benefit of the Collateral Trust Agreement, whether by disposition of such Collateral Trust Property or otherwise; provided, that in each such case such supplement does not cause the Collateral Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2 or cause any Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes. Events of Default Events of Default under a Collateral Trust Agreement will consist of the occurrence of any event constituting an Event of Default under any of the Loan Documents held by the Collateral Trustee or the Mortgage Notes held by the related Pass-Through Trustees. The Collateral Trustee will be obligated to notify the Pass-Through Trustees of such Event of Default within five Business Days after the Collateral Trustee obtains knowledge thereof, unless such Event of Default has been cured or waived before the giving of such notice. Rights Upon Event of Default So long as an Event of Default has not been remedied, the Collateral Trustee, at the written direction of Pass-Through Trustees voting not less than 66 2/3% of the outstanding principal balance of the Mortgage Notes affected by such Event of Default, will exercise any rights and remedies that it may have against a Borrower, a Tenant or, if the Tenant is a Subsidiary, Kmart pursuant to the related Loan Documents, Mortgage Notes, Lease or Lease Guaranty, if applicable, or at law or in equity, including injunctive relief and specific performance, subject to the rights of the Tenant and, if the Tenant is a Subsidiary, Kmart under the related Lease, the related Consent and Agreement, the related Construction Fund Disbursement Agreement, if any, and the related Construction Fund Disbursement Agreement -- Common Area, if any; provided that, if as a result of the occurrence of an Event of Default, the Collateral Trustee acquires any property other than cash, whether pursuant to foreclosure or otherwise, the Collateral Trustee will sell such property as promptly as is reasonably possible. In addition, the Collateral Trustee will not be required to take title to a Facility in a foreclosure or similar proceeding if the Collateral Trustee has actual knowledge or reasonably believes that all or any part of such Facility is affected by hazardous or toxic wastes or substances. In the case of an Event of Default which also constitutes a Triggering Event, the rights of the Collateral Trustee will include the right to require the related Tenant or Kmart (if the Tenant is a Subsidiary) to purchase the related Mortgage Note(s) pursuant to the Note Put Agreement. See "THE NOTE PUT AGREEMENTS." The occurrence of an Event of Default pursuant to any of the Loan Documents relating to any Mortgage Loan, the related Mortgage Notes, the related Lease or the related Lease Guaranty, if applicable, will not give rise to an election to terminate the Collateral Trust as to such Mortgage Loan. The occurrence of such an Event of Default will not constitute a cross default with respect to any other Mortgage Loan held by the Collateral Trust and will have no effect on any Loan Documents, Mortgage Note, Lease or Lease Guaranty, if applicable, with respect to any such other Mortgage Loan. Consequently, remedies may only be exercised with respect to the related Mortgage Note and Loan Documents. Any amounts realized upon the exercise of such remedies may be less than the Purchase Price for such Mortgage Note. Each Collateral Trust Agreement will contain a provision entitling the Collateral Trustee, subject to the duty of the Collateral Trustee during the continuance of an Event of Default to act with the required standard 32 34 of care, to be indemnified by the holders of Certificates evidencing pass-through ownership of not less than 66 2/3% of the aggregate outstanding principal balance of the Mortgage Notes before exercising any right or power under such Collateral Trust Agreement. Termination Each Collateral Trust Agreement and the obligations of the Depositor and the Collateral Trustee created thereby will terminate with respect to any Mortgage Loan and related Loan Documents upon the final payment, prepayment in full or other liquidation of the Mortgage Notes held by the related Pass-Through Trusts, including the disposition of all property acquired upon foreclosure of such Mortgage Notes, and the remittance to the Pass-Through Trustee of all funds due with respect thereto under the Collateral Trust Agreement. In no event, however, will any Collateral Trust continue beyond the expiration of 21 years from the death of the survivor of certain persons described in such Collateral Trust Agreement. 33 35 THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS The following summaries describe certain provisions of the Mortgage Notes, the Loan Agreements, the Mortgages and the Assignments of Leases and Rents. The summaries do not purport to be complete and are subject to, and qualified in their entirety by reference to, the provisions of such documents, the forms of which (each in substantially the form in which it will be used) have been filed as exhibits to the Registration Statement of which this Prospectus is a part. GENERAL Concurrently with the issuance of each Series of Certificates, the Depositor will make one or more Mortgage Loans from the net proceeds of such issuance to one or more Borrowers. Each Mortgage Loan will be made to a different Borrower, which will enter into a Loan Agreement with the Depositor. The Loan Agreements will require the Borrowers to execute and deliver to the Depositor Mortgage Notes evidencing the Mortgage Loans together with the other Loan Documents securing the Mortgage Loans. The Depositor in turn will assign all of its right, title and interest in, under and to the Loan Documents and the Mortgage Notes to the Trustee under the related Trust Agreement for such Series if all Mortgage Notes have the same maturity. If the Mortgage Notes have different maturities, the Depositor will assign all of its right, title and interest in, under and to the Mortgage Notes to different Pass-Through Trusts such that all the Mortgage Notes in any Pass-Through Trust will have the same maturity, and the Depositor will assign all of its right, title and interest in, under and to the other Loan Documents to the Collateral Trustee under the related Collateral Trust Agreement. SCHEDULED PAYMENTS Each Mortgage Note will be a promissory note obligating a Borrower to make Scheduled Payments which will be passed through to the Trust or Pass-Through Trust to pay Debt Service on the related Series of Certificates. The Lease Payments due pursuant to a Lease will be scheduled to be sufficient to pay Scheduled Payments on the related Mortgage Notes(s). The maturity date of the Mortgage Notes acquired by each Trust will correspond to the final scheduled Remittance Date applicable to the Certificates evidencing interests in such Trust. Each Mortgage Note will provide for an increased interest rate applicable to any overdue principal or interest payments with respect to such Mortgage Note. The related Lease will provide for a late payment rate on any Lease Payments or portions thereof that are not paid when due (including any grace period). The late payment rate in a Lease is scheduled to be sufficient to pay the overdue rate on the related Mortgage Note(s). See "THE CERTIFICATES -- Distributions of Scheduled Payments." Each Trust will acquire Mortgage Notes having an interest rate higher than the interest rate on the Certificates evidencing interests in such Trust. The aggregate principal amount of the Certificates evidencing interests in each Trust will be equal to the aggregate principal amount of the Mortgage Notes held in such Trust, plus the costs of issuance of the Certificates. The difference between the interest rates on the Mortgage Notes and the Certificates over the term of the Mortgage Notes, when added to the payment of the principal of the Mortgage Notes, will be scheduled to result in an amount equal to the full principal amount of the Certificates being distributed to the Certificateholders. PREPAYMENTS Optional Prepayment Unless otherwise specified in the related Prospectus Supplement, each Borrower will have the option at any time and from time to time to prepay a Mortgage Note in whole or in part (but if in part, then in units of $1,000,000 or an integral multiple of $100,000 in excess thereof) by payment of the Purchase Price. Any optional prepayment of a Mortgage Note will be distributed by the Trustee or Pass-Through Trustee to the related Certificateholders based upon their Percentage Interests. See "THE CERTIFICATES -- Other Distributions -- Optional Prepayment Distribution." 34 36 Mandatory Prepayments A Borrower will be required to prepay a Mortgage Note at the Purchase Price in the event the related Lease is terminated in connection with a taking by condemnation of all or any part of, or a casualty affecting, the related Facility. See "THE LEASES, LEASE GUARANTIES AND RELATED DOCUMENTS -- The Leases - -- Condemnation and Casualty." In the event of any such required prepayment, any Insurance Proceeds or Condemnation Proceeds will be used to pay the Purchase Price of the related Mortgage Loan. There can be no assurance that such Insurance Proceeds or Condemnation Proceeds will be sufficient to pay such Purchase Price in full, although, in the case of a termination resulting from damage or destruction during the last two years of the term of the Leases, the resulting Insurance Proceeds may, in light of the fact that the Mortgage Note fully amortizes during its term, be sufficient to pay all amounts due under the Mortgage Note, except in the case of extraordinary devaluation of the Facility during the term of the Mortgage Note. If the Insurance Proceeds or Condemnation Proceeds are insufficient to pay the Purchase Price in full, the Borrower will in all likelihood not have sufficient funds to pay the deficiency, and there can be no assurance that such deficiency will be satisfied out of the proceeds of any subsequent foreclosure of the related Facility. In the event of any condemnation of a Facility which does not result in the termination of the related Lease, the Lease Payments under such Lease may be abated (see "THE LEASES, LEASE GUARANTIES AND RELATED DOCUMENTS -- The Leases -- Condemnation and Casualty") and, in such event, Scheduled Payments under the related Mortgage Note(s) will be reduced in the same proportion as Lease Payments have been abated under such Lease. Any Condemnation Proceeds resulting from such condemnation will be applied by the related Tenant to restore the related Facility. In the unlikely event that such Condemnation Proceeds exceed the amount necessary to restore the Facility, such excess will be used to prepay a portion of the related Mortgage Note(s) (including the Make-Whole Premium with respect to such portion). Subsequent Scheduled Payments will be applied first to pay accrued interest on the related Mortgage Note(s) and then to reduce the principal of such Mortgage Note(s), and any unpaid interest will, to the extent permitted under applicable law, be capitalized. The unpaid principal amount of such Mortgage Note(s), together with all accrued and unpaid interest, will be due and payable at the maturity date of Mortgage Note with the longest term issued pursuant to the related Loan Agreement. See "THE CERTIFICATES -- Other Distributions -- Distribution Due to Casualty or Condemnation." Any prepayment of any Mortgage Loan in connection with a casualty or condemnation will be distributed by the Trustee or Pass-Through Trustee to the related Certificateholders based upon their Percentage Interests. Liquidation If an Event of Default under a Loan Document occurs (other than a non-monetary default by a Tenant under a Lease) and if the Trustee, or Collateral Trustee if applicable, accelerates the related Mortgage Note, the related Borrower will be required to pay the Purchase Price to the Trustee or Collateral Trustee. All proceeds of any foreclosure or any other liquidation of the related Mortgage Note under the related Loan Documents, net of expenses incurred in connection therewith, from such liquidation will be applied toward payment of such Purchase Price. All of such net proceeds will be distributed by the Trustee, or the Pass-Through Trustee if applicable, to the Certificateholders based upon their Percentage Interests. There can be no assurance that the proceeds of any such liquidation will be sufficient to pay the Purchase Price of the related Mortgage Note(s). See "THE CERTIFICATES -- Other Distributions -- Distribution Due to Liquidation." Purchase Price The Purchase Price for a Mortgage Note in case of an optional prepayment, mandatory prepayment or liquidation will be equal to the outstanding principal balance of such Mortgage Note, accrued interest thereon and the Make-Whole Premium related thereto. Under the laws of certain states the enforceability of the obligation to pay amounts similar to the Make-Whole Premium is unclear, and there can be no assurance that 35 37 the obligation to pay the Make-Whole Premium will be enforceable in the event of a prepayment or acceleration of a Mortgage Note. EVENTS OF DEFAULT Unless otherwise provided in the Prospectus Supplement for a Series, Events of Default under each Loan Agreement and Mortgage Note will include the following (after the expiration of any applicable cure periods): (i) a default in the payment or prepayment of the principal of, Make-Whole Premium, if any, or interest on, a Mortgage Note when due; (ii) if applicable, the construction of a Facility ceases for a period longer than that specified in the Loan Agreement or is abandoned or is not completed in compliance with the Loan Agreement on or before the date specified in the Loan Agreement; (iii) the occurrence of a default under a Lease, a Lease Guaranty, if applicable, or an Indemnity Agreement, if applicable; and (iv) the occurrence of any default by Kmart in the performance of its obligations under a Note Put Agreement. Each Loan Agreement also will provide for other Events of Default that are customary in mortgage loan transactions. An event or condition giving rise to an Event of Default under a Loan Agreement will not necessarily give rise to an Event of Default under the related Lease or permit the Trustee, or the Collateral Trustee if applicable, to exercise any remedy against the Tenant or, if the Tenant is a Subsidiary, Kmart under the related Lease, Lease Guaranty, if applicable, or Note Put Agreement. An Event of Default with respect to one Mortgage Loan will not constitute an Event of Default under any other Mortgage Loan or the Loan Documents related thereto or permit the Trustee, or Collateral Trustee if applicable, to exercise any remedies with respect to any other Mortgage Loan or the Loan Documents related thereto. REMEDIES UPON EVENT OF DEFAULT If any Event of Default occurs and is continuing following any applicable cure period, the Trustee, or the Collateral Trustee if applicable, as assignee of the Depositor will upon the direction of 66 2/3 Percentage Interests of the Certificateholders, declare the entire unpaid principal amount of such Mortgage Note, interest accrued thereon and the Make-Whole Premium immediately due and payable and the Trustee, or the Collateral Trustee if applicable, will be entitled to commence proceedings for immediate foreclosure of the Mortgage and may avail itself of any other relief to which the Trustee, or the Collateral Trustee if applicable, may be legally or equitably entitled under the other Loan Documents, the Mortgage Notes, or otherwise. The Trustee, or the Collateral Trustee if applicable, will, upon becoming the owner of the Facility pursuant to any such foreclosure, take title subject to the related Lease, provided that, if a monetary Event of Default exists under such Lease and, if the Tenant is a Subsidiary, any Lease Guaranty, the Trustee, or the Collateral Trustee if applicable, will have the right, after completion of such foreclosure (possibly including the expiration of any redemption period) or prior to such completion if permitted under the laws of the state in which the Facility is located, to exercise the right of the Borrower as lessor to terminate such Lease. In the case of an Event of Default which also constitutes a Triggering Event, the rights of the Trustee, or Collateral Trustee if applicable, will include the right to require the related Tenant or Kmart (if the Tenant is a Subsidiary) to purchase the related Mortgage Note(s) pursuant to the Note Put Agreement. See "THE NOTE PUT AGREEMENTS." LIMITATION OF A BORROWER'S LIABILITY Each Loan Agreement will provide that the recourse of the Trustee, or the Collateral Trustee if applicable, will be limited to foreclosure and other remedies set forth in the Loan Documents. Generally, neither a Borrower nor any of its affiliates will be personally liable for payment of principal, interest or other amounts which may become due and payable under any of the Loan Documents, the holder of a Mortgage Note will be entitled to look solely to the security provided for in the Loan Documents, and no deficiency 36 38 judgment for amounts unsatisfied after the application of such security and the proceeds thereof may be obtained against a Borrower or its affiliates. The general limitation on the personal liability of the Borrower and its affiliates will not prejudice the rights of the Trustee, or the Collateral Trustee if applicable, to recover (i) for fraud, intentional misrepresentation or breach of any representation or warranty or willful misconduct by or on behalf of a Borrower, (ii) certain funds, deposits, advances and other amounts which may be held by or for a Borrower at the time of an Event of Default under a Mortgage Note or any other Loan Documents, and (iii) amounts recoverable for certain environmental hazards. However, because each Borrower is expected to be an entity without any assets (other than the related Facility) the recourse of the Trustee or the Collateral Trustee will be limited even in those instances where personal liability may be established against a Borrower. THE MORTGAGES General The Mortgage Note(s) issued under a Loan Agreement, and the payment and performance of all of the obligations of the Borrower under such Loan Agreement, will be secured by a first mortgage and security interest in (i) a Facility and all improvements thereon; (ii) all leases, rents, profits, royalties and income and other benefits derived from the Facility; (iii) all right, title and interest of a Borrower in and to all tangible personal property, whenever acquired by the Borrower, which is located on or at the Facility and used solely in connection therewith; (iv) all of the Borrower's interest in intangible property related to the acquisition, ownership, leasing, construction, operation, servicing or management of the Facility; and (v) all of the Borrower's interest in claims or demands including those with respect to Insurance Proceeds and Condemnation Proceeds of the whole or any part of the Facility. Each Mortgage will be subordinate to the related Lease. Each Mortgage will provide that the Borrower may transfer its interest in the Facility prior to the completion of construction only with the consent of the Trustee, or Collateral Trustee if applicable, as assignee of the Depositor. Thereafter, if no default under the Mortgage has occurred and is continuing, and subject to satisfying certain conditions set forth in the Mortgage, the Borrower may transfer its interest in the Facility without the consent of the Trustee or the Collateral Trustee. Events of Default An Event of Default under a Loan Agreement will also be an Event of Default under the related Mortgage. In addition, any failure on the part of a Borrower to perform any covenants or agreements contained in the related Mortgage which are not cured within 30 days after notice thereof will constitute an Event of Default under such Mortgage. Remedies Upon Event of Default Upon the occurrence of an Event of Default, the Trustee, or the Collateral Trustee if applicable, may declare all obligations secured by a Mortgage to be due and payable and thereafter, subject to the provisions of applicable state law, the Trustee, or Collateral Trustee if applicable, may (i) enter upon and take possession of the related Facility; (ii) commence an action to foreclose the Mortgage; (iii) exercise any and all of the remedies available to a secured party under applicable law; and (iv) apply to any court having jurisdiction to appoint a receiver of the Facility or to specifically enforce any of the covenants set forth in the Mortgage. If the Trustee, or the Collateral Trustee if applicable, forecloses by reason of the occurrence of an Event of Default prior to the completion of construction of a Facility, the Tenant will, prior to the occurrence of a Triggering Event, retain its right under the related Construction Fund Disbursement Agreement and any Construction Fund Disbursement Agreement -- Common Area to complete construction of the Facility and Common Area. See "THE LEASES, THE LEASE GUARANTIES AND RELATED DOCUMENTS -- Construction Fund Disbursement Agreements." If the Trustee, or Collateral Trustee if applicable, forecloses on a Facility, it may not be able subsequently to exercise its rights under the related Note Put Agreement if the Mortgage Note is deemed to have been extinguished in or satisfied by the foreclosure proceeding. However, a foreclosure will not affect the continuing 37 39 rights and obligations of the Tenant under the Lease or of Kmart (if the Tenant is a Subsidiary) under the Lease Guaranty. THE ASSIGNMENTS OF LEASES AND RENTS Pursuant to an Assignment of Leases and Rents, all Lease Payments due under a related Lease will be assigned to the Trustee or Collateral Trustee, if applicable. The Assignment of Leases and Rents will also give the Trustee or Collateral Trustee the right, upon the occurrence of an Event of Default under the related Loan Agreement, to exercise the rights and remedies of the related Borrower as lessor under the Lease. Although each Assignment of Leases and Rents will, by its terms, be a present assignment of the related Lease and Lease Payments, it may, under the laws of certain states in which Facilities are located, be deemed a collateral assignment. In such event, the rights of the Trustee or Collateral Trustees thereunder may be exercisable only upon completion of a foreclosure of the related Mortgage (possibly including the expiration of any redemption period) or otherwise as permitted or required under the laws of the applicable state. THE NOTE PUT AGREEMENTS The following summary describes certain provisions of the Note Put Agreements to be entered into by and among Kmart, a Subsidiary (if it is a Tenant) and the Depositor. The summary does not purport to be complete and is subject to, and qualified in its entirety by reference to, the provisions of each Note Put Agreement, the form of which (in substantially the form in which it will be used) has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. Each Note Put Agreement will provide that, in the event (a) (i) a Tenant fails to pay when due any Lease Payment within 10 days (or 30 days if the Tenant is Kmart) after notice to the Tenant of such default and (ii) if the Tenant is a Subsidiary, Kmart fails to pay any such Lease Payment within 30 days after notice to Kmart of such Subsidiary's failure to do so (which notice may be given concurrently with the corresponding notice to such Subsidiary), (b) completion of construction of the Facility to be leased to the Tenant does not occur prior to the Completion Date, or (c) if the Tenant is a Subsidiary, a Lease Guaranty Termination occurs (each, a Triggering Event), the Trustee, or Collateral Trustee if applicable, will have the right to require the Tenant, and in the event of the Tenant's failure to do so when the Tenant is a Subsidiary, to require Kmart to purchase the related Mortgage Note(s) in whole (but not in part) at the Purchase Price. If a Triggering Event other than a Lease Guaranty Termination occurs, the Trustee, at the written direction of the holders of Certificates evidencing not less than a 66 2/3 Percentage Interest (which direction must be given within 90 days after the giving by the Trustee to the Certificateholders of a notice stating that such Triggering Event has occurred), will exercise its rights under the Note Put Agreement. If the Triggering Event is a Lease Guaranty Termination, the Trustee will exercise its rights under the Note Put Agreement unless, within 30 days after notice by the Trustee to the Certificateholders of the occurrence of such Lease Guaranty Termination, holders of Certificates evidencing not less than a 66 2/3 Percentage Interest elect not to exercise such rights. In cases where the Note Put Agreement is held in a Collateral Trust, the 66 2/3 Percentage Interest required for the exercise of such rights (or, in the case of a Lease Guaranty Termination, the election not to exercise such rights) will be computed by reference to the outstanding principal amount of all Mortgage Notes issued pursuant to the applicable Loan Agreement. The Purchase Price for a Mortgage Note pursuant to the Note Put Agreement will be equal to (i) the outstanding principal balance of such Mortgage Note, (ii) accrued interest thereon and (iii) the Make-Whole Premium related thereto, or, in the case of a purchase of a Mortgage Note as a result of a Lease Guaranty Termination, the lesser of the Make-Whole Premium and the Termination Premium. Under the laws of certain states the enforceability of the obligation to pay amounts similar to the Make-Whole Premium or the Termination Premium is unclear, and there can be no assurance that the obligation to pay the Make-Whole Premium or the Termination Premium will be enforceable upon the occurrence of a Triggering Event. In the event the Trustee, or the Collateral Trustee, if applicable, exercises its rights under the related Note Put Agreement, the date of sale of the Mortgage Note(s) will be not more than 35 Business Days after the Trustee, or Collateral Trustee, receives direction to sell such Mortgage Note(s). The Purchase Price will 38 40 be deposited with the Trustee, or, if applicable, with the Collateral Trustee which will transfer it to the related Pass-Through Trustees on the next Business Day. Any Purchase Price received by a Trustee, or Collateral Trustee, pursuant to the exercise of rights under a Note Put Agreement, less any expense incurred by the Trustee, or Pass-Through Trustees and Collateral Trustee, if applicable, will be distributed to Certificateholders within 30 days of receipt. See "THE CERTIFICATES -- Other Distributions -- Distribution from Proceeds of Purchase of Mortgage Note." THE LEASES, THE LEASE GUARANTIES AND RELATED DOCUMENTS The following summaries describe certain provisions of the Leases, the Lease Guaranties, the Consent and Agreements, the Indemnity Agreements and the Construction Fund Disbursement Agreements. The summaries do not purport to be complete and are subject to, and qualified in their entirety by reference to the provisions of, such documents, the forms of which (each in substantially the form in which it will be used) have been filed as exhibits to the Registration Statement of which this Prospectus is a part. THE LEASES General Each Facility will be leased to a Tenant which will be either Kmart or a Subsidiary. The obligations of a Subsidiary under a Lease will be guaranteed by Kmart pursuant to a Lease Guaranty. The Leases will be assigned by the Borrower to the Depositor pursuant to an Assignment of Leases and Rents and the Mortgage, and the Depositor's rights under those documents will then be assigned to the Trustee, or to the Collateral Trustee if applicable. Term and Rental Each Lease will have a primary term that, excluding renewal or extension terms, will expire on or after the scheduled maturity of the related Mortgage Note(s) unless terminated due to certain casualty, condemnation or bankruptcy events. Lease Payments will be payable monthly and will be scheduled to be in amounts sufficient to pay Scheduled Payments on the related Mortgage Note(s). The term of each Lease and the obligation of the Tenant to make Lease Payments will commence on the date specified in each Lease whether or not construction of the Facility has been completed, the Tenant takes occupancy or accepts the Facility as constructed. Net Lease The obligation of the Tenant under each Lease will, except with respect to the cost of construction and certain environmental costs and liabilities, be that of a lessee under a "net lease." The Tenant's obligation to pay rent under each Lease will be absolute and unconditional and amounts payable by the Tenant under each Lease will be paid as absolute net sums, without diminution for any reason except for a permitted termination by the Tenant by reason of certain casualty or condemnation events as described below (see "Condemnation and Casualty"), a rejection of the Lease by a Borrower as lessor in a bankruptcy proceeding if the Tenant is deprived of possession of the Facility by reason of such rejection, certain Tenant bankruptcy events (see "CONSEQUENCES OF BANKRUPTCY OF A TENANT OR A BORROWER") or an abatement of Lease Payments following a condemnation which does not result in a Lease termination. The Tenant will be obligated to pay all costs, including without limitation real estate taxes and utilities, associated with the Facility, except for the costs of construction and acquisition and certain environmental costs and liabilities. Maintenance and Alterations Each Lease will require the Tenant to make and pay for all maintenance, replacement and repair necessary to keep the related Facility in a good state of repair and tenantable condition. The Tenant may, at its own expense, from time to time, make such additions or changes, structural or otherwise in and to the Facility as it may deem necessary or suitable, which additions or changes (other than a Tenant's trade fixtures) will 39 41 become the property of the related Borrower. The Tenant may also, at its own expense, at any time, erect or construct additional buildings, structures or improvements, which will become a part of the Facility and subject to all obligations under the Lease. Any alterations, additions or improvements will be required to be made in a good and workmanlike manner and in compliance with applicable law. Use, Assignment and Subletting Except as otherwise specified in the related Prospectus Supplement, each Lease will generally provide that the related Facility may be used for any lawful purpose. Each Lease will permit the Tenant to assign the Lease or sublet the whole or any part of the related Facility without the consent of the Borrower or the related Trustee, or Collateral Trustee if applicable, but in any such case, the Tenant will remain primarily liable under the Lease, and Kmart, if the Tenant is a Subsidiary, will remain liable under the Lease Guaranty. The Tenant will not be required continuously to operate or occupy the Facility. Insurance Provided that the net worth of the Tenant or Kmart (if the Tenant is a Subsidiary) exceeds $100,000,000, as determined in accordance with generally accepted accounting principles consistently applied, the Tenant will be permitted under each Lease to self-insure. If the Tenant elects not to, or is not entitled to, self-insure, the Tenant will be required, at its own cost and expense, to obtain and maintain insurance in the amounts and upon the terms and conditions set forth in the Lease. All property insurance maintained by the Tenant must be for 100% of the replacement value of the Facility, exclusive of excavation costs. Condemnation and Casualty In the event that at any time during the term of a Lease the related Facility is damaged or destroyed (partially or totally) by fire or other casualty, the Lease will require that the Tenant, at its own expense, promptly repair, rebuild and restore the Facility to the condition existing just prior to such damage or destruction, or for the same use and purpose but in accordance with such plans and specifications as are then generally in use by the Tenant for the construction of the Tenant's stores and related structures; provided, however, the repaired, rebuilt or replaced building has a value not less than its fair market value immediately prior to such loss. Notwithstanding the foregoing, each Lease will provide that if such damage or destruction takes place within two years prior to the expiration date of the current term of the Lease and if the cost of restoration exceeds 50% of the fair market value of the Facility at the time such damage or destruction took place, the Tenant will have the option to terminate the Lease as of the date such damage or destruction took place by giving written notice to the Borrower within 30 days thereafter. After such termination, the Tenant will have an additional 60 days, rent free, within which to remove its property from the Facility. If the Tenant so terminates the Lease and is carrying property insurance, all Insurance Proceeds will be paid to the Trustee, or the Collateral Trustee if applicable. If the Facility is self-insured and the Tenant terminates the Lease, the Tenant will pay the Trustee, or the Collateral Trustee if applicable, an amount sufficient to rebuild the Facility whether or not rebuilt. In the event that all of a Facility is permanently expropriated, the related Lease will automatically terminate. If (i) the points of ingress and egress to public roadways are materially impaired by a permanent expropriation by a public or quasi-public authority (with no reasonable replacement points of ingress and egress) so as to render the Facility unsuitable for its intended use, or (ii) less than the whole, but more than 10%, or such other greater percentage as may be specified in the Prospectus Supplement, of the square footage of the building or land constituting the Facility is permanently expropriated by public or quasi-public authority, the Tenant will have the option to terminate the related Lease as of the date of such permanent expropriation. In the event a Lease is terminated because of casualty loss or condemnation, the only source of funds to prepay the related Mortgage Note(s) is likely to be the Insurance Proceeds or Condemnation Proceeds, respectively, and any amounts that could be realized from the liquidation of the related Mortgaged Property. 40 42 There can be no assurance that such amounts would be sufficient to pay the Purchase Price of the related Mortgage Note(s). In the event of an expropriation of a portion of a Facility under circumstances where the Lease is not terminated, the Lease will continue as to the portion of the Facility which has not been expropriated or taken. If the floor area of the Facility is reduced as a result of such expropriation, Lease Payments will be proportionately reduced to reflect such reduction. The Tenant will be required, at its sole cost and expense, promptly to restore the Facility as nearly as practicable to the condition existing prior to such expropriation, or for the same use and purpose but in accordance with such plans and specifications as are then generally in use by the Tenant for the construction of the Tenant's stores and related structures. All Condemnation Proceeds will be paid over to the Tenant for restoration, and restoration costs in excess of the Condemnation Proceeds will be paid by the Tenant. Any Condemnation Proceeds in excess of restoration costs will be paid to the Trustee, or the Collateral Trustee if applicable, as assignee of the Depositor and will be applied against amounts outstanding under the related Mortgage Note(s). See "THE CERTIFICATES -- Other Distributions -- Distribution Due to Casualty or Condemnation" and "THE MORTGAGE NOTES AND THE LOAN AGREEMENTS -- Prepayments -- Mandatory Prepayments." Borrower Bankruptcy If a Borrower is in bankruptcy and rejects the related Lease, the related Consent and Agreement will require the related Tenant to elect under Section 365(h) of the Bankruptcy Code to remain in possession of the Facility for the remaining term of such Lease. However, if, notwithstanding such election, the Tenant is deprived of possession of the Facility as a result of such Borrower's rejection of the Lease in the bankruptcy proceeding, such Tenant and Kmart (if the Tenant is a Subsidiary) will have no further obligations under such Lease, the related Lease Guaranty or the related Note Put Agreement. Remedies Upon Event of Default Each Lease will provide that in the case of nonpayment of rent, if the Tenant is in default for a period of 10 days after notice to the Tenant, and (if the Tenant is a Subsidiary) Kmart is in default under the related Lease Guaranty for 30 days after written notice to Kmart, then the Borrower, as lessor under the Lease, with the consent of the Trustee, or Collateral Trustee if applicable, may by giving notice to the Tenant at any time thereafter during the continuance of such default either terminate the Lease, or reenter the related Facility by summary proceedings or otherwise, and, in either case, expel the Tenant and remove all property therefrom, relet the Facility at the best possible rent readily attainable and receive the rent from the Facility; provided, however that the Tenant and, if the Tenant is a Subsidiary, Kmart, as guarantor under the Lease Guaranty, will remain liable for any and all deficiencies in Lease Payments. The Lease by its terms gives neither the Borrower, as lessor under the Lease, nor the Trustee (or Collateral Trustee, if applicable) as assignee of the Borrower's rights under the Lease, any right to collect such deficiencies on an accelerated basis. The Borrower (or the Trustee or Collateral Trustee) must instead proceed against the Tenant for such deficiencies as and when they become due. However, in the event of a payment default under the Lease and a default under the related Lease Guaranty, the Trustee or Collateral Trustee, if applicable, will be entitled, if such defaults are not cured within the period specified in the Note Put Agreement, to exercise its rights under the Note Put Agreement. See "THE NOTE PUT AGREEMENTS." Neither the Borrower nor the Trustee (or Collateral Trustee, if applicable) have the right to terminate the Lease by reason of non-monetary defaults by the Tenant; however, the Borrower will, in the event of any such default, be entitled to bring an action against the Tenant for damages or injunctive relief. Indemnification Each Lease will contain provisions obligating the Tenant to indemnify the related Borrower and the Trustee, or the Collateral Trustee if applicable, as assignee of the Depositor against any liability for damage to property or injuries sustained by any person within the Facility prior to or during the term of the Lease, except for liabilities arising from the Borrower's negligence. Each Lease and the related Consent and Agreement will further contain provisions obligating the Tenant to indemnify the Borrower, the Depositor and the Trustee, or 41 43 the Collateral Trustee if applicable, and to provide insurance, against liabilities caused by the Tenant, its employees or agents during the Tenant's occupancy of the Facility (although not during any construction at the Facility by the Tenant prior to its taking occupancy) and arising out of the release, use, storage, treatment, transportation, transfer, manufacture, refinement, handling, production, disposal or threatened release of hazardous materials or related violations of environmental laws. The Borrower will be required under the Lease to indemnify the Tenant against environmental liabilities which are not caused by the Tenant, its employees or agents. If the Borrower incurs any liability under its indemnity in favor of the Tenant, or any liability to a third party by reason of any environmental condition as to which the Tenant has not given its indemnity, the Borrower will in all likelihood not have any assets (other than the Facility) in order to satisfy such liability (although, under the Lease, the Tenant will have no recourse against the Borrower until the earlier of the expiration of the initial term of the Lease or the payment in full of the related Mortgage Note(s)). In addition, if the Trustee or Collateral Trustee, if applicable, becomes the owner of a Borrower's interest in a Facility as the result of a foreclosure, it may become subject to liability for environmental costs and liabilities as to which it has not been indemnified by the Tenant or, if the Tenant is a Subsidiary, by Kmart pursuant to the related Lease Guaranty. It will be a condition to the making of each Mortgage Loan that the Depositor obtain or cause to be obtained a phase I environmental audit of the related Facility satisfactory to the Depositor and such further information or studies as the Depositor deems necessary. In addition, the Loan Documents will require the maintenance of insurance against environmental liabilities, although there can be no assurance that such insurance will cover all environmental risks or that such insurance will remain available at all times. The Tenant will pay premiums for such environmental liability insurance pursuant to the Consent and Agreement. THE LEASE GUARANTY AGREEMENTS General If the Tenant is a Subsidiary, Kmart will enter into a Lease Guaranty Agreement ("Lease Guaranty") with a Borrower with respect to the related Facility. The Lease Guaranty will be assigned by the Borrower to the Depositor pursuant to an Assignment of Leases and Rents and the Mortgage, and the Depositor's rights under those documents then will be assigned to the Trustee, or to the Collateral Trustee if applicable. The Lease Guaranty Pursuant to the terms of each Lease Guaranty, Kmart will absolutely and unconditionally guarantee to a Borrower the full and punctual payment, performance and observance by the related Subsidiary of all of the terms, conditions, covenants and obligations to be performed and observed by the Subsidiary under the related Lease. Except for the right of Kmart and the Subsidiary to terminate the Lease Guaranty in certain circumstances described below, the liability of Kmart under the Lease Guaranty will be irrevocable, continuing, absolute, independent and unconditional except that Kmart will be relieved of any liability under the Lease Guaranty if the Lease is rejected and terminated by a trustee or debtor-in-possession in the Borrower's bankruptcy proceeding and, as a result, the Subsidiary has been deprived of its possessory rights pursuant to the Lease. Kmart will also be relieved of liability under the Lease Guaranty if the Lease is terminated by the Subsidiary in the event of a condemnation or casualty. Termination Kmart or a Subsidiary may terminate Kmart's obligations under a Lease Guaranty if (i) the related Subsidiary achieves Investment Grade Status without regard to Kmart's credit rating, (ii) the related Lease is assigned to a third party (a) which has achieved or achieves Investment Grade Status or (b) an affiliate of which has achieved or achieves Investment Grade Status and such affiliate delivers to the Trustee, or the Collateral Trustee if applicable, a new lease guaranty agreement with substantially the same terms as the Lease Guaranty, or (iii) more than 50% of the issued and outstanding stock of the Subsidiary is acquired by a third party and such third party, or an affiliate thereof, has achieved or achieves Investment Grade Status and such third party or affiliate delivers to the Trustee, or the Collateral Trustee if applicable, a new lease guaranty 42 44 agreement with substantially the same terms as the Lease Guaranty. In the case of a termination of a Lease Guaranty in connection with an assignment of the Lease or the delivery of a new lease guaranty, the third party assignee or the new guarantor will be required to deliver to the Trustee, or the Collateral Trustee if applicable, a new note put agreement with substantially the same terms as the Note Put Agreement. For purposes of the Lease Guaranty, an entity will have achieved "Investment Grade Status" if the senior debt of such entity will have been rated at least Standard & Poor's rating of BBB- or Moody's rating of Baa3 for the immediately preceding twelve month period. The exercise by Kmart or a Subsidiary of the right to terminate a Lease Guaranty is a Triggering Event under the related Note Put Agreement. See "THE NOTE PUT AGREEMENTS." THE CONSENT AND AGREEMENTS Each Consent and Agreement will provide that Kmart, the related Tenant if it is a Subsidiary and the related Borrower consent to the Depositor's sale, conveyance, transfer and absolute assignment of all of its right, title and interest in the related Loan Documents and Lease to the Trustee, or the Collateral Trustee if applicable. Each Consent and Agreement will further provide that all Lease Payments will be paid directly to the Trustee, or the Collateral Trustee if applicable, for the benefit of the Borrower and that such payment will constitute payment to the Borrower in accordance with the Lease. Each Consent and Agreement will also provide that the Tenant will pay the annual Trustee's Fee and the Collateral Trustee's Fee, if applicable, and premiums for environmental liability insurance. Kmart, the Tenant (if it is a Subsidiary), the Borrower and the Depositor will acknowledge and agree that the Trustee, or the Collateral Trustee if applicable, will have the sole right to pursue any claim for Lease Payments and, subject to the rights of the Tenant and Kmart (if the Tenant is a Subsidiary) under the related Construction Fund Disbursement Agreement and any Construction Fund Disbursement Agreement -- Common Area, to perform all other necessary and appropriate acts to protect and preserve any right, title and interest of the Trustee, or the Collateral Trustee if applicable, Borrower and Depositor in and to the Loan Documents. Each Consent and Agreement will provide that without the prior consent of the Trustee or Collateral Trustee, if applicable, the Borrower will not modify the Lease, except with respect to modifications that do not reduce Lease Payments, alter the initial term of the Lease, add to the Borrower's covenants under the Lease or limit the obligations of the Tenant under the Lease. Each Consent and Agreement will also provide that no amendment to the Loan Agreement, the Mortgage Notes or the Loan Documents may be made without the prior consent of the Tenant and, if the Tenant is a Subsidiary, Kmart, unless a monetary default exists under the lease. THE INDEMNITY AGREEMENTS If the Tenant is a Subsidiary, Kmart will enter into an Indemnity Agreement pursuant to which Kmart will indemnify the Trustee, or the Collateral Trustee if applicable, in the event any Lease Payments made to such Trustee or Collateral Trustee by such Subsidiary pursuant to the related Lease or by Kmart pursuant to the related Lease Guaranty are asserted to be voidable under the Bankruptcy Code, whether by preference or otherwise, in a proceeding in a bankruptcy case filed by or against such Subsidiary. THE CONSTRUCTION FUND DISBURSEMENT AGREEMENTS General In those cases where Mortgage Loan proceeds are being used in whole or in part to construct a Facility, the related Borrower will be obligated under its Lease with the related Tenant to construct the Facility in accordance with the provisions of the Lease. The obligation of such Tenant to make Lease Payments will commence on the date specified in the Lease whether or not the Facility is completed, the Tenant takes occupancy, or the Tenant accepts the improvements as constructed. In addition, the Tenant and, if the Tenant is a Subsidiary, Kmart will be obligated under the related Note Put Agreement to purchase the related Mortgage Note(s) in the event construction of the Facility is not completed on or before the Completion Date. In an effort to provide assurance to the Tenant that each such Facility will be developed and constructed in a timely manner in accordance with the plans and specifications referred to in the related Loan Agreement, the Depositor, the related Tenant, the related Borrower, Kmart (if the Tenant is a Subsidiary), an Escrow 43 45 Agent and, in some cases, a Construction Monitor engaged at the request of the Tenant will enter into a Construction Fund Disbursement Agreement which will provide that the proceeds of the Mortgage Loan being used for the construction of the Facility will be deposited in an Escrow Account and disbursed to the Borrower upon approval by the Tenant. It will also provide for certain remedies in favor of the Tenant and Kmart, including the right to foreclose on a second mortgage on the Facility given by the Borrower to the Tenant and the right to acquire the Facility pursuant to an option granted by the Borrower to the Tenant, in the event of a default by the Borrower in the performance of its obligations under the related Lease to construct the Facility in accordance with such Lease and the Construction Fund Disbursement Agreement. If a portion of the proceeds from more than one Mortgage Loan will be used to construct a Common Area to be used by the Tenants leasing the Facilities to be constructed with the balance of such Mortgage Loans, then, in addition to the previously described Construction Funds Disbursement Agreement, there will be a Construction Fund Disbursement Agreement -- Common Area among the Depositor, the related Borrowers, an Escrow Agent, such Tenants, Kmart (if any of the Tenants are Subsidiaries) and a Construction Monitor, if applicable. Such Construction Fund Disbursement Agreement -- Common Area will provide that the proceeds from such Mortgage Loans which will be used for the construction of such Common Area will be deposited in an Escrow Account -- Common Area and disbursed upon approval by the applicable Tenants. It will also provide for certain remedies in favor of such Tenants and Kmart (if any of the Tenants are Subsidiaries) in the event of the default by the related Borrowers in the performance of their obligations to construct such Common Area. Prior to a Triggering Event under the related Note Put Agreement, neither the Depositor, the Trustee, nor the Collateral Trustee, if applicable, will have any rights with respect to the disbursement of Mortgage Loan proceeds used in the construction of the related Facility and, if applicable, the related Common Area. In addition, in the event the Trustee or Collateral Trustee forecloses on a related Facility, it will do so subject to the right of the related Tenant or Tenants to control disbursements from the Escrow Account and, if applicable, the Escrow Account -- Common Area and to complete construction of the Facility and the Common Area, if any. Remedies Upon Default Under Lease Upon the occurrence of a default by a Borrower in the performance of its obligation in favor of the related Tenant under the Lease and prior to the occurrence of a Triggering Event, such Tenant may, in addition to any remedies it may have at law or in equity, (i) within the first three (3) years of the term of the Mortgage Loan, foreclose on the second mortgage on the Facility given by the Borrower to the Tenant or, at any time prior to completion of construction acquire the Facility pursuant to the option granted by the Borrower to the Tenant, and (ii) if Borrower's default is related to construction of the Facility, (x) cease approving disbursements to a Borrower from the Escrow Account, (y) exercise its rights under the license granted to the Tenant under the Construction Fund Disbursement Agreement to complete the construction of the Facility if the Borrower fails to do so, or (z) specifically enforce the Borrower's obligations to complete the work. However, the Tenant will not have the right, prior to the earlier of the payment in full of the related Mortgage Note(s) or the expiration of the initial term of the Lease, to withhold Lease Payments, terminate the Lease, or recover monetary damages by reason of the Borrower's default under the Lease, including Borrower's failure to complete the Facility. THE BORROWERS Each Borrower will be a special purpose corporation, limited partnership, limited liability company or other entity that will not be permitted to have any significant assets or sources of funds other than the Mortgage Loan made to such Borrower and the Facility owned or leased by such Borrower and leased or subleased to a Tenant. No Borrower will receive the proceeds of or be a party to more than one Loan Agreement, and no Borrower will own or lease more than one Facility. No Borrower will be an affiliate of Kmart, any Subsidiary, the Depositor, the Trustee or the Collateral Trustee. 44 46 CONSEQUENCES OF BANKRUPTCY OF A TENANT OR A BORROWER In the event a bankruptcy case is commenced by or against a Tenant, such Tenant, as a debtor-in-possession, or its trustee in bankruptcy would have the right, subject to bankruptcy court approval, to assume or reject any Lease. If such Tenant were to reject a Lease its payments thereunder would terminate, thereby leaving the related Borrower without cash flow to make payments on the related Mortgage Note(s). In addition, under Section 502(b)(6) of the Bankruptcy Code, any unsecured claim of the Trustee or the Collateral Trustee, as the case may be, for termination damages would be limited to an amount equal to the rent reserved under such Lease, without acceleration, for the greater of one year or 15 percent (not to exceed three years) of the remaining term of such Lease (plus rent already due but unpaid as of the commencement date of the bankruptcy proceeding). Therefore, if such Tenant were to reject the Lease, the damages that could be claimed for rejection, even assuming full recovery on such claims (which may not occur), would, in all likelihood, not be sufficient to repay the related Mortgage Note(s). Subject to bankruptcy court approval, such Tenant, as a debtor-in-possession, or its trustee, would also have the right, in lieu of rejecting the Lease, to assume and to assign all of its rights and obligations under the Lease provided, among other requirements, adequate assurance of future performance by the assignee were provided. It is possible that a bankruptcy court could characterize the transactions described herein not as a lease that may be rejected, but instead as a secured loan to the bankrupt Tenant. In such event, the Borrower, as a secured creditor, would be prohibited by operation of the automatic stay contained in Section 362(a) of the Bankruptcy Code from taking any action against the Tenant or its property without bankruptcy court approval. In addition, the Tenant may be permitted to use or, under certain circumstances, sell the related Facility, together with any other property securing the Tenant's obligations to the Borrower, over the objection of the Trustee or the Collateral Trustee. Finally, as a secured creditor of the Tenant, the Borrower may be required to accept restructured payments under a Chapter 11 plan filed by the Tenant provided that it satisfies certain plan confirmation requirements set forth in the Bankruptcy Code. The occurrence of any of these events would have a material adverse effect on the Certificateholders. In the event of bankruptcy proceedings instituted by or against a Subsidiary that is a Tenant, Kmart would continue to be obligated under the Lease Guaranty for the payment of the Subsidiary's obligations under the Lease, even if the Lease were rejected in bankruptcy, and would continue to be obligated under the Note Put Agreement to purchase the related Mortgage Note(s) if a Triggering Event occurred. See "THE LEASES, THE LEASE GUARANTIES AND RELATED DOCUMENTS" and "THE NOTE PUT AGREEMENTS." Although Lease Payments under each Lease will be scheduled to be sufficient to pay Scheduled Payments under the related Mortgage Notes, and although the Tenant under each Lease will be required to pay substantially all of the expenses relating to the Facility, each Borrower will incur certain obligations which will not be passed on to the Tenant under the Lease. The most significant of these obligations will consist of agreements to compensate contractors, architects and other third parties in connection with the construction of the Facility, to pay certain environmental liabilities for which the Tenant is not responsible under the Lease, and to pay any Make-Whole Premium in connection with the prepayment of the related Mortgage Note(s). It is also possible that the Borrower will, in violation of the Loan Documents, incur obligations which are unrelated to the Facility. If the cost of completing the Facility exceeds the amount of Mortgage Loan proceeds available to the Borrower, or if the Borrower otherwise lacks the funds to pay obligations which are not required to be paid by the Tenant under the Lease, it is possible that a bankruptcy petition may be filed by or against the Borrower even in the absence of a default by the Tenant in its obligations under the Lease. In such event, the Borrower may benefit from various powers and remedies available to debtors-in-possession under the Bankruptcy Code. Although the outcome of a bankruptcy case involving the Borrower is difficult to predict, events may transpire in the case that may adversely affect the interests of the Certificateholders. For example, upon the filing of its bankruptcy petition, the Borrower would enjoy the protection of the automatic stay that would prohibit the Trustee or the Collateral Trustee, as the case may be, from taking any action against the Borrower or its property, including foreclosing upon the related Facility and collecting the Lease Payments directly. In order to take such action, the Trustee or the Collateral Trustee, as the case may be, 45 47 would be required to obtain permission from the bankruptcy court by satisfying certain requirements set forth in Section 362(d) of the Bankruptcy Code for obtaining relief from the stay. In addition, the Borrower may be able to use the Collateral, including the funds in the Capitalized Debt Service Account, the Rental Payment Account, the Certificate Account and the Mortgage Note Account, without the consent of the Trustee or the Collateral Trustee, if the Borrower obtains bankruptcy court approval and provides such parties with adequate protection (which adequate protection may take the form of a replacement lien, substitute collateral or periodic cash payments). The Borrower may also have access to the funds in the Escrow Account established under the Construction Fund Disbursement Agreement or in the Escrow Account -- Common Area established under the Construction Fund Disbursement Agreement -- Common Area. So long as Lease Payments are made in accordance with the terms of the Lease or, if applicable, the related Lease Guaranty or as otherwise ordered by the bankruptcy court, the Trustee, or Collateral Trustee if applicable, would in no event have any right to proceed against the Tenant or (if the Tenant is a Subsidiary) Kmart under such Lease, such Lease Guaranty or the related Note Put Agreement. It is also possible that the secured claims of the Trustee or the Collateral Trustee, as the case may be, may receive economically unfavorable treatment under the Borrower's Chapter 11 plan. For example, in the event that it is determined that the value of the Collateral is less than the indebtedness evidenced by the Mortgage Note(s), there may be no entitlement to receive interest that accrued on the Mortgage Note(s) after the filing of the Borrower's petition. In addition, if the Borrower were unable to satisfy all of the requirements of Section 1129(a) of the Bankruptcy Code to confirm a consensual Chapter 11 plan, the Borrower might attempt to restructure the secured claims of the Trustee or the Collateral Trustee over its objections by invoking the "cramdown" provisions of Section 1129(b). In such event Certificateholders may be required, for example, to accept deferred payments in respect to the Certificates over a longer period of time than the original term of the Mortgage Notes. CERTAIN FEDERAL INCOME TAX CONSEQUENCES GENERAL The following is a general discussion of the anticipated federal income tax consequences of the purchase, ownership and disposition of Certificates. The summary is based upon laws, regulations, rulings and decisions now in effect, all of which are subject to change or possibly differing interpretations. The discussion below does not purport to deal with federal income tax consequences applicable to all categories of investors, such as foreign persons or tax exempt entities, some of which may be subject to special rules. Investors should consult their own tax advisors in determining the federal, state, local and any other tax consequences to them of the purchase, ownership and disposition of the Certificates. Unless otherwise specified in the Prospectus Supplement for a Series of Certificates, it is intended that each Trust will be classified for federal income tax purposes as a grantor trust and that each Trust and any Collateral Trust will not be classified as an association taxable as a corporation. For each Series, Squire, Sanders & Dempsey, counsel to the Depositor, will deliver a separate opinion to that general effect. In rendering its opinion for each Series that each Trust will be classified as a grantor trust, counsel will have considered whether two or more Trusts holding separate Mortgage Notes from (i) the same obligor with respect to the same Facility or (ii) different obligors with respect to different Facilities, to the extent those facts are present, could be recharacterized as a "taxable mortgage pool" or as a single grantor trust with impermissible multiple classes of ownership, each of which is treated as a corporation for federal income tax purposes. Generally, an entity is classified as a "taxable mortgage pool" only if, among other requirements, the entity is the obligor on debt obligations (or equity interests treated as debt obligations) with two or more maturities. Similarly, if certificates in a single grantor trust have different maturities, it would have multiple classes of ownership. However, under Treasury Regulations, such multiple classes are permissible if the trust was formed to facilitate direct investment in the assets of the trust, and the existence of multiple classes of ownership interests is incidental to that purpose. Because each Trust will generally issue only one class of beneficial ownership interest having only one maturity date, such Trust could be treated as a "taxable 46 48 mortgage pool" or as a single grantor trust with potentially impermissible multiple classes of ownership only if such Trust is integrated with one or more other Trusts, or if the Trusts serve to recast the manner in which principal and interest on the debt obligations held therein are paid to Certificateholders. While there is no authority directly on point, each Trust should be respected as a separate entity because (i) each Trust will own separate assets in the form of 100 percent interests in separate Mortgage Notes issued directly by the obligors thereof to such Trusts, which Mortgage Notes will not be secured by other debt obligations, (ii) each Trust will issue a separate Series of Certificates to a substantially separate set of Beneficial Owners, and (iii) each Trust will have independent economic substance, in that the Trusts serve primarily to facilitate the offering of fractional undivided participation interests in one or more separate Mortgage Notes without recasting the interest and principal payments thereon. Moreover, even if two or more Trusts were integrated (e.g., Trusts holding Mortgage Notes with different maturities issued by the same obligor with respect to the same Facility were treated as a single Trust), the integrated single Trust will not alter the payment terms of the Mortgage Notes held; rather, Beneficial Owners will have a fractional undivided interest in all of the principal and interest payments received by the Trusts with respect to only one or the other Mortgage Note (or groups of Mortgage Notes having the same maturity). Accordingly, because the integrated single Trust would serve merely to facilitate investment in assets that might have been separately invested in, it should not be treated as having impermissible multiple classes of ownership. Finally, pursuant to proposed regulations under the taxable mortgage pool provisions, an ownership interest in an entity that is classified as an investment trust will not be treated as a debt obligation of the trust. Accordingly, if such proposed regulations are ultimately adopted, assuming that the Trusts qualify as trusts under the analysis set forth above, they should not be subject to taxable mortgage pool treatment. Each Beneficial Owner will be treated as the owner of a pro rata fractional undivided interest in the related Trust Property. Each Beneficial Owner, in accordance with its method of accounting, will be required to report on its federal income tax return its pro rata share of the interest and other income from any Mortgage Note or other property held in the related Trust and may deduct its pro rata share of the deductible expenses of the related Trust, at the same time and to the same extent as if it held directly a pro rata interest in the Trust Property and received and paid directly the amounts received by the Trust. A Beneficial Owner who is an individual, trust or estate will be allowed a deduction for certain itemized deductions subject to certain limitations in the Code. Collateral Trusts will be viewed as mere security arrangements and not as separate entities for federal income tax purposes. Market Discount A purchaser of a Certificate of any Series will be treated as purchasing an interest in any Mortgage Note and other Trust Property in the related Trust at a price determined by allocating the purchase price paid for the Certificate among such Mortgage Note and other Trust Property in proportion to their respective fair market values at the time of purchase of the Certificate. To the extent that the portion of the purchase price of a Certificate allocated to a Mortgage Note is less than the portion of the principal balance of the Mortgage Note allocable to the Certificate, that interest in the Mortgage Note will be deemed to have been acquired with discount. It is not anticipated that the Mortgage Notes will have "original issue discount" because the purchase price of a Certificate of any Series, as well as the portion of such purchase price allocable to the related Mortgage Note, are expected to exceed the principal amount of such related Mortgage Note. A Beneficial Owner may have market discount if it purchases a Certificate subsequent to the origination of the respective Trust and the remaining principal amount of the Mortgage Note allocable to the Certificate exceeds the Beneficial Owner's tax basis allocable to such Mortgage Note, unless the excess does not exceed a prescribed de minimis amount. In the event such excess exceeds the de minimis amount, the Beneficial Owner will be subject to the market discount rules of sections 1276 to 1278 of the Code with regard to its interest in the Mortgage Note, with the result that actual or deemed receipts of principal on a Mortgage Note may be treated as the receipt of taxable interest income to the extent of accrued market discount. In particular, in the case of a sale or certain other dispositions of a Mortgage Note subject to the market discount rules, any gain from such sale or disposition will be treated as ordinary income to the extent such payment does not exceed 47 49 the market discount that has accrued on such Mortgage Note during the period in which it was held. A partial principal payment on a Mortgage Note subject to the market discount rules will be included in gross income as ordinary income to the extent such payment does not exceed the market discount that has accrued on such Mortgage Note during the period in which it was held, with adjustments to prevent double inclusion. Generally, market discount accrues under a straight line method, unless the taxpayer elects a constant interest method. However, in the case of installment obligations, such as the Mortgage Notes, Congress has indicated its intent that, until Treasury regulations are issued, holders of installment obligations with market discount may elect to accrue market discount either on the basis of a constant interest rate or, assuming the installment obligation was issued without original issue discount, on the basis of that portion of remaining market discount which corresponds to the ratio of the amount of stated interest paid in the accrual period to the total amount of stated interest remaining to be paid on the installment obligation as of the beginning of such period. Rules are also provided that defer the deduction of part or all of the interest paid or accrued on indebtedness incurred or continued to purchase or carry market discount indebtedness to the extent it exceeds the interest currently includable in income with respect to such market discount indebtedness. As an alternative to the rules stated in this section, taxpayers can elect to include market discount in gross income currently, without regard to the actual or deemed receipt of principal payments, as discussed above. A Beneficial Owner purchasing Certificates subsequent to the creation of the respective Trust at a price which is less than the allocable principal amount of a Mortgage Note should consult its tax advisor with respect to the manner of reporting accrued market discount on its annual tax return and on sale or other disposition of its Certificates. Premium A Beneficial Owner will generally be considered to have acquired an interest in a Mortgage Note at a premium to the extent that its tax basis allocable to such interest, determined as described above, exceeds the principal amount of the Mortgage Note allocable to such interest (or the remaining principal amount of the Mortgage Note allocable to such interest in the case of Certificates purchased subsequent to the creation of the respective Trust). It is anticipated that Certificates will be issued at a premium above the principal amount of the Mortgage Notes because the aggregate principal amount of the Certificates evidencing interests in each Trust will be equal to the aggregate principal amount of the Mortgage Notes held in such Trust plus costs of issuance of the Certificates (see "THE MORTGAGE NOTES, THE LOAN AGREEMENTS AND RELATED DOCUMENTS -- Scheduled Payments"). As a result, initial purchasers of Certificates will be required to include in taxable income the stated interest on the underlying Mortgage Notes, net of premium amortization, calculated as described herein, rather than the stated interest on the Certificates. The existence of a premium with respect to Certificates acquired subsequent to original issuance is, of course, a function of market conditions. A Beneficial Owner owning a Certificate as a capital asset may elect to amortize any such premium as an offset to interest income under section 171 of the Code, with corresponding reductions in the Beneficial Owner's tax basis in that Mortgage Note. Generally, such amortization is on a constant yield basis, based on the Beneficial Owner's yield to maturity. However, Congress has indicated its intent that, until regulations are issued by the Treasury Department, an alternate method of amortization may be used where, as here, installment obligations are involved. Such alternate method is based on the ratio of stated interest paid during a particular period to stated interest remaining to be paid on the Mortgage Note at the beginning of such period, multiplied by the amount of unamortized premium. Beneficial Owners are urged to consult their own tax advisors as to the amount of any such amortizable premium. Sale of Certificates If a Certificate is sold, gain or loss will be recognized equal to the difference between the amount realized on the sale and the Beneficial Owner's adjusted tax basis in the Certificate. Such tax basis will equal the Beneficial Owner's cost for the Certificate, increased by any discount previously included in income, and decreased by any deduction previously allowed for amortization of premium and by the amount of principal payments previously received on the Certificate. Any such gain or loss will be capital gain or loss if the 48 50 Certificate was held as a capital asset for more than one year, except that gain may be treated in whole or in part as ordinary interest income under the market discount rules of the Code. Backup Withholding Payments made on the Certificates, and proceeds from the sale of the Certificates to or through certain brokers, may be subject to a "backup" withholding tax of 31% unless the Beneficial Owner complies with certain reporting procedures or is an exempt recipient under section 6049(b)(4) of the Code. Any such withheld amounts will be allowed as a credit against the Beneficial Owner's federal income tax. STATE AND LOCAL TAX CONSIDERATIONS In addition to the federal income tax consequences described in "Certain Federal Income Tax Consequences," potential investors should consider the state and local income tax consequences of the acquisition, ownership and disposition of the Certificates. State and local 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 law of any state or other political subdivision. Therefore, potential investors should consult their own tax advisors with respect to the various state and local consequences of an investment in the Certificates. ERISA CONSIDERATIONS In considering an investment of the assets of an employee benefit plan in a Certificate, a fiduciary should consider, among other things (i) the purposes, requirements and liquidity needs of such plan; (ii) the plan asset rules under ERISA and the U.S. Department of Labor regulations; (iii) whether the investment satisfies the diversification standards of Section 404(a)(1)(C) of ERISA, (iv) whether the investment is prudent, considering the nature of an investment in the Certificate; and (v) whether the investment can be valued annually. The prudence of a particular investment must be determined by the responsible fiduciary (usually the trustee or investment manager) with respect to each employee benefit plan taking into account all of the facts and circumstances of the investment. Section 406 of ERISA and Section 4975 of the Code prohibit certain pension, profit sharing or other employee benefit plans, individual retirement accounts ("IRAs") or annuity and employee annuity plans from engaging in certain transactions involving "plan assets" with persons that are "parties in interest" under ERISA or "disqualified persons" under the Code with respect to the plan. A violation of these "prohibited transaction" rules may generate excise tax and other liabilities under ERISA and the Code for such persons. The U.S. Department of Labor has issued a regulation (the "Plan Asset Regulation") concerning "plan assets" of certain employee benefit plans (including annuities and individual retirement accounts) that are subject to ERISA or to the prohibited transaction provisions of the Code (collectively referred to as "Benefit Plans"). Under the Plan Asset Regulation the assets and properties of corporations, partnerships and certain other entities in which a Benefit Plan makes an equity investment could be deemed to be assets of the Benefit Plan in certain circumstances. In general, the Plan Asset Regulation applies to the purchase by a Benefit Plan of an "equity interest" in an entity. An equity interest is defined as any interest in an entity other than an instrument that is treated as debt under applicable local law and which has no substantial equity features. Although no assurance can be given that the Certificates will be treated as debt under applicable law, if the Certificates are deemed to be debt rather than equity interests, the Trust's assets would not be treated as plan assets solely as a result of the purchase of a Certificate by a Benefit Plan. If the Certificates represent equity interests, however, and investments are made in a Trust by Benefit Plans, the Trust could be deemed to hold plan assets unless an exception is applicable to the Trust. The Plan Asset Regulation states that an entity's assets will not be deemed to be plan assets if equity participation in the entity by "benefit plan investors" is not significant. Benefit plan investors include employee welfare benefit 49 51 plans and employee pension benefit plans that are employee benefit plans as defined pursuant to Section 3(3) of ERISA, trusts described in Section 401(a) of the Code or plans described in Section 403(a) of the Code, which are exempt from tax under Section 501(a) of the Code, IRAs under Section 408 of the Code and any entity whose underlying assets include plan assets by reason of a plan's investment in the entity. Equity participation in an entity by benefit plan investors is not significant on any date if, immediately after the most recent acquisition of any equity interest in the entity, less than 25% of the value of any class of equity interests in the entity is held by benefit plan investors. If an exception is not applicable, then (i) the prudence standards and other provisions of Part 4 of Title I of ERISA applicable to investments by Benefit Plans (other than IRAs) and their fiduciaries would extend to investments of the Trust; (ii) fiduciaries of Benefit Plans that are subject to ERISA could be liable for investments of the Trust that do not conform to such ERISA standards; (iii) certain transactions that may be entered into between or among the Depositor, the Trustee, the Collateral Trustee, Kmart, or a Subsidiary might be "prohibited transactions" under ERISA and/or the Code; and (iv) the assets of the Trust would be subject to certain reporting and disclosure requirements under ERISA. Finally, fiduciaries of certain types of Benefit Plans are required to determine the fair market value of the assets of the Benefit Plan as of the close of the Benefit Plan's fiscal year. To the extent there is a public market in the Certificates, fiduciaries should be able to value the Benefit Plan's investment; however, no assurances can be given that a public market will develop or that the fiduciary will be able to determine precisely the fair market value of the Certificates. Although the Trustee will provide periodic statements to investors with respect to principal and interest distributions on the Certificates, these statements will not state the fair market value of the Certificates, and neither Kmart, the Depositor nor the Trustee can assume any responsibility for providing such a valuation. In light of the foregoing, fiduciaries of a Benefit Plan considering the purchase of Certificates should consult their own counsel regarding the impact of ERISA and the Code upon such an investment. No transfer of a Certificate will be made unless the Trustee or Pass-Through Trustee has received either (i) a representation letter from the transferee of such Certificate to the effect that such transferee is not a Benefit Plan, or a person acting on behalf of or purchasing for the benefit of any such Benefit Plan, or (ii) in the case of any such Certificate presented for registration in the name of a Benefit Plan, or a trustee of any such Benefit Plan, an opinion of counsel reasonably satisfactory to the Trustee or Pass-Through Trustee to the effect that the purchase or holding of such Certificate will not result in the assets of the Trust or Pass-Through Trust being deemed to be "plan assets" subject to the prohibited transaction provisions of ERISA or the Code, or that the purchase or holding of such Certificates qualifies as an exempt prohibited transaction under the provisions of ERISA or the Code, and will not subject the Trustee, the Pass-Through Trustee or the Depositor to any obligation in addition to those undertaken in the Trust Agreement or Pass-Through Trust Agreement. LEGAL INVESTMENT CONSIDERATIONS The Certificates will not constitute "mortgage related securities" for purposes of the Secondary Mortgage Market Enhancement Act of 1984. There may be restrictions on the ability of certain investors, including depository institutions, either to purchase the Certificates or to purchase 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 Certificates constitute legal investments for such investors. PLAN OF DISTRIBUTION The Certificate offered hereby will be sold through Sutro & Co. Incorporated ("Sutro") or through Sutro and one or more other underwriters or underwriting syndicates. The Prospectus Supplement for each Series will set forth the terms of the offering of such Series, including the name or names of the underwriters, the use of proceeds thereof, and either the initial offering price, the discounts and commissions to the underwriters and any discounts or concessions allowed or reallowed to certain dealers, or the method by which the price at which the underwriters will sell the Certificates will be determined. 50 52 The Certificates of a Series may 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 a fixed public offering price or at varying prices determined at the time of sale. The obligations of any underwriter will be subject to certain conditions precedent and such underwriters will be severally obligated to purchase all the Certificates of a Series described in the related Prospectus Supplement, if any are purchased. The place and time of delivery for the Certificates of a Series in respect of which this Prospectus is delivered will be set forth in the Prospectus Supplement. LEGAL MATTERS The legality of the Certificates and certain other legal matters will be passed upon for the Depositor by Squire, Sanders & Dempsey. Certain legal matters will be passed upon for Kmart by its general counsel and Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, Michigan, and for the underwriter by Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York (relying to the extent necessary on opinions of the general counsel's office of such entities). The material federal income tax consequences of the Certificates will be passed upon by Squire, Sanders & Dempsey. EXPERTS The consolidated financial statements and schedules of Kmart appearing in or incorporated by reference in Kmart's 1993 Annual Report on Form 10-K to the Commission have been examined by Price Waterhouse, independent accountants, to the extent stated in their report incorporated by reference therein and herein. The financial statements referred to are incorporated by reference herein in reliance upon such report and the authority of such firm as experts in accounting and auditing. 51 53 GLOSSARY There follows an abbreviated definition of certain capitalized terms used in this Prospectus and in the Prospectus Supplement. The Trust Agreement, the Pass-Through Trust Agreement, the Collateral Trust Agreement if applicable, and the Loan Agreement may contain a more complete definition of certain of the terms defined herein and reference should be made to such documents for a more complete definition of such terms. If there is a conflict between the definition of any term contained in any agreement referred to in this Prospectus and the definition included herein, the definition contained in such agreement controls. "Assignment of Leases and Rents": Each Assignment of Leases and Rents by and between a Borrower and the Depositor pursuant to which a Borrower will assign to the Depositor all its rights under a Lease and Lease Guaranty, if applicable, including, where permitted by law, a present assignment of its rights to Lease Payments. "Available Distribution Amount": As to any Remittance Date, an amount equal to the amount on deposit in the Certificate Account as of the close of business on the Business Day immediately preceding such Remittance Date. "Bankruptcy Code": Title 11 of the United States Code. "Beneficial Owner": A Person having a beneficial ownership interest in any Certificate which is registered in the name of Cede. "Borrower": A special purpose corporation, limited partnership, limited liability company or other entity which is the obligor under the related Loan Agreement and Mortgage Note and the lessor under the related Lease. "Business Day": Any day other than (i) a Saturday or Sunday, or (ii) a day on which banks in New York or California are required by law to be closed or are customarily closed. "Called Principal": With respect to a Mortgage Note, the principal of such Mortgage Note that is to be paid or prepaid or is declared to be immediately due and payable or, in the case of the purchase of a Mortgage Note under the related Note Put Agreement, the outstanding principal balance of such Mortgage Note. "Called Principal Percentage": The percentage shown on an exhibit to a Loan Agreement and a Note Put Agreement for each corresponding year during the term thereof as designated on such exhibit. "Capitalized Debt Service Account": Each Capitalized Debt Service Account created and maintained pursuant to a Trust Agreement, or a Collateral Trust Agreement if applicable, from which Scheduled Payments on the related Mortgage Note(s) will be made prior to the date Lease Payments are scheduled to commence under the related Lease. "Capitalized Debt Service Reserve": With respect to each Mortgage Loan, an amount equal to all Scheduled Payments due (on a prorated basis) under the related Mortgage Note(s) through the date when Lease Payments under the related Lease will commence as specified in the Prospectus Supplement. "Cede": Cede & Co. as nominee of DTC. "Certificate Account": Each Certificate Account created and maintained pursuant to a Trust Agreement or Pass-Through Trust Agreement. "Certificateholder" or "Holder": The person in whose name a Certificate is registered in the Certificate Register. "Certificate Register": The register maintained pursuant to a Trust Agreement or Pass-Through Trust Agreement. "Certificates": The mortgage pass-through certificates, issuable in Series. "Closing Date": The date on which the sale of a Series is closed and the Certificates issued. "Code": The Internal Revenue Code of 1986, as amended. 52 54 "Collateral": The Collateral for the Mortgage Note(s) issued pursuant to a Loan Agreement will consist of the following: (i) a Mortgage on the related Facility securing such Mortgage Note(s); (ii) all of the Depositor's rights under the Loan Agreement pursuant to which the related Mortgage Note(s) were issued; (iii) an assignment of the related Lease, Lease Payments and Lease Guaranty, if applicable; (iv) a pledge of certain moneys held in certain funds established pursuant to the Trust Agreement or Collateral Trust Agreement, if applicable; (v) a Note Put Agreement requiring the related Tenant and Kmart (if the Tenant is a Subsidiary) to purchase the related Mortgage Note(s) upon the occurrence of a Triggering Event; (vi) an assignment of the Borrower's right, title and interest in and to any Construction Fund Disbursement Agreement and Construction Fund Disbursement Agreement-Common Area related to such Facility; (vii) a pledge of certain investments of fund balances held under the Trust Agreement, or Collateral Trust Agreement if applicable, and income earned thereon; and (viii) any other Loan Documents. "Collateral Trust": A collateral trust created pursuant to a Collateral Trust Agreement. "Collateral Trustee": The bank, trust company or other fiduciary named in the Prospectus Supplement for each Series of Certificates for which a Collateral Trust has been established as the collateral trustee under the Collateral Trust Agreement related to such Series. "Collateral Trustee's Fee": The amount of the annual fee paid to a Collateral Trustee for its ordinary fees and expenses arising under a Collateral Trust Agreement. "Collateral Trust Agreement": An agreement between the Depositor and a Collateral Trustee pursuant to which the Depositor will transfer, convey and assign to such Collateral Trustee all of the Collateral related to Mortgage Notes having different maturities to be held for the benefit, pari passu, of the Pass-Through Trusts holding such Mortgage Notes. "Collateral Trust Property": The corpus of the Collateral Trust created by a Collateral Trust Agreement related to certain Mortgage Notes, consisting of (i) the Collateral related to such Mortgage Notes; (ii) property which secured any related Mortgage Loan and which has been acquired by foreclosure or deed in lieu of foreclosure; and (iii) Insurance Proceeds, Condemnation Proceeds and any other amounts receivable under any related Loan Document. "Commission": The Securities and Exchange Commission. "Common Area": Area used in common by more than one Facility in a shopping center. "Completion Date": With respect to any Note Put Agreement, the second anniversary of the related Mortgage Note(s). "Condemnation Proceeds": Awards in respect of, or settlements in lieu of, condemnation proceedings affecting the Mortgaged Property, net of any amounts to which Tenant is entitled under the Lease in respect of unamortized leasehold improvements by Tenant, Tenant's relocation expenses and Tenant's loss of goodwill. "Consent and Agreement": A Consent and Agreement among a Tenant, Kmart (if the Tenant is a Subsidiary), a Borrower, the Depositor and the Trustee, or Collateral Trustee if applicable, (i) providing for the direct payment of Lease Payments to the Trustee, or Collateral Trustee if applicable, (ii) requiring such Tenant to pay the Trustee's Fee, or Collateral Trustee's Fee if applicable, (iii) requiring such Tenant to pay the premium on certain required environmental insurance, and (iv) concerning certain other matters. "Construction Fund Disbursement Agreement": Each Construction Fund Disbursement Agreement among a Borrower, Tenant, Kmart (if the Tenant is a Subsidiary), the Depositor, a Construction Monitor, if applicable, and an Escrow Agent pursuant to which an Escrow Account will be created and certain procedures regarding the disbursement of the proceeds from a Mortgage Loan for construction of a Facility will be established. "Construction Fund Disbursement Agreement -- Common Area": Each Construction Fund Disbursement Agreement -- Common Area among two or more Borrowers, Kmart, two or more Tenants, the Depositor, a Construction Monitor, if applicable, and an Escrow Agent pursuant to which an Escrow Account 53 55 - -- Common Area will be created and certain procedures for the disbursement of the portion of the proceeds from two or more Mortgage Loans to be used for construction of a Common Area will be established. "Construction Monitor": A party, in some cases, to a Construction Fund Disbursement Agreement or a Construction Fund Disbursement Agreement -- Common Area who is responsible for monitoring the progress of the construction of the related Facility or Common Area. "Debt Service": The principal and interest which is scheduled to be paid with respect to a Series of Certificates in the amounts specified in the Prospectus Supplement on each scheduled Remittance Date. "Definitive Certificates": Certificates issued in fully registered, certificated form to Certificateholders other than DTC or its nominee. "Demised Premises": The interest of a Borrower (which may be fee title ownership or a ground leasehold) in the land on which the Facility is or will be located and which will be leased to a Tenant pursuant to a Lease, including the Borrower's interest in any rights, licenses, privileges and easements appurtenant thereto. "Depositor": National Tenant Finance Corporation, a Delaware corporation and its successors and assigns. "Discounted Prepayment Value": With respect to the Called Principal, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled Due Dates to the Purchase Date with respect to such Called Principal, in accordance with generally accepted financial practice and at a discount factor (applied generally on a semiannual basis) equal to the Reinvestment Yield. "DTC": The Depository Trust Company. "DTC Participants": Those participants for whom DTC holds securities on deposit. "Due Date": With respect to a Mortgage Note, the last Business Day of the month on which each Scheduled Payment is due, exclusive of any days of grace. "ERISA": The Employee Retirement Income Security Act of 1974, as amended. "Escrow Account": An escrow account created pursuant to a Construction Fund Disbursement Agreement. "Escrow Account -- Common Area": An escrow account created pursuant to a Construction Fund Disbursement Agreement -- Common Area. "Escrow Agent": The bank, trust company or other fiduciary named in the Prospectus Supplement for each Series of Certificates as the escrow agent under a Construction Fund Disbursement Agreement or Construction Fund Disbursement Agreement -- Common Area related to such Series. "Event of Default": For any Trust Agreement, Pass-Through Trust Agreement, Collateral Trust Agreement, Mortgage Note or Loan Document, an event of default described in such Trust Agreement, Pass-Through Trust Agreement, Collateral Trust Agreement, Mortgage Note or Loan Document, as the context requires. "Exchange Act": The Securities Exchange Act of 1934, as amended. "Facility": Each Demised Premises and the improvements constructed or to be constructed thereon, as described in the Prospectus Supplement for each Series. "Indemnity Agreement": Each Indemnity Agreement between Kmart and the Depositor when the Tenant is a Subsidiary pursuant to which Kmart will indemnify the Depositor and its successors and assigns in the event that any Lease Payment under the related Lease or Lease Guaranty is asserted to be voidable in any bankruptcy case filed by or against such Subsidiary. 54 56 "Indirect Participants": Those Persons who clear through, or maintain a custodial relationship with, a DTC Participant, either directly or indirectly. "Insurance Proceeds": Proceeds paid by any insurer pursuant to any insurance policy (other than liability insurance) and self-insurance proceeds paid by any of the Tenants or, pursuant to a Lease Guaranty, Kmart with respect to any Mortgaged Property. "Investment Grade Rating": A rating by Standard & Poor's of BBB- or better or a rating by Moody's of Baa3 or better. "Investment Grade Status": The long-term senior secured debt of the entity issuing such debt has continuously had an Investment Grade Rating for a period of not less than 12 full calendar months immediately prior to the related Lease Guaranty Termination. "Kmart" or "Kmart Corporation": Kmart Corporation, a Michigan corporation. "Lease": Each Lease by and between a Tenant and a Borrower pursuant to which such Borrower will lease a Facility to the Tenant described in the Prospectus Supplement for each Series. "Lease Guaranty": Each Lease Guaranty Agreement by and between Kmart and a Borrower pursuant to which Kmart will guarantee to such Borrower the obligations of a Tenant which is a Subsidiary under the related Lease. "Lease Guaranty Termination": The giving of notice by Kmart or a Subsidiary to the Borrower and the Trustee, or the Collateral Trustee if applicable, that Kmart or the Subsidiary has elected to terminate the related Lease Guaranty because such Subsidiary which is a Tenant under the related Lease, the new tenant pursuant to an assignment of the related Lease, or a new guarantor of the performance of such Lease, as the case may be, has achieved Investment Grade Status and provided that certain other conditions are satisfied. "Lease Payments": The annual rental and additional rent payable by a Tenant under a Lease, other than real estate taxes and amounts payable directly to a third party, which will be payable in accordance with such Lease. "Loan Agreement": Each Loan Agreement between a Borrower and the Depositor pursuant to which the Depositor will loan funds to a Borrower to provide permanent financing for, or to finance the acquisition or acquisition and construction of, a Facility described in the Prospectus Supplement for each Series of Certificates. "Loan Documents": Collectively, each Loan Agreement, Mortgage, Assignment of Leases and Rents, Lease, Lease Guaranty, if applicable, Construction Fund Disbursement Agreement, Construction Fund Disbursement Agreement - Common Area, and Note Put Agreement related to a Mortgage Loan, and any other document identified in any Loan Agreement as a Loan Document. "Make-Whole Premium": With respect to any amount of Called Principal of a Mortgage Note, an amount equal to the sum of (x) the positive excess, if any, as of the Purchase Date of the Discounted Prepayment Value of the Called Principal of such Mortgage Note over such Called Principal and (y) an amount equal to the product of the Called Principal multiplied by the Called Principal Percentage. "Moody's": Moody's Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns. "Mortgage": Each Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing by and between the Depositor and a Borrower which will create a first lien priority ownership interest in an estate in fee simple in the Facility securing each Mortgage Note. "Mortgage Loan": Each loan from the Depositor to a Borrower evidenced by one or more Mortgage Notes and secured by a Mortgage and other Collateral. "Mortgage Note": Each promissory note executed and delivered by a Borrower to the Depositor which evidences all or a portion of a Mortgage Loan, which is sold and assigned by the Depositor to the Trustee or 55 57 Pass-Through Trustee and which is the subject of a Trust Agreement or Pass-Through Trust Agreement pursuant to which a Series of Certificates is issued. "Mortgage Note Account": Each Mortgage Note Account created and maintained pursuant to a Collateral Trust Agreement. "Mortgaged Property": The real and personal property securing a Mortgage Note. "Note Put Agreement": Each Note Put Agreement by and among a Tenant, Kmart (if the Tenant is a Subsidiary) and a Depositor pursuant to which the Tenant and Kmart agree to purchase the related Mortgage Note at the Purchase Price upon the occurrence of a Triggering Event. "Pass-Through Trust": A grantor trust created pursuant to a Pass-Through Trust Agreement. "Pass-Through Trustee": The bank, trust company or other fiduciary named in a Prospectus Supplement for a Series of Certificates as the trustee under a Pass-Through Trust Agreement pursuant to which such Series is issued. "Pass-Through Trust Agreement": A Trust Agreement when Mortgage Notes of different maturities are issued pursuant to one or more Loan Agreements. "Pass-Through Trust Property": The corpus of a Pass-Through Trust created by a Pass-Through Trust Agreement for a Series of Certificates, consisting of (i) one or more Mortgage Notes; and (ii) all assets deposited in the Certificate Account, including investments of funds in such account. "Percentage Interest": (i) In the case of property held in a Trust (other than a Collateral Trust) the percentage of the whole undivided beneficial interest in such property held by a holder of one or more Certificates of such Trust and evidenced by such Certificates, and (ii) in the case of property held in a Collateral Trust, the percentage of the whole undivided beneficial interest in such property held indirectly by a holder of one or more Certificates in a Pass-Through Trust having an interest in such Collateral Trust. When used in connection with the exercise of any right which by its terms can be exercised only by holders of Certificates of a single Pass-Through Trust, such term shall mean the percentage of the whole undivided interest in the Mortgage Note(s) owned by such Trust held by a holder of one or more Certificates in such Pass-Through Trust and evidenced by such Certificates. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. "Purchase Date": With respect to the Called Principal of a Mortgage Note or with respect to the purchase of a Mortgage Note pursuant to a Note Put Agreement, the date on which such Called Principal is to be paid or prepaid or is declared to be immediately due and payable under any of the related Loan Documents or the date on which such Mortgage Note is to be purchased. "Purchase Price": The sum of the Called Principal plus the Make-Whole Premium and accrued interest with respect to the Called Principal to the Purchase Date, except that if a Mortgage Note is being purchased pursuant to a Note Put Agreement as a consequence of a Lease Guaranty Termination, the Purchase Price will include the Termination Premium instead of the Make-Whole Premium. "Record Date": The close of business on the fifteenth day preceding the related Remittance Date, except that the Record Date with respect to Scheduled Payments received after the Due Date shall mean the close of business on the fifteenth day preceding the Remittance Date such Scheduled Payments would have been distributable to the Certificateholders if they had been paid on such Due Date. "Reinvestment Yield": With respect to the Called Principal of a Mortgage Note, the sum of (x) the yield to maturity implied by the following: (i) the yields reported, as of 10:00 a.m. (New York City time) on the third Business Day preceding the Purchase Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal (as nearly as 56 58 practicable) to the Remaining Average Life of the Called Principal being paid or prepaid as of such Purchase Date, or (ii) if such yields have been reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series yields reported, for the latest day for which such yields have not been so reported as of the third Business Day preceding the Purchase Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal (as nearly as practicable) to the Remaining Average Life of the Called Principal being paid or prepaid as of such Purchase Date; and (y) 50 basis points. Such implied yield will be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between reported yields. "Remaining Average Life": With respect to any amount of Called Principal of a Mortgage Note, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (excluding interest thereon) by (b) the number of years (calculated to the nearest one-twelfth year) which will elapse between the Purchase Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments": With respect to the Called Principal, all payments of such Called Principal and interest thereon that would be due on or after the Purchase Date with respect to such Called Principal if no payment of such Called Principal were made prior to its maturity date. "Remittance Date": Each date specified in the Prospectus Supplement for each Series of Certificates on which principal of, and/or interest on, the Mortgage Notes is distributable to the Certificateholder or such other date on which a distribution is made to Certificateholders as a result of the prepayment or other liquidation of a Mortgage Note or as a result of the sale of a Mortgage Note pursuant to the related Note Put Agreement. "Rental Payment Account": Each Rental Payment Account created and maintained pursuant to a Trust Agreement or a Collateral Trust Agreement if applicable. "Scheduled Payments": Payments of principal of, if any, and interest on, a Mortgage Note held in a Trust or a Pass-Through Trust which will be scheduled to be received by the Trustee or Collateral Trustee on each Due Date. "Securities Act": The Securities Act of 1933, as amended. "Series": A group of Certificates issued by a separate Trust or Pass-Through Trust. "Standard & Poor's" or "S&P": Standard & Poor's Ratings Group or its successor in interest. "Subsidiary": One or more of the following subsidiaries of Kmart identified in the related Prospectus Supplement as the Tenant under a related Lease: Borders, Inc.; Walden Book Company Inc.; Builders Square, Inc.; OfficeMax Inc.; or The Sports Authority, Inc. "Tenant": The lessee under each Lease named in the Prospectus Supplement for each Series of Certificates, which lessee will be either Kmart or a Subsidiary. "Termination Premium": With respect to any Mortgage Note, an amount equal to the unpaid principal balance of such Mortgage Note multiplied by a percentage as set forth in the related Prospectus Supplement. "Triggering Event": With respect to a Note Put Agreement, (a) (i) the failure by a Tenant to pay when due any related Lease Payment within 10 days (or 30 days if the Tenant is Kmart) after notice to such Tenant of such default and (ii) if the Tenant is a Subsidiary, the failure by Kmart to pay such Lease Payment within 30 days after notice to Kmart of such Subsidiary's failure to do so (which notice may be given concurrently with the corresponding notice to such Subsidiary), (b) completion of construction of the Facility to be leased to the Tenant does not occur prior to the related Completion Date, or (c) if the Tenant is a Subsidiary, a Lease Guaranty Termination occurs. 57 59 "Trust": A grantor trust created pursuant to a Trust Agreement. "Trust Agreement": An agreement between the Depositor and the Trustee pursuant to which a Series of Certificates will be issued and, if Mortgage Notes having the same maturity are issued pursuant to a Loan Agreement, pursuant to which the Collateral with respect to the related Mortgage Notes will be held. "Trust Indenture Act": The Trust Indenture Act of 1939, as amended. "Trust Property": The corpus of the Trust created by a Trust Agreement for each Series of the Certificates, consisting of (i) one or more Mortgage Notes; and (ii) all assets deposited in the Certificate Account, including the investment of funds in such account. If Mortgage Notes of the same maturity are issued pursuant to the related Loan Documents, then any Trust Property will also include: (i) all rights which secure the obligations of the Borrowers of the proceeds of such Mortgage Notes, (ii) all related Loan Documents and any rights thereunder of holders of the Mortgage Notes; (iii) property which secured the related Mortgage and which has been acquired by foreclosure or deed in lieu of foreclosure; and (iv) Insurance Proceeds, Condemnation Proceeds and any other amounts receivable under any related Loan Document. "Trustee": The bank, trust company or other fiduciary named in a Prospectus Supplement for a Series of Certificates as the trustee under a Trust Agreement pursuant to which such Series is issued. "Trustee's Fee": The amount of the annual fee(s) paid to the Pass-Through Trustees, if applicable, or the Trustee for its ordinary fees and expenses arising under the Pass-Through Trust Agreements, if applicable, or the Trust Agreement. 58 60 - --------------------------------------------------------------- - --------------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE CERTIFICATES OFFERED HEREBY, NOR AN OFFER OF THE CERTIFICATES IN ANY STATE OR JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR ANY PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE; HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY. ------------------ TABLE OF CONTENTS
PAGE ---- Available Information........................ 2 Reports to Certificateholders................ 2 Incorporation of Certain Documents by Reference.................................. 2 Prospectus Summary........................... 3 Special Considerations....................... 9 Kmart........................................ 11 The Depositor................................ 13 Use of Proceeds.............................. 13 Diagrams of Transaction Structure............ 14 Structure of the Financings.................. 18 The Certificates............................. 19 The Trusts, Pass-Through Trusts and Collateral Trusts.......................... 25 The Mortgage Notes, the Loan Agreements and Related Documents.......................... 34 The Note Put Agreements...................... 38 The Leases, the Lease Guaranties and Related Documents.................................. 39 The Borrowers................................ 44 Consequences of Bankruptcy of a Tenant or a Borrower................................... 45 Certain Federal Income Tax Consequences............................... 46 State and Local Tax Considerations........... 49 ERISA Considerations......................... 49 Legal Investment Considerations.............. 50 Plan of Distribution......................... 50 Legal Matters................................ 51 Experts...................................... 51 Glossary..................................... 52
UNTIL 90 DAYS AFTER THE DATE OF THIS PROSPECTUS SUPPLEMENT ALL DEALERS EFFECTING TRANSACTIONS IN THE CERTIFICATES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS SUPPLEMENT AND A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. - --------------------------------------------------------------- - --------------------------------------------------------------- --------------------------------------------------------------- --------------------------------------------------------------- $250,000,000 KMART CORPORATION MORTGAGE PASS-THROUGH CERTIFICATES ------------------------ PROSPECTUS ------------------------ SUTRO & CO. INCORPORATED --------------------------------------------------------------- --------------------------------------------------------------- 61 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION SEC Filing Fee.................................................................. $86,206.90 Printing and Engraving.......................................................... * Legal Fees and Expenses......................................................... * Trustee Fees and Expenses....................................................... * Blue Sky Fees and Expenses (including fees and expenses of counsel)............. * Rating Agency Fees.............................................................. * Miscellaneous Expenses.......................................................... * ---------- Total...................................................................... =========
- ------------------------- * To be supplied by amendment. ITEM 15. INDEMNIFICATION OF OFFICERS AND DIRECTORS The Registrant's By-Laws and the Michigan Business Corporation Act permit the Registrant's officers and directors to be indemnified under certain circumstances for expenses, and in some instances, for judgments, fines or amounts paid in settlement of civil, criminal, administrative and investigative suits or proceedings, including those involving alleged violations of the Securities Act of 1933. In addition, the Registrant maintains directors' and officers' liability insurance which, under certain circumstances, would cover alleged violations of the Securities Act of 1933. ITEM 16. EXHIBITS
EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------------------------------- 1.1 Form of Underwriting Agreement* 3.1 Certificate of Incorporation of National Tenant Finance Corporation* 3.2 By-Laws of National Tenant Finance Corporation* 4.1 Form of Trust Agreement between the Depositor and the Trustee 4.2 Form of Pass-Through Trust Agreement between the Depositor and the Pass-Through Trustee 4.3 Form of Collateral Trust Agreement between the Depositor and the Collateral Trustee 4.4 Form of Certificate used with Trust Agreement (included in 4.1) 4.5 Form of Certificate used with Pass-Through Trust Agreement (included in 4.2) 4.6 Form of Loan Agreement 4.7 Form of Mortgage Note 4.8 Form of Leases 4.9 Form of Lease Guaranty 4.10 Form of Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing 4.11 Form of Assignment of Leases and Rents 4.12 Form of Construction Fund Disbursement Agreement 4.13 Form of Construction and Disbursement Agreement -- Common Area 4.14 Form of Note Put Agreement 4.15 Form of Consent and Agreement 4.16 Form of Indemnity Agreement 5.1 Opinion of Squire, Sanders & Dempsey regarding validity of Certificates, including consent*
II-1 62
EXHIBIT NO. DESCRIPTION - ----------- --------------------------------------------------------------------------------- 8.1 Opinion of Squire, Sanders & Dempsey as to certain tax matters, including consent* 12 Computation of Ratio of Earnings to Fixed Charges 23.1 Consent of Price Waterhouse 23.2 Consent of Squire, Sanders & Dempsey (included in Exhibit 5.1)* 23.3 Consent of Squire, Sanders & Dempsey (included in Exhibit 8.1)* 24.1 Power of Attorney (included as part of signature page of this Registration Statement) 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Trustee*
- ------------------------- * To be filed by amendment ITEM 17. UNDERTAKINGS. 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 unless the information required to be included in such post-effective amendment is contained in a periodic report filed by the Registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 and incorporated herein by reference; (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 unless the information required to be included in such post-effective amendment is contained in a periodic report filed by the Registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 and incorporated herein by reference; (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. (2) That, for the purpose of determining any liability under the Securities Act of 1933, 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. The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the 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. If the Trustee is not identified until after the Registration Statement is declared effective, the undersigned registrant hereby undertakes to file an application for the purpose of determining the eligibility of the trustee to II-2 63 act under subsection (a) of section 310 of the Trust Indenture Act of 1939, as amended (the "TIA"), in accordance with the rules and regulations prescribed by the Commission under section 305(b)(2) of the TIA. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described under 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 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 against the Registrant 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 whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. The undersigned registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof. II-3 64 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this Registration Statement or amendment thereto to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Troy, State of Michigan, on June 7, 1994. KMART CORPORATION By: /s/ JOSEPH E. ANTONINI ------------------------------------ Joseph E. Antonini Chairman of the Board, President and Chief Executive Officer POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Anthony N. Palizzi or Nancie W. LaDuke, or either of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for and in his name, place and stead, in any and all capacities, to sign any or all amendments (including post-effective amendments) to this Registration Statement, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as might or could be done in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitute or substitutes may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement or amendment thereto has been signed below by the following persons in their capacities indicated on June 7, 1994.
SIGNATURE TITLE - --------------------------------------------- --------------------------------------- /s/ JOSEPH E. ANTONINI Chairman of the Board, President - --------------------------------------------- (Principal Executive Officer) and Joseph E. Antonini Director /s/ THOMAS F. MURASKY Executive Vice President - --------------------------------------------- (Principal Financial and Accounting Thomas F. Murasky Officer) /s/ LILYAN H. AFFINITO Director - --------------------------------------------- Lilyan H. Affinito /s/ JOSEPH A. CALIFANO, JR. Director - --------------------------------------------- Joseph A. Califano, Jr. /s/ WILLIE D. DAVIS Director - --------------------------------------------- Willie D. Davis /s/ ENRIQUE C. FALLA Director - --------------------------------------------- Enrique C. Falla
II-4 65 SIGNATURE TITLE --------- ----- /s/ JOSEPH P. FLANNERY Director - --------------------------------------------- Joseph P. Flannery /s/ DAVID B. HARPER Director - --------------------------------------------- David B. Harper /s/ F. JAMES MCDONALD Director - --------------------------------------------- F. James McDonald /s/ RICHARD S. MILLER Director - --------------------------------------------- Richard S. Miller /s/ J. RICHARD MUNRO Director - --------------------------------------------- J. Richard Munro Director - --------------------------------------------- Donald S. Perkins /s/ GLORIA M. SHATTO Director - --------------------------------------------- Gloria M. Shatto /s/ JOSEPH R. THOMAS Director - --------------------------------------------- Joseph R. Thomas II-5 66 EXHIBIT INDEX
SEQUENTIALLY NUMBERED EXHIBIT NO. DESCRIPTION PAGES - ----------- ---------------------------------------------------------------------- ------------ 1.1 Form of Underwriting Agreement* 3.1 Certificate of Incorporation of National Tenant Finance Corporation* 3.2 By-Laws of National Tenant Finance Corporation* 4.1 Form of Trust Agreement between the Depositor and the Trustee 4.2 Form of Pass-Through Trust Agreement between the Depositor and the Pass-Through Trustee 4.3 Form of Collateral Trust Agreement between the Depositor and the Collateral Trustee 4.4 Form of Certificate used with Trust Agreement (included in 4.1) 4.5 Form of Certificate used with Pass-Through Trust Agreement (included in 4.2) 4.6 Form of Loan Agreement 4.7 Form of Mortgage Note 4.8 Form of Leases 4.9 Form of Lease Guaranty 4.10 Form of Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing 4.11 Form of Assignment of Leases and Rents 4.12 Form of Construction Fund Disbursement Agreement 4.13 Form of Construction and Disbursement Agreement -- Common Area 4.14 Form of Note Put Agreement 4.15 Form of Consent and Agreement 4.16 Form of Indemnity Agreement 5.1 Opinion of Squire, Sanders & Dempsey regarding validity of Certificates, including consent* 8.1 Opinion of Squire, Sanders & Dempsey as to certain tax matters, including consent* 12 Computation of Ratio of Earnings to Fixed Charges 23.1 Consent of Price Waterhouse 23.2 Consent of Squire, Sanders & Dempsey (included in Exhibit 5.1)* 23.3 Consent of Squire, Sanders & Dempsey (included in Exhibit 8.1)* 24.1 Power of Attorney (included as part of signature page of this Registration Statement) 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of Trustee*
- ------------------------- * To be filed by amendment
EX-4.1 2 EXHIBIT 1 EXHIBIT 4.1 _______________ TRUST AGREEMENT _______________ between NATIONAL TENANT FINANCE CORPORATION as Depositor and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee _____________________________ Dated as of_______ __, 199_ _____________________________ $_________ Mortgage Pass-Through Certificates (___________________) Series 199_-__ _________________________________________________________________ 2 CROSS REFERENCE SHEET
TIA Section Trust Agreement Section 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 8.07 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 8.07 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . 8.06 (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . * (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . 8.07 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.07; 8.08; 11.08 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . * (b) . . . . . . . . . . . . . . . . . . . . . . . . . . * (c) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.02 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . * (c) . . . . . . . . . . . . . . . . . . . . . . . . . . * 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.15 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . * (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . * (c) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.15; 11.08 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.15 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . * (b) . . . . . . . . . . . . . . . . . . . . . . . . . . * (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 11.13 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 11.13 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . * (d) . . . . . . . . . . . . . . . . . . . . . . . . . . * (e) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.14 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . * 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.03 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . * 316(a) last sentence . . . . . . . . . . . . . . . . . . . Definition of "Certificateholder" (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 7.04 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 7.02 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . * 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . * (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . * (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.05
1 3
TIA Section Trust Agreement Section 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.12 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . * (c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.12 - ----------------------
* Intentionally deleted. 2 4 TABLE OF CONTENTS
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02. Incorporation by Reference of Trust Indenture Act. . . . . . . 11 Section 1.03. Acts of Holders. . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE II CONVEYANCE OF MORTGAGE LOAN[S]; TRUST PROPERTY Section 2.01. Conveyance of Mortgage Loan[s] . . . . . . . . . . . . . . . . 12 Section 2.02. Acceptance by Trustee. . . . . . . . . . . . . . . . . . . . . 13 Section 2.03. Trust Property. . . . . . . . . . . . . . . . . . . . . . . . 14 Section 2.04. Limitation of Powers. . . . . . . . . . . . . . . . . . . . . 14 ARTICLE III THE CERTIFICATES Section 3.01. The Certificates. . . . . . . . . . . . . . . . . . . . . . . 14 Section 3.02. Registration of Transfer and Exchange of Certificates . . . . 17 Section 3.03. Mutilated, Destroyed, Lost or Stolen Certificates . . . . . . 19 Section 3.04. Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . 19 Section 3.05. Appointment of Paying Agent . . . . . . . . . . . . . . . . . 19 Section 3.06. Certificates Issuable in the Form of a Registered Global Certificate. . . . . . . . . . . . . . . . 19 Section 3.07. Temporary Securities. . . . . . . . . . . . . . . . . . . . . 21 ARTICLE IV RECEIPT AND DISTRIBUTION OF INCOME AND PROCEEDS FROM THE TRUST PROPERTY Section 4.01. Calculation of Distributions. . . . . . . . . . . . . . . . . 22 Section 4.02. Receipt of Lease Payments; Collection of Lease and Lease Guaranty Payments; Collection of Indemnity Agreement Payments; Collection of Mortgage Loan Payments; Investment Direction. . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section. 4.03. Establishment of Rental Payment Account[s]; Deposits in Rental Payment Account[s] . . . . . 24 Section. 4.04. Permitted Withdrawals From the Rental Payment Account[s]. . . 24 Section. 4.05. Establishment of Certificate Account; Deposits in Certificate Account. . . . . . . . . . . . . . . 25 Section. 4.06. Permitted Withdrawals From the Certificate Account. . . . . . . 26 Section. 4.07. Capitalized Debt Service Account[s]. . . . . . . . . . . . . . 27 Section. 4.08. Realization Upon Defaulted Mortgage Loan. . . . . . . . . . . 28 Section. 4.09. Trustee Compensation . . . . . . . . . . . . . . . . . . . . . 29
5 Section 4.10. Rights of the Certificateholders . . . . . . . . . . . . . . . 29
ARTICLE V PAYMENTS TO THE CERTIFICATEHOLDERS Section 5.01. Distributions. . . . . . . . . . . . . . . . . . . . . . . . . 29 Section 5.02. Statements to Certificateholders. . . . . . . . . . . . . . . 30 Section 5.03. Advances by Trustee. . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VI THE DEPOSITOR Section 6.01. Maintaining Corporate Existence of the Depositor. . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.02. Limitation on Liability of the Depositor. . . . . . . . . . . 32 ARTICLE VII DEFAULT Section 7.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . 32 Section 7.02. Waiver of Defaults. . . . . . . . . . . . . . . . . . . . . . 33 Section 7.03. Notification to Certificateholders. . . . . . . . . . . . . . 33 Section 7.04. Rights of Certificateholders to Direct Proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 7.05. Rights of Certificateholders to Receive Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 7.06. Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . 34 Section 7.07. Trustee Default. . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 7.08. Notice to Tenant[s] and [Kmart] . . . . . . . . . . . . . . . 34 ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . 34 Section 8.02. Certain Matters Affecting Trustee. . . . . . . . . . . . . . . 36 Section 8.03. Trustee Not Liable for Certificates or Mortgage Loan[s]. . . . . . . . . . . . . . . . . . . . . 37 Section 8.04. Trustee May Own Certificates. . . . . . . . . . . . . . . . . 37 Section 8.05. Trustee's Fee and Expenses. . . . . . . . . . . . . . . . . . 37 Section 8.06. Action by Co-Trustee. . . . . . . . . . . . . . . . . . . . . 38 Section 8.07. Eligibility Requirements for Trustee. . . . . . . . . . . . . 38 Section 8.08. Resignation and Removal of Trustee. . . . . . . . . . . . . . 39 Section 8.09. Successor Trustee. . . . . . . . . . . . . . . . . . . . . . . 40 Section 8.10. Merger or Consolidation of Trustee. . . . . . . . . . . . . . 40 Section 8.11. Resignation of Co-Trustee. . . . . . . . . . . . . . . . . . . 41 Section 8.12. Removal of Co-Trustee. . . . . . . . . . . . . . . . . . . . . 41 Section 8.13. Appointment of Successor to Co-Trustee. . . . . . . . . . . . 41 Section 8.14. Succession of Successor to Co-Trustee. . . . . . . . . . . . . 41 Section 8.15. Reports by the Trustee to Certificateholders. . . . . . . . . 42 ARTICLE IX TERMINATION Section 9.01. Termination. . . . . . . . . . . . . . . . . . . . . . . . . . 42 Section 9.02. Notice; Final Distribution. . . . . . . . . . . . . . . . . . 42
ii 6 ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT AND OTHER DOCUMENTS; ADDITIONAL AGREEMENTS OF TRUSTEE Section 10.01. Supplemental Trust Agreements Without Consent of Holders. . . 43 Section 10.02. Supplemental Agreements With Consent of Certificateholders. . . 44 Section 10.03. Effect of Supplemental Agreement. . . . . . . . . . . . . . . . 45 Section 10.04. Documents to Be Given to Trustee. . . . . . . . . . . . . . . . 46 Section 10.05. Notation on Certificates in Respect of Supplemental Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 10.06. Granting of Easements . . . . . . . . . . . . . . . . . . . . . 46
ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Severability of Provisions. . . . . . . . . . . . . . . . . . 46 Section 11.02. Limitation on Rights of Certificateholders. . . . . . . . . . 47 Section 11.03. Solicitation of Certificateholders. . . . . . . . . . . . . . 47 Section 11.04. Recordation of Agreement. . . . . . . . . . . . . . . . . . . 48 Section 11.05. Duration of Agreement. . . . . . . . . . . . . . . . . . . . . 48 Section 11.06. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 11.07. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 11.08. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 11.09. Submission to Jurisdiction. . . . . . . . . . . . . . . . . . 49 Section 11.10. Gender; Number. . . . . . . . . . . . . . . . . . . . . . . . 50 Section 11.11. TIA Controls. . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 11.12. Certificate and Opinion as to Conditions Precedent . . . . . . 50 Section 11.13. Statements Required in Certificate or Opinion . . . . . . . 50 Section 11.14. Benefits of Trust Agreement. . . . . . . . . . . . . . . . . . 50 EXHIBIT A-1 MORTGAGE LOAN SCHEDULE EXHIBIT A-2 CERTIFICATE SCHEDULE EXHIBIT A-3 CONTENTS OF MORTGAGE FILE EXHIBIT A-4 CAPITALIZED DEBT SERVICE ACCOUNT SCHEDULE EXHIBIT B [FORM OF CERTIFICATE] EXHIBIT C FORM OF TRUSTEE CERTIFICATION EXHIBIT D LETTER OF REPRESENTATIONS
iii 7 TRUST AGREEMENT THIS TRUST AGREEMENT, dated as of _______ __, 19__, is executed by and among NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation, as depositor (together with its permitted successors, in such capacity, "Depositor"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation, as trustee (together with its permitted successors and assigns, "Trustee"). In consideration of the premises and the mutual agreements hereinafter set forth, the Depositor and the Trustee agree as follows: PREFACE Each Certificate evidences a beneficial ownership interest in the Trust Property, the assets of which include, among other things, the Mortgage Loan[s]. The Certificates are equally and ratably secured by and payable from the proceeds of the Mortgage[s] and the Mortgage Note[s], respectively (as each such term is defined herein). Each Certificate is paid interest or principal and interest, as set forth on the Debt Service schedule on such Certificate, on a semiannual basis referred to herein as the Remittance Dates. Payments under the Mortgage Note[s] are payable semiannually on the Due Dates. ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. Whenever used herein, the following words and phrases, unless the context otherwise requires, shall have the following meanings: "Additional Rent": [With respect to each Lease] has the meaning assigned in Article 5 of [the] [such] Lease. "Administrative Expenses": The ordinary and necessary expenses incurred by the Trustee in the course of administering the affairs of the Trust, excluding any Liquidation Expenses. "Annual Rental": [With respect to each Lease] has the meaning assigned in Article 4 of [the] [such] Lease. "Assignment of Mortgage[s]": The Assignment of the Mortgage[s] dated as of ____________________, 19__ between Depositor and Trustee, the Assignment of Lease Assignment[s] dated as of ____________________, 19__, between Depositor and Trustee, and any other notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction[s] 8 where the Mortgaged Estate securing [each] [the] Mortgage Loan is located to reflect of record the sale, conveyance, transfer and absolute assignment of the Mortgage[s] to the Trustee. "Available Distribution Amount": As to any Remittance Date, an amount equal to the amount on deposit in the Certificate Account as of the close of business on the Business Day immediately preceding the Remittance Date. "Benefit Plan": An employee benefit plan as defined in Section 3(3) of ERISA, including an employee welfare benefit plan or an employee pension benefit plan, a plan described in Section 401(a) or Section 403(a) of the Code, the trust under which is exempt from tax under Section 501(a) of the Code, an individual retirement account under Section 408(a) of the Code or an individual retirement annuity under Section 408(b) of the Code, and any entity whose underlying assets include Benefit Plan assets by reason of a Benefit Plan's investment in such entity. "Borrower": [The] [A] Borrower identified in [the] [a] Loan Agreement. "Business Day": Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking or savings and loan institutions in New York or California, or the city in which the principal corporate trust offices of any successor Trustee are located, are authorized or obligated by law or executive order to be closed. "Called Principal Percentage": With respect to any Mortgage Note, has the meaning assigned to it in Section 2 of the related Loan Agreement. ["Capitalized Debt Service Account": [The] [Each] trust account described in Section 4.07.] ["Capitalized Debt Service Reserve": Has the meaning assigned thereto in Section 2 of [the] [each] Loan Agreement.] "Certificate" or "Certificates": The Certificate or Certificates evidencing a beneficial ownership interest in the Trust Property executed and authenticated by the Trustee substantially in the form set forth in Exhibit B hereto. "Certificate Account": The trust account described in Section 4.05. "Certificate Balance": With respect to all the Certificates, the original principal amount of the Certificates less all payments and prepayments of principal thereof, including without limitation any payments of principal comprising Debt Service; and with respect to any Certificate, the original principal amount of such Certificate less all payments and prepayments of principal thereof, including without limitation any payments of principal comprising Debt Service on such Certificate. 2 9 "Certificateholder", "Certificateholders", "Holder" or "Holders": The person or persons in whose name a Certificate is registered in the Certificate Register, except that, solely for the purposes of any consent, waiver, request or demand pursuant to this Trust Agreement, any Certificate registered in the name of the Depositor, Kmart, a Tenant, a Borrower, any successor owner or ground lessee of a Project, any successor tenant or subtenant of a Project, any successor guarantor of the performance of a Tenant or successor tenant, or any affiliate of any of the foregoing, shall be deemed not to be outstanding and the Percentage Interest evidenced thereby shall not be taken into account in determining whether the requisite amount of Percentage Interests necessary to effect any such consent, waiver, request or demand has been obtained. "Certificate Owner": Any Person acquiring a beneficial interest in a Registered Global Certificate, which ownership shall be reflected on the books of the Depository or on those of a participant in such Depository. Solely for the purposes of any consent, waiver, request or demand pursuant to this Trust Agreement, any portion of a Registered Global Certificate that is beneficially owned by the Depositor, Kmart, a Tenant, a Borrower, any successor owner or ground lessee of a Project, any successor tenant or subtenant of a Project, any successor guarantor of the performance of a Tenant or successor tenant, or any affiliate of any of the foregoing, shall be deemed not to be outstanding and the Percentage Interest evidenced by such portion shall not be taken into account in determining whether the requisite amount of Percentage Interests necessary to effect any such consent, waiver, request or demand has been obtained. "Certificate Register": The register maintained pursuant to Section 3.02. "Certificate Schedule": The Certificate Schedule attached hereto as Exhibit A-2 setting forth the following information for each Certificate issued as of the Closing Date: (i) the Certificate Number; (ii) the Certificate Balance as of the Closing Date; and (iii) the Debt Service on such Certificate. "Closing Costs": An amount equal to $_____________ which shall be disbursed to the Underwriters on the Closing Date. "Closing Date": _______ __, 199_. "Code": The Internal Revenue Code of 1986, as amended. "Condemnation Proceeds": Any awards in respect of, or settlements in lieu of, condemnation proceedings affecting [the] [a] Mortgaged Estate. "Consent and Agreement": [A] [The] Consent and Agreement among Kmart, Depositor, [a] Borrower, [a] Tenant and Trustee relating to [a] [the] Lease, [a] [the] Lease Guaranty, [a] [the] Note Put Agreement and certain other related matters. 3 10 "Corporate Trust Office": The office of the Trustee in the State of California at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this instrument is located at Suite 2700, 555 South Flower Street, Los Angeles, California 90071. "Debt Service": The interest or interest and principal payable semiannually on the Remittance Date as stated on a specific Certificate, as adjusted from time to time as provided in Section 3.01(g) hereof. "Depositor": National Tenant Finance Corporation, a Delaware corporation, and its successors in interest. "Depository": The depository of the Registered Global Certificate[s], if any, representing the Certificates and any successor to such depository appointed by the Depositor. Such depository initially shall be The Depository Trust Company, a New York corporation. "Determination Date": The Business Day immediately preceding a Remittance Date. "Due Date": [With respect to each Mortgage Note,] a Note Payment Date as defined in the [related] Loan Agreement. "Eligible Investments": One or more of the following: (i) direct obligations of the United States of America; (ii) obligations fully guaranteed, both as to principal and interest, by the United States of America; (iii) certificates of deposit issued by, or bankers' acceptances of, or time deposits with, a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition thereof, rated in the highest rating category for such securities by S&P and Moody's; and (iv) taxable government money-market portfolios restricted to obligations with maturities of one year or less, issued or guaranteed by the full faith and credit of the United States which, at the time of such investment, are then rated in the highest rating category of S&P and Moody's (the "highest rating category" as used in this definition shall mean (A) a rating which would be assigned by S&P, as of the date first above written, equivalent to or higher than "AAAm" or "AAAmG" with respect to money-market securities and (B) a rating which would be assigned by Moody's as of the date first above written, equivalent to or higher than "Am" with respect to money-market securities); 4 11 provided that any such obligations of the types described in clauses (i) through (iv) above shall not have a maturity later than the earlier of 90 days and the Due Date immediately following the acquisition thereof or, in the case of the Certificate Account, the date when any funds being invested are to be distributed to the Certificateholders; provided further, that any such obligations of the types described in clauses (i) and (ii) above may be made through a repurchase agreement in commercially reasonable form with a bank or other financial institution (which may be the Trustee) the senior unsecured debt of which is then assigned an A rating or better by S&P or Moody's, so long as title to the underlying obligations shall pass to the Trustee and that such underlying obligations shall be segregated in a custodial or trust account of or for the benefit of the Trustee. "ERISA": The Employee Retirement Income Security Act of 1974, as amended. "Event of Default": Any event of default described in Section 7.01. "Exchange Act": The Securities Exchange Act of 1934, as amended. "Extraordinary Expense Advances": All reasonable and necessary "out-of-pocket" costs and expenses of the Trustee in enforcing the Mortgage Note[s] and the Loan Documents following an Event of Default under Section 7.01 hereof (except for a Non-Monetary Tenant Default), and in compliance with the obligations of the Trustee under Section 4.08. "FDIC": Federal Deposit Insurance Corporation or any successor organization. "Indemnity Agreement": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.1 of the [related] Loan Agreement. "Insurance Proceeds": Proceeds paid by any insurer pursuant to any insurance policy, including but not limited to title insurance, environmental insurance and self-insurance proceeds paid by Kmart or any Tenant, covering all or a portion of the Mortgaged Estate. "Kmart": Kmart Corporation, a Michigan corporation, and its successors and assigns. "Lease": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.1 of the [related] Loan Agreement. "Lease Guaranty": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.1 of the [related] Loan Agreement. 5 12 "Lease Guaranty Termination": [With respect to any Mortgage Loan] a Lease Guaranty Termination as defined in the [related] Note Put Agreement. "Letter of Representations": A letter (in the form attached hereto as Exhibit D) from the Depositor and the Trustee to, and accepted by, the Depository, as such letter may be modified or supplemented, or any successor letter thereto. "Liquidated Mortgage Loan": [A] [The] Mortgage Loan after an Event of Default under the [related] Loan Agreement when the Trustee has reasonably determined that all amounts which it expects to recover from or on account of such Mortgage Loan have been recovered. "Liquidation Expenses": Expenses which are incurred by the Trustee in connection with the liquidation of a defaulted Mortgage Loan, such expenses including, without limitation, legal fees and expenses, any unreimbursed amount expended by the Trustee pursuant to Section 4.08 (to the extent such amount is reimbursable under the terms of Section 4.08) respecting such Mortgage Loan and any related and unreimbursed expenditures for real estate property taxes or for property restoration or preservation. "Liquidation Proceeds": Cash (including Insurance Proceeds and Condemnation Proceeds) received by the Trustee in connection with the liquidation of [a] [the] defaulted Mortgage Loan, whether through the sale of such defaulted Mortgage Loan, the sale of the Mortgaged Estate securing such defaulted Mortgage Loan pursuant to foreclosure sale or otherwise, or revenues from or the sale of the related Mortgaged Estate if such Mortgaged Estate is acquired in satisfaction of such defaulted Mortgage Loan, other than amounts required to be paid to the Borrower pursuant to law or the terms of the related Mortgage Note. "Loan Agreement": [With respect to each Mortgage Note,] the [related] Loan Agreement between Depositor and [a] Borrower, pursuant to the terms and conditions of which the [related] Mortgage Loan was made. "Loan Documents": [With respect to each Mortgage Loan,] the [related] Note Put Agreement, the related Loan Agreement, the related Mortgage and each document in the Mortgage File [pertaining to such Mortgage Loan], and each other document which constitutes a Loan Document pursuant to the terms and provisions of [such] [the] Loan Agreement. "Make-Whole Premium": [With respect to each Mortgage Note,] has the meaning assigned to it in Section 2 of the [related] Loan Agreement. The Trustee shall be provided with a certificate evidencing the calculation of such amount by the Depositor. "Moody's": Moody's Investors Service, Inc., a Delaware corporation, its successors and assigns. 6 13 "Mortgage": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.2 of the [related] Loan Agreement. "Mortgage File": The items referred to in Exhibit A-3 annexed hereto pertaining to the Mortgage Loan[s]. "Mortgage Loan": The loan pursuant to [a] [the] Loan Agreement together with all right, title and interest of Depositor relating thereto, evidenced by the [related] Mortgage Note and secured by the [related] Mortgage, which Mortgage Loan was sold, conveyed, transferred and absolutely assigned by the Depositor to the Trustee and which is the subject of this Trust Agreement and included in the Trust Property. [Each] [The] Mortgage Loan is identified on the Mortgage Loan Schedule annexed hereto as Exhibit A-1. "Mortgage Loan Schedule": The schedule attached hereto as Exhibit A-1 setting forth the following information for the Mortgage Loan[s]: (i) [each] [the] Borrower's name; (ii) the Mortgaged Estate[s]; (iii) the maturity date[s]; (iv) [each] [the] Mortgage Note rate; (v) the first Due Date; (vi) a schedule setting forth the Mortgage Payments; and (vii) the original Principal Balance of [each] [the] Mortgage Loan. "Mortgage Note": [A] [The] promissory note, executed by [a] [the] Borrower as obligor and having [a] [the] maturity date and Mortgage Note rate specified in the Mortgage Loan Schedule, secured by [a] [the] Mortgage. "Mortgage Payments": The scheduled payments set forth in Exhibit A-1 of interest or principal and interest on the Mortgage Loan[s], as adjusted pursuant to the prepayment or other liquidation of such Mortgage Loan[s]. "Mortgaged Estate": [With respect to each Mortgage Note,] the real and personal property securing [such] [the] Mortgage Note. "Net Liquidation Proceeds": Liquidation Proceeds net of Liquidation Expenses. "Non-Monetary Tenant Default": [With respect to a Lease,] any default under [such] [the] Lease by the [related] Tenant other than a default in the payment of Annual Rental or Additional Rent. "Note Put Agreement": [With respect to each Loan Agreement,] the Note Put Agreement by and between Depositor, [and] the [related] Tenant, [and Kmart] pursuant to the terms and conditions of which a Put of [such] [the] Mortgage Note may be made on the occurrence of certain events specified therein. "Officer's Certificate": A certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, the Treasurer or the Secretary or one of the Assistant 7 14 Treasurers or Assistant Secretaries or any other duly authorized officer of the Depositor and delivered to the Trustee containing the information required by Sections 11.12 and 11.13. "Opinion of Counsel": An opinion in writing signed by legal counsel who may be an employee of or counsel to the Depositor in form and substance acceptable to the Trustee containing the information required by Sections 11.12 and 11.13. ["Option Agreement": An option granted by [a][the] Borrower to [a][the] Tenant permitting such Tenant to acquire the [related] Project in the event Borrower does not perform its obligations under the [related] Lease and the [related] Construction Fund Disbursement Agreement.] "Paying Agent": The Person designated as the Paying Agent pursuant to Section 3.05. "Percentage Interest": The percentage of the whole undivided beneficial interest in the Trust Property held by a Holder, to be evidenced by a Certificate which shall state the percentage interest therein. "Permitted Encumbrances": The Permitted Encumbrances as defined in [each] [the] Mortgage. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. "Pledge Agreement": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.2 of the [related] Loan Agreement. "Principal Balance": The outstanding principal balance of [the] [a] Mortgage Note as of any specified date. "Principal Prepayment": Any payment or other recovery of principal on [a] [the] Mortgage Note (other than monthly receipts of amounts referred to in Section 4.02(a)), including any prepayment of principal pursuant to Section 3 of the [related] Loan Agreement, Insurance Proceeds and Condemnation Proceeds to the extent required to be deposited in the Certificate Account, and Liquidation Proceeds, which is received in advance of its scheduled Due Date. "Project": [A] [The] facility comprised of a retail store [constructed by [a] Borrower [and [a] Tenant]] for lease by [a] [such] Tenant on real property [which will be [acquired by] [owned by] [a] [such] Borrower and] [upon which such facility will be constructed on behalf of [such] Borrower] using the proceeds of [a] [the] Mortgage Loan. 8 15 "Purchase Price": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 2.1 of the [related] Note Put Agreement. "Put": The right to require purchase of [a] [the] Mortgage Note by [a] [the] Tenant and Kmart pursuant to the [related] Note Put Agreement. "Rating Agency": Any nationally recognized statistical rating agency, or its successor, that rated the Certificates at the request of the Depositor at the time of the initial issuance of the Certificates. If such agency or a successor is no longer in existence, "Rating Agency" shall be such nationally recognized statistical rating agency, or other comparable Person, designated by the Depositor, notice of which designation shall be given to the Trustee. References herein to the highest rating category of a Rating Agency shall mean AAA or better in the case of S&P and Aaa or better in the case of Moody's and in the case of any other Rating Agency shall mean a rating equivalent to such ratings. "Record Date": (i) With respect to any distribution, the close of business on the fifteenth day preceding the related Remittance Date, except with respect to a distribution pursuant to Section 3.01(f), in which case the Record Date is the close of business on the fifteenth day prior to the Remittance Date on which the related Mortgage Payment would, pursuant to the terms hereof, have been distributable to the Certificateholders had such Mortgage Payment been paid in full in a timely manner. (ii) With respect to any direction, consent, waiver, or other action to be given or taken by Certificateholders, the date established by the Trustee pursuant to Section 1.03(e) hereof. "Registered Global Certificate": The Certificate, if any, issued to the Depository in accordance with Article III and bearing the legend prescribed in Section 3.06(a). "Remittance Date": With respect to the Certificates, an interest or principal and interest payment date of ________ 1, 19__, and the first Business Day of each ________ and ____ thereafter until _____ 1, ____, or the payment of the unpaid principal balance in full, or such other date when a distribution is made pursuant to Section 3.01(c), 3.01(d), 3.01(e) or 3.01(f) hereof. "Rental Payment Account": [The] [Each] trust account described in Section 4.03. "Responsible Officer": When used with respect to the Trustee, the Chairman or Vice Chairman of the Board of Directors of the Trustee, the Chairman or Vice Chairman of the Executive or Standing Committee of the Board of Directors of the Trustee, the President, the Chairman of the Committee on Trust Matters, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any Assistant Controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with 9 16 respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. "[Second Mortgage": A Mortgage, Security Agreement and Assignment of Rents from [a] [the] Borrower to [a] [the] Tenant which grants a lien subordinate to the [related] Mortgage on [a] [the] Project to secure such Borrower's performance under the [related] Lease and under the [related] Construction Fund Disbursement Agreement.] "S & P": Standard & Poor's Ratings Group, a _______________ corporation, its successors and assigns. "Tenant" [or "Tenants"]: [Kmart and] ___________, _____________ [or ____________,] [each of] which is a subsidiary of Kmart and which has entered into [the] [a] Lease with [a] [the] Borrower to occupy a Project. "Termination Premium": [With respect to each Mortgage Note,] has the meaning assigned to it in Section 2 of the [related] Note Put Agreement. "TIA": The Trust Indenture Act of 1939 as in effect on the date as of which this Trust Agreement was first qualified under such Act; provided, however, that in the event the Trust Indenture Act is amended after such date, "TIA" means, to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended. "Transfer Assurance": A Transfer Assurance required pursuant to Section 3.02(c). "Trust": The grantor trust created pursuant to this Trust Agreement. "Trust Agreement": This Trust Agreement and all amendments hereof and supplements hereto. "Trustee": United States Trust Company of New York, and its permitted successors hereunder. "Trustee's Fee": The amount of the annual fee paid to the Trustee for its Administrative Expenses, including the reasonable expenses of preparing any tax returns as provided in Section 5.02, arising under this Trust Agreement, equal to $_____, payable by the Tenant[s] pursuant to the Consent and Agreement[s]. "Trust Property": The corpus of the Trust, to the extent described herein, consisting of the Mortgage Loan[s], including all rights which secure the obligation of the Borrower[s] thereunder, the Mortgage Note[s], all Loan Documents, such assets as shall from time to time be identified as deposited in the Certificate Account (including the investment income thereon), property which secures the Mortgage Loan[s] and which has been acquired by 10 17 foreclosure or deed in lieu of foreclosure (prior to its disposition) and Insurance Proceeds, Condemnation Proceeds and any other amounts receivable under the Mortgage Note[s] or the Loan Documents, and any funds advanced by the Certificateholders to Trustee or otherwise held by Trustee in accordance with the provisions hereof. "Underwriters": The several underwriters named in the Underwriting Agreement. "Underwriting Agreement": The Underwriting Agreement dated ________ __, 19__, between Kmart, the Depositor and Sutro & Co. Incorporated [on behalf of itself and the several underwriters named therein]. Section 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Trust Agreement refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Trust Agreement. The following TIA terms used in this Trust Agreement have the following meanings: "Commission" means the SEC. "Indenture securities" means the Certificates. "Indenture security holder" means a Certificateholder. "Indenture to be qualified" means this Trust Agreement. "Indenture trustee" or "institutional trustee" means the Trustee. "Obligor" on the Indenture securities means Kmart. All other TIA terms used in this Trust Agreement that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. Section 1.03. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Trust Agreement to be given or taken by Certificateholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Certificateholders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Trustee and, where it is hereby expressly required, to the Depositor and to Kmart. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Certificateholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any 11 18 such agent shall be sufficient for any purpose of this Trust Agreement and conclusive in favor of the Trustee and the Depositor, if made in the manner provided in this Section 1.03. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Trustee deems sufficient. (c) The ownership of Certificates shall be proved by the Certificate Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Certificate shall bind every future Holder of the same Certificate and the Holder of every Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustee or the Depositor in reliance thereon, whether or not notation of such action is made upon such Certificate. (e) If the Trustee shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Trustee shall fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act. Such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Certificates have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the outstanding Certificates shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Trust Agreement not later than six months after the record date. ARTICLE II CONVEYANCE OF MORTGAGE LOAN[S]; TRUST PROPERTY Section 2.01. Conveyance of Mortgage Loan[s]. As grantor of the Trust, the Depositor, concurrently with the execution and delivery hereof, does hereby sell, transfer, set over, convey and absolutely assign to the Trustee without recourse (except as provided herein) in trust intending to establish the Trust, all right, title and interest of the Depositor in and to the Mortgage Loan[s], including all interest, Make-Whole Premium, Termination Premium and principal due or to become due from [each] [the] Borrower on or with respect to [each] [the] Mortgage Loan. 12 19 In connection with such sale, conveyance, transfer and absolute assignment, the Depositor does hereby sell, transfer, convey and absolutely assign and deliver to, and deposit with, the Trustee the Mortgage Note[s] and all Loan Documents. The ownership of the Trust Property is vested in the Trustee without reservation of any right, title or interest whatsoever in the Depositor. The Depositor intends that the sale, conveyance, transfer and absolute assignment of the Depositor's right, title and interest in and to the Trust Property pursuant to this Trust Agreement shall constitute a purchase and sale and not a pledge of security for a loan. However, if for any reason such conveyance is deemed not to be a sale, the Depositor intends that the rights and obligations of the parties shall nevertheless be established pursuant to the terms of this Trust Agreement and that the Depositor shall be deemed to have granted to the Trustee a first priority security interest in all of the Depositor's right, title and interest in, to and under the Mortgage Loan[s], all payments of principal of or interest on the Mortgage Loan[s], all other payments made in respect of the Mortgage Loan[s] (including, without limitation, any Make-Whole Premium or Termination Premium), and all proceeds of any thereof, and any other assets of the Trust, and that this Trust Agreement shall constitute a security agreement under applicable law. Section 2.02. Acceptance by Trustee. The Trustee acknowledges receipt of the documents referred to in Section 2.01, subject to any exceptions noted in a certificate of the Trustee delivered within 30 days after the Closing Date, and declares that it holds and will hold such documents delivered to it in trust for the use and benefit of all present and future Certificateholders. The Trustee agrees, for the benefit of Certificateholders, to review within 30 days after the Closing Date each of the documents described in Section 2.01 delivered to it to ascertain that all required documents have been executed and received, and that such documents relate to the Mortgage Loan[s] identified in the Mortgage Loan Schedule, as supplemented, that have been sold, conveyed, transferred and absolutely assigned to it. If the Trustee finds any document or documents constituting a part of the documents described in Section 2.01 to be missing, mutilated, damaged, defaced, incomplete, improperly dated, clearly forged or otherwise physically altered in any material respect, the Trustee shall promptly (and in any event within no more than five Business Days after such discovery) so notify the Depositor. At the conclusion of such review, the Trustee shall also notify the Depositor if, in examining such documents, or through any other means, the Trustee had notice or knowledge (a) of any adverse claim, lien or encumbrance against [any] [the] Mortgage Loan or [any] [the] [related] Mortgaged Estate, (b) that [any] [the] Mortgage Note was overdue or had been dishonored, (c) of evidence on the face of [any] [the] Mortgage Note or Mortgage of any security interest or other right or interest therein, or (d) of any defense against or claim to [any] [the] Mortgage Note by any party. The Depositor shall correct such omission or other irregularity referred to above 13 20 within 90 days from receipt of such notice from the Trustee. The Trustee shall review the documents referred to in Section 2.01 only for the purpose set forth above in this Section 2.02 and the Trustee shall be under no duty or obligation to inspect, review or examine any such documents, instruments, certificates or other papers to determine that they are genuine, enforceable or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face. Within thirty (30) days of the Closing Date, the Trustee shall deliver to the Depositor, Kmart and the Certificateholders the Trustee's Certification substantially in the form attached hereto as Exhibit C. Section 2.03. Trust Property. The Trustee acknowledges that it holds the Trust Property conveyed pursuant to this Trust Agreement in trust for the use and benefit of all present and future Certificateholders. Section 2.04. Limitation of Powers. The Trust is constituted solely for the purpose of making the investment in the Trust Property, and, except as set forth herein, the Trustee is not authorized or empowered to acquire any other investments or engage in any other activities. ARTICLE III THE CERTIFICATES Section 3.01. The Certificates. (a) Form and Terms. The Certificates and the Trustee's certificate of authentication shall be substantially in the form attached hereto as Exhibit B. Subject to the provisions of Section 3.06 hereof, the Certificates shall be issuable as registered securities without coupons and shall be numbered, lettered or otherwise distinguished from one another. The Certificates shall be issued in denominations of $1,000 principal amount and any integral multiple thereof and shall be dated the date of their authentication. Each Certificate shall bear interest and have the other terms as are set forth in the Certificate Schedule and in such Certificate. Each Certificate shall evidence a beneficial ownership interest in the Trust Property and shall have no rights, benefits or interest in respect of any other separate pass-through trust, if any, or the trust property held in such other pass-through trust. All Certificates shall be in all respects equally and ratably entitled to the benefits of the Trust without preference, priority, or distinction on account of actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Trust Agreement. Certificates shall not be subject to optional prepayment except as provided herein. 14 21 On the Closing Date, Trustee shall issue the Certificates indicated on the Certificate Schedule. The aggregate principal amount of the Certificates to be issued hereunder shall not exceed $___________. (b) Execution and Authentication. The Certificates shall be executed on behalf of the Trustee by its Chairman of the Board, one of its Vice Chairmen, its President or one of its Vice Presidents, under its corporate seal reproduced thereon. The signature of any such officer on the Certificates may be manual or facsimile. Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Trustee shall bind the Trustee, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificates or did not hold such offices at the date of such Certificates. No Certificate shall be entitled to any benefit under this Trust Agreement or be valid or obligatory for any purpose unless there appears on such Certificate a certificate of authentication substantially in the form provided for in Exhibit "B" annexed thereto duly executed by the Trustee by manual signature of an authorized officer, and such certificate of authentication upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and made available for delivery hereunder. (c) Prepayment Distribution. In the event of a prepayment of [a] [the] Mortgage Note pursuant to Section 3 of the [related] Loan Agreement (not including a Put pursuant to the [related] Note Put Agreement), the Trustee shall within 30 days following receipt of any amounts in connection with such prepayment distribute the portion of such amounts that have been deposited into the Certificate Account to the Certificateholders pro rata based upon their respective Percentage Interests. (d) Note Put Distribution. The Trustee shall, in the manner and to the extent required by Section 313(c) of the TIA, notify the Certificateholders of the occurrence of any Triggering Event (as defined in [a] [the] Note Put Agreement) known to the Trustee within five (5) Business Days after obtaining knowledge thereof. (i) Upon the occurrence of a Triggering Event, the Trustee, as provided in (ii) below or upon receipt, within 90 days of delivery of the notice pursuant to Section 3.01(d), of the written direction to exercise the Put by the Holders of Certificates evidencing Percentage Interests in the aggregate of not less than 66-2/3%, shall (A) exercise the Put in accordance with the terms and provisions of [such] [the] Note Put Agreement, including but not limited to delivering the [related] Mortgage Note, endorsed as provided in such Note Put Agreement, to the [related] Tenant [or Kmart, as the case may be,] upon receipt of the Purchase Price from the [related] Tenant [or Kmart], (B) designate 15 22 the Purchase Date under [such] [the] Note Put Agreement, which Purchase Date shall be not more than 35 Business Days after receipt of such direction, and (C) within 30 days following the receipt of the Purchase Price distribute such amount, less any unreimbursed reasonable costs and expenses incurred by the Trustee in connection with the exercise of the Put, to the Certificateholders pro rata based upon their respective Percentage Interests, whereupon this Trust shall terminate with respect to such Mortgage Note and the [related] Loan Documents. Upon execution and delivery of all documents reasonably necessary to assign the related Loan Documents to the purchaser of such Mortgage Note, the Trustee shall have no further obligations with respect to such Loan Documents or such Mortgage Note. The payment of the Purchase Price to Trustee as set forth herein and in the [related] Note Put Agreement and any other amounts due under the terms of the Note Put Agreement shall satisfy in full [the related] Tenant's and Kmart's obligations under the [related] Note Put Agreement. (ii) If the Triggering Event is a Lease Guaranty Termination, the Trustee shall exercise the [related] Put and take the other steps specified in (i) above unless, within 30 days after sending the notice of the occurrence of the Triggering Event as provided in this Section 3.01(d), the Trustee receives written direction from the Holders of Certificates evidencing Percentage Interests in the aggregate of not less than 66-2/3% instructing the Trustee not to exercise such Put. (e) Liquidation Distribution. In the event of a liquidation of [a] [the] Mortgage Note by foreclosure or otherwise as a consequence of an Event of Default (not including a Put pursuant to the [related] Note Put Agreement), the Trustee shall within 30 days following receipt of any Net Liquidation Proceeds in connection with such liquidation distribute such amounts to the Certificateholders pro rata based upon their respective Percentage Interests. Once a Mortgage Loan has become a Liquidated Mortgage Loan and all Net Liquidation Proceeds with respect to such Liquidated Mortgage Loan have been distributed to the Certificateholders, this Trust shall terminate with respect to such Liquidated Mortgage Loan and the [related] Loan Documents. (f) Late Payment Distribution. In the event that, due to unpaid Annual Rental, there are insufficient funds available on any Due Date to pay the Mortgage Payments on a Mortgage Note and subsequent to such Due Date such Annual Rental or any Additional Rent with respect thereto is paid, the Trustee shall, within 10 Business Days of receipt of such late Annual Rental or Additional Rent, distribute to the Certificateholders such unpaid portion of such Mortgage Payments together with interest on such overdue amount at the Overdue Rate (as defined in such Mortgage Note) to the extent received. (g) Adjustment of Debt Service. In the event of (i) an optional prepayment of all or any part of a Mortgage Note, (ii) an acceleration of the maturity date of a Mortgage Note by reason of 16 23 an Event of Default, (iii) a Borrower becoming obligated to prepay a Mortgage Note pursuant to Section 3.3 of the [related] Loan Agreement, (iv) a reduction of Mortgage Payments due to the condemnation of a part of the [related] Project resulting in a reduction in Annual Rental, or (v) the sale of a Mortgage Note pursuant to a Note Put Agreement, the Debt Service shall be reduced to equal the aggregate Mortgage Payments on the remaining outstanding Mortgage Notes, after giving effect to any reduction in such Mortgage Payments by reason of an optional partial prepayment or a condemnation described in clause (iv) and excluding from "remaining outstanding Mortgage Notes," for this purpose, any Mortgage Note which is sold pursuant to the Note Put Agreement, which is prepaid in full, the maturity date of which has been accelerated, or which the Borrower is obligated to prepay in full pursuant to Section 3.3 of the related Loan Agreement. (h) Notice of Distribution. Notice of a distribution pursuant to Section 3.01(c), (d) or (e) shall be given by sending such notice, by first-class mail, postage prepaid, not less than 10 days prior to the date fixed for such distribution. Notice of such distribution pursuant to any other provision hereof shall be given as soon as reasonably practicable following notice of the facts giving rise to such distribution by the Trustee. All notices of any such distribution shall be mailed to the Certificateholder at the address shown on the Certificate Register. The reasonable costs of such notices incurred by the Trustee shall be deducted from the amount of any such distribution. (i) Rights of Holders to Payments. The rights of the Certificateholders to receive payments with respect to the Trust Property in respect of the Certificates, and all ownership interests of the Certificateholders in such payments, shall be as set forth in this Trust Agreement. Section 3.02. Registration of Transfer and Exchange of Certificates. (a) The Trustee shall cause to be kept at its Corporate Trust Office or at the office of its designated agent, a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. The Trustee shall be the Certificate Registrar. If the Trustee is not the Certificate Registrar, the Depositor shall furnish to the Trustee on or before each Remittance Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Certificateholders, which list may be conclusively relied upon by the Trustee. (b) Upon surrender for registration of transfer of any Certificate at the Corporate Trust Office or at the office of any designated agent of the Trustee maintained for such purpose, the Trustee shall execute, authenticate and deliver, in the name of the 17 24 designated transferee or transferees, a new Certificate of a like tenor and dated the date of such execution and authentication by the Trustee. (c) No transfer of a Certificate or of a beneficial interest in a Registered Global Certificate shall be made unless the Trustee shall have received a Transfer Assurance consisting of either (i) a representation letter from the transferee of such Certificate or of such beneficial interest in a Registered Global Certificate, reasonably acceptable to the Trustee and Depositor, to the effect that such transferee is not a Benefit Plan nor a person acting on behalf of or purchasing for the benefit of any such Benefit Plan, which representation letter shall not be an expense of either the Trustee or the Depositor, or (ii) in the case of any such Certificate presented for registration, or of any such beneficial interest in a Registered Global Certificate proposed to be registered on the books of the Depository or on those of a participant in such Depository, in the name of a Benefit Plan, or a trustee of any such Benefit Plan, an Opinion of Counsel reasonably satisfactory to the Trustee and Depositor to the effect that the purchase or holding of such Certificate will not result in the assets of the Trust being deemed to be "plan assets" subject to the prohibited transaction provisions of ERISA or the Code, or that the purchase or holding of such Certificate qualifies as an exempt prohibited transaction under the provisions of ERISA or the Code, and will not subject the Trustee or the Depositor to any obligation in addition to those undertaken in this Trust Agreement, which Opinion of Counsel shall not be an expense of the Trustee or the Depositor. (d) At the option of the Certificateholder, a Certificate may be exchanged for another Certificate or Certificates of a like tenor, upon surrender of the Certificate to be exchanged at the Corporate Trust Office or at the office of any designated agent of the Trustee maintained for such purpose. Whenever a Certificate is so surrendered for exchange, the Trustee shall execute, authenticate and deliver a new Certificate which the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for transfer or exchange shall (if so required by the Trustee) be duly endorsed by, or be accompanied by a written instrument of transfer in a form reasonably satisfactory to the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing. (e) No service charge shall be made to the Holder for any transfer or exchange of the Certificate, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of the Certificate. (f) All Certificates surrendered for transfer and exchange shall be destroyed by the Trustee. 18 25 Section 3.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Trustee or the Trustee receives evidence to its reasonable satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Trustee such reasonable security or indemnity as may be required by it to save it harmless, then, in the absence of notice to the Trustee that such Certificate has been acquired by a bona fide purchaser, the Trustee shall execute, authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor. Upon the issuance of any new Certificate under this Section, the Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Any replacement Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership of the undivided interest of the Certificateholder in the Trust Property, as if originally issued, whether or not the mutilated, destroyed, lost or stolen Certificate shall be found at any time. Section 3.04. Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Trustee may treat the Person in whose name any Certificate is registered in the Certificate Register as the owner of such Certificate and the undivided interest in the Trust Property evidenced thereby for the purpose of receiving remittances pursuant to Section 5.01 and for all other purposes whatsoever, and the Trustee shall not be affected by notice to the contrary. Section 3.05. Appointment of Paying Agent. The Trustee shall initially serve as Paying Agent for the purposes of making distributions to Certificateholders pursuant to Section 5.01. The Trustee shall require each Paying Agent, other than the Trustee, to agree in writing that such Paying Agent shall hold in trust for the benefit of the Certificateholders or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Certificates, and shall notify the Trustee of any default in making such payments. Section 3.06. Certificates Issuable in the Form of a Registered Global Certificate. (a) The Trustee shall, in accordance with this Article, execute, authenticate and deliver, Registered Global Certificates which, in the aggregate, (i) shall represent, and shall be denominated in an initial principal amount equal to, the original aggregate principal amount of the Certificates issued hereunder, (ii) shall be registered in the name of the Depository or its nominee, and (iii) shall bear a legend substantially to the following effect: "Unless this Registered Global Certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Trustee or its agent for registration of transfer, exchange or payment, and any Registered Global Certificate issued is registered in the name of 19 26 Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein." (b) Notwithstanding any other provision of this Section or of Section 3.02, the Registered Global Certificates may be transferred, in whole but not in part and in the manner provided in Section 3.02, by the Depository to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository or by such Depository or any such nominee to a successor Depository selected or approved by the Depositor upon notice to the Trustee or to a nominee of such successor Depository. (c) The Depository shall be a clearing agency registered under the Exchange Act and any other applicable statute or regulation. (d) If (i) (A) the Depositor at any time advises the Trustee in writing that the Depository is no longer willing or able to properly discharge its responsibilities, or (B) the Depository at any time shall no longer be eligible under subsection (c) above, and the Depositor is unable to appoint a qualified successor within 90 days after the Depositor receives such notice or becomes aware of such condition, as the case may be, or (ii) the Depositor at any time, but only with the consent of Kmart, determines that the Certificates shall no longer be represented by Registered Global Certificates and that the provisions of this Section shall no longer apply to such Certificates, then this Section shall no longer be applicable to the Certificates. In such event, (x) the Trustee shall notify all Certificate Owners, through the Depository, of the occurrence of any such event and of the availability of Certificates in definitive registered form and (y) upon surrender of the Registered Global Certificates to the Trustee, accompanied by reregistration instructions from the Depository, the Trustee shall execute, authenticate and deliver Certificates in definitive registered form without coupons, in authorized denominations, and in an aggregate Percentage Interest equal to the Percentage Interest evidenced by the Registered Global Certificates then outstanding in exchange for such Registered Global Certificates. Upon the exchange of the Registered Global Certificates for such Certificates in definitive registered form without coupons in authorized denominations, such Registered Global Certificates shall be canceled by the Trustee. If such exchange occurs as a result of the events described in (i) above, all costs of the preparation, execution, authentication and delivery of such Certificates shall be paid [pro rata] from the Rental Payment Account[s]. If such exchange occurs at the request of the Depositor pursuant to (ii) above, the Depositor shall pay all such costs. Such Certificates in definitive registered form issued in 20 27 exchange for the Registered Global Certificate pursuant to this subsection (d) shall be registered in the names and in authorized denominations set forth in the registration instructions. The Trustee shall deliver such Certificates to the Persons in whose names such Certificates are so registered. (e) As long as the Certificates are represented by the Registered Global Certificates, all distributions in respect of such Certificates shall be made by wire transfer of immediately available funds on the date such distributions are due in accordance with the Letter of Representations, and the Depositor shall or shall cause the Trustee to provide to the Depository any notices referred to in the Letter of Representations in accordance with the Letter of Representations. (f) Unless and until Certificates in definitive registered form are issued pursuant to paragraph (d) above, on the Record Date prior to each Remittance Date, the Trustee will request from the Depository a securities position listing setting forth the names of all participants in such Depository reflected on the Depository's books as holding interests in the Registered Global Certificates on such Record Date. The Trustee shall mail to each such Depository participant the statements described in Section 5.02. Section 3.07. Temporary Securities. Pending the preparation of definitive Certificates, the Trustee may execute and authenticate and make available for delivery, temporary Certificates which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Certificates in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such temporary Certificates may determine, as conclusively evidenced by their execution of such temporary Certificates. The Depositor shall bear the cost of preparation of any temporary Certificates. If temporary Certificates are issued, the Depositor will cause definitive Certificates to be prepared without unreasonable delay. After the preparation of definitive Certificates, the temporary Certificates shall be exchangeable for definitive Certificates upon surrender of the temporary Certificates at the office or agency of the Trustee designated for such purpose pursuant to Section 3.02 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Certificates, the Trustee shall execute and authenticate and make available for delivery in exchange therefor a like principal amount of definitive Certificates of authorized denominations. Until so exchanged, the temporary Certificates shall in all respects be entitled to the same benefits under this Trust Agreement as definitive Certificates. Once so exchanged, the temporary Certificates shall be cancelled by the Trustee. 21 28 ARTICLE IV RECEIPT AND DISTRIBUTION OF INCOME AND PROCEEDS FROM THE TRUST PROPERTY Section 4.01. Calculation of Distributions. The Trustee shall calculate the Available Distribution Amount, make distributions on each Remittance Date as set forth in Section 5.01 and have full power and authority to do any and all things which it may deem necessary or desirable in connection with such duties. Section 4.02. Receipt of Lease Payments; Collection of Lease and Lease Guaranty Payments; Collection of Indemnity Agreement Payments; Collection of Mortgage Loan Payments; Investment Direction. (a) Pursuant to the Consent and Agreement[s], [each] Tenant under [the] [each] Lease will pay all Annual Rental and Additional Rent (except for Real Estate Taxes (as defined in the related Lease) and amounts payable directly to a third party pursuant to such Lease, which shall be payable in accordance with such Lease) payable by [each] Tenant under [the] [each] Lease directly to the Trustee. All such Annual Rental and Additional Rent received by Trustee shall be deposited by the Trustee in the Rental Payment Account as described in Section 4.03 hereof, invested in Eligible Investments in accordance with Section 4.02(d) of this Trust Agreement, and applied in accordance with Section 4.04 hereof; provided that, subsequent to the Trustee becoming aware of the occurrence of an Event of Default pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), and during the time such Event of Default continues without being cured, or waived, all Annual Rental and Additional Rent from the [related] Lease received by Trustee shall be deemed received pursuant to the Assignment of Leases and Rents and shall be deposited by the Trustee in the Certificate Account as described in Section 4.05 hereof, shall be invested in accordance with Section 4.02(d) hereof, and shall be applied in accordance with Section 4.06 hereof. (b) In the event the Trustee does not receive any monthly installment of Annual Rental on the date set forth in [the] [each] Lease, taking into account any grace period provided for therein, the Trustee is hereby directed to and the Trustee shall notify the [related] Borrower (as landlord), the [related] Tenant [and Kmart] in writing regarding [the] [such] Tenant's failure to make such timely payment. In the event the Trustee does not receive the monthly installment of Annual Rental within the greater of [five] Business Days of giving such written notice or any applicable grace period under [the] [such] Lease and [the [related] Lease Guaranty], the Trustee, at the written direction of the Holders of Certificates of Percentage Interests aggregating not less than 66-2/3%, shall use its best efforts to enforce the provisions of [the] [such] Lease [and [the] [such] Lease Guaranty] by exercising all of the remedies available to it at law and in equity, including, but not limited to, the remedies available under [the] [such] Lease [and [the] [such] Lease Guaranty], provided that 22 29 the Trustee shall give notice of intent to terminate or take action to terminate [the] [such] Lease only at the written direction of Holders of Certificates of Percentage Interests aggregating not less than 66-2/3% to take such action. (c) Continuously from the date hereof until the principal and interest on, the Mortgage Loan[s] are paid in full, the Trustee will use reasonable best efforts to collect all payments due under the Mortgage Loan[s] when the same shall become due and payable. The Trustee shall also review any official receipts from any taxing authority provided to it pursuant to Section 1.08(c) of the Mortgage[s] to monitor payment of Impositions (as defined in the Mortgage[s]). [The Trustee also shall use its best efforts to collect any amount that becomes due pursuant to [the] [an] Indemnity Agreement. Any amounts collected by the Trustee pursuant to [the] [an] Indemnity Agreement shall be deposited in the [related] Rental Payment Account, provided that during any period when the proviso of Section 4.02(a) applies to the [related] Annual Rental and Additional Rent, any amounts received under the [related] Indemnity Agreement shall be deposited in the Certificate Account and applied in accordance with Section 4.06 hereof.] (d)(i) Funds in [the] [each] Rental Payment Account and [the] [each] Capitalized Debt Service Account shall be invested in Eligible Investments [at the written direction of the Borrower [on whose behalf such accounts have been established]]. Funds in the Certificate Account shall be invested by the Trustee in Eligible Investments described in subparagraph (i), (ii) or (iv) of the definition thereof (or in the further proviso at the end of such definition). All such investments shall mature on or prior to the next succeeding Determination Date and in no event shall be invested in obligations maturing later than 90 days from the investment date. The risk of investment loss with respect to funds in [the] [each] Rental Payment Account and [the] [each] Capitalized Debt Service Account shall be borne by the Borrower [on whose behalf such accounts have been established]. The risk of investment loss with respect to funds in the Certificate Account shall be borne by the Certificateholders. On or after the Due Date and prior to the next succeeding Determination Date, the Trustee shall be prohibited from selling or transferring Eligible Investments prior to maturity unless and until a default shall have occurred under [a] [the] Mortgage Note. In the event the Trustee shall not have received at least twenty-four hours' written notice as to any investment direction from [the] [a] Borrower, upon the maturity of an existing investment, the Trustee shall be authorized to invest maturing amounts in Eligible Investments described in subparagraph (iv) of the definition thereof (or in the further proviso at the end of such definition) until further directed in writing as to investments of such amounts. Investment earnings and losses on any Eligible Investment shall be deposited to or charged to the account in which the funds used for any such Eligible Investment were deposited. The Trustee shall have no responsibility for any loss on any Eligible Investments. 23 30 (ii) If an Event of Default occurs under [a] [the] Mortgage Note or Loan Documents [with respect to a Mortgage Loan], the Borrower [of such Mortgage Loan] shall be prohibited from directing investments as contemplated above and the Trustee shall invest in Eligible Investments described in subparagraph (i), (ii) or (iv) of the definition thereof (or in the further proviso at the end of such definition). Section 4.03. Establishment of Rental Payment Account[s]; Deposits in Rental Payment Account[s]. The Depositor (on behalf of [the] [each] Borrower) hereby establishes [the] [a separate] Rental Payment Account with the Trustee. [Such] [Each such] account shall be maintained as a fund separate and distinct from other accounts [(including other Rental Payment Accounts)] created under this Trust Agreement. Prior to an Event of Default with respect to such Borrower's Mortgage Loan pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), [the] [such] Rental Payment Account shall remain the property of the Borrower [on whose behalf such Rental Payment Account was established], subject to the rights of the Trustee under Section 4.04 of this Trust Agreement and under [the] [such Borrower's] Pledge Agreement. The Trustee shall cause to be deposited in [the] [such] Rental Payment Account and retained therein: (a) All payments (including Annual Rental and Additional Rent) received pursuant to the terms of the [related] Lease [and Lease Guaranty] other than Condemnation Proceeds and Insurance Proceeds and pursuant to the terms of the [related] Indemnity Agreement, subject to the proviso of Section 4.02(a) hereof; (b) Subject to the provisions of the [related] Lease, all Insurance Proceeds or Condemnation Proceeds received pursuant to Section 17 or Section 18 of [the] [such] Lease in excess of the amounts required to make the mandatory prepayment of the [related] Mortgage Notes pursuant to Section 3.3 of the [related] Loan Agreement; and (c) All earnings (or losses) on funds held in [the] [such] Rental Payment Account derived from Eligible Investments. The foregoing requirements for deposit in the Rental Payment Account[s] shall be exclusive. Section 4.04. Permitted Withdrawals From the Rental Payment Account[s]. The Trustee shall cause the withdrawal of funds from [the] [a] Rental Payment Account for the following purposes and in the following order of priority: (a) Upon the occurrence of an Event of Default [with respect to a Borrower's Mortgage Loan] pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), to transfer to the Certificate Account all amounts in the Rental Payment Account 24 31 [related to such Mortgage Loan] and to apply such amounts pursuant to the provisions of Section 4.06 hereof; (b) to transfer to the Certificate Account (i) on each Due Date an amount equal to the Mortgage Payments due and unpaid on the [related Borrower's] Mortgage Loan as of such Due Date and (ii) on the next Business Day after receipt any amounts distributable to the Certificateholders under Section 3.01(f). (c) to pay the Trustee for any amounts due pursuant to Section 3.06(d), for any unreimbursed Extraordinary Expense Advances required by [the related] Borrower's default pursuant to the [related] Mortgage Note or the [related] Loan Documents and for [such Borrower's ratable portion of] due and unpaid Trustee's Fees, and to reimburse Trustee for any expenses, costs and liabilities for which it is entitled to reimbursement hereunder or under the [related] Mortgage Note or the Loan Documents [related to such Borrower's Mortgage Loan]; prior to an Event of Default [with respect to such Borrower's Mortgage Loan] the Trustee's right to reimburse itself pursuant to this clause (c) with respect to [the] [such Borrower's] Mortgage Loan is limited to reimbursement for amounts due pursuant to Section 3.06(d); subsequent to an Event of Default [with respect to such Borrower's Mortgage Loan] pursuant to Section 7.01 (except for a Non-Monetary Tenant Default), the Trustee shall have a prior lien on all moneys in [the] [such Borrower's] Rental Payment Account for payment or reimbursement of Extraordinary Expense Advances [related to such Mortgage Loan], [such Borrower's ratable portion of] due and unpaid Trustee's Fees, and other amounts owed it and payable by [such] Borrower under any provision of the [related] Mortgage Note or the [related] Loan Documents, provided, however, that so long as [(i) no default exists under the [related] Lease Guaranty, taking into account any grace period provided for therein, or (ii)] no direction has been given by Certificateholders owning Percentage Interests of at least 66-2/3% to exercise rights or remedies under such Mortgage Notes or Loan Documents, the payments pursuant to Section 4.04(a) and (b) above shall be made by Trustee free and clear of such lien; and (d) to disburse to [the related] Borrower any amounts remaining in the Rental Payment Account promptly following the second scheduled Remittance Date after the Closing Date, and on each anniversary thereafter to such Remittance Date, after paying or providing for the payment or withdrawal of amounts described in clauses (a), (b) and (c) above. Section 4.05. Establishment of Certificate Account; Deposits in Certificate Account. With respect to the Mortgage Loan[s], the Trustee shall cause to be segregated and held all funds collected and received pursuant to the Mortgage Loan[s] separate and apart from any of its own funds and general assets and shall cause to be established and maintained a Certificate Account in the form of a trust account titled "Mortgage Pass-Through Certificates (_____________________________) Series 199_, Certificate Account" in trust for the benefit of the Certificateholders. 25 32 8 The Trustee shall cause to be deposited in the Certificate Account upon receipt, and retained therein: (a) All scheduled payments due on account of principal and interest on the Mortgage Loan[s], and all Principal Prepayments and interest related thereto collected; (b) All payments on account of Make-Whole Premium or Termination Premium on the Mortgage Loan[s]; (c) Net Liquidation Proceeds; (d) Subject to the provisions of the [related] Lease, (i) all Insurance Proceeds received pursuant to Section 17 of [the] [such] Lease not to exceed the amounts required to make the mandatory prepayment of the [related] Mortgage Note pursuant to Section 3.3 of the [related] Loan Agreement, and [(ii) any other Insurance Proceeds;] (e) Subject to the provisions of the [related] Lease, all Condemnation Proceeds pursuant to Sections 18(d) and 18(g) of [the] [such] Lease not to exceed the amounts required to make the mandatory prepayment of the [related] Mortgage Note pursuant to Section 3.3 of the [related] Loan Agreement; (f) All proceeds paid to Trustee by a Tenant [or Kmart] following an exercise of [the] [a] Put pursuant to [the][a] Note Put Agreement; (g) All earnings (or losses) on funds held in the Certificate Account derived from Eligible Investments; and (h) All amounts required to be deposited therein under Sections 4.02(a), [4.02(c),] 4.04(a), [and] 4.04(b) [and 4.07]. The foregoing requirements for deposit in the Certificate Account shall be exclusive. Section 4.06. Permitted Withdrawals From the Certificate Account. The Trustee shall, from time to time, cause the withdrawal of funds from the Certificate Account for the following purposes and in the following priority: (a) to make payments to the Certificateholders in the amounts and in the manner provided for in Section 5.01; (b) subsequent to an Event of Default [with respect to such Borrower's Mortgage Loan] pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), to pay the Trustee for any unreimbursed Extraordinary Expense Advances required by [the related] Borrower's default pursuant to the [related] Mortgage Note or the [related] Loan Documents and for [such Borrower's ratable portion of] due and unpaid Trustee's Fees, and to reimburse Trustee for any expenses, costs and liabilities for which it is entitled to 26 33 reimbursement hereunder or under the Loan Documents [related to such Borrower's Mortgage Loan]; and, in such event, the Trustee shall have a prior lien for itself on all moneys in the Certificate Account for payment or reimbursement of Extraordinary Expense Advances [related to such Mortgage Loan], [such Borrower's ratable portion of] due and unpaid Trustee's Fees, and other amounts owed it and payable by [such] Borrower under any provision of the [related] Mortgage Note or the [related] Loan Documents, provided, however, that so long as [(i) no default exists under the [related] Lease Guaranty, taking into account any grace period provided for therein, or (ii)] no direction has been given by Certificateholders owning Percentage Interests of at least 66-2/3% to exercise rights or remedies under such Mortgage Note or Loan Documents, the payments pursuant to Section 4.06(a) above shall be made by Trustee free and clear of such lien; and (c) to make any payments to clear and terminate the Certificate Account upon the termination of this Trust Agreement. [Section 4.07. Capitalized Debt Service Account[s]. The Depositor (on behalf of each Borrower listed on Exhibit A-4 hereto) hereby establishes from the proceeds of the [related] Mortgage Loan [the] [a separate] Capitalized Debt Service Account with the Trustee. [This] [Each such] account shall be maintained as a fund separate and distinct from other accounts [(including other Capitalized Debt Service Accounts)] created under this Trust Agreement. [The] [Such] Capitalized Debt Service Account shall remain the property of the Borrower [on whose behalf such Capitalized Debt Service Account was established,] subject to the rights of the Trustee under the terms of this Trust Agreement and the pledge thereof by [such] Borrower pursuant to the Pledge Agreement to secure [the] [such Borrower's] Mortgage Loan; provided that, subsequent to the Trustee becoming aware of the occurrence of an Event of Default [with respect to such Borrower's Mortgage Loan] pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), all amounts in the [related] Capitalized Debt Service Account shall be transferred to the Certificate Account and shall be applied in accordance with Section 4.06 hereof. The Trustee shall cause to be deposited into [the] [such] Capitalized Debt Service Account (i) the amount of the Capitalized Debt Service Reserve received on the Closing Date [with respect to such Mortgage Loan] and (ii) all amounts received on earnings on or income from (or losses due to) any investments or reinvestments of [the] [such] Capitalized Debt Service Reserve in Eligible Investments. The Trustee shall cause the transfer of funds from [the] [each] Capitalized Debt Service Account to the Certificate Account on the dates and in the amounts set forth in the attached Exhibit A-4. Upon the payment of all of the amounts set forth in Exhibit A-4 [with respect to the Capitalized Debt Service Account established on behalf of a Borrower], and provided that no default or Event of Default shall have occurred and be continuing (except for a Non-Monetary Tenant Default) under any [related] Mortgage Note or Loan Documents, Trustee shall disburse to the [related] 27 34 Tenant without requisition any amounts remaining in [the] [such] Capitalized Debt Service Account.] Section 4.08. Realization Upon Defaulted Mortgage Loan. (a) If an Event of Default with respect to a Mortgage Loan has occurred and is continuing and if Certificateholders holding Percentage Interests aggregating not less than 66-2/3% direct, the Trustee, after receiving indemnity for its reasonable costs, expenses and liabilities with respect thereto to its reasonable satisfaction from the Certificateholders in accordance with Section 8.02 (iii), shall use its best efforts to foreclose upon or otherwise comparably convert the ownership of the Mortgaged Estate securing such Mortgage Loan; shall manage, conserve and protect such Mortgaged Estate for the purposes of its disposition and sale; and shall dispose of such Mortgaged Estate as promptly as is reasonably possible. Upon sale or other conveyance of all or any part of such Mortgaged Estate by the Trustee, the Trust shall have no further right, title or interest in the Mortgaged Estate, or portion thereof, so sold or conveyed. [Notwithstanding anything herein to the contrary, a default under one Loan Agreement or related Loan Documents shall not constitute a default under any other Loan Agreement or Loan Documents.] (b) Notwithstanding the foregoing, if the Trustee has actual knowledge or reasonably believes that all or any part of a Mortgaged Estate is affected by hazardous or toxic wastes or substances, the Trustee need not cause the Trust to acquire title to such Mortgaged Estate in a foreclosure or similar proceeding. In connection with such activities, the Trustee shall follow such practices and procedures as it shall deem necessary or advisable, as shall be normal and usual in trustee activities by leading national banking associations, and, in particular, the Trustee may request such certificates of appropriate public officials and agencies, if any, a history of such Mortgaged Estate and its uses, other evidence reasonably satisfactory to the Trustee showing that such Mortgaged Estate conforms to existing environmental laws, regulations and rules, and that no conditions exist in, on or beneath the surface of such Mortgaged Estate that are or might become hazardous materials, and including but not limited to an environmental report or reports from a company reasonably satisfactory to Trustee, showing the current state of storage, disposal or release of any oil, fuels, gases, chemicals, trash, garbage or other solid wastes or hazardous materials which report or reports shall be based upon complete and thorough on-site inspections of such Mortgaged Estate, including but not limited to investigations of the soil, surface water and groundwater, to confirm the presence or absence of any hazardous materials on or beneath the surface of such Mortgaged Estate or adjacent lands. Any expenses incurred by Trustee in connection with obtaining any such certificates or reports, if not paid by the Borrower, shall be Extraordinary Expense Advances. 28 35 (c) The activities set forth in Section 4.08(a) are also subject to the proviso that the Trustee may, but shall not be required to, expend its own funds in connection with any foreclosure or towards the restoration of a Mortgaged Estate if it shall determine that (i) such restoration or foreclosure will increase the Net Liquidation Proceeds of the related Mortgage Loan to Certificateholders after reimbursement for such expenses and (ii) such expenses will be recoverable either through Liquidation Proceeds or revenues from such Mortgaged Estate. Section 4.09. Trustee Compensation. The Trustee's Fee shall be paid pursuant to the terms of the Consent and Agreement[s]. The Trustee, as compensation for its activities hereunder (other than those covered by the Trustee's Fee), shall be entitled to receive amounts representing reimbursement for Extraordinary Expense Advances and reimbursement for certain expenses, as specified by Sections 3.01(d), 3.01(h), 3.06(d), 4.04(c) and 4.06(b). Section 4.10. Rights of the Certificateholders. The Trustee shall afford the Certificateholders, upon reasonable notice and during normal business hours, access to all records maintained by the Trustee in respect of its rights and obligations hereunder and access to officers of the Trustee responsible for such obligations. Upon request, the Trustee shall furnish the Certificateholders with its most recent publicly available financial statements. ARTICLE V PAYMENTS TO THE CERTIFICATEHOLDERS Section 5.01. Distributions. (a) The Trustee shall cause to be distributed, from funds in the Certificate Account, the following amounts: (i) on each Remittance Date, to each Certificateholder an amount equal to the Debt Service due on the Certificate or Certificates held by such Certificateholder; provided, however, that the foregoing shall not apply to amounts deposited in the Certificate Account under Section 4.02(a), 4.02(c), 4.04(a) or 4.07 if the maturity of the related Mortgage Loan has been accelerated pursuant to the terms of the related Loan Documents. Any amounts referred to in the proviso contained in the preceding sentence, together with the interest earned thereon, shall, after such acceleration, be held in the Certificate Account until such time as they constitute Liquidation Proceeds, at which time the Net Liquidation Proceeds attributable thereto shall be disposed of as provided in sections 3.01(e) and 5.01(a)(ii); and (ii) on the date provided for distributions pursuant to Section 3.01(c), (d), (e) or (f), to each Certificateholder an amount equal to the amount payable on the Certificate or Certificates held by such Certificateholder pursuant to Section 3.01(c), (d), (e) or (f), as the case may be; and 29 36 (iii) concurrently with the termination of the Trust pursuant to Section 9.01 hereunder, to each Certificateholder an amount equal to the product of (a) all amounts remaining in the Certificate Account after giving effect to the distributions provided for in clauses (i) and (ii) hereof, and (b) the Percentage Interest of such Certificateholder. (b) All distributions made to Certificateholders on each Remittance Date shall be made to the Certificateholders of record on the Record Date (other than as provided in this Trust Agreement or in the form of Certificate respecting the final distribution), (i) by wire transfer in immediately available funds to the account of such Holder at a bank or other financial or depository institution having appropriate facilities therefor, if such Holder has so notified the Trustee in writing at least 10 Business Days prior to such Remittance Date and such Holders hold Certificates in the aggregate principal amount of $1,000,000 or more or (ii) for all other Holders of Certificates, by check mailed to the address of the Person entitled thereto as it appears on the Certificate Register. Notwithstanding any of the provisions of this subsection (b) to the contrary, so long as all of the outstanding Certificates are held by the Depository, all distributions in respect of such Certificates shall be made by wire transfer in immediately available funds in accordance with the Letter of Representations. All distributions in respect of the Certificates shall be made without presentation or surrender, except that the final distribution in accordance with Section 9.02 will be made only upon presentation and surrender of the Certificates at the Corporate Trust Office or such other agency of the Trustee specified in the final distribution notice to Certificateholders. If on any Determination Date, the Trustee reasonably determines that [the] [no] Mortgage Loan is [not] outstanding and there are no other funds or assets in the Trust Property other than the funds in the Certificate Account, the Trustee shall send the final distribution notice to each Certificateholder and make provision for the final distribution in accordance with Section 9.02. Section 5.02. Statements to Certificateholders. Not later than each Remittance Date, Trustee will cause to be sent to each Certificateholder a statement setting forth the following information with respect to each Certificate (which information may be aggregated for all Certificates held by the same Holder), after giving effect to the distributions to be made pursuant to Section 5.01 on or as of such Remittance Date: (i) the portion of such distribution allocable to principal on the Mortgage Note[s]; (ii) the portion of such distribution allocable to interest on the Mortgage Note[s]; (iii) the amount of any Extraordinary Expense Advance by the Trustee pursuant to Section 5.03; and 30 37 (iv) whether [the] [a] Mortgage Loan is delinquent. In addition, not more than 90 days after the end of each calendar year or by such earlier time as may be required under the Code, the Trustee will furnish a report to each holder of a Certificate at any time during such calendar year, an annual statement of interest paid on the Mortgage Note[s] in accordance with the requirements of applicable federal income tax law. The Trustee shall cause to be prepared and shall file any and all tax returns, information statements or other filings required to be delivered to (a) any governmental taxing authorities or (b) the Certificateholders pursuant to any applicable law with respect to the Trust Property and the transactions contemplated hereby. The costs of any such filings, including the costs of any accounting firm or other organization retained to assist in the preparation of any such filings, shall be considered an ordinary cost and expense of the Trustee included within the Trustee's Fee and not subject to reimbursement by the Depositor, any Borrower or otherwise. Section 5.03. Advances by Trustee. The Trustee may from time to time following an Event of Default make such Extraordinary Expense Advances as Trustee in its sole discretion deems advisable, provided, however, that it shall not be obligated to make any such advances unless it is satisfied as to the availability of reimbursement, pursuant to the terms hereof or from the Certificateholders. ARTICLE VI THE DEPOSITOR Section 6.01. Maintaining Corporate Existence of the Depositor. The Depositor will keep in full effect its existence, rights and franchises as a corporation, and will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Trust Agreement, the Certificates or the Mortgage Loan[s] and to perform its duties under this Trust Agreement. The Depositor will not, on or after the date of execution of this Trust Agreement (i) engage in any business or investment activities other than those necessary for, incident to, connected with or arising out of the origination and sale of mortgage loans, (ii) incur any indebtedness, or (iii) amend, or propose to its shareholders for their consent any amendment of, its Certificate of Incorporation or Bylaws without giving notice thereof in writing not less than 30 days nor more than 90 days prior to the date on which such amendment is to become effective to Trustee and without first obtaining the written consent of Trustee. 31 38 Section 6.02. Limitation on Liability of the Depositor. Neither the Depositor nor any of the directors, officers, employees or agents of the Depositor shall be under any liability to the Trustee or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Trust Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Depositor or any such person against any liability which would otherwise be imposed by reason of any willful misfeasance, bad faith or negligence in the performance of its duties or by reason of negligent disregard of obligations and duties hereunder. The Depositor and any director, officer, employee or agent of the Depositor may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Depositor shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties pursuant to this Trust Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Depositor may in its discretion undertake any such action which it may deem necessary or desirable with respect to this Trust Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. ARTICLE VII DEFAULT Section 7.01. Events of Default. The occurrence of any event constituting an event of default as defined in [any] [the] Mortgage Note or any Loan Document shall constitute an Event of Default under this Trust Agreement. If an Event of Default shall occur and be continuing, then, and in each and every such case, so long as the Event of Default shall not have been remedied or waived, the Trustee, at the written direction of the Holders of Certificates of Percentage Interests aggregating not less than 66-2/3%, shall exercise any rights and remedies that it may have pursuant to [such] Mortgage Note or any [related] Loan Document, as modified by the provisions of this Trust Agreement, or at law or equity, including injunctive relief and specific performance, provided that, if, as a result of the occurrence of an Event of Default, the Trustee acquires any property other than cash, whether pursuant to foreclosure or otherwise, the Trustee shall sell such property as promptly as is reasonably possible. [A failure to pay with respect to any Mortgage Note or a default under any Loan Document will not constitute a default under any unrelated Mortgage Note or under any unrelated Loan Documents and will not give rise to any right of the Trustee to exercise any remedies with respect to such unrelated Mortgage Note or unrelated Loan Documents.] The Trustee will have no obligation to take any action or institute, conduct or defend any litigation under this Trust Agreement at the request, order or direction of any of the Certificateholders, unless such Certificateholders have offered to the Trustee reasonable indemnity pursuant to Section 8.02(iii) against the 32 39 costs, expenses and liabilities which the Trustee may incur. The Trustee shall apply the proceeds recovered in the enforcement of the rights and remedies under this Trust Agreement in accordance with the terms of this Trust Agreement. Section 7.02. Waiver of Defaults. The Trustee, at the written direction of Holders of Certificates of Percentage Interests aggregating not less than 66-2/3%, shall waive any default hereunder or under any Mortgage Note or Loan Document and the consequences of any such default, except that a default in the making of any required distribution on the Certificates may only be waived by the affected Certificateholders. The Trustee shall have no authority to exercise the right of waiver if, as a result thereof, this Trust would fail to be characterized as a trust for federal income tax purposes. The Trustee may rely upon an Opinion of Counsel as set forth in Section 8.02 if it reasonably believes that such an act may cause the Trust to fail to be characterized as a trust for federal income tax purposes. Upon any such waiver of a past default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Trust Agreement. No such waiver shall extend to any subsequent Event of Default or impair any right consequent thereon except to the extent expressly so waived. Section 7.03. Notification to Certificateholders. The Trustee shall, in the manner and to the extent required by Section 313(c) of the TIA, notify the Certificateholders, the [related] Tenant and Kmart of any Event of Default known to the Trustee within the later of 90 days from the occurrence thereof or 30 days after obtaining knowledge thereof, unless such Event of Default has been cured or waived before the giving of such notice. Except in the case of a default in the payment of principal of, or interest on, the Mortgage Note[s], the Trustee may withhold such notice if and so long as its board of directors, the executive committee of the board of directors or a committee of its directors and/or responsible officers in good faith determine that the withholding of such notice is in the interests of the Certificateholders. Section 7.04. Rights of Certificateholders to Direct Proceedings. Anything in this Trust Agreement to the contrary notwithstanding, the Holders of Certificates of Percentage Interests aggregating not less than 66-2/3% shall have the right, at any time during the continuance of an Event of Default, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, place and method of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Loan Documents; provided, however that such direction shall not be otherwise than in accordance with the provisions of law and this Trust Agreement and provided that such Holders shall have provided to the Trustee the reasonable indemnity pursuant to Section 8.02 (iii) against the costs, expenses and liabilities which the Trustee may incur in connection with such proceedings. 33 40 Section 7.05. Rights of Certificateholders to Receive Payment. Notwithstanding any other provision in this Trust Agreement, the right of any Certificateholder to receive distributions pursuant to Section 5.01, on or after the respective Remittance Dates set forth herein or in the Certificates, or to bring suit for the enforcement of any such distribution on or after such respective dates shall not be impaired or affected without the consent of such Certificateholder. Section 7.06. Remedies Cumulative. No remedy given hereunder to the Trustee or to any of the Certificateholders shall be exclusive of any other remedy or remedies, and each such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter given by statute, law, equity or otherwise. Section 7.07. Trustee Default. In the event of any breach by the Trustee of its obligations pursuant to this Trust Agreement, the Certificateholders and the Depositor shall be entitled to exercise all rights and remedies to which they may be entitled at law or in equity. Section 7.08. Notice to Tenant[s] [and Kmart]. The Trustee shall promptly notify the [related] Tenant [and Kmart] of the exercise of any remedies under this Trust Agreement, under [any] [the] Mortgage Note or under any Loan Document. Failure to give such notice or notice under Section 7.03 hereof shall not impair or limit the Trustee's right to pursue any such remedies or any other right or remedy to which it may be entitled. ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01. Duties of Trustee. [With respect to each Mortgage Note] the Trustee, prior to the occurrence of an Event of Default [related to such Mortgage Note] and after the curing or waiver of all Events of Default [related to such Mortgage Note] which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Trust Agreement. In case an Event of Default has occurred [related to such Mortgage Note] (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Trust Agreement, and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of such man's own affairs. No permissive rights of the Trustee shall be construed as a mandatory duty of the Trustee. If the Trustee becomes aware of the occurrence of any event which, with the giving of notice and, if applicable, the passage of time without cure, would constitute an event of default as defined in any Loan Document, the Trustee, if it is an appropriate party (or an assignee of an appropriate party) to give such notice, is authorized and directed to give such notice in accordance with such Loan Document. The Trustee, upon receipt of any resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Trust Agreement, shall examine them to determine whether they conform to 34 41 the requirements of this Trust Agreement and if they are deemed to be deficient, Trustee shall request cure of any such deficiency within a reasonable period of time for such cure. If such deficiency is not cured to the satisfaction of Trustee, the Trustee may treat the requirement pursuant to which such instrument is furnished as not having been satisfied. No provision of this Trust Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; provided, however, that: (i) Prior to the occurrence of an Event of Default, and after the curing or waiver of all such Events of Default which may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Trust Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Trust Agreement and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Trust Agreement; (ii) The Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) The Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3% as to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Trust Agreement; and (iv) The Trustee shall have no authority to perform any act which, if consummated, would cause the entity created hereunder to fail to be characterized as a trust for federal income tax purposes. The Trustee may rely upon an Opinion of Counsel, as set forth in Section 8.02, if it reasonably believes that such an act may cause the Trust to fail to be characterized as a trust for federal income tax purposes. Nothing in this Section 8.01(iv) is intended to prevent the Trustee from exercising any right or remedy to which it is entitled hereunder or under any Loan Document. The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any rights or powers, if there is reasonable grounds for believing that the 35 42 repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Section 8.02. Certain Matters Affecting Trustee. Except as otherwise provided in Section 8.01: (i) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) The Trustee may consult with counsel, and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel, provided that any cost incurred by the Trustee shall be reimbursable only to the extent provided in Sections 3.01(d), 3.06(d), 4.04(c), 4.06(b) and 4.09 hereof; (iii) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Trust Agreement or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Certificateholders, pursuant to the provisions of this Trust Agreement, unless such Certificateholders shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; the right of the Trustee to perform any discretionary act enumerated in this Trust Agreement shall not be construed as a duty; and the Trustee shall not be answerable for other than negligence or willful misconduct in performance of such act. Nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived), to exercise such of the rights and powers vested in it by this Trust Agreement, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of such man's own affairs; (iv) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Trust Agreement; (v) Except with respect to notice of deficient or missing documents described in Section 2.02, prior to the occurrence of an Event of Default hereunder and after the curing or waiver of all Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, 36 43 approval, bond or other paper or document, unless requested in writing so to do by Holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3%; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Trust Agreement, the Trustee may require reasonable indemnity against such expense or liability as a condition to such proceeding. The reasonable expense of every such investigation shall be paid by the Certificateholder requesting the investigation; and (vi) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. Section 8.03. Trustee Not Liable for Certificates or Mortgage Loan[s]. The recitals contained herein and in the Certificates shall be taken as the statements of the Depositor and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations or warranties as to the validity or sufficiency of this Trust Agreement or of the Certificates (except that the Certificates shall be duly and validly executed and authenticated by the Trustee and this Trust Agreement shall be duly and validly executed by the Trustee) or of the Mortgage Loan[s] or related documents (other than the representations made in Section 2.02 hereof). The Trustee shall not be accountable for the use or application by the Depositor of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to or at the direction of the Depositor with respect to the Mortgage Loan[s]. Section 8.04. Trustee May Own Certificates. The Trustee in its corporate or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Trustee. Section 8.05. Trustee's Fee and Expenses. The Trustee shall be entitled to reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and the Trustee shall be reimbursed for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ), but solely from the Trustee's Fee and amounts available as provided in Section 3.01(d) and Section 3.01(h) and in the Rental Payment Account[s] and Certificate Account for reimbursement of expenses as set forth in Section 3.06(d) and of Extraordinary Expense Advances as provided in Sections 4.04(c), 37 44 4.06(b) and 4.09. Notwithstanding the above, no such expense, disbursement or advance shall be reimbursable as may arise from Trustee's negligence or bad faith. Section 8.06. Action by Co-Trustee. At any time or times, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Property may at the time be located or in which any action of the Trustee may be required to be performed or taken, the Trustee, by an instrument in writing signed by it, may appoint one or more Persons ("Co-Trustee") to act as a separate trustee or co-trustee, acting jointly with the Trustee, of all or any part of such Trust Property, to the full extent that local law makes it necessary for such separate trustee or separate trustees or co-trustee acting jointly with the Trustee to act. The Co-Trustee shall act as and be such upon the following terms and conditions: (a) Subject to the provisions of Section 8.14, all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed solely upon and solely exercised and performed by the Trustee except as expressly provided otherwise in this Trust Agreement and except to the extent that under any law or any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by the Co-Trustee; (b) No power granted by this Trust Agreement to, or which this Trust Agreement provides may be exercised by, the Co-Trustee shall be exercised by the Co-Trustee except jointly with, or with the consent in writing of, the Trustee, anything contained to the contrary notwithstanding; and (c) The Co-Trustee may at any time by an instrument in writing, constitute the Trustee or its successor in trust hereunder its agent or attorney-in-fact, with full power and authority, to the extent which may be permitted by law, to do any and all acts and things and exercise any and all discretion which it is authorized or permitted to do or exercise, for and in its behalf and in its name. Section 8.07. Eligibility Requirements for Trustee. The Trust shall at all times have a Trustee which shall be a corporation eligible to act as trustee under Section 310(a) of the TIA and shall be a corporation organized and doing business under the laws of a state or the United States of America, authorized under such laws to exercise corporate trust powers, having (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $50,000,000 in the case of United States Trust Company of New York, and of at least $100,000,000 in the case of any successor trustee and subject to supervision or examination by federal or state authority. If such corporation 38 45 publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.08. Section 8.08. Resignation and Removal of Trustee. The Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Depositor and the Certificateholders. Upon receiving such notice of resignation, the Depositor or the Certificateholders evidencing Percentage Interests aggregating not less than 66-2/3% shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. 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 any of the following events occur: (a) the Trustee fails to comply with the requirements of Section 310 of the Trust Indenture Act after written request for such compliance by any Certificateholder who has been a bona fide Certificateholder for at least six months; or (b) the Trustee ceases to be eligible in accordance with the provisions of Section 8.07 and fails to resign after written request therefor by the Depositor or by any such bona fide Certificateholder; or (c) the Trustee becomes incapable of acting, or shall be adjudged a 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, in any such case, (i) the Depositor may remove the Trustee and appoint a successor trustee by written instrument, in triplicate, one copy of which instrument shall be delivered to the Trustee so removed, one copy to Depositor and one copy to the successor trustee, or (ii) subject to the provisions of Section 7.04, any Certificateholder who has been a bona fide Certificateholder for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Trustee and appoint a successor trustee. 39 46 The Certificateholders evidencing Percentage Interests aggregating not less than 66-2/3% may at any time remove the Trustee and appoint a successor trustee by written instrument or instruments, in triplicate, signed by such Holders or their attorneys-in-fact duly authorized, one complete set of which instruments shall be delivered to the Trustee so removed, one complete set to Depositor and one complete set to the successor so appointed. Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective only upon acceptance of appointment by the successor trustee as provided in Section 8.09. Section 8.09. Successor Trustee. Any successor trustee appointed as provided in Section 8.07 or 8.08 shall execute, acknowledge and deliver to the Certificateholders and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the same effect as if originally named as trustee herein. The predecessor trustee shall deliver to the successor trustee the Mortgage Note[s], the Loan Documents, the Mortgage File and any other documents and statements held by it hereunder, and the Depositor and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.07. Upon acceptance of appointment by a successor trustee as provided in this Section, the Depositor shall mail notice of the succession of such trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Register. If the Depositor fails to mail such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Depositor. Section 8.10. Merger or Consolidation of Trustee. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 8.07, without the execution or filing of any paper or any further 40 47 act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 8.11. Resignation of Co-Trustee. The Co-Trustee or any of its successors may resign, and may be discharged of the trusts created by this Trust Agreement by giving written notice thereof to the Certificateholders and to the Trustee. Such resignation shall take effect immediately upon the acceptance of appointment by a Person succeeding to the office of the Co- Trustee appointed by the Trustee. Section 8.12. Removal of Co-Trustee. The Co-Trustee or any of its successors may be removed at any time by the Trustee or the Holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3%, by delivery of a notice of such removal to the Co- Trustee, to the Depositor, and to the Trustee, signed by such holders, and such removal shall be effective upon the date specified in such notice, and the Co-Trustee's duties and obligations hereunder shall thereupon cease, except as specified in Section 8.14. Section 8.13. Appointment of Successor to Co-Trustee. If at any time the Co-Trustee or any of its successors shall die, resign or be removed or otherwise become incapable of acting, or if for any reason the office of Co-Trustee shall become vacant, a successor to the Co-Trustee shall forthwith be appointed by the Trustee. Section 8.14. Succession of Successor to Co-Trustee. Any Person appointed as a successor to the Co-Trustee shall execute, acknowledge and deliver to the Certificateholders, its predecessor, to the Trustee and to the Depositor, an instrument accepting such appointment hereunder, and thereupon such Person without any further act, deed or conveyance shall become vested with all estates, properties, rights, powers, duties and trusts of its predecessor in the trusts hereunder with like effect as if originally named as Co-Trustee herein; but nevertheless, on the written request of the Depositor or Holders of Certificates evidencing Percentage Interests aggregating not less than 66- 2/3% or of the Trustee or of the new Co-Trustee, the predecessor shall execute and deliver an instrument transferring to the new Co-Trustee, upon the trusts expressed in this Trust Agreement, all the estates, properties, rights, powers and trusts granted to it by this Trust Agreement and shall duly assign, transfer, deliver and pay over to the new Co-Trustee any property and money subject to the lien of this Trust Agreement held by such predecessor. Should any instrument in writing from the Depositor or from Holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3% or from the Trustee be required by any person who becomes the Co-Trustee for more fully and certainly vesting in and confirming to such Co-Trustee such estates, properties, rights, powers and trusts, then, on request, any and all such instruments 41 48 in writing shall be made, executed, acknowledged and delivered by the Depositor and/or the Trustee. Any Co-Trustee which has resigned or been removed shall nevertheless retain all rights of indemnity granted hereunder. Section 8.15. Reports by the Trustee to Certificate-holders. (a) On or before each March 31 of each calendar year commencing 199_, the Trustee shall transmit to Certificateholders such reports concerning the Trustee and its actions under this Trust Agreement as may be required pursuant to the TIA and at the times and in the manner provided pursuant thereto. (b) A copy of each report shall, at the time of such transmission to Certificateholders, be filed by the Trustee with any stock exchange upon which the Certificates are listed, with the Securities and Exchange Commission, with Kmart and with the Depositor. The Depositor shall notify the Trustee when the Certificates are listed on any stock exchange, in accordance with Section 313(c) of the TIA. ARTICLE IX TERMINATION Section 9.01. Termination. The respective obligations and responsibilities of the Depositor and the Trustee under this Trust Agreement shall, so long as such termination does not result in the imposition of a tax on the Trust Property, terminate upon the final payment, prepayment in full or other liquidation of the Mortgage Note[s] including the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of [the] [any] Mortgage Loan and the remittance of all funds due hereunder; provided, however, that in no event shall the Trust continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof. Section 9.02. Notice; Final Distribution. (a) Notice of any termination pursuant to Section 9.01, specifying the Remittance Date after which all Certificateholders shall surrender their Certificates to the Trustee for payment and cancellation, shall be given promptly by the Trustee by letter to Certificateholders mailed no later than 15 days prior to such final distribution specifying (i) the Remittance Date upon which final payment on the Certificates will be made and following which the Certificateholders shall present and surrender their Certificates at the Corporate Trust Office or the office of any designated agent of the Trustee therein designated, (ii) the amount of any such final payment, and (iii) that payments will be made only upon presentation and surrender of the Certificates at the office or 42 49 agency of the Trustee therein specified. After giving such notice, the Trustee shall not register the transfer or exchange of any Certificates. On the Remittance Date upon presentation and surrender of the Certificates, the Trustee shall cause to be distributed to Certificateholders an amount equal to the amount distributable on such Remittance Date. (b) If all of the Certificateholders shall not surrender their Certificates for cancellation within three months after the time specified in the above-mentioned written notice, the Trustee shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within three months after the second notice all the Certificates shall not have been surrendered for cancellation, the Trustee may take appropriate steps, or may appoint an agent to take appropriate and reasonable steps, to contact the remaining Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds and other assets which remain in the Trust. ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT AND OTHER DOCUMENTS; ADDITIONAL AGREEMENTS OF TRUSTEE Section 10.01. Supplemental Trust Agreements Without Consent of Holders. The Depositor and the Trustee, at any time and from time to time, with the consent of Kmart (which shall not be unreasonably withheld or delayed and which shall not be required with respect to (g) below) but without the consent of Certificateholders, may enter into one or more trust agreements supplemental hereto for one or more of the following purposes: (a) to evidence the succession of another Person to the Depositor, or successive successions, and the assumption by the successor of the covenants, agreements and obligations of the Depositor herein; (b) to add any covenants, restrictions, conditions or provisions with respect to the Depositor as the Trustee shall consider to be for the protection of the Certificateholders; (c) to surrender any rights or power conferred herein upon the Depositor herein or to add to the rights of the Certificateholders; (d) to correct or amplify the description of any property at any time that constitutes Trust Property or better to assure, convey and confirm unto the Trustee any such property to be included in any such Trust Property, or to acknowledge any change relating to title to the 43 50 Mortgaged Estate which does not materially adversely affect the rights of the Certificateholders; (e) to evidence and provide for the acceptance and appointment hereunder of a successor trustee and to add to or change any of the provisions hereof as may be necessary to provide for or facilitate the administration of the Trust by more than one trustee pursuant to Section 8.14; (f) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, provided that such action pursuant to this Section 10.01(f) shall not materially adversely affect the Certificateholders; or (g) to modify, eliminate or add to the provisions of this Trust Agreement to the extent necessary to continue the qualification of this Trust Agreement under the TIA; provided that no such supplemental agreement shall cause the Trust to fail to be characterized as a trust for federal income tax purposes. The Trustee is hereby authorized to join in the execution of any such supplemental agreement, to make any further appropriate agreements and stipulations which may be contained therein and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental agreement which adversely affects the Trustee's own rights, duties or immunities under this Trust Agreement or otherwise, whether in its official or individual capacity. Section 10.02. Supplemental Agreements With Consent of Certificateholders. With the consent of the Holders of Certificates evidencing Percentage Interests of not less than 66-2/3%, the Depositor and the Trustee may, from time to time and at any time, enter into an agreement or agreements supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Trust Agreement or of any agreements supplemental hereto or of modifying in any manner the rights of the Certificateholders; provided, however, that no such supplemental agreement shall cause the Trust to fail to be characterized as a trust for federal income tax purposes; and provided further that except as expressly permitted under the terms of this Trust Agreement, without the consent of each Certificateholder affected thereby and, with respect to (b) and (unless there is a monetary default under the [related] Lease) (c) below, Kmart, no such amendment of or supplement to this Trust Agreement or modification of the terms of, or consent under, any thereof, shall 44 51 (a) modify any of the provisions of Section 7.03 or this Section 10.02, or the definition of "Certificateholder" as set forth in Article I hereof; (b) modify the definition of "Percentage Interest" as set forth in Article I hereof or reduce the Percentage Interests, the consent of the Holders of Certificates of which is required for any such supplement to this Trust Agreement, or the consent of the Holders of Certificates of which is required for any waiver provided for in this Trust Agreement; (c) reduce the amount or extend the time of payment of any amount owing or payable under the Mortgage Note[s] or distributions to be made on any Certificate pursuant to Article V; (d) impair the right of any Certificateholder to commence legal proceedings to enforce a right to receive payment hereunder; or (e) create or permit the creation of any lien on the Trust Property or any part thereof [(other than the Second Mortgage and the Option Agreement)], or deprive any Certificateholder of the benefit of this Trust Agreement, whether by disposition of such Trust Property or otherwise. Upon the request of the Depositor and upon the filing with the Trustee of evidence of the consent of the Certificateholders and Kmart, if applicable, required under this Section, the Trustee shall join with the Depositor in the execution of such supplemental agreement unless such supplemental agreement affects the Trustee's own rights, duties or immunities under this Trust Agreement or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental agreement. It shall not be necessary for the consent of the Certificateholders under this Section to approve the particular form of any proposed supplemental agreement, and it shall be sufficient if such consent shall approve the substance thereof. Kmart shall be entitled to receive a copy of the form of proposed supplemental agreement. Promptly after the execution by the Depositor and the Trustee of any supplemental agreement pursuant to the provisions of this Section, the Trustee shall mail a notice thereof by first-class mail to the Certificateholders at their addresses as they shall appear in the Certificate Register, setting forth in general terms the substance of such supplemental agreement. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental agreement. Section 10.03. Effect of Supplemental Agreement. Upon the execution of any supplemental agreement pursuant to the provisions hereof, this Trust Agreement shall be and be deemed to be modified 45 52 and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Trust Agreement of the Trustee, the Depositor and the Certificateholders shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental agreement shall be and be deemed to be part of the terms and conditions of this Trust Agreement for any and all purposes. The Trustee shall deliver to Kmart a true and correct copy of the final form of supplemental agreement as executed by the Depositor and the Trustee. Section 10.04. Documents to Be Given to Trustee. The Trustee, subject to the provisions of Sections 8.02, may receive an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any such supplemental agreement complies with the applicable provisions of this Trust Agreement. Section 10.05. Notation on Certificates in Respect of Supplemental Agreements. Certificates authenticated and delivered after the execution of any supplemental agreement pursuant to the provisions of this Article may bear a notation in form approved by the Trustee as to any matter provided for by such supplemental agreement. If the Depositor or the Trustee shall so determine, new Certificates so modified as to conform, in the opinion of the Depositor and the Trustee, to any modification of this Trust Agreement contained in any such supplemental agreement may be prepared, executed and authenticated by the Trustee and delivered in exchange for the outstanding Certificates. Section 10.06. Granting of Easements. The Trustee, at the direction of [a] [the] Tenant and the [related] Borrower, may grant, release, modify or amend easements, licenses, rights-of-way, dedications and other rights or privileges in the nature of easements with respect to the [related] Mortgaged Estate, which the Trustee determines do not materially adversely affect the security of the Trust Property. The Trustee shall, upon request of [such] Tenant, certify that the rights or privileges so granted or released are no longer part of the Trust Property for purposes of this Trust Agreement. ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Trust Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Trust Agreement and shall in no way affect the validity or enforceability of the other provisions of this Trust Agreement. 46 53 Section 11.02. Limitation on Rights of Certificateholders. The death or incapacity of any Certificateholder shall not operate to terminate this Trust Agreement or the Trust Property, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Trust Property, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. No Certificateholder shall have any right to vote (except as expressly provided herein) or in any manner otherwise control the operation and management of the Trust Property, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Trust Agreement pursuant to any provision hereof. No Certificateholder shall have any right by virtue of any provision of this Trust Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Trust Agreement, unless such Holder previously shall have given to the Trustee a written notice of the occurrence of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates evidencing in the aggregate Percentage Interests of not less than 66-2/3% shall have made written request upon the Trustee to institute such action, suit or proceeding in its own name as Trustee hereunder and shall have offered to the Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Trustee, that no one or more Holders of Certificates shall have any right in any manner whatever by virtue of any provision of this Trust Agreement to affect, disturb or prejudice the rights of the Holders of any other of such Certificates, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Trust Agreement, except in the manner herein provided and for the common benefit of Certificateholders. For the protection and enforcement of the provisions of this Section, each and every Certificateholder and the Trustee shall be entitled to such relief as can be given either at law or in equity. Section 11.03. Solicitation of Certificateholders. The Trustee will not solicit, request or negotiate for or with respect to any direction or proposed waiver or amendment of any of the provisions of this Trust Agreement or the Certificates, unless each Holder of the Certificates (irrespective of the amount of 47 54 Certificates then owned by it) shall be informed thereof by the Trustee and shall be afforded the opportunity of considering the same and shall be supplied by the Trustee with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver effected pursuant to the provisions of this Section shall be delivered by the Trustee to Kmart and each Holder of outstanding Certificates forthwith following the date on which the same shall have been executed and delivered by the Holder or Holders of the requisite percentage of outstanding Certificates. Neither the Depositor nor the Trustee nor any Affiliate thereof will, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Certificateholders as consideration for or as an inducement to the entering into by any Certificateholders of any waiver or amendment of any of the terms and provisions of this Trust Agreement unless such remuneration is concurrently paid, on the same terms, ratably to all Certificateholders. Under any provisions of this Trust Agreement that relate to consent, waiver, direction, request or demand of or by Certificateholders, each and every Certificateholder shall be entitled to give or make any such consent, waiver, direction, request or demand without request or demand for such action by the Trustee. In the event any such direction or similar action is so received by the Trustee under any provision hereof from the Certificateholders of requisite Percentage Interests, the Trustee shall follow the direction of such Certificateholders. Section 11.04. Recordation of Agreement. To the extent required by applicable law, this Trust Agreement is subject to recordation in appropriate public offices for real property records in the county or other comparable jurisdiction in which [the] [each] Mortgaged Estate is situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Trustee accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Certificateholders or is necessary in connection with the [related] Mortgage Loan. Section 11.05. Duration of Agreement. This Trust Agreement shall continue in existence and effect until terminated as herein provided. SECTION 11.06. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 11.07. Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to 48 55 have been duly given if personally delivered at or mailed by first class or registered mail, postage prepaid, to (i) in the case of the Depositor, National Tenant Finance Corporation, 40 North Central Avenue, Suite 2700, Phoenix, Arizona 85004-4441, Attention: Norman C. Storey, and (ii) in the case of the Trustee, United States Trust Company of New York c/o U.S. Trust Company of California, N.A., Suite 2700, 555 South Flower Street, Los Angeles California 90071 Attention: Corporate Trust Division, or such other addresses as such Persons may hereafter designate. Any notice required or permitted to be mailed to a Certificateholder shall be given by registered mail, postage prepaid, or by express delivery service, at the address of such Certificateholder as shown in the Certificate Register. A copy of each notice of an Event of Default and all other notices or communications hereunder, including the text of any proposed or final amendment or supplement to this Trust Agreement, given by or to the Certificateholders, the Trustee or the Depositor shall be contemporaneously transmitted to Kmart, 3100 West Big Beaver Road, Troy, Michigan 48084, Attention: Vice President-Real Estate, or to such other address as Kmart may have designated by written notice to the Trustee. The provisions of the foregoing sentence are for the express benefit of Kmart, shall be enforceable by it, and may not be modified or eliminated without its consent. Section 11.08. Counterparts. For the purpose of facilitating the recordation of this Trust Agreement as herein provided and for other purposes, this Trust Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Section 11.09. Submission to Jurisdiction. Each party hereto hereby consents to the jurisdiction of any state or federal court located within the County of New York, State of New York and irrevocably agrees that all actions or proceedings relating to this Trust Agreement may be litigated in such courts and each such party waives any objection which it may have based on improper venue or forum non conveniens to the conduct of any proceeding in any such court, waives personal service of any and all process upon it and consents that all such service or process be made by registered or certified mail (return receipt requested) or messengered to it at its address set forth in Section 11.08 or to its Agent referred to below at such Agent's address set forth below and that service so made shall be deemed to be completed in accordance with Section 11.08. Each party hereto hereby appoints the Prentice Hall Corporation System, Inc., with an office on the date hereof at 15 Columbus Circle, New York, New York 11023 as its Agent for the purpose of accepting service of any process within the State of New York and shall execute any confirmation thereof requested by the other party hereto. Nothing in this Section shall affect the right of any party hereto to serve legal process in any other manner permitted by law to bring any action or proceeding in the courts of any jurisdiction against the other party or to enforce a judgment obtained in the courts of any other jurisdiction. 49 56 Section 11.10. Gender; Number. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the context shall require. Section 11.11. TIA Controls. If any provision of this Trust Agreement limits, qualifies or conflicts with the duties imposed by operation of Section 318(c) of the TIA, the imposed duties shall control. Section 11.12. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Depositor to the Trustee to take any action under this Trust Agreement, the Depositor shall furnish to the Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Trust Agreement relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such counsel all such conditions precedent have been complied with. Section 11.13. Statements Required in Certificate or Opinion. Each Officers' Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Trust Agreement shall include: (a) a statement that each Person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (c) a statement that, in the opinion of each such Person, he has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 11.14. Benefits of Trust Agreement. Nothing in this Trust Agreement or in the Certificates, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Certificateholders, any benefit or 50 57 any legal or equitable right, remedy or claim under this Trust Agreement. IN WITNESS WHEREOF, the Depositor and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written. NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation By_____________________________ Name___________________________ Title__________________________ UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation By_____________________________ Name___________________________ Title__________________________ 58 STATE OF_____________________ ] ] ss. CITY OF______________________ ] On the___ day of _________, 199_ before me, a Notary Public in and for said State, personally appeared ______________, known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as ___________ on behalf of NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation, and acknowledged to me that such Corporation executed the within instrument pursuant to its Bylaws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. [NOTARIAL SEAL] _________________________________ Notary Public My Commission Expires: ______________________ STATE OF_____________________ ] ] ss. CITY OF______________________ ] On the of _________, 199_ before me, a Notary Public in and for said State, personally appeared ______________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as to be a ______________ on behalf of UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation, and acknowledged to me that such association executed the within instrument pursuant to its Bylaws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. [NOTARIAL SEAL] _________________________________ Notary Public My Commission Expires: ______________________ 52 59 EXHIBIT A-1 MORTGAGE LOAN SCHEDULE (i) Borrower Name - (ii) Mortgaged Estate - See Exhibit A attached hereto (iii) Maturity Date - _____ __, 20__ (iv) Rate - ____% (v) First Due Date - ________ __, 199_ (vi) Mortgage Payments - See Exhibit B attached hereto (vii) Original Principal Balance of Mortgage Loan - $_______________ 60 EXHIBIT A-2 CERTIFICATE SCHEDULE 61 EXHIBIT A-3 CONTENTS OF MORTGAGE FILE With respect to the Mortgage Loan, the Mortgage File shall include each of the following items: 62 EXHIBIT A-4 CAPITALIZED DEBT SERVICE ACCOUNT SCHEDULE (i) Borrower Name - (ii) Tenant Name - (iii) Payments: Date Amount $ 63 EXHIBIT B [FORM OF CERTIFICATE] [Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Trustee or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.] _____% MORTGAGE PASS-THROUGH CERTIFICATE (____________________________) SERIES 199_ Trust Agreement Dated as of Original Principal Amount: _______ __, 199_ $_________ Cusip No. ____________ Original Issuance Date: _______________, 199_ Number R-_ Maturity Date: ______________, ____ This Certificate does not represent an obligation of or interest in National Tenant Finance Corporation, a Delaware corporation, Kmart Corporation, any subsidiary of Kmart Corporation, or the Trustee referred to below or any of their respective affiliates. Neither this Certificate nor the underlying Mortgage Loan[s] referred to below are guaranteed or insured. To the extent not defined herein, the capitalized terms used herein have the meanings set forth in the Trust Agreement referred to below. This certifies that _______________________ (the "Holder") is the registered owner of an undivided ___% beneficial interest in the Trust Property, subject to the terms and conditions of the Trust Agreement. The Trust Property includes [the] mortgage loan[s] ("Mortgage Loan[s]") made to the Borrower[s] identified in the Loan Agreement[s] ([individually a] "Borrower" [, collectively "Borrowers"]). The Mortgage Loan[s], the Mortgage Note[s] relating thereto, the Loan Documents relating thereto and certain other property (collectively, "Trust Property") have been transferred as of the date hereof from National Tenant Finance Corporation ("Depositor," which term includes any successor entity under the Trust Agreement referred to below) to the Trustee (as defined below) in trust for the benefit of Certificateholders. The Trust 64 Property was conveyed to the Trustee pursuant to a Trust Agreement ("Trust Agreement"), dated as of the date hereof, by and among Depositor, as Depositor, and United States Trust Company of New York ("Trustee"), as Trustee, a summary of certain of the pertinent provisions of which is set forth herein. This Certificate is one of a duly authorized issue of Certificates ("Certificates"), designated as "Mortgage Pass-Through Certificates (______________________) Series 199_", and is issued under and is subject to the terms, provisions and conditions of the Trust Agreement. The Holder of this Certificate by acceptance hereof assents to the Trust Agreement and agrees to be bound thereby. This Certificate evidences a ___% Percentage Interest for purposes of the Trust Agreement. For purposes of calculations under the Trust Agreement, this Certificate represents an original principal amount as set forth at the head of this Certificate, and is scheduled to bear interest from the date of issuance on the unpaid principal balance hereof at the rate of _____% per annum (computed on the basis of a 360-day year comprised of 12 consecutive 30-day months) payable on each Remittance Date, and is scheduled to bear interest at the rate of _____% per annum (computed on the same basis) on any overdue principal or (to the extent permitted by applicable law) interest under the Mortgage Note[s]. Distributions on any regularly scheduled Remittance Date will include interest on the outstanding Mortgage Note[s] from and including the first day of the sixth month immediately preceding such Remittance Date (or from and including the Closing Date with respect to the first Remittance Date) through the end of the calendar month immediately preceding such Remittance Date. Additional distributions may be made with respect to this Certificate as a result of the prepayment, purchase or acceleration of the Mortgage Note[s] as set forth in the Trust Agreement. THIS CERTIFICATE AND ANY OTHER CERTIFICATES ISSUED PURSUANT TO THE TRUST AGREEMENT ARE EQUALLY AND RATABLY SECURED BY THE TRUST PROPERTY. Distributions on this Certificate will be made by the Trustee to the Person entitled thereto, without the presentation or surrender of this Certificate or the making of any notation hereon. Except as otherwise provided in the Trust Agreement and notwithstanding the preceding sentence, the final distribution on this Certificate will be made after notice mailed by the Trustee of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency of the Trustee specified in such notice. On each Remittance Date, the Trustee will cause to be distributed to the Holder from funds in the Certificate Account an amount equal to the aggregate scheduled Debt Service, to the extent available, on this Certificate for such Remittance Date. The Debt Service on this Certificate is set forth on the Debt Service Schedule attached hereto and made a part hereof by this reference. The Debt Service is subject to adjustment as a consequence of prepayment, purchase or acceleration of the Mortgage Note[s] and as a consequence of adjustment to the Annual Rental due under the B-2 65 Leases [each of] which secures [the] [a] Mortgage Note and constitutes part of the Trust Property. The Trustee will cause to be kept at its Corporate Trust Office, or at the office of its designated agent, a Certificate Register in which, subject to such reasonable regulations as it may prescribe in compliance with the Trust Agreement, the Trustee will provide for the registration of Certificates and of transfers and exchanges of Certificates. Upon surrender for registration of transfer of any Certificate at any office or agency of the Trustee maintained for such purpose, the Trustee will, subject to the limitations set forth in the Trust Agreement, execute, authenticate and deliver, in the name of the designated transferee or transferees, a Certificate or Certificates of a like tenor and aggregate Percentage Interest and dated the date of such execution and authentication by the Trustee. No service charge will be made to the Holder for any transfer or exchange of any Certificate, but the Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of any Certificate. Prior to due presentation of a Certificate for registration of transfer, the Trustee may treat the person in whose name any Certificate is registered as the owner of such Certificate and the undivided interest in the Trust Property evidenced thereby for the purpose of receiving distributions pursuant to the Trust Agreement and for all other purposes whatsoever, and the Trustee will not be affected by any notice to the contrary. The Trust Agreement may be amended from time to time by the Depositor and the Trustee with the consent of Kmart but without the consent of the Certificateholders in certain circumstances specified in the Trust Agreement. The Trust Agreement may, under certain other circumstances specified in the Trust Agreement, be supplemented from time to time by the Depositor and the Trustee with the consent of the Holders of Certificates evidencing in the aggregate not less than 66-2/3% of the Percentage Interest of the Certificates issued and outstanding for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Trust Agreement or of modifying in any manner the rights of the Certificateholders; provided that no such amendment may (i) modify the provision of the Trust Agreement that concerns notifying Certificateholders of the occurrence of an Event of Default, modify the provision of the Trust Agreement concerning approving supplements to the Trust Agreement that require the approval of Certificateholders, or modify the definition of "Certificateholder" in the Trust Agreement, (ii) modify the definition of "Percentage Interest" in the Trust Agreement or reduce the Percentage Interests, the consent of the Holders of Certificates of which is required for any such supplement to the Trust Agreement, or the consent of the Holders of Certificates of which is required for any waiver provided for in the Trust Agreement; (iii) reduce the amount or extend the time of payment of B-3 66 any amount owing or payable under the Mortgage Note[s] or distributions to be made on any Certificate; (iv) impair the right of any Certificateholder to commence legal proceedings to enforce a right to receive payment hereunder or under the Trust Agreement; or (v) create or permit the creation of any lien on the Trust Property or any part thereof, or deprive any Certificateholder of the benefit of the Trust Agreement, whether by disposition of such Trust Property or otherwise, without the consent of each affected Certificateholder and, with respect to (ii) and (iii), Kmart. The respective obligations and responsibilities of the Depositor and the Trustee under the Trust Agreement will terminate upon the final payment, prepayment in full or other liquidation of the Mortgage Loan[s] and the distribution of all funds in the Trust, including the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of [the] [any] Mortgage Loan and the remittance of all funds due thereunder; provided, however, that in no event shall the Trust continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof. IN WITNESS WHEREOF, the Trustee has caused this Certificate to be duly executed by one of its authorized officers. Dated: _______ __, 199_ UNITED STATES TRUST COMPANY OF NEW YORK, solely as Trustee under the Trust Agreement dated as of _______ __, 199_ with National Tenant Finance Corporation and not in its individual capacity By_____________________________ Authorized Officer [FORM OF CERTIFICATE OF AUTHENTICATION] This is one of the Certificates defined in the Trust Agreement dated as of ______ __, 199_ with National Tenant Finance Corporation. Dated: _______ __, 199_ UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee By________________________________ Authorized Officer B-4 67 EXHIBIT C FORM OF TRUSTEE CERTIFICATION _______ __, 199_ National Tenant Finance Corporation 40 North Central Avenue Suite 2700 Phoenix, Arizona 85004-4441 Re: Trust Agreement ("Trust Agreement") dated as of _______ __, 199_ by and between National Tenant Finance Corporation, as Depositor, and United States Trust Company of New York, as Trustee, Mortgage Pass-Through Certificates (____________________) Series 199_ Gentlemen: In accordance with Section 2.02 of the Trust Agreement, the undersigned, as Trustee, hereby certifies that, as to the Mortgage Loan[s] listed in the Mortgage Loan[s] Schedule it has reviewed [the] [each] Mortgage File and [the] [each] Mortgage Loan Schedule and has determined that: (i) All documents in each Mortgage File required to be delivered to the Trustee pursuant to Section 2.01 of the Trust Agreement are in its possession; and (ii) Such documents have been reviewed by it and such documents do not contain any omissions, defects or irregularities within the meaning of Sections 2.01 or 2.02 of the Trust Agreement. The Trustee further certifies that, as to the Mortgage Loan[s], the Trustee holds the Mortgage Note[s] without notice or knowledge (a) of any adverse claims, liens or encumbrances, (b) that the Mortgage Note[s] [was] [were] overdue or [has] [have] been dishonored, (c) of evidence on the face of the Mortgage Note[s] or the Mortgage of any security interest or other right or interest therein, or (d) of any defense against or claim to the Mortgage Note[s] by any other party. The Trustee has made no independent examination of any documents contained in the Mortgage File[s] beyond the review specifically required in the Trust Agreement. The Trustee makes no representations or warranties as to the validity, legality, sufficiency, enforceability or genuineness of any of the documents contained in the Mortgage File[s] (other than the statements made herein) or the collectibility, insurability, effectiveness or suitability of the Mortgage Loan[s]. 68 Capitalized words and phrases used herein shall have the respective meanings assigned to them in the Trust Agreement. UNITED STATES TRUST COMPANY OF NEW YORK By_______________________________ Name_____________________________ Title____________________________
EX-4.2 3 EXHIBIT 1 EXHIBIT 4.2 _______________ PASS-THROUGH TRUST AGREEMENT _______________ between NATIONAL TENANT FINANCE CORPORATION as Depositor and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee _____________________________ Dated as of ________ __, 199_ _____________________________ $_________ Mortgage Pass-Through Certificates (___________________) Series 199_-__ _________________________________________________________________ 2 CROSS REFERENCE SHEET
TIA Section Trust Agreement Section - ----------- ----------------------- 310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 8.07 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 8.07 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . 8.06 (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . * (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . 8.07 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.07; 8.08; 11.07 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . * (b) . . . . . . . . . . . . . . . . . . . . . . . . . . * (c) . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.02 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . * (c) . . . . . . . . . . . . . . . . . . . . . . . . . . * 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.15 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . * (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . * (c) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.15; 11.07 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.15 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . * (b) . . . . . . . . . . . . . . . . . . . . . . . . . . * (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . 11.12 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . 11.12 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . * (d) . . . . . . . . . . . . . . . . . . . . . . . . . . * (e) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.13 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . * 315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.03 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . 8.01 (e) . . . . . . . . . . . . . . . . . . . . . . . . . . * 316(a) last sentence . . . . . . . . . . . . . . . . . . . Definition of "Certificateholder" (a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . 7.04 (a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . 7.02 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05 (c) . . . . . . . . . . . . . . . . . . . . . . . . . . * 317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . * (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . * (b) . . . . . . . . . . . . . . . . . . . . . . . . . . 3.05
3
TIA Section Trust Agreement Section - ----------- ----------------------- 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . * (c) . . . . . . . . . . . . . . . . . . . . . . . . . . 11.11 - ----------------------
* Intentionally deleted. 4 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions . . . . . . . . . . . . . . . . . . 1 Section 1.02. Incorporation by Reference of Trust Indenture Act. . . . . . . . . . . . . 11 Section 1.03. Acts of Holders. . . . . . . . . . . . . . . . 12
ARTICLE II CONVEYANCE OF MORTGAGE LOAN[S]; TRUST PROPERTY Section 2.01. Conveyance of Mortgage Note[s]. . . . . . . . . 13 Section 2.02. Acceptance by Pass-Through Trustee. . . . . . . 13 Section 2.03. Trust Property. . . . . . . . . . . . . . . . . 14 Section 2.04. Limitation of Powers. . . . . . . . . . . . . . 14 ARTICLE III THE CERTIFICATES Section 3.01. The Certificates. . . . . . . . . . . . . . . . 14 Section 3.02. Registration of Transfer and Exchange of Certificates. . . . . . . . . . . . . . . 17 Section 3.03. Mutilated, Destroyed, Lost or Stolen Certificates. . . . . . . . . . . . . . . . . 19 Section 3.04. Persons Deemed Owners. . . . . . . . . . . . . 19 Section 3.05. Appointment of Paying Agent. . . . . . . . . . 19 Section 3.06. Certificates Issuable in the Form of a Registered Global Certificate. . . . . 19 Section 3.07. Temporary Securities. . . . . . . . . . . . . . 21 ARTICLE IV RECEIPT AND DISTRIBUTION OF INCOME AND PROCEEDS FROM THE TRUST PROPERTY Section 4.01. Calculation of Distributions. . . . . . . . . . 22 Section 4.02. Collection of Mortgage Note Payments; Investment. . . . . . . . . . . . . . . . . . 22 Section 4.03. Establishment of Certificate Account; Deposits in Certificate Account. . . . . . . . 22 Section 4.04. Permitted Withdrawals From the Certificate Account. . . . . . . . . . . . . . . . . . . 23 Section 4.05. Action Concerning Defaulted Mortgage Loan. . . 24 Section 4.06. Trustee Compensation . . . . . . . . . . . . . 24 Section 4.07. Rights of the Certificateholders . . . . . . . 24 ARTICLE V PAYMENTS TO THE CERTIFICATEHOLDERS Section 5.01. Distributions. . . . . . . . . . . . . . . . . 25 Section 5.02. Statements to Certificateholders . . . . . . . . 26 Section 5.03. Advances by Pass-Through Trustee . . . . . . . 26
i 5 ARTICLE VI THE DEPOSITOR Section 6.01. Maintaining Corporate Existence of the Depositor. . . . . . . . . . . . . . . . . . 27 Section 6.02. Limitation on Liability of the Depositor. . . . 27
ARTICLE VII DEFAULT Section 7.01. Events of Default. . . . . . . . . . . . . . . 28 Section 7.02. Waiver of Defaults. . . . . . . . . . . . . . . 29 Section 7.03. Notification to Certificateholders. . . . . . . 29 Section 7.04. Rights of Certificateholders to Direct Proceedings . . . . . . . . . . . . . . . . . 29 Section 7.05. Rights of Certificateholders to Receive Payment . . . . . . . . . . . . . . . 30 Section 7.06. Remedies Cumulative . . . . . . . . . . . . . . 30 Section 7.07. Pass-Through Trustee Default. . . . . . . . . . 30 Section 7.08. Notice to Tenant[s] and Kmart. . . . . . . . . 31 ARTICLE VIII CONCERNING THE PASS-THROUGH TRUSTEE AND THE COLLATERAL TRUSTEE Section 8.01. Duties of Pass-Through Trustee. . . . . . . . . 31 Section 8.02. Certain Matters Affecting Pass-Through Trustee. . . . . . . . . . . . . . . . . . . 32 Section 8.03. Pass-Through Trustee Not Liable for Certificates or Mortgage Note[s]. . . . . . . 34 Section 8.04. Pass-Through Trustee May Own Certificates. . . 34 Section 8.05. Pass-Through Trustee's Fee and Expenses. . . . 34 Section 8.06. Action by Co-Trustee. . . . . . . . . . . . . . 35 Section 8.07. Eligibility Requirements for Pass-Through Trustee. . . . . . . . . . . . . . . . . . . 36 Section 8.08. Resignation and Removal of Pass-Through Trustee and Collateral Trustee. . . . . . . . 36 Section 8.09. Successor Pass-Through Trustee. . . . . . . . . 38 Section 8.10. Merger or Consolidation of Pass-Through Trustee. . . . . . . . . . . . . . . . . . . 38 Section 8.11. Resignation of Co-Trustee. . . . . . . . . . . 38 Section 8.12. Removal of Co-Trustee. . . . . . . . . . . . . 39 Section 8.13. Appointment of Successor to Co-Trustee. . . . . 39 Section 8.14. Succession of Successor to Co-Trustee. . . . . 39 Section 8.15. Reports by the Pass-Through Trustee to Certificateholders. . . . . . . . . . . . . . 39 Section 8.16 Co-Trustee of the Collateral Trust . . . . . . 40 ARTICLE IX TERMINATION Section 9.01. Termination. . . . . . . . . . . . . . . . . . 40 Section 9.02. Notice; Final Distribution . . . . . . . . . . . 40
ii 6 ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS PASS-THROUGH TRUST AGREEMENT AND OTHER DOCUMENTS; ADDITIONAL AGREEMENTS OF TRUSTEE Section 10.01. Supplemental Pass-Through Trust Agreements Without Consent of Holders. . . . . . . . . . 41 Section 10.02. Supplemental Agreements With Consent of Certificateholders. . . . . . . . . . . . . . 42 Section 10.03. Effect of Supplemental Agreement. . . . . . . . 44 Section 10.04. Documents to Be Given to Trustee. . . . . . . . 44 Section 10.05. Notation on Certificates in Respect of Supplemental Agreements. . . . . . . . . . . 44 Section 10.06. Supplements to Collateral Trust Agreement . . . 45
ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Severability of Provisions. . . . . . . . . . . 45 Section 11.02. Limitation on Rights of Certificateholders. . . 45 Section 11.03. Solicitation of Certificateholders. . . . . . . 46 Section 11.04. Recordation of Agreement. . . . . . . . . . . . 47 Section 11.05. Duration of Agreement. . . . . . . . . . . . . 47 Section 11.06. Governing Law. . . . . . . . . . . . . . . . . 47 Section 11.07. Notices. . . . . . . . . . . . . . . . . . . . 47 Section 11.08. Counterparts. . . . . . . . . . . . . . . . . . 48 Section 11.09. Submission to Jurisdiction. . . . . . . . . . . 48 Section 11.10. Gender; Number. . . . . . . . . . . . . . . . . 48 Section 11.11. TIA Controls. . . . . . . . . . . . . . . . . . 48 Section 11.12. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . 48 Section 11.13. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . 49 Section 11.14. Benefits of Pass-Through Trust Agreement. . . . 49
EXHIBIT A-1 MORTGAGE NOTE SCHEDULE EXHIBIT A-2 CERTIFICATE SCHEDULE EXHIBIT A-3 CONTENTS OF MORTGAGE FILE EXHIBIT B [FORM OF CERTIFICATE] iii 7 __________________ PASS-THROUGH TRUST AGREEMENT SERIES _____ __________________ THIS PASS-THROUGH TRUST AGREEMENT, SERIES ____, dated as of __________, 19__, is executed by and among NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation, as depositor (together with its permitted successors, in such capacity, "Depositor"), and UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation organized under the laws of the United States of America, as trustee (together with its permitted successors and assigns, "Pass-Through Trustee"). In consideration of the premises and the mutual agreements hereinafter set forth, the Depositor and the Pass-Through Trustee agree as follows: PREFACE Each Certificate evidences a beneficial ownership interest in the Pass-Through Trust Property, the assets of which include, among other things, the Mortgage Note[s]. The Certificates are equally and ratably secured by and payable from the proceeds of the Mortgage Note[s], and [the] [each] Mortgage Note is ratably secured by the related Mortgage (as each such term is defined herein). Each Certificate is paid interest or principal and interest, as set forth on the Debt Service schedule on such Certificate, on a semiannual basis referred to herein as the Remittance Dates. Payments under the Mortgage Note[s] are payable semiannually on the Due Dates. ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. Whenever used herein, the following words and phrases, unless the context otherwise requires, shall have the following meanings: "Additional Rent": [With respect to each Lease] has the meaning assigned in Article 5 of [the] [such] Lease. "Administrative Expenses": The ordinary and necessary expenses incurred by the Trustee in the course of administering the affairs of the Pass-Through Trust. "Annual Rental": [With respect to each Lease] has the meaning assigned in Article 4 of [the] [such] Lease. "Available Distribution Amount": As to any Remittance Date, an amount equal to the amount on deposit in the Certificate Account 8 as of the close of business on the Business Day immediately preceding the Remittance Date. "Benefit Plan": An employee benefit plan as defined in Section 3(3) of ERISA, including an employee welfare benefit plan or an employee pension benefit plan, a plan described in Section 401(a) or Section 403(a) of the Code, the trust under which is exempt from tax under Section 501(a) of the Code, an individual retirement account under Section 408(a) of the Code or an individual retirement annuity under Section 408(b) of the Code, and any entity whose underlying assets include Benefit Plan assets by reason of a Benefit Plan's investment in such entity. "Borrower": [The] [A] Borrower identified in [the] [a] Loan Agreement. "Business Day": Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking or savings and loan institutions in New York or California, or the city in which the principal corporate trust offices of any successor Pass-Through Trustee are located, are authorized or obligated by law or executive order to be closed. "Called Principal Percentage": With respect to any Mortgage Note, has the meaning assigned to it in Section 2 of the related Loan Agreement. "Certificate" or "Certificates": The Certificate or Certificates evidencing a beneficial ownership interest in the Pass-Through Trust Property executed and authenticated by the Pass-Through Trustee substantially in the form set forth in Exhibit B hereto. "Certificate Account": The trust account described in Section 4.03. "Certificate Balance": With respect to all the Certificates, the original principal amount of the Certificates less all payments and prepayments of principal thereof, including without limitation any payments of principal comprising Debt Service; and with respect to any Certificate, the original principal amount of such Certificate less all payments and prepayments of principal thereof, including without limitation any payments of principal comprising Debt Service on such Certificate. "Certificateholder", "Certificateholders", "Holder" or "Holders": The person or persons in whose name a Certificate is registered in the Certificate Register, except that, solely for the purposes of any consent, waiver, request or demand pursuant to this Pass-Through Trust Agreement, any Certificate registered in the name of the Depositor, [Kmart], a Tenant, a Borrower, any successor owner or ground lessee of a Project, any successor tenant or subtenant of a Project, any successor guarantor of the performance of a Tenant or successor tenant, or any affiliate of any of the 2 9 foregoing, shall be deemed not to be outstanding and the Percentage Interest evidenced thereby shall not be taken into account in determining the amount of Percentage Interests voted with respect to any such consent, waiver, request or demand. "Certificate Owner": Any Person acquiring a beneficial interest in a Registered Global Certificate, which ownership shall be reflected on the books of the Depository or on those of a participant in such Depository. Solely for the purposes of any consent, waiver, request or demand pursuant to this Pass-Through Trust Agreement, any portion of a Registered Global Certificate that is beneficially owned by the Depositor, [Kmart], a Tenant, a Borrower, any successor owner or ground lessee of a Project, any successor tenant or subtenant of a Project, any successor guarantor of the performance of a Tenant or successor tenant, or any affiliate of any of the foregoing, shall be deemed not to be outstanding and the Percentage Interest evidenced by such portion shall not be taken into account in determining whether the requisite amount of Percentage Interests necessary to effect any such consent, waiver, request or demand has been obtained. "Certificate Register": The register maintained pursuant to Section 3.02. "Certificate Schedule": The Certificate Schedule attached hereto as Exhibit A-2 setting forth the following information for each Certificate issued as of the Closing Date: (i) the Certificate Number; (ii) the Certificate Balance as of the Closing Date; and (iii) the Debt Service on such Certificate. "Closing Costs": An amount equal to $_____________ which shall be disbursed to the Underwriters on the Closing Date. "Closing Date": _______ __, 199_. "Code": The Internal Revenue Code of 1986, as amended. "Collateral Trust": The Trust created pursuant to the Collateral Trust Agreement. "Collateral Trust Agreement": The Collateral Trust Agreement dated the date hereof between the Collateral Trustee and the Depositor, together with all amendments thereof and supplements thereto. "Collateral Trust Property": The corpus of the Collateral Trust, to the extent described in the Collateral Trust Agreement, consisting of all Loan Documents, property which secures the Mortgage Loan[s] and which has been acquired by foreclosure or deed in lieu of foreclosure (prior to its disposition) and Insurance Proceeds, Condemnation Proceeds and any other amounts receivable under the Loan Documents, and any funds advanced by the Certificateholders to the Collateral Trustee or otherwise held by 3 10 the Collateral Trustee in accordance with the provisions of the Collateral Trust Agreement. "Collateral Trustee": United States Trust Company of New York, and its permitted successors under the Collateral Trust Agreement. "Condemnation Proceeds": Any awards in respect of, or settlements in lieu of, condemnation proceedings affecting [the] [a] Mortgaged Estate. "Consent and Agreement": [A] [The] Consent and Agreement among Kmart, Depositor, [a] Borrower, [a] Tenant and the Collateral Trustee relating to [a] [the] Lease, [[a] [the] Lease Guaranty,] [a] [the] Note Put Agreement and certain other related matters. "Corporate Trust Office": The office of the Pass-Through Trustee in the State of California at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this instrument is located at Suite 2700, 555 South Flower Street, Los Angeles, California 90071. "Debt Service": The interest or interest and principal payable semiannually on the Remittance Date as stated on a specific Certificate, as adjusted from time to time as provided in Sections 3.01(g) hereof. "Depositor": National Tenant Finance Corporation, a Delaware corporation, and its successors in interest. "Depository": The depository of the Registered Global Certificate[s], if any, representing the Certificates and any successor to such depository appointed by the Depositor. Such depository initially shall be The Depository Trust Company, a New York corporation. "Determination Date": The Business Day immediately preceding a Remittance Date. "Due Date": [With respect to each Mortgage Note,] a Note Payment Date as defined in the [related] Loan Agreement. "Eligible Investments": One or more of the following: (i) direct obligations of the United States of America; (ii) obligations fully guaranteed, both as to principal and interest, by the United States of America; (iii) certificates of deposit issued by, or bankers' acceptances of, or time deposits with, a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at 4 11 the time of acquisition thereof, rated in the highest rating category for such securities by S&P and Moody's; and (iv) taxable government money-market portfolios restricted to obligations with maturities of one year or less, issued or guaranteed by the full faith and credit of the United States which, at the time of such investment, are then rated in the highest rating category of S&P and Moody's (the "highest rating category" as used in this definition shall mean (A) a rating which would be assigned by S&P, as of the date first above written, equivalent to or higher than "AAAm" or "AAAmG" with respect to money-market securities and (B) a rating which would be assigned by Moody's as of the date first above written, equivalent to or higher than "Am" with respect to money-market securities); provided that any such obligations of the types described in clauses (i) through (iv) above shall not have a maturity later than the earlier of 90 days and the date the funds being invested are to be distributed to the Certificateholders; provided further, that any such obligations of the types described in clauses (i) and (ii) above may be made through a repurchase agreement in commercially reasonable form with a bank or other financial institution (which may be the Pass-Through Trustee or the Collateral Trustee) the senior unsecured debt of which is then assigned an A rating or better by S&P or Moody's, so long as title to the underlying obligations shall pass to the Pass-Through Trustee and that such underlying obligations shall be segregated in a custodial or trust account of or for the benefit of the Pass-Through Trustee. "ERISA": The Employee Retirement Income Security Act of 1974, as amended. "Event of Default": Any event of default described in Section 7.01. "Exchange Act": The Securities Exchange Act of 1934, as amended. "Extraordinary Expense Advances": All reasonable and necessary "out-of-pocket" costs and expenses of the Pass-Through Trustee or the Collateral Trustee in enforcing the Mortgage Note[s] and the Loan Documents following an Event of Default under Section 7.01 hereof (except for a Non-Monetary Tenant Default), and in compliance with the obligations of the Collateral Trustee under Section 4.07 of the Collateral Trust Agreement. "FDIC": Federal Deposit Insurance Corporation or any successor organization. "Insurance Proceeds": Proceeds paid by any insurer pursuant to any insurance policy, including but not limited to title insurance, environmental insurance and self-insurance proceeds paid by Kmart or any Tenant, covering all or a portion of the Mortgaged Estate. 5 12 "Kmart": Kmart Corporation, a Michigan corporation, and its successors and assigns. "Lease": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.1 of the [related] Loan Agreement. ["Lease Guaranty": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.1 of the [related] Loan Agreement.] ["Lease Guaranty Termination": [With respect to any Mortgage Loan] a Lease Guaranty Termination as defined in the [related] Note Put Agreement.] "Letter of Representations": A letter (in the form attached hereto as Exhibit C) from the Depositor and the Pass-Through Trustee to, and accepted by, the Depository, as such letter may be modified or supplemented, or any successor letter thereto. "Liquidated Mortgage Loan": [A] [The] Mortgage Loan after an Event of Default under the [related] Loan Agreement when the Collateral Trustee has reasonably determined that all amounts which it expects to recover from or on account of such Mortgage Loan have been recovered. "Liquidation Expenses": Expenses which are incurred by the Collateral Trustee in connection with the liquidation of a defaulted Mortgage Loan, such expenses including, without limitation, legal fees and expenses, any unreimbursed amount expended by the Collateral Trustee pursuant to Section 4.07 of the Collateral Trust Agreement (to the extent such amount is reimbursable under the terms of such Section 4.07) respecting such Mortgage Loan and any related and unreimbursed expenditures for real estate property taxes or for property restoration or preservation. "Liquidation Proceeds": Cash (including Insurance Proceeds and Condemnation Proceeds) received by the Collateral Trustee in connection with the liquidation of [a] [the] defaulted Mortgage Loan, whether through the sale of such defaulted Mortgage Loan, the sale of the Mortgaged Estate securing such defaulted Mortgage Loan pursuant to foreclosure sale or otherwise, or revenues from or the sale of the related Mortgaged Estate if such Mortgaged Estate is acquired in satisfaction of such defaulted Mortgage Loan, other than amounts required to be paid to the Borrower pursuant to law or the terms of the related Mortgage Note. "Loan Agreement": [With respect to each Mortgage Note,] the [related] Loan Agreement between Depositor and [a] Borrower, pursuant to the terms and conditions of which the [related] Mortgage Loan was made. 6 13 "Loan Documents": [With respect to each Mortgage Loan,] the [related] Note Put Agreement, the [related] Loan Agreement, the [related] Mortgage and each document in the Mortgage File [pertaining to such Mortgage Loan], and each other document which constitutes a Loan Document pursuant to the terms and provisions of [such] [the] Loan Agreement. "Make-Whole Premium": [With respect to each Mortgage Note,] has the meaning assigned to it in Section 2 of the [related] Loan Agreement. The Pass-Through Trustee shall be provided with a certificate evidencing the calculation of such amount by the Depositor. "Moody's": Moody's Investors Service, Inc., a Delaware corporation, its successors and assigns. "Mortgage": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.2 of the [related] Loan Agreement. "Mortgage File": The items referred to in Exhibit A-3 annexed hereto pertaining to the Mortgage Loan[s]. "Mortgage Loan": The loan pursuant to [a] [the] Loan Agreement together with all right, title and interest of Depositor relating thereto, secured by the [related] Mortgage, and evidenced by the [related] Mortgage Note and [another] [other] mortgage note[s] issued in connection with such Loan Agreement with [a] different maturit[y][ies], which [is][are] held by [another] [other] pass-through trustee[s] pursuant to [another] [other] pass-through trust agreement[s] dated the date hereof. "Mortgage Note": [A] [The] promissory note, executed by [a] [the] Borrower as obligor and having [a] [the] maturity date and Mortgage Note rate specified in the Mortgage Note Schedule, secured by [a] [the] Mortgage, which Mortgage Note was sold, conveyed, transferred and absolutely assigned by the Depositor to the Pass-Through Trustee and which is the subject of this Pass-Through Trust Agreement and included in the Pass-Through Trust Property. "Mortgage Note Payments": The scheduled payments set forth in Exhibit A-1 of interest or principal and interest on the Mortgage Note[s]. "Mortgage Note Schedule": The schedule attached hereto as Exhibit A-1 setting forth the following information for the Mortgage Note[s]: (i) [each] [the] Borrower's name; (ii) the Mortgaged Estate[s]; (iii) the maturity date[s]; (iv) [each] [the] Mortgage Note rate; (v) the first Due Date; (vi) a schedule setting forth the Mortgage Note Payments; and (vii) the original Principal Balance of [each] [such] Mortgage Note. "Mortgaged Estate": [With respect to each Mortgage Note,] the real and personal property securing [such] [the] Mortgage Note. 7 14 "Net Liquidation Proceeds": Liquidation Proceeds net of Liquidation Expenses. "Non-Monetary Tenant Default": [With respect to a Lease,] any default under [such] [the] Lease by the [related] Tenant other than a default in the payment of Annual Rental or Additional Rent. "Note Put Agreement": [With respect to each Loan Agreement,] the Note Put Agreement by and between Depositor, [and] the [related] Tenant, [and Kmart] pursuant to the terms and conditions of which a Put of [such] [the] Mortgage Note may be made on the occurrence of certain events specified therein. "Officer's Certificate": A certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, the Treasurer or the Secretary or one of the Assistant Treasurers or Assistant Secretaries or any other duly authorized officer of the Depositor and delivered to the Pass-Through Trustee containing the information required by Sections 11.12 and 11.13. "Opinion of Counsel": An opinion in writing signed by legal counsel who may be an employee of or counsel to the Depositor in form and substance acceptable to the Pass-Through Trustee containing the information required by Sections 11.12 and 11.13. ["Option Agreement": An option granted by [a][the] Borrower to [a][the] Tenant permitting such Tenant to acquire the [related] Project in the event Borrower does not perform its obligations under the [related] Lease and the [related] Construction Fund Disbursement Agreement.] "Pass-Through Trust": The grantor trust created pursuant to this Pass-Through Trust Agreement. "Pass-Through Trust Agreement": This Trust Agreement and all amendments hereof and supplements hereto. "Pass-Through Trustee": United States Trust Company of New York, and its permitted successors and assigns hereunder. "Pass-Through Trustee's Fee": The amount of the annual fee paid to the Pass-Through Trustee for its Administrative Expenses, including the reasonable expenses of preparing any tax returns as provided in Section 5.02, arising under this Pass-Through Trust Agreement, equal to $_____, payable by the Tenant[s] pursuant to the Consent and Agreement[s]. "Pass-Through Trust Property": The corpus of the Pass-Through Trust, to the extent described herein, consisting of the Mortgage Note[s], all rights of the holder of such Mortgage Note[s] under the Collateral Trust Agreement or otherwise, such assets as shall from time to time be identified as deposited in the Certificate Account (including the investment income thereon), and any funds 8 15 advanced by the Certificateholders to the Pass-Through Trustee in accordance with the provisions hereof. "Paying Agent": The Person designated as the Paying Agent pursuant to Section 3.05. "Percentage Interest": The percentage of the whole undivided beneficial interest in the Pass-Through Trust Property held by a Holder, to be evidenced by a Certificate which shall state the percentage interest therein. "Permitted Encumbrances": The Permitted Encumbrances as defined in [each] [the] Mortgage. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability company, unincorporated organization or government or any agency or political subdivision thereof. "Pledge Agreement": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.2 of the [related] Loan Agreement. "Principal Balance": The outstanding principal balance of [the] [a] Mortgage Note as of any specified date. "Principal Prepayment": Any payment or other recovery of principal on [a] [the] Mortgage Note, including any prepayment of principal pursuant to Section 3 of the [related] Loan Agreement, Insurance Proceeds and Condemnation Proceeds to the extent required to be deposited in the Certificate Account and Liquidation Proceeds, which is received in advance of its scheduled Due Date. "Project": [A] [The] facility comprised of a retail store [constructed by [a] Borrower [and [a] Tenant]] for lease by [a] [such] Tenant on real property [which will be [acquired by] [owned by] [a] [such] Borrower and] [upon which such facility will be constructed on behalf of [such] Borrower] using the proceeds of [a] [the] Mortgage Loan. "Purchase Price": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 2.1 of the [related] Note Put Agreement. "Put": The right to require purchase of [a] [the] Mortgage Note by [a] [the] Tenant [and Kmart] pursuant to the [related] Note Put Agreement. "Rating Agency": Any nationally recognized statistical rating agency, or its successor, that rated the Certificates at the request of the Depositor at the time of the initial issuance of the Certificates. If such agency or a successor is no longer in existence, "Rating Agency" shall be such nationally recognized statistical rating agency, or other comparable Person, designated 9 16 by the Depositor, notice of which designation shall be given to the Pass-Through Trustee. References herein to the highest rating category of a Rating Agency shall mean AAA or better in the case of S&P and Aaa or better in the case of Moody's and in the case of any other Rating Agency shall mean a rating equivalent to such ratings. "Record Date": (i) With respect to any distribution the close of business on the fifteenth day preceding the related Remittance Date, except with respect to a distribution pursuant to Section 3.01(f), in which case the Record Date is the close of business on the fifteenth day prior to the Remittance Date on which the related Mortgage Note Payment would, pursuant to the terms hereof, have been distributable to the Certificateholders had such Mortgage Note Payment been paid in full in a timely manner. (ii) With respect to any direction, consent, waiver or other action to be given or taken by Certificateholders, the date established by the Pass-Through Trustee pursuant to Section 1.03(e) hereof. "Registered Global Certificate": The Certificate, if any, issued to the Depository in accordance with Article III and bearing the legend prescribed in Section 3.06(a). "Remittance Date": With respect to the Certificates, an interest or principal and interest payment date of ________ 1, 19__, and the first Business Day of each ________ and ____ thereafter until _____ 1, ____, or the payment of the unpaid principal balance in full, or such other date when a distribution is made pursuant to Section 3.01(c), 3.01(d), 3.01(e), or 3.01(f) hereof. "Responsible Officer": When used with respect to the Pass-Through Trustee, the Chairman or Vice Chairman of the Board of Directors of the Pass-Through Trustee, the Chairman or Vice Chairman of the Executive or Standing Committee of the Board of Directors of the Pass-Through Trustee, the President, the Chairman of the Committee on Trust Matters, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any Assistant Controller or any other officer of the Pass-Through Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. ["Second Mortgage": A Mortgage, Security Agreement and Assignment of Rents from [a] [the] Borrower to [a] [the] Tenant which grants a lien subordinate to the [related] Mortgage on [a] [the] Project to secure such Borrower's performance under the [related] Lease and under the [related] Construction Fund Disbursement Agreement.] "S & P": Standard & Poor's Ratings Group, a __________ corporation, its successors and assigns. 10 17 "Termination Premium": [With respect to each Mortgage Note,] has the meaning assigned to it in Section 2 of the [related] Note Put Agreement. "Tenant" [or "Tenants"]: [Kmart and] ___________, _____________ [or ____________,] [each of] which is a subsidiary of Kmart and which has entered into [the] [a] Lease with [a] [the] Borrower to occupy a Project. "TIA": The Trust Indenture Act of 1939 as in effect on the date as of which this Pass-Through Trust Agreement was first qualified under such Act; provided, however, that in the event the Trust Indenture Act is amended after such date, "TIA" means, to the extent required by such amendment, the Trust Indenture Act of 1939 as so amended. "Transfer Assurance": A Transfer Assurance required pursuant to Section 3.02(c). "Treasury Regulations": The Treasury Regulations, including proposed, temporary and final regulations promulgated under the provisions of the Code. "Underwriters": The several underwriters named in the Underwriting Agreement. "Underwriting Agreement": The Underwriting Agreement dated ________ __, 19__, between Kmart, the Depositor and Sutro & Co. Incorporated [on behalf of itself and the several underwriters named therein]. Section 1.02. Incorporation by Reference of Trust Indenture Act. Whenever this Pass-Through Trust Agreement refers to a provision of the TIA, such provision is incorporated by reference in and made a part of this Trust Agreement. The following TIA terms used in this Pass-Through Trust Agreement have the following meanings: "Commission" means the SEC. "Indenture securities" means the Certificates. "Indenture security holder" means a Certificateholder. "Indenture to be qualified" means this Pass-Through Trust Agreement. "Indenture trustee" or "institutional trustee" means the Pass-Through Trustee. "Obligor" on the Indenture securities means Kmart. All other TIA terms used in this Pass-Through Trust Agreement that are defined by the TIA, defined by TIA reference to another 11 18 statute or defined by SEC rule have the meanings assigned to them by such definitions. Section 1.03. Acts of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Pass-Through Trust Agreement to be given or taken by Certificateholders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Certificateholders in person or by an agent duly appointed in writing; and, except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments are delivered to the Pass-Through Trustee and, where it is hereby expressly required, to the Depositor and to Kmart. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of Certificateholders signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Pass-Through Trust Agreement and conclusive in favor of the Pass-Through Trustee and the Depositor, if made in the manner provided in this Section 1.03. (b) The fact and date of the execution by any Person of any such instrument or writing may be proved in any manner which the Pass-Through Trustee deems sufficient. (c) The ownership of Certificates shall be proved by the Certificate Register. (d) Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Holder of any Certificate shall bind every future Holder of the same Certificate and the Holder of every Certificate issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Pass-Through Trustee or the Depositor in reliance thereon, whether or not notation of such action is made upon such Certificate. (e) If the Pass-Through Trustee shall solicit from the Holders any request, demand, authorization, direction, notice, consent, waiver or other Act, the Pass-Through Trustee shall fix in advance a record date for the determination of Holders entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act. Such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of record at the close of business on such record date shall be deemed to be Holders for the purposes of determining whether Holders of the requisite proportion of outstanding Certificates have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, 12 19 waiver or other Act, and for that purpose the outstanding Certificates shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders on such record date shall be deemed effective unless it shall become effective pursuant to the provisions of this Pass-Through Trust Agreement not later than six months after the record date. ARTICLE II CONVEYANCE OF MORTGAGE LOAN[S]; TRUST PROPERTY Section 2.01. Conveyance of Mortgage Note[s]. As grantor of the Pass-Through Trust, the Depositor, concurrently with the execution and delivery hereof, does hereby sell, transfer, set over, convey and absolutely assign to the Pass-Through Trustee without recourse (except as provided herein) in trust intending to establish the Pass-Through Trust, all right, title and interest of the Depositor in and to the Mortgage Note[s], including all interest, Make-Whole Premium, Termination Premium and principal due or to become due from [each] [the] Borrower on or with respect to [each] [the] Mortgage Note. The ownership of the Pass-Through Trust Property is vested in the Pass-Through Trustee without reservation of any right, title or interest whatsoever in the Depositor. The Depositor intends that the sale, conveyance, transfer and absolute assignment of the Depositor's right, title and interest in and to the Mortgage Note[s] pursuant to this Pass-Through Trust Agreement shall constitute a purchase and sale and not a pledge of security for a loan. However, if for any reason such conveyance is deemed not to be a sale, the Depositor intends that the rights and obligations of the parties shall nevertheless be established pursuant to the terms of this Pass-Through Trust Agreement and that the Depositor shall be deemed to have granted to the Pass-Through Trustee a first priority security interest in all of the Depositor's right, title and interest in, to and under the Mortgage Note[s], all payments of principal of or interest on the Mortgage Note[s], all other payments made in respect of the Mortgage Note[s] (including, without limitation, any Make-Whole Premium or Termination Premium), and all proceeds of any thereof, and any other assets of the Pass-Through Trust, and that this Pass-Through Trust Agreement shall constitute a security agreement under applicable law. Section 2.02. Acceptance by Pass-Through Trustee. The Pass-Through Trustee acknowledges receipt of the Mortgage Notes[s] and declares that it holds and will hold such Mortgage Note[s] and any other documents constituting a part of the Pass-Through Trust Property delivered to it in trust for the use and benefit of all present and future Certificateholders. The Pass-Through Trustee hereby represents that it holds [each][the] Mortgage Note without notice or knowledge (a) of any adverse claims, liens or encumbrances with respect to [such][the] Mortgage Note, (b) that [such][the] Mortgage Note is overdue or has 13 20 been dishonored, (c) of evidence on the face of [such][the] Mortgage Note of any security interest or other right or interest therein by any other party, or (d) of any defense against or claim to [such][the] Mortgage Note by any other party. Upon receipt thereof, the Pass-Through Trustee shall deliver to the Certificateholders the Collateral Trustee's Certification delivered pursuant Section 2.02 of the Collateral Trust Agreement. Section 2.03. Trust Property. The Pass-Through Trustee acknowledges that it holds the Pass-Through Trust Property conveyed pursuant to this Pass-Through Trust Agreement in trust for the use and benefit of all present and future Certificateholders. Section 2.04. Limitation of Powers. The Pass-Through Trust is constituted solely for the purpose of making the investment in the Pass-Through Trust Property, and, except as set forth herein, the Pass-Through Trustee is not authorized or empowered to acquire any other investments or engage in any other activities. ARTICLE III THE CERTIFICATES Section 3.01. The Certificates. (a) Form and Terms. The Certificates and the Pass-Through Trustee's certificate of authentication shall be substantially in the form attached hereto as Exhibit B. Subject to the provisions of Section 3.06 hereof, the Certificates shall be issuable as registered securities without coupons and shall be numbered, lettered or otherwise distinguished from one another. The Certificates shall be issued in denominations of $1,000 principal amount and any integral multiple thereof and shall be dated the date of their authentication. Each Certificate shall bear interest and have the other terms as are set forth in the Certificate Schedule and in such Certificate. Each Certificate shall evidence a beneficial ownership interest in the Pass-Through Trust Property and shall have no rights, benefits or interest in respect of any other separate pass-through trust, if any, or the trust property held in such other pass-through trust. All Certificates shall be in all respects equally and ratably entitled to the benefits of the Pass-Through Trust without preference, priority, or distinction on account of actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Pass-Through Trust Agreement. Certificates shall not be subject to optional prepayment except as provided herein. On the Closing Date, the Pass-Through Trustee shall issue the Certificates indicated on the Certificate Schedule. The aggregate principal amount of the Certificates to be issued hereunder shall not exceed $___________. 14 21 (b) Execution and Authentication. The Certificates shall be executed on behalf of the Pass-Through Trustee by its Chairman of the Board, one of its Vice Chairmen, its President or one of its Vice Presidents, under its corporate seal reproduced thereon. The signature of any such officer on the Certificates may be manual or facsimile. Certificates bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Pass-Through Trustee shall bind the Pass-Through Trustee, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Certificates or did not hold such offices at the date of such Certificates. No Certificate shall be entitled to any benefit under this Pass-Through Trust Agreement or be valid or obligatory for any purpose unless there appears on such Certificate a certificate of authentication substantially in the form provided for in Exhibit "B" annexed thereto duly executed by the Pass-Through Trustee by manual signature of an authorized officer, and such certificate of authentication upon any Certificate shall be conclusive evidence, and the only evidence, that such Certificate has been duly authenticated and made available for delivery hereunder. (c) Prepayment Distribution. In the event of a prepayment of [a] [the] Mortgage Note pursuant to Section 3 of the [related] Loan Agreement (not including a Put pursuant to the [related] Note Put Agreement), the Pass-Through Trustee shall within 30 days following receipt of any amounts in connection with such prepayment distribute such amounts to the Certificateholders pro rata based upon their respective Percentage Interests. (d) Note Put Distribution. The Pass-Through Trustee shall, in the manner and to the extent required by Section 313(c) of the TIA, notify the Certificateholders of the occurrence of any Triggering Event (as defined in [a] [the] Note Put Agreement) known to the Pass-Through Trustee within five (5) Business Days after obtaining knowledge thereof. (i) Upon the occurrence of a Triggering Event (other than a Lease Guaranty Termination), the Pass-Through Trustee, at the written direction of any Certificateholders received by the Pass-Through Trustee within 90 days of delivery of the notice pursuant to Section 3.01(d), shall vote a percentage of the Principal Balance of the [related] Mortgage Note corresponding to the Percentage Interests owned by such Certificateholders in favor of directing the Collateral Trustee to (A) exercise the Put in accordance with the terms and provisions of [such] [the] Note Put Agreement, and (B) designate the Purchase Date under and as defined in [such] [the] Note Put Agreement, which Purchase Date shall be not more than 35 Business Days after receipt of such direction. 15 22 (ii) If the Triggering Event is a Lease Guaranty Termination, the Pass-Through Trustee shall vote in favor of directing the Collateral Trustee not to exercise such Put a percentage of the Principal Balance of the [related] Mortgage Note corresponding to the Percentage Interests owned by Certificateholders that have given the Pass-Through Trustee written direction, within 30 days after the date the Pass-Through Trustee sent the notice of the occurrence of the Triggering Event as provided in this Section 3.01(d), to vote to direct the Collateral Trustee not to exercise such Put. (iii) In the event the Collateral Trustee puts [the] [a] Mortgage Note, the Pass-Through Trustee will, upon request by the Collateral Trustee, deliver such Mortgage Note, endorsed as provided in the [related] Note Put Agreement, to the Collateral Trustee for the purpose of delivering such Mortgage Note to the [related] Tenant or Kmart, as the case may be, in connection with such Put. Within 29 days following receipt of the Purchase Price, the Pass-Through Trustee shall distribute such amount, less any unreimbursed reasonable costs and expenses incurred by the Pass-Through Trustee in connection with the exercise of the Put, to the Certificateholders pro rata based upon their respective Percentage Interests, whereupon this Pass-Through Trust shall terminate with respect to such Mortgage Note. (e) Liquidation Distribution. In the event of a liquidation of [a] [the] Mortgage Note by foreclosure or otherwise as a consequence of an Event of Default (not including a Put pursuant to the [related] Note Put Agreement), the Pass-Through Trustee shall within 29 days following receipt of any Net Liquidation Proceeds in connection with such liquidation distribute such amounts to the Certificateholders pro rata based upon their respective Percentage Interests. Once a Mortgage Loan has become a Liquidated Mortgage Loan and all Net Liquidation Proceeds with respect to the related Mortgage Note have been distributed to the Certificateholders, this Pass-Through Trust shall terminate with respect to such Mortgage Note. (f) Late Payment Distribution. In the event that, due to unpaid Annual Rental, there are insufficient funds available on any Due Date to pay the Mortgage Note Payments on a Mortgage Note and subsequent to such Due Date such Annual Rental or any Additional Rent with respect thereto is paid to the Collateral Trustee, then, within 9 Business Days of receipt by the Pass-Through Trustee from the Collateral Trustee of such overdue Mortgage Note Payments and, to the extent available, interest at the Overdue Rate (as defined in such Mortgage Note) or such overdue amount, the Pass-Through Trustee shall distribute such amounts to the Certificateholders. (g) Adjustment of Debt Service. In the event of (i) an optional prepayment of all or any part of a Mortgage Note, (ii) an acceleration of the maturity date of a Mortgage Note by reason of an Event of Default, (iii) a Borrower becoming obligated to prepay a Mortgage Note pursuant to Section 3.3 of the [related] Loan 16 23 Agreement, (iv) a reduction of Mortgage Payments due to the condemnation of a part of the [related] Project resulting in a reduction in Annual Rental or (v) the sale of a Mortgage Note pursuant to a Note Put Agreement, the Debt Service shall be reduced to equal the aggregate Mortgage Note Payments on the remaining outstanding Mortgage Notes, after giving effect to any reduction in such Mortgage Note Payments by reason of an optional partial prepayment or a condemnation described in clause (iv) and excluding from "remaining outstanding Mortgage Notes," for this purpose, any Mortgage Note which is sold pursuant to the Note Put Agreement, which is prepaid in full, the maturity date of which has been accelerated, or which the Borrower is obligated to prepay in full pursuant to Section 3.3 of the related Loan Agreement. (h) Notice of Distribution. Notice of a distribution pursuant to Section 3.01(c), (d) and (e) shall be given by sending such notice, by first-class mail, postage prepaid, not less than 10 days prior to the date fixed for such distribution. Notice of such distribution pursuant to any other provision hereof shall be given as soon as reasonably practicable following notice of the facts giving rise to such distribution by the Pass-Through Trustee. All notices of such distribution shall be mailed to the Certificateholder of each Certificate to be prepaid in whole or in part at the address shown on the Certificate Register. Neither the failure of any Certificateholder to receive a notice mailed nor any defect in any notice so mailed shall affect the validity of the proceedings for such distribution. The reasonable costs of such notices incurred by the Pass-Through Trustee shall be deducted from the amount of any such distribution. (i) Rights of Holders to Payments. The rights of the Certificateholders to receive payments with respect to the Pass-Through Trust Property in respect of the Certificates, and all ownership interests of the Certificateholders in such payments, shall be as set forth in this Pass-Through Trust Agreement. Section 3.02. Registration of Transfer and Exchange of Certificates. (a) The Pass-Through Trustee shall cause to be kept at its Corporate Trust Office or at the office of its designated agent, a Certificate Register in which, subject to such reasonable regulations as it may prescribe, the Pass-Through Trustee shall provide for the registration of Certificates and of transfers and exchanges of Certificates as herein provided. The Pass-Through Trustee shall be the Certificate Registrar. If the Pass-Through Trustee is not the Certificate Registrar, the Depositor shall furnish to the Pass-Through Trustee on or before each Remittance Date and at such other times as the Pass-Through Trustee may request in writing a list in such form and as of such date as the Pass-Through Trustee may reasonably require of the names and addresses of Certificateholders, which list may be conclusively relied upon by the Pass-Through Trustee. 17 24 (b) Upon surrender for registration of transfer of any Certificate at the Corporate Trust Office or at the office of any designated agent of the Pass-Through Trustee maintained for such purpose, the Pass-Through Trustee shall execute, authenticate and deliver, in the name of the designated transferee or transferees, a new Certificate of a like tenor and dated the date of such execution and authentication by the Pass-Through Trustee. (c) No transfer of a Certificate or of a beneficial interest in a Registered Global Certificate shall be made unless the Pass-Through Trustee shall have received a Transfer Assurance consisting of either (i) a representation letter from the transferee of such Certificate or of such beneficial interest in a Registered Global Certificate, reasonably acceptable to the Pass-Through Trustee and Depositor, to the effect that such transferee is not a Benefit Plan, nor a person acting on behalf of or purchasing for the benefit of any such Benefit Plan, which representation letter shall not be an expense of the Pass-Through Trustee, the Depository or the Depositor, or (ii) in the case of any such Certificate presented for registration, or of any such beneficial interest in a Registered Global Certificate proposed to be registered on the books of the Depository or on those of a participant in such Depository, in the name of a Benefit Plan, or a trustee of any such Benefit Plan, an Opinion of Counsel reasonably satisfactory to the Pass-Through Trustee and Depositor to the effect that the purchase or holding of such Certificate or such beneficial interest will not result in the assets of the Pass-Through Trust being deemed to be "plan assets" subject to the prohibited transaction provisions of ERISA or the Code, or that the purchase or holding of such Certificate or such beneficial interest qualifies as an exempt prohibited transaction under the provisions of ERISA or the Code, and will not subject the Pass-Through Trustee or the Depositor to any obligation in addition to those undertaken in this Pass-Through Trust Agreement, which Opinion of Counsel shall not be an expense of the Pass-Through Trustee, the Depository or the Depositor. (d) At the option of the Certificateholder, a Certificate may be exchanged for another Certificate or Certificates of a like tenor, upon surrender of the Certificate to be exchanged at the Corporate Trust Office or at the office of any designated agent of the Pass-Through Trustee maintained for such purpose. Whenever a Certificate is so surrendered for exchange, the Pass-Through Trustee shall execute, authenticate and deliver a new Certificate which the Certificateholder making the exchange is entitled to receive. Every Certificate presented or surrendered for transfer or exchange shall (if so required by the Pass-Through Trustee) be duly endorsed by, or be accompanied by a written instrument of transfer in a form reasonably satisfactory to the Pass-Through Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing. (e) No service charge shall be made to the Holder for any transfer or exchange of the Certificate, but the Pass-Through 18 25 Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of the Certificate. (f) All Certificates surrendered for transfer and exchange shall be destroyed by the Pass-Through Trustee. Section 3.03. Mutilated, Destroyed, Lost or Stolen Certificates. If (i) any mutilated Certificate is surrendered to the Pass-Through Trustee or the Pass-Through Trustee receives evidence to its reasonable satisfaction of the destruction, loss or theft of any Certificate, and (ii) there is delivered to the Pass-Through Trustee such reasonable security or indemnity as may be required by it to save it harmless, then, in the absence of notice to the Pass-Through Trustee that such Certificate has been acquired by a bona fide purchaser, the Pass-Through Trustee shall execute, and authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Certificate, a new Certificate of like tenor. Upon the issuance of any new Certificate under this Section, the Pass-Through Trustee may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. Any replacement Certificate issued pursuant to this Section shall constitute complete and indefeasible evidence of ownership of the undivided interest of the Certificateholder in the Pass-Through Trust Property, as if originally issued, whether or not the mutilated, destroyed, lost or stolen Certificate shall be found at any time. Section 3.04. Persons Deemed Owners. Prior to due presentation of a Certificate for registration of transfer, the Pass-Through Trustee may treat the Person in whose name any Certificate is registered in the Certificate Register as the owner of such Certificate and the undivided interest in the Pass-Through Trust Property evidenced thereby for the purpose of receiving remittances pursuant to Section 5.01 and for all other purposes whatsoever, and the Pass-Through Trustee shall not be affected by notice to the contrary. Section 3.05. Appointment of Paying Agent. The Pass-Through Trustee shall initially serve as Paying Agent for the purposes of making distributions to Certificateholders pursuant to Section 5.01. The Pass-Through Trustee shall require each Paying Agent, other than the Pass- Through Trustee, to agree in writing that such Paying Agent shall hold in trust for the benefit of the Certificateholders or the Pass-Through Trustee all assets held by the Paying Agent for the payment of principal of, or interest on, the Certificates, and shall notify the Pass-Through Trustee of any default in making such payments. Section 3.06. Certificates Issuable in the Form of a Registered Global Certificate. (a) The Pass-Through Trustee shall, in accordance with this Article, execute, authenticate and deliver, Registered Global Certificates which, in the aggregate, 19 26 (i) shall represent, and shall be denominated in an initial principal amount equal to, the original aggregate principal amount of the Certificates issued hereunder, (ii) shall be registered in the name of the Depository or its nominee, and (iii) shall bear a legend substantially to the following effect: "Unless this Registered Global Certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Pass-Through Trustee or its agent for registration of transfer, exchange or payment, and any Registered Global Certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein." (b) Notwithstanding any other provision of this Section or of Section 3.02, the Registered Global Certificates may be transferred, in whole but not in part and in the manner provided in Section 3.02, by the Depository to a nominee of such Depository or by a nominee of such Depository to such Depository or another nominee of such Depository or by such Depository or any such nominee to a successor Depository selected or approved by the Depositor upon notice to the Pass-Through Trustee or to a nominee of such successor Depository. (c) The Depository shall be a clearing agency registered under the Exchange Act and any other applicable statute or regulation. (d) If (i) (A) the Depositor at any time advises the Pass-Through Trustee in writing that the Depository is no longer willing or able to properly discharge its responsibilities, or (B) the Depository at any time shall no longer be eligible under subsection (c) above, and the Depositor is unable to appoint a qualified successor within 90 days after the Depositor receives such notice or becomes aware of such condition, as the case may be, or (ii) the Depositor at any time, but only with the consent of Kmart, determines that the Certificates shall no longer be represented by Registered Global Certificates and that the provisions of this Section shall no longer apply to such Certificates, then this Section shall no longer be applicable to the Certificates. In such event, (x) the Pass-Through Trustee shall notify all Certificate Owners, through the Depository, of the occurrence of any such event and of the availability of Certificates in definitive registered form and (y) upon surrender of the Registered Global Certificates to the Pass-Through Trustee, accompanied by reregistration instructions from the Depository, the Pass-Through Trustee shall execute, authenticate and deliver Certificates in definitive registered form without coupons, in authorized denominations, and in an aggregate Percentage Interest equal to the Percentage Interest evidenced by the Registered Global Certificates then outstanding in exchange for such Registered 20 27 Global Certificates. Upon the exchange of the Registered Global Certificates for such Certificates in definitive registered form without coupons in authorized denominations, such Registered Global Certificates shall be canceled by the Pass-Through Trustee. If such exchange occurs as a result of the events described in (i) above, all costs of the preparation, execution, authentication and delivery of such Certificates shall be paid [pro rata] from the Rental Payment Accounts as defined in and pursuant to the Collateral Trust Agreement. If such exchange occurs at the request of the Depositor pursuant to (ii) above, the Depositor shall pay all such costs. Such Certificates in definitive registered form issued in exchange for the Registered Global Certificate pursuant to this subsection (d) shall be registered in the names and in authorized denominations set forth in the registration instructions. The Pass-Through Trustee shall deliver such Certificates to the Persons in whose names such Certificates are so registered. (e) As long as the Certificates are represented by the Registered Global Certificates, all distributions in respect of such Certificates shall be made by wire transfer in immediately available funds on the date such distributions are due in accordance with the Letter of Representations, and the Depositor shall or shall cause the Pass-Through Trustee to provide to the Depository any notices referred to in the Letter of Representations in accordance with the Letter of Representations. (f) Unless and until Certificates in definitive registered form are issued pursuant to paragraph (d) above, on the Record Date prior to each Remittance Date, the Pass-Through Trustee will request from the Depository a securities position listing setting forth the names of all participants in such Depository reflected on the Depository's books as holding interests in the Registered Global Certificates on such Record Date. The Pass-Through Trustee shall mail to each such Depository participant the statements described in Section 5.02. Section 3.07. Temporary Securities. Pending the preparation of definitive Certificates, the Pass-Through Trustee may execute and authenticate and make available for delivery, temporary Certificates which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Certificates in lieu of which they are issued and with such appropriate insertions, omissions, substitutions and other variations as the officers executing such temporary Certificates may determine, as conclusively evidenced by their execution of such temporary Certificates. The Depositor shall bear the cost of preparation of any temporary Certificates as prepared. If temporary Certificates are issued, the Depositor will cause definitive Certificates to be prepared without unreasonable delay. After the preparation of definitive Certificates, the temporary Certificates shall be exchangeable for definitive Certificates upon 21 28 surrender of the temporary Certificates at the office or agency of the Pass-Through Trustee designated for such purpose pursuant to Section 3.02 hereof, without charge to the Holder. Upon surrender for cancellation of any one or more temporary Certificates, the Pass-Through Trustee shall execute and authenticate and make available for delivery in exchange therefor a like principal amount of definitive Certificates of authorized denominations. Until so exchanged, the temporary Certificates shall in all respects be entitled to the same benefits under this Trust Agreement as definitive Certificates. Once so exchanged, the Temporary Certificates shall be cancelled by the Pass-Through Trustee. ARTICLE IV RECEIPT AND DISTRIBUTION OF INCOME AND PROCEEDS FROM THE TRUST PROPERTY Section 4.01. Calculation of Distributions. The Pass-Through Trustee shall calculate the Available Distribution Amount, make distributions on each Remittance Date as set forth in Section 5.01 and have full power and authority to do any and all things which it may deem necessary or desirable in connection with such duties. Section 4.02. Collection of Mortgage Note Payments; Investment. (a) Continuously from the date hereof until the principal and interest on the Mortgage Note[s] are paid in full or the Mortgage Note[s] are otherwise liquidated or disposed of, the Pass-Through Trustee shall, in accordance with the provisions of this Pass- Through Trust Agreement, use reasonable best efforts to collect all payments due under the Mortgage Note[s] when the same shall become due and payable and shall, in connection therewith, cooperate with the Collateral Trustee. (b) Funds in the Certificate Account shall be invested by the Pass-Through Trustee in Eligible Investments described in subparagraph (i), (ii) or (iv) of the definition thereof (or in the further proviso at the end of such definition). All such investments shall mature on or prior to the next succeeding Determination Date and in no event shall be invested in obligations maturing later than ninety days from the investment date. The risk of investment loss with respect to funds in the Certificate Account shall be borne by the Certificateholders. On or after the Due Date and prior to the next succeeding Determination Date, the Pass-Through Trustee shall be prohibited from selling or transferring Eligible Investments prior to maturity unless and until a default shall have occurred under [a] [the] Mortgage Note. The Pass-Through Trustee shall have no responsibility for any loss on any Eligible Investments. Section 4.03. Establishment of Certificate Account; Deposits in Certificate Account. With respect to the Mortgage Note[s], the Pass-Through Trustee shall cause to be segregated and held all 22 29 funds collected and received pursuant to the Mortgage Note[s] separate and apart from any of its own funds and general assets and shall cause to be established and maintained a Certificate Account in the form of a trust account titled "Mortgage Pass-Through Certificates (_____________________________) Series ___ 199_, Certificate Account" in trust for the benefit of the Certificateholders. The Pass-Through Trustee shall cause to be deposited in the Certificate Account upon receipt from the Collateral Trustee, and retained therein: (a) All scheduled payments due on account of principal and interest on the Mortgage Loan[s], and all Principal Prepayments and interest related thereto collected; (b) All payments on account of Make-Whole Premium or Termination Premium on the Mortgage Note[s]; (c) All other amounts received from the Collateral Trustee pursuant to Section 4.05 of the Collateral Trust Agreement; and (d) All earnings (or losses) on funds held in the Certificate Account derived from Eligible Investments. The foregoing requirements for deposit in the Certificate Account shall be exclusive. Section 4.04. Permitted Withdrawals From the Certificate Account. The Pass-Through Trustee shall, from time to time, cause the withdrawal of funds from the Certificate Account for the following purposes and in the following priority: (a) to make payments to the Certificateholders in the amounts and in the manner provided for in Section 5.01; (b) subsequent to an Event of Default [with respect to such Borrower's Mortgage Loan] pursuant to Section 7.01 hereof (except for a Non- Monetary Tenant Default), to pay the Pass-Through Trustee for any unreimbursed Extraordinary Expense Advances required by [the related] Borrower's default pursuant to the [related] Mortgage Note or the [related] Loan Documents and for [such Borrower's ratable portion of] due and unpaid Pass-Through Trustee's Fees, and to reimburse Pass-Through Trustee for any expenses, costs and liabilities for which it is entitled to reimbursement hereunder or under the Loan Documents [related to such Borrower's Mortgage Loan]; and, in such event, the Pass-Through Trustee shall have a prior lien for itself on all moneys in the Certificate Account for payment or reimbursement of Extraordinary Expense Advances [related to such Mortgage Loan], [such Borrower's ratable portion of] due and unpaid Pass-Through Trustee's Fees and other amounts owed it and payable by [such] Borrower under any provision of the [related] Mortgage Note or the 23 30 [related] Loan Documents, provided, however, that so long as (i) no default exists under the [related] Lease Guaranty, taking into account any grace period provided for therein, or (ii) no direction has been given by Certificateholders owning Percentage Interests of at least 66-2/3% to exercise rights or remedies under such Mortgage Note or Loan Documents, the payments pursuant to Section 4.04(a) above shall be made by Pass-Through Trustee free and clear of such lien; and (c) to make any payments to clear and terminate the Certificate Account upon the termination of this Pass-Through Trust Agreement. Section 4.05. Action Concerning Defaulted Mortgage Loan. If an Event of Default with respect to a Mortgage Loan has occurred and is continuing, and if any Certificateholders direct, and if the Pass-Through Trustee and the Collateral Trustee have received indemnity for their respective reasonable costs, expenses and liabilities with respect thereto to the reasonable satisfaction of both of them from the Certificateholders in accordance with Section 8.02 (iii) hereof and in accordance with the Collateral Trust Agreement, the Pass-Through Trustee shall vote a percentage of the outstanding principal balance of the [related] Mortgage Note corresponding to the Percentage Interests owned by such Certificateholders in favor of directing the Collateral Trustee to use its best efforts to foreclose upon or otherwise comparably convert the ownership of the Mortgaged Estate securing such Mortgage Loan; to manage, conserve and protect such Mortgaged Estate for the purposes of its disposition and sale; and to dispose of such Mortgaged Estate as promptly as is reasonably possible. Upon sale or other conveyance of all or any part of a Mortgage Note by the Pass-Through Trustee, the Pass-Through Trust shall have no further right, title or interest, in the Mortgage Note, or portion thereof, so sold or conveyed. Upon sale or other conveyance of all or any part of the Mortgaged Estate by the Collateral Trustee, the Pass-Through Trust shall have no right, title or interest in the Mortgaged Estate, or portion thereof, so sold or conveyed. [Notwithstanding anything herein to the contrary, a default under one Loan Agreement or related Loan Documents shall not constitute a default under any other Loan Agreement or other Loan Document.] Section 4.06. Trustee Compensation. The Pass-Through Trustee's Fee shall be paid pursuant to the terms of the Consent and Agreement[s]. The Pass-Through Trustee, as compensation for its activities hereunder (other than those covered by the Pass-Through Trustee's Fee), shall be entitled to receive amounts representing reimbursement for Extraordinary Expense Advances and reimbursement for certain expenses, as specified by Sections 3.01(d), 3.01(h), 3.06(d) and 4.04(b) hereof and Sections 4.03(c) and 4.05(d) of the Collateral Trust Agreement. Section 4.07. Rights of the Certificateholders. The Pass-Through Trustee shall afford the Certificateholders, upon reasonable notice and during normal business hours, access to all 24 31 records maintained by the Pass-Through Trustee in respect of its rights and obligations hereunder and access to officers of the Pass-Through Trustee responsible for such obligations. Upon request, the Pass-Through Trustee shall furnish the Certificateholders with its most recent publicly available financial statements. ARTICLE V PAYMENTS TO THE CERTIFICATEHOLDERS Section 5.01. Distributions. (a) The Pass-Through Trustee shall cause to be distributed, from funds in the Certificate Account, the following amounts: (i) on each Remittance Date, to each Certificateholder an amount equal to the Debt Service due on the Certificate or Certificates held by such Certificateholder; and (ii) on the date provided for distribution of Certificates pursuant to Section 3.01(c), (d), (e) or (f), to each Certificateholder an amount equal to the amount payable on the Certificate or Certificates held by such Certificateholder pursuant to Section 3.01(c), (d), (e) or (f), as the case may be; and (iii) concurrently with the termination of the Pass-Through Trust pursuant to Section 9.01 hereunder, to each Certificateholder an amount equal to the product of (a) all amounts remaining in the Certificate Account after giving effect to the distributions provided for in clauses (i) and (ii) hereof, and (b) the Percentage Interest of such Certificateholder. (b) All distributions made to Certificateholders on each Remittance Date shall be made to the Certificateholders of record on the Record Date (other than as provided in this Pass-Through Trust Agreement or in the form of Certificate respecting the final distribution), (i) by wire transfer in immediately available funds to the account of such Holder at a bank or other financial or depository institution having appropriate facilities therefor, if such Holder has so notified the Pass-Through Trustee in writing at least 10 Business Days prior to such Remittance Date and such Holders hold Certificates in the aggregate principal amount of $1,000,000 or more or (ii) for all other Holders of Certificates, by check mailed to the address of the Person entitled thereto as it appears on the Certificate Register. Notwithstanding any of the provisions of this subsection (b) to the contrary, so long as all of the outstanding Certificates are held by the Depository, all distributions in respect of such Certificates shall be made by wire transfer in immediately available funds in accordance with the Letter of Representations. All distributions in respect of the Certificates shall be made without presentation or surrender, except that the final distribution in accordance with Section 9.02 25 32 will be made only upon presentation and surrender of the Certificates at the Corporate Trust Office or such other agency of the Pass-Through Trustee specified in the final distribution notice to Certificateholders. If on any Determination Date, the Pass-Through Trustee reasonably determines that [the] [no] Mortgage Loan is [not] outstanding and there are no other funds or assets in the Trust Property other than the funds in the Certificate Account, the Pass-Through Trustee shall send the final distribution notice to each Certificateholder and make provision for the final distribution in accordance with Section 9.02. Section 5.02. Statements to Certificateholders. Not later than each Remittance Date, Pass-Through Trustee will cause to be sent to each Certificateholder a statement setting forth the following information with respect to each Certificate (which information may be aggregated for all Certificates held by the same Holder), after giving effect to the distributions to be made pursuant to Section 5.01 on or as of such Remittance Date: (i) the portion of such distribution allocable to principal of the Mortgage Note[s]; (ii) the portion of such distribution allocable to interest on the Mortgage Note[s]; (iii) the amount of any Extraordinary Expense Advance by the Pass-Through Trustee or the Collateral Trustee pursuant to Section 5.03 hereof or Section 5.01 of the Collateral Trust Agreement, respectively; and (iv) whether [the] [a] Mortgage Note is delinquent. In addition, not more than 90 days after the end of each calendar year or by such earlier time as may be required under the Code, the Pass- Through Trustee will furnish a report to each holder of a Certificate at any time during such calendar year, an annual statement of interest paid on the Mortgage Note[s] in accordance with the requirements of applicable federal income tax law. The Pass-Through Trustee shall cause to be prepared and shall file any and all tax returns, information statements or other filings required to be delivered to (a) any governmental taxing authorities or (b) the Certificateholders pursuant to any applicable law with respect to the Pass-Through Trust Property and the transactions contemplated hereby. The costs of any such filings, including the costs of any accounting firm or other organization retained to assist in the preparation of any such filings, shall be considered an ordinary cost and expense of the Pass-Through Trustee included within the Pass-Through Trustee's Fee and not subject to reimbursement by the Depositor, any Borrower or otherwise. Section 5.03. Advances by Pass-Through Trustee. The Pass-Through Trustee may from time to time following an Event of Default 26 33 make such Extraordinary Expense Advances as Pass-Through Trustee in its sole discretion deems advisable, provided, however, that it shall not be obligated to make any such advances unless it is satisfied as to the availability of reimbursement pursuant to the terms hereof or of the Collateral Trust Agreement or from the Certificateholders. ARTICLE VI THE DEPOSITOR Section 6.01. Maintaining Corporate Existence of the Depositor. The Depositor will keep in full effect its existence, rights and franchises as a corporation, and will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Pass-Through Trust Agreement, the Certificates or the Mortgage Note[s] and to perform its duties under this Pass-Through Trust Agreement. The Depositor will not, on or after the date of execution of this Pass-Through Trust Agreement (i) engage in any business or investment activities other than those necessary for, incident to, connected with or arising out of the origination and sale of mortgage loans, (ii) incur any indebtedness, or (iii) amend, or propose to its shareholders for their consent any amendment of, its Certificate of Incorporation or Bylaws without giving notice thereof in writing not less than 30 days nor more than 90 days prior to the date on which such amendment is to become effective to Pass-Through Trustee and without first obtaining the written consent of Pass-Through Trustee. Section 6.02. Limitation on Liability of the Depositor. Neither the Depositor nor any of the directors, officers, employees or agents of the Depositor shall be under any liability to the Pass-Through Trustee or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Pass-Through Trust Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Depositor or any such person against any liability which would otherwise be imposed by reason of any willful misfeasance, bad faith or negligence in the performance of its duties or by reason of negligent disregard of obligations and duties hereunder. The Depositor and any director, officer, employee or agent of the Depositor may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Depositor shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties pursuant to this Pass-Through Trust Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Depositor may in its discretion undertake any such action which it may deem necessary or desirable with respect 27 34 to this Pass-Through Trust Agreement and the rights and duties of the parties hereto and the interests of the Certificateholders hereunder. ARTICLE VII DEFAULT Section 7.01. Events of Default. The occurrence of any event constituting an event of default as defined in the Collateral Trust Agreement, any Loan Document or [the] [any] Mortgage Note shall constitute an Event of Default under this Pass-Through Trust Agreement. If an Event of Default shall occur and be continuing, then, and in each and every such case, so long as the Event of Default shall not have been remedied or waived, the Pass-Through Trustee, at the written direction of any Holders of Certificates, shall vote a percentage of the Principal Balance of such Mortgage Note[s] corresponding to the Percentage Interests owned by such Holders in favor of directing the Collateral Trustee to exercise any rights and remedies that it may have pursuant to such Mortgage Note[s] or any [related] Loan Document, as modified by the provisions of the Collateral Trust Agreement, or at law or equity, including injunctive relief and specific performance, provided that if as a result of the occurrence of an Event of Default, the Pass-Through Trustee acquires any property other than cash, whether pursuant to foreclosure or otherwise, the Pass-Through Trustee shall sell such property as promptly as reasonably possible. [Failure to pay with respect to any Mortgage Note or a default under any Loan Document will not constitute a default under any unrelated Mortgage Notes or under any unrelated Loan Documents and will not give rise to any right of the Collateral Trustee or the Pass-Through Trustee (i) to exercise any remedies with respect to such unrelated Mortgage Notes, or such unrelated Loan Documents or (ii) to vote any such unrelated Mortgage Notes in favor of exercising any such remedies.] If an Event of Default with respect to a Mortgage Loan shall give rise to a right to terminate the [related] Lease, at the written direction of any Holders of Certificates, the Pass-Through Trustee shall vote a percentage of the Principal Balance of such Mortgage Note corresponding to the Percentage Interests owned by such Holders in favor of directing the Collateral Trustee to give notice of intent to terminate or take action to terminate such Lease. The Pass-Through Trustee will have no obligation to take any action or institute, conduct or defend any litigation under this Pass-Through Trust Agreement at the request, order or direction of any of the Certificateholders, unless such Certificateholders have offered to the Pass-Through Trustee reasonable indemnity pursuant to Section 8.02(iii) against the costs, expenses and liabilities which the Pass-Through Trustee may incur. The Pass-Through Trustee shall apply the proceeds recovered in the enforcement of the rights and remedies under this Pass-Through Trust Agreement in accordance with the terms of this Pass-Through Trust Agreement. 28 35 Section 7.02. Waiver of Defaults. The Pass-Through Trustee, at the written direction of any Holders of Certificates, shall vote a percentage of the Principal Balance of such Mortgage Note[s] corresponding to the Percentage Interests owned by such Holders in favor of directing the Collateral Trustee to waive any default under any Mortgage Note or any Loan Document and the consequences of any such default (any such waiver by the Collateral Trustee shall constitute a waiver of the default under Section 7.01 hereof), except that the Pass-Through Trustee shall waive a default in the making of any required distribution on such Mortgage Note[s] only if directed to do so by all Certificateholders affected by such default. A default in the making of any required distribution on the Certificates may only be waived by the affected Certificateholders. The Pass-Through Trustee shall have no authority to exercise the right of waiver if, as a result thereof, the Pass-Through Trust would fail to be characterized as a trust for federal income tax purposes or the Collateral Trust would become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2. The Pass-Through Trustee may rely upon an Opinion of Counsel as set forth in Section 8.02 if it reasonably believes that such an act may cause the Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes or may cause the Collateral Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2. Upon any such waiver of a past default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Pass-Through Trust Agreement. No such waiver shall extend to any subsequent Event of Default or impair any right consequent thereon except to the extent expressly so waived. Section 7.03. Notification to Certificateholders. The Pass-Through Trustee shall, in the manner and to the extent required by Section 313(c) of the TIA, notify the Certificateholders, the [related] Tenant and Kmart of any Event of Default known to the Pass-Through Trustee within the later of 90 days from the occurrence thereof or 30 days after obtaining knowledge thereof, unless such Event of Default has been cured or waived before the giving of such notice. Except in the case of a default in the payment of principal of, or interest on, the Mortgage Note[s], the Pass-Through Trustee may withhold such notice if and so long as its board of directors, the executive committee of the board of directors or a committee of its directors and/or responsible officers in good faith determine that the withholding of such notice is in the interests of the Certificateholders. Section 7.04. Rights of Certificateholders to Direct Proceedings. (a) Anything in this Pass-Through Trust Agreement to the contrary notwithstanding, the Holders of Certificates of Percentage Interests aggregating not less than 66-2/3% shall have the right, at any time during the continuance of an Event of Default, by an instrument or instruments in writing executed and 29 36 delivered to the Pass-Through Trustee, to direct the time, place and method of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of this Pass-Through Trust Agreement; provided, however that such direction shall not be otherwise than in accordance with the provisions of law and this Pass-Through Trust Agreement and provided that such Holders shall have provided to the Pass-Through Trustee the reasonable indemnity pursuant to Section 8.02 (iii) against the costs, expenses and liabilities which the Pass-Through Trustee may incur in connection with such proceedings. (b) Anything in this Pass-Through Trust Agreement to the contrary notwithstanding, any Holders of Certificates shall have the right, at any time during the continuance of an event of default under the Collateral Trust Agreement, by an instrument or instruments in writing executed and delivered to the Pass-Through Trustee, to cause the Pass-Through Trustee to vote a percentage of the Principal Balance of the affected Mortgage Note[s] corresponding to the Percentage Interests owned by such Holders to direct the time, place and method of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Loan Documents; provided, however that such direction shall not be otherwise than in accordance with the provisions of law and such Loan Documents; and provided that such Holders shall have provided to the Collateral Trustee and to the Pass-Through Trustee the reasonable indemnity pursuant to Section 8.02 (iii) hereof and Section 8.02 (iii) of the Collateral Trust Agreement against the costs, expenses and liabilities which the Collateral Trustee or the Pass-Through Trustee may incur in connection with such proceedings. Section 7.05. Rights of Certificateholders to Receive Payment. Notwithstanding any other provision in this Pass-Through Trust Agreement, the right of any Certificateholder to receive distributions pursuant to Section 5.01, on or after the respective Remittance Dates set forth herein or in the Certificates, or to bring suit for the enforcement of any such distribution on or after such respective dates shall not be impaired or affected without the consent of such Certificateholder. Section 7.06. Remedies Cumulative. No remedy given hereunder to the Pass-Through Trustee or to any of the Certificateholders shall be exclusive of any other remedy or remedies, and each such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter given by statute, law, equity or otherwise. Section 7.07. Pass-Through Trustee Default. In the event of any breach by the Pass-Through Trustee of its obligations pursuant to this Pass-Through Trust Agreement, the Certificateholders and the Depositor shall be entitled to exercise all rights and remedies to which they may be entitled at law or in equity. 30 37 Section 7.08. Notice to Tenant[s] [and Kmart]. The Pass-Through Trustee shall promptly notify the [related] Tenant [and Kmart] of the exercise of any remedies under this Pass-Through Trust Agreement, under [any] [the] Mortgage Note or under any Loan Document or of any vote directing the Collateral Trustee to exercise any remedies pursuant to the Collateral Trust Agreement. Failure to give such notice or notice under Section 7.03 hereof shall not impair or limit the Pass-Through Trustee's or the Collateral Trustee's right to pursue any such remedies or any other right or remedy to which it may be entitled. ARTICLE VIII CONCERNING THE PASS-THROUGH TRUSTEE AND THE COLLATERAL TRUSTEE Section 8.01. Duties of Pass-Through Trustee. [With respect to each Mortgage Note] the Pass-Through Trustee, prior to the occurrence of an Event of Default [related to such Mortgage Note] and after the curing or waiver of all Events of Default [related to such Mortgage Note] which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Pass-Through Trust Agreement. In case an Event of Default has occurred [related to such Mortgage Note] (which has not been cured or waived), the Pass-Through Trustee shall exercise such of the rights and powers vested in it by this Pass-Through Trust Agreement, and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of such man's own affairs. No permissive rights of the Pass-Through Trustee shall be construed as a mandatory duty of the Pass-Through Trustee. The Pass-Through Trustee, upon receipt of any resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Pass-Through Trustee which are specifically required to be furnished pursuant to any provision of this Pass- Through Trust Agreement, shall examine them to determine whether they conform to the requirements of this Pass-Through Trust Agreement and if they are deemed to be deficient, Pass-Through Trustee shall request cure of any such deficiency within a reasonable period of time for such cure. If such deficiency is not cured to the satisfaction of Pass-Through Trustee, the Pass-Through Trustee may treat the requirement pursuant to which such instrument is furnished as not having been satisfied. No provision of this Pass-Through Trust Agreement shall be construed to relieve the Pass-Through Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; provided, however, that: (i) Prior to the occurrence of an Event of Default, and after the curing or waiver of all such Events of Default which may have occurred, the duties and obligations of the Pass-Through Trustee shall be determined solely by the express provisions of 31 38 this Pass-Through Trust Agreement, the Pass-Through Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Pass-Through Trust Agreement and, in the absence of bad faith on the part of the Pass-Through Trustee, the Pass-Through Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Pass-Through Trustee and conforming to the requirements of this Pass-Through Trust Agreement; (ii) The Pass-Through Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Pass-Through Trustee, unless it shall be proved that the Pass-Through Trustee was negligent in ascertaining the pertinent facts; (iii) The Pass-Through Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3% or such lesser percentage as is specifically set forth herein with respect to the exercise of specific powers hereunder as to the time, method and place of conducting any proceeding for any remedy available to the Pass-Through Trustee, or exercising any trust or power conferred upon the Pass-Through Trustee, under this Pass-Through Trust Agreement; and (iv) The Pass-Through Trustee shall have no authority to perform any act which, if consummated, would cause the entity created hereunder to fail to be characterized as a trust for federal income tax purposes or the Collateral Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2. The Pass-Through Trustee may rely upon an Opinion of Counsel, as set forth in Section 8.02, if it reasonably believes that such an act may cause the Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes or the Collateral Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2. Nothing in this Section 8.01(iv) is intended to prevent the Pass-Through Trustee from exercising any right or remedy to which it is entitled hereunder or under any Loan Documents. The Pass-Through Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any rights or powers, if there are reasonable grounds for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Section 8.02. Certain Matters Affecting Pass-Through Trustee. Except as otherwise provided in Section 8.01: 32 39 (i) The Pass-Through Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) The Pass-Through Trustee may consult with counsel, and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel, provided that any cost incurred by the Pass-Through Trustee shall be reimbursable only to the extent provided in Sections 3.01(d), 3.01(h), 3.06(d), 4.04(b) and 4.06 hereof and in Sections 4.03(c) and 4.05(d) of the Collateral Trust Agreement; (iii) The Pass-Through Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Pass-Through Trust Agreement or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Certificateholders, pursuant to the provisions of this Pass-Through Trust Agreement, unless such Certificateholders shall have offered to the Pass-Through Trustee reasonable indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; the right of the Pass-Through Trustee to perform any discretionary act enumerated in this Pass-Through Trust Agreement shall not be construed as a duty; and the Pass-Through Trustee shall not be answerable for other than negligence or willful misconduct in performance of such act. Nothing contained herein shall, however, relieve the Pass-Through Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived), to exercise such of the rights and powers vested in it by this Pass-Through Trust Agreement, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of such man's own affairs; (iv) The Pass-Through Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Pass-Through Trust Agreement; (v) (a) Prior to the occurrence of an Event of Default hereunder and after the curing or waiver of all Events of Default which may have occurred, the Pass-Through Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by Holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3%; provided, however, that if the payment within a 33 40 reasonable time to the Pass-Through Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Pass-Through Trustee, not reasonably assured to the Pass-Through Trustee by the security afforded to it by the terms of this Pass-Through Trust Agreement, the Pass-Through Trustee may require reasonable indemnity against such expense or liability as a condition to such proceeding; (b) If requested in writing by any Holders of Certificates, the Pass-Through Trustee shall vote a percentage of the outstanding principal balance of the Mortgage Note[s] corresponding to the Percentage Interests owned by such Holders to make an investigation as set forth in Section 8.02(v) of the Collateral Trust Agreement; (c) The reasonable expense of every such investigation shall be paid by the Certificateholder[s] requesting the investigation; and (vi) The Pass-Through Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. Section 8.03. Pass-Through Trustee Not Liable for Certificates or Mortgage Note[s]. The recitals contained herein and in the Certificates shall be taken as the statements of the Depositor, and the Pass-Through Trustee assumes no responsibility for their correctness. The Pass-Through Trustee makes no representations or warranties as to the validity or sufficiency of this Pass-Through Trust Agreement, of the Collateral Trust Agreement or of the Certificates (except that the Certificates shall be duly and validly executed and authenticated by the Pass-Through Trustee and this Pass-Through Trust Agreement shall be duly and validly executed by the Pass-Through Trustee) or of the Mortgage Note[s] (other than the representations made in Section 2.02 hereof) or related documents. The Pass-Through Trustee shall not be accountable for the use or application by the Depositor of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to or at the direction of the Depositor with respect to the Mortgage Note[s]. Section 8.04. Pass-Through Trustee May Own Certificates. The Pass-Through Trustee in its corporate or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not the Pass-Through Trustee. Section 8.05. Pass-Through Trustee's Fee and Expenses. The Pass-Through Trustee shall be entitled to reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties hereunder of the Pass-Through Trustee, and the Pass-Through Trustee 34 41 shall be reimbursed for all reasonable expenses, disbursements and advances incurred or made by the Pass-Through Trustee in accordance with any of the provisions of this Pass-Through Trust Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ), but solely from the Pass-Through Trustee's Fee and amounts available as provided in Section 3.01(d) and Section 3.01(h) and in the Rental Payment Account[s], as provided in the Collateral Trust Agreement, and in the Certificate Account as provided herein for reimbursement of expenses as set forth in Section 3.06(d) and Extraordinary Expense Advances as provided in Sections 4.04(b) and 4.05 hereof and Sections 4.03(c) and 4.05(d) of the Collateral Trust Agreement. Notwithstanding the above, no such expense, disbursement or advance shall be reimbursable as may arise from Pass-Through Trustee's negligence or bad faith. Section 8.06. Action by Co-Trustee. At any time or times, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Pass-Through Trust Property may at the time be located or in which any action of the Pass-Through Trustee may be required to be performed or taken, the Pass-Through Trustee, by an instrument in writing signed by it, may appoint one or more Persons ("Co-Trustee") to act as a separate trustee or co-trustee, acting jointly with the Pass-Through Trustee, of all or any part of such Pass-Through Trust Property, to the full extent that local law makes it necessary for such separate trustee or separate trustees or co-trustee acting jointly with the Pass- Through Trustee to act. The Co-Trustee shall act as and be such upon the following terms and conditions: (a) Subject to the provisions of Section 8.14, all rights, powers, duties and obligations conferred or imposed upon the Pass-Through Trustee shall be conferred or imposed solely upon and solely exercised and performed by the Pass-Through Trustee except as expressly provided otherwise in this Pass-Through Trust Agreement and except to the extent that under any law or any jurisdiction in which any particular act or acts are to be performed, the Pass-Through Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by the Co-Trustee; (b) No power granted by this Pass-Through Trust Agreement to, or which this Pass-Through Trust Agreement provides may be exercised by, the Co-Trustee shall be exercised by the Co-Trustee except jointly with, or with the consent in writing of, the Pass-Through Trustee, anything contained to the contrary notwithstanding; and (c) The Co-Trustee may at any time by an instrument in writing, constitute the Pass-Through Trustee or its successor in trust hereunder its agent or attorney-in-fact, with full power and authority, to the extent which may be permitted by law, to do any and all acts and things and exercise any and all discretion which 35 42 it is authorized or permitted to do or exercise, for and in its behalf and in its name. Section 8.07. Eligibility Requirements for Pass-Through Trustee. The Pass-Through Trust shall at all times have a Pass-Through Trustee which shall be a corporation eligible to act as trustee under Section 310(a) of the TIA and shall be a corporation organized and doing business under the laws of a state or the United States of America, authorized under such laws to exercise corporate trust powers, having (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $50,000,000 in the case of United States Trust Company of New York, and of at least $100,000,000 in the case of any successor trustee and subject to supervision or examination by federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. In case at any time the Pass-Through Trustee shall cease to be eligible in accordance with the provisions of this Section, the Pass-Through Trustee shall resign immediately in the manner and with the effect specified in Section 8.08. Section 8.08. Resignation and Removal of Pass-Through Trustee and Collateral Trustee. (a) The Pass-Through Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Depositor and the Certificateholders. Upon receiving such notice of resignation, the Depositor or the Certificateholders evidencing Percentage Interests aggregating not less than 66-2/3% shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Pass-Through Trustee and one copy to the successor trustee. 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 Pass- Through Trustee may petition any court of competent jurisdiction for the appointment of a successor trustee. If at any time any of the following events occur: (i) the Pass-Through Trustee fails to comply with the requirements of Section 310 of the Trust Indenture Act after written request for such compliance by any Certificateholder who has been a bona fide Certificateholder for at least six months; or (ii) the Pass-Through Trustee ceases to be eligible in accordance with the provisions of Section 8.07 and fails to resign after written request therefor by the Depositor or by any such bona fide Certificateholder; or 36 43 (iii) the Pass-Through Trustee becomes incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver of the Pass-Through Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Pass-Through Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation; then, in any such case, (x) the Depositor may remove the Pass-Through Trustee and appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the Pass-Through Trustee so removed and one copy to the successor trustee, or (y) subject to the provisions of Section 7.04, any Certificateholder who has been a bona fide Certificateholder for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Pass-Through Trustee and the appointment of a successor trustee. Such court may thereupon, after such notice, if any, as it may deem proper and prescribe, remove the Pass-Through Trustee and appoint a successor trustee. The Certificateholders evidencing Percentage Interests aggregating not less than 66-2/3% may at any time remove the Pass-Through Trustee and appoint a successor trustee by written instrument or instruments, in triplicate, signed by such Holders or their attorneys-in-fact duly authorized, one complete set of which instruments shall be delivered to the Pass-Through Trustee so removed, one complete set to the Depositor and one complete set to the successor so appointed. Any resignation or removal of the Pass-Through Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective only upon acceptance of appointment by the successor trustee as provided in Section 8.09. (b) In the event the Collateral Trustee resigns pursuant to Section 8.08 of the Collateral Trust Agreement, the Pass-Through Trustee, upon receiving instructions from any Certificateholders, concerning the appointment of a successor collateral trustee, shall vote a percentage of the Principal Balance of the Mortgage Note[s] corresponding to the Percentage Interests owned by such Certificateholders to appoint such designated successor collateral trustee and take such other actions as are appropriate under such Section 8.08 to appoint such successor collateral trustee. Upon receiving instructions from any Certificateholders to do so, the Pass-Through Trustee shall seek to remove the Collateral Trustee and appoint a successor collateral trustee, by voting a percentage of the Principal Balance of the Mortgage Note[s] corresponding to the Percentage Interests owned by such Certificateholders in favor of removing the Collateral Trustee and appointing the successor designated by such Certificateholders and by taking such other actions as are consistent with Section 8.08 of the Collateral Trust Agreement. 37 44 Section 8.09. Successor Pass-Through Trustee. Any successor trustee appointed as provided in Section 8.07 or 8.08 shall execute, acknowledge and deliver to the Certificateholders and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the same effect as if originally named as trustee herein. The predecessor trustee shall deliver to the successor trustee the Mortgage Note[s] and any other documents and statements held by it hereunder, and the Depositor and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.07. Upon acceptance of appointment by a successor trustee as provided in this Section, the Depositor shall mail notice of the succession of such trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Register. If the Depositor fails to mail such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Depositor. Section 8.10. Merger or Consolidation of Pass-Through Trustee. Any corporation into which the Pass-Through Trustee may be merged or converted or with which it may be consolidated or any corporation resulting from any merger, conversion or consolidation to which the Pass-Through Trustee shall be a party, or any corporation succeeding to the business of the Pass-Through Trustee, shall be the successor of the Pass-Through Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 8.07, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 8.11. Resignation of Co-Trustee. The Co-Trustee or any of its successors may resign, and may be discharged of the trusts created by this Pass-Through Trust Agreement by giving written notice thereof to the Certificateholders and to the Pass-Through Trustee. Such resignation shall take effect immediately upon the acceptance of appointment by a Person succeeding to the office of the Co-Trustee appointed by the Pass-Through Trustee. 38 45 Section 8.12. Removal of Co-Trustee. The Co-Trustee or any of its successors may be removed at any time by the Pass-Through Trustee or the Holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3%, by delivery of a notice of such removal to the Co-Trustee, to the Depositor, and to the Pass-Through Trustee, signed by such Holders, and such removal shall be effective upon the date specified in such notice, and the Co-Trustee's duties and obligations hereunder shall thereupon cease, except as specified in Section 8.14. Section 8.13. Appointment of Successor to Co-Trustee. If at any time the Co-Trustee or any of its successors shall die, resign or be removed or otherwise become incapable of acting, or if for any reason the office of Co-Trustee shall become vacant, a successor to the Co-Trustee shall forthwith be appointed by the Pass-Through Trustee. Section 8.14. Succession of Successor to Co-Trustee. Any Person appointed as a successor to the Co-Trustee shall execute, acknowledge and deliver to the Certificateholders, its predecessor, to the Pass-Through Trustee and to the Depositor, an instrument accepting such appointment hereunder, and thereupon such Person without any further act, deed or conveyance shall become vested with all estates, properties, rights, powers, duties and trusts of its predecessor in the trusts hereunder with like effect as if originally named as Co-Trustee herein; but nevertheless, on the written request of the Depositor or Holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3% or of the Pass-Through Trustee or of the new Co-Trustee, the predecessor shall execute and deliver an instrument transferring to the new Co-Trustee, upon the trusts expressed in this Pass-Through Trust Agreement, all the estates, properties, rights, powers and trusts granted to it by this Pass-Through Trust Agreement and shall duly assign, transfer, deliver and pay over to the new Co-Trustee any property and money subject to the lien of this Pass-Through Trust Agreement held by such predecessor. Should any instrument in writing from the Depositor or from Holders of Certificates evidencing Percentage Interests aggregating not less than 66-2/3% or from the Pass-Through Trustee be required by any person who becomes the Co-Trustee for more fully and certainly vesting in and confirming to such Co-Trustee such estates, properties, rights, powers and trusts, then, on request, any and all such instruments in writing shall be made, executed, acknowledged and delivered by the Depositor and/or the Pass-Through Trustee. Any Co-Trustee which has resigned or been removed shall nevertheless retain all rights of indemnity granted hereunder. Section 8.15. Reports by the Pass-Through Trustee to Certificateholders. (a) On or before each March 31 of each calendar year commencing 199_, the Pass-Through Trustee shall transmit to Certificateholders such reports concerning the Pass-Through Trustee 39 46 and its actions under this Pass-Through Trust Agreement as may be required pursuant to the TIA and at the times and in the manner provided pursuant thereto. (b) A copy of each report shall, at the time of such transmission to Certificateholders, be filed by the Pass-Through Trustee with any stock exchange upon which the Certificates are listed, with the Securities and Exchange Commission, with Kmart and with the Depositor. The Depositor shall notify the Pass-Through Trustee when the Certificates are listed on any stock exchange, in accordance with Section 313(c) of the TIA. Section 8.16. Co-Trustee of the Collateral Trust (a) Upon receiving instructions from any Certificateholders to do so, the Pass-Through Trustee shall seek to remove the co-trustee of the Collateral Trust by voting a percentage of the Principal Balance of the Mortgage Note[s] corresponding to the Percentage Interests owned by such Certificateholders in favor of removing such co-trustee and by taking such other actions as are consistent with Section 8.12 of the Collateral Trust Agreement. (b) Upon written request to do so from any Certificateholders, the Pass-Through Trustee shall vote a percentage of the Principal Balance of the Mortgage Note[s] corresponding to the Percentage Interests owned by such Certificateholders to make the request specified in Section 8.14 of the Collateral Trust Agreement and take such other actions to implement such request as are consistent with such Section 8.14. ARTICLE IX TERMINATION Section 9.01. Termination. The respective obligations and responsibilities of the Depositor and the Pass-Through Trustee under this Pass-Through Trust Agreement shall, so long as such termination does not result in the imposition of a tax on the Pass-Through Trust Property, terminate upon the final payment, prepayment in full or other liquidation of the Mortgage Note[s] and the remittance of all funds due hereunder; provided, however, that in no event shall the Trust continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof. Section 9.02. Notice; Final Distribution. (a) Notice of any termination pursuant to Section 9.01, specifying the Remittance Date after which all Certificateholders shall surrender their Certificates to the Pass-Through Trustee for payment and cancellation, shall be given promptly by the Pass-Through Trustee by letter to Certificateholders mailed no later than 15 days prior to such final distribution specifying (i) the 40 47 Remittance Date upon which final payment on the Certificates will be made and following which the Certificateholders shall present and surrender their Certificates at the Corporate Trust Office or the office of any designated agent of the Pass-Through Trustee therein designated, (ii) the amount of any such final payment, and (iii) that payments will be made only upon presentation and surrender of the Certificates at the office or agency of the Pass-Through Trustee therein specified. After giving such notice, the Pass-Through Trustee shall not register the transfer or exchange of any Certificates. On the Remittance Date upon presentation and surrender of the Certificates, the Pass-Through Trustee shall cause to be distributed to Certificateholders an amount equal to the amount distributable on such Remittance Date. (b) If all of the Certificateholders shall not surrender their Certificates for cancellation within three months after the time specified in the above-mentioned written notice, the Pass-Through Trustee shall give a second written notice to the remaining Certificateholders to surrender their Certificates for cancellation and receive the final distribution with respect thereto. If within three months after the second notice all the Certificates shall not have been surrendered for cancellation, the Pass-Through Trustee may take appropriate steps, or may appoint an agent to take appropriate and reasonable steps, to contact the remaining Certificateholders concerning surrender of their Certificates, and the cost thereof shall be paid out of the funds and other assets which remain in the Pass-Through Trust. ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS PASS-THROUGH TRUST AGREEMENT AND OTHER DOCUMENTS; ADDITIONAL AGREEMENTS OF TRUSTEE Section 10.01. Supplemental Pass-Through Trust Agreements Without Consent of Holders. The Depositor and the Pass-Through Trustee, at any time and from time to time, with the consent of Kmart (which shall not be unreasonably withheld or delayed and which shall not be required with respect to (g) below) but without the consent of Certificateholders, may enter into one or more trust agreements supplemental hereto for one or more of the following purposes: (a) to evidence the succession of another Person to the Depositor, or successive successions, and the assumption by the successor of the covenants, agreements and obligations of the Depositor herein; (b) to add any covenants, restrictions, conditions or provisions with respect to the Depositor as the Pass-Through Trustee shall consider to be for the protection of the Certificateholders; 41 48 (c) to surrender any rights or power conferred herein upon the Depositor herein or to add to the rights of the Certificateholders; (d) to correct or amplify the description of any property at any time that constitutes Pass-Through Trust Property or better to assure, convey and confirm unto the Pass-Through Trustee any such property to be included in any such Pass-Through Trust Property, or to acknowledge any change relating to title to the Mortgaged Estate which does not materially adversely affect the rights of the Certificateholders; (e) to evidence and provide for the acceptance and appointment hereunder of a successor trustee and to add to or change any of the provisions hereof as may be necessary to provide for or facilitate the administration of the Pass-Through Trust by more than one trustee pursuant to Section 8.14; (f) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Pass-Through Trust Agreement, provided that such action pursuant to this Section 10.01(f) shall not materially adversely affect the Certificateholders; or (g) to modify, eliminate or add to the provisions of this Pass-Through Trust Agreement to the extent necessary to continue the qualification of this Pass-Through Trust Agreement under the TIA; provided that no such supplemental agreement shall cause the Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes or the Collateral Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2. The Pass-Through Trustee is hereby authorized to join in the execution of any such supplemental agreement, to make any further appropriate agreements and stipulations which may be contained therein and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Pass-Through Trustee shall not be obligated to enter into any such supplemental agreement which adversely affects the Pass-Through Trustee's own rights, duties or immunities under this Pass-Through Trust Agreement or otherwise, whether in its official or individual capacity. Section 10.02. Supplemental Agreements With Consent of Certificateholders. With the consent of the Holders of Certificates evidencing Percentage Interests of not less than 66-2/3%, the Depositor and the Pass-Through Trustee may, from time to 42 49 time and at any time, enter into an agreement or agreements supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Pass-Through Trust Agreement or of any agreements supplemental hereto or of modifying in any manner the rights of the Certificateholders; provided, however, that no such supplemental agreement shall cause the Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes or the Collateral Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2; and provided further that, except as expressly permitted under the terms of this Pass-Through Trust Agreement, without the consent of each Certificateholder affected thereby and, with respect to (b) and (unless there is a monetary default under the [related] Lease) (c) below, Kmart, no such amendment of or supplement to this Pass-Through Trust Agreement or modification of the terms of, or consent under, any thereof, shall (a) modify any of the provisions of Section 7.03 or this Section 10.02, or the definition of "Certificateholder" as set forth in Article I hereof; (b) modify the definition of "Percentage Interest" as set forth in Article I hereof or reduce the Percentage Interests, the consent of the Holders of Certificates of which is required for any such supplement to this Pass-Through Trust Agreement, or the consent of the Holders of Certificates of which is required for any waiver provided for in this Pass-Through Trust Agreement; (c) reduce the amount or extend the time of payment of any amount owing or payable under the Mortgage Note[s] or distributions to be made on any Certificate pursuant to Article V; (d) impair the right of any Certificateholder to commence legal proceedings to enforce a right to receive payment hereunder; or (e) create or permit the creation of any lien on the Pass-Through Trust Property or any part thereof, or deprive any Certificateholder of the benefit of this Pass-Through Trust Agreement, whether by disposition of such Pass-Through Trust Property or otherwise. Upon the request of the Depositor and upon the filing with the Pass-Through Trustee of evidence of the consent of the Certificateholders and Kmart, if applicable, required under this Section, the Pass-Through Trustee shall join with the Depositor in the execution of such supplemental agreement unless such supplemental agreement affects the Pass-Through Trustee's own rights, duties or immunities under this Pass-Through Trust Agreement or otherwise, in which case the Pass-Through Trustee may in its discretion, but shall not be obligated to, enter into such supplemental agreement. 43 50 It shall not be necessary for the consent of the Certificateholders under this Section to approve the particular form of any proposed supplemental agreement, and it shall be sufficient if such consent shall approve the substance thereof. Kmart shall be entitled to receive a copy of the form of proposed supplemental agreement. Promptly after the execution by the Depositor and the Pass-Through Trustee of any supplemental agreement pursuant to the provisions of this Section, the Pass-Through Trustee shall mail a notice thereof by first-class mail to the Certificateholders at their addresses as they shall appear in the Certificate Register, setting forth in general terms the substance of such supplemental agreement. Any failure of the Pass-Through Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental agreement. Section 10.03. Effect of Supplemental Agreement. Upon the execution of any supplemental agreement pursuant to the provisions hereof, this Pass-Through Trust Agreement shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Pass-Through Trust Agreement of the Pass-Through Trustee, the Depositor and the Certificateholders shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental agreement shall be and be deemed to be part of the terms and conditions of this Pass-Through Trust Agreement for any and all purposes. The Pass-Through Trustee shall deliver to Kmart a true and correct copy of the final form of supplemental agreement as executed by the Depositor and the Pass-Through Trustee. Section 10.04. Documents to Be Given to Trustee. The Pass-Through Trustee, subject to the provisions of Sections 8.02, may receive an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any such supplemental agreement complies with the applicable provisions of this Pass-Through Trust Agreement. Section 10.05. Notation on Certificates in Respect of Supplemental Agreements. Certificates authenticated and delivered after the execution of any supplemental agreement pursuant to the provisions of this Article may bear a notation in form approved by the Pass-Through Trustee as to any matter provided for by such supplemental agreement. If the Depositor or the Pass-Through Trustee shall so determine, new Certificates so modified as to conform, in the opinion of the Depositor and the Pass-Through Trustee, to any modification of this Pass-Through Trust Agreement contained in any such supplemental agreement may be prepared, executed and authenticated by the Pass-Through Trustee and delivered in exchange for the outstanding Certificates. 44 51 Section 10.06. Supplements to Collateral Trust Agreement. If the Pass-Through Trustee, as holder of the Mortgage Note[s], receives a request for a consent to any supplement to the Collateral Trust Agreement pursuant to Article 10 thereof, the Pass-Through Trustee shall forthwith notify the Certificateholders of such request and shall ask for instructions from the Certificateholders with respect to such request. The Pass-Through Trustee shall vote in favor of such supplement the percentage of the outstanding principal balance of the Mortgage Note[s] corresponding to the Percentage Interests owned by the Certificateholders who instruct the Pass-Through Trustee that they are in favor of such supplement. ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Pass-Through Trust Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Pass-Through Trust Agreement and shall in no way affect the validity or enforceability of the other provisions of this Pass-Through Trust Agreement. Section 11.02. Limitation on Rights of Certificateholders. The death or incapacity of any Certificateholder shall not operate to terminate this Pass-Through Trust Agreement or the Pass-Through Trust Property, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or proceeding in any court for a partition or winding up of the Pass-Through Trust Property, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. No Certificateholder shall have any right to vote (except as expressly provided herein) or in any manner otherwise control the operation and management of the Pass-Through Trust Property, or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Certificates, be construed so as to constitute the Certificateholders from time to time as partners or members of an association; nor shall any Certificateholder be under any liability to any third person by reason of any action taken by the parties to this Pass-Through Trust Agreement pursuant to any provision hereof. No Certificateholder shall have any right by virtue of any provision of this Pass-Through Trust Agreement to institute any suit, action or proceeding in equity or at law upon or under or with respect to this Pass-Through Trust Agreement, unless such Holder previously shall have given to the Pass-Through Trustee a written notice of the occurrence of an Event of Default and of the continuance thereof, as hereinbefore provided, and unless also the Holders of Certificates evidencing in the aggregate Percentage 45 52 Interests of not less than 66-2/3% shall have made written request upon the Pass-Through Trustee to institute such action, suit or proceeding in its own name as Pass-Through Trustee hereunder and shall have offered to the Pass-Through Trustee such reasonable indemnity as it may require against the costs, expenses and liabilities to be incurred therein or thereby, and the Pass-Through Trustee, for 60 days after its receipt of such notice, request and offer of indemnity, shall have neglected or refused to institute any such action, suit or proceeding; it being understood and intended, and being expressly covenanted by each Certificateholder with every other Certificateholder and the Pass-Through Trustee, that no one or more Holders of Certificates shall have any right in any manner whatever by virtue of any provision of this Pass-Through Trust Agreement to affect, disturb or prejudice the rights of the Holders of any other of such Certificates, or to obtain or seek to obtain priority over or preference to any other such Holder, or to enforce any right under this Pass-Through Trust Agreement, except in the manner herein provided and for the common benefit of Certificateholders. For the protection and enforcement of the provisions of this Section, each and every Certificateholder and the Pass-Through Trustee shall be entitled to such relief as can be given either at law or in equity. Section 11.03. Solicitation of Certificateholders. The Pass-Through Trustee will not solicit, request or negotiate for or with respect to any direction or proposed waiver or amendment of any of the provisions of this Pass-Through Trust Agreement or the Certificates, unless each Holder of the Certificates (irrespective of the amount of Certificates then owned by it) shall be informed thereof by the Pass-Through Trustee and shall be afforded the opportunity of considering the same and shall be supplied by the Pass-Through Trustee with sufficient information to enable it to make an informed decision with respect thereto. Executed or true and correct copies of any waiver effected pursuant to the provisions of this Section shall be delivered by the Pass-Through Trustee to Kmart and each Holder of outstanding Certificates forthwith following the date on which the same shall have been executed and delivered by the Holder or Holders of the requisite percentage of outstanding Certificates. Neither the Depositor nor the Pass-Through Trustee nor any Affiliate thereof will, directly or indirectly, pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, to any Certificateholders as consideration for or as an inducement to the entering into by any Certificateholders of any waiver or amendment of any of the terms and provisions of this Pass-Through Trust Agreement unless such remuneration is concurrently paid, on the same terms, ratably to all Certificateholders. Under any provisions of this Pass-Through Trust Agreement that relate to consent, waiver, direction, request or demand of or by Certificateholders, each and every Certificateholder shall be entitled to give or make any such consent, waiver, direction, request or demand without request or demand for such action by the Pass-Through Trustee. 46 53 In the event any such direction or similar action is so received by the Pass-Through Trustee under any provision hereof from the Certificateholders of requisite Percentage Interests, the Pass-Through Trustee shall follow the direction of such Certificateholders. Section 11.04. Recordation of Agreement. To the extent required by applicable law, this Pass-Through Trust Agreement is subject to recordation in appropriate public offices for real property records in the county or other comparable jurisdiction in which [the] [each] Mortgaged Estate is situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Pass-Through Trustee accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Certificateholders or is necessary in connection with the [related] Mortgage Loan. Section 11.05. Duration of Agreement. This Pass-Through Trust Agreement shall continue in existence and effect until terminated as herein provided. SECTION 11.06. GOVERNING LAW. THIS PASS-THROUGH TRUST AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 11.07. Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to have been duly given if personally delivered at or mailed by first class or registered mail, postage prepaid, to (i) in the case of the Depositor, National Tenant Finance Corporation, 40 North Central Avenue, Suite 2700, Phoenix, Arizona 85004-4441, Attention: Norman C. Storey, and (ii) in the case of the Pass-Through Trustee, United States Trust Company of New York, c/o U.S. Trust Company of California, N.A., Suite 2700, 555 South Flower Street, Los Angeles California 90071 Attention: Corporate Trust Division, or such other addresses as such Persons may hereafter designate. Any notice required or permitted to be mailed to a Certificateholder shall be given by registered mail, postage prepaid, or by express delivery service, at the address of such Certificateholder as shown in the Certificate Register. A copy of each notice of an Event of Default and all other notices or communications hereunder, including the text of any proposed or final amendment or supplement to this Pass-Through Trust Agreement, given by or to the Certificateholders, the Pass-Through Trustee or the Depositor shall be contemporaneously transmitted to Kmart, 3100 West Big Beaver Road, Troy, Michigan 48084, Attention: Vice President-Real Estate, or to such other address as Kmart may have designated by written notice to the Pass- Through Trustee. The provisions of the foregoing sentence are for the express benefit of Kmart, shall be enforceable by it, and may not be modified or eliminated without its consent. 47 54 Section 11.08. Counterparts. For the purpose of facilitating the recordation of this Pass-Through Trust Agreement as herein provided and for other purposes, this Pass-Through Trust Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Section 11.09. Submission to Jurisdiction. Each party hereto hereby consents to the jurisdiction of any state or federal court located within the County of New York, State of New York and irrevocably agrees that all actions or proceedings relating to this Pass-Through Trust Agreement may be litigated in such courts and each such party waives any objection which it may have based on improper venue or forum non conveniens to the conduct of any proceeding in any such court, waives personal service of any and all process upon it and consents that all such service or process be made by registered or certified mail (return receipt requested) or messengered to it at its address set forth in Section 11.07 or to its Agent referred to below at such Agent's address set forth below and that service so made shall be deemed to be completed in accordance with Section 11.07. Each party hereto hereby appoints the Prentice Hall Corporation System, Inc., with an office on the date hereof at 15 Columbus Circle, New York, New York 11023 as its Agent for the purpose of accepting service of any process within the State of New York and shall execute any confirmation thereof requested by the other party hereto. Nothing in this Section shall affect the right of any party hereto to serve legal process in any other manner permitted by law to bring any action or proceeding in the courts of any jurisdiction against the other party or to enforce a judgment obtained in the courts of any other jurisdiction. Section 11.10. Gender; Number. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the context shall require. Section 11.11. TIA Controls. If any provision of this Pass-Through Trust Agreement limits, qualifies or conflicts with the duties imposed by operation of Section 318(c) of the TIA, the imposed duties shall control. Section 11.12. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Depositor to the Pass-Through Trustee to take any action under this Pass-Through Trust Agreement, the Depositor shall furnish to the Pass-Through Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Pass-Through Trust Agreement relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such counsel all such conditions precedent have been complied with. 48 55 Section 11.13. Statements Required in Certificate or Opinion. Each Officers' Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Pass-Through Trust Agreement shall include: (a) a statement that each Person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (c) a statement that, in the opinion of each such Person, he has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 11.14. Benefits of Pass-Through Trust Agreement. Nothing in this Pass-Through Trust Agreement or in the Certificates, express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, and the Certificateholders, any benefit or any legal or equitable right, remedy or claim under this Pass-Through Trust Agreement. IN WITNESS WHEREOF, the Depositor and the Pass-Through Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written. NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation By_____________________________ Name___________________________ Title__________________________ UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation By_____________________________ Name___________________________ Title__________________________ 49 56 STATE OF _______________ ] ] ss. CITY OF ________________ ] On the ____ day of _________, 199_ before me, a Notary Public in and for said State, personally appeared ______________, known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as ___________ on behalf of NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation, and acknowledged to me that such Corporation executed the within instrument pursuant to its Bylaws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. [NOTARIAL SEAL] _______________________________ Notary Public My Commission Expires: ______________________ STATE OF _______________ ] ] ss. CITY OF ________________ ] On the ____ day of _________, 199_ before me, a Notary Public in and for said State, personally appeared ______________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as to be a ______________ on behalf of UNITED STATES TRUST COMPANY OF NEW YORK a New York banking corporation, and acknowledged to me that such association executed the within instrument pursuant to its Bylaws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. [NOTARIAL SEAL] _______________________________ Notary Public My Commission Expires: ______________________ 57 EXHIBIT A-1 MORTGAGE NOTE SCHEDULE (i) Borrower Name - (ii) Mortgaged Estate - See Exhibit A attached hereto (iii) Maturity Date - _____ __, 20__ (iv) Rate - ____% (v) First Due Date - ________ __, 199_ (vi) Mortgage Payments - See Exhibit B attached hereto (vii) Original Principal Balance of Mortgage Note - $_______________ 1 58 EXHIBIT A-2 CERTIFICATE SCHEDULE 59 EXHIBIT A-3 CONTENTS OF MORTGAGE FILE With respect to the Mortgage Loan, the Mortgage File shall include each of the following items: 60 EXHIBIT B [FORM OF CERTIFICATE] [Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Pass-Through Trustee or its agent for registration of transfer, exchange or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein.] _____% MORTGAGE PASS-THROUGH CERTIFICATE (____________________________) SERIES 199_ Pass-Through Trust Agreement Original Principal Amount: Series ____ $_________ Dated as of Original Issuance Date: _______ __, 199_ _______________, 199_ Cusip No. ___________ Maturity Date: Number R-_ ___________, ____ This Certificate does not represent an obligation of or interest in National Tenant Finance Corporation, a Delaware corporation, Kmart Corporation, any subsidiary of Kmart Corporation, the Collateral Trustee or the Pass-Through Trustee referred to below or any of their respective affiliates. Neither this Certificate nor the underlying Mortgage Note[s] referred to below are guaranteed or insured. To the extent not defined herein, the capitalized terms used herein have the meanings set forth in the Pass-Through Trust Agreement referred to below. This certifies that _______________________ (the "Holder") is the registered owner of an undivided ___% beneficial interest in the Pass-Through Trust Property, subject to the terms and conditions of the Pass-Through Trust Agreement. The Pass-Through Trust Property includes [the] mortgage note[s] ("Mortgage Note[s]") issued by the Borrower[s] identified in the Loan Agreement[s] ([individually a] "Borrower" [, collectively "Borrowers"]). The Mortgage Note[s], and certain other property (collectively, "Pass-Through Trust Property") have been transferred as of the date hereof from National Tenant Finance Corporation ("Depositor," which term includes any successor entity under the Pass-Through Trust Agreement referred to below) to the Pass-Through Trustee (as 61 defined below) in trust for the benefit of Certificateholders. The Pass-Through Trust Property was conveyed to the Pass-Through Trustee pursuant to a Pass-Through Trust Agreement ("Pass-Through Trust Agreement"), dated as of the date hereof, by and among Depositor, as Depositor, and United States Trust Company of New York ("Pass-Through Trustee"), as Pass-Through Trustee, a summary of certain of the pertinent provisions of which is set forth herein. Simultaneously with the transfer of the Pass-Through Trust Property by Depositor to the Pass-Through Trustee, the Depositor has transferred to United States Trust Company of New York, as collateral trustee under that Collateral Trust Agreement dated as of the date hereof, by and among Depositor and such collateral trustee, in trust for the benefit of the Pass-Through Trustee, as holder of the Mortgage Note[s], all right, title and interest of the Depositor in and to the Loan Agreement[s] pursuant to which the Mortgage Note[s] [were] [was] issued, the related Mortgage[s], all other related Loan Documents and certain other property. This Certificate is one of a duly authorized issue of Certificates ("Certificates"), designated as "Mortgage Pass-Through Certificates (______________________) Series 199_", and is issued under and is subject to the terms, provisions and conditions of the Pass-Through Trust Agreement. The Holder of this Certificate by acceptance hereof assents to the Pass-Through Trust Agreement and agrees to be bound thereby. This Certificate evidences a ___% Percentage Interest for purposes of the Pass-Through Trust Agreement. For purposes of calculations under the Pass-Through Trust Agreement, this Certificate represents an original principal amount as set forth at the head of this Certificate, and is scheduled to bear interest from the date of issuance on the unpaid principal balance hereof at the rate of _____% per annum (computed on the basis of a 360-day year comprised of 12 consecutive 30-day months) payable on each Remittance Date, and is scheduled to bear interest at the rate of _____% per annum (computed on the same basis) on any overdue principal or (to the extent permitted by applicable law) interest under the Mortgage Note[s]. Distributions on any regularly scheduled Remittance Date will include interest on the outstanding Mortgage Note[s] from and including the first day of the sixth month immediately preceding such Remittance Date (or from and including the Closing Date with respect to the first Remittance Date) through the end of the calendar month immediately preceding such Remittance Date. Additional distributions may be made with respect to this Certificate as a result of the prepayment, purchase or acceleration of the Mortgage Note[s] as set forth in the Pass-Through Trust Agreement. THIS CERTIFICATE AND ANY OTHER CERTIFICATES ISSUED PURSUANT TO THE PASS-THROUGH TRUST AGREEMENT ARE EQUALLY AND RATABLY SECURED BY THE PASS-THROUGH TRUST PROPERTY. Distributions on this Certificate will be made by the Pass-Through Trustee to the Person entitled thereto, without the presentation or surrender of this Certificate or the making of any notation hereon. Except as otherwise provided in the Pass-Through Trust Agreement and notwithstanding the preceding sentence, the B-2 62 final distribution on this Certificate will be made after notice mailed by the Pass-Through Trustee of the pendency of such distribution and only upon presentation and surrender of this Certificate at the office or agency of the Pass-Through Trustee specified in such notice. On each Remittance Date, the Pass-Through Trustee will cause to be distributed to the Holder from funds in the Certificate Account an amount equal to the aggregate scheduled Debt Service, to the extent available, on this Certificate for such Remittance Date. The Debt Service on this Certificate is set forth on the Debt Service Schedule attached hereto and made a part hereof by this reference. The Debt Service is subject to adjustment as a consequence of prepayment, purchase or acceleration of the Mortgage Note[s] and as a consequence of adjustment to the Annual Rental due under the Lease[s] [each of] which secures [the] [a] Mortgage Note. The Pass-Through Trustee will cause to be kept at its Corporate Trust Office, or at the office of its designated agent, a Certificate Register in which, subject to such reasonable regulations as it may prescribe in compliance with the Pass-Through Trust Agreement, the Pass-Through Trustee will provide for the registration of Certificates and of transfers and exchanges of Certificates. Upon surrender for registration of transfer of any Certificate at any office or agency of the Pass-Through Trustee maintained for such purpose, the Pass-Through Trustee will, subject to the limitations set forth in the Pass-Through Trust Agreement, execute, authenticate and deliver, in the name of the designated transferee or transferees, a Certificate or Certificates of a like tenor and aggregate Percentage Interest and dated the date of such execution and authentication by the Pass-Through Trustee. No service charge will be made to the Holder for any transfer or exchange of any Certificate, but the Pass-Through Trustee may require payment of a sum sufficient to cover any tax or governmental charge that may be imposed in connection with any transfer or exchange of any Certificate. Prior to due presentation of a Certificate for registration of transfer, the Pass-Through Trustee may treat the person in whose name any Certificate is registered as the owner of such Certificate and the undivided interest in the Pass-Through Trust Property evidenced thereby for the purpose of receiving distributions pursuant to the Pass-Through Trust Agreement and for all other purposes whatsoever, and the Pass-Through Trustee will not be affected by any notice to the contrary. The Pass-Through Trust Agreement may be amended from time to time by the Depositor and the Pass-Through Trustee with the consent of Kmart but without the consent of the Certificateholders in certain circumstances specified in the Pass-Through Trust Agreement. The Pass-Through Trust Agreement may, under certain other circumstances specified in the Trust Agreement, be amended from time to time by the Depositor and the Pass-Through Trustee with the consent of the Holders of Certificates evidencing in the B-3 63 aggregate not less than 66-2/3% of the Percentage Interest of the Certificates issued and outstanding for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of the Pass-Through Trust Agreement or of modifying in any manner the rights of the Certificateholders; provided that no such amendment may (i) modify the provision of the Pass-Through Trust Agreement that concerns notifying Certificateholders of the occurrence of an Event of Default, modify the provision of the Pass-Through Trust Agreement concerning approving supplements to the Pass-Through Trust Agreement that require the approval of Certificateholders, or modify the definition of "Certificateholder" in the Pass-Through Trust Agreement, (ii) modify the definition of "Percentage Interest" in the Trust Agreement or reduce the Percentage Interests, the consent of the Holders of Certificates of which is required for any such supplement to the Pass-Through Trust Agreement, or the consent of the Holders of Certificates of which is required for any waiver provided for in the Pass-Through Trust Agreement; (iii) reduce the amount or extend the time of payment of any amount owing or payable under the Mortgage Note[s] or distributions to be made on any Certificate, or impair the right of any Certificateholder to commence legal proceedings to enforce a right to receive payment hereunder or under the Pass-Through Trust Agreement; or (iv) create or permit the creation of any lien on the Trust Property or any part thereof, or deprive any Certificateholder of the benefit of the Pass-Through Trust Agreement, whether by disposition of such Trust Property or otherwise, without the consent of each affected Certificateholder and, with respect to (ii), Kmart. The respective obligations and responsibilities of the Depositor and the Pass-Through Trustee under the Pass-Through Trust Agreement will terminate upon the final payment, prepayment in full or other liquidation of the Mortgage Note[s] and the remittance of all funds due under the Pass-Through Trust Agreement; provided, however, that in no event shall the Pass-Through Trust continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof. B-4 64 IN WITNESS WHEREOF, the Pass-Through Trustee has caused this Certificate to be duly executed by one of its authorized officers. Dated: _______ __, 199_ UNITED STATES TRUST COMPANY OF NEW YORK, solely as Pass-Through Trustee under the Pass-Through Trust Agreement Series _____ dated as of _______ __, 1994 with National Tenant Finance Corporation and not in its individual capacity. By_____________________________ Authorized Officer B-5 65 [FORM OF CERTIFICATE OF AUTHENTICATION] This is one of the Certificates defined in the Pass-Through Trust Agreement Series _____ dated as of _________ __, 199_ with National Tenant Finance Corporation. Dated: __________ __, 199_ UNITED STATES TRUST COMPANY OF NEW YORK, as Pass-Through Trustee By_____________________________ Authorized Officer B-6
EX-4.3 4 EXHIBIT 1 EXHIBIT 4.3 _______________ COLLATERAL TRUST AGREEMENT _______________ between NATIONAL TENANT FINANCE CORPORATION as Depositor and UNITED STATES TRUST COMPANY OF NEW YORK as Trustee _____________________________ Dated as of , 199_ _____________________________ $_________ Mortgage Pass-Through Certificates (___________________) Series 199_-__ and Series 199_-__ _________________________________________________________________ 2
TABLE OF CONTENTS ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions . . . . . . . . . . . . . . . . . 1 ARTICLE II CONVEYANCE OF TRUST PROPERTY Section 2.01. Conveyance of Trust Property. . . . . . . . . 10 Section 2.02. Acceptance by Trustee. . . . . . . . . . . . . 11 Section 2.03. Trust Property. . . . . . . . . . . . . . . . 12 Section 2.04. Limitation of Powers. . . . . . . . . . . . . 12 ARTICLE III THE MORTGAGE NOTES Section 3.01. Prepayment . . . . . . . . . . . . . . . . . . 12 Section 3.02. Note Put . . . . . . . . . . . . . . . . . . . 12 Section 3.03. Liquidation . . . . . . . . . . . . . . . . . 13 Section 3.04. Late Payment Distribution . . . . . . . . . . ARTICLE IV RECEIPT AND DISTRIBUTION OF INCOME AND PROCEEDS FROM THE TRUST PROPERTY Section 4.01. Receipt of Lease Payments; Collection of Lease and Lease Guaranty Payments; Collection of Mortgage Loan Payments; Collection of Indemnity Agreement Payments; Investment Direction . . . . . . . . 14 Section 4.02. Establishment of Rental Payment Account[s]; Deposits in Rental Payment Account[s]. . . . . 16 Section 4.03. Permitted Withdrawals From the Rental Payment Account[s] . . . . . . . . . . . . . . . . . . 16 Section 4.04. Establishment of Mortgage Note Account[s]; Deposits in Mortgage Note Account[s]. . . . . 18 Section 4.05. Permitted Withdrawals From the Mortgage Note Account[s] . . . . . . . . . . . . . . . . . . 18 Section 4.06. Capitalized Debt Service Account[s]. . . . . . 20 Section 4.07. Realization Upon Defaulted Mortgage Loan . . . 20 Section 4.08. Trustee Compensation . . . . . . . . . . . . . 22 Section 4.09. Rights of the Pass-Through Trustees. . . . . . 22 ARTICLE V ADVANCES BY TRUSTEE Section 5.01. Advances by Trustee. . . . . . . . . . . . . . 22 ARTICLE VI THE DEPOSITOR Section 6.01. Maintaining Corporate Existence of the Depositor. . . . . . . . . . . . . . . . . . . 22 Section 6.02. Limitation on Liability of the Depositor . . . 23
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ARTICLE VII DEFAULT Section 7.01. Events of Default. . . . . . . . . . . . . . . 23 Section 7.02. Waiver of Defaults. . . . . . . . . . . . . . 24 Section 7.03. Notification to Pass-Through Trustees. . . . . 24 Section 7.04. Rights of Pass-Through Trustees to Direct Proceedings. . . . . . . . . . . . . . . . . . 24 Section 7.05. Remedies Cumulative. . . . . . . . . . . . . . 25 Section 7.06. Trustee Default. . . . . . . . . . . . . . . . 25 Section 7.07. Notice to Tenant[s] [and Kmart]. . . . . . . . 25 ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01. Duties of Trustee. . . . . . . . . . . . . . . 25 Section 8.02. Certain Matters Affecting Trustee. . . . . . . 27 Section 8.03. Trustee Not Liable for Certificates or Mortgage Loan[s]. . . . . . . . . . . . . . . . . . . 28 Section 8.04. Trustee May Own Certificates. . . . . . . . . 28 Section 8.05. Trustee's Fee and Expenses. . . . . . . . . . 28 Section 8.06. Action by Co-Trustee. . . . . . . . . . . . . 29 Section 8.07. Eligibility Requirements for Trustee. . . . . 29 Section 8.08. Resignation and Removal of Trustee. . . . . . 30 Section 8.09. Successor Trustee. . . . . . . . . . . . . . . 31 Section 8.10. Merger or Consolidation of Trustee. . . . . . 31 Section 8.11. Resignation of Co-Trustee. . . . . . . . . . . 31 Section 8.12. Removal of Co-Trustee. . . . . . . . . . . . . 31 Section 8.13. Appointment of Successor to Co-Trustee. . . . 32 Section 8.14. Succession of Successor to Co-Trustee. . . . . 32 ARTICLE IX TERMINATION Section 9.01. Termination. . . . . . . . . . . . . . . . . . 32 ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT AND OTHER DOCUMENTS; ADDITIONAL AGREEMENTS OF TRUSTEE Section 10.01. Supplemental Trust Agreement Without Consent of Pass-Through Trustees. . . . . . . . . . . 33 Section 10.02. Supplemental Agreements With Consent of Pass- Through Trustees. . . . . . . . . . . . . . . 34 Section 10.03. Effect of Supplemental Agreement. . . . . . . 35 Section 10.04. Documents to Be Given to Trustee. . . . . . . 36 Section 10.05. Granting of Easements . . . . . . . . . . . . 36 ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Severability of Provisions. . . . . . . . . . 36 Section 11.02. Recordation of Agreement. . . . . . . . . . . 36
ii 4 Section 11.03. Duration of Agreement . . . . . . . . . . . . 36 Section 11.04. Governing Law . . . . . . . . . . . . . . . . 36 Section 11.05. Notices. . . . . . . . . . . . . . . . . . . 36 Section 11.06. Counterparts. . . . . . . . . . . . . . . . . 37 Section 11.07. Submission to Jurisdiction. . . . . . . . . . 37 Section 11.08. Gender; Number. . . . . . . . . . . . . . . . 38 Section 11.09. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . 38 Section 11.10. Statements Required in Certificate or Opinion 38 Section 11.11. Benefits of Trust Agreement. . . . . . . . . 38 EXHIBIT A-1 MORTGAGE NOTE SCHEDULE EXHIBIT A-3 CONTENTS OF MORTGAGE FILE EXHIBIT A-4 CAPITALIZED DEBT SERVICE ACCOUNT SCHEDULE EXHIBIT C FORM OF TRUSTEE CERTIFICATION
iii 5 ___________________ COLLATERAL TRUST AGREEMENT ___________________ THIS COLLATERAL TRUST AGREEMENT, dated as of _______ __, 19__, is executed by and among NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation, as depositor (together with its permitted successors, in such capacity, "Depositor"), and UNITED STATES TRUST COMPANY OF NEW YORK a New York, banking corporation as trustee (together with its permitted successors and assigns, "Trustee"). In consideration of the premises and the mutual agreements hereinafter set forth, the Depositor and the Trustee agree as follows: ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. Whenever used herein, the following words and phrases, unless the context otherwise requires, shall have the following meanings: "Additional Rent": [With respect to each Lease] has the meaning assigned in Article 5 of [the] [such] Lease. "Administrative Expenses": The ordinary and necessary expenses incurred by the Trustee in the course of administering the affairs of the Trust, excluding any Liquidation Expenses. "Annual Rental": [With respect to each Lease,] has the meaning assigned in Article 4 of [the][such] Lease. "Assignment of Mortgage[s]": The Assignment of the Mortgage[s] dated as of _______ __, 19__ between Depositor and Trustee, the Assignment of Lease Assignment[s] dated as of ______ __, 19__, between Depositor and Trustee, and any other notice of transfer or equivalent instrument, in recordable form, sufficient under the laws of the jurisdiction[s] where the Mortgaged Estate securing [each] [the] Mortgage Loan is located to reflect of record the sale, conveyance, transfer and absolute assignment of the Mortgage[s] to the Trustee. "Borrower" [The][A] Borrower identified in [the][a] Loan Agreement. "Business Day": Any day other than (i) a Saturday or Sunday, or (ii) a day on which banking or savings and loan institutions in New York or California, or the city in which the principal corporate trust offices of any successor Trustee are located, are authorized or obligated by law or executive order to be closed. 6 "Called Principal Percentage": With respect to any Mortgage Note, has the meaning assigned to it in Section 2 of the related Loan Agreement. [Capitalized Debt Service Account": [The] [Each] trust account described in Section 4.06.] ["Capitalized Debt Service Reserve": Has the meaning assigned thereto in Section 2 of [the] [each] Loan Agreement.] "Certificate" or "Certificates": The Certificate or Certificates evidencing a beneficial ownership interest in a Pass-Through Trust Property executed and authenticated by a Pass-Through Trustee. "Certificate Account": The trust account described in Section 4.03 of each Pass-Through Trust Agreement. "Certificate Balance": With respect to all the Certificates, the original principal amount of the Certificates less all payments and prepayments of principal thereof, including without limitation any payments of principal comprising Debt Service; and with respect to any Certificate, the original principal amount of such Certificate less all payments and prepayments of principal thereof, including without limitation any payments of principal comprising Debt Service on such Certificate. "Certificateholder," "Certificateholders," "Holder" or "Holders": The person or persons in whose name a Certificate is registered in a Certificate Register, except that, solely for the purposes of voting Certificates to direct a Pass-Through Trustee with respect to any consent, waiver, request or demand pursuant to this Trust Agreement or pursuant to any Pass-Through Trust Agreement, any Certificate registered in the name of the Depositor, [Kmart,] a Tenant, a Borrower, any successor owner or ground lessee of a Project, any successor tenant or subtenant of a Project, any successor guarantor of the performance of a Tenant or successor tenant, or any affiliate of any of the foregoing, shall be deemed not to be outstanding. "Certificate Register": A register maintained pursuant to Section 3.02 of each Pass-Through Trust Agreement. "Closing Costs": An amount equal to $_____________ which shall be disbursed to the Underwriters on the Closing Date. "Closing Date": _______ __, 199_. "Code": The Internal Revenue Code of 1986, as amended. "Condemnation Proceeds": Any awards in respect of, or settlements in lieu of, condemnation proceedings affecting [the] [a] Mortgaged Estate. 2 7 "Consent and Agreement": [A] [The] Consent and Agreement among [Kmart,] Depositor, [a] Borrower, [a] Tenant and Trustee relating to [a] [the] Lease, [[a] [the] Lease Guaranty,] [a] [the] Note Put Agreement and certain other related matters. "Corporate Trust Office": The office of the Trustee in the State of California at which at any particular time its corporate trust business shall be administered, which office at the date of execution of this instrument is located at Suite 2700, 555 South Flower Street, Los Angeles, California 90071. "Debt Service": The interest or interest and principal payable semiannually on the Remittance Date as stated on a specific Certificate, as adjusted from time to time as provided in Section 3.01(g) of the related Pass-Through Trust Agreement. "Depositor": National Tenant Finance Corporation, a Delaware corporation and its successors in interest. "Determination Date": The last Business Day immediately preceding a Remittance Date. "Due Date": [With respect to each Mortgage Note,] a Note Payment Date as defined in the [related] Loan Agreement. "Eligible Investments": One or more of the following: (i) direct obligations of the United States of America; (ii) obligations fully guaranteed, both as to principal and interest, by the United States of America; (iii) certificates of deposit issued by, or bankers' acceptances of, or time deposits with, a bank or trust company organized under the laws of the United States or any state thereof, having capital, surplus and undivided profits aggregating at least $100,000,000 and whose long-term certificates of deposit are, at the time of acquisition thereof, rated in the highest rating category for such securities by S&P and Moody's; and (iv) taxable government money-market portfolios restricted to obligations with maturities of one year or less, issued or guaranteed by the full faith and credit of the United States which, at the time of such investment, are then rated in the highest rating category of S&P and Moody's (the "highest rating category" as used in this definition shall mean (A) a rating which would be assigned by S&P, as of the date first above written, equivalent to or higher than "AAAm" or "AAAmG" with respect to money-market securities and (B) a rating which would be assigned by Moody's as of the date first above written, equivalent to or higher than "Am" with respect to money-market securities); provided that any such obligations of the types described in clauses (i) through (iv) above shall not have a maturity later than 3 8 the earlier of 90 days and the Due Date immediately following the acquisition thereof; provided further, that any such obligations of the types described in clauses (i) and (ii) above may be made through a repurchase agreement in commercially reasonable form with a bank or other financial institution (which may be the Trustee or any Pass-Through Trustee) the senior unsecured debt of which is then assigned an A rating or better by S&P or Moody's, so long as title to the underlying obligations shall pass to the Trustee and that such underlying obligations shall be segregated in a custodial or trust account of or for the benefit of the Trustee. "ERISA": The Employee Retirement Income Security Act of 1974, as amended. "Event of Default": Any event of default described in Section 7.01. "Exchange Act": The Securities Exchange Act of 1934, as amended. "Extraordinary Expense Advances": All reasonable and necessary "out-of-pocket" costs and expenses of the Trustee or any Pass-Through Trustee in enforcing the Mortgage Notes and the Loan Documents following an Event of Default under Section 7.01(c) hereof (except for a Non-Monetary Tenant Default), and in compliance with the obligations of the Trustee under Section 4.07. "FDIC": Federal Deposit Insurance Corporation or any successor organization. ["Indemnity Agreement": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.1 of the [related] Loan Agreement.] "Insurance Proceeds": Proceeds paid by any insurer pursuant to any insurance policy, including but not limited to title insurance, environmental insurance and self-insurance proceeds paid by Kmart or any Tenant, covering all or a portion of [the] [a] Mortgaged Estate. "Kmart": Kmart Corporation, a Michigan corporation, and its successors and assigns. "Lease": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.1 of the [related] Loan Agreement. ["Lease Guaranty": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.1 of the [related] Loan Agreement.] "Liquidated Mortgage Loan": [A] [The] Mortgage Loan after an Event of Default under the [related] Loan Agreement when the Trustee has reasonably determined that all amounts which it expects 4 9 to recover from or on account of such Mortgage Loan have been recovered. "Liquidation Expenses": Expenses which are incurred by the Trustee in connection with the liquidation of a defaulted Mortgage Loan, such expenses including, without limitation, legal fees and expenses, any unreimbursed amount expended by the Trustee pursuant to Section 4.07 (to the extent such amount is reimbursable under the terms of Section 4.07) respecting such Mortgage Loan and any related and unreimbursed expenditures for real estate property taxes or for property restoration or preservation. "Liquidation Proceeds": Cash (including Insurance Proceeds and Condemnation Proceeds) received by the Trustee in connection with the liquidation of [a] [the] defaulted Mortgage Loan, whether through the sale of such defaulted Mortgage Loan, the sale of the Mortgaged Estate securing such defaulted Mortgage Loan pursuant to foreclosure sale or otherwise, or revenues from or the sale of the related Mortgaged Estate if such Mortgaged Estate is acquired in satisfaction of such defaulted Mortgage Loan, other than amounts required to be paid to the Borrower pursuant to law or the terms of the related Mortgage Note. "Loan Agreement": [With respect to each Mortgage Note,] the [related] Loan Agreement between Depositor and [a] Borrower, pursuant to the terms and conditions of which the [related] Mortgage Loan was made. "Loan Documents": [With respect to each Mortgage Loan,] the [related] Note Put Agreement, the [related] Loan Agreement, the [related] Mortgage and each document in the Mortgage File [pertaining to such Mortgage Loan], and each other document which constitutes a Loan Document pursuant to the terms and provisions of [such] [the] Loan Agreement. "Make-Whole Premium": [With respect to each Mortgage Note,] has the meaning assigned to it in Section 2 of the [related] Loan Agreement. The Trustee shall be provided with a certificate evidencing the calculation of such amount by the Depositor. "Moody's": Moody's Investors Service, Inc., a Delaware corporation, its successors and assigns. "Mortgage": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.2 of the [related] Loan Agreement. "Mortgage File": The items referred to in Exhibit A-3 annexed hereto pertaining to the Mortgage Loan[s]. "Mortgage Loan": The loan pursuant to [a] [the] Loan Agreement together with all right, title and interest of Depositor relating thereto, evidenced by the [related] Mortgage Notes and secured by the [related] Mortgage. 5 10 "Mortgage Note": A promissory note, executed by [a] [the] Borrower as obligor and having [a] [the] maturity date and Mortgage Note rate specified in the Mortgage Note Schedule, secured by [a] [the] Mortgage, which Mortgage Note was sold, conveyed, transferred and absolutely assigned by the Depositor to a Pass-Through Trustee and which is the subject of the related Pass-Through Trust Agreement and included in the related Pass-Through Trust Property. "Mortgage Note Account": [The] [Each] trust account described in Section 4.04. "Mortgage Note Payments": The scheduled payments set forth in Exhibit A-1 of interest or principal and interest on the Mortgage Notes. "Mortgage Note Schedule": The schedule attached hereto as Exhibit A-1 setting forth the following information for the Mortgage Notes: (i) [each] [the] Borrower's name; (ii) the Mortgaged Estate[s]; (iii) the maturity dates; (iv) each Mortgage Note rate; (v) the first Due Date; (vi) a schedule setting forth the Mortgage Note Payments; and (vii) the original Principal Balance of each Mortgage Note. "Mortgaged Estate": [With respect to each Mortgage Note,] the real and personal property securing [such] [the] Mortgage Note[s]. "Net Liquidation Proceeds": Liquidation Proceeds net of Liquidation Expenses. "Non-Monetary Tenant Default": [With respect to a Lease,] any default under [such] [the] Lease by the [related] Tenant other than a default in the payment of Annual Rental or Additional Rent. "Note Put Agreement": [With respect to each Loan Agreement,] the Note Put Agreement by and between Depositor, [and] the [related] Tenant, [and Kmart] pursuant to the terms and conditions of which a put of [such] [the] Mortgage Notes may be made on the occurrence of certain events specified therein. "Officer's Certificate": A certificate signed by the Chairman of the Board, the Chief Executive Officer, the President or a Vice President, the Treasurer or the Secretary or one of the Assistant Treasurers or Assistant Secretaries or any other duly authorized officer of the Depositor and delivered to the Trustee containing the information required by Sections 11.09 and 11.10. [Option Agreement": An option granted by [a][the] Borrower to [a][the] Tenant permitting such Tenant to acquire the [related] Project in the event Borrower does not perform its obligations under the [related] Lease and the [related] Construction Fund Disbursement Agreement.] "Opinion of Counsel": An opinion in writing signed by legal counsel who may be an employee of or counsel to the Depositor in 6 11 form and substance acceptable to the Trustee containing the information required by Sections 11.09 and 11.10. "Pass-Through Trust": A grantor trust created pursuant to a Pass-Through Trust Agreement. "Pass-Through Trust Administrative Expenses": The ordinary and necessary expenses incurred in the course of administering the affairs of a Pass-Through Trust. "Pass-Through Trust Agreement": A Pass-Through Trust Agreement dated the date hereof between the Pass-Through Trustee and the Depositor, together with all amendments thereof and supplements thereto. "Pass-Through Trust Property": With respect to each Pass-Through Trust, the corpus of such Pass-Through Trust, to the extent described therein, consisting of the Mortgage Note[s] held by such Pass-Through Trust, such assets as shall from time to time be identified as deposited in the Certificate Account (including the investment income thereon) of such Pass-Through Trust, and any funds advanced by the Certificateholders of a Pass-Through Trust to the related Pass-Through Trustee or otherwise held by such Pass-Through Trustee in accordance with the provisions of the related Pass-Through Trust Agreement. "Pass-Through Trustee": With respect to each Pass-Through Trust Agreement, the U.S. Trust Company of California, N.A., and its permitted successors and assigns thereunder. "Pass-Through Trustee's Fees": The amount of annual fee paid to each Pass-Through Trustee for its ordinary fees and expenses arising under a Pass-Through Trust Agreement, equal to $________. "Percentage Interest": [With respect to the Mortgage Notes issued under a Loan Agreement] the sum of the percentages of the aggregate outstanding principal balance of [such] [the] Mortgage Notes which is voted by the Pass-Through Trustees with respect to any matter. The percentage of such Mortgage Notes voted by a Pass-Through Trustee shall be determined by dividing (i) the product of (a) the outstanding principal balance of such Mortgage Notes held by such Pass-Through Trustee, times (b) the Percentage Interests (as defined in such Pass-Through Trust Agreement) represented by the Certificateholders of such Pass-Through Trust which have directed such Pass-Through Trustee to vote on any particular matter or 100% if the Pass-Through Trustee is voting in its own discretion, by (ii) the aggregate outstanding principal balance of such Mortgage Notes. "Permitted Encumbrances": The Permitted Encumbrances as defined in [each] [the] Mortgage. "Person": Any individual, corporation, partnership, joint venture, association, joint-stock company, trust, limited liability 7 12 company, unincorporated organization or government or any agency or political subdivision thereof. "Pledge Agreement": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.2 of the [related] Loan Agreement. "Principal Balance": The outstanding principal balance of a Mortgage Note as of any specified date. "Principal Prepayment": Any payment or other recovery of principal on a Mortgage Note (other than monthly receipt of amounts referred to in Section 4.01(a)), including any prepayment of principal pursuant to Section 3 of the [related] Loan Agreement, Insurance Proceeds and Condemnation Proceeds to the extent required to be deposited in the Certificate Accounts, and Liquidation Proceeds, which is received in advance of its scheduled Due Date. "Project": [A] [The] facility comprised of a retail store [constructed by [a] Borrower [and [a] Tenant]] for lease by [a] [such] Tenant on real property [which will be [acquired by] [owned by] [a] [such] Borrower and] [upon which such facility will be constructed on behalf of [such] Borrower] using the proceeds of [a] [the] Mortgage Loan. "Purchase Price": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 2.1 of the [related] Note Put Agreement. "Put": The right to require purchase of a Mortgage Note by [a] [the] Tenant and Kmart pursuant to the [related] Note Put Agreement. "Rating Agency": Any nationally recognized statistical rating agency, or its successor, that rated the Certificates at the request of the Depositor at the time of the initial issuance of the Certificates. If such agency or a successor is no longer in existence, "Rating Agency" shall be such nationally recognized statistical rating agency, or other comparable Person, designated by the Depositor, notice of which designation shall be given to the Trustee. References herein to the highest rating category of a Rating Agency shall mean AAA or better in the case of S&P and Aaa or better in the case of Moody's and in the case of any other Rating Agency shall mean a rating equivalent to such ratings. "Record Date": The close of business on the fifteenth day preceding the related Remittance Date, except with respect to a distribution pursuant to Section 3.01(f) of a Pass-Through Trust Agreement, in which case the Record Date is the close of business on the fifteenth day prior to the Remittance Date on which the related Mortgage Note Payment would, pursuant to the terms of the related Pass-Through Trust Agreement, have been distributable to the related Certificateholders had such Mortgage Note Payment been paid in full in a timely manner. 8 13 "Redemption Price": [With respect to each Mortgage Note,] has the meaning assigned thereto in Section 1.2 of the [related] Loan Agreement. "Remittance Date": With respect to the Certificates, an interest or a principal and interest payment date of ________ 1, 19__, and the first Business Day of each ________ and ____ thereafter until _____ 1, ____, or the payment of the unpaid principal balance in full, or such other date when a distribution is made pursuant to Section 3.01(c), 3.01(d), 3.01(e) or 3.01(f) of a Pass-Through Trust Agreement. "Rental Payment Account": [The] [Each] trust account described in Section 4.02. "Responsible Officer": When used with respect to the Trustee, the Chairman or Vice Chairman of the Board of Directors of the Trustee, the Chairman or Vice Chairman of the Executive or Standing Committee of the Board of Directors of the Trustee, the President, the Chairman of the Committee on Trust Matters, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, the Cashier, any Assistant Cashier, any Trust Officer or Assistant Trust Officer, the Controller and any Assistant Controller or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also, with respect to a particular matter, any other officer to whom such matter is referred because of such officer's knowledge of and familiarity with the particular subject. ["Second Mortgage": A Mortgage, Security Agreement and Assignment of Rents from [a] [the] Borrower to [a] [the] Tenant which grants a lien subordinate to the [related] Mortgage on [a] [the] Project to secure such Borrower's performance under the [related] Lease and under the [related] Construction Fund Disbursement Agreement.] "S & P": Standard & Poor's Ratings Group, a _________________________ corporation, its successor and assigns. "Termination Premium": [With respect to each Mortgage Note,] has the meaning assigned to it in Section 2 of the [related] Note Put Agreement. "Tenant" or "Tenants": [Kmart and] ___________, _____________ or [____________,] [each of] which is a subsidiary of Kmart and which has entered into [the] [a] Lease with [a] [the] Borrower to occupy a Project. "Treasury Regulations": The Treasury Regulations, including proposed, temporary and final regulations promulgated under the provisions of the Code. 9 14 "Trust": The trust created pursuant to this Trust Agreement. "Trust Agreement": This Trust Agreement and all amendments hereof and supplements hereto. "Trustee": United States Trust Company of New York, and its permitted successors hereunder. "Trustee's Fee": The amount of the annual fee paid to the Trustee for its Administrative Expenses, equal to $_____, payable by the Tenant[s] pursuant to the Consent and Agreement[s]. "Trust Property": The corpus of the Trust, to the extent described herein, consisting of all Loan Documents, property which secures the Mortgage Loan[s] and which has been acquired by foreclosure or deed in lieu of foreclosure (prior to its disposition) and Insurance Proceeds, Condemnation Proceeds and any other amounts receivable under the Loan Documents, and any funds advanced by the Certificateholders to Trustee or otherwise held by Trustee in accordance with the provisions hereof. "Underwriters": The several underwriters named in the Underwriting Agreement. "Underwriting Agreement": The Underwriting Agreement dated ________ __, 19__, between Kmart, the Depositor and Sutro & Co. Incorporated [on behalf of itself and the several underwriters named therein]. ARTICLE II CONVEYANCE OF TRUST PROPERTY Section 2.01. Conveyance of Trust Property. As grantor of the Trust and the Pass-Through Trusts, the Depositor, concurrently with the execution and delivery hereof, does hereby sell, transfer, set over, convey and absolutely assign to the Trustee for the benefit of the Pass-Through Trustees as holders of the Mortgage Notes without recourse (except as provided herein) in trust intending to establish the Trust, all right, title and interest of the Depositor in and to all Loan Documents. The ownership of the Trust Property is vested in the Trustee without reservation of any right, title or interest whatsoever in the Depositor. The Depositor intends that the sale, conveyance, transfer and absolute assignment of the Depositor's right, title and interest in and to the Trust Property pursuant to this Trust Agreement shall constitute a purchase and sale and not a pledge of security for a loan. However, if for any reason such conveyance is deemed not to be a sale, the Depositor intends that the rights and obligations of the parties shall nevertheless be established pursuant to the terms of this Trust Agreement and that the Depositor shall be deemed to have granted to the Trustee a first priority security interest in all of the Depositor's right, title 10 15 and interest in, to and under the Trust Property, and that this Trust Agreement shall constitute a security agreement under applicable law. The Trustee is holding the Trust Property on behalf of and for the benefit of the Pass-Through Trustees as holders of the Mortgage Notes. Any funds the Trustee collects hereunder, except such amounts as are to be paid to the Trustee as provided herein, are collected and held on behalf of and for the benefit of the Pass-Through Trustees as holders of the Mortgage Notes. Section 2.02. Acceptance by Trustee. The Trustee acknowledges receipt of the documents referred to in Section 2.01, subject to any exceptions noted in a certificate of the Trustee delivered within 30 days after the Closing Date, and declares that it holds and will hold such documents delivered to it in trust for the use and benefit of all present and future holders of the Mortgage Notes. The Trustee agrees, for the benefit of the Pass-Through Trustees as holders of the Mortgage Notes, to review within 30 days after the Closing Date each of the documents described in Section 2.01 delivered to it to ascertain that all required documents have been executed and received, and that such documents relate to the Mortgage Notes identified in the Mortgage Note Schedule, as supplemented, that have been sold, conveyed, transferred and absolutely assigned to the Pass-Through Trustees. If the Trustee finds any document or documents constituting a part of the documents described in Section 2.01 to be missing, mutilated, damaged, defaced, incomplete, improperly dated, clearly forged or otherwise physically altered in any material respect, the Trustee shall promptly (and in any event within no more than five Business Days after such discovery) so notify the Depositor. At the conclusion of such review, the Trustee shall also notify the Depositor if, in examining such documents, or through any other means, the Trustee had notice or knowledge (a) of any adverse claim, lien or encumbrance against [any] [the] Mortgage Loan or [any] [the] related Mortgaged Estate, (b) that any Mortgage Note was overdue or had been dishonored, (c) of evidence on the face of any Mortgage Note or Mortgage of any security interest or other right or interest therein, or (d) of any defense against or claim to any Mortgage Note by any party. The Depositor shall correct such omission or other irregularity referred to above within 90 days from receipt of such notice from the Trustee. The Trustee shall review the documents referred to in Section 2.01 only for the purpose set forth above in this Section 2.02 and the Trustee shall be under no duty or obligation to inspect, review or examine any such documents, instruments, certificates or other papers to determine that they are genuine, enforceable or appropriate for the represented purpose or that they have actually been recorded or that they are other than what they purport to be on their face. Within thirty (30) days of the Closing Date, the Trustee shall deliver to the Depositor, Kmart and the Pass-Through Trustees the Trustee's Certification substantially in the form attached hereto as Exhibit C. 11 16 Section 2.03. Trust Property. The Trustee acknowledges that it holds the Trust Property conveyed pursuant to this Trust Agreement in trust for the use and benefit of all present and future holders of the Mortgage Notes. Section 2.04. Limitation of Powers. The Trust is constituted solely for the purpose of holding the Trust Property for the benefit of the Pass-Through Trustees as holders of the Mortgage Notes, and, except as set forth herein, the Trustee is not authorized or empowered to acquire any other investments or engage in any other activities. ARTICLE III THE MORTGAGE NOTES Section 3.01. Prepayment. In the event of a prepayment of a Mortgage Note pursuant to Section 3 of the Loan Agreement, upon receipt by Trustee of the amount of such prepayment, Trustee shall deposit such amount in the [related] Mortgage Note Account and shall on the next Business Day following such receipt pay such sum to the Pass-Through Trustee holding such Mortgage Note for deposit into the Certificate Account of the related Pass-Through Trust. Any Condemnation Proceeds or Insurance Proceeds received by the Trustee pursuant to Section 3.3 of the Loan Agreement shall be allocated to each [related] Mortgage Note based upon a fraction, calculated as of immediately prior to the Prepayment Date, the numerator of which shall be the outstanding principal balance of such Mortgage Note plus accrued interest thereon plus the Make-Whole Premium related thereto and the denominator of which shall be the aggregate outstanding principal balance of all [related] Mortgage Notes, plus the aggregate accrued interest thereon plus the aggregate Make-Whole Premiums related thereto. For purposes of this Section, the term "Prepayment Date" shall mean the effective date of the termination of the [related] Lease or of the abatement of the Annual Rental of such Lease, as applicable. Section 3.02. Note Put. The Trustee shall notify the Pass-Through Trustees of the occurrence of any Triggering Event (as defined in [a] [the] Note Put Agreement) known to the Trustee within two (2) Business Days after obtaining knowledge thereof. (a) Upon the occurrence of a Triggering Event, the Trustee, as provided in (b) below or upon the written direction of the Pass-Through Trustees voting Percentage Interests in the aggregate of not less than 66-2/3% of the related Mortgage Notes, shall (i) obtain the Mortgage Notes from the Pass-Through Trustees, (ii) exercise the Put in accordance with the terms and provisions of [such] [the] Note Put Agreement, (iii) designate the Purchase Date under and as defined in [such] [the] Note Put Agreement (which Purchase Date shall be not more than 35 Business Days after receipt of such direction) and, upon receipt of the Purchase Price from [the related] Tenant or Kmart, deposit such amount into the [related] Mortgage Note Account, and (iv) on the next Business Day following 12 17 such receipt, pay into the Certificate Account of each Pass-Through Trustee the Purchase Price received by the Trustee for the [related] Mortgage Note held by such Pass-Through Trust, less any reasonable costs and expenses incurred by the Trustee or the Pass-Through Trustees in connection with the exercise of the Put that have not otherwise been reimbursed. The payment of the Purchase Price to the Collateral Trustee as set forth herein and in the [related] Note Put Agreement shall satisfy in full [the related] Tenant's and Kmart's obligations under the [related] Note Put Agreement. Upon payment of the Purchase Price, the Trustee shall transfer all Loan Documents [related to the purchased Mortgage Notes] to the purchaser of such Mortgage Notes, and this Trust shall thereby terminate as to such Loan Documents. Upon execution and delivery of all documents reasonably necessary to assign the related Loan Documents to the purchaser of the Mortgage Notes, the Trustee shall have no further obligations with respect to such Loan Documents or such Mortgage Notes. (b) If the Triggering Event is a Lease Guaranty Termination, the Trustee shall exercise the [related] Put and take the other steps specified in (a) above unless the Trustee receives written direction from the Pass-Through Trustees voting Percentage Interests in the aggregate of not less than 66-2/3% of the related Mortgage Notes instructing the Trustee not to exercise such Put. Section 3.03. Liquidation. In the event of a liquidation of a Mortgage Loan by foreclosure or otherwise as a consequence of an Event of Default (not including a Put pursuant to the [related] Note Put Agreement), the Trustee shall, following receipt of any Net Liquidation Proceeds, deposit such amounts in the [related] Mortgage Note Account and shall on the next Business Day following such receipt distribute a portion of such amount to each Pass-Through Trustee holding a [related] Mortgage Note or rights with respect thereto. Any amounts received in connection with such a liquidation shall be allocated to each [related] Mortgage Note based upon a fraction, calculated as of immediately prior to the receipt by the Trustee of such amounts, the numerator of which shall be the Purchase Price of such Mortgage Note and the denominator of which shall be the aggregate Purchase Prices of such Mortgage Note and all [related] Mortgage Notes. Once a Mortgage Loan has become a Liquidated Mortgage Loan and all Net Liquidation Proceeds with respect to such Liquidated Mortgage Loan have been distributed to the Pass-Through Trustees, this Trust shall terminate with respect to such Liquidated Mortgage Loan and the [related] Loan Documents. Section 3.04 Late Payment Distribution. In the event that, due to unpaid Annual Rental, there are insufficient funds on any Due Date to pay the Mortgage Note Payments on a Mortgage Note and subsequent to such Due Date such Annual Rental or any Additional Rent with respect thereto is paid, the Trustee shall on the next Business Day following such receipt transfer to the Certificate Account of the Pass-Through Trustee holding such Mortgage Note such unpaid portion of such Mortgage Note Payments together with 13 18 interest on such overdue amount at the Overdue Rate (as defined in such Mortgage Note) to the extent received. ARTICLE IV RECEIPT AND DISTRIBUTION OF INCOME AND PROCEEDS FROM THE TRUST PROPERTY Section 4.01. Receipt of Lease Payments; Collection of Lease and Lease Guaranty Payments; Collection of Mortgage Loan Payments; Collection of Indemnity Agreement Payments; Investment Direction. (a) Pursuant to the Consent and Agreement[s], [each] Tenant under [the] [each] Lease will pay all Annual Rental and Additional Rent (except for Real Estate Taxes (as defined in the related Lease) and amounts payable directly to a third party pursuant to such Lease, which shall be payable in accordance with such Lease) payable by [each] Tenant under [the] [each] Lease directly to the Trustee. All such Annual Rental and Additional Rent received by Trustee shall be deposited by the Trustee in the Rental Payment Account as described in Section 4.02 hereof, invested in Eligible Investments in accordance with Section 4.01(d) of this Trust Agreement, and applied in accordance with Section 4.03 hereof; provided that, subsequent to the Trustee becoming aware of the occurrence of an Event of Default pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), and during the time such Event of Default continues without being cured or waived, all Annual Rental and Additional Rent [from the related Lease] received by Trustee shall be deemed received pursuant to the Assignment of Leases and Rents and shall be deposited by the Trustee in the Mortgage Note Account as described in Section 4.04 hereof, shall be invested in accordance with Section 4.01(d) hereof, and shall be applied in accordance with Section 4.05 hereof. (b) In the event the Trustee does not receive any monthly installment of Annual Rental on the date set forth in [the] [each] Lease, taking into account any grace period provided for therein, the Trustee is hereby directed to and the Trustee, shall notify the [related] Borrower (as landlord), the [related] Tenant [and Kmart] in writing regarding [the] [such] Tenant's failure to make such timely payment. In the event the Trustee does not receive the monthly installment of Annual Rental within [five] Business Days of giving such written notice, the Trustee, at the written direction of the Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the related Mortgage Notes, shall use its best efforts to enforce the provisions of [the] [such] Lease [and [the related] Lease Guaranty] by exercising all of the remedies available to it at law and in equity, including, but not limited to, the remedies available under [the] [such] Lease [and [the] [such] Lease Guaranty,] provided that the Trustee shall give notice of intent to terminate or take action to terminate [the] [such] Lease only at the written direction of the Pass-Through Trustees voting Percentage Interests aggregating not 14 19 less than 66-2/3% of the related Mortgage Notes to take such action. No later than two Business Days prior to any Due Date, the Trustee shall advise each Pass-Through Trustee if there are insufficient funds in the Rental Payment Account[s] and Mortgage Note Account[s] to pay the Mortgage Note Payments due on such Due Date. (c) Continuously from the date hereof until the principal of, and interest on, the Mortgage Loan[s] are paid in full, the Trustee will use reasonable best efforts to collect all payments due under the Mortgage Loan[s] when the same shall become due and payable. The Trustee shall also review any official receipts from any taxing authority provided to it pursuant to Section 1.08(c) of the Mortgage[s] to monitor payment of Impositions (as defined in the Mortgage[s]). [The Trustee also shall use its best efforts to collect any amount that becomes due pursuant to [the] [an] Indemnity Agreement. Any amounts collected by the Trustee pursuant to [the] [an] Indemnity Agreement shall be deposited in the [related] Rental Payment Account, provided that during any period when the proviso of Section 4.01 applies to the [related] Annual Rental and Additional Rent, any amounts received under the [related] Indemnity Agreement shall be deposited in the Mortgage Note Account and applied in accordance with Section 4.05 hereof.] (d)(i) Funds in [the] [each] Rental Payment Account and [the] [each] Capitalized Debt Service Account shall be invested in Eligible Investments at the written direction of the Borrower [on whose behalf such accounts have been established]. Funds in the Mortgage Note Account shall be invested by the Trustee in Eligible Investments described in subparagraph (i), (ii) or (iv) of the definition thereof (or in the further proviso at the end of such definition). All such investments shall mature on or prior to the next succeeding Determination Date and in no event shall be invested in obligations maturing later than 90 days from the investment date. The risk of investment loss with respect to funds in [the] [each] Rental Payment Account and [the] [each] Capitalized Debt Service Account shall be borne by the Borrower [on whose behalf such accounts have been established]. The risk of investment loss with respect to funds in the Mortgage Note Account shall be borne by the Pass-Through Trustees as holders of the Mortgage Notes. On or after the Due Date and prior to the next succeeding Determination Date, the Trustee shall be prohibited from selling or transferring Eligible Investments prior to maturity unless and until a default shall have occurred under [a] [the] Mortgage Note. In the event the Trustee shall not have received at least twenty-four hours' written notice as to any investment direction from [the] [a] Borrower upon the maturity of an existing investment, the Trustee shall be authorized to invest maturing amounts in Eligible Investments described in subparagraph (iv) of the definition thereof (or in the further proviso at the end of such definition) until further directed in writing as to investments of such amounts. Investment earnings and losses on any Eligible Investment shall be deposited to or charged to the account in which the funds used for any such Eligible Investment were deposited. The Trustee shall have no responsibility for any loss on any Eligible Investments. 15 20 (ii) If an Event of Default occurs under the Mortgage Notes or the Loan Documents [with respect to a Mortgage Loan], the Borrower [of such Mortgage Loan] shall be prohibited from directing investments as contemplated above and the Trustee shall invest in Eligible Investments described in subparagraph (i), (ii) or (iv) of the definition thereof (or in the further proviso at the end of such definition) until such Event of Default is cured. Section 4.02. Establishment of Rental Payment Account[s]; Deposits in Rental Payment Account[s]. The Depositor (on behalf of [the] [each] Borrower) hereby establishes [the] [a separate] Rental Payment Account with the Trustee. [This] [Each such] account shall be maintained as a fund separate and distinct from other accounts [(including other Rental Payment Accounts)] created under this Trust Agreement. Prior to an Event of Default with respect to such Borrower's Mortgage Loan pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), [the] [each such] Rental Payment Account shall remain the property of the Borrower [on whose behalf such Rental Payment Account was established], subject to the rights of the Trustee under Section 4.03 of this Trust Agreement and under [the] [such Borrower's] Pledge Agreement. The Trustee shall cause to be deposited in [the] [such] Rental Payment Account and retained therein: (a) All payments (including Annual Rental and Additional Rent) received pursuant to the terms of the [related] Lease [and Lease Guaranty,] (other than Insurance Proceeds and Condemnation Proceeds) and pursuant to the terms of the [related] Indemnity Agreement, subject to the proviso in Section 4.01(a); (b) Subject to the provisions of the [related] Lease, all Insurance Proceeds received pursuant to Section 17 of [the] [such] Lease in excess of the amounts required to make the mandatory prepayment of the [related] Mortgage Notes pursuant to Section 3.3 of the [related] Loan Agreement; (c) Subject to the provisions of the [related] Lease, all Condemnation Proceeds received pursuant to Section 18(g) of [the] [such] Lease in excess of the amounts required to make the mandatory prepayment of the [related] Mortgage Notes pursuant to Section 3.3 of the [related] Loan Agreement; and (d) All earnings (or losses) on funds held in [the] [such] Rental Payment Account derived from Eligible Investments. The foregoing requirements for deposit in the Rental Payment Account[s] shall be exclusive. Section 4.03. Permitted Withdrawals From the Rental Payment Account[s]. The Trustee shall cause the withdrawal of funds from [the] [a] Rental Payment Account for the following purposes and in the following order of priority: 16 21 (a) upon the occurrence of an Event of Default [with respect to a Borrower's Mortgage Loan] pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), to transfer to the Mortgage Note Account [related to such Mortgage Loan] all amounts in the Rental Payment Account [related to such Mortgage Loan] and to apply such amounts pursuant to the provisions of Section 4.05 hereof; (b) to transfer to the Certificate Account of each Pass-Through Trust (i) on each Due Date an amount equal to the Mortgage Note Payment due and unpaid as of such Due Date on the related Mortgage Note held by such Pass-Through Trustee and (ii) on the next Business Day after receipt of any amounts distributable under Section 3.04. (c) to pay the Trustee and any Pass-Through Trustee for any amounts due pursuant to Section 3.06(d) of each Pass-Through Trust Agreement, for any unreimbursed Extraordinary Expense Advances required by [the related] Borrower's default pursuant to the [related] Mortgage Notes or the [related] Loan Documents, and for [such Borrower's ratable portion of] due and unpaid Trustee's Fees and Pass-Through Trustee's Fees, and to reimburse Trustee and any Pass-Through Trustee for any expenses, costs and liabilities for which they are entitled to reimbursement hereunder or under the [related] Mortgage Notes or the Loan Documents [related to such Borrower's Mortgage Loan]; prior to an Event of Default [with respect to such Borrower's Mortgage Loan] the Trustee's right to reimburse itself or a Pass-Through Trustee pursuant to this clause (c) with respect to [the] [such Borrower's] Mortgage Loan is limited to reimbursement for amounts due pursuant to Section 3.06(d) of each Pass-Through Trust Agreement; subsequent to an Event of Default [with respect to such Borrower's Mortgage Loan] pursuant to Section 7.01 hereof (except for a Non-Monetary Tenant Default), the Trustee shall have a prior lien for itself and on behalf of the Pass-Through Trustees, pari passu, on all moneys in [the] [such Borrower's] Rental Payment Account for payment or reimbursement of Extraordinary Expense Advances [related to such Mortgage Loan], [such Borrower's ratable portion of] due and unpaid Trustee's Fees and Pass-Through Trustee's Fees, and other amounts owed it or a Pass-Through Trustee and payable by [such] Borrower under any provision of the [related] Mortgage Notes or the [related] Loan Documents, provided, however, that so long as [(i) no default exists under the [related] Lease Guaranty, taking into account any grace period provided for therein, or (ii)] no direction has been given by the Pass-Through Trustees pursuant to Section 7.01 hereof and reflecting direction given to the Pass-Through Trustees by Certificateholders owning at least 66-2/3% of the outstanding principal balance of the Certificates to exercise rights or remedies under such Mortgage Notes or Loan Documents, the payments pursuant to Section 4.03(a) and (b) above shall be made by Trustee free and clear of such lien; (d) to disburse to [the related] Borrower any amounts remaining in the Rental Payment Account promptly following 17 22 the second scheduled Remittance Date after the Closing Date, and on each anniversary thereafter of such Remittance Date, after paying or providing for the payment or withdrawal of amounts described in clauses (a), (b) and (c) above. Section 4.04. Establishment of Mortgage Note Account[s]; Deposits in Mortgage Note Account[s]. The Trustee shall establish [the] [a separate] Mortgage Note Account [for each Mortgage Loan]. [This] [Each such] account shall be maintained as a fund separate and distinct from other accounts [(including other Mortgage Note Accounts)] created under this Trust Agreement. The Trustee shall cause to be deposited in [the] [such] Mortgage Note Account (upon receipt by the Trustee unless otherwise specified herein) and retained therein: (a) All amounts received pursuant to Sections 3.01 and 3.02 hereof [with respect to the related Mortgage Loan]. (b) Net Liquidation Proceeds; (c) Subject to the provisions of the [related] Lease, all Insurance Proceeds received pursuant to Section 17 of [the] [such] Lease not to exceed the amounts required to make the mandatory prepayment of the [related] Mortgage Notes pursuant to Section 3.3 of the [related] Loan Agreement; (d) Subject to the provisions of the [related] Lease, all Condemnation Proceeds pursuant to Sections 18(d) and 18(g) of [the] [such] Lease not to exceed the amounts required to make the mandatory prepayment of the [related] Mortgage Notes pursuant to Section 3.3 of the [related] Loan Agreement; (e) All earnings (or losses) on funds held in [the] [such] Mortgage Note Account derived from Eligible Investments; and (f) All amounts required to be deposited therein under Sections 4.01(a), [4.01(c),] [and] 4.03(a), [and 4.06.] The foregoing requirements for deposit in the Mortgage Note Account[s] shall be exclusive. Section 4.05. Permitted Withdrawals From the Mortgage Note Account[s]. The Trustee shall cause the withdrawal of funds from [the] [a] Mortgage Note Account for the following purposes and in the following order of priority (the transfers specified in (b) and (c) shall be made the next Business Day after receipt of such amounts by the Trustee): (a) to transfer to the Certificate Account of each Pass-Through Trust (i) on each Due Date an amount equal to the Mortgage Note Payment due and unpaid as of such Due Date on the related Mortgage Note held by such Pass-Through Trustee and (ii) on the next Business Day after receipt of any amounts in respect of overdue Mortgage Note Payments; provided, however, that the 18 23 foregoing shall not apply to amounts deposited in the Mortgage Note Account under Section 4.01(a), [4.01(c),] [or] 4.03(a) [or 4.06] if the maturity of the related Mortgage Loan has been accelerated pursuant to the terms of the related Loan Documents. Any amounts referred to in the proviso contained in the preceding sentence, together with the interest earned thereon, shall, after such acceleration, be held in the Mortgage Note Account until such time as they constitute Liquidation Proceeds, at which time the Net Liquidation Proceeds attributable thereto shall be disposed of as provided in Section 4.05(c)(i); (b) to transfer to the Certificate Account of each Pass-Through Trust the amounts required pursuant to Section 3.01 and 3.02 hereof; (c) to transfer to the Certificate Account of each Pass-Through Trust as holder of a related Mortgage note, such Mortgage Note's ratable portion of: (i) any [related] Net Liquidation Proceeds, (ii) any [related] Insurance Proceeds in [the] [such] Mortgage Note Account, subject to the provisions of the [related] Lease, and (iii) any [related] Condemnation Proceeds in [the] [such] Mortgage Note Account, subject to the provisions of the [related Lease]. (d) to pay the Trustee and any Pass-Through Trustee for any unreimbursed Extraordinary Expense Advances required by [the related] Borrower's default pursuant to the [related] Mortgage Notes or the [related] Loan Documents and for [such Borrower's ratable portion of] due and unpaid Trustee's Fees and Pass-Through Trustee's Fees, and to reimburse Trustee and any Pass-Through Trustee for any expenses, costs and liabilities for which they are entitled to reimbursement hereunder or under the [related] Mortgage Notes or the Loan Documents [related to such Borrower's Mortgage Loan]; subsequent to an Event of Default [with respect to such Borrower's Mortgage Loan] pursuant to Section 7.01 (except for a Non-Monetary Tenant Default), the Trustee shall have a prior lien for itself and on behalf of the Pass-Through Trustees, pari passu, on all moneys in the Mortgage Note Account [with respect to such Mortgage Loan] for payment or reimbursement of Extraordinary Expense Advances [related to such Mortgage Loan], [such Borrower's ratable portion of] due and unpaid Trustee's Fees and Pass-Through Trustee's Fees, and other amounts owed it or a Pass-Through Trustee and payable by [such] Borrower under any provision of the [related] Mortgage Notes or the [related] Loan Documents, provided, however, that so long as (i) no default exists under the [related] Lease Guaranty, taking into account any grace period provided for therein, or (ii) no direction has been given by the Pass-Through Trustees pursuant to Section 7.01 hereof and reflecting direction given to the Pass-Through Trustees by Certificateholders owning at 19 24 least 66-2/3% of the outstanding principal balance of the Certificates to exercise rights or remedies under such Mortgage Notes or Loan Documents, the payments pursuant to Section 4.05(a) and (b) above shall be made by Trustee free and clear of such lien; (e) to transfer to the Certificate Account of each Pass-Through Trustee as holder of a related Mortgage Note, such Mortgage Note's ratable portion of any balance in such Mortgage Note Account upon the termination of this Trust Agreement. [Section 4.06. Capitalized Debt Service Account[s]. The Depositor (on behalf of each Borrower listed in Exhibit A-4 hereto) hereby establishes from the proceeds of the related Mortgage Loan [the] [a separate] Capitalized Debt Service Account with the Trustee. [This] [Each such] account shall be maintained as a fund separate and distinct from other accounts [(including other Capitalized Debt Service Accounts)] created under this Trust Agreement. [The] [Each such] Capitalized Debt Service Account shall remain the property of the Borrower [on whose behalf such Capitalized Debt Service Account was established,] subject to the rights of the Trustee under the terms of this Trust Agreement and the pledge thereof by [such] Borrower pursuant to the Pledge Agreement to secure [the] [such Borrower's] Mortgage Loan; provided that, subsequent to the Trustee becoming aware of the occurrence of an Event of Default [with respect to such Borrower's Mortgage Loan] pursuant to Section 7.01 hereof (except a Non-Monetary Tenant Default), all amounts in the [related] Capitalized Debt Service Account shall be transferred to the Mortgage Note Account [related to such Mortgage Loan] and shall be applied in accordance with Section 4.05 hereof. The Trustee shall cause to be deposited into [the] [each such] Capitalized Debt Service Account (i) the amount of the Capitalized Debt Service Reserve received on the Closing Date [with respect to such Mortgage Loan] and (ii) all amounts received on earnings on or income from (or losses due from) any investments or reinvestments of [the] [such] Capitalized Debt Service Reserve in Eligible Investments. The Trustee shall cause the transfer of funds from [the] [each] Capitalized Debt Service Account to the Certificate Account of a Pass-Through Trustee on the dates and in the amounts set forth in the attached Exhibit A-4. Upon the payment of all of the amounts set forth in Exhibit A-4 [with respect to the Capitalized Debt Service Account established on behalf of a Borrower], and provided that no default or Event of Default shall have occurred and be continuing (except for a Non-Monetary Tenant Default) under any [related] Mortgage Notes or Loan Documents, Trustee shall disburse to the [related] Tenant without requisition any amounts remaining in [the] [such] Capitalized Debt Service Account.] Section 4.07. Realization Upon Defaulted Mortgage Loan. (a) If an Event of Default with respect to a Mortgage Loan has occurred and is continuing and if the Pass-Through Trustees vote Percentage Interests aggregating not less than 66-2/3% of the related Mortgage Notes to do so, the Trustee, after 20 25 the Trustee and each Pass-Through Trustee has received indemnity for their reasonable costs, expenses and liabilities with respect thereto to their reasonable satisfaction from the Certificateholders in accordance with Section 8.02 (iii) hereof and in accordance with each Pass-Through Trust Agreement, shall use its best efforts to foreclose upon or otherwise comparably convert the ownership of such Mortgaged Estate; shall manage, conserve and protect such Mortgaged Estate for the purposes of its disposition and sale; and shall dispose of such Mortgaged Estate as promptly as is reasonably possible. Upon sale or other conveyance of all or any part of such Mortgaged Estate by the Trustee, the Trust and the Pass-Through Trusts shall have no further right, title or interest in the Mortgaged Estate, or portion thereof, so sold or conveyed. Notwithstanding anything herein to the contrary, a default under one Loan Agreement or the related Loan Documents shall not constitute a default under any other Loan Agreement or other Loan Documents. (b) Notwithstanding the foregoing, if the Trustee has actual knowledge or reasonably believes that all or any part of a Mortgaged Estate is affected by hazardous or toxic wastes or substances, the Trustee need not cause the Trust to acquire title to such Mortgaged Estate in a foreclosure or similar proceeding. In connection with such activities, the Trustee shall follow such practices and procedures as it shall deem necessary or advisable, as shall be normal and usual in trustee activities by leading national banking associations, and, in particular, the Trustee may request such certificates of appropriate public officials and agencies, if any, a history of such Mortgaged Estate and its uses, other evidence reasonably satisfactory to the Trustee showing that such Mortgaged Estate conforms to existing environmental laws, regulations and rules, and that no conditions exist in, on or beneath the surface of such Mortgaged Estate that are or might become hazardous materials, and including but not limited to an environmental report or reports from a company reasonably satisfactory to Trustee, showing the current state of storage, disposal or release of any oil, fuels, gases, chemicals, trash, garbage or other solid wastes or hazardous materials which report or reports shall be based upon complete and thorough on-site inspections of such Mortgaged Estate, including but not limited to investigations of the soil, surface water and groundwater, to confirm the presence or absence of any hazardous materials on or beneath the surface of such Mortgaged Estate or adjacent lands. Any expenses incurred by Trustee in connection with obtaining any such certificates or reports, if not paid by the Borrower, shall be Extraordinary Expense Advances. (c) The activities set forth in Section 4.07(a) are also subject to the proviso that the Trustee may, but shall not be required to expend its own funds in connection with any foreclosure or towards the restoration of a Mortgaged Estate if it shall determine that (i) such restoration or foreclosure will increase the Net Liquidation Proceeds of the related Mortgage Loan to holders of the related Mortgage Notes after reimbursement for such 21 26 expenses and (ii) such expenses will be recoverable either through Liquidation Proceeds or revenues from such Mortgaged Estate. Section 4.08. Trustee Compensation. The Trustee's Fee shall be paid pursuant to the terms of the Consent and Agreement[s]. The Trustee, as compensation for its activities hereunder (other than those covered by the Trustee's Fee), shall be entitled to receive amounts representing reimbursement for Extraordinary Expense Advances and reimbursement for certain expenses, as specified by Sections 3.02, 4.03(c) and 4.05(d). Section 4.09. Rights of the Pass-Through Trustees. The Trustee shall afford the Pass-Through Trustees, upon reasonable notice and during normal business hours, access to all records maintained by the Trustee in respect of its rights and obligations hereunder and access to officers of the Trustee responsible for such obligations. Upon request, the Trustee shall furnish the Pass-Through Trustees with its most recent publicly available financial statements. ARTICLE V ADVANCES BY TRUSTEE Section 5.01. Advances by Trustee. The Trustee may from time to time following an Event of Default make such Extraordinary Expense Advances with respect to the related Mortgage Loan as the Trustee in its sole discretion deems advisable, provided, however, that it shall not be obligated to make any such advances unless it is satisfied as to the availability of reimbursement pursuant to the terms hereof or from the Certificateholders. ARTICLE VI THE DEPOSITOR Section 6.01. Maintaining Corporate Existence of the Depositor. The Depositor will keep in full effect its existence, rights and franchises as a corporation, and will obtain and preserve its qualification to do business as a foreign corporation in each jurisdiction in which such qualification is or shall be necessary to protect the validity and enforceability of this Trust Agreement, the Certificates or the Mortgage Notes and to perform its duties under this Trust Agreement. The Depositor will not, on or after the date of execution of this Trust Agreement (i) engage in any business or investment activities other than those necessary for, incident to, connected with or arising out of the origination and sale of mortgage loans, (ii) incur any indebtedness, or (iii) amend, or propose to its shareholders for their consent any amendment of, its Certificate of Incorporation or Bylaws without giving notice thereof in writing not less than 30 days nor more than 90 days prior to the date on 22 27 which such amendment is to become effective to Trustee and without first obtaining the written consent of Trustee. Section 6.02. Limitation on Liability of the Depositor. Neither the Depositor nor any of the directors, officers, employees or agents of the Depositor shall be under any liability to the Trustee or the Certificateholders for any action taken or for refraining from the taking of any action in good faith pursuant to this Trust Agreement, or for errors in judgment; provided, however, that this provision shall not protect the Depositor or any such person against any liability which would otherwise be imposed by reason of any willful misfeasance, bad faith or negligence in the performance of its duties or by reason of negligent disregard of obligations and duties hereunder. The Depositor and any director, officer, employee or agent of the Depositor may rely in good faith on any document of any kind prima facie properly executed and submitted by any Person respecting any matters arising hereunder. The Depositor shall not be under any obligation to appear in, prosecute or defend any legal action which is not incidental to its duties pursuant to this Trust Agreement and which in its opinion may involve it in any expense or liability; provided, however, that the Depositor may in its discretion undertake any such action which it may deem necessary or desirable with respect to this Trust Agreement and the rights and duties of the parties hereto and the interests hereunder of the Pass-Through Trustees and the Certificateholders. ARTICLE VII DEFAULT Section 7.01. Events of Default. The occurrence of any event constituting an event of default as defined in any Loan Document or any Mortgage Note shall constitute an Event of Default under this Trust Agreement. If an Event of Default shall occur and be continuing, then, and in each and every such case, so long as the Event of Default shall not have been remedied or waived, the Trustee, at the written direction of the Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the related Mortgage Notes, shall exercise any rights and remedies that it may have pursuant to such Mortgage Notes or any [related] Loan Document, as modified by the provisions of this Trust Agreement, or at law or in equity, including injunctive relief and specific performance, provided that if as a result of the occurrence of an Event of Default, the Trustee acquires any property other than cash, whether pursuant to foreclosure or otherwise, the Trustee shall sell such property as promptly as is reasonably possible. [A failure to pay with respect to any Mortgage Note or a default under any Loan Document will not constitute a default under any unrelated Mortgage Note or under any unrelated Loan Documents and will not give rise to any right of the Trustee to exercise any remedies with respect to such unrelated Mortgage Note or unrelated Loan Documents.] The Trustee will have 23 28 no obligation to take any action or institute, conduct or defend any litigation under this Trust Agreement at the request, order or direction of the Pass-Through Trustees unless Holders of Certificates representing not less than 66-2/3% of the Certificate Balance of all Certificates have offered to the Trustee reasonable indemnity pursuant to Section 8.02(iii) against the costs, expenses and liabilities which the Trustee may incur. The Trustee shall apply the proceeds recovered in the enforcement of the rights and remedies under this Trust Agreement in accordance with the terms of this Trust Agreement. Section 7.02. Waiver of Defaults. The Trustee, at the written direction of the Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the related Mortgage Notes, shall waive any default hereunder or under any Mortgage Note or Loan Document and the consequences of any such default, except that a default in the making of any required payment on the Mortgage Notes may only be waived by the affected Pass-Through Trustees. The Trustee shall have no authority to exercise the right of waiver if, as a result thereof, this Trust would become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2 or a Pass-Through Trust would fail to be characterized as a trust for federal income tax purposes. The Trustee may rely upon an Opinion of Counsel as set forth in Section 8.02 if it reasonably believes that such an act may cause the Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2 or cause or a Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes. Upon any such waiver of a past default, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been remedied for every purpose of this Trust Agreement. No such waiver shall extend to any subsequent Event of Default or impair any right consequent thereon except to the extent expressly so waived. Section 7.03. Notification to Pass-Through Trustees. The Trustee shall notify the Pass-Through Trustees of any Event of Default known to the Trustee within five (5) Business Days after obtaining knowledge thereof, unless such Event of Default has been cured or waived before the giving of such notice. Section 7.04. Rights of Pass-Through Trustees to Direct Proceedings. Anything in this Trust Agreement to the contrary notwithstanding, the Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the [affected] Mortgage Notes shall have the right, at any time during the continuance of an Event of Default, by an instrument or instruments in writing executed and delivered to the Trustee, to direct the time, place and method of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Loan Documents; provided that such direction shall not be otherwise than in accordance with the provisions of law and the Loan Documents and provided that Holders of Certificates representing not less than 66-2/3% of the Certificate Balance of 24 29 all Certificates shall have provided to the Trustee reasonable indemnity pursuant to Section 8.02 (iii) against the costs, expenses and liabilities which the Trustee may incur in connection with such proceedings. Section 7.05. Remedies Cumulative. No remedy given hereunder to the Trustee or to the Pass-Through Trustees shall be exclusive of any other remedy or remedies, and each such remedy shall be cumulative and in addition to every other remedy given hereunder or now or hereafter given by statute, law, equity or otherwise. Section 7.06. Trustee Default. In the event of any breach by the Trustee of its obligations pursuant to this Trust Agreement, the Certificateholders and the Depositor shall be entitled to exercise all rights and remedies to which they may be entitled at law or in equity. Section 7.07. Notice to Tenant[s] [and Kmart]. The Trustee shall promptly notify the [related] [Tenant and] Kmart of the exercise of any remedies under this Trust Agreement under any Mortgage Note or under any Loan Document. Failure to give such notice shall not impair or limit the Trustee's right to pursue any such remedies or any other right or remedy to which it may be entitled. ARTICLE VIII CONCERNING THE TRUSTEE Section 8.01. Duties of Trustee. The Trustee, prior to the occurrence of an Event of Default and after the curing of all Events of Default which may have occurred, undertakes to perform such duties and only such duties as are specifically set forth in this Trust Agreement. In case an Event of Default has occurred (which has not been cured or waived), the Trustee shall exercise such of the rights and powers vested in it by this Trust Agreement, and use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of such man's own affairs. No permissive rights of the Trustee shall be construed as a mandatory duty of the Trustee. If the Trustee becomes aware of the occurrence of any event which, with the giving of notice and, if applicable, the passage of time without cure, would constitute an event of default as defined in any Loan Document, the Trustee, if it is an appropriate party (or an assignee of an appropriate party) to give such notice, is authorized and directed to give such notice in accordance with such Loan Document. The Trustee, upon receipt of any resolutions, certificates, statements, opinions, reports, documents, orders or other instruments furnished to the Trustee which are specifically required to be furnished pursuant to any provision of this Trust Agreement, shall examine them to determine whether they conform to the requirements of this Trust Agreement and if they are deemed to be deficient, Trustee shall request cure of any such deficiency within a reasonable period of time for such cure. If such deficiency is not cured to the satisfaction of Trustee, the Trustee may treat the requirement pursuant to which such instrument is furnished as not having been satisfied. 25 30 No provision of this Trust Agreement shall be construed to relieve the Trustee from liability for its own negligent action, its own negligent failure to act or its own misconduct; provided, however, that: (i) Prior to the occurrence of an Event of Default, and after the curing or waiver of all such Events of Default which may have occurred, the duties and obligations of the Trustee shall be determined solely by the express provisions of this Trust Agreement, the Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Trust Agreement, and, in the absence of bad faith on the part of the Trustee, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Trustee and conforming to the requirements of this Trust Agreement; (ii) The Trustee shall not be personally liable for an error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent in ascertaining the pertinent facts; (iii) The Trustee shall not be personally liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with the direction of Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the [affected] Mortgage Notes as to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Trust Agreement; and (iv) The Trustee shall have no authority to perform any act which, if consummated, would cause the entity created hereunder to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2 or would cause the entity created under any Pass-Through Trust Agreement to fail to be characterized as a trust for federal income tax purposes. The Trustee may rely upon an Opinion of Counsel, as set forth in Section 8.02, if it reasonably believes that such an act may cause the Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2 or would cause a Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes. Nothing in this Section 8.01(iv) is intended to prevent the Trustee from exercising any right or remedy to which it is entitled hereunder or under any Loan Document. The Trustee shall not be required to expend or risk its own funds or otherwise incur financial liability in the performance of any of its duties hereunder, or in the exercise of any rights or powers, if there is reasonable grounds for believing that the repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. 26 31 Section 8.02. Certain Matters Affecting Trustee. Except as otherwise provided in Section 8.01: (i) The Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officers' Certificate, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (ii) The Trustee may consult with counsel, and any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken or suffered or omitted by it hereunder in good faith and in accordance with such Opinion of Counsel, provided that any cost incurred by the Trustee shall be reimbursable only to the extent provided in Sections 3.02, 4.03(c), 4.05(d) and 4.08 hereof; (iii) The Trustee shall be under no obligation to exercise any of the trusts or powers vested in it by this Trust Agreement or to institute, conduct or defend any litigation hereunder or in relation hereto at the request, order or direction of any of the Pass-Through Trustees pursuant to the provisions of this Trust Agreement, unless Certificateholders representing not less than 66-2/3% of the Certificate Balance of all Certificates shall have offered to the Trustee reasonable indemnity against the costs, expenses and liabilities which may be incurred therein or thereby; the right of the Trustee to perform any discretionary act enumerated in this Trust Agreement shall not be construed as a duty; and the Trustee shall not be answerable for other than negligence or willful misconduct in performance of such act. Nothing contained herein shall, however, relieve the Trustee of the obligation, upon the occurrence of an Event of Default (which has not been cured or waived), to exercise such of the rights and powers vested in it by this Trust Agreement, and to use the same degree of care and skill in their exercise as a prudent man would exercise or use under the circumstances in the conduct of such man's own affairs; (iv) The Trustee shall not be personally liable for any action taken, suffered or omitted by it in good faith and reasonably believed by it to be authorized or within the discretion or rights or powers conferred upon it by this Trust Agreement; (v) Except with respect to notice of deficient or missing documents described in Section 2.02, prior to the occurrence of an Event of Default hereunder and after the curing or waiver of all Events of Default which may have occurred, the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond or other paper or document, unless requested in writing so to do by Pass-Through Trustees voting Percentage 27 32 Interests aggregating not less than 66-2/3% of the [affected] Mortgage Notes; provided, however, that if the payment within a reasonable time to the Trustee of the costs, expenses or liabilities likely to be incurred by it in the making of such investigation is, in the opinion of the Trustee, not reasonably assured to the Trustee by the security afforded to it by the terms of this Trust Agreement, the Trustee may require reasonable indemnity against such expense or liability as a condition to such proceeding. The reasonable expense of every such investigation shall be paid by the Certificateholders of the Pass-Through Trusts requesting the investigation; and (vi) The Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys. Section 8.03. Trustee Not Liable for Certificates or Mortgage Loan[s]. The recitals contained herein, in the Pass-Through Trust Agreements and in the Certificates shall be taken as the statements of the Depositor and the Trustee assumes no responsibility for their correctness. The Trustee makes no representations or warranties as to the validity or sufficiency of this Trust Agreement (except that this Trust Agreement shall be duly and validly executed by the Trustee), the Pass-Through Trust Agreements, the Certificates, the Mortgage Loan[s] or related documents (other than pursuant to Section 2.02 hereof). The Trustee shall not be accountable for the use or application by the Depositor of any of the Certificates or of the proceeds of such Certificates, or for the use or application of any funds paid to or at the direction of the Depositor with respect to the Mortgage Loan[s]. Section 8.04. Trustee May Own Certificates. The Trustee in its corporate or any other capacity may become the owner or pledgee of Certificates with the same rights it would have if it were not Trustee. Section 8.05. Trustee's Fee and Expenses. The Trustee shall be entitled to reasonable compensation (which shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust) for all services rendered by it in the execution of the trust hereby created and in the exercise and performance of any of the powers and duties hereunder of the Trustee, and the Trustee shall be reimbursed for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any of the provisions of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its counsel and of all persons not regularly in its employ), but solely from the Trustee's Fee and amounts available as provided in Section 3.02 and in the Rental Payment Account(s) and Mortgage Note Accounts as provided herein. Notwithstanding the above, no such expense, disbursement or advance shall be reimbursable as may arise from Trustee's negligence or bad faith. 28 33 Section 8.06. Action by Co-Trustee. At any time or times, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Property may at the time be located or in which any action of the Trustee may be required to be performed or taken, the Trustee, by an instrument in writing signed by it, may appoint one or more Persons ("Co-Trustee") to act as a separate trustee or co-trustee, acting jointly with the Trustee, of all or any part of such Trust Property, to the full extent that local law makes it necessary for such separate trustee or separate trustees or co-trustee acting jointly with the Trustee to act. The Co-Trustee shall act as and be such upon the following terms and conditions: (a) Subject to the provisions of Section 8.14, all rights, powers, duties and obligations conferred or imposed upon the Trustee shall be conferred or imposed solely upon and solely exercised and performed by the Trustee except as expressly provided otherwise in this Trust Agreement and except to the extent that under any law or any jurisdiction in which any particular act or acts are to be performed, the Trustee shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations shall be exercised and performed by the Co-Trustee; (b) No power granted by this Trust Agreement to, or which this Trust Agreement provides may be exercised by, the Co-Trustee shall be exercised by the Co-Trustee except jointly with, or with the consent in writing of, the Trustee, anything contained to the contrary notwithstanding; and (c) The Co-Trustee may at any time by an instrument in writing, constitute the Trustee or its successor in trust hereunder its agent or attorney-in-fact, with full power and authority, to the extent which may be permitted by law, to do any and all acts and things and exercise any and all discretion which it is authorized or permitted to do or exercise, for and in its behalf and in its name. Section 8.07. Eligibility Requirements for Trustee. The Trust shall at all times have a Trustee which shall be a corporation organized and doing business under the laws of a state or the United States of America, authorized under such laws to exercise corporate trust powers, having (or, in the case of a corporation included in a bank holding company system, the related bank holding company shall have) a combined capital and surplus of at least $50,000,000 in the case of United States Trust Company of New York, and of at least $100,000,000 in the case of any successor trustee and subject to supervision or examination by federal or state authority. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the aforesaid supervising or examining authority, then for the purposes of this Section the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of 29 34 condition so published. In case at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, the Trustee shall resign immediately in the manner and with the effect specified in Section 8.08. Section 8.08. Resignation and Removal of Trustee. The Trustee may at any time resign and be discharged from the trusts hereby created by giving written notice thereof to the Depositor and the Pass-Through Trustees for distribution to the Certificateholders. Upon receiving such notice of resignation, the Depositor or the Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the Mortgage Notes shall promptly appoint a successor trustee by written instrument, in duplicate, one copy of which instrument shall be delivered to the resigning Trustee and one copy to the successor trustee. 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 any of the following events occur: (a) the Trustee ceases to be eligible in accordance with the provisions of Section 8.07 and fails to resign after written request therefor by the Depositor or by a Pass-Through Trustee at the direction of any Certificateholder who has been a bona fide Certificateholder for at least six months; or (b) the Trustee becomes incapable of acting, or shall be adjudged a 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, in any such case, the Depositor or the Pass-Through Trustees may remove the Trustee and appoint a successor trustee by written instrument, in triplicate, one copy of which instrument shall be delivered to the Trustee so removed one copy to Depositor, and one copy to the successor trustee. The Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the Mortgage Notes may at any time remove the Trustee and appoint a successor trustee by written instrument or instruments, in triplicate, signed by such Pass-Through Trustees, one complete set of which instruments shall be delivered to the Trustee so removed, one complete set to Depositor and one complete set to the successor so appointed. Any resignation or removal of the Trustee and appointment of a successor trustee pursuant to any of the provisions of this Section shall become effective only upon acceptance of appointment by the successor trustee as provided in Section 8.09. 30 35 Section 8.09. Successor Trustee. Any successor trustee appointed as provided in Section 8.07 or 8.08 shall execute, acknowledge and deliver to the Pass-Through Trustees, to the Certificateholders and to its predecessor trustee an instrument accepting such appointment hereunder, and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become fully vested with all the rights, powers, duties and obligations of its predecessor hereunder, with the same effect as if originally named as trustee herein. The predecessor trustee shall deliver to the successor trustee the Loan Documents, the Mortgage File and any other documents and statements held by it hereunder, and the Depositor and the predecessor trustee shall execute and deliver such instruments and do such other things as may reasonably be required for more fully and certainly vesting and confirming in the successor trustee all such rights, powers, duties and obligations. No successor trustee shall accept appointment as provided in this Section unless at the time of such acceptance such successor trustee shall be eligible under the provisions of Section 8.07. Upon acceptance of appointment by a successor trustee as provided in this Section, the Depositor shall mail notice of the succession of such trustee hereunder to all Holders of Certificates at their addresses as shown in the Certificate Registers. If the Depositor fails to mail such notice within 10 days after acceptance of appointment by the successor trustee, the successor trustee shall cause such notice to be mailed at the expense of the Depositor. Section 8.10. Merger or Consolidation of Trustee. Any corporation into which the Trustee may be merged or converted or with which it may be consolidated or any corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, or any corporation succeeding to the business of the Trustee, shall be the successor of the Trustee hereunder, provided such corporation shall be eligible under the provisions of Section 8.07, without the execution or filing of any paper or any further act on the part of any of the parties hereto, anything herein to the contrary notwithstanding. Section 8.11. Resignation of Co-Trustee. The Co-Trustee or any of its successors may resign, and may be discharged of the trusts created by this Trust Agreement by giving written notice thereof to the Pass-Through Trustees and to the Trustee. Such resignation shall take effect immediately upon the acceptance of appointment by a Person succeeding to the office of the Co-Trustee appointed by the Trustee. Section 8.12. Removal of Co-Trustee. The Co-Trustee or any of its successors may be removed at any time by the Trustee or the Pass-Through Trustees voting Percentage Interests aggregating not 31 36 less than 66-2/3% of the Mortgage Notes, by delivery of a notice of such removal to the Co-Trustee, to the Depositor, and to the Trustee, signed by such Pass-Through Trustees, and such removal shall be effective upon the date specified in such notice, and the Co-Trustee's duties and obligations hereunder shall thereupon cease, except as specified in Section 8.14. Section 8.13. Appointment of Successor to Co-Trustee. If at any time the Co-Trustee or any of its successors shall die, resign or be removed or otherwise become incapable of acting, or if for any reason the office of Co-Trustee shall become vacant, a successor to the Co-Trustee shall forthwith be appointed by the Trustee. Section 8.14. Succession of Successor to Co-Trustee. Any Person appointed as a successor to the Co-Trustee shall execute, acknowledge and deliver to the Pass-Through Trustees, its predecessor, to the Trustee and to the Depositor, an instrument accepting such appointment hereunder, and thereupon such Person without any further act, deed or conveyance shall become vested with all estates, properties, rights, powers, duties and trusts of its predecessor in the trusts hereunder with like effect as if originally named as Co-Trustee herein; but nevertheless, on the written request of the Depositor or Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the Mortgage Notes or of the Trustee or of the new Co-Trustee, the predecessor shall execute and deliver an instrument transferring to the new Co-Trustee, upon the trusts expressed in this Trust Agreement, all the estates, properties, rights, powers and trusts granted to it by this Trust Agreement and shall duly assign, transfer, deliver and pay over to the new Co-Trustee any property and money subject to the lien of this Trust Agreement held by such predecessor. Should any instrument in writing from the Depositor or from the Pass-Through Trustees voting Percentage Interests aggregating not less than 66-2/3% of the Mortgage Notes or from the Trustee be required by any person who becomes the Co-Trustee for more fully and certainly vesting in and confirming to such Co-Trustee such estates, properties, rights, powers and trusts, then, on request, any and all such instruments in writing shall be made, executed, acknowledged and delivered by the Depositor and/or the Trustee. Any Co-Trustee which has resigned or been removed shall nevertheless retain all rights of indemnity granted hereunder. ARTICLE IX TERMINATION Section 9.01. Termination. The respective obligations and responsibilities of the Depositor and the Trustee under this Trust Agreement shall, so long as such termination does not result in the imposition of a tax on the Trust Property, terminate upon the final payment, prepayment in full or other liquidation of the Mortgage 32 37 Loan[s] including the disposition of all property acquired upon foreclosure or deed in lieu of foreclosure of [the] [any] Mortgage Loan and the remittance of all funds due hereunder; provided, however, that in no event shall the Trust continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador of the United States to the Court of St. James, living on the date hereof. Upon final payment on the Mortgage Notes, the Trustee shall obtain from the Pass-Through Trustees the Mortgage Notes for cancellation. ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS TRUST AGREEMENT AND OTHER DOCUMENTS; ADDITIONAL AGREEMENTS OF TRUSTEE Section 10.01. Supplemental Trust Agreement Without Consent of Pass-Through Trustees. The Depositor and the Trustee, at any time and from time to time, with the consent of Kmart (which shall not be unreasonably withheld or delayed) but without the consent of the Pass-Through Trustees or Certificateholders, may enter into one or more trust agreements supplemental hereto for one or more of the following purposes: (a) to evidence the succession of another Person to the Depositor, or successive successions, and the assumption by the successor of the covenants, agreements and obligations of the Depositor herein; (b) to add any covenants, restrictions, conditions or provisions with respect to the Depositor as the Trustee shall consider to be for the protection of the Pass-Through Trustees and the Certificateholders; (c) to surrender any rights or power conferred herein upon the Depositor herein or to add to the rights of the Pass-Through Trustees for the benefit of the Certificateholders; (d) to correct or amplify the description of any property at any time that constitutes Trust Property or better to assure, convey and confirm unto the Trustee any such property to be included in any such Trust Property, or to acknowledge any change relating to title to the Mortgaged Estate which does not materially adversely affect the rights of the Certificateholders; (e) to evidence and provide for the acceptance and appointment hereunder of a successor trustee and to add to or change any of the provisions hereof as may be necessary to provide for or facilitate the administration of the Trust by more than one trustee pursuant to Section 8.14; or (f) to cure any ambiguity, to correct or supplement any provision herein which may be inconsistent with any other 33 38 provision herein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, provided that such action pursuant to this Section 10.01(f) shall not materially adversely affect the Pass-Through Trustees or the Certificateholders; provided that no such supplemental agreement shall cause the Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2 or cause a Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes. The Trustee is hereby authorized to join in the execution of any such supplemental agreement, to make any further appropriate agreements and stipulations which may be contained therein and to accept the conveyance, transfer, assignment, mortgage or pledge of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental agreement which adversely affects the Trustee's own rights, duties or immunities under this Trust Agreement or otherwise, whether in its official or individual capacity. Section 10.02. Supplemental Agreements With Consent of Pass-Through Trustees. With the consent of the Pass-Through Trustees voting Percentage Interests of not less than 66-2/3% of the Mortgage Notes, the Depositor and the Trustee may, from time to time and at any time, enter into an agreement or agreements supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Trust Agreement or of any agreements supplemental hereto or of modifying in any manner the rights of the Pass-Through Trustees and the Certificateholders; provided, however, that no such supplemental agreement shall cause the Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-2 or cause a Pass-Through Trust to fail to be characterized as a trust for federal income tax purposes; and provided further that, except as expressly permitted under the terms of this Trust Agreement, without the consent of each Certificateholder affected thereby and, with respect to (b) and (unless there is a monetary default under the [related] Lease) (c) below, Kmart, no such amendment of or supplement to this Trust Agreement or modification of the terms of, or consent under, any thereof, shall (a) modify any of the provisions of Section 7.03 or this Section 10.02, or the definition of "Pass-Through Trust," "Pass- Through Trustee," or "Certificateholder" as set forth in Article I hereof; (b) modify the definition of "Percentage Interest" as set forth in Article I hereof or reduce the Percentage Interest vote that is required for any such supplement to this Trust Agreement, or the consent required from the Pass-Through Trustees for any waiver provided for in this Trust Agreement; 34 39 (c) reduce the amount or extend the time of payment of any amount owing or payable under the Mortgage Notes; (d) impair the right of any Pass-Through Trustee or Certificateholder to commence legal proceedings to enforce a right to receive payment on a Mortgage Note; or (e) create or permit the creation of any lien on the Trust Property or any part thereof [(other than the Second Mortgage and the Option Agreement)], or deprive any Certificateholder of the benefit of this Trust Agreement, whether by disposition of such Trust Property or otherwise. Upon the request of the Depositor and upon the filing with the Trustee of evidence of the vote of the Pass-Through Trustees, and the consent of the Certificateholders and Kmart, if applicable, required under this Section, the Trustee shall join with the Depositor in the execution of such supplemental agreement unless such supplemental agreement affects the Trustee's own rights, duties or immunities under this Trust Agreement or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental agreement. It shall not be necessary for the vote of the Pass-Through Trustees under this Section to approve the particular form of any proposed supplemental agreement, and it shall be sufficient if such consent shall approve the substance thereof. Kmart shall be entitled to receive a copy of the form of proposed supplemental agreement. Promptly after the execution by the Depositor and the Trustee of any supplemental agreement pursuant to the provisions of this Section, the Trustee shall deliver a notice to the Pass-Through Trustees for distribution to the Certificateholders, which notice shall set forth in general terms the substance of such supplemental agreement. Any failure of the Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental agreement. Section 10.03. Effect of Supplemental Agreement. Upon the execution of any supplemental agreement pursuant to the provisions hereof, this Trust Agreement shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitations of rights, obligations, duties and immunities under this Trust Agreement of the Trustee, the Depositor, the Pass-Through Trustees and the Certificateholders shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental agreement shall be and be deemed to be part of the terms and conditions of this Trust Agreement for any and all purposes. The Trustee shall deliver to Kmart a true and correct copy of the final form of supplemental agreement as executed by the Depositor and the Trustee. 35 40 Section 10.04. Documents to Be Given to Trustee. The Trustee, subject to the provisions of Sections 8.02, may receive an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any such supplemental agreement complies with the applicable provisions of this Trust Agreement. Section 10.05. Granting of Easements. The Trustee, at the direction of [the] [a] Tenant and the [related] Borrower, may grant, release, modify or amend easements, licenses, rights-of-way, dedications and other rights or privileges in the nature of easements with respect to the [related] Mortgaged Estate, which the Trustee determines do not materially adversely affect the security of the Trust Property. The Trustee shall, upon request of [such] Tenant, certify that the rights or privileges so granted or released are no longer part of the Trust Property for purposes of this Trust Agreement. ARTICLE XI MISCELLANEOUS PROVISIONS Section 11.01. Severability of Provisions. If any one or more of the covenants, agreements, provisions or terms of this Trust Agreement shall be for any reason whatsoever held invalid, then such covenants, agreements, provisions or terms shall be deemed severable from the remaining covenants, agreements, provisions or terms of this Trust Agreement and shall in no way affect the validity or enforceability of the other provisions of this Trust Agreement. Section 11.02. Recordation of Agreement. To the extent required by applicable law, this Trust Agreement is subject to recordation in appropriate public offices for real property records in the county or other comparable jurisdiction in which [the] [each] Mortgaged Estate is situated, and in any other appropriate public recording office or elsewhere, such recordation to be effected by the Trustee accompanied by an Opinion of Counsel to the effect that such recordation materially and beneficially affects the interests of the Pass-Through Trusts and Certificateholders or is necessary in connection with the [related] Mortgage Loan. Section 11.03. Duration of Agreement. This Trust Agreement shall continue in existence and effect until terminated as herein provided. SECTION 11.04. GOVERNING LAW. THIS TRUST AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE CHOICE OF LAW PRINCIPLES THEREOF AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS. Section 11.05. Notices. All demands, notices and communications hereunder shall be in writing and shall be deemed to 36 41 have been duly given if personally delivered at or mailed by first class or registered mail, postage prepaid, to (i) in the case of the Depositor, National Tenant Finance Corporation, 40 North Central Avenue, Suite 2700, Phoenix, Arizona 85004-4441, Attention: Norman C. Storey, and (ii) in the case of the Trustee or a Pass-Through Trustee, United States Trust Company of New York, c/o U.S. Trust Company of California, N.A., Suite 2700, 555 South Flower Street, Los Angeles California 90071 Attention: Corporate Trust Division, or such other addresses as such Persons may hereafter designate. Any notice required or permitted to be mailed to a Certificateholder shall be given by registered mail, postage prepaid, or by express delivery service, at the address of such Certificateholder as shown in the related Certificate Register. A copy of each notice of an Event of Default and all other notices or communications hereunder, including the text of any proposed or final amendment or supplement to this Trust Agreement, given by or to the Certificateholders, the Trustee or the Depositor shall be contemporaneously transmitted to Kmart, 3100 West Big Beaver Road, Troy, Michigan 48084, Attention: Vice President - Real Estate, or to such other address as Kmart may have designated by written notice to the Trustee. The provisions of the foregoing sentence are for the express benefit of Kmart, shall be enforceable by it, and may not be modified or eliminated without its consent. Section 11.06. Counterparts. For the purpose of facilitating the recordation of this Trust Agreement as herein provided and for other purposes, this Trust Agreement may be executed simultaneously in any number of counterparts, each of which counterparts shall be deemed to be an original, but all of which together shall constitute one and the same instrument. Section 11.07. Submission to Jurisdiction. Each party hereto hereby consents to the jurisdiction of any state or federal court located within the County of New York, State of New York and irrevocably agrees that all actions or proceedings relating to this Trust Agreement may be litigated in such courts and each such party waives any objection which it may have based on improper venue or forum non conveniens to the conduct of any proceeding in any such court, waives personal service of any and all process upon it and consents that all such service or process be made by registered or certified mail (return receipt requested) or messengered to it at its address set forth in Section 11.08 or to its Agent referred to below at such Agent's address set forth below and that service so made shall be deemed to be completed in accordance with Section 11.08. Each party hereto hereby appoints the Prentice Hall Corporation System, Inc., with an office on the date hereof at 15 Columbus Circle, New York, New York 11023 as its Agent for the purpose of accepting service of any process within the State of New York and shall execute any confirmation thereof requested by the other party hereto. Nothing in this Section shall affect the right of any party hereto to serve legal process in any other manner permitted by law to bring any action or proceeding in the courts of any jurisdiction against the other party or to enforce a judgment obtained in the courts of any other jurisdiction. 37 42 Section 11.08. Gender; Number. All pronouns and any variations thereof shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the context shall require. Section 11.09. Certificate and Opinion as to Conditions Precedent. Upon any request or application by the Depositor to the Trustee to take any action under this Trust Agreement, the Depositor shall furnish to the Trustee: (a) an Officers' Certificate stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Trust Agreement relating to the proposed action have been complied with; and (b) an Opinion of Counsel stating that, in the opinion of such counsel all such conditions precedent have been complied with. Section 11.10. Statements Required in Certificate or Opinion. Each Officers' Certificate and Opinion of Counsel with respect to compliance with a covenant or condition provided for in this Trust Agreement shall include: (a) a statement that each Person making such Officers' Certificate or Opinion of Counsel has read such covenant or condition; (b) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such Officers' Certificate or Opinion of Counsel are based; (c) a statement that, in the opinion of each such Person, he has made such examination or investigation as is necessary to enable such Person to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement that, in the opinion of such Person, such covenant or condition has been complied with; provided, however, that with respect to matters of fact, an Opinion of Counsel may rely on an Officers' Certificate or certificates of public officials. Section 11.11. Benefits of Trust Agreement. Nothing in this Trust Agreement express or implied, shall give to any Person, other than the parties hereto and their successors hereunder, the Pass-Through Trustees and the Certificateholders, any benefit or any legal or equitable right, remedy or claim under this Trust Agreement. 38 43 IN WITNESS WHEREOF, the Depositor and the Trustee have caused their names to be signed hereto by their respective officers thereunto duly authorized as of the day and year first above written. NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation By_______________________________ Name_____________________________ Title____________________________ UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation By_______________________________ Name_____________________________ Title____________________________ 39 44 STATE OF _______________ ] ] ss. CITY OF ________________ ] On the ____ day of _________, 199_ before me, a Notary Public in and for said State, personally appeared ______________, known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as ___________ on behalf of NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation, and acknowledged to me that such Corporation executed the within instrument pursuant to its Bylaws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. [NOTARIAL SEAL] _______________________________ Notary Public My Commission Expires: ______________________ STATE OF _______________ ] ] ss. CITY OF ________________ ] On the ____ day of _________, 199_ before me, a Notary Public in and for said State, personally appeared ______________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as to be a ______________ on behalf of UNITED STATES TRUST COMPANY OF NEW YORK, a New York banking corporation, and acknowledged to me that such association executed the within instrument pursuant to its Bylaws or a resolution of its Board of Directors. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal the day and year first above written. [NOTARIAL SEAL] _______________________________ Notary Public My Commission Expires: ______________________ 45 EXHIBIT A-1 MORTGAGE NOTE SCHEDULE (i) Borrower Name - (ii) Mortgaged Estate - See Exhibit A attached hereto (iii) Maturity Date - _____ __, 20__ (iv) Rate - ____% (v) First Due Date - ________ __, 199_ (vi) Mortgage Payments - See Exhibit B attached hereto (vii) Original Principal Balance of Mortgage Note - $_______________
46 EXHIBIT A-3 CONTENTS OF MORTGAGE FILE With respect to the Mortgage Loan, the Mortgage File shall include each of the following items: 47 EXHIBIT A-4 CAPITALIZED DEBT SERVICE ACCOUNT SCHEDULE (i) Borrower Name - (ii) Tenant Name - (iii) Payments: Date Amount ---- ------ $
48 EXHIBIT C FORM OF TRUSTEE CERTIFICATION _______ __, 199_ National Tenant Finance Corporation 40 North Central Avenue Suite 2700 Phoenix, Arizona 85004-4441 Re: Collateral Trust Agreement ("Trust Agreement") dated as of _______ __, 1994 by and between National Tenant Finance Corporation, as Depositor, and United States Trust Company of New York as Trustee, Mortgage Pass-Through Certificates (____________________) Series 199_-_ and Series 199_-_ Gentlemen: In accordance with Section 2.02 of the Trust Agreement, the undersigned, as Trustee, hereby certifies that, as to the Mortgage Notes listed in the Mortgage Note Schedule, it has reviewed the related Loan Documents and the Mortgage Note Schedule and has determined that: (i) All Loan Documents required to be delivered to the Trustee pursuant to Section 2.01 of the Trust Agreement are in its possession; and (ii) Such documents have been reviewed by it and such documents do not contain any omissions, defects or irregularities within the meaning of Sections 2.01 or 2.02 of the Trust Agreement. The Trustee further certifies that, as to the Mortgage Loan[s], the Trustee has no notice or knowledge (a) of any claims, liens or encumbrances on the Mortgage Notes adverse to the Pass-Through Trustees, (b) that the Mortgage Notes were overdue or have been dishonored, (c) of evidence on the face of the Mortgage of any security interest or other right or interest therein or in the Mortgage Notes, or (d) of any defense against or claim to the Mortgage Notes by any other party. The Trustee has made no independent examination of any Loan Documents beyond the review specifically required in the Trust Agreement. The Trustee makes no representations or warranties as to the validity, legality, sufficiency, enforceability or genuineness of any of the Loan Documents (other than the statements made herein) or the collectibility, insurability, effectiveness or suitability of the Mortgage Loan[s]. C-1 49 Capitalized words and phrases used herein shall have the respective meanings assigned to them in the Trust Agreement. UNITED STATES TRUST COMPANY OF NEW YORK By_____________________________ Name___________________________ Title__________________________ C-2
EX-4.6 5 EXHIBIT 1 EXHIBIT 4.6 ----------------------------------------------------------------- -------------- LOAN AGREEMENT Among --------------------------------------- ("BORROWER") [---------------------------------------] [("GENERAL PARTNER")] and ---------------------------------------- ("LENDER") ------------------------------------- Dated as of: , 19 ---------- -- ----------------------------------------------------------------- 2 TABLE OF CONTENTS SECTION 1. RECITALS. . . . . . . . . . . . . . . . . . . . . . . . . 1 1.1 Demised Premises . . . . . . . . . . . . . . . . . 1 1.2 Note[s] and Loan Documents . . . . . . . . . . . . 1 1.3 Note Put Agreement . . . . . . . . . . . . . . . . 2 1.4 Making the Loan . . . . . . . . . . . . . . . . . 2 1.5 Sale and Assignment of Loan . . . . . . . . . . . 2 SECTION 2. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 3 SECTION 3. PREPAYMENT OF NOTE[S]; APPLICATION OF PROCEEDS . . . . . 11 3.1 Optional Prepayment . . . . . . . . . . . . . . . 11 3.2 Notice of Prepayment . . . . . . . . . . . . . . 11 3.3 Mandatory Prepayments . . . . . . . . . . . . . . 11 3.4 Other Prepayments . . . . . . . . . . . . . . . . 11 3.5 Application of Proceeds . . . . . . . . . . . . . 12 SECTION 4. LOAN TERMS . . . . . . . . . . . . . . . . . . . . . . . 12 4.1 Maturity . . . . . . . . . . . . . . . . . . . . 12 4.2 Interest Rate; Payments . . . . . . . . . . . . . 13 4.3 No Deductions . . . . . . . . . . . . . . . . . . 13 SECTION 5. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . 13 5.1 Status of Borrower [and General Partner] . . . . . 13 5.2 Authority; Enforceability . . . . . . . . . . . . 14 5.3 Consents . . . . . . . . . . . . . . . . . . . . 15 5.4 Liens, Security Interests and Assignments . . . . 15 5.5 Noncontravention; Material Default . . . . . . . 16 5.6 No Actions, Suits or Proceedings; Violation or Default . . . . . . . . . . . . . . 16 5.7 Financial Condition . . . . . . . . . . . . . . . 16 5.8 Taxes, Etc . . . . . . . . . . . . . . . . . . . 17 5.9 Licenses, Permits and Approvals . . . . . . . . . 17 5.10 Use of Proceeds . . . . . . . . . . . . . . . . 17 5.11 Other Agreements . . . . . . . . . . . . . . . . 17 5.12 ERISA . . . . . . . . . . . . . . . . . . . . . 17 5.13 Investment Company . . . . . . . . . . . . . . . 17 5.14 Lease Documents . . . . . . . . . . . . . . . . 18 5.15 Land Ingress and Egress . . . . . . . . . . . . 18 5.16 Subdivision of Land . . . . . . . . . . . . . . 18 5.17 Compliance . . . . . . . . . . . . . . . . . . . 18 5.18 Insolvency . . . . . . . . . . . . . . . . . . . 18 5.19 Title to Land; Liens . . . . . . . . . . . . . . 18 5.20 Borrower Activities . . . . . . . . . . . . . . 18 5.21 Environmental Legal Requirements . . . . . . . . 19 5.22 No Reliance . . . . . . . . . . . . . . . . . . 19 5.23 Full Disclosure; Survival of Representations and Warranties . . . . . . . . . 19 3 SECTION 6. CONDITIONS PRECEDENT TO LOAN DISBURSEMENT . . . . . . . . 20 6.1 Conditions Precedent to Loan . . . . . . . . . . . 20 6.2 Opinion of Counsel . . . . . . . . . . . . . . . . 24 6.3 Satisfactory Proceedings . . . . . . . . . . . . . 25 6.4 Representations and Warranties . . . . . . . . . . 25 6.5 No Defaults . . . . . . . . . . . . . . . . . . . 25 6.6 Rating . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 7. DISBURSEMENTS. . . . . . . . . . . . . . . . . . . . . . . 25 7.1 Advance by Lender . . . . . . . . . . . . . . . . . 25 7.2 [Capitalized Debt Service Reserve] . . . . . . . . . 25 SECTION 8. [THE CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . 26 8.1 Time for Completion . . . . . . . . . . . . . . . . 26 8.2 Changes in Plans and Specifications or Cost Budget . . . . . . . . . . . . . . . . . . . . 27 8.3 Contractor/Materialmen Lists . . . . . . . . . . . 27 8.4 Incorporation in Land and Improvements . . . . . . 27 8.5 Completion of Project . . . . . . . . . . . . . . . 27 8.6 No Liens Permitted . . . . . . . . . . . . . . . . 28 8.7 Certification/Acceptance] . . . . . . . . . . . . . 28 [8.8] Additional Covenants [Regarding Construction] . . . 29 SECTION 9. ADDITIONAL BORROWER AND GENERAL PARTNER COVENANTS . . . . 30 9.1 Borrower and General Partner Existence . . . . . . 30 9.2 Information; Financial Reports . . . . . . . . . . 31 9.3 Restriction of Borrower Activities . . . . . . . . 32 9.4 Ownership of Project; No Encumbrances . . . . . . . 33 9.5 Recording . . . . . . . . . . . . . . . . . . . . . 34 9.6 Termination of the Lease Documents . . . . . . . . 34 9.7 Amendments to Lease or Lease Guaranty . . . . . . . 35 9.8 Litigation; Default . . . . . . . . . . . . . . . . 35 9.9 Insurance . . . . . . . . . . . . . . . . . . . . . 35 9.10 Partnership Matters of Borrower . . . . . . . . . . 36 9.11 [Corporate Matters of the General Partner] . . . . . 37 9.12 Change in Entity or Management . . . . . . . . . . 37 9.13 Reimbursement of Certain Legal Expenses . . . . . . 37 9.14 Tenant Estoppels. . . . . . . . . . . . . . . . . . 38 SECTION 10. DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . 38 10.1 Events of Default . . . . . . . . . . . . . . . . . 38 10.2 Lender's Remedies . . . . . . . . . . . . . . . . . 41 10.3 Inspections of Improvements, Events of Default . . 41 10.4 Reimbursement of Lender . . . . . . . . . . . . . . 41 10.5 Cumulative Remedies . . . . . . . . . . . . . . . . 42 10.6 Inspection of Books and Record . . . . . . . . . . 42 10.7 Recapture . . . . . . . . . . . . . . . . . . . . . 43 4 SECTION 11. BORROWER LIABILITY . . . . . . . . . . . . . . . . . . . . 43 11.1 Recourse Limitation . . . . . . . . . . . . . . . . 43 11.2 Loss of Limited Recourse . . . . . . . . . . . . 44 11.3 Judicial or Other Proceedings . . . . . . . . . . . 44 SECTION 12. WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . 45 12.1 Waiver by Borrower and General Partner . . . . . . 45 12.2 Waiver by Lender . . . . . . . . . . . . . . . . . 45 12.3 Waiver of Jury Trial . . . . . . . . . . . . . . . 45 SECTION 13. ACTION UPON AGREEMENT; ENTIRE AGREEMENT; AGREEMENT FOR PARTIES' BENEFIT . . . . . . . . . . . . . . . . . . . 45 SECTION 14. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . 46 14.1 General . . . . . . . . . . . . . . . . . . . . . . 46 14.2 Consent to Assignment . . . . . . . . . . . . . . . 46 SECTION 15. GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . 48 15.1 Registered Note[s] . . . . . . . . . . . . . . . . 48 15.2 Exchange of Notes . . . . . . . . . . . . . . . . . 48 15.3 Loss, Theft, Etc., of Note . . . . . . . . . . . . 48 15.4 Time of Essence; Counterparts . . . . . . . . . . . 49 15.5 Governing Effect . . . . . . . . . . . . . . . . . 49 15.6 Notices . . . . . . . . . . . . . . . . . . . . . . 49 15.7 Lender as Borrower's Attorney-in-Fact . . . . . . . 49 15.8 Lender's Rights . . . . . . . . . . . . . . . . . . 50 15.9 [Posting Financing Sign] . . . . . . . . . . . . . . 50 15.10 Borrower Indemnification . . . . . . . . . . . . . 50 15.11 Controlling Provision . . . . . . . . . . . . . . . 50 15.12 Section Headings . . . . . . . . . . . . . . . . . 51 15.13 Applicable Law . . . . . . . . . . . . . . . . . . 51 15.14 Submission to Jurisdiction . . . . . . . . . . . . 52 15.15 Severability . . . . . . . . . . . . . . . . . . . 52 15.16 Further Assurances . . . . . . . . . . . . . . . . 52 5 LOAN AGREEMENT BY THIS AGREEMENT ("Agreement"), made and entered into as of the ____ day of _____, 19__ by and among ____________________ ("Borrower"), a ____________ limited [partnership] [liability company], [_______________________________ ("General Partner"), a _______ __ corporation and the sole general partner of the Borrower,] and NATIONAL TENANT FINANCE CORPORATION ("Lender"), a Delaware corporation, each of Borrower[, General Partner] and Lender hereby confirms and agrees as follows. SECTION 1. RECITALS. 1.1 Demised Premises. Borrower shall borrow funds pursuant to this Agreement in Borrower's own name to [provide refinancing for an interim loan used to] pay the costs of (i) acquisition of [fee title ownership] [a ground leasehold interest] in certain real property described in Exhibit 1.1A attached hereto and incorporated herein ("Land"), [and] (ii) constructing on the Land certain Improvements, as defined in the Lease referred to below, [and (iii) constructing a portion of the Common Area (as defined in the Lease)] which comprise part or all of the "Demised Premises" as defined in the Lease (as defined below) [all in accordance with (a) this Agreement, the Lease, the Approved Drawings and Specifications and the Approved Site Improvement Drawings and Specifications (as defined in the Lease) prepared by an architect engaged by Borrower and more fully described in Exhibit 1.1B attached hereto and incorporated herein as they may be modified by change orders permitted pursuant to this Agreement and the Construction Fund Disbursement Agreement[s] (as hereinafter defined) (collectively, "Plans and Specifications"), and (b) all requirements of the governmental entities having jurisdiction of the Land and Improvements (construction of the Improvements [and a portion of the Common Area] in accordance with the foregoing, collectively "Construction")]. The lease pursuant to which __________, a tenant ("Tenant") will occupy the Demised Premises Project ("Lease") is described and identified on Exhibit 1.1C attached hereto together with a lease guaranty ("Lease Guaranty"), and related indemnity agreement ("Indemnity Agreement") in favor of Lender dated as of even date herewith and executed by Kmart Corporation ("Kmart"), a Michigan corporation, in favor of Borrower, also described on Exhibit 1.1C (Lease, Lease Guaranty, Indemnity Agreement, and the following documents which are defined hereafter, Note Put Agreement[, Construction Fund Disbursement Agreement[s]] and Consent and Agreement, collectively, "Lease Documents"). 1.2 Note[s] and Loan Documents. Contemporaneously with the delivery of this Agreement to Lender, Borrower has executed and delivered one or more Promissory Notes (individually, "Note", and, collectively, "Notes") substantially in the form of Exhibit 1.2A attached hereto in favor of Lender in the aggregate principal amount of $___________ ("Loan Amount") to evidence the indebtedness incurred by Borrower hereunder in connection with the loan ("Loan") described in this Agreement and secured in accordance with various 6 loan documents more particularly described in this Section 1.2, (collectively, "Loan Documents"), including this Agreement, a Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing ("Mortgage") dated as of the date hereof covering the Demised Premises and certain other collateral, more particularly described therein (collectively, "Mortgaged Estate"), an Assignment of Leases and Rents ("Lease Assignment") dated as of the date hereof and a Pledge Agreement ("Pledge Agreement") dated as of the date hereof, and those certain additional assignments and documents listed on Exhibit 1.2B in favor of Lender. The collateral security for the Loan ("Security") is as provided for in the Loan Documents. Subject to the provisions of this Agreement[,][and] the Pledge Agreement [and the Construction Fund Disbursement Agreement-Improvements [and Construction Fund Disbursement Agreement-Common Area] ([individually,] "Construction Fund Disbursement Agreement" [and, collectively, "Construction Fund Disbursement Agreements"]) dated as of even date herewith among Tenant, Kmart, Borrower, the Construction Monitor named therein [and] the Escrow Agent [and certain other tenants] named therein, attached hereto as Exhibit 1.2C], the Loan Amount shall be advanced to Borrower. 1.3 Note Put Agreement. As a special and further inducement to Lender to make the Loan, Kmart and Tenant shall execute and deliver to Lender a Note Put Agreement ("Note Put Agreement") dated as of the date hereof in the form attached hereto as Exhibit 1.3. 1.4 Making the Loan. Subject to full and strict compliance with and satisfaction of the terms and conditions of this Agreement, Lender is willing to make the Loan to Borrower. 1.5 Sale and Assignment of Loan. Simultaneously with the funding of the Loan contemplated hereunder, Lender will [(i) sell, convey, and transfer and absolutely assign all its right, title and interest in, under and to the Note maturing _________, ("Series A Note") to United States Trust Company of New York, a New York banking corporation, as Series A Note Pass- Through Trustee (together with its successors in trust and assigns, "Series A Pass-Through Trustee") under that certain Series A Pass-Through Trust Agreement dated as of even date herewith between Lender and Series A Pass-Through Trustee (as the same shall be amended from time to time, "Series A Pass-Through Trust Agreement"); (ii) sell, convey, transfer and absolutely assign all its right, title and interest in, under and to the Note maturing ___________ ("Series B Note") to United States Trust Company of New York, a New York banking corporation, as Series B Pass-Through Trustee (together with its successors in trust and assigns "Series B Pass-Through Trustee") under that certain Series B Pass-Through Trust Agreement dated as of even date herewith between Lender and Series B Pass-Through Trustee (as the same shall be amended from time to time "Series B Pass-Through Trust Agreement"); and (iii)] sell, convey, transfer and absolutely assign all its right, title and interest in, under and to [the Note and] all Loan Documents to United States Trust Company of New York, a New York banking corporation, as 2 7 [Collateral] Trustee (together with its successors and assigns, "Trustee") under that certain [Collateral] Trust Agreement dated as of even date herewith between Lender and Trustee (as the same shall be amended from time to time, "[Collateral] Trust Agreement"). From and after the date of such sale, conveyance, transfer and absolute assignment by Lender, for all purposes hereof, references herein to Lender shall be deemed to be Trustee [, provided that, with respect to either Note, reference to the Lender shall be deemed to be the holder of the Note]; and, accordingly, Trustee shall have the sole right to exercise all rights, privileges and remedies which by the terms of this Agreement or any other Loan Document or by applicable law are permitted or provided to be exercised by the Lender [, provided that, as set forth in the Series A Pass-Through Trust Agreement and the Series B Pass-Through Trust Agreement, the holders of the Notes shall be entitled to exercise the rights, privileges and remedies thereof]. SECTION 2. DEFINITIONS. For purposes of this Agreement, the following terms shall have the following meanings: "Advance or Prepaid Rents" shall have the meaning assigned to it in Section 11.1. "Affiliates" as used in this Agreement shall mean any person or entity controlling, controlled by or under common control with any other person or entity. "Agreement" shall have the meaning assigned to it in the Preamble. "Annual Rental" shall have the meaning assigned to it in the Lease. "Borrower" shall have the meaning assigned to it in the Preamble. "Business Day" means any day other than (i) Saturday or Sunday, or (ii) a day on which banks in New York or California are required by law to be closed or are customarily closed. "Called Principal" means the principal of the Note[s] that is to be paid or prepaid or accelerated in any way pursuant to Section 3 or, Section 10.2, as the context requires. "Called Principal Percentage" means percentage shown on Exhibit 2 for each corresponding year during the term hereof as designated on such Exhibit. ["Capitalized Debt Service Reserve" means an amount equal to all interest and principal payments due under the Certificates through and including the Rental Commencement Date, plus the annual Trustee[s] Fee[s] for the period commencing on the Closing Date and ending on the day preceding the Rental Commencement Date which Lender is authorized to disburse from the Loan Amount pursuant to Section 7 and which shall be used in the manner described in Section 7.2.] 3 8 "Certificate of the Borrower" shall have the meaning set forth in Section 6.1(d). "Certificate of the General Partner" shall have the meaning set forth in Section 6.1(d). "Certificate of Occupancy" means the temporary or final certificate issued by the [insert City, County, etc.] of [name of City, County, etc.], [ State ] authorizing the occupancy of a building constructed on the Land, such occupancy to be in accordance with all applicable ordinances, building codes, zoning and other laws and regulations. "Certificates" shall have the meaning assigned to it in Section 14.2. "Closing" shall have the meaning assigned to it in Section 7. "Closing Date" shall have the meaning assigned to it in Section 7. "[Collateral Trust Agreement" shall have the meaning assigned to it in Section 1.5.] ["Completion of Construction" shall have the meaning assigned to it in Section 8.1.] "Consent and Agreement" shall have the meaning assigned to it in Section 6.1(s). ["Construction" shall have the meaning assigned to it in Section 1.1.] ["Construction Fund Disbursement Agreement[s]" shall have the meaning assigned to it [them] in Section 1.2.] ["Cost Budget" shall have the meaning assigned to it in Section 6.1(j).] "Default" shall mean any event or condition the occurrence of which would, with the giving of notice or the passage of time or both, if applicable, constitute an Event of Default. "Demised Premises" shall have the meaning assigned to it in the Lease. "Discounted Prepayment Value" means, with respect to any amount of Called Principal, the amount obtained by (i) discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Redemption Date with respect to such Called Principal, in accordance with generally accepted financial practice and at a discount factor (applied on a semiannual basis) equal to the 4 9 Reinvestment Yield and (ii) adding together such discounted Remaining Scheduled Payments. "Environmental Legal Requirement" shall mean any international, Federal, state, local or other governmental statute, law, regulation, order, consent decree, judgment, permit, license, code, covenant, deed restriction, common law, treaty, convention, ordinance or other requirement relating to public health, safety, the environment, pollution, conservation, or waste disposal, now or hereafter in effect, including, without limitation, those relating to releases, discharges or emissions to air, water, land or groundwater, to the withdrawal or use of groundwater, to the use and handling of polychlorinated biphenyls or asbestos, to the disposal, treatment, storage or management of hazardous or solid waste, or Hazardous Materials, including without limitation the following: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended by the Superfund Amendments and Reauthorization Act of 1986, the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976 and the Hazardous and Solid Waste Amendments of 1984, the Hazardous Materials Transportation Act, as amended, the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, the Safe Drinking Water Act, the Clean Air Act of 1966, as amended, the Toxic Substances Control Act of 1977, the Occupational Safety and Health Act of 1977, as amended, the Emergency Planning and Community Right-to-Know Act of 1986, the National Environmental Policy Act of 1969, the Oil Pollution Act of 1990, and similar or implementing state law, statute, order, rules or regulations now existing or hereafter amended relating to the subject matter described above. ["Escrow Agent" means the escrow agent named in the Construction Fund Disbursement Agreement[s] with which any funds subject to such Construction Fund Disbursement Agreement[s] are deposited.] "Event of Default" shall have the meaning assigned to it in Section 10.1. "Filing Agencies" shall have the meaning assigned to it in Section 5.3. "Forms UCC-1" shall have the meaning assigned to it in Section 5.3. "General Partner" shall have the meaning assigned to it in the Preamble ["Ground Lease" means the Ground Lease dated _____ between _____ as the Ground Lessor and Borrower as the Ground Lessee with respect to the Land.] ["Ground Lease" means the Ground Lease dated __________ between __________ as the Ground Lessor and Borrower as the Ground Lessee with respect to the Land.] "Hazardous Material" and "Hazardous Materials" shall mean any hazardous or toxic chemical, substance, product, waste or other material, including, without limitation: (i) any "hazardous substance" as defined in, or for purposes of, the Comprehensive Environmental Response, Compensation 5 10 and Liability Act, 42 U.S.C.A. Section Section 9601 & 9602, as may be amended from time to time, or any other so-called "superfund" or "superlien" law and any judicial interpretation of any of the foregoing; (ii) any "regulated substance" as defined pursuant to 40 C.F.R. Part 280; (iii) any "pollutant or contaminant" as defined in 42 U.S.C.A. Section 9601(33); (iv) any "hazardous waste" as defined in, or for purposes of, the Resource Conservation and Recovery Act; (v) any "hazardous chemical" as defined in 29 C.F.R. Part 1910; (vi) any "hazardous material" as defined in, or for purposes of, the Hazardous Materials Transportation Act; (vii) any "toxic substance" as defined in the Toxic Substance Control Act, 15 U.S.C. Section 2601 et seq. (viii) any related material as defined in any applicable state statute, the Clean Water Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq. and any other contaminants, pollutants, substances and materials which are hazardous or toxic or which upon release or discharge would be injurious to the Mortgaged Estate; or (ix) any material, waste or substance that contains petroleum or any fraction thereof, asbestos, or polychlorinated biphenyls, or that is flammable, explosive or radioactive. "Hazardous Materials Indemnity Agreement" shall have the meaning assigned to it in Section 6.1(q). "Improvements" shall have the meaning assigned to it in the Lease. "Indemnity Agreement" shall have the meaning assigned to it in Section 6.1(s). "Insurance Schedule" shall have the meaning assigned to it in Section 6.1(a). "Kmart" shall have the meaning assigned to it in Section 1.1. "Land" shall have the meaning assigned to it in Section 1.1. "Lease" shall have the meaning assigned to it in Section 1.1. "Lease Assignment" shall have the meaning assigned to it in Section 1.2. 6 11 "Lease Documents" shall have the meaning assigned to it in Section 1.1. "Lease Guaranty" shall have the meaning assigned to it in Section 1.1. "Lender" shall have the meaning assigned to it in the Preamble. "Lender Defenses" shall have the meaning assigned to it in Section 14.2(i). "Loan" shall have the meaning assigned to it in Section 1.2. "Loan Amount" shall have the meaning assigned to it in Section 1.2. "Loan Documents" shall have the meaning assigned to it in Section 1.2. "Loan Value" shall have the meaning assigned to it in Section 3.3. "Make-Whole Premium" means, with respect to any amount of Called Principal, an amount equal to the sum of (x) the positive excess, if any, as of the Redemption Date of the Discounted Prepayment Value of the Called Principal over such Called Principal and (y) an amount equal to the product of the Called Principal multiplied by the Called Principal Percentage. "Material Adverse Effect" (a) with respect to the Borrower means: (i) any event or condition which individually or in the aggregate has a material adverse effect on the financial condition, business or operations, or assets of Borrower, or on the condition, value or use of the Mortgaged Estate or on the ability of Borrower to perform its obligations under this Agreement, the Note[s] or any other Loan Document; or (ii) a material adverse effect individually or in the aggregate on the legality, validity or enforceability of Borrower's obligations under this Agreement or the Note[s] or the other Loan Documents or a material impairment of the first priority liens or security interest granted under the Loan Documents; or (b) [with respect to the General Partner means:] (i) any event or condition which individually or in the aggregate has a material adverse effect on the financial condition, business or operations, or assets of the General Partner, or of the General Partner and its Affiliates taken as a whole, or on the condition, value or use of the Mortgaged Estate or 7 12 on the ability of the General Partner to perform its obligations under this Agreement or any other Loan Document; or (ii) a material adverse effect individually or in the aggregate on the legality, validity or enforceability of General Partner's obligations under this Agreement or the Note[s] or the other Loan Documents or a material impairment of the first priority liens or security interest granted under the Loan Documents.] [Intentionally omitted] "Maturity Date" shall have the meaning assigned to it in Section 4.1. "Mortgage" shall have the meaning assigned to it in Section 1.2. "Mortgaged Estate" shall have the meaning assigned to it in Section 1.2. "Note" and "Notes" shall have the meaning assigned in Section 1.2. "Note Payment Dates" means the dates specified in the Note[s] and upon which dates interest or interest and principal are due and payable pursuant to the Note[s]. "Note Put Agreement" shall have the meaning assigned to it in Section 1.3. ["Outside Possession Date" shall have the meaning assigned to it in the Lease.] "Pass-Through Trustees" mean the Series A Pass-Through Trustee and the Series B Pass-Through Trustee. "Partnership Agreement" means Attachment I to the Certificate of Borrower, as amended. "Permitted Encumbrances" shall have the meaning assigned thereto in the Mortgage. ["Plans and Specifications" shall have the meaning assigned to it in Section 1.1.] "Pledge Agreement" shall have the meaning assigned to it in Section 1.2. "Put" means exercise of the right of the Lender to require Tenant to purchase the Note[s] pursuant to the Note Put Agreement, or, in the event Tenant fails to purchase the Note[s], to require Kmart to purchase the Note[s] pursuant to the Note Put Agreement. "Recordable Documents" shall have the meaning assigned to it in Section 9.5(a). 8 13 "Recorder" shall have the meaning assigned to it in Section 5.3. "Redemption Date" means the Business Day on which the Redemption Price is to be paid pursuant to Section 3 or is declared to be immediately due and payable pursuant to Section 10.2, as the context requires. "Redemption Price" means the sum of the unpaid principal balance of the Called Principal, accrued interest thereon to the Redemption Date and the Make-Whole Premium. "Reinvestment Yield" means with respect to the Called Principal, the sum of (x) the yield to maturity implied by the following: (i) the yields reported, as of 10:00 a.m. (New York City time) on the third Business Day preceding the Redemption Date with respect to such Called Principal, on the display designated as "Page 678" on the Telerate Service (or such other display as may replace Page 678 on the Telerate Service) for actively traded U.S. Treasury securities having a maturity equal (as near as practicable) to the Remaining Average Life of the Called Principal being paid or prepaid as of such Redemption Date, or (ii) if such yields shall not be reported as of such time or the yields reported as of such time shall not be ascertainable, the Treasury Constant Maturity Series yields reported, for the latest day for which such yields shall have been so reported as of the third Business Day preceding the Redemption Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal (as near as practicable) to the Remaining Average Life of the Called Principal being paid or prepaid as of such Redemption Date and (y) fifty (50) basis points. Such implied yield shall be determined, if necessary, by (a) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (b) interpolating linearly between reported yields. "Release" shall mean any release, spill, emission, leaking, pumping, pouring, emptying, escaping, injection, deposit, disposal, discarding, discharge, dispersal, leaching or migration into the indoor or outdoor environment or into or out of, or in any manner otherwise affecting any property, including the passive migration or other movement of Hazardous Materials through or in the air, soil, surface water, groundwater or property. "Remaining Average Life" means, with respect to any amount of Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (i) such Called Principal into (ii) the sum of the products obtained by multiplying (a) each Remaining Scheduled Payment of such Called Principal (excluding the interest thereon) by (b) the number of years (calculated to the nearest one-twelfth year) which will elapse between the Redemption Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. 9 14 "Remaining Scheduled Payments" means, with respect to any amount of the Called Principal, all payments of such Called Principal and interest thereon that would be due on or after the Redemption Date with respect to such Called Principal if no payment of such Called Principal were made prior to its Maturity Date. "Rent" shall mean Annual Rental and Additional Rent pursuant to the Lease. "Rental Commencement Date" shall have the meaning assigned to it in the Lease. "Second Mortgage" shall have the meaning assigned to it in Section 9.4(c). "Security" shall have the meaning assigned to it in Section 1.2. ["Series A Note" and "Series B Note" shall have the meaning assigned to them in Section 1.5.] ["Series A Pass-Through Trust Agreement" and "Series B Pass-Through Trust Agreement" shall have the meaning assigned to them in Section 1.5.] ["Series A Pass-Through Trustee" and "Series B Pass-Through Trustee" shall have the meaning assigned to them in Section 1.5.] "Settlement Statement" shall have the meaning assigned to it in Section 7.1. "Title Commitment" shall have the meaning assigned to it in Section 6.1(b). "Title Insurance Company" shall have the meaning assigned to it in Section 6.1(b). "Title Policy" shall have the meaning assigned to it in Section 6.1(b). ["Trust Agreement" shall have the meaning assigned to it in Section 1.5.] ["Trust Agreements" means the Collateral Trust Agreement, the Series A Pass-Through Trust Agreement and the Series B Pass-Through Trust Agreement.] "Trustee" shall have the meaning assigned to it in Section 1.5. ["Trustees" means the Trustee, the Series A Pass-Through Trustee and the Series B Pass-Through Trustee.] "Trustee[s] Fee[s]" means [the aggregate of] the Trustee's Fee as defined in the [Collateral] Trust Agreement [, the Pass-Through Trustee's Fee as defined in the Series A Pass-Through Trust Agreement and the Pass-Through Trustee's Fee as defined in the Series B Pass-Through Trust Agreement]. 10 15 SECTION 3. PREPAYMENT OF NOTE[S]; APPLICATION OF PROCEEDS. No prepayment of the Note[s] may be made except to the extent and in the manner expressly provided in this Agreement and the Note[s]. 3.1 Optional Prepayment. Upon compliance with Section 3.2, Borrower shall have the option at any time and from time to time of prepaying the Note[s], either in whole or in part (but if in part, then in units of U.S. [$1,000,000] or an integral multiple of [$100,000] in excess thereof) by payment of the Redemption Price. 3.2 Notice of Prepayment. Borrower shall give written notice of any prepayment of the Note[s] pursuant to Section 3.1 to the holder thereof not less than 45 days nor more than 60 days before the date fixed for such prepayment. Notices required by this Section 3.2 shall specify (a) the Redemption Date, (b) the Called Principal, and (c) the estimated Redemption Price. Notice of prepayment having been so given, the Redemption Price shall become due and payable on the Redemption Date set forth in such notice. Borrower shall also give written notice to the holder of the Note[s] [and the Collateral Trustee], by telecopy or other same day written communication, setting forth the computation and amount of the Redemption Price payable in connection with a prepayment pursuant to Section 3.1 on the third Business Day preceding the Redemption Date. 3.3 Mandatory Prepayments. In the event of a termination of the Lease by the Tenant pursuant to the provisions of Article 3(a), 17(c) or 18(a) or (b) of the Lease, on the date of such termination the Borrower shall prepay and apply, and there shall become due and payable, the unpaid principal amount of the Note[s] on such date and all accrued and unpaid interest thereon, together with the Make-Whole Premium with respect thereto. In the event of an expropriation of a portion of the Demised Premises resulting in a reduction in the Annual Rental (as defined in the Lease) pursuant to Article 18(e) of the Lease, on the date of such expropriation the Borrower shall prepay and apply, and, subject to the proviso set forth hereafter, there shall become due and payable, a principal amount of the Note[s] equal to the Loan Value of such reduction and all accrued and unpaid interest thereon, together with the Make-Whole Premium with respect thereto; provided, however, if the proceeds payable to the Borrower with respect to such expropriation are insufficient to pay such amount, (i) the Borrower shall be required to prepay only the amount of such proceeds (which amount shall be allocated between principal and the Make-Whole Premium with respect thereto), (ii) the scheduled interest and principal payments pursuant to the Note[s] shall be reduced in the same proportion as the Annual Rental has been abated pursuant to the Lease, and such scheduled payments shall be reallocated [pro-rata among the Notes in proportion to their respective principal balances] [and with respect to each such Note reallocated] between principal and interest to first pay interest due and then pay the balance to reduce principal, (iii) if the amount of any scheduled payment is insufficient to pay all interest due, the unpaid interest will, to the extent permitted by law, be added to principal semiannually on the date of such scheduled payment, (iv) any amounts added to principal pursuant to clause (iii) shall bear interest at the rate provided in the Notes[s], and (v) all principal and interest accrued and unpaid hereunder and under the Note[s] shall be due and payable on the Maturity Date [on the latest of the Maturity Dates of all Notes executed and delivered pursuant to this Agreement]. For purposes of this Agreement, the "Loan Value" in respect of any such reduction of Annual Rental shall be an amount equal to the product of (i) a fraction, the numerator of which is the aggregate amount of such reduction of Annual Rental throughout the Primary Term (as defined in the Lease) of the Lease, and the denominator of which is the aggregate amount of Annual Rental which shall be due and payable under the Lease during the Primary Term before giving effect to such reduction, times (ii) the unpaid principal amount of the Note[s] immediately prior to the prepayment provided for in this Section 3.3. In the event Lender receives proceeds payable to Lender pursuant to the Title Policy, such proceeds shall be treated as a voluntary prepayment. 3.4 Other Prepayments. In the event that Borrower shall be required to prepay the Note[s] in full pursuant to any Loan Document then, within the time provided in such Loan Document (i) the holder of the Note[s] shall be required to surrender the 11 16 Note[s], duly endorsed without recourse or assigned without recourse to Borrower or in blank, at the Corporate Trust office of the Trustee, (ii) the Trustee shall hold the Note[s] in trust for the benefit of the holder of the Note[s] until payment in full of the Redemption Price shall have been made to such holder and shall then and thereupon surrender such Note[s] to Borrower, and (iii) Borrower shall irrevocably pay and deposit the Redemption Price with Trustee, by wire transfer or immediately available funds in lawful currency of the United States of America to the same depositary institution and account number set forth in the wire transfer instruction specified in Section 4.1 of the Consent and Agreement. 3.5 Application of Proceeds. (a) Annual Rental. So long as no Event of Default has occurred and is continuing, the amounts from time to time received by Lender which constitute payment of the installments of Annual Rental (as defined in the Lease) under the Lease (and any amounts in respect of overdue Annual Rental payable under the Lease) and any payment under the Lease Guaranty in respect thereof shall be applied first, to the payments and required prepayments of principal and interest (and, in each case, first to interest and then to principal) on the Note[s] which have become due and payable or will become due and payable on the next succeeding Note Payment Date and the payment of any other obligations of Borrower pursuant to the Trust Agreement[s], [a copy] [copies] of which Borrower hereby acknowledges receipt of, and second, the balance, if any, of such amounts shall be paid to or upon the order of Borrower pursuant to the provisions of the [Collateral] Trust Agreement. (b) Event of Default. If any Event of Default, other than the failure to make any payments required pursuant to this Agreement, the Note[s] or any other Loan Document, has occurred and is continuing, all amounts from time to time received by Lender which constitute payments under the Lease and any payment under the Lease Guaranty in respect thereof shall be held by Lender and applied first, to the payments and required prepayments of principal and interest (and, in each case, first to interest and then to principal) on the Note[s] which have become due and payable or will become due and on the next succeeding Note Payment Date and the payment of any other obligations of Borrower pursuant to the Trust Agreement[s], and second, the balance, if any, of such amounts shall be held by Lender and applied in accordance with Section 3.01 of the Mortgage and Section 8(e) of the Lease Assignment. If an Event of Default involving the failure to make any payments required pursuant to this Agreement, the Note[s] or any other Loan Document has occurred and is continuing and any such amounts have not been paid pursuant to the Lease or the Lease Guaranty (including any applicable cure periods), all amounts from time to time received by Lender which constitute payments under the Lease and any payment under the Lease Guaranty in respect thereof shall be held by Lender and applied in accordance with the terms of Section 8(e) of the Lease Assignment and Section 3.01 of the Mortgage. 3.6 Application of Prepayments. All prepayments pursuant to Sections 3.1, 3.2, 3.3 and 3.4 shall be applied in the following order of priority: payment of accrued interest on the Note[s], payment of the Make-Whole Premium and payment of the outstanding principal balance of the Note[s]. [All such principal prepayments of the Notes and the related Make-Whole Premium shall be applied on all outstanding Notes ratably in accordance with the unpaid principal amounts thereof.] [The] [Such] principal portion of any prepayments shall, except as otherwise provided in Section 3.3, reduce remaining mandatory payments of principal set forth in Exhibit A attached to the Note[s] in inverse order of maturity. SECTION 4. LOAN TERMS. 4.1 Maturity. The Note[s] shall mature on the earlier of the date stated in the Note[s] ("Maturity Date") or the date on which the entire principal balance, accrued interest and Make-Whole Premium become due and payable pursuant to the provisions of any 12 17 Loan Document by acceleration, upon the occurrence of an Event of Default, by any required prepayment or otherwise. 4.2 Interest Rate; Payments. (a) The interest rate, payment dates as to principal and interest and other Loan repayment terms (including prepayment privileges and applicable premiums) shall be as set forth in the Note[s] and in Section 3. (b) Notwithstanding any other provision in this Agreement or the Note[s], Borrower shall cause all payments of principal, Make-Whole Premium (if any) and interest on the Note[s] to be made in the manner and to the account specified in Section 3.4 or in such other manner or to such other address as the holder of the Note[s] may hereafter designate in writing. 4.3 No Deductions. All payments of principal or interest or premium, if any, under the Note[s] shall be made without deduction of any present and future taxes, levies, imposts, deductions, charges, or withholdings, which amount shall be paid by Borrower. Borrower will pay the amounts necessary, such that the gross amount of the principal and interest or premium, if any, received by Lender is not less than that required by the Note[s]. If Borrower shall be required by law to deduct any such amounts from or in respect of any principal or interest or premium, if any, payable under the Note[s], then (i) the sum payable to Lender shall be increased as may be necessary, so that after making all required deductions (including deductions applicable to additional sums payable under this provision) Lender receives an amount equal to the sum it would have received had no deductions been made, (ii) Borrower shall make such deductions, and (iii) Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. All stamp, documentary, and other transaction-related taxes shall be paid by Borrower. If notwithstanding the foregoing, Lender pays such taxes, Borrower will reimburse Lender for the amount paid and the repayment thereof shall be secured by the Security. Borrower will furnish Lender official tax receipts or other evidence of payment of all taxes within thirty (30) days following the date upon which such taxes are due and payable. SECTION 5. REPRESENTATIONS AND WARRANTIES. Borrower [and the General Partner] represent[s] and warrant[s] to Lender as follows: 5.1 Status of Borrower [and General Partner.] [(a)] Borrower is a duly organized and validly existing limited [partnership] [liability company] formed under the laws of the State of ____________ and is in good standing and qualified to transact business in such State and under the laws of the State in which the Demised Premises are located. Borrower has full power and authority to own its 13 18 properties and assets and to carry on its business as now being conducted. Borrower is not a "foreign corporation," "foreign partnership," "foreign trust," or "foreign estate," as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder. Borrower's U.S. Employer Identification Number is as set forth in the Certificate of Non-Foreign Status attached as Exhibit 5.1A. (b) [General Partner is a duly organized and validly existing corporation formed under the laws of the State of ____________ and is in good standing and qualified to transact business in such State and under the laws of the State in which the Demised Premises are located. General Partner has full power and authority to own its properties and assets and to carry on its business as now being conducted. General Partner is not a "foreign corporation", "foreign partnership", "foreign trust", or "foreign estate" as those terms are defined in the Internal Revenue Code and the regulations promulgated thereunder. General Partner's U.S. Employer Identification Number is as set forth in the Certificate of Non-Foreign Status attached as Exhibit 5.1B.] [Intentionally omitted.] 5.2 Authority; Enforceability. (a) Borrower has the power and is duly authorized by all necessary [partnership] [limited liability company] action to enter into this Agreement, the Note[s], the other Loan Documents and Lease Documents to be executed by Borrower, to execute any and all documentation required herein and therein, to borrow the amounts contemplated in the Note[s] and the Loan Documents to be executed by Borrower upon the terms set forth herein and therein and to perform its obligations pursuant to the terms of this Agreement, the Note[s], and of the other Loan Documents and Lease Documents to be executed by Borrower, none of which are in conflict with any provision of law or regulation applicable to Borrower. This Agreement, the Note[s], and each of the other Loan Documents and Lease Documents to be executed by Borrower constitute valid and binding legal obligations of Borrower, enforceable in accordance with their respective terms. (b) [The General Partner has the corporate power and is duly authorized by all necessary corporation action to enter into: (i) the Partnership Agreement, (ii) this Agreement on its own behalf and on behalf of Borrower, and (iii) the Note[s] and the other Loan Documents and Lease Documents to be executed on behalf of Borrower and any and all documentation required herein or therein and to perform its obligations pursuant to the terms of the foregoing documents, none of which are in conflict with any provision of law or regulation applicable to the General Partner or the articles or bylaws of the General Partner. The Partnership Agreement and this Agreement constitute valid and binding legal obligations of the General Partner, and this Agreement, the Note[s] and each of the other Loan Documents and Lease Documents to be executed by the General Partner constitute valid and binding legal 14 19 obligations of the General Partner enforceable in accordance with their terms.] [Intentionally omitted.] (c) The signatures of the parties to this Agreement, the Note[s], and each other Loan Document and Lease Document other than of Lender, Kmart and Tenant are all the signatures necessary to bind each such party to this Agreement, the Note[s], and each other Loan Document and Lease Document, respectively, and, subject to Section 11, to bind all of the assets of such party (including but not limited to the Security) as are shown in the financial statement of such party, delivered to Lender in connection with the Loan. 5.3 Consents. No consent, approval or authorization of or declaration, registration or filing with or payment to any governmental body or any nongovernmental person is required to be obtained or made on or prior to the execution, delivery and performance by the Borrower [or General Partner] of this Agreement, the Note[s] and the other Loan Documents and Lease Documents or the transactions contemplated hereby or thereby or as a condition to the legality, validity or enforceability of the Borrower's [or General Partner's] obligations under this Agreement, the Note[s] or the other Loan Documents or Lease Documents or the fulfillment of or compliance with the terms and provisions of the Note[s], this Agreement or the other Loan Documents or Lease Documents, except for the recording of the Mortgage and Lease Assignment with the ____________________ ("Recorder") of __________, ____________ and the filing of Form UCC-1 Financing Statements ("Forms UCC-1") in the offices of the Recorder and the office of the Secretary of the State of ____________ (collectively "Filing Agencies"), such other filings or recordings as are set forth on Exhibit 5.3 attached hereto and the payment of nominal filing fees. 5.4 Liens, Security Interests and Assignments. (a) The liens, security interests and assignments created by the Loan Documents will, when granted and duly recorded and filed or recorded, as applicable, constitute valid, effective, properly perfected and enforceable first priority liens, first priority security interests and assignments. (b) (i) No effective financing statements are on record or filed in favor of a secured party other than Lender naming Borrower as debtor and describing any of the Security as collateral at Closing and the exact time the respective UCC-1s are filed in such offices by Borrower; (ii) the recordation of the Mortgage with the Recorder and the Forms UCC-1 in the appropriate office therefor and the office of the Filing Agencies are the only recordation or filing of such documents required to perfect the lien or security interests to be created thereby; and (iii) unless thirty days (30) prior written notice is provided by Borrower to Lender, Borrower's principal place of business and chief executive office are located in the State of ____________ and shall continue to be so located so long as any portion of the Note[s] remains unpaid or unperformed. 15 20 5.5 Noncontravention; No Material Default. (a) The execution, delivery and performance by Borrower [and the General Partner] of and under this Agreement, the Note[s], the other Loan Documents and Lease Documents to be executed by Borrower [and the General Partner] and all other documents and instruments relating to the Loan will not result in any breach of the terms or conditions of or constitute a default under any agreement or instrument under which Borrower [or the General Partner] is a party or is obligated, nor will it violate any legal requirement affecting Borrower, [its General Partner,] the [partnership] [limited liability company], or the Project. (b) There exists no violation of or default by Borrower [or its General Partner] and no event has occurred that with the passage of time or the giving of notice would constitute such a default or violation with respect to (i) the terms of the Note[s] or any Loan Document, (ii) any Lease Document or other agreement affecting the Project to which Borrower [or its General Partner] is a party or is bound or any other agreement to which Borrower [or its General Partner] is a party or to which either is bound, (iii) any license, permit, statute, ordinance, law, judgment, order, writ, injunction, decree, rule, or regulation of any governmental authority or other legal requirement or any determination or award of any arbitrator to which Borrower [or its General Partner] may be bound, or (iv) any mortgage, instrument, agreement, or document by which Borrower[, its General Partner] or the Project is bound: (A) which involves the Note[s] or any Loan Document or Lease Document, (B) which involves the Project or the Borrower [or its General Partner] and is not adequately covered by insurance, (C) which might have a Material Adverse Effect on the Borrower [or its General Partner], (D) which might have a Material Adverse Effect on the priority of the liens or security interests created by any of the Loan Documents, or (E) which could have a Material Adverse Effect on Borrower's financial condition [or that of its General Partner]. 5.6 No Actions, Suits or Proceedings; Violation or Default. (a) No actions, suits or proceedings are pending or threatened against Borrower [or its General Partner]. (b) There is no legal action pending or, to the knowledge of Borrower, threatened against or affecting Borrower [or its General Partner] questioning the validity or the enforceability of this Agreement, the Note[s] or any of the other Loan Documents or Lease Documents. 5.7 Financial Condition. All Borrower's [and General Partner's] financial statements, profit and loss statements, statements as to ownership, and other statements or reports relating to Borrower [or General Partner] previously or hereafter given to Lender by Borrower are and shall be true and correct in all material respects as of the date thereof. There has been no 16 21 Material Adverse Effect on Borrower [or General Partner] since the date of the latest financial statements given to Lender. 5.8 Taxes, Etc. Borrower [and General Partner] [have] [has] filed all federal, state and local tax returns and have paid all current obligations before they became delinquent, including all federal, state and local taxes and all other payments required under federal, state or local law. 5.9 Licenses, Permits and Approvals. All licenses, permits, consents, approvals and authorizations necessary or appropriate for the [Construction and] operation of the Demised Premises which by law or regulation must be obtained by Borrower and can be obtained as to the Improvements [prior to completion of Construction thereof] or which are to be obtained by Borrower pursuant to the Lease have been obtained and shall be maintained in full force and effect and Borrower shall provide copies thereof to Lender upon request. 5.10 Use of Proceeds. The Loan Amount will be disbursed in accordance with Section 7. Borrower will not require and will not avail itself of any additional extension of credit for such purposes. No part of the Loan Amount will be used directly or indirectly by Borrower[, General Partner] or [their] [its] Affiliates for the purpose of purchasing, carrying or refinancing any"margin stock" within the meaning of Regulations G, T or X of the Board of Governors of the Federal Reserve System. The assets of the Borrower do not include, carrying or refinancing any "margin stock". 5.11 Other Agreements. Except as provided in the Lease, Borrower has not entered into or otherwise acquired by assignment or assumed any agreements with any managers or supervisors relating to the maintenance, repair, leasing, management or operation of the Demised Premises other than those assigned to Lender. [Neither] Borrower [nor General Partner] is [not] in default in the payment of principal or interest on any indebtedness and, except as provided herein, neither have any knowledge that [either] [it] is a party to any instrument or instruments or agreements under and subject to which any indebtedness has been issued. 5.12 ERISA. In reliance on the facts stated in Exhibit 5.12, the consummation of the transactions contemplated by this Agreement, the Note[s], the other Loan Documents and the Lease Documents, and compliance by Borrower [or General Partner] with the provisions thereof as executed and delivered thereby will not constitute a prohibited transaction within the meaning of the Employment Retirement Income Security Act of 1974, as amended, or Section 4975 of the Internal Revenue Code of 1986, as amended. 5.13 Investment Company. [Neither] Borrower [nor General Partner] is [not] an "investment company" within the meaning of the Investment Company Act of 1940, as amended, and [neither] is [not] directly or indirectly controlled by an "investment company." [Neither] Borrower [nor General Partner] is [not] a "holding company" or a "subsidiary 17 22 company" of a holding company or an "affiliate" of a "holding company" or a "public utility company" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 5.14 Lease Documents. Each of the Lease Documents which has been executed and delivered by Borrower, is valid, binding and enforceable against Borrower in accordance with its terms, and is in full force and effect. All conditions to the effectiveness or continuing effectiveness of the Lease Documents required to be satisfied by Borrower have been satisfied. 5.15 Land Ingress and Egress. All roads providing ingress or egress to or from the Demised Premises necessary for the full utilization of the Demised Premises in accordance with the Lease have been completed, [have been] [will be] conveyed to the appropriate governmental authority and [have been] [will be] dedicated to public use and accepted by such governmental authority. 5.16 Subdivision of Land. The Land is not part of a larger tract of land owned by Borrower. 5.17 Compliance. [Neither] Borrower [nor its General Partner] [have] [has not] received nor [do] [does] [they] [it] have a reasonable basis to expect to receive any order or notice of violation or claim of violation of any law, ordinance, rule, or regulation. 5.18 Insolvency. [Neither] Borrower [or its General Partner are] [is not] now, [or] [nor] will at the Closing as a result of the Loan or otherwise be, "insolvent" within the meaning of that term as defined in Section 1 of the United States Bankruptcy Code. 5.19 Title to Land; Liens. Borrower on the Closing Date shall be the sole owner of [a ground lessee's interest in the Land] and shall have good and marketable title to [a leasehold interest in] the Demised Premises, free and clear of any lien, security interest, or encumbrance of any kind whatsoever, excepting only (i) the Permitted Encumbrances, (ii) liens, security title and security interests in favor of Lender, (iii) the Lease [and the Ground Lease], and (iv) other matters which have been approved in writing by Lender and the Trustee. At Closing Borrower shall be the true and lawful owner of all rights in and to all existing agreements, permits, and licenses relating to the Project other than those obtained and retained by Tenant in connection with the Construction or required by applicable law or regulation to be owned by Tenant as a tenant under the Lease. Borrower's interest in all such agreements, permits, and licenses is not subject to any present claim of set off or deduction other than in the ordinary course of business. 5.20 Borrower Activities. (a) Borrower (i) has not engaged, and, as of the date hereof, does not engage, in any business or investment activities other than those necessary for, incident to, connected with or arising out of owning and leasing the Demised Premises (including 18 23 any additions or alterations thereto provided for in the Lease), (ii) has not incurred, and, as of the date hereof, does not have, any indebtedness (other than the Loan), (iii) is adequately capitalized for its business purpose, (iv) maintains and shall maintain separate books and records from those of its Affiliates, (v) keeps and shall keep separate bank accounts from those of its Affiliates, (vi) does not and shall not commingle its assets with the assets of any of its Affiliates, (vii) will at all times hold itself out to the public as a legal entity separate and distinct from any of its Affiliates, (viii) will either file its own tax returns, or, if part of a consolidated group, will join in such consolidated group tax return as a separate member of such group, and (ix) will observe the requirements of law and its Partnership Agreement in carrying on its business. (b) [General Partner (i) has not engaged, and, as of the date hereof, does not engage, in any business or investment activities other than those necessary for, incident to, connected with or arising out of serving as General Partner of Borrower, (ii) has not incurred, and, as of the date hereof, does not have, any indebtedness, and (iii) shall cause its management (x) to meet regularly to carry on the business of General Partner and (y) to keep minutes of such meetings.] [Intentionally omitted] 5.21 Environmental Legal Requirements. Borrower to the best of its knowledge after due inquiry (i) is not in violation of any Environmental Legal Requirement, and (ii) has received all permits, licenses and other governmental approvals required for its intended uses by any Environmental Legal Requirement. 5.22 No Reliance. Borrower: (i) has been advised by the Lender that the Borrower should be represented by Legal Counsel of Borrower's choice in the transactions contemplated by this Agreement; (ii) is fully aware and clearly understands all of the terms and provisions contained in this Agreement; (iii) has voluntarily, with full knowledge and without coercion or duress of any kind, entered into this Agreement, the Note[s] and the other Loan Documents; (iv) is not relying on any representation, either written or oral, express or implied, made by the Lender other than as set forth in this Agreement, the Note[s] or the other Loan Documents; and (v) has received actual and adequate consideration to enter into this Agreement. 5.23 Full Disclosure; Survival of Representations and Warranties. (a) None of the statements, representations, or warranties furnished by Borrower [or General Partner] to Lender verbally or in writing in connection with this Agreement contains or will contain any untrue statement or omits or will omit a material fact necessary to make the statements contained therein or herein, in light of the circumstances when made, not misleading. There is no fact which Borrower [or General Partner] has not disclosed to Lender which materially affects adversely or, to the 19 24 extent Borrower [or General Partner] presently can reasonably foresee, will have a Material Adverse Effect on Borrower [or General Partner]. (b) Each of the representations and warranties of Borrower [or its General Partner] contained in the Note[s] or any of the other Loan Documents is true and correct in all respects. (c) All representations and warranties made herein shall survive the execution of this Agreement, all advances hereunder and the execution and delivery of all other documents and instruments in connection with the Loan and until the Note[s] has been paid in full and fully discharged. SECTION 6. CONDITIONS PRECEDENT TO LOAN DISBURSEMENT. Lender shall lend to or for the benefit of Borrower, in the manner and on the terms and conditions provided herein, amounts not to exceed in the aggregate the Loan Amount, provided that Borrower shall be in full compliance with and shall have satisfied the following conditions precedent, as applicable, to the making of the Loan or any disbursement pursuant to this Agreement by Lender. 6.1 Conditions Precedent to Loan. (a) Borrower shall purchase and maintain or cause to be purchased and maintained insurance satisfying the requirements set forth in Section 9.9 and on Exhibit 6.1A attached hereto ("Insurance Schedule"). All policies purchased by Borrower, if any, must show Borrower as the named insured and whether purchased by Borrower or Tenant shall name Lender and any holder of a lien evidenced by a mortgage or deed of trust on the Demised Premises or any part thereof, or any purchaser, transferee or assignee of the rights of any such holder (or person holding a beneficial interest in the rights of any such purchaser, transferee or assignee), as additional named insured. So long as Tenant (or Kmart) is the tenant under the Lease and is eligible to self-insure, such self-insurance shall be acceptable to Lender or, if not eligible to self-insure, the insurance provided by Tenant pursuant to the terms of the Lease shall be deemed to satisfy insurance requirements set forth herein unless otherwise provided herein. (i) All policies shall be issued through an insurer licensed to do business in the State in which the Demised Premises are located, and listed in "Best's Insurance Key Rating Guide" published by A. M. Best Company and rated at least "A", Class X or better and have a Standard & Poor's Ratings Group claims paying rating of BBB or better. (ii) All policies and bonds shall provide for thirty (30) days notice of cancellation to Lender and all other additional insureds. 20 25 (iii) All such insurance policies which Borrower maintains may be in the form of blanket policies in form and substance satisfactory to Lender. Each policy shall contain a replacement cost endorsement, a chattel mortgage loss payable clause, a standard Lender's Loss Payable Endorsement made payable to Trustee and such other endorsements sufficient to prevent Borrower and Lender and all other additional insureds from becoming co-insurers within the terms of such insurance with respect to the Improvements. No policy required hereunder shall have a deductible in excess of $__________ unless approved in writing by Lender. All such insurance shall be subject to the approval of the Lender as to insurance companies, amounts, content and forms of policies and expiration dates. (iv) Lender shall have received certificates of insurance and, upon request by Lender or Trustee, certified copies of policies fulfilling the requirements set forth above. (b) Lender and Trustee shall be furnished with a binding ALTA Commitment for Title Insurance ("Title Commitment") from _____________________________ ("Title Insurance Company") satisfying the requirements set forth on Exhibit 6.1B attached hereto unconditionally committing [(subject to a "pending disbursements" clause acceptable to Lender)] to issue a Mortgagee's Policy of Title Insurance ("Title Policy") with extended coverage or endorsement and such other endorsements as Lender may require. The Title Policy shall be in the amount of $____________ (which includes the principal amount of the Note[s] and the present estimated amount of the Make-Whole Premium), issued by Title Insurance Company and committing to insure that the Mortgage when recorded will be a valid first priority lien on [the Borrower's leasehold interest pursuant to the Ground Lease in] all of the Demised Premises, and that the Demised Premises are free and clear of all liens, encumbrances and exceptions, except for the Permitted Encumbrances. Lender shall not be obligated to disburse any portion of the Loan until after the recordation of the documents as required by the Title Commitment to permit the Title Insurance Company to insure the Mortgage as a valid first lien. Borrower shall take all necessary steps to cause and enable the Title Insurance Company to issue the Title Policy to Lender in accordance with this Agreement. (c) Lender and Trustee shall have been provided with an appraisal of the Demised Premises satisfactory to the Lender and Trustee by an appraiser acceptable to Lender and Trustee showing (i) the amount of the Loan does not exceed 100% of the fair market value of the Demised Premises as evidenced by such appraisal, and (ii) the amount of the Certificates does not exceed 100% of the fair market value of the Demised Premises as evidenced by such appraisal. (d) Borrower shall deliver to Lender the Borrower's Certificate [and the General Partner's Certificate which are attached hereto as Exhibit 6.1C [and Exhibit 6.1D]. 21 26 (e) Borrower shall have executed (or caused to be executed or issued) and delivered to Lender the Note[s] and the Loan Documents, all in form satisfactory to Lender. Borrower shall have (i) fully cooperated in causing the Mortgage, Lease Assignment, other Loan Documents at Lender's request and all required Uniform Commercial Code Financing Statements to be duly recorded and/or filed in the manner required by the laws of the State in which the Demised Premises are located, the State in which Borrower's principal place of business is located, if applicable, and any other applicable jurisdiction, (ii) paid or caused to be paid all filing fees and recording charges, taxes or assessments incurred in connection therewith and such recordings and filings shall be satisfactory to the Lender. (f) Lender shall be furnished with a current ALTA ["boundary"] ["as built"] survey of the property depicting the location of any Improvements upon the Land and the location of all easements and other matters affecting the Land and otherwise satisfying the requirements set forth on Exhibit 6.1E attached hereto and the Surveyor's Certificate attached hereto as Exhibit 6.1F. The survey shall be delivered to Lender by Borrower, at Borrower's sole cost and expense, and shall be acceptable to Lender and the Title Insurance Company, and show no state of facts objectionable to Lender or the Title Insurance Company. Lender may request the Title Insurance Company to issue any appropriate Title Policy Endorsements within fourteen (14) days after Borrower's delivery of such survey. The survey shall be prepared for and certified to Lender and Tenant and each assignee of Lender by a registered land surveyor or registered engineer approved by Lender. (g) [No work shall have commenced on the Land and no construction of any Improvements shall begin without the express written consent of Lender or, in the alternative, the Title Insurance Company shall have agreed to issue the policy insuring Lender's first priority lien position.] [Intentionally omitted.] (h) [Borrower shall provide Lender with a construction contract acceptable in form and content to Lender with a contractor or contractors acceptable to Lender providing for construction of the proposed Improvements [and Common Area], complete with all onsite and offsite improvements and Borrower shall provide Lender with an assignment of the contract in form and content satisfactory to Lender. The financial stability of the contractor shall be satisfactory to Lender and Borrower shall, upon Lender's request, provide financial statements for contractor's prior two fiscal years. Lender shall be provided with a Certificate of Good Standing for the contractor.] [Intentionally omitted.] (i) Lender shall have received evidence whether the Land or any part thereof lies within a "special flood hazard area" as designated on maps prepared by the Department of Housing and Urban Development and if so designated, a national flood insurance association standard flood insurance policy, plus insurance from a private insurance carrier, if necessary, for the duration of the 22 27 Loan in the amount of the full insurable value of the completed improvements, naming Lender as a loss payee.] (j) [Borrower shall provide Lender with a detailed budget ("Cost Budget") with cost breakdowns for all onsite, offsite and indirect costs for the [acquisition of the Land and the] Construction, certified to be correct to the knowledge and belief of Borrower and the general contractor and site contractor with respect to their own portion of the Construction and approved in writing by Tenant.] [Intentionally omitted] (k) [Borrower shall provide Lender with, and Lender shall approve, the final Plans and Specifications described in Exhibit 1.1B attached hereto, prepared by an architect acceptable to Lender (including, in Lender's sole discretion, working drawings) and Borrower shall provide Lender with an assignment of the Plans and Specifications in form and content acceptable to Lender.] [Intentionally omitted] (l) [The general contractor shall, at no expense to Lender, provide payment and performance bonds in the amount of the full contract price, issued by a bonding company acceptable to Lender, such bonds to run in favor of Borrower and Lender as their interests may appear.] [Intentionally omitted] (m) Lender shall be furnished with satisfactory copies of all soil, subsoil, geotechnical and other such tests and reports for the Land as Lender may require, prepared by a registered engineer qualified to do such testing and acceptable to Lender. (n) Lender shall have received satisfactory evidence upon Lender's request (including source and method) that there is adequate ingress and egress to the Land for its proposed use, public water service available or an adequate water supply available for the proposed development, that public storm and sanitary sewer service is available, that fire protection is available and that necessary arrangements have been made for connection and delivery of each of the foregoing and electric power, gas and telephone service to the Demised Premises. (o) Lender shall have received evidence of payment in full of all installments of special taxes or assessments, service charges, development fees, water, sewer and other charges or hookup fees, private maintenance charges, and other prior lien charges by whatever name called, assessed, levied, imposed or billed, whether then due on the Closing Date or payable thereafter, and all installments of general real estate taxes due or payable must be paid in full. (p) Borrower shall furnish Lender with certificates from appropriate public officials and agencies, if available, or other evidence satisfactory to Lender showing that the Improvements [to be constructed] conform to all existing Environmental Legal Requirements, and that no conditions exist in, on or beneath the surface of the Demised Premises that are or might become Hazardous 23 28 Materials. Lender shall be furnished satisfactory evidence, including but not limited to a Phase I Environmental Report from a company acceptable to Lender, showing that there has been no unremediated violation of an Environmental Legal Requirement or storage, disposal or Release of any Hazardous Materials other than in compliance with Environmental Legal Requirements. The Phase I Environmental Report shall be based upon a complete and thorough visual inspection of the Demised Premises and a review of relevant environmental regulatory agency files, to confirm the absence of any known Hazardous Materials on or beneath the surface of the Land or adjacent lands. Borrower shall also furnish a history of the Demised Premises, listing its prior uses. Borrower shall furnish Lender with the Hazardous Materials Indemnity Agreement ("Hazardous Materials Indemnity Agreement") in the form attached to this Agreement as Exhibit 6.1G, executed by Borrower, General Partner and the other Indemnitors identified therein. (q) [Borrower shall provide Lender with a Critical Path Schedule in form satisfactory to Lender setting forth the estimated dates projected for the various stages of Construction.] [Intentionally omitted] (r) Borrower shall provide Lender with an inventory of any personal property owned by Borrower located or to be located on the Land, if any, including fixtures, furnishings, equipment and all other personal property used in the operation of the Demised Premises. (s) Borrower shall deliver to Lender the Lease[, Ground Lease] and a Consent and Agreement (which shall be executed by Trustee, Lender, Borrower, Tenant and Kmart), all in form and content acceptable to Lender duly executed by all parties thereto, and the Lease Guaranty and Indemnity Agreement, each in the form attached hereto as Exhibit 6.1H duly executed by Kmart. (t) [Borrower shall provide Lender with copies of any and all permits or other governmental approvals or consents required to commence and complete Construction.] [Intentionally omitted] (u) Kmart and Tenant shall execute and deliver to Lender the Note Put Agreement. (v) Borrower shall provide Lender with each of the other Loan Documents described in Exhibit 6.1I attached hereto, each in form and content acceptable to Lender. (w) [Borrower shall provide Lender with a Maintenance Agreement pursuant to which the Tenant has made arrangements satisfactory with Lender to pay its prorata share of all Common Area expenses and to maintain and insure the Common Area.] [Intentionally omitted] [(x)] Borrower shall provide Lender with [a subordination agreement from the holder of any encumbrance on the fee subordinating such encumbrance to the ground lease] [Estoppel Certificate] from Ground Lessor satisfactory in form and content to Lender. (y) Lender, Borrower and Tenant shall have approved the Settlement Statement in writing. (z) Borrower shall satisfy all other applicable conditions set out in this Agreement. 6.2 Opinions of Counsel. Borrower, Tenant and Kmart shall each furnish at the time of execution of the Note[s] and Loan 24 29 Documents and prior to any disbursement an opinion of each of their respective counsel or special local counsel, addressed to Lender and such other parties as Lender shall specify and bearing the same date as the Note[s], in substantially the forms attached hereto as Exhibits 6.2(a), 6.2(b) and 6.2(c) unless otherwise approved by Lender. 6.3 Satisfactory Proceedings. All proceedings taken in connection with the transactions contemplated by this Agreement and all documents necessary for the consummation thereof shall be satisfactory in form and content to Lender and Lender shall have received a copy (executed or certified, as may be appropriate) of all legal documents or proceedings taken in connection with the consummation of such transactions. 6.4 Representations and Warranties. All representations and warranties by Borrower and General Partner hereunder shall be true and correct. 6.5 No Defaults. There shall exist no condition or event constituting a Default or an Event of Default under this Agreement or a default under the Note[s] or any of the other Loan Documents [or the Ground Lease]. 6.6 Rating. The Certificates (as defined in Section 14.2), shall have a Standard & Poor's Ratings Group rating of "BBB-" or better or a Moody's Investors Services Inc. rating of "Baa3" or better, and Lender shall have received written evidence thereof. SECTION 7. DISBURSEMENTS. 7.1 Advance by Lender. Subject to compliance by Borrower with the terms and conditions provided in Section 6 of this Agreement, Lender shall disburse the entire Loan Amount as a single advance for the benefit of Borrower in accordance with the terms of this Agreement to the parties named in and to be used for the items set forth in the settlement statement ("Settlement Statement") attached hereto as Exhibit 7. The date of the advance pursuant to this Section 7 shall be deemed the "Closing Date" for purposes of this Agreement. The delivery of the documents, certificates and other items required as conditions under Section 6 to such advance and the subsequent disbursement of the advance shall be deemed the "Closing" for purposes of this Agreement. 7.2 [Capitalized Debt Service Reserve. The Capitalized Debt Service Reserve shall be deemed to be fully disbursed by Lender to Borrower as of the date of disbursement of all other funds pursuant to Section 7.1 and shall be applied against the interest and principal payments due under the Note[s] and shall be used by Trustee as provided in this Section 7.2 to pay all interest and principal payments due under [the Notes] [the Certificates] through and including _________, 19__, [and such amount shall be applied in respect of the principal and interest payments due under the Note[s] through and including 25 30 _________, 19__]. Lender shall cause Trustee to deduct and pay from the Capitalized Debt Service Reserve such interest payments and principal payments. Lender may, in its discretion, refuse to pay such interest or principal from the Capitalized Debt Service Reserve if, at the time any such payment is due, disbursements to Tenant have been suspended or halted under the terms of [either of] the Construction Fund Disbursement Agreement[s] other than for reasons set forth in Section 8.1(b). If Lender elects not to disburse interest or principal from the Capitalized Debt Service Reserve for any of the above mentioned reasons, Lender shall so notify Borrower and thereupon Tenant shall pay such interest or principal to Lender without the use of the Capitalized Debt Service Reserve in the manner and at the times provided in the Note[s]. If no Default or Event of Default exists hereunder, under the Note[s] or under any other Loan Document, and, if all payments of principal and interest due under the Certificates through and including _________, 19__ have been paid, then any funds in the Capitalized Debt Service Reserve remaining after payment of interest and principal payments due under the Note[s] for which such Capitalized Debt Service Reserve was established may be applied by Lender to pay any sum then due and payable pursuant to the Note[s] or any of the Loan Documents and the balance, if any, shall be disbursed to Tenant. SECTION 8. [THE CONSTRUCTION.] [ADDITIONAL CONDITIONS PRECEDENT TO LOAN.] 8.1 [Time for Completion. (a) Borrower shall cause the Construction to be commenced on or before _________, 199__ ("Construction Commencement Date") prosecuted with diligence, continuously without cessation or delay (unless excused pursuant to Section 8.1(b)) and in accordance with the Plans and Specifications, Sections 8.5 and 8.6, the Lease and the Construction Fund Disbursement Agreement[s] and shall cause the Construction to be completed pursuant to all of the foregoing ("Completion of Construction") on or before the Outside Possession Date (as defined in the Lease. Borrower shall strictly enforce all contracts for the Construction of the Improvements and not agree to any alterations or amendments thereof to the end that all contractors promptly and diligently perform all of the obligations on their part to be performed thereunder, such performance to be in a manner preserving to Lender its security in the Land and Improvements thereon. (b) The cessation or delay of Construction with respect to the Demised Premises under the Lease shall be excused if Borrower has secured the consent of Tenant and: (i) the cessation of or delay in construction shall have been caused by Landlord's Force Majeure (as defined in the Lease); (ii) Borrower shall have made adequate provision acceptable to Lender for the protection of materials stored on-site and off-site and for the protection of the Improvements to the extent then constructed against deterioration and against other loss or damage or theft; (iii) Borrower shall 26 31 furnish to Lender satisfactory evidence that such cessation of construction will not adversely affect or jeopardize the rights of Borrower under material contracts or subcontracts relating to the construction of the Improvements or under any Lease; and (iv) Borrower shall furnish to Lender satisfactory evidence that the Completion of Construction can be accomplished on or before the Outside Possession Date for such Demised Premises as extended by Landlord's Force Majeure. (c) Tenant has agreed pursuant to Lease to accept from Borrower a completed shell building and Tenant shall complete the Construction with respect to the Improvements necessary to its occupancy pursuant to the Lease. Borrower has agreed pursuant to the Lease to provide Tenant an allowance specified in the Lease which will be used by Tenant to complete such Construction. Borrower shall be excused from the obligations set forth in Sections 8.1(a) and 8.5 with respect to that portion of the Construction Tenant has agreed to complete pursuant to the Lease.] [Intentionally omitted.] 8.2 [Changes in Plans and Specifications or Cost Budget. Any and all changes in or to the Plans and Specifications or any increase in the Cost Budget shall be made in compliance with the terms and conditions of the Lease and the Construction Fund Disbursement Agreement[s], and must be approved by Lender.] [Intentionally omitted.] 8.3 [Contractor/Materialmen Lists. Borrower shall furnish to Lender promptly upon request of Lender from time to time correct lists of all contractors, subcontractors, suppliers or materialmen employed or retained in connection with the Construction. Each such list shall show the name, address and telephone number of each such person, a general statement of the nature of the work to be done, the labor and materials to be supplied, the names of materialmen if known and the approximate dollar value of such labor or work with respect to each. Lender shall have the right to telephone or otherwise communicate with each contractor, subcontractor and materialman to verify the facts disclosed by such list or by any request for disbursement, or for any other purpose. All contracts let by Borrower or its contractors relating to the Construction shall require disclosure to Lender of information sufficient to make such verification.] [Intentionally omitted.] 8.4 [Incorporation in Land and Improvements. No materials, equipment, fixtures or any other part of the Improvements or articles of personal property placed in the Improvements shall be purchased or installed under any security agreement or other arrangements wherein the seller reserves or purports to reserve the right to remove or to repossess any such items or to consider them personal property after their incorporation in the Project unless authorized by Lender in writing.] [Intentionally omitted.] 8.5 [Completion of Project. Borrower shall cause the Completion of Construction pursuant to the requirements of the Lease, entirely on the Land and shall not encroach upon or interfere with any easement, right-of-way or other property. All 27 32 work on the Improvements shall be performed in strict compliance with all applicable laws, ordinances, statutes, rules and regulations, including zoning laws, of federal, state, county or municipal governments or agencies now in force or that may be enacted hereafter, with all directions, rules, regulations and codes of the fire marshal, health officer, building inspector or other officers of every governmental agency now having or hereafter acquiring jurisdiction, and with all covenants and restrictions running with the Land.] [Intentionally omitted.] 8.6 [No Liens Permitted. Borrower shall fully pay and discharge all claims for labor performed and material and services furnished in connection with the Construction and take all other reasonable steps to forestall the assertion of claims (i) of liens against the Land, any part thereof or right or interest appurtenant thereto, the Improvements, any personal property and fixtures located on or used in connection with, the Land or the Improvements, or (ii) against the Loan. Nothing herein contained shall require Borrower to pay any claims for labor, materials or services which Borrower in good faith disputes and which Borrower, at its own expense, is currently and diligently contesting, provided however, that Borrower shall, within thirty (30) days after filing or assertion of any claim or lien that is disputed or contested by Borrower, obtain and record, if required by Lender, a surety bond sufficient to release such claim or lien, or provide Lender with an endorsement to the Title Policy insuring Lender either that the lien and security interests created pursuant to its Mortgage are and shall continue to be first and prior to any such claim or lien, or against any loss incurred or which may be incurred if such lien and security interest are not first and prior to any such claim or lien. Borrower shall provide Lender copies of all Requests (as defined in the Construction Fund Disbursement Agreement[s]) and any and all related documentation submitted in connection therewith.] [Intentionally omitted.] 8.7 [Certification/Acceptance. (a) Upon Completion of Construction, Borrower will promptly furnish Lender evidence of the final certification and/or acceptance of the Improvements upon the Land by any municipality, utility, county or other governmental entity whose certification or acceptance thereof is required, and evidence of all such certifications and/or acceptances and, if required by Lender, an unqualified Certificate of Substantial Completion on A.I.A. Form G 704 signed by the architect employed by Borrower, who shall first have been approved by Lender, certifying to the completion of the Improvements, shall be delivered to Lender promptly thereafter. (b) Upon Completion of Construction, Borrower will furnish to Lender full unconditional lien waivers from all persons or entities for all labor performed and materials supplied in connection with the Construction in form and content satisfactory to Lender unless Borrower contests such liens in the manner described and subject to the terms and conditions of Section 8.6.] [Intentionally omitted.] 28 33 [8.8] Additional Covenants [Regarding Construction]. [Not later than thirty (30) days after the Completion of Construction,] [As additional conditions precedent to Lender making the Loan to Borrower, Borrower shall be in full compliance with and shall have satisfied the following conditions precedent.] Borrower shall have performed its obligations under each of the covenants set forth in this Section 8.8. (a) Borrower shall provide Lender with copies of all final site plans approved by agencies with jurisdiction over such approval, building permits and all other permits necessary for construction of the Demised Premises, along with a certification to Lender from the licensed project architect or engineer or legal counsel for Borrower acceptable to Lender stating that the Demised Premises, as designed, meets all local zoning, platting and permitting requirements, and, that such zoning, platting and permitting is final and not subject to change. Borrower shall provide Lender with a copy of the recorded plat of the Land, if any. (b) Borrower shall provide Lender with an inventory of all personal property owned by Borrower located or to be located on the Land, including fixtures, furnishings, equipment and all other personal property used in the operation of the Demised Premises. (c) Lender shall be provided with final as-built drawings and specifications that include all modifications and changes that have been included in the Plans and Specifications. (d) All Improvements shall have been constructed within the boundary lines of the Land as established by a survey which shall be subject to the approval of Lender. Lender shall be furnished with an ALTA "as built" survey of the Land prepared for and certified to Lender and each transferee, purchaser and assignee of Lender by a registered land surveyor or registered engineer approved by Lender and each such transferee, purchaser and assignee. The survey shall comply with the requirements set forth on Exhibit 6.1E and shall be accompanied by the Surveyor's Certificate attached hereto as Exhibit 6.1F. (e) Lender shall be provided with a certification from a licensed architect, engineer or construction management/inspection professional nominated and paid for by Borrower and approved in writing by Lender, certifying without qualification: (i) that he has regularly inspected the Improvements [which as to the Demised Premises shall refer to the construction by Borrower as described in the Lease] during the course of construction, and (ii) as to the matters set forth in A.I.A. Form G 704. (f) Borrower shall provide Lender with a certificate from the project architect and/or engineer stating that the Improvements [which as to the Demised Premises shall refer to the construction by Borrower as described in the Lease] are constructed in substantial compliance with all applicable ordinances, building codes and zoning, environmental and ecological laws and regulations and are free from encroachment upon building lines, easements and 29 34 property lines. In the event such certificate or certificates are unavailable, Borrower shall provide Lender with other evidence of such substantial compliance satisfactory to Lender in its sole discretion. (g) Lender shall be provided with a copy of the Certificate of Occupancy for the Demised Premises to be issued by the [City, County, etc.] of [name of City, County, etc.], [State]. (h) If the Security shall have suffered any material damage or destruction, the damaged or destroyed portion of the Security must have been restored or replaced consistent with the Plans and Specifications used for the original construction or arrangements satisfactory to Lender shall have been made for restoration or replacement. (i) Borrower shall provide Lender with a collateral assignment of all of Borrower's right, title and interest in and to any utility contracts, deposits and refundable fees, in form satisfactory to Lender. [(j) Borrower shall provide Lender with an appraisal of the Demised Premises as completed in the same form as that required by Section 6.1(c) by an appraiser acceptable to Lender showing the fair market value of Demised Premises.] SECTION 9. ADDITIONAL BORROWER [AND GENERAL PARTNER] COVENANTS. 9.1 Borrower [and General Partner] Existence. (a) Borrower will do or cause to be done all things necessary to (i) keep in full force and effect Borrower's existence as a [limited partnership] [limited liability company] and comply with all applicable laws, statutes, regulations, rules, orders and all applicable restrictions imposed by any governmental or regulatory body, except those being contested in good faith by appropriate proceedings and except where the failure so to comply would not have a Material Adverse Effect on Borrower and would not result in the forfeiture or sale of the Land, and (ii) maintain all licenses and permits necessary properly to conduct Borrower's business or own Borrower's properties, except where the failure to do so would not have a Material Adverse Effect on Borrower. (b) [General Partner will do or cause to be done all things necessary to (i) keep in full force and effect General Partner's existence and good standing as a corporation and comply with all applicable laws, statutes, regulations, rules, orders and all applicable restrictions imposed by any governmental or regulatory body except those being contested in good faith by 30 35 appropriate proceedings and except where the failure so to comply would not have a Material Adverse Effect on the Borrower or the General Partner and would not result in the forfeiture or sale of the Land, and (ii) maintain all licenses and permits necessary properly to conduct General Partner's business or own General Partner's properties except where the failure to do so would not have a Material Adverse Effect on the Borrower or the General Partner.] [Intentionally omitted.] 9.2 Information; Financial Reports. (a) Borrower shall promptly: (i) furnish to Lender such data and information, financial and otherwise, concerning the Improvements as Lender may from time to time reasonably request; (ii) furnish to Lender each and every quarterly and annual financial statement of Kmart filed with the Securities and Exchange Commission during the term of the Lease, including, but not limited to, balance sheets, income statements, statements of cash flows and related financial data; (iii) notify Lender of any condition or event which constitutes a Default or Event of Default or breach, default or repudiation of any covenant, condition, warranty, representation or provision of the Note[s] or any of the Loan Documents, the Lease Documents, occurrence of a Triggering Event (as defined under the Note Put Agreement), and of any material adverse change in the financial condition of Borrower or, to Borrower's knowledge, Kmart; and (iv) permit any authorized representative of Lender upon prior notice to inspect, in Borrower's principal office, the books of account of Borrower (and to make extracts or copies therefrom) and to discuss the affairs, finances and accounts of Borrower; and (v) provide Lender on request any and all information, including but not limited to, the information described in Section 9.2 (b), with respect to Borrower, its Affiliates, the Demised Premises and any and all related real property, and any and all information with respect to any of the foregoing, all of which Lender shall be entitled to rely upon in preparation of any filings with the Securities and Exchange Commission and any applicable state securities agency in compliance with applicable law. (b) Borrower shall furnish or cause to be furnished to Lender: (i) Upon Lender's request after an Event of Default within ten (10) days after the end of each month, the following statements reflecting the financial condition of Borrower at the end of such month and the results of its operations for such month: (A) a balance sheet; (B) an income statement; (C) a statement of cash flows; (D) a statement of changes in partners' equity, and (E) a statement of amounts due to or from Borrower from or to any individual or entity directly or indirectly related to Borrower, all in reasonable detail and duly certified as complete and correct by the [General Partner] [__________] of Borrower. Such financial statement shall be accompanied by a statement of [the General Partner] [________] to the effect that, to the best of its knowledge, there exists no condition or event which constitutes a Default or an Event of Default under this Agreement or specifying the nature and period of existence of any such condition or event and the action Borrower is taking or proposes to take with respect thereto. (ii) As soon as practicable after the end of each fiscal year of Borrower, and in any event within ninety (90) days thereafter, the following financial statements reflecting the 31 36 financial condition of Borrower at the end of such year and the results of its operations: (A) A balance sheet, (B) an income statement, (C) a statement of cash flows, (D) a statement of changes in [partners'] [members'] equity, (E) a statement of changes in financial position, (F) a statement of amounts due to or from Borrower from or to any entity directly or indirectly related to Borrower, and (G) a statement of contingent liabilities not otherwise reflected in such financial statements or the notes thereto; setting forth in each case in comparative form figures from the previous fiscal year, all in reasonable detail. The information required by clauses (A), (B), (C), (D) and (E) shall be certified as complete and correct by the [General Partner] [________] of Borrower, provided that, if an Event of Default has occurred, such information shall be audited and certified by an independent certified public accountant as fairly presenting the financial condition or results of operation of the Borrower. All such financial statements and reports shall be accompanied by a statement by the [General Partner] [________] of Borrower that, to the best of its knowledge, there exists no condition or event which constitutes a Default or an Event of Default under this Agreement, or specifying the nature or period of existence of any such condition or event and the action Borrower is taking or proposes to take with respect thereto. (iii) Within ten (10) days after the filing of same with the Internal Revenue Service, copies of the timely filed federal income tax returns (together with all amended returns relating thereto) of Borrower. (iv) Promptly upon receipt thereof, copies of all other detailed financial reports, if any, submitted to Borrower by independent accountants in connection with any annual or interim compilation or review of the affairs or the books of Borrower made by such accountants. (c) Nothing in this Section 9.2 shall be interpreted to modify, reduce or limit in any manner the provisions of Section 9.3. 9.3 Restriction of Borrower Activities. (a) Until the Note[s] [has] [have] been paid in full and fully discharged, Borrower will not, on or after the date of execution of this Agreement, (i) engage in any business or investment activities other than those necessary for, incident to, connected with or arising out of owning and leasing the Demised Premises (including any additions or alterations thereto provided for in the Lease), (ii) except as may be provided herein or contemplated hereby, incur any indebtedness (other than the Loan), (iii) amend, or propose to the [limited partners] [members] of Borrower for their consent any amendment of, the [Partnership] [Operating] Agreement of Borrower (or, if Borrower by any means complying with the provisions of this Agreement shall be a successor to the person named as the Borrower in this Agreement, amend, consent to 32 37 amendment or propose any amendment of the governing instruments of such successor) without giving notice thereof in writing, not less than thirty nor more than ninety days prior to the date on which such amendment is to become effective, to Lender and without first obtaining the written consent of Lender which shall not be unreasonably withheld, or (iv) take any action or omit to take any action, which action or omission results in a breach of the representations and warranties set forth in Section 5.20(a). In the event of any modification or amendment of the [Partnership] [Operating] Agreement of Borrower, Lender may impose all such documentary, title insurance, opinion of counsel or recording and filing conditions and requirements as Lender may determine in its sole discretion are reasonably required on a conservative basis or are prudent to assure that Lender's rights under this Agreement, the Note[s] and the other Loan Documents and Lease Documents will be maintained in full force and effect and will not be impaired. (b) [Until the Note[s] [has] [have] been paid in full and fully discharged, the General Partner will not, on or after the date of execution of this Agreement, (i) engage in any business or investment activities other than those necessary for, incident to, connected with or arising out of serving as General Partner of Borrower; (ii) except as may be provided herein or contemplated hereby, incur any indebtedness (other than the Loan), (iii) amend, or propose to its shareholders for their consent any amendment of, its Articles of Incorporation or Bylaws (or, if the General Partner by any means complying with the provisions of this Agreement shall be a successor to the entity named as the General Partner in this Agreement, amend or consent to amendment or propose any amendment of the governing instruments of such successor) without giving notice thereof in writing not less than thirty (30) nor more than ninety (90) days prior to the date on which such amendment is to become effective to Lender and without first obtaining the written consent of Lender, which shall not be unreasonably withheld, or (iv) take any action or omit to take any action, which action or omission results in a breach of the representations and warranties set forth in Section 5.20(b). In the event of any modification or amendment of such Articles of Incorporation or Bylaws, Lender may impose all such documentary title insurance, opinion of counsel and/or recording and filing conditions and requirements as Lender may determine in its sole discretion are reasonably required on a conservative basis or are prudent to assure that Lender's rights under this Agreement, the Note[s] and other Loan Documents will be maintained in full force and effect and will not be impaired.] [Intentionally omitted.] 9.4 Ownership of Project; No Encumbrances. (a) Borrower (i) has and will have full power and authority to mortgage and pledge its interest in the Mortgaged Estate in the manner and form granted in the Mortgage or intended and such grant is valid and effective, (ii) will preserve its title to the Mortgaged Estate, subject only to Permitted Encumbrances, (iii) will forever warrant and defend the same to Lender against the claims of all persons claiming by, through or under Borrower, 33 38 except claims arising from Permitted Encumbrances, and (iv) will take all action to insure the Mortgage constitutes a valid first lien interest in Borrower's [fee] [leasehold] interests in the Mortgaged Estate (subject only to Permitted Encumbrances) and a first priority security interest on all Borrower's personal property included within the Mortgaged Estate. (b) Except as otherwise expressly provided in this Agreement or any other Loan Document, Borrower will not (i) permit any lien (other than the Permitted Encumbrances), levy, attachment, or restraint to be made or filed against the Mortgaged Estate or any portion thereof or interest therein by reason of its own act or omission, or permit any receiver, trustee, or assignee for the benefit of creditors to be appointed, to take possession of any of Borrower's assets or any portion of any of the foregoing, or (ii) encumber or allow the encumbrance of the Mortgaged Estate or any portion of the Mortgaged Estate or any personal property owned by Borrower and used in connection with the use, occupancy, or operation of the Project in any way, including any of the Security, without prior written consent of the Lender. (c) When available, pursuant to the Mortgage, Security Agreement and Assignment of Rents ("Second Mortgage"), Borrower shall request and obtain the discharge and release provided for pursuant to Section 29 of the Second Mortgage. 9.5 Recording. (a) Borrower will, upon the execution and delivery hereof and thereafter from time to time following satisfaction of the requirements of Section 6.1(e), cause or cooperate with Lender to the extent requested in causing the Mortgage, Lease Assignment and such other instruments as may be required and financing statements with respect thereto (collectively, "Recordable Documents") to be filed, registered and recorded as may be required by present or future law, to publish notice thereof and create, perfect and protect the lien and security interest of the Recordable Documents upon the Mortgaged Estate, Lease and other items comprising the Security and as may be required by present or future law to publish notice of and protect the validity of this Agreement, the Lease, the Lease Guaranty, the Mortgage, the Note[s] and other Loan Documents and Lease Documents. (b) Borrower will from time to time perform or cause to be performed any other act required by law and will execute or cause to be executed any and all further instruments (including financing statements, continuation statements and similar statements with respect to the Note[s] and any of the Loan Documents) reasonably requested by the Lender for such creation, perfection, publication and protection. Borrower shall pay or cause to be paid all filing, registration and recording taxes and fees incident thereto and all expenses, taxes, assessments and other governmental charges incident to or in connection with the preparation, execution, delivery or acknowledgement of the Recordable Documents, any instruments of further assurance, the Note[s] and the Loan Documents. 9.6 Termination of the Lease Documents. Until the Note[s] [is] [are] paid in full and fully discharged and the Mortgage has 34 39 been terminated pursuant to its terms, Borrower (i) hereby waives any present or future right to terminate the Lease, [Ground Lease], Lease Guaranty, [Consent and Agreement], and (ii) shall not exercise any such termination right, whether or not permitted by the express provisions of such documents, without the prior written consent of Lender. If Tenant terminates the Lease, Borrower may re-lease the Demised Premises only with the prior written consent of Lender, which consent shall be given in the sole and absolute discretion of Lender and as such may be unreasonably withheld. 9.7 Amendments to Lease or Lease Guaranty. Borrower will not enter into any Material Modification (as defined in the Consent and Agreement) of the Lease or enter into any amendment or modification of the [Ground Lease,] Lease Guaranty or other Lease Documents without the prior written consent of Lender. 9.8 Litigation; Default. Borrower will give or cause to be given to Lender prompt notice of: (a) any litigation or claims of which Borrower has actual knowledge which might have a Material Adverse Effect on the Borrower [or the General Partner]; (b) all complaints and charges filed by any federal, state, county, city or other political subdivision of any of the foregoing of which Borrower has actual knowledge which now or hereafter has jurisdiction over Borrower or all or any portion of the Demised Premises (i) which may have a Material Adverse Effect on the Borrower [or the General Partner] or (ii) may result in such governmental body exercising supervision or control of Borrower or its business or assets which may delay or require changes in construction or occupancy of the Improvements or impair the Security or adversely affect any of Lender's rights under the Note[s] or the Loan Documents; (c) any Default or Event of Default which Borrower has actual knowledge of; and (d) any breach by Tenant under the Lease, by Kmart under the Lease Guaranty or by either of them under any other Lease Document, of which Borrower has actual knowledge. 9.9 Insurance. (a) From and after the date hereof, Borrower will carry and maintain (or cause to be carried or maintained) in full force and effect insurance which satisfies the requirements of the Lease, shall prepay all premiums in respect thereof through the Rental Commencement Date, and, for any lease other than the Lease, which satisfies the requirements set forth in Exhibit 6.1A. (b) In the event of any loss or claim known to Borrower, Borrower will give immediate written notice thereof to Lender and, 35 40 subject to the Lease, Lender may make proof of loss if not made promptly by Borrower. Subject to the terms of the Lease, each insurance company is hereby authorized and directed to make payment for such loss directly to Lender instead of to Borrower. Subject to the terms of the Lease, insurance proceeds or any part thereof may be applied by Lender at its option, either to the reduction or repayment of the Note[s], including the Make-Whole Premium, or to the repair, rebuilding and restoration of the Improvements lost, damaged or destroyed, but Lender shall not be obligated to see to the proper application of any amount paid over to Borrower; provided, however, that Lender shall apply such insurance proceeds to the prepayment of the Note[s] required pursuant to Section 3.3 hereof in the event of a termination of the Lease with respect to the Demised Premises thereunder by the Tenant pursuant to the provisions of Article 17(c) of the Lease. Notwithstanding the foregoing sentence: (i) if no Default or Event of Default exists hereunder and no default exists under the Note[s] or the Loan Documents, (ii) if the Lease has not been terminated in whole or in part as a result of the loss in respect of which such proceeds are paid, and (iii) subject to the terms of the Lease, in the case of any such loss, damage or destruction of the Improvements as to which rebuilding or repair of the Improvements can be accomplished prior to the Maturity Date, Lender shall allow Borrower to elect within thirty (30) days of the date of any such loss or claim by written notification of Lender and Trustee to utilize insurance proceeds to the extent necessary to effect the repair, rebuilding or restoration of the portion of the Demised Premises. In the event that Lender allows or is required to permit proceeds to be used for the repair, rebuilding and restoration of the portion of the Demised Premises, Lender may, to the extent permitted under the Lease, direct that insurance proceeds be placed in a segregated account with Lender, Tenant or an escrow agent approved by each with such insurance proceeds to be used for the repair, rebuilding and restoration of the insured loss through the procedures set forth herein, and with such other safeguards and procedures for release of such proceeds and payment of the relevant construction and related expenses as institutional lenders normally impose for advances of construction loan funds (which may include requirements that Borrower first expend any difference between such proceeds and the total cost of repair, rebuilding and restoration). In the event proceedings have been commenced for foreclosure of the Mortgage or in the event Lender shall take possession of the Land, all right, title and interest of Borrower in and to any insurance policies then in force, including any right to unearned premium, shall inure to the benefit of and pass to Lender or the purchaser of the Demised Premises upon foreclosure, as the case may be. At Lender's election, evidence of such insurance satisfactory to it shall be delivered to it in lieu of such policy or policies. 9.10 [Partnership] [Limited Liability Company] Matters of Borrower. Borrower [and the General Partner], by executing this Agreement: (a) approves and ratif[y][ies] the terms and provisions of this Agreement, the Note[s] and the other Loan Documents; (b) waives all conflicting provisions of the Borrower's [Partnership] [Operating] Agreement as among Borrower, [the General Partner] 36 41 and Lender; and (c) agree that Lender shall have no duty to inquire into the powers of Borrower, [General Partner] or other persons acting or purporting to act on Borrower's behalf and shall have no responsibility whatsoever to determine or be concerned with any provisions of the [Partnership] [Operating] Agreement or any fiduciary or other duty of Borrower [or General Partner] to any other person or entity. Nothing in this Section 9.10 shall affect any powers, rights or obligations by or between or among Borrower and any entities or individuals other than Lender. The sole purpose of this Section 9.10 is for Borrower [and the General Partner] to waive and eliminate any duty or obligation of Lender to determine or be concerned with any such powers, rights or obligations. 9.11 [Corporate Matters of the General Partner. The General Partner, by executing this Agreement: (a) approves and ratifies the terms and provisions of this Agreement, the Note[s] and the other Loan Documents; (b) waives all conflicting provisions of the Articles of Incorporation and Bylaws of the General Partner as among Borrower, the General Partner and Lender; and (c) agrees that Lender shall have no duty to inquire into the powers of the General Partner or the persons acting or purporting to act on its behalf and shall have no responsibility whatsoever to determine or be concerned with any provisions of such Articles of Incorporation and Bylaws or any fiduciary or other duty of Borrower, the General Partner or any director, officer or shareholder thereof to any other person or entity. Nothing in this Section 9.11 shall affect any powers, rights and obligations by and between or among the General Partner and any entities or individuals other than Lender. The sole purpose of this Section 9.11 is for the General Partner to waive and eliminate any duty or obligation of Lender to determine or be concerned with any such powers or obligations.] [Intentionally omitted.] 9.12 Change in Entity or Management. Except as permitted under Section 6.09 of the Mortgage, until payment in full of the Note[s] [neither] Borrower [nor the General Partner] shall [not] dissolve or liquidate or merge or consolidate with or into any other entity or turn over the control or management (other than pursuant to a property management agreement subordinate to the Mortgage) or operation of its property, assets or business to any other person, firm or corporation [or permit the [General Partner] [Manager] or [shareholders] [members] of 25% or more of its outstanding [voting stock] [equity interest] to withdraw or cease to be the General Partner or such shareholders members or permit any other person to become an additional [general partner] [Manager] of the Borrower; provided, however, the [General Partner] [Manager] or the then existing [shareholders] [equity interest owners] of the [General Partner] [Manager] may acquire the interest of any [shareholder] [member] who dies, becomes incompetent or becomes bankrupt or insolvent [or permit any other person to become the ___________ of Borrower, or permit 25% or more of the ownership interest of __________ in the Borrower to be transferred]. 9.13 Reimbursement of Certain Legal Expenses. Borrower shall reimburse Lender on demand for any and all reasonable legal fees and other out-of-pocket expenses Lender incurs in connection with the preparation, execution and delivery of any modification, amendment, alteration or consent to any of the terms or provisions of this Agreement, the Note[s] or any other Loan Document, including, 37 42 without limitation, the reasonable charges and disbursements of Lender's counsel, any special counsel or any special local counsel. 9.14 Tenant Estoppels. Upon request by Lender Borrower shall request of Tenant an Estoppel Certificate addressed to Landlord and Lender complying with the provisions of the Lease [and Ground Lease]. SECTION 10. DEFAULT. 10.1 Events of Default. In the event of a Default in the performance by the Borrower of any provisions hereunder, Borrower in some cases may be entitled to notice and opportunity to cure the Default or Defaults. In those circumstances when Borrower is entitled to notice and opportunity to cure, the specific time period shall be provided or referred to in this Section below, provided, however, that no such notice or opportunity to cure any such Default shall be required if the granting of such notice or opportunity to cure such Default would, in the reasonable judgment of Lender, jeopardize Lender's position in the Security, or otherwise jeopardize collection of the Note[s] in accordance with its [their] terms. If there is no time period provided or referred to in this Section below then Borrower is not entitled to written notice prior to the acceleration of the Note[s]. The term "Event of Default", as used in this Agreement, shall mean the occurrence or happening, at any time and from time to time, of any one or more of the following events: (a) default in payment or prepayment of the principal of, Make-Whole Premium, if any, or interest on, the Note[s] when and as the same shall become due and payable, whether at the due date thereof or at the date fixed for prepayment or by acceleration or otherwise; (b) at any time the lien of the Mortgage may be impaired by any lien, encumbrance or other defect, and, except as provided in Section 8.6, either (i) such lien, encumbrance or other defect is not corrected within thirty (30) days after notice to Borrower, or (ii) Borrower shall fail or refuse to obtain insurance or bonding over any such lien, encumbrance or other defect to Lender's satisfaction within such 30 days; (c) Borrower assigns this Agreement or any advance to be made hereunder, or any interest in either, without the prior written consent of Lender; (d) [there is any cessation of Construction for any period after the date of commencement in excess of fifteen (15) days, unless excused pursuant to Section 8.1(b), or if Construction is abandoned, or if Borrower is in default under the terms of [either of] the Construction Fund Disbursement Agreement[s], or the Construction is not completed in compliance with this Agreement on or before the Outside Possession Date except as extended pursuant to Section 8.1(b)]; [Intentionally omitted.] (e) [Borrower executes any security agreement on any materials, fixtures or articles used in the Construction or on articles of personal property located on the Land or to be 38 43 incorporated into the Demised Premises, except as permitted by the Mortgage, or any such materials, fixtures or articles are not substantially in accordance with the Plans and Specifications, or are purchased pursuant to any conditional sales contract or other security agreement so the ownership thereof will not vest unconditionally in Borrower free from liens or encumbrances other than those granted Lender, or Borrower does not furnish to Lender within ten (10) days of request therefor the contracts, bills of sale, statements, receipted vouchers and agreements or any of them under which Borrower claims title to such materials, fixtures or articles]; [Intentionally omitted] (f) [Lender determines that the estimated cost to complete the Construction and pay the items described in Section 7.1 is in excess of the Loan Amount available to Borrower to complete and pay for such Construction and items]; [Intentionally omitted] (g) [Borrower does not disclose to Lender within five (5) days after demand therefor the names of all contractors, subcontractors, persons, firms and corporations with whom Borrower contracted or intends to contract for the Construction or the furnishing of labor or materials or fails to deliver to Lender upon request copies of all such contracts; (h) any representation or warranty contained herein, in the Note[s] or in the Loan Documents or any representation to Lender concerning the financial condition or credit standing of Borrower or any other Indemnitor that is a party to the Hazardous Materials Indemnity Agreement proves to have been false or misleading in any material respect when made]; [Intentionally omitted] (i) the Borrower [or General Partner] shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in any involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any action to authorize any of the foregoing; (j) an involuntary case or other proceeding shall be commenced against the Borrower [or General Partner] seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; 39 44 (k) the insurance required herein and under the Mortgage is cancelled, and replacement insurance satisfactory to Lender is not obtained by the effective date of cancellation; (l) any governmental approval, right or license which Borrower is required by applicable law or regulation to obtain to [construct or] operate the Demised Premises, and the loss of which will have a Material Adverse Effect, is suspended, revoked or terminated, or Borrower fails to obtain and/or maintain such approval, right or license in full force and effect (collectively, "Appealable Event"), provided, however, if such Appealable Event is promptly and diligently appealed in accordance with applicable law or regulation and Lender, in its reasonable judgment, determines that such Appealable Event shall not have a Material Adverse Effect on the Borrower or the Mortgaged Estate prior to the completion of such appeal, the occurrence of the Appealable Event shall only be deemed an Event of Default upon completion of the appeal resulting in a decision which in the reasonable judgment of Lender has a Material Adverse Effect on Borrower; (m) a default under any of the other Loan Documents (other than the Lease, Lease Guaranty, Indemnity Agreement and Note Put Agreement) [or the Ground Lease] occurs and is continuing beyond any applicable grace period; provided, however, a default under Section 6.09 of the Mortgage shall constitute an Event of Default which is not subject to cure; (n) a default exists under the Lease which is not cured within any applicable grace period, and Kmart is in default pursuant to the Lease Guaranty or the Indemnity Agreement with respect to the Lease default, or a default or event of default otherwise exists under the Lease Guaranty or the Indemnity Agreement and is not cured within any applicable grace period; (o) Lender exercises the Put, and Kmart defaults in the performance of its obligations pursuant to the Note Put Agreement, and such default is not cured within any applicable grace period; or (p) failure of Borrower [or General Partner] to timely and properly observe, keep or perform any term, covenant, condition, agreement, or obligation required to be observed, kept or performed herein, in the Note[s] or in any of the other Loan Documents which has not been specifically referred to in the Subsections above. Borrower [or General Partner] shall have thirty (30) days after notice under this Agreement within which to cure any default arising under this Section 10.1 except for a default: (i) in payment of any sum pursuant to [the] [any] Note or any other payment due and payable pursuant to any of the Loan Documents which is not cured within any applicable grace period provided in such Loan Documents; (ii) under [the] [any] Note or under any of the Loan Documents for which a different cure period is specified therein; or (iii) under Subsection (b), Subsection (c), Subsection (d), Subsection (h), Subsection (i), Subsection (j), Subsection (k), 40 45 Subsection (l), Subsection (m) or (n) except as otherwise provided therein, or Subsection (o). 10.2 Lender's Remedies. If any Event of Default occurs, Lender may, in addition to all remedies at law or in equity under the Mortgage, the Note[s] and other Loan Documents, at its option, declare the whole of the unpaid principal and unpaid accrued interest evidenced by the Note[s] and, to the extent not prohibited by applicable law, an amount as liquidated damages for the loss of the bargain evidenced hereby (and not as a penalty) equal to the Make-Whole Premium to be immediately due and payable, without, except as provided above, notice of any kind, including, but not limited to, notice of intent to accelerate and notice of acceleration, or demand, and Lender shall be entitled to commence proceedings for immediate foreclosure of the Mortgage and may, additionally or alternatively, subject to the provisions of Section 11, avail itself of any other relief or remedy to which Lender may be legally or equitably entitled under the Note[s], the other Loan Documents or otherwise. 10.3 [Inspections of Improvements. Lender or its agents at all times shall have the right, but not the obligation, to enter upon the Demised Premises during the period of Construction. Any inspection by Lender of the Demised Premises is for the purpose of protecting the Lender's position in the Security, and no such inspection shall be a representation by Lender that there has been a strict compliance upon the part of the general contractor or any subcontractor with the Plans and Specifications or that the Construction is free from faulty material or workmanship, nor shall any inspection by Lender constitute approval of any certification given to Lender or relieve any person making such certification of responsibility therefor.] [Intentionally omitted.] 10.4 Reimbursement of Lender. In the event of any conflict, claim or dispute between the parties hereto affecting or relating to the purpose or subject matter of this Agreement, Lender shall be entitled to receive all expenses, including but not limited to, 41 46 reasonable attorneys' fees and disbursements actually incurred or expended, and accounting fees actually incurred or expended. All monies advanced by Lender under the terms of this Agreement and all amounts paid, suffered or incurred by Lender in exercising any authority or rights granted herein, including attorneys' fees and disbursements and accounting fees as stated above, shall be added to the amounts payable under the Note[s], shall be secured by the Mortgage and other Loan Documents, shall bear interest at the Overdue Rate (as defined in the Note[s]) until paid and shall be due and payable by Borrower to Lender immediately without demand. 10.5 Cumulative Remedies. All remedies of Lender provided for in this Agreement are cumulative and shall be in addition to any and all other rights and remedies provided in the Note[s], the Loan Documents, any other instrument executed by Borrower in connection with the Loan, or by law. The exercise of any remedy hereunder shall not in any way constitute a cure or waiver of an Event of Default, or invalidate any act done pursuant to any notice of an Event of Default, or prejudice Lender in the exercise of any of its rights hereunder or elsewhere unless, in the exercise of such rights, Lender realizes all amounts owed to it under the Note[s], the Mortgage and any other Loan Document. The rights and remedies provided Lender by this Agreement, the Note[s] and the Loan Documents shall be cumulative. All rights, powers and remedies granted Lender herein or otherwise available to Lender are for the sole benefit and protection of Lender, and Lender may exercise any such right, power or remedy at its option and in its sole and absolute discretion without any obligation to do so. In addition, if under the terms hereof Lender is given two or more alternative courses of action, Lender may elect any alternative or combination of alternatives, at its option and in its sole and absolute discretion. 10.6 Inspection of Books and Records. Lender, through its officers, agents or employees, shall have the right at all times upon prior notice, if Borrower is not in default, and without notice, if Borrower is in default, to inspect, examine, copy and make extracts of the books, records, accounting data and other documents, including without limitation all permits, licenses, consents and approvals issued to Borrower of all governmental authorities having jurisdiction over Borrower, the Construction or the Demised Premises. Such books, records and documents shall be made available to Lender at Borrower's office promptly upon demand therefor. Lender shall have no, and is not assuming any, responsibility or duty to supervise or to inspect any books and records, nor shall any inspection or verification by Lender constitute approval of any certification given to Lender, such inspections and verifications (specifically including inspections and verifications under Section 5) being for the exclusive benefit and protection of Lender. Lender shall in no event have any obligation to take any action pursuant to this Section 10 or any other provision of this Agreement, the Note[s] or any of the other Loan Documents or to mitigate any damages. Further, Lender shall have no obligation to inspect or take any action with respect to 42 47 the Demised Premises, and shall not be subject to any liability for any failure to inspect or to take any other action pursuant to this Agreement, the Note[s], or any other Loan Document or with respect to the Demised Premises. [Failure to inspect the Construction or any part thereof shall not constitute a waiver of any of Lender's rights hereunder.] Inspection not followed by a notice of Default shall not constitute a waiver of any Event of Default then existing. 10.7 Recapture. To the extent any holder of [the] [a] Note receives any payment by or on behalf of Borrower, which payment or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to Borrower or its respective trustee, receiver, custodian, liquidator or any other party under bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such payment or repayment, the obligation or part thereof which has been paid, reduced or satisfied by the amount so repaid shall be reinstated and shall be included within the liabilities of Borrower to the holder of [the] [such] Note as of the date such initial payment, reduction or satisfaction occurred. SECTION 11. BORROWER LIABILITY. 11.1 Recourse Limitation. Notwithstanding anything to the contrary contained herein, in the Note[s] or in any Loan Documents, but without in any manner affecting the validity of the Note[s] or the lien of the Mortgage or any other instrument securing the Note[s], upon the occurrence of an Event of Default under [the] [a] Note or under the terms of any of the other Loan Documents, or upon the maturity of [the] [a] Note, whether by acceleration or the passage of time or otherwise, the recourse of Lender as it relates to Borrower or its partners shall be (i) solely by judicial foreclosure or other remedies set forth in the Mortgage, the Note[s] or other Loan Documents, (ii) as set forth in Section 10, including, without limitation, the appointment of a receiver for the collection of any rents, income and profits, and (iii) as set forth in the Lease Documents. Subject to the limitations set forth below, there shall be no personal liability of Borrower or its [partners] [members] for the payment of principal or interest or other amounts which may become due and payable on or under the terms of the Note[s], this Agreement or any other Loan Documents. Subject to the limitations set forth below, Lender shall look solely to the Security upon foreclosure of the lien or security interests under any of the Loan Documents, and no deficiency judgment for amounts unsatisfied after the application of such Security and the proceeds thereof shall ever be instituted, sought, taken or obtained against Borrower or its [partners] [members] for any amounts which become due and owing. Nothing contained in this Section shall be deemed to prejudice the rights of Lender to recover all: (a) funds, damages or costs (including without limitation, attorneys' fees and disbursements) incurred by Lender as a result of fraud, willful misconduct, intentional misrepresentation or intentional breach of any representation or warranty by or on behalf of Borrower; (b) 43 48 condemnation or insurance proceeds, or other similar funds or payments attributable to the Security or any other property or collateral held as security for the Note[s], which under the terms of any Loan Document should have been paid to Lender but which has been retained by Borrower or an Affiliate of Borrower; (c) unpaid principal balance of the Note[s], Make-Whole Premium and accrued interest in the event the Mortgage, Lease Assignment or Pledge Agreement fails to create and perfect a first and prior lien or security interest upon the Land, Improvements or other Security; (d) any present or future tenant security deposits, Advance or Prepaid Rents or other rents, or other similar sums paid to and held by or for the account of Borrower at the time of any default under the Note[s] or other Loan Documents or upon the maturity of [the] [a] Note by acceleration or otherwise; (e) amounts recoverable under the Hazardous Materials Indemnity Agreement executed and delivered by the Borrower and any of the other required parties thereto pursuant to this Agreement; (f) damages in any tort action arising out of conversion, waste, fraud, misappropriation or other tortious conduct of Borrower [or the General Partner]; (g) any protective advances that shall have been made or enforcement costs that shall have been incurred by Lender pursuant to the provisions of the Note[s] or the Loan Documents; and (h) costs and attorneys' fees and disbursements that may be incurred by Lender pursuant to the terms of the Note[s] or the Loan Documents. "Advance or Prepaid Rents" shall mean all rents properly allocable to a period subsequent to the date received and unearned under the terms of the Lease. In addition, nothing contained herein shall (x) be, or be deemed to be, a release or impairment of any part of the indebtedness evidenced by the Note[s], or of the lien or security interest of any Loan Document, or (y) limit or otherwise prejudice in any way the rights of Lender to foreclose the Mortgage or, subject to the recourse limitation set forth in this Section 11.1, to enforce any of its other rights or remedies under the Note[s] or under any other Loan Document. 11.2 Loss of Limited Recourse. Notwithstanding any other provision hereof, of the Note[s] or of the Loan Documents, nothing contained herein or therein shall limit or otherwise prejudice in any way, the recourse of Lender against Borrower in the event the presence of Hazardous Materials are discovered in, on or beneath the surface of the Land and are not remediated to the satisfaction of Lender in its sole discretion prior to the commencement of any action or proceeding seeking such recourse which recourse is limited to the greater of the actual cost of such remediation or the diminution in value of the Demised Premises if such remediation cannot be completed; provided, however, this provision shall in no event be construed to limit or modify Lender's recourse under the Hazardous Materials Indemnity Agreement. 11.3 Judicial or Other Proceedings. Nothing contained in Section 11.1 shall prevent Lender from naming or joining Borrower [or the General Partner] against whom recourse is limited in any judicial or other proceeding which the Lender determines in good faith is necessary because of any jurisdictional or notice or 44 49 procedural law or rule, provided that any judgment obtained shall not (except as otherwise provided in Section 11.1) be satisfied from any property of such party that has not been given as Security. SECTION 12. WAIVERS. 12.1 Waiver by Borrower [and General Partner]. In respect of the Note[s] and the Loan Documents, Borrower [and the General Partner] waive presentment, demand, protest and notices of protest, nonpayment, partial payment and all other notices and formalities, except as expressly provided for in this Agreement. Borrower [and the General Partner] further consent to and waive notice of (i) the granting of indulgences or extensions of time or payment, (ii) the taking or releasing of security, and (iii) the addition or release of persons who may be or become primarily or secondarily liable for the Loan or any other indebtedness or any part thereof secured by the Mortgage or other Loan Documents, all in such a manner and at such time or times as Lender may deem advisable. 12.2 Waiver by Lender. Lender may waive any requirement herein. No delay or omission by Lender in exercising any right, power or remedy hereunder and no indulgence given to Borrower or to any other party with respect to any conditions set forth herein shall impair any right, power or remedy of Lender under this Agreement or be construed as Lender's waiver of or acquiescence in any Event of Default. No such delay, omission or indulgence by Lender shall be construed as a variation or waiver of any of the terms, conditions or provisions of this Agreement. No purported waiver of any Event of Default shall be effective unless it is written and signed by an authorized representative of Lender. No waiver by Lender of any Event of Default shall constitute a waiver of any other prior or subsequent Event of Default or of the same Event of Default after notice to Borrower demanding strict performance. No single or partial exercise of any right, power or remedy shall preclude any other or further exercise thereof or of any other right, power or remedy. All rights, powers and remedies existing under this Agreement, the Note[s] and the other Loan Documents are in addition to and not exclusive of any rights, powers or remedies otherwise available. Lender shall not be estopped to take, or from taking, any action with respect to any Event of Default because of any delay by Lender in giving notice of Default or in exercising any remedy based thereon. 12.3 Waiver of Jury Trial. Borrower and Lender hereby irrevocably and unconditionally waive all right to trial by jury in any action, suit, proceeding or claim that relates to or arises out of the Note[s] or any of the Loan Documents or the acts or failure to act of or by the parties in the enforcement of any of the provisions of the Note[s] or any of the Loan Documents. SECTION 13 ACTION UPON AGREEMENT; ENTIRE AGREEMENT; AGREEMENT FOR PARTIES' BENEFIT. This Agreement is made for the sole protection and benefit of the parties and no other person or persons shall 45 50 have any right of action hereon, provided that Lender may freely assign or transfer its rights under this Agreement. Other than as provided in the Mortgage, Borrower may not assign, sell or otherwise transfer any of its rights under this Agreement and any such purported assignment, sale or transfer shall be void and constitute an Event of Default which is incapable of cure. This Agreement embodies the entire agreement of the parties in relation to the subject matter hereof. There are no prior or contemporaneous representations, promises, warranties, understandings or agreements, expressed or implied, oral or otherwise, in relation to the subject matter of this Agreement, except those expressly referred to or set forth herein, in the Note[s] or in the Loan Documents. Borrower acknowledges that the execution and delivery of this Agreement is its free and voluntary act and deed, and that such execution and delivery have not been induced by, nor done in reliance upon, any representations, promises, warranties, understandings or agreements made by Lender, its agents, officers, employees or representatives. No promise, representation, warranty or agreement made subsequent to the execution and delivery hereof by either party hereto, and no revocation, partial or otherwise, or change, amendment, addition, alteration or modification of this Agreement shall be valid unless the same be in writing signed by all parties hereto or by their duly authorized agents. SECTION 14. SUCCESSORS AND ASSIGNS. 14.1 General. This Agreement shall be binding upon the Borrower (and its respective successors and assigns) and shall be binding upon, and inure to the benefit of, Lender, and Lender's successors and assigns, including [the Trustee and] each successive holder or holders of the Note[s]. [The Trustee and] each successive holder or holders of the Note[s], [including the Trustee,] and the holders of the Certificates (defined in Section 14.2) shall have all rights and privileges of the "Lender" hereunder. 14.2 Consent to Assignment. Notwithstanding any other provision of this Agreement, Borrower [and General Partner each] hereby acknowledges and consents to the sale, conveyance, transfer and absolute assignment simultaneously with the Closing by Lender of all of its right, title and interest in and under [this Agreement and under the Note, the Mortgage and all other Loan Documents to Trustee pursuant to the Trust Agreement under which the Mortgage Pass-Through Certificates ("Certificates") will be issued] [(I) the Series A Note to the Series A Pass-Through Trustee pursuant to the Series A Pass-Through Trust Agreement under which the Series A Mortgage Pass-Through Certificates (________________) will be issued; (ii) the Series B Note to the Series B Pass-Through Trustee pursuant to the Series B Pass-Through Trust Agreement under which the Series B Mortgage Pass-Through Certificates (_____________) will be issued (the Series A Certificates and Series B Certificates collectively, "Certificates"); and (iii) this Agreement, the Mortgage and other Loan Documents to the Trustee 46 51 pursuant to the Collateral Trust Agreement]. Trustee shall have the sole right to exercise all rights, privileges and remedies (either in its own name or in the name of the Lender for the use and benefit of the Trustee) which by the terms of this Agreement or by applicable law are permitted or provided to be exercised by the Lender [, provided that, as set forth in the Series A Pass- Through Trust Agreement and the Series B Pass-Through Trust Agreement, the holders of the Notes shall be entitled to exercise the rights, privileges and remedies thereof]. Borrower [and General Partner each] further acknowledges and agrees that all Borrower's [and General Partner's] representations, warranties, covenants, agreements and other obligations hereunder and under the Note[s], the Mortgage and the other Loan Documents are made for the benefit of [the Trustee and] each successive holder or holders of the Note[s], including but not limited to [the Pass-Through] Trustee[s] and the holders of the Certificates, and [the] Trustee[s] accept[s] the sale, conveyance, transfer and absolute assignment in reliance upon the Borrower's [and General Partner's] representations, warranties, covenants, agreements and other obligations hereunder and under the Note[s], the Mortgage and the other Loan Documents. In order to further induce [the Trustee and] any such successive holder or holders of the Note[s], including but not limited to [the Pass-Through] Trustee[s] and the holders of the Certificates, to accept such assignment, Borrower [and General Partner each] hereby makes the following representations, warranties, covenants and agreements: (a) to the best of [its] [their] knowledge, Borrower [and General Partner] [do] [does] not have any right, including any claim, counterclaim, right of set off or deduction or other defense of any kind to withhold payment or performance of any of their respective obligations hereunder, under the Note[s] or under any of the other Loan Documents ("Lender Defenses"); (b) in the event Borrower [or General Partner] becomes aware of any Lender Defenses, Borrower [and General Partner each] hereby waives and agrees not to assert the same against the Trustee[s], the holders of the Certificates or any other holder[s] of the Note[s]; (c) upon consummation of the sale, conveyance, transfer and absolute assignment to Trustee[s], Borrower hereby waives any right to challenge the status of the [Pass-Through] Trustee[s] as [a] bona fide purchaser[s] of the Note[s] for value and [a] holder[s] of the Note[s] [or to challenge the status of Trustee as holder of the Collateral (as defined in the Collateral Trust Agreement) in trust for the benefit of the holders of the Notes]; (d) Trustee[s] [is] [are] [a] third party beneficiar[y] [ies] of this Agreement and the other Loan Documents entered into between Borrower and Lender; and (e) upon consummation of the sale, conveyance, transfer and absolute assignment to Trustee, Trustee shall be deemed to be Lender hereunder, and shall succeed to all of the rights of Lender 47 52 hereunder [to hold and exercise for the benefit of the holders of the Notes]. SECTION 15. GENERAL. 15.1 Registered Note[s]. (a) The Borrower shall cause to be kept at its principal office a register for the registration and transfer of the Note[s] (the "Note Register") and the Borrower will register or transfer or cause to be registered or transferred as hereinafter provided any Note issued pursuant to this Agreement. (b) At any time and from time to time the registered holder of any Note which has been duly registered as hereinabove provided may transfer such Note upon surrender thereof at the principal office of the Borrower duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or its attorney duly authorized in writing. (c) The persons in whose name any registered Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes of this Agreement. Payment of or on account of the principal, Make-Whole Premium, if any, and interest on any registered Note shall be made to or upon the written order of such registered holder. 15.2 Exchange of Notes. At any time and from time to time, upon surrender of such Note at its office, the Borrower will deliver in exchange therefor, without expense to such holder, except as set forth below, a Note for the same aggregate principal amount as the then unpaid principal amount of the Note so surrendered, or Notes in the denomination of $100,000 or any amount in excess thereof as such holder shall specify, dated as of the date to which interest has been paid on the Note so surrendered or, if such surrender is prior to the payment of any interest thereon, then dated as of the date of issue, registered in the name of such person or persons as may be designated by such holder, and otherwise of the same form and tenor as the Note so surrendered for exchange. The Borrower may require the payment of a sum sufficient to cover any stamp tax or governmental charge imposed upon such exchange or transfer. 15.3 Loss, Theft, Etc., of Note. Upon receipt of evidence satisfactory to the Borrower of the loss, theft, mutilation or destruction of any Note, and in the case of any such loss, theft or destruction upon delivery of a bond of indemnity in such form and amount as shall be reasonably satisfactory to the Borrower, or in the event of such mutilation upon surrender and cancellation of such Note, the Borrower will make and deliver without expense to the holder thereof, a new Note, of like tenor, in lieu of such lost, stolen, destroyed or mutilated Note. If the Lender or any subsequent institutional investor is the owner of any such lost, stolen or destroyed Note, then the affidavit of an authorized 48 53 officer of such owner, setting forth the fact of loss, theft or destruction and of its ownership of such Note at the time of such loss, theft or destruction shall be accepted as satisfactory evidence thereof and no further indemnity shall be required as a condition to the execution and delivery of a new Note other than the written agreement of such owner to indemnify the Borrower. 15.4 Time of Essence; Counterparts. Time and the exactitude of each of the terms, conditions and provisions herein are expressly made of the essence of this Agreement. This Agreement may be executed in counterparts by the parties but all such counterparts together shall constitute one and the same document. 15.5 Governing Effect. This Agreement is not intended to supersede the provisions of the Mortgage, the Note[s] or any other Loan Documents, but shall be construed as supplemental thereto. In the event of any inconsistency between the provisions hereof and the Mortgage or the other Security documents, it is intended and agreed that this Agreement shall control on all matters other than the creation, perfection and priority of the security interests and liens granted thereby or other than as expressly provided otherwise in the Mortgage or the other Security documents. 15.6 Notices. All notices, requests, demands or other communications under this Agreement, [a] [the] Note or any other Loan Document (unless expressly provided otherwise therein) shall be in writing and shall be addressed, in the case of Borrower, to __________________________ _________________________, Attention: __________________________________________________, with a copy to _________________________________________________________________; in the case of Lender, to 40 North Central Avenue, Suite 2700, Phoenix, Arizona 85004, Attention: Norman C. Storey; and, in the case of [any of the] Trustee[s], to United States Trust Company of New York, c/o U.S. Trust Company of California, N.A., 555 South Flower Street, Suite 2700, Los Angeles, California 90071, Attention: Corporate Trust Division, or to such other address as either party may designate in writing. All notices hereunder shall be effective: (a) three (3) days after deposit in the U. S. Mail, postage prepaid, registered or certified mail, return receipt requested; (b) upon delivery, if delivered in person to the address set forth above; or (c) upon delivery, if sent by overnight courier, such as Federal Express; except that notices of change of address shall be effective ten (10) days after the effective date of all other notices hereunder. Borrower shall forward to Lender, without delay, any notices, letters or other communications delivered to the Demised Premises or to Borrower naming Lender or the "Construction Lender" as addressee, or which could reasonably be deemed to have a Material Adverse Effect on the construction of the Project or the ability of Borrower to perform its obligations to Lender. 15.7 Lender as Borrower's Attorney-in-Fact. Borrower irrevocably appoints, designates and authorizes Lender as its attorney-in-fact with full power of substitution (which 49 54 appointment, designation and authorization is coupled with an interest and shall be irrevocable) in the event Borrower fails to timely do so to file for record any notices of completion, cessation of labor or any other notice that Lender deems necessary or desirable to protect its interest hereunder or under the Note[s] or Mortgage or any other Loan Document. 15.8 Lender's Rights. Lender shall have the right to commence, appear in or defend any action or proceeding purporting to affect the rights, duties or liabilities of the parties hereunder or the disbursement or use of the Loan Amount or any portion thereof. 15.9 [Posting Financing Sign. Lender or its agents shall have the right to post a sign on the Land until the Outside Possession Date to indicate the source of financing.] [Intentionally omitted.] 15.10 Borrower Indemnification. Except for liabilities, expenses, and damages to which the provisions of the Hazardous Materials Indemnity Agreement applies, to the fullest extent permitted by law, Borrower [and General Partner each] shall protect, indemnify, defend, and save harmless Lender, its directors, officers, agents, shareholders, representatives and employees from and against any and all liability, expense, or damage of any kind or nature and from any suits, claims, or demands, including reasonable legal fees and expenses actually incurred on account of any matter or thing or action or failure to act by Lender, whether in suit or not, arising out of this Agreement or in connection herewith, unless such liability, expense, suit, claim, or damage is caused by the willful misconduct of Lender, its directors, officers, agents, shareholders, representatives and employees, or unless such liability, expense, suit, claim, or damage is deemed by a court of competent jurisdiction in a final non-appealable judgment or order to be the liability of Lender as a result of wilful misconduct by Lender, its directors, officers, agents, shareholders, representatives or employees, or unless, with respect to any such liability, expense, suit or claim which is settled by Lender, it is determined finally in a judicial or arbitration proceeding that such loss, evidenced by such settlement, is the liability of Lender as a result of wilful misconduct by Lender, its directors, officers, agents, shareholders, representives or employees. Upon receiving knowledge of any suit, claim, or demand asserted by a third party that Lender believes is covered by this indemnity, Lender shall give Borrower prompt notice of the matter and an opportunity to defend it at Borrower's sole cost and expense, with legal counsel satisfactory to Lender. Lender may also require Borrower [and General Partner each] to so defend the matter to the extent this indemnity is applicable. The obligations on the part of Borrower [and General Partner] under this Section 15.10 shall survive the Closing Date and the repayment of the Loan. 15.11 Controlling Provision. All agreements between Borrower and Lender are expressly limited so that, and Borrower and Lender intend and agree that, in no contingency or event whatsoever, whether by reason of advancement of the proceeds of the Note[s], acceleration of maturity of the unpaid principal balance thereof, 50 55 or otherwise, shall the amount paid or agreed to be paid to Lender for the use, forbearance or detention of the money to be advanced hereunder exceed the highest lawful rate permissible under applicable usury law. In the determination of the rate of interest under this provision, any charges which are determined to be interest shall be spread over the term of the Loan in ascertaining whether the interest rate has exceeded the highest lawful rate permissible under applicable law. If, from any circumstances whatsoever, fulfillment of any provision of the Note[s] or of the Mortgage securing the Note[s], or any other agreement referred to therein or otherwise relating to the Note[s], at the time performance of such provision shall be due, shall involve transcending the limit of validity prescribed by law which a court of competent jurisdiction may deem applicable thereto, then ipso facto, the obligation to be fulfilled shall be reduced to the limit of such validity, and if, from any circumstance, Lender shall ever receive as interest an amount which would exceed the highest lawful rate, such amount which would be excessive interest shall be applied to the reduction of the unpaid principal balance due as of the date such amount is received or deemed to be received by Lender and not to the payment of interest. This provision shall control every other provision of all agreements between Borrower and Lender. However, in the event an amount determined to be excessive interest is applied against the unpaid principal balance, and thereafter the rate of interest accruing under the Note[s] decreases, the Note[s] shall, in fact accrue interest at the highest lawful rate until such time that an amount accrues equal to the amount of excessive interest previously applied against principal. Notwithstanding the foregoing, if the provisions of any law or regulation of the United States or any agency or instrumentality thereof, as amended, which validly superseded any restriction of the State of New York, would permit Lender to charge or receive a rate of interest with respect to the indebtedness evidenced by the Note[s] in excess of the maximum rate of interest (if any) permitted to be charged or received by Lender under applicable law of the State of New York, the less restrictive provisions of any such United States law or regulation shall apply in determining the rate of interest permitted to be charged or received. 15.12 Section Headings. Section headings are not to be considered a part of this Agreement and are included solely for convenience of reference and are not intended to be full or accurate descriptions of the contents hereof. All persons, firms and/or entities identified by the designation "Borrower" herein shall be jointly and severally liable to Lender for the faithful performance of the terms hereof. 15.13 Applicable Law. This Agreement shall be construed and enforced under the law of the State of New York without giving effect to the choice of law principles thereof, unless preempted by the laws or regulations of the United States. 51 56 15.14 Submission to Jurisdiction. Borrower [and General Partner each] hereby consents to the jurisdiction of any state or federal court located within the County of New York, State of New York, and irrevocably agrees that all actions or proceedings relating to this Agreement, the Note[s], and the other Loan Documents may be litigated in such courts, and the Borrower [and General Partner each] waives any objection which [it] [they] may have based on improper venue or forum non conveniens to the conduct of any proceeding in any such court, waives personal service of any and all process upon them, and consents that all such service of process be made by registered or certified mail (return receipt requested) or messenger to it at its address set forth in Section 15.6, above, or to its agent, referred to below, at such agent's address, set forth below, and that service so made shall be deemed to be completed in accordance with Section 15.6. Borrower [and General Partner each] hereby appoint the CT Corporation System, Inc., with an office on the date hereof at _____________________________ New York, New York ________ as [its] [their] agent for the purpose of accepting service of any process within the State of New York and shall execute any confirmation thereof requested by Lender. Nothing contained in this Section shall affect the right of any holder[s] of the Note[s] to serve legal process in any other manner permitted by law, to bring any action or proceeding in the courts of any jurisdiction against the Borrower [or General Partner], or to enforce a judgment obtained in the courts of any other jurisdiction. 15.15 Severability. Should any provision of this Agreement, [a] [the] Note or any of the other Loan Documents for any reason be declared unenforceable by a court of competent jurisdiction (sustained on appeal, if any), such unenforceability shall not affect the enforceability of any other provision hereof or thereof, all of which shall remain in force and effect as if this Agreement, [such] [the] Note or such other Loan Document had been executed with the unenforceable provision thereof eliminated. It is the intention of the parties hereto that they would have executed the remaining provisions of this Agreement without including therein any such part, parts or portion which may for any reason be hereafter declared unenforceable, provided that, if any provision of this Agreement, [a] [the] Note or any of the other Loan Documents shall be unenforceable by reason of a final judgment of a court of competent jurisdiction based upon a court's ruling (sustained on appeal, if any) that such provision is unenforceable because of the excessive degree or magnitude of the obligation imposed thereby on any party, that unenforceable obligation shall be reduced in magnitude or degree by the minimum degree or magnitude necessary in order to permit the provision to be enforceable by Lender. In the event the provisions of the immediately preceding sentence apply, the parties shall make appropriate adjustment to the provisions of this Agreement, the Note[s] and the other Loan Documents to give effect to the benefits intended to be conferred upon the parties hereby. 15.[16] Further Assurances. Borrower [and General Partner each] shall, after the execution of this Agreement, at the request of Lender, execute, acknowledge and deliver such other documents or instruments and take any other 52 57 or further acts as may be reasonably required to evidence or confirm the transaction contemplated hereby or as may otherwise be necessary to carry out or to fulfill Borrower's [or General Partner's] covenants and obligations hereunder. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. NATIONAL TENANT FINANCE CORPORATION, a Delaware corporation By ------------------------------ Its ------------------------------ (LENDER) -------------------------------, a ------------ limited [partnership] [liability company] By ------------------------------- [a ------------ corporation,] its [sole General Partner] [________] [By ------------------------ Its ------------------------] (BORROWER) [----------------------------------, a ------------ corporation By --------------------------------- Its -----------------------------] (GENERAL PARTNER) 53 58 EXHIBITS TO LOAN AGREEMENT EXHIBIT 1.1A Legal Description of Land EXHIBIT 1.1B Plans & Specifications EXHIBIT 1.1C Description of Lease and Lease Guaranty EXHIBIT 1.2A Promissory Note[s] EXHIBIT 1.2B Loan Documents EXHIBIT 1.2C [Construction Fund Disbursement Agreement[s]] [Intentionally Omitted] EXHIBIT 1.3 Note Put Agreement EXHIBIT 5.1A Borrower's Certificate of Non-Foreign Status EXHIBIT 5.1B [General Partner's Certificate of Non-Foreign Status] [Intentionally Omitted] EXHIBIT 5.3 Documents to be Filed or Recorded EXHIBIT 5.12 Facts Relied On EXHIBIT 6.1A Insurance Requirements EXHIBIT 6.1B Title Insurance Requirements EXHIBIT 6.1C Borrower's Certificate EXHIBIT 6.1D General Partner's Certificate] [Intentionally Omitted] EXHIBIT 6.1E Survey Requirements EXHIBIT 6.1F Surveyor's Certificate EXHIBIT 6.1G Hazardous Materials Indemnity Agreement EXHIBIT 6.1H Lease Guaranty and Indemnity Agreement EXHIBIT 6.1I Other Loan Documents EXHIBIT 6.2 Form of Opinion of Borrower's Counsel EXHIBIT 7 Settlement Statement 54 EX-4.7 6 EXHIBIT 1 EXHIBIT 4.7 U.S. $____________ ____________, 199_ PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned,______________________ ("Maker"), a _________ limited [partnership] [liability company], hereby unconditionally promises to pay to the order of United States Trust Company of New York ("Payee"), a New York banking corporation, c/o U.S. Trust Company of California, N.A., 555 South Flower Street, Suite 2700, Los Angeles, California 90071 or such other address given to Maker by Payee from time to time, the principal sum of __________________________________ DOLLARS ($__________) in lawful money of the United States of America, together with interest (calculated on the basis of a 360-day year of twelve 30-day months), on the unpaid principal balance from day-to-day outstanding, computed from ___________ 199__, until Maturity (as defined below) at a rate per annum ("Note Rate") equal to the lesser of (a) the Maximum Rate, or (b) ____________ percent (____%). Section 1. Definitions. When used in this Note, the following terms shall have the respective meanings specified herein or in the Section referred to: "Business Day" shall mean any day other than (i) a Saturday or Sunday, or (ii) a day on which banks in New York are required by law to close or are customarily closed. "[Collateral] Trust Agreement" shall mean that certain [Collateral] Trust Agreement dated as of ________, 19__ between Lender and [Payee] [Collateral Trustee] pursuant to which Lender conveyed to [Payee] [Collateral Trustee] all of Lender's right, title and interest in and to the Loan Agreement, [any Note[s] issued pursuant to the Loan Agreement,] and the Loan Documents. ["Collateral Trustee" shall mean United States Trust Company of New York, a New York banking corporation, as collateral trustee pursuant to the Collateral Trust Agreement.] "Event of Default" shall have the meaning assigned to it in Section 5. "Holder" shall mean Payee, its successors and assigns and any subsequent holder hereof. "Lease Assignment" shall have the meaning assigned to it in Section 2 of the Loan Agreement. "Loan Agreement" shall mean that certain Loan Agreement dated as of _________, 19__ between Maker and National Tenant 1 2 Finance Corporation, a Delaware corporation ("Lender"), pursuant to which the Loan, as defined in the Loan Agreement, evidenced [in part] by this Note is governed. "Loan Documents" shall mean the Loan Agreement, the Mortgage, as hereinafter defined, together with all financing statements and other documents executed in connection with the Loan Agreement by Maker, Lender and others, as described in Section 1.2 of the Loan Agreement. "Make-Whole Premium" shall have the meaning assigned to it in Section 2 of the Loan Agreement. "Maturity" shall mean the earlier of the Maturity Date or the date on which the entire outstanding principal balance, accrued unpaid interest and Make-Whole Premium become due and payable pursuant to the provisions of any Loan Document by acceleration, upon the occurrence of an Event of Default, by any prepayment or otherwise. "Maturity Date" shall mean _________, 20___. "Maximum Rate" shall mean, as of any day, with respect to the Holder, the highest nonusurious rate of interest, if any, permitted by applicable law on such day. "Mortgage" shall mean the Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as of _________, 19__, from Maker to Lender, encumbering the Mortgaged Estate more particularly described therein located in __________, __________. "Mortgaged Estate" shall mean the real and personal property encumbered by the Mortgage and more particularly described therein. "Note Rate" shall have the meaning assigned to it in the first paragraph of this Note. "Pledge Agreement" shall have the meaning assigned to it in Section 2 of the Loan Agreement. "Overdue Rate" shall mean a rate of interest equal to ___ percent (___%) per annum above the Note Rate which shall accrue on any overdue amounts due hereunder following an Event of Default. "Redemption Price" shall have the meaning assigned to it in the Loan Agreement. ["Series __ Pass Through Trust Agreement" shall mean that certain Pass-Through Trust Agreement dated as of even date herewith between Lender and Payee pursuant to which Lender conveyed to Payee all of Lender's right, title and interest in and to this Note.] 2 3 Section 2. Loan Agreement; Security. (a) This Note is executed and delivered by the Maker pursuant to the terms and conditions of the Loan Agreement and pursuant to the [Series __ Pass-Through Trust Agreement and the Collateral] Trust Agreement. (b) This Note and the payment and performance of the Maker's obligations hereunder and pursuant to the other Loan Documents are secured by the Mortgage, the Lease Assignment, the Pledge Agreement and certain of the other Loan Documents. Section 3. Maturity. (a) This Note shall mature on the earlier of the Maturity Date or the date on which the entire outstanding principal balance, accrued unpaid interest and Make-Whole Premium become due and payable pursuant to the provisions of any Loan Document by acceleration, upon the occurrence of an Event of Default, by any required prepayment or otherwise. (b) Upon Maturity this Note shall be due and payable in full in the amount of the entire outstanding principal balance, accrued unpaid interest and Make-Whole Premium, if any. Section 4. Payment. (a) Subject to the provisions of Section 3.3 of the Loan Agreement, the principal of and interest upon this Note shall be due and payable as follows: (i) Interest shall be due and payable semiannually in arrears in the amounts set forth on Exhibit A attached hereto, unless a prepayment occurs in which event Exhibit A shall be revised by Payee accordingly, commencing ___________, 19__, and thereafter, on the _________ (___) day of each succeeding ___________ and ________ during the term of this Note and on Maturity; and (ii) The principal of this Note shall be due and payable in the amounts set forth on Exhibit A attached hereto, unless a prepayment occurs in which event all remaining prepayments of principal shall be reduced pro rata, commencing on _________, 19__, and thereafter, on the _________ (__th) day of ________ of each succeeding year through and including the Maturity Date in the amount of the then unpaid principal balance. (b) Should any amount payable pursuant to this Note become due and payable on any day other than a Business Day, such amount shall be payable on the immediately preceding Business Day. All payments of any amount due and payable pursuant to this Note shall be made by Maker to Payee in immediately available federal reserve funds. Payments made to Payee by Maker hereunder shall be applied in the manner provided in the Loan Agreement. 3 4 (c) All past due amounts payable pursuant to this Note other than interest and, to the extent permitted by applicable law, past due interest upon this Note shall bear interest at the lesser of (i) the Maximum Rate or (ii) the Overdue Rate. (d) This Note is not subject to prepayment, purchase or redemption at the option of Maker prior to its expressed Maturity Date except on the terms and conditions and in the amounts, if any, set forth in Section 3 of the Loan Agreement. Section 5. Events of Default and Remedies. (a) Each of the "Events of Default" as defined in the Loan Agreement shall be an Event of Default pursuant to this Note. (b) Upon the occurrence of an Event of Default the Holder of the Note [or the Collateral Trustee for the benefit of the Holder of the Note] may exercise such rights and remedies as are provided in the Loan Agreement and any other Loan Document pursuant to the provisions thereof. Section 6. Waiver. (a) Maker and each surety, endorser, guarantor and other party ever liable for payment of any sums of money payable upon this Note, jointly and severally waive presentment, demand, protest, notice of protest and nonpayment or other notice of default, notice of acceleration and intention to accelerate or other notice of any kind, and agree that their liability under this Note shall not be affected by any renewal or extension of the time of payment hereof, or by any indulgences, or by any release or change in any security for the payment of this Note; and hereby consent to any and all such renewals, extensions, indulgences, releases or changes, regardless of the number of such renewals, extensions, indulgences, releases or changes. (b) No course of dealing on the part of any Holder of this Note nor any delay or failure on the part of any Holder of this Note to exercise any right shall operate as a waiver of such right or otherwise prejudice such Holder's rights, powers and remedies. No exercise or enforcement of any such rights or remedies shall ever be held to exhaust any other right or remedy of such Holder. The rights and remedies expressly provided for in this Note are cumulative, and are not exclusive of any rights or remedies which any Holder of this Note would otherwise have, including, without limitation, the rights and remedies provided for in the Mortgage. Section 7. Notice. Whenever this Note requires or permits any notice, approval, request or demand from one party to another, the notice, approval, request or demand shall be given in accordance with the provisions of the Loan Agreement. 4 5 Section 8. Collection Expense. Promptly after Holder's [or Collateral Trustee's] demand therefor, Maker shall pay Holder [or Collateral Trustee] all costs and expenses incurred by Holder [or Collateral Trustee] in the collection of this Note in connection with each Event of Default hereunder or pursuant to any of the other Loan Documents, including reasonable attorney's fees, disbursements and other charges of Holder's [or Collateral Trustee's] attorneys actually incurred for all services rendered in connection therewith. Section 9. Registered Note. This Note is registered on the books of Maker and is transferable only by surrender thereof at the offices of Maker, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered Holder or its attorney, duly authorized in writing. Payment of or on account of any amount due and payable on this Note shall be made only to or upon the order in writing of the registered Holder. Section 10. Limited Recourse. Recourse under this Note is governed by the provisions of Section 11 of the Loan Agreement. Section 11. Applicable law. The law of the State of New York (without giving effect to the choice of law principles thereof) shall govern the validity, construction, enforcement and interpretation of this Note. Dated as of the date first above written. a limited [partnership] ---------- [liability company] By: , ---------------------- [a corporation, ----------- its sole General Partner By: -------------------- Its President] 5 6 EXHIBIT A AMORTIZATION SCHEDULE 7 U.S. $____________ ____________, 199_ PROMISSORY NOTE FOR VALUE RECEIVED, the undersigned,______________________ ("Maker"), a _________ limited [partnership] [liability company], hereby unconditionally promises to pay to the order of National Tenant Finance Corporation ("Payee"), a Delaware corporation, 40 N. Central Avenue, Suite 2700, Phoenix, Arizona 85004 or such other address given to Maker by Payee from time to time, the principal sum of __________________________________ DOLLARS ($__________) in lawful money of the United States of America, together with interest (calculated on the basis of a 360-day year of twelve 30-day months), on the unpaid principal balance from day-to-day outstanding, computed from ____________ 199__, until Maturity (as defined below) at a rate per annum ("Note Rate") equal to the lesser of (a) the Maximum Rate, or (b) ____________ percent (____%). Section 1. Definitions. When used in this Note, the following terms shall have the respective meanings specified herein or in the Section referred to: "Business Day" shall mean any day other than (i) a Saturday or Sunday, or (ii) a day on which banks in New York are required by law to close or are customarily closed. "Event of Default" shall have the meaning assigned to it in Section 5. "Holder" shall mean Payee, its successors and assigns and any subsequent holder hereof. "Lease Assignment" shall have the meaning assigned to it in Section 2 of the Loan Agreement. "Loan Agreement" shall mean that certain Loan Agreement dated as of _________, 19__ between Maker and Payee, pursuant to which the Loan, as defined in the Loan Agreement, evidenced [in part] by this Note is governed. "Loan Documents" shall mean the Loan Agreement, the Mortgage, as hereinafter defined, together with all financing statements and other documents executed in connection with the Loan Agreement by Maker, Payee and others, as described in Section 1.2 of the Loan Agreement. "Make-Whole Premium" shall have the meaning assigned to it in Section 2 of the Loan Agreement. 1 8 "Maturity" shall mean the earlier of the Maturity Date or the date on which the entire outstanding principal balance, accrued unpaid interest and Make-Whole Premium become due and payable pursuant to the provisions of any Loan Document by acceleration, upon the occurrence of an Event of Default, by any prepayment or otherwise. "Maturity Date" shall mean _________, 20___. "Maximum Rate" shall mean, as of any day, with respect to the Holder, the highest nonusurious rate of interest, if any, permitted by applicable law on such day. "Mortgage" shall mean the Mortgage, Security Agreement, Assignment of Leases and Rents and Fixture Filing, dated as of _________, 19__, from Maker to Payee, encumbering the Mortgaged Estate more particularly described therein located in __________, __________. "Mortgaged Estate" shall mean the real and personal property encumbered by the Mortgage and more particularly described therein. "Note Rate" shall have the meaning assigned to it in the first paragraph of this Note. "Pledge Agreement" shall have the meaning assigned to it in Section 2 of the Loan Agreement. "Overdue Rate" shall mean a rate of interest equal to ___ percent (___%) per annum above the Note Rate which shall accrue on any overdue amounts due hereunder following an Event of Default. "Redemption Price" shall have the meaning assigned to it in the Loan Agreement. Section 2. Loan Agreement; Security. (a) This Note is executed and delivered by the Maker pursuant to the terms and conditions of the Loan Agreement. (b) This Note and the payment and performance of the Maker's obligations hereunder and pursuant to the other Loan Documents are secured by the Mortgage, the Lease Assignment, the Pledge Agreement and certain of the other Loan Documents. Section 3. Maturity. (a) This Note shall mature on the earlier of the Maturity Date or the date on which the entire outstanding principal balance, accrued unpaid interest and Make-Whole Premium become due and payable pursuant to the provisions of any Loan Document by acceleration, upon the occurrence of an Event of Default, by any required prepayment or otherwise. 2 9 (b) Upon Maturity this Note shall be due and payable in full in the amount of the entire outstanding principal balance, accrued unpaid interest and Make-Whole Premium, if any. Section 4. Payment. (a) Subject to Section 3.3 of the Loan Agreement, the principal of and interest upon this Note shall be due and payable as follows: (i) Interest shall be due and payable semiannually in arrears in the amounts set forth on Exhibit A attached hereto, unless a prepayment occurs in which event Exhibit A shall be revised by Payee accordingly, commencing ___________, 19__, and thereafter, on the _________ (___) day of each succeeding ___________ and ________ during the term of this Note and on Maturity; and (ii) The principal of this Note shall be due and payable in the amounts set forth on Exhibit A attached hereto, unless a prepayment occurs in which event all remaining prepayments of principal shall be reduced pro rata, commencing on _________, 19__, and thereafter, on the _________ (__th) day of ________ of each succeeding year through and including the Maturity Date in the amount of the then unpaid principal balance. (b) Should any amount payable pursuant to this Note become due and payable on any day other than a Business Day, such amount shall be payable on the immediately preceding Business Day. All payments of any amount due and payable pursuant to this Note shall be made by Maker to Payee in immediately available federal reserve funds. Payments made to Payee by Maker hereunder shall be applied in the manner provided in the Loan Agreement. (c) All past due amounts payable pursuant to this Note other than interest and, to the extent permitted by applicable law, past due interest upon this Note shall bear interest at the lesser of (i) the Maximum Rate or (ii) the Overdue Rate. (d) This Note is not subject to prepayment, purchase or redemption at the option of Maker prior to its expressed Maturity Date except on the terms and conditions and in the amounts, if any, set forth in Section 3 of the Loan Agreement. Section 5. Events of Default and Remedies. (a) Each of the "Events of Default" as defined in the Loan Agreement shall be an Event of Default pursuant to this Note. (b) Upon the occurrence of an Event of Default the holder of the Note may exercise such rights and remedies as are provided in the Loan Agreement and any other Loan Document pursuant to the provisions thereof. 3 10 Section 6. Waiver. (a) Maker and each surety, endorser, guarantor and other party ever liable for payment of any sums of money payable upon this Note, jointly and severally waive presentment, demand, protest, notice of protest and nonpayment or other notice of default, notice of acceleration and intention to accelerate or other notice of any kind, and agree that their liability under this Note shall not be affected by any renewal or extension of the time of payment hereof, or by any indulgences, or by any release or change in any security for the payment of this Note; and hereby consent to any and all such renewals, extensions, indulgences, releases or changes, regardless of the number of such renewals, extensions, indulgences, releases or changes. (b) No course of dealing on the part of any Holder of this Note nor any delay or failure on the part of any Holder of this Note to exercise any right shall operate as a waiver of such right or otherwise prejudice such Holder's rights, powers and remedies. No exercise or enforcement of any such rights or remedies shall ever be held to exhaust any other right or remedy of such Holder. The rights and remedies expressly provided for in this Note are cumulative, and are not exclusive of any rights or remedies which any Holder of this Note would otherwise have, including, without limitation, the rights and remedies provided for in the Mortgage. Section 7. Notice. Whenever this Note requires or permits any notice, approval, request or demand from one party to another, the notice, approval, request or demand shall be given in accordance with the provisions of the Loan Agreement. Section 8. Collection Expense. Promptly after Holder's demand therefor, Maker shall pay Holder all costs and expenses incurred by it in the collection of this Note in connection with each Event of Default hereunder or pursuant to any of the other Loan Documents, including reasonable attorney's fees, disbursements and other charges of Holder's attorneys actually incurred for all services rendered in connection therewith. Section 9. Registered Note. This Note is registered on the books of Maker and is transferable only by surrender thereof at the offices of Maker, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered Holder or its attorney, duly authorized in writing. Payment of or on account of any amount due and payable on this Note shall be made only to or upon the order in writing of the registered Holder. Section 10. Limited Recourse. Recourse under this Note is governed by the provisions of Section 11 of the Loan Agreement. Section 11. Applicable law. The law of the State of New York (without giving effect to the choice of law principles 4 11 thereof) shall govern the validity, construction, enforcement and interpretation of this Note. Dated as of the date first above written. ------------------------------------, a limited [partnership] ---------- [liability company] By: --------------------------, [a corporation, ----------- its sole General Partner By: -------------------, Its President] 5 12 EXHIBIT A AMORTIZATION SCHEDULE EX-4.8 7 EXHIBIT 1 EXHIBIT 4.8 [FREE-STANDING LEASE] LEASE THIS LEASE ("Lease") made and entered into as of the __ day of _______, 199__, between _________________________________ ________________, a ______________ limited [partnership] [liability company], having an address of _______________________________________ ("Landlord"), and __________________, an ____________ corporation, having a principal office at _________________________________ ("Tenant"). WITNESSETH: That in consideration of the rents, covenants and conditions herein set forth, Landlord and Tenant do hereby covenant, promise and agree as follows: 1. Demised Premises. Landlord, as [fee title owner] [ground lessee under that certain Ground Lease ("Ground Lease") dated _____, 199_ by and between landlord and _________ ("Ground Lessor")], does demise unto Tenant and Tenant does take from Landlord for the Lease Term (as defined hereafter) the following property in the ________ of _________, County of____________, State of ____________, consisting of a [completed] building [to be constructed] containing approximately ______ square feet of rentable space ("Tenant's Building"), together with the loading dock area, dumpster pad and trash compactor pad, all entrances, driveways, parking areas, walks, service drives and certain other site improvements and common area improvements [to be constructed] in the locations shown on Exhibit "B" attached hereto and incorporated herein by reference (collectively, "Improvements") located on land comprising not less than ______ acres, which land is described in Exhibit "A", attached hereto and incorporated herein by reference ("Land"). [The Improvements shall be constructed pursuant to the provisions of Article 10 hereof.] The Improvements and the Land, together with all licenses, rights, privileges and easements, whether arising under any reciprocal easement agreement ("REA") or otherwise, appurtenant thereto shall be collectively, "Demised Premises". 2. Term. The term of this Lease shall commence on the date hereof, and shall terminate on __________________ ("Primary Term"); provided, however, the term of this Lease may be extended as provided in Article 9. The phrase "Lease Term", as used in this Lease, shall be the Primary Term and any extension thereof pursuant to Article 9. The phrase "expiration of the Primary Term", as used in this Lease, shall mean a termination or expiration of the Primary Term other than by reason of Tenant's default pursuant to this Lease or the rejection or disaffirmance of this Lease in any bankruptcy or insolvency proceeding of Tenant. 3. Termination; Diminution in Annual Rent or Additional Rent. (a) Notwithstanding any present or future law to the contrary, during the Primary Term this Lease shall not be terminated by Tenant for any failure of Landlord to perform pursuant to the terms and conditions of this Lease or otherwise for 1 2 any reason except as expressly provided in Articles 17 and 18 or unless this Lease has been rejected by Landlord or Landlord's Mortgagee in a proceeding described in subparagraph (b) (vi) below affecting Landlord or Landlord's Mortgagee and, notwithstanding Tenant's compliance with the provisions of Article 23(c), Tenant has been deprived of its possessory rights pursuant to this Lease by reason of such rejection, in which instance Tenant's obligations pursuant to this Lease shall terminate as of the effective date of such deprivation of Tenant's possessory rights. (b) Until the earlier of Loan Payoff (as defined below) or expiration of the Primary Term, except as otherwise provided in Articles 3(a), 17 and 18, Tenant shall not be entitled to any abatement, reduction, set-off, counterclaim, defense or deduction for any reason except as expressly provided in this Lease with respect to any Annual Rental, Additional Rent, or other sums payable hereunder, nor shall the obligations of Tenant hereunder be affected, by reason of: (i) any alteration, addition or changes made to or caused to be made to the Demised Premises by Tenant; (ii) any damage to or destruction of the Demised Premises or the restoration or rebuilding thereof (subject to Tenant's right to terminate this Lease and right to refund of prepaid Annual Rent pursuant to Article 17); (iii) any taking of the Demised Premises or any part thereof by condemnation or otherwise (subject to Tenant's right to terminate this Lease and right to refund of prepaid Annual Rent pursuant to Article 18); (iv) any prohibition, limitation, restriction or prevention of Tenant's use, occupancy or enjoyment by any person; (v) any eviction by paramount title or otherwise; (vi) except as provided in paragraph (a) above, any bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution, winding-up or other proceeding filed by or against Landlord or Landlord's Mortgagee (as hereinafter defined); (vii) any action with respect to this Lease which may be taken by any trustee or receiver of Landlord or Landlord's Mortgagee or by the court in any such proceeding except as provided in paragraph (a) above; (viii) the impossibility or illegality of performance by Landlord, Tenant or both; (ix) subject to the provisions of Article 18, if applicable, any action of any governmental authority; 2 3 (x) any failure of Landlord to perform pursuant to the terms and conditions of this Lease or any other agreement which Landlord enters into pursuant to this Lease; or (xi) otherwise for any reason. (c) The obligations of Tenant hereunder shall be separate and independent covenants and agreements and shall continue unaffected unless such obligations shall have been modified or terminated pursuant to an express provision of this Lease. (d) The provisions of Article 3(a), (b) and (c) shall cease to apply upon the earlier of (i) expiration of the Primary Term or (ii) the payments in full in good funds of all principal, interest and all other amounts payable pursuant to the promissory note[s] of even date herewith executed by Landlord in favor of Landlord's Mortgagee (as defined in Article 8) and denominated Note______[and Note_____] ([collectively,] "Note") and performance if all obligations of Landlord pursuant to the Mortgage (as defined in Article 8), whether by Landlord, or Tenant, in accordance with the terms of the Mortgage ("Loan Payoff"). 4. Annual Rental. Commencing on ________, 199_ ("Rental Commencement Date") and continuing during the Lease Term, Tenant shall pay to Landlord at such address as Landlord shall designate by notice the annual minimum rental set forth on Exhibit "D" attached hereto and incorporated herein by reference ("Annual Rental") in equal monthly installments on the first day of each month, in advance, provided, however, in the event Tenant's obligation to pay Annual Rental commences on a date that is not the first day of a calendar month, or in the event the Lease terminates other than by reason of Tenant's default on a day other than the last day of a calendar month, the installment of the Annual Rental for any resulting partial month shall be prorated upon the basis of the number of days in such month included in the Lease Term. 5. Additional Rent. (a) Any amounts which Tenant is required to pay to Landlord or any third party pursuant to this Lease (other than Annual Rental) together with every fine, penalty, interest and cost which may be added by reason of Tenant's non-payment or late payment thereof or Annual Rental, shall constitute additional rent ("Additional Rent"). Tenant's obligations to pay Real Estate Taxes pursuant to Article 7 shall commence on the Rental Commencement Date [; provided, however, all Real Estate Taxes accrued from and after the date of this Lease until the Rental Commencement Date shall be paid by Landlord from funds provided therefor pursuant to the Loan Agreement and held until paid pursuant to the Construction Fund Disbursement Agreement (as defined in Article 10)]. If Tenant shall fail to pay any Additional Rent after notice and the expiration of any applicable cure period provided pursuant to the terms of this Lease, Trustee (as hereinafter defined) or Landlord shall have the right to pay the same and shall have all rights, powers and remedies with respect thereto as are provided herein in the case of non-payment of Annual Rental. "Trustee" shall mean ______________, as Trustee under that 3 4 certain [Collateral] Trust Agreement (["Collateral] ["]Trust Agreement") dated as of the date hereof, [pursuant to which the Trustee holds certain Collateral (as defined in the Collateral Trust Agreement) for the benefit of the Pass-Through Trustees (as defined in the Collateral Trust Agreement) as holders of the Notes under those certain Pass-Through Trust Agreements ("Trust Agreements") (as defined in the Collateral Trust Agreement),] pursuant to which those certain Mortgage Pass-Through Certificates (_______________________) Series ____ [and Series ____] ("Certificates") were issued. (b) Landlord shall submit to Tenant, on a monthly basis, an invoice or invoices for all sums comprising the Additional Rent other than for those items invoiced directly to Tenant and shall state the time period relating thereto. Tenant shall pay Landlord the amount invoiced within thirty (30) days from receipt of such invoice or invoices which shall be accompanied by copies of any applicable receipts and backup invoices. Landlord shall provide Tenant within five (5) Business Days (as defined in Article 5(c)) of Tenant's request therefor with such additional information as Tenant may reasonably request to determine the amount due from Tenant. Tenant reserves the right, upon reasonable prior notice, to inspect Landlord's records with respect to such accounting for the prior two (2) calendar year period and to make specific objections thereto in writing. If, after such inspection, Tenant determines that Landlord's accounting has overstated the amount of Additional Rent properly due from Tenant, Landlord shall, during the Primary Term and Option Term (as defined in Article 9) reimburse Tenant the amount overpaid by Tenant, if any, and, from and after the earlier of the expiration of the Primary Term or the Loan Payoff, Landlord shall, in addition, pay Tenant interest on the amount of the overpayment to Landlord from the date of overpayment until the date the overpaid amount was paid to Tenant at the Late Rate (as defined in Article 6(b)). If such inspection reveals Landlord's accounting has overstated the amount of Additional Rent properly due from Tenant by three percent (3%) or more for such period, Landlord shall also pay Tenant the reasonable costs of such inspection, whether the inspection occurs during the Primary Term or the Option Term. Any payment hereunder shall be paid within ten (10) Business Days of demand therefor. (c) "Business Day" means any day other than (i) Saturday or Sunday, or (ii) a day on which banks in New York or California are required by law to be closed or are customarily closed. 6. Late Payment; Late Rate. (a) In addition to the Annual Rental payable to Landlord pursuant to Article 4 and the Additional Rent payable to Landlord pursuant to Article 5, Tenant shall pay to Landlord interest thereon, accruing at the Late Rate (as defined in paragraph (b) below) commencing five (5) Business Days after notice from Landlord of non-receipt of such payment when due until the 4 5 Annual Rental or Additional Rent and all accrued interest thereon is paid by Tenant (although Tenant is liable for the Late Rate on such payments of Annual Rental or Additional Rent five (5) Business Days after notice from Landlord, Landlord may only avail itself of its remedies provided in Article 21 after notice and the expiration of any applicable cure period provided therein). Any such interest shall be due and payable on the first day of the month following commencement of the obligation to pay such interest. Except as otherwise expressly provided herein, Tenant shall perform all of its obligations under this Lease at its sole cost and expense, and shall pay all Annual Rental and Additional Rent when due, without notice or demand. (b) The term "Late Rate" shall mean the lesser of the rate of one percent (1%) per annum above the Note Rate or the highest rate permitted by law. "Note Rate" means the [annual interest rate payable under the Note] [blended annual interest rate payable under the Notes obtained by multiplying the annual interest rate payable pursuant to each Note by a fraction the numerator of which is the original principal amount of such Note and the denominator of which is the original principal amount of all the Notes and adding the product of each such multiplication to comprise a blended annual interest rate]. 7. Real Estate Taxes. (a) On or before the later of (i) fifteen (15) Business Days after Tenant's receipt of a copy of the bill for Real Estate Taxes (as hereinafter defined) and (ii) ten (10) Business Days prior to the date such bill is due and payable without interest or penalty, Tenant shall pay to Landlord, as Additional Rent, or, at its option, Tenant may pay directly to the applicable taxing authority, all ad valorem real estate taxes and all assessments, annual benefits, levies, fees, water and sewer rents and charges (excluding utility connection and inspection fees payable in connection with the initial construction of Tenant's Building and the Improvements which shall be paid by Landlord at its sole cost and expense) and all other governmental charges, general and special, ordinary and extraordinary, foreseen and unforeseen (collectively, "Real Estate Taxes"), levied upon or assessed against the Taxable Premises (as defined in Article 7(j)) or the use and occupancy thereof by Tenant and allocable to the period commencing with the Rental Commencement Date and continuing through the Lease Term. Tenant shall be entitled in the calculation of Real Estate Taxes to the benefit of the highest discount available for the timely payment thereof, provided Tenant's payment complies with any conditions therefor. Notwithstanding anything to the contrary herein contained, Tenant shall not be obligated to pay any fees assessed as a condition for the right or privilege of development, including, but not limited to, impact fees, building permit fees, or other governmental fees payable or which are incurred or levied as a result of the activities in connection with the initial development of the Demised Premises; provided, however, this sentence shall not be construed to apply to or affect Tenant's obligation to pay Real Estate Taxes and all other amounts referred to hereinabove relating to the Taxable Premises which Tenant is obligated to pay and which may be increased as a result of such development. 5 6 (b) Tenant shall also pay all taxes or assessments of the state or any political subdivision thereof in which the Taxable Premises are located which are levied, assessed or imposed on Landlord on account of the use and occupancy of the Taxable Premises or receipt by or on behalf of Landlord of Annual Rental or Additional Rent payable hereunder other than income taxes. Any such taxes payable by Tenant hereunder shall be deemed to be included in the definition of "Real Estate Taxes" for all purposes of this Lease. (c) Tenant may elect to pay or to instruct Landlord to pay any assessment over the longest period allowed by law provided, however, Tenant shall pay any penalty or interest imposed as a result of such election. (d) Landlord (or the Tenant if Tenant has elected to pay Real Estate Taxes directly to the applicable taxing authorities) shall furnish written evidence to the other party of the payment of Real Estate Taxes within ten (10) Business Days after written request therefor. (e) Tenant shall have the right to participate in all negotiations of tax assessments or to contest any tax assessments against the Taxable Premises. Tenant shall also have the right to contest the validity or the amount of any Real Estate Taxes levied against the Taxable Premises by such appellate or other proceedings as may be appropriate in the jurisdiction, and may, if applicable, request that Landlord defer payment of such obligations if payment would operate as a bar to such contest, and, if applicable, request that Landlord pay same under protest, or take such other steps as Tenant may deem appropriate, provided, however, that Tenant indemnifies Landlord from any reasonable expense (including reasonable attorney's fees) or liability arising out of such contest, pursues such contest in good faith and with due diligence, posts any bond or security required by law in connection with such contest, gives Landlord written notice of its intention to contest, and takes no action which will cause or allow the institution of any foreclosure proceedings or similar action against the Taxable Premises. Landlord shall, at Tenant's expense, cooperate in the institution and prosecution of any such proceedings initiated by Tenant and will execute any documents which Landlord may be required to execute and will make any appearances which Landlord may be required to make in connection with such proceedings. (f) Should Landlord institute proceedings to contest the validity or the amount of any Real Estate Taxes levied against the Taxable Premises, Tenant will cooperate and will make any appearances which Tenant may be required to make in such proceedings but shall not be obligated to incur any expense in connection therewith; provided, however, that Landlord pursues such contest in good faith and with due diligence and Landlord shall take no action which will cause or allow the institution of any foreclosure proceedings or similar action against the Taxable Premises which might result in the termination of this Lease. 6 7 (g) Should any of the proceedings referred to in the preceding two paragraphs (e) and (f) of this Article 7 result in reducing the total annual Real Estate Taxes liability against the Taxable Premises, Tenant shall be entitled to receive all refunds by the taxing authorities attributable to the Taxable Premises for any period for which Tenant has paid Real Estate Taxes after deducting therefrom payment of all of Landlord's and Tenant's expenses incurred in any such proceeding in which a refund is paid. If no refund shall be secured in any such proceeding, the party instituting the proceeding shall bear the entire cost. (h) Except for Real Estate Taxes, nothing herein shall require Tenant to pay or reimburse Landlord for the payment of (i) any income, profit, inheritance, estate, succession, gift, franchise or transfer taxes which are or may be imposed upon Landlord, its successors or assigns, by whatever authority imposed or however designated, (ii) any tax imposed upon the sale of all or a part of the Demised Premises by Landlord, or (iii) any tax, assessment, charge or levy imposed or levied upon or assessed against any property of Landlord other than the Taxable Premises or any income to, or business activity of, Landlord not in connection with the Taxable Premises. Nothing herein shall require Tenant to pay or reimburse Landlord for the payment of any tax if Tenant's payment of such tax or reimbursement of Landlord for the payment of such tax would violate any applicable law. (i) Tenant shall pay and discharge, when due, all taxes assessed during the term of this Lease against any leasehold interest or personal property of any kind owned by or placed in the Demised Premises by Tenant. (j) Landlord and Tenant acknowledge that prior to the execution hereof, Landlord has, at Landlord's sole cost and expense, caused the Land and the Improvements constructed thereon to be designated as a separate tax parcel ("Taxable Premises"). 8. Liability Insurance. (a) (i) From and after the earlier of the Possession Date (as defined in Exhibit "C") or the Rental Commencement Date and during the Lease Term, Tenant at its sole expense shall insure or cause to be insured against all statutory and common law liabilities for damage to property or injuries, including loss of life, sustained by any person or persons within the Demised Premises and shall list Landlord and Landlord's Mortgagee, if any, as additional insureds, as their interests may appear. (ii) The insurance obligation of Tenant shall require a policy or policies with minimum coverage of ONE MILLION and 00/100ths DOLLARS ($1,000,000.00) with respect to injury to any one person and TWO MILLION and 00/100ths DOLLARS ($2,000,000.00) with respect to any one accident or disaster, and TWO HUNDRED FIFTY THOUSAND and 00/100ths DOLLARS ($250,000.00) with respect to damage to property. 7 8 (iii) The policy or policies shall bear endorsements to the effect that all additional insureds shall be notified not less than thirty (30) days in advance of any termination, expiration, modification or cancellation thereof and that the insurer has waived the right of recovery from any such additional insured. Certificates evidencing the existence thereof, accompanied by a specimen of the policy which is the subject thereof or certificates of self-insurance shall be promptly delivered to the other party and any other additional insured, prior to or on the earlier of the Possession Date (as defined in Exhibit "C") or the Rental Commencement Date and at least thirty (30) days prior to the termination, expiration, modification or cancellation of any policy. All insurance policies provided by Tenant pursuant to this Article shall be obtained from an insurer licensed to do business in the state where the Demised Premises are located and such insurance company shall have a Best's Insurance Rating of A-X or better and a Standard & Poor's Ratings Group "claims paying ability" rating of BBB or better. (b) In the event Tenant fails to effect or maintain such insurance as Tenant is obligated to effect or maintain pursuant to this Lease, and is not excused from doing so pursuant to paragraph (c) of this Article or Article 17(h), Landlord may upon written notice to Tenant obtain such insurance (at commercially competitive rates), and Tenant shall reimburse Landlord for the cost thereof with interest at the Late Rate from the date incurred by Landlord until the date repaid by Tenant. (c) Notwithstanding the foregoing, at any time the net worth of Tenant or any guarantor of Tenant's obligations pursuant to this Lease ("Tenant's Guarantor"), as determined in accordance with generally accepted accounting principles consistently applied, shall exceed ONE HUNDRED MILLION and 00/100ths DOLLARS ($100,000,000.00) as reflected in its annual Form 10K filed with the Securities and Exchange Commission (or as certified by an officer of Tenant until such time as Tenant files a Form 10K with the Securities and Exchange Commission), the Tenant may elect to self-insure the risks to be insured against by Tenant pursuant to paragraph (a) above for so long as Tenant or Tenant's Guarantor, as applicable, continues to satisfy such net worth standard. (d) Tenant hereby releases and discharges Landlord from any liability hereafter arising from statutory and common law liabilities for loss or damage to property or injuries sustained by any person or persons occurring within the Demised Premises, except those which are not insured or self insured against pursuant to this Article 8 and which shall result from the negligence or misconduct of Landlord, Landlord's partners, officers, employees or agents or Landlord's Mortgagee, if any. (e) "Landlord's Mortgagee" means the Lender pursuant to the Loan Agreement dated as of the date hereof ("Loan Agreement"), Trustee or any subsequent holder of a lien evidenced 8 9 by a mortgage; or deed of trust or other security instrument or document ("Mortgage") on property which includes the Demised Premises, or any subsequent purchaser, transferee or assignee of the right of any such holder(s) (or person holding a beneficial interest in the rights of any such purchaser, transferee or assignee), as to each of which Landlord has given notice to Tenant in accordance with Article 32. 9. Options to Extend Lease Term. (a) Tenant shall have ______ successive options (individually "Option", collectively, "Options") to extend the Lease Term for an additional period of _____ years for each such Option (each an "Option Term"), such Option Term to begin respectively upon the expiration of the Primary Term or of an Option Term and, except as otherwise provided in Exhibit "D" attached hereto with respect to Annual Rental and otherwise expressly provided in this Lease, the same terms and conditions as herein set forth shall apply to each Option Term. If Tenant shall elect to exercise the Options, it shall do so by written notice and otherwise in accordance with Article 32 hereof given to Landlord not less than _______ months prior to the expiration of the Primary Term or of the then current Option Term. Notwithstanding the foregoing, Tenant shall not be entitled to exercise an Option to extend the Lease Term nor shall the Option Term commence if Tenant is then in default under any provision of this Lease as to which default Landlord has given notice to Tenant in accordance with Article 32 and such default remains uncured after the expiration of any applicable cure period. If Tenant shall fail (or shall not be entitled pursuant to the preceding sentence) to exercise an Option to extend the Lease Term, this Lease shall expire upon the expiration of the Primary Term or the then current Option Term, as applicable, and, except as provided in paragraph (b) of this Article, the Tenant shall not have any further option to extend the Lease Term. (b) In the event that damage or destruction occurs during the first _____ (__) years of the last Option Term and Tenant elects to restore the Demised Premises as provided in Article 17, Tenant shall have the option to extend the Lease Term for an additional _______ (__) years, to be exercised within six (6) months after notice from Landlord requiring such restoration. Notwithstanding the foregoing, Tenant shall not be entitled to exercise an Option to extend the Lease Term nor shall the Option Term commence if Tenant is then in default under any provision of this Lease as to which default Landlord has given notice to Tenant in accordance with Article 23 and such default remains uncured after the expiration any applicable cure period. Except as otherwise provided in Exhibit "D" attached hereto with respect to Annual Rental and otherwise expressly provided in this Lease, the same terms and conditions as herein set forth shall apply to such Option Term. (c) Regardless of the exercise or non-exercise by Tenant of any or all of the Options, Tenant shall have, unless the last day of the Lease Term shall be January 31 of any year, the option to extend (or further extend, as the case may be) the Lease Term for such period of time as shall cause the last day of the Lease Term to be the January 31 next succeeding the date upon which the Lease Term would expire but for the exercise of this Option. This Option shall be exercised by notice to Landlord not less than 9 10 _______ months prior to the expiration of the Lease Term or any extension thereof. Notwithstanding the foregoing, Tenant shall not be entitled to exercise the Option pursuant to this paragraph (c) to so extend the Lease Term if Tenant is then in default under any provision of this Lease as to which default Landlord has notified Tenant and such default remains uncured after the expiration of any applicable cure period. Tenant's Annual Rental during the option period pursuant to this paragraph (c) shall be the Annual Rental payable under the terms of this Lease in effect for the period immediately preceding the commencement of the option period provided for in this paragraph (c). 10. [Construction Provisions. (a) The Demised Premises will, at the Construction Commencement Date (as defined in Exhibit "C"), the Possession Date and the Rental Commencement Date, be properly zoned for Tenant's intended use and, except as provided in Exhibit "C" as it relates to a temporary Certificate of Occupancy, all necessary governmental consents, permits and approvals for the Construction (as defined in Exhibit "C") shall have been obtained. The Demised Premises shall be constructed in accordance with the provisions of Exhibit "C" attached hereto and incorporated herein by reference. (b) Landlord shall assign to Tenant any and all guarantees of workmanship and materials which it may receive with respect to the Demised Premises. Landlord shall, at no expense to Landlord, take any action reasonably required to enable Tenant to enforce any such guarantee. (c) If Landlord shall fail to comply fully with any obligation pursuant to this Article 10 including the provisions of Exhibit "C", Tenant shall so notify Landlord, in writing, and, in such event, Tenant's remedies shall be solely limited to Tenant's immediate right to exercise remedies pursuant to the Construction Fund Disbursement Agreement - Improvements ("Construction Fund Disbursement Agreement - Improvements") of even date herewith by and among Landlord, Tenant, Tenant's Guarantor, Construction Monitor, Escrow Agent, and the Second Mortgage and the Option Agreement (both of even date herewith by and between Landlord and Tenant) and, after the earlier of the expiration of the Primary Term and the Loan Payoff, to those remedies exercisable pursuant to Article 45.] [Intentionally omitted.] 11. [Store Opening/Grand Opening and Promotional Events. (a) If a Certificate of Occupancy (whether temporary or permanent) has been issued for the Demised Premises permitting the operation of business therein, Tenant shall have the option to open for business prior to the Substantial Completion of Landlord's Work (as defined in Exhibit "C"), and, in the event of the exercise of such option, Landlord shall complete any remaining Landlord's Work within ________ (__) days after the Possession Date; provided, however, if Landlord shall have failed to complete Landlord's Work 10 11 as required by this Lease on or before _________ (__) days of the Possession Date, Tenant may thereafter, at any time, at Tenant's election complete, correct or remedy, in whole or in part, any such deficiency, and, in such event Tenant's remedies shall be solely limited to Tenant's immediate right to exercise remedies pursuant to the Construction Fund Disbursement Agreement - Improvements, the Second Mortgage and the Option Agreement and, after the earlier of the expiration of the Primary Term and the Loan Payoff, to those remedies exercisable pursuant to Article 45. (b) Tenant may, at any time, utilize any part of the Land for grand opening and promotional events, outdoor shows, entertainment or such other lawful uses which, in Tenant's sole judgment, tend to attract the public to the Demised Premises. Tenant shall give Landlord notice of such intended use a reasonable time in advance thereof and, at request of Landlord, shall provide Landlord with reasonable proof of adequate insurance or with an indemnity against damage to property, injuries to persons and loss of life sustained in connection therewith, which indemnity shall be reasonably satisfactory to Landlord. Tenant shall be responsible for any physical damage to the Demised Premises resulting from any such use.] [Intentionally omitted.] 12. Repairs and Maintenance. Tenant shall perform or cause to be performed all maintenance, replacement and repair necessary to keep the Demised Premises including all Improvements and all structural and non-structural components of Tenant's Building and all of its components in a safe, dry and tenantable condition and good state of repair. 13. Alterations. (a) Tenant may, at its own expense, from time to time make interior and exterior alterations, additions, improvements and changes to the Improvements, including changes to the structural portions of the Improvements, as it may deem necessary and suitable without the consent of Landlord. If any alteration, addition or improvement includes changes to the structural portions of the Improvements, Tenant shall provide Landlord and Landlord's Mortgagee, prior to commencement of the work, copies of the plans and specifications for the work and a fully executed construction contract for such work, written notice of the proposed dates for commencement and completion of construction of the work specified in the construction contract. Tenant's alterations, additions, improvements (other than Tenant's trade fixtures) and changes shall become the property of Landlord at the expiration of the Lease Term. In the event that Tenant increases the amount of square footage contained within the Improvements, there shall be no adjustment in the Annual Rental payable hereunder. (b) Tenant shall make any and all alterations, additions, improvements or changes in and to the Improvements in a 11 12 good and workmanlike manner in accordance with all laws, ordinances, rules and regulations of all governmental agencies and authorities having jurisdiction over such construction and free of claims for construction liens and shall promptly discharge any such liens, and Tenant shall further indemnify Landlord for all claims relating thereto. Landlord, at Tenant's cost, shall cooperate with Tenant in securing building and other permits or authorizations required from time to time for any work permitted hereunder or installations by Tenant. (c) Tenant shall indemnify, hold harmless and, at Tenant's cost and expense, defend Landlord and Landlord's Mortgagee, if any, from and against any claims, losses, costs, legal actions, liability, damages, expenses or destruction of property of any persons whomsoever, including, without limitation, property of Landlord, resulting from Tenant's acts or omissions relating to any construction performed pursuant to this Article 13. 14. Utilities. Tenant shall pay when due all charges for all utilities (including, but not limited to, gas, water, sewage, telephone and electricity) furnished to the Demised Premises during the Lease Term. Landlord shall not be responsible for the interruption of any utility service to the Demised Premises not caused by Landlord, its partners, agents, employees, contractors or licensees. 15. Governmental Regulations. Tenant shall observe and comply with and shall cause the Demised Premises to comply with all requirements of law, rules, orders, codes and regulations of the federal, state and municipal governments or other duly constituted public or quasi-public authority affecting the Demised Premises from and after the Rental Commencement Date (or, if earlier, the date the Tenant takes occupancy of or commences Tenant's work in the Demised Premises) and thereafter during the Lease Term, provided, however, Tenant's obligations with respect to Environmental Laws shall be as set forth in Article 26. Notwithstanding the foregoing, after the earlier of the expiration of the Primary Term or the Loan Payoff, if the cost of compliance with all requirements of law, rules, orders, codes and regulations exceeds $________, Tenant may elect to terminate the Lease and have no further obligation hereunder. 16. Exculpation. Anything to contrary in this Lease notwithstanding, the covenants contained in this Lease to be performed by Landlord, or its successors or assigns, including, without limitation, Trustee, shall not be binding personally, but instead such covenants are made for the purpose of binding only the fee simple estate which Landlord owns in the Demised Premises (except for Hazardous Materials (as defined in Article 26) which may exist or have been Released (as defined in Article 26) on the Demised Premises prior to the Possession Date, or during Tenant's occupancy in the Demised Premises and not caused by Tenant, its agents or employees, for which Landlord, but not Trustee as successor to Landlord, shall be personally responsible, provided, however, Tenant's remedies therefor shall be the remedies exercisable pursuant to Article 45). 12 13 17. Insurance; Damage to Demised Premises. (a) (i) From and after the earlier of the Possession Date or the Rental Commencement Date, Tenant shall insure or cause to be insured the Demised Premises against damage or destruction by fire and other casualties insured under a comprehensive broad form extended coverage policy. Such insurance shall be in an amount equal to not less than one hundred percent (100%) of the replacement cost of the Demised Premises, exclusive of excavation. All such policies shall bear endorsements to the effect that Landlord and all other additional insureds shall be notified not less than thirty (30) days in advance of any termination, expiration, modification or cancellation thereof and that the insurer has waived right of recovery from Landlord and Landlord's Mortgagee. Certificates evidencing the existence thereof accompanied by a specimen of the policy which is the subject thereof, or a certificate of self-insurance evidencing Tenant's election to self-insure such obligations, shall be promptly delivered to Landlord and Landlord's Mortgagee. (ii) Subject to Article 17(g), Landlord shall not be liable for any loss or damage to the Demised Premises resulting from fire, explosion or any other casualty. (b) All policies of fire and other casualty insurance procured pursuant to this Article shall list Landlord as an additional insured and Landlord's Mortgagee, if any, as a loss payee and shall provide for the release of such insurance proceeds to Tenant for restoration of loss. In case of loss, Tenant is hereby authorized to adjust the loss and execute proof thereof in the name of all parties in interest, provided (i) this Lease has not been terminated as a result of such loss, and (ii) Tenant is not in default under any provision of this Lease beyond the expiration of the applicable cure period. (c) In the event that, at any time during the Lease Term when Tenant is obligated to insure pursuant to 17(a) or permitted to self-insure pursuant to Article 17(h), any portion of the Improvements shall be damaged or destroyed (partially or totally) by fire or any other casualty, Tenant, at its expense shall, within sixty (60) days of the casualty, diligently commence the application process to secure the proper permits and licenses required to repair, rebuild or restore the Improvements in compliance with applicable governmental requirements and upon the issuance of such permits and licenses shall promptly and with due diligence repair, rebuild and restore the Improvements as nearly as practicable to the condition existing just prior to such damage or destruction or repair, rebuild or restore the Improvements for the same use and purposes, but in accordance with such plans and specifications as are then generally in use by Tenant for the construction of Tenant's stores and related structures. The repaired, rebuilt or replaced Improvements shall have a fair market value equal to or greater than their fair market value immediately 13 14 prior to the loss and any such repair, rebuilding and restoration shall be made in accordance with the requirements of Article 13 of this Lease. Anything herein to the contrary notwithstanding, if such damage or destruction shall have taken place within two (2) years of the then scheduled expiration date of the current Lease Term, and if the extent of such damage or destruction is such that the cost of restoration would exceed fifty percent (50%) of the fair market value of the Improvements just prior to the time such damage or destruction took place, then Tenant may terminate this Lease as of the date of such damage or destruction by giving written notice to Landlord within thirty (30) days thereafter and Tenant shall have an additional sixty (60) days, rent free, within which to remove its property from the Demised Premises. If Tenant is carrying fire and other casualty insurance to one hundred percent (100%) of the replacement cost, and Tenant elects to terminate this Lease, all the insurance proceeds payable under any policy procured pursuant to this Article shall belong to Landlord and/or Landlord's Mortgagee, if any, as their interests may appear; in the event the Improvements are self-insured or Tenant has for any other reason failed to maintain the insurance required hereunder at the time of the loss, Tenant shall pay to Landlord and/or the Landlord's Mortgagee, if any, within sixty (60) days of the date of such loss an amount equal to the amount necessary to rebuild the Improvements whether or not Landlord thereafter rebuilds. In the event that this Lease shall be terminated as above provided during the Lease Term, all unearned Annual Rental and Additional Rent paid in advance, if any, shall be promptly refunded to Tenant, provided, however, that Landlord's Mortgagee shall have no obligation to return any monies which it has applied to the payment of the unpaid principal amount of the "Note" or the Certificates (as defined in Article 5), as the case may be, and all accrued and unpaid interest thereon. Tenant shall, however, be entitled to recover any such unearned Annual Rental or Additional Rent from any insurance or self-insurance proceeds, and Landlord's receipt of the insurance or self-insurance proceeds shall be reduced by such amount. (d) Tenant shall maintain workers' compensation insurance to the extent required by the law of the state in which the Demised Premises are located but Tenant is not required to name Landlord or Landlord's Mortgagee as an additional named insured under such workmen's compensation insurance policy. Notwithstanding anything contained herein to the contrary, Tenant shall be permitted to self-insure its obligations under this Article 17(d). (e) [(i) At any time when Landlord is constructing the Demised Premises or causing them to be constructed, pursuant to Article 10, Landlord shall cause its general contractor to maintain Builder's Risk Insurance (in completed value, non-reporting form) in an amount not less than the actual replacement value of the Improvements, exclusive of excavation, and such policy shall name Tenant and Landlord's Mortgagee as loss payees thereunder. 14 15 (ii) At any time when Tenant is constructing, altering or replacing Improvements on the Land or causing them to be constructed, altered or replaced, Tenant shall maintain or cause to be maintained builder's risk insurance (in completed value non-reporting form) in an amount not less than the actual replacement value of the Improvements, exclusive of excavation, and shall name Landlord and Landlord's Mortgagee as loss payees thereunder.] [Intentionally omitted.] (f) From and after the Possession Date, Tenant shall maintain flood insurance in an amount equal to the actual replacement value of the Improvements or the maximum amount available, whichever is less, if the area in which the Improvements are located has been designated by the Secretary of Housing and Urban Development as having special flood hazards and if flood insurance is available under the National Flood Insurance Act. Tenant shall cause Landlord and Landlord's Mortgagee, if any, to be named as a loss payee thereunder. (g) Each party hereto has hereby remised, released and discharged the other party hereto and any officer, agent, director, employee or representative of such party of and from any liability whatsoever hereafter arising from loss, damage or injury caused by fire or other casualty for which insurance (permitting waiver of liability and containing a waiver of subrogation) is carried or required to be carried hereunder (whether by insurance pursuant to Section 17(a) or self insurance pursuant to Section 17(h)) by the party sustaining the loss, damages or injury at the time of such loss, damage or injury to the extent of any recovery by the injured party under such insurance, or what would have been recovered had such party carried the insurance required hereunder, plus any applicable deductible. (h) Notwithstanding the foregoing, at any time while Tenant's, or Tenant's Guarantor's, net worth, as determined in accordance with generally accepted accounting principles consistently applied, shall exceed ONE HUNDRED MILLION and 00/100ths DOLLARS ($100,000,000.00), established in the manner set forth in Article 8(c), Tenant may elect to self-insure the risks required to be insured against pursuant to this Article 17 for so long as Tenant or Tenant's Guarantor continues to meet such net worth standard. (i) When third-party insurance is provided by Tenant or Landlord, such insurance shall be obtained from an insurer licensed to do business in the state where the Demised Premises are located and such insurance company shall have a Best's Insurance Rating of A-X or better and a Standard & Poor's Ratings Group "claims paying ability" rating of BBB or better. 18. Eminent Domain. (a) In the event all of the Improvements or the Demised Premises shall be permanently expropriated, then this Lease 15 16 shall automatically terminate on the date Tenant shall be deprived of the use thereof or the date title is vested in the condemning authority. (b) If (i) the points of ingress and egress to the public roadways, as depicted on Exhibit "B" shall be materially impaired by a permanent expropriation by a public or quasi-public authority (with no reasonable replacement points of ingress-egress provided) so as to render the Demised Premises unsuitable for its intended use, or (ii) less than the whole, but more than ten percent (10%) of the square footage of the Tenant's Building or the Land shown on Exhibit "B" attached hereto shall be permanently expropriated by public or quasi-public authority, then Tenant may elect to terminate this Lease as of the date of such permanent expropriation upon the occurrence of the event described in clause (i) of this paragraph or as of the date Tenant shall be dispossessed from the part so expropriated upon the occurrence of the event described in clause (ii) of this paragraph by giving notice to Landlord of such election to terminate within ninety (90) days from such date, and Tenant shall have no further liability for obligations pursuant to this Lease accruing after the date of termination. For purposes hereof, a "permanent expropriation" shall mean an expropriation lasting six (6) or more months in duration. (c) Tenant shall be entitled to participate in all hearings relating to any condemnation proceeding, and, in furtherance thereof, Landlord shall provide at least thirty (30) days' advance notice to Tenant of all hearings relating to any expropriation, shall permit Tenant to submit proof of Tenant's damages to the condemning authority, and shall consult with Tenant regarding the award for the cost of restoration and for the amount of Tenant's unamortized leasehold improvements, Tenant's relocation expenses and Tenant's loss of goodwill. Subject to Article 18(f), Landlord shall obtain the prior approval of Tenant as to the amount of the award to the extent Landlord is required to or elects to consent thereto. (d) In the event this Lease is not terminated, Landlord shall pay over to Tenant, all proceeds, if any, of such expropriation or taking which relate to the cost of restoring the Improvements as a result of severing the space so expropriated or taken from the space not so expropriated or taken ("Severance Proceeds"). Any other proceeds of such expropriation or taking shall be payable to Landlord's Mortgagee, if any, or, if none, to Landlord unless the expropriating authorities awarded Landlord or Tenant payment for Tenant's unamortized leasehold fixtures, Tenant's relocation expenses or Tenant's loss of goodwill, in which case paragraph (f) below shall apply. Restoration costs in excess of the Severance Proceeds shall be paid by Tenant. Upon receipt of such Severance Proceeds Tenant shall, at its sole cost and expense, promptly and with due diligence restore the Improvements as nearly as practicable to a complete unit of like quality and character as existed just prior to such expropriation or shall repair, rebuild 16 17 or restore the Improvements for the same use and purpose, but in accordance with such plans and specifications as are then generally in use by Tenant for the construction of Tenant's stores and related structures, and any repair, rebuilding or restoration shall comply with the requirements of Article 13. (e) In the event of an expropriation of any portion of the Demised Premises, and if this Lease is not terminated as hereinabove provided, it shall continue as to that portion of the Demised Premises which shall not have been expropriated or taken. In the event of an expropriation of any portion of the Improvements, and, if this Lease is not terminated as hereinabove provided, the Annual Rental set forth in Article 4 shall be reduced from and after the date of such expropriation and not otherwise in the proportion that the square footage contained in Tenant's Building as restored by Tenant after the expropriation bears to the total square footage of Tenant's Building as set forth in Article 1. (f) Tenant shall be entitled to any award made either to Landlord or Tenant specifically for relocation expenses incurred by reason of an expropriation covered by this Article. In the event that, at the time of any expropriation of the Demised Premises, Tenant shall not have fully amortized expenditures which it may have made on account of any leasehold improvements to the Demised Premises which were made after the date hereof, Tenant shall have the right to seek recovery for such sums, and Landlord shall assign to Tenant that portion of any award specifically attributable to such expropriation of leasehold improvements as shall equal the unamortized portion of Tenant's expenditures for leasehold improvements, provided, however, Tenant shall not be entitled to share in such award if, by reason thereof, the share of the award payable to Landlord would be reduced below that amount which Landlord would otherwise have received for the expropriation of the Demised Premises or if any such leasehold improvements were not constructed at the expense of Tenant from funds other than proceeds loaned to Landlord pursuant to the Loan Agreement. The unamortized portion of Tenant's leasehold fixtures shall be determined by multiplying Tenant's cost therefor by a fraction, the numerator of which shall be the number of remaining years of the Lease Term at the time of such expropriation and the denominator of which shall be the number of remaining years of the Lease Term at the time such costs were incurred. (g) In the event of an expropriation after which Tenant is entitled to elect to terminate this Lease pursuant to this Article 18 and makes such election, all damages awarded for such an expropriation as described hereinafter shall be payable to Landlord's Mortgagee, if any, and if no Landlord's Mortgagee, then to Landlord, and Tenant shall not be entitled to share in any award made by reason of such an expropriation of the Demised Premises, or any part thereof, by public or quasi-public authority, except as set forth in paragraph (f) relating to unamortized expenditures by Tenant and except for any award for Tenant's relocation expenses and any award for loss of Tenant's good will and then only if the award for such 17 18 unamortized expenditures, relocation expenses or loss of goodwill shall be made by the expropriating authority in addition to the award for the Demised Premises, the Improvements and the Land (or portions thereof) and such award does not reduce the award for the Demised Premises, the Improvements and the Land. (h) In the event this Lease shall be terminated pursuant to this Article 18, any Annual Rental or Additional Rent, if any, which is unearned shall be promptly refunded to Tenant, provided, however, Landlord's Mortgagee, if any, shall have no obligation to return any monies which it has applied to the payment of the unpaid principal amount of the Note and all accrued and unpaid interest thereon. Tenant shall, however, be entitled to recover any such unearned Annual Rental or Additional Rent from any condemnation proceeds, and Landlord's receipt of such award shall be reduced by such amount. 19. Assignment and Subletting; Use. Subject to any restriction set forth in the Permitted Exceptions (as defined in Article 24 hereof), the Demised Premises may be used for any lawful purposes [except for those uses set forth on Exhibit "F" attached hereto and incorporated herein by reference]. Tenant may assign its interest in this Lease or sublet the whole or any part of the Demised Premises, but if it does so, it shall remain primarily liable and responsible under this Lease and, if assigned, any assignee shall assume all Tenant's obligations pursuant to this Lease. Tenant shall notify Landlord of the identity of any assignee or sublessee, but Tenant's failure to so notify Landlord shall not be deemed a default under this Lease. Any assignment of this Lease or subletting of the Demised Premises without notification to Landlord shall not be effective as to Landlord and Landlord shall not be bound thereby until receipt of such notification. Any assignment of this Lease or subletting of the Demised Premises for a use other than for a lawful purpose shall be void and of no force and effect. Nothing in this Lease shall require Tenant to open or operate in the Improvements. 20. Signs. (a) Landlord expressly recognizes that the Service Mark and Trademark "_________" ("Mark") is the valid and exclusive property of Tenant, and Landlord shall not, either during the Lease Term or thereafter, directly or indirectly, contest the validity of such Mark in any form and in any related trademarks or any of Tenant's registrations pertaining thereto in the United States or elsewhere, nor adopt or use such Mark or any term, word, mark or designation which is in any aspect similar to such Mark. Landlord shall not at any time do or cause to be done any act or thing, directly or indirectly, contesting or in any way impairing or tending to impair any part of the Tenant's right, title and interest in such Mark, and Landlord shall not in any manner represent that it has ownership interest in such Mark or registrations therefor and specifically acknowledges that any use thereof pursuant to this Lease shall not create in Landlord any 18 19 right, title or interest in such Mark. In the event of a breach by Landlord under this Article 20 Tenant shall be entitled to equitable relief and those additional remedies pursuant to Section 45, but shall not be entitled at any time prior to the Loan Payoff to terminate the Lease, reduce its obligations to perform under the Lease or reduce the payment of Annual Rent or Additional Rent hereunder as a result of such breach. (b) Tenant shall have the option, at its sole cost and expense (to the extent that it is not part of Landlord's Work, in which instance it shall be at Landlord's sole cost and expense) to erect, subject to governmental regulations and matters of title to which this Lease is subordinate, at its sole cost and expense upon any portion of Tenant's Building, exterior building signs, and upon any portion of the Demised Premises other than Tenant's Building, pylon and/or monument signs of such height and other dimensions as Tenant shall determine, bearing such legend or inscription as Tenant shall determine, provided same are in compliance with all applicable codes, laws and ordinances. Subject to the approval of the appropriate governmental agencies, Tenant shall be permitted to illuminate its pylon and monument sign(s) from dusk to dawn on a daily basis. (c) Neither Landlord, nor any other party, shall have any right to erect any signs, billboards or posters on any portion of the Demised Premises. 21. Landlord's Remedies. If Tenant shall be in default (i) of any payment obligation under this Lease and such default shall remain uncured (A) by Tenant for ten (10) days after written notice and (B) by Tenant's Guarantor for thirty (30) days after written notice, or, (ii) with respect to any other obligation and such default, subject to the following provisions of this Article 21, shall remain uncured by Tenant or by Tenant's Guarantor for thirty (30) days after written notice, then Landlord may, by giving written notice to Tenant and Tenant's Guarantor at any time thereafter during the continuance of such default, if clause (i) above applies, either (x) terminate this Lease, or (y) re-enter the Demised Premises by summary proceedings or otherwise and, in the case of either clause (x) or (y), expel Tenant and remove all property therefrom, relet the Demised Premises at the best possible rent readily obtainable from a suitable tenant (making reasonable efforts therefor to mitigate damages), and receive the Rent therefrom; and, in all cases also bring an action for damages or seek specific performance. If Landlord re-enters pursuant to clause (y) above or terminates this Lease pursuant to clause (x) above, Tenant shall remain liable for the equivalent of the amount of all Annual Rental and Additional Rent accrued up to the date of reletting and for the reasonable expenses incurred by Landlord in connection with any enforcement action hereunder (including reasonable attorneys fees), less the avails of reletting, if any, after deducting therefrom the reasonable cost of obtaining possession of the Demised Premises and of any repairs and alterations and other expenses necessary to prepare the Demised Premises for reletting. From and after the date of reletting, if any, Tenant in the case of either clause (x) or (y) shall remain liable for any and all deficiencies in Annual Rental and Additional Rent, which deficiencies shall be paid by Tenant on the date herein 19 20 provided for the payment of Annual Rental or Additional Rent. If any default by Tenant (except non-payment of Annual Rental and Additional Rent) cannot reasonably be remedied within thirty (30) days after notice of default, and if Tenant shall commence promptly to cure the same and thereafter prosecute the curing thereof with diligence, then Tenant shall have such additional time as shall be reasonably necessary to remedy such default before this Lease can be terminated or other remedy enforced by Landlord but in no event more than one hundred eighty (180) days subject to Excusable Delays (as defined below) unless, only in the case of cures that require construction or remedial work, such cure cannot with diligence be completed within such one hundred eighty (180) day period in which case such period shall be extended for an additional one hundred eighty (180) days subject to Excusable Delays (as defined below), provided that Tenant shall deliver to Landlord on or before the commencement of such second one hundred eighty (180) day period a written certification describing the work completed to date, the work remaining to be completed and the estimated time to complete and further provided Tenant takes all reasonable action to prevent further diminution in value of the Demised Premises during such extended cure period. "Excusable Delays" shall mean delay in the performance by Tenant of any of its obligations hereunder by reason of the act or neglect of landlord, act of God, strike, labor dispute, boycott, governmental restrictions, riot, insurrection, war, catastrophe, act of the public enemy or any other act over which Tenant has no control. In no event shall Tenant have the right to terminate this Lease by reason of any event or circumstance caused by Tenant's failure to cure Tenant's default. Except as provided in the preceding sentence, in the event Tenant shall be in default under any provision of this Lease, then Landlord may, after notice to Tenant (and, with respect to non-monetary defaults, after the continuance of any such default for thirty (30) days after notice thereof by Landlord), cure such default, all on behalf of and at the expense of Tenant, and do all necessary work and make all necessary payments in connection therewith, and Tenant shall on demand, pay Landlord forthwith the amount so paid by Landlord (which amounts may include reasonable attorneys' fees and expenses of Landlord) together with interest thereon at the Late Rate from the date of Landlord's expenditure to the date of payment by Tenant to Landlord. Except for the legal remedy of damages (provided Landlord shall use reasonable efforts to mitigate damages) and the equitable remedies of an injunction or specific performance, Landlord's remedies herein shall be exclusive. 22. Satellite Dish. Tenant may, at some time in the future, wish to install a satellite dish on or about the Demised Premises. Subject to applicable law, Tenant, at its sole cost and expense, has the right to install such satellite dish on the roof of the Improvements, on the ground or erected on a pole adjacent and contiguous to the Demised Premises. The location of the installation shall be at a site acceptable to Landlord, and approval of the location shall not be unreasonably withheld or delayed. Tenant shall install the satellite dish in accordance with sound construction practices. Tenant shall use any specified 20 21 roofing contractor required to comply with the existing roof warranties. Tenant shall indemnify, defend and hold Landlord harmless from and against any and all liability or loss arising from or out of the installation of the satellite dish. 23. Bankruptcy. (a) If a petition in bankruptcy shall be filed by or with respect to Tenant, or if Tenant shall be adjudicated bankrupt, or if Tenant shall make a general assignment for the benefit of creditors, or if in any proceeding based upon the insolvency of Tenant a receiver, trustee or liquidator of all of the property of Tenant shall be appointed and shall not be discharged within sixty (60) days after such appointment, then Landlord may terminate this Lease by giving notice to Tenant of its intention so to do; provided, however, neither bankruptcy, insolvency, an assignment for the benefit of creditors nor the appointment of a receiver shall affect this Lease or permit its termination so long as all of the covenants on the part of Tenant to be performed shall be performed by Tenant or someone claiming under it. (b) In the event a petition in bankruptcy shall be filed by or with respect to Tenant, Tenant as debtor-in-possession or otherwise shall not elect to reject this Lease or consent to the rejection thereof. (c) In the event a petition in bankruptcy shall be filed by or with respect to Landlord, and, Landlord or Landlord's Trustee rejects this Lease, Tenant shall, for the benefit of Landlord's Mortgagee pursuant to Section 365(h) of the Bankruptcy Code, elect to remain and unless such possession is terminated by order of a court of competent jurisdiction shall remain in possession of the Demised Premises. 24. Covenants of Quiet Enjoyment and Title. (a) Landlord covenants, represents and warrants that it has full right and power to execute and perform this Lease and to grant the estate demised herein and that Tenant, on payment of the Annual Rental and Additional Rent and performance of the covenants and agreements hereof, shall peaceably and quietly have, hold and enjoy the Demised Premises and all rights, easements, appurtenances and privileges belonging or in any way appertaining thereto during the Lease Term without molestation or hindrance of any person claiming by, through or under Landlord, subject, however, to the terms of this Lease and the Permitted Exceptions. Notwithstanding the foregoing, Tenant's obligation to pay Annual Rental and Additional Rent and performance of all obligations hereunder shall not in any way be diminished or impaired by reason of any title encumbrance or matter affecting title to the Demised Premises as may exist on the commencement of the term hereof or by reason of any other failure of peaceable and quiet enjoyment as covenanted and agreed pursuant to this Article 24. (b) Notwithstanding the provisions of this Article 24, a breach by Landlord under this Article 24 shall not be a default 21 22 under this Lease until the earlier of the expiration of the Primary Term or the Loan Payoff, and Tenant's remedies for each such default shall be those exercisable pursuant to Article 45 hereof. (c) Landlord is the owner of [in fee simple to] [a leasehold interest pursuant to the Ground Lease in] the Land on which the Improvements are located, free and clear of any liens, encumbrances, restrictions and violations (or claims or notices thereof), except as set forth on Exhibit "E" attached hereto and incorporated herein by reference (collectively, "Permitted Exceptions"). (d) Landlord shall, without expense to Tenant and prior to the commencement of construction of the Improvements, furnish to Tenant (i) an American Land Title Association Policy of Title Insurance the premium for which shall be paid from the proceeds of the loan evidenced by the Note[s] and which policy shall be issued by the title insurance company ("Title Insurance Company") insuring the mortgage of the Demised Premises executed by Landlord in favor of Landlord's Mortgagee and shall insure Tenant's leasehold title to and the priority of Tenant's Second Mortgage to the Improvements and the Land in the amount of ___[Tenant to determine]________ and 00/100ths DOLLARS ($_________) and [amount of the Loan] and 00/100ths Dollars ($____ ), respectively, and insuring that the Demised Premises are within the bounds of the Property, (ii) an ALTA/ACSM survey certified to Tenant locating thereon the Improvements by a licensed surveyor of the Property and within sixty (60) days of the Possession Date supply an as-built survey of the Improvements and (iii) agreements wherein each holder of any lien against the Demised Premises with priority to this Lease shall consent to this Lease and agree that Tenant's possession and right of use under this Lease in and to the Demised Premises shall not be disturbed by such holder unless and until Tenant shall breach any of the provisions hereof and this Lease or Tenant's right to possession hereunder shall have been terminated in accordance with the provisions of this Lease. 25. Subordination, Non-Disturbance and Attornment. (a) Within thirty (30) days after receipt of a written request from Landlord, Tenant shall execute and deliver an agreement in form and content acceptable to Tenant, such acceptance not to be unreasonably withheld or delayed, subordinating this Lease to a first lien mortgage, other than the Mortgage (as defined in Article 8(e)) or ground lease affecting the Demised Premises; provided, however, such subordination shall be upon the express condition that the validity of this Lease shall be recognized by the mortgagee or ground lessor, and that, notwithstanding any default by the mortgagor or ground lessee, with respect to such mortgage or ground lease, Tenant's possession and right of use under this Lease in and to the Demised Premises shall not be disturbed by such mortgagee or ground lessor unless and until Tenant shall breach any of the provisions hereof and this Lease or Tenant's right to possession hereunder shall have been terminated in accordance with the provisions of this Lease. 22 23 (b) Except for the Mortgage and as otherwise provided in this Lease, Landlord shall not enter into any mortgages other than a first mortgage or replacements thereof and any mortgage given in favor of Tenant to secure Landlord's obligations under this Lease and the Construction Fund Disbursement Agreement - Improvements for the period specified therein unless the holders of such other mortgages specifically recognize in writing the validity of and covenant not to disturb of the leasehold estate and rights of Tenant under this Lease in the manner contemplated in paragraph (a). (c) In the event (i) the Lease is subordinated to a Mortgage or ground lease as provided in Article 25(a), and (ii) the mortgagee, ground lessor or any of the persons hereinafter referred to obtains title to the Demised Premises, Tenant shall attorn to such Mortgagee or ground lessor, its successor(s) and/or assign(s), any purchaser of the Demised Premises at a foreclosure sale or pursuant to any power of sale provided for in such mortgage, or any recipient of a deed in lieu of foreclosure, as its landlord pursuant to the terms if this Lease and such Person shall accept such attornment. Such attornment shall be effective and self executing without the execution of any further instrument by any such Person succeeding to the interest if the Landlord under this Lease. 26. Hazardous Material. (a) Tenant acknowledges receipt of the __________________________ prepared for _________________ by _____________________________ dated ______________. (b) Except for merchandise and other items sold or used in the retail store operated by Tenant in the ordinary course of its business in compliance with all applicable laws, Tenant shall not cause any Hazardous Materials to be Released on the Demised Premises in violation of Environmental Laws during the Lease Term. Tenant shall take all legally required actions to (i) cure any violation of Environmental Laws caused by Tenant, its assignees, subtenants, agents or employees on the Demised Premises, Improvements or Land and (ii) remediate or dispose of any Hazardous Materials which Tenant caused to be Released on the Demised Premises, Improvements or Land or which may originate on, or be Released from, the Demised Premises, Improvements or Land after the Possession Date caused by Tenant, its assignees, subtenants, employees or agents. (c) Tenant shall indemnify, defend and hold Landlord and its successors and assigns and mortgagees (and their respective directors, officers, employees and agents) harmless from and against any claims (including third-party claims), demands, penalties, fines, liabilities, settlements, damages, costs or expenses of whatever kind or nature, including reasonable attorneys' fees, fees of environmental consultants and other experts and laboratory fees, known or unknown, contingent or otherwise, arising out of or in any way related to the following matters, provided the same were caused