-----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, NSIOn7DoJ5zu2CAzBJOzPs9nXy0pMn7TumRd5ZxRmVg1HZ687pr6vFBgeH2SIr5u 0DLRC5i2jkb3tQVOzGi5fg== 0000950124-95-001010.txt : 19950414 0000950124-95-001010.hdr.sgml : 19950411 ACCESSION NUMBER: 0000950124-95-001010 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 14 FILED AS OF DATE: 19950404 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KMART CORP CENTRAL INDEX KEY: 0000056824 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-VARIETY STORES [5331] IRS NUMBER: 380729500 STATE OF INCORPORATION: MI FISCAL YEAR END: 0129 FILING VALUES: FORM TYPE: S-3/A SEC ACT: 1933 Act SEC FILE NUMBER: 033-56465 FILM NUMBER: 95526800 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/A 1 FORM S-3/A 1 As filed with the Securities and Exchange Commission on April 4, 1995 Registration No. 33-56465 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ KMART CORPORATION (Exact Name of Registrant as Specified in its Charter) MICHIGAN 38-0729500 (State or other jurisdiction of incorporation (I.R.S. Employer Identification No.) or organization)
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 Robert E. Buckholz, Jr. Dickinson, Wright, Moon, Arthur S. Adler Van Dusen & Freeman Sullivan & Cromwell 500 Woodward Avenue, Suite 4000 125 Broad Street Detroit, Michigan 48226 New York, New York 10004
------------------------ 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. / / 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 BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION, DATED APRIL 4, 1995 $155,000,000 KMART CORPORATION PASS THROUGH TRUSTS PASS THROUGH CERTIFICATES 1995-K-1 PASS THROUGH CERTIFICATES 1995-K-2 --------------------- Each Certificate offered hereby will evidence an undivided interest in one of two separate Kmart Pass Through Trusts to be formed pursuant to separate trust agreements between Kmart and The Bank of New York Trust Company of Florida, National Association, as trustee of Pass Through Trust 1995-K-1, and The Bank of New York Trust Company of California, as trustee of Pass Through Trust 1995-K-2. The Trust Property of each Pass Through Trust will consist of Mortgage Notes issued as non-recourse obligations of separate Owner Trusts (as defined herein) to finance the Sale-Leaseback Transactions described herein. Each Mortgage Note will be secured by (i) an assignment of certain of the related Owner Trust's rights as lessor under one of the Leases described herein, including the right to receive rentals and certain other payments from Kmart, and (ii) a first mortgage on the Property acquired by the related Owner Trust and leased to Kmart, subject to the rights of Kmart under the related Lease, as described more fully herein. See "Description of the Mortgage Notes". Each Certificate will evidence a fractional undivided interest in the related Pass Through Trust and will have no rights, benefits or interest in respect of the other Pass Through Trust or the Trust Property held in the other Pass Through Trust. The Mortgage Notes issued in respect of each Property will be issued in two series by the related Owner Trust. Each Pass Through Trust will purchase Mortgage Notes having the same maturity date and having an interest rate corresponding to the interest rate on the Certificates evidencing interests in such Pass Through Trust. The maturity date of the Mortgage Notes acquired by each Pass Through Trust will correspond to the final scheduled distribution date for the Certificates evidencing interests in such Pass Through Trust. (Cover page continued on following page.) --------------------- 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. ---------------------
INITIAL SCHEDULED FINAL SCHEDULED INITIAL PUBLIC PRINCIPAL INTEREST PRINCIPAL PRINCIPAL OFFERING PASS THROUGH TRUST AMOUNT RATE DISTRIBUTION DATE DISTRIBUTION DATE PRICE(1)(2) - ----------------------------- ------------ -------- ----------------- ----------------- -------------- 1995-K-1..................... $ % 100% 1995-K-2..................... 100 ------------ Total................... $155,000,000
- --------------- (1) Plus accrued interest, if any, at the applicable rate from April , 1995. (2) The underwriting commission varies by Pass Through Trust and aggregates $ , which constitutes 0. % of the initial principal amount of the Certificates. The underwriting commission and certain other expenses relating to the offering, estimated at $ , will be paid by Kmart (other than certain expenses to be paid by the Owner Trusts). All of the proceeds from the sale of the Certificates will be used to purchase the Mortgage Notes from the Owner Trusts. Kmart has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. --------------------- The Certificates are offered severally by the Underwriters, as specified herein, subject to receipt and acceptance by them and subject to their right to reject any order in whole or in part. It is expected that certificates will be ready for delivery in book-entry form only through the facilities of The Depository Trust Company on or about April , 1995, against payment therefor in immediately available funds. GOLDMAN, SACHS & CO. MORGAN STANLEY & CO. INCORPORATED --------------------- The date of this Prospectus is April , 1995. 3 (Cover page continued) Neither the Certificates nor the Mortgage Notes are direct obligations of or guaranteed by Kmart (except to the extent that it may assume the obligations of the related Owner Trust under any of the Mortgage Notes). The amounts unconditionally payable by Kmart under the Leases, however, will be sufficient to pay in full, when due, all payments required to be made on the Mortgage Notes held in each Pass Through Trust, except upon certain optional redemptions which require the related Owner Trust to deposit an amount sufficient to pay the Redemption Price and Make-Whole Premium with the Corporate Indenture Trustee. Interest paid on the Mortgage Notes held in each Pass Through Trust will be passed through to the Certificateholders of such Pass Through Trust on January 5 and July 5 of each year, commencing July 5, 1995, at the rate per annum set forth on the cover page hereof for such Pass Through Trust until the final distribution date for such Pass Through Trust. Scheduled payments of principal on the Mortgage Notes held in each Pass Through Trust will be passed through to the Certificateholders of such Pass Through Trust in the amounts and on the dates described herein, commencing on the date specified on the cover page hereof, unless such Mortgage Notes are earlier redeemed, until the final distribution date for such Pass Through Trust. Any such redemption will be at a redemption price equal to the unpaid principal amount thereof or the portion thereof to be redeemed, plus accrued interest thereon and, in certain circumstances, the Make-Whole Premium, if any. Because the Mortgage Notes are subject to optional redemption under certain circumstances, the final distribution date for the Certificates evidencing interests in a Pass Through Trust may occur significantly earlier than the applicable date specified on the cover page hereof. See "Description of the Mortgage Notes -- Redemption". The Certificates will be represented by global certificates registered in the name of The Depository Trust Company's nominee. Interests in the global certificates will be shown in, and transfers thereof will be effected only through, records maintained by The Depository Trust Company and its participants. Except as provided herein, Certificates in definitive form will not be issued. The Certificates will trade in The Depository Trust Company's Same-Day Funds Settlement System until maturity, and secondary market activity for the Certificates will therefore settle in immediately available funds. See "Description of the Certificates". --------------------------- IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CERTIFICATES OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZING MAY BE EFFECTED IN THE OPEN MARKET OR OTHERWISE, AND IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 AVAILABLE INFORMATION Kmart Corporation ("Kmart" or the "Company") is subject to the informational requirements of the Securities Exchange Act of 1934 (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 Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661 and 7 World Trade Center, 13th Floor, New York, NY 10048. Copies of such material can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington D.C. 20549, 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. Reports, proxy statements and other information can be inspected and copied at the New York Stock Exchange, 20 Broad Street, New York, NY 10005 and the Pacific Stock Exchange, 301 Pine Street, San Francisco, CA 94104. 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. For further information, reference is hereby made to the Registration Statement. 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 BY THE TRUSTEE Unless and until Definitive Certificates are issued, The Bank of New York Trust Company of Florida, National Association, as trustee of Pass Through Trust 1995-K-1, and The Bank of New York Trust Company of California, as trustee of Pass Through Trust 1995-K-2, will send to Cede & Co., the nominee of The Depository Trust Company, as registered holder of the Certificates, certain periodic statements concerning distributions made with respect to the Pass Through Trusts. See "Description of the Certificates -- Book-Entry Registration" and "-- Reports to Certificateholders". --------------------------- INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents filed with the Commission (File No. 1-00327) pursuant to the Exchange Act are incorporated herein by reference: 1. The Company's Annual Report on Form 10-K for the fiscal year ended January 26, 1994; 2. The Company's Quarterly Reports on Form 10-Q for the quarters ended April 27, 1994, July 27, 1994 and October 26, 1994; 3. The Company's Current Reports on Form 8-K filed June 8, 1994, August 19, 1994 and December 6, 1994; and 4. All other documents filed by the Company pursuant to Section 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 this Prospectus, or in any other subsequently filed document which is also, or is deemed to be, incorporated by reference, modifies or replaces such statement. Any such 3 5 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 documents) of any or all documents incorporated by reference in this Prospectus. Requests for such copies should be addressed to the Corporate Reporting Department, Kmart Corporation, 3100 West Big Beaver Road, Troy, MI 48084 (telephone no. (810) 643-1093). 4 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by reference to the more detailed information contained elsewhere in, or incorporated by reference in, this Prospectus. Certain capitalized terms used in this summary are defined elsewhere in this Prospectus or in the Glossary of Terms. THE COMPANY Kmart is one of the world's largest mass merchandise retailers and operates stores in each of the 50 states, Puerto Rico, Canada, the Czech Republic and Slovakia and has entered into joint ventures in Mexico and Singapore. See "The Company". THE CERTIFICATES PASS THROUGH TRUSTS........... Each of the two Kmart Pass Through Trusts ("Pass Through Trust 1995-K-1" and "Pass Through Trust 1995-K-2," respectively, and, each individually a "Pass Through Trust" and collectively, the "Pass Through Trusts") is to be formed pursuant to one of two Pass Through Trust Agreements (the "Agreements") between Kmart and The Bank of New York Trust Company of Florida, National Association, as trustee of Pass Through Trust 1995-K-1, and The Bank of New York Trust Company of California, as trustee of Pass Through Trust 1995-K-2 (each individually a "Trustee" and collectively, the "Trustees"). Each Pass Through Trust will be a separate entity. TRUST PROPERTY................ The property of each of the Pass Through Trusts (the "Trust Property") will consist of mortgage notes (the "Mortgage Notes") issued on a nonrecourse basis by separate Owner Trusts (collectively, the "Owner Trusts") to finance the sale-leaseback and other similar transactions described herein (collectively, the "Sale-Leaseback Transactions"). Each Pass Through Trust will acquire Mortgage Notes having the same maturity date as, and an interest rate corresponding to the interest rate on, the Certificates evidencing interests in such Pass Through Trust. The maturity date of the Mortgage Notes acquired by each Pass Through Trust will correspond to the final scheduled distribution date applicable to the Certificates evidencing interests in such Pass Through Trust. The aggregate principal amount of the Mortgage Notes held in each Pass Through Trust will be the same as the aggregate principal amount of the Certificates evidencing interests in such Pass Through Trust. See "Structure of the Transaction," "Description of the Certificates -- General" and "Description of the Mortgage Notes -- Security". BOOK-ENTRY REGISTRATION....... The Certificates will be issued in fully registered form only. 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 "Certificate Owner") will be entitled to receive a Definitive Certificate representing such person's interest in the related Pass Through Trust, except in the event that Definitive 5 7 Certificates are issued under the limited circumstances described herein. See "Description of the Certificates -- General," "-- Book-Entry Registration" and "-- Definitive Certificates". DENOMINATIONS................. The Certificates will be issued in minimum denominations of $1,000 initial principal amount and integral multiples of $1,000 in excess thereof. The denomination of each Certificate signifies a Certificate Owner's pro rata share of the aggregate principal amount of the Mortgage Notes held in the related Pass Through Trust. See "Description of the Certificates". REGULAR DISTRIBUTION DATES.... January 5 and July 5, commencing July 5, 1995. SPECIAL DISTRIBUTION DATES.... The fifth day of any month. RECORD DATES.................. The fifteenth day preceding a Regular Distribution Date or a Special Distribution Date. DISTRIBUTIONS................. All payments of principal, premium, if any, and interest received by the Trustee on the Mortgage Notes held in a Pass Through Trust will be distributed by the Trustee to the holders of Certificates evidencing interests in such Pass Through Trust on the dates referred to below, except in certain cases where such Mortgage Notes have been redeemed or are in default. Scheduled payments of interest and principal on the Mortgage Notes held in each Pass Through Trust are due in specified amounts on January 5 and July 5 commencing, in the case of interest, on July 5, 1995 and, in the case of principal, on the applicable Initial Scheduled Principal Distribution Date set forth on the cover page hereof, and will be distributed to the holders of Certificates evidencing interests in such Pass Through Trust on the corresponding Regular Distribution Date. Interest paid on the Mortgage Notes will be passed through as interest on the Certificates at the applicable rate per annum indicated on the cover page hereof, which will be equal to the interest rate borne by the Mortgage Notes held in the related Pass Through Trust. Interest on the Mortgage Notes will be calculated on the basis of a 360-day year consisting of twelve 30-day months. See "Description of the Certificates -- General". Payments of principal, premium, if any, and interest on the Mortgage Notes held in each Pass Through Trust resulting from any redemption thereof, or from actions taken in connection with an Indenture Default, will be distributed on a Special Distribution Date, upon not less than 20 days' notice from the Trustee to the holders of the related Certificates. See "Description of the Certificates -- Events of Default and Certain Rights Upon an Event of Default" and "Description of the Mortgage Notes -- Redemption". METHOD OF DISTRIBUTIONS....... So long as the Certificates are registered in the name of Cede as nominee of DTC, distributions by the Trustee with respect to a Pass Through Trust will be made in same day funds to DTC, which will in turn make distributions to 6 8 participants in DTC ("DTC Participants") holding positions in the Certificates evidencing interests in such Pass Through Trust in clearing-house or next-day funds. The final distribution of principal with respect to the Certificates evidencing interests in a Pass Through Trust will be made by DTC to DTC Participants in same day funds. Distributions by DTC Participants to Certificate Owners will be the responsibility of such DTC Participants and will be made in accordance with customary industry practices. See "Description of the Certificates -- Payments and Distributions". At such time, if any, as Definitive Certificates are issued, distributions by the Trustee to Certificateholders, other than the final distribution, will be made by check mailed to each Certificateholder of record on the applicable record date at its address appearing on the register. The final distribution with respect to the Certificates evidencing interests in a Pass Through Trust will be made only upon surrender and presentation thereof at the office or agency of the Trustee of such Pass Through Trust. See "Description of the Certificates -- Payments and Distributions". THE MORTGAGE NOTES INTEREST PAYMENTS............. Interest will be payable on the Mortgage Notes on the unpaid principal amount thereof on January 5 and July 5 in each year commencing July 5, 1995. SCHEDULED PRINCIPAL PAYMENTS...................... Principal on the Mortgage Notes held in each Pass Through Trust will be payable in scheduled amounts, commencing on the applicable Initial Scheduled Principal Distribution Date set forth on the cover page hereof in accordance with the principal repayment schedule set forth herein under "Description of the Mortgage Notes -- Principal Payments". REDEMPTION.................... Each Owner Trust, with the consent of Kmart, may redeem all of the Mortgage Notes issued by it, or all Owner Trusts, with the consent of Kmart, may redeem all of the Mortgage Notes held in either or both of the Pass Through Trusts, in either case, on any Special Distribution Date, at a redemption price equal to the unpaid principal amount thereof, together with accrued interest thereon to the date of the redemption, plus the applicable Make-Whole Premium, if any, calculated in the manner described herein. See "Description of the Mortgage Notes -- Redemption -- Optional Redemption". The Mortgage Notes relating to a Property will also be subject to redemption, in whole, in the event that (a) on or after the fifth anniversary of the commencement of the base term of the Lease, the Property has become obsolete, no longer economic for Kmart's use or surplus to Kmart's requirements, and Kmart exercises its right to terminate the Lease with respect to such Property (the "Termination Right"); (b) any Owner Participant becomes a competitor of Kmart during the term of the Lease and the related Owner 7 9 Trust's interest in the Property is transferred to Kmart or a third party (the "Competitor Option"); or (c) an Event of Loss occurs with respect to such Property. Each such redemption will be at a price equal to the unpaid principal amount of such Mortgage Note and accrued interest thereon, together with, in the case of redemption described in clauses (a) and (b) above, the applicable Make-Whole Premium, but without premium or other prepayment penalty of any kind in the case of a redemption described in clause (c) above. In addition, a redemption of the Mortgage Notes described in clause (a) or (b) above will be subject to the right of Kmart to assume, on a full recourse basis, the obligations with respect to the Mortgage Notes. In addition, a redemption of the Mortgage Notes described in clause (a) or (c) above will be subject to the right of Kmart to substitute a property for the Property in question (the "Substitution Right"). The Mortgage Notes relating to a Property will also be subject to redemption, in whole or in part, at a redemption price equal to the unpaid principal amount thereof (or the portion thereof to be redeemed) plus accrued interest thereon, but without premium, upon the occurrence of certain condemnations or casualties, to the extent of any excess condemnation awards or excess casualty insurance proceeds. In addition, the Mortgage Notes issued under any particular Indenture by the related Owner Trust will be subject to redemption by such Owner Trust (except during any period during which the Company is an Owner Participant or otherwise controls such Owner Trust), in whole, but not in part, if under such Indenture a Lease Event of Default (other than a Lease Event of Default related to Excepted Payments) shall have occurred and be continuing; provided that there is no Indenture Default resulting other than from such Lease Event of Default. Such redemption will be at the Redemption Price plus the Make-Whole Premium if effected prior to the earlier of acceleration of the applicable Mortgage Notes or, in the case of a Lease Event of Default arising from a Monetary Default, the expiration of a period of 180 days following the occurrence of such Lease Event of Default that is continuing at the expiration of such period. Such redemption will be at the Redemption Price without premium if effected after (i) delivery by the Indenture Trustees of a notice of acceleration of the applicable Mortgage Notes or (ii) the expiration of a period of 180 days following the occurrence of such Lease Event of Default arising from a Monetary Default. See "Description of the Mortgage Notes -- Redemption -- Optional Redemption" and "-- Redemption Upon an Event of Loss or Other Condemnation or Casualty" and "Description of the Leases -- Condemnation and Casualty" and "-- Early Termination Rights". 8 10 SECURITY...................... Two Mortgage Notes will initially be issued by an Owner Trust under an indenture, mortgage and deed of trust, assignment of rents and security agreement (an "Indenture") affecting each Property. The Mortgage Notes issued with respect to each corresponding Property will be secured by (i) an assignment to the Indenture Trustees of certain of the related Owner Trust's rights under the Lease with respect to such Property, including the right to receive rentals and certain other amounts payable thereunder by Kmart, (ii) a first mortgage on the Property acquired by such Owner Trust and leased to Kmart, subject to the rights of Kmart under the related Lease, and (iii) the Owner Trust's rights under the Option (as hereinafter defined). Upon an Indenture Default, the Indenture Trustees may exercise their rights with respect to the related Trust Estate for the equal and ratable benefit of the Mortgage Notes issued under or secured by that Indenture. See "Structure of the Transaction," "Description of the Certificates" and "Description of the Mortgage Notes -- Security" and "-- Indenture Defaults, Notice and Waiver". Although the Mortgage Notes are not direct obligations of, or guaranteed by, Kmart (except to the extent that Kmart may assume the obligations of an Owner Trust thereunder, as described under "Description of the Mortgage Notes -- Assumption of Obligations by Kmart"), the amounts unconditionally payable by Kmart under the Leases will be sufficient to pay in full when due all payments required to be made on the Mortgage Notes except upon certain optional redemptions which require the related Owner Trust to deposit an amount sufficient to pay the Redemption Price and Make-Whole Premium with the Corporate Indenture Trustee. See "Description of the Mortgage Notes -- Redemption -- Optional Redemption," "-- Redemption -- Make-Whole Premium" and "-- Security". Neither the Trustee, the Certificateholders nor the Indenture Trustees will have recourse in respect of the Mortgage Notes against any Owner Trustee or Owner Participant. See "Description of the Mortgage Notes -- General". USE OF PROCEEDS The Certificates are being issued in order to facilitate the financing by each Owner Trust of its purchase of a Property. Proceeds from the sale of the Certificates will be used by the Trustees to purchase the Mortgage Notes issued by each Owner Trust, which in turn will use the proceeds to purchase its related Property. See "Structure of the Transaction". The net proceeds to be received by the Company from the Sale-Leaseback Transactions will be used (i) for general corporate purposes and (ii) in the case of Properties to be conveyed by developers to the related Owner Trust, primarily to repay loans made to such developers, which funded the construction and/or acquisition of such Property. TRUSTEES AND INDENTURE TRUSTEE The Bank of New York Trust Company of Florida, National Association will act as trustee for the Certificates evidencing interests in Pass Through Trust 1995-K-1 and The Bank of New York Trust Company of California will act as trustee for the Certificates evidencing interests in Pass Through 9 11 Trust 1995-K-2. The Bank of New York will act as the Corporate Indenture Trustee under the Indentures and as paying agent and registrar for the Certificates evidencing interests in the Pass Through Trusts. FEDERAL INCOME TAX CONSEQUENCES In the opinion of counsel to Kmart, each Pass Through Trust will be classified as a grantor trust for federal income tax purposes, and each holder of an interest in the Certificates will be treated as the owner of a pro rata undivided interest in each of the Mortgage Notes and any other property held in the Pass Through Trust in which the Certificates held by such holder evidence an interest and will be required to report on its federal income tax return its pro rata share of income from such Mortgage Notes and other property in accordance with such holder's method of accounting. See "Certain Federal Income Tax Consequences". ERISA CONSIDERATIONS A fiduciary considering purchasing Certificates for or on behalf of an employee benefit plan should consider the issues discussed in "ERISA Considerations". LEGAL INVESTMENT Institutions whose investment activities are 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". 10 12 THE COMPANY Kmart Corporation ("Kmart" or "Company") is one of the world's largest mass merchandise retailers. The dominant portion of Kmart's business consists of U.S. Kmart stores. As of January 25, 1995, Kmart operated 2,316 Kmart discount stores with locations in each of the 50 United States and Puerto Rico, and Kmart international operations consisted primarily of 128 Kmart stores in Canada and 13 department stores located in the Czech Republic and Slovakia. As part of its international expansion strategy, Kmart has entered into joint ventures in Mexico and Singapore, which, as of January 25, 1995, had opened four stores: two in Mexico and two in Singapore. Kmart also holds significant equity interests in OfficeMax, Inc. ("OfficeMax"), The Sports Authority, Inc. ("The Sports Authority") and substantially all of the Meldisco subsidiaries of Melville Corporation, which operate the footwear departments in domestic Kmart stores. As of January 25, 1995, Kmart specialty retail operations consisted of the Borders Group and Builders Square subsidiaries. Borders Group is the second largest U.S. operator of book superstores under the Borders name and the largest U.S. operator of mall-based bookstores under the Waldenbooks name. As of January 25, 1995, Borders Group operated 1,187 bookstores in 50 states and the District of Columbia. See "-- Recent Developments" for a discussion of an announcement regarding a potential Borders Group Initial Public Offering ("IPO"). Builders Square operated 166 home improvement stores at January 25, 1995. 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. Kmart also holds a significant investment in Thrifty PayLess Holdings, Inc. ("TPH"), an entity which resulted primarily from the combination of Kmart's former subsidiary PayLess Drug Stores Northwest, Inc. ("PayLess") with Thrifty Drug Stores after PayLess was sold to TPH in the first quarter of 1994. In the fiscal 1993 consolidated financial statements, the operations of PayLess were presented as part of discontinued operations. However, as Kmart's investment in TPH will extend beyond the period initially planned, the operations of PayLess have been reclassified as part of continuing operations in fiscal 1993 and fiscal 1992. Management will continue to actively seek a buyer for this investment during fiscal 1995 and expects that such disposition will occur either through a private offering or other alternative means. 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. RECENT DEVELOPMENTS In November 1994, Kmart completed IPOs for 75% and 70% interests, respectively, in OfficeMax, an operator of high-volume, deep-discount office product superstores, and The Sports Authority, an operator of large-format sporting goods stores. These offerings resulted in net cash proceeds to Kmart of approximately $642 million for OfficeMax and $254 million for The Sports Authority. Kmart also completed the sale of its 21.5% equity interest in Coles Myer, the largest retailer in Australia, in November 1994, resulting in net cash proceeds to Kmart of approximately $928 million. Kmart also anticipates undertaking an IPO of an equity interest in Borders Group, the timing of which will depend upon market and other conditions, and continues to review alternatives with respect to Builders Square and initiatives related to the Company's core business. On March 21, 1995, the Company announced that Joseph E. Antonini had relinquished his position as president, chief executive officer, and director of the Company, effective immediately, and that Anthony N. Palizzi, executive vice president and general counsel, will serve as interim president, and Ronald J. Floto, executive vice president, Super Kmart Centers, will serve as interim 11 13 chairman of the management executive committee. The Company also announced that it will begin a search for a new chief executive officer immediately. See "Selected Financial Information -- 1994 Fiscal Year and Fourth Quarter Results". As of the date of this Prospectus, Standard and Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Duff & Phelps Credit Rating Co. ("D&P") have assigned the ratings of "BBB", "Baa1" 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 for a potential downgrade. There can be no assurance that the ratings set forth above may not be changed by the respective rating agency at any time. See "Rating". USE OF PROCEEDS The Certificates are being issued in order to facilitate the financing by each Owner Trust of its purchase of its respective Property. Proceeds from the sale of the Certificates will be used by the Trustees to purchase the Mortgage Notes issued by each Owner Trust, which in turn will use the proceeds to purchase its respective Property. See "Structure of the Transaction". Net proceeds of $ million to be received by the Company from the Sale-Leaseback Transactions will be used for general corporate purposes. In the case of Properties to be conveyed by developers to the related Owner Trust, net proceeds of $ million will be used primarily to repay loans made to such developers which funded the construction and/or acquisition of such Property. See "Structure of the Transaction". 12 14 SELECTED FINANCIAL INFORMATION The following is a summary of certain selected consolidated financial information of the Company. This summary should be read in conjunction with the related consolidated financial statements and notes thereto included or incorporated by reference in the Company's Annual Report on Form 10-K for the fiscal year ended January 26, 1994 and Quarterly Report on Form 10-Q for the quarter ended October 26, 1994 incorporated herein by reference. See "Incorporation of Certain Documents by Reference". The information presented below for, and as of the end of, each of the fiscal years in the five-year period ended January 26, 1994 (except for the ratio of earnings from continuing retail operations to fixed charges) is derived from the consolidated financial statements of the Company, which financial statements have been audited by Price Waterhouse LLP, independent accountants. In the opinion of the Company, the unaudited financial information presented for the 39 weeks ended October 26, 1994 and October 27, 1993 contains all adjustments necessary for a fair statement of the results for the interim periods. All adjustments were of a normal and recurring nature. Results for interim periods are not necessarily indicative of results for the full year.
39 WEEKS ENDED ------------------------- OCTOBER 26, OCTOBER 27, 1989(1) 1990 1991 1992 1993(2) 1994 1993 -------- -------- -------- -------- -------- ----------- ----------- (DOLLARS IN MILLIONS) (UNAUDITED) (DOLLARS IN MILLIONS) Summary of Operations Sales......................... $ 27,670 $ 28,133 $ 29,042 $ 31,031 $ 34,156 $25,432 $23,889 Cost of merchandise sold...... 20,310 20,614 21,243 22,800 25,646 19,134 17,762 Selling, general and administrative expenses..... 6,277 6,435 6,603 6,875 7,636 5,952 5,567 Interest expense -- net....... 353 384 384 414 477 373 369 Income (loss) from continuing retail operations before income taxes................ 444 1,070 1,189 1,327 (550) 230 439 Net income (loss) from continuing retail operations.................. 282 712 789 882 (328) 151 287 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 $ 3,372 $ 3,918 Merchandise inventories....... 6,933 6,891 7,546 8,752 7,252 9,549 10,517 Total assets.................. 13,145 13,899 15,999 18,931 17,504 20,285 21,604 Long-term debt................ 1,480 1,701 2,287 3,237 2,227 2,022 2,757 Capital leases................ 1,549 1,598 1,638 1,698 1,720 1,865 1,732 Shareholders' equity.......... 4,972 5,384 6,891 7,536 6,093 5,959 7,398
- ------------------------- (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 the Company's business, the ratio of earnings from continuing retail operations to fixed charges is computed on a trailing 52 week basis. The ratio computed as described in (3) above for the 52 weeks ended October 27, 1993 was 2.6. The deficiency of income from continuing retail operations versus fixed charges was $809 million for the 52 weeks ended October 26, 1994. 13 15 1994 FISCAL YEAR AND FOURTH QUARTER RESULTS For the 1994 fiscal year ended January 25, 1995, the Company had income from continuing retail operations of $260 million. This included special one-time pretax gains of $168 million (or $101 million after taxes) related to the IPOs of equity interests in OfficeMax and The Sports Authority. Earnings from continuing retail operations also included pretax charges of $257 million for actions taken by Kmart in the fourth quarter to reduce expenses and improve productivity going forward. These 1994 year-end actions include the implementation of a more aggressive merchandise markdown policy on discontinued and seasonal inventory, the sale of corporate aircraft, the previously announced closings of regional offices and the Kmart Fashion division headquarters in North Bergen, New Jersey and the cancellation of certain real estate projects that did not meet recently adopted and more stringent return on investment requirements. In fiscal 1993, there was a net loss from continuing retail operations of $347 million, as restated to include the results of PayLess, including a pretax restructuring charge of $1.35 billion ($862 million after tax). Kmart's reported net income for fiscal 1994 was $296 million, after income of $36 million from discontinued operations. Discontinued operations, net of income taxes, consist of equity income and a gain from the sale of the Coles Myer stake of $68 million, which more than offset a charge of $32 million for Furr's Cafeteria rent guarantees. This contrasts to a fiscal 1993 net loss of $974 million after all unusual items, including the pretax restructuring charge. Sales in fiscal 1994 were $34.03 billion, an increase of 5.9 percent from $32.13 billion in fiscal 1993 on a comparable basis (excluding sales of PayLess, the investment in which the Company plans to dispose of, and OfficeMax and The Sports Authority, which were the subject of the IPOs discussed above). On an as-reported basis (including sales of PayLess, OfficeMax and The Sports Authority), sales in fiscal 1993 were $36.69 billion. In the fiscal 1993 consolidated financial statements (as summarized on the prior page), the operations of PayLess were presented as part of discontinued operations; however, as Kmart's investment in TPH will extend beyond the period initially planned, the operations of PayLess have been reclassified as part of continuing operations for fiscal 1993 (as shown below). Net income from continuing retail operations for the fourth quarter of fiscal 1994 was $129 million, after IPO gains and all charges. After pretax gains of $168 million (or $101 million after taxes) for the IPOs and a net gain of $16 million from discontinued operations, Kmart's net income in the fourth quarter of fiscal 1994 was $145 million. This contrasts to the Company's fiscal 1993 net loss of $1.19 billion in the fourth quarter after all unusual items, including a restructuring charge. Kmart's sales in the fiscal 1994 fourth quarter were $10.44 billion, an increase of 8.3% from $9.64 billion in the same period a year ago on a comparable basis. On an as-reported basis in the fiscal 1993 fourth quarter, including the PayLess Drug Stores, OfficeMax and The Sports Authority businesses, sales were $11.01 billion. In its 1994 earnings release, Kmart's management characterized the fiscal 1994 results as disappointing and indicated that management is committed to reducing costs and improving financial performance. Management stated it is accelerating the process of identifying and implementing initiatives to strengthen the Company, including a comprehensive strategic review of Kmart's business addressing merchandising, operational execution and financial policies. Set forth below is Kmart's consolidated condensed statement of income for fiscal 1994 and 1993:
1994 1993 ------- ------- (DOLLARS IN MILLIONS) Sales................................................................... $34,025 $36,694 Cost of merchandise sold................................................ 25,992 27,520 Selling, general and administrative expenses............................ 7,701 8,217 Interest expense -- net................................................. 494 495 Income (loss) from continuing retail operations before income taxes..... 294 (590) Net income (loss) before discontinued operations, extraordinary item and the effect of accounting changes...................................... 260 (347) Net income (loss)....................................................... 296 (974)
14 16 STRUCTURE OF THE TRANSACTION Concurrently with the issuance of the Certificates, Kmart will sell or cause the sale of 16 buildings currently used as Kmart stores together with a 25-year estate-for-years interest (the "Estate-for-Years Interest") in the land on which the Stores are situated (the "Land") for an aggregate price of approximately $170 million to separate owner trusts (each, an "Owner Trust"), for which Wilmington Trust Company (the "Corporate Owner Trustee") and, where required by state law, Chemical Trust Company of California (the "Corporate Co-Trustee") or an individual person (the "Individual Owner Trustee"), are acting as owner trustees (the Corporate Owner Trustee, Corporate Co-Trustee and the Individual Owner Trustee, collectively, the "Owner Trustees") under separate trust agreements (each, an "Owner Trust Agreement") for one or more institutional investors (each, an "Owner Participant"). Seven of these Properties will be conveyed to the acquiring Owner Trust by developers of the Properties at the direction of the Company pursuant to its rights under the agreements with each developer under which the developer agreed to construct the Store and Kmart agreed to purchase the Property upon completion of the Store. Simultaneously with the sale of the Property to the Owner Trust, Kmart will sell a remainder interest in the Land that follows expiration of each Owner Trust's Estate-For-Years Interest to a trust that is unaffiliated with Kmart (the "Remainderman"). Each Owner Trust will immediately lease each parcel of Land and the Store thereon back to Kmart pursuant to leases (each, a "Lease") for an initial term expiring April , 2020. The Owner Trust will have an option (the "Option"), concurrently with the expiration of the Base Term of the Lease and the Estate-for-Years, (a) to purchase, at fair market sales value, the Remainderman's interest in each parcel of Land or (b) to ground lease such Land from the Remainderman on a triple-net-lease basis. The ground lease would have a term of 75 years (subject to earlier termination at the option of the ground lessee). Each Owner Trust's estate for years interest in a parcel of Land, together with such Owner Trust's fee simple title to the Store located on such land, is referred to as a "Property". A portion of the purchase price to be paid by an Owner Trust for each Property will be obtained from the equity investment of the corresponding Owner Participant. The Mortgage Notes will be issued by each Owner Trust on a non-recourse basis to finance the remainder of the purchase price. The Mortgage Notes will be acquired from the Owner Trusts by the Trustees with the proceeds from the sale of the Certificates. The Mortgage Notes will be issued under a separate indenture, mortgage and deed of trust, assignment of rents and security agreement (each, an "Indenture") with respect to each Property. Two Mortgage Notes will initially be issued under each Indenture. Each Indenture will be entered into by and among The Bank of New York (the "Corporate Indenture Trustee") and Todd N. Niemy (the "Individual Indenture Trustee"), as trustees thereunder (the Corporate Indenture Trustee and the Individual Indenture Trustee, in such capacities, the "Indenture Trustees"), and the corresponding Owner Trust. Neither any Owner Trust, Owner Trustee nor any Owner Participant will be personally liable for any amount payable under the related Indenture or the Mortgage Notes issued thereunder. The Mortgage Notes issued under each Indenture will be secured by an assignment of certain of the corresponding Owner Trust's rights as lessor under the Lease with respect to the Property securing such Mortgage Notes, including the right to receive base rentals and certain other payments from Kmart (excluding Excepted Payments), a first mortgage on the Property, subject to the rights of Kmart under the related Lease and the related Option (with respect to each such Indenture, the "Trust Estate"). The Mortgage Notes issued under the Indenture with respect to a Property acquired by an Owner Trust will not be secured by any of the Properties securing Mortgage Notes issued under any other Indenture and will not be cross-defaulted with Mortgage Notes issued under any other Indenture. The amounts unconditionally payable by Kmart under the Leases will be sufficient to pay in full, when due, all payments required to be made on the Mortgage Notes, except upon certain optional redemptions which require the Owner Trust to deposit an amount sufficient to pay the Redemption 15 17 Price and Make-Whole Premium with the Corporate Indenture Trustee. See "Description of the Mortgage Notes -- Redemption -- Optional Redemption". The Mortgage Notes will not be recourse obligations of any Owner Participant, the Owner Trustees or of any Owner Trust, but will be payable solely from base rents and other amounts paid under the Lease (excluding Excepted Payments) of the Property securing such Mortgage Notes and amounts realized from the exercise of the Indenture Trustees' remedies under the Indenture against the related Trust Estate. A more detailed description of the transaction is set forth below under "Diagram of Payments," "Description of the Certificates," "Description of the Mortgage Notes" and "Description of the Leases". The Pass Through Trusts will be formed pursuant to two separate Pass Through Trust Agreements (in each case, an "Agreement"), between The Bank of New York Trust Company of Florida, National Association, as trustee of Pass Through Trust 1995-K-1, or The Bank of New York Trust Company of California, as trustee of Pass Through Trust 1995-K-2 (collectively, in such capacity, the "Trustees"), and Kmart. Concurrently with the execution and delivery of the Agreements, each Trustee, on behalf of the related Pass Through Trust, will purchase the Mortgage Notes to be held in the related Pass Through Trust from each Owner Trust. Each Trustee, on behalf of the related Pass Through Trust, will purchase those Mortgage Notes having the same maturity date and an interest rate equal to the interest rate applicable to the Certificates evidencing interests in such Pass Through Trust. The maturity date of the Mortgage Notes acquired by each Pass Through Trust will correspond to the final scheduled Distribution Date applicable to the Certificates evidencing an interest in such Pass Through Trust. Each Trustee will distribute all payments of principal, premium, if any, and interest received by it as holder of the Mortgage Notes to the holders of Certificates evidencing an interest in the Pass Through Trust in which such Mortgage Notes are held. See "Description of the Certificates" and "Description of the Mortgage Notes". THE PROPERTIES The Properties consist of 16 Kmart store locations (including six combination general-merchandise and grocery Super Kmart Centers). Certain information regarding each of the Properties is set forth in the following table:
FACILITY SIZE (SQ. LOT SIZE KMART STORE LOCATIONS FT.) (ACRES) OPENING DATE - ------------------------------------------------------------- -------- -------- ------------ Antioch, CA.................................................. 95,070 7.5 04/17/94 El Cajon, CA................................................. 118,840 10.9 02/10/94 Morgan Hill, CA.............................................. 106,942 8.1 02/17/94 Mission Viejo, CA............................................ 115,556 10.3 03/03/94 Highland, CA................................................. 108,015 9.5 02/17/94 Lafayette, GA................................................ 95,893 17.9 03/03/94 Sidney, NY................................................... 100,205 21.9 07/24/94 Mankato, MN.................................................. 117,191 13.1 09/11/94 McKinleyville, CA............................................ 94,420 7.7 09/25/94 Hilliard, OH................................................. 121,843 12.2 10/23/94
FACILITY SIZE (SQ. LOT SIZE SUPER KMART CENTER LOCATIONS FT.) (ACRES) OPENING DATE - ------------------------------------------------------------- -------- -------- ------------ Fresno, CA................................................... 193,927 17.7 08/24/94 Sherman, TX.................................................. 169,999 23.9 05/08/94 Amsterdam, NY................................................ 169,984 34.7 09/18/94 Chillicothe, OH.............................................. 169,984 25.6 09/04/94 Waco, TX..................................................... 193,689 29.3 09/11/94 San Antonio, TX.............................................. 170,036 22.3 10/30/94
16 18 DIAGRAM OF PAYMENTS The following diagram illustrates certain aspects of the payment flows among Kmart, each Owner Trust, each Owner Participant, the Indenture Trustees, the Trustees and the holders of the Pass Through Certificates. Kmart will lease each Property from the corresponding Owner Trust under a separate Lease. Two Mortgage Notes will initially be issued under each Indenture by the corresponding Owner Trust, one with a final scheduled principal payment due and the other with a final scheduled principal payment due . Rent will be payable under each Lease to the corresponding Owner Trustees; however, as a result of the assignment of such Lease to the applicable Indenture Trustees, Kmart will make rental payments thereunder directly to the Corporate Indenture Trustee. From such rental payments, the Corporate Indenture Trustee will, on behalf of each Owner Trust, make payments on the Mortgage Notes held in each Pass Through Trust to the related Trustee and will pay the balance to each respective Owner Trust for distribution to the corresponding Owner Participant. Each Trustee will distribute payments received on the Mortgage Notes held in the related Pass Through Trust to the related Certificateholders. In the event that the Corporate Indenture Trustee does not receive the full amounts payable with respect to both Mortgage Notes issued under an Indenture, the Corporate Indenture Trustee will be required, pursuant to the terms of such Indenture, to distribute the amounts received on a pro rata basis in accordance with the respective amounts due and payable on such Mortgage Notes. ------------------ | KMART | ------------------ | | | Lease Rental Payments | | ------------------ | Corporate | --------------- | Indenture | -------------- | Excess | Trustee for the| | | Payments | Owner Trust(1) | | Mortgage Note Payments | ------------------ | | | | ---------------------------- | | | | | | | | | -------------------- -------------------- -------------------- | Corporate Owner | | Trustee for Pass | | Trustee for Pass | | Trustee for the | | Through Trust | | Through Trust | | Owner Trust | | 1995-K-1 | | 1995-K-2 | -------------------- -------------------- -------------------- | | | | | Pass Through | | Excess | Certificate | | Payments | Distributions | | | | -------------------- -------------------- -------------------- | Owner | | Holders of | | Holders of | | Participant for | | Certificates | | Certificates | | the Owner Trust | | | | | -------------------- -------------------- --------------------
- ------------------------- (1) There will be a separate Indenture and a separate Owner Trust with respect to each Property. 17 19 DESCRIPTION OF THE CERTIFICATES The Certificates will be issued pursuant to two separate Agreements, each of which is to be entered into between Kmart and one of the Trustees, on behalf of the related Pass Through Trust. Each Agreement will contain substantially the same terms, except that the interest rates, scheduled payments of principal and maturity dates applicable to the Mortgage Notes held in each Pass Through Trust, the aggregate principal amount of Mortgage Notes held in each Pass Through Trust, and the final distribution date applicable to each Pass Through Trust will differ. The statements under this caption are a summary of the terms of the Certificates and the Agreements and do not purport to be complete. The summary makes use of terms defined in and is qualified in its entirety by reference to all of the provisions of the Agreements and the Certificates, the forms of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. Except as otherwise indicated, the following summary relates to each of the Agreements, the Pass Through Trusts formed thereby and the Certificates issued by each Pass Through Trust. Citations to the relevant sections of the Agreements appear below in parentheses. References to the Trustee or the Agreement, with respect to any Certificates, mean, respectively, the Trustee under the related Agreement or the Agreement under which such Certificates are issued. GENERAL The Certificates will be issued in fully registered form only. Each Certificate will represent a fractional undivided interest in the Pass Through Trust created by the Agreement pursuant to which such Certificate was issued. The property of each Pass Through Trust will include the Mortgage Notes held in such Pass Through Trust, all monies at any time paid thereon and all monies due and to become due thereunder and funds from time to time deposited with the Trustee in the accounts established pursuant to the related Agreement. Each Certificate will correspond to a pro rata share of the outstanding principal amount of the Mortgage Notes held in the related Pass Through Trust and will be issued in minimum denominations of $1,000 initial principal amount and integral multiples of $1,000 in excess thereof. (Agreements, Sections 2.01 and 2.06) 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 "Certificate Owner") will be entitled to receive a certificate representing such person's interest in the Certificates, except as set forth below under "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 Certificate Owners in accordance with DTC procedures. (Agreements, Section 2.11) See "Book-Entry Registration". Interest paid on the Mortgage Notes held in a Pass Through Trust will be passed through to holders of Certificates evidencing interests in such Pass Through Trust at the applicable rate per annum set forth on the cover page of this Prospectus, which will be calculated on the basis of a 360-day year of twelve 30-day months. Each Certificate will represent a fractional undivided interest in the related Pass Through Trust and will not have any rights, benefits or interest in respect of the other Pass Through Trust or in the property held by the other such Pass Through Trust. All payments and distributions on the Certificates will be made only from the property of the Pass Through Trust in which such Certificates evidence an interest. (Agreements, Section 3.05) The Certificates do not represent an interest in or obligation of Kmart, the Trustee, any Owner Trust, any Owner Trustee in its individual capacity, any Owner Participant, or any of their respective affiliates. Each Certificateholder by its acceptance of a Certificate agrees to look solely to the income and proceeds from the Trust Property to the extent available for distribution as provided in the Agreements. 18 20 None of the Agreements, the Indentures or the Leases includes financial covenants or "event risk" provisions that would afford Certificateholders protection in the event of a highly leveraged or other transaction involving Kmart. The Certificateholders will have the benefit of a lien on the Property and the other property in each Trust Estate securing the Mortgage Notes held in the related Pass Through Trust, as discussed under "Description of the Mortgage Notes -- Security". However, in the event that Kmart assumes the obligations of an Owner Trust under a Mortgage Note, the Property securing such Mortgage Note may, upon compliance with certain conditions set forth in the Indenture, be released from the lien of the related Indenture and not subjected to the lien of any Company Indenture, in which event Certificateholders could look only to Kmart for payment thereof. See "Description of the Mortgage Notes -- Release of Security" and "-- Assumption of Obligations by Kmart". BOOK-ENTRY REGISTRATION 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 (including Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated), 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"). Certificate 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, Certificate Owners will receive all distributions of principal and interest from the Trustee through DTC Participants and Indirect Participants. In addition, Certificate 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 format, Certificate 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 Certificate Owners, as the case may be, in accordance with customary industry practices. The forwarding of such distributions to the Certificate Owners will be the responsibility of such DTC Participants. The only "Certificateholder" of a Pass Through Trust will be Cede, as nominee of DTC. Certificate Owners will not be recognized by the Trustee as Certificateholders, as such term is used in the Agreements, and Certificate 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. DTC Participants and Indirect Participants with which Certificate 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 Certificate Owners. Accordingly, although Certificate Owners will not possess Certificates, the Rules provide a mechanism by which Certificate 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 Certificate 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 lack of a physical certificate for such Certificates. 19 21 DTC has advised the Company that it will take any action permitted to be taken by a Certificateholder under the Agreements only at the direction of one or more DTC Participants to whose accounts with DTC the Certificates are credited. Additionally, DTC has advised the Company that it will take such actions with respect to any percentage of Certificateholders of each Pass Through Trust only at the direction of and on behalf of DTC Participants whose holdings include undivided interests that satisfy any such percentage. DTC may take conflicting actions with respect to other undivided interests to the extent that such actions are taken on behalf of DTC Participants whose holdings include such undivided interests. Neither the Company nor the Trustees 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 Kmart believes to be reliable, but Kmart has not independently verified such information. DEFINITIVE CERTIFICATES The Certificates will be issued in fully registered, certificated form ("Definitive Certificates") to Certificate Owners or their nominees, rather than to DTC or its nominee, only if (i) Kmart advises the Trustee in writing that DTC is no longer willing or able to discharge properly its responsibilities as depository with respect to the Certificates or is no longer eligible and Kmart is unable to appoint a qualified successor or (ii) Kmart, at its option, elects to terminate the book-entry system through DTC. (Agreements, Section 2.11) Upon the occurrence of any event described in the immediately preceding paragraph, the Trustee will be required to notify all Certificate Owners through DTC Participants of the availability of Definitive Certificates. Upon surrender by DTC of the global certificates representing the Certificates and receipt of instructions for re-registration, the Trustee will reissue the Certificates as Definitive Certificates to Certificate Owners. (Agreements, Section 2.11) Definitive Certificates will be freely transferable and exchangeable at the office of the Trustee upon compliance with requirements set forth in the 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 shall be required. (Agreements, Section 2.07) SAME-DAY SETTLEMENT AND PAYMENT So long as the Certificates are registered in the name of Cede, as nominee of DTC, all payments made by Kmart to the Corporate Indenture Trustee under the Leases will be in immediately available funds and, to the extent such payments are allocable to the Mortgage Notes, will be passed through 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. PAYMENTS AND DISTRIBUTIONS Payments of principal, premium, if any, and interest on the Mortgage Notes held in each Pass Through Trust received by the Trustee will be distributed by the Trustee to holders of Certificates evidencing interests in such Pass Through Trust on the date such receipt is confirmed, except in certain cases when some or all of such Mortgage Notes are in default. See "Events of Default and 20 22 Certain Rights Upon an Event of Default". Payments of interest on the unpaid principal amount of the Mortgage Notes held in each Pass Through Trust are scheduled to be received by the Trustee on January 5 and July 5 of each year commencing July 5, 1995, and payments of principal on the Mortgage Notes held in each Pass Through Trust are scheduled to be received by the Trustee commencing on the date specified on the front cover page of this Prospectus for such Pass Through Trust (each such date, an "Initial Scheduled Principal Distribution Date"), until the final distribution date for such Pass Through Trust (such scheduled payments of interest and principal on the Mortgage Notes held by a Pass Through Trust are herein referred to as "Scheduled Payments," and January 5 and July 5 of each year are herein referred to as "Regular Distribution Dates"). The Trustee will distribute on each Regular Distribution Date to the holders of Certificates evidencing interests in a Pass Through Trust all Scheduled Payments on the Mortgage Notes held in such Pass Through Trust, upon receipt. Each such distribution of Scheduled Payments will be made by the Trustee to the holders of record of the Certificates evidencing interests in the Pass Through Trust holding the Mortgage Notes to which such Scheduled Payments relate on the fifteenth day next preceding the applicable Regular Distribution Date, subject to certain exceptions. (Agreements, Sections 5.01 and 5.02) If a Scheduled Payment is not received by the Trustee on a Regular Distribution Date but is received within ten Business Days thereafter, it will be distributed on the date received to such holders of record. If it is received after such ten Business Day period, it will be treated as a Special Payment and distributed as described below. Each Certificateholder will be entitled to receive a pro rata share of any distribution in respect of Scheduled Payments of principal and interest made on the Mortgage Notes held in the Pass Through Trust in which the Certificate held by such holder evidences an interest. The Regular Distribution Dates on which, and the amounts in which, Scheduled Payments of principal on the Mortgage Notes held in each Pass Through Trust are payable are set forth below under "Description of the Mortgage Notes -- Principal Payments". Payments of principal, premium, if any, and interest received by the Trustee on account of the redemption, if any, of the Mortgage Notes held in a Pass Through Trust, and payments received by the Trustee following a default in respect of the Mortgage Notes held in a Pass Through Trust (including payments received by the Trust on account of the purchase by the Owner Trustee of such Mortgage Notes or payments received on account of the sale of such Mortgage Notes by the Trustee) ("Special Payments"), will be distributed on the fifth day of a month (each, a "Special Distribution Date"). The Trustee will mail notice to the holders of record of the Certificates evidencing interests in the related Pass Through Trust not less than 20 days prior to the Special Distribution Date on which any Special Payment is scheduled to be distributed by the Trustee in the event the Mortgage Notes are to be redeemed prior to their maturity and, in all other instances, as soon as practicable after the Trustee has received the Special Payment. The notice will specify the anticipated Special Distribution Date, the amount of such anticipated Special Payment, the reason for the Special Payment and the total amount to be distributed if such Special Distribution Date is the same date as a Regular Distribution Date. Each distribution of a Special Payment, other than a final distribution, on a Special Distribution Date for a Pass Through Trust will be made by the Trustee to the holders of record of the Certificates evidencing interests in such Pass Through Trust on the fifteenth day next preceding such Special Distribution Date. (Agreements, Section 5.02) See "Description of the Mortgage Notes -- Redemption" and "-- Events of Default and Certain Rights Upon an Event of Default". Each Agreement requires that the Trustee establish and maintain, for the benefit of the holders of Certificates evidencing interests in the Pass Through Trust created by such Agreement, one or more segregated non-interest bearing accounts (with respect to each such Pass Through Trust, the "Certificate Account") for the deposit of payments representing Scheduled Payments on the Mortgage Notes held in such Trust. (Agreements, Section 5.01) Each Agreement also requires that the Trustee establish and maintain, for the benefit of the holders of Certificates evidencing interests in the Pass Through Trust created by such Agreement, one or more segregated non-interest bearing 21 23 accounts (with respect to each such Pass Through Trust, the "Special Payments Account") for the deposit of payments representing Special Payments. Pursuant to the terms of each Agreement, the Trustee is required to deposit any Scheduled Payments on the Mortgage Notes held in the applicable Pass Through Trust received by it in the Certificate Account for such Pass Through Trust and to deposit any Special Payments so received by it in the Special Payments Account for such Pass Through Trust. (Agreements, Section 5.01) All amounts so deposited will be distributed by the Trustee on a Regular Distribution Date or a Special Distribution Date, as the case may be, to the holders of Certificates evidencing interests in such Pass Through Trust. (Agreements, Section 5.02) At such time, if any, as Definitive Certificates are issued, distributions by the Trustee to Certificateholders, other than a final distribution, will be made by check mailed to each Certificateholder of record on the applicable record date at its address appearing on the register. (Agreements, Section 5.02) The final distribution with respect to the Certificates evidencing interests in a Pass Through Trust, however, will be made only upon presentation and surrender of such Certificate at the office or agency of the Trustee specified in the notice given by the Trustee of such final distribution. The Trustee will mail such notice of the final distribution to the Certificateholders, specifying the date set for such final distribution and the amount of such distribution. (Agreements, Section 11.01) See "Termination of the Pass Through Trusts". If any Regular Distribution Date or Special Distribution Date is not a Business Day, distributions scheduled to be made on such Regular Distribution Date or Special Distribution Date may be made on the next succeeding Business Day without interest. POOL FACTORS Unless there has been an early redemption, or a default, in respect of one or more Mortgage Notes held in a Pass Through Trust, as described under "Description of the Mortgage Notes -- Redemption" and "-- Events of Default and Certain Rights Upon an Event of Default," the Pool Factor for each Pass Through Trust will decline in proportion to the Scheduled Payments of principal on the Mortgage Notes held in such Pass Through Trust as described under "Description of the Mortgage Notes -- Principal Payments". In the event of such redemption or default, the Pool Factor and the Pool Balance of each Pass Through Trust affected thereby will be recomputed after giving effect thereto and notice thereof will be mailed to the holders of Certificates evidencing interests in such Pass Through Trust. Each Pass Through Trust will have a separate Pool Factor. The "Pool Balance" for each Pass Through Trust will indicate, as of any date, the aggregate unpaid principal amount of the Mortgage Notes held in such Pass Through Trust on such date plus any amounts in respect of principal on such Mortgage Notes held by the Trustee and not yet distributed. The Pool Balance for each Pass Through Trust as of any Regular Distribution Date or Special Distribution Date will be computed after giving effect to the payment of principal, if any, on the Mortgage Notes held in such Pass Through Trust and the distribution thereof to be made on that date. The "Pool Factor" for each Pass Through Trust as of any Regular Distribution Date or Special Distribution Date will be the quotient (rounded to the seventh decimal place) computed by dividing the then outstanding Pool Balance by the aggregate original principal amount of the Mortgage Notes held in such Pass Through Trust. The Pool Factor for each Pass Through Trust will initially be 1.0000000; thereafter, the Pool Factor for each Pass Through Trust will decline to reflect reductions in the Pool Balance resulting from distributions in respect of principal on the Certificates. The amount of a Certificateholder's pro rata share of the Pool Balance of the Pass Through Trust in which the Certificates held by such Certificateholder evidence an interest can be determined by multiplying the original denomination of the holder's Certificate by the Pool Factor for such Pass Through Trust as of the applicable Regular Distribution Date or Special Distribution Date. The Pool Factor and the Pool Balance for a Pass Through Trust will be mailed to record holders of Certificates 22 24 evidencing interests in such Pass Through Trust on each Regular Distribution Date and Special Distribution Date. As of the date of acquisition by the Trustees of the Mortgage Notes held in the related Pass Through Trusts and assuming that no early redemption, delinquency or default in respect of any Mortgage Notes occurs, the Scheduled Payments of principal on such Mortgage Notes, and the resulting Pool Factors for the Pass Through Trusts after giving effect to each such payment, are set forth below.
PASS THROUGH PASS THROUGH TRUST 1995-K-1 TRUST 1995-K-2 SCHEDULED PASS THROUGH SCHEDULED PASS THROUGH PRINCIPAL TRUST 1995-K-1 PRINCIPAL TRUST 1995-K-2 REGULAR DISTRIBUTION DATE PAYMENTS POOL FACTOR PAYMENTS POOL FACTOR - --------------------------------- --------------- --------------- --------------- ---------------
To the extent that the Mortgage Notes held in a Pass Through Trust are redeemed or a delinquency or default in respect thereof occurs, the timing (and, in the case of defaults, the amount) of distributions in respect of principal on the Certificates evidencing an interest in such Pass Through Trust will differ from that set forth above. REPORTS TO CERTIFICATEHOLDERS On each Regular Distribution Date and Special Distribution Date for a Pass Through Trust, the Trustee will include with each distribution of a Scheduled Payment or Special Payment to holders of record of the Certificates evidencing interests in such Pass Through Trust a statement, giving effect to such distribution to be made on such Regular Distribution Date or Special Distribution Date, setting forth the following information (per $1,000 aggregate principal amount, as to (i) and (ii) below): (i) the amount of such distribution allocable to principal and the amount allocable to premium, if any; (ii) the amount of such distribution allocable to interest; (iii) the Pool Balance and the Pool Factor for such Pass Through Trust; and (iv) any earnings on Special Payments derived from Permitted Investments that are distributed to Certificateholders. (Agreements, Section 5.03(a)) So long as the Certificates are registered in the name of Cede, as nominee for DTC, on the Record Date prior to each Regular Distribution Date and Special Distribution Date for a Pass Through Trust, 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 the Certificates evidencing interests in such Pass Through Trust on such Record Date. On each Regular Distribution Date and Special Distribution Date for a Pass Through Trust, 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 Certificate Owners. 23 25 In addition, after the end of each calendar year, the Trustee will prepare for each holder of record of Certificates evidencing interests in such Pass Through Trust at any time during the preceding calendar year a report containing the sum of the amounts determined pursuant to clauses (i), (ii) and (iv) above with respect to such Pass Through Trust for such calendar year or, in the event such person was a Certificateholder of record during a portion of such calendar year, for the applicable portion of such calendar year. (Agreements, Section 5.03(b)) Such report and such other items shall be prepared on the basis of information supplied to the Trustee by the DTC Participants, and shall be delivered by the Trustee to such DTC Participants to be available for forwarding by such DTC Participants to Certificate Owners in the manner described above. At such time, if any, as Definitive Certificates are issued, the Trustee will prepare and deliver the information described above to each holder of record of Certificates evidencing interests in such Pass Through Trust as the name of such Certificateholder appears on the records of the Trustee. Kmart is required to furnish annually to the Trustee a certificate as to its compliance with the conditions and covenants under the Agreements during the preceding year. (Agreements, Section 4.03) VOTING OF MORTGAGE NOTES The Trustee, as holder of the Mortgage Notes held in such Pass Through Trust, will have the right to vote and give consents and waivers in respect of such Mortgage Notes under the Indentures. Each Agreement sets forth the circumstances in which the Trustee shall direct any action or cast any vote as the holder of the Mortgage Notes held in the applicable Pass Through Trust at its own discretion and the circumstances in which the Trustee shall seek instructions from the holders of the Certificates evidencing interests in such Pass Through Trust. Under each Agreement, the principal amount of the Mortgage Notes held in the related Pass Through Trust directing any action or being voted for or against any proposal shall be in proportion to the principal amount of Certificates held by the holders of Certificates evidencing interests in such Pass Through Trust taking the corresponding position. (Agreements, Sections 7.01, 10.02 and 10.08) EVENTS OF DEFAULT AND CERTAIN RIGHTS UPON AN EVENT OF DEFAULT An event of default under an Agreement (an "Event of Default") is defined as the occurrence and continuance of an event of default under one or more of the Indentures (an "Indenture Default"). See "Description of the Mortgage Notes - -- Indenture Defaults, Notice and Waiver" for a description of the Indenture Defaults. Since each Pass Through Trust will hold Mortgage Notes issued pursuant to each of the Indentures, a continuing Indenture Default under any one Indenture will result in an Event of Default under each of the Agreements and therefore will affect each of the Pass Through Trusts. The Indentures and the related Mortgage Notes issued thereunder do not contain cross-default provisions, and events resulting in an Indenture Default under any of such Indentures will not necessarily result in an Indenture Default occurring under any other Indenture. See "Description of the Mortgage Notes -- General". If an Indenture Default occurs under fewer than all of the Indentures, the Mortgage Notes issued pursuant to the Indenture or Indentures with respect to which an Indenture Default has not occurred will continue to be held in the Pass Through Trusts and payments of principal, premium, if any, and interest on such Mortgage Notes will continue to be distributed to the holders of the Certificates as received. The related Owner Trust (except during any period during which Kmart is an Owner Participant or otherwise controls such Owner Trust) will have the right, under certain circumstances, to cure Indenture Defaults that result from the occurrence of a Lease Event of Default under the related Lease of a Property. If an Owner Trust chooses to exercise such cure right, the Indenture Default, and consequently the Event of Default under each Agreement, will be deemed to be cured. In addition, if under any Indenture a Lease Event of Default shall have occurred, the related Owner Trust (except during any period during which Kmart is an Owner Participant or otherwise controls 24 26 such Owner Trust) may, subject to certain conditions specified in such Indenture, elect to redeem all of the then outstanding Mortgage Notes issued under such Indenture, at a price equal to the Redemption Price, together with, in the cases described herein, the applicable Make-Whole Premium, if any. (Indentures, Sections 6.02(c) and 8.02) See "Description of the Mortgage Notes - -- Redemption" and "-- Indenture Defaults, Notice and Waiver". The Indenture Trustees' right to exercise remedies under each Indenture is subject, in certain circumstances, to having exercised or to concurrently exercising one or more remedies under the related Lease as to which a Lease Event of Default shall have occurred. (Indentures, Section 7.02) See "Description of the Mortgage Notes -- Remedies". Each Agreement provides that, so long as an Indenture Default under any Indenture shall have occurred and be continuing, the Trustee may vote all of the Mortgage Notes issued under such Indenture that are held in the Pass Through Trust and, upon the direction of the holders of Certificates, shall vote a corresponding percentage of such Mortgage Notes in favor of directing the Indenture Trustees to declare the unpaid principal amount of both Mortgage Notes issued under such Indenture and any accrued and unpaid interest thereon to be due and payable. Each Agreement in addition provides that, if an Indenture Default under any Indenture shall have occurred and be continuing, the Trustee may, and upon the direction of the holders of Certificates evidencing fractional undivided interests aggregating not less than a majority in interest of the related Pass Through Trust shall, vote a corresponding percentage of the Mortgage Notes issued under such Indenture that are held in such Pass Through Trust in favor of directing the Indenture Trustees as to the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustees or of exercising any trust or power conferred on the Indenture Trustees under such Indenture. (Agreements, Sections 7.01 and 7.09) Each Indenture provides that, if an Indenture Default shall occur and be continuing thereunder, the Corporate Indenture Trustee (subject to certain limitations specified in the Indenture) may, or upon the instructions of the holders of a majority in principal amount of the Mortgage Notes outstanding under such Indenture shall, declare the unpaid principal amount of the Mortgage Notes issued under such Indenture to be immediately due and payable, together with any accrued and unpaid interest thereon. Further, in the case of an Indenture Default resulting from bankruptcy or insolvency of Kmart or the related Owner Trust, such Mortgage Notes shall immediately become due and payable. Each Indenture further provides that, if an Indenture Default shall occur and be continuing thereunder, the holders of a majority in aggregate outstanding principal amount of the Mortgage Notes issued under such Indenture may direct the Indenture Trustees with respect to the exercise of remedies thereunder. See "Description of the Mortgage Notes -- Remedies". Accordingly, the ability of the holders of the Certificates evidencing interests in a Pass Through Trust to cause the Indenture Trustees to accelerate the Mortgage Notes issued under an Indenture or to direct the exercise of remedies by the Indenture Trustees under an Indenture will depend, in part, upon the proportion of the aggregate outstanding principal amount of the Mortgage Notes issued under such Indenture held in such Pass Through Trust to the aggregate outstanding principal amount of all Mortgage Notes issued under such Indenture. If, for example, the Mortgage Notes held in a Pass Through Trust constituted only 45% of the outstanding principal balance of the Mortgage Notes issued under such Indenture and even if all of the holders of Certificates evidencing interests in such Pass Through Trust were to direct the Indenture Trustees to accelerate such Mortgage Notes, the Mortgage Notes so voted by the Pass Through Trustee would not be sufficient under the terms of the Indenture to compel the Indenture Trustees to act. Moreover, there can be no assurance that the holders of Certificates evidencing interests in the other Pass Through Trust would at such time instruct the Pass Through Trustee to vote such Mortgage Notes in favor of such acceleration. Each Pass Through Trust will hold Mortgage Notes with different interest rates, maturity dates, initial principal amounts and amortization schedules than the Mortgage Notes held in the other Pass Through Trust, and therefore the holders of Certificates evidencing interests in a Pass Through Trust may have interests that diverge from or conflict with those of the holders of 25 27 Certificates evidencing interests in the other Pass Through Trust. In addition, because the Mortgage Notes held in Pass Through Trust 1995-K-1 will amortize more quickly than those held by Pass Through Trust 1995-K-2, as principal payments are received on the Mortgage Notes held in Pass Through Trust 1995-K-1, the relative voting power of the holders of the Certificates evidencing interests in such Pass Through Trust will diminish. As an additional remedy, if an Indenture Default under an Indenture shall have occurred and be continuing, each Agreement provides that after the Mortgage Notes issued under such Indenture have been accelerated the Trustee may, and upon the direction of the holders of Certificates evidencing fractional undivided interests aggregating not less than a majority in interest of the related Pass Through Trust shall, sell all or part of the Mortgage Notes issued under such Indenture that are held in such Pass Through Trust for cash. (Agreements, Section 7.01) Any proceeds received by the Trustee upon any such sale shall be deposited in the related Special Payments Account and shall be distributed on the next succeeding Special Distribution Date to holders of Certificates evidencing interests in such Pass Through Trust. (Agreements, Section 7.02) The market for Mortgage Notes in default is likely to be very limited and there can be no assurance that they could be sold for a price equal to the unpaid principal amount thereof and accrued interest thereon, or any other price, if at all. If the Trustee sells any of the Mortgage Notes held in a Pass Through Trust with respect to which an Indenture Default exists for less than its outstanding principal amount and accrued interest thereon, the amount of distributions made to holders of the Certificates evidencing interests in such Pass Through Trust will be less than would otherwise be the case. Any amount distributed to the Trustee by the Corporate Indenture Trustee under any Indenture on account of the Mortgage Notes held in a Pass Through Trust following an Indenture Default under such Indenture will be deposited in the Special Payments Account and distributed to the related Certificateholders on the next succeeding Special Distribution Date. In addition, if following an Indenture Default under any Indenture, the related Owner Trust exercises its option to redeem the outstanding Mortgage Notes issued under such Indenture as described below under "Description of the Mortgage Notes -- Redemption -- Optional Redemption," the price paid by such Owner Trust to the Trustee for the Mortgage Notes issued under such Indenture and held in a Pass Through Trust will be deposited in the Special Payments Account for such Pass Through Trust and distributed to the related Certificateholders on the Special Distribution Date in respect of which such funds were deposited, which shall occur not less than 20 days after the date of notice of such Special Payment. (Agreements, Sections 5.01 and 5.02) Any funds representing payments received by the Trustee with respect to any defaulted Mortgage Notes held in a Pass Through Trust, or the proceeds from the sale by the Trustee of any such Mortgage Notes received by the Trustee, will be deposited in the Special Payments Account for such Pass Through Trust and (except when received on a Special Distribution Date as to which notice has been timely given), to the extent practicable, invested and reinvested by the Trustee at the direction of Kmart in Permitted Investments maturing no later than the next succeeding Special Distribution Date pending the distribution of such funds on such Special Distribution Date. Permitted Investments are defined in the Agreements as obligations of the United States. (Agreements, Article I and Section 5.04) Following such default or sale with respect to the Mortgage Notes, it is not anticipated that the Trustee will be able to invest in Permitted Investments generating sufficient income to pay the interest that would otherwise be paid on such Mortgage Notes. To the extent the Trustee is unable to do so, the amount of interest distributable in respect of the Certificates will be reduced. Each Agreement provides that the Trustee shall, within 90 days after the occurrence of a default in respect of the Pass Through Trust, give notice, transmitted by mail, to the holders of the Certificates evidencing interests in such Pass Through Trust of all uncured or unwaived defaults under such Agreement known to it; provided that, except in the case of a default in the payment of principal, premium, if any, or interest on the Mortgage Notes held in such Pass Through Trust, the 26 28 Trustee need not give such notice if the Trustee makes a good faith determination that it is in the interests of the holders of the Certificates to withhold such notice. The term "default," for the purpose of the provision described in this paragraph only, shall mean the occurrence of any Event of Default specified above, except that, in determining whether any such Event of Default has occurred, any grace period or notice in connection therewith shall be disregarded. (Agreements, Section 7.11) Each Agreement contains a provision entitling the Trustee, subject to the duty of the Trustee during a default to act with the required standard of care, to be indemnified by the holders of the Certificates evidencing interests in the related Pass Through Trust before proceeding to exercise any right or power under such Agreement at the request of such Certificateholders. (Agreements, Section 8.03) In certain cases, the holders of Certificates evidencing fractional undivided interests aggregating not less than 66 2/3% in interest of a Pass Through Trust may, on behalf of the holders of all Certificates evidencing interests in such Pass Through Trust, waive any past default or Event of Default under the related Agreement and thereby annul any direction given by such holders to the Indenture Trustees with respect thereto (provided that any such waiver will be effective only if the corresponding Indenture Event of Default has been waived under the related Indenture by the requisite holders of the Mortgage Notes outstanding thereunder), except (i) a default in payment of the principal, premium, if any, or interest on any of the Mortgage Notes held in such Pass Through Trust and (ii) a default in respect of any covenant or provision of the related Agreement that cannot be modified or amended without the consent of each holder of a Certificate evidencing an interest in such Pass Through Trust affected thereby. (Agreements, Section 7.10) See "Modifications of the Agreements". Each Indenture provides that, with certain exceptions, the holders of not less than 66 2/3% in aggregate outstanding principal amount of the Mortgage Notes issued thereunder may, on behalf of all such holders, waive any past default or Indenture Default thereunder. (Indentures, Section 7.14) In the event of a waiver under an Agreement as described above, the principal amount of the Mortgage Notes issued under the applicable Indenture and held in the related Pass Through Trust shall be counted as waived in the determination of the requisite percentage of Mortgage Notes required to waive a default or an Indenture Default under such Indenture. Therefore, if the holders of Certificates evidencing interests in a Pass Through Trust waive a past default or Event of Default under the respective Agreement with the result that the principal amount of Mortgage Notes held in such Pass Through Trust constitutes the required percentage in aggregate unpaid principal amount under the applicable Indenture, such past default or Indenture Default under such Indenture shall be waived. For a discussion of waivers of Indenture Defaults under the Indentures, see "Description of the Mortgage Notes -- Indenture Defaults, Notice and Waiver". MODIFICATIONS OF THE AGREEMENTS Each Agreement contains provisions permitting Kmart and the Trustee to enter into a supplement to the Agreement, without the consent of the holders of any of the Certificates evidencing an interest in the Pass Through Trust created thereby, (i) to evidence the succession of another corporation to Kmart and the assumption by such corporation of Kmart's obligations under such Agreement, (ii) to add to the covenants of Kmart for the benefit of the holders of such Certificates, (iii) to cure any ambiguity, to correct or supplement any defective or inconsistent provision of such Agreement or any supplement, or to make any other provisions with respect to matters or questions arising under such Agreement or any supplement, provided such action shall not adversely affect the interests of the holders of such Certificates, (iv) to correct or amplify the description of any property constituting property of the Pass Through Trust, (v) to surrender any rights or powers conferred upon Kmart or add to the rights of the holders of any Certificates, (vi) to evidence or provide for a successor Trustee or to add or change any provision of such Agreement as may be necessary to provide for or facilitate the administration of the Pass Through Trust created thereby by more than one Trustee, or (vii) to add, eliminate or change any provision under such Agreement 27 29 to the extent necessary to continue the qualification of the Agreement under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), or to add certain provisions expressly permitted by the Trust Indenture Act; provided, that in each case such supplement does not cause the Pass Through Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-4 and, provided, further, that no such supplement may require the Company to have any direct or indirect obligation (other than pursuant to the Lease or the Participation Agreement, to the extent that the Company has assumed the obligations of the related Owner Trust thereunder) to pay to, guarantee, or otherwise provide for the receipt by, the Pass Through Trustee or any Certificateholder of any of the amounts payable in respect of the Mortgage Notes or the Certificates. (Agreements, Section 10.01) Each Agreement also contains provisions permitting Kmart and the Trustee, with the consent of the holders of Certificates evidencing fractional undivided interests aggregating not less than 66 2/3% in interest of the Pass Through Trust created thereby, to execute supplements thereto adding any provisions to or changing or eliminating any of the provisions of the Agreement or modifying the rights of the Certificateholders thereunder (subject to the provisos to the preceding paragraph), except that no such supplement may, without the consent of the holder of each Certificate so affected, (a) reduce the amount or extend the time of payment of any amount owing or payable on the Mortgage Notes or distributions to be made on any Certificate, or alter the currency in which any amount payable under any such Certificate is to be paid, or impair the right of any Certificateholder to commence legal proceedings to enforce a right to receive payment under the Agreement, (b) reduce the percentage of the aggregate fractional undivided interests of the Pass Through Trust provided for in such Agreement, the consent of the holders of Certificates evidencing which is required for any such supplement or for any waiver provided for in such Agreement, (c) create or permit the creation of any lien on the Mortgage Notes or deprive any Certificateholder of the benefit of the Pass Through Trust with respect to the Mortgage Notes, whether by disposition or otherwise, except as provided in such Agreement, or (d) modify the provisions in (a), (b) or (c) or the provisions requiring the Trustee to provide notice of the occurrence of a default or modify the definitions of "majority in interest of Certificateholders", "66 2/3% in interest of Certificateholders" and "outstanding" contained in the Agreement. (Agreements, Section 10.02) MODIFICATION OF LEASES AND OTHER DOCUMENTS In the event that the Trustee, as the holder of the Mortgage Notes held in a Pass Through Trust, receives a request for its consent to any amendment, modification or waiver under the Indenture, any Lease or any other related document relating to such Mortgage Notes, the Trustee shall mail a notice of such proposed amendment, modification or waiver to each record holder of a Certificate evidencing an interest in such Pass Through Trust as of the date of such notice. The Trustee shall request instructions from such Certificateholders as to whether or not to consent to such amendment, modification or waiver, and shall vote or consent, subject to the applicable vote or consent requirements of the related Indenture or Indentures, with respect to the Mortgage Notes held in such Pass Through Trust in the same proportion as the Certificates were actually voted by the holders thereof. Notwithstanding the foregoing, if an Event of Default under the related Agreement shall have occurred and be continuing, the Trustee may in its own discretion consent to such amendment, modification or waiver, and may so notify the Indenture Trustee under the Indenture to which such consent relates. (Agreements, Section 10.08) TERMINATION OF THE PASS THROUGH TRUSTS The obligations of Kmart and the Trustee created by an Agreement will terminate upon the distribution to holders of Certificates evidencing interests in the Pass Through Trust created by such Agreement of all amounts required to be distributed to them pursuant to the Agreement and the disposition of all property held in such Pass Through Trust. The Trustee will mail to each holder of record of a Certificate evidencing an interest in such Pass Through Trust notice of the termination 28 30 thereof, the amount of the proposed final payment and the proposed date for the distribution of such final payment. The final distribution to any holder of a Certificate will be made only upon surrender of such holder's Certificates at the office or agency of the Trustee specified in such notice of termination. (Agreements, Section 11.01) THE TRUSTEES The Bank of New York Trust Company of Florida, National Association is the Trustee for Pass Through Trust 1995-K-1 and The Bank of New York Trust Company of California is the Trustee for Pass Through Trust 1995-K-2. Each Trustee and any agent of such Trustee may hold Certificates in their own names. (Agreement, Section 8.05) With certain exceptions, the Trustees will make no representations as to the validity, legality or enforceability of the Agreements, the Certificates, the Mortgage Notes, the Indentures, the Leases, the Participation Agreement or other related documents. (Agreements, Section 3.04) A Trustee may resign with respect to the related Pass Through Trust at any time upon at least 90 days' prior written notice, in which event the Company will be obligated to appoint a successor trustee. If a Trustee ceases to be eligible to continue as Trustee under an Agreement or becomes incapable of acting as Trustee or becomes insolvent, the Company may remove such Trustee, or any holder for at least six months of Certificates evidencing an interest in the Pass Through Trust created thereby may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of such Trustee and the appointment of a successor trustee (which shall not be the Trustee of the other Pass Through Trust). In addition, the holders of Certificates evidencing fractional undivided interests aggregating not less than a majority in interest of such Pass Through Trust may at any time remove the Trustee without cause by delivering an instrument in writing to Kmart, the Trustee, the Owner Trustees and the Indenture Trustees. Any resignation or removal of the Trustee of a Pass Through Trust and appointment of a successor trustee for such Pass Through Trust will not become effective until acceptance of the appointment by the successor trustee. (Agreements, Section 8.09) Each Agreement provides that the Company will pay the Trustee's fees and expenses. Each Agreement further provides that the Trustee will be entitled to indemnification by the Company for, and will be held harmless against, any loss, liability or expense incurred by the Trustee (other than through its own willful misconduct, bad faith or negligence or by reason of a breach of any of its representations or warranties set forth in such Agreement). (Agreements, Section 8.08 and Article IX) DESCRIPTION OF THE MORTGAGE NOTES The statements under this caption are summaries of the terms of the Mortgage Notes and the Indentures and do not purport to be complete. The summaries make use of terms defined in and are qualified in their entirety by reference to all of the provisions of the Mortgage Notes and the Indentures, the forms of which have been filed as exhibits to the Registration Statement of which this Prospectus is a part. Except as otherwise indicated, the following summaries relate to the Mortgage Notes and the Indenture relating to each Property in respect of which such Mortgage Notes are to be issued. GENERAL Two Mortgage Notes will initially be issued under each Indenture and each Indenture will relate to a single Property. Each Indenture will be between an Owner Trust and the Indenture Trustees. Mortgage Notes issued pursuant to each Indenture relating to the Properties will be secured only by the Property to which such Indenture relates and will not have cross-default or cross-collateralization provisions. 29 31 Each Owner Trust will lease a Property to Kmart. Kmart will be obligated under the Leases to make or cause to be made rental and other payments to each Owner Trust in amounts that will be at least sufficient to pay when due all payments required to be made on the Mortgage Notes except in certain cases of optional redemption which require such Owner Trust to deposit an amount sufficient to pay the Redemption Price and Make-Whole Premium with the Corporate Indenture Trustee. See "Redemption -- Optional Redemption". The Mortgage Notes will not, however, be direct obligations of, or guaranteed by, Kmart (except to the extent that Kmart may assume the obligations of such Owner Trust thereunder). Payments under the Leases in excess of the amounts necessary to make required payments on the Mortgage Notes will be paid by the Indenture Trustees to the Owner Trust with respect to which such excess relates for distribution to the corresponding Owner Participant and will not be available for distributions on the Certificates, except in certain cases upon an Indenture Default. Excepted Payments will not be available for distribution even upon an Indenture Default. See "Remedies". Kmart's rental obligations under each Lease will be general obligations of Kmart. PRINCIPAL PAYMENTS The aggregate principal amounts of the Mortgage Notes issued with respect to each Property will be approximately 90% of the purchase price to the related Owner Trust of such Property. The aggregate principal amounts of the Mortgage Notes issued with respect to each Property, as such Mortgage Notes are to be held in each of the Pass Through Trusts, are as follows:
PASS THROUGH TRUST PASS THROUGH TRUST 1995-K-1 % 1995-K-2 % PROPERTY NO. MORTGAGE NOTES MORTGAGE NOTES TOTAL - ------------ ------------------ ------------------ ------------ 1......................................... 2......................................... 3......................................... 4......................................... 5......................................... 6......................................... 7......................................... 8......................................... 9......................................... 10........................................ 11........................................ 12........................................ 13........................................ 14........................................ 15........................................ 16........................................ ------------------ ------------------ ------------- Total................................ $ $ $155,000,000 ================== ================== =============
Interest will be payable on each Mortgage Note at the rate borne by such Mortgage Note on the unpaid principal amount thereof on January 5 and July 5 in each year, commencing July 5, 1995. Such interest will be computed on the basis of a 360-day year of twelve 30-day months. The weighted average lives of the Mortgage Notes held in Pass Through Trust 1995-K-1 and Pass Through Trust 1995-K-2 will be approximately and years, respectively. If any date scheduled for any payment of principal, premium, if any, or interest on the Mortgage Notes is not a Business Day, such payment may be made on the next succeeding Business Day without interest. 30 32 REDEMPTION REDEMPTION UPON AN EVENT OF LOSS OR OTHER CONDEMNATION OR CASUALTY The Mortgage Notes issued with respect to each Property will be subject to redemption, in whole, but not in part, at a redemption price equal to the unpaid principal amount thereof together with accrued interest thereon to the date of redemption (the principal of the Mortgage Notes, or the portion thereof, being redeemed, and all interest thereon to the date of redemption, are collectively called the "Redemption Price"), without premium, upon the occurrence of an Event of Loss (as defined under "Description of the Leases -- Condemnation and Casualty") with respect to such Property. (Indentures, Section 6.02(a)) The Mortgage Notes with respect to each Property will also be subject to redemption, in whole or in part, at the Redemption Price, without premium, (i) upon the occurrence of a condemnation with respect to such Property, to the extent that the condemnation proceeds exceed the actual cost of restoration of the Property or (ii) upon the occurrence of a casualty with respect to such Property, to the extent that the casualty proceeds exceed the cost of restoration of the Property and are actually disbursed to the related Owner Trust. See "Description of the Leases -- Condemnation and Casualty". In the case of any partial redemption, the principal amount of the Mortgage Notes issued with respect to the Property in question will be redeemed ratably, in the proportion that the unpaid principal amount of each such Mortgage Note bears to the unpaid principal amount of all such Mortgage Notes. (Indentures, Section 6.02(a)) If, prior to the date of any casualty or condemnation, Kmart exercised the Termination Right with respect to the affected Property, then the redemption procedures described above will not apply, but rather Kmart will proceed to consummate such Termination Right, which will result in redemption pursuant to the terms thereof. See "Redemption Upon Termination". In addition, upon the occurrence of an Event of Loss, Kmart may exercise a Substitution Right with respect to the affected Property, in which event the Mortgage Notes will not be redeemed and Kmart will proceed to consummate the Substitution Right. (Indentures, Article XIV) See "Description of the Leases -- Substitution". REDEMPTION UPON TERMINATION If Kmart exercises the Termination Right with respect to any Property or if Kmart exercises the Competitor Option, then, unless Kmart elects to assume the obligations of the corresponding Owner Trust under the Mortgage Notes, or, in the case of the Termination Right, Kmart exercises its Substitution Right, the Mortgage Notes issued with respect to such Property (or, in the case of the exercise of the Competitor Option, all of the Mortgage Notes) will be redeemed at a price equal to the Redemption Price plus a Make-Whole Premium. (Indentures, Section 6.02(e)) OPTIONAL REDEMPTION Each Owner Trust, with the consent of Kmart, may redeem all of the Mortgage Notes issued by it at a price equal to the Redemption Price, plus a Make-Whole Premium. (Indentures, Section 6.02(b)) Further, the Owner Trusts, with the consent of Kmart, may redeem all of the Mortgage Notes held in either or both of the Pass Through Trusts at a price equal to the Redemption Price, plus a Make-Whole Premium. (Indentures, Section 6.02(d)) To effect any such redemption, in addition to giving notice, the Owner Trust must deposit with the Corporate Indenture Trustee an amount sufficient to pay the Redemption Price and Make-Whole Premium. (Indentures, Section 6.03) The Mortgage Notes issued under any particular Indenture by the respective Owner Trust will be subject to redemption by such Owner Trust (except during any period during which the Company is an Owner Participant or otherwise controls such Owner Trust), in whole, but not in part, if under 31 33 such Indenture a Lease Event of Default (other than a Lease Event of Default related to Excepted Payments) shall have occurred and be continuing; provided that no Indenture Default (that does not arise out of such Lease Event of Default) shall have occurred and be continuing. Such redemption will be at the Redemption Price plus the Make-Whole Premium if effected prior to the earliest of (i) receipt by the related Owner Trust of 20 days' prior notice from the Corporate Indenture Trustee under the applicable Indenture of its intent to accelerate the applicable Mortgage Notes, (ii) acceleration of the applicable Mortgage Notes or (iii) if such Lease Event of Default arises from a default described in clauses (i), (ii) or (v) of the definition of Lease Event of Default (a "Monetary Default"), the expiration of a period of 180 days following the occurrence of such Lease Event of Default that is continuing at the expiration of such period. Such redemption will be at the Redemption Price without premium if effected after the occurrence of any event described in clauses (i), (ii) or (iii) of the preceding sentence. Upon any Lease Event of Default (other than a Lease Event of Default related to Excepted Payments), the Indenture Trustees will be entitled to accelerate the Mortgage Notes and terminate the Lease (or the Company's right to possession of the Property) only upon 20 days' prior notice to the related Owner Trust. See "Description of the Leases -- Remedies". (Indentures, Sections 6.02(c) and 8.02) REDEMPTION DATES Any redemption of the Mortgage Notes shall occur on the respective date of redemption (the "Redemption Date") fixed in accordance with the related Indentures. The Redemption Date shall be the date designated in the notice of redemption given by the related Owner Trust (or by the Company pursuant to the Lease) to the related Indenture Trustee. Any such notice must be given not less than 45 days prior to the Redemption Date. The Redemption Date designated may be any Special Distribution Date occurring not less than 25 days after the date of delivery of such notice. (Indentures, Section 6.03) See "Description of the Leases -- Early Termination". MAKE-WHOLE PREMIUM The "Make-Whole Premium," if any, on any Mortgage Note (or portion thereof) to be redeemed will be calculated by an independent investment banking institution of national standing selected by the issuing Owner Trust and, in every case where a Lease Event of Default or Material Default under the related Lease has not occurred, approved in writing by the Company. The Make-Whole Premium shall be determined as of the third Business Day prior to the applicable Redemption Date and shall equal the excess, if any, of (i) the sum of the present values of all the remaining Scheduled Payments on such Mortgage Note (or the portion of each such Scheduled Payment corresponding to the portion of such Mortgage Note to be redeemed) from the Redemption Date to the maturity date of such Mortgage Note, discounted semi-annually on each interest payment date for such Mortgage Note at a rate equal to the Treasury Yield plus fifty basis points (0.50%), based on a 360-day year of twelve 30-day months over (ii) the aggregate unpaid principal amount of such Mortgage Note (or the then unpaid portion thereof to be redeemed) plus accrued but unpaid interest thereon (excluding, for this purpose, any accrued interest in default). The Treasury Yield means, with respect to each Mortgage Note (or the portion thereof) to be redeemed, a per annum rate determined as of the date of determination of the Make-Whole Premium equal to the weekly average yield to maturity of United States Treasury Notes having a constant maturity as set forth in the most recent weekly statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "H.15 (519) Selected Interest Rates" (the "H.15 Statistical Release"), corresponding to the weighted average life of the Mortgage Note (calculated to the nearest 1/12 of a year) (the "Weighted Average Life"). The Treasury Yield will be calculated by the independent investment banking institution of national standing selected by the Owner Trust, by interpolation (unless the Weighted Average Life of the Mortgage Note equals a constant maturity set forth in the H.15 Statistical Release) on a straight-line basis, between the weekly average yields (rounded, if necessary, to the nearest 1/100 of 1%, with 32 34 any figure 1/200 of 1% or above rounded upward) on (a) the United States Treasury Notes with a constant maturity closest to and greater than the Weighted Average Life and (b) the United States Treasury Notes with a constant maturity closest to and less than the Weighted Average Life, or if such weekly average yields are not available, by interpolation of comparable rates selected by the independent investment banking institution. (Indentures, Article I) ISSUANCE OF REFINANCING MORTGAGE NOTES In the event of any optional redemption of any Mortgage Notes issued under an Indenture, one or more new series of mortgage notes (the "Refinancing Mortgage Notes") may be issued under such Indenture; provided that: (w) no Material Default has occurred and is continuing; (x) if after such redemption any Mortgage Notes issued under such Indenture remain outstanding, the Refinancing Mortgage Notes (i) shall be denominated and payable in United States dollars and shall not be in a principal amount greater than the Mortgage Notes redeemed, (ii) shall not rank senior in any respect to the Mortgage Notes that remain outstanding, and (iii) shall not have a maturity date after or have a weighted average life longer than the Mortgage Notes redeemed if any of the Mortgage Notes remaining outstanding have (a) a maturity date after or concurrent with the maturity date of the Mortgage Notes redeemed or (b) a weighted average life longer than the weighted average life of the Mortgage Notes redeemed; (y) amounts payable under the Lease (other than Excepted Payments) shall be sufficient to pay when due the principal of, premium (other than any premium for which the Company was not previously liable under the Lease), if any, and interest on such Refinancing Mortgage Notes and any outstanding Mortgage Notes (including previously issued Refinancing Mortgage Notes) when due; and (z) if Mortgage Notes remain outstanding under such Indenture, each of Moody's, S&P and D&P shall have confirmed in writing in advance that the issuance of such Refinancing Mortgage Notes shall not result by itself in the downgrading of the rating assigned to the Certificates at such time by such ratings organization. (Indentures, Section 15.02) The Refinancing Mortgage Notes shall be secured pari passu by the related Indenture. SECURITY Two Mortgage Notes will initially be issued by each Owner Trust under an Indenture, and will be secured by (i) an assignment to the Indenture Trustees of certain of such Owner Trust's rights under the Lease with respect to the Property subject to such Indenture, including the right to receive rentals and certain other amounts payable thereunder by Kmart, (ii) a first mortgage on the respective Owner Trust's Property (subject to the rights of Kmart under the related Lease) and (iii) the Owner Trust's rights under the Option. The Mortgage Notes issued under an Indenture will not be secured by any of the Properties securing Mortgage Notes issued under any other Indenture and will not have cross-default provisions, with the result that an Indenture Default under any Indenture will not necessarily constitute an Indenture Default under any other Indenture. Unless and until an Indenture Default has occurred and is continuing, payments under the Lease with respect to such Property in excess of the amount required to pay amounts owed in respect of the respective Owner Trust's Mortgage Notes will be paid to such Owner Trust for distribution to the related Owner Participant and, accordingly, no such excess payments distributed prior to an Indenture Default will be available to satisfy any deficiency in the amount available to pay the related Mortgage Note in full. Unless and until an Indenture Default has occurred and is continuing and the related Mortgage Notes have been declared due and payable, the Indenture Trustees may not exercise any of the rights of the Owner Trust under the related Lease, except the right to receive payments of rent due thereunder (other than Excepted Payments). (Indentures, Granting Clause) The assignment by an Owner Trust to the Indenture Trustees of its rights under the Lease will exclude, among other things, rights of the Owner Trust and the related Owner Participant (i) relating to indemnification by Kmart of the Owner Trust, the Owner Trustees or the Owner Participant for certain matters, insurance proceeds payable to the Owner Trustees in their individual capacities and to the Owner Participant 33 35 (other than proceeds from casualty insurance maintained by Kmart under such Lease), insurance proceeds payable to the Owner Trust or to the Owner Participant under certain insurance maintained by or for the benefit of the Owner Trustees or the Owner Participant and not required to be maintained by the Company under the Lease and certain reimbursement payments made by Kmart to the Owner Trust (collectively, "Excepted Payments"), as well as claim, consent and other rights relating to the foregoing and (ii) to receive from the Company all notices, certificates, filings, opinions of counsel and other documents or information which the Company is required or permitted to give to the Owner Trust, to perform all covenants and obligations of the Company under the Lease (subject to certain restrictions), to make determinations and give consents to be made or given by the "Landlord" under the Lease and to enforce or collect "Excepted Rights and Payments", and certain related rights (collectively, "Excepted Rights" and, together with Excepted Payments, "Excepted Rights and Payments"); provided, however that certain rights will not constitute Excepted Rights after foreclosure of the lien of the related Indenture. (Indentures, Granting Clauses and Section 8.01) Funds, if any, held from time to time by the Indenture Trustees with respect to any Property, including funds held as the result of an Event of Loss with respect to such Property or termination of the Lease relating thereto, will be invested and reinvested in certain Permitted Investments selected by the Corporate Indenture Trustee. The Corporate Indenture Trustee will not be obligated to pay the amount of any loss resulting from any such investment directed by it. (Indentures, Section 5.08) RELEASE OF SECURITY In certain circumstances, Kmart will have the right to terminate the Leases with respect to the Properties. See "Redemption" and "Description of the Leases - -- Early Termination". If Kmart were to exercise the Termination Right, and redeem the Mortgage Notes issued with respect to a Property, the Indenture provides that the Indenture Trustees will release such Property from the lien of the Indenture upon receipt of, among other things, an officer's request from the Company and the Corporate Owner Trustee describing the Property to be released, an officer's certificate from the Company and the Corporate Owner Trustee stating that no Material Default under the Lease has occurred and is continuing, the Property is required or permitted to be sold, disposed of or released pursuant to the Lease and the Indenture, and all conditions in the Indenture and the Lease relating to such release have been complied with. Kmart will also have the right under each Lease, if a Property becomes uneconomic or is subject to a condemnation or casualty, to substitute a property for the Property leased thereunder. See "Description of the Leases -- Substitution Right". In connection therewith, each Indenture provides that the Indenture Trustees will release the Property or Properties substituted therefor upon compliance with the provisions described in the preceding paragraph and the delivery of all documents and instruments required by the Indenture Trustees to subject the substitute property or properties to the lien of such Indenture. (Indentures, Section 14.01) Kmart will also be entitled, upon certain terminations of the Lease with respect to a Property, to assume, on a full recourse basis, under certain circumstances, the related Owner Trustee's obligations under the Mortgage Notes issued with respect to the affected Property. (Indentures, Section 3.08) See "Assumption of Obligations by Kmart". In such a case, the Property may be released from the lien of the Indenture, upon satisfaction of the conditions described above and under "Assumption of Obligations by Kmart". LIMITATION OF LIABILITY The Mortgage Notes are not direct obligations of, or guaranteed by, Kmart (except to the extent that it assumes the obligations of an Owner Trust under any of the Mortgage Notes), the Owner Trustees or any Owner Trust. Neither any Owner Trust, the Owner Trustees, any Owner Participant nor the Indenture Trustees, nor any affiliate thereof, shall be personally liable to any holder of a 34 36 Mortgage Note or to the Indenture Trustees for any amounts payable under the Mortgage Notes or for any liability under such Indenture. All payments of principal, premium, if any, and interest on the Mortgage Notes issued with respect to any Property will be made only from the assets subject to the lien of the Indenture or the income and proceeds received by the Indenture Trustees therefrom (including Basic Rent and Additional Rent payable by Kmart under the related Lease). (Indentures, Section 2.05) Neither any Owner Trust, the Owner Trustees, any Owner Participant nor the Indenture Trustees shall be personally liable for or in respect of this Prospectus. No Owner Trustee acting in its individual capacity, Owner Participant or any director, officer, employee, stockholder, agent or affiliate of the Owner Trustee or Owner Participant (the "Exculpated Person") will have any obligation, duty or liability of any kind whatsoever to the Indenture Trustee or any holder of a Mortgage Note in connection with the exercise by any Exculpated Person of any rights of an Owner Trust under the related Lease and the other Operative Documents, or the taking of any action or the failure to take any action, in each case in connection with any rights of such Owner Trust under the Lease and the other Operative Documents. (Indentures, Section 18.01) INDENTURE DEFAULTS, NOTICE AND WAIVER Indenture Defaults under each Indenture include: (a) the occurrence and continuance of any Lease Event of Default under a Lease of Property securing the Mortgage Notes issued under such Indenture (other than a Lease Event of Default related to Excepted Payments), (b) failure by the related Owner Trust, other than by reason of any Lease Default or Lease Event of Default, to pay when due any principal, premium, if any, or interest on any Mortgage Note issued thereunder within five days after notice to the Owner Trust that such payment is due, (c) any termination or revocation of the related Owner Trust Agreement, (d) failure by the related Owner Trust (other than by reason of a Lease Default or Lease Event of Default) or the related Owner Participant to perform in any material respect any other material covenants contained in the Indenture, the Mortgage Notes issued under such Indenture or the Participation Agreement (to the extent that such document relates to the Property, unless the context requires otherwise), which continues unremedied for a period of 30 days (or such longer period (but in no event more than 180 days) if such failure has a material adverse effect on the Holders of the Mortgage Notes and is capable of being remedied within a reasonable period of time (but not within such 30-day period) if within such 30-day period the related Owner Trust or Owner Participant, as applicable, promptly commences and thereafter prosecutes with diligence and good faith efforts to effect a cure) after notice to such Owner Trust by the Corporate Indenture Trustee or to such Owner Trust and the Corporate Indenture Trustee by the holders of at least a majority in unpaid principal amount of outstanding Mortgage Notes issued under such Indenture, (e) any representation or warranty made by the Owner Trust, the Owner Trustees (in their individual capacities) or the related Owner Participant in the Indenture, the Participation Agreement (to the extent that such document relates to the Property, unless the context requires otherwise) or in any related document or certificate furnished to the Indenture Trustees pursuant thereto being incorrect in any material respect as of the date made, and such inaccuracy is and continues to be material to the holders of Mortgage Notes issued under such Indenture, which continues unremedied for a period of 30 days (or such longer period (but in no event more than 60 days) if such falseness or inaccuracy is susceptible to being remedied within a reasonable period of time (but not within such 30-day period) if within such 30-day period such Owner Trust, the Owner Trustees or Owner Participant, as applicable, promptly commences and thereafter prosecutes with diligence and good faith efforts to effect a cure) after notice to such Owner Trust by the Corporate Indenture Trustee or to such Owner Trust and the Corporate Indenture Trustee by the holders of at least a majority in unpaid principal amount of outstanding Mortgage Notes issued under such Indenture, and (f) the occurrence of certain events of bankruptcy, reorganization or insolvency of the related Owner Trust. (Indentures, Section 7.01) 35 37 In the event Kmart fails to make any semi-annual basic rental payment, and such failure shall constitute or become a Lease Event of Default, within 10 days' written notice of such failure the related Owner Trust may furnish to the Indenture Trustees the amount of such rental payment, in which event the Indenture Trustees and the holders of outstanding Mortgage Notes issued under such Indenture may not exercise any remedies otherwise available under such Indenture or the Lease securing the Mortgage Notes issued thereunder as the result of such failure to make such rental payment, unless such Owner Trust shall have previously effected on behalf of Kmart three such consecutive payments or five such payments cumulatively. An Owner Trust may also cure any other default by Kmart in the performance of its obligations under the related Lease which can be cured solely by the payment of money, within 10 days after the expiration of the grace period, if any, specified in the Lease. In addition, each Owner Trust may cure any default by Kmart in the performance of its obligations under the related Lease (if such default is reasonably susceptible to cure by the Owner Trust) other than those which can be cured by the payment of money alone, within 30 days after the expiration of the notice or grace period provided with respect to such default on the part of the Company under the Lease (or, such longer period, not to exceed 90 days, if such Owner Trust promptly commences and thereafter pursues to conclusion such cure). During these periods, the Indenture Trustees may not exercise any rights under the related Lease and the related Mortgage Notes may not be accelerated. The value of the Properties or the ability of Kmart to perform under the Leases could decline during any period when the exercise of remedies under an Indenture has been prevented through the exercise of cure rights. The cure rights described above will not apply during any period during which Kmart is an Owner Participant or otherwise controls the related Owner Trust. (Indentures, Section 8.03) Each Indenture provides that the Corporate Indenture Trustee must, within 30 days after any event resulting in the occurrence of an Indenture Default known by it, give notice thereof to the holders of the Mortgage Notes issued thereunder, unless such Indenture Default has been cured or waived or it determines (except in the case of a default in the payment of the principal of, premium, if any, or interest on the Mortgage Notes) that withholding such notice is in the best interests of the holders of the Mortgage Notes. (Indentures, Section 9.03) The holders of not less than 66 2/3% in aggregate unpaid principal amount of the outstanding Mortgage Notes issued under an Indenture, by notice to the Indenture Trustees thereunder, may on behalf of all holders waive any past default under such Indenture except a default in the payment of the principal, premium, if any, or interest on any such Mortgage Note or a default in respect of any covenant or provision of such Indenture that cannot be modified or amended without the consent of each holder of a Mortgage Note affected thereby. (Indentures, Section 7.14) REMEDIES Upon the occurrence of an Indenture Default resulting from the bankruptcy, insolvency or reorganization of the related Owner Trust, or a Lease Event of Default resulting from the bankruptcy, insolvency or reorganization of Kmart, the unpaid principal amount of the Mortgage Notes issued under such Indenture, together with interest accrued but unpaid thereon without premium, and all other amounts due thereunder and under such Indenture, shall become due and payable. (Indentures, Section 7.02(b)) Upon the occurrence of any other Indenture Default, the Corporate Indenture Trustee may, or when instructed by the holders of at least a majority in aggregate outstanding principal amount of the Mortgage Notes issued under such Indenture shall, declare the principal of all the Mortgage Notes outstanding under such Indenture, together with the interest accrued but unpaid thereon, but without premium, and all other amounts due thereunder and under such Indenture, immediately due and payable. (Indentures, Section 7.02(c)) The Indenture Trustees' right to exercise remedies under each Indenture is subject to acceleration of the Mortgage Notes and, with respect to an Indenture Default occurring solely by reason of a Lease Event of Default, concurrent action to terminate the Lease or dispossess the Company or 36 38 otherwise seeking to effect a comparable remedy under the related Lease as to which a Lease Event of Default shall have occurred. The holders of a majority in aggregate principal amount of outstanding Mortgage Notes under an Indenture may rescind any declaration of acceleration by the Corporate Indenture Trustee, whether made on their own accord or as directed by holders of such Mortgage Notes, at any time prior to the sale of the Trust Estate if (i) there has been paid or deposited with the Corporate Indenture Trustee an amount sufficient to pay all overdue installments of interest on all such Mortgage Notes and the principal on any Mortgage Notes that has been due otherwise than by such declaration, all sums paid or advanced by the Indenture Trustees under such Indenture and certain other expenses, (ii) the rescission would not conflict with any judgment or decree and (iii) all Indenture Defaults under such Indenture, other than the non-payment of principal that has become due solely because of such acceleration, have been cured or waived. (Indentures, Section 7.02(c)) Such rescission will be binding upon all holders of the Mortgage Notes; however, no such rescission will affect any subsequent default or impair any right or remedy consequent thereon. Each Indenture provides that, subject to the related Owner Trust's right, if any, to cure certain defaults or to redeem the Mortgage Notes, if any Indenture Default has occurred and is continuing thereunder, following acceleration of the Mortgage Notes the Indenture Trustees may, and when required by the provisions of the Indentures relating to their duties as Indenture Trustees shall, exercise certain rights or remedies available to them under applicable law, including taking possession of the Trust Estate and foreclosing the lien of the Indenture, including the lien on the Property included in the Trust Estate, subject to the terms of the Lease. In addition, the Indenture Trustees may not sell any part of the Trust Estate unless the related Mortgage Notes have been accelerated or the related Mortgage Notes have become due and payable because of the bankruptcy, insolvency or reorganization of the Owner Trust or Kmart. (Indentures, Section 7.02(a)) If a Lease Event of Default has occurred, the Indenture Trustees as assignees of the related Owner Trust may also exercise remedies afforded to such Owner Trust by such Lease for a Lease Event of Default thereunder. See "Description of the Leases -- Remedies". In addition, the Option will be collaterally assigned to the Indenture Trustee and, in the event of an Indenture Default and foreclosure under the Indenture, would be exercisable by the Indenture Trustee. In certain circumstances, the Mortgage Notes issued with respect to a Property may be accelerated even if no default exists under the related Lease. In such case, notwithstanding any acceleration, Kmart would not be obligated to pay more than the amounts of rent required to be paid periodically under the Lease (in the absence of Lease defaults). Also, although the Lease provides that upon default thereunder Kmart can be required to pay damages in an amount at least equal to the principal and interest on the related Mortgage Notes, it is possible that a court would nonetheless apply a measure of damages yielding a lesser amount. The right of any holder of a Mortgage Note to institute an action for any remedy under the Indenture pursuant to which such Mortgage Note was issued (including the right to enforce payment of the principal, premium, if any, and interest on such Mortgage Note when due) will be subject to certain conditions precedent, including a request to the Indenture Trustees by the holders of at least 25% in aggregate principal amount of Mortgage Notes then outstanding under such Indenture to take action (unless a majority in interest of the Certificateholders object in writing to such action within 30 days of such request), and an offer to the Indenture Trustees of reasonable indemnification against the costs, expenses and liabilities incurred by it in doing so. (Indentures, Sections 7.08 and 7.09) During the continuance of an Indenture Default the holders of a majority in aggregate principal amount of Mortgage Notes outstanding under an Indenture may (i) require the Indenture Trustees to enforce such Indenture, either by judicial proceedings for the enforcement of payment of the Mortgage Notes and the foreclosure of the Indenture and the sale of the Property subject to the lien of the Indenture or, at the election of the Indenture Trustees, by the exercise of the power of entry 37 39 and/or sale or other remedies conferred under such Indenture, and (ii) direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustees or of exercising any trust or power conferred on the Indenture Trustees, provided that such direction does not conflict with any applicable law or such Indenture and does not unduly prejudice the rights of holders of such Mortgage Notes other than those constituting such majority, and the Indenture Trustees may take any other action not inconsistent with such direction which is deemed proper by the Indenture Trustees. (Indentures, Section 7.13) If an Indenture Default under any Indenture occurs and is continuing and the Mortgage Notes are accelerated, any sums held or received by the Indenture Trustees may be applied to reimburse the Indenture Trustees for any tax, expense or other loss incurred by them and to pay any other amounts due to the Indenture Trustees prior to any payments to holders of the Mortgage Notes issued under such Indenture. (Indentures, Section 5.03) There are certain aspects of mortgage loans that may affect the enforceability thereof or the ability to realize on the security, including the scarcity of buyers at foreclosure, environmental risks relating to the underlying property, anti-deficiency or single-action legislation and bankruptcy laws that may limit the ability of a mortgage lender to enforce the loan and related security agreements or affect the value of such mortgage loans. If an Owner Trust were the subject of a bankruptcy petition, the right to exercise virtually all remedies against such Owner Trust would be stayed (including the right to collect payments under the related Lease). In addition, the bankruptcy court could permit the use or disposition of Lease payments and the Property for purposes other than making payments on the Mortgage Notes and could reduce the amount and modify the time of payments due under the Mortgage Notes, subject to the application of certain procedural and substantive safeguards for the benefit of the holders of the Mortgage Notes. Although attempts will be made to structure each Owner Trust as a bankruptcy-remote entity (for instance, its business will be limited to participating in the Sale-Leaseback Transactions), there can be no assurance that an Owner Trust will not become the subject of a bankruptcy proceeding, including by reason of the bankruptcy of the related Owner Participant and the consolidation of the assets and liabilities of such Owner Trust with the assets and liabilities of the related Owner Participant. Each Owner Participant currently engages in other businesses and is not subject to any limitations on the conduct of its business. See also "Description of the Leases -- Consequences of Kmart's Bankruptcy". POSSIBLE RECHARACTERIZATION OF THE LEASES AS LOANS FOR CERTAIN STATE LAW PURPOSES For federal income tax and accounting purposes, it is the intention and belief of the Company that each leveraged lease transaction entered into by the Company constitutes a "true lease". It is also the intention and belief of the Company that each such transaction constitutes a "true lease" for purposes of applicable state law. In this regard, the Company has agreed not to take or omit to take any action during the Lease term inconsistent with "true lease" classification under state law. Notwithstanding the foregoing, in an action involving the enforcement of any Lease, a court might determine that the related leveraged lease transaction should be recharacterized as a loan, and accordingly that the conveyance by the Company to the Owner Trust should be deemed the granting of an equitable mortgage securing that loan. Under such circumstances, the Owner Trust would be considered a secured lender to the Company, and the Indenture Trustees would be considered a lender to the Owner Trustee holding an assignment of the security. In the event of such a recharacterization, if a Lease Event of Default occurs and either the Owner Trust or the Indenture Trustees elects to demand payment of the amounts due under the terms of any Lease, the Owner Trust or the Indenture Trustees would be required to comply with the procedural requirements of, and would be subject to the legal limitations on recovery under, the laws of the state in which the leased property is located that are applicable to a lender seeking to enforce remedies on default under a loan secured by real property. It is unclear whether the mortgage interest deemed to be held by the Owner Trust in such a recharacterized transaction would be deemed to be properly perfected and thus enforceable against other third party creditors. If the mortgage interest were deemed 38 40 perfected, the Owner Trust (and, by assignment, the Indenture Trustees) would have a secured claim against the Company, would be required by law to proceed first by foreclosing on the related Property, and could subsequently seek a deficiency judgment against the Company if the value of such property, as determined by a subsequent judicial hearing, were insufficient to redeem the related Mortgage Notes. If such mortgage interest were not deemed perfected, it could be defeated by other creditors or a trustee in bankruptcy, and the Owner Trust (and, by assignment, the Indenture Trustees) would have an unsecured claim against the Company in an amount at least equal to the principal of, and accrued interest on, the outstanding related Mortgage Notes. Such unsecured claim would not be subject to the limitations on lessor damages imposed by Section 502(b)(6) of the Bankruptcy Code. See "Description of the Leases -- Consequences of Kmart's Bankruptcy". MODIFICATION OF INDENTURES AND OTHER DOCUMENTS Without the consent of holders of the Mortgage Notes outstanding under any Indenture, the provisions of the Leases, the Participation Agreement or the Owner Trust Agreements may not be amended or modified, except: (i) if expressly so provided for in the provisions thereof; or (ii) if such modification or amendment does not, in the written opinion of counsel of the party requesting such modification or amendment, materially adversely affect the interest of any holder of the Mortgage Notes under such Indenture and will not, as evidenced in writing by each of S&P, Moody's and D&P result in an adverse change in the rating of the Certificates; provided, however, that the restrictions on amendments to the related Owner Trust Agreement are limited to certain specific provisions thereof and provided further, that no such modification to the Lease may reduce the amount or timing of rent necessary to pay principal, premium, if any, and interest on the related Mortgage Notes. The Indenture Trustees may give any consent, waiver, authorization or approval under the Participation Agreement, the Owner Trust Agreements and the Leases, if, as set forth in an opinion of counsel from the Owner Trustees or the Company, such action does not materially adversely affect the interest of any holder of the Mortgage Notes under such Indenture. (Indentures, Sections 12.07(b) and (c)) The consent of neither the Indenture Trustees nor any of the holders of the Mortgage Notes is required to make certain adjustments to the payments under the Leases, in compliance with the provisions thereof, except that, without the consent of the holder of each Mortgage Note affected thereby, no such modification or waiver may extend the time for any payment under any Lease or reduce the amount thereof below the amount necessary to pay principal, premium, if any, and interest on the related Mortgage Notes. (Indentures, Section 12.07(c)) Each Indenture contains provisions permitting the related Owner Trust and the Indenture Trustees, with the consent of the holders of not less than 66 2/3% in outstanding unpaid principal amount of the Mortgage Notes issued thereunder, to add, modify or eliminate any provision of the Indenture, except that, without the consent of the holder of each Mortgage Note outstanding under any Indenture affected thereby, no amendment or modification of such Indenture may (a) reduce the amount or extend the time of payment of any amount owing or payable on the Mortgage Notes, reduce the rate of interest on the Mortgage Notes, change the order of priorities in which distributions under the Indenture are to be made or with respect to the amount or time of payment of any such distribution, change the circumstances under which any premium becomes payable or the manner in which such premium is calculated, change the currency in which payments under any Mortgage Note are to be made, or impair the right of any holder of any Mortgage Note to institute suit for the enforcement of payment thereof; (b) reduce or modify any indemnities in favor of any holder of any Mortgage Note; (c) create or permit the creation of any lien on the Indenture Estate ranking prior to or on a parity (other than Refinancing Mortgage Notes) with the lien of the Indenture; (d) reduce the percentage of the aggregate outstanding unpaid principal amount of the Mortgage Notes issued thereunder, the consent of the holders of Mortgage Notes evidencing which is required for any such supplement or any waiver provided for in such Indenture; or (e) modify the 39 41 provisions in (a), (b), (c) or (d) or the conditions under which holders of the Mortgage Notes may institute suit for the enforcement of any payment. (Indentures, Section 12.02) Each of the Owner Trusts and the Indenture Trustee will agree in the Participation Agreement (i) to comply with the provisions of the Indenture, (ii) not to waive any provision of the Indenture requiring Kmart's consent thereunder, and (iii) not to amend, supplement, waive or otherwise modify any provision of the Indenture in such a manner as to adversely affect the rights or increase the obligations of Kmart or the Owner Participant without the prior written consent of such party. DISCHARGE OF LIEN Each Indenture will cease to be of further effect when, among other things, either (a) all Mortgage Notes have been delivered to the Indenture Trustee for cancellation, or (b)(i) all Mortgage Notes not theretofore delivered to the Indenture Trustees for cancellation will mature or are to be called for redemption such that they will be due and payable within one year, and (ii) the related Owner Trust has deposited with the Corporate Indenture Trustee in trust an amount sufficient to pay such Mortgage Notes, including principal, premium, if any, and interest to the date of such maturity or redemption, together with all other sums then due and payable thereunder. (Indentures, Section 13.01) ASSUMPTION OF OBLIGATIONS BY KMART Upon exercise of the Termination Right or the Competitor Option, Kmart may assume on a full recourse basis all of the obligations of the related Owner Trust under an Indenture, including the obligations to make payments relating to the Mortgage Notes allocable to the related Lease, provided that, prior to such assumption, Kmart shall have delivered to the Corporate Indenture Trustee an opinion of independent legal counsel of recognized standing to the effect that (i) the assumption will not constitute a sale or exchange of the Mortgage Notes within the meaning of Internal Revenue Code section 1001 and the regulations thereunder, and (ii) the assumption will not otherwise adversely affect the Federal income taxation of holders of the Certificates, and subject to certain other limitations contained in the Indenture, and in connection therewith shall execute a supplemental indenture to the related Indenture (such supplemental indenture, together with the related Indenture, the "Company Indenture"). See "Description of the Leases -- Early Termination". The Property will continue to be subject to the lien of the Company Indenture, and the Company Indenture will incorporate certain relevant provisions of the Lease or Leases so terminated, including (among others) provisions relating to maintenance, possession and use of the related Property or Properties, liens, insurance and events of default; provided, however, that if legal opinions are delivered to the effect that if the Mortgage Notes so assumed by Kmart were unsecured, the Pass Through Trusts would not be required to register as "investment companies" under the Investment Company Act of 1940, as amended, and that the prohibited transaction exemption granted to Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated (as it may be amended, modified, added to or succeeded) (see "ERISA Considerations") would continue to be applicable with respect to the Pass Through Trusts and the Certificates, the lien and the related Property to be released and the Mortgage Notes will be unsecured obligations of Kmart. In that event the Company Indenture will contain terms substantially the same as the Indenture between Kmart and The Bank of New York, dated as of February 1, 1985 (the "1985 Indenture"), which has been filed with the Commission. CONCERNING THE CORPORATE INDENTURE TRUSTEE The Corporate Indenture Trustee also serves as the Trustee under the 1985 Indenture relating to certain of Kmart's debt securities (the "Debentures"). Pursuant to the Trust Indenture Act, should a default occur with respect to either the Debentures or any Mortgage Notes, The Bank of New York would be required to resign as trustee with respect to the Debentures or the Mortgage 40 42 Notes within 90 days of such default unless such default were cured, duly waived or otherwise eliminated. DESCRIPTION OF THE LEASES The statements under this caption are summaries of the terms of the Leases and do not purport to be complete. The summaries make use of terms defined in and are qualified in their entirety by reference to all of the provisions of each Lease, the form of which has been filed as an exhibit to the Registration Statement of which this Prospectus is a part. Except as otherwise indicated, the following summaries relate to each of the Leases securing the related Mortgage Notes. TERM AND RENT Each Owner Trust will lease its respective Property to Kmart pursuant to a Lease for an interim term and a subsequent base term commencing on April , 1995 which together total 25 years. Kmart will have the option to extend each Lease for at least six consecutive terms of five years each. (Lease, Articles 2 and 8). Because the Mortgage Notes and the Certificates are scheduled to be retired during the base term of the Lease, any such extensions should not affect the interests of the Certificateholders. So long as no Lease Event of Default (as defined herein) exists with respect to the Lease, Kmart, as lessee thereunder, will be entitled to undisturbed possession of the related Property, even if there exists a default (other than a Lease Event of Default) under the related Indenture or under an Agreement. Rents are required to be paid by Kmart under the Leases in immediately available funds on each January 5 and July 5, commencing on July 5, 1995 (the "Rent Payment Dates"). On each Rent Payment Date, the aggregate amount of rents payable under the Leases will be at least equal to the aggregate scheduled amount of principal, interest and any Make- Whole Premium required to be paid on the outstanding Mortgage Notes on such date, except in certain cases of optional redemption by an Owner Trust. See "Structure of the Transaction". Kmart is obligated under each Lease to pay interest on any late payments of rent, which shall accrue at a rate equal to the sum of 1% plus the weighted average of the interest rates of the Mortgage Notes from the relevant payment date to the date such payments are actually received by the Indenture Trustee (the "Default Rate") with respect to that portion of rent equal to the principal, interest and premium, if any, on the related Mortgage Notes. (Lease, Article 3). NET LEASES; NO SET-OFF The obligations of Kmart under each Lease are those of a lessee under a "net lease." Kmart's obligation to pay rent is absolute and unconditional, and payments of rent under the Leases are to be made without notice, demand, counterclaim, set-off, deduction, defense, abatement, or reduction. (Lease, Article 4). Each Lease also provides that it shall not be terminable by Kmart thereunder, except under the limited circumstances as described therein, nor shall Kmart be entitled to any abatement or reduction, with respect to any payment of rent or other obligation under any Lease, by reason of: (i) any damage to or destruction of a leased Property; (ii) any taking of a Property or any part thereof by eminent domain or otherwise; (iii) any prohibition, limitation, restriction, interference with or prevention of Kmart's use of all or any part of a Property; (iv) any default by an Owner Trust under any Lease; (v) any eviction by a holder of paramount title or otherwise; (vi) any purported merger of estates resulting from Kmart's acquisition of all or any part of a Property; or (vii) any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. (Lease, Article 4). REPAIRS AND MAINTENANCE Each Lease requires Kmart to make and pay for all maintenance, replacement, alteration and repair, both structural and non-structural, of the Property on a timely basis, whether such 41 43 maintenance, replacement, alteration and repair is foreseeable or not foreseeable, which may be required to keep the Property in good repair and condition, ordinary wear and tear excepted, consistent with the standard of maintenance employed by Kmart as of the date of the Lease with respect to similar properties owned or leased by Kmart and located in the general geographic area where the Property is located, and in compliance with applicable laws and health and safety standards. (Lease, Article 9). In no event is an Owner Trust required to repair, rebuild or maintain its respective Property. ALTERATIONS AND ADDITIONAL CONSTRUCTION If no Material Default or Lease Event of Default (each as defined under "Events of Default") has occurred and is continuing, Kmart may, at its own expense, make such alterations and additions, structural or otherwise, in or to the buildings and erect or construct additional buildings or structures on the Property, which alterations, additions and additional buildings and structures shall be subject to the lien of the related Indenture, provided that the fair market value or remaining useful life of such Property shall not be diminished thereby except to an insignificant extent and that the Property shall not, as a result, be characterized as "limited use property". In connection with any alterations, additions or erection of additional improvements, Kmart shall perform and complete all work in a first-class, workmanlike manner in compliance with applicable laws. Kmart shall maintain at all times during construction all risk builders insurance and comprehensive general liability insurance naming the Owner Trust and the Indenture Trustee as additional insureds. All such additional improvements shall be and remain the property of the related Owner Trust and shall be subject to all of the terms and provisions of the Lease. (Lease, Article 10). All trade fixtures and furniture installed at the expense of Kmart shall remain the property of Kmart, not subject to the lien of the related Indenture, and shall be removed from the premises by Kmart, at its expense, at the expiration of the term of the Lease; provided, however, that Kmart shall have the option, during the term of the Lease, to relinquish its property rights with respect to such trade fixtures and, after the exercise of such option, the property specified shall be the property of the related Owner Trust, subject to the lien of the related Indenture. (Lease, Article 27). LIENS Kmart, as lessee, covenants that it shall not, during the term of the Lease, directly or indirectly create, incur, assume, suffer or permit any lien on or with respect to the related Property or any part thereof, any rent, title thereto or interest therein, up to and including the date of the end of such Lease term, other than Permitted Liens. "Permitted Liens" are: (i) the respective rights and interests of Kmart, the related Owner Trust, the related Owner Participant, the Remainderman, the Indenture Trustee, and the Trustee; (ii) certain liens resulting from acts of, or claims against, the related Owner Trust or the Remainderman; (iii) liens for taxes and assessments that either are not yet due and payable or are being contested in good faith and by appropriate proceedings diligently conducted, so long as such proceedings do not (a) subject the Property to imminent risk of foreclosure, forfeiture or loss or result in the sale of the Property, (b) interfere other than to an insignificant extent with the use, possession or disposition of the Property, (c) interfere with the payment of rents or (d) involve any risk of loss of the priority of the lien of the Indenture relating thereto; (iv) materialmen's, mechanics', workers', repairmen's, employees' or other like liens arising prior to or after the date of the Lease in the ordinary course of business for amounts either not yet due or being contested in good faith and by appropriate proceedings so long as such proceedings shall not involve any risk of the sale, forfeiture or loss of any part of the Property and shall not materially interfere with the use, occupancy or disposition of the Property or interfere with the payment of rents or involve any risk of loss of the priority of the lien of the Indenture; (v) liens arising after the date of the Lease out of judgments or awards with respect to which at the time an appeal or proceedings for review is being prosecuted diligently and in good faith and that either have been bonded to the satisfaction of the related Owner Trust and the Indenture Trustee or the enforcement of which has been continuously stayed pending such appeal or review; 42 44 (vi) easements, rights-of-way, reservations, servitudes and rights of others against the Property which (a) are listed as Permitted Exceptions in the Purchase Agreement (the "Purchase Agreement") dated as of the date of the Lease or (b) are granted pursuant to the specific provisions of such Lease; and (vii) assignments, leases and subleases expressly permitted by the Operative Documents (as defined in the Purchase Agreement). (Lease, Article 19). Kmart shall promptly, but no later than 30 days after the attachment thereof, at its own expense, discharge, eliminate or bond in a manner satisfactory to the related Owner Trust any lien that is not a Permitted Lien. In the event such lien is not so discharged, eliminated or bonded, such Owner Trust may pay and discharge any such lien, and Kmart shall reimburse such Owner Trust upon demand for the amount so paid together with interest thereon at the Default Rate. (Lease, Article 19). ASSIGNMENT OR SUBLEASING; USE; NO CONTINUOUS OPERATION Kmart may assign, or sublease all or any part of, its leasehold interest in the Properties without the prior written consent of the related Owner Trust, provided that (i) no Lease Event of Default or Material Default has occurred and is continuing, (ii) such assignment or sublease shall be expressly subject and subordinate to the relevant Lease, and (iii) Kmart shall remain fully and primarily liable for the performance of its obligations under the Lease and the other Operative Documents. Kmart's liability under any Lease shall continue notwithstanding the rejection of such Lease or sublease pursuant to Title 11 of the United States Code (the "Bankruptcy Code"). In the event Kmart assigns the Lease and it is thereafter rejected in a bankruptcy or similar proceeding, a new lease identical to the rejected Lease shall be reinstituted as between the Owner Trust and Kmart without further act by either party. Kmart is prohibited from mortgaging or otherwise encumbering its interest under the Lease. (Lease, Article 17). Each Property may be used for any lawful purpose; provided that no use of any Property may be made by Kmart or an assignee or sublessee of Kmart that would: (i) be a public nuisance; (ii) cause a Property to become a "tax-exempt use property" within the meaning of Section 168(h) of the Code, or any successor statute thereto, or to become a "tax-exempt bond financed property" within the meaning of Section 168(g)(5) of the Code; (iii) void any certificate of occupancy required for such Property; (iv) cancel or make it commercially unreasonable to obtain the issuance of any insurance policy required for such Property by the related Lease; or (v) increase the related Owner Trust's risk of environmental liability; provided that any retail or office use shall not be deemed to increase the risk of environmental liability for this purpose. (Lease, Article 17). Each Owner Trust names Kmart as its attorney-in-fact, subject to certain limitations and conditions, to grant easements, release existing easements, make dedications, execute annexation petitions and amend covenants and restrictions in respect of any Property that do not impair (other than to an insignificant extent) the usefulness of the Property for the purposes contemplated and permitted by the Lease, or reduce the fair market value or remaining useful life of the Property and shall not cause such Property to be characterized as "limited use property" for certain federal income tax purposes. (Lease, Article 13). Kmart is not obligated under the Lease to operate a business at the Property, except as required by law or by other agreement binding on the Property. (Lease, Article 5). INSURANCE Under each Lease, Kmart is required, at its own cost and expense, to carry workers' compensation insurance with limits of no less than $5,000,000, insurance against loss by fire and other casualties included under extended-coverage, all-risk endorsements, in an amount not less than 100% of the full insurable replacement value of the improvements constituting part of the Property, comprehensive general liability insurance with minimum coverage of $5,000,000 with respect to injury of any one person, $5,000,000 with respect to any one accident or disaster and $5,000,000 with respect to damage to property. In no event shall the deductible amount under such 43 45 casualty insurance policies exceed $250,000. In the event that Kmart fails to obtain or maintain such insurance, the related Owner Trust may obtain such coverage and will be reimbursed by Kmart for the cost thereof, plus interest at the Default Rate from the date incurred by such Owner Trust. An Owner Trust shall have no obligation to maintain insurance of any type on the Property and Kmart shall not have any rights to direct actions or subrogation against any insurance policy obtained by an Owner Trust. Notwithstanding the foregoing, Kmart may elect to self-insure any leased Property against casualty, workers' compensation and liability risks; provided that Kmart maintains a consolidated tangible net worth of at least $750,000,000 calculated in accordance with generally accepted accounting principles (the "Net Worth Standard"). (Lease, Articles 7 and 14). CONDEMNATION AND CASUALTY In the event of a condemnation or casualty affecting any Property, Kmart will be obligated to continue paying rent and to restore such Property at its own expense as nearly as practicable to the condition as existed immediately before the condemnation or casualty occurred. Under the Lease, Kmart is obligated to complete such restorations prior to the expiration of the term of the Lease or as soon as possible following the termination of the Lease. If Kmart meets the Net Worth Standard at the time of the condemnation or casualty, or if insurance proceeds or a condemnation award due to such occurrence are less than $250,000 and no Material Default or Lease Event of Default has occurred and is continuing, any such insurance proceeds or condemnation awards shall be payable to Kmart for restoration and repair of the Property. If Kmart does not meet the Net Worth Standard at the time of such loss, and if such condemnation award or casualty proceeds are in excess of $250,000, however, the net proceeds of such insurance claim or condemnation award shall, if the related Indenture is outstanding, be deposited with the Indenture Trustee and shall be disbursed to Kmart upon progress of completion of restoration, repair, replacement or rebuilding, subject to certain provisions set forth in the related Lease. In the event that condemnation proceeds exceed the actual cost of restoration, the Indenture Trustee shall have the right to retain the excess proceeds and apply the same in accordance with the related Indenture. (Lease, Articles 14, 15, and 16). Notwithstanding the foregoing, in the event of a casualty affecting all or a substantial portion of a Property (a "Casualty"), Kmart may either (i) restore the Property as set forth above or (ii) give written notice to the related Owner Trust of its intention to terminate the Lease and make a rejectable purchase offer to such Owner Trust within 30 days of such damage or destruction for a price at least equal to the principal of and interest due on the related Mortgage Notes. In the event of a permanent or temporary condemnation of the Property or any substantial portion thereof that in Kmart's judgment renders the Property unsuitable for its occupancy and use, or in the event of a condemnation of the points of ingress and egress of the Property such that they shall be materially impaired (with no reasonable replacement points of ingress-egress provided) so that the Property is rendered unsuitable for its intended use (any such event referred to in this sentence or any Casualty constituting an "Event of Loss"), Kmart shall be obligated to make such a rejectable offer to purchase the Property within 30 days of such condemnation (or, with respect to a partial condemnation, within 90 days after the entry of a final order of taking) for a price at least equal to the principal of and interest due on the related Mortgage Notes. If such offer is accepted, the purchase shall be effected on the next scheduled Rent Payment Date occurring not less than 100 days after the related Owner Trust's receipt of such offer. (Lease, Articles 14, 15 and 40). If Kmart makes such a rejectable offer to purchase a Property, the related Owner Trust will have 60 days to decide whether to accept such offer. Such Owner Trust may not reject Kmart's purchase offer unless it makes satisfactory provisions with the Indenture Trustee for the redemption of the related Mortgage Notes, which provisions shall include the escrowing of cash or cash equivalents in amounts sufficient to redeem the Mortgage Notes. If Kmart's offer is rejected and such Owner Trust makes satisfactory arrangements with the Indenture Trustee, Kmart shall, on the Rent Payment Date on which Kmart's purchase would otherwise have occurred, pay to the related Owner Trust all 44 46 basic rent under the Lease ("Basic Rent") and any other payment under the Lease ("Additional Rent") accrued and owing under the Lease as of such Rent Payment Date, at which time the Lease shall terminate and such Owner Trust shall receive all attendant insurance or condemnation proceeds. If, on the other hand, Kmart's offer is accepted and the related Owner Trust makes satisfactory arrangements with the Indenture Trustee, the sale of the affected Property shall be closed on the next scheduled Rent Payment Date, and the purchase price (which shall be at least sufficient to redeem the Mortgage Notes) and all Basic Rent and Additional Rent accrued and owing on such date shall be paid in cash to the Indenture Trustee for the purpose of redeeming the Mortgage Notes with any excess being paid to such Owner Trust. In the event of any such sale, any attendant insurance or condemnation proceeds will be paid to Kmart, and title to the affected Property shall be conveyed to Kmart. All costs and expenses in connection with such sale shall be paid by Kmart. (Lease, Article 40). EARLY TERMINATION RIGHTS Kmart may exercise its Termination Right with respect to a Lease on any Rent Payment Date on or after the fifth anniversary of the commencement of the base term of the Lease (provided that no Lease Event of Default or Material Default has occurred and is continuing) if it determines that the Property has become obsolete or may no longer be economic for Kmart's use or surplus to Kmart's needs, by providing at least 12 months' and not more than 18 months' notice to the related Owner Trust. In such event, the Property may be (i) transferred to Kmart for an amount sufficient to retire the related Mortgage Notes (including the Make-Whole Premium thereon) (the "Retirement Price"), (ii) sold to a third party, with the excess of the Retirement Price over the net sale price being contributed by Kmart or (iii) retained by the related Owner Trust, provided that such Owner Trust makes satisfactory provisions with the Indenture Trustee for the redemption of the related Mortgage Notes, which provisions shall include the escrowing of the Retirement Price for such Mortgage Notes in cash or cash equivalents, and the Property shall thereupon be released from the lien of the related Indenture. Under certain circumstances, Kmart may elect to assume the obligations of the related Owner Trust under the related Mortgage Notes upon exercise of a Termination Right with respect to the Property. See "Description of the Mortgage Notes -- Assumption of Obligations by Kmart." (Lease, Article 39). If an Owner Participant becomes a competitor of Kmart during the term of the Lease, Kmart may exercise the Competitor Option (provided that no Lease Event of Default or Material Default has occurred and is continuing) by delivery of a notice to such Owner Participant and the Indenture Trustees. Following receipt of such notice, the Owner Participant will have the right for a six-month period to sell the related Properties or its interest in the related Properties to a transferee other than Kmart or its affiliates, and if such transfer occurs during the six-month period, the related Mortgage Notes will not be redeemed. If a transfer by the Owner Participant does not occur during the six-month period, the related Properties or the Owner Participant's interest in the related Properties may be (i) transferred to Kmart for the Retirement Price or (ii) sold to a third party, with the excess of the Retirement Price over the net sale price being contributed by Kmart. Kmart or any third party buyer may elect to take title to the related Properties or the Owner Participant's interest in the related Properties subject to the lien of the Indenture or to cause the related Mortgage Notes to be redeemed with a Make-Whole Premium. If Kmart elects to purchase the related Properties or the Owner Participant's interest in the related Properties subject to the lien of the Indenture, Kmart will assume, in accordance with and subject to the terms of the Indenture, personal liability for the payment of the related Mortgage Notes and such Mortgage Notes will not be redeemed. In the event of any purchase subject to the lien of the Indenture, an amount equal to the principal amount of the Mortgage Notes secured by such Properties then outstanding plus accrued interest thereon will be credited against the Retirement Price. (Participation Agreement, Section 3) 45 47 EVENTS OF DEFAULT The following are events of default under each Lease ("Lease Events of Default"): (i) the failure by Kmart to pay any installment of Basic Rent within five days after notice to Kmart the same is due; (ii) the failure by Kmart to make any payment constituting Additional Rent within 15 days after notice to Kmart of non-payment; (iii) the failure by Kmart to maintain insurance as required by the Lease; (iv) the failure by Kmart to perform any of its other covenants or obligations under the Lease or any of the other Operative Documents (other than the Tax Indemnification Agreement (as defined in the Lease)) within 30 days after notice thereof; provided that any non-monetary default that is curable but is not susceptible to a cure within 30 days shall not be deemed a default if a cure is commenced within 30 days after such notice and is diligently pursued thereafter; provided further that in no event shall such cure period for a non-monetary default exceed 180 days; (v) certain events of bankruptcy, insolvency, reorganization pursuant to bankruptcy or similar laws, receivership, dissolution or liquidation of Kmart; and (vi) any representation or warranty by Kmart in the Lease or any of the other Operative Documents (other than the Tax Indemnification Agreement) or in any certificate expressly required to be delivered pursuant thereto shall have been false or incorrect when made in any respect material to the Owner Trust or the Owner Participant and such falseness or incorrectness is material to the Owner Trust or the Owner Participant and continues to be material, and shall not have been cured within 30 days after receipt of written notice by Kmart from the Owner Trust, unless the default is curable and Kmart shall be diligently proceeding to correct such default; provided that in no event shall such cure period exceed 60 days. For purposes of each Lease, a "Material Default" shall mean an event of the type described in clauses (i) and (v) above that, with the passage of time or the giving of notice, or both, would become a Lease Event of Default. To the extent that any failure by Kmart to perform any covenant or obligation or any breach of a representation or a warranty relates solely to a Property or Properties other than the Property subject to a particular Lease, such failure or breach shall not give rise to a Lease Event of Default under such Lease. (Lease, Article 20). REMEDIES If a Lease Event of Default has occurred with respect to any Lease and is continuing beyond any applicable cure periods, the related Owner Trust may (i) terminate such Lease and recover damages from Kmart as described below, (ii) re-enter the Property without terminating such Lease to remove Kmart and its property, all at Kmart's expense, with Kmart remaining liable for the balance of rents accruing to the end of the base term of such Lease (less the amount received by such Owner Trust with respect to reletting the Property net of such Owner Trust's expenses in connection therewith) and/or (iii) sell all or part of the Property at public or private sale, free and clear of any rights of Kmart therein, and Kmart's obligation to pay Basic Rent with respect to the Property, or the part thereof that has been sold, for any periods commencing after the date of such sale shall terminate. If a Lease is terminated upon the occurrence of a Lease Event of Default thereunder, damages permitted to be recovered by the related Owner Trust from Kmart include: (i) all rents and other payments due under such Lease as of the date on which the Lease shall be terminated and all other amounts due on the related Mortgage Notes, plus (ii) at the option of such Owner Trust, any one of: (a) the difference between the termination value identified in the related Lease (the "Termination Value") and the present value of the fair market rental value of the 46 48 Property, discounted semiannually at a 7% annual percentage rate for the remainder of the term of the Lease; or (b) the difference between the present value of all rents, discounted semiannually at a 7% annual percentage rate, for the remainder of the base or applicable renewal term of the Lease (the "Discounted Basic Rents") and the present value of the fair market rental value of the Property for the remainder of such term, discounted semi-annually at a 7% annual interest rate; or (c) an amount equal to the greater of the fair market value of the Property, the Discounted Basic Rents and the Termination Value; or (d) the difference between the Termination Value and the fair market sales value of the Property. Fair market values are determined by agreement between Kmart and the related Owner Trust or by appraisal. If the related Owner Trust receives the sum of the amounts described in clauses (i) and (ii)(c) above, such Owner Trust will convey the Property to Kmart. Because each Owner Trust has assigned certain of its rights under the Lease to the Indenture Trustee, only the Indenture Trustee, and not the Owner Trust, may exercise remedies following a Lease Event of Default. (Indenture, Section 8.01) The above-described amounts will accrue interest at the Default Rate from the final payment date specified in the related Owner Trust's notice of default and termination of a Lease to the date of actual payment by Kmart. (Lease, Article 21). SUBSTITUTION In lieu of the acquisition by Kmart of the Property in accordance with the Lease, provided that no Material Default or Lease Event of Default has occurred and is continuing, Kmart shall be entitled to substitute a retail store (the "Substitute Property") for the Property provided that as of the date of such substitution (i) the fair market value of the Substitute Property is not less than the fair market value of the Property immediately prior to the event which gave rise to the substitution, (ii) the useful life of the Substitute Property is not less than the useful life of the Property immediately prior to the event which gave rise to the substitution, (iii) Kmart shall make the same representations and warranties with respect to the Substitute Property as it had previously made with respect to the Property, (iv) Kmart shall deliver an environmental assessment report, survey and title search report, each of which shall be satisfactory, to the Owner Trust and the Indenture Trustee and (v) the substitution shall not reduce the amount or timing of any rents due under the Lease. Kmart shall not be entitled to substitute a Property unless (i) the long-term senior debt securities of Kmart shall have been rated in one of the generic rating categories that signifies "investment grade" by S&P and Moody's and (ii) Kmart agrees to either structure the substitution transaction to avoid any material adverse tax consequences identified in an opinion of independent tax counsel or indemnify the related Owner Trust and Owner Participant against such adverse tax consequences. All other terms and conditions of the Lease shall apply to the Substitute Property. If such substitution occurs, the Substitute Property shall replace the Property as security for the Mortgage Notes. (Lease, Article 41). THE PARTICIPATION AGREEMENT The Company is required to indemnify each Owner Participant, the Owner Trustee, each Owner Trust, the Indenture Trustees and the Remainderman for certain losses and claims and for certain other matters. (Participation Agreement, Section 22). Subject to certain restrictions, each Owner Participant may transfer its interest in the Properties. (Participation Agreement, Section 2). CONSEQUENCES OF KMART'S BANKRUPTCY Numerous statutory provisions, including the federal bankruptcy laws and state laws affording relief to debtors, may interfere with or affect the ability of a secured party to realize upon collateral. For example, a court with federal bankruptcy jurisdiction (the "Bankruptcy Court") may permit a debtor through its plan of reorganization to cure a monetary default in respect of a mortgage by paying arrearages within a reasonable time and reinstating the original loan payment schedule even if the lender has accelerated the loan and a foreclosure proceeding has been commenced in state court (provided no sale of the property had yet occurred) prior to the filing of the debtor's petition. 47 49 Some Bankruptcy Courts have approved plans, based on the particular facts of the reorganization case, that effected the curing of a default under a mortgage by paying arrearages over a number of years. In the event a bankruptcy proceeding is instituted by or against Kmart under the Title 11 of the United States Code (the "Bankruptcy Code"), Kmart, as debtor-in-possession, or its trustee in bankruptcy, would have the right, subject to bankruptcy court approval to assume or reject the Leases. If any Lease were rejected, payments thereunder would terminate, thereby leaving the related Owner Trust without cash flow to make payments on the Mortgage Notes issued in respect of the Property leased thereunder. In the event a Lease were rejected, the related Owner Trust (and by virtue of the Indentures, the Indenture Trustees) would have an unsecured non-priority claim for damages against Kmart's bankruptcy estate but, under Section 502(b)(6) of the Bankruptcy Code, such claim 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 the Lease (plus rent already due but unpaid). By contrast, this limitation under Section 502(b)(6) would not apply to holders of debt securities issued by Kmart. Therefore, except during the final year of the Lease term, if Kmart were the subject of proceedings under the Bankruptcy Code and any Lease were rejected, the damages that could be claimed for rejection, even assuming full recovery on such claim (which may not occur), would not be sufficient to satisfy the outstanding amount of the Mortgage Notes issued in respect of the Property leased thereunder. Kmart also may have the right in a bankruptcy to assume and assign the Lease (but only if adequate assurance of future performance by the assignee is provided) and thereby be relieved of liability for any breach of such Lease occurring after such assignment. Moreover, it is possible that a bankruptcy court could treat the transactions described herein not as a leasing transaction but instead as a secured loan to Kmart, in which case the bankruptcy court could permit Kmart to use or dispose of the Properties, subject to providing "adequate protection" (such as a lien on substitute collateral) to the related Owner Trust, and to modify and to adversely affect the rights of such Owner Trust, including reduction of the amount and modification of the timing of payments that would otherwise have been payable by Kmart under the Leases (in which event, however, the above-described limitation under Section 502(b)(6) of the Bankruptcy Code would not be applicable). The occurrence of any of the foregoing events may have a material adverse effect on the holders of the Certificates. 48 50 CERTAIN FEDERAL INCOME TAX CONSEQUENCES In the opinion of Dickinson, Wright, Moon, Van Dusen & Freeman, counsel to Kmart, the following discussion accurately describes the material federal income tax consequences of the ownership and disposition of Certificates. This discussion is based on laws, regulations, rulings and decisions now in effect, all of which are subject to change or different interpretation. Moreover, certain of the anticipated federal income tax consequences discussed herein are based on regulations of the Treasury Department ("Treasury Regulations") which are proposed and subject to change and which are not binding authority until adopted as final or temporary Treasury Regulations. As a result, definitive guidance cannot be provided regarding all of the federal income tax consequences to Certificateholders or to the Pass Through Trusts. In addition, there can be no assurance that the Internal Revenue Service or the courts would not take positions different from those discussed herein and which positions could be materially adverse to Certificateholders. Investors should consult their own tax advisors in determining the federal, state, local, foreign and any other tax consequences to them of the purchase, ownership, redemption and/or disposition of the Certificates, including the advisability of making any elections discussed herein. This discussion does not purport to address federal income tax consequences applicable to particular categories of investors, some of which (for example, insurance companies and foreign investors) may be subject to special rules. PROSPECTIVE 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 CERTIFICATES, INCLUDING THE ADVISABILITY OF MAKING ANY ELECTION DISCUSSED BELOW. The Pass Through Trusts will not be indemnified for any federal income taxes that may be imposed upon them, and the imposition of any such taxes could result in a reduction in the amounts available for distribution to the holders of Certificates evidencing interests in the affected Pass Through Trust. GENERAL Based upon an interpretation of analogous authorities under currently applicable law, the Pass Through Trusts created by the Agreements will not be classified as associations taxable as corporations, but, rather will be classified as grantor trusts under Subpart E, Part I, Subchapter J of Chapter 1 of the Internal Revenue Code of 1986, as amended (the "Code"). Each Certificateholder will be treated as the owner of a pro rata undivided interest in each of the Mortgage Notes or any other property held in the Pass Through Trust in which the Certificate held by such holder evidences an interest. In reaching the conclusion that each of the Pass Through Trusts will be classified as a grantor trust, counsel considered whether the Pass Through Trusts could be recharacterized as "taxable mortgage pools" which are treated as corporations 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 with terms similar to debt obligations) with two or more maturities. Because each Pass Through Trust will issue only one class of beneficial interest having only one maturity date, the Pass Through Trusts could be treated as "taxable mortgage pools" only if the two Pass Through Trusts were integrated (i.e., treated as one trust). While there is no authority directly on point, in rendering its opinion that the Pass Through Trusts will be treated as grantor trusts, counsel concluded that the Pass Through Trusts should be respected as separate entities, in part, because (i) each Pass Through Trust will own separate assets, (ii) each Pass Through Trust will have separate independent Trustees, (iii) each Pass Through Trust will have separate sets of Certificateholders and (iv) each Pass Through Trust will have independent economic substance. Proposed Treasury Regulations under section 7701(i) of the Code provide that for purposes of applying the taxable mortgage pool rules, ownership interests in entities that 49 51 are classified as "investment trusts" under the rules of Treasury Regulations section 301.7701-4(c) will not be treated as debt obligations of such trusts. Since each Pass Through Trust is expected to be classified as an "investment trust" under such Treasury Regulations, the Proposed Treasury Regulations would confirm that the taxable mortgage pool rules should not apply to the Pass Through Trusts. Each Certificateholder, 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 the Mortgage Notes or any other property held in the related Pass Through Trust and may, subject to applicable Code limitations on deductions, deduct its pro rata share of the deductible expenses of the related Pass Through Trust, at the same time and to the same extent as if it held directly a pro rata interest in the assets of the Pass Through Trust and received and paid directly the amounts received and paid by the Pass Through Trust. A Certificateholder who is an individual, trust or estate will be allowed a deduction for certain itemized deductions only to the extent they exceed, in the aggregate, 2% of the Certificateholder's adjusted gross income and such amounts will not be deductible in computing such taxpayer's alternative minimum tax liability if any. A purchaser of a Certificate will be treated as purchasing an interest in each Mortgage Note and any other property in the related Pass Through Trust at a price determined by allocating the purchase price paid for the Certificate among such Mortgage Notes and other property in proportion to their fair market values at the time of purchase of the Certificate. SALES OF CERTIFICATES A Certificateholder that sells a Certificate will recognize gain or loss (in the aggregate) equal to the difference between its adjusted tax basis in the Certificate and the amount realized on the sale (except to the extent attributable to accrued interest, which should be taxable as interest income). Subject to the market discount provisions of the Code (described below), any such gain or loss will be capital gain or loss if the Certificate was held as a capital asset and will be long-term capital gain or loss if the Certificate was held for more than one year. MARKET DISCOUNT A purchaser of a Certificate subsequent to its original issue will be considered to have acquired an interest in a Mortgage Note at a "market discount" to the extent the remaining principal amount of the Mortgage Note allocable to the Certificate exceeds the Certificateholder'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 Certificateholder 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. In the case of a sale or certain other disposition of indebtedness subject to the market discount rules, section 1276 of the Code requires that gain, if any, from such sale or disposition be treated as ordinary income to the extent such gain does not exceed the market discount that has accrued on such indebtedness during the period in which it was held. In the case of a partial principal payment on indebtedness subject to the market discount rules, section 1276 of the Code requires that such payment be included in gross income as ordinary income to the extent such payment does not exceed the market discount that has accrued on such indebtedness during the period in which it was held. The amount of any accrued discount later required to be included in income upon a disposition, or a subsequent partial principal payment, will be reduced by the amount of such partial principal payment previously included in income. Generally, market discount accrues under a straight line method, or, at the election of the taxpayer, a constant interest method. However, in the case of installment obligations (such as the Mortgage Notes), the manner in which market discount is to be accrued has been left to Treasury 50 52 Regulations not yet issued. Until such Treasury Regulations are issued, the Conference Report indicates that 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) as follows: the amount of market discount that is deemed to accrue is the amount of market discount that bears the same ratio to the total amount of market discount remaining that the amount of stated interest paid in the accrual period bears to the total amount of stated interest remaining to be paid on the installment obligation as of the beginning of such period. Under section 1277 of the Code, if in any taxable year interest paid or accrued on indebtedness incurred or continued to purchase or carry market discount indebtedness exceeds the interest currently includible in income with respect to such market discount indebtedness, deduction of such excess interest must be deferred to the extent of the market discount allocable to the portion of the taxable year in which such market discount indebtedness was held by the taxpayer. The deferred portion of such interest will generally be deductible when such market discount is included in income upon the sale or other disposition (including repayment) of the indebtedness. Section 1278 of the Code allows a taxpayer to make an election to include market discount in gross income currently. If such election is made, the rules of sections 1276 and 1277 (described above) will not apply to the taxpayer. Such an election shall apply to all debt instruments with market discount acquired by the taxpayer on or after the first day of the first taxable year to which the election applies. The election shall apply to all subsequent taxable years and may not be revoked without the consent of the Secretary of Treasury. PREMIUM A Certificateholder will generally be considered to have acquired an interest in a Mortgage Note at a premium to the extent the purchaser's tax basis allocable to such interest exceeds the remaining principal amount of the Mortgage Note allocable to such interest. In that event, a Certificateholder that holds a Certificate as a capital asset may elect to amortize that premium as an offset to interest income under section 171 of the Code with corresponding reductions in the Certificateholder's tax basis in that Mortgage Note. Generally, such amortization is on a constant yield basis. However, in the case of installment obligations (such as the Mortgage Notes), the Conference Report indicates a Congressional intent that amortization be in accordance with the rules that apply to the accrual of market discount on installment obligations. See "Market Discount". Such an election shall apply to all debt instruments with amortizable bond premium (other than debt instruments the interest on which is excludible from gross income) held by the Certificateholder as of the beginning of the taxable year for which the election applies or thereafter acquired. The election will apply to all subsequent taxable years, and may not be revoked without the consent of the Secretary of the Treasury. Since the Mortgage Notes may be redeemed at a premium prior to maturity, amortizable bond premium may be determined by reference to an early redemption date if this results in a smaller premium attributable to the period before the redemption date. Due to the complexities of the amortizable premium rules, particularly where there is more than one possible redemption date and the amount of any premium is uncertain, Certificateholders are urged to consult their own tax advisors as to the amount of any such amortizable premium. ORIGINAL ISSUE DISCOUNT Generally, a holder of a debt instrument issued with original issue discount that is not de minimis must include original issue discount in income for federal income tax purposes as it accrues, in advance of the receipt of the cash attributable to such income, using a method that takes into account the compounding of interest. It is anticipated that the Mortgage Notes will not be issued with original issue discount. 51 53 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 Certificateholder complies with certain reporting procedures or is an exempt recipient under Section 6049(b)(4) of the Code. Any such withheld amount will be allowed as a credit against the Certificateholder's federal income tax. CERTAIN TAXES The Trustee for Pass Through Trust 1995-K-1 is a national banking association with its corporate trust office in Jacksonville, Florida. Squire, Sanders & Dempsey, as Florida counsel to Pass Through Trustee 1995 K-1 ("Florida Counsel"), has advised Kmart and the Underwriters that, in their opinion, subject to certain qualifications and assumptions discussed below, under currently applicable law, assuming that the Pass Through Trust 1995-K-1 will not be taxable as a corporation, but, rather, will be treated as an investment trust which is classified as a grantor trust under subpart E, Part I of Subchapter J of the Code, (a) there are no fees, taxes or other charges payable (except taxes imposed on fees payable to Pass Through Trustee 1995-K-1 and occupational license taxes imposed on Pass Through Trustee 1995-K-1 for conducting its trust business in the City of Jacksonville) to the State of Florida or the consolidated City of Jacksonville/Duval County in connection with the execution, delivery and performance of Pass Through Agreement 1995-K-1 or the purchase, holding or sale of the Certificates issued pursuant to the Pass Through Agreement 1995-K-1 (the "Pass Through Certificates 1995-K-1") which would not have been imposed if Pass Through Trustee 1995-K-1 had not had its principal place of business in or performed its duties under Pass Through Agreement 1995-K-1 in the City of Jacksonville, Florida, and (b) none of the Pass Through Trustee 1995-K-1, the Pass Through Trust 1995-K-1 or holders of the Pass Through Certificates 1995-K-1 will be subject to any fee, tax or other charge under the laws of the State of Florida or the consolidated City of Jacksonville/Duval County on, based on or measured by, directly or indirectly, any payments on the Pass Through Certificates 1995-K-1 or the gross receipts, net or gross income, tangible or intangible property, net worth or capital of Pass Through Trust 1995-K-1 which would not have been imposed if Pass Through Trustee 1995-K-1 had not had its principal place of business in or performed its duties under Pass Through Agreement 1995-K-1 in the City of Jacksonville, Florida. The Trustee for Pass Through Trust 1995-K-2 is a California corporation with its corporate trust office in Los Angeles, California. Jones, Day, Reavis & Pogue, as California counsel to Pass Through Trustee 1995 K-2 ("California Counsel"), has advised Kmart and the Underwriters that, in their opinion, subject to certain qualifications and assumptions discussed below, under currently applicable law, assuming that the Pass Through Trust 1995-K-2 will not be taxable as a corporation, but, rather, will be treated as an investment trust which is classified as a grantor trust under subpart E, Part I of Subchapter J of the Code (a) there are no fees, taxes or other charges payable (except taxes imposed on fees payable to Pass Through Trustee 1995-K-2 and utility user taxes imposed on Pass Through Trustee 1995-K-2 for conducting its trust business in the City of Los Angeles) to the State of California, the City of Los Angeles or the County of Los Angeles in connection with the execution, delivery and performance of Pass Through Agreement 1995-K-2 or the purchase, holding or sale of the Certificates issued pursuant to Pass Through Trust Agreement 1995-K-2 (the "Pass Through Certificates 1995-K-2") which would not have been imposed if Pass Through Trustee 1995-K-2 had not had its principal place of business in or performed its duties under Pass Through Agreement 1995-K-2 in the City of Los Angeles, California, and (b) none of the Pass Through Trustee 1995-K-2, the Pass Through Trust 1995-K-2 or the holders of the Pass Through Certificates 1995-K-2 will be subject to any fee, tax or other charge under the laws of the State of California, the City of Los Angeles or the County of Los Angeles on, based on or measured by, directly or indirectly, any payments on the Pass Through Certificates 1995-K-2 or the gross receipts net or gross income, tangible or intangible property, net worth or capital of Pass Through 52 54 Trust 1995-K-2 which would not have been imposed if Pass Through Trustee 1995-K-2 had not had its principal place of business in or performed its duties under Pass Through Agreement 1995-K-2 in the City of Los Angeles, California. The foregoing opinions are subject to the following assumptions and qualifications: Florida Counsel's opinion is limited to the present laws of the State of Florida and the consolidated City of Jacksonville/Duval County and California Counsel's opinion is limited to the present laws of the State of California, the City of Los Angeles and the County of Los Angeles, and, as to each opinion, judicial and administrative interpretations thereunder. Such authorities are subject to change, which may be prospective or retroactive, and no assurance may be given as to the effect of any such change on the conclusions reached in either of such opinions. Further, no opinion is expressed with respect to the laws of any other jurisdiction or the effect thereof or as to whether any particular Certificateholder may be subject to any fee, tax or other charge under any such state or local laws because of such holder's individual circumstances. Such opinions are based on the assumptions that the descriptions of the facts relating to the Pass Through Certificates 1995-K-1 (in the case of Florida Counsel's opinion) and the Pass Through Certificates 1995-K-2 (in the case of California Counsel's opinion) set forth in the Registration Statement are accurate and complete, that the Pass Through Agreement 1995-K-1 (in the case of Florida Counsel's opinion) and the Pass Through Agreement 1995-K-2 (in the case of California Counsel's opinion) will be duly executed and delivered by each of the parties thereto in the form of such agreement reviewed by such Counsel and that the Pass Through Trust 1995-K-1 (in the case of Florida Counsel's opinion) and the Pass Through Trust 1995-K-2 (in the case of California Counsel's opinion) will be operated in a manner consistent with the Pass Through Agreement 1995-K-1 (in the case of Florida Counsel's opinion) and the Pass Through Agreement 1995-K-2 (in the case of California Counsel's opinion) and related documents reviewed by such Counsel. A change in such facts, terms of the Pass Through Agreement 1995-K-1 or the Pass Through Agreement 1995-K-2, or method of operation could adversely affect such opinions. Florida Counsel and California Counsel did not take part in the preparation of this Prospectus or the Registration Statement, and their respective opinions discussed herein express no opinion on the accuracy, completeness or sufficiency of the Prospectus and the Registration Statement or other offering material relating to the Certificates. Neither the Pass Through Trusts nor the Certificateholders will be indemnified for any state or local taxes imposed on them, and the imposition of any such taxes on a Pass Through Trust could result in a reduction in the amounts available for distribution by the holders of Certificates evidencing interests in such Pass Through Trust. In general, should a Certificateholder or a Pass Through Trust be subject to any state or local tax which would not be imposed if the Trustee were located in a different jurisdiction in the United States, the Trustee will resign and a new Trustee in such other jurisdiction will be appointed. PROSPECTIVE 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 CERTIFICATES. ERISA CONSIDERATIONS The Employee Retirement Income Security Act of 1974, as amended ("ERISA"), imposes certain restrictions on covered employee benefit plans, including corporate pension and profit sharing plans ("Plans"), and on persons who are parties in interest or disqualified persons ("Parties in Interest") with respect to such Plans. ERISA also imposes certain duties on persons who are fiduciaries of Plans and prohibits non-exempt transactions between a Plan and its Parties in Interest. Governmental plans and certain church plans are not subject to ERISA. Certain plans not subject to ERISA, such as individual retirement accounts, certain Keogh plans, and governmental or church plans qualified under Section 401(a) of the Code, are subject to separate prohibitions in the Code against non-exempt transactions with Parties in Interest. 53 55 Investments by Plans are subject to ERISA's general fiduciary requirements, including the requirement of investment prudence and diversification and the requirement that a Plan's investments be made in accordance with the documents governing the Plan. Moreover, each Plan fiduciary should determine whether, under the general fiduciary standards of investment prudence and diversification, an investment in the Certificates is appropriate for the Plan, taking into account the overall investment policy of the Plan and the composition of the Plan's investment portfolio. Plan fiduciaries must also determine whether the acquisition and holding of the Certificates and the operations of the Pass Through Trusts and the Owner Trust (collectively, the "Trust Funds") would result in direct or indirect prohibited transactions. The operations of the Trust Funds could result in prohibited transactions if Plans that purchase the Certificates are deemed to own an interest in the underlying assets of one or more of the Trust Funds. There may also be an improper delegation of the responsibility to manage Plan assets if Plans that purchase the Certificates are deemed to own an interest in the underlying assets of the Trust Funds. The Department of Labor (the "DOL") has granted to Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated (collectively, the "Underwriter") administrative exemptions ((Prohibited Transaction Exemption 89-88 (Goldman, Sachs); Prohibited Transaction Exemption 90-24 (Morgan Stanley)) (the "Exemption"), from certain of the prohibited transaction rules of ERISA with respect to the initial purchase, the holding and the subsequent resale by Plans of certificates representing interests in asset-backed pass-through trusts that consist of certain receivables, loans and other obligations that meet the conditions and requirements of the Exemption. The obligations covered by the Exemption appear to include obligations such as the Mortgage Notes. The Exemption may apply to the acquisition, holding and resale of the Certificates by a Plan, depending upon whether certain conditions (some of which are outside the control of the Underwriter, the Owner Trusts, the Trustees and Kmart) are met. Among the conditions which must be satisfied for the Exemption to apply are the following: (1) the acquisition of the Certificates by a Plan is on terms (including the price for the Certificates) that are at least as favorable to the Plan as they would be in an arm's-length transaction with an unrelated party; (2) the rights and interests evidenced by the Certificates acquired by the Plan are not subordinated to the rights and interests evidenced by other certificates of the Pass Through Trust; (3) the Certificates acquired by the Plan have received a rating at the time of such acquisition that is in one of the three highest generic rating categories from S&P, Moody's, D&P or Fitch Investors Service, Inc. ("Fitch"); (4) the sum of all payments made to the Underwriter in connection with the distribution of the Certificates represents not more than reasonable compensation for underwriting the Certificates. The sum of all payments made to and retained by the Owner Trustee pursuant to the sale of the Mortgage Notes to the Pass Through Trusts represents not more than the fair market value of such Mortgage Notes. The sum of all payments made to and retained by a Servicer (as defined below) represents not more than reasonable compensation for the Servicer's services under the Trust Funds and reimbursement of the Servicer's reasonable expenses in connection therewith; (5) the Trustees must not be an affiliate of any member of the Restricted Group (as defined below); and (6) the Plan investing in the Certificates is an "accredited investor" as defined in Rule 501(a)(1) of Regulation D under the Securities Act of 1933. As of the date of this Prospectus, only one of the rating agencies referred to in subparagraph (3) above, D&P, rates the senior debt securities of Kmart in one of its three highest generic rating 54 56 categories. D&P has informed Kmart that it has placed Kmart's debt securities, currently rated by D&P as A-, which is in its third highest generic rating category, on its "credit watch" list. Although it is a condition to issuance of the Certificates that they be rated A- by D&P, there can be no assurance that D&P will not lower its rating in the future. See "Rating." Plan fiduciaries may not have available to them and may not be able to obtain all the information necessary to satisfy themselves that the conditions of the Exemption are satisfied. Moreover, neither the Underwriter, the Trustees, the Owner Trusts, nor Kmart have any duty to provide Plan fiduciaries with any such information. The Pass Through Trusts also must meet the following requirements: (i) the corpus of the Pass Through Trusts must consist solely of assets of the type which have been included in other investment pools; (ii) certificates in such other investment pools must have been rated in one of the three highest rating categories of S&P, Moody's, D&P or Fitch for at least one year prior to the Plan's acquisition of Certificates; and (iii) certificates evidencing interests in such other investment pools must have been purchased by investors other than Plans for at least one year prior to any Plan's acquisition of Certificates. Moreover, the Exemption provides relief from certain self-dealing prohibited transactions if a Plan fiduciary causes a Plan to acquire Certificates in a Pass Through Trust in which the fiduciary or its affiliate is an obligor on no more than 5% of the fair market value of the receivables held in the trust, provided that, among other requirements: (i) in the case of an acquisition in connection with the initial issuance of Certificates, at least 50% of each class of Certificates in which Plans have invested is acquired by persons independent of the Restricted Group; (ii) the Plan's investment in Certificates does not exceed 25% of all the Certificates outstanding at the time of the acquisition; and (iii) immediately after the acquisition, no more than 25% of the assets of the Plan managed or advised by the fiduciary are invested in certificates representing an interest in one or more trusts containing assets sold or serviced by the same entity. The Exemption does not apply to Plans sponsored by Kmart, the Underwriter, the Owner Trustee, the Trustees, the Servicers, or any affiliate of such parties (the "Restricted Group"). The Exemption also covers generally transactions in connection with the servicing, management and operation of the Pass Through Trusts if such transactions are entered into pursuant to a binding pooling or servicing agreement provided or described in all material respects to the Plans prior to their purchase of Certificates. The DOL has issued a final regulation (29 C.F.R. Section 2510.3-101) (the "Plan Assets Regulation") providing that, as a general rule, the underlying assets and properties of corporations, partnerships, trusts and certain other entities (other than operating companies) in which a Plan makes an equity investment will be deemed for purposes of ERISA and Section 4975 of the Code to be assets of the investing Plan, unless certain exceptions apply. Accordingly, if a Plan purchases the Certificates, the related Pass Through Trusts and possibly the Owner Trust will be deemed to hold plan assets unless one of the exceptions under the Plan Assets Regulation is applicable to the Trust Funds. Because it is not believed that the Certificates will be held by at least 100 holders independent of Kmart and each other, the only exception that may be available is an exception applicable if less than 25% of equity interests (determined after each sale or transfer of a Certificate) of the Certificates in a Pass Through Trust is held at all times by "benefit plan investors," which include Plans, IRAs and Keogh plans, governmental plans and certain other plans not subject to ERISA. However, there can be no assurance that this exception set forth in the Plan Assets Regulation will apply to the Trust Funds, since the level of benefit plan investment will not be monitored. 55 57 Under the terms of the Plan Assets Regulation, if the Trust Funds were deemed to hold Plan assets by reason of a Plan's investment in a Certificate, such Plan assets would include an undivided interest in the Mortgage Notes in the Pass Through Trusts and possibly the assets in the Owner Trust. In such an event, the Trustees and servicers providing services with respect to the assets of the Trust Funds ("Servicers") may be subject to the fiduciary responsibility provisions of Title I of ERISA. Violation of fiduciary duties by a Trustee or Servicer could result in liability not only for the Trustee or Servicer but also for the trustee or other fiduciary of an investing Plan, who under the circumstances could be held liable for breaches of fiduciary standards by its co-fiduciaries. In addition, if the Trust Funds were deemed to hold Plan assets, the Trustees and Servicers may be subject to the prohibited transaction provisions of ERISA and Section 4975 of the Code with respect to transactions involving such assets unless those transactions are subject to a statutory or administrative exemption. Among the administrative class exemptions that may be available in addition to the Exemption discussed above are: Prohibited Transaction Class Exemption ("PTE") 75-1, which exempts certain securities transactions involving employee benefit plans and certain broker-dealers and banks; PTE 91-38 (formerly PTE 80-51), which exempts certain transactions between bank collective investment funds and parties in interest; PTE 90-1 (formerly PTE 78-19), which exempts certain transactions with insurance company pooled separate accounts; or PTE 84-14, which exempts certain transactions effected on behalf of a Plan by a "qualified professional asset manager". Any Plan fiduciary which proposes to cause a Plan to purchase Certificates should consult with its counsel with respect to the potential applicability of ERISA, the Exemption and the Code (including the Plan Assets Regulation) to such investments, whether any prohibited transaction exemptions would be applicable, and whether all conditions of any potentially applicable prohibited transaction exemption have been satisfied. Additionally, the Plan fiduciary should consult its counsel with respect to any valuation issues which may be presented by an investment in Certificates. LEGAL INVESTMENT CONSIDERATIONS The Certificates will not constitute "mortgage related securities" under the Secondary Mortgage Market Enhancement Act of 1984. The appropriate characterization of the Certificates under various legal investment restrictions, and thus the ability of investors subject to these restrictions to purchase Certificates, may be subject to significant interpretive uncertainties. All investors whose investment authority is subject to legal restrictions should consult their own legal advisors to determine whether, and to what extent, the Certificates will constitute legal investments for them. UNDERWRITING Subject to the terms and conditions set forth in the Underwriting Agreement, Kmart has agreed to cause the Trustees to sell to Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated (together, the "Underwriters"), and each of the Underwriters has severally agreed to purchase, the principal amount of Certificates set forth opposite its name below.
PRINCIPAL AMOUNT UNDERWRITER OF CERTIFICATES -------------------------------------------------------------- ---------------- Goldman, Sachs & Co. ......................................... $ Morgan Stanley & Co. Incorporated............................. ---------------- Total.................................................... $155,000,000 =============
Under the terms and conditions of the Underwriting Agreement, the Underwriters are committed to take and pay for all of the Certificates, if any are taken. 56 58 The Underwriters propose to offer the Certificates in part directly to retail purchasers at the public offering price for such Certificates set forth on the cover page of this Prospectus and in part to certain securities dealers at such price less the concession of % of the principal amount of the Certificates relating to the Pass Through Trust 1995-K-1 and % of the principal amount of the Certificates relating to the Pass Through Trust 1995-K-2. The Underwriters may allow, and such dealers may reallow, a concession not to exceed % of the principal amount of the Certificates relating to the Pass Through Trust 1995-K-1 and % of the principal amount of the Certificates relating to the Pass Through Trust 1995-K-2. After the Certificates are released for sale to the public, the offering price and other selling terms may from time to time be varied by the Underwriters. The Certificates are a new issue of securities with no established trading market. Kmart has been advised by the Underwriters that they intend to make a market in the Certificates but are not obligated to do so and may discontinue market making at any time without notice. No assurance can be given as to the liquidity of the trading market for the Certificates. Kmart has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933. The Underwriters perform investment banking services for Kmart in the ordinary course of their respective businesses. Goldman, Sachs & Co. have performed certain services to Kmart in connection with the sale of the Properties to the Owner Trusts. RATING It is a condition to the issuance of the Certificates that they be rated BBB by the Standard & Poor's Ratings Group, Baa1 by Moody's and A- by Duff & Phelps Credit Rating Co. The ratings will not address the receipt of the Make-Whole Premium, if any, payable upon the occurrence of an Event of Default. A security rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating agency, and should be evaluated independently of any other rating. Kmart will be the Tenant under all of the Leases and, as such, may become the ultimate source of payment on the Mortgage Notes and, therefore, the ultimate source of payment on the Certificates. Because of this dependence upon Kmart for the ultimate payment of the Certificates, the ratings on the Certificates are directly related to the credit of Kmart. It should, therefore, be expected that a reduction or withdrawal of the debt ratings of Kmart would adversely affect the ratings on the Certificates. VALIDITY OF THE CERTIFICATES The validity of the Certificates will be passed upon for Kmart by Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, Michigan, and for the Underwriters by Sullivan & Cromwell, New York, New York. EXPERTS The consolidated financial statements and schedules of Kmart appearing in or incorporated by reference to the Annual Report on Form 10-K of Kmart for the year ended January 26, 1994, have been so incorporated in reliance on the report of Price Waterhouse LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 57 59 GLOSSARY OF CERTAIN TERMS The following is a glossary of certain terms used in this Prospectus. The definitions of terms used in this glossary that are also used in the Agreements, Indentures, Leases, Owner Trust Agreements and Participation Agreement are qualified in their entirety by reference to the definitions of such terms contained therein. "Agreement" means each of the two separate Pass Through Trust Agreements between Kmart and the related Trustee, pursuant to which the Pass Through Trusts will be formed. "Additional Rent" shall have the meaning described under "Description of the Leases -- Events of Default". "Bankruptcy Code" means the United States Bankruptcy Code of 1978, as amended. "Business Day" means any day other than Saturday or Sunday or other day on which banking institutions in the States of New York or Michigan, the States in which the principal offices of the Trustees, Corporate Owner Trustee or Corporate Indenture Trustees are located, are authorized or required by law to close. "Cede" means Cede & Co., as nominee of DTC. "Certificate" means any of the Pass Through Certificates to be issued under either of the Agreements. "Certificate Account" means one or more non-interest bearing accounts established and maintained by the Trustees for the Pass Through Trusts and for the benefit of Certificateholders for the deposit of payments representing Scheduled Payments on the Mortgage Notes. "Certificate Owner" means, for any Pass Through Trust, any person acquiring a beneficial interest in any Certificate issued by such Pass Through Trust. "Certificateholder" means the registered holder of any Certificate issued by a Pass Through Trust. "Code" means the United States Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission. "Company" means Kmart Corporation. "Corporate Co-Trustee" means Chemical Trust Company of California, a California corporation, in its capacity as co-trustee under certain of the Owner Trust Agreements. "Corporate Indenture Trustee" means The Bank of New York, a New York corporation, in its capacity as indenture trustee under each Indenture, and any successor thereunder. "Corporate Owner Trustee" means Wilmington Trust Company, a Delaware banking corporation, in its capacity as owner trustee under the Owner Trust Agreements, and any successor thereunder. "Definitive Certificates" means Certificates issued in fully registered, certificated form to Certificate Owners or their nominees, rather than to DTC or its nominee. "DTC" means The Depository Trust Company. "DTC Participants" means those participants for whom DTC holds securities on deposit. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Event of Default" means, with respect to each Pass Through Trust, the occurrence and continuance of an Indenture Default under one or more of the Indentures pursuant to which the Mortgage Notes constituting Trust Property of such Pass Through Trust will be issued. A-1 60 "Event of Loss" means, for any Property, any Casualty or condemnation as described in "Description of the Leases -- Condemnation and Casualty." "Excepted Payments" means rights of each Owner Trust and Owner Participant relating to indemnification by Kmart of each Owner Trust, the Owner Trustees or Owner Participant for certain matters, insurance proceeds payable to the Owner Trustees in their individual capacities and to the Owner Participant (other than proceeds from casualty insurance maintained by Kmart under such Lease), insurance proceeds payable to the Owner Trust or to the Owner Participant under certain insurance maintained by or for the benefit of the Owner Trustees or the Owner Participant and not required to be maintained by Kmart under the Lease and certain reimbursement payments made by Kmart to the Owner Trust. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Indenture" means each of the separate Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreements among the Indenture Trustees and the related Owner Trust, in each case pursuant to which such Owner Trust will issue the Mortgage Notes, as such Indenture may be modified, supplemented or amended from time to time. "Indenture Default" means, for any Indenture, each of the events designated as an event of default in such Indenture. See "Description of the Mortgage Notes - -- Indenture Defaults, Notice and Waiver." "Indenture Trustees" means the Corporate Indenture Trustee, in its capacity as an Indenture Trustee under each Indenture, and its successors and assigns thereunder, and Todd N. Niemy, in his capacity as an Indenture Trustee under each Indenture, and his successors and assigns thereunder. "Indirect Participants" means those persons that clear through or maintain a custodial relationship with a DTC Participant either directly or indirectly. "Individual Owner Trustee" means William J. Wade, an individual residing in New Castle County, Delaware, in his capacity as co-trustee under certain of the Owner Trust Agreements. "Initial Scheduled Principal Distribution Date" means the date when the first scheduled payment of principal on the Mortgage Notes held in each Pass Through Trust are to be received by the Trustees, such date to be specified on the front cover page of this Prospectus for such Pass Through Trust. "Land" means each of the separate parcels of land upon which a Store subject to the lien of an Indenture is located. "Lease" means each of the Leases between Kmart and the related Owner Trust, in each case pursuant to which Kmart will lease a Store and the related Land, as such Lease may from time to time be modified, supplemented or amended. "Lease Event of Default" means, for any Lease, each of the events designated as an event of default in such Lease. For a description of the events constituting Lease Events of Default, see "Description of the Leases -- Events of Default". "Make-Whole Premium" shall have the meaning as described under the caption "Description of the Mortgage Notes -- Make-Whole Premium". "Material Default" shall have the meaning as described under "Description of the Leases -- Events of Default." "Monetary Default" means a Lease Event of Default caused by (a) the failure by Kmart to pay any installment of Basic Rent when due within five days after notice to Kmart of non-payment; (b) the failure by Kmart to make any payment constituting Additional Rent when due within 15 days A-2 61 after notice to Kmart of non-payment; and (c) certain events of bankruptcy, insolvency, reorganization pursuant to bankruptcy or similar laws, receivership, dissolution or liquidation of Kmart. "Mortgage Notes" means any of the Mortgage Notes (including any Mortgage Notes issued in exchange, replacement or substitution therefor), issued pursuant to any Indenture. "Owner Participant" means one or more institutional investors for whose benefit the related Owner Trust owns an undivided interest in the Properties leased to Kmart pursuant to a Lease, and its permitted successors and assigns. "Owner Participant Parent" means the parent corporation of one of the Owner Participants and such parent corporation's successors and assigns. "Owner Trust" means each Owner Trust created pursuant to separate Owner Trust Agreements. "Owner Trust Agreement" means each of the Owner Trust Agreements, between the related Owner Participant and the Owner Trustees, pursuant to which the Owner Trusts will be created, as supplemented and amended. "Participation Agreement" means the Participation Agreement, among Kmart, the Owner Trust, the Owner Trustee, each Owner Participant, the Owner Participant Parent, the Remainderman and the Indenture Trustees. "Pass Through Trust" means Pass Through Trust 1995-K-1 or Pass Through Trust 1995-K-2, each to be formed pursuant to the respective Agreement. "Pool Balance" means, for any Pass Through Trust, as of any date of determination, the aggregate unpaid principal amount of the Mortgage Notes that constitute Trust Property of such Pass Through Trust on such date plus the amount of the principal payments on such Mortgage Notes held by the Trustee and not yet distributed (other than earnings thereon and without giving effect to any losses on investments thereof). The Pool Balance as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on such Mortgage Notes and the distribution thereof being made on that date. "Pool Factor" means, for any Pass Through Trust, as of any date of determination, the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the aggregate original principal amount of the Mortgage Notes held in such Pass Through Trust. "Property" means the related Owner Trust's estate for years interest in each parcel of Land, together with such Owner Trust's fee simple title to the Store located thereon. "Purchase Agreement" means the Agreement for Sale of Real Estate among Kmart, the Owner Trusts and the Remainderman with respect to the sale of the Properties and the remainder interest. "Regular Distribution Date" means, for each Pass Through Trust, January 5 and July 5 of each year, commencing July 5, 1995. "Remainderman" means a trust that is unaffiliated with Kmart that will purchase the remainder interest in the Land following expiration of the Estate-for-Years Interest. "Rules" means the rules, regulations and procedures creating and affecting DTC and its operations. "Scheduled Payments" means each payment of principal of and/or interest on a Mortgage Note held in a Pass Through Trust scheduled to be received by the Trustee on a Regular Distribution Date. "Special Distribution Date" means the date on which a Special Payment will be distributed, which date will be the fifth day of a month. A-3 62 "Special Payment" means, for any Pass Through Trust, any payments of principal, premium, if any, and interest received by the Trustee on account of redemption, if any, of the Mortgage Notes and payments received by the Trustee following a default in respect of the Mortgage Notes (including payments received by the Trustee on the account of the purchase by an Owner Trust of such Mortgage Notes or payments received on account of the sale of such Mortgage Notes by the Trustee). "Special Payments Account" means one or more non-interest bearing accounts established and maintained pursuant to each Pass Through Trust for the benefit of Certificateholders, for the deposit of payments representing Special Payments and certain other amounts. "Store" means the buildings, structures, alterations, modifications and other additions to and changes in such buildings and site improvements located on the Land. "Trust Estate" shall have the meaning described under "Structure of the Transaction". "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. "Trust Property" means, for any Pass Through Trust, all money, instruments, including the related Mortgage Notes, and other property held as the property of the Pass Through Trust, including all distributions thereon and proceeds thereof. "Trustee" means each of The Bank of New York Trust Company of Florida, National Association, in its capacity as trustee under Pass Through Trust 1995-K-1, and its successors and assigns thereunder, and The Bank of New York Trust Company of California, in its capacity as trustee under Pass Through Trust 1995-K-2, and its successors and assigns thereunder. A-4 63 - --------------------------------------------------------- - --------------------------------------------------------- NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR THE SOLICITATION OF AN OFFER IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. ------------------ TABLE OF CONTENTS
PAGE ---- Available Information................... 3 Reports to Certificateholders by the Trustee............................... 3 Incorporation of Certain Documents by Reference............................. 3 Prospectus Summary...................... 5 The Company............................. 11 Use of Proceeds......................... 12 Selected Financial Information.......... 13 Structure of the Transaction............ 15 The Properties.......................... 16 Diagram of Payments..................... 17 Description of the Certificates......... 18 Description of the Mortgage Notes....... 29 Description of the Leases............... 41 Certain Federal Income Tax Consequences.......................... 49 Certain Taxes........................... 52 ERISA Considerations.................... 53 Legal Investment Considerations......... 56 Underwriting............................ 56 Rating.................................. 57 Validity of the Certificates............ 57 Experts................................. 57 Glossary of Certain Terms............... A-1
- --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- - --------------------------------------------------------- $155,000,000 KMART CORPORATION PASS THROUGH TRUSTS PASS THROUGH CERTIFICATES 1995-K-1 PASS THROUGH CERTIFICATES 1995-K-2 ------------------ PROSPECTUS ------------------ GOLDMAN, SACHS & CO. MORGAN STANLEY & CO. INCORPORATED - --------------------------------------------------------- - --------------------------------------------------------- 64 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCES AND DISTRIBUTION. The following expenses are expected to be incurred in connection with this Registration Statement: Securities and Exchange Commission Registration Fee........... $ 62,068.97 Printing Fee.................................................. 80,000.00* Blue Sky Fees and Expenses.................................... 16,500.00* Accounting Fees............................................... 30,000.00* Rating Agency Fees............................................ 235,000.00 Legal Fees.................................................... 2,000,000.00 Trustees' Fees and Expenses................................... 55,000.00* Miscellaneous................................................. 70,931.03 ------------- Total.................................................... $2,500,000.00 =============
- ------------------------- * All of the above items except the registration fee are estimated. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. 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 (the "Act"). In addition, the Registrant maintains directors' and officers' liability insurance which, under certain circumstances, would cover alleged violations of the Act. Insofar as indemnification for liabilities arising under the Act may be permitted to officers and directors pursuant to the foregoing provisions, the Registrant has been informed 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. Therefore, in the event that a claim for such indemnification is asserted by any officer or director the Registrant (except insofar as such claim seeks reimbursement by the Registrant of expenses paid or incurred by an officer or director in the successful defense of any action, suit or proceeding) will, unless the matter has theretofore been adjudicated by precedent deemed by the Registrant to be controlling, submit to a court of appropriate jurisdiction the question of whether or not indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. S-1 65 ITEM 16. EXHIBITS. 1 Form of Underwriting Agreement.* 4.1 Form of Pass Through Trust Agreement.** 4.2 Form of Indenture, Mortgage & Deed of Trust, Assignment of Rents and Security Agreement.+** 4.3 Form of Pass Through Certificate -- included as part of Exhibit 4.1.** 4.4 Form of Note -- included as part of Exhibit 4.2.* 4.5 Form of Participation Agreement.* 4.6 Form of Lease.+** 5.1 Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman as to the legality of the securities being registered.* 8.1 Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman as to tax matters.* 8.2 Opinion of Squire, Sanders & Dempsey as to tax matters.* 8.3 Opinion of Jones, Day, Reavis & Pogue as to tax matters.* 12 Statement of Computation of Ratio of Earnings to Fixed Charges.* 23.1 Consent of Price Waterhouse LLP.* 23.2 Consent of Dickinson, Wright, Moon, Van Dusen & Freeman -- included in Exhibit 5.1 and Exhibit 8.1.* 23.3 Consent of Squire, Sanders & Dempsey -- included in Exhibit 8.2.* 23.4 Consent of Jones, Day, Reavis & Pogue -- included in Exhibit 8.3.* 24 Power of Attorney (included on page S-4). 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York Trust Company of Florida, National Association.* 25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York Trust Company of California.*
- ------------------------- * Filed with this Amendment No. 1. ** Revised version filed herewith. + Separate Indentures and Leases will be entered into with respect to each Property. ITEM 17. UNDERTAKINGS. A. UNDERTAKING PURSUANT TO RULE 430A 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 that time shall be deemed to be the initial bona fide offering thereof. B. FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE 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 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 S-2 66 registration statement relating to the securities offering therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. C. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the 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 Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the Pass Through Certificates 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 Securities Act of 1933 and will be governed by the final adjudication of such issue. S-3 67 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 that the security rating requirement will be met by the time of sale and has duly caused this Amendment No. 1 to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Troy and State of Michigan on March 31, 1995. KMART CORPORATION By /s/ ANTHONY N. PALIZZI -------------------------------------- ANTHONY N. PALIZZI Interim President POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that Anthony N. Palizzi, whose signature appears below, constitutes and appoints Nancie W. LaDuke his true and lawful attorney-in-fact and agent, 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 attorney-in-fact and agent, 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 attorney-in-fact and agent, or her 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 Amendment No. 1 to the Registration Statement has been signed below by the following persons in the capacities indicated on March 31, 1995.
SIGNATURE TITLE SIGNATURE TITLE --------- ----- --------- -------- /s/ ANTHONY N. PALIZZI Interim President /s/ ENRIQUE C. FALLA* Director - --------------------------------- (Principal Executive Officer) --------------------------------- (ANTHONY N. PALIZZI) (ENRIQUE C. FALLA) /s/ THOMAS F. MURASKY* Executive Vice President /s/ JOSEPH P. FLANNERY* Director - --------------------------------- (Principal Financial and --------------------------------- (THOMAS F. MURASKY) Accounting Officer) (JOSEPH P. FLANNERY) /s/ DONALD S. PERKINS* Chairman of the Board /s/ DAVID B. HARPER* Director - --------------------------------- and Director --------------------------------- (DONALD S. PERKINS) (DAVID B. HARPER) /s/ LILYAN H. AFFINITO* Director /s/ F. JAMES MCDONALD* Director - --------------------------------- --------------------------------- (LILYAN H. AFFINITO) (F. JAMES MCDONALD) /s/ JOSEPH A. CALIFANO, JR.* Director /s/ J. RICHARD MUNRO* Director - --------------------------------- --------------------------------- (JOSEPH A. CALIFANO, JR.) (J. RICHARD MUNRO) /s/ WILLIE D. DAVIS* Director /s/ GLORIA M. SHATTO* Director - --------------------------------- --------------------------------- (WILLIE D. DAVIS) (GLORIA M. SHATTO)
*By: /s/ NANCIE W. LADUKE ---------------------------------- NANCIE W. LADUKE Attorney-in-fact S-4 68 EXHIBIT INDEX
SEQUENTIAL EXHIBITS DESCRIPTION PAGE NUMBER - -------- ----------------------------------------------------------------------- ----------- 1 Form of Underwriting Agreement.* 4.1 Form of Pass Through Trust Agreement.** 4.2 Form of Indenture, Mortgage & Deed of Trust, Assignment of Rents and Security Agreement.+** 4.3 Form of Pass Through Certificate -- included as part of Exhibit 4.1.** 4.4 Form of Note -- included as part of Exhibit 4.2.* 4.5 Form of Participation Agreement.* 4.6 Form of Lease.+** 5.1 Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman as to the legality of the securities being registered.* 8.1 Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman as to tax matters.* 8.2 Opinion of Squire, Sanders & Dempsey as to tax matters.* 8.3 Opinion of Jones, Day, Reavis & Pogue as to tax matters.* 12 Statement of Computation of Ratio of Earnings to Fixed Charges.* 23.1 Consent of Price Waterhouse LLP.* 23.2 Consent of Dickinson, Wright, Moon, Van Dusen & Freeman -- included in Exhibit 5.1 and Exhibit 8.1.* 23.3 Consent of Squire, Sanders & Dempsey -- included in Exhibit 8.2.* 23.4 Consent of Jones, Day, Reavis & Pogue -- included in Exhibit 8.3.* 24 Power of Attorney (included on page S-4). 25.1 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York Trust Company of Florida, National Association.* 25.2 Form T-1 Statement of Eligibility under the Trust Indenture Act of 1939 of The Bank of New York Trust Company of California.*
- ------------------------- * Filed with this Amendment No. 1. ** Revised version filed herewith. + Separate Indentures and Leases will be entered into with respect to each Property. EX-1 2 EXHIBIT 1 1 EXHIBIT 1 Draft of March 31, 1995 Kmart Corporation Pass Through Certificates Underwriting Agreement April __, 1995 Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004. Morgan Stanley & Co. Inc., 1251 Avenue of the Americas, New York, New York 10020. Dear Sirs: Kmart Corporation, a Michigan corporation (the "Company"), proposes to form two pass through trusts (each, a "Pass Through Trust") pursuant to two separate Pass Through Trust Agreements (each, a "Pass Through Agreement", and collectively the "Pass Through Agreements"), between the Company and The Bank of New York Trust Company of California and The Bank of New York Trust Company of Florida, National Association, as pass through trustees, respectively (each, a "Pass Through Trustee", and collectively the "Pass Through Trustees"), and to cause the Pass Through Trusts to issue and, subject to the terms and conditions stated herein, sell to Goldman, Sachs & Co. and Morgan Stanley & Co. Inc. (the "Underwriters") the aggregate principal amount of the Pass Through Certificates (the "Securities") issued by each of the Pass Through Trusts set forth on Schedule I hereto. Each of the Securities will represent interests in one of two separate Pass Through Trusts. Pursuant to each Pass Through Agreement and a separate purchase and sale agreement (each a "Purchase and Sale Agreement"), each Pass Through Trustee will purchase specified Mortgage Notes (the "Underlying Mortgage Notes") each of which shall have been issued as a non-recourse obligation of an Owner Trust for which Wilmington Trust Company and, where required by applicable state law, William J. Wade or Chemical Trust Company of California (collectively, such Owner Trustees are 2 herein referred to as the "Owner Trustee"), each acting not in its individual capacity but solely as Owner Trustee of such Owner Trust (collectively, such Owner Trusts are herein referred to as the "Owner Trust") formed pursuant to separate owner trust agreements and supplements thereto (collectively, the "Owner Trust Agreement") by and among the Owner Trustee and the applicable beneficial owner of the Owner Trust (collectively, such beneficial owners are herein referred to as the "Owner Participant"), to finance 16 separate transactions (the "Sale-Leaseback Transactions"), referred to in a participation agreement among the Company, the Owner Participant, the Owner Participant Parent, the Owner Trustee, the Owner Trust, the Indenture Trustees (as defined below), the Remainderman Participant, the Remainderman Trustee and the Remainder Purchaser (as defined below) (the "Participation Agreement"), involving an estate for years in 16 Kmart retail stores (the "Properties") acquired by the Owner Trustee or the Owner Trust, as the case may be, and leased by the Owner Trustee or the Owner Trust, as the case may be, to the Company. Pursuant to each Sale-Leaseback Transaction, the Company will lease a Property from the Owner Trustee or the Owner Trust, as the case may be, in each case as contemplated by the Agreement For Sale of Real Estate, among the Company, the Remainder Purchaser, the Owner Trust (the "Purchase Agreement"). Each of the Underlying Mortgage Notes will be issued under an Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement between The Bank of New York and Todd N. Niemy, as indenture trustees (the "Indenture Trustees") and the Owner Trust (each, an "Indenture"), substantially in the form filed as an exhibit to the Registration Statement. At the same time as the sale of the estate for years interests, Kmart will sell a remainder interest in the land underlying the Estate for Years Interests commencing on the expiration of the estates for years interests, as evidenced by separate deeds (each, a "Remainderman Deed"), to the remainder purchaser (the "Remainder Purchaser"). In consideration of a cash payment and pursuant to an option agreement (the "Option Agreement"), the Remainder Purchaser will grant the Owner Trust an option (the "Options to Lease") to lease the land underlying its Property from the Remainder Purchaser for additional terms commencing on the expiration of the estate for years interests. Capitalized terms used but not otherwise defined herein shall have the meaning, with respect to the Securities to which such reference relates, specified in or pursuant to each Indenture relating to each of the Underlying Mortgage Notes or each Pass Through Agreement relating to the Securities. The term "Pass Through Documents" means this Agreement, the Purchase Agreement, the Purchase and Sale Agreement, the Tax -2- 3 Indemnification Agreement, between the Company and the Owner Participant (the "Tax Indemnification Agreement"), each Pass Through Agreement, each Indenture, each Lease, each Remainderman Deed, each Option Agreement, each Option to Lease, the Participation Agreement, each Tripartite Agreement, among the Company, the Owner Trust and the Remainder Purchaser. 1. The Company represents and warrants to, and agrees with, each of the Underwriters that: (a) A registration statement on Form S-3 (File No. 33-56465) in respect of the Securities has been filed with the Securities and Exchange Commission (the "Commission"); such registration statement and any post-effective amendment thereto, each in the form heretofore delivered to you, and, excluding exhibits thereto but including all documents incorporated by reference in the prospectus contained therein, to the Underwriters, have been declared effective by the Commission in such form; no other document with respect to such registration statement or document incorporated by reference therein has heretofore been filed with the Commission; and no stop order suspending the effectiveness of such registration statement has been issued and no proceeding for that purpose has been initiated or, to the Company's knowledge, threatened by the Commission (any preliminary prospectus included in such registration statement or filed with the Commission pursuant to Rule 424(a) of the rules and regulations of the Commission under the Securities Act of 1933, as amended (the "Act"), is hereinafter called a "Preliminary Prospectus"); the various parts of such registration statement, including all exhibits thereto but excluding Form T-1 and including (i) the information contained in the form of final prospectus with the Commission pursuant to Rule 424(b) under the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule 430A under the Act to be part of the registration statement at the time it was declared effective and (ii) the documents incorporated by reference in the prospectus contained in the registration statement at the time such part of the registration statement became effective, each as amended at the time such part of the registration statement became effective, are hereinafter collectively called the "Registration Statement"; such final prospectus, in the form first filed pursuant to Rule 424(b) under the Act, is hereinafter called the "Prospectus"; any reference herein to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include the documents -3- 4 incorporated by reference therein pursuant to Item 12 of Form S-3 under the Act, as of the date of such Preliminary Prospectus or Prospectus, as the case may be; any reference to any amendment or supplement to any Preliminary Prospectus or the Prospectus shall be deemed to refer to and include any documents filed after the date of such Preliminary Prospectus or the Prospectus, as the case may be, under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and incorporated by reference in such Preliminary Prospectus or Prospectus, as the case may be; and any reference to any amendment to the Registration Statement shall be deemed to refer to and include any annual report of the Company filed pursuant to Section 13(a) or 15(d) of the Exchange Act after the effective date of the Registration Statement that is incorporated by reference in the Registration Statement; (b) No order preventing or suspending the use of any Preliminary Prospectus has been issued by the Commission, and each Preliminary Prospectus, at the time of filing thereof, conformed in all material respects to the requirements of the Act and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and the rules and regulations of the Commission thereunder, and did not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Underwriters expressly for use therein; (c) The documents incorporated by reference in the Prospectus, when they became effective or were filed with the Commission, as the case may be, conformed in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and any further documents so filed and incorporated by reference in the Prospectus or any further amendment or supplement thereto, when such documents become effective or are filed with the Commission, as the case may be, will -4- 5 conform in all material respects to the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Underwriters expressly for use therein; (d) The Company meets the requirements for the use of Form S-3 under the Act for purposes of the registration under the Act of the Securities; the Company is the "issuer" within the meaning of the Act and appropriate registrant with respect to the Securities; (e) The Registration Statement conforms, and the Prospectus and any further amendments or supplements to the Registration Statement or the Prospectus will conform, in all material respects to the requirements of the Act and the Trust Indenture Act and the rules and regulations of the Commission thereunder; the Registration Statement does not and will not, as of the applicable effective date as to the Registration Statement and any amendment thereto contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and the Prospectus does not and will not, as of the applicable filing date as to the Prospectus and any amendment or supplement thereto, contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that this representation and warranty shall not apply to any statements or omissions made in reliance upon and in conformity with information furnished in writing to the Company by the Underwriters through Goldman, Sachs & Co. expressly for use therein; on the effective date of the Registration Statement and as of the Time of Delivery (as defined below), each Pass Through Agreement relating to the Securities did and will comply in all material respects with the requirements of the Trust Indenture Act and the rules thereunder; (f) Neither the Company nor any of its subsidiaries has sustained since the date of the latest audited financial statements included or incorporated -5- 6 by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, that is material to the Company and its subsidiaries taken as a whole; and, since the respective dates as of which information is given in the Registration Statement and the Prospectus, there has not been any change in the capital stock (other than pursuant to any executive compensation or other employee benefit plan the terms of which have been filed with the Commission and other than in connection with the conversion of the Company's Series C Preferred Stock into shares of the Company's common stock) or any material change in the long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development of which the Company is aware and that the Company has reasonable cause to believe involves a prospective material adverse change, in or affecting the general affairs, management, financial position, shareholders' equity or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus; (g) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Michigan, with power and authority (corporate and other) to own its properties and conduct its business as described in the Prospectus, to execute and deliver the Pass Through Documents to which it is a party and to perform its obligations under each such Pass Through Document, and has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification, or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction; and each significant subsidiary of the Company (as such term is defined in Rule 1-02 of Regulation S-X under the Act) (a "Material Subsidiary") has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation; (h) All of the issued shares of capital stock of each Material Subsidiary have been duly and validly authorized and issued, are fully paid and -6- 7 non-assessable and (except for directors' qualifying shares and 321,938 shares of Borders Group, Inc.'s Series A Preferred Stock owned by Planet Music, Inc. and except as otherwise set forth in the Prospectus) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims; (i) This Agreement has been duly authorized, executed and delivered by the Company; each of the other Pass Through Documents to which it is a party has been duly authorized and, when delivered by the Company, will have been duly executed and delivered by the Company and will constitute a valid and legally binding instrument, enforceable in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, reorganization and other laws of general applicability relating to or affecting creditors' rights and to general equity principles; when the Securities are executed, authenticated, issued and delivered pursuant to any Pass Through Agreement, such Securities will have been duly and validly executed, authenticated, issued and delivered and will be entitled to the benefits provided by the Pass Through Agreement under which they are to be issued, which is substantially in the form filed as an exhibit to the Registration Statement; and each Pass Through Agreement has been duly qualified under the Trust Indenture Act; (j) Each of the Securities and the Pass Through Documents conforms or will upon execution conform in all material respects to the respective descriptions thereof in the Prospectus; (k) The compliance by the Company with all of the provisions of this Agreement and each of the other Pass Through Documents to which it is a party and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject except for such conflicts, breaches, violations, or defaults that individually or in the aggregate do not and would not have a Material Adverse Effect and do not and would not materially and adversely affect the consummation of the transactions -7- 8 contemplated by this Agreement and the Registration Statement, nor will such action result in any violation of the provisions of (i) the Articles of Incorporation or By-laws of the Company or (ii) any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries or any of their properties except in the case of (ii), such violations that individually or in the aggregate do not and would not have a Material Adverse Effect and do not and would not materially and adversely affect the consummation of the transactions contemplated by this Agreement and the Registration Statement; and no consent, approval, authorization, order, registration or qualification of or with any such court or governmental agency or body is required for the issue and sale of the Securities, the valid authorization, execution and delivery by the Company of this Agreement and any of the other Pass Through Documents to which it is a party in accordance with the provisions thereof or the consummation by the Company of the transactions contemplated by this Agreement or such other Pass Through Documents, except the registration under the Act of the Securities, such as have been obtained under the Trust Indenture Act and such consents, approvals, authorizations, registrations or qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters; (l) The Company is not in violation of (i) its Articles of Incorporation or By-laws or (ii) in default in the performance or observance of any material obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound except in the case of (ii), such defaults that individually or in the aggregate do not and would not have a Material Adverse Effect and do not and would not materially and adversely affect the consummation of the transactions contemplated by this Agreement and the Registration Statement; (m) The statements set forth in the Prospectus under the caption "Description of Certificates", insofar as they purport to constitute a summary of the terms of the Securities, and under the captions "Underwriting" insofar as they purport to describe the provisions of this Agreement, "Structure of the Transaction", "Description of the Mortgage Notes", -8- 9 "Description of the Leases", "ERISA Considerations", "Federal Income Tax Consequences" and "Certain Taxes", insofar as they purport to describe the provisions of the laws and documents referred to therein, correctly summarize all such provisions that are material to holders of the Securities; (n) Other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would individually or in the aggregate have a Material Adverse Effect; and, to the best of the Company's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (o) None of the Indentures is required to be qualified under the Trust Indenture Act of 1939, and none of the Pass Through Trusts is required to be registered under the Investment Company Act of 1940; (p) The Company is not and, after giving effect to the offering and sale of the Securities, will not be an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended (the "Investment Company Act"); and (q) Price Waterhouse, who have certified certain financial statements of the Company and its consolidated subsidiaries, are independent public accountants as required by the Act and the rules and regulations of the Commission thereunder. 2. Subject to the terms and conditions herein set forth, each of the Underwriters agrees, severally and not jointly, to purchase from each of the Pass Through Trustees, at the respective purchase prices set forth in Schedule II hereto, the principal amount of the Securities issued by each Pass Through Trust set forth opposite its name in Schedule I hereto. As compensation to the Underwriters for their respective commitments and obligations hereunder in respect of the Securities, including their undertaking to offer the Securities for sale to the public, the Company -9- 10 will pay (or cause to be paid) to the Underwriters the respective percentage of the aggregate principal amount of the Securities issued by each Pass Through Trust set forth in Schedule II hereto. Such payment will be made by Federal funds check or other immediately available funds to the order of Goldman, Sachs & Co., as representatives of the Underwriters, at the time heretofore agreed by the Company and the Underwriters. 3. Upon the authorization by the Pass Through Trustees of the release of the Securities, the several Underwriters propose to offer the Securities for sale upon the terms and conditions set forth in the Prospectus. 4. Securities to be purchased by each of the Underwriters hereunder in definitive form and registered in the name of Cede & Co., as nominee for The Depository Trust Company ("DTC"), shall be delivered by or on behalf of the Company to Goldman, Sachs & Co., against payment by the Underwriters of the respective purchase prices therefor set forth on Schedule II hereto, by wire transfer, certified or official bank check or checks payable to the order of the corresponding Pass Through Trustee in Federal or other similar immediately available funds, all at the office of Sullivan & Cromwell, 125 Broad Street, New York, New York 10004, at 9:30 A.M. New York City time, on April __, 1995, or at such other place and time and date as you and the Company may agree upon in writing, such time and date being herein called the "Time of Delivery". Such Securities, in definitive form and registered in the name of Cede & Co., as nominee for DTC, will be made available for inspection at least twenty-four hours prior to the Time of Delivery at the above office of Sullivan & Cromwell. 5. The Company agrees with each of the Underwriters: (a) To prepare the Prospectus in a form approved by Goldman, Sachs & Co. and to file such Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's close of business on the second business day following the execution and delivery of this Agreement, or, if applicable, such earlier time as may be required by Rule 430A(a)(3) under the Act; to make no further amendment or any supplement to the Registration Statement or Prospectus prior to the Time of Delivery which shall be disapproved by you promptly after reasonable notice thereof; to advise you, promptly after it receives notice thereof, of the time when any amendment to the Registration Statement has been filed or becomes effective or any supplement to -10- 11 the Prospectus or any amended Prospectus has been filed and to furnish you with copies thereof; to file timely all reports and any definitive proxy or information statements required to be filed by the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of the Prospectus and for so long as the delivery of a prospectus is required in connection with the offering or sale of the Securities; to advise you, promptly after it receives notice thereof, of the issuance by the Commission of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus, of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, of the initiation or threatening of any proceeding for any such purpose, or of any request by the Commission for the amending or supplementing of the Registration Statement or Prospectus or for additional information; and, in the event of the issuance of any stop order or of any order preventing or suspending the use of any Preliminary Prospectus or prospectus or suspending any such qualification, to use promptly its best efforts to obtain the withdrawal of such order; (b) Promptly from time to time to take such action as you may reasonably request to qualify the Securities for offering and sale under the securities laws of such jurisdictions as you may request and to comply with such laws so as to permit the continuance of sales and dealings therein in such jurisdictions for as long as may be necessary to complete the distribution of the Securities, provided that in connection therewith the Company shall not be required to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction; (c) To furnish the Underwriters with copies of the Prospectus in such quantities as you may from time to time reasonably request, and, if the delivery of a prospectus is required at any time in connection with the offering or sale of the Securities and if at such time any event shall have occurred as a result of which the Prospectus as then amended or supplemented would include an untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in light of the circumstances under which they were made when such Prospectus is delivered, not misleading, or, if for any other reason it shall be necessary during such same period to amend or supplement the Prospectus or to file under the -11- 12 Exchange Act any document incorporated by reference in the Prospectus in order to comply with the Act, the Exchange Act or the Trust Indenture Act, to notify you and upon your request to file such document and to prepare and furnish without charge to the Underwriters and to any dealer in securities as many copies as you may from time to time reasonably request of an amended Prospectus or a supplement to the Prospectus which will correct such statement or omission or effect such compliance; and in case either of the Underwriters are required to deliver a prospectus in connection with sales of any of the Securities at any time nine months or more after the time of issue of the Prospectus, upon your request but at the expense of such Underwriters, to prepare and deliver to such Underwriters as many copies as you may request of an amended or supplemented Prospectus complying with Section 10(a)(3) of the Act; (d) To make generally available to its securityholders as soon as practicable, but in any event not later than eighteen months after the effective date of the Registration Statement (as defined in Rule 158(c)), an earning statement of the Company and its subsidiaries (which need not be audited) complying with Section 11(a) of the Act and the rules and regulations of the Commission thereunder (including at the option of the Company, Rule 158); (e) During the period beginning from the date hereof and continuing to and including the later of the Time of Delivery and such earlier time as you may notify the Company, not to offer, sell, contract to sell or otherwise dispose of any securities of the Company that are substantially similar to the Securities; (f) To furnish to the holders of the Securities upon request of any such holder as soon as practicable after the end of each fiscal year an annual report (including a balance sheet and statements of income, shareholders' equity and cash flows of the Company and its consolidated subsidiaries certified by independent public accountants) and, as soon as practicable after the end of each of the first three quarters of each fiscal year (beginning with the fiscal quarter ending after the effective date of the Registration Statement), consolidated summary financial information of the Company and its subsidiaries for such quarter in reasonable detail; and -12- 13 (g) During a period of five years from the effective date of the Registration Statement, to furnish to you upon request copies of all reports or other communications (financial or other) furnished to shareholders, and deliver to you upon request (i) as soon as they are available, copies of any reports and financial statements furnished to or filed with the Commission or any national securities exchange on which the Securities or any class of securities of the Company is listed; and (ii) such additional information concerning the business and financial condition of the Company as you may from time to time reasonably request in connection with your acting as Underwriters hereunder or as market maker in the Securities (such financial statements to be on a consolidated basis to the extent the accounts of the Company and its subsidiaries are consolidated in reports furnished to its shareholders generally or to the Commission). 6. The Company covenants and agrees with the several Underwriters that the Company will pay or cause to be paid the following: (i) the fees, disbursements and expenses of the Company's counsel and accountants in connection with the registration of the Securities under the Act and all other expenses in connection with the preparation, printing and filing of the Registration Statement, any Preliminary Prospectus and the Prospectus and amendments and supplements thereto and the mailing and delivering of copies thereof to the Underwriters and dealers; (ii) the cost of printing or producing this Agreement, each Indenture, each Pass Through Agreement, each of the other Pass Through Documents, the Blue Sky and Legal Investment Memoranda and any other documents in connection with the offering, purchase, sale and delivery of the Securities; (iii) all expenses in connection with the qualification of the Securities for offering and sale under state securities laws as provided in Section 5(b) hereof, including the fees and disbursements of counsel for the Underwriters in connection with such qualification and in connection with the Blue Sky and legal investment surveys in an amount not to exceed $16,500; (iv) any fees charged by securities rating services for rating the Securities; (v) the cost of preparing the Securities; (vi) the fees and expenses of the Indenture Trustees, the Owner Trustees and the Pass Through Trustees and any agent of any such trustee and the fees and disbursements of counsel for any such trustee in connection with the Indentures, the Pass Through Agreements, the other Pass Through Documents and the Securities; (vii) all other fees, expenses and disbursements which are stated to be for its account in the Pass Through Documents; (viii) fees of counsel to the Underwriters (other -13- 14 than the fees payable pursuant to clause (iii) above); and (ix) all other costs and expenses incident to the performance of its obligations hereunder and under the Pass Through Documents which are not otherwise specifically provided for in this Section. It is understood, however, that, except as provided in this Section, Section 8 and Section 10 hereof, the Underwriters will pay all of their expenses, transfer taxes on resale of any of the Securities by them, and any advertising expenses connected with any offers they may make. 7. The obligations of the Underwriters hereunder shall be subject, in their discretion, to the condition that all representations and warranties and other statements of the Company herein are, at and as of the Time of Delivery, true and correct, the condition that the Company shall have performed all of its obligations hereunder theretofore to be performed, and the following additional conditions: (a) The Prospectus shall have been filed with the Commission pursuant to Rule 424(b) within the applicable time period prescribed for such filing by the rules and regulations under the Act and in accordance with Section 5(a) hereof; no stop order suspending the effectiveness of the Registration Statement or any part thereof shall have been issued and no proceeding for that purpose shall have been initiated or to the Company's knowledge threatened by the Commission; and all requests for additional information on the part of the Commission shall have been complied with to your reasonable satisfaction; (b) Sullivan & Cromwell, counsel for the Underwriters, shall have furnished to you such opinion or opinions, dated the Time of Delivery, with respect to the incorporation of the Company, the validity of the Securities and the Pass Through Agreements with respect thereto, the Registration Statement, the Prospectus and other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters; (c) Dickinson, Wright, Moon, Van Dusen & Freeman, counsel for the Company, shall have furnished to you their written opinion, dated the Time of Delivery, in the form of Exhibit A-1 attached hereto and Anthony N. Palizzi, Executive Vice President and General Counsel of the Company, shall have furnished to you his written opinion, dated the Time of Delivery, in the form of Exhibit A-2 attached hereto; -14- 15 (d) The Underwriters shall have received the opinion of Richards, Layton & Finger, counsel for the Owner Trustee, dated the Time of Delivery, in the form of Exhibit B attached hereto; (e) The Underwriters shall have received the opinion of Hunton & Williams, counsel for the Owner Participant, dated the Time of Delivery, in the form of Exhibit C attached hereto; (f) The Underwriters shall have received the opinion of Emmet, Marvin & Martin, LLP, counsel for the Indenture Trustees, dated the Time of Delivery, in the form of Exhibit D attached hereto; (g) The Underwriters shall have received the opinions of Squire, Sanders & Dempsey, counsel for Pass Through Trustee 1995-K-1, and Jones, Day, Reavis & Pogue, counsel for Pass Through Trustee 1995-K-2, dated the Time of Delivery, in the form of Exhibits E-1 and E-2, respectively, attached hereto; (h) The Underwriters shall have received the opinion of Kelley, Drye & Warren, counsel for the Remainder Purchaser, dated the Time of Delivery, in the form of Exhibit F hereto; (i) The Underwriters shall have received the opinions of special counsel in the respective States in which the Properties are located, each dated the Time of Delivery, with respect to such matters as you may reasonably require and in form and substance satisfactory to you; (j) On the date of the Prospectus at a time prior to the execution of this Agreement, at 9:30 a.m., New York City time, on the effective date of any post-effective amendment to the Registration Statement filed subsequent to the date of this Agreement and also at the Time of Delivery, Price Waterhouse shall have furnished to you a letter or letters, dated the respective date of delivery thereof, in form and substance satisfactory to you, to the effect set forth in Annex I hereto; (k) (i) Neither the Company nor any of its subsidiaries shall have sustained since the date of the latest audited financial statements included or incorporated by reference in the Prospectus any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by -15- 16 insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Prospectus, that is material to the Company and its subsidiaries taken as a whole, and (ii) since the respective dates as of which information is given in the Registration Statement and the Prospectus there shall not have been any change in the capital stock (other than pursuant to any executive compensation or other employee benefit plan the terms of which have been filed with the Commission and other than in connection with the conversion of the Company's Series C Preferred Stock into shares of the Company's common stock) or any material change in the long-term debt of the Company or any of its subsidiaries or any material adverse change, or any development of which the Company is aware and that the Company has reasonable cause to believe involves a prospective material adverse change, in or affecting the general affairs, management, financial position, shareholders' equity or results of operations of the Company and its subsidiaries taken as a whole, otherwise than as set forth or contemplated in the Prospectus, the effect of which, in any such case described in Clause (i) or (ii), is in your judgment so material and adverse as to make it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated in the Prospectus; (l) On or after the date hereof and prior to the Time of Delivery (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Act and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities; (m) At the Time of Delivery, Standard & Poor's Ratings Group ("S&P"), Moody's Investors Service, Inc. ("Moody's") and Duff & Phelps Credit Rating Co. ("D&P") (each, a "Rating Agency") shall each have furnished to you a letter or letters, dated the Time of Delivery, stating that S&P, Moody's and D&P have provided the Securities with at least a BBB, a Baa1 and an A-rating, respectively; (n) You shall have received any opinions of counsel delivered to any Rating Agency in respect of -16- 17 the Securities, in form and substance satisfactory to you, together with a letter stating that the Underwriters and the Company may rely on such opinions as if they were addressed to you; (o) On or after the date hereof there shall not have occurred any of the following: (i) a suspension or material limitation in trading in securities generally on the New York Stock Exchange; (ii) a suspension or material limitation in trading in the Company's securities; (iii) a general moratorium on commercial banking activities in New York declared by either Federal or New York State authorities; or (iii) the outbreak or escalation of hostilities involving the United States or the declaration by the United States of a national emergency or war, if the effect of any such event specified in this clause (iii) in your judgment makes it impracticable or inadvisable to proceed with the public offering or the delivery of the Securities on the terms and in the manner contemplated by the Prospectus; (p) All conditions specified in each of the Purchase and Sale Agreement and the Purchase Agreement to be performed or satisfied on or prior to the Time of Delivery, as the case may be, shall have been performed or satisfied; and the Underwriters shall have received copies of all documents delivered under each of such Purchase and Sale Agreement and the Purchase Agreement, which shall be executed copies in the case of Pass Through Documents and such other documents as you shall reasonably request and shall be true and complete copies of executed documents in the case of any other documents; and (q) The Company shall have furnished or caused to be furnished to you at the Time of Delivery certificates of the Treasurer or Chief Financial Officer of the Company reasonably satisfactory to you as to the accuracy of the representations and warranties of the Company herein at and as of such Time of Delivery, as to the performance by the Company of all of its obligations hereunder to be performed at or prior to such Time of Delivery, as to the matters set forth in subsections (a) and (k) of this Section and as to such other matters as you may reasonably request. 8. (a) The Company will indemnify and hold harmless each of the Underwriters against any losses, claims, damages or liabilities, joint or several, to which such Underwriters may become subject, under the Act or otherwise, -17- 18 insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements in the Registration Statement not misleading, or to make the statements in any Preliminary Prospectus or the Prospectus not misleading in the light of the circumstances under which they were made, and will reimburse each of the Underwriters for any legal or other expenses reasonably incurred by such Underwriters in connection with investigating or defending any such action or claim as such expenses are incurred; provided, however, that (i) the Company shall not be liable in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Underwriters through Goldman, Sachs & Co. expressly for use therein and (ii) the Company shall not be liable to the Underwriters under the indemnity agreement in this subsection (a) with respect to any Preliminary Prospectus to the extent that any such loss, claim, damage or liability of the Underwriters results from the fact that the Underwriters sold Securities to a person as to whom it shall be established that there was not sent or given, at or prior to the written confirmation of such sale, a copy of the Prospectus or of the Prospectus as then amended or supplemented in any case where such delivery is required by the Act if the Company has previously furnished copies thereof in sufficient quantity and in a sufficiently timely manner to the Underwriters and such loss, claim, damage or liability of the Underwriters results from an untrue statement or omission of a material fact contained in the Preliminary Prospectus which was identified in writing to the Underwriters prior to the time of the determination of the purchase price referred to in Section 2 hereof and corrected in the Prospectus or in the Prospectus as then amended or supplemented. (b) Each of the Underwriters will indemnify and hold harmless the Company against any losses, claims, damages or liabilities to which the Company may become subject, under the Act or otherwise, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon an untrue statement -18- 19 or alleged untrue statement of a material fact contained in any Preliminary Prospectus, the Registration Statement or the Prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any Preliminary Prospectus, the Registration Statement or the Prospectus or any such amendment or supplement in reliance upon and in conformity with written information furnished to the Company by the Underwriters expressly for use therein; and will reimburse the Company for any legal or other expenses reasonably incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by an indemnified party under subsection (a) or (b) above of notice of the commencement of any action, such indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under such subsection, notify the indemnifying party in writing of the commencement thereof; but the omission so to notify the indemnifying party shall not relieve it from any liability which it may have to any indemnified party otherwise than under such subsection. In case any such action shall be brought against any indemnified party and it shall notify the indemnifying party of the commencement thereof, the indemnifying party shall be entitled to participate therein and, to the extent that it shall wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, with counsel satisfactory to such indemnified party (who shall not, except with the consent of the indemnified party, be counsel to the indemnifying party), and, after notice from the indemnifying party to such indemnified party of its election so to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party under such subsection for any legal expenses of other counsel or any other expenses, in each case subsequently incurred by such indemnified party, in connection with the defense thereof other than reasonable costs of investigation. No indemnifying party shall, without the written consent of the indemnified party, effect the settlement or compromise of, or consent to the entry of any judgment with respect to, any pending or threatened action or claim in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified party is an actual or potential party to such action or claim) unless such settlement, compromise or judgment (i) includes an -19- 20 unconditional release of the indemnified party from all liability arising out of such action or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party. (d) If the indemnification provided for in this Section 8 is unavailable to or insufficient to hold harmless an indemnified party under subsection (a) or (b) above in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then each indemnifying party shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other from the offering of the Securities. If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) above, then each indemnifying party shall contribute to such amount paid or payable by such indemnified party in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company on the one hand and the Underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages or liabilities (or actions in respect thereof), as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other shall be deemed to be in the same proportion as the total proceeds from the offering, net of compensation paid to the Underwriters with respect thereto (before deducting expenses), received by the Pass Through Trusts bear to the underwriting commission received by the Underwriters, in each case as set forth on the cover page of the Prospectus. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company on the one hand or the Underwriters on the other and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this subsection (d). The amount paid -20- 21 or payable by an indemnified party as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this subsection (d), no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. (e) The obligations of the Company under this Section 8 shall be in addition to any liability which the Company may otherwise have and shall extend, upon the same terms and conditions, to each person, if any, who controls any Underwriter within the meaning of the Act; and the obligations of the Underwriters under this Section 8 shall be in addition to any liability which the respective Underwriters may otherwise have and shall extend, upon the same terms and conditions, to each officer and director of the Company (including any person who, with his consent, is named in the Registration Statement as about to become a director of the Company) and to each person, if any, who controls the Company within the meaning of the Act. 9. The respective indemnities, agreements, representations, warranties and other statements of the Company and the several Underwriters, as set forth in this Agreement or made by them, respectively, pursuant to this Agreement, shall remain in full force and effect, regardless of any investigation (or any statement as to the results thereof) made by the Underwriters or any controlling person of the Underwriters, or the Company, or any officer or director or controlling person of the Company, and shall survive delivery of and payment for the Securities. 10. If the Securities are not delivered by or on behalf of the Company as provided herein, the Company will reimburse the Underwriters for all out-of-pocket expenses approved in writing by Goldman, Sachs & Co., including fees and disbursements of counsel, reasonably incurred by the Underwriters in making preparations for the purchase, sale and delivery of the Securities, but the Company shall then -21- 22 be under no further liability to the Underwriters except as provided in Section 6 and Section 8 hereof. All statements, requests, notices, and agreements hereunder shall be in writing, and if to the Underwriters shall be delivered or sent by mail, telex or facsimile transmission to Goldman, Sachs & Co., as representatives of the Underwriters, c/o Goldman, Sachs & Co. at 85 Broad Street, New York, New York 10004, Attention: Registration Department; and if to the Company shall be delivered or sent by mail, telex or facsimile transmission to the address of the Company set forth in the Registration Statement, Attention: Vice President and Treasurer. 11. This Agreement shall be binding upon, and inure solely to the benefit of, the Underwriters, the Company and, to the extent provided in Section 8 and Section 9 hereof, the officers and directors of the Company and each person who controls the Company or the Underwriters, and their respective heirs, executors, administrators, successors and assigns, and no other person shall acquire or have any right under or by virtue of this Agreement. No purchaser of any of the Securities from the Underwriters shall be deemed a successor or assign by reason merely of such purchase. 12. Time shall be of the essence of this Agreement. As used herein, the term "business day" shall mean any day when the Commission's office in Washington, D.C. is open for business. 13. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. 14. This Agreement may be executed by any one or more of the parties hereto in any number of counterparts, each of which shall be deemed to be an original, but all such respective counterparts shall together constitute one and the same instrument. If the foregoing is in accordance with your understanding, please sign and return to us five counterparts hereof, and upon the acceptance hereof by you, this letter -22- 23 and such acceptance hereof shall constitute a binding agreement between each of the Underwriters and the Company. Very truly yours, KMART CORPORATION By:______________________________ Name: Title: Accepted as of the date hereof: ........................... (Goldman, Sachs & Co.) MORGAN STANLEY & CO. INC. By: ____________________ Name: Title: -23- 24 SCHEDULE I
Principal Principal Amount of Amount of Securities to Securities to Aggregate be Purchased be Purchased Principal from Pass from Pass Amount of Through Trust Through Trust Securities to Underwriters 1995-K-1 1995-K-2 be Purchased - ------------ ------------- ------------- ------------- Goldman, Sachs & Co. $ $ $ Morgan Stanley & Co. Inc. _____________ _____________ _____________ Total $ $ $
-24- 25 SCHEDULE II PURCHASE PRICE AND COMPENSATION Purchase Price Pass Through Trust 1995-K-1 -- 100% of the principal amount thereof plus accrued interest, if any, thereon at the rate specified in the Prospectus to the Time of Delivery. Pass Through Trust 1995-K-2 -- 100% of the principal amount thereof plus accrued interest, if any, thereon at the rate specified in the Prospectus to the Time of Delivery. Compensation to Underwriters $_________ (0.___% of the principal amount of the Securities) -25- 26 ANNEX I Pursuant to Section 7(j) of the Underwriting Agreement, the accountants shall furnish letters to the Underwriters to the effect that: (i) They are independent certified public accountants with respect to the Company and its subsidiaries within the meaning of the Act and the applicable published rules and regulations thereunder; (ii) In their opinion, the financial statements and any supplementary financial information and schedules (and, if applicable, prospective financial statements and/or pro forma financial information) examined by them and included or incorporated by reference in the Registration Statement or the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and the related published rules and regulations thereunder; and, if applicable, they have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the consolidated interim financial statements, selected financial data, pro forma financial information, prospective financial statements and/or condensed financial statements derived from audited financial statements of the Company for the periods specified in such letter, as indicated in their reports thereon, copies of which have been furnished to the representatives of the Underwriters (the "Representatives"); (iii) They have made a review in accordance with standards established by the American Institute of Certified Public Accountants of the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus and/or included in the Company's quarterly report on Form 10-Q incorporated by reference into the Prospectus as indicated in their reports thereon copies of which have been separately furnished to the Representatives; and on the basis of specified procedures including inquiries of officials of the Company who have responsibility for financial and accounting matters regarding whether the unaudited condensed consolidated financial statements referred to in paragraph (vi)(A)(i) below comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations, nothing came -26- 27 to their attention that caused them to believe that the unaudited condensed consolidated financial statements do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Exchange Act and the related published rules and regulations; (iv) The unaudited selected financial information with respect to the consolidated results of operations and financial position of the Company for the five most recent fiscal years included in the Prospectus and included or incorporated by reference in Item 6 of the Company's Annual Report on Form 10-K for the most recent fiscal year agrees with the corresponding amounts (after restatement where applicable) in the audited consolidated financial statements for such five fiscal years which were included or incorporated by reference in the Company's Annual Reports on Form 10-K for such fiscal years; (v) They have compared the information in the Prospectus under selected captions with the disclosure requirements of Regulation S-K and on the basis of limited procedures specified in such letter nothing came to their attention as a result of the foregoing procedures that caused them to believe that this information does not conform in all material respects with the disclosure requirements of Items 301, 302, 402 and 503(d), respectively, of Regulation S-K; (vi) On the basis of limited procedures, not constituting an examination in accordance with generally accepted auditing standards, consisting of a reading of the unaudited financial statements and other information referred to below, a reading of the latest available interim financial statements of the Company and its subsidiaries, inspection of the minute books of the Company and its subsidiaries since the date of the latest audited financial statements included or incorporated by reference in the Prospectus, inquiries of officials of the Company and its subsidiaries responsible for financial and accounting matters and such other inquiries and procedures as may be specified in such letter, nothing came to their attention that caused them to believe that: (A) (i) the unaudited condensed consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included in the Prospectus and/or included or incorporated by reference in the -27- 28 Company's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Exchange Act and the related published rules and regulations or any material modifications should be made to the unaudited consolidated statements of income, consolidated balance sheets and consolidated statements of cash flows included or incorporated by reference in the Company's Quarterly Reports on Form 10-Q incorporated by reference in the Prospectus, for them to be in conformity with generally accepted accounting principles; (B) any other unaudited income statement data and balance sheet items included in the Prospectus do not agree with the corresponding items in the unaudited consolidated financial statements from which such data and items were derived, and any such unaudited data and items were not determined on a basis substantially consistent with the basis for the corresponding amounts in the audited consolidated financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (C) the unaudited financial statements which were not included in the Prospectus but from which were derived the unaudited condensed financial statements referred to in Clause (A) and any unaudited income statement data and balance sheet items included in the Prospectus and referred to in Clause (B) were not determined on a basis substantially consistent with the basis for the audited financial statements included or incorporated by reference in the Company's Annual Report on Form 10-K for the most recent fiscal year; (D) any unaudited pro forma consolidated condensed financial statements included or incorporated by reference in the Prospectus do not comply as to form in all material respects with the applicable accounting requirements of the Act and the published rules and regulations thereunder or the pro forma adjustments have not been properly applied to the historical amounts in the compilation of those statements; -28- 29 (E) as of a specified date not more than five days prior to the date of such letter, there have been any changes in the consolidated capital stock (other than issuances of capital stock upon exercise of options and stock appreciation rights, upon earn-outs of performance shares and upon conversions of convertible securities, in each case which were outstanding on the date of the latest balance sheet included or incorporated by reference in the Prospectus) or any increase in the consolidated long-term debt of the Company and its subsidiaries, or any decreases in consolidated net current assets or shareholder's equity or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with amounts shown in the latest balance sheet included or incorporated by reference in the Prospectus, except in each case for changes, increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (F) for the period from the date of the latest financial statements included or incorporated by reference in the Prospectus to the specified date referred to in Clause (E) there were any decreases in consolidated net revenues or operating profit or the total or per share amounts of consolidated net income or other items specified by the Representatives, or any increases in any items specified by the Representatives, in each case as compared with the comparable period of the preceding year and with any other period of corresponding length specified by the Representatives, except in each case for increases or decreases which the Prospectus discloses have occurred or may occur or which are described in such letter; and (vii) In addition to the examination referred to in their report(s) included or incorporated by reference in the Prospectus and the limited procedures, inspection of minute books, inquiries and other procedures referred to in paragraphs (iii) and (vi) above, they have carried out certain specified procedures, not constituting an examination in accordance with generally accepted auditing standards, with respect to certain amounts, percentages and financial information specified by the Representatives which are derived from -29- 30 the general accounting records of the Company and its subsidiaries, which appear in the Prospectus (excluding documents incorporated by reference) or in Part II of, or in exhibits and schedules to, the Registration Statement specified by the Representatives or in documents incorporated by reference in the Prospectus specified by the Representatives, and have compared certain of such amounts, percentages and financial information with the accounting records of the Company and its subsidiaries and have found them to be in agreement. -30- 31 Exhibit A-1 [Section 7(c) Opinion of Dickinson, Wright, Moon, Van Dusen & Freeman] (i) Assuming that the Securities have been duly authorized, executed, authenticated, issued and delivered by the relevant Pass Through Trustee, the Securities have been duly authorized, executed, authenticated, issued and delivered and are validly issued and outstanding and entitled to the benefits provided by the Pass Through Agreement; the Securities and the Pass Through Agreements conform in all material respects to the descriptions thereof in the Prospectus; and each Pass Through Agreement has been duly qualified under the Trust Indenture Act; (ii) Each Pass Through Document to which the Company is a party constitutes a valid and legally binding instrument of the Company, enforceable against it in accordance with its terms, subject, as to enforcement, to bankruptcy, insolvency, fraudulent conveyance, moratorium, reorganization and other laws of general applicability relating to or affecting creditors' rights, to the discretionary nature of equitable remedies such as receivership, specific performance, injunctive relief and the like and to general principles of equity including requirements of reasonableness and good faith in the exercise of rights and remedies and such other matters if and as may be set forth in the opinions of local counsel referred to in Section 7(i) of this Agreement; (iii) No consent, approval, authorization, order, registration or qualification of or with any court or governmental agency or body having jurisdiction over the Company or any of its subsidiaries is required for the issue and sale of the Securities, the valid authorization, execution and delivery by the Company of this Agreement and any of the other Pass Through Documents in accordance with the provisions thereof or the consummation by the Company of the transactions contemplated by, or the performance of its obligations under, this Agreement and the other Pass Through Documents to which the Company is a party, except such as have been obtained under the Act and the Trust Indenture Act, such consents, approvals, authorizations, registrations or 32 qualifications as may be required under state securities or Blue Sky laws in connection with the purchase and distribution of the Securities by the Underwriters and the filing of certain of the Pass Through Documents with state and local officials in the jurisdictions in which the Properties are located; (iv) The statements set forth in the Prospectus under the caption "Description of Certificates", insofar as they purport to constitute a summary of the terms of the Securities, and under the captions "Underwriting", insofar as they purport to describe the provisions of this Agreement, "Structure of the Transaction", "Description of the Mortgage Notes", "Description of the Leases", "ERISA Considerations" and "Federal Income Tax Consequences", insofar as they purport to describe the provisions of the laws and documents referred to therein, and insofar as they relate to statements of law or legal conclusions, are correct in all material respects; (v) The Company is not an "investment company" or an entity "controlled" by an "investment company", as such terms are defined in the Investment Company Act; (vi) The documents incorporated by reference in the Prospectus or any further amendment or supplement thereto made by the Company prior to the Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion), when they became effective or were filed with the Commission, as the case may be, complied as to form in all material respects with the requirements of the Act or the Exchange Act, as applicable, and the rules and regulations of the Commission thereunder; and such counsel has no reason to believe that any of such documents filed subsequent to the effective date of the Registration Statement, when such documents became effective or were so filed, as the case may be, contained, in the case of a registration statement which became effective under the Act, an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or, in the case of other documents which were filed under the Act or the Exchange Act -2- 33 with the Commission, an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made when such documents were so filed, not misleading; and (vii) The Registration Statement and the Prospectus and any further amendments and supplements thereto made by the Company prior to the Time of Delivery (other than the financial statements and related schedules therein, as to which such counsel need express no opinion) comply as to form in all material respects with the requirements of the Act and the Trust Indenture Act and the rules and regulations thereunder; Such opinion may state that in passing upon the forms of the Registration Statement and the Prospectus, and except as otherwise specifically referred to in paragraph (iv) above, such counsel has relied, insofar as any opinions involve factual matters, to the extent they deem proper, upon certificates of officers of the Company and certificates of public officials. The opinion should also state that, in connection with the preparation of the Registration Statement and the Prospectus, such counsel has had discussions with certain of the Company's officers and representatives, with other counsel for the Company, with representatives of the independent accountants of the Company, and with representatives of the Underwriters and counsel for the Underwriters and that such counsel's preparation and examination of the Registration Statement and the Prospectus and its discussions did not disclose to them any information that gives them reason to believe that, as of its effective date, the Registration Statement or any further amendment thereto made by the Company prior to the Time of Delivery (other than the financial statements and related schedules contained or incorporated by reference therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading or that, as of its date, the Prospectus or any further amendment or supplement thereto made by the Company prior to the Time of Delivery (other than the financial statements and related schedules contained or incorporated by reference therein, as to which such counsel need express no opinion) contained an untrue statement of a material fact or omitted to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or that, as of the Time of -3- 34 Delivery, the Prospectus or any further amendment or supplement thereto made by the Company prior to the Time of Delivery (other than the financial statements and related schedules contained or incorporated by reference therein, as to which such counsel need express no opinion) contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading. -4- 35 Exhibit A-2 [Section 7(c) Opinion of Anthony N. Palizzi] (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Michigan, with power and authority (corporate and other) to own its properties, to hold properties under lease and otherwise to conduct its business as described in the Prospectus; (ii) The Company has been duly qualified as a foreign corporation for the transaction of business and is in good standing under the laws of each other jurisdiction in which it owns or leases properties or conducts any business so as to require such qualification or is subject to no material liability or disability by reason of the failure to be so qualified in any such jurisdiction (such counsel being entitled to rely in respect of the opinion in this subparagraph upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company, provided that such counsel shall state that such counsel believes that both you and such counsel are justified in relying upon such opinions and certificates); (iii) Each Material Subsidiary has been duly incorporated and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, and all of the issued shares of capital stock of each such Material Subsidiary have been duly and validly authorized and issued, are fully paid and non-assessable, and (except for directors' qualifying shares and 321,938 shares of Borders Group, Inc.'s Series A Preferred Stock held by Planet Music, Inc., and except as otherwise set forth in the Prospectus) are owned directly or indirectly by the Company, free and clear of all liens, encumbrances, equities or claims (such counsel being entitled to rely in respect of the opinion in this subparagraph upon opinions of local counsel and in respect of matters of fact upon certificates of officers of the Company or its subsidiaries, provided that such counsel shall state that such counsel believes that both you and such counsel are justified in relying upon such opinions and certificates); 36 (iv) To the best of such counsel's knowledge and other than as set forth in the Prospectus, there are no legal or governmental proceedings pending to which the Company or any of its subsidiaries is a party or of which any property of the Company or any of its subsidiaries is the subject which, if determined adversely to the Company or any of its subsidiaries, would have, or which in the aggregate present a reasonable likelihood of sufficient determinations adverse to the Company or any of its subsidiaries that would have, a material adverse effect on the business, prospects, operations, financial condition, shareholders' equity or results of operations of the Company and its subsidiaries taken as a whole (a "Material Adverse Effect"), and, to the best of such counsel's knowledge, no such proceedings are threatened or contemplated by governmental authorities or threatened by others; (v) This Agreement and each Pass Through Document to which the Company is a party has been duly authorized, executed and delivered by the Company; (vi) The compliance by the Company with all of the provisions of this Agreement and each of the other Pass Through Documents to which it is a party and the consummation of the transactions herein and therein contemplated will not conflict with or result in a breach or violation of any of the terms or provisions of, or constitute a default under, any indenture, mortgage, deed of trust, loan agreement or other material agreement or instrument known to such counsel to which the Company or any of its subsidiaries is a party or by which the Company or any of its subsidiaries is bound or to which any of the property or assets of the Company or any of its subsidiaries is subject, except for such conflicts, breaches, violations, or defaults that individually or in the aggregate do not and would not have a Material Adverse Effect and do not and would not materially and adversely affect the consummation of the transactions contemplated by this Agreement and the Registration Statement, nor will such actions result in any violation of (a) the provisions of the Articles of Incorporation or By-laws of the Company or (b) any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any -2- 37 of its subsidiaries or any of their properties except, in the case of violations under subclause (b) of this subparagraph, if any, such violations that individually or in the aggregate do not and would not have a Material Adverse Effect and do not and would not materially and adversely affect the consummation of the transactions contemplated by this Agreement and the Registration Statement; (vii) The Company is not (a) in violation of its Articles of Incorporation or By-laws or (b) in default in the performance or observance of any material obligation, covenant or condition contained in any indenture, mortgage, deed of trust, loan agreement, lease or other agreement or instrument to which it is a party or by which it or any of its properties may be bound except, in the case of defaults under subclause (b) of this subparagraph, if any, such defaults individually or in the aggregate do not and would not have a Material Adverse Effect and do not and would not materially and adversely affect the consummation of the transactions contemplated by this Agreement and the Registration Statement; and (viii) Such counsel does not know of any amendment to the Registration Statement required to be filed or of any contracts or other documents of a character required to be filed as an exhibit to the Registration Statement or required to be incorporated by reference into the Prospectus or required to be described in the Registration Statement or the Prospectus which are not filed or incorporated by reference or described as required. -3- 38 Exhibit B [Section 7(d) Opinion of Richards, Layton & Finger] 1. The Corporate Owner Trustee is a banking corporation, duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and the Owner Trustee or the Owner Trust, as the case may be, has the power and authority to execute, deliver and perform each of the Pass Through Documents to which it is a party, to acquire, own, lease and give a lien on and security interest in all of its right, title and interest in and to the property constituting the Properties and any other property constituting the Indenture Estate, and to issue, execute, deliver and perform the Mortgage Notes. 2. The Owner Trustee, in its individual and trust capacities, has duly authorized, executed and delivered each Pass Through Document to which it is a party. Each such Pass Through Document constitutes a legal, valid and binding obligation of the Owner Trustee or the Owner Trust, as the case may be, enforceable against the Owner Trustee or the Owner Trust, as the case may be, in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 3. Each Owner Trust has been duly formed and is legally and validly existing in good standing as a business trust and a separate legal entity under the Delaware Business Trust Act, 12 Del.C. Section 3801, et seq. (the "Delaware Act"), and has power and authority to execute, deliver and perform each of the Pass Through Documents to which it is a party in accordance with their terms and to execute, deliver and perform the Mortgage Notes. 4. The Mortgage Notes have been duly executed and delivered by the Owner Trustee or the Owner Trust, as the case may be, in accordance with the terms of the Indenture and the Owner Trust Agreement, and constitute legal, valid and binding obligations of the Owner Trustee or the Owner Trust, as the case may be, enforceable against the Owner Trustee in accordance with their terms and the terms of the Indentures; and the holders of the Mortgage Notes are entitled to the benefits and security afforded by the Indentures in 39 accordance with their terms and the terms of the Indentures. 5. With respect to each Property, the Owner Trustee or Owner Trust, as the case may be, has received from the Company or applicable seller such title to such Property as the Company or applicable seller conveyed to the Owner Trustee or Owner Trust, as the case may be, subject to the rights of the Owner Trustee or Owner Trust, as the case may be, and the Company under the Lease and the Remainder Purchaser under the Remainderman Deed and the security interest created pursuant to the related Indenture; and to our knowledge, there exist no Liens affecting the title of the Owner Trustee or Owner Trust, as the case may be, to any Indenture Estate resulting from claims against the Owner Trustee or Owner Trust, as the case may be, not related to the ownership of such Indenture Estate or the administration of such Indenture Estate or any other transaction pursuant to the related Indenture or any document included in such Indenture Estate. 6. The authorization, execution, delivery and performance by the Owner Trustee or Owner Trust, as the case may be, of the Pass Through Documents to which it is a party and the consummation of the transactions therein contemplated and compliance with the terms thereof, and the issuance, execution and delivery and performance of the Mortgage Notes thereunder, do not and will not result in the violation of the provisions of the charter or by-laws of the Owner Trustee, and do not and will not conflict with, or result in a breach of any terms or provisions of, or constitute a default under, or result in the creation or the imposition of any lien, charge or encumbrance upon any property or assets of the Owner Trustee, under any indenture, mortgage or other agreement or instrument known to us to which the Owner Trustee is a party or by which it or any of its property is bound, or any Delaware or Federal law, rule or regulation governing the Owner Trustee's banking or trust powers, or of any judgment, order or decree known to us to be applicable to the Owner Trustee, or any court, regulatory body, administrative agency, government or governmental body having jurisdiction over the Owner Trustee or its properties. 7. No authorization, approval, consent, license or order of, giving of notice to, registration with, or taking of any other action in respect of, any Federal or state governmental authority or agency pursuant to -2- 40 any Delaware or Federal law governing the banking or trust powers of the Owner Trustee, is required for the authorization, execution, delivery and performance by the Owner Trustee of the Pass Through Documents to which it is a party or the consummation of any of the transactions contemplated thereby by the Owner Trustee or the issuance, execution, delivery and performance of the Mortgage Notes (except such as shall have been duly obtained, given or taken); and such authorization, execution, delivery, performance, consummation, and issuance do not conflict with or result in a breach of the provisions of any such law. 8. There are no proceedings pending, or to the best of our knowledge, threatened, and to the best of our knowledge there is no existing basis for any such proceeding against or affecting the Owner Trustee or the Owner Trust, as the case may be, before any governmental authority which would, either in any one case or in the aggregate, if adversely determined, materially and adversely affect the Owner Trustee's or the Owner Trust's, as the case may be, ability to perform its obligations under any of the Pass Through Documents to which it is a party. To the best of our knowledge, the Owner Trustee or the Owner Trust, as the case may be, is not in default with respect to any order of any governmental authority which default would, either in any one case or in the aggregate, materially adversely affect the Owner Trustee's or the Owner Trust's, as the case may be, ability to perform its obligations under any of the Pass Through Documents. 9. (a) There are no fees, taxes or other charge payable by the Owner Trustee (except taxes imposed on fees payable by the Owner Trustee) to the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance of any of the Pass Through Documents or in connection with execution, issuance and delivery of the Mortgage Notes and (b) neither the Owner Trustee nor the Owner Trust will be subject to any fee, tax or other charge under the laws of the State of Delaware or any political subdivision thereof in existence on the date hereof, on, based on or measured by, directly or indirectly, any payments under the Mortgage Notes or the gross receipts, net income or value of the Indenture Estate or the trust created by the Owner Trust Agreement. -3- 41 Exhibit C [Section 7(e) Opinion of Hunton & Williams] 1. Each Owner Participant is a corporation duly incorporated, validly existing and in good standing as a corporation under the laws of the State of Delaware, and has the requisite corporate power and authority to execute, deliver and perform its respective obligations under each of the Participation Agreement, the Tax Indemnification Agreement and the Owner Trust Agreements (the "Owner Participant Documents"). 2. Each of the Owner Participant Documents has been duly each Owner Participant, and each such document, on the date of execution thereof, constituted and currently constitutes the legal, valid and binding obligations of such Owner Participant, enforceable against the Owner Participant in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, moratorium, reorganization and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 3. Neither the execution and delivery of each of the Owner Participant Documents by each Owner Participant nor the consummation by such Owner Participant of any of the transactions therein contemplated, nor the fulfillment of, or compliance with the terms and provisions of any thereof, (A) requires the consent or approval of, the giving of notice to, the registration with, or the taking of any other action with respect to, any federal or state governmental authority or agency, or (B) contravenes any federal or state law, governmental rule or regulation binding on any Owner Participant (except no opinion is given as to any federal or state law, governmental rule or regulation to which such Owner Participant may be subject because of the activities of the Company, as lessee), or (C) results in the breach of any of the terms, conditions or provisions of the Certificate of Incorporation or By-Laws, each as amended to date, of each Owner Participant, or (D) to our knowledge, is in violation of any judgment or order applicable to each Owner Participant or results in any breach of or constitutes any default under, or results in the imposition of, any lien upon the Trust Estate under any indenture, mortgage, bank credit agreement, note or bond purchase agreement, long-term agreement, long-term lease, license or other material contract, agreement or instru- 42 ment to which the Owner Participant is a party or by which the Owner Participant or any material part of its properties is bound, or constitutes or will constitute a default thereunder (other than breaches, defaults or violations which do not materially and adversely affect the ability of each Owner Participant to perform its obligations under the Owner Participant Documents). 4. To the best of our knowledge, there are no pending or threatened actions or proceedings affecting any Owner Participant's ability to perform its obligations under the Owner Participant Documents before any court or administrative agency or arbitrator that questions the validity or enforceability of the Owner Participant Documents or that, if adversely determined, would materially and adversely affect the ability of the Owner Participant to perform its obligations under the Owner Participant Documents. 5. Each Owner Participant is an entity separate and distinct from the Owner Trust. -2- 43 Exhibit D [Section 7(f) Opinion of Emmet, Marvin & Martin, LLP] 1. The Indenture Trustee is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of New York, and has the corporate power and authority to execute, deliver and perform each of the Indentures and the Participation Agreement. 2. The Indenture Trustee, in its individual and trust capacities, has duly authorized, executed and delivered each of the Indentures and the Participation Agreement. Each of the Indentures and the Participation Agreement constitutes a legal, valid and binding obligation of the Indenture Trustee enforceable against the Indenture Trustee in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 3. The Mortgage Notes have been duly authenticated and delivered by the Indenture Trustee in accordance with the terms of the Indentures. 4. The authorization, execution, delivery and performance by the Indenture Trustee of the Indentures and the Participation Agreement, and the authentication and delivery of the Mortgage Notes thereunder, do not and will not result in the violation of the provisions of the charter or by-laws of the Indenture Trustee, and do not and will not conflict with, or result in a breach of any terms or provisions of, or constitute a default under, or result in the creation or the imposition of any lien, charge or encumbrance upon any property or assets of the Indenture Trustee, under any indenture, mortgage or other agreement or instrument known to us to which the Indenture Trustee is a party or by which it or any of its property is bound, or any law of the State of New York or Federal law, rule or regulation governing the Indenture Trustee's banking or trust powers, or of any judgment, order or decree known to us to be applicable to the Indenture Trustee, or any court, regulatory body, administrative agency, 44 government or governmental body having jurisdiction over the Indenture Trustee or its properties. 5. No authorization, approval, consent, license or order of, giving of notice to, or registration with, any governmental authority or agency pursuant to any Federal or New York law governing the banking or trust powers of the Indenture Trustee, is required for the authorization, execution and delivery by the Indenture Trustee of the Indentures and the Participation Agreement or the performance by the Indenture Trustee of its duties thereunder. 6. To the best of our knowledge, but without independent investigation, there are no proceedings pending or threatened, against or affecting the Indenture Trustee before any governmental authority which would, either in any one case or in the aggregate, if adversely determined, materially and adversely affect the Indenture Trustee's ability to perform its obligations under any of the Indentures or the Participation Agreement. 7. (a) There are no fees, taxes or other charges payable (except taxes imposed on fees payable to the Indenture Trustee) to the State of New York or any political subdivision thereof in connection with the execution, delivery and performance of the Indentures or the Participation Agreement which would not have been imposed if the Indenture Trustee had not had its principal place of business in or performed its duties under the Indentures in the State of New York and (b) neither the Indenture Trustee nor the trust created under each of the Indentures will be subject to any fee, tax or other charge under the laws of the State of New York or any political subdivision thereof in existence on the date hereof, on, based on or measured by, directly or indirectly, any payments under the Mortgage Notes or the gross receipts, net income or value of the Indenture Estate which would not have been imposed if the Indenture Trustee had not had its principal place of business in or performed its duties under the Indentures in the State of New York.] -2- 45 Exhibit E-1 [Section 7(g) Opinion of Squire, Sanders & Dempsey] 1. The Pass Through Trustee is a national banking association, duly organized, validly existing and in good standing under the laws of the United States of America, and the Pass Through Trustee has the corporate power and authority to execute, deliver and perform the Pass Through Trust Agreement. 2. The Pass Through Trustee, in its individual and trust capacities, has duly authorized, executed and delivered the Pass Through Agreement, and the Pass Through Agreement constitutes a legal, valid and binding obligation of the Pass Through Trustee. 3. In any action or proceeding arising out of or relating to the Pass Through Agreement or the Securities in any court of the State of Florida or in any federal court sitting in the State of Florida, such court would recognize and give effect to the provisions of Section 2.14 of the Pass Through Agreement by which the parties agree that the Pass Through Agreement and the certificates shall be governed by, and construed in accordance with, the laws of the State of New York. 4. The Securities have been duly authorized and validly executed, issued, authenticated, and delivered by the Pass Through Trustee pursuant to the Pass Through Agreement. 5. The execution, delivery and performance by the Pass Through Trustee of the Pass Through Agreement does not and will not result in the violation of the provisions of the charter or by-laws of the Pass Through Trustee, or any Florida or Federal law, rule or regulation governing the exercise of the Pass Through Trustee's banking or trust powers, or of any judgment, order or decree known to us to be applicable to the Pass Through Trustee, of any court, regulatory body, administrative agency, government or governmental body having jurisdiction over the Pass Through Trustee or its properties. 6. No authorization, approval, consent, license or order of, giving of notice to, or registration with, any governmental authority or agency pursuant to any applicable Florida or Federal law governing the banking or trust powers of the Pass Through Trustee, is required for the authorization, execution and delivery by the Pass Through 46 Trustee of the Pass Through Trust Agreement or the issuance, execution and delivery of the Securities. 7. To the best of our knowledge, but without any independent investigation whatsoever, there are no proceedings pending or threatened against the Pass Through Trustee before any governmental authority which would, either in any one case or in the aggregate, if adversely determined, materially and adversely affect the Pass Through Trustee's ability to perform its obligations under the Pass Through Agreement. 8. (a) There are no fees, taxes or other charges payable by the Pass Through Trustee (except taxes imposed on fees payable by the Pass Through Trustee and occupational license taxes imposed on the Pass Through Trustee for conducting its trust business in the City of Jacksonville, Florida) to the State of Florida or the consolidated City of Jacksonville/Duval County in connection with the execution, delivery and performance of any of the Pass Through Agreement or the purchase, holding or sale of the Securities which would not have been imposed if the Pass Through Trustee had not had its principal place of business in or performed its duties under the Pass Through Agreement in the City of Jacksonville, Florida and (b) none of the Pass Through Trustee, the Pass Through Trust or the holders of the Securities will be subject to any fee, tax or other charge under the laws of the State of Florida or the Consolidated City of Jacksonville/Duval Country in existence on the date hereof, on, based on or measured by, directly or indirectly, any payments on the Securities or the gross receipts, net or gross income, tangible or intangible property, net worth or capital of the Pass Through Trust which would not have been imposed if the Pass Through Trustee had not had its principal place of business in or performed its duties under the Pass Through Agreements in the City of Jacksonville, Florida. -2- 47 Exhibit E-2 [Section 7(g) Opinion of Jones, Day, Reavis & Pogue] 1. The Pass Through Trustee is a corporation, duly incorporated, validly existing and in good standing under the laws of the State of California, and the Pass Through Trustee has the corporate power and authority to execute, deliver and perform the Pass Through Trust Agreement. 2. The Pass Through Trustee has duly authorized, executed and delivered the Pass Through Agreement, and the Pass Through Agreement constitutes a legal, valid and binding obligation of the Pass Through Trustee. 3. In any action or proceeding arising our of or relating to the Pass Through Agreement or the Securities in any court of the State of California or in any federal court sitting in the State of California, such court would recognize and give effect to the provisions of Section 2.14 of the Pass Through Agreement by which the parties agree that the Pass Through Agreement and the Certificates shall be governed by, and construed in accordance with, the laws of the State of New York. 4. The Securities have been duly authorized and validly executed, issued, authenticated, and delivered by the Pass Through Trustee pursuant to the Pass Through Agreement. 5. The execution, delivery and performance by the Pass Through Trustee of the Pass Through Agreement does not and will not result in the violation of the provisions of the charter or by-laws of the Pass Through Trustee, or any California or Federal law, rule or regulation governing the exercise of the Pass Through Trustee's banking or trust powers, or of any judgment, order or decree known to us to be applicable to the Pass Through Trustee, of any court, regulatory body, administrative agency, government or governmental body having jurisdiction over the Pass Through Trustee or its properties. 6. No authorization, approval, consent, license or order of, giving of notice to, or registration with, any governmental authority or agency pursuant to any applicable California or Federal law governing the banking or trust powers of the Pass Through Trustee, is required for the authorization, execution and delivery by the Pass Through 48 Trustee of the Pass Through Trust Agreement or the issuance, execution and delivery of the Securities. 7. To the best of our knowledge, but without any independent investigation whatsoever, there are no proceedings pending or threatened against the Pass Through Trustee before any governmental authority which would, either in any one case or in the aggregate, if adversely determined, materially and adversely affect the Pass Through Trustee's ability to perform its obligations under any of the Pass Through Agreement. 8. (a) There are no fees, taxes or other charges payable (except taxes imposed on fees payable by the Pass Through Trustee and utility user taxes imposed on the Pass Through Trustee for conducting its trust business in the City of Los Angeles) to the State of California, the City of Los Angeles or the county of Los Angeles in connection with the execution, delivery and performance of the Pass Through Agreement or the purchase, holding or sale of the Securities which would not have been imposed if the Pass Through Trustee had not had its principal place of business in or performed its duties under the Pass Through Trust Agreement in the City of Los Angeles, California and (b) none of the Pass Through Trustee, the Pass Through Trust or the holders of the Securities will be subject to any fee, tax or other charge under the laws of the State of California, the City of Los Angeles or the county of Los Angeles in existence on the date hereof, on, based on or measured by, directly or indirectly, any payments on the Securities or the gross receipts, net or gross income, tangible or intangible property, net worth or capital of the Pass Through Trust which would not have been imposed if the Pass Through Trustee had not had its principal place of business in or performed its duties under the Pass Through Agreements in the City of Los Angeles, California. -2- 49 Exhibit F [Section 7(h) Opinion of Remainder Purchaser] 1. The Remainder Purchaser is a business trust, duly organized, validly existing and in good standing under the laws of the State of Delaware, and the Remainder Purchaser has the power and authority to execute, deliver and perform each of the Pass Through Documents to which it is a party, to acquire, own, lease and give a lien on and security interest in all of its right, title and interest in and to the property constituting the Properties. 2. The Remainder Purchaser has duly authorized, executed and delivered each Pass Through Document to which it is a party. Each such Pass Through Document constitutes a legal, valid and binding obligation of the Remainder Purchaser enforceable against the Remainder Purchaser in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. 3. With respect to each Property, the Remainder Purchaser has received from the Company or applicable seller such title to such Property as the Company or applicable seller conveyed to the Remainder Purchaser, subject to the rights of the Owner Trustee, the Owner Trust and the Company under the Lease, the Estate for Years and the Options to Lease and the security interest created pursuant to the related Indenture; and to our knowledge, there exist no Liens affecting the title of the Remainder Purchaser to any title conveyed by the Remainderman Deed resulting from claims against the Remainder Purchaser not related to the ownership of such title conveyed by the Remainderman Deed or any other transaction pursuant to the Sale and Leaseback Transactions. 4. The authorization, execution, delivery and performance by the Remainder Purchaser of the Pass Through Documents to which it is a party and the consummation of the transactions therein contemplated and compliance with the terms thereof, do not and will not result in the violation of the provisions of the charter or by-laws of the Remainder Purchaser, and do not and will not conflict with, or result in a breach of any terms or provisions of, or constitute a default 50 under, or result in the creation or the imposition of any lien, charge or encumbrance upon any property or assets of the Remainder Purchaser, under any indenture, mortgage or other agreement or instrument known to us to which the Remainder Purchaser is a party or by which it or any of its property is bound, or any Delaware or Federal law, or of any judgment, order or decree known to us to be applicable to the Remainder Purchaser, or any court, regulatory body, administrative agency, government or governmental body having jurisdiction over the Remainder Purchaser or its properties. 5. No authorization, approval, consent, license or order of, giving of notice to, registration with, or taking of any other action in respect of, any Federal or state governmental authority or agency pursuant to any Delaware or Federal law governing the corporate powers of the Remainder Purchaser, is required for the authorization, execution, delivery and performance by the Remainder Purchaser of the Pass Through Documents to which it is a party or the consummation of any of the transactions contemplated thereby by the Remainder Purchaser (except such as shall have been duly obtained, given or taken); and such authorization, execution, delivery, performance, consummation, and issuance do not conflict with or result in a breach of the provisions of any such law. 6. There are no proceedings pending, or to the best of our knowledge, threatened, and to the best of our knowledge there is no existing basis for any such proceeding against or affecting the Remainder Purchaser before any governmental authority which would, either in any one case or in the aggregate, if adversely determined, materially and adversely affect the Remainder Purchaser's ability to perform its obligations under any of the Pass Through Documents to which it is a party. To the best of our knowledge, the Remainder Purchaser is not in default with respect to any order of any governmental authority which default would, either in any one case or in the aggregate, materially adversely affect the Remainder Purchaser's ability to perform its obligations under any of the Pass Through Documents. 7. (a) There are no fees, taxes or other charge payable by the Remainder Purchaser (except taxes imposed on fees payable by the Remainder Purchaser) to the State of Delaware or any political subdivision thereof in connection with the execution, delivery and performance of any of the Pass Through Documents and -2- 51 (b) the Remainder Purchaser will not be subject to any fee, tax or other charge under the laws of the State of Delaware or any political subdivision thereof in existence on the date hereof, on, based on or measured by, directly or indirectly, any payments under the Pass Through Documents or the gross receipts, net income or value of the interest created by the Remainderman Deed. -3- EX-4.1 3 EXHIBIT 4.1 1 EXHIBIT 4.1 Draft of March 31 1995 ================================================================================ PASS THROUGH TRUST AGREEMENT-1995-K-[1/2] Dated as of April __, 1995 Between [PASS THROUGH TRUSTEE [1/2]], as Pass Through Trustee, and KMART CORPORATION ================================================================================ 2 CROSS REFERENCE SHEET Between Provisions of the Trust Indenture Act of 1939, as amended, and the Pass Through Trust Agreement:
Section of Section of the Act the Agreement - ------------------ ------------- 310(a) (1) and (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11 310(a) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.14 310(a) (4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 310(a) (5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 310(b) (i)-(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.09, 8.10, 8.12 310(b) (remainder) . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 310(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 311(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 311(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.01 312(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 312(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.02 313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 313(b) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 313(b) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 313(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 313(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.04 314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03 314(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03 314(c) (1) and (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.07 314(c) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 314(d) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 314(d) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 314(d) (3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 314(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.07 314(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 315(a), (c) and (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 315(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 315(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 316(a) (1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.09, 7.10 316(a) (2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * 316(a) (last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 6.04 316(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.08 316(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01(b) 317(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.03, 7.05 317(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inapplicable 318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.08
__________________________________ * Intentionally deleted. 3 TABLE OF CONTENTS
Page ---- RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE II DECLARATION OF TRUST; ISSUANCE OF PASS THROUGH CERTIFICATES; ACQUISITION OF MORTGAGE NOTES SECTION 2.01. Designations; Aggregate Amount; Declaration of Trust . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.02. Payment and Delivery . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.03. Limitation of Powers . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.04. Execution of Pass Through Certificates . . . . . . . . . . . . . . 9 SECTION 2.05. Certificate of Authentication . . . . . . . . . . . . . . . . . . 10 SECTION 2.06. Form of Pass Through Certificates . . . . . . . . . . . . . . . . 10 SECTION 2.07. Registration, Transfer and Exchange . . . . . . . . . . . . . . . 10 SECTION 2.08. Mutilated, Destroyed, Lost and Stolen Pass Through Certificates . . . . . . . . . . . . . . . . 11 SECTION 2.09. Cancellation of Pass Through Certificates; Destruction Thereof . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 2.10. Temporary Pass Through Certificates . . . . . . . . . . . . . . . 12 SECTION 2.11. Pass Through Certificates Issuable in the Form of a Registered Global Security . . . . . . . . . . . . . . 13 ARTICLE III CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 3.01. Covenants of the Company . . . . . . . . . . . . . . . . . . . . . 14 SECTION 3.02. Offices for Payments; Registrar . . . . . . . . . . . . . . . . . 15
Note: This Table of Contents shall not, for any purpose, be deemed to be a part of the Pass Through Trust Agreement. -i- 4
Page ---- SECTION 3.03. Representations and Warranties of the Pass Through Trustee . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 3.04. No Representations or Warranties as to Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 SECTION 3.05. Payments from Trust Property Only . . . . . . . . . . . . . . . . 17 SECTION 3.06. Limitation of the Company's Liability . . . . . . . . . . . . . . 17 ARTICLE IV CERTIFICATEHOLDER LISTS AND REPORTS BY THE COMPANY AND THE PASS THROUGH TRUSTEE SECTION 4.01. Certificateholder Lists; Ownership of Pass Through Certificates . . . . . . . . . . . . . . . . . . . . . . 17 SECTION 4.02. Disclosure of Certificateholder Lists . . . . . . . . . . . . . . 17 SECTION 4.03. Reports by the Company . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 4.04. Reports by the Pass Through Trustee . . . . . . . . . . . . . . . 18 ARTICLE V RECEIPT AND DISTRIBUTION OF INCOME AND PROCEEDS FROM THE TRUST PROPERTY SECTION 5.01. Certificate Account and Special Payments Account . . . . . . . . . 19 SECTION 5.02. Distributions from Certificate Account and Special Payments Account . . . . . . . . . . . . . . . . . . . . 19 SECTION 5.03. Statements to Certificateholders . . . . . . . . . . . . . . . . . 21 SECTION 5.04. Investment of Special Payment Moneys . . . . . . . . . . . . . . . 21 SECTION 5.05. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE VI CONCERNING THE CERTIFICATEHOLDERS SECTION 6.01. Evidence of Action Taken by Certificateholders . . . . . . . . . . 22
Note: This Table of Contents shall not, for any purpose, be deemed to be a part of the Pass Through Trust Agreement. -ii- 5
Page ---- SECTION 6.02. Proof of Execution of Instruments and of Holding of Certificates . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 6.03. Certificateholders to be Treated as Owners . . . . . . . . . . . . 23 SECTION 6.04. Pass Through Certificates Owned by the Company, Owner Trust, Remainderman, Owner Trustees and Owner Participant Deemed Not Outstanding . . . . . . . . . . . . 24 SECTION 6.05. Right of Revocation of Action Taken . . . . . . . . . . . . . . . 24 ARTICLE VII REMEDIES OF PASS THROUGH TRUSTEE AND CERTIFICATEHOLDERS SECTION 7.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 7.02. Incidents of Sale of Mortgage Notes . . . . . . . . . . . . . . . 26 SECTION 7.03. Pass Through Trustee May Prove Debt . . . . . . . . . . . . . . . 27 SECTION 7.04. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 7.05. Suits for Enforcement . . . . . . . . . . . . . . . . . . . . . . 28 SECTION 7.06. Discontinuance of Proceedings . . . . . . . . . . . . . . . . . . 28 SECTION 7.07. Limitations on Suits by Certificateholders . . . . . . . . . . . . 28 SECTION 7.08. Unconditional Right of Certificateholders to Receive Scheduled Payments and Special Payments and to Institute Certain Suits . . . . . . . . . . . . . . . . . 29 SECTION 7.09. Control by Certificateholders . . . . . . . . . . . . . . . . . . 29 SECTION 7.10. Waiver of Past Events of Default . . . . . . . . . . . . . . . . . 29 SECTION 7.11. Notice of Pass Through Defaults . . . . . . . . . . . . . . . . . 30 ARTICLE VIII CONCERNING THE PASS THROUGH TRUSTEE SECTION 8.01. Acceptance by Pass Through Trustee . . . . . . . . . . . . . . . . 30 SECTION 8.02. Pass Through Trustee's Liens . . . . . . . . . . . . . . . . . . . 30 SECTION 8.03. Certain Rights of the Pass Through Trustee . . . . . . . . . . . . 31 SECTION 8.04. Pass Through Trustee Not Responsible for Recitals . . . . . . . . 32 SECTION 8.05. Pass Through Trustee and Agents May Hold Pass Through Certificates; Collections . . . . . . . . . . . . . . . 32
Note: This Table of Contents shall not, for any purpose, be deemed to be a part of the Pass Through Trust Agreement. -iii- 6
Page ---- SECTION 8.06. Moneys Held by Pass Through Trustee . . . . . . . . . . . . . . . 32 SECTION 8.07. Right of Pass Through Trustee to Rely on Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 32 SECTION 8.08. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 SECTION 8.09. Resignation and Removal of Pass Through Trustee; Appointment of Successor . . . . . . . . . . . . . . . . . . . . 33 SECTION 8.10. Disqualification; Conflicting Interests . . . . . . . . . . . . . 34 SECTION 8.11. Persons Eligible for Appointment as Pass Through Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 8.12. Acceptance of Appointment by Successor Trustee . . . . . . . . . . 35 SECTION 8.13. Merger, Conversion, Consolidation or Succession to Business of Pass Through Trustee . . . . . . . . . . . . . . . . 36 SECTION 8.14. Appointment of Separate Pass Through Trustees . . . . . . . . . . 36 SECTION 8.15. Appointment of Authenticating Agent . . . . . . . . . . . . . . . 38 ARTICLE IX INDEMNIFICATION OF PASS THROUGH TRUSTEE BY THE COMPANY . . . . . . . . . . . . . . . . . . . 40 ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS PASS THROUGH AGREEMENT AND OTHER DOCUMENTS SECTION 10.01. Supplemental Agreements Without Consent of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 10.02. Supplemental Agreements With Consent of Certificateholders . . . . . . . . . . . . . . . . . . . . . . . 42 SECTION 10.03. Effect of Supplemental Agreements . . . . . . . . . . . . . . . . 43 SECTION 10.04. Documents to Be Given to Pass Through Trustee . . . . . . . . . . 43 SECTION 10.05. Notation on Pass Through Certificates in Respect of Supplemental Agreements . . . . . . . . . . . . . . . . . . . 44 SECTION 10.06. Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 10.07. Revocation and Effect of Consents . . . . . . . . . . . . . . . . 44 SECTION 10.08. Amendments, Waivers, Etc., of Indenture Documents . . . . . . . . . . . . . . . . . . . . . . 44
Note: This Table of Contents shall not, for any purpose, be deemed to be a part of the Pass Through Trust Agreement. -iv- 7
Page ---- ARTICLE XI TERMINATION OF PASS THROUGH TRUSTS; UNCLAIMED MONEYS SECTION 11.01. Termination of Pass Through Trust . . . . . . . . . . . . . . . . 45 SECTION 11.02. Application by Pass Through Trustee of Funds Deposited for Payment of Pass Through Certificates . . . . . . . 45 SECTION 11.03. Transfer of Moneys Held by Pass Through Trustee Unclaimed for Two Years and Eleven Months . . . . . . . . . . . 45 ARTICLE XII MISCELLANEOUS SECTION 12.01. Capacity in Which Acting . . . . . . . . . . . . . . . . . . . . . 46 SECTION 12.02. No Legal Title to Trust Property in Certificateholders . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 12.03. Certificates Nonassessable and Fully Paid . . . . . . . . . . . . 46 SECTION 12.04. Pass Through Agreement for the Benefit of the Company, the Pass Through Trustee and the Certificateholders . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 12.05. Limitation on Rights of Certificateholders . . . . . . . . . . . . 46 SECTION 12.06. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 12.07. Officer's Certificates and Opinions of Counsel; Statements to Be Contained Therein . . . . . . . . . . . . . . . 47 SECTION 12.08. Conflict of Any Provision of Pass Through Agreement with the Trust Indenture Act . . . . . . . . . . . . . . . . . . 48 SECTION 12.09. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 SECTION 12.10. No Oral Modifications or Continuing Waivers . . . . . . . . . . . 49 SECTION 12.11. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 12.12. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 12.13. Normal Commercial Relations . . . . . . . . . . . . . . . . . . . 49 SECTION 12.14. Governing Law; Counterpart Form . . . . . . . . . . . . . . . . . 49 SECTION 12.15. Tax Intent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 SECTION 12.16. Distributions Due on Days Other than Business Days . . . . . . . . 50 SECTION 12.17. Notices and Reports to Duff & Phelps and Moody's . . . . . . . . . 50
Note: This Table of Contents shall not, for any purpose, be deemed to be a part of the Pass Through Trust Agreement. -v- 8
Page ---- SCHEDULE A-I - Schedule of Mortgage Notes to be Acquired EXHIBIT A - Form of Pass Through Certificate EXHIBIT B - Letter of Representations
Note: This Table of Contents shall not, for any purpose, be deemed to be a part of the Pass Through Trust Agreement. -vi- 9 PASS THROUGH TRUST AGREEMENT-1995-K-[1/2], dated as of March __, 1995, between KMART CORPORATION, a Michigan corporation (the "Company"), and [PASS THROUGH TRUSTEE [1/2]], a _______________ organized under the laws of _______________________, as trustee (the "Pass Through Trustee"). RECITALS WHEREAS, capitalized terms used herein shall have the respective meanings set forth or referred to in Article I hereof; WHEREAS, pursuant hereto the Company and the Pass Through Trustee do hereby declare the creation of a Pass Through Trust for the benefit of the Certificateholders of Pass Through Certificates to be issued pursuant to such Pass Through Trust, and the initial Certificateholders as the grantors of the Pass Through Trust, by their respective acceptances of such Pass Through Certificates, will join in the creation of such Pass Through Trust; WHEREAS, the Pass Through Certificates will evidence fractional undivided interests in the Pass Through Trust pursuant to which they will be issued, and will have no rights, benefits or interest in respect of any other separate Pass Through Trust or the Trust Property held in any such other Pass Through Trust; WHEREAS, the Trust Property will include Mortgage Notes issued by the Owner Trusts pursuant to the Indentures, which Mortgage Notes are of the same tenor as the Pass Through Certificates to be issued in respect of such Pass Through Trust, and the Pass Through Trustee will hold such Mortgage Notes in trust as Trust Property for the benefit of the Certificateholders; WHEREAS, the Company has duly authorized the execution and delivery of this Pass Through Agreement as the "issuer," as such term is defined in and solely for purposes of the Securities Act, of the Pass Through Certificates to be issued in respect of each Pass Through Trust and as the "obligor," as such term is defined in and solely for purposes of the Trust Indenture Act, with respect to all such Pass Through Certificates, and is undertaking to perform certain administrative and ministerial duties hereunder and is also undertaking to pay the fees and expenses of the Pass Through Trustee; WHEREAS, this Pass Through Agreement, as it may be supplemented from time to time, is subject to the provisions of the Trust Indenture Act and shall, to the extent applicable, be governed by such provisions; IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows: 10 ARTICLE I DEFINITIONS The following terms (except as otherwise expressly provided) for all purposes of this Pass Through Agreement have the respective meanings specified in this Section. All other terms used in this Pass Through Agreement that are defined in the Trust Indenture Act (as defined below) or the definitions of which in the Securities Act (as defined below) are referred to in the Trust Indenture Act (except as herein otherwise expressly provided), have the meanings assigned to such terms in the Trust Indenture Act and in the Securities Act as in force at the date of this Pass Through Agreement. All accounting terms used and not expressly defined herein have the meanings given to them in accordance with generally accepted accounting principles, and the term "generally accepted accounting principles" means the accounting principles that are generally accepted at the date or time of any computation or otherwise at the date hereof. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Pass Through Agreement as a whole and not to any particular Article, Section or other subdivision. References to designated "Articles," "Sections," "subsections" and other subdivisions of this Pass Through Agreement are to the designated Articles, Sections, subsections and other subdivisions of this Pass Through Agreement as originally executed. The terms defined in this Article include the plural as well as the singular. "Affiliate" has, for any Person, the meaning specified in Rule 0-2 under the Trust Indenture Act. "Authenticating Agent" means any Person authorized by the Pass Through Trustee pursuant to Section 8.15 to act on behalf of the Pass Through Trustee to authenticate Pass Through Certificates. "Business Day" means any day other than Saturday, Sunday or other day on which banking institutions in the States of New York or Michigan are authorized or required by law or executive order to close. "Certificate Account" means the account or accounts created and maintained for the Pass Through Trust pursuant to Section 5.01(a). "Certificate Owner" means 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. "Certificateholder" means the registered holder of any Pass Through Certificate as evidenced on the Register. -2- 11 "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Exchange Act, or if at any time after the execution and delivery of this Pass Through Agreement such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties on such date. "Company" means Kmart Corporation, a Michigan corporation, and its permitted successors and assigns hereunder. "Corporate Trust Office" means the corporate trust office of the Pass Through Trustee located at ________________________________________________, or such other office at which the Pass Through Trustee's corporate trust business shall be administered and which the Pass Through Trustee shall have specified by notice in writing to the Company and the Certificateholders. "Corporate Indenture Trustee" has the meaning specified in the Indentures. "Corporate Owner Trustee" has the meaning specified in the Indentures. "Depository" means the depository of the Registered Global Certificates, if any, representing the Pass Through Certificates and any successor to such depository appointed by the Company pursuant hereto. Such depository initially shall be The Depository Trust Company, a New York corporation. "Distribution Date" means any Regular Distribution Date or Special Distribution Date, or both. "Dollars" and "$" mean lawful currency of the United States of America. "Event of Default" has the meaning specified in Section 7.01 hereof. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Fractional Undivided Interest" means, for any Pass Through Certificate, the fractional undivided interest in the Pass Through Trust that is evidenced thereby. "Government Obligations" means direct obligations of the United States of America which are not callable, redeemable or payable prior to maturity, in whole or in part, directly or indirectly, by any Person. "Indenture" means each Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement dated as of March __, 1995 among the Indenture Trustees and the related Owner Trust, pursuant to which each Mortgage Note is issued, as such agreement may be modified, supplemented or amended from time to time in accordance with the -3- 12 Indenture Documents. In the event the Company assumes the obligations of the Owner Trust under any Indenture pursuant to Section 3.08 thereof by the execution and delivery of a Company Indenture (as defined in the Indenture), such Company Indenture shall be included within the meaning of Indenture as used in this Agreement. "Indenture Documents" means, for any Mortgage Note, the related Indenture, the related Trust Agreement (and any supplement thereto), the Participation Agreement, the related Lease, [OTHERS?] and the Mortgage Notes, in each case as defined in such Indenture. "Indenture Event of Default" means, for any Indenture, any event or condition defined as an "Indenture Event of Default" in such Indenture. "Indenture Trustees" means the Persons defined as such in the Indentures. "Initial Regular Distribution Date" means the first Regular Distribution Date following the Issuance Date for such Pass Through Trust. "Issuance Date" means the date of the issuance of the Pass Through Certificates which shall be the date defined as the Closing Date in the Underwriting Agreement. "Lease" means, for any Mortgage Note, the related agreement between the Company, as lessee, and the related Owner Trust, as lessor, dated as of the date hereof. "Letter of Representations" means a letter from the Company and the Pass Through Trustee to, and accepted by, the Depository substantially in the form attached as Exhibit B hereto, as such letter may be modified or supplemented, or any successor letter thereto. "Lien" means any mortgage, pledge, lien, charge, disposition of title, encumbrance, lease or security interest. "Majority in Interest of Certificateholders" and "66 2/3% in Interest of Certificateholders" means, respectively, on any date, Pass Through Certificates then Outstanding (or the proxy therefor) representing in the aggregate not less than a majority or 66 2/3%, respectively, of the aggregate Fractional Undivided Interests of the Pass Through Certificates then Outstanding. "Mortgage Note" means any of the Mortgage Notes (including any mortgage notes issued in exchange, replacement or substitution therefor), issued pursuant to the Indentures and described herein, or on a schedule attached hereto, which are to be held by the Pass Through Trustee as part of the Trust Property. The Mortgage Notes are listed on Schedule A hereto. In the event that the Company assumes the obligations of the related Owner Trust under any Mortgage Note by the issuance of Company Mortgage Notes (as defined in the -4- 13 Indentures) in substitution therefor, the Company Mortgage Notes shall be deemed to be included within the meaning of Mortgage Notes as used in this Agreement. "Officer's Certificate" means a certificate signed by a Responsible Officer of the Company, the Corporate Indenture Trustee or the Corporate Owner Trustee, as the case may be, delivered to the Pass Through Trustee. Each such certificate shall include the statements provided for in Section 12.07. "Opinion of Counsel" means a written opinion of legal counsel to the Company or an Owner Trust or the Indenture Trustees, as the case may be, designated by the Company or such Owner Trust or the Indenture Trustees, as the case may be, and reasonably satisfactory to the Pass Through Trustee. "Outstanding" means, when used with respect to Pass Through Certificates, as of the date of determination and subject to the provisions of Section 6.04, all Pass Through Certificates theretofore authenticated and delivered under this Pass Through Trust Agreement, with the exception of the following: (i) Pass Through Certificates theretofore cancelled by the Pass Through Trustee or delivered to the Pass Through Trustee for cancellation pursuant to Section 2.09; (ii) All Pass Through Certificates if money in the amount required to make the final distribution thereon in accordance with Section 11.01 has been theretofore deposited with the Pass Through Trustee in trust for the Certificateholders pending such final distribution; (iii) Pass Through Certificates which have been paid pursuant to Section 2.09 or in exchange for or in lieu of which other Pass Through Certificates have been authenticated and delivered pursuant to Article II hereof other than any such Pass Through Certificates in respect of which then shall have been presented to the Pass Through Trustee proof satisfactory to it that such Pass Through Certificates are held by a bona fide purchaser; and (iv) Pass Through Certificates alleged to have been destroyed, lost or stolen which have been paid as provided in Section 2.08 hereof. "Overdue Scheduled Payment" means, for any Pass Through Trust, any Scheduled Payment that is not received within ten Business Days after the Regular Distribution Date applicable to such Scheduled Payment. "Owner Participant" means the Person defined as such in the Participation Agreement. -5- 14 "Owner Trust" is as defined in the Indentures. "Owner Trustees" is as defined in the Indentures. "Participation Agreement" means the agreement, dated as of the date hereof, among the Company, the Owner Participants, the Owner Trustees, the Owner Trust, the Indenture Trustees, the Remainderman Participant, the Remainderman Trustee and the Remainderman, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Pass Through Agreement," "this Pass Through Agreement" and other like words mean this Pass Through Trust Agreement as the same may be modified, supplemented or amended from time to time in accordance with the provisions hereof. "Pass Through Certificate" means any of the Certificates executed, authenticated and delivered by the Pass Through Trustee, in accordance with and pursuant to this Pass Through Agreement. "Pass Through Default" means an Event of Default or an event or condition that, with the giving of notice or the lapse of time or both, would become an Event of Default. "Pass Through Trust" means the trust created in accordance with this Pass Through Agreement, the rest of which consists of the Trust Property. "Pass Through Trustee" means [PASS THROUGH TRUSTEE 1/2], a __________ ___________________, not in its individual capacity except as expressly stated herein, but solely in its capacity as Pass Through Trustee under this Pass Through Agreement, and its successors and assigns as Pass Through Trustee hereunder. "Permitted Investments" means any Government Obligations. "Person" means any individual, corporation, partnership, joint venture, association, limited liability company, joint-stock company, trust, nonincorporated organization or government or any agency or political subdivision thereof. "Pool Balance" means, as of any date of determination, the aggregate unpaid principal amount of the Mortgage Notes that constitute Trust Property on such date plus the amount of the principal payments on such Mortgage Notes held by the Pass Through Trustee and not yet distributed (other than earnings thereon and without giving effect to any losses on investments thereof). The Pool Balance as of any Regular Distribution Date or Special Distribution Date shall be computed after giving effect to the payment of principal, if any, on such Mortgage Notes and the distribution thereof being made on that date. -6- 15 "Pool Factor" means, as of any date of determination, the quotient (rounded to the seventh decimal place) computed by dividing (i) the Pool Balance by (ii) the aggregate original principal amount of the Mortgage Notes. "Purchase and Sale Agreement" is as defined in the Indentures. "Record Date" means for any Regular Distribution Date and any Special Distribution Date, the 15th day preceding such Regular Distribution Date or Special Distribution Date, as the case may be, in any event, whether or not such date is a Business Day. "Register" has the meaning set forth in Section 3.02 hereof. "Registered Global Certificate" means the Pass Through Certificate, if any, issued to the Depository in accordance with Article II and bearing the legend prescribed in Section 2.11(a). "Registrar" has the meaning set forth in Section 3.02 hereof. "Regular Distribution Date" means any date specified in Section 5.02(a) for the distribution of any Scheduled Payment to the Certificateholders. "Remainderman" is as defined in the Indentures. "Remainderman Participant" is as defined in the Indentures. "Remainderman Trustee" is as defined in the Indentures. "Responsible Officer" means the president or any other officer with authority of at least a vice president; or, in the case of the Pass Through Trustee, an officer or assistant officer of the Pass Through Trustee in its Corporate Trust Department. "Scheduled Payment" means any scheduled payment of interest on or principal of and interest on any Mortgage Note that constitutes Trust Property hereof to be made in the amounts and on the dates set forth for such payment in such Mortgage Note, but does not include any Overdue Scheduled Payment. "Securities Act" means the Securities Act of 1933, as amended. "Special Distribution Date" means the date specified in Section 5.02(a) on which a Special Payment is to be distributed to the Certificateholders. -7- 16 "Special Payment" means any payment (including any Overdue Scheduled Payment) other than a Scheduled Payment on any Mortgage Note that constitutes Trust Property, or any proceeds from the sale of such Mortgage Note pursuant to Article VII. "Special Payments Account" means the account or accounts created and maintained pursuant to Section 5.01(b). "Trust Agreement" is as defined in the Indentures. "Trust Indenture Act" means (except as otherwise provided in Sections 10.01, and 10.06) the Trust Indenture Act of 1939, as in force at the date as of which this Pass Through Agreement was first qualified under such Act; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means all money, instruments, including the Mortgage Notes, and other property held as the property of the Pass Through Trust, including all monies at any time paid thereon and all monies due and to become due thereunder and proceeds thereof. "Underwriters" means the several Underwriters named in the Underwriting Agreement. "Underwriting Agreement" means the Underwriting Agreement dated ___________, 1995 between the Company and Goldman, Sachs & Co. as Underwriters. ARTICLE II DECLARATION OF TRUST; ISSUANCE OF PASS THROUGH CERTIFICATES; ACQUISITION OF MORTGAGE NOTES SECTION 2.01. Designations; Aggregate Amount; Declaration of Trust. (a) The Pass Through Trust created hereby shall be designated Kmart Corporation Pass Through Trust-1995-K-[1/2] (herein sometimes called the "Pass Through Trust"). The Pass Through Certificates evidencing Fractional Undivided Interests in such Pass Through Trust shall be designated as the "Kmart Corporation-1995-K-[1/2] Pass Through Certificates" (herein sometimes called the "Pass Through Certificates"). The aggregate amount of Pass Through Certificates that may be authenticated, executed, delivered and Outstanding in accordance with this Pass Through Agreement is limited to $[______________]. All Pass Through Certificates shall be substantially identical except as to denomination. The Pass Through Certificates will evidence Fractional Undivided Interests in the Pass Through Trust created hereby, and will have no rights, benefits or interest in respect of any other separate pass -8- 17 through trust, if any, or the Trust Property, if any, held in such other pass through trust. All Pass Through 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 the actual time or times of authentication and delivery, all in accordance with the terms and provisions of this Pass Through Agreement. (b) Each initial Certificateholder, by its payment for and acceptance of any Pass Through Certificate is hereby deemed, (1) as grantor, to join in the creation and declaration of this Pass Through Trust, and (2) as beneficiary of this Pass Through Trust, to authorize and direct the Pass Through Trustee to execute and deliver all documents to which the Pass Through Trustee is a party that may be necessary or desirable to consummate the transactions contemplated hereby and to exercise its rights and perform its duties under this Pass Through Agreement. The Pass Through Trustee hereby acknowledges and accepts this grant of trust and declares that it will hold the Trust Property for the use and benefit of the Certificateholders. SECTION 2.02. Payment and Delivery. Subject to the terms set forth herein, on the Issuance Date (i) the Underwriters shall execute a wire transfer or intra-bank transfer, or deliver a federal funds check to the Corporate Owner Trustee or as the Corporate Owner Trustee may direct on behalf of the Pass Through Trustee in the amount of the total proceeds payable by such Underwriters pursuant to the Underwriting Agreement with respect to the Pass Through Certificates and (ii) the Pass Through Trustee shall deliver the executed and authenticated Pass Through Certificates to the Underwriters as provided in the Underwriting Agreement upon receipt by the Corporate Owner Trustee on behalf of the Pass Through Trustee of such proceeds. SECTION 2.03. Limitation of Powers. The Pass Through Trust is hereby constituted solely for the purpose of making the investment in the Mortgage Notes provided for herein and in the Purchase and Sale Agreement, and, except as set forth herein, the Pass Through Trustee shall not be authorized or empowered to acquire any other investments or engage in any other activities and, in particular, the Pass Through Trustee shall not be authorized or empowered to do anything that would cause such Pass Through Trust to fail to qualify as a "grantor trust" for federal income tax purposes (including as subject to this restriction, acquiring any Property (as defined in the respective Indenture) by bidding for such Mortgage Notes or otherwise, or taking any action with respect to any such Property once acquired). SECTION 2.04. Execution of Pass Through Certificates. The Pass Through Certificates shall be signed by the Pass Through Trustee on behalf of the Pass Through Trust by an authorized officer of the Pass Through Trustee. Such signatures may be the manual or facsimile signatures of such officer. -9- 18 If any officer of the Pass Through Trustee who signs any of the Pass Through Certificates subsequently ceases to be such officer before the Pass Through Certificate so signed is authenticated and delivered by the Pass Through Trustee, such Pass Through Certificate nevertheless may be authenticated and delivered as though the person who signed such Pass Through Certificate had not ceased to be such officer of the Pass Through Trustee; and any Pass Through Certificate may be signed on behalf of the Pass Through Trustee by such person or persons as, at the actual date of the execution of such Pass Through Certificate, are the proper officers of the Pass Through Trustee, although at the date of the execution and delivery of this Pass Through Agreement any such person was not such officer. SECTION 2.05. Certificate of Authentication. The Pass Through Trustee shall duly authenticate and deliver Pass Through Certificates in authorized denominations equalling, in the aggregate, the aggregate principal amount of the Mortgage Notes, and evidencing the entire ownership of the Pass Through Trust. Only such Pass Through Certificates as shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit A, executed by the Pass Through Trustee or an Authenticating Agent by manual or facsimile signature of one of its authorized signatories, shall be entitled to the benefits of this Pass Through Trust Agreement or be valid or obligatory for any purpose. Such certificate of authentication executed by the Pass Through Trustee upon any Pass Through Certificate shall be conclusive evidence, and the only evidence, that the Pass Through Certificate has been duly authenticated and delivered hereunder and that the Certificateholder is entitled to the benefits of the Pass Through Trust. SECTION 2.06. Form of Pass Through Certificates. The Pass Through Certificates shall be substantially in the form set forth in Exhibit A hereto. Subject to the provisions of Section 2.11 hereof, the Pass Through Certificates shall be issuable as registered securities without coupons and shall be numbered, lettered, or otherwise distinguished from one another. The Pass Through Certificates shall be issued in denominations of $1,000 initial principal amount and any integral multiple thereof and shall be dated the date of their authentication. The Pass Through Certificates may be issued with appropriate insertions, omissions, substitutions and variations, and may have imprinted or otherwise reproduced thereon such legend or legends, not inconsistent with the provisions of this Pass Through Agreement, as may be required to comply with any law or with any rules or regulations pursuant thereto, or with the rules of any securities exchange on which such Pass Through Certificates are admitted to trading, or to conform to general usage. SECTION 2.07. Registration, Transfer and Exchange. The Pass Through Trustee shall keep at each office or agency to be maintained for the purpose as provided in Section 3.02, a Register or Registers in which, subject to such reasonable regulations as it may prescribe, it shall register, and shall register the transfer of, Pass Through Certificates as -10- 19 provided in this Article. Such Register shall be in written form in the English language or in any other form capable of being converted into such form within a reasonable time. Upon due presentation for registration of transfer of any Pass Through Certificate at any such office or agency, the Pass Through Trustee shall execute, on behalf of the Pass Through Trust, authenticate and deliver in the name of the transferee or transferees a new Pass Through Certificate or Pass Through Certificates in authorized denominations and evidencing a like aggregate Fractional Undivided Interest. Any Pass Through Certificate or Pass Through Certificates may be exchanged for a Pass Through Certificate or Pass Through Certificates in other authorized denominations. Pass Through Certificates to be exchanged shall be surrendered at any office or agency to be maintained by the Pass Through Trust for the purpose as provided in Section 3.02, and the Pass Through Trustee shall execute, authenticate and deliver in exchange therefor the Pass Through Certificate or Pass Through Certificates which the Certificateholder making the exchange shall be entitled to receive, bearing numbers not contemporaneously or previously outstanding. All Pass Through Certificates presented for registration of transfer, exchange, redemption or payment shall (if so required by the Pass Through Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Pass Through Trustee duly executed by, the Certificateholder or his attorney-in-fact duly authorized in writing. The Pass Through Trustee may require payment from the Certificateholder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Pass Through Certificates. No service charge to the Certificateholder shall be made for any such transaction. All Pass Through Certificates issued upon any transfer or exchange of Pass Through Certificates shall evidence ownership in the Pass Through Trust and be entitled to the same benefits under this Pass Through Agreement as the Pass Through Certificates surrendered upon such transfer or exchange. SECTION 2.08. Mutilated, Destroyed, Lost and Stolen Pass Through Certificates. If any mutilated Pass Through Certificate is surrendered to the Pass Through Trustee, the Pass Through Trustee shall execute, on behalf of the Pass Through Trust, authenticate and deliver in exchange therefor a new Pass Through Certificate bearing a number not contemporaneously outstanding. If there shall be delivered to the Pass Through Trustee and any agent of the Pass Through Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Pass Through Certificate and (ii) such security or indemnity as may be required by them to save each of them and the Company harmless, then, in the absence of notice to the Pass Through -11- 20 Trustee that such Pass Through Certificate has been acquired by a bona fide purchaser, the Pass Through Trustee shall execute, on behalf of the Pass Through Trust, authenticate and deliver, in lieu of any such destroyed, lost or stolen Pass Through Certificate, a new Pass Through Certificate bearing a number not contemporaneously outstanding. If, at the time a notice of termination has been given pursuant to Section 11.01, any Pass Through Certificate becomes mutilated, destroyed, lost or stolen, the Pass Through Trustee in its discretion may, instead of issuing a new Pass Through Certificate, pay such Pass Through Certificate. Upon the issuance of any new Pass Through 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 connection therewith. Every new Pass Through Certificate issued pursuant to this Section in lieu of any destroyed, lost or stolen Pass Through Certificate shall constitute conclusive evidence of the Fractional Undivided Interest evidenced by the Pass Through Certificate that it replaces, whether or not the destroyed, lost or stolen Pass Through Certificate may be enforceable at any time by anyone, and shall be entitled to all the benefits of this Pass Through Trust Agreement equally and proportionately with any and all other Pass Through Certificates duly issued hereunder. The provisions of this Section are exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Pass Through Certificates. SECTION 2.09. Cancellation of Pass Through Certificates; Destruction Thereof. All Pass Through Certificates surrendered for payment, redemption, registration of transfer or exchange, if surrendered to any agent of the Pass Through Trustee, shall be delivered to the Pass Through Trustee for cancellation or, if surrendered to the Pass Through Trustee, shall be cancelled by it; and no Pass Through Certificates shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Pass Through Agreement. The Pass Through Trustee shall destroy cancelled Pass Through Certificates held by it. SECTION 2.10. Temporary Pass Through Certificates. Pending the preparation of definitive Pass Through Certificates, the Pass Through Trustee may execute, on behalf of the Pass Through Trust, authenticate and deliver temporary Pass Through Certificates (printed, lithographed, typewritten or otherwise reproduced, in each case in form satisfactory to the executing officer of the Pass Through Trustee, as evidenced by such officer's execution thereof). Such temporary Pass Through Certificates shall be issuable as registered Pass Through Certificates without coupons, of any authorized denomination, and substantially in the form of the definitive Pass Through Certificates but with such omissions, insertions and variations as may be appropriate for temporary Pass Through Certificates, all as may be determined by the executing officer of the Pass Through Trustee, as evidenced by such -12- 21 officer's execution thereof. Temporary Pass Through Certificates may contain such reference to any provisions of this Pass Through Agreement as may be appropriate. Every such temporary Pass Through Certificate shall be executed and authenticated by the Pass Through Trustee upon the same conditions and in substantially the same manner, and with like effect, as the definitive Pass Through Certificates. Without unreasonable delay, the Company shall furnish definitive Pass Through Certificates and thereupon temporary Pass Through Certificates shall be surrendered in exchange therefor without charge at any office or agency to be maintained by the Pass Through Trustee for such purpose pursuant to Section 3.02, and the Pass Through Trustee shall execute, authenticate and deliver in exchange for such temporary Pass Through Certificates such definitive Pass Through Certificates evidencing a like aggregate Fractional Undivided Interest in authorized denominations. Until so exchanged, temporary Pass Through Certificates shall be entitled to the same benefits hereunder as definitive Pass Through Certificates. SECTION 2.11. Pass Through Certificates Issuable in the Form of a Registered Global Security. (a) The Pass Through Trustee shall, in accordance with this Article, execute on behalf of the Pass Through Trust, 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 Pool Balance, (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 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." (b) Notwithstanding any other provision of this Section or of Section 2.07, the Registered Global Certificates may be transferred, in whole but not in part and in the manner provided in Section 2.07, 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 Company 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) at any time the Company advises the Pass Through Trustee in writing that the Depository is no longer willing or able to properly discharge its responsibilities or if at any time the Depository shall no longer be eligible under subsection (c) above, and the Company is unable to appoint a qualified successor within 90 days after the Company -13- 22 receives such notice or becomes aware of such condition, as the case may be, or (ii) the Company at any time and in its sole discretion determines that the Pass Through Certificates shall no longer be represented by Registered Global Certificates and that the provisions of this Section shall no longer apply to such Pass Through Certificates, then this Section shall no longer be applicable to the Pass Through 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 Pass Through 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 on behalf of the Pass Through Trust, authenticate and deliver Pass Through Certificates in definitive registered form without coupons, in authorized denominations, and in an aggregate Fractional Undivided Interest equal to the Fractional Undivided 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 Pass Through Certificates in definitive registered form without coupons, in authorized denominations, such Registered Global Certificates shall be cancelled by the Pass Through Trustee. The Company shall bear all costs of the preparation, execution, authentication and delivery of such Pass Through Certificates. Such Pass Through 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 Pass Through Certificates to the Persons in whose names such Pass Through Certificates are so registered. (e) As long as the Pass Through Certificates are represented by the Registered Global Certificates, all distributions shall be made to the holders of such Registered Global Certificates as the Certificateholders, or to such Persons as such holders may designate, by wire transfer of immediately available funds on the date such distributions are due, and the Company 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 Pass Through Certificates in definitive registered form are issued pursuant to paragraph (d) above, on the Record Date prior to each Regular Distribution Date and Special Distribution 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 Certificates on such Record Date. The Pass Through Trustee shall mail to each such Depository participant the statements described in Section 5.03. -14- 23 ARTICLE III CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS SECTION 3.01. Covenants of the Company. (a) The Company shall not (i) consolidate with or merge into any other corporation under circumstances in which the Company is not the surviving corporation or (ii) convey, transfer or lease all or substantially all of its assets as an entirety to any Person, unless the corporation formed by such consolidation or into which the Company is merged or the Person which acquired by conveyance, transfer or lease substantially all of the assets of the Company as an entirety shall be a corporation organized and existing under the laws of the United States of America or any State or the District of Columbia, and shall execute and deliver to the Pass Through Trustee an agreement reasonably satisfactory in form and substance to the Pass Through Trustee containing an effective assumption by such successor corporation of the due and punctual performance and observance of each covenant and condition to be performed or observed by the Company hereunder. (b) Upon any consolidation or merger, or any conveyance, transfer or lease of substantially all the assets of the Company as an entirety, the successor corporation formed by such consolidation or the Person into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Agreement with the same effect as if such successor corporation or such Person, as the case may be, had been named as the Company herein and therein. No such conveyance, transfer or lease of substantially all of the assets of the Company as an entirety shall have the effect of releasing the Company or any successor corporation which shall theretofore have become such in the manner prescribed in this Section from its liability hereunder. (c) An Officer's Certificate and an Opinion of Counsel of the Company shall be conclusive evidence that any consolidation, merger, sale, lease or conveyance, and any assumption complies with the provisions of this Section and the Pass Through Trustee shall be entitled to rely upon the same for all purposes hereof. (d) The Company shall provide written notice as soon as practicable to Duff & Phelps and Moody's (at the addresses set forth in Section 12.17 hereof) of any merger, consolidation or conveyance, transfer or lease of substantially all the assets of the Company. In addition, the Company shall provide copies to Duff & Phelps and Moody's (at the addresses set forth in Section 12.17 hereof) of its quarterly and annual financial statements and any environmental, engineering and other reports prepared from time to time with respect to a Property. SECTION 3.02. Offices for Payments; Registrar. So long as any Pass Through Certificates remain outstanding, the Pass Through Trustee will maintain the following: -15- 24 (a) an office or agency where such Pass Through Certificates may be presented for payment and (b) a facility or agency in New York, New York where such Pass Through Certificates may be presented for registration of transfer and for exchange and for redemption as provided in this Pass Through Agreement (the "Registrar"). The Registrar shall keep a register (the "Register") with respect to the Pass Through Certificates and their transfer and exchange. The Pass Through Trustee may appoint one or more co-registrars ("Co-Registrars") and may terminate any such appointment at any time upon written notice. The term "Registrar" includes any Co-Registrar. The Corporate Indenture Trustee shall initially act as Registrar and shall initially serve as an office where Pass Through Certificates can be presented for payment. SECTION 3.03. Representations and Warranties of the Pass Through Trustee. The Pass Through Trustee, in its individual capacity, represents, warrants and agrees that: (i) it is a validly existing __________________ duly organized under the laws of ________________, holding a valid certificate to do business as ___________ _________________ with banking and trust powers and has the corporate power and authority to enter into and perform its obligations under this Pass Through Agreement; (ii) this Pass Through Agreement has been duly authorized by all necessary corporate action on its part, and neither the execution and delivery hereof nor its performance of any of the terms and provisions hereof will violate any Federal or state law or regulation relating to its banking or trust powers or contravene or result in any breach of, or constitute any default under its articles of association, or by-laws or the provisions of any indenture, mortgage, contract or other agreement to which it is a party or by which it or its properties may be bound or affected; (iii) this Pass Through Agreement has been duly executed and delivered by it and, assuming that this Pass Through Agreement is the legal, valid and binding obligation of the Company, is the legal, valid and binding obligation of the Pass Through Trustee, enforceable against the Pass Through Trustee in accordance with its terms except as limited by bankruptcy, insolvency, moratorium, reorganization, receivership, fraudulent conveyance or similar laws or equitable principles of general application to or affecting the enforcement of creditors' rights and remedies generally from time to time in effect, regardless of whether such enforceability is considered in a proceeding in equity or at law; and (iv) no Pass Through Trustee's Lien (as described in Section 8.02 hereof) is in existence. The execution, delivery and performance by Pass Through Trustee of this Pass Through Trust Agreement (as Pass Through Trustee or in its individual capacity) will not subject the Trust Property, or any portion thereof, to any such Pass Through Trustee Liens. -16- 25 SECTION 3.04. No Representations or Warranties as to Documents. The Pass Through Trustee neither makes nor shall be deemed to have made any representation or warranty as to the validity, legality or enforceability of this Pass Through Agreement, any Pass Through Certificates or any Indenture Documents or as to the correctness of any statement contained in any thereof, except for the representations and warranties of the Pass Through Trustee made in its individual capacity under this Pass Through Agreement or in any other Indenture Documents. SECTION 3.05. Payments from Trust Property Only. All payments to be made by the Pass Through Trustee shall be made only from the income and the proceeds from the Trust Property and only to the extent that the Pass Through Trustee shall have sufficient income or proceeds from the Trust Property to enable the Pass Through Trustee to make distributions of the amounts due in respect of the Pass Through Certificates thereunder. Each Certificateholder by its acceptance of a Pass Through Certificate agrees that it will look solely to the income and proceeds from the Trust Property to the extent available for distribution to it as provided herein and that the Pass Through Trustee is not personally liable to such Certificateholder for any amounts payable under such Pass Through Trust except as expressly provided herein. SECTION 3.06. Limitation of the Company's Liability. The Company is a party to this Pass Through Agreement solely for purposes of meeting the requirements of the Securities Act and the Trust Indenture Act, and therefore shall not be liable hereunder, except as otherwise expressly provided herein, or under the terms of Pass Through Certificates, except as otherwise expressly provided therein. ARTICLE IV CERTIFICATEHOLDER LISTS AND REPORTS BY THE COMPANY AND THE PASS THROUGH TRUSTEE SECTION 4.01. Certificateholder Lists; Ownership of Pass Through Certificates. The Pass Through Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Certificateholders. If the Pass Through Trustee is not the Registrar, the Company shall cause the Registrar to furnish to the Pass Through Trustee semi-annually not more than 15 days after each Record Date, as of such Record Date, or 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, containing all the information in the possession or control of the Registrar as to the names and addresses of the Certificateholders and the amounts of the Pass Through Certificates held by such Certificateholders. SECTION 4.02. Disclosure of Certificateholder Lists. Each and every Certificateholder, by receiving and holding such Pass Through Certificate, agrees with the Company -17- 26 and the Pass Through Trustee that neither the Company, the Pass Through Trustee, the Pass Through Trustee in its individual capacity nor any agent of any of the foregoing shall be held accountable by reason of the disclosure of any such information as to the names and addresses of any Certificateholders in accordance with the provisions of Section 312 of the Trust Indenture Act, regardless of the source from which such information was derived, and that the Pass Through Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act. SECTION 4.03. Reports by the Company. The Company covenants: (i) to file with the Pass Through Trustee, within 30 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents, and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act or, if the Company is not required to file information, documents, or reports pursuant to either of such Sections of the Exchange Act, then to file with the Pass Through Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents, and reports which may be required pursuant to Section 13 of the Exchange Act, in respect of a security listed and registered on a national securities exchange, as may be prescribed from time to time in such rules and regulations; (ii) to file with the Pass Through Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents, and reports with respect to compliance by the Company with the conditions and covenants provided for in this Pass Through Agreement as may be required from time to time by such rules and regulations; (iii) to transmit to the Certificateholders in the manner and to the extent required by Section 313(c) of the Trust Indenture Act, such summaries of any information, documents and reports required to be filed by the Company pursuant to subsections (i) and (ii) of this Section 4.03 as may be required by rules and regulations prescribed from time to time by the Commission; (iv) to furnish to the Pass Through Trustee, on or before April 30 of each calendar year commencing 1996, a brief certificate from the principal executive officer, principal financial officer or principal accounting officer of the Company as to his or her knowledge of the Company's compliance with all conditions and covenants under this Pass Through Agreement. For purposes of this subsection (iv), such compliance shall be determined without regard to any period of grace or requirement of notice provided under this Pass Through Agreement; and -18- 27 (v) to furnish to the Pass Through Trustee such opinions as may be required by Section 314(b) of the Trust Indenture Act. SECTION 4.04. Reports by the Pass Through Trustee. (a) On or before March 31 of each calendar year commencing in 1996, the Pass Through Trustee shall transmit to Certificateholders such reports concerning the Pass Through Trustee and its actions under this Pass Through Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (b) A copy of each such report shall, at the time of such transmission to Certificateholders, be filed by the Pass Through Trustee with each stock exchange upon which the Pass Through Certificates are listed, with the Commission and with the Company. The Company will notify the Pass Through Trustee when the Pass Through Certificates are listed on any stock exchange, in accordance with Section 313(c) of the Trust Indenture Act. ARTICLE V RECEIPT AND DISTRIBUTION OF INCOME AND PROCEEDS FROM THE TRUST PROPERTY SECTION 5.01. Certificate Account and Special Payments Account. (a) The Pass Through Trustee shall establish and maintain for the Pass Through Trust, on behalf of the Certificateholders, a Certificate Account as one or more segregated non-interest bearing accounts. The Pass Through Trustee shall hold such Certificate Account in trust for the benefit of the Certificateholders, and shall make or permit withdrawals therefrom only as provided in this Pass Through Agreement. Upon receipt of any Scheduled Payment, the Pass Through Trustee shall immediately deposit such Scheduled Payment in the Certificate Account. (b) The Pass Through Trustee shall establish and maintain for the Pass Through Trust, on behalf of the Certificateholders, a separate Special Payments Account, as one or more segregated non-interest bearing accounts. The Pass Through Trustee shall hold such Special Payments Account in trust for the benefit of the Certificateholders and shall make or permit withdrawals therefrom only as provided in this Pass Through Agreement. Upon receipt of any Special Payment, the Pass Through Trustee shall immediately deposit such Special Payment in the Special Payments Account. (c) The Pass Through Trustee shall present any Mortgage Note to the Corporate Indenture Trustee on the date of its stated final maturity, or on such earlier date as such Mortgage Note is to be redeemed in whole pursuant to the relevant Indenture. -19- 28 SECTION 5.02. Distributions from Certificate Account and Special Payments Account. (a) The Regular Distribution Dates shall be January 5 and July 5, commencing on July 5, 1995, or if any such day is not a Business Day, the next succeeding Business Day. The Special Distribution Date for any month in which a Special Payment is to be distributed shall be the ______________ day of such month. (b) On each related Regular Distribution Date, upon receipt of any Scheduled Payment due on the Mortgage Notes on such Regular Distribution Date, the Pass Through Trustee shall distribute out of the Certificate Account the entire amount deposited therein pursuant to Section 5.01(a) by paying to each Certificateholder of record at the close of business on the Record Date for such Regular Distribution Date (except as provided in Section 11.01 concerning the final distribution), at the address for such Certificateholder appearing in the Register, such Certificateholder's pro rata share (based on the aggregate Fractional Undivided Interest in the Pass Through Trust held by such Certificateholder) of the aggregate amount in the Certificate Account. (c) On each Special Distribution Date, upon receipt of any Special Payment on the Mortgage Notes or realized upon the sale of any such Mortgage Notes, the Pass Through Trustee shall distribute out of the Special Payments Account the entire amount of such Special Payment deposited therein pursuant to Section 5.01(b) by paying to each Certificateholder of record at the close of business on the Record Date for such Special Distribution Date (except as provided in Section 11.01 concerning the final distribution), at the address for such Certificateholder appearing in the Register, such Certificateholder's pro rata share (based on the aggregate Fractional Undivided Interest in the Pass Through Trust held by such Certificateholder) of the aggregate amount in the Special Payments Account on account of such Special Payment. (d) The Pass Through Trustee shall, at the expense of the Company, notify each Certificateholder by mail at its address as it appears in the Register of each Special Payment. If the Mortgage Notes are to be redeemed or purchased in whole prior to their maturity, such notice shall be mailed not less than 20 days prior to the date any such Special Payment is scheduled to be distributed. For any other Special Payment, such notice shall be mailed as soon as practicable after the Pass Through Trustee has received such Special Payment. Such notices of Special Payments shall set forth: (i) the Special Distribution Date and the Record Date therefor (except as otherwise provided in Section 11.01); (ii) the amount of the Special Payment for each $1,000 initial principal amount and the amount thereof constituting principal, premium, if any, and interest on the Mortgage Notes; (iii) the reason for the Special Payment; and -20- 29 (iv) if the Special Distribution Date is the same date as a Regular Distribution Date, the total amount to be received on such date for each $1,000 initial principal amount. If the amount of premium, if any, payable upon the redemption or purchase in whole of a Mortgage Note has not been calculated at the time that the Pass Through Trustee mails the notice of the related Special Payment, it shall be sufficient if the notice sets forth the other amounts to be distributed and states that any premium received will also be distributed. (e) Any Scheduled Payment or Special Payment to be distributed pursuant to this Article shall be payable at any office or agency maintained for such purpose pursuant to Section 3.02, provided that any Scheduled Payment may be payable at the option of the Pass Through Trustee by mailing checks for such Scheduled Payment payable to or upon the written order of the Certificateholders entitled thereto as they appear on the Register. Notwithstanding the foregoing to the contrary, so long as all of the Outstanding Pass Through Certificates are held by a Depository (or its nominee), each Scheduled Payment and Special Payment shall be made by wire transfer of funds in accordance with the agreement with such Depository. SECTION 5.03. Statements to Certificateholders. (a) On each Regular Distribution Date and Special Distribution Date, the Pass Through Trustee shall include with each distribution to Certificateholders a statement, giving effect to such distribution to be made on such Regular Distribution Date or Special Distribution Date, as the case may be, setting forth the following information (as to (i) and (ii) below, for each $1,000 initial principal amount Pass Through Certificate): (i) The amount of such distribution allocable to principal and the amount allocable to premium, if any, on the Mortgage Notes; (ii) The amount of such distribution allocable to interest on the Mortgage Notes; (iii) The Pool Balance and the Pool Factor; and (iv) Any earnings on Special Payments derived from Permitted Investments that are distributed to Certificateholders. (b) Within a reasonable period of time after the end of each calendar year but not later than the latest date permitted by law, the Pass Through Trustee shall furnish to each Person who at any time during such calendar year was a Certificateholder a statement containing the sum of the amounts determined pursuant to clauses (a)(i), (a)(ii) and (a)(iv) of this Section for such calendar year or, in the event such Person was a Certificateholder during a portion of such calendar year, for the applicable portion of such year. -21- 30 SECTION 5.04. Investment of Special Payment Moneys. Any money received by the Pass Through Trustee pursuant to Section 5.01(b) representing a Special Payment that is not to be promptly distributed shall, to the extent practicable, be invested by the Pass Through Trustee at the direction of the Company in Permitted Investments maturing no later than the next succeeding Special Distribution Date pending distribution of such Special Payment pursuant to Section 5.02. Any investment made pursuant to this Section 5.04 shall be in such Permitted Investments having maturities not later than the date that such moneys are required to be used to make the payment required under Section 5.02 on the applicable Special Distribution Date and the Pass Through Trustee shall hold any such Permitted Investments until maturity. The proceeds upon maturity of any Permitted Investment shall not be reinvested pending distribution. The Pass Through Trustee shall have no liability with respect to any investment made pursuant to this Section, other than by reason of its own negligent action, its own negligent failure to act or its own willful misconduct. All income and earnings from such investments shall be distributed on such Special Distribution Date as part of such Special Payment. SECTION 5.05. Withholding Taxes. The Pass Through Trustee shall withhold any taxes required to be withheld under applicable law, regulation or rule, including any interest or penalty in connection therewith, on payments to any Certificateholder except to the extent that such Certificateholder has furnished evidence satisfactory to the Pass Through Trustee of any exemption from or reduction in withholding claimed by such Certificateholder and such withholding on payments shall constitute a payment to the Certificateholder. In the event that such evidence furnished by such Certificateholder to establish its withholding exemption is false, inaccurate or no longer true, the Certificateholder shall be liable for such amounts necessary to indemnify the Company and the Pass Through Trustee for expenses attributable to such false, inaccurate or untrue evidence and any related contests or disputes and the same may be withheld from distributions otherwise distributable to such Holder. To the extent that the Pass Through Trustee fails, with respect to any Certificateholder, to withhold and pay over any such taxes to the appropriate taxing authority, the Pass Through Trustee shall, upon a claim being made for such taxes by such authority, take all reasonable steps to recover such taxes from such Certificateholder, including, without limitation, withholding the amount of such taxes from subsequent distributions, if any, to such Certificateholder. The Pass Through Trustee agrees (i) that it will timely pay the amounts withheld pursuant to this Section 5.05 to the appropriate authority, (ii) that it will file any necessary withholding tax returns or statements when due and (iii) that, as promptly as possible after the payment of such amounts, it will deliver to the Company, the Indenture Trustees and the Owner Trusts appropriate documentation showing the payment of such amounts, together with such additional documentary evidence as the Company may reasonably request from time to time. The Pass Through Trustee agrees to file any other information reports as it may be required to file under United States law. -22- 31 ARTICLE VI CONCERNING THE CERTIFICATEHOLDERS SECTION 6.01. Evidence of Action Taken by Certificateholders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Pass Through 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 otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to the Pass Through Trustee. Proof of execution of any instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Pass Through Agreement and (subject to Sections 8.02 and 8.03) conclusive in favor of the Pass Through Trustee, if made in the manner provided in this Article. (b) For the purpose of determining the Certificateholders entitled to vote or consent to any direction, waiver or other action of such Certificateholders under Section 7.09 or 7.10, the Company may set a record date for such vote or consent by specifying such record date in an Officer's Certificate delivered to the Pass Through Trustee. Notwithstanding Section 316(c) of the Trust Indenture Act, such record date shall be a date not more than 15 days prior to the first solicitation of such vote or consent. SECTION 6.02. Proof of Execution of Instruments and of Holding of Certificates. The fact and date of the execution by any Certificateholder of any instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgements of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Certificateholder executing the same, may also be proved in any other manner which the Pass Through Trustee deems sufficient. The holding of Pass Through Certificates shall be proved by the Register. SECTION 6.03. Certificateholders to be Treated as Owners. Prior to due presentment for registration of transfer of any Pass Through Certificate, the Indenture Trustees, the Pass Through Trustee, the Registrar, if any, and the Company, and any agent of the Indenture Trustees, the Pass Through Trustee, the Registrar or the Company may deem and treat the Person in whose name such Pass Through Certificate shall be registered upon the Register as the absolute owner of such Pass Through Certificate (whether or not such Pass Through Certificate shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving, subject to the provisions of this Pass Through Agreement, Scheduled Payments and Special Payments with respect to such Pass Through Certificate and for all other purposes; and none of the Indenture Trustees, -23- 32 the Pass Through Trustee, nor any such agent, the Registrar or the Company shall be affected by any notice to the contrary. All such payments so made to any such person, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Pass Through Certificate. SECTION 6.04. Pass Through Certificates Owned by the Company, Owner Trust, Remainderman, Owner Trustees and Owner Participant Deemed Not Outstanding. In determining whether the Certificateholders of the requisite aggregate Fractional Undivided Interest have given or concurred in any request, demand, authorization, direction, consent or waiver under this Pass Through Agreement, Pass Through Certificates that are owned by the Company, an Owner Trust, the Remainderman, an Owner Trustee or an Owner Participant or any obligor on the Mortgage Notes or by any Affiliate of any of the foregoing shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; provided that for the purpose of determining whether the Pass Through Trustee shall be protected in relying on any such request, demand, authorization, direction, consent or waiver, only if a Responsible Officer of the Pass Through Trustee has actual knowledge that certain Pass Through Certificates are so owned shall such Pass Through Certificates be so disregarded; and provided further that if all Pass Through Certificates that would be deemed Outstanding in the absence of the foregoing provision are owned by the Company, an Owner Trust, the Remainderman, an Owner Trustee or an Owner Participant or any obligor on such Mortgage Notes or by any Affiliate of any of the foregoing, then such Pass Through Certificates shall be deemed Outstanding for the purpose of any such determination. Pass Through Certificates so owned that have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Pass Through Trustee the pledgee's right so to act with respect to such Pass Through Certificates and that the pledgee is not the Company, the Owner Trust, the Remainderman, an Owner Trustee or the Owner Participant or any obligor upon the Mortgage Notes or any Affiliate of any of the foregoing. In case of a dispute as to such right, the advice of counsel shall be full protection in respect of any decision made by the Pass Through Trustee in accordance with such advice. Upon request of the Pass Through Trustee, the Company, the Remainderman, each Owner Trustee and the Owner Participant shall furnish to the Pass Through Trustee promptly an Officer's Certificate listing and identifying all Pass Through Certificates, if any, known by the Company, the Remainderman, the Owner Trustees or the Owner Participants, as the case may be, to be owned or held by or for the account of any of the above-described persons; and, subject to Section 8.03, the Pass Through Trustee shall be entitled to accept such Officer's Certificates as conclusive evidence of the facts set forth therein and of the fact that all Pass Through Certificates not listed therein are Outstanding for the purpose of any such determination. SECTION 6.05. Right of Revocation of Action Taken. At any time prior to (but not after) the evidencing to the Pass Through Trustee, as provided in Section 6.01, of any action taken by the Certificateholders of the percentage in aggregate of Fractional Undivided Interests specified in this Pass Through Agreement in connection with such action, any Certificateholder of a Pass Through Certificate, the serial number of which is shown by the -24- 33 evidence to be included among the serial numbers of the Pass Through Certificates, the Certificateholders of which have consented to such action, may, by filing written notice at the Corporate Trust Office and upon proof of holding as provided in this Article, revoke such action so far as concerns such Pass Through Certificate. Except as aforesaid, any such action taken shall be conclusive and binding upon such Certificateholder and upon all future Certificateholders and owners of such Pass Through Certificate and of any Pass Through Certificates issued in exchange or substitution therefor or in lieu thereof, irrespective of whether or not any notation in regard thereto is made upon any such Pass Through Certificate or otherwise. Any action taken by such Certificateholders of the percentage in aggregate of Fractional Undivided Interests specified in this Pass Through Agreement in connection with such action shall be conclusively binding upon the Pass Through Trustee and all the Certificateholders. ARTICLE VII REMEDIES OF PASS THROUGH TRUSTEE AND CERTIFICATEHOLDERS SECTION 7.01. Events of Default. If an Indenture Event of Default relating to any Mortgage Note that constitutes Trust Property (an "Event of Default") shall occur and be continuing, then, and in each and every case, the Pass Through Trustee may vote all of such Mortgage Notes, and upon the direction of a Majority in Interest of Certificateholders, the Pass Through Trustee shall vote a corresponding percentage of such Mortgage Notes in favor of directing the related Indenture Trustees to declare the unpaid principal of such Mortgage Notes then outstanding, together with interest accrued but unpaid thereon and all other amounts due under such Mortgage Notes and the related Indenture, to be due and payable under, and in accordance with the provisions of, such Indenture. In addition, if such Indenture Event of Default shall have occurred and be continuing, the Pass Through Trustee may, in accordance with such related Indenture, vote such Mortgage Notes to direct the Indenture Trustees regarding the exercise of such remedies provided in such Indenture. An Event of Default with respect to one Indenture will not constitute a default under any other Indenture and will not give rise to any right of the Indenture Trustee or the Pass Through Trustee (i) to exercise any remedies with respect to such unrelated Indenture or (ii) to vote any Mortgage Notes issued pursuant to such other Indenture in favor of exercising any such remedies. If an Event of Default shall have occurred and be continuing, and after the Mortgage Notes shall have become due and payable under Section 7.02(b) or 7.02(c) of the related Indenture, the Pass Through Trustee also may in its discretion, and upon the direction of a Majority in Interest of Certificateholders shall, by such officer or agent as it may appoint, sell, convey, transfer and deliver any Mortgage Notes held in the Pass Through Trust, without recourse to or warranty by the Pass Through Trustee or any Certificateholder, to any Person. In any such case, but subject to compliance with the Securities Act and other -25- 34 applicable laws and regulations, the Pass Through Trustee shall sell, assign, contract to sell or otherwise dispose of and deliver any such Mortgage Notes in one or more parcels at public or private sale or sales, at any location or locations at the option of the Pass Through Trustee, all upon such terms and conditions as it may reasonably deem advisable and at such prices as it may reasonably deem advisable, for cash. The Pass Through Trustee may, in its discretion, at any such sale restrict the prospective bidders or purchasers as to their number, nature of business and investment intention, including, without limitation, a requirement that the persons making such purchases represent and agree to the satisfaction of the Pass Through Trustee that they are purchasing the Mortgage Notes for their account, for investment, and not with a view to the distribution or resale of any thereof. If the Pass Through Trustee so decides or is required to sell or otherwise dispose of any Mortgage Notes pursuant to this Section, the Pass Through Trustee shall take such of the actions described above as it may reasonably deem most effective to complete the sale or other disposition of such Mortgage Notes, so as to provide for the payment in full of all amounts due with respect to such Mortgage Notes. Notwithstanding the foregoing, any action taken by the Pass Through Trustee under this Section shall not, in the reasonable judgment of the Pass Through Trustee, be adverse to the best interests of the Certificateholders. SECTION 7.02. Incidents of Sale of Mortgage Notes. Upon any sale of all or any part of the Mortgage Notes held in the Pass Through Trust made either under the power of sale given under this Pass Through Agreement or otherwise for the enforcement of this Pass Through Agreement, the following, subject to compliance with securities laws and the provisions of Section 7.01, shall be applicable: (1) Certificateholders or Pass Through Trustee May Purchase Mortgage Notes. Any Certificateholder, the Pass Through Trustee in its individual or, subject to Section 2.03, any other capacity or any other Person may bid for and purchase any of the Mortgage Notes, and upon compliance with the terms of sale, may hold, retain, possess and dispose of such Mortgage Notes in its or their own absolute right without further accountability. (2) Discharge of Purchaser. The receipt of the Pass Through Trustee or of the officer making such sale shall be a sufficient discharge to any purchaser for his purchase money, and, after paying such purchase money and receiving such receipt, such purchaser or its personal representative or assigns shall not be obliged to see to the application of such purchase money, or be in any way answerable for any loss, misapplication or non-application thereof. (3) Application of Moneys Received upon Sale. Any moneys collected by the Pass Through Trustee upon any sale made either under the power of sale given by this Pass Through Agreement or otherwise for the enforcement of the Pass Through Trust, shall be deposited and distributed as a Special Payment as provided in Article V. -26- 35 SECTION 7.03. Pass Through Trustee May Prove Debt. If any amount payable under any Mortgage Note held by the Pass Through Trust is not paid when due and payable, and such non-payment constitutes an Indenture Event of Default, the Pass Through Trustee, in its own name, as trustee of an express trust, as holder of such Mortgage Note shall be, to the extent permitted by and in accordance with the terms of the Indenture Documents, entitled and empowered to institute any action or proceedings at law or in equity for the collection of the sums so due and unpaid, and may prosecute any such action or proceedings to judgment or final decree, and, subject to the terms of the Indenture, may enforce any such judgment or final decree against the Owner Trust or other obligor upon such Mortgage Notes and collect in the manner provided by law out of the property of the Owner Trust or other obligor upon such Mortgage Notes, wherever situated, the moneys adjudged or decreed to be payable. All rights of action and of asserting claims under this Pass Through Agreement, or under any of the Pass Through Certificates, may be prosecuted and enforced by the Pass Through Trustee without the possession of any of such Pass Through Certificates or the production thereof in any trial or other proceedings relative thereto, and any such action or proceedings instituted by the Pass Through Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment, subject to the payment of the expenses, disbursements and compensation of the Pass Through Trustee, each predecessor Pass Through Trustee and their respective agents and attorneys, shall be for the ratable benefit of the Certificateholders. In any proceedings brought by the Pass Through Trustee (and also any proceedings involving the interpretation of any provision of this Pass Through Agreement) the Pass Through Trustee shall be held to represent all the Certificateholders, and it shall not be necessary to make any such Certificateholders parties to any such proceedings. SECTION 7.04. Remedies Cumulative. Each and every right, power and remedy given to the Pass Through Trustee specifically or otherwise hereunder shall be cumulative and shall be in addition to every other right, power and remedy specifically given thereunder or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically given hereunder or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by the Pass Through Trustee or the Certificateholders, and the exercise or the beginning of the exercise of any power or remedy shall not be construed to be a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. No delay or omission by the Pass Through Trustee or of any such Certificateholder in the exercise of any right, remedy or power or in the pursuance of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of an Owner Trust, or the Company or to be an acquiescence therein. Every right and remedy given by this Article or by law to the Pass Through Trustee or to the Certificateholders may be exercised from time to time, and as often as may be deemed expedient, by the Pass Through Trustee or by the Certificateholders, as the case may be. -27- 36 SECTION 7.05. Suits for Enforcement. If an Event of Default has occurred, has not been waived and is continuing, the Pass Through Trustee may in its discretion and subject to its rights of appropriate indemnification under Sections 7.07 and 8.03 and Article IX hereof, to the extent permitted by and in accordance with the Indenture Documents, proceed to protect and enforce its rights and rights of the Certificateholders by such appropriate judicial proceedings as the Pass Through Trustee shall deem most effectual to protect and enforce any of such rights, either at law or in equity or in bankruptcy or otherwise, whether for the specific enforcement of any covenant or agreement hereunder or in aid of the exercise of any power granted hereunder or to enforce any other legal or equitable right vested in the Pass Through Trustee or the Certificateholders hereunder or by law; provided that any sale of any portion of the Trust Property shall be done in accordance with Section 7.02. SECTION 7.06. Discontinuance of Proceedings. If the Pass Through Trustee or any Certificateholder institutes any proceeding to enforce any right, power or remedy hereunder, and such proceeding is discontinued or abandoned for any reason or is determined adversely to the Pass Through Trustee or such Certificateholder, then and in every such case the Owner Trust, Indenture Trustees, the Pass Through Trustee, the Certificateholders and the Company shall, subject to any determination in such proceeding, be restored to their former positions and rights under the Pass Through Trust with respect to the Trust Property and all rights, remedies and powers of the Pass Through Trustee and such Certificateholders shall continue as if no such proceeding had been instituted. SECTION 7.07. Limitations on Suits by Certificateholders. No Certificateholder shall have any right by virtue or by availing of any provision hereof to institute any action or proceeding at law or in equity or in bankruptcy or otherwise upon or under or with respect to the Pass Through Trust, or for the appointment of a trustee, receiver, liquidator, custodian or other similar official or for any other remedy thereunder, unless: (1) such Certificateholder previously has notified the Pass Through Trustee in writing of an Event of Default and of the continuance thereof, as provided herein; (2) the Certificateholders of the Pass Through Certificates then Outstanding (or proxies therefor) representing in the aggregate not less than 25% of the aggregate Fractional Undivided Interests then Outstanding have requested in writing that the Pass Through Trustee institute such action or proceedings in its own name as trustee hereunder (unless the Holders of a Majority in Interest of the aggregate Fractional Undivided Interests then Outstanding shall object in writing within 30 days of such request); (3) such Certificateholders have offered to the Pass Through Trustee reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; -28- 37 (4) the Pass Through Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such action or proceedings; and (5) no direction inconsistent with such written request has been given to the Pass Through Trustee during such 60-day period pursuant to Section 7.09; 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 Certificateholders shall have any right in any manner whatever to affect, disturb or prejudice the rights of any other Certificateholder or to obtain or seek to obtain priority over or preference to any other Certificateholder or to enforce any right hereunder or under the Pass Through Certificates, except in the manner provided herein and therein and for the equal, ratable and common benefit of all 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 7.08. Unconditional Right of Certificateholders to Receive Scheduled Payments and Special Payments, and to Institute Certain Suits. Notwithstanding any other provision in this Pass Through Agreement or any Pass Through Certificate issued pursuant hereto, the right of any Certificateholder to receive distributions on such Pass Through Certificate of Scheduled Payments or Special Payments pursuant to Article V on or after the respective due dates set forth herein, or, subject to Section 7.07, to institute suit for the enforcement of any such distribution on or after such respective dates as provided herein, or therein shall not be impaired or affected without the consent of such Certificateholder, except as to a postponement of an interest payment consented to as provided in Section 7.10. SECTION 7.09. Control by Certificateholders. A Majority in Interest of Certificateholders shall have the right to direct the Pass Through Trustee 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 on the Pass Through Trustee under the Pass Through Trust; provided that such direction is not otherwise than in accordance with law and the provisions hereof and the Pass Through Trustee has received, to the extent provided in Sections 7.07 and 8.03 and Article IX hereof, such reasonable indemnification as it may require against the costs, expenses and liabilities to be incurred by the Pass Through Trustee. Nothing in this Pass Through Agreement shall impair the right of the Pass Through Trustee in its discretion to take any action deemed proper by the Pass Through Trustee and which is not inconsistent with such direction by Certificateholders. SECTION 7.10. Waiver of Past Events of Default. Upon written instructions from not less than 662/3% in Interest of Certificateholders, the Pass Through Trustee shall waive any past Event of Default and its consequences and thereby annul any directive given by the -29- 38 Pass Through Trustee on behalf of such holders to the Indenture Trustees and, upon such waiver, such Event of Default will cease to exist and any Event of Default arising therefrom will be deemed to have been cured for every purpose, but no such waiver will extend to any subsequent or other Event of Default or impair any right consequent thereon; provided that any such waiver will be effective to waive any such past Event of Default and its consequences as described above if, but only if, the correlative Indenture Event of Default has been waived under the related Indenture by the requisite holders of the Mortgage Notes outstanding under such related Indenture; and provided further that in the absence of written instructions from all Certificateholders (or the proxy therefor), the Pass Through Trustee shall not waive any Event of Default (i) consisting of the failure to pay any principal of, or premium, if any, or interest on, or other amounts due under, any Mortgage Note and the consequent failure to distribute any Scheduled Payment or Special Payment pursuant to Article V on or after the respective due date therefor or (ii) in respect of a covenant or provision hereunder that, under Article X hereof, cannot be modified or amended without the consent of each Certificateholder (or the proxy therefor). SECTION 7.11. Notice of Pass Through Defaults. The Pass Through Trustee shall, in the manner and to the extent required by Section 313(c) of the Trust Indenture Act, notify the Certificateholders of any Pass Through Defaults within 90 days from the occurrence thereof, unless such Pass Through Defaults have been cured before the giving of such notice; provided that under no circumstances shall the Pass Through Trustee give such notice until the earlier of the time at which such Pass Through Default becomes an Event of Default or the expiration of a period of 30 days from the occurrence of such Pass Through Default; and provided, further, that except in the case of a Pass Through Default resulting from the failure to pay the principal, premium, if any, or interest on any Mortgage Note that constitutes part of the Trust Property, the Pass Through Trustee shall not be required to provide such notice if it in good faith determines that the withholding of such notice is in the interests of the Certificateholders. ARTICLE VIII CONCERNING THE PASS THROUGH TRUSTEE SECTION 8.01. Acceptance by Pass Through Trustee. The Pass Through Trustee hereby accepts the trusts imposed upon it by this Pass Through Agreement and acknowledges its acceptance of all right, title, and interest in and to the Mortgage Notes conveyed pursuant to Section 2.01, and hereby declares that it holds and will hold such right, title, and interest, together with all other property constituting the Trust Property, for the benefit of all then present and future Certificateholders, upon the trusts set forth herein. SECTION 8.02. Pass Through Trustee's Liens. The Pass Through Trustee agrees that it will, in its individual capacity and at its own cost and expense (but without any right of indemnity in respect of any such cost or expense under Article IX hereof) promptly take -30- 39 such action as may be necessary to duly discharge all Liens on any part of the Trust Property that result from claims against it in its individual capacity not related to the administration of such Trust Property or any other transaction pursuant to this Pass Through Agreement. SECTION 8.03. Certain Rights of the Pass Through Trustee. Subject to Section 315 of the Trust Indenture Act: (a) the Pass Through Trustee may rely and shall be protected in acting or refraining from acting upon any resolution, Officer's Certificate or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon, security or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) any request of the Indenture Trustees or an Owner Trust shall be sufficiently evidenced by an Officer's Certificate and any resolution of the Board of Directors of the Corporate Indenture Trustee or the Corporate Owner Trustees, as the case may be, may be sufficiently evidenced by a copy of the applicable board resolution included as part of the Officer's Certificate. (c) the Pass Through Trustee may consult with counsel and the written advice of such counsel or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such written advice or Opinion of Counsel; (d) the Pass Through Trustee shall not be obligated to exercise any of the trusts or powers vested in it hereunder at the request, order or direction of the Certificateholders in accordance with the provisions thereof, unless such Certificateholders have offered to the Pass Through Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby; (e) the Pass Through Trustee shall not be liable for any action taken or omitted by it in good faith hereunder in accordance with the direction of the holders of the applicable principal amount specified hereunder of the aggregate Fractional Undivided Interests then outstanding; (f) prior to the occurrence of an Event of Default hereunder and after the curing or waiving of all Events of Default hereunder, 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, appraisal, bond, debenture, note, coupon, security, or other paper or document unless requested in writing to do so by the Majority in Interest of -31- 40 Certificateholders; but the Pass Through Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit; (g) the Pass Through Trustee may execute any of the trusts or powers under the Pass Through Trust or perform any duties thereunder either directly or by or through agents or attorneys not regularly in its employ and the Pass Through Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed by it with due care; and (h) the Pass Through Trustee shall not be required to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers hereunder, if the Pass Through Trustee has determined in good faith that the repayment of such funds or adequate indemnity against such liability is not reasonably assured to it. SECTION 8.04. Pass Through Trustee Not Responsible for Recitals. The Pass Through Trustee assumes no responsibility for the correctness of the recitals contained herein or in any Pass Through Certificates, except for the execution and authentication of such Pass Through Certificates by the Pass Through Trustee in accordance with Section 2.04, 2.05 and 8.15, respectively and its representations and warranties in Section 3.03 hereof. SECTION 8.05. Pass Through Trustee and Agents May Hold Pass Through Certificates; Collections. The Pass Through Trustee and any agent of the Pass Through Trustee, in its individual or any other capacity, may become the owner or pledgee of Pass Through Certificates with the same rights it would have if it were not the Pass Through Trustee or such agent, subject to Section 8.10 and, subject to the applicable provisions of the Trust Indenture Act, may otherwise deal with the Company, the Indenture Trustees or the Owner Trust and receive, collect, hold and retain collections therefrom with the same rights it would have if it were not the Pass Through Trustee or such agent (subject to the provisions of Section 6.04 hereof). SECTION 8.06. Moneys Held by Pass Through Trustee. Subject to Sections 5.04 and 11.03 hereof, all moneys received by the Pass Through Trustee shall, until used or applied as provided herein, be held in trust for the purposes for which they were received, and shall be segregated from all other funds and not commingled with the funds of any other Person. Subject to Section 5.04, neither the Pass Through Trustee nor any agent thereof shall be under any liability for interest on any moneys received by it hereunder. SECTION 8.07. Right of Pass Through Trustee to Rely on Officer's Certificate. Subject to Section 8.03, whenever in the administration of the Pass Through Trust, the Pass Through Trustee shall deem it necessary or desirable that a matter be proved or established prior to taking or suffering or omitting any action thereunder, such matter (unless other evidence in respect thereof is specifically prescribed herein) may, in the absence of bad faith on the part of the Pass Through Trustee, be deemed to be conclusively proved and -32- 41 established by an Officer's Certificate delivered to the Pass Through Trustee by the Company, the Indenture Trustees or the Owner Trust, as the case may be, and such certificate, in the absence of bad faith on the part of the Pass Through Trustee, shall be full warrant to the Pass Through Trustee for any action taken, suffered or omitted by it under the provisions of this Pass Through Agreement upon the faith thereof. SECTION 8.08. Compensation. The Company covenants and agrees to pay, and the Pass Through Trustee shall be entitled to receive, reasonable compensation and payment or reimbursement for its reasonable advances, expenses and disbursements (including the reasonable compensation and expenses and disbursements of its counsel, agents and other persons not regularly in its employ) in connection with its services rendered hereunder or in any way relating to or arising out of the administration of the Pass Through Trust or the Trust Property, except any such advance, expense or disbursement attributable to the Pass Through Trustee's negligence, willful misconduct or bad faith or incurred as a result of the breach of its representation and covenant set forth in Section 8.02. SECTION 8.09. Resignation and Removal of Pass Through Trustee; Appointment of Successor. (a) No resignation or removal of the Pass Through Trustee and no appointment of a successor Pass Through Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Pass Through Trustee under Section 8.12 hereof. (b) The Pass Through Trustee may resign as such at any time without cause by giving at least 90 days prior written notice to the Company, the Indenture Trustees and the Owner Trust, such resignation to be effective upon the acceptance of the trusteeship by a successor Pass Through Trustee. In addition, a Majority in Interest of Certificateholders may at any time remove the Pass Through Trustee without cause by an instrument in writing delivered to the Company, the Owner Trust, the Indenture Trustees and the Pass Through Trustee, and the Pass Through Trustee shall promptly notify each Certificateholder of such removal in writing, such removal to be effective upon the acceptance of the trusteeship by a successor Pass Through Trustee. In the case of the resignation or removal of the Pass Through Trustee, a Majority in Interest of Certificateholders may appoint a successor Pass Through Trustee by an instrument signed by such Certificateholders. If a successor Pass Through Trustee shall not have been appointed within 120 days after such notice of resignation or removal, the Pass Through Trustee, the Company or any Certificateholder may apply to any court of competent jurisdiction to appoint a successor Pass Through Trustee to act until such time, if any, as a successor shall have been appointed as provided above. The successor Pass Through Trustee so appointed by such court shall immediately and without further act be superseded by any successor Pass Through Trustee appointed as provided above within one year from the date of the appointment by such court. (c) 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 -33- 42 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 8.11 to act as Pass Through Trustee and fails to resign after written request for such resignation by the Company or by any such bona fide Certificateholder; or (iii) the Pass Through Trustee becomes incapable of acting, or shall be adjudged a bankrupt or insolvent, or a receiver or liquidator of the Pass Through Trustee or of its property shall be appointed, or any public officer takes 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, (1) the Company may remove the Pass Through Trustee and appoint a successor trustee by written instrument, in duplicate, executed by a Responsible Officer of the Company, one copy of which instrument shall be delivered to the Pass Through Trustee so removed and one copy to the successor trustee, or (2) subject to the provisions of Section 7.07, 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, which removal and appointment shall become effective upon acceptance of appointment by the successor trustee as provided in Section 8.12. The successor Pass Through Trustee so appointed by such court shall immediately and without further act be superseded by any successor Pass Through Trustee appointed by the Certificateholders as provided in subsection (a) above within one year from the date of appointment by such court. (d) In the event that a Responsible Officer of the Pass Through Trustee has actual knowledge, or receives notice that a Certificateholder or the Pass Through Trust has become subject to any state or local tax which would not be imposed if the Corporate Trust Office were located in a jurisdiction within the United States other than the jurisdiction in which the Corporate Trust Office is then located, the Pass Through Trustee shall resign immediately in the manner and with the effect specified in this Section. (e) All of the provisions of this Section 8.09 except paragraphs (c)(i) and (d) shall apply to any Authenticating Agent. SECTION 8.10. Disqualification; Conflicting Interests. If the Pass Through Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Pass Through Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Pass Through Agreement. -34- 43 SECTION 8.11. Persons Eligible for Appointment as 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 Trust Indenture Act and shall be a corporation organized and doing business under the laws of the United States of America or of any State or the District of Columbia having a combined capital and surplus of at least $100,000,000 and a minimum long-term debt rating of BBB by Duff & Phelps Credit Rating Co. ("Duff & Phelps") and Baa by Moody's Investors Service, Inc. ("Moody's) (if either such entity then assigns a rating to such corporation's long-term debt), or if both Duff & Phelps and Moody's do not then rate such corporation's long-term debt, the equivalent rating from a "nationally recognized statistical rating organization" as that term is used in Rule 15c3-1 under the Securities Exchange Act of 1934, as amended ("Rule 15c3-1"), or a direct or indirect subsidiary of such a corporation, or a member of a bank holding company group, having a combined capital and surplus of at least $100,000,000 and a minimum long-term debt rating of BBB by Duff & Phelps and Baa by Moody's (if either such entity then assigns a rating to such corporation's long-term debt), or if both Duff & Phelps and Moody's do not then rate such corporation's long-term debt, the equivalent rating from a "nationally recognized statistical rating organization" as that term is used in Rule 15c3-1, and such subsidiary or member itself having a capital and surplus of at least $10,000,000, which corporation is authorized under such laws to exercise corporate trust powers and is subject to supervision or examination by Federal, State or District of Columbia authority; provided, that the Pass Through Trustee shall not be the trustee under Pass Through Trust Agreement-1995-K-_ (but may be a member of the same bank holding company group). 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. If at any time the Pass Through Trustee ceases to be eligible in accordance with the provisions of this Section to act as trustee hereunder, the Pass Through Trustee shall resign immediately as Pass Through Trustee in the manner and with the effect specified in Section 8.09. SECTION 8.12. Acceptance of Appointment by Successor Trustee. Any successor trustee appointed as provided in Section 8.09 shall execute and deliver to the Company and to its predecessor trustee an instrument accepting such appointment and thereupon the resignation or removal of the predecessor trustee shall become effective and such successor trustee, without any further act, deed or conveyance, shall become vested with all rights, powers, duties and obligations of its predecessor, as if such successor trustee were originally named as trustee hereunder. Notwithstanding the foregoing, on the written request of the Company or the successor trustee, the trustee ceasing to act shall, upon payment of its charges then unpaid and subject to Section 11.04, duly assign, transfer and deliver to the successor trustee all properties and moneys at the time held by it with respect to such Pass Through Trust and shall execute and deliver an instrument transferring to such successor trustee all such rights, powers, duties and obligations. Upon request of any such successor -35- 44 trustee, the Company shall execute any and all instruments in writing for more fully and certainly vesting in and confirming to such successor trustee all such rights and powers. 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 8.11 to act as trustee hereunder. Upon acceptance of appointment by a successor trustee as provided in this Section, the successor trustee shall notify the Certificateholders of such appointment by first-class mail at their last addresses as they shall appear in the Register, and shall mail a copy of such notice to the Company, the Indenture Trustees and the Owner Trusts. If the acceptance of appointment is substantially contemporaneous with the resignation, then the notice called for by the preceding sentence may be combined with the notice called for by Section 8.09. SECTION 8.13. Merger, Conversion, Consolidation or Succession to Business 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 all or substantially all of the corporate trust business of the Pass Through Trustee, shall be the successor of the Pass Through Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Pass Through Certificates shall have been authenticated, but not delivered, by the Pass Through Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Pass Through Trustee may adopt such authentication and deliver the Pass Through Certificates so authenticated with the same effect as if such successor Pass Through Trustee had itself authenticated the Pass Through Certificates. SECTION 8.14. Appointment of Separate Pass Through Trustees. (a) With the prior consent of the Company, which consent shall not be unreasonably withheld or delayed, at any time or times, for the sole purpose of meeting any legal requirements of any jurisdiction in which any part of the Trust Property of the Pass Through Trust 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 individuals or corporations to act as separate trustee or separate trustees or co-trustee, acting jointly with the Pass Through Trustee, of all or any part of such Trust Property, limited 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. (b) The Pass Through Trustee and, at the request of the Pass Through Trustee, the Company, shall execute, acknowledge and deliver all such instruments as may be required by the legal requirements of any jurisdiction or by any such separate trustee or separate trustees or co-trustee for the purpose of more fully confirming such title, rights or duties to such separate trustee or separate trustees or co-trustee. Upon the acceptance in writing of such -36- 45 appointment by any such separate trustee or separate trustees or co-trustee, it, he, she or they shall be vested with such title to such Trust Property or any part thereof, and with such rights, powers, duties and obligations, as shall be specified in the instrument of appointment, and such rights, powers, duties and obligations shall be conferred or imposed upon and exercised or performed by the Pass Through Trustee, or the Pass Through Trustee and such separate trustee or separate trustees or co-trustee jointly with the Pass Through Trustee subject to all the terms of this Pass Through Agreement, except to the extent that under any law of 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 such separate trustee or separate trustees or co-trustee, as the case may be. Any separate trustee or separate trustees or co-trustee may, at any time by an instrument in writing, constitute the Pass Through Trustee its, her or his attorney-in-fact and agent with full power and authority to do all acts and things and to exercise all discretion on its, her or his behalf and in its, her or his name. In case any such separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, the title to any Trust Property and all assets, property, rights, powers, duties and obligations and duties of such separate trustee or co-trustee shall, so far as permitted by law, vest in and be exercised by the Pass Through Trustee, without the appointment of a successor to such separate trustee or co-trustee unless and until a successor is appointed. (c) All provisions of this Pass Through Agreement which are for the benefit of the Pass Through Trustee (including without limitation Article IX hereof) shall extend to and apply to each separate trustee or co-trustee appointed pursuant to the foregoing provisions of this Section 8.14. (d) Every additional trustee and separate trustee hereunder shall, to the extent permitted by law, be appointed and act and the Pass Through Trustee shall act, subject to the following provisions and conditions: (i) the Pass Through Certificates shall be authenticated and delivered, and all powers, duties, obligations and rights conferred upon the Pass Through Trustee in respect of the receipt, custody, investment and payment of moneys shall be exercised, solely by the Pass Through Trustee; (ii) all other rights, powers, duties and obligations conferred or imposed upon the Pass Through Trustee shall be conferred or imposed and exercised or performed by the Pass Through Trustee and such additional trustee or trustees and separate trustee or trustees jointly except to the extent that under any law of 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 (including the holding of title to the Trust Property in any such jurisdiction) shall be exercised and performed by such additional trustee or trustees or separate trustee or trustees; -37- 46 (iii) no power hereby given to, or exercisable by, any such additional trustee or separate trustee shall be exercised hereunder by such additional trustee or separate trustee except jointly with, or with the consent of, the Pass Through Trustee; and (iv) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder. If at any time the Pass Through Trustee shall deem it no longer necessary or prudent in order to conform to any such law, the Pass Through Trustee shall execute and deliver all instruments and agreements necessary or proper to remove any additional trustee or separate trustee. (e) Any request, approval or consent in writing by the Pass Through Trustee to any additional trustee or separate trustee shall be sufficient warrant to such additional trustee or separate trustee, as the case may be, to take such action as may be so requested, approved or consented to. (f) Notwithstanding any other provision of this Section 8.14, the powers of any additional trustee or separate trustee shall not exceed those of the Pass Through Trustee hereunder. SECTION 8.15. Appointment of Authenticating Agent. The Pass Through Trustee may appoint an Authenticating Agent or Agents which shall be authorized to act on behalf of the Pass Through Trustee to authenticate Pass Through Certificates issued upon original issue and upon exchange, registration of transfer or partial redemption or pursuant to Section 2.08, and Pass Through Certificates so authenticated shall be entitled to the benefits of this Pass Through Agreement and shall be valid and obligatory for all purposes as if authenticated by the Pass Through Trustee hereunder. Wherever reference is made in this Pass Through Agreement to the authentication and delivery of Pass Through Certificates by the Pass Through Trustee or the Pass Through Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Pass Through Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Pass Through Trustee by an Authenticating Agent. Each Authenticating Agent shall be acceptable to the Company and shall at all times be a corporation organized and doing business under the laws of the United States of America, any State thereof or the District of Columbia, authorized under such laws to act as Authenticating Agent, having a combined capital and surplus of not less than $100,000,000, or a direct or indirect subsidiary of such a corporation, or a member of a bank holding company group, having a combined capital and surplus of at least $100,000,000 and such subsidiary or member itself having a capital and surplus of at least $10,000,000, and subject to supervision or examination by Federal, State or District of Columbia authority; provided, that the Authenticating Agent shall not be the authenticating agent under Pass Through Trust Agreement 1995-K-_ (but may be a member of the same bank holding company group). If such Authenticating Agent publishes reports of condition at least annually, pursuant to law or the requirements of said supervising or -38- 47 examining authority, then for the purposes of this Section, the combined capital and surplus of such Authenticating Agent shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, such Authenticating Agent shall resign immediately in the manner and with the effect specified in this Section. Any corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any corporation succeeding to the corporate agency or corporate trust business of an Authenticating Agent, shall continue to be an Authenticating Agent, provided such corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Pass Through Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Pass Through Trustee and to the Company. The Pass Through Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and to the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Pass Through Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall mail written notice of such appointment by first-class mail, postage prepaid, to all Holders as their names and addresses appear in the Register. Any successor Authenticating Agent upon acceptance of its appointment hereunder shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Pass Through Trustee agrees to pay to each Authenticating Agent from time to time reasonable compensation for its services under this Section, and the Pass Through Trustee shall be entitled to be reimbursed for such payments, subject to the provisions of Section 8.08. The Bank of New York shall initially act as Authenticating Agent. If an appointment is made pursuant to this Section, the Pass Through Certificates may have endorsed thereon, in addition to the Pass Through Trustee's certificate of authentication, an alternative certificate of authentication in the following form: -39- 48 This is one of the Pass Through Certificates referred to in the within-mentioned Pass Through Agreement. [PASS THROUGH TRUSTEE], As Trustee By: [AUTHENTICATING AGENT] As Authenticating Agent By: ______________________ Authorized Signatory ARTICLE IX INDEMNIFICATION OF PASS THROUGH TRUSTEE BY THE COMPANY The Company hereby agrees, whether or not any of the transactions contemplated hereby shall be consummated, to assume liability for, and does hereby indemnify, protect, save and keep harmless the Pass Through Trustee, in its individual capacity, and its successors, assigns, agents and servants, with respect to the claims of the Pass Through Trustee for payment or reimbursement under Section 8.08 and from and against any and all liabilities, obligations, losses, damages, penalties, taxes (excluding any taxes payable by the Pass Through Trustee on or measured by any compensation received by the Pass Through Trustee for its services under this Pass Through Agreement), claims, actions, suits, costs, expenses or disbursements (including legal fees and expenses) of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Pass Through Trustee in its individual capacity (whether or not also agreed to be indemnified against by any other Person under any other document) in any way relating to or arising out of this Pass Through Agreement, or the enforcement of any of the terms hereof, or in any way relating to or arising out of the administration of the Pass Through Trust or the Trust Property or the action or inaction of the Pass Through Trustee hereunder, except only (i) in the case of willful misconduct, negligence or bad faith of the Pass Through Trustee in the performance of its duties hereunder or (ii) as otherwise provided in Sections 8.02 and 8.08 hereof. The indemnities contained in this Article IX shall survive the termination of this Pass Through Agreement or the Pass Through Trust and the resignation or removal of the Pass Through Trustee hereunder or thereunder. -40- 49 ARTICLE X SUPPLEMENTS AND AMENDMENTS TO THIS PASS THROUGH AGREEMENT AND OTHER DOCUMENTS SECTION 10.01. Supplemental Agreements Without Consent of Certificateholders. The Company and the Pass Through Trustee may enter into an agreement or agreements supplemental hereto for one or more of the following purposes: (a) to evidence the succession of another Person to the Company, or successive successions, and the assumption by the successor of the covenants, agreements and obligations of the Company herein; (b) to add to the covenants of the Company such further covenants, restrictions, conditions or provisions as the Pass Through Trustee shall consider to be for the protection of the Certificateholders; (c) to surrender any rights or power conferred upon the Company 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 Pass Through Trustee any such property to be included in any such Trust Property; (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 the requirements of Section 8.12; (f) to modify, eliminate or add to the provisions of this Pass Through Agreement to the extent necessary to continue the qualification of this Pass Through Agreement (including any supplemental agreement) under the Trust Indenture Act, or under any similar Federal statute enacted after the date hereof, and to add to this Pass Through Agreement such other provisions as may be expressly permitted by the Trust Indenture Act, excluding, however, the provisions referred to in Section 316(a)(2) of the Trust Indenture Act as in effect on the date hereof or any corresponding provision in any similar Federal statute enacted after the date hereof; or (g) 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(g) shall not adversely affect the interests of the Certificateholders; -41- 50 provided that no such agreement or supplemental agreement shall cause the Pass Through Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-4; and provided further that no such agreement or supplemental agreement may require the Company to have any direct or indirect obligation (other than pursuant to the Lease or the Participation Agreement) to pay or guarantee or otherwise provide for the receipt by, the Pass Through Trustee or any Certificateholder of any of the amounts payable in respect of the Mortgage Notes and/or the Pass Through Certificates. 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 that 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 that adversely affects the Pass Through Trustee's own rights, duties or immunities under this Pass Through Agreement or otherwise, whether in its trust or individual capacity. Any supplemental agreement authorized pursuant to this Section may be executed without the consent of the Certificateholders of the outstanding Pass Through Certificates, notwithstanding any of the provisions of Section 10.02. SECTION 10.02. Supplemental Agreements With Consent of Certificateholders. With the consent (evidenced as provided in Article VI) of not less than 66 2/3% in Interest of Certificateholders, the Company and the Pass Through 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 Pass Through Agreement or of modifying in any manner the rights of the Certificateholders; provided that no such agreement or supplemental agreement shall cause the Pass Through Trust to become taxable as an association within the meaning of Treasury Regulation Section 301.7701-4; and provided further that no such agreement or supplemental agreement may require the Company to have any direct or indirect obligation (other than pursuant to the Lease or the Participation Agreement) to pay or guarantee or otherwise provide for the receipt by, the Pass Through Trustee or any Certificateholder of any of the amounts payable in respect of the Mortgage Notes and/or the Pass Through Certificates; and provided further that, without the consent of each Certificateholder (or the proxy therefor) affected thereby, no such amendment of or supplement to this Pass Through Agreement or modification of the terms of, or consent under, any thereof, shall (aa) modify any of the provisions of Section 7.11 or this Section 10.02, or the definitions of "Majority in Interest of Certificateholders," "66 2/3% in Interest of Certificateholders" and "Outstanding" as set forth in Article I and Section 6.04 hereof, (bb) reduce the percentage of the Outstanding Pass Through Certificates, the consent of holders of which is required for any such supplement to this Pass Through Trust Agreement, or the consent of the holders of which is required for any waiver (of compliance with certain provisions hereof or certain defaults hereunder and their consequences) provided for in this Pass Through Agreement, (cc) reduce the amount or extend the time of payment of any amount owing or payable on the Mortgage Notes or -42- 51 distributions to be made on any Pass Through Certificate pursuant to Article V, or alter the currency in which any amount payable under any such Pass Through Certificate is to be paid, or impair the right of any Pass Through Certificateholder to commence legal proceedings to enforce a right to receive payment hereunder, or (dd) 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 with respect to the Trust Property, whether by disposition of such Trust Property or otherwise, except as provided in Section 7.02 or in connection with the exercise of remedies under Article VII. Upon the request of the Company and upon the filing with the Pass Through Trustee of evidence of the consent of the Certificateholders required under this Section and the other documents, if any, required by Section 6.01, the Pass Through Trustee shall join with the Company 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 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. It shall not be necessary for the consent of the Certificateholders under this Section to approve the particular form of any proposed supplemental agreement, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Company 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 on the 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 Agreements. Upon the execution of any supplemental agreement pursuant to the provisions hereof, this Pass Through 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 hereunder of the Pass Through Trustee, the Company and the Certificateholders shall thereafter be determined, exercised and enforced hereunder and thereunder, 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 Agreement and Pass Through Trust for any and all purposes. SECTION 10.04. Documents to be Given to Pass Through Trustee. The Pass Through Trustee, subject to the provisions of Sections 8.02, 8.03 and 8.07, 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 Agreement. -43- 52 SECTION 10.05. Notation on Pass Through Certificates in Respect of Supplemental Agreements. Pass Through 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 Company or the Pass Through Trustee shall so determine, new Pass Through Certificates so modified as to conform, in the opinion of the Company and the Pass Through Trustee, to any modification of this Pass Through Agreement contained in any such supplemental agreement may be provided by the Company, executed and authenticated by the Pass Through Trustee and delivered in exchange for the Outstanding Pass Through Certificates. SECTION 10.06. Trust Indenture Act. Any supplemental agreement executed pursuant to the terms of this Article shall on the date of the execution thereof conform to the provisions of the Trust Indenture Act as in force on such date. SECTION 10.07. Revocation and Effect of Consents. Until an amendment or waiver becomes effective, a consent to it by a Certificateholder is a continuing consent by such Certificateholder and every subsequent Certificateholder of the related Pass Through Certificate, even if notation of the consent is not made on such Pass Through Certificate. However, any such Certificateholder or subsequent Certificateholder may revoke the consent as to his Pass Through Certificate if the Pass Through Trustee receives the notice of revocation before the date the amendment or waiver becomes effective. After an amendment or waiver becomes effective, it shall bind every Certificateholder affected by such amendment or waiver. SECTION 10.08. Amendments, Waivers, Etc., of Indenture Documents. If the Pass Through Trustee, as holder of any Mortgage Note in trust for the benefit of the Certificateholders, receives a request for a consent to any modification, amendment or supplement to the Indenture or other Indenture Document or to give any consent, waiver, authorization or approval under the Indenture or such other Indenture Documents, the Pass Through Trustee shall forthwith notify each Certificateholder as shown on the Register as of such date, of such request. Such notice shall request instructions from such Certificateholders with respect to such request. Subject to Section 7.10, the Pass Through Trustee shall, as the holder of such Mortgage Note, consent or vote with respect thereto in the same proportion as so instructed by the respective Certificateholders. Notwithstanding the foregoing, but subject to Sections 7.01 and 7.09, if an Event of Default shall have occurred and be continuing, the Pass Through Trustee may, in its own discretion and at its own direction, consent and notify the Indenture Trustees of such consent to any modification, amendment, supplement or waiver under any Indenture Document. -44- 53 ARTICLE XI TERMINATION OF PASS THROUGH TRUSTS; UNCLAIMED MONEYS SECTION 11.01. Termination of Pass Through Trust. The Pass Through Trust and the respective obligations and responsibilities of the Company and the Pass Through Trustee hereunder shall terminate upon the distribution to all Certificateholders and the Pass Through Trustee of all amounts required to be distributed to them pursuant to this Pass Through Agreement and the disposition of all property held as part of the Trust Property of such Pass Through Trust; provided, however that in no event shall the Pass Through Trust created by this Pass Through Agreement continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador to the Court of St. James, living on the date of this Pass Through Agreement. Notice of termination of the Pass Through Trust, specifying the applicable Distribution Date upon which the Certificateholders may surrender their Pass Through Certificates to the Pass Through Trustee for payment of the final distribution and cancellation thereof, shall be mailed promptly by the Pass Through Trustee to such Certificateholders not less than 20 days prior to such final distribution specifying (i) the Distribution Date upon which such final distribution will be made and that such distribution will be made only upon presentation and surrender of the related Pass Through Certificates at the office or agency of the Pass Through Trustee specified therein, (ii) the amount of any such final distribution, and (iii) that the Record Date otherwise applicable to such Distribution Date is not applicable. The Pass Through Trustee shall notify the Registrar at the time such Certificateholders are notified of such final distribution. Upon presentation and surrender of the Pass Through Certificates, the Pass Through Trustee shall distribute all amounts distributable on such Pass Through Certificates on such Distribution Date pursuant to Section 5.02. SECTION 11.02. Application by Pass Through Trustee of Funds Deposited for Payment of Pass Through Certificates. Subject to Section 11.03, all moneys deposited with the Pass Through Trustee for payment pursuant to Section 11.01 shall be held in trust and applied by it to the prompt payment in accordance with the provisions of the Pass Through Certificates and this Pass Through Agreement, to the Certificateholders of all sums due and to become due thereon. SECTION 11.03. Transfer of Moneys Held by Pass Through Trustee Unclaimed for Two Years and Eleven Months. Any moneys deposited with or paid to the Pass Through Trustee to be distributed on any Pass Through Certificate and not applied but remaining unclaimed for two years and eleven months after the date upon which such amount has become due and payable, shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be paid to the Indenture Trustees by the Pass Through Trustee and the applicable Certificateholder shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property -45- 54 laws, thereafter look only to the Indenture Trustees for any payment which such Certificateholder may be entitled to collect, and all liability of the Pass Through Trustee with respect to such moneys shall thereupon cease. ARTICLE XII MISCELLANEOUS SECTION 12.01. Capacity in Which Acting. The Pass Through Trustee acts hereunder not in its individual capacity but solely as trustee except as expressly provided herein. SECTION 12.02. No Legal Title to Trust Property in Certificateholders. No Certificateholder shall have legal title to any part of the Trust Property. No transfer, by operation of law or otherwise, of any Pass Through Certificate or other right, title and interest of any Certificateholder in and to such Trust Property shall operate to terminate the Pass Through Trust or entitle such Certificateholder or any successor or transferee of such Certificateholder to an accounting or to the transfer to it of legal title to any part of the Trust Property. SECTION 12.03. Certificates Nonassessable and Fully Paid. No Certificateholder shall be personally liable for obligations of the Pass Through Trust, the Pass Through Certificates shall be nonassessable for any losses or expenses of the Pass Through Trust or for any reason whatsoever, and upon authentication of such Pass Through Certificates by the Pass Through Trustee pursuant to Section 3.02, such Pass Through Certificates will be and shall be deemed fully paid. No Certificateholder shall have any right (except as expressly provided herein) to vote or in any manner otherwise control the operation and management of the Trust Property, the Pass Through Trust, or the obligations of the parties hereto, nor shall anything set forth herein in the Pass Through Certificates be construed so as to constitute the Certificateholders from time to time as partners or members of an association. SECTION 12.04. Pass Through Agreement for the Benefit of the Company, the Pass Through Trustee and the Certificateholders. Nothing in this Pass Through Agreement or in any Pass Through Certificate, whether express or implied, shall be construed to give to any person other than the Company, the Pass Through Trustee, as trustee and in its individual capacity, and the Certificateholders any legal or equitable right, remedy or claim under or in respect of this Pass Through Agreement, the Pass Through Trust or any such Pass Through Certificate. SECTION 12.05. Limitation on Rights of Certificateholders. The death or incapacity of any Certificateholder shall not operate to terminate the Pass Through Trust, nor entitle such Certificateholder's legal representatives or heirs to claim an accounting or to take any action or commence any proceeding in any court for a partition or winding up of the -46- 55 Pass Through Trust, or otherwise affect the rights, obligations, and liabilities of the parties hereto or any of them. No Certificateholder shall be entitled to revoke the Pass Through Trust. SECTION 12.06. Notices. Unless otherwise expressly specified or permitted by the terms hereof, all notices, requests, demands, authorizations, directions, consents, waivers or documents provided or permitted by this Pass Through Agreement to be made, given, furnished or filed shall be in writing, mailed by certified mail, postage prepaid, or by confirmed telex or telecopy, and (i) if to the Pass Through Trustee, at its office at ________ _______________________________________ (telecopier (___) ___________), Attention: Corporate Trust Department (with a copy to The Bank of New York at 101 Barclay Street, Floor 12W, New York, New York 10286 (telecopier (212) 815-4135, Attention: Corporate Trust -- MBS Administration) or (ii) if to the Company, addressed to it at its Corporate Offices, 3100 West Big Beaver Road, Troy, Michigan 48084 (telecopier (801) 643-____), Attention: ____________ (with a copy to the General Counsel at the same address). Any party hereto may change the address to which notices to such party will be sent by giving notice of such change to the other party to this Pass Through Agreement. Where this Pass Through Agreement provides for notice to Certificateholders, such notice shall be sufficiently given (unless otherwise expressly provided herein) if in writing and mailed, first-class postage prepaid, to each such Certificateholder entitled thereto, at his last address as it appears in the Register. In any case where notice to Certificateholders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Certificateholder shall affect the sufficiency of such notice with respect to other Certificateholders. Where this Pass Through Agreement provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Certificateholders shall be filed with the Pass Through Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impracticable to mail notice to any Certificateholders when such notice is required to be given pursuant to any provision of this Pass Through Agreement, then any manner of giving such notice as shall be satisfactory to the Pass Through Trustee shall be deemed to be a sufficient giving of such notice. SECTION 12.07. Officer's Certificates and Opinions of Counsel; Statements to be Contained Therein. Upon any application or demand by the Company to the Pass Through Trustee to take any action, the Company shall furnish to the Pass Through Trustee (i) an Officer's Certificate stating that all conditions precedent, if any, provided for in this Pass Through Agreement relating to the proposed action have been complied with and that the proposed action is in conformity with the requirements of this Pass Through Agreement, and (ii) an Opinion of Counsel stating that in the opinion of such counsel all such conditions -47- 56 precedent, if any, have been complied with, except that in the case of any such application or demand as to which the furnishing of such documents is specifically required by any provision of this Pass Through Agreement relating to such particular application or demand, no additional certificate or opinion need be furnished. Each certificate or opinion required by this Pass Through Agreement and delivered to the Pass Through Trustee with respect to compliance with a condition or covenant provided for in this Pass Through Agreement, except for the certificate required by Section 4.03(iv) shall include (a) a statement that the person making such certificate or opinion 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 certificate or opinion are based, (c) a statement that, in the opinion of such person, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with and (d) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. Any certificate, statement or Opinion of Counsel may be based, insofar as it relates to factual matters or information with respect to which is in the possession of the Company, upon the certificate, statement or opinion of or representations by an officer or officers of the Company unless such counsel knows that the certificate, statement or opinion or representations with respect to the matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate, statement or opinion of an officer of the Company or of counsel thereto may be based, insofar as it relates to accounting matters, upon a certificate or opinion of or representations by an accountant or firm of accountants employed by the Company unless such officer or counsel, as the case may be, knows that the certificate or opinion or representations with respect to the accounting matters upon which his certificate, statement or opinion may be based as aforesaid are erroneous, or in the exercise of reasonable care should know that the same are erroneous. Any certificate or opinion of any independent firm of public accountants filed with the Pass Through Trustee shall contain a statement that such firm is independent. SECTION 12.08. Conflict of Any Provision of Pass Through Agreement with the Trust Indenture Act. If and to the extent that any provision of this Pass Through Agreement limits, qualifies or conflicts with another provision included in this Pass Through Agreement by operation of Sections 310 to 317, inclusive, of the Trust Indenture Act (an "incorporated provision"), such incorporated provision shall control. SECTION 12.09. Severability. Any provision of this Pass Through Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the -48- 57 remaining provisions hereof or thereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. SECTION 12.10. No Oral Modifications or Continuing Waivers. No terms or provisions of this Pass Through Agreement or any Pass Through Certificates may be changed, waived, discharged or terminated orally, but only by an instrument in writing signed by the party or other person against whom enforcement of the change, waiver, discharge or termination is sought; and any waiver of the terms hereof or thereof shall be effective only in the specific instance and for the specific purpose given. SECTION 12.11. Successors and Assigns. All covenants and agreements contained herein shall be binding upon, and inure to the benefit of, each of the parties hereto and the successors and permitted assigns of each, all as herein provided. Any request, notice, direction, consent, waiver or other instrument or action by any Certificateholder shall bind the successors and assigns of such Certificateholder. SECTION 12.12. Headings. The headings of the various Articles and Sections herein and in the table of contents hereto are for the convenience of reference only and shall not define or limit any of the terms or provisions hereof. SECTION 12.13. Normal Commercial Relations. Anything contained in this Pass Through Agreement to the contrary notwithstanding, the Pass Through Trustee and any Certificateholder, or any bank or other affiliate of any such party, may conduct any normal banking or other financial transactions, and have normal banking or other commercial relationships, with the Company fully to the same extent as if this Pass Through Agreement were not in effect including, without limitation, the making of loans or other extensions of credit to the Company for any purpose whatsoever, whether related to any of the transactions contemplated hereby or otherwise. SECTION 12.14. Governing Law; Counterpart Form. THIS PASS THROUGH AGREEMENT AND EACH PASS THROUGH CERTIFICATE SHALL IN ALL RESPECTS BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE. This Pass Through Agreement may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute but one and the same instrument. SECTION 12.15. Tax Intent. The execution and delivery of this Pass Through Agreement shall constitute an acknowledgement by the Company and the Pass Through Trustee on behalf of the Certificateholders that they intend to establish (for Federal tax purposes) a grantor trust of which the Certificateholders are the beneficiaries, rather than an -49- 58 association taxable as a corporation. The powers granted and obligations undertaken in this Pass Through Agreement shall be construed so as to further such intent. SECTION 12.16. Distributions Due on Days Other than Business Days. If any Distribution Date is not a Business Day, then such distribution need not be made on such date, but may be made on the next succeeding Business Day with the same force and effect as if made on the applicable Distribution Date, and no interest shall accrue for the intervening period. SECTION 12.17. Notices and Reports to Duff & Phelps and Moody's. The Pass Through Trustee shall provide written notice as soon as practicable to Duff & Phelps and Moody's of (i) any Event of Default, (ii) any amendments to or modifications of this Pass Through Agreement or the Mortgage Notes, (iii) any proposed removal, replacement or resignation of the Pass Through Trustee, and (iv) the final payment to Certificateholders. Additionally, the Pass Through Trustee, at the expense of the Company, shall provide copies promptly upon receipt to Duff & Phelps and Moody's of all reports and certificates delivered pursuant to Section 4.03 and 12.07 hereof. The Pass Through Trustee shall also provide, at the expense of the Company, such other information regarding the Company or any Property (as defined in any Indenture) as may be reasonably requested by Duff & Phelps or Moody's to the extent the Pass Through Trustee has such information. Duff & Phelps and Moody's shall not be charged any expense in connection with the foregoing. Unless otherwise agreed, such notices, reports and copies required to be delivered under this Section 12.07 and Section 3.01 shall be delivered (i) if to Duff & Phelps, at its office at 17 State Street - 12th Floor, New York, New York 10004 and (ii) if to Moody's, at its office at 99 Church Street - 4th Floor, New York, New York 10007. IN WITNESS WHEREOF, the parties hereto have caused this Pass Through Agreement to be duly executed this ____ day of _________ 1995 by their respective officers thereunto duly authorized, and acknowledge that this Pass Through Agreement has been -50- 59 made and delivered in the City of New York, and this Pass Through Agreement shall be effective only upon such execution and delivery. [PASS THROUGH TRUSTEE], Pass Through Trustee By: _______________________________________ Title: KMART CORPORATION By: _______________________________________ Title: -51- 60 Exhibit A to Pass Through Trust Agreement-1995-K-[1/2] FORM OF 1995-K-[1/2] PASS THROUGH CERTIFICATE Unless this Pass Through 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 or 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 THEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. [This paragraph is required only if the Pass Through Certificates are to be represented by the Registered Global Certificate.] CUSIP No. ____________ PASS THROUGH TRUST-1995-K-[1/2] ____% Pass Through Certificate Final Scheduled Regular Distribution Date: ___________, 20__ evidencing a fractional undivided interest in a pass through trust, the property of which includes certain Mortgage Notes, each secured by a Property or Properties leased to Kmart Corporation. Certificate No. ____ $___________ Fractional Undivided Interest representing ________% of the Trust per $1,000 face amount. THIS CERTIFIES THAT _____________, for value received, is the registered owner of a $_________ (_____________ dollars) Fractional Undivided Interest in the Kmart Corporation Pass Through Trust-1995-K-[1/2] (the "Pass Through Trust") created by [PASS THROUGH TRUSTEE], as trustee (the "Pass Through Trustee"), pursuant to the Pass Through Trust Agreement-1995-K-_ dated as of March __, 1995 (the "Pass Through Agreement"), between the Pass Through Trustee and Kmart Corporation, a corporation incorporated under Michigan law (the "Company"), a summary of certain of the pertinent provisions of which is set forth below. To the extent not otherwise defined herein, the capitalized terms used herein have the meanings assigned to them in the Pass Through Agreement. This Certificate is one of the duly authorized Certificates designated as "Kmart Corporation-1995-K-[1/2] Pass A-1 61 Through Certificates". This Pass Through Certificate is issued under and is subject to the terms, provisions, and conditions of the Pass Through Agreement, to which the Certificateholder of this Pass Through Certificate by virtue of the acceptance hereof assents and by which such Certificateholder is bound. The property of the Pass Through Trust (the "Trust Property") includes certain Mortgage Notes (the "Mortgage Notes"). As of the date hereof, each of the Mortgage Notes is secured by a Property or Properties leased to the Company and an assignment of certain rents payable by the Company. The Pass Through Certificates represent fractional undivided interests in the Pass Through Trust and the Trust Property, and have no rights, benefits or interest in respect of any other separate trust established pursuant to the terms of any other Pass Through Agreement or other Pass Through Certificates issued pursuant thereto. Subject to and in accordance with the terms of the Pass Through Agreement, from funds then available to the Pass Through Trustee, there will be distributed on each ________ and ___________ (a "Regular Distribution Date"), commencing on _______, 1995, to the Person in whose name this Pass Through Certificate is registered at the close of business on the fifteenth day preceding the applicable Regular Distribution Date, an amount in respect of the Scheduled Payments on the Mortgage Notes due on such Regular Distribution Date, the receipt of which has been confirmed by the Pass Through Trustee, equal to the product of the percentage interest in the Pass Through Trust evidenced by this Pass Through Certificate and an amount equal to the sum of such Scheduled Payments. Subject to and in accordance with the terms of the Pass Through Agreement, if Special Payments on the Mortgage Notes are received by the Pass Through Trustee, from funds then available to the Pass Through Trustee, there shall be distributed on the applicable Special Distribution Date, to the Person in whose name this Pass Through Certificate is registered at the close of business on the fifteenth day preceding such Special Distribution Date, an amount in respect of such Special Payments on the Mortgage Notes, the receipt of which has been confirmed by the Pass Through Trustee, equal to the product of the percentage interest in the Pass Through Trust evidenced by this Pass Through Certificate and an amount equal to the sum of such Special Payments so received. If a Distribution Date is not a Business Day, distribution shall be made on the immediately following Business Day with the same force and effect as if made on such Distribution Date and no interest shall accrue during the intervening period. The Special Distribution Date shall be the ___________ day of the month determined as provided in the Pass Through Agreement. The Pass Through Trustee shall mail notice of each Special Payment and the Special Distribution Date therefor to the Certificateholder of this Pass Through Certificate. Distributions on this Pass Through Certificate will be made by the Pass Through Trustee to the Person entitled thereto, without the presentation or surrender of this Pass Through Certificate or the making of any notation hereon. Except as otherwise provided in the Pass Through Agreement and notwithstanding the above, the final distribution on this Pass Through Certificate will be made after notice mailed by the Pass Through Trustee of the A-2 62 pendency of such distribution and only upon presentation and surrender of this Pass Through Certificate at the office or agency of the Pass Through Trustee specified in such notice. Reference is hereby made to the further provisions of this Pass Through Certificate set forth on the reverse hereof, which further provisions shall for all purposes have the same effect as if set forth at this place. This Pass Through Certificate shall be governed by and construed in accordance with the laws of the State of New York. Unless the certificate of authentication hereon has been executed by the Pass Through Trustee, by manual signature, this Pass Through Certificate shall not be entitled to any benefit under the Pass Through Trust or be valid for any purpose. IN WITNESS WHEREOF, the Pass Through Trustee has caused this Pass Through Certificate to be duly executed. PASS THROUGH TRUST-1995-K-[1/2] By: [PASS THOUGH TRUSTEE], as Pass Through Trustee By: ________________________________________ Title: [FORM OF PASS THROUGH TRUSTEE'S CERTIFICATE OF AUTHENTICATION] Dated: ______________, 1995 This is one of the Pass Through Certificates referred to in the within-mentioned Pass Through Agreement. [PASS THROUGH TRUSTEE], as Pass Through Trustee By: ________________________ Authorized Signatory A-3 63 [Reverse] The Pass Through Certificates do not represent an obligation of, or an obligation guaranteed by, or an interest in, the Company, the Pass Through Trustee or any affiliate thereof. The Pass Through Certificates are limited in right of payment, all as more specifically set forth on the face hereof and in the Pass Through Agreement. All payments or distributions made to Certificateholders under the Pass Through Agreement shall be made only from the Trust Property and only to the extent that the Pass Through Trustee shall have sufficient income or proceeds from the Trust Property to make such payments in accordance with the terms of the Pass Through Agreement. Each Certificateholder of this Pass Through Certificate, by its acceptance hereof, agrees that it will look solely to the income and proceeds from the Trust Property to the extent available for distribution to such Certificateholder as provided in the Pass Through Agreement. This Pass Through Certificate does not purport to summarize the Pass Through Agreement and reference is made to the Pass Through Agreement for information with respect to the interests, rights, benefits, obligations, proceeds, and duties evidenced hereby. A copy of the Pass Through Agreement may be examined during normal business hours at the principal office of the Pass Through Trustee, and at such other places, if any, designated by the Pass Through Trustee, by any Certificateholder upon request. The Pass Through Agreement permits, with certain exceptions provided therein, the amendment thereof and the modification of the rights and obligations of the Company and the rights of the Certificateholders under the Pass Through Trust at any time by the Company and the Pass Through Trustee with the consent of the Majority in Interest of Certificateholders in the Pass Through Trust. Any such consent by the Certificateholder of this Pass Through Certificate shall be conclusive and binding on such Certificateholder and upon all future Certificateholders of this Pass Through Certificate and of any Pass Through Certificate issued upon the transfer hereof or in exchange hereof or in lieu hereof whether or not notation of such consent is made upon this Pass Through Certificate. The Pass Through Agreement also permits the amendment thereof, in certain limited circumstances, without the consent of the Certificateholders of any of the Pass Through Certificates. As provided in the Pass Through Agreement and subject to certain limitations set forth therein, the transfer of this Pass Through Certificate is registrable in the Register upon surrender of this Pass Through Certificate for registration of transfer at the facilities or agencies maintained by the Pass Through Trustee, duly endorsed or accompanied by a written instrument of transfer in form satisfactory to the Pass Through Trustee and the Registrar duly executed by the Certificateholder hereof or such Certificateholder's attorney-in-fact duly authorized in writing, and thereupon one or more new Pass Through Certificates of authorized denominations evidencing the same aggregate Fractional Undivided Interest in the Pass Through Trust will be issued to the designated transferee or transferees. A-4 64 The Pass Through Certificates are issuable only as registered Pass Through Certificates without coupons in minimum denominations of $1,000 Fractional Undivided Interest and integral multiples thereof. As provided in the Pass Through Agreement and subject to certain limitations set forth therein, Pass Through Certificates are exchangeable for new Pass Through Certificates of authorized denominations evidencing the same aggregate Fractional Undivided Interest in the Pass Through Trust, as requested by the Certificateholder surrendering the same. No service charge will be made for any such registration of transfer or exchange, but the Pass Through Trustee may require payment of a sum sufficient to cover any tax or governmental charge payable in connection therewith. The Pass Through Trustee, the Indenture Trustees, the Registrar, and the Company and any agent of the Pass Through Trustee, the Indenture Trustees, the Registrar, or the Company may treat the person in whose name this Pass Through Certificate is registered as the owner hereof for all purposes, and neither the Pass Through Trustee, the Indenture Trustees, the Registrar, or the Company nor any such agent shall be affected by any notice to the contrary. The obligations and responsibilities created by the Pass Through Agreement and the Pass Through Trust created thereby shall terminate upon the distribution to Certificateholders of all amounts required to be distributed to them pursuant to the Pass Through Agreement and the disposition of all property held as part of the Trust Property. A-5 EX-4.2 4 EXHIBIT 4.2 1 EXHIBIT 4.2 Kmart Store No.: [STORE NO.]~ [TOWN, STATE]~ THIS INDENTURE IS A MORTGAGE, DEED OF TRUST AND SECURITY AGREEMENT OF BOTH REAL AND PERSONAL PROPERTY, INCLUDING GOODS THAT ARE OR ARE TO BECOME FIXTURES ON THE REAL ESTATE DESCRIBED HEREIN. THIS INDENTURE CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS. THIS INDENTURE IS TO BE FILED FOR RECORD IN THE RECORDS WHERE MORTGAGES OR DEEDS OF TRUST OF REAL PROPERTY ARE RECORDED. THIS INDENTURE SHOULD ALSO BE APPROPRIATELY INDEXED AS A FIXTURE FINANCING STATEMENT UNDER THE UNIFORM COMMERCIAL CODE. THIS INDENTURE SECURES OBLIGATIONS CONTAINING PROVISIONS FOR MODIFICATIONS IN THE TERMS OF THE SECURED OBLIGATIONS. INDENTURE, MORTGAGE AND DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT Dated as of March __, 1995 Among REAL ESTATE FINANCE TRUST 1995-K-_____, a Delaware business trust, Owner Trust and THE BANK OF NEW YORK and TODD N. NIEMY, Indenture Trustees When recorded return to: SULLIVAN & CROMWELL 250 Park Avenue New York, New York 10177-0021 Attention: Ms. Sheila Lynch 2 TABLE OF CONTENTS
Page ---- RECITALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 GRANTING CLAUSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 ARTICLE I Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ARTICLE II ISSUE, EXECUTION, FORM AND REGISTRATION OF THE MORTGAGE NOTES SECTION 2.01. Authentication and Delivery of Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . 18 SECTION 2.02. Execution of Mortgage Notes . . . . . . . . . . . . . . . . . . 18 SECTION 2.03. Certificate of Authentication . . . . . . . . . . . . . . . . . 18 SECTION 2.04. Form and Terms of Mortgage Notes; Payments of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 2.05. Payments from Indenture Estate Only . . . . . . . . . . . . . . 21 SECTION 2.06. Registration, Transfer and Exchange . . . . . . . . . . . . . . 22 SECTION 2.07. Mutilated, Defaced, Destroyed, Lost and Stolen Mortgage Notes . . . . . . . . . . . . . . . . . . 24 SECTION 2.08. Cancellation of Mortgage Notes; Destruction Thereof . . . . . . . . . . . . . . . . . . . . . 25 SECTION 2.09. Termination of Interest in Indenture Estate . . . . . . . . . . . . . . . . . . . . . . . 25 ARTICLE III COVENANTS SECTION 3.01. Payment of Principal, Premium and Interest . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 3.02. Offices for Payments, Etc. . . . . . . . . . . . . . . . . . . 26
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Page ---- SECTION 3.03. Appointment to Fill a Vacancy in Office of Corporate Indenture Trustee . . . . . . . . . . . . . . . . . . . . . 26 SECTION 3.04. [Intentionally Omitted] . . . . . . . . . . . . . . . . . . . . . . . . . 26 SECTION 3.05. Covenants of the Trust Company and the Owner Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 SECTION 3.06. Property Alterations and Substitutions of the Indenture Estate . . . . . . . . . . . . . . . . . . . . . . . . 30 SECTION 3.07. Further Assurances; Financing Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 3.08. Assumption of Obligations of Owner Trust by the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 31 SECTION 3.09. No Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 ARTICLE IV HOLDER LISTS . . . . . . . . . . 34 ARTICLE V RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE INDENTURE ESTATE SECTION 5.01. Basic Rent Distribution . . . . . . . . . . . . . . . . . . . . . . . . . 34 SECTION 5.02. Event of Loss and Replacement; Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 SECTION 5.03. Payment After Indenture Event of Default, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 SECTION 5.04. Certain Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 5.05. Other Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 SECTION 5.06. Payments to Owner Trust . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 5.07. Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 5.08. Investment of Amounts Held by Indenture Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 SECTION 5.09. Withholding Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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Page ---- ARTICLE VI REDEMPTION OF MORTGAGE NOTES SECTION 6.01. No Redemption or Prepayment Prior to Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 SECTION 6.02. Redemption of Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . 40 SECTION 6.03. Redemption; Notice to Corporate Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 SECTION 6.04. Mortgage Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . 42 SECTION 6.05. Notice of Redemption to Holders . . . . . . . . . . . . . . . . . . . . . 42 SECTION 6.06. Right to Reject Tenant's Purchase Offer or Notice of Termination . . . . . . . . . . . . . . . . . . . . 43 SECTION 6.07. Mortgage Notes Payable on Redemption Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE VII REMEDIES OF INDENTURE TRUSTEES AND HOLDERS SECTION 7.01. Indenture Event of Default . . . . . . . . . . . . . . . . . . . . . . . 44 SECTION 7.02. Remedies; Acceleration of Maturity; Rescission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 SECTION 7.03. Exercise of Remedies, and Suits for Enforcement, by Indenture Trustees; Owner Trust's Right to Redeem the Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 SECTION 7.04. Additional Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 SECTION 7.05. Indenture Trustees May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 SECTION 7.06. Indenture Trustees May Enforce Claims Without Possession of the Mortgage Notes; Represent Holders . . . . . . . . . . . . . . . . . . . . . . . . 52 SECTION 7.07. Application of Money Collected . . . . . . . . . . . . . . . . . . . . . 53 SECTION 7.08. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . 53 SECTION 7.09. Unconditional Right of Holders to Receive Principal, Premium, if any, and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
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Page ---- SECTION 7.10. Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . 54 SECTION 7.11. Rights and Remedies Cumulative and Subject to Applicable Law . . . . . . . . . . . . . . . . . . . . . . . 54 SECTION 7.12. Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 7.13. Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 SECTION 7.14. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 7.15. Waiver of Appraisement; Laws . . . . . . . . . . . . . . . . . . . . . . 56 SECTION 7.16. Special State Law Addendum . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 7.17. No Cross-Collateralization . . . . . . . . . . . . . . . . . . . . . . . 57 ARTICLE VIII RIGHTS OF THE OWNER TRUST AND THE OWNER PARTICIPANT SECTION 8.01. Certain Rights of Owner Trust and Owner Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 SECTION 8.02. Owner Trust's Right to Elect to Redeem and to Provide for Payment . . . . . . . . . . . . . . . . . . . . . . . 59 SECTION 8.03. Certain Rights of Owner Trust and Owner Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 SECTION 8.04. Company Ownership of Owner Trust . . . . . . . . . . . . . . . . . . . . 63 ARTICLE IX THE INDENTURE TRUSTEES SECTION 9.01. Acceptance of Trusts . . . . . . . . . . . . . . . . . . . . . . . . . . 63 SECTION 9.02. Duties and Responsibilities of the Indenture Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 SECTION 9.03. Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 9.04. Certain Rights of the Indenture Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 SECTION 9.05. Issuance of Mortgage Notes or Recording; Warranty . . . . . . . . . . . . . . . . . . . . . . . . . 67 SECTION 9.06. Indenture Trustees, Owner Trustees and Agents May Hold Mortgage Notes; Collections, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 SECTION 9.07. Moneys Held by Indenture Trustees . . . . . . . . . . . . . . . . . . . . 68
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Page ---- SECTION 9.08. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 9.09. The Co-Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 9.10. Co-Indenture Trustee Acting with Corporate Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . 68 SECTION 9.11. Easements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 9.12. Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 SECTION 9.13. Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . 70 SECTION 9.14. Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . . . . . . . . . . . . . . . 70 SECTION 9.15. Persons Eligible for Appointment as Corporate Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . 71 SECTION 9.16. Appointment of Separate Trustees . . . . . . . . . . . . . . . . . . . . 71 SECTION 9.17. Trustees' Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 ARTICLE X CONCERNING THE HOLDERS SECTION 10.01. Evidence of Action Taken by Holders . . . . . . . . . . . . . . . . . . . 74 SECTION 10.02. Proof of Execution of Instruments and of Holding of the Mortgage Notes . . . . . . . . . . . . . . . . . . 74 SECTION 10.03. Holders to Be Treated as Owners . . . . . . . . . . . . . . . . . . . . . 74 SECTION 10.04. Mortgage Notes Owned by Owner Trust, Owner Trustees, Owner Participant and the Company Deemed Not Outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 SECTION 10.05. Right of Revocation of Action Taken . . . . . . . . . . . . . . . . . . . 75 SECTION 10.06. Voting Rights of Pass Through Trustee . . . . . . . . . . . . . . . . . . 76 ARTICLE XI INDEMNIFICATION OF INDENTURE TRUSTEES BY OWNER TRUST . . . . . . . . . 76
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Page ---- ARTICLE XII SUPPLEMENTS AND AMENDMENTS TO THIS INDENTURE AND OTHER DOCUMENTS SECTION 12.01. Supplemental Indentures Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 SECTION 12.02. Supplemental Indentures With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79 SECTION 12.03. Effect of Supplemental Indenture . . . . . . . . . . . . . . . . . . . . 80 SECTION 12.04. Documents to be Given to Indenture Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 SECTION 12.05. Notation on Mortgage Notes in Respect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . 80 SECTION 12.06. No Request Necessary for Lease Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81 SECTION 12.07. Amendments, Waivers, Etc. of Other Indenture Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 81 ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 13.01. Satisfaction and Discharge of Indenture; Termination of Indenture . . . . . . . . . . . . . . . . . . . . . . . . 83 SECTION 13.02. Application by Indenture Trustees of Funds Deposited for Payment of Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 SECTION 13.03. Transfer of Moneys Held by Indenture Trustees Unclaimed for Two Years and Eleven Months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
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Page ---- ARTICLE XIV SUBSTITUTIONS AND RELEASES SECTION 14.01. Substitution of Property Included in the Indenture Estate During Continuation of Lease . . . . . . . . . . . . . . . . . . . . . . . . . 85 SECTION 14.02. Execution of Releases . . . . . . . . . . . . . . . . . . . . . . . . . . 86 ARTICLE XV ISSUANCE OF REFINANCING MORTGAGE NOTES SECTION 15.01. Creation and Forms of Refinancing Mortgage Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86 SECTION 15.02. Issuance of Refinancing Mortgage Notes After Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 86 ARTICLE XVI ASSIGNMENT OF LEASES AND RENTS SECTION 16.01. Making of Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . 87 SECTION 16.02. Receipt of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 16.03. Irrevocability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 16.04. Owner Trust Remains Liable . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 16.05. Ongoing Right to Collect Rents; Receivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90 SECTION 16.06. Article XVI Not Intended to Override . . . . . . . . . . . . . . . . . . 91 ARTICLE XVII SECURITY AGREEMENT AND FINANCING STATEMENT . . 91
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Page ---- ARTICLE XVIII MISCELLANEOUS SECTION 18.01. Exculpation and Release of Liability . . . . . . . . . . . . . . . . . . 93 SECTION 18.02. Capacity in Which Acting . . . . . . . . . . . . . . . . . . . . . . . . 93 SECTION 18.03. No Legal Title to Indenture Estate in Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93 SECTION 18.04. Sale of Indenture Estate by Indenture Trustees is Binding . . . . . . . . . . . . . . . . . . . . . 94 SECTION 18.05. Indenture for Benefit of Owner Trust, Indenture Trustees and Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 18.06. No Action Contrary to the Company's Rights Under the Lease . . . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 18.07. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94 SECTION 18.08. Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . 95 SECTION 18.09. Form of Documents Delivered to Indenture Trustees . . . . . . . . . . . . . . . . . . . . . . . . . . . 96 SECTION 18.10. Act of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 18.11. Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 18.12. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 18.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 18.14. Governing Law; Interpretation . . . . . . . . . . . . . . . . . . . . . . 97 SECTION 18.15. Estoppel Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 18.16. Company Not a Party . . . . . . . . . . . . . . . . . . . . . . . . . . 98 SECTION 18.17. Special State Law Addendum . . . . . . . . . . . . . . . . . . . . . . . 98
EXHIBIT A-1 - Form of Mortgage Note due [Maturity Date K-1] EXHIBIT A-2 - Form of Mortgage Note due [Maturity Date K-2] SCHEDULE I - Description of Land viii 10 INDENTURE, MORTGAGE AND DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT (this "Indenture") dated as of March __, 1995 between Real Estate Finance Trust 1995-K-_____, a Delaware business trust (the "Owner Trust") created under the Trust Agreement (as hereinafter defined) whose principal place of business and mailing address are set forth in Section 18.07, of which Wilmington Trust Company (together with its permitted successors and assigns, the "Corporate Owner Trustee") and William J. Wade (together with his permitted successors and assigns, the "Individual Owner Trustee"), acting not individually, except as otherwise provided herein (when acting in such individual capacity, the "Trust Company" and "William J. Wade", respectively), but solely as trustees for the Owner Trust (the Corporate Owner Trustee and the Individual Owner Trustee, collectively in such capacities, the "Owner Trustees"), and The Bank of New York, a banking corporation organized and existing under the laws of the State of New York, whose principal place of business and mailing address are set forth in Section 18.07, and Todd N. Niemy, whose residence and mailing address are set forth in Section 18.07, as Corporate Indenture Trustee and Co-Indenture Trustee, respectively, hereunder (collectively, together with their permitted successors and assigns, the "Indenture Trustees"). RECITALS WHEREAS, capitalized terms used herein shall have the respective meanings set forth or referred to in Article I hereof, and in particular, the following terms shall have the following meanings: Aggregate Initial Principal Amount of the $[TOTAL PRINCIPAL AMOUNT]~ Mortgage Notes: Initial Principal Amount of Mortgage Note K-1: $[K-1 PRINCIPAL AMOUNT]~ Initial Principal Amount of Mortgage Note K-2: $[K-2 PRINCIPAL AMOUNT]~ WHEREAS, the Owner Trust has concurrently herewith acquired from the Company, or from a Person under an agreement with the Company to construct certain Improvements and sell the Property to the Company, (a) an estate for years in and to the parcel of land (such parcel, the "Land") more fully described in Schedule I hereto and (b) fee title in and to the Improvements; and WHEREAS, the Owner Trust and the Indenture Trustees desire to enter into, execute and deliver this Indenture, pursuant to which the Owner Trust will initially execute and deliver and the Corporate Indenture Trustee will initially authenticate two Mortgage Notes in the forms of Exhibit A-1 and Exhibit A-2, respectively, in the principal amounts 11 of Initial Principal Amount of Mortgage Note K-1 and the Initial Principal Amount of Mortgage Note K-2, respectively; and WHEREAS, the Owner Trust desires by this Indenture to provide, among other things, (i) for the issuance by the Owner Trust of the Mortgage Notes, (ii) for the assignment, mortgage and pledge by the Owner Trust to the Indenture Trustees, as part of the Indenture Estate hereunder, among other things, of all of the Owner Trust's right, title and interest in and to the Property and the Indenture Documents and all payments and other amounts received hereunder or thereunder in accordance with the terms hereof (other than Excepted Rights and Payments), as security for, among other things, the Owner Trust's obligations to the Holders and for the ratable benefit and security of such Holders; and WHEREAS, all things have been done to make the Mortgage Notes, when executed by the Owner Trust, and authenticated, issued and delivered hereunder, the valid obligations of the Owner Trust; and WHEREAS, all things necessary to make this Indenture the valid, binding and legal obligation of the Owner Trust enforceable in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity or except as limited by applicable laws which may affect the remedies provided for in this Indenture, have been done and performed and have happened; NOW, THEREFORE, THIS INDENTURE WITNESSETH, that, (A) to secure (i) the payment of the principal of, and interest on and all other amounts in respect of the Mortgage Notes from time to time Outstanding (including any Refinancing Mortgage Notes hereafter issued and from time to time Outstanding), and (ii) the performance and observance of the covenants herein contained and the performance and observance by the Owner Trust of all of its covenants and provisions contained herein and (only with respect to the Property encumbered hereby) in the Indenture Documents to which it is a party for the benefit of the Holders and the Indenture Trustees, and (iii) all future advances and readvances that may subsequently be made to the Owner Trust by the Indenture Trustees, evidenced by the Mortgage Notes, and all renewals and extensions thereof, provided, however, nothing contained herein shall create an obligation on the part of the Indenture Trustees to make future advances or readvances to the Owner Trust and (iv) all fees of the Indenture Trustees and charges and expenses of collection incurred by the Indenture Trustees, including court costs and reasonable attorneys' fees, and (B) in consideration of the premises and of the purchase of the Mortgage Notes by the purchasers thereof, the Owner Trust has executed and delivered this Indenture; and the Owner Trust has irrevocably granted, and by these presents and by the execution and delivery hereof and of the Mortgage Notes, and the Owner Trust does hereby irrevocably grant, bargain, convey, warrant, assign, collaterally assign, mortgage, pledge, sell, alien, 2 12 remise, release, transfer, hypothecate, deliver, set over and confirm (the foregoing acts being referred to herein as simply the "Grant"), to and for the benefit of the Indenture Trustees and their successors and assigns forever, in trust upon the terms herein set forth, (x) for the benefit and security of the Holders of the Mortgage Notes, without priority of any over the others, and (y) upon the issuance of any Refinancing Mortgage Notes, for the benefit of the Holders of such Refinancing Mortgage Notes (on a parity with the Holders of the Mortgage Notes hereafter issued and Outstanding), all right, title and interest of the Owner Trust (but only to the extent conveyed to the Owner Trust under the Operative Documents and only to the extent assigned by operation of this Indenture) in and to its interest in, to and under all of the property, rights, privileges and franchises described in the following Granting Clauses, exclusive, however of all Excepted Rights and Excepted Payments (collectively, described as the "Indenture Estate"), to wit: Granting Clause First The Owner Trust's estate for years interest in the Land, together with the Owner Trust's right, title and interest in the Option Agreement and in all and singular the tenements, hereditaments, easements, rights of way, rights, privileges and appurtenances in and to the Land, belonging or in any way appertaining thereto, including any streets, ways, alleys, gores or strips of land adjoining the Land and all sewer rights, waters, water courses, water rights and powers, mineral rights, air rights and all development rights whatsoever in any way belonging, relating or appertaining to any of the Property and/or Improvements, or which hereafter shall in any way belong, relate or be appurtenant thereto and whether now owned or hereafter acquired by the Owner Trust; all claims or demands of the Owner Trust at law or in equity, in possession or expectancy of, in and to the Land; and subject to the provisions of this Indenture, all rents, income, revenues, issues, awards, proceeds, deposits, tenders, profits and other benefits from and in respect of the property described in this Granting Clause First and/or Granting Clause Second or from any business, if any, conducted thereon by the Owner Trust, in each case whether now existing or hereafter arising or acquired by the Owner Trust, it being the intention of the parties hereto that, so far as may be permitted by law, all property of the character hereinabove described that is now owned or held or is hereafter acquired by the Owner Trust and affixed, attached and annexed to the Property shall be and remain or become and constitute a portion of the Indenture Estate and the security covered by and subject to the lien hereof. Granting Clause Second The entire right, title and interest of the Owner Trust in the Improvements, including the Owner Trust's right, title and interest in all Alterations and other additions to or changes in the Improvements now located or at any time hereafter constructed or placed 3 13 upon the Land and all building equipment, fixtures and goods of every kind and nature to become fixtures on the Land or in any such Improvements. Granting Clause Third All Basic Rent and Additional Rent (including amounts payable under [ARTICLES 37 AND 38] of the Lease and Trustee Expenses); all payments, receipts and other consideration of any sort whatsoever payable under the Lease, including any of the same payable to the Owner Trust, as lessor under the Lease, as a result of or in respect of any casualty, condemnation or economic obsolescence relating to the Property, any termination of the Lease, whether by reason of the Company's default thereunder or otherwise, including any property delivered in substitution of the Property; and all other right, title and interest of the Owner Trust, as lessor under the Lease (including all extended and renewal terms under the Lease) and such other rights, title and interest as are described in Article XVI, subject to application of certain monies in accordance with Article V hereof. Granting Clause Fourth All of the Owner Trust's right, title and interest in, to and under (a) all general intangibles relating to design, development, operation, management and use of the Property, (b) all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations and consents obtained from and all materials prepared for filing or filed with any governmental agency in connection with the development, use, operation or management of the Property (except for any such permits and approvals that are not transferable by law), (c) all construction, service, architectural and other similar contracts concerning the design, construction, management, operation, occupancy and/or use of the Property, (d) all architectural drawings, plans, specifications, soil tests, feasibility studies, engineering reports and similar materials relating to any portion of or all of the Property and (e) all payment and performance bonds or warranties or guarantees relating to the Property; Granting Clause Fifth Proceeds of all of the foregoing and any and all other moneys and property which may from time to time become subject to the Lien hereof or which may come into the possession or be subject to the control of the Indenture Trustees pursuant to this Indenture or any other instrument included in the Indenture Estate (other than Excepted Rights and Payments), including casualty insurance proceeds and all awards which may at any time be made to the Owner Trust for the taking by eminent domain of the whole or any part of the Indenture Estate or any interest therein and other property, if any, delivered to the Indenture Trustees by or on behalf of the Owner Trust, it being the intention of the Owner Trust and it being hereby agreed that all property hereafter 4 14 acquired by the Owner Trust and required to be subjected to the Lien of this Indenture or intended so to be (other than Excepted Rights and Payments) shall forthwith upon the acquisition thereof by the Owner Trust be subject to the Lien of this Indenture as if such property were at the date hereof owned by the Owner Trust and were specifically described in this Indenture and such Lien were granted hereby or pursuant hereto. PROVIDED, HOWEVER, that the foregoing Granting Clauses shall not subject to the Lien of this Indenture any Excepted Rights and Payments, and PROVIDED FURTHER, HOWEVER, the Lien of this Indenture shall be subordinate to the leasehold estate created in favor of the Company under the Lease. TO HAVE AND TO HOLD the Indenture Estate and all parts thereof unto the Indenture Trustees and their successors and assigns to their own use and benefit forever, but in trust, nevertheless for the benefit and security of the Holders for the use and purposes and with the power and authority and subject to the terms and conditions mentioned and set forth in this Indenture, WITH POWER OF SALE, to the extent permitted by applicable law, upon the terms and conditions herein set forth for the benefit and security of the Outstanding Mortgage Notes and for the enforcement of the payment of the principal of and interest on the Outstanding Mortgage Notes in accordance with their terms, and all other sums payable hereunder or thereunder and the performance and observance of the provisions of the Outstanding Mortgage Notes, this Indenture and any other Indenture Document, all as herein set forth. BUT IN TRUST, NEVERTHELESS, for the equal and proportionate benefit and security of the Holders from time to time of the Mortgage Notes Outstanding hereunder without any priority of any one over any other, AND UPON THE TRUSTS and subject to the covenants and conditions hereinafter set forth: IT IS HEREBY COVENANTED AND AGREED that anything herein contained to the contrary notwithstanding, the Owner Trust shall remain liable under the Indenture Documents to perform all of its respective obligations thereunder, all in accordance with and pursuant to the terms and provisions thereof, and the Indenture Trustees and the Holders shall have no obligation or liability under any thereof by reason of or arising out of the assignment hereunder, nor shall the Indenture Trustees or any Holder be required or obligated in any manner to perform or fulfill any obligations of the Owner Trust under or pursuant to any of the Indenture Documents to make any payment, or to make any inquiry as to the nature or sufficiency of any payment received by it, or present or file 5 15 any claim, or take any action to collect or enforce the payment of any amounts which may have been assigned to it or to which it may be entitled at any time or times. Effective upon the occurrence and continuance of an Indenture Event of Default, and subject to the terms hereof, the Owner Trust does hereby appoint and constitute the Indenture Trustees, and each of them, the true and lawful attorneys of the Owner Trust, irrevocably, with full power (in the name of the Owner Trust, or otherwise) to ask, require, demand and receive any and all moneys and claims for moneys (in each case including insurance and requisition proceeds) due and to become due under or arising out of the Indenture Documents (other than Excepted Rights and Payments) and all other property which now or hereafter constitutes part of the Indenture Estate, to endorse any checks or other instruments or orders in connection therewith and to file any claims or to take any action or to institute any proceedings which the Indenture Trustees may deem to be necessary or advisable in the premises. Under the Lease, the Company is directed to make all payments of Basic Rent and all other amounts which are required to be paid to or deposited with the Lessor pursuant to the Lease (other than Excepted Rights and Payments) directly to the Corporate Indenture Trustee at such address or addresses or account as the Corporate Indenture Trustee shall specify, for application as provided in this Indenture. The Owner Trust agrees that, promptly on receipt thereof, it will transfer to the Corporate Indenture Trustee any and all moneys (other than Excepted Rights and Payments) from time to time received by it constituting part of the Indenture Estate, for distribution by the Corporate Indenture Trustee pursuant to this Indenture, except that the Owner Trust may accept for distribution pursuant to the Trust Agreement any amounts distributed to it by the Indenture Trustees under this Indenture. The Owner Trust agrees that at any time and from time to time, upon the written request of the Indenture Trustees, it will promptly and duly execute and deliver or cause to be duly executed and delivered any and all such further instruments and documents as the Indenture Trustees may reasonably deem necessary or desirable in obtaining the full benefits of the Grant made hereunder and of the rights and powers granted herein. The Owner Trust (sometimes herein referred to as "Grantor") does hereby warrant and represent that it has not mortgaged, assigned or pledged, and hereby covenants that it will not mortgage, assign or pledge, so long as this Indenture shall remain in effect and shall not have been terminated pursuant to Section 13.01 hereof, any of its estate, right, title or interest hereby assigned, to anyone other than the Indenture Trustees. With respect to such estate, right, title and interest hereby assigned, the Grantor will not, except as provided in this Indenture or with respect to Excepted Rights and Payments, (i) enter into any agreement terminating, amending or supplementing any of the Indenture Documents, or execute any waiver or modification of, or consent under, the terms of any of the Indenture Documents or accept a surrender of the Company's interest under the Lease or subordinate the Lease, (ii) accept any payment from the Company under any Indenture Document, (iii) settle or compromise any claim arising under any of the 6 16 Indenture Documents or (iv) submit or consent to the submission of any dispute, difference or other matter arising under or in respect of any of the Indenture Documents to arbitration thereunder. For purposes of subsequent references herein, this paragraph shall be regarded as the seventh paragraph following the Habendum Clause. IT IS HEREBY COVENANTED AND AGREED by and between the parties hereto as follows: ARTICLE I DEFINITIONS The following terms (except as otherwise expressly provided) for all purposes of this Indenture and of any indenture supplemental hereto have the respective meanings specified in this Article. All accounting terms used and not expressly defined herein have the meanings given to them in accordance with generally accepted accounting principles, and the term "generally accepted accounting principles" means such accounting principles which are generally accepted at the date or time of any computation or otherwise at the date hereof. The words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. The terms defined in this Article include the plural as well as the singular. For all purposes of this Indenture, capitalized terms used but not defined herein have the respective meanings assigned thereto in the Lease [OR, IF NOT DEFINED THEREIN, IN THE PARTICIPATION AGREEMENT]. The terms "Property", "Improvements" and "Land" shall mean all or any portion of the Property, Improvements and Land, respectively. The term "including" shall be deemed followed by the phrase "without limitation". "Acceleration Date" means the date as of which the unpaid principal of all Outstanding Mortgage Notes, together with interest accrued but unpaid thereon, premium, if any, and all other amounts due thereunder shall become due and payable under either Section 7.02(b) or 7.02(c) hereof. "Additional Leases" shall have the meaning given such term in Section 16.01. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. 7 17 "Alterations" means all alterations, additions, additional buildings and structures on or to the Improvements. "Business Day" means any day other than Saturday, Sunday or other day on which banking institutions in the States of New York, Delaware and Michigan are authorized or required by law to close. "Co-Indenture Trustee" means Todd N. Niemy of Long Beach, New York and, subject to the provisions of Article IX hereof, his successors in the trusts hereby created. "Company" means Kmart Corporation, a Michigan corporation, and subject to the Lease, its successors and assigns. "Company Indenture" has the meaning set forth in Section 3.08(a). "Company Mortgage Notes" has the meaning set forth in Section 3.08(a). "Conveyancing Documents" means the Kmart Transaction Documents (as defined in the Purchase Agreement, but only to the extent that such document relates to the Property), other than the Participation Agreement and the Tax Indemnification Agreement. "Corporate Indenture Trustee" means The Bank of New York, a banking corporation organized and existing under the laws of the State of New York and, subject to the provisions of Article IX hereof, its successors in the trusts hereby created. "Corporate Owner Trustee" means Wilmington Trust Company, a Delaware banking corporation, acting not in its individual capacity but solely as trustee and, subject to the provisions of the Trust Agreement, its successors in the trusts thereby created. "Corporate Trust Office" means the corporate trust office of the Corporate Indenture Trustee located at 101 Barclay Street, New York, New York 10286 or such other office at which the Corporate Indenture Trustee's corporate trust business shall be administered that the Corporate Indenture Trustee shall have specified by notice in writing to the Company, the Owner Trust, the Owner Participant and the Holders. "Distribution Date" has the meaning set forth in the Pass Through Trust Agreements. "Dollars" and "$" mean lawful currency of the United States of America. "Duff & Phelps" has the meaning set forth in Section 3.05(c) hereof. 8 18 "Excepted Payments" means (i) any and all indemnity payments and interest thereon (including special tax indemnities, general tax indemnities and other general indemnities, whether or not such payments are denominated as Additional Rent) paid or payable by the Company to the Owner Participant, the Owner Trust, the Trust Company or William J. Wade in their individual capacities, or any other Person pursuant to the Lease, the Participation Agreement, this Indenture, the Indenture Documents, the Tax Indemnification Agreement or any other Operative Document as a result of claims made or losses suffered by any such Person; (ii) any payment in respect of insurance (other than casualty insurance maintained by the Company pursuant to the Lease) by any Person, or amounts payable by the Company in respect of deductibles or self-insurance in effect (other than for casualty losses), in each case, payable as a result of insurance claims made, or losses suffered, by the Owner Trust, the Trust Company, William J. Wade or the Indenture Trustees in their respective individual capacities or by the Owner Participant or any other Person; (iii) any payment in respect of insurance maintained by or for the benefit of the Owner Participant (whether directly or through the Owner Trust) and not required to be maintained by the Company under the Lease; (iv) fees, disbursements or expenses payable by the Company to the Trust Company or William J. Wade (or any successor trustee or co-trustee) in their respective individual capacities for acting as trustees of the Owner Trust; (v) any out-of-pocket costs and expenses incurred by the Owner Trustees, as trustees or in their respective individual capacities, which are reimbursable by the Company to them or to the Owner Trust or the Owner Participant by virtue of any transactions which are contemplated by the Lease or any other Operative Document; (vi) any amount payable to the Owner Participant by any transferee as the purchase price of the Owner Participant's interest in the Trust Estate (or a portion thereof) and any amount payable to the Owner Trust or Owner Participant pursuant to Section 19 of the Participation Agreement; and (vii) all rights of the Owner Trust or the Owner Participant or any other Person under the Operative Documents, whether or not a Lease Event of Default, an unmatured Lease Default, an Indenture Event of Default or an Indenture Default has occurred and is continuing, to demand, collect, sue for, give notices, make determinations, exercise all rights with respect to and otherwise obtain all amounts from the Company due the Owner Trust, the Owner Trustees or the Owner Participant, on account of any such indemnities or payments referred to in clauses (i) through (vi) above; provided, however, that the rights referred to in this clause (vii) shall not be deemed to include the exercise of any remedy to terminate the Lease or to terminate the Company's right to possession thereunder (except upon release of the Property from the Lien of this Indenture) but shall include the right to proceed by appropriate court action or actions, either at law or in equity, to enforce performance by the Company of the applicable covenants and terms referenced above or to recover damages for the breach thereof. "Excepted Rights" has the meaning set forth in Section 8.01 hereof. "Excepted Rights and Payments" has the meaning specified in Section 8.01. 9 19 "Federal Bankruptcy Code" means Title 11 of the United States Code, as amended. "Grantor" shall have the meaning given such term hereinabove. "Holder" means each registered holder or holders from time to time of the Mortgage Notes as evidenced on the Register. "Improvements" means any and all buildings, personalty and site improvements now or hereafter constructed or located on the Land, together with all licenses, rights, privileges and easements appurtenant thereto. "Indebtedness" of any Person means at any time, without duplication, (i) all obligations of such Person for borrowed money or the deferred purchase price of property, or evidenced by bonds, debentures, notes or other similar instruments, or arising under leases that are properly capitalized under generally accepted accounting principles applicable to such Person and (ii) all guarantees by such Person of such obligations described in clause (i) above. "Indenture", "this Indenture" and other like words mean this Indenture as the same may be modified, supplemented or amended from time to time in accordance with the provisions hereof. "Indenture Default" means an Indenture Event of Default or an event or condition that, with the giving of notice or the lapse of time or both, would become an Indenture Event of Default. "Indenture Documents" means the Participation Agreement (only to the extent that such document relates to the Property unless the context clearly requires the contrary), the Lease, the Option Agreement, the Trust Agreement (and any supplement thereto), this Indenture and the Mortgage Notes. "Indenture Estate" means the property and rights subject to the Lien hereof pursuant to the Granting Clauses of this Indenture; provided, however, that the term "Indenture Estate" does not include any Excepted Rights and Payments. "Indenture Event of Default" has the meaning specified in Section 7.01 hereof. "Indenture Trustees" means the Corporate Indenture Trustee and the Co-Indenture Trustee. "Independent Investment Banker" means an independent investment banking institution of national standing appointed by the Owner Trust (and, in each case where a Lease Event of Default or a Material Default has not occurred, approved in writing by 10 20 the Company) that is independent in fact, does not have any direct financial interest, or any material indirect financial interest, in the Company or the Owner Participant or any Affiliate of the Company or the Owner Participant, is not connected with the Company or the Owner Participant or any Affiliate of the Company or the Owner Participant as an officer, employee, promoter, underwriter, trustee, partner, director or Person performing similar functions; provided, that if the Corporate Indenture Trustee shall not have received written notice of such an appointment at least 10 days prior to a Redemption Date or if an Indenture Event of Default which is not caused by a Lease Event of Default shall have occurred and be continuing, "Independent Investment Banker" shall mean such an institution appointed by the Corporate Indenture Trustee. "Individual Owner Trustee" means William J. Wade, acting not in his individual capacity but solely as trustee, and, subject to the provisions of the Trust Agreement, his successors in the trusts thereby created. "Initial Principal Amount of Mortgage Note K-1" and "Initial Principal Amount of Mortgage Note K-2" have the meanings given such terms in the first Recital hereof. "Installment Payment Amount" means, with respect to each Mortgage Note, the amount of the installment payment of principal, if any, due and payable on each Installment Payment Date, which amount shall be equal to the product of the original principal amount of such Mortgage Note and the Installment Payment Percentage for such Installment Payment Date; provided, however, that in the event of a partial redemption of the Mortgage Notes as provided in Article VI, each subsequent Installment Payment Amount shall, effective as of the Installment Payment Date immediately following the Redemption Date, be reduced as provided in Section 6.02(a). "Installment Payment Date" means each date on which an installment of principal of a Mortgage Note is due and payable under the terms of such Mortgage Note, as set forth in Exhibit A-1 or A-2 hereto, as applicable. "Installment Payment Percentage" means, with respect to each Installment Payment Date, the percentage set forth opposite such Installment Payment Date in Exhibit A-1 or A-2 hereto, as applicable. "Interest Payment Date" means each date on which interest is due and payable under the terms of a Mortgage Note, as set forth in Exhibit A-1 or A-2 hereto, as applicable. "Land" has the meaning set forth in the Recitals of this Indenture. "Lease" means the Lease, dated as of March __, 1995, between the Owner Trust or the Owner Trustee, as the case may be, and the Company, with respect to the 11 21 Property, as the same may be modified, supplemented or amended from time to time in accordance with the provisions thereof and hereof. "Lease Default" means any event or condition which, with notice or lapse of time or both, if uncured, would constitute a Lease Event of Default. "Lease Event of Default" means any "Event of Default" as defined in [ARTICLE 20 OF THE LEASE]. "Lessor" means the lessor under the Lease. "Lien" means any mortgage, pledge, lien, charge, disposition of title, encumbrance, lease or security interest. "Make-Whole Premium" means, with respect to the principal amount of any Mortgage Note to be redeemed or to be paid by reason of redemption, the amount which an Independent Investment Banker determines as of the third Business Day prior to the applicable Redemption Date equals the excess, if any, of (i) the sum of the present values of all the remaining scheduled payments of principal of and interest on such Mortgage Note as of the Redemption Date (or the portion of each such scheduled payment corresponding to the portion of such Mortgage Note to be redeemed), from the Redemption Date to the stated Maturity Date of such Mortgage Note, discounted semi-annually on each Interest Payment Date at a rate equal to the Treasury Yield plus fifty basis points (0.50%), based on a 360-day year of twelve 30-day months, over (ii) the aggregate unpaid principal amount of such Mortgage Note (or the then unpaid portion to be redeemed) plus accrued and unpaid interest thereon (excluding, for this purpose, any accrued interest in default). "Material Default" means any "Material Default" as defined in Article 20 of the Lease. "Maturity Date" means, with respect to each Mortgage Note, the date specified therein as the date on which all of the remaining unpaid principal and accrued but unpaid interest payable under the applicable Mortgage Note is scheduled to be paid in full. "Moody's" has the meaning set forth in Section 3.05(c) hereof. "Mortgage Notes" means the Mortgage Notes originally issued by the Owner Trust hereunder and any Mortgage Notes issued in connection with the transfer, assignment, partial redemption or replacement of any Mortgage Note pursuant to this Indenture. The term "Mortgage Notes" shall also include, as the context may require, Refinancing Mortgage Notes. 12 22 "Officer's Certificate" and "Officer's Request" and "Officer's Order" mean, respectively, a certificate or request or order signed by a Responsible Officer of the Corporate Owner Trustee or the Company, as the case may be, delivered to the Corporate Indenture Trustee. "Operative Documents" shall mean (only to the extent that such document relates to the Property unless the context requires otherwise) the Indenture Documents, the Tax Indemnification Agreement, each Purchase and Sale Agreement, the Conveyancing Documents, the Participation Agreement, the Pass Through Trust Agreements and the Pass Through Certificates. "Opinion of Counsel" means a written opinion of legal counsel to the Company or the Owner Trust, as the case may be, designated by the Company or the Owner Trust, as the case may be, and reasonably satisfactory to the Corporate Indenture Trustee and the Owner Trust and addressed to the party or parties to whom it is to be delivered, which opinion may include reasonable assumptions, limitations, qualifications and exclusions. "Option Agreement" means the Option Agreement, dated as of March __, 1995, between the Remainderman and the Owner Trust. "Other Indentures" means the various instruments titled "Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement", dated the date hereof, entered into by the related Owner Trusts and the Indenture Trustees, provided, however, an "Other Indenture" shall cease to be an "Other Indenture" at such time as the obligations thereunder are assumed under provisions of Section 3.08(a) thereof. "Other Leases" has the meaning set forth in Section 7.17 hereof. "Other Mortgage Notes" means those mortgage notes issued by the Other Owner Trusts pursuant to the Other Indentures, including any refinancing mortgage notes which may be issued thereunder. "Other Owner Trusts" means those several Delaware business trusts (other than the Owner Trust), each established pursuant to a Trust Agreement, dated as of March __, 1995, and any supplement thereto, among the Trust Company, the Individual Owner Trustee, if any, and the Owner Participant. "Outstanding" means, when used with respect to the Mortgage Notes, as of the date of determination, and subject to the provisions of Section 10.04 hereof, all Mortgage Notes theretofore executed and delivered under this Indenture, with the exception of the following: 13 23 (i) Mortgage Notes theretofore canceled by the Corporate Indenture Trustee or delivered to the Corporate Indenture Trustee for cancellation pursuant to Section 2.08 of this Indenture or otherwise; (ii) Mortgage Notes for which payment or redemption money in the necessary amount has been theretofore deposited with the Corporate Indenture Trustee in trust for the Holders of such Notes pursuant to Section 13.01 hereof; provided, that if such Mortgage Notes are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Corporate Indenture Trustee has been made; (iii) Mortgage Notes in exchange for or in lieu of which other Mortgage Notes have been authenticated and delivered pursuant to Article II hereof; and (iv) Mortgage Notes alleged to have been destroyed, lost or stolen which have been paid as provided in Section 2.07 hereof. "Owner Participant" means the Owner Participant that is a party to the Trust Agreement, and also includes any Person to which such corporation (or any successor) transfers its right, title and interest in and to the Trust Estate in accordance with the Trust Agreement, the Participation Agreement, the Lease and this Indenture. "Owner Trust" means Real Estate Finance Trust 1995-K-____, the Delaware business trust formed under the Trust Agreement. Such term shall, as the context may require or permit, include any successor or successors to the Owner Trust the owner of the Property and Lessor under the Lease, to the extent permitted under this Indenture. "Owner Trustees" means, collectively, the Corporate Owner Trustee and the Individual Owner Trustee in their respective trust capacities under the Trust Agreement unless otherwise specifically provided. "Participation Agreement" means (only to the extent it refers to the Property unless the context requires otherwise) the Participation Agreement, dated as of March __, 1995, among the Company, the Owner Participants, the Owner Participant Parent, the Owner Trustees, the Owner Trust, the Other Owner Trusts, the Indenture Trustees, the Remainderman Participant, the Remainderman Trustee, and the Remainderman, as the same may be amended, modified or supplemented from time to time in accordance with the terms thereof and hereof. "Pass Through Certificate" means any of the Pass Through Certificates issued pursuant to either of the Pass Through Trust Agreements. 14 24 "Pass Through Trust" means either or both (as the context may require) of the Pass Through Trusts created pursuant to the respective Pass Through Trust Agreements. "Pass Through Trust Agreement" means either or both (as the context may require) of (a) Pass Through Trust Agreement, dated as of March __, 1995, between the Company and The Bank of New York Trust Company of Florida, National Association, as trustee under Pass Through Trust Agreement-1995-K-1, and (b) Pass Through Trust Agreement, dated as of March __, 1995, between the Company and The Bank of New York Trust Company of California, as trustee under Pass Through Trust Agreement-1995-K-2, as either of such agreements may from time to time be supplemented or amended. "Pass Through Trustees" means collectively the trustees under Pass Through Trust Agreement-1995-K-1 and Pass Through Trust Agreement-1995-K-2, respectively. "Permitted Investments" means: (i) Direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America; (ii) obligations of agencies of the United States of America which are unconditionally guaranteed by or otherwise afforded the full faith and credit of the United States of America; and (iii) time deposits secured exclusively by any of the obligations described in (i) or (ii) above, provided that all of the foregoing shall have maturities of less than one year. Any such investments shall have a maturity or be redeemable without penalty on or before any date on which the funds invested therein are reasonably expected to be required to be applied as provided in this Indenture. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, nonincorporated organization or government or any agency or political subdivision thereof. "Property" means the interest in the Land and the Improvements now owned or hereafter acquired by Owner Trust, including all of Lessor's right, title and interest in all Alterations now or hereafter made, and in all building equipment, fixtures and goods of every nature and kind that are now or become fixtures on the Land or on any such Improvements and Alterations. "Purchase Agreement" means the Agreement for Sale of Real Estate, dated as of March __, 1995, among the Company, the Remainderman Purchaser, the Owner Trust and the Other Owner Trusts. "Purchase and Sale Agreement" means one of the two separate agreements, dated as of March __, 1995, among the Company, the related Owner Trust and the Pass 15 25 Through Trustees, pursuant to which the Mortgage Notes will be acquired by the Pass Through Trustees. "Record Date" means the 15th day preceding an Interest Payment Date, Installment Payment Date or Redemption Date, whether or not such date is a Business Day. "Redemption Date" means, when used with respect to any Mortgage Note (or portion thereof) to be redeemed, the date fixed for such redemption by or pursuant to Section 6.03 of this Indenture. "Redemption Price" means, when used with respect to any Mortgage Note to be redeemed, 100% of the unpaid principal amount thereof (or when used with respect to any Mortgage Note which is to be partially redeemed, the portion of the principal balance thereof to be redeemed) plus accrued interest to the Redemption Date and, where specifically provided for herein, the applicable Make-Whole Premium, if any. "Refinancing Mortgage Notes" means any mortgage notes issued pursuant to Article XV hereof to refinance the indebtedness represented by the Mortgage Notes. "Register" has the meaning set forth in Section 3.02 hereof. "Registrar" has the meaning set forth in Section 3.02 hereof. "Relevant Date" has the meaning set forth in Section 3.08 hereof. "Remainderman" means the RemainderMart Trust, a Delaware business trust formed under the Remainderman Trust Agreement, together with its successors and assigns. "Remainderman Participant" means the Remainderman Limited Partnership, a Connecticut limited partnership, together with its successors and assigns. "Remainderman Trust Agreement" means the Business Trust Agreement, dated as of March __, 1995, between the Remainderman Participant and the Remainderman Trustee, as the same may be modified, supplemented or amended from time to time in accordance with the provisions thereof. "Remainderman Trustee" means Wilmington Trust Company, not in its individual capacity but solely as trustee under the Remainderman Trust Agreement, together with its successors and assigns. "Responsible Officer" means the president or any other officer with authority of at least a vice president; or, in the case of the Corporate Indenture Trustee, an officer of the Corporate Indenture Trustee in its corporate trust department; or, in the case of the 16 26 Corporate Owner Trustee, an officer of the Corporate Owner Trustee in its Corporate Trust Administration department. "Securities Act" means the Securities Act of 1933, as amended. "Special State Law Addendum" means that addendum, if any, to this Indenture setting forth special granting clauses, provisions regarding remedies of the Indenture Trustees and certain other provisions which are necessary or appropriate to reflect the laws and regulations of the state in which the Property is located. "Standard & Poor's" has the meaning set forth in Section 3.05(c) hereof. "Tax Indemnification Agreement" means the Tax Indemnification Agreement, dated as of March __, 1995, between the Company and the Owner Participant. "Treasury Yield" means, with respect to the calculation of the Make-Whole Premium, a per annum rate determined as of the date of determination of the Make-Whole Premium equal to the weekly average yield to maturity of United States Treasury Notes having a constant maturity as set forth in the most recent weekly statistical release (or any successor release) published by the Federal Reserve Bank of New York and designated "H.15(519) Selected Interest Rates" (the "H.15 Statistical Release"), corresponding to the weighted average life of the Mortgage Note (calculated to the nearest 1/12 of a year) (the "Weighted Average Life"); such yield described in this clause to be calculated by the Independent Investment Banker, by interpolation (unless the Weighted Average Life of the Mortgage Note equals a constant maturity set forth in the H.15 Statistical Release) on a straight-line basis, between the weekly average yields (rounded, if necessary, to the nearest 1/100 of 1% with any figure of 1/200 of 1% or above rounded upward) on (a) the United States Treasury Notes with a constant maturity closest to and greater than the Weighted Average Life and (b) the United States Treasury Notes with a constant maturity closest to and less than the Weighted Average Life, or if such weekly average yields are not available, by interpolation of comparable rates selected by the Independent Investment Banker. "Trust Agreement" means the Trust Agreement of Real Estate Finance Trust 1995-K-__, dated as of March ___, 1995, between the Owner Participant and the Corporate Owner Trustee, as the same may be modified, supplemented or amended from time to time in accordance with the provisions thereof, hereof and of the Participation Agreement. "Trust Company" means Wilmington Trust Company, a Delaware banking corporation, in its individual capacity and not as an Owner Trustee, and its successors under the Trust Agreement, in their respective individual capacities and not as Owner Trustees. 17 27 "Trust Estate" means the estate held by the Owner Trust. ARTICLE II ISSUE, EXECUTION, FORM AND REGISTRATION OF THE MORTGAGE NOTES SECTION 2.01. Authentication and Delivery of Mortgage Notes. Forthwith upon the execution and delivery of this Indenture, Mortgage Notes in the respective principal amounts of the Initial Principal Amount of Mortgage Note K-1 and the Initial Principal Amount of Mortgage Note K-2, and which, in the aggregate, do not exceed the amount specified in Section 2.04 (except as otherwise provided in Sections 2.06 and 2.07) shall be executed by the Owner Trust and delivered to the Corporate Indenture Trustee for authentication, and the Corporate Indenture Trustee shall thereupon authenticate and deliver said Mortgage Notes, without any further action by the Owner Trust, and register such Mortgage Notes in the name of a Pass Through Trustee as directed by the Corporate Owner Trustee pursuant to an Officer's Order delivered to the Corporate Indenture Trustee. SECTION 2.02. Execution of Mortgage Notes. The Mortgage Notes shall be executed by the Corporate Owner Trustee, on behalf of the Owner Trust, by a Responsible Officer of the Corporate Owner Trustee under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries or its Assistant Cashier. The signature of any of the officers of the Corporate Owner Trustee on the Mortgage Notes may be manual or facsimile. A Mortgage Note bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Corporate Owner Trustee shall bind the Owner Trust, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Mortgage Note or did not hold such offices at the respective dates of such Mortgage Note. At any time and from time to time after the execution and delivery of this Indenture, the Owner Trust may deliver Mortgage Notes executed by the Corporate Owner Trustee on behalf of Owner Trust to the Corporate Indenture Trustee for authentication, together with instructions from a Responsible Officer of the Corporate Owner Trustee for the authentication and delivery of such Mortgage Notes, and the Corporate Indenture Trustee in accordance therewith shall authenticate and deliver such Mortgage Notes in accordance with the terms of this Indenture and not otherwise. SECTION 2.03. Certificate of Authentication. Only if a Mortgage Note shall bear thereon a certificate of authentication substantially in the form set forth in Exhibit A-1 or A-2, as applicable, executed by the Corporate Indenture Trustee by manual signature of one of its authorized signatories, shall it be entitled to the security and benefits of this Indenture or be valid or obligatory for any purpose. Such certificate by the Corporate 18 28 Indenture Trustee shall be conclusive evidence, and the only evidence, that the Mortgage Note has been duly authenticated and delivered hereunder and that the Holder thereof, as evidenced on the Register, is entitled to the security and benefits of this Indenture. SECTION 2.04. Form and Terms of Mortgage Notes; Payments of Principal, Premium and Interest. The Mortgage Notes and the Corporate Indenture Trustee's certificate of authentication shall be substantially in the forms set forth in Exhibits A-1 and A-2 hereto respectively. The Mortgage Notes shall be issuable as registered securities without coupons and shall be numbered, lettered, or otherwise distinguished in such manner or in accordance with such plans as the Owner Trust may determine with the approval of the Corporate Indenture Trustee. The aggregate principal amount of Mortgage Notes (except with respect to Refinancing Mortgage Notes, which shall be limited as provided in Article XV hereof, and as otherwise provided in Sections 2.06 and 2.07) that may be authenticated and delivered under this Indenture is limited to the Initial Principal Amount of Mortgage Note K-1 and Initial Principal Amount of Mortgage Note K-2. Each Mortgage Note shall be issued in registered form only and in denominations of $1,000,000 initial principal amount and any integral multiple thereof (provided that one Mortgage Note maturing on each Maturity Date may be in a different principal amount in order to represent the balance of the principal indebtedness evidenced by all Mortgage Notes maturing on such Maturity Date), shall be dated the date of its authentication, shall have the scheduled Installment Payment Dates, Interest Payment Dates and Maturity Date, and shall bear interest at the rate per annum, specified in the forms of Mortgage Notes attached hereto as Exhibits A-1 and A-2, respectively. Any of the Mortgage Notes may be issued with appropriate insertions, omissions, substitutions and variations, and may have imprinted or otherwise reproduced thereon such legend or legends, not inconsistent with the provisions of this Indenture, as may be required to comply with any law or with any rules or regulations pursuant thereto, or with the rules of any securities exchange on which the Mortgage Notes are admitted to trading, or to conform to general usage. Each Mortgage Note shall bear interest from the date of issuance thereof or from the most recent date to which interest has been paid and duly provided for, as the case may be, which shall be payable on the Interest Payment Dates until the principal thereof is paid to the Corporate Indenture Trustee or made available to the Corporate Indenture Trustee for payment in the manner herein provided. Interest shall be calculated on the basis of a 360-day year of twelve 30-day months. The principal of each Mortgage Note shall be payable in installments, on each Installment Payment Date and the Maturity Date, in amounts equal to the Installment Payment Amount for such Installment Payment Date and the Maturity Date. 19 29 The principal of, and premium, if any, and interest on, the Mortgage Notes shall be payable to or at the direction of the Holders thereof in immediately available funds by wire transfer to an account in the United States designated by the respective Holder. The Refinancing Mortgage Notes shall have the terms set forth in the indenture supplements pursuant to which they are issued. The Holders at the close of business on any Record Date with respect to any Installment Payment Date or Interest Payment Date shall be entitled to receive the Installment Payment Amount or interest, if any, payable on such Installment Payment Date or Interest Payment Date notwithstanding any transfer or exchange of such Mortgage Note subsequent to the Record Date and prior to such Installment Payment Date or Interest Payment Date. Any Installment Payment Amount payable on an Installment Payment Date, or any interest payable on the Mortgage Note which is not punctually paid or duly provided for on any Interest Payment Date (herein called, respectively, a "Defaulted Installment" and "Defaulted Interest") shall forthwith cease to be payable to the registered Holder on the relevant Record Date by virtue of his having been such Holder; and such Defaulted Interest shall be paid by the Owner Trust, at its election in each case, as provided in clause (1) or (2) below: (1) the Owner Trust shall make payment of any Defaulted Installment or Defaulted Interest to the Persons in whose names the Mortgage Notes are registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the following manner. The Owner Trust shall notify the Corporate Indenture Trustee in writing of the amount of the Defaulted Installment or Defaulted Interest proposed to be paid on the Mortgage Notes and the date of the proposed payment, and at the same time the Owner Trust shall deposit with the Corporate Indenture Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Installment or Defaulted Interest as of the special record date established as provided below, or shall make arrangements satisfactory to the Corporate Indenture Trustee for such deposit prior to the date of the proposed payment, such money when deposited to be held in trust for the benefit of the persons entitled to such Defaulted Installment or Defaulted Interest as in this clause provided. No interest shall continue to accrue on the amount of the Defaulted Installment from and after the date on which such Defaulted Installment is so deposited. Thereupon the Corporate Indenture Trustee shall fix a special record date for the payment of such Defaulted Installment or Defaulted Interest which shall be not more than 15 days and not less than 10 days after the receipt by the Corporate Indenture Trustee of the notice of the proposed payment. The Corporate Indenture Trustee shall promptly notify the Owner Trust and the Registrar of such special record date and, in the name of the Owner Trust, shall cause notice of the proposed payment of such Defaulted Installment or Defaulted Interest and the special record date therefor to be mailed, first-class postage prepaid, 20 30 to each Holder at its address as it appears in the Register, not less than 10 days prior to such special record date. Notice of the proposed payment of such Defaulted Installment or Defaulted Interest and the special record date therefor having been mailed as aforesaid, such Defaulted Installment or Defaulted Interest shall be paid to the Persons in whose names the Mortgage Notes are registered on such special record date and shall no longer be payable pursuant to the following clause (2); or (2) the Owner Trust shall make, or cause to be made, payment of any Defaulted Installment or Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Pass Through Certificates may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Owner Trust to the Corporate Indenture Trustee of the proposed payment pursuant to this clause, such payment shall be deemed practicable by the Corporate Indenture Trustee. Subject to the foregoing provisions of this Section, any Mortgage Note issued upon registration of transfer of, or in exchange for or in lieu of, any other Mortgage Note shall carry the rights to interest and Installment Payment Amounts accrued and unpaid, and interest to accrue, which were carried by such other Mortgage Note, and each such Mortgage Note shall bear interest from whatever date shall be necessary so that neither gain nor loss in interest shall result from such transfer, exchange or replacement. SECTION 2.05. Payments from Indenture Estate Only. (a) The terms of this Section 2.05 shall apply for all purposes of this Indenture (except as provided in Section 3.08(a)(iii)) and the other Indenture Documents, including any agreement or instrument required or contemplated to be delivered hereunder, notwithstanding anything herein or therein that may be construed to the contrary (and regardless whether any particular provision hereof or thereof makes reference to this Section 2.05). (b) The Owner Trust shall not be required to make any payments under this Indenture except from the Indenture Estate. Each Holder, by its acceptance of a Mortgage Note, agrees it will look solely to the Indenture Estate as provided herein and that none of the Owner Participant, the Owner Trust, the Trust Company, William J. Wade, nor the Indenture Trustees is personally liable to such Holder for any amounts payable under this Indenture or such Mortgage Note or for any amounts payable or liability under any Mortgage Note or this Indenture, except as expressly provided herein in the case of the Trust Company, William J. Wade, the Owner Trust or the Indenture Trustees, or in the case of the Owner Trustees, except to the extent of the willful misconduct or gross negligence of the Owner Trustees. (c) It is expressly understood and agreed by and among the parties hereto, for themselves and their respective successors and assigns, that nothing herein contained shall be construed as creating any liability of the Owner Trust or any beneficiary of the Owner 21 31 Trust or any of their respective affiliates or any of their respective officers, directors, shareholders, partners, venturers, trustees (except for the Owner Trustees which shall be governed by Section 2.05(d) hereof), beneficiaries, employees or agents (the Owner Trust and such other Persons being collectively called "Lessor Parties"), individually or personally, for breach of any representation or warranty or to observe or perform any agreement or covenants, either express or implied, contained herein, all such liability, if any, being expressly waived by each other party hereto and by each and every person now or hereafter claiming by, through or under any of the other parties hereto, and that, so far as any Lessor Party, individually or personally, is concerned, each other party hereto and any person claiming by, through or under any of the other parties hereto shall look solely to the right, title and interest of the Owner Trust in the Indenture Estate or, with respect to the Owner Participant, to the right, title and interest of the Owner Participant in the Indenture Estate, except as provided in the Participation Agreement for the performance of any obligation under this Indenture and the satisfaction of any liability arising therefrom. (d) It is expressly understood and agreed by the parties hereto that (i) this Indenture is executed and delivered by the Trust Company and William J. Wade, not individually or personally but solely as Owner Trustees on behalf of the Owner Trust under the Trust Agreement, in the exercise of the powers and authority conferred and vested in them as the Corporate Owner Trustee and the Individual Owner Trustee, as the case may be, (ii) each of the representations, undertakings and agreements herein made on the part of the Owner Trust (other than those specifically made by the Trust Company in its individual capacity) is made and intended not as personal representations, undertakings and agreements by the Trust Company or William J. Wade, as the case may be, but is made and intended for the purpose for binding only the Trust Estate (as defined in the Trust Agreement) created by the Trust Agreement, (iii) nothing herein contained shall be construed as creating any liability on the part of the Trust Company or William J. Wade, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the Indenture Trustees and by any Person claiming by, through or under the Indenture Trustees and (iv) under no circumstances shall the Trust Company (except in respect of those representations, warranties, undertakings and agreements made by the Trust Company in its individual capacity) or William J. Wade be personally liable for the payment of any Indebtedness or expenses of the Owner Trustees or the Owner Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Owner Trustees or the Owner Trust under this Indenture or the other Indenture Documents. SECTION 2.06. Registration, Transfer and Exchange. The Owner Trust shall keep, at the office or agency to be maintained for the purpose as provided in Section 3.02, a Register on which, subject to such reasonable regulations as it may prescribe, it shall register, and shall register the transfer of, Mortgage Notes as provided in this Article. 22 32 Such Register shall be in written form in the English language or in any other form capable of being converted into such form within a reasonable time and shall show the name and address of each Holder and the principal amount held by such Holder. Upon due presentation for registration of transfer of any Mortgage Note at any such office or agency, the Corporate Owner Trustee shall execute on behalf of the Owner Trust and the Corporate Indenture Trustee shall authenticate and deliver in the name of the transferee or transferees a new Mortgage Note or Mortgage Notes having the same Maturity Date, Installment Payment Dates, scheduled aggregate Installment Payment Amounts, Interest Payment Dates and interest rate and in authorized denominations and the same aggregate principal amount as the Mortgage Notes being transferred. Any Mortgage Note or Mortgage Notes may be exchanged for a Mortgage Note or Mortgage Notes having the same Maturity Date, Installment Payment Dates, scheduled aggregate Installment Payment Amounts, Interest Payment Dates and interest rate but in other authorized denominations, in an equal aggregate principal amount. Mortgage Notes to be exchanged shall be surrendered at the office or agency to be maintained by the Owner Trust for the purpose as provided in Section 3.02, and, upon the surrender of such Mortgage Notes for exchange, the Corporate Owner Trustee on behalf of the Owner Trust shall execute and the Corporate Indenture Trustee shall authenticate and deliver in exchange therefor, the Mortgage Note or Mortgage Notes which the Holder making the exchange shall be entitled to receive, bearing numbers not contemporaneously or previously outstanding. All Mortgage Notes presented for registration of transfer, exchange, redemption or payment shall (if so required by the Owner Trust or the Corporate Indenture Trustee) be duly endorsed by, or be accompanied by a written instrument or instruments of transfer in form satisfactory to the Owner Trust and the Corporate Indenture Trustee duly executed by, the Holder or its attorney-in-fact duly authorized in writing. As a condition to any transfer, the Corporate Indenture Trustee shall require evidence satisfactory to it as to the compliance of any such transfer with the Securities Act and shall not permit any transfer if, in the opinion of counsel to the Company or the Owner Trust, the transfer would be required to be registered thereunder. The Corporate Indenture Trustee may require payment from the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any exchange or registration of transfer of Mortgage Notes. No service charge to the Holder shall be made for any such transaction. The Corporate Indenture Trustee shall not be required to exchange or register a transfer of any Mortgage Note (a) for a period of 15 days immediately preceding the first mailing of notice of redemption in full of the Mortgage Notes pursuant to Section 6.02 23 33 or (b) with respect to which notice of redemption in full has been given pursuant to Section 6.03 and such notice has not been revoked. All Mortgage Notes issued upon any registration of transfer or exchange of Mortgage Notes shall be valid obligations of the Owner Trust, evidencing the same debt, and entitled to the same security and benefits under this Indenture, as the Mortgage Notes surrendered upon such registration of transfer or exchange. SECTION 2.07. Mutilated, Defaced, Destroyed, Lost and Stolen Mortgage Notes. If any Mortgage Note shall become mutilated or defaced or be destroyed, lost or stolen, the Owner Trust in its discretion may execute, and upon the oral or written request of any officer of the Corporate Owner Trustee, the Corporate Indenture Trustee shall authenticate and deliver, a new Mortgage Note having the same Maturity Date, Installment Payment Dates, Interest Payment Dates, scheduled aggregate Installment Payment Amounts, Interest Payment Dates and interest rate, bearing a number not contemporaneously or previously outstanding, in exchange and substitution for the mutilated or defaced Mortgage Note, or in lieu of and substitution for the Mortgage Note so destroyed, lost or stolen. If the Mortgage Note being replaced has been defaced or mutilated, such Mortgage Note shall be surrendered to the Corporate Indenture Trustee. If the Mortgage Note being replaced has been destroyed, lost or stolen, the applicant for a substitute Mortgage Note shall furnish to the Owner Trust and to the Indenture Trustees and any agent of the Owner Trust or the Indenture Trustees such security or indemnity as may be reasonably required by them to indemnify and defend and to save each of them harmless and, in every case of destruction, loss or theft, evidence to their satisfaction of the destruction, loss or theft of such Mortgage Note and of the ownership thereof; provided, however, the unsecured indemnity of a Pass Through Trustee, in its capacity as Holder of a Mortgage Note, shall be sufficient to obtain the issuance of a substitute Mortgage Note hereunder. Upon the issuance of any substitute Mortgage Note, the Owner Trust or the Corporate Indenture Trustee may require payment from the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other reasonable expenses (including the reasonable fees and expenses of the Corporate Indenture Trustee) connected therewith. In case any Mortgage Note which has matured or is about to mature, or has been called for redemption in full, shall become mutilated or defaced or be destroyed, lost or stolen, the Owner Trust may, instead of issuing a substitute Mortgage Note, pay or authorize the payment of the same (without surrender thereof except in the case of a mutilated or defaced Mortgage Note), if the applicant for such payment shall furnish to the Owner Trust and to the Indenture Trustees and any agent of the Owner Trust or the Indenture Trustees such security or indemnity as any of them may reasonably require to save each of them harmless; provided, however, the unsecured indemnity of a Pass Through Trustee, in its capacity as Holder of a Mortgage Note, shall be sufficient to obtain such payment hereunder, and, in every 24 34 case of destruction, loss or theft, the applicant shall also furnish to the Owner Trust and the Indenture Trustees and any agent of the Owner Trust or the Indenture Trustees evidence to their satisfaction of the apparent destruction, loss or theft of such Mortgage Note and of the ownership thereof. Every substitute Mortgage Note issued pursuant to the provisions of this Section shall constitute an original additional contractual obligation of the Owner Trust, whether or not the destroyed, lost or stolen Mortgage Note shall be enforceable at any time by anyone, and shall be entitled to all the security and benefits of (but shall be subject to all the limitations of rights set forth in) this Indenture equally and proportionately with any and all other Mortgage Notes duly authenticated and delivered hereunder. All Mortgage Notes shall be held and owned upon the express condition that, to the extent permitted by law, the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, defaced, or destroyed, lost or stolen Mortgage Notes and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.08. Cancellation of Mortgage Notes; Destruction Thereof. All Mortgage Notes surrendered for payment, redemption, registration of transfer or exchange, if surrendered to the Owner Trust or any agent of the Owner Trust or the Indenture Trustees, shall be delivered to the Corporate Indenture Trustee for cancellation or, if surrendered to the Corporate Indenture Trustee, shall be canceled by it; and no Mortgage Notes shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Corporate Indenture Trustee shall destroy canceled Mortgage Notes held by it and deliver a certificate of destruction to the Owner Trust. If the Owner Trust shall acquire any of the Mortgage Notes, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Mortgage Notes unless and until the same are delivered to the Corporate Indenture Trustee for cancellation. SECTION 2.09. Termination of Interest in Indenture Estate. A Holder shall not, as such, have any further interest in, or other right with respect to, the Indenture Estate when and if the principal amount of and premium, if any, and interest on and other amounts due under all Mortgage Notes held by such Holder and all other sums payable to such Holder hereunder shall have been paid in full. 25 35 ARTICLE III COVENANTS SECTION 3.01. Payment of Principal, Premium and Interest. Subject to Section 2.05, the Owner Trust covenants and agrees that it will duly and punctually pay or cause to be paid the principal of, and interest, premium and all other amounts due on, the Mortgage Notes at the place or places, at the respective times and in the manner provided in this Indenture and in the Mortgage Notes. Principal and interest and other amounts due from the Owner Trust hereunder or under the Mortgage Notes shall be payable in Dollars on the due date thereof, by wire transfer of immediately available funds to an account in the United States designated by the Corporate Indenture Trustee such that the Corporate Indenture Trustee shall be in receipt of immediately available funds at or before 12:00 noon (New York City time) on the date on which such amount is due hereunder and under the terms of the Mortgage Notes, or such earlier date or time as may be necessary to ensure timely payment on the Pass Through Certificates. If any amount payable under the Mortgage Notes or under this Indenture falls due, or is permitted thereunder or hereunder to be paid, on a day which is not a Business Day, then such sum shall be payable on the next succeeding Business Day, without additional interest thereon for the period of such extension. SECTION 3.02. Offices for Payments, Etc. So long as the Mortgage Notes remain Outstanding, the Owner Trust will maintain an office or agency in New York, New York, where the Mortgage Notes may be presented for payment, registration of transfer and exchange as provided in this Indenture (the "Registrar"). The Registrar shall keep a register (the "Register") with respect to the Mortgage Notes and their transfer and exchange. The Owner Trust may appoint one or more co-registrars ("Co-Registrars") for the Mortgage Notes and may terminate any such appointment at any time upon written notice. The term "Registrar" includes any Co-Registrar. The Corporate Indenture Trustee shall initially act as Registrar. SECTION 3.03. Appointment to Fill a Vacancy in Office of Corporate Indenture Trustee. The Owner Trust, whenever necessary to avoid or fill a vacancy in the office of the Corporate Indenture Trustee, shall appoint, in the manner provided in Section 9.12, a successor Corporate Indenture Trustee, so that there shall at all times be a Corporate Indenture Trustee hereunder. SECTION 3.04. [Intentionally Omitted]. 26 36 SECTION 3.05. Covenants of the Trust Company and the Owner Trust. (a) The Trust Company and William J. Wade each, as to itself only, hereby covenants and agrees that (i) it will not directly or indirectly create, incur, assume or suffer to exist any Liens on or with respect to the Indenture Estate or any of the properties or assets of the Indenture Estate resulting from the acts or omissions of or claims against the Trust Company or William J. Wade in their individual capacity (including the nonpayment of any taxes based on or measured by the revenues or income of the Trust Company or William J. Wade), except (x) to the extent arising in connection with any obligation required to be satisfied by the Company pursuant to any Indenture Document or the Participation Agreement, and (y) any Lien resulting from the non-payment of any tax which the Company has agreed in any Indenture Document or the Participation Agreement to pay or reimburse, and (ii) it will perform its covenants under the Indenture Documents. In the event William J. Wade or a Responsible Officer of the Corporate Owner Trustee shall have actual knowledge of an Indenture Default, prompt written notice of such Indenture Default will be given to the Corporate Indenture Trustee, the Company and the Owner Participant. (b) The Owner Trust hereby covenants and agrees as follows: (i) the Owner Trust has, and shall continue to have, full power and lawful authority to grant, release, convey, assign, transfer, mortgage, pledge, hypothecate and otherwise create the Lien and security interest vested hereby; (ii) the Owner Trust will perform its obligations under the Lease and the Participation Agreement; (iii) if requested by the Corporate Indenture Trustee, the Owner Trust will furnish to the Corporate Indenture Trustee, promptly upon receipt thereof, duplicates or copies of any reports, notices, requests, demands, certificates, financial statements and other instruments furnished to the Owner Trust under the Lease; (iv) the Owner Trust will not enter into or engage in any business or other activity, directly or indirectly, other than the business of owning and operating the Property, the leasing thereof to the Company and the carrying out of the transactions contemplated hereby and by the Lease, the Trust Agreement and the other Indenture Documents; (v) the Owner Trust will not directly or indirectly create, incur or assume any Lien on or against the Indenture Estate (other than the Lien of this Indenture) or any part thereof resulting from the acts or omissions of or claims against the Owner Trust (including the nonpayment of any taxes based on or measured by the revenues or income of the Owner Trust), except (x) to the extent arising in connection with 27 37 any obligation required to be satisfied by the Company pursuant to any Indenture Document, and (y) any Lien resulting from the non-payment of any such tax which the Company has agreed in any Indenture Document to pay or reimburse; (vi) the Owner Trust will not sell, lease, transfer, convey, assign or otherwise dispose of its interest in the Indenture Estate or any part thereof, except as expressly contemplated by [ARTICLES 39 AND 40 OF THE LEASE], [SECTIONS 2 AND 3 OF THE PARTICIPATION AGREEMENT] or as permitted below in Section 3.05(c) or 3.05(e) or Article XIV hereof, or as required below by this Section 3.05; (vii) the Owner Trust shall not, except as provided in any Indenture Document, (A) make or permit to remain outstanding any loan or advance by the Owner Trust to any Person; (B) own or acquire any stock or securities of any Person or guarantee any obligation of any Person; (C) create, assume or suffer to exist any Indebtedness other than the Mortgage Notes; (D) make loans or advances to Affiliates of the Owner Trust or any Owner Participant; or (E) commingle its assets with the assets of any of its Affiliates or any Affiliate of the Owner Participant; and (viii) the Owner Trust shall at all times maintain the following procedures to avoid or minimize any risk of substantive consolidation of the Owner Trust with the bankruptcy or reorganization of the Owner Participant or any other Person: (A) maintenance of books and records and bank accounts separate from those of any other Person; (B) filing or causing to be filed tax returns separate from the Owner Participant or any of its Affiliates (except to the extent required by applicable law, rule or regulation or to the extent permitted by applicable law to be included in a consolidated or unitary group, as appropriate); (C) except as specifically provided in the Trust Agreement, conducting business with Affiliates of the Owner Trust or the Owner Participant (or any Affiliate thereof) on an arm's-length basis; (D) observance of trust (or similar organizational) formalities; and (E) holding the Owner Trust out to the public as a legal entity separate and distinct from any of the Owner Trust's Affiliates and from the Owner Participant or any Affiliate thereof (The Trust Agreement (or similar organizational documents) shall incorporate the restrictions and covenants contained in clauses (iv) through (viii) of this Section 3.05(b)). (c) Notwithstanding anything to the contrary contained in Section 3.05(b), but subject to the provisions of the Participation Agreement, the Owner Trust shall have the right, from time to time, to convey all (but not less than all) of the assets constituting the Indenture Estate, subject to the Lien of this Indenture, provided that (EXCEPT WITH RESPECT TO A CONVEYANCE BY THE OWNER TRUST TO THE COMPANY IN ACCORDANCE WITH SECTION ____ OF THE PARTICIPATION AGREEMENT), as a condition to such conveyance, (i) the Indenture Trustees shall have received written confirmation from each of Standard & Poor's Ratings Group or its successor ("Standard & Poor's"), Moody's Investors 28 38 Service, Inc. or its successor ("Moody's") and Duff & Phelps Credit Rating Co. ("Duff & Phelps") or its successor (if such entity is then rating the Pass Through Certificates) to the effect that such conveyance, by itself, would not result in a withdrawal or downgrading of the credit rating assigned to the Pass Through Certificates then outstanding, (ii) the Corporate Indenture Trustee shall have received an Opinion of Counsel for the Owner Trust that, in the event the Owner Participant or other beneficiary, or a shareholder of or partner in such transferee were to file a petition or otherwise be adjudged a bankrupt under the Federal Bankruptcy Code, the bankruptcy court having jurisdiction over the case would not substantively consolidate the assets of such transferee with the assets of any such owner participant without the consent of the interested parties (which include the Indenture Trustees and the Holders) so that their respective assets and liabilities would not be dealt with as if the assets were held and the liabilities incurred by a single entity, and (iii) the Owner Participant or beneficiary shall enter into covenants in favor of the Indenture Trustees comparable to the above terms of this Section 3.05(b). Upon any such transfer, the transferee shall enter into an indenture supplemental hereto pursuant to which the transferee will assume the obligations of the transferor hereunder, and the provisions hereof shall be appropriately amended (subject to Article XII hereof) to reflect such transfer and assumption. (d) Any transfer or attempted transfer by the Owner Trust of all or any part of the Indenture Estate, except in compliance with the terms hereof, shall be null and void and of no force or effect. (e) In the case of any appointment of a co-Owner Trustee or a successor to an Owner Trustee or a co-Owner Trustee pursuant to the Trust Agreement or any merger, conversion, consolidation or sale of substantially all of the corporate trust business of the Corporate Owner Trustee in a manner permitted by the Trust Agreement, the Owner Trustee or successor Owner Trustee, as the case may be, shall give prompt written notice thereof to the Corporate Indenture Trustee and Section 3.05(b)(vi), (c) and (d) shall not apply to any transfer to such co-Owner Trustee or successor Owner Trustee. (f) The Owner Trust will deliver to the Corporate Indenture Trustee, within 120 days after the end of each fiscal year, a written statement signed by the President or a Vice President or a corporate trust officer of the Corporate Owner Trustee, stating, as to the signer thereof, that: (1) a review of the files held by the Owner Trust regarding the activities of the Owner Trust during such year and of performance by the Owner Trust of its obligations under this Section 3.05 and the seventh paragraph following the Habendum Clause has been made under his or her supervision; and (2) to the best of his or her knowledge, based on such review, the Owner Trust has fulfilled all its obligations under this Section 3.05 and the seventh paragraph 29 39 following the Habendum Clause throughout such year, or, if there has been a default in the fulfillment of any such obligation, specifying each such default known to him or her and the nature and status thereof. (g) THE TRUST COMPANY, IN ITS INDIVIDUAL CAPACITY AND AS OWNER TRUSTEE, MAKES (i) NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TITLE, VALUE, COMPLIANCE WITH SPECIFICATIONS, CONDITION, DESIGN, OPERATION, MERCHANTABILITY, FREEDOM FROM PATENT OR TRADEMARK INFRINGEMENT OR FITNESS FOR USE OF THE PREMISES (OR ANY PART THEREOF) OR ANY OTHER REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE LAND AND IMPROVEMENTS (OR ANY PART THEREOF), except that the Owner Trustee hereby represents and warrants that on the Closing Date the Owner Trustee shall have received whatever title and rights to the land and improvements conveyed to it by the Operative Documents delivered on such Closing Date, and (ii) no representation or warranty as to the validity, sufficiency, legality or enforceability of any Operative Document, or as to the correctness of any statement contained therein except, in the case of the Trust Company, to the extent that any such statement in this Indenture, the Lease, the Purchase Agreement, the Purchase and Sale Agreements or the Participation Agreement or any other Operative Document was or is expressly made by the Trust Company in its individual capacity, and except that the Trust Company, as and to the extent that such documents are executed by it, hereby represents and warrants in its individual capacity that (x) it has the requisite corporate power and authority to execute and deliver the Operative Documents to which it is a party, (y) such Operative Documents have been, and the Mortgage Notes, upon execution and delivery, will have been, duly executed and delivered by one or more of the Authorized Officers of the Owner Trustee and (z) each of such Operative Documents is a valid, binding and enforceable obligation of the Trust Company. SECTION 3.06. Property Alterations and Substitutions of the Indenture Estate. (a) Upon the making of any Alterations title to which vests in the Owner Trust, such Alterations shall be deemed to be a part of the Property and covered by the Lien of this Indenture. Any part of the Improvements which are demolished by the Company, and any Alterations the title to which becomes vested in the Company as lessee, as permitted under the terms of the Lease, shall be deemed to be no longer a part of the Property or covered by the Lien of this Indenture. (b) If the Company elects to substitute a new property for the Property in accordance with and subject to the terms and conditions of [ARTICLE 41 OF THE LEASE], the Property shall be released from the Lien of this Indenture upon compliance with the provisions of said [ARTICLE 41] and Section 14.01 hereof. 30 40 (c) The Owner Trust and Indenture Trustees covenant and agree, at the Company's expense, to enter into such releases, supplements or amendments to the Indenture as may be necessary or appropriate to effect the changes, substitutions, releases and other modifications contemplated by this Section 3.06 or as may be required by Article XIV hereof, and to deliver such opinions, instruments and certificates as may reasonably be requested in connection therewith. SECTION 3.07. Further Assurances; Financing Statements. At any time and from time to time, upon the reasonable request of the Corporate Indenture Trustee, the Owner Trust shall promptly and duly execute and deliver any and all such further instruments and documents (provided to the Owner Trust in execution form) as may be reasonably specified in such request and as are necessary or desirable to perfect, preserve or protect the Liens and assignments created or intended to be created hereby, or to obtain for the Indenture Trustees the full benefit of the specific rights and powers granted herein, including the execution and delivery of Uniform Commercial Code financing statements and continuation statements with respect thereto, or similar instruments relating to the perfection of the Liens or assignments created or intended to be created hereby. SECTION 3.08. Assumption of Obligations of Owner Trust by the Company. (a) The Company shall have the right to assume all of the rights and obligations of the Owner Trust under this Indenture in respect of the Mortgage Notes in accordance with and pursuant to [ARTICLE[S] 39(E) Section __ OF THE LEASE] [OR SECTION 3 OF THE PARTICIPATION AGREEMENT] (any date on which such assumption is permitted being referred to hereinafter as the "Relevant Date"), provided the Company shall have delivered to the Corporate Indenture Trustee, on or prior to the Relevant Date, an opinion of independent legal counsel of recognized standing to the effect that (i) the assumption will not constitute a sale or exchange of the Mortgage Notes within the meaning of Internal Revenue Code Section 1001 and the regulations thereunder, and (ii) the assumption will not otherwise adversely affect the Federal income taxation of holders of Pass Through Certificates and, if on or prior to the Relevant Date: (i) the Company shall have delivered to the Owner Trust and the Corporate Indenture Trustee a certificate, dated the Relevant Date, of a Responsible Officer stating that the Company has paid to the Owner Trust all amounts required to be paid to the Owner Trust pursuant to the Lease or the Participation Agreement, as the case may be, in connection with such assumption; (ii) no Lease Event of Default or Material Default shall have occurred and be continuing as of the proposed assumption and the Corporate Indenture Trustee shall have received an Officer's Certificate, dated the Relevant Date, from the Company to such effect; 31 41 (iii) the Indenture Trustees and the Company shall have executed and delivered to each other and to the Owner Trust a supplement to this Indenture (which shall be in the form of [EXHIBIT ___ TO THE PARTICIPATION AGREEMENT] except as otherwise provided in Section 3.08(b) below) pursuant to which the Company shall assume all of the liabilities and obligations of the Owner Trust hereunder on a full recourse basis (i.e., without the protection of Section 2.05(a) or other similar provisions hereof), and the Company shall have duly executed an assumption of the Mortgage Notes (from and after the execution and delivery of such supplement and such assumption (the "Assumption"), this Indenture, as supplemented, shall be referred to as the "Company Indenture" and the Mortgage Notes shall be referred to as the "Company Mortgage Notes") and shall have delivered a copy of the Assumption to each Holder of record of the Mortgage Notes on the Relevant Date; (iv) the Owner Trust and Corporate Indenture Trustee shall have received, on or prior to the Relevant Date, evidence of all filings, recordings and other action referred to in the Opinion or Opinions of Counsel referred to below; and (v) the Owner Trust and Corporate Indenture Trustee shall have received an Opinion or Opinions of Counsel for the Company, dated the Relevant Date, and which shall be to the effect that, after giving effect to the Company Indenture and the Company Mortgage Notes: (A) each of the Company Indenture and the Company Mortgage Notes constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except as the same may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the rights of creditors generally and by general principles of equity, and except as limited by applicable laws which may affect the remedies provided for in the Company Indenture, which laws, however, do not in the opinion of such counsel make the remedies provided for in the Company Indenture inadequate for the practicable realization of the rights and benefits provided for in the Company Indenture; and (B) unless the form of Company Indenture shall be as provided in Section 3.08(b), the Lien on the Property created by this Indenture will, upon effecting all filings, recordings and other actions specified therein, continue on the Property under the Company Indenture and that the priority of such Lien will not be adversely affected thereby (provided, that in lieu of an opinion as to the priority of the Lien there may be provided title insurance to such effect); then, automatically and without the requirement of further action by any Person, effective as of the Relevant Date, the Owner Trust and the Owner Trustees shall be released from all of their liabilities and obligations under this Indenture in respect of the Mortgage 32 42 Notes or otherwise hereunder (other than any obligations or liabilities of the Owner Trustees in their individual capacities incurred on or prior to the Relevant Date or arising out of or based upon events occurring on or prior to the Relevant Date, which obligations and liabilities shall remain the sole responsibility of the respective Owner Trustees in their individual capacities). In such event, the Mortgage Notes so assumed by the Company shall become Company Mortgage Notes and shall cease to be "Other Mortgage Notes" as such term is used in any Other Indenture and this Indenture shall cease to be an "Other Indenture" under any Other Indenture. The Owner Trust may request and the Indenture Trustees shall provide documentary evidence (in form and substance reasonably satisfactory to the Owner Trust and the Owner Participant) confirming the release referred to in the second preceding sentence. (b) Notwithstanding the provisions of Section 3.08(a)(iii) to the contrary, if the Opinion of Counsel referred to in Section 3.08(a)(v) includes opinions (which opinions shall also be delivered to the Owner Trust and the Owner Participant) to the effect that, if the Company Mortgage Notes were unsecured obligations of the Company and, in the case of clause (ii) below, the exemption referred to in said clause (ii) were applicable with respect to the Pass Through Trusts and the Pass Through Certificates immediately prior to the assumption of the Mortgage Notes by the Company (it being agreed that such exemption shall be assumed to be applicable unless such Opinion of Counsel concludes to the contrary), (i) neither of the Pass Through Trusts will be required to register as an "investment company" under the Investment Company Act of 1940, as amended; and (ii) the Prohibited Transaction Exemption 89-88 granted to Goldman, Sachs & Co. by the United States Department of Labor (and any amendment, modification, addition or successor to such exemption) with respect to certain of the prohibited transaction restrictions of Section 406 of the Employee Retirement Income Security Act of 1974, as amended, and of Section 4975 of the Internal Revenue Code of 1986, as amended, will continue to be applicable with respect to the Pass Through Trusts and the Pass Through Certificates even if the Company Mortgage Notes were not secured by the lien of the Company Indenture on the Property; then the supplement to the Indenture resulting in the Company Indenture shall effect a restatement of the Indenture so that it contains essentially the same terms and conditions (other than provisions relating particularly to the amounts payable with respect to the Mortgage Notes, the manner of payment and restrictions on transfer, which shall be the same as those included herein except to the extent necessary to reflect the fact that the Mortgage Notes are no longer secured by the Property) as that certain Indenture dated as of February 1, 1985, by and between the Company and The Bank of New York, as trustee, and the Lien on the Property will be released (upon compliance with the 33 43 applicable provisions of Section 14.01 hereof) and the Company Mortgage Notes will be unsecured general obligations of the Company. In such instance and at the request and expense of the Company, the Indenture Trustees will join in the execution, delivery and recording of a separate supplement to this Indenture for recording purposes which will reflect the release of the Lien on the Property. SECTION 3.09. No Merger. Except with the consent of the Holders of 100% in principal amount of the Outstanding Mortgage Notes, the remainderman interest, the estate for years interest and leasehold estate, shall not merge but shall always be kept separate and distinct, notwithstanding the union of said estates or any part thereof in the Owner Trust, the Company, the Remainderman, or any other party, whether by purchase or otherwise; provided, however, that if the Company purchases the remainderman interest and the estate for years interest pursuant to the Lease or the Participation Agreement, such estates shall merge. ARTICLE IV HOLDER LISTS The Registrar shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders. If the Corporate Indenture Trustee (or its agent) is not the Registrar, the Owner Trust shall cause the Registrar to furnish to the Corporate Indenture Trustee semi-annually not more than 15 days after each Record Date, as of such Record Date, or at such other times as the Corporate Indenture Trustee may request in writing, a list, in such form and as of such date as the Corporate Indenture Trustee may reasonably require, containing all the information in the possession or control of the Registrar as to the names and addresses of the Holders and the amounts and Maturity Date of the Mortgage Notes held by such Holders. ARTICLE V RECEIPT, DISTRIBUTION AND APPLICATION OF INCOME FROM THE INDENTURE ESTATE SECTION 5.01. Basic Rent Distribution. (a) Except as otherwise provided in Section 5.03 hereof, each installment of Basic Rent and any payment of interest on overdue installments of Basic Rent (each of which shall be deemed paid upon receipt by the Corporate Indenture Trustee pursuant to Section 3.01), and any payment received by the Indenture Trustees pursuant to Section 8.03(a) hereof in respect of Basic Rent or 34 44 interest on overdue installments of Basic Rent shall be promptly distributed by the Corporate Indenture Trustee in the following order of priority: first, so much of such installment or payment as shall be required to pay in full the aggregate amount of the payment or payments of principal, premium (if any), interest and other amounts (as well as any interest on overdue principal and premium) then due under all the Mortgage Notes shall be distributed to the Holders ratably, without priority of one over the other, in the proportion that the amount of such payment or payments then due under each such Mortgage Note bears to the aggregate amount of the payments then due under all such Mortgage Notes, and second, the balance, if any, of such installment or payment remaining thereafter shall be distributed to the Owner Trust, or as the Owner Trust may request. (b) Subject to Section 5.03, if, at the time of receipt by the Indenture Trustee of an installment of Basic Rent (whether or not then overdue), there shall have occurred and be continuing an Indenture Event of Default, then the Corporate Indenture Trustee shall retain such payment (to the extent the Corporate Indenture Trustee is not then required to distribute such amount pursuant to clause "first" of Section 5.01(a)) as part of the Indenture Estate and shall not distribute any such payment pursuant to clause "second" of Section 5.01(a) until the earliest of (i) the first Business Day occurring more than 180 days following (A) in the case of an Indenture Event of Default under Section 7.01(b), the date of the occurrence of such Indenture Event of Default and (B) in the case of any other Indenture Event of Default, the date on which the Indenture Trustee shall have received notice of such Indenture Event of Default, whereupon such payment shall be distributed pursuant to clause "second" of Section 5.01(a) and no further withholding of Rent on account of such Indenture Event of Default shall be effected, (ii) such time as the Mortgage Notes shall have been declared, or shall have become, due and payable pursuant to Section 7.02(a), in which case such payment shall be distributed pursuant to Section 5.03 and (iii) such time as such Indenture Event of Default shall no longer be continuing, in which case such payment shall be distributed pursuant to clause "second" of Section 5.01(a). SECTION 5.02. Event of Loss and Replacement; Redemption. (a) Except as otherwise provided in Section 5.03 hereof, any payment (other than Excepted Rights and Payments) received by the Indenture Trustees from payments in respect of Additional Rent payable under [ARTICLE 40 OF THE LEASE] or as the result of redemption of the Mortgage Notes pursuant to Section 6.02 (other than Section 6.02(c)) hereof, shall be distributed by the Corporate Indenture Trustee in the following order of priority: first, so much of such payments or amounts as shall be required to pay in full the aggregate unpaid principal amount of the Mortgage Notes then due and payable, all accrued but unpaid interest thereon to the Redemption Date therefor, and all other 35 45 amounts due thereunder whether by acceleration or otherwise (other than premium or interest thereon), shall be distributed to the Holders, and if the aggregate amount so to be distributed shall be insufficient to pay all such amounts in full as aforesaid, then such amount shall be distributed ratably, without priority of one over the other, in the proportion that the aggregate unpaid principal amount of all Mortgage Notes then due and payable held by each such Holder, the accrued but unpaid interest thereon to the Redemption Date therefor and all other amounts due thereunder, bears to the aggregate unpaid principal amount of all Outstanding Mortgage Notes, the accrued but unpaid interest thereon to the Redemption Date therefor and all other amounts due thereunder (other than premium or interest thereon); and second, as provided in clause "third" of Section 5.03 hereof; (b) Any payments received in respect of the [equity portion of Basic Rent and of Termination Value, when the debt is assumed directly] pursuant to [ARTICLE 39(e) OF THE LEASE] or [SECTION 3 OF THE PARTICIPATION AGREEMENT] shall be distributed by the Corporate Indenture Trustee in the manner provided in clause "third" of Section 5.03 hereof. SECTION 5.03. Payment After Indenture Event of Default, Etc. Except as otherwise provided in Section 5.04(b) hereof, all payments received and all amounts held or realized by the Indenture Trustees (including amounts of excess moneys referred to in Section 7.04(e)) (i) after (x) an Indenture Event of Default shall have occurred and so long as such an Indenture Event of Default shall be continuing, and (y) the Indenture Trustees have initiated action under Section 7.02(a), or (ii) after the Mortgage Notes shall have become due and payable as provided in Section 7.02(b) or (c) hereof, shall be promptly distributed by the Corporate Indenture Trustee in the following order of priority: first, so much of such payments or amounts as shall be required to reimburse the Indenture Trustees for any tax (other than income tax on, or measured by, fees payable to the Indenture Trustees in their individual capacities pursuant to any Indenture Document), expense, charge or other loss (including all amounts to be expended at the expense of, or charged upon the tolls, rents, issues, profits, products, revenues and other income of the Indenture Estate pursuant to Section 7.03(a) hereof) incurred by the Indenture Trustees in the protection, exercise or enforcement of any right, power or remedy under this Indenture for the benefit of the Holders (to the extent not previously reimbursed), including the reasonable expenses of any sale, taking or other proceeding, reasonable attorneys' fees and expenses, court costs, and any other reasonable expenditures incurred or reasonable expenditures or advances made by the Indenture Trustees under this Indenture or any damages sustained by the Indenture Trustees in connection therewith, upon such Indenture Event of 36 46 Default, shall be applied by the Indenture Trustees in reimbursement of such expenses and payment of such fees; second, so much of such payments or amounts remaining as shall be required to pay in full the aggregate unpaid principal amount of the Mortgage Notes then due and payable, all accrued but unpaid interest thereon to the date of distribution and all other amounts due thereunder (including any premium, if any), whether by acceleration or otherwise, shall be distributed to the Holders, and if the aggregate amount so to be distributed shall be insufficient to pay all such amounts in full as aforesaid, then such amount shall be distributed ratably, without priority of one over the other, in the proportion that the aggregate unpaid principal amount of all Outstanding Mortgage Notes then due and payable held by each such Holder, the accrued but unpaid interest thereon to the date of distribution and all other amounts due thereunder, bears to the aggregate unpaid principal amount of all Outstanding Mortgage Notes, accrued but unpaid interest thereon to the date of distribution and all other amounts due thereunder; and third, the balance, if any, of such payments or amounts remaining shall be distributed to the Owner Trust for distribution pursuant to the Trust Agreement. SECTION 5.04. Certain Payments. (a) Except as otherwise provided in this Indenture, any payments received by the Indenture Trustees which are to be applied according to any provision in any other Indenture Document shall be applied thereunder in accordance therewith. (b) Notwithstanding anything herein to the contrary, the Corporate Indenture Trustee will distribute, promptly upon receipt by the Indenture Trustees, any Excepted Rights and Payments and any indemnity or other payment received by them from the Owner Trust or the Company pursuant to Article 6 of the Lease and Sections 22 and 23 of the Participation Agreement or as Additional Rent, directly to the Person (which may include the Owner Participant, the Owner Trustees or the Indenture Trustees in their individual capacities) entitled thereto. SECTION 5.05. Other Payments. Any payments received by the Indenture Trustees for which no provision as to the application thereof is made elsewhere in this Indenture or in any other Indenture Document shall be distributed by the Corporate Indenture Trustee (a) except as otherwise provided in Section 5.03, to the extent received or realized at any time prior to the payment in full of all obligations to the Holders, in the order of priority specified in Section 5.01 hereof, and (b) to the extent received or realized at any time after payment in full of all obligations to the Holders, in the manner provided in clause "third" of Section 5.03 hereof. 37 47 SECTION 5.06. Payments to Owner Trust. Any amounts distributed hereunder by the Corporate Indenture Trustee to the Owner Trust shall be paid to the Owner Trust by wire transfer of immediately available funds at [OWNER TRUST WIRE INSTRUCTIONS] or at such office and to such account or accounts of such entity or entities as shall be designated by notice from the Owner Trust to the Corporate Indenture Trustee from time to time. SECTION 5.07. Application of Payments. Each payment made in respect of the Mortgage Notes (exclusive of premium) shall, except as otherwise provided herein, be applied, first, to the payment of interest on such Mortgage Note due and payable to the date of such payment, as provided in such Mortgage Note, as well as any interest on overdue principal due thereunder, second, to the payment of any other amount (other than the principal of such Mortgage Note) due hereunder to the Holder of such Mortgage Note or under such Mortgage Note, third, to the payment of the principal of such Mortgage Note if then due hereunder or under such Mortgage Note, and fourth, the balance, if any, remaining thereafter, to the payment of the principal of such Mortgage Note remaining unpaid (provided that such Mortgage Note shall not be subject to prepayment without the consent of the affected Holder except as permitted by Sections 6.02, 6.06 and 8.02 hereof). Any amounts received in respect of the Make-Whole Premium (including interest on overdue payments thereof) shall be applied only to the obligation to pay the Make-Whole Premium (and interest on overdue payments thereof) as provided hereunder, and if the aggregate amount so to be distributed shall be insufficient to pay all premium due and payable in full, then such amount shall be distributed ratably, without priority of one over the other, in the proportion that the aggregate unpaid premium of all Mortgage Notes then due and payable held by each such Holder bears to the aggregate unpaid premium of all Outstanding Mortgage Notes then due thereunder. SECTION 5.08. Investment of Amounts Held by Indenture Trustees. Amounts held by the Indenture Trustees pursuant to Section 5.01 hereof, pursuant to Section 5.02 hereof or pursuant to any provision of any Indenture Document providing for investment of sums pursuant to this Section 5.08 shall be invested by the Corporate Indenture Trustee from time to time in Permitted Investments selected by or on behalf of the Owner Trust. In the event that the Owner Trust shall not select Permitted Investments, such Permitted Investments shall be selected by the Corporate Indenture Trustee from those described in clause (i) of the definition of Permitted Investments. Unless otherwise expressly provided in this Indenture, any income realized as a result of any such investment, net of the Corporate Indenture Trustee's reasonable fees and expenses in making such investment, shall be held as a part of the Indenture Estate and applied by the Corporate Indenture Trustee in the same manner as the principal amount of such investment is to be applied and any losses, net of earnings and such reasonable fees and expenses, shall be charged against the principal amount invested. The Corporate Indenture Trustee shall not be liable for any loss resulting from any investment made by 38 48 it other than by reason of its willful misconduct or gross negligence, and any such investment may be sold (without regard to its maturity) by the Corporate Indenture Trustee without instructions whenever the Corporate Indenture Trustee reasonably believes such sale is necessary to make a distribution required by this Indenture. SECTION 5.09. Withholding Taxes. The Corporate Indenture Trustee shall withhold any taxes required to be withheld under applicable law, regulation or rule, including any interest or penalty in connection therewith, on payments to any Holder except to the extent that such Holder has furnished evidence satisfactory to the Corporate Indenture Trustee of any exemption from or reduction in withholding claimed by such Holder and such withholding on payments shall constitute a payment to the Holder. In the event that such evidence furnished by such Holder to establish its withholding exemption is false, inaccurate or no longer true, the Holder shall be liable for such amounts necessary to indemnify the Corporate Indenture Trustee, for expenses attributable to such false, inaccurate or untrue evidence and any related contests or disputes, and the same may be withheld from distributions otherwise distributable to such Holder and any such withholding on payments shall constitute a payment to the Holder. To the extent that the Corporate Indenture Trustee fails, with respect to any Holder, to withhold and pay over any such taxes to the appropriate taxing authority, the Corporate Indenture Trustee shall, upon a claim being made for such taxes by such authority, take all reasonable steps to recover such taxes from such Holder, including withholding the amount of such taxes from subsequent distributions, if any, to such Holder. Neither the Owner Trustee nor the Owner Participant shall have any liability for the failure of the Corporate Indenture Trustee to withhold taxes in the manner provided for herein or for any false, inaccurate or untrue evidence provided by a Holder hereunder. The Corporate Indenture Trustee agrees (i) that it will timely pay the amounts withheld pursuant to this Section 5.09 to the appropriate authority, (ii) that it will file any necessary withholding tax returns or statements when due and (iii) that, as promptly as possible after the payment of such amounts, it will deliver to the Owner Trust and the Company appropriate documentation showing the payment of such amounts, together with such additional documentary evidence as the Owner Trust or the Company may reasonably request from time to time. The Corporate Indenture Trustee agrees to file any other information reports as it may be required to file under United States law. ARTICLE VI REDEMPTION OF MORTGAGE NOTES SECTION 6.01. No Redemption or Prepayment Prior to Maturity. Except as provided in Sections 6.02 and 8.02 hereof, the Mortgage Notes may not be redeemed or prepaid prior to their respective Maturity Dates. 39 49 SECTION 6.02. Redemption of Mortgage Notes. The Outstanding Mortgage Notes shall be redeemed: (a) At the Redemption Price, without premium: (1) in whole, in connection with the occurrence of a substantial or total casualty at the Property and the Company's resultant delivery under [ARTICLE 14(f) OF THE LEASE] of a Tenant's Purchase Offer in accordance with [ARTICLE 40 OF THE LEASE], unless the Company exercises its right to substitute another property in lieu of the Property in accordance with [ARTICLE 41 OF THE LEASE], in which case, the terms of Sections 3.06 and 14.01 hereof shall govern; (2) in whole, in connection with the occurrence of a Condemnation described in the first sentence of [ARTICLE 15(a) OF THE LEASE] and the Company's resultant delivery under [SAID ARTICLE 15(a)] of a Tenant's Purchase Offer in accordance with [ARTICLE 40 OF THE LEASE], unless the Company exercises its right to substitute another property in lieu of the Property in accordance with [ARTICLE 41 OF THE LEASE], in which case, the terms of Sections 3.06 and 14.01 hereof shall govern; (3) in whole or in part, to the extent of the amount actually to be disbursed to the Owner Trust pursuant to [ARTICLE 16(c) OF THE LEASE] in connection with the occurrence of damage or destruction of the Property; or (4) in whole or in part, to the extent of the "excess proceeds" described in [THE FOURTH SENTENCE OF ARTICLE 15(d) OF THE LEASE] arising as a result of a Condemnation. In the case of any partial redemption pursuant to this Section 6.02(a), (i) each Outstanding Mortgage Note shall be redeemed ratably, without priority of one over the other, in the proportion that the aggregate unpaid principal amount of the Mortgage Notes held by each Holder bears to the aggregate unpaid principal amount of all Outstanding Mortgage Notes, and (ii) each subsequent Installment Payment Amount payable in respect of any such Mortgage Note shall, effective as of the Installment Payment Date immediately following the Redemption Date, be reduced (but not below zero) by the percentage that the principal portion of the Redemption Price bears to the total aggregate unpaid principal amount of such Mortgage Note immediately before such redemption. (b) Other than as provided elsewhere in this Section 6.02, in whole, if the Owner Trust, with the consent of the Company (as evidenced by an Officer's Certificate), gives notice of redemption to the Indenture Trustees, at the Redemption Price which shall include the applicable Make-Whole Premium. 40 50 (c) In whole, if the Owner Trust, at the direction of the Owner Participant at any time gives notice of redemption to the Indenture Trustees pursuant and subject to Section 8.02(a) hereof, at a price equal to the Redemption Price, which shall include the Make-Whole Premium in the circumstances expressly providing for the Make-Whole Premium in Section 8.02(b), and otherwise without premium. (d) In whole or in part, with the consent of the Company (as evidenced by an Officer's Certificate), if the Owner Trust gives at least 25 days' prior irrevocable notice to the Indenture Trustees specifying the Mortgage Notes and all Other Mortgage Notes having the Maturity Date to be redeemed (which shall be the Mortgage Notes and Other Mortgage Notes having the same Maturity Date) and provided all Outstanding Mortgage Notes, Other Mortgage Notes, Company Mortgage Notes and other notes then held in the same Pass Through Trust, whether or not issued by the Owner Trust, are simultaneously being redeemed, at the Redemption Price, which shall include the applicable Make-Whole Premium. (e) In whole, at the Redemption Price, which shall include the applicable Make-Whole Premium, (i) in connection with the Company's exercise of its termination right pursuant to [ARTICLE 39 OF THE LEASE], unless the Company elects to assume the Mortgage Notes pursuant to [ARTICLE 39(e)] OF THE LEASE] and Section 3.08 hereof or to substitute a property in lieu of the Property or (ii) in connection with a sale pursuant to Section 3 of the Participation Agreement, unless the Company elects to assume the Mortgage Notes pursuant to Section 3 of the Participation Agreement and Section 3.08 hereof. The Redemption Date for the redemption of Mortgage Notes pursuant to this Section shall be the date determined in accordance with Section 6.03 hereof. SECTION 6.03. Redemption; Notice to Corporate Indenture Trustee. In case of any redemption of Mortgage Notes, the Owner Trust shall, at least 45 days prior to the Redemption Date, notify the Corporate Indenture Trustee and the Registrar by an Officer's Order of (1) such Redemption Date (subject, to the extent applicable, to Section 8.02(a)), (2) the principal amount of Mortgage Notes to be redeemed, and (3) the basis upon which, pursuant to this Indenture, such principal amount and Make-Whole Premium, if any, has been or will be computed and an estimate of the amount of the Make-Whole Premium. Any notice delivered to the Corporate Indenture Trustee which, under the terms of the Lease is characterized as a Redemption Notice, shall be considered to be a notice of redemption hereunder. The notice of redemption shall be revocable if it is given more than 45 days prior to the Redemption Date, but it shall state a date on which it shall be irrevocable (which shall not be less than 25 days prior to the Redemption Date). If not otherwise provided and not previously revoked, any redemption notice shall become irrevocable on the 25th day prior to the Redemption Date stated therein. The Redemption Date shall be any Distribution Date occurring not less than 25 days after the giving of such notice. Any delivery by the Company of a Tenant's Purchase Offer under [ARTICLE 14(f) OR ARTICLE 15(a) OF THE LEASE] or a Notice of 41 51 Termination under [ARTICLE 39(a) OF THE LEASE] (unless accompanied with a notice by the Company that it will assume the Mortgage Notes in accordance with [ARTICLE 39(e) OF THE LEASE] and Section 3.08 hereof) shall automatically constitute the Owner Trust's Officer's Order under this Section 6.03, subject to revocation as provided in this Section 6.03 (which revocation shall automatically be deemed made upon the Owner Trust's notice and deposit of funds under Section 6.06 hereof if such notice is given and deposit made prior to the date that the Company notice shall have become irrevocable, in which case the Owner Trust's notice under Section 6.06 shall constitute the notice of redemption under this Section 6.03). Any other notice by the Owner Trust under Section 6.06 shall automatically constitute a notice of redemption under this Section 6.03, as long as the deposit due under said Section 6.06 shall have been timely made. Further, any notice of redemption pursuant to Section 6.02(b) or (d) that shall not be effective unless, concurrently with such notice, the Owner Trust shall deposit with the Corporate Indenture Trustee an amount sufficient to pay the Redemption Price together with the Make-Whole Premium. SECTION 6.04. Mortgage Notes Redeemed in Part. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Mortgage Notes shall relate, in the case of any Mortgage Note redeemed or to be redeemed only in part, to the portion of the principal of such Mortgage Note which has been or is to be redeemed. Any Mortgage Note which is to be redeemed only in part shall be so redeemed by the payment to the Holder (without the necessity of presentation or surrender on the part of the Holder) of the amount necessary to effect such redemption in accordance with this Article VI and the Corporate Indenture Trustee shall note on its records the fact of such payment and the amount of the principal amount of, and of each remaining Installment Payment Amount of, said Mortgage Note remaining unpaid after such payment. Such notification, in the absence of manifest error, shall be conclusive evidence of the amount of such payment and the remaining unpaid principal amount of, and of each remaining Installment Payment Amount of, such Mortgage Note and shall be binding upon the Holder and all subsequent Holders of any Mortgage Note issued upon registration of a transfer thereof or in exchange therefor. SECTION 6.05. Notice of Redemption to Holders. (a) Notice of redemption shall be given by the Corporate Indenture Trustee by first-class mail, postage prepaid, mailed not less than 20 nor more than 30 days prior to the Redemption Date to each Holder of Mortgage Notes to be redeemed, at the Holder's address appearing in the Register (unless, in the case of Mortgage Notes held by a Pass Through Trustee, a different method shall be acceptable to the Holder). No such notice shall be given until such time as the redemption notice given or deemed given by the Owner Trust, or by the Company, as lessee under the Lease, on behalf of the Owner Trust, shall have become irrevocable. 42 52 All notices of redemption to Holders shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all Outstanding Mortgage Notes are to be redeemed, the principal amount of the particular Mortgage Notes to be redeemed, (4) that on the Redemption Date the Redemption Price will become due and payable upon each such Mortgage Note (or the portion thereof to be redeemed), and that interest thereon (or on the portion thereof to be redeemed) shall cease to accrue on and after said date (unless the Redemption Price shall not be paid as required hereunder), and (5) in the case of a redemption in whole of a Mortgage Note, the place or places where such Mortgage Note is to be surrendered for payment of the Redemption Price. SECTION 6.06. Right to Reject Tenant's Purchase Offer or Notice of Termination. If the Owner Trust desires (i) to reject Tenant's Purchase Offer made under [ARTICLE 14(f) OR ARTICLE 15(a) OF THE LEASE], or (ii) to decline the Company's Notice of Termination issued pursuant to [ARTICLE 39 OF THE LEASE], then if the Owner Trust so notifies the Corporate Indenture Trustee and deposits with the Corporate Indenture Trustee, contemporaneously with the giving of such notice, an amount sufficient to pay the Redemption Price, without premium, of the Mortgage Notes to be redeemed under Section 6.02(a) or Section 6.02(e) hereof, as the case may be, the Corporate Indenture Trustee shall give, promptly on receipt of the amount referred to above but in no event more than five days thereafter, the written confirmation for the benefit of the Company necessary for the Owner Trust to take any such action under the Lease. The Owner Trust shall have no right to take the actions described in any of clauses (i) and (ii) above, except as provided above in this Section 6.06, or any other action that would result in the termination of the Lease. SECTION 6.07. Mortgage Notes Payable on Redemption Date. On the Redemption Date, the Outstanding Mortgage Notes (or the portion thereof) to be redeemed shall become due and payable, and from and after such Redemption Date (unless there shall be a default in the payment of the Redemption Price) such Mortgage Notes (or the portion thereof to be redeemed) shall cease to bear interest. On the Redemption Date (or upon surrender of the Mortgage Note if it is to be redeemed in whole) such Mortgage Note (or the portion thereof to be redeemed) shall be paid at the Redemption Price. 43 53 If any Mortgage Note (or portion thereof) called for redemption shall not be so paid on the Redemption Date (or upon surrender thereof for redemption if it is to be redeemed in whole), the principal amount to be redeemed shall, until deposited with the Corporate Indenture Trustee, continue to bear interest from the Redemption Date at the interest rate applicable to such Mortgage Note. ARTICLE VII REMEDIES OF INDENTURE TRUSTEES AND HOLDERS SECTION 7.01. Indenture Event of Default. "Indenture Event of Default" means any of the following events (whatever the reason for such Indenture Event of Default and whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) any Lease Event of Default (other than a Lease Event of Default relating solely to Excepted Rights and Payments) shall have occurred and be continuing; or (b) the failure of the Owner Trust other than by reason of a Lease Default or Lease Event of Default to pay when due any payment of principal of or premium, if any, or interest on any Mortgage Note within five days after notice to the Owner Trust that such payment is due; or (c) any representation or warranty made by the Owner Participant, the Trust Company, William J. Wade or the Owner Trust herein or in the Participation Agreement (only to the extent that such document relates to the Property, unless the context requires otherwise) or any other Indenture Document or in any document or certificate furnished to the Indenture Trustees in connection herewith or pursuant hereto shall prove to have been false or incorrect when made in any respect material to the Holders, and such falseness or incorrectness is material to such Holders, and continues to be material and if capable of remedy, is not remedied for 30 days (or such longer period (but in no event more than 60 days) if such falseness or incorrectness is susceptible of being remedied within a reasonable period of time (but not within such 30-day period) and if within such 30-day period the Owner Trust, the Trust Company, William J. Wade or the Owner Participant, as applicable, promptly commences, and thereafter prosecutes with diligence and good faith to completion, efforts to effect such remedy) after there has been given to the Owner Trust, by registered or certified mail, a written notice specifying such 44 54 breach and requiring it to be remedied and stating that such notice is a "Notice of Indenture Default" hereunder, by the Corporate Indenture Trustee or to the Owner Trust and the Corporate Indenture Trustee by the Holders of not less than a majority in aggregate unpaid principal amount of Outstanding Mortgage Notes; or (d) any termination or revocation of the Trust Agreement; or (e) any failure by the Owner Trustees (other than by reason of a Lease Default or a Lease Event of Default), in their individual capacities or on behalf of the Owner Trust, to observe or perform in any material respect any other material covenant or obligation of the Owner Trustees, individually, or the Owner Trust contained in this Indenture or any failure by the Owner Participant to observe or perform in any material respect any other material covenant or obligation of the Owner Participant contained in the Participation Agreement (only to the extent that such document relates to the Property, unless the context requires otherwise) which, in either case, has a material adverse effect on the Holders and is not remedied within a period of 30 days (or such longer period (but in no event more than 180 days) if such failure is susceptible of being remedied within a reasonable period of time (but not within such 30-day period) and if within such 30-day period the Owner Trust or the Owner Participant, as applicable, promptly commences and thereafter prosecutes with diligence and good faith to completion efforts to effect such remedy) after there has been given to the Owner Trust by registered or certified mail, a written notice specifying such breach and requiring it to be remedied and stating that such notice is a "Notice of Indenture Default" hereunder, by the Corporate Indenture Trustee or to the Owner Trust and the Corporate Indenture Trustee by the Holders of not less than a majority in aggregate unpaid principal amount of Outstanding Mortgage Notes; or (f) if the Owner Trust shall file a petition in bankruptcy or for reorganization or for an arrangement pursuant to any federal or state bankruptcy law or any similar federal or state law, or shall be adjudicated a bankrupt or become insolvent or shall make an assignment for the benefit of creditors or shall admit in writing its inability to pay its debts generally as they become due; or (g) if a petition or answer proposing the adjudication of the Owner Trust as a bankrupt or its reorganization pursuant to any federal or state bankruptcy law or any similar federal or state law shall be filed in any court and the Owner Trust shall consent to or acquiesce in the filing thereof or such petition or answer shall not be discharged or denied within 90 days after the filing thereof. 45 55 SECTION 7.02. Remedies; Acceleration of Maturity; Rescission. (a) If an Indenture Event of Default shall have occurred and be continuing and so long as the same shall be continuing unremedied, then and in every such case, after the Mortgage Notes shall have become due and payable under Section 7.02(b) or 7.02(c), the Indenture Trustees may, and when required by the provisions of Article IX hereof shall, exercise (subject to the provisions hereof expressly restricting the Indenture Trustees' rights or remedies herein, including Sections 8.02 and 8.03), any or all of the rights and powers and pursue any or all of the remedies with respect to any or all of the Indenture Estate accorded to the Owner Trust in [ARTICLE 21 OF THE LEASE], if a Lease Event of Default shall have occurred and be continuing, and may, subject to the terms of the Lease, take possession of all or any part of the Indenture Estate subject to the Lien hereof or pursuant hereto and may exclude the Owner Trust and, subject to the terms of the Lease, the Company and all persons claiming by, through or under any of them wholly or partly therefrom, and (subject to the provisions hereof expressly restricting the Indenture Trustees' rights or remedies herein) the Indenture Trustees may exercise any other right or remedy in lieu of or in addition to the foregoing which may be available to them hereunder or under applicable law or proceed by appropriate court action to enforce the terms hereof, of the Lease or both, to recover damages for the breach hereof, of the Lease or both; provided, however, that the foregoing shall not be construed as modifying the parties' agreement that the Lien hereof shall be subordinate to the leasehold estate of the Lessee under the Lease; provided further, however, that notwithstanding any provision herein to the contrary, the Indenture Trustees shall not sell any of the Indenture Estate unless a declaration of acceleration has been made pursuant to Section 7.02(c) or the Mortgage Notes have become due and payable pursuant to Section 7.02(b). Notwithstanding the foregoing or any other provision herein, the Indenture Trustees shall not be entitled to exercise any remedy hereunder as a result of an Indenture Event of Default occurring solely by reason of one or more Lease Events of Default unless the Corporate Indenture Trustee shall be concurrently taking action under [ARTICLE 21 OF THE LEASE] to terminate the Lease or dispossess the Company or otherwise seeking to effect a comparable remedy. (b) If an Indenture Event of Default referred to in paragraph (f) or (g) of Section 7.01 hereof shall have occurred, or if a Lease Event of Default referred to in Article 20(v) of the Lease shall have occurred and be continuing at such time as the Indenture Trustees are still constrained from terminating the Lease or the Company's right to possession, then and in every such case the unpaid principal of all Outstanding Mortgage Notes, together with interest accrued but unpaid thereon, and all other amounts due thereunder and hereunder shall immediately and without further act become due and payable, without premium or penalty, and without presentment, demand, protest or notice, all of which are hereby waived. (c) If any Indenture Event of Default or Lease Event of Default not described in the preceding paragraph (b) shall have occurred and be continuing, then and in every such 46 56 case, the Corporate Indenture Trustee may on its own accord or at the direction of Holders of not less than a majority in aggregate unpaid principal amount of Outstanding Mortgage Notes at any time (but subject to the provisions hereof expressly restricting the Indenture Trustees' rights or remedies herein including Sections 8.02 and 8.03), by written notice or notices to the Owner Trust and the Company, declare the principal of all the Mortgage Notes to be due and payable, whereupon the unpaid principal of all Outstanding Mortgage Notes, together with accrued but unpaid interest thereon, and all other amounts due thereunder, shall immediately become due and payable without premium or penalty, and without presentment, demand, protest or other notice, all of which are hereby waived. At any time after such declaration and prior to the sale or disposition of the Indenture Estate, however, the Holders of not less than a majority in aggregate unpaid principal amount of Outstanding Mortgage Notes, by notice to the Corporate Indenture Trustees and the Owner Trust, may rescind such declaration, whether made by the Corporate Indenture Trustee on its own accord or as directed, if (x) there has been paid or deposited with the Corporate Indenture Trustee a sum sufficient to pay all overdue installments of interest on all Mortgage Notes and premium, if any, due otherwise than by virtue of such declaration of acceleration, principal on any Mortgage Notes that have become due otherwise than by such declaration of acceleration, all sums paid or advanced by the Indenture Trustees hereunder and the reasonable compensation, expenses, disbursements and advances of the Indenture Trustees, their agents and counsel, (y) the rescission would not conflict with any judgment or decree and (z) all other Indenture Defaults and Indenture Events of Default (other than the nonpayment of principal that has become due solely because of such acceleration) have been either cured (or will be cured as a result thereof, or with regard to an Indenture Default or Lease Default, are being cured in accordance with the applicable provisions hereof or of the Lease) or waived. No such rescission shall affect any subsequent default or impair any right consequent thereon. SECTION 7.03. Exercise of Remedies, and Suits for Enforcement, by Indenture Trustees; Owner Trust's Right to Redeem the Mortgage Notes. (a) At any sale of any or all of the Indenture Estate pursuant to the exercise by the Indenture Trustees of any of the remedies afforded by this Article, the Indenture Trustees, the Owner Trust, the Owner Participant and the Company may bid for and purchase such property. To the extent permitted by applicable law, the Owner Trust hereby waives any rights now or hereafter conferred by statute or otherwise by applicable law which may require the Indenture Trustees to sell, lease or otherwise use any portion of the Indenture Estate in mitigation of the damages as set forth in this Section or which may otherwise limit or modify any of the Indenture Trustees' or Holders' rights or remedies under this Section. Whenever, prior to any sale of the Indenture Estate, or any part thereof, all arrears of interest upon the Mortgage Notes, together with all sums paid or advanced by the Indenture Trustees under any provision hereof and the reasonable and proper charges, expenses and liabilities of the Indenture Trustees, their agents and counsel, and all other 47 57 sums then payable by the Owner Trust hereunder, including the outstanding principal of, together with all other accrued unpaid interest, if any, on the Mortgage Notes which shall then be due and payable (otherwise than upon declaration of acceleration pursuant to Section 7.02(c) hereof), shall be paid by or for the account of the Owner Trust and/or collected out of the Indenture Estate or provision satisfactory to the Indenture Trustees shall be made for such payment, and all Indenture Defaults and Indenture Events of Default shall be cured or waived, then, so long as no declaration of acceleration has been made pursuant to Section 7.02(c) hereof or, if such a declaration has been made, upon rescission and annulment thereof pursuant to Section 7.02(c) hereof, the Indenture Trustees shall surrender to the Owner Trust, its successors or assigns, possession of the Indenture Estate (subject to the Lien of this Indenture) and shall pay over at the direction of the Owner Trust to the Person specified in such direction the amount of any tolls, rents, issues, profits, products, revenues and other income of the Indenture Estate arising from the exercise of any remedies by the Indenture Trustees hereunder then remaining unexpended in the hands of the Indenture Trustees and thereupon the Owner Trust and the Indenture Trustees shall be restored to their former positions and rights hereunder in respect of the Indenture Estate, but no such surrender shall extend to or affect any subsequent Indenture Default or Indenture Event of Default or impair any right consequent thereon. Upon every taking of possession of any portion of the Indenture Estate pursuant to this Article, the Indenture Trustees may, from time to time, at the expense of the Indenture Estate, make all such expenditures for maintenance, insurance, repairs, replacements, alterations, additions and improvements to and of the Indenture Estate, as they may deem proper. In each such case, subject to the terms of the Lease, the Indenture Trustees shall have the right to use, operate, lease, control or manage the Indenture Estate, and to exercise all rights and powers of the Owner Trust relating to the Indenture Estate, as the Indenture Trustees shall deem appropriate, including the right to enter into any and all such agreements with respect to the use, operation, leasing, control or management of the Indenture Estate or any part thereof, as the Indenture Trustees may determine; and the Indenture Trustees shall be entitled to collect and receive directly all tolls, rents (including Basic Rent), issues, profits, products, revenues and other income of the Indenture Estate and every part thereof, without prejudice, however, to the right of the Indenture Trustees under any provision of this Indenture to collect and receive all cash held by, or required to be deposited with, the Indenture Trustees hereunder. In accordance with the terms of Section 5.03 hereof, such tolls, rents, issues, profits, products, revenues and other income shall be applied to pay the expenses of using, operating, leasing, controlling or managing the Indenture Estate, and of all maintenance, insurance, repairs, replacements, alterations, additions and improvements, and to make all payments which the Indenture Trustees may be required or may elect to make, if any, for taxes, assessments, insurance or other proper charges upon the Indenture Estate or any part thereof (including the employment of appraisers, engineers and accountants in accordance with Section 9.04(g) hereof), and all other payments which the Indenture Trustees may be required or authorized to make under any provision of this Indenture, including Section 5.03 hereof, as well as just and reasonable 48 58 compensation for the services of the Indenture Trustees, and of all persons properly engaged and employed by the Indenture Trustees. (b) Subject to Sections 8.02, 8.03 and 9.02 hereof, if an Indenture Event of Default occurs and is continuing and the Indenture Trustees shall have obtained possession of or title to any or all of the Indenture Estate, the Indenture Trustees shall not be obligated to use or operate any of the Indenture Estate or cause any of the Indenture Estate to be used or operated directly or indirectly by the Indenture Trustees, or either of them, or through agents or other representatives or to lease, license or otherwise permit or provide for the use or operation of any or all of the Indenture Estate by any other person unless (i) the Corporate Indenture Trustee shall have been able to obtain insurance in kinds, at rates and in amounts satisfactory to it in its discretion to protect the Indenture Estate and the Indenture Trustees, as Indenture Trustees and individually, against any and all liability for loss or damage to the Indenture Estate and for public liability and property damage resulting from use or operation of the Indenture Estate and (ii) funds are available in the Indenture Estate to pay for all such insurance or, in lieu of such insurance, the Indenture Trustees are furnished with indemnification from the Holders or any other Person upon terms and in amounts satisfactory to the Corporate Indenture Trustee in its discretion to protect the Indenture Estate and the Indenture Trustees, as Indenture Trustees and individually, against any and all such liabilities. (c) If, after the expiration of all applicable notice and cure periods, and subject to Sections 8.02 and 8.03, there shall be a failure to make a scheduled payment of the principal of any Mortgage Note when due, or of the Redemption Price upon call for redemption, or if there shall be a failure to pay the premium, if any, or interest on any Mortgage Note when the same becomes due and payable, then (subject to the provisions hereof expressly restricting the Indenture Trustees' exercise of rights or remedies), the Indenture Trustees may institute, in their own names and as trustees of an express trust, a judicial proceeding for the collection of the sums so due and unpaid on the Mortgage Note, and may prosecute such proceeding to judgment or final decree, and may enforce such judgment or final decree with respect to the whole amount of any such sums so due and unpaid. If an Indenture Event of Default occurs and is continuing, then (subject to the provisions hereof expressly restricting the Indenture Trustees' exercise of rights or remedies), the Indenture Trustees may in their discretion proceed to protect and enforce their rights and the rights of the Holders by such appropriate judicial proceedings as the Indenture Trustees shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or in aid of the exercise of any power granted herein, or to enforce any other proper remedy. 49 59 SECTION 7.04. Additional Remedies. In addition to the remedies provided for in Sections 7.02 and 7.03 hereof, upon the occurrence of an Indenture Event of Default, the Indenture Trustees (subject to the provisions hereof expressly restricting the Indenture Trustee's exercise of rights or remedies) may take any or all of the following actions, at the same or at different times (subject to the provisions hereof expressly restricting the Indenture Trustees' exercise of rights or remedies): (a) Subject to the rights of the Company under the Lease, enter upon and take possession of any or all of the Indenture Estate, and lease and let the Indenture Estate, or any part thereof, and receive all the rents (including Basic Rent), issues and profits thereof which are overdue, due or to become due, and apply the same, after payment of all reasonably necessary charges and expenses, on account of the Mortgage Notes, and the Indenture Trustees are hereby given and granted full power and authority to do any act or thing which the Owner Trust might or could do in connection with the management and operation of any or all of the Indenture Estate. This covenant shall become effective either with or without any action brought to foreclose this Indenture and without applying at any time for a receiver of such rents. (b) Institute an action of mortgage foreclosure, or take other action as the law may allow, at law or in equity, for the enforcement of this Indenture, and proceed thereon to final judgment and execution of the entire unpaid balance of the Mortgage Notes which are then due and payable including costs of suit, interest and reasonable attorneys' fees. In case of any sale of the Indenture Estate by virtue of judicial proceedings, the Indenture Estate may be sold in one parcel and as an entirety or in such parcels, manner or order as the Indenture Trustees in their sole discretion may elect. Subject to the rights of the Company under the Lease, the failure to make any tenants parties defendant to a foreclosure proceeding and to foreclose their rights will not be asserted by the Owner Trust as a defense in any proceeding instituted by the Indenture Trustees to realize upon the Indenture Estate. (c) Appoint a receiver of the rents, issues and profits of the Indenture Estate without the necessity of proving either the depreciation or the inadequacy of the value of the security or the insolvency of the Owner Trust or any Person who may be legally or equitably liable to pay moneys secured hereby, or any other statutory grounds for such appointment, and the Owner Trust and each such Person waive such proof and hereby consent to the appointment of a receiver. (d) In the event that during the pendency of any Indenture Event of Default, the Owner Trust, Owner Participant, or any Affiliate of any of them, is in fact (not constructively) physically occupying the Indenture Estate, or any part thereof, it is hereby agreed that the Owner Trust shall pay such reasonable rental monthly in advance as the Indenture Trustees shall demand for the Indenture Estate, or the part so occupied, and 50 60 the use of personal property covered by this Indenture, such amounts to be applied in accordance with Section 5.03 of this Indenture. (e) Apply on account of the Mortgage Notes and the interest and premium, if any, thereon or on account of any arrearages of interest thereon, or on account of any balance due pursuant to the Mortgage Notes or after a foreclosure sale of the Indenture Estate, or any part thereof, all in accordance with the provisions of Section 5.03, any unexpended moneys other than Excepted Rights and Payments still retained by the Corporate Indenture Trustee that were paid to the Corporate Indenture Trustee by the Company pursuant to the Lease or otherwise or by the Owner Trust for the payment of, or as security for the payment of, taxes, assessments, municipal or governmental rates, charges, liens, water or sewer rents, or insurance premiums, if any, or in order to secure the performance of some other act by or obligation of the Owner Trust or the Company. (f) Exercise any and all other rights and remedies granted under this Indenture or now or hereafter existing in equity, at law, by virtue of statute or otherwise. (g) With or without entry, personally or by their agents or attorneys, sell the Indenture Estate and all estate, right, title, interest, claim and demand therein and right of redemption thereof at one or more private or public sales, as an entirety or in parcels and at such times and places and upon such terms as may be specified in the notice or notices of sale to be given to the Owner Trust or as may be required by law. Any number of sales may be conducted from time to time. The power of sale shall not be exhausted by any one or more such sales as to any part of the Indenture Estate remaining unsold, but shall continue unimpaired until all of the Indenture Estate shall have been sold or the Mortgage Notes and all indebtedness of the Owner Trust secured hereby shall have been paid. In addition, as to each Property, the Indenture Trustees will have the statutory power of sale, if any, as may be provided by the law of the state in which such Property is located. As to each Property this Indenture is made upon the statutory conditions provided for by the laws of the state in which such Property is located. The Indenture Trustees may postpone the sale of the Indenture Estate by public announcement at the time and place of such sale, and from time to time thereafter may further postpone such sale by public announcement made at the time of sale fixed by the preceding postponement. (h) Notwithstanding anything to the contrary provided or implied in any of the Indenture Documents, if either of the Indenture Trustees is or becomes a competitor to the Company, it shall not be barred or restricted in any manner in enforcing any of the remedies provided in this Indenture. SECTION 7.05. Indenture Trustees May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the 51 61 Company or any other obligor upon the Lease or the Owner Trust or any other obligor on the Mortgage Notes or the property of the Company, the Owner Trust or of such other obligor or their creditors, the Indenture Trustees (irrespective of whether the principal of the Mortgage Notes shall then be due and payable as therein expressed or by declaration in accordance with Section 7.02 hereof, or otherwise, and irrespective of whether the Indenture Trustees shall have made any demand for the payment of overdue principal, premium, if any, or interest) shall be entitled and empowered, by intervention in such proceeding or otherwise, (i) to file and prove such proofs of claim and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Indenture Trustees (including any claim for the reasonable compensation, expenses, disbursements and advances of the Indenture Trustees, their agents and counsel) and of the Holders allowed in such judicial proceeding, and (ii) to collect and receive any moneys or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator (or other similar official) in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Indenture Trustees, and in the event that the Indenture Trustees shall consent to the making of such payments directly to the Holders, to pay to the Indenture Trustees any amount due to them for the reasonable compensation, expenses, disbursements and advances of the Indenture Trustees, their agents and counsel, and any other amounts due to the Indenture Trustees in connection therewith. Nothing herein contained shall be deemed to authorize the Indenture Trustees to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Mortgage Notes or the rights of any Holder thereof, or to authorize the Indenture Trustees to vote in respect of the claim of any Holder in any such proceeding. SECTION 7.06. Indenture Trustees May Enforce Claims Without Possession of the Mortgage Notes; Represent Holders. All rights of action and claims under this Indenture or the Mortgage Notes may be prosecuted and enforced by the Indenture Trustees without the possession of any of the Mortgage Notes or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Indenture Trustees shall be brought in their own names as trustees of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Indenture Trustees, their agents and counsel, be for the ratable benefit of the Holders of the Mortgage Notes. In any proceedings brought by the Indenture Trustees (and also any proceedings involving the interpretation of any provision of this Indenture to which the Indenture Trustees shall be a party) the Indenture 52 62 Trustees shall be held to represent all the Holders, and it shall not be necessary to make any Holders parties to such proceedings. SECTION 7.07. Application of Money Collected. Subject to the provisions of Section 7.03(a) hereof, any money collected by the Indenture Trustees pursuant to this Article (other than Excepted Rights and Payments) shall be promptly applied by the Corporate Indenture Trustee, as specified in Section 5.03 hereof at, in the case of payment to the Holders, the date or dates fixed by the Corporate Indenture Trustee which shall in no event be later than the next succeeding Distribution Date and, in case of the distribution of such money on account of principal, premium, if any, or interest, upon surrender thereof if fully paid. SECTION 7.08. Limitation on Suits. No Holder of a Mortgage Note shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless: (1) such Holder has previously given written notice to the Corporate Indenture Trustee of a continuing Indenture Event of Default; (2) the Holders of not less than 25% in unpaid principal amount of the Outstanding Mortgage Notes shall have made written request to the Corporate Indenture Trustee for the Indenture Trustees to institute proceedings in respect of such Indenture Event of Default in their own names as Indenture Trustees hereunder (unless the Holders of a majority in aggregate unpaid principal amount of the Outstanding Mortgage Notes shall object in writing to such proceedings within 30 days of such request); (3) such Holder or Holders have offered to the Indenture Trustees reasonable indemnity against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Indenture Trustees for 60 days after the Corporate Indenture Trustee's receipt of such notice, request and offer of indemnity have failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Corporate Indenture Trustee during such 60 day period by the Holders of a majority in Outstanding principal amount of the Mortgage Notes; it being understood and intended that no one or more Holders of the Mortgage Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of the Mortgage Notes, or to obtain or to seek to obtain priority or preference over any 53 63 other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the ratable benefit of all the Holders. SECTION 7.09. Unconditional Right of Holders to Receive Principal, Premium, if any, and Interest. Notwithstanding any other provision in this Indenture, but subject to Section 2.05, any Holder shall have the right, which is absolute and unconditional, to receive payment of the principal of and (subject to Section 2.04 hereof) interest on its Mortgage Notes as expressed therein (or, in the case of redemption, on the Redemption Date) and of the premium, if any, on such Mortgage Notes from such source when due and payable and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder, provided that no Holder shall have the right to enforce any judgment or otherwise exercise remedies against any Excepted Rights and Payments, it being understood and intended that no one or more Holders of the Mortgage Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture to affect, disturb or prejudice the rights of any other Holders of the Mortgage Notes or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the ratable benefit of all the Holders. SECTION 7.10. Restoration of Rights and Remedies. If the Indenture Trustees have, or any Holder has, instituted any proceeding to enforce any right or remedy or in the exercise of any power under this Indenture by foreclosure, entry or otherwise and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Indenture Trustees or to such Holder, then and in every case the Owner Trust and the Holders shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions and rights hereunder, including the position and rights of the Indenture Trustees with respect to the Indenture Estate, and thereafter all rights, powers and remedies of the Indenture Trustees and the Holders shall continue as though no such proceeding had been instituted. SECTION 7.11. Rights and Remedies Cumulative and Subject to Applicable Law. Except as may otherwise expressly be provided to the contrary herein, no right, power or remedy herein conferred upon or reserved to the Indenture Trustees or to the Holders is intended to be exclusive of any other right, power or remedy and every right, power and remedy shall, to the extent permitted by law, be cumulative and concurrent and in addition to every other right, power and remedy given hereunder or now or hereafter existing at law or in equity or otherwise and may be exercised from time to time and as often and in such order as may be deemed expedient by the Indenture Trustees or the Holders. The exercise of any right, power or remedy shall not be construed as a waiver of the right to exercise at the same time or thereafter any other right, power or remedy. The exercise of any right, power or remedy shall be subject to applicable law and the 54 64 provisions hereof expressly restricting the Indenture Trustees' exercise of rights or remedies. SECTION 7.12. Delay or Omission Not Waiver. (a) No delay or omission of the Indenture Trustees or of any Holder to exercise any right, power or remedy accruing upon any Indenture Event of Default shall impair any such right, power or remedy or constitute a waiver of any such Indenture Event of Default or an acquiescence therein. Subject to the provisions hereof expressly restricting the Indenture Trustees' exercise of rights or remedies, every right, power and remedy given by this Article or by law to the Indenture Trustees or the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Indenture Trustees or by the Holders, as the case may be. (b) Notwithstanding anything to the contrary contained herein, so long as a Pass-Through Trustee is the registered Holder of any Mortgage Note hereunder, the Indenture Trustees shall not be authorized or empowered to acquire title to all or any portion of the Indenture Estate or to take any action with respect to all or any portion of the Indenture Estate so acquired by them, or either of them, if such acquisition or action would cause the related Pass-Through Trust to fail to qualify as a "grantor trust" for Federal income tax purposes. SECTION 7.13. Control by Holders. The Holders of a majority of the aggregate unpaid principal amount of the Outstanding Mortgage Notes shall have the right, during the continuance of an Indenture Event of Default, (1) to require the Indenture Trustees to proceed to enforce this Indenture, either by judicial proceedings for the enforcement of the payment of the Mortgage Notes and the foreclosure of this Indenture and the sale of the Indenture Estate or, at the election of the Indenture Trustees, by the exercise of the power of entry and/or sale or other remedies hereby conferred, and (2) to direct the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustees or exercising any trust or power conferred on the Indenture Trustees; provided that (A) such direction shall not be in conflict with any rule of law or with this Indenture and shall not unduly prejudice the rights of Holders other than those constituting such majority, and (B) the Indenture Trustees may take any other action deemed proper by the Indenture Trustees which is not inconsistent with such direction. 55 65 SECTION 7.14. Waiver of Past Defaults. The Holders of not less than 66 2/3% of the aggregate unpaid principal amount of the Outstanding Mortgage Notes may on behalf of all Holders waive any past default hereunder and its consequences, except a default (1) in the payment of the principal of, premium, if any, or interest on the Mortgage Notes; or (2) in respect of a covenant or provision hereof which expressly under this Indenture cannot be modified or amended without the consent of each Holder affected thereby. Upon any such waiver, such default shall cease to exist, and any Indenture Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. SECTION 7.15. Waiver of Appraisement; Laws. (a) The Owner Trust covenants (to the extent that it may lawfully do so) that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any appraisement, valuation, stay, extension or redemption law wherever enacted, now or at any time hereafter in force, in order to prevent or hinder the enforcement of this Indenture or the absolute sale of the Indenture Estate, or any part thereof, or the possession thereof by any purchaser at any sale under this Article; and the Owner Trust, for itself and all who may claim under it, so far as it now or hereafter lawfully may, hereby waives the benefit of all such laws. (b) Subject to the rights of the Company under the Lease, the Owner Trust, for itself and all who may claim under it, so far as it now or hereafter lawfully may, hereby waives and releases: (i) All benefit that might accrue to the Owner Trust by virtue of any present or future law exempting the Indenture Estate, or any part of the proceeds arising from any sale of the Indenture Estate, from attachment, levy or sale on execution; and (ii) Exemption from civil process; and (iii) Redemption or extension of time for payment; and (iv) Any right to have the Indenture Estate marshalled. The Owner Trust further agrees that any court having jurisdiction to foreclose this Indenture may order the sale of the Indenture Estate as an entirety. 56 66 (c) If any law in this Section referred to and now in force, of which the Owner Trust or its successors might take advantage despite this Section, shall hereafter be repealed or cease to be in force, such law shall not thereafter be deemed to constitute any part of the contract herein contained or to preclude the application of this Section. SECTION 7.16. Special State Law Addendum. In addition to the remedies set forth above and elsewhere herein, the Indenture Trustees, or either of them, shall have those additional rights and remedies set forth in the Special State Law Addendum, if any. SECTION 7.17. No Cross-Collateralization. Notwithstanding anything in this Indenture to the contrary, although the Indenture Trustees have entered into the Other Indentures pursuant to which the Other Mortgage Notes were issued by the Other Owner Trust and the Other Owner Trust's interests as lessor under leases with the Company were assigned (the "Other Leases") and which contain similar or identical provisions, the parties hereto and thereto desire and intend that (i) each of such documents (or any documents executed in furtherance thereof or pursuant thereto) shall be, and shall be deemed to be, separate and independent from this Indenture and the Mortgage Notes secured hereby (or any documents executed in furtherance hereof or pursuant hereto), and (ii) none of such documents (or any documents executed in furtherance thereof or pursuant thereto) or the real or personal property encumbered thereby shall be, or shall be deemed to be, cross-collateralized or cross- defaulted with this Indenture (or any documents executed in furtherance hereof or pursuant hereto), the Mortgage Notes secured hereby or the Property encumbered hereby. ARTICLE VIII RIGHTS OF THE OWNER TRUST AND THE OWNER PARTICIPANT SECTION 8.01. Certain Rights of Owner Trust and Owner Participant. Notwithstanding any other provision of this Indenture, including the Granting Clauses, or any of the other Indenture Documents, but subject always to the final paragraphs of Sections 8.01 and 12.07(c), the following rights ("Excepted Rights", collectively with Excepted Payments herein referred to as "Excepted Rights and Payments") shall be reserved to the Owner Trust or the Owner Participant, as the case may be (as separate and independent rights), to the extent described herein: (a) at all times prior to the completion of the foreclosure of the Lien of this Indenture or other action that acts to divest the Owner Trust of its rights as Landlord under the Lease, the Owner Trust shall have the right, independently of, and not to the exclusion of, the Indenture Trustees, (i) to receive from the Company all notices, certificates, reports, filings, opinions of counsel and other documents and all 57 67 information which the Company is permitted or required to give or furnish to the Owner Trust pursuant to any Indenture Document, (ii) to inspect the Property to the extent provided in the Lease and to enforce performance or observance by the Company of any such rights by the exercise of the right to proceed by appropriate court actions, either at law or in equity or to recover damages for the breach thereof, (iii) to receive estoppel certificates from the Company under the Lease, (iv) to give notices of non-performance under the Lease and (v) to seek legal or equitable remedies to require the Company to maintain required insurance coverage under the Lease; (b) at all times, the Owner Trust shall have the right to perform all covenants and obligations on behalf of the Company pursuant to Section 42 of the Lease (it being understood that such performance will cure an Indenture Event of Default only to the extent set forth in Section 8.03 hereof); (c) at all times prior to the completion of the foreclosure of the Lien of this Indenture or other action that acts to divest the Owner Trust of its rights as Landlord under the Lease, the Owner Trust, to the exclusion of the Indenture Trustees, shall have the right, provided that the Owner Trust shall have complied with Section 6.06 hereof, to (i) make any determination to be made on the part of the "Landlord" under the Lease with respect to the Company's purchase options under the Lease (including the right to accept or reject Tenant's Purchase Offer or Notice of Termination); and (ii) select or approve as satisfactory any accountants, engineers or counsel to render services for or issue opinions to the Owner Trust pursuant to express provisions of the Indenture Documents and to make all decisions and determinations and take all actions in respect of its tax options under any of the Indenture Documents; (d) so long as no Indenture Event of Default shall have occurred and be continuing and there shall have occurred no acceleration of the Mortgage Notes, the Owner Trust shall have the right to the exclusion of the Indenture Trustees to do the following with respect to the Property: (i) to grant and release easements, licenses, rights of way, or releases of the Property that satisfy the criteria set forth in Article 13 of the Lease; and (ii) subject, however, to the greater restrictions on the Owner Trust imposed pursuant to Section 8.01(c), to make any determination or give any consent expressly provided in the Lease to be made or given by the "Landlord" under Articles 6; 8; 14; 15; 16; 17; 27; 39; 40; 41; and 45 of the Lease; (e) provided no Indenture Event of Default has occurred and is continuing (other than an Indenture Event of Default caused by a Lease Event of Default), the right of the Owner Trust (but not to the exclusion of the Indenture Trustees and subject to the right of the Indenture Trustee to revoke or abridge such right), to enforce performance of the covenants of the Company under the Lease, it being 58 68 agreed that the Indenture Trustee retains the exclusive right to exercise and enforce all rights, powers and remedies under the Lease upon the occurrence of a Lease Event of Default, subject to the other provisions hereof; (f) subject to Section 3.10, and upon the agreement of the Corporate Indenture Trustee and the Owner Trust, prior to acceleration of the Mortgage Notes, the rights of the Owner Trust to make petitions, motions and decisions in any bankruptcy, insolvency or similar proceedings involving the Company; (g) prior to the completion of the foreclosure of the Lien of this Indenture, the Owner Trust shall have the right to do all of the following with respect to the Property: (i) enter into with or provide to the Company or any other Person, certificates and other documents or information which is required by any Indenture Documents to be given by the Owner Trust; and (ii) to make Rental Adjustments in accordance with Section 21 of the Participation Agreement, subject, in all cases, to the requirement set forth in Article 3(d) of the Lease regarding the sufficiency of the Company's obligations under the Lease to satisfy amounts required to be paid hereunder and under the other Indenture Documents; (h) each of the Owner Trust, the Trust Company, William J. Wade and the Owner Participant shall have the right, to the exclusion of the Indenture Trustees, to demand, collect, sue for, give notices, make determinations, exercise all rights with respect to or otherwise receive and enforce the payment of Excepted Rights and Payments (but, with respect to Excepted Rights, only for so long as the same constitute Excepted Rights) due and payable to it and to seek legal or equitable remedies to require the Company to perform or comply with any of its obligations which otherwise constitute Excepted Rights and Payments (but, with respect to Excepted Rights, only for so long as the same constitute Excepted Rights); and (i) prior to any foreclosure or other exercise of remedies hereunder that operates to divest the Owner Trust of its rights as Landlord under the Lease, the Indenture Trustee shall not take any action that would reduce Lessee's obligations to the Landlord under the Lease, without the prior consent of the Owner Trust. Notwithstanding the foregoing provisions of this Section 8.01, but subject always to the right of the Owner Trust or the right of the Owner Participant on behalf of the Owner Trust under Sections 8.02 and 8.03 hereof, the Indenture Trustees shall at all times have the right, to the exclusion of the Owner Trust and the Owner Participant, to (A) declare the Lease to be in default and (B) subject to the provisions of Section 7.02(a) hereof and the other provisions hereof expressly restricting the Indenture Trustee's exercise of remedies hereunder, exercise the remedies set forth in Article 21 of the Lease and in Article VII hereof. 59 69 SECTION 8.02. Owner Trust's Right to Elect to Redeem and to Provide for Payment. (a) The Owner Trust may, but shall be under no obligation to, redeem all but not less than all of the Mortgage Notes then Outstanding at any time after a Lease Event of Default (other than a Lease Event of Default related to Excepted Payments) has occurred and is continuing and provided that no Indenture Event of Default (that does not arise out of such Lease Event of Default) has occurred and is continuing. Such redemption shall be effected by the Owner Trust (1) notifying the Corporate Indenture Trustee of such election, which notice in order to be effective shall state that it is irrevocable and shall designate the Redemption Date (which date shall be the next occurring Distribution Date following such notice to the Corporate Indenture Trustee, unless such date is less than 25 days after the giving of such notice, in which event the Redemption Date shall be the second occurring Distribution Date after the giving of such notice), and (2) irrevocably depositing with the Corporate Indenture Trustee, at the time of the delivery of such notice and in the manner provided for in Section 6.06 hereof, as the case may be, the sum of amounts contemplated by clause "first" under Section 5.03 and the aggregate unpaid principal amount of and accrued and unpaid interest (through the Redemption Date) on all such Mortgage Notes, together with the Make-Whole Premium if provided for in Section 8.02(b), after taking into account amounts then held by the Indenture Trustees for distribution under Section 5.03. The Corporate Indenture Trustee shall notify each Holder of such redemption in the manner provided for in Section 6.05 hereof. If the Owner Trust shall not cause the redemption of the Mortgage Notes to occur and all or a portion of the Indenture Estate is liquidated through foreclosure or otherwise, all amounts received from the sale of the Indenture Estate shall be paid and distributed in the manner provided in Section 5.03. Further, and without limiting the foregoing, if a Lease Event of Default shall have occurred and be continuing, provided that no Indenture Event of Default that does not arise out of a Lease Event of Default has occurred and is continuing, the Corporate Indenture Trustee shall not accelerate the Mortgage Notes and shall not terminate the Lease or terminate the Company's right to possession of the Property until the expiration of 20 days after notice to the Owner Trust of the Corporate Indenture Trustee's intention to do so, and if the Owner Trust shall deliver the notice of redemption and shall deposit the applicable redemption amount pursuant to this Section 8.02(a) and the Mortgage Notes shall be redeemed, the Corporate Indenture Trustee shall not accelerate the Mortgage Notes and shall not terminate the Lease or terminate the Company's right to possession of the Property. (b) The Redemption Price payable by the Owner Trust in connection with a redemption described in Section 8.02(a) shall include the Make-Whole Premium only if the Owner Trust's notice of such redemption (and the concurrent deposit of the Redemption Price) in accordance with Section 8.02(a) is given prior to the earliest of (i) receipt of the Corporate Indenture Trustee's notice referred to in the last sentence of Section 8.02(a), (ii) acceleration of the Mortgage Notes pursuant to Section 7.02 hereof 60 70 or (iii) in any case involving a Lease Event of Default described in clauses (i), (ii) or (v) of Article 20 of the Lease (a "Monetary Default"), the expiration of a period of 180 days following the occurrence of such Lease Event of Default that is continuing at the expiration of such period. If the redemption of the Mortgage Notes is effected after (i) such notice, (ii) such acceleration or (iii) in the case of a Monetary Default, the expiration of such 180 day period, whichever is earlier, then the Redemption Price shall be the amounts described in Section 8.02(a), but without the Make-Whole Premium, and shall be effected by the same form of notice (and concurrent deposit of the Redemption Price (other than the Make-Whole Premium) described in Section 8.02(a)). The Owner Participant may, on behalf of the Owner Trust, give the notice of redemption, and make payments permitted to be made by the Owner Trust, under this Section 8.02. Notwithstanding anything to the contrary herein or in any other Indenture Documents, it is acknowledged and agreed by the Owner Trust that the Company shall have no obligation under the Lease or any other Indenture Document for any Make-Whole Premium payable under this Section 8.02(b) for any redemption by the Owner Trust pursuant to Section 8.02(a) even if such premium shall be paid by the Owner Trust. (c) From and after the deposit by the Owner Trust of the applicable Redemption Price (and any other amounts required to be deposited under Section 8.02(a) and (b)) with the Corporate Indenture Trustee, the Indenture Trustees shall not declare the Lease in default or exercise any of the rights, powers or remedies pursuant to [ARTICLE 21 THEREOF] or pursuant to Article VII hereof. SECTION 8.03. Certain Rights of Owner Trust and Owner Participant. (a) If (i) the Company shall fail to make any payment of Basic Rent under the Lease and such failure shall constitute a Lease Event of Default, and (ii) the Owner Trust shall not have previously effected on behalf of the Company three such consecutive payments or five such payments cumulatively, then the Owner Trust may (but need not) pay to the Corporate Indenture Trustee, at any time prior to the expiration of a period of 10 days from the Owner Trust's receipt of written notice of such failure (prior to the expiration of which 10 day period the Indenture Trustees by virtue of such default shall not exercise any of the rights, power or remedies pursuant to [ARTICLE 21 OF THE LEASE] or Article VII hereof), an amount equal to the full amount of such payment of Basic Rent, together with any interest due thereon on account of the delayed payment thereof, and such payment by the Owner Trust shall be deemed to cure any Indenture Event of Default which arose from such failure of the Company (but such cure shall not relieve the Company of any of its obligations). (b) If the Company shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under the Lease, including any payment of rent or other sums due and payable other than Basic Rent, which failure constitutes a Lease Event of Default, and if (but only if) the performance or observance thereof can be effected by the payment of money alone (it being understood that actions such as the 61 71 obtaining of insurance and the procurement of maintenance services can be so effected), then the Owner Trust may (but need not) pay to the Corporate Indenture Trustee (or to such other person as may be entitled to receive the same), at any time prior to the expiration of a period of 10 days after the expiration of the notice or grace period, if any, provided with respect to such failure on the part of the Company in [ARTICLE 20 OF THE LEASE] (prior to the expiration of which 10-day period the Indenture Trustees by virtue of such Lease Event of Default shall not exercise any of the rights, powers or remedies pursuant to [ARTICLE 21 THEREOF] or Article VII hereof), all sums necessary to effect the performance or observance of such covenant or agreement of the Company, together with any interest due thereon on account of the delayed payment thereof, and such payment by the Owner Trust shall be deemed to cure any Indenture Event of Default which arose from such failure of the Company (but such cure shall not relieve the Company of any of its obligations). (c) If the Company shall fail to perform or observe any covenant, condition or agreement to be performed or observed by it under the Lease other than those which can be effected by the payment of money alone and such failure constitutes a Lease Event of Default and the same is reasonably susceptible to cure by the Owner Trust, then the Owner Trust may (but need not) take such action at any time prior to the expiration of a period of 30 days after the expiration of the notice or grace period, if any, provided with respect to such failure on the part of the Company in [ARTICLE 20 OF THE LEASE]; provided, however, that if within such grace or cure period, the Owner Trust promptly commences to cure and thereafter pursues to conclusion the curing of such default, diligently in good faith (such period, which shall in no event exceed 90 days, the "Extended Cure Period"), then the Indenture Trustees will not take any action to exercise any of their remedies (including acceleration of the Mortgage Notes) or take any action to effect a termination of the Lease or reenter or take possession of the Property as a consequence of such default during the period of such cure (prior to the expiration of which 30-day period and, if applicable, the Extended Cure Period, the Indenture Trustees by virtue of such Lease Event of Default shall not exercise any of the rights, powers or remedies pursuant to [ARTICLE 21 OF THE LEASE] or Article VII hereof), necessary to effect the performance or observance of such covenant or agreement of the Company, and such action shall be deemed to cure any Indenture Event of Default which arose from such failure of the Company (but such cure shall not relieve the Company of any of its obligations). (d) Upon any payment of Basic Rent by the Owner Trust in accordance with Section 8.03(a), or upon any payment of any other sums or incurrence of any expenses by the Owner Trust in accordance with Section 8.03(b) or (c), the Owner Trust shall, to the extent of such payments, be subrogated, in the case of any such payment in accordance with Section 8.03(a), to the rights of the Indenture Trustees as assignee hereunder of the Owner Trust, or, in the case of any payment or the incurrence of any expenses, in accordance with Section 8.03(b) or (c), to the rights of the Indenture 62 72 Trustees or such other Person, as the case may be, which actually received such payment or for whose benefit such expenses were incurred, as the case may be (and in the case of a payment, any interest due thereon on account of the delayed payment thereof), and shall be entitled to receive such payment or reimbursement upon its receipt by the Indenture Trustees or such other Person, as aforesaid (but in each case only if all amounts of principal of, and premium and interest on, the Mortgage Notes at the time due and payable, together with interest due thereon on account of the delayed payment thereof shall have been paid in full); provided that the Owner Trust shall not attempt to recover any such amount paid by it on behalf of the Company pursuant to this Section 8.03 except by demanding of the Company payment of such amount or by commencing an action against the Company to require the payment of such amount, and not by the exercise of remedies under [ARTICLE 21 OF THE LEASE]. (e) Notwithstanding the foregoing provisions of this Section 8.03 or anything else that may be contained herein or in any other Indenture Document (or that may be available at law or equity) to the contrary, it is agreed that except as expressly stated in Article VII or this Section 8.03, in consideration for the rights expressly granted above in this Section 8.03 and elsewhere in this Indenture and the other Indenture Documents, no other cure periods shall be provided to the Owner Trust with respect to any Indenture Event of Default (including any Lease Event of Default), regardless of whether the same is attributable in whole or in part to the Company's default under the Lease. Without limiting the foregoing but subject to Section 8.02, it is acknowledged that the Owner Trust shall not have the right to cure or attempt to cure any event described in [ARTICLE 20(V) OF THE LEASE]. (f) Provided that no Indenture Event of Default that does not arise out of a Lease Event of Default has occurred and is continuing, (i) prior to the expiration of the 10-day period referred to in Section 8.03(a) (provided there remains any cure right available to the Owner Trust under Section 8.03(a)), (ii) prior to the expiration of the 10-day period referred to in Section 8.03(b), and (iii) prior to the expiration of the Extended Cure Period, in each case to the extent applicable, the Indenture Trustees shall not accelerate the Mortgage Notes or take any action to terminate the Lease or dispossess the Company from the Property. SECTION 8.04 Company Ownership of Owner Trust. Notwithstanding anything herein to the contrary, if the Company shall become the Owner Participant or shall otherwise control the Owner Trust, whether pursuant to the terms of any Indenture Document or otherwise, then the rights afforded to the Owner Trust under Sections 8.01, 8.02 and 8.03 shall not be applicable. 63 73 ARTICLE IX THE INDENTURE TRUSTEES SECTION 9.01. Acceptance of Trusts. The Indenture Trustees hereby accept the trusts imposed upon them by this Indenture, and covenant and agree to perform the same as expressed herein and agree to receive and disburse all moneys constituting part of the Indenture Estate in accordance with the terms hereof. SECTION 9.02. Duties and Responsibilities of the Indenture Trustees. (a) Except during the continuance of an Indenture Event of Default, (1) the Indenture Trustees undertake to perform such duties and only such duties as are specifically set forth in this Indenture, and no implied covenants or obligations shall be read into this Indenture against the Indenture Trustees, and the Indenture Trustees agree that they will not manage, control, use, sell, dispose of or otherwise deal with any part of the Indenture Estate, except as required by the terms of the Lease and as otherwise provided herein; and (2) in the absence of bad faith on their part, the Indenture Trustees may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Indenture Trustees, or either of them, and conforming to the requirements of this Indenture; but in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Indenture Trustees, the Corporate Indenture Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (b) In case an Indenture Event of Default has occurred and is continuing, the Indenture Trustees shall exercise such of the rights and powers vested in them by this Indenture, and shall 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 his own affairs. (c) No provision of this Indenture, including Section 9.04, shall be construed to relieve the Indenture Trustees from liability for their own negligent action, their own negligent failure to act, or their own bad faith or willful misconduct, except that (1) this subsection (c) shall not be construed to limit the effect of subsection (a) of this Section; 64 74 (2) the Indenture Trustees shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Corporate Indenture Trustee, unless it shall be proved that the Corporate Indenture Trustee was negligent in ascertaining the pertinent facts; (3) the Indenture Trustees shall not be liable with respect to any action taken or omitted to be taken by them in good faith in accordance with the direction of the Holders of not less than a majority (or such other amount as may be specified herein) of the aggregate unpaid principal amount of the Outstanding Mortgage Notes relating to the time, method and place of conducting any proceeding for any remedy available to the Indenture Trustees, or exercising any trust or power conferred upon the Indenture Trustees, under this Indenture; and (4) no provision of this Indenture shall require the Indenture Trustees to expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to them. (d) Whether or not herein expressly so provided, every provision of this Indenture relating to the conduct or affecting the liability of or affording protection to the Indenture Trustees shall be subject to the provisions of this Section. (e) The Indenture Trustees shall not waive any provision of this Indenture the waiver of which requires the Company's consent without having obtained such consent. SECTION 9.03. Notice of Defaults. Upon the occurrence of any Indenture Default hereunder actually known to it, the Corporate Indenture Trustee shall (x) promptly send notice thereof to the Company, the Owner Trust and the Owner Participant, and (y) within 30 days after the occurrence thereof, transmit by mail (unless, in the case of Mortgage Notes held by a Pass Through Trustee, a different method shall be acceptable to it) notice of such Indenture Default to all Holders, as their names and addresses appear in the Register, unless such Indenture Default shall have been cured or waived; provided, that in the case of any default of the character specified in Section 7.01(c) or 7.01(e) hereof no such notice to Holders shall be given until at least 30 days after the occurrence thereof, and provided further, that, except in the case of a default in the payment of the principal of, premium, if any, or interest on the Mortgage Notes or in the payment of any other amounts due with respect to the Mortgage Notes, the Corporate Indenture Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Corporate Indenture Trustee in good faith determines that the withholding of such notice is in the interest of the Holders. Copies of notices of any Indenture Events of Default arising under Section 7.01(a) or (b) hereof shall be provided to Duff & 65 75 Phelps, Moody's and Standard & Poor's at their respective principal offices in New York, New York. SECTION 9.04. Certain Rights of the Indenture Trustees. (a) The Indenture Trustees may rely and shall be protected in acting or refraining from acting upon any resolution, Officer's Certificate or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, bond, debenture, note, coupon, security or other paper or document believed by them to be genuine and to have been signed or presented by the proper party or parties. (b) Any request, direction, order or demand of the Owner Trust mentioned herein shall be sufficiently evidenced by an Officer's Certificate (unless other evidence in respect thereof be herein specifically prescribed) upon which the Indenture Trustees may rely, subject to the provisions of Section 9.02 and the other provisions of this Section, to prove or establish a matter set forth therein. (c) The Indenture Trustees may consult with counsel and any advice or Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or Opinion of Counsel. (d) The Indenture Trustees shall be under no obligation to exercise any of the trusts or powers vested in them by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Indenture Trustees reasonable security or indemnity against the costs, expenses and liabilities which might be incurred therein or thereby. (e) The Indenture Trustees shall not be liable for any action taken or omitted by them in good faith and believed by them to be authorized or within the discretion, rights or powers conferred upon them by this Indenture. (f) Prior to the occurrence of an Indenture Event of Default hereunder and after the curing or waiving of all Indenture Events of Default, the Indenture Trustees 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, appraisal, bond, debenture, note, coupon, security, or other paper or document unless requested in writing to do so by the Holders of not less than a majority in aggregate unpaid principal amount of the Outstanding Mortgage Notes; provided that, if the payment within a reasonable time to the Corporate Indenture 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 Corporate Indenture Trustee, not reasonably assured to the Corporate Indenture Trustee by the security afforded to it by the terms of this Indenture, 66 76 the Corporate Indenture Trustee may require reasonable indemnity against such expenses or liabilities as a condition to proceeding. The reasonable expenses of every such examination shall be paid by the Owner Trust or, if paid by the Indenture Trustees or any predecessor trustee, shall be repaid by the Owner Trust upon demand. (g) The Indenture Trustees may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys not regularly in their employ and the Indenture Trustees shall not be responsible for any misconduct or negligence (other than misconduct or negligence in the handling and transfer of funds or holding of investments hereunder) on the part of any such agent or attorney appointed with due care by it hereunder. (h) None of the provisions contained in this Indenture shall require the Indenture Trustees to expend or risk their own funds or otherwise incur personal financial liability in the performance of any of their duties or in the exercise of any of their rights or powers, if the Indenture Trustees shall have determined in good faith that the repayment of such funds or adequate indemnity against such liability is not reasonably assured to them. (i) The Indenture Trustees shall not be personally liable, in case of entry by them upon the Indenture Estate, for debts contracted or liabilities or damages incurred in the management or operation of the Indenture Estate. SECTION 9.05. Issuance of Mortgage Notes or Recording; Warranty. The Indenture Trustees make no representation as to the value or condition of the Indenture Estate or any part thereof, as to the title of the Owner Trust thereto or as to the security afforded thereby or hereby, or as to the validity or genuineness of any securities at any time pledged or deposited with the Indenture Trustees hereunder (other than, in the case of the Corporate Indenture Trustee, Permitted Investments with the Corporate Indenture Trustee in its individual capacity). In addition, the Indenture Trustees make no representation or warranty as to the validity, sufficiency, legality or enforceability of the Trust Agreement, this Indenture, the Mortgage Notes, the Lease, the Participation Agreement or any other Indenture Document or as to the correctness of any statement contained in any thereof, except to the extent that any such statement was or is expressly made by the Indenture Trustees, provided that the Indenture Trustees hereby represent and warrant that this Indenture has been executed and delivered by the Indenture Trustees (in the case of the Corporate Indenture Trustee, by one of its officers who is duly authorized to execute and deliver such document on its behalf). Subject to Section 9.13 hereof, the Indenture Trustees shall have no responsibility with respect to the recording, rerecording, filing or re-filing, under the laws of any jurisdiction, of this Indenture or any other document or statement that may be required or permitted to be recorded, rerecorded, filed or refiled under any such laws to protect the security interests created by or pursuant to the Granting Clauses of this Indenture or Article XVI or XVII hereof. 67 77 SECTION 9.06. Indenture Trustees, Owner Trustees and Agents May Hold Mortgage Notes; Collections, Etc. Any of the Indenture Trustees or Owner Trustees, in their individual capacities, or any agent or affiliate of the Owner Trustees or the Indenture Trustees, in its individual or any other capacity, may become the owner or pledgee of any Mortgage Notes with the same rights they would have if they were not the Indenture Trustees, the Owner Trustees or such agent or affiliate and may otherwise deal with the Owner Trust and receive, collect, hold and retain collections from the Owner Trust with the same rights they would have if they were not the Indenture Trustees, the Owner Trustees or such agent or affiliate (subject to the provisions of Section 10.04). SECTION 9.07. Moneys Held by Indenture Trustees. Subject to Sections 5.08 and 13.03 hereof, all moneys received by the Indenture Trustees (or their agent or attorney-in-fact) shall, until used or applied as herein provided, be held in trust, and segregated from other funds, for the purposes for which they were received. Neither the Owner Trust nor, subject to Section 5.08, the Indenture Trustees nor any agent thereof shall be under any liability for interest on any moneys received by it hereunder except, in the case of the Corporate Indenture Trustee, Permitted Investments with the Corporate Indenture Trustee in its individual capacity. All Permitted Investments shall be held in the name of the Corporate Indenture Trustee on behalf of the Holders, and, to the extent possible, the Corporate Indenture Trustee shall take and maintain possession of Permitted Investments. SECTION 9.08. Compensation. Unless a Lease Event of Default has occurred and is continuing in respect of the Company's failure to make a payment required to be made by it under the Lease, the Owner Trust covenants and agrees to pay, and the Indenture Trustees shall be entitled to receive, reasonable compensation and payment or reimbursement for their reasonable advances, expenses and disbursements (including the reasonable compensation and expenses and disbursements of their counsel, agents and other persons not regularly in their employ) in connection with their services rendered hereunder or in any way relating to or arising out of the administration of the Indenture Estate. The Indenture Trustees agree that they shall have no right against any Holder, the Trust Company or William J. Wade in their individual capacities, or the Owner Participant for any fee as compensation for its services as trustee under this Indenture. SECTION 9.09. The Co-Indenture Trustee. (a) Notwithstanding anything herein to the contrary, the Co-Indenture Trustee hereby appoints the Corporate Indenture Trustee as its agent or attorney, with full power and authority, insofar as permitted by law, to exercise any and all rights, powers, duties and obligations conferred upon the Co-Indenture Trustee by this Indenture. The Corporate Indenture Trustee hereby acknowledges and accepts such appointment. 68 78 (b) The Corporate Indenture Trustee, at any time, by an instrument in writing executed by it, may remove the Co-Indenture Trustee, and in such event, by an instrument in writing executed by it, may appoint a successor or successors to the Co-Indenture Trustee, anything contained herein to the contrary notwithstanding. The Co-Indenture Trustee shall at all times be an officer of the Corporate Indenture Trustee. SECTION 9.10. Co-Indenture Trustee Acting with Corporate Indenture Trustee. Notwithstanding anything herein to the contrary, the rights, powers, duties and obligations conferred or imposed upon the Indenture Trustees or any of them shall be conferred or imposed upon and exercised or performed by the Corporate Indenture Trustee, or the Corporate Indenture Trustee and the Co-Indenture Trustee jointly, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, the Corporate Indenture 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-Indenture Trustee. SECTION 9.11. Easements. The rights of the Indenture Trustees hereunder shall be subject to the rights of the Owner Trust to grant, release, make or permit such easements, licenses, rights of way, changes in zoning, Alterations, subdivisions, releases of Land and similar matters as required by the Lease and, at the request of the Owner Trust and the expense of the Company, the Indenture Trustees shall join in any such grant or release. SECTION 9.12. Resignation and Removal; Appointment of Successor. (a) No resignation or removal of any Indenture Trustee and no appointment of a successor Indenture Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Indenture Trustee under Section 9.13 hereof. (b) An Indenture Trustee may resign at any time by giving at least 30 days' prior written notice thereof to the Owner Trust. If an instrument of acceptance by a successor Indenture Trustee shall not have been delivered to the Owner Trust and such Indenture Trustee within 30 days after the giving of such notice of resignation, the resigning Indenture Trustee, the Owner Trust or Holders holding a majority in aggregate unpaid principal amount of the Outstanding Mortgage Notes may petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee. (c) An Indenture Trustee may be removed at any time by act of the Holders of a majority in aggregate unpaid principal amount of the Outstanding Mortgage Notes delivered to such Indenture Trustee and to the Owner Trust. (d) If at any time the Corporate Indenture Trustee shall cease to be eligible under Section 9.15 hereof and shall fail to resign after written request therefor by the Owner Trust, or by any Holder, or if at any time the Corporate Indenture Trustee shall become 69 79 incapable of acting or shall be adjudged a bankrupt or insolvent, or a receiver of the Corporate Indenture Trustee or of its property shall be appointed, or any public officer shall take charge or control of the Corporate Indenture Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Owner Trust may remove such Corporate Indenture Trustee, or (ii) any Holder of a Mortgage Note may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Corporate Indenture Trustee and the appointment of a successor Corporate Indenture Trustee. (e) If an Indenture Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Indenture Trustee for any cause, the Owner Trust shall promptly appoint a successor Indenture Trustee. If, within one year after such resignation or removal or the occurrence of such vacancy or incapability, a successor Indenture Trustee shall be appointed by act of the Holders of a majority in aggregate unpaid principal amount of the Outstanding Mortgage Notes delivered to the Owner Trust and the retiring Indenture Trustee, the successor Indenture Trustee so appointed shall, forthwith upon its acceptance of such appointment, become the successor Indenture Trustee and supersede the successor Indenture Trustee appointed by the Owner Trust. If no successor Indenture Trustee shall have been so appointed by the Owner Trust or the Holders and accepted appointment in the manner hereinafter provided, any Holder of a Mortgage Note may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Indenture Trustee. (f) The Corporate Indenture Trustee shall give notice of each resignation and each removal of an Indenture Trustee and each appointment of a successor Indenture Trustee by mailing written notice of such event by first-class mail, postage prepaid, to the Owner Trust, the Company and to the Holders of Mortgage Notes as their names and addresses appear in the Register. Each notice shall include the name of the successor Indenture Trustee and, if the successor is a successor Corporate Indenture Trustee, the address of its Corporate Trust Office or, if the successor is a successor Co-Indenture Trustee, the address of the Co-Indenture Trustee, as the case may be. SECTION 9.13. Acceptance of Appointment by Successor. Every successor Indenture Trustee appointed hereunder shall execute, acknowledge and deliver to the Owner Trust, the Company and to the retiring Indenture Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Indenture Trustee shall become effective and such successor Indenture Trustee, without any further act, deed or conveyance, shall become vested with all the estates, properties, rights, powers, trusts and duties of the retiring Indenture Trustee; and the retiring Indenture Trustee shall execute and deliver an instrument conveying and transferring to such successor Indenture Trustee upon the trusts herein expressed all the estates, properties, rights, powers and trusts of the retiring Indenture Trustee, and shall duly assign, transfer and deliver to such successor Indenture Trustee all property and money held by such 70 80 retiring Indenture Trustee hereunder, subject to the Lien provided by Article XI hereof. Upon request of any such successor Indenture Trustee, the Owner Trust, the Company and the remaining Indenture Trustee shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Indenture Trustee all such estates, properties, rights, powers and trusts. No successor Indenture Trustee shall accept its appointment unless at the time of such acceptance such successor Indenture Trustee shall be eligible under this Article. SECTION 9.14. Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Corporate Indenture 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 Corporate Indenture Trustee shall be a party, or any corporation succeeding to all or substantially all of the corporate trust business of the Corporate Indenture Trustee, shall be the successor of the Corporate Indenture Trustee hereunder, provided such corporation shall be otherwise eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Mortgage Notes shall have been authenticated, but not delivered, by the Corporate Indenture Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Corporate Indenture Trustee may adopt such authentication and deliver the Mortgage Notes so authenticated with the same effect as if such successor Corporate Indenture Trustee had itself authenticated such Mortgage Notes. SECTION 9.15. Persons Eligible for Appointment as Corporate Indenture Trustee. There shall at all times be a Corporate Indenture Trustee hereunder which shall be a corporation organized and doing business under the laws of the United States of America or of any State or the District of Columbia having a combined capital and surplus of at least $250,000,000, or a direct or indirect subsidiary of such a corporation, or a member of a bank holding company group, having a combined capital and surplus of at least $250,000,000 and such subsidiary or member itself (unless the parent or an affiliated member who, together with such subsidiary, has the required combined capital and surplus, guarantees the obligations of such subsidiary or member) having capital and surplus, in the case of the original Corporate Indenture Trustee or an affiliate of the original Corporate Indenture Trustee, of at least $100,000,000 and in any other case of at least $150,000,000. Such Corporate Indenture Trustee shall be authorized under such laws to exercise corporate trust powers and shall be subject to supervision or examination by Federal, State or District of Columbia 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. No corporation shall be eligible to serve as Corporate Indenture Trustee if such corporation is an obligor 71 81 upon the Mortgage Notes or under any other Indenture Document or is an Affiliate of such an obligor. In case at any time the Corporate Indenture Trustee shall cease to be eligible in accordance with the provisions of this Section, the Corporate Indenture Trustee shall resign immediately in the manner and with the effect specified in Section 9.12. Notwithstanding anything contained herein to the contrary, the Corporate Indenture Trustee (or any successor) hereunder must be the corporate indenture trustee under the Other Indentures and any Company Indenture. SECTION 9.16. Appointment of Separate Trustees. (a) At any time or times, for the purpose of meeting any legal requirements of any jurisdiction in which any part of the Indenture Estate may at the time be located or in which any action of the Corporate Indenture Trustee may be required to be performed or taken and which are not met by the appointment of the Indenture Trustees hereunder, the Corporate Indenture Trustee, by an instrument in writing signed by it, may appoint one or more individuals or corporations to act as separate trustee or separate trustees or co-trustee, acting jointly with the Corporate Indenture Trustee, of all or any part of the Indenture Estate, to the full extent that local law makes it necessary for such separate trustee or separate trustees or co-trustee acting jointly with the Corporate Indenture Trustee to act. (b) The Indenture Trustees and, at the reasonable request of the Indenture Trustees, the Owner Trust and the Company shall execute, acknowledge and deliver all such instruments as may be required by the legal requirements of any jurisdiction or by any such separate trustee or separate trustees or co-trustee for the purpose of more fully confirming such title, rights or duties to such separate trustee or separate trustees or co-trustee. Upon the acceptance in writing of such appointment by any such separate trustee or separate trustees or co-trustee, it, he or they shall be vested with such title to the Indenture Estate or any part thereof, and with such rights, powers, duties and obligations, as shall be specified in the instrument of appointment, and such rights, powers, duties and obligations shall be conferred or imposed upon and exercised or performed by the Indenture Trustees, or the Indenture Trustees and such separate trustee or separate trustees or co-trustee jointly with the Indenture Trustees subject to all the terms of this Indenture, except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed the Indenture Trustees 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 such separate trustee or separate trustees or co- trustee, as the case may be. Any separate trustee or separate trustees or co-trustee may at any time by an instrument in writing constitute the Corporate Indenture Trustee its or his attorney-in-fact and agent with full power and authority to do all acts and things and to exercise all discretion on its or his behalf and in its or his name. In case any such separate trustee or co-trustee shall die, become incapable of acting, resign or be removed, the title to the Indenture Estate and all assets, property, rights, powers, duties and obligations and duties of such separate trustee or co-trustee shall, so far as permitted by law, vest in and be exercised by the Indenture 72 82 Trustees, without the appointment of a successor to such separate trustee or co-trustee unless and until a successor is appointed. (c) All provisions of this Indenture which are for the benefit of the Indenture Trustees (including Article XI hereof) shall extend to and apply to each separate trustee or co-trustee appointed pursuant to the foregoing provisions of this Section 9.16. (d) Every additional trustee and separate trustee hereunder shall, to the extent permitted by law, be appointed and act and the Indenture Trustees shall act, subject to the following provisions and conditions: (i) the Mortgage Notes shall be authenticated and delivered, and all powers, duties, obligations and rights conferred upon the Indenture Trustees in respect of the receipt, custody, investment and payment of moneys shall be exercised, solely by the Corporate Indenture Trustee; (ii) all other rights, powers, duties and obligations conferred or imposed upon the Indenture Trustees shall be conferred or imposed and exercised or performed by the Indenture Trustees and such additional trustee or trustees and separate trustee or trustees jointly except to the extent that under any law of any jurisdiction in which any particular act or acts are to be performed, both of the Indenture Trustees shall be incompetent or unqualified to perform such act or acts, in which event such rights, powers, duties and obligations (including the holding of title to the Indenture Estate in any such jurisdiction) shall be exercised and performed by such additional trustee or trustees or separate trustee or trustees; (iii) no power hereby given to, or exercisable by, any such additional trustee or separate trustee shall be exercised hereunder by such additional trustee or separate trustee except jointly with, or with the consent of, the Indenture Trustees; and (iv) no trustee hereunder shall be personally liable by reason of any act or omission of any other trustee hereunder. If at any time the Indenture Trustees shall deem it no longer necessary or prudent in order to conform to any local law referred to in Section 9.16(a), the Indenture Trustees shall execute and deliver an indenture supplemental hereto and all other instruments and agreements necessary or proper to remove any additional trustee or separate trustee. (e) Any request, approval or consent in writing by the Indenture Trustees to any additional trustee or separate trustee shall be sufficient warrant to such additional trustee 73 83 or separate trustee, as the case may be, to take such action as may be so requested, approved or consented to. (f) Notwithstanding any other provision of this Section 9.16, the powers of any additional trustee or separate trustee shall not exceed those of the Indenture Trustees hereunder. SECTION 9.17. Trustees' Liens. The Indenture Trustees in their individual capacities agree that they will at their own cost and expense promptly take such action as may be necessary to duly discharge and satisfy in full all Liens on the Indenture Estate which result from claims against them arising out of events or conditions not related to their interest in the Property, the administration of the Indenture Estate or the performance of their duties hereunder. ARTICLE X CONCERNING THE HOLDERS SECTION 10.01. Evidence of Action Taken by Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders in person or by an agent duly appointed in writing, and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to the Corporate Indenture Trustee and, if expressly required herein, to the Co-Indenture Trustee or the Owner Trust. Proof of execution of any instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Sections 9.02 and 9.04) conclusive in favor of the Indenture Trustees and the Owner Trust, if made in the manner provided in this Article. (b) For the purpose of determining the Holders entitled to vote or consent to any direction, waiver or other action of such Holders under this Indenture, the Owner Trust may set a record date for such vote or consent by specifying such record date in an Officer's Certificate delivered to the Indenture Trustees. Such record date shall be a date not more than 15 days prior to the first solicitation of such vote or consent. SECTION 10.02. Proof of Execution of Instruments and of Holding of the Mortgage Notes. Subject to Sections 9.02 and 9.04, the execution of any instrument by a Holder or his agent or proxy may be proved in accordance with such reasonable rules and regulations as may be prescribed by the Corporate Indenture Trustee. The holding of the Mortgage Notes shall be proved by the Register. 74 84 SECTION 10.03. Holders to Be Treated as Owners. Prior to due presentment for registration of transfer of a Mortgage Note, the Owner Trust, the Indenture Trustees, any agent of the Owner Trust or the Indenture Trustees, and the Registrar shall deem and treat the Person in whose name such Mortgage Note shall be registered upon the Register as the absolute owner of such Mortgage Note (whether or not such Mortgage Note shall be overdue and notwithstanding any notation of ownership or other writing thereon) for the purpose of receiving payment of or on account of and, subject to the provisions of this Indenture, interest and Installment Payment Amounts on such Mortgage Note and for all other purposes; and neither the Owner Trust nor the Indenture Trustees (nor any agent of the Owner Trust or the Indenture Trustees), if any, nor the Registrar shall be affected by any notice to the contrary. All such payments so made to any such person, or upon his order, shall be valid, and, to the extent of the sum or sums so paid, effectual to satisfy and discharge the liability for moneys payable upon any such Mortgage Note. SECTION 10.04. Mortgage Notes Owned by Owner Trust, Owner Trustees, Owner Participant and the Company Deemed Not Outstanding. In determining whether the Holders of the requisite aggregate unpaid principal amount of the Outstanding Mortgage Notes have given or concurred in any direction, consent or waiver under this Indenture, Mortgage Notes which are owned by the Owner Trust, any Owner Trustee, any Owner Participant, the Company or by any Affiliate of any of the foregoing shall be disregarded and deemed not to be Outstanding for the purpose of any such determination; provided that for the purpose of determining whether the Indenture Trustees shall be protected in relying on any such direction, consent or waiver, only if a Responsible Officer of the Corporate Indenture Trustee has actual knowledge that certain Mortgage Notes are so owned shall such Mortgage Notes be so disregarded; provided further that if all Mortgage Notes which would be deemed Outstanding in the absence of the foregoing provision are owned by the Owner Trust, any Owner Trustee, any Owner Participant, or the Company or by any Affiliate of any of the foregoing, then such Mortgage Notes shall be deemed Outstanding for the purpose of any such determination. Mortgage Notes so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Corporate Indenture Trustee the pledgee's right so to act with respect to such Mortgage Notes and that the pledgee is not the Owner Trust, any Owner Trustee, the Owner Participant or the Company or any Affiliate of any of the foregoing. In case of a dispute as to such right, the advice of counsel shall be full protection in respect of any decision made by the Indenture Trustees in accordance with such advice. Upon request of the Corporate Indenture Trustee, each of the Owner Trust, the Owner Trustees and the Owner Participant, shall furnish to the Corporate Indenture Trustee promptly an Officer's Certificate listing and identifying all Mortgage Notes, if any, known by the Owner Trust, the Owner Trustees or the Owner Participant, as the case may be, to be owned or held by or for the account of it or any of its Affiliates; and, subject to Sections 9.02 and 9.04, the Indenture Trustees shall be entitled to accept such Officer's Certificates as conclusive evidence of the facts set forth therein and of the fact 75 85 that all Mortgage Notes not listed therein are Outstanding for the purpose of any such determination. SECTION 10.05. Right of Revocation of Action Taken. At any time prior to (but not after) the evidencing to the Indenture Trustees, as provided in Section 10.01, of the taking of any action by the Holders of the percentage in aggregate unpaid principal amount of the Outstanding Mortgage Notes specified in this Indenture in connection with such action, any Holder of a Mortgage Note, the serial number of which is shown by the evidence to be included among the serial numbers of the Mortgage Notes the Holders of which have consented to such action, may, by filing written notice at the Corporate Trust Office and upon proof of holding as provided in this Article, revoke such action so far as concerns such Mortgage Note. Except as aforesaid, any such action taken by the Holder shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Mortgage Note and of any Mortgage Notes issued in exchange or substitution therefor or in lieu thereof, irrespective of whether or not any notation in regard thereto is made upon any such Mortgage Note or otherwise. Any action taken by the Holders of the percentage in aggregate unpaid principal amount of the Mortgage Notes specified in this Indenture in connection with such action shall be conclusively binding upon the Owner Trust, the Owner Trustees, the Owner Participant, the Indenture Trustees and the Holders of all the Mortgage Notes. SECTION 10.06. Voting Rights of Pass Through Trustee. So long as a Mortgage Note is held by a Pass Through Trustee, the Pass Through Trustee may vote differing percentages of such Mortgage Notes in respect of any action hereunder in accordance with instructions received by it from a corresponding percentage of holders of the Pass Through Certificates, as provided in the related Pass Through Trust Agreement. ARTICLE XI INDEMNIFICATION OF INDENTURE TRUSTEES BY OWNER TRUST The Owner Trust hereby agrees to assume liability for, and does hereby indemnify, protect, save and keep harmless the Indenture Trustees from and against any and all liabilities, obligations, losses, damages, penalties, claims, actions, suits, costs, expenses or disbursements (including legal fees and expenses) of any kind and nature whatsoever which may be imposed on, incurred by or asserted against the Indenture Trustees, or either of them, in any way relating to or arising out of this Indenture, or any other Indenture Documents and any taxes payable in connection with the protection, exercise or enforcement of any right, power or remedy hereunder or any other Indenture Document (but in no event including any taxes payable by the Indenture Trustees on or measured by any compensation received by the Indenture Trustees for their services 76 86 under this Indenture), except (i) in the case of bad faith, willful misconduct or gross negligence (simple negligence in the case of their handling and transfer of funds or holding of investments hereunder) of the Indenture Trustees in the performance of their duties hereunder or breach by the Indenture Trustees of their duties hereunder, or (ii) as may result from the inaccuracy of any representation or warranty of the Indenture Trustees herein or in any other Indenture Document, or (iii) as otherwise provided in Section 9.02(c) or 9.17 hereof, or (iv) those for which the Company is not obligated to indemnify the Indenture Trustees under the Lease or the Participation Agreement; provided that so long as the Lease is in effect, or if the Lease is not in effect for reasons other than a default thereunder but the Company shall continue to be obligated to pay or indemnify the Indenture Trustees under the Lease, Participation Agreement or under the other Indenture Documents, the Indenture Trustees shall not have or make any claim under this Article XI for any claim or expense indemnified by the Company under the Lease or Participation Agreement unless a Lease Event of Default has occurred and is continuing in respect of the Company's failure to make a payment required to be made by it under the Lease. The Indenture Trustees shall be entitled to indemnification, from the Indenture Estate, subject to the foregoing exceptions, for any liability, obligation, loss, damage, penalty, claim, action, suit, cost, expense or disbursement indemnified against pursuant to this Article XI to the extent not reimbursed by the Company or others, but without releasing any of them from their respective agreements of reimbursement. The indemnities contained in this Article XI shall survive the termination of this Indenture and the resignation or removal of the Indenture Trustees. ARTICLE XII SUPPLEMENTS AND AMENDMENTS TO THIS INDENTURE AND OTHER DOCUMENTS SECTION 12.01. Supplemental Indentures Without Consent of Holders. The Owner Trust (when authorized by the Owner Participant), and the Indenture Trustees, at any time and from time to time, without the consent of Holders, subject to Section 16 of the Participation Agreement, may enter into one or more indentures supplemental hereto for one or more of the following purposes: (a) to convey, transfer, assign, mortgage or pledge any property or assets to the Indenture Trustees as security for the Mortgage Notes; (b) to evidence the succession of another Person to the Owner Trust, or successive successions, and the assumption by the successor of the covenants, agreements and obligations of the Owner Trust herein and in the Mortgage Notes in accordance with the terms of the Trust Agreement and this Indenture; 77 87 (c) to add to the covenants of the Owner Trust such further covenants, restrictions, conditions or provisions as consented (in the case of the Owner Trust) to by the Owner Participant and as the Owner Trust and the Indenture Trustees shall consider to be for the protection of the Holders, and to make the occurrence, or the occurrence and continuance, of a default in any such additional covenants, restrictions, conditions or provisions an Indenture Event of Default permitting the enforcement of all or any of the several remedies provided herein; provided that in respect of any such additional covenant, restriction, condition or provision such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such an Indenture Event of Default or may limit the remedies available to the Indenture Trustees upon such an Indenture Event of Default or may limit the right of the Holders of a majority in aggregate unpaid principal amount of the Outstanding Mortgage Notes to waive such an Indenture Event of Default; (d) to surrender any rights or power conferred herein upon the Owner Trust or the Owner Participant or to add to the rights of the Holders of the Mortgage Notes; (e) (i) to correct or supplement any provision contained herein, in any supplemental indenture or in the Mortgage Notes which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture or in the Mortgage Notes; or (ii) to make such other provisions in regard to matters or questions arising under this Indenture or under any supplemental indenture as the Owner Trust may deem necessary or desirable, provided that in the case of (i) and (ii) above, such change does not materially adversely affect the interests of any Holder; or (iii) to cure any ambiguity or to correct any mistake; (f) to correct or amplify the description of any property at any time subject to the Lien of this Indenture or better to assure, convey and confirm unto the Indenture Trustees any property subject or required to be subject to the Lien of this Indenture or to subject property substituted for any property to the Lien of this Indenture in accordance with the provisions hereof and of the Lease or to release from the Lien of this Indenture property that has been substituted or removed in accordance with the terms of this Indenture and the Lease; (g) to add, eliminate or change any provision hereunder so long as such action shall not materially adversely affect the interests of any Holder; 78 88 (h) to provide for the assumption by the Company of the obligations of the Owner Trust hereunder in accordance with the terms and conditions applicable thereto specified in Section 3.08 hereof; (i) in the event of a transfer of the interest in the Indenture Estate as permitted by the terms and conditions of Section 3.05 hereof, to provide for the assumption by the transferee of such interest of the obligations hereunder of the transferor; and (j) to issue any Refinancing Morgage Notes as authorized by Section 15.02 hereof. The Indenture Trustees are hereby authorized to join in the execution of any such supplemental indenture, 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 Indenture Trustees shall not be obligated to enter into any such supplemental indenture which adversely affects the Indenture Trustees' own rights, duties or immunities under this Indenture or otherwise, whether in their trust or individual capacities. SECTION 12.02. Supplemental Indentures With Consent of Holders. With the consent (evidenced as provided in Article X) of the Holders of not less than 662/3% in aggregate unpaid principal amount of the Outstanding Mortgage Notes, the Owner Trust and the Indenture Trustees may, from time to time and at any time, subject to Section 16 of the Participation Agreement, enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders; provided, however, without the consent of each Holder affected thereby, no such amendment of or supplement to this Indenture or any indenture supplemental hereto, or modification of the terms of, or consent under, any thereof, shall: (a) modify any of the provisions of Section 7.09 or 10.04 or this Section 12.02; (b) reduce the amount or extend the time of payment of any amount owing or payable under the Mortgage Notes or reduce the interest payable on the Mortgage Notes or alter or modify the provisions of Article V hereof with respect to the order of priorities in which distributions thereunder shall be made as between the Holder and the Owner Trust or with respect to the amount or time of payment of any such distribution, or alter or modify the circumstances under which a premium shall be payable or change the manner in which such premium is calculated, or alter the currency in which any amount payable under 79 89 any Mortgage Note is to be paid, or impair the right of any Holder to commence legal proceedings to enforce a right to receive payment hereunder; (c) reduce, modify or amend any indemnities in favor of any Holder; (d) create or permit the creation of any Lien on the Indenture Estate or any part thereof prior to or pari passu with the Lien of this Indenture, except as expressly permitted herein, or deprive any Holder of the benefit of the Lien of this Indenture on the Indenture Estate except as provided in Article XIV hereof; or (e) reduce the percentage of the unpaid principal amount of the Outstanding Mortgage Notes the consent of the Holders of which is required for any such supplement, or the consent of the Holders of which is required for any waiver (of compliance with certain provisions hereof or certain defaults hereunder and their consequences) provided for in this Indenture. This Section 12.02 shall not apply to any indenture or indentures supplemental hereto permitted by, and complying with, the terms of Section 12.06 hereof. Upon the request of the Owner Trust (at the direction of the Owner Participant) and upon the filing with the Indenture Trustees of evidence of the consent of the Holders and the other documents, if any, required by Section 10.01, the Indenture Trustees shall join with the Owner Trust in the execution of such supplemental indenture unless such supplemental indenture affects the Indenture Trustees' own rights, duties or immunities under this Indenture or otherwise, in which case the Indenture Trustees may in their discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Holders under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. Promptly after the execution by the Owner Trust and the Indenture Trustees of any supplemental indenture pursuant to the provisions of this Section, the Corporate Indenture Trustee shall mail a notice thereof by first-class mail to the Holders at their addresses as they shall appear on the registry books of the Registrar, setting forth in general terms the substance of such supplemental indenture. Any failure of the Corporate Indenture Trustee to mail such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any such supplemental indenture. SECTION 12.03. Effect of Supplemental Indenture. Upon the execution of any supplemental indenture pursuant to the provisions hereof, this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, 80 90 limitations of rights, obligations, duties and immunities under this Indenture of the Indenture Trustees, the Owner Trust and the Holders 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 indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 12.04. Documents to be Given to Indenture Trustees. The Indenture Trustees, subject to the provisions of Sections 9.02 and 9.04, may receive an Officer's Certificate and an Opinion of Counsel as conclusive evidence that any such supplemental indenture complies with the applicable provisions of this Indenture. SECTION 12.05. Notation on Mortgage Notes in Respect of Supplemental Indentures. A Mortgage Note authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article may bear a notation in form approved by the Indenture Trustees as to any matter provided for by such supplemental indenture. If the Owner Trust or the Indenture Trustees shall so determine, new Mortgage Notes so modified as to conform, in the opinion of the Owner Trust and the Indenture Trustees, to any modification of this Indenture contained in any such supplemental indenture may be prepared and executed by the Owner Trust, authenticated by the Corporate Indenture Trustee and delivered in exchange for the Mortgage Note. SECTION 12.06. No Request Necessary for Lease Supplement. Notwithstanding anything contained in Section 12.02 hereof, no written request or consent of the Indenture Trustees or any Holder pursuant to Section 12.02 hereof shall be required to enable the Owner Trust to enter into any supplement to the Lease with the Company pursuant to the terms of the Lease to subject other property thereto or to execute and deliver an indenture supplement in accordance with and subject to the terms of Article XIV hereof. SECTION 12.07. Amendments, Waivers, Etc. of Other Indenture Documents. (a) Except for Excepted Rights and Payments, without the consent of the Holders of not less than a majority in aggregate unpaid principal amount of the Outstanding Mortgage Notes, the respective parties to the Participation Agreement, the Lease or the Trust Agreement may not modify, amend or supplement the Lease, [SECTION 5.06 OF THE TRUST AGREEMENT], or [SECTIONS 8 & 18 OF THE PARTICIPATION AGREEMENT] or give any consent, waiver, authorization or approval under any of the Indenture Documents for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions thereof or of modifying in any manner the rights of the respective parties thereunder; provided, however, that the actions specified in Sections 8.01 and 8.02 or in subsection (b) of this Section 12.07 may be taken without the consent of any Holder. 81 91 (b) The Participation Agreement, the Lease and the Trust Agreement may, at any time and from time to time, be amended or supplemented without the consent of any Holder: (i) to effect any modification, amendment, addition or deletion expressly contemplated in and provided for in the Lease, the Participation Agreement or the Trust Agreement (it being acknowledged that any provision regarding the procedure for effecting any modification, amendment, addition or deletion shall not be a provision within the meaning of this clause (i)); or (ii) to effect any modification or amendment of, addition to or deletion from the Lease, the Participation Agreement or the Trust Agreement if, as set forth in an Opinion of Counsel rendered by counsel to the party requesting such action addressed to the other parties to the applicable agreement, such modification, amendment, addition or deletion shall not materially adversely affect the interests of any Holder and will not, as evidenced in writing by each of S&P, Moody's and Duff & Phelps (if such entity is then rating the Pass Through Certificates), result in an adverse change in the rating of the Certificates. The Indenture Trustees may, without the consent of any Holder, give any consent, waiver, authorization or approval under any Indenture Document, whether or not provided for therein, if, as reflected in an Opinion of Counsel, such consent, waiver, authorization or approval does not materially adversely affect the interests of any Holder. The consent of neither the Indenture Trustees nor any of the Holders shall be required for any amendment or supplement to the Lease necessary to make Rental Adjustments or Termination Value adjustments, provided that such Rental Adjustments and Termination Value adjustments shall in all instances comply with the terms of [ARTICLE 3(D) OF THE LEASE] and Section 12.07(c) of this Indenture. (c) No modification, amendment, supplement, consent, waiver, authorization or approval with respect to the Lease, whether effected pursuant to subsection (a) or pursuant to subsection (b) of this Section 12.07 and anything in such subsections or elsewhere in this Indenture or in the other Indenture Documents to the contrary notwithstanding, shall, without the consent of the Holder of each Outstanding Mortgage Note directly or indirectly affected thereby, reduce the amount of, or change the timing of payment of, any payment: such that (x) the Basic Rent payable pursuant to the Lease on any Installment Payment Date shall be less than the Installment Payment Amount plus interest due on such Installment Payment Date, (y) the Termination Values applicable on any Purchase Offer Termination Date or Termination Date, as applicable, together with the Basic Rent, if any, due and unpaid to and including the Purchase Offer Termination or the Termination Date (as applicable), shall be insufficient to satisfy in full the 82 92 scheduled outstanding principal amount of the Mortgage Notes as of such date, together with all interest accrued but unpaid thereon to such date, and (z) the Make-Whole Premium and other premium, if any, payable by the Company pursuant to the Lease shall be less than the Make-Whole Premium and other premium, if any, due under this Indenture. (d) Prior to the foreclosure of the interest of the Owner Trust in respect of the Property (or deed in lieu thereof), the Indenture Trustees shall not, without the consent of the Owner Trust, modify, amend or supplement any Indenture Document so as to release the Company from any of its obligations in respect of the payment of Basic Rent, Additional Rent, Termination Value or any other payments in respect of the Demised Premises as set forth in the Lease, or reduce the amount of, or change the time or manner of payment of or the absolute and unconditional character of, such obligations, or impose or create any obligation on the part of the Owner Trustee or the Owner Participant under the Lease. ARTICLE XIII SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS SECTION 13.01. Satisfaction and Discharge of Indenture; Termination of Indenture. If at any time after (a) the Owner Trust shall have delivered to the Corporate Indenture Trustee for cancellation all Mortgage Notes theretofore authenticated (other than any Mortgage Notes which shall have been mutilated, defaced, destroyed, lost or stolen and which shall have been replaced or paid as provided in Section 2.07 and Mortgage Notes for the payment of which money held in trust hereunder has been paid and discharged from such trust as provided in Section 13.03) or (b) (i) all Mortgage Notes not theretofore delivered to the Corporate Indenture Trustee for cancellation shall have become due and payable, or are by their terms to become due and payable within one year or are to be called for redemption such that they will become due and payable within one year under arrangements satisfactory to the Indenture Trustees for the giving of notice of redemption by the Indenture Trustees in the name and at the expense of the Owner Trust, and (ii) the Owner Trust shall have irrevocably deposited or caused to be deposited with the Corporate Indenture Trustee as trust funds an amount sufficient to pay at the Maturity Date or on such Redemption Date all such Mortgage Notes (and any Installment Payment Amounts on such Mortgage Notes) not theretofore delivered to the Corporate Indenture Trustee for cancellation, including principal and interest due or to become due on or prior to the Maturity Date or Redemption Date, as the case may be, and if, in any such case, the Owner Trust shall also pay or cause to be paid all other sums then payable hereunder by the Owner Trust, then this Indenture shall cease to be of further effect (except as to (i) rights of registration of transfer and exchange, (ii) 83 93 substitution of mutilated, defaced, destroyed, lost or stolen Mortgage Notes, (iii) rights of Holders to receive payments of principal thereof and interest thereon, upon the original stated due dates therefor (but not upon acceleration), (iv) the rights, obligations, indemnities and immunities of the Indenture Trustees hereunder, (v) the rights of the Holders with respect to any premium payable with respect to the Mortgage Notes as provided in the next succeeding paragraph, and (vi) the rights of the Holders as beneficiaries hereof with respect to the property so deposited with the Indenture Trustees payable to all or any of them), and the Indenture Trustees, on demand of the Owner Trust accompanied by an Officer's Certificate and an Opinion of Counsel (with respect to the foregoing conditions, including the irrevocability of the funds deposited) and at the cost and expense of the Owner Trust, shall execute proper instruments acknowledging such satisfaction of and discharging this Indenture. Upon (or at any time after) payment in full to the Corporate Indenture Trustee, as trust funds, of an amount sufficient to pay, when due, the principal of and interest on and all other amounts due under all Mortgage Notes, and provided that there shall then be no other amounts due to the Holders and the Indenture Trustees hereunder or under any of the other Indenture Documents or otherwise secured hereby (in all cases, other than any premium payable by the Company under the Lease), the Owner Trust shall direct the Indenture Trustees to execute and deliver to or as directed in writing by the Owner Trust an appropriate instrument releasing the Property and other property forming a part of the Indenture Estate from the Lien of this Indenture and releasing the Indenture Documents from the assignment thereof hereunder, and the Indenture Trustees shall execute and deliver such instrument as aforesaid and, at the Owner Trust's expense, will execute and deliver such other instruments or documents as may be reasonably requested by the Owner Trust to give effect to such release; provided, however, that this Indenture and the trusts created hereby shall terminate earlier and this Indenture shall be of no further force or effect upon any sale or other final disposition by the Indenture Trustees of all property forming a part of the Indenture Estate and the final distribution by the Indenture Trustees of all moneys or other property or proceeds constituting part of the Indenture Estate in accordance with the terms hereof. Except as aforesaid otherwise provided, this Indenture and the trusts created hereby shall continue in full force and effect in accordance with the terms hereof. SECTION 13.02. Application by Indenture Trustees of Funds Deposited for Payment of Mortgage Notes. Subject to Section 13.03, all moneys deposited with the Corporate Indenture Trustee pursuant to Section 13.01 shall be held in trust and applied by it to the prompt payment in accordance with the provisions of the Mortgage Notes and this Indenture to the Holders of the particular Mortgage Notes for the payment or redemption of which such moneys have been deposited with the Corporate Indenture Trustee, of all sums due and to become due thereon for principal and interest. 84 94 SECTION 13.03. Transfer of Moneys Held by Indenture Trustees Unclaimed for Two Years and Eleven Months. Any moneys deposited with or paid to the Corporate Indenture Trustee for the payment of the principal of or interest on the Mortgage Notes and not applied but remaining unclaimed for two years and eleven months after the date upon which such principal or interest shall have become due and payable, shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property law, be paid to the Owner Trust by the Indenture Trustees and the Holders of the Mortgage Notes, as general unsecured creditors, shall, unless otherwise required by mandatory provisions of applicable escheat or abandoned or unclaimed property laws, thereafter look only to the Owner Trust for any payment which such Holders may be entitled to collect, and all liability of the Indenture Trustees with respect to such moneys shall thereupon cease. ARTICLE XIV SUBSTITUTIONS AND RELEASES Section 14.01. Substitution of Property Included in the Indenture Estate During Continuation of Lease. So long as the Lease is in effect, if the Company exercises its substitution right pursuant to [ARTICLE 41 OF THE LEASE], then upon satisfaction of all conditions to such substitution specified in said [ARTICLE 41], the Owner Trust shall have the right to obtain, in accordance with the provisions of this Indenture and the Lease, a release of the Property from the Lien of this Indenture, but only upon satisfaction of the following: (a) Receipt by and deposit with the Indenture Trustees of an Officer's Request from the Company and the Corporate Owner Trustee describing the Property and the substitute property (as such term is used in said [ARTICLE 41]); (b) The Owner Trust shall have executed and delivered to the Indenture Trustees a new indenture (in form and substance as similar to this Indenture as reasonably practical) subjecting the substitute property to the Lien of this Indenture; (c) Receipt by and deposit with the Indenture Trustees of a favorable Opinion of Counsel as to the validity and perfection of the mortgage and security interest in the substitute property upon effecting the filing, recordation and other action referred to therein; (d) Receipt by and deposit with the Indenture Trustees of an Officer's Certificate from the Company and the Corporate Owner Trustee dated not more than five days prior to the application for such release, setting forth in substance that such Property is required or permitted to be so sold, disposed of or released from the 85 95 Lien hereof pursuant to the Lease and that all conditions precedent herein and in the Lease provided for relating to such release have been complied with; (e) Receipt by and deposit with the Indenture Trustees of an (i) Opinion of Counsel delivered by the Company to the Indenture Trustees and the Owner Trust stating that the certificates, opinions and other instruments which have been or are therewith delivered to and deposited with the Indenture Trustees conform to the requirements of this Indenture and the Lease and that the Property to be released as contemplated hereby may be lawfully released from the Lien of this Indenture, and (ii) Officer's Certificate to the effect that all conditions precedent herein provided for relating to such release have been duly complied with; and (f) Satisfaction of such conditions as are set forth in [ARTICLE 41 OF THE LEASE]. SECTION 14.02. Execution of Releases. Upon any release provided for under Sections 3.08 and 14.01, the Indenture Trustees shall execute and deliver to the Owner Trust an instrument releasing their Lien in and to the Property (to the extent provided for under Section 3.08 or Section 14.01) and shall execute for recording in public offices, at the expense of the Company, such instruments in writing as the Owner Trust or the Company shall reasonably request and as shall be reasonably acceptable to the Indenture Trustees in order to make clear upon public records that such Lien has been released under the laws of the applicable jurisdiction. The Owner Trust hereby waives and releases any and all rights existing or that may be acquired to any penalties, forfeit or damages from or against the Indenture Trustees for failure to execute and deliver any document in connection with the release of a Lien or to file any certificate in compliance with any law or statute requiring the filing of the same in connection with the release of a Lien, except for failure by the Indenture Trustees to execute and deliver any document or to file any certificate as may be specifically requested in writing by the Owner Trust or the Company. ARTICLE XV ISSUANCE OF REFINANCING MORTGAGE NOTES SECTION 15.01. Creation and Forms of Refinancing Mortgage Notes. Refinancing Mortgage Notes shall be created by an indenture supplemental hereto authorized by the Owner Trust, as evidenced by an Officer's Certificate of the Corporate Owner Trustee and establishing the terms and provisions of such Mortgage Notes and the form of such Mortgage Notes. Each series of Refinancing Mortgage Notes may differ from the Mortgage Notes initially issued hereunder and as between series in any respect not in conflict with the provisions of this Indenture and as may be prescribed in the supplemental indenture creating such Mortgage Notes. 86 96 SECTION 15.02. Issuance of Refinancing Mortgage Notes After Redemption. Following a redemption of the Mortgage Notes of any Maturity Date in accordance with Section 6.02(b), 6.02(c) or 6.02(d) hereof, so long as no Lease Default arising under [ARTICLE 20(i), 20(ii) OR 20(v)] of the Lease shall have occurred and be continuing, the Owner Trust, with the consent of the Company, may issue and sell, and the Corporate Indenture Trustee shall authenticate and deliver, one or more new series of Mortgage Notes ("Refinancing Mortgage Notes") in an aggregate principal amount up to the aggregate principal amount of the Mortgage Notes then being redeemed and having such terms and provisions (including interest rate, amortization schedule, maturity date and redemption provisions) as the Owner Trust shall deem appropriate and as shall be approved by the Company; provided that if after such redemption any Mortgage Notes remain outstanding, the Refinancing Mortgage Notes: (i) shall be denominated and payable in United States Dollars and shall not be in a principal amount greater than the Mortgage Notes redeemed; (ii) shall not rank senior in any respect to the Mortgage Notes which remain outstanding; and (iii) shall not have a maturity after or have a weighted average life longer than the Mortgage Notes redeemed if any of the Mortgage Notes which remain outstanding have (x) a Maturity Date after or concurrent with the Maturity Date of the Mortgage Notes redeemed or (z) a weighted average life longer than the weighted average life of the Mortgage Notes redeemed; provided further that it shall be a condition to such issuance that (x) the Basic Rent payable pursuant to the Lease on any Installment Payment Date shall be not less than the Installment Payment Amount plus interest due on such Installment Payment Date, (y) the Termination Values applicable on any Purchase Offer Termination Date or Termination Date, as applicable, together with the Basic Rent, if any, due and unpaid to and including the Purchase Offer Termination or the Termination Date (as applicable), shall be at least sufficient to satisfy in full the scheduled outstanding principal amount of the Mortgage Notes as of such date, together with all interest accrued but unpaid thereon to such date, and (z) the Make-Whole Premium and other premium, if any, payable by the Company pursuant to the Lease shall be not less than the Make- Whole Premium and other premium, if any, due under this Indenture; provided further that, prior to authentication and delivery of such Refinancing Mortgage Notes, the Indenture Trustees shall have received written evidence from Standard & Poor's, Moody's and Duff & Phelp's (if such entity is then rating the Pass Through Certificates) to the effect that the issuance of such Refinancing Mortgage Notes, by itself, would not result in a withdrawal or downgrading of the credit rating assigned to the Pass Through Certificates that will be outstanding immediately after such issuance. 87 97 ARTICLE XVI ASSIGNMENT OF LEASES AND RENTS SECTION 16.01. Making of Assignment. The Owner Trust by these presents does hereby irrevocably assign, transfer, set over and convey to the Indenture Trustees, all the following-described properties, whether now owned or held or hereafter acquired, exclusively and without any reservation thereof unto the Indenture Trustees (except as herein otherwise expressly provided), exclusive, however, of all Excepted Payments and Rights and only to the extent the same have been conveyed to the Owner Trust pursuant to the Operative Documents: (a) All of the estate, right, title, interest, benefits, powers and privileges of the Owner Trust, as Lessor, under the Lease, other than Excepted Rights and Payments, including, but not by way of limitation, (i) the immediate and continuing right to make claim for, receive, collect and receipt for all rents, income, revenues, issues, profits, insurance proceeds, condemnation awards and other sums payable to or receivable by the Owner Trust under the Lease, or pursuant to any provisions thereof, whether as rent or as the purchase price for any interest in the Property or otherwise (except sums payable directly to any person other than the Lessor under the Lease) (collectively, the "Lease Rents"), including all cash, securities or letters of credit delivered or deposited pursuant thereto to secure performance by the Company of its obligations thereunder, (ii) the right and power (which right and power are coupled with an interest) upon the purchase by the Company of the interest of the Owner Trust in the Property in accordance with the Lease to execute and deliver as attorney-in-fact of the Owner Trust an appropriate special warranty deed or other instrument necessary to convey the interest of the Owner Trust therein, or to pay over or assign to such purchaser those insurance proceeds and condemnation awards to which it is entitled under [ARTICLES 14 AND 15 OF THE LEASE] if such purchaser becomes obligated to purchase the interest of the Owner Trust in the Property and to perform all other necessary or appropriate acts as said agent and attorney-in-fact with respect to any such purchase and conveyance at any time when the Owner Trust fails to deliver any such document after 10 Business Days notice to a Responsible Officer of the Corporate Owner Trustee, but only if such failure shall continue for 10 Business Days after the giving by the Corporate Indenture Trustee to the Corporate Owner Trustee of a second notice therefor, (iii) the right to declare a Lease Event of Default under the Lease to be in default under ARTICLE 20 THEREOF, (iv) the right to exercise remedies under or with respect to the Lease, including ARTICLE 21 THEREOF, (v) the right to give all notices, and, after a Lease Event of Default (subject to Sections 7.02(a) and 8.02), give all consents, releases and other instruments, (vi) the right to give all notices of default and to take all action upon the happening of a default under the Lease, including the commencement, conduct and consummation of proceedings as shall be permitted under any provision of the Lease, or by law or in equity, (vii) the right, not to the exclusion of the Owner Trust, to receive copies of all notices sent to the Owner 88 98 Trust, as Lessor under the Lease, (ix) the Owner Trust's interest under the Lease in the Company's tangible and intangible property used or arising in connection with the Property, including, but not limited to, permits, licenses, contract rights and prepaid expenses, and (x) the right to do any and all other things whatsoever which the Owner Trust or any lessor is, or may be entitled to do under the Lease, it being understood and agreed that the assignment of the right to receive any amounts payable under the Lease in respect of any Make-Whole Premium is an absolute, unconditional and irrevocable assignment, not intended or to be construed as a collateral assignment and that the Owner Trust reserves no right, interest or remedy in or to such amounts, except if such amounts have been paid by the Owner Trust. (b) All of the Owner Trust's estate, right, title, interest, benefits, powers and privileges, to and under all other leases, subleases or licenses of the Property, any license, concession, management, mineral or other agreements of a similar kind that permit the use or occupancy of the Property or any part thereof for any purpose in return for any payment, or permit the extraction or taking of any gas, oil, water or other minerals from the Property or any part thereof in return for payment of any fee, rent or royalty, now or hereafter entered into by the Owner Trust (collectively, the "Additional Leases" and, together with the Lease, the "Leases"), together with all estate, rights, title, interest, benefits, powers and privileges of the Owner Trust, as lessor, under the Additional Leases including, but not by way of limitation, the immediate and continuing right to make claim for, receive, collect and receipt for all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable under any of the Additional Leases (collectively, the "Additional Lease Rents") and all right, title and interest of the Owner Trust thereunder, including all cash, securities or letters of credit delivered or deposited thereunder to secure performance by the lessees of their obligations thereunder. (c) All of the Owner Trust's estate, right, title, interest, benefits, powers and privileges, to and under all agreements or contracts (other than the Lease) for the sale or other disposition of all or any part of the Property, now or hereafter entered into by the Owner Trust (collectively, the "Contracts") together with all estate, rights, title, interest, benefits, powers and privileges of the Owner Trust under the Contracts including, but not by way of limitation, the immediate and continuing right to make claim for, receive, collect and receipt for all charges, fees, income, issues, profits, receipts, rents, revenues or royalties payable under any of the Contracts (collectively, the "Contract Rents" and, together with the Lease Rents and the Additional Lease Rents, the "Rents") and all right, title and interest of the Owner Trust thereunder, including all cash, securities or letters of credit deposited thereunder to secure performance by the lessees of their obligations thereunder; provided, however, no provision of this Article XVI shall be deemed to imply that such Contracts are permitted under this Indenture or any other Indenture Document. 89 99 (d) All of the Owner Trust's right, title and interest in and to all claims and rights to the payment of money at any time arising in connection with any rejection or breach of the Lease by the Company or a trustee of the Company (or any Additional Lease by any lessee thereunder or trustee of any such lessee) under Section 365 of the Federal Bankruptcy Code, including all rights to recover damages arising out of such breach or rejection, all rights to charges payable by the Company or such trustee (or by such lessee or trustee) in respect of the Property or any portion thereof following the entry of an order for relief under the Federal Bankruptcy Code in respect of such lessee and all rentals and other charges outstanding under the Lease (or Additional Lease) as of the date of entry of such order for relief. SECTION 16.02. Receipt of Payments. The Owner Trust hereby designates the Corporate Indenture Trustee to receive all payments of Rents, purchase prices and other sums payable to the Lessor under the Lease or any Additional Lease (but not Excepted Rights and Payments), and designates the Corporate Indenture Trustee to receive (in addition to, and not to the exclusion of, the Owner Trust) duplicate originals of all notices, undertakings, demands, statements, documents, financial statements and other communications which the Company or any other lessee is required or permitted to give, make, deliver to or serve pursuant to the Lease or any Additional Lease. The Owner Trust agrees to direct the Company and such other lessees to deliver to the Corporate Indenture Trustee, at its address set forth in Section 18.07 or at such other address or to such other Person as the Corporate Indenture Trustee shall designate, all such payments and sums and duplicate originals of all such notices, undertakings, demands, statements, documents, financial statements and other communications, and no delivery thereof by the Company or such other lessee shall be of any force or effect unless, in the case of such payments and sums, made to the Corporate Indenture Trustee and, in the case of such notices, undertakings, demands, statements, documents and other communications, made to the Owner Trust and also made to the Corporate Indenture Trustee, in each case, as herein provided. SECTION 16.03. Irrevocability. The Owner Trust agrees that this assignment hereinabove set forth is irrevocable and that it will not take any action as Lessor under the Lease or otherwise which is inconsistent with this Indenture. SECTION 16.04. Owner Trust Remains Liable. Notwithstanding the provisions of this Article XVI, the Owner Trust will at all times promptly and faithfully perform in all material respects, or cause to be performed in all material respects, all of the covenants, conditions and agreements contained in the Lease or any Additional Lease of the Property now or hereafter existing on the part of the Lessor thereunder to be kept and performed with respect to the Property. SECTION 16.05. Ongoing Right to Collect Rents; Receivers. If, notwithstanding the terms of this assignment, a petition or order for sequestration of rents, or the 90 100 appointment of a receiver or some similar judicial action or order is deemed required under applicable state law to allow the Indenture Trustees to continue to collect the moneys described in paragraphs (a), (b), (c) and (d) of Section 16.01 hereof, then it is agreed by the Owner Trust that any proof of claim or similar document filed by the Indenture Trustees in connection with the breach or rejection of the Lease by the Company thereunder or the trustee of any such lessee under Section 365 of the Federal Bankruptcy Code shall for the purpose of perfecting the Indenture Trustees' rights conferred in said paragraph (d) be deemed to constitute action required under such state law. Upon an Indenture Event of Default, the Owner Trust hereby consents to the appointment of a receiver for the Property as a matter of right and without any requirement for notice to the Owner Trust and without regard to the solvency of the Owner Trust or to the collateral that may be available for the satisfaction of the Mortgage Notes and all other obligations under the Indenture Documents. SECTION 16.06. Article XVI Not Intended to Override. Nothing in this Article XVI is intended to override any other provision of this instrument. ARTICLE XVII SECURITY AGREEMENT AND FINANCING STATEMENT (a) From the date of its separate recording in the real estate records and the fixture filing records, this Indenture shall be effective as a security agreement and financing statement by and between the Owner Trust, as debtor, and the Indenture Trustees, as secured parties, filed as a security agreement and financing statement pursuant to the Uniform Commercial Code in the State in which the Property is located with respect to all goods constituting part of the Indenture Estate which are or are to become fixtures related to the Land and Improvements. For this purpose, the address of the debtor is the address of the Owner Trust set forth in Section 18.07 hereof, and the address of the secured party is the address of the Corporate Indenture Trustee set forth in Section 18.07 hereof. This Indenture covers goods which are or are to become fixtures. (b) The Owner Trust hereby grants the Indenture Trustees a security interest in such portions of the Trust Estate which may be subject to a security interest under Article 9 of the Uniform Commercial Code, as enacted in the jurisdiction in which the Property is located, and in all additions thereto, substitutions therefor and proceeds thereof, for the purpose of securing all indebtedness now or hereafter secured by this Indenture. The Owner Trust agrees, at the expense of the Company, to execute and deliver financing and continuation statements covering such Property from time to time and in such form as the Indenture Trustees may reasonably require to perfect and continue the perfection of the Indenture Trustees' lien or security interest with respect to the Property. Subject to Sections 7.02, 7.11, 8.02 and 8.03 and the provisions hereof expressly restricting the 91 101 Indenture Trustees' rights and remedies herein, upon the occurrence of any Indenture Event of Default hereunder, the Indenture Trustees shall have the rights and remedies of a secured party under the Uniform Commercial Code, as enacted in the jurisdiction in which the Property is located, and, at the Indenture Trustees' option, the Indenture Trustees may also invoke the remedies provided elsewhere in this Indenture as to such Property, subject to the terms hereof. (c) This Indenture constitutes a financing statement filed as a fixture filing under the Uniform Commercial Code as enacted in the jurisdiction in which the Property is located, filed in the fixture filing records of the county in which the Property is located with respect to any and all fixtures included within the term "Indenture Estate" and with respect to any goods or other personal property that may now be or hereafter become such a fixture. PARTS OF THE COLLATERAL ARE, OR ARE TO BECOME, FIXTURES ON THE REAL ESTATE. (d) The Owner Trust and the Indenture Trustees agree that the filing of any such financing statement or statements in the records normally having to do with personal property shall not in any way affect the agreement of the Owner Trust and the Indenture Trustees that everything used by the Owner Trust, its agents, employees, and contractors and owned by the Owner Trust in connection with the production of income from the Property or adapted for use therein or which is described or reflected in this Indenture is, and at all times and for all purposes and in all proceedings, legal or equitable, shall be, regarded as part of the real estate conveyed hereby regardless of whether (i) any such item is physically attached to the improvements, (ii) serial numbers are used for the better identification of certain items, or (iii) any such item is referred to or reflected in any such financing statement or statements so filed at any time. Similarly, the mention in any such financing statement or statements of the rights in and to (i) the proceeds of any fire and/or hazard insurance policy, or (ii) any award in eminent domain proceedings for a taking or for loss of value, or (iii) the Owner Trust's interest as lessor in any present or future lease or the rights of the Owner Trust to income growing out of the use and/or occupancy of the Property, whether pursuant to lease or otherwise, shall not in any way alter any of the rights of the Indenture Trustees as determined by this Indenture or affect the priority of the Indenture Trustees' security interest granted hereby or by any other recorded document, it being understood and agreed that such mention in such financing statement or statements is solely for the protection of the Indenture Trustees in the event any court shall at any time hold with respect to the foregoing clauses (i), (ii), or (iii) of this sentence, that notice of the Indenture Trustees' priority of interest, to be effective against a particular class of persons, must be filed in the Uniform Commercial Code Records. (e) The Owner Trust warrants that the Owner Trust's name, identity or legal structure and principal place of business are as set forth in Section 18.07 hereof. The Owner Trust covenants and agrees that the Owner Trust will furnish the Corporate 92 102 Indenture Trustee with notice of any change in the matters addressed by the first sentence of this subsection (e) within thirty (30) days after the effective date of any such change and the Owner Trust, at the Indenture Trustees' request, will promptly execute any financing statements or other instruments reasonably deemed necessary by the Indenture Trustees to prevent any filed financing statement from losing its perfected status. (f) The information contained in this Article is provided in order that this Indenture shall comply with the requirements of the Uniform Commercial Code, as enacted in States in which the Property is located, for instruments to be filed as financing statements. The "Debtor" is the Owner Trust and the "Secured Party" is the Indenture Trustees, collectively; the identities or structure and residence or principal places of business of "Debtor" is set forth in Section 18.07 hereof; the mailing address of the "Secured Party" from which information concerning the security interest may be obtained, and the mailing address of "Debtor" are as set forth in Section 18.07 hereof; and a statement indicating the types, or describing the terms, of collateral is set forth in the Granting Clauses above. The respective Maturity Dates of the Mortgage Notes are as set forth in Exhibits A-1 and A-2 hereto. ARTICLE XVIII MISCELLANEOUS SECTION 18.01. Exculpation and Release of Liability. Without in any way affecting the limitations on liability set forth in the Operative Documents, the Indenture Trustees, and each Holder by accepting a Mortgage Note hereunder, hereby acknowledge and agree that none of the Trust Company, William J. Wade, the Owner Participant, or any director, officer, employee, stockholder, agent or affiliate of the Trust Company, William J. Wade or the Owner Participant (the "Exculpated Persons") shall have any obligation, duty or liability of any kind whatsoever to the Indenture Trustees or any such Holder in connection with the exercise by any Exculpated Person of any rights of the Owner Trust or the taking of any action or the failure to take any action by any Exculpated Person in connection with any rights of the Owner Trust under the Operative Documents and each such Holder hereby waives and releases, to the extent permitted by Applicable Law, each Exculpated Person of any and all such obligations, duties or liabilities. SECTION 18.02. Capacity in Which Acting. Each of the Owner Trustees (or their permitted successors or assigns) and the Indenture Trustees (or their permitted successors) acts hereunder not in its individual capacity but solely as trustee except as expressly provided herein and in the other Indenture Documents, and, in the case of Trust Company and Individual Owner Trustee (or their respective permitted successors or assigns), in the Trust Agreement. 93 103 SECTION 18.03. No Legal Title to Indenture Estate in Holders. No Holder in its capacity as a Holder shall have legal title to any part of the Indenture Estate. No transfer, by operation of law or otherwise, of any Mortgage Note or other right, title and interest of any Holder in and to the Indenture Estate or hereunder shall operate to terminate this Indenture or entitle such Holder or any successor or transferee of such Holder to an accounting or to the transfer to it of legal title to any part of the Indenture Estate. SECTION 18.04. Sale of Indenture Estate by Indenture Trustees is Binding. Any sale or other conveyance of all or any part of the Indenture Estate by the Indenture Trustees made pursuant to the terms of this Indenture and of the Lease shall bind the Company, the Owner Trust, the Holders and the Owner Participant and shall be effective to transfer or convey all right, title and interest of the Indenture Trustees, the Owner Trust, the Owner Participant and such Holders therein and thereto. No purchaser or other grantee shall be required to inquire as to the authorization, necessity, expediency or regularity of such sale or conveyance or as to the application of any sale or other proceeds with respect thereto by the Indenture Trustees. SECTION 18.05. Indenture for Benefit of Owner Trust, Indenture Trustees and Holders. Nothing in this Indenture, whether express or implied, shall be construed to give to any person other than the Trust Company, William J. Wade, the Owner Trust, the Company, the Indenture Trustees, as trustees and in their individual capacities, and the Holders, and their respective successors and permitted assigns, any legal or equitable right, remedy or claim under or in respect of this Indenture. SECTION 18.06. No Action Contrary to the Company's Rights Under the Lease. Notwithstanding any of the provisions of this Indenture to the contrary, so long as no Lease Event of Default shall have occurred and be continuing, it is agreed that the Company shall be entitled to have peaceable and quiet enjoyment of the Property during the term of the Lease as against any claims by the Indenture Trustees, or any Persons claiming by, through or under any of them. For purposes of this Section, the Owner Trust shall not be deemed to claim by, through or under the Indenture Trustees. SECTION 18.07. Notices. Unless otherwise expressly specified or permitted by the terms hereof, all notices, requests, demands, approvals, authorizations, directions, consents, waivers or documents provided or permitted by this Indenture to be made, given, furnished or filed shall be in writing, transmitted by hand delivery or by a nationally recognized overnight courier or by mailing the same by registered or certified mail, return receipt requested, and (i) if to the Owner Trust, addressed to the Owner Trust in care of Wilmington Trust Company, as Corporate Owner Trustee, at its office at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19801-0001, Attention: Corporate Trust Administration (with a copy to the Owner Participant at the address provided for notice pursuant to the introduction to the Participation Agreement), (ii) if to the Indenture Trustees, to the Corporate Indenture Trustee at its office at 101 94 104 Barclay Street, Floor 12W, New York, New York 10286, Attention: Corporate Trust - - MBS Administration (with a copy to (a) the Individual Indenture Trustee at 420 Shore Road, Long Beach, New York 11561 and (b) the Owner Participant at the address provided for notice pursuant to the introduction to the Participation Agreement) and (iii) if to the Company, to 3100 West Big Beaver Road, Troy, Michigan 48084, Attention: Vice President and Treasurer. Any party hereto may change the address to which notices to such party will be sent by giving notice of such change to the other parties to this Indenture. All such notices shall be deemed given upon receipt. The inability to make delivery because of a changed address of which no notice was given, or rejection or refusal to accept any notice offered for delivery, shall be deemed to be receipt of the notice as of the date of such inability to deliver or rejection or refusal to accept. Where this Indenture provides for notice to Holders, such notice shall be sufficiently given (unless otherwise expressly provided herein) if in writing and mailed, first-class postage prepaid, to each Holder entitled thereto, at his last address as it appears in the Register or, in the case of Mortgage Notes held by a Pass Through Trustee, such notice may be given in any manner acceptable to the Pass Through Trustee. In any case where notice to Holders is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder shall affect the sufficiency of such notice with respect to other Holders. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders shall be filed with the Corporate Indenture Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. In case, by reason of the suspension of or irregularities in regular mail service, it shall be impracticable to mail notice to the Owner Trust and Holders when such notice is required to be given pursuant to any provision of this Indenture, then any manner of giving such notice as shall be satisfactory to the Indenture Trustees shall be deemed to be a sufficient giving of such notice. The Company shall be entitled to receive copies of all notices, requests, demands, approvals, authorizations, directions, consents, waivers or documents required or permitted by this instrument, including, but not limited to, copies of any proposed or final supplemental indentures entered into pursuant to Article XII hereof. SECTION 18.08. Compliance Certificates and Opinions. Upon any application or request by the Owner Trust to the Indenture Trustees to take any action under any provision of this Indenture, the Owner Trust shall furnish to the Indenture Trustees an Officer's Certificate, stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that in the opinion of such counsel all such conditions precedent, if any, 95 105 have been complied with, except that in the case of any such application or request as to which the furnishing of documents is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that each individual signing such certificate or opinion has read such covenant or condition and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of each such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of each such individual, such condition or covenant has been complied with. SECTION 18.09. Form of Documents Delivered to Indenture Trustees. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company or of the Corporate Owner Trustee may, insofar as it relates to legal matters, be based upon a certificate or opinion of, or representations by, counsel, unless such officer knows, or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to the matters upon which his certificate or opinion is based are erroneous. Any such certificate or any Opinion of Counsel may, insofar as it relates to factual matters, be based upon a certificate or opinion of, or representations by, an officer or officers of the Company or of any Owner Trustee stating that the information with respect to such factual matters is in the possession of the Company or of the Corporate Owner Trustee, unless such counsel knows or in the exercise of reasonable care should know, that the certificate or opinion or representations with respect to such matters are erroneous. Any Officer's Certificate, Officer's Request or Officer's Order shall be signed by a Responsible Officer who is generally familiar with the terms of and the transactions 96 106 contemplated by this Indenture and the other Indenture Documents and, to the extent that there are any statements of factual matters contained therein, be limited to such factual matters which are within the personal knowledge of such Responsible Officer. Whenever any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture, he may, but need not, consolidate such instruments into one. SECTION 18.10. Act of Holders. (a) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders 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 Corporate Indenture Trustee and, if hereby expressly required, to the Owner Trust. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Indenture and (subject to Sections 9.02 and 9.04 hereof) conclusive in favor of the Indenture Trustees and the Owner Trust if made in the manner provided in this Section. (b) Any request, demand, authorization, direction, notice, consent, waiver or other action by the Holder of any Mortgage Note shall bind the Holder of every Mortgage Note issued upon the registration of transfer thereof, or in exchange therefor or in lieu thereof, in respect of anything done or suffered to be done by the Indenture Trustees or the Owner Trust in reliance thereon, whether or not notation of such action is made upon such Mortgage Note. SECTION 18.11. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. SECTION 18.12. Successors and Assigns. All covenants, agreements, representations and warranties in this Indenture by the Indenture Trustees and the Owner Trust shall bind and, to the extent permitted hereby, shall inure to the benefit of and be enforceable by their respective successors and assigns, whether or not so expressed. SECTION 18.13. Severability. In the event any provision in this Indenture or in the Mortgage Notes shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 18.14. Governing Law; Interpretation. This Indenture and each of the Mortgage Notes are being executed and delivered in the State of New York and, except 97 107 as provided below, the provisions hereof and of the Mortgage Notes (including all provisions thereof regarding the contracting for, charging or receiving of interest) shall be construed in accordance with and governed by the laws of the State of New York, except that at all times the provisions for the creation, perfection and enforcement of the liens and security interests created hereunder shall be governed by and construed according to the laws from time to time in effect in the State in which the Property is situated. In any jurisdiction in which this Indenture shall be deemed to be a deed of trust the beneficiaries thereof shall be deemed to be the Holders of the Mortgage Notes issued and Outstanding hereunder. SECTION 18.15. Estoppel Certificates. The Indenture Trustees, from time to time (but not more frequently than twice during any calendar year), upon not less than 15 days' prior notice (a "Request Notice") from the Owner Trust, shall execute, acknowledge and deliver a certificate (an "Estoppel Certificate") to such party as directed by the Owner Trust stating that to the actual knowledge of the party providing such Estoppel Certificate (i) this Indenture is unmodified and in full force and effect (or, if there have been modifications or supplements, that this Indenture is in full force and effect as modified or supplemented, and setting forth such modifications and supplements) (ii) the aggregate unpaid principal amount and any accrued but unpaid interest (as of the date of the Estoppel Certificate) evidenced by the Outstanding Mortgage Notes and the dates to which scheduled Installment Payment Amounts and interest have been paid and (iii) the amount of Basic Rent received, it being intended that an Estoppel Certificate may be relied upon by such party or any prospective purchaser or mortgagee of its estate specified in the related Request Notice. SECTION 18.16. Company Not a Party. No reference to the Company in this Indenture shall mean that the Company has any obligations under this Indenture, all obligations of the Company being as set forth in the Indenture Documents to which it is a party (including, however, provisions thereof that create obligations of the Company by reference to this Indenture). SECTION 18.17. Special State Law Addendum. The provisions contained in the Special State Law Addendum are hereby incorporated herein and made a part hereof. 98 108 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed and, by parties in corporate form, by their respective officers thereunto duly authorized, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. [SEAL] Real Estate Finance Trust 1995-K-__, a Delaware business trust By: Wilmington Trust Company, not in its individual capacity, except as otherwise provided, but solely as Corporate Owner Trustee, Attest: By:_______________________________ Name: ___________________________ Title: __________________________________ Name:_____________________________ Assistant Secretary By: ____________________________________ William J. Wade, not in his individual capacity, except as otherwise provided, but solely as Individual Owner Trustee WITNESSES __________________________________ PRINT NAME: __________________________________ PRINT NAME: 99 109 [CORPORATE SEAL] The Bank of New York, as Corporate Indenture Trustee Attest: By:_______________________________ Name: _________________________ Title: Assistant Vice President __________________________________ Name:_____________________________ Assistant Secretary Todd N. Niemy __________________________________ Co-Indenture Trustee WITNESSES __________________________________ PRINT NAME: __________________________________ PRINT NAME: This document prepared by: SULLIVAN & CROMWELL 250 Park Avenue New York, New York 10177 Attn: Arthur S. Adler, Esq. 100 110 STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) Know all men by these presents that before me, the below-named Notary Public in and for the State and County named above duly commissioned to take acknowledgments, there personally appeared [___________________] and [______________________], each of whom is personally known to me to be a person named in and who signed the legal instrument to which this acknowledgment is attached and which was produced to me in the State and County aforesaid, and being by me first duly sworn each did acknowledge before me, depose and say to me that he is, respectively, and [__________________] of Wilmington Trust Company, a Delaware state banking association, in its capacity as Trustee named as one of the parties to the aforementioned legal instrument; that he knows the seal of said corporation; that the seal imprinted on the legal instrument to which this acknowledgement is attached is an imprint of the true seal of said corporation; that after being duly informed of the contents and import of such legal instrument he had signed and caused the seal of such corporation in its capacity as Trustee to be imprinted on such legal instrument as the officer of such corporation indicated above; that he had signed and sealed the same in the name of and on behalf of such corporation in such capacity by the authority, order and resolution of its Board of Directors; that he had signed his name thereto on behalf of said corporation in such capacity by like order; that the execution of said legal instrument was the free and voluntary act and deed of said corporation in such capacity for the consideration, purposes, and uses set forth in such legal instrument; that he had delivered such legal instrument to the other parties thereto as such; and that on behalf of said corporation in such capacity he had received a true copy of such legal instrument without charge. IN WITNESS WHEREOF, I have signed and imprinted my official notarial seal on this acknowledgment in the State and County named above on the ___ day of March, 1995. My commission expires: __________________________________ Notary Public Print Name:_______________________ 111 STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) Know all men by these presents that before me, the below-named Notary Public in and for the State and County named above duly commissioned to take acknowledgments, there personally appeared William J. Wade, who is personally known to me to be a person named in and who signed the legal instrument to which this acknowledgment is attached and which was produced to me in the State and County aforesaid, and being by me first duly sworn did acknowledge before me, depose and say to me that he is a trustee of Real Estate Finance Trust 1995-K-______, a Delaware business trust, named as one of the parties to the aforementioned legal instrument; that after being duly informed of the contents and import of such legal instrument he had signed such legal instrument as the trustee of such trust indicated above; that he had signed the same in the name of and on behalf of such trust; that the execution of said legal instrument was the free and voluntary act and deed of said trust for the consideration, purposes, and uses set forth in such legal instrument; that he had delivered such legal instrument to the other parties thereto as such; and that on behalf of said trust he had received a true copy of such legal instrument without charge. IN WITNESS WHEREOF, I have signed and imprinted my official notarial seal on this acknowledgment in the State and County named above on the ____ day of March, 1995. My commission expires: __________________________________ Notary Public Print Name:_______________________ 112 STATE OF NEW YORK ) : ss.: COUNTY OF NEW YORK ) Know all men by these presents that before me, the below-named Notary Public in and for the State and County named above duly commissioned to take acknowledgments, there personally appeared_____________________________________ and _______________________, each of whom is personally known to me to be a person named in and who signed the legal instrument to which this acknowledgment is attached and which was produced to me in the State and County aforesaid, and being by me first duly sworn each did acknowledge before me, depose and say to me that he is, respectively, vice president and assistant secretary of The Bank of New York, named as one of the parties to the aforementioned legal instrument; that he knows the seal of said corporation; that the seal imprinted on the legal instrument to which this acknowledgement is attached is an imprint of the true seal of said corporation; that after being duly informed of the contents and import of such legal instrument he had signed and caused the seal of such corporation to be imprinted on such legal instrument as the officer of such corporation indicated above; that he had signed and sealed the same in the name of and on behalf of such corporation by the authority, order and resolution of its Board of Directors; that he had signed his name thereto on behalf of said corporation by like order; that the execution of said legal instrument was the free and voluntary act and deed of said corporation for the consideration, purposes, and uses set forth in such legal instrument; that he had delivered such legal instrument to the other parties thereto as such; and that on behalf of said corporation he had received a true copy of such legal instrument without charge. IN WITNESS WHEREOF, I have signed and imprinted my official notarial seal on this acknowledgment in the State and County named above on the ____ day of March, 1995. My commission expires: __________________________________ Notary Public Print Name:_______________________ 113 STATE OF NEW YORK ) :ss.: COUNTY OF NEW YORK ) Know all men by these presents that before me, the below-named Notary Public in and for the State and County named above duly commissioned to take acknowledgments, there personally appeared Todd N. Niemy, who is personally known to me to be a person named in and who signed the legal instrument to which this acknowledgment is attached and which was produced to me in the State and County aforesaid, and being by me first duly sworn did acknowledge before me, depose and say to me that after being duly informed of the contents and import of such legal instrument he had signed such legal instrument as his free and voluntary act and deed for the consideration, purposes, and uses set forth in such legal instrument; that he had delivered such legal instrument to the other parties thereto as such; and that he had received a true copy of such legal instrument without charge. IN WITNESS WHEREOF, I have signed and imprinted my official notarial seal on this acknowledgment in the State and County named above on the ____ day of March, 1995. My commission expires: __________________________________ Notary Public Print Name:_______________________ 114 SCHEDULE I 115 OHIO STATE LAW ADDENDUM This Addendum modifies and supplements the Indenture, Open-End Mortgage and Deed of Trust, Assignment of Rents and Security Agreement (the "Indenture") dated as of March ___, 1995 among Real Estate Finance Trust 1995-K-___, a Delaware business trust, and The Bank of New York and Todd N. Niemy, Indenture Trustees. The Indenture secures unpaid balances of loan advances made after the Indenture is delivered to the recorder for record, to the extent that the total unpaid loan indebtedness, exclusive of interest thereon, does not exceed the maximum amount of $500,000,000 which may be outstanding at any time. IN WITNESS WHEREOF, this Addendum is executed effective as of the date of the Indenture. Signed and acknowledged in the presence of: Real Estate Finance Trust 1995-K-___, a Delaware business trust Sign here:____________________ Print here:___________________ By: Wilmington Trust Company, not in its individual capacity, except as Sign here:____________________ otherwise provided, but solely as Print here:___________________ Corporate Owner Trustee, Sign here:____________________ Print here:___________________ By: Name: ____________________________ Title: Sign here:____________________ Print here:___________________ By: __________________________________ William J. Wade, not in his individual capacity, except as otherwise provided, but solely as Individual Owner Trustee 116 The Bank of New York Corporate Indenture Trustee By: Name: ____________________________ Title: Assistant Vice President Todd N. Niemy ______________________________________ Co-Indenture Trustee 117 STATE OF __________________) ) ss. COUNTY OF _________________) The foregoing instrument was acknowledged before me this _____ day of ______________, 1995 by __________________, the _______________________ of __________________, a Delaware business trust, on behalf of the trust. __________________________ Notary Public My Commission Expires: _________________ [SEAL] STATE OF __________________) ) ss. COUNTY OF _________________) The foregoing instrument was acknowledged before me this _____ day of ______________, 1995 by __________________, the _______________________ of __________________, a Delaware business trust, on behalf of the trust. __________________________ Notary Public My Commission Expires: _________________ [SEAL] 118 SPECIAL MINNESOTA STATE LAW ADDENDUM TO INDENTURE, MORTGAGE AND DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT This Special State Law Addendum is attached to and made a part of that certain Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement dated as of March, 1995 between Real Estate Finance Trust 1995-K-__, a Delaware business trust, The Bank of New York and Todd N. Niemy, Indenture Trustees (the "Indenture"). All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Indenture. A. Tax Identification Number of Debtor. In addition to the information provided in the security agreement and financing statement contained in Article XVII of the Indenture, the I.R.S. tax identification number for the Debtor is: 38-0729-500. B. Application of Rents. Notwithstanding any provision to the contrary contained in the Indenture, all Lease Rents, Additional Lease Rents and other amounts (collectively, "Rents"), if any, collected by Indenture Trustee pursuant to Article XVI of the Indenture (Article XVI of the Indenture, as amended and supplemented hereby is hereinafter referred to as the "Assignment of Rents") shall be held and applied in the following order: 1. To payment of all reasonable fees of the receiver, if one shall be appointed, approved by the Court; 2. To the repayment when due of all tenant security deposits, with interest thereon, pursuant to the provisions of the Minnesota Statutes, Section 504.20; 3. To payment when due of all delinquent or current real estate taxes and special assessments payable with respect to the Indenture Estate, or the periodic escrow for the payment of said taxes or special assessments; 4. To payment when due of all premiums for the insurance required by the provisions of the Indenture, or the periodic escrow for the payment of said premiums; 5. To payments of expenses incurred for normal maintenance of the Indenture Estate; 6. To payment of expenses incurred by the Indenture Trustee or its agents for the management and operation of the Indenture Estate, including the cost of any 119 independent contractor retained by the Indenture Trustee to manage and operate the Indenture Estate; 7. Any excess amounts remaining after the above payments shall be paid to the Indenture Trustee in payment of the obligations secured by the Indenture in such order of application as the Indenture Trustee may or elect, subject to the provisions of the Indenture. The rights and powers of the Indenture Trustee under the Assignment of Rents, and the application of Rents pursuant to this paragraph, shall continue and remain in full force and effect both before and after commencement of any action or procedure to foreclose the Indenture, after the foreclosure sale of the Indenture Estate in connection with the foreclosure of the Indenture, and until expiration of the period of redemption from any such foreclosure sale, whether or not any deficiency from the unpaid balance of the obligations secured by the Indenture exists after such foreclosure sale. It is the intention of the parties hereto that the Assignment of Rents shall confer upon the Indenture Trustee the fullest rights, remedies and benefits available pursuant to Minnesota Statutes, Sections 576.01 and 559.17. C. Future Advances. 1. To the extent that this Indenture secures future advances, the amount of such advances is not currently known. The acceptance of this Indenture by the Indenture Trustee confirms that the Indenture Trustee is aware of the provisions of Minnesota Statutes Section 287.05, subd. 5, and intends to comply with the requirements contained therein. 2. The maximum principal amount of indebtedness secured by this Indenture at any one time, excluding advances made by the Indenture Trustee in protection of the Indenture Estate or the lien of this Indenture, shall be $500,000,000. 3. The representations contained in this section are made solely for the benefit of county recording authorities in determining the mortgage registry tax payable as a prerequisite to the recording of this Indenture. The Owner Trustee acknowledges that such representations do not constitute or imply an agreement by the Indenture Trustee to make any future advances to the Owner Trustee. D. Maturity. The loan secured by the Trust Indenture matures on _________, _____. 120 GEORGIA STATE LAW ADDENDUM TO INDENTURE, MORTGAGE AND DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT This Addendum modifies and supplements the foregoing Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement among Real Estate Finance Trust 1995-K-___, a Delaware business trust, and The Bank of New York and Todd N. Niemy, Indenture Trustees, dated March ___, 1995 and is incorporated therein. Any inconsistency between this Addendum and the foregoing Indenture shall be controlled by this Addendum. This document is renamed an Indenture, Mortgage, Deed of Trust, Deed to Secure Debt, Assignment of Rents and Security Agreement and is intended as a Deed to Secure Debt and not a Mortgage. This Deed to Secure Debt secured a total principal indebtedness of [INSERT WORDS] ($ [INSERT NUMBERS] ) with a final maturity date of _____________. If all obligations secured hereby shall be fully satisfied, paid and performed, Indenture Trustees or Co-Indenture Trustee, as the case may be, shall, at the request of Owner Trustees or Individual Owner Trustees, as the case may be, promptly deliver to Owner Trustees or Individual Owner Trustee, as the case may be, in recordable form, all such documents as shall be necessary to reconvey the Property to Owner Trustees or Individual Owner Trustee, as the case may be, and to release the Property from the liens, security interests, conveyances and assignments created or evidenced hereby. This Paragraph shall not, under any circumstances, be interpreted to be a defeasance clause, this instrument constituting a deed to secure debt with regard to such Property, and not a mortgage. Upon the occurrence and during the continuance of an Indenture Event of Default, Owner Trustees or Individual Owner Trustee, as the case may be, hereby grant to Indenture Trustees or Co-Indenture Trustee, as the case may be, the following irrevocable power of attorney: to sell all or any part of the Property at auction at the usual place for conducting sales at the court house in the county where the Property or any part thereof lies in said State to the highest bidder for cash, after advertising the time, terms and place of such sale once a week for four weeks immediately preceding such sale (but without regard to the number of days intervening between the date of publication of the first advertisement and the date of sale) in a newspaper in which Sheriff's sales are advertised in said county, all other notice being hereby waived by Owner Trustees or Individual Owner Trustee, as the case may be, and Indenture Trustees or Co-Indenture Trustee, as the case may be, or any person on behalf of Indenture Trustees or Co-Indenture Trustee, as the case may be, may bid and purchase the Property at such sale and may apply all or any part of the indebtedness secured hereby as a credit 121 to the purchase or purchaser or purchasers at such sale and grant a sufficient conveyance of said Property in fee simple, with full warranties of title, which conveyance may contain recitals setting forth the Indenture Event(s) of Default upon which the execution of power of sale herein granted depends, and Owner Trustees or Individual Owner Trustee, as the case may be, hereby constitute and appoint Indenture Trustees or Co-Indenture Trustee, as the case may be, as the agent and attorney-in-fact of Owner Trustees or Individual Owner Trustee, as the case may be, to make such sale and conveyance, and thereby to divest Owner Trustees or Individual Owner Trustee, as the case may be, of all right, title and equity that Owner Trustees or Individual Owner Trustee, as the case may be, may have in and to the Property and to vest same in the purchaser or purchasers at such sale or sales and all the acts and doings of said agency and attorney-in-fact are hereby ratified and confirmed. Owner Trustees or Individual Owner Trustee, as the case may be, hereby constitute and make such recitals, and Owner Trustees or Individual Owner Trustee, as the case may be, hereby covenant and agree that the recitals so to be made by Indenture Trustees or Co-Indenture Trustee, as the case may be, shall be binding and conclusive upon Owner Trustees or Individual Owner Trustee, as the case may be, and the heirs, executors, administrators and assigns of Owner Trustees or Individual Owner Trustee, as the case may be, and that the conveyance to be made by Indenture Trustees or Co-Indenture Trustee, as the case may be, shall be effectual to bar all equity of redemption (including any statutory redemption) of Owner Trustees or Individual Owner Trustee, as the case may be, or the successors in interest of Owner Trustees or Individual Owner Trustee, as the case may be, in and to said Property. The power and agency hereby granted are coupled with an interest and are irrevocable by death or otherwise and are granted as cumulative to the remedies for collection of the indebtedness secured hereby provided by law and shall not be exhausted by one exercise thereof by may be exercised until full payment of such indebtedness hereby secured. In the event of any such foreclosure sale or sales under the power herein granted, Owner Trustees or Individual Owner Trustee, as the case may be, shall be deemed a tenant holding over and shall forthwith deliver possession to the purchaser or purchasers at such sale or be summarily dispossessed according to the provisions of law applicable to tenants holding over. Owner Trustees or Individual Owner Trustee, as the case may be, hereby waive and renounce all homestead and exemption rights provided for by the Constitution and the laws of the United States and any state, in and to the Property as against the collection of the indebtedness secured hereby, or any part hereof. BY EXECUTION OF THIS DEED TO SECURE DEBT, OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY 122 BE, EXPRESSLY: (A) ACKNOWLEDGE THE RIGHT OF INDENTURE TRUSTEES OR CO-INDENTURE TRUSTEE, AS THE CASE MAY BE, TO ACCELERATE THE OBLIGATIONS SECURED HEREBY AND THE POWER OF ATTORNEY GIVEN HEREIN TO INDENTURE TRUSTEES OR CO-INDENTURE TRUSTEE, AS THE CASE MAY BE, TO SELL THE PROPERTY BY NONJUDICIAL FORECLOSURE UPON AN EVENT OF DEFAULT BY OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY BE, WITHOUT ANY JUDICIAL HEARING AND WITHOUT ANY NOTICE OTHER THAN SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED TO SECURE DEBT; (B) WAIVES ANY AND ALL RIGHTS WHICH OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY BE, MAY HAVE UNDER THE CONSTITUTION OF THE UNITED STATES OF AMERICA (INCLUDING, WITHOUT LIMITATION, THE FIFTH AND FOURTEENTH AMENDMENTS THEREOF), THE VARIOUS PROVISIONS OF THE CONSTITUTION FOR THE SEVERAL STATES, OR BY REASON OF ANY OTHER APPLICABLE LAW, (1) TO NOTICE AND TO JUDICIAL HEARING PRIOR TO THE EXERCISE BY INDENTURE TRUSTEES OR CO-INDENTURE TRUSTEE, AS THE CASE MAY BE, OF ANY POWER OF SALE HEREIN PROVIDED, EXCEPT SUCH NOTICE (IF ANY) AS IS SPECIFICALLY REQUIRED TO BE GIVEN UNDER THE PROVISIONS OF THIS DEED TO SECURE DEBT OR APPLICABLE LAW, AND (2) CONCERNING THE APPLICATION, RIGHTS OR BENEFITS OF ANY STATUTE OF LIMITATION OR ANY MORATORIUM, REINSTATEMENT, MARSHALLING, FORBEARANCE, APPRAISEMENT, VALUATION, STAY, EXTENSION, HOMESTEAD, EXEMPTION OR REDEMPTION LAWS; (C) ACKNOWLEDGES THAT OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY BE, HAVE READ THIS DEED TO SECURE DEBT AND ANY AND ALL QUESTIONS OF OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY BE, REGARDING THE LEGAL EFFECT OF THIS DEED TO SECURE DEBT AND ITS PROVISIONS HAVE BEEN EXPLAINED FULLY TO OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY BE, AND OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY BE, HAVE CONSULTED WITH COUNSEL OF ITS CHOICE PRIOR TO EXECUTING THIS DEED TO SECURE DEBT; AND (D) ACKNOWLEDGES THAT ALL WAIVERS OF THE AFORESAID RIGHTS HAVE BEEN MADE KNOWINGLY, INTENTIONALLY AND WILLINGLY BY OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY BE, AS PART OF A BARGAINED-FOR LOAN TRANSACTION AND THAT THIS DEED TO SECURE DEBT IS VALID AND ENFORCEABLE BY INDENTURE TRUSTEES OR CO-INDENTURE TRUSTEE, AS THE CASE 123 MAY BE, AGAINST OWNER TRUSTEES OR INDIVIDUAL OWNER TRUSTEE, AS THE CASE MAY BE, IN ACCORDANCE WITH ALL THE TERMS AND CONDITIONS HEREOF. _______________________________________ INITIAL 124 SPECIAL STATE LAW ADDENDUM WITH RESPECT TO PROPERTY LOCATED IN TEXAS THIS SPECIAL STATE LAW ADDENDUM is executed in connection with and amends and is attached to and incorporated into that certain Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement dated as of March 2, 1994 (the "Indenture") among REAL ESTATE FINANCE TRUST 1995-K, a Delaware business trust and the BANK OF NEW YORK and TODD N. NIEMY, Indenture Trustees. To the extent that the Indenture covers property located in the state of Texas it is amended and modified in the following manner: 1. Title to the property is held in the name of Wilmington Trust Company as the Trustee of the Owner Trust (the "Owner Trustee") and therefore the grantor of this Deed of Trust is the Owner Trustee and all references to the Owner Trust are amended to refer to the Owner Trustee. 2. The granting clause of the Deed of Trust which begins on page 2 with "NOW THEREFORE, . . ." and continues through the colon on page 3 shall be deleted and replaced with the following: NOW, THEREFORE, THIS INDENTURE WITNESSETH, that (A) to secure (i) the payment of the principal of, and interest on and all other amounts in respect to the Mortgage Notes from time to time Outstanding and (ii) the performance and observance of the covenant herein contained and the performance and observance by the Owner Trustee of all of its covenants and provisions contained herein and (only with respect to the Property encumbered hereby) in the Indenture Documents to which it is a party for the benefit of the Holders and the Indenture Trustees and (iii) all future advances and readvances that may subsequently be made to the Owner Trustee by the Indenture Trustees, evidenced by the Mortgage Notes, and all renewals and extensions thereof, provided, however, nothing contained herein shall create an obligation on the part of the Indenture Trustees to make future advances or readvances to the Owner Trustee and (iv) all fees of the Indenture Trustees and charges and expenses of collection incurred by the Indenture Trustees, including court costs and reasonable attorneys' fees, and (B) in consideration of the premises and of the purchase of the Mortgage Notes by the purchasers thereof, the Owner Trustee has executed and delivered this Indenture; and the Owner Trustee has irrevocably granted, and by these presents and by the execution and delivery hereof and of the Mortgage Notes, the Owner Trustee does hereby irrevocably grant bargain, convey, warrant, assign, collaterally assign, mortgage, pledge, sell, alien, remise, release, transfer, hypothecate, deliver, set over and confirm (the foregoing 125 acts being referred to herein as simply the "Grant"), to Mortgage Trustee and Mortgage Trustee's substitutes and successors in trust upon the terms herein set forth to the extent that it constitutes real property and to the extent that it does not constitute real property, grants, conveys, assigns, transfers, mortgages, and pledges to and creates a security interest in favor of the Indenture Trustees (x) for the benefit and security of the Holders of the Mortgage Notes, without priority of any over the others, and (y) upon the issuance of any Refinancing Mortgage Notes, for the benefit of the Holders of such Refinancing Mortgage Notes (on a parity with the Holders of the Mortgage Notes hereafter issued Outstanding), all right, title and interest of the Owner Trustee (but only to the extent conveyed to the Owner Trustee under the Operative Documents and only to the extent described in this Indenture) in and to its interest in, to and under all of the property, rights, privileges and franchises described in the following Granting Clauses, exclusive, however of all Excepted Rights and Excepted Payments (collectively, described as the "Indenture Estate"), to wit: 3. The "To Have and To Hold" paragraph on page 5 is deleted and replaced with the following: TO HAVE AND TO HOLD the Indenture Estate and all parts thereof unto the Mortgage Trustee and the Mortgage Trustee's substitutes or successors, but in trust, nevertheless for the benefit and security of the Holders for the use and purposes and with the power and authority and subject to the terms and conditions mentioned and set forth in this Indenture. 4. The paragraph that begins at the bottom of page 6 and continues on to page 7 is deleted and replaced with the following: The Owner Trustee (sometimes herein referred to as "Grantor") does hereby warrant and represent that it has not mortgaged, assigned or pledged, and hereby covenants that it will not mortgage, assign or pledge, as long as this Indenture shall remain in effect and shall not have been terminated pursuant to Section 13.01 hereof, any of its estate, right, title or interest described in this Indenture, to anyone other than the Mortgage Trustee for the benefit of the Indenture Trustees. With respect to such estate, right, title and interest described in this Indenture, the Grantor will not, except as provided in this Indenture or with respect to Excepted Rights and Payments, (i) enter into any agreement terminating, amending or supplementing any of the Indenture Documents, or execute any waiver or modification of, or consent under, the terms of any of the Indenture Documents (or, if Grantor's interest in the Land is a leasehold, surrender its interest under the Ground Lease) or accept a surrender of the Company's interest under the Lease or subordinate the lease, (ii) accept any payment from the Company under any Indenture Document, (iii) settle or compromise any claim arising under any of the Indenture Documents 126 or (iv) submit or consent to the submission of any dispute, difference or other matter arising under or in respect of any of the Indenture Documents to arbitration thereunder. For purposes of subsequent references herein, this paragraph shall be regarded as the seventh paragraph following the Habendum Clause. 5. The following definition is added between the definition of Mortgage Notes and Officers Certificate on page 13: Mortgage Trustee means ______________ and his substitutes or successors as Mortgage Trustee as established pursuant to the terms of this Indenture. 6. Paragraph (d) on page 29 is deleted and replaced with the following: (d) Any transfer or attempted transfer by the Owner Trustee of all or any part of the Indenture Estate, except in compliance with the terms hereof, shall entitle the Indenture Trustees to accelerate the Mortgage Notes and declare the same to be immediately due and payable. 7. Subparagraph (g) on page 51 is hereby deleted in its entirety and replaced with the following: The Indenture Trustees may require the Mortgage Trustee to sell all or part of the Indenture Estate, at public auction, to the highest bidder, for cash, at the county courthouse of the county in Texas in which the Indenture Estate or any part thereof is situated, between the hours of 10:00 o'clock a.m. and 4:00 o'clock p.m. on the first Tuesday of any month, after giving notice of the time, place and terms of said sale and of the property to be sold, by posting written notice thereof at the courthouse door of the county in which the sale is to be made and by filing said notice with the County Clerk of said county at least twenty-one (21) days preceding the date of the sale, and if the property to be sold is in more than one county, a notice shall be posted at the courthouse door and filed with the County Clerk of each county in which the property to be sold is situated. In addition, the Indenture Trustees shall, at least twenty-one (21) days preceding the date of sale, serve written notice of the proposed sale by certified mail on each debtor obligated to pay the debt secured hereby according to the records of the Indenture Trustees. Service of such notice shall be completed upon deposit of the notice, enclosed in a postpaid wrapper, property addressed to such debtor at the most recent address as shown by the records of the Indenture Trustees, in a post office or official depository under the care and custody of the United States Postal Service. The affidavit of any person having knowledge of the facts to the effect that such service was completed shall be prima facie evidence of the fact of service. Any notice that is required or permitted to be given to the Owner Trustee must be addressed to the Owner Trustee at the Owner Trustee's address as stated above. Any notice that is to be given by certified 127 mail to any other debtor may, if no address for such other debtor is shown by the records of the Indenture Trustees, be addressed to such other debtor at the address of the Owner Trustee, as is shown by the records of the Indenture Trustees. Notwithstanding the foregoing provisions of this paragraph, notice of such sale given in accordance with the requirements of the applicable laws of the State of Texas in effect at the time of such sale shall constitute sufficient notice of such sale. Mortgage Trustee may sell all or any portion of the Indenture Estate, together or in lots or parcels, and may execute and deliver to the purchaser or purchasers of such property good and sufficient deeds of conveyance of fee simple title with covenants of general warranty made on behalf of the Owner Trustee. In no event shall Mortgage Trustee be required to exhibit, present or display at any such sale any of the personalty described herein to be sold at such sale. The Mortgage Trustee making such sale shall receive the proceeds thereof and shall apply the same in accordance with the terms of this Indenture. Payment of the purchase price to the Mortgage Trustee shall satisfy the obligation of the purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof. The sale or sales by Mortgage Trustee of less than the whole of the Indenture Estate shall not exhaust the power of sale herein granted, and Mortgage Trustee is specifically empowered to make a successive sale or sales under such power until the whole of the Indenture Estate shall be sold; and if the proceeds of such sale or sales of less than the whole of the Indenture Estate shall be less than the aggregate of the indebtedness secured hereby and the expenses thereof, this Indenture and the lien, security interest and assignment hereof shall remain in full force and effect as to the unsold portion of the Indenture Estate, just as though no sale or sales had been made; provided, however, that the Owner Trustee shall never have any right to require the sale or sales of less than the whole of the Indenture Estate, but the Indenture Trustees shall have the right, at their sole election, to request Mortgage Trustee to sell less than the whole of the Indenture Estate. At such sale (1) Owner Trustee hereby agrees, in its behalf and in behalf of its heirs, executors, administrators, successors, personal representatives and assigns, that any and all recitals made in any deed of conveyance given by Mortgage Trustee with respect to the identity of Indenture Trustees, the occurrence or existence of any default, the acceleration of the maturity of any of the indebtedness, the request to sell, the notice of sale, the giving of notice to all debts legally entitled thereto, the time, place, terms, and manner of sale, and receipt, distribution and application of the money realized therefrom, or the due and proper appointment of a substitute trustee, and, without being limited by the foregoing, with respect to any other act or thing having been duly done by Indenture Trustees or by Mortgage Trustee hereunder, shall be taken by all courts of law and equity as prima facie evidence that the statements or recitals state facts and are without further question to be so accepted, and the Owner Trustee hereby ratifies and confirms every act that Mortgage Trustee or any substitute mortgage trustee hereunder may lawfully do in the premises by virtue hereof, and (2) the purchaser may disaffirm any easement granted, or rental, lease or other contract made in violation of any 128 provision of this Indenture, and may take immediate possession of the Indenture Estate free from, and despite the terms of, such grant of easement and rental or lease contract. Indenture Trustees may bid and become the purchaser of all or any part of the Indenture Estate at any trustee's or foreclosure sale hereunder, and the amount of Indenture Trustees' successful bid may be credited on the indebtedness secured hereby. In the event of a trustee's sale hereunder and if at the time of such sale, the Owner Trustee or any other party occupies the portion of the Indenture Estate so sold or any part thereof, such occupant shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of either tenant or landlord, at a reasonable rental per day based upon the value of the portion of the Indenture Estate so occupied, such rental to be due and payable daily to the purchaser. An action of forcible detainer shall lie if the tenant holds over after a demand in writing for possession of such property. If, for any reason, Indenture Trustees prefer to appoint a substitute trustee hereunder, Indenture Trustees may, from time to time, by written instrument, appoint one or more substitute trustees, who shall succeed to all the estate, rights, powers, and duties of the original Mortgage Trustee named herein. Such appointment may be executed by anyone acting in a representative capacity, and such appointment shall be presumed to have been executed with appropriate authority, absent proof to the contrary. 129 SPECIAL STATE LAW ADDENDUM (CALIFORNIA) To Indenture, Mortgage, Deed of Trust, Assignment of Rents and Security Agreement This Addendum modifies and supplements the Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement to which it is appended. A. This document is renamed an Indenture, Mortgage, Assignment of Rents, Security Agreement and Fixture Filing. B. Granting Clause Third is amended and restated as follows: Granting Clause Third Subject and subordinate to the provisions of Article XVI (Assignment of Rents and Leases): All Basic Rent and Additional Rent (including amounts payable under [ARTICLES 37 AND 38] of the Lease and Trustee Expenses); all payments, receipts and other consideration of any sort whatsoever payable under the Lease, including any of the same payable to the Owner Trust, as Lessor under the Lease, as a result of or in respect of any casualty, condemnation or economic obsolescence relating to the Property, any termination of the Lease, whether by reason of the Company's default thereunder or otherwise, including any property delivered in substitution of the Property; and all other right, title and interest of the Owner Trust, as Lessor under the Lease (including all extended and renewal terms under the Lease) and such other rights, title and interest as are described in Article XVI, subject to application of certain monies in accordance with Article V hereof. C. Granting Clause Fourth is Amended and Restated as follows: Granting Clause Fourth All of the Owner Trust's right, title and interest in, to and under (a) all general intangibles relating to design, development, operation, management and use of the Property, (b) all certificates of occupancy, zoning variances, building, use or other permits, approvals, authorizations and consents obtained from and all materials prepared for filing or filed with any governmental agency in connection with the development, use, operation or management of the Property (except for any such permits and approvals that are not transferable by law), (c) all construction, service, architectural and other similar contracts concerning the design, construction, management, operation, occupancy and/or use of the Property, (d) all architectural drawings, plans, specifications, soil tests, feasibility studies, appraisals, engineering reports and similar materials relating to any 130 portion of or all of the Property; (e) all payment and performance bonds or warranties or guarantees relating to the Property; and (f) all instruments, accounts and general intangibles which evidence or reflect any debt arising on account of the Leases, which is owed by any tenant under a Lease to Owner Trust, or its assignees. D. The introductory paragraph of Section 16.01 of Article XVI (Assignment of Leases and Rents), is amended and restated as follows: SECTION 16.01. Making of Assignment. The Owner Trust by these presents does hereby absolutely and irrevocably assign, transfer, set over and convey to the Indenture Trustees, all the following-described properties, whether now owned or held or hereafter acquired, exclusively and without any reservation thereof unto the Indenture Trustees (except as herein otherwise expressly provided), exclusive, however, of all Excepted Payments and Rights and only to the extent the same have been conveyed to the Owner Trust pursuant to the Operative Documents. 131 STATE OF _______________________) ) SS. COUNTY OF ______________________) On _______________________ 1995, before me, _______________, personally appeared ___________________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), an that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature _________________________________ (Seal) 132 Draft of March 31, 1995 Kmart Store No.: [STORE NO.]~ [TOWN, STATE]~ EXHIBIT A-[1/2]~ FORM OF MORTGAGE NOTE 1995-K-[1/2]~ THIS MORTGAGE NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND NO RESALE, TRANSFER OR OTHER DISPOSITION OF THIS MORTGAGE NOTE SHALL BE MADE UNLESS THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS ARE COMPLIED WITH OR SUCH RESALE, TRANSFER OR OTHER DISPOSITION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS. NONE OF THE OWNER TRUSTEES, THE OWNER TRUST, THE INDENTURE TRUSTEES, THE REMAINDERMAN OR THE COMPANY IS OBLIGATED TO REGISTER THE OFFER OR SALE OF THIS MORTGAGE NOTE UNDER THE SECURITIES ACT OR ANY OTHER SECURITIES LAW. No. [1/2]~ $[K-1/K-2 PRINCIPAL]~ [RATE]~% MORTGAGE NOTE DUE [MATURITY DATE]~ REAL ESTATE FINANCE TRUST 1995-K-__, A DELAWARE BUSINESS TRUST Interest Rate Maturity Date [RATE]~% DUE [MATURITY DATE]~ Real Estate Finance Trust 1995-K-__, a Delaware business trust (the "Owner Trust") of which Wilmington Trust Company and William J. Wade are acting not in their respective individual capacities but solely as Owner Trustees (herein in such capacities called the "Owner Trustees") under that certain Trust Agreement dated as of March __, 1995, between the Owner Participant named therein and the Owner Trustees (herein as such Trust Agreement may be amended or supplemented from time to time called the "Trust Agreement"), hereby promises to pay to [PASS THROUGH TRUSTEE K-1/K-2]~, as trustee of that certain Pass Through Trust 1995-K-[1/2]~ created by that certain Pass Through Trust Agreement dated as of March __, 1995, or registered assigns (collectively, the "Holder"), the principal sum of $[K-1/K-2 PRINCIPAL]~, in installments on the Installment Payment Dates set forth in the reverse hereof with the final installment due and payable on the Maturity Date specified above in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts, and to pay interest on the principal outstanding from time to time, semiannually on each Interest Payment Date which shall be January 5 and July 5 of each calendar year commencing July 5, 1995 in like coin or currency at the rate per annum set forth above from the date of issuance hereof or from the most recent date to which interest has been paid or duly provided for. The Record Date for each Installment Payment Date, Interest Payment Date and Redemption Date shall be the 15th day preceding each such date 133 whether or not such date is a Business Day. The Holder at the close of business on any Record Date with respect to any Installment Payment Date or Interest Payment Date shall be entitled to receive the Installment Payment Amount or interest, if any, payable on such Installment Payment Date or Interest Payment Date notwithstanding any transfer or exchange of this Mortgage Note subsequent to the Record Date and prior to such Installment Payment Date or Interest Payment Date. Notwithstanding the provisions of the preceding sentence, any Installment Payment Amount or any interest payable on this Mortgage Note which is not punctually paid or duly provided for on any Installment Payment Date or Interest Payment Date (herein called, respectively, a "Defaulted Installment" and "Defaulted Interest") shall forthwith cease to be payable to the registered Holder on the relevant Record Date by virtue of his having been such Holder; and such Defaulted Interest may be paid by the Owner Trust, at its election in each case, as provided in clause (1) or (2) below: (1) The Owner Trust shall make payment of any Defaulted Installment or Defaulted Interest to the Person in whose name this Mortgage Note is registered at the close of business on a special record date for the payment of such Defaulted Interest, which shall be fixed in the manner provided in Section 2.04 of the Indenture. Notice of the proposed payment of such Defaulted Installment or Defaulted Interest and the special record date therefor shall be mailed by first-class mail, postage prepaid, to the Holder at its address as it appears in the Register, not less than 10 days prior to such special record date. Upon the mailing of such notice, such Defaulted Installment or Defaulted Interest shall be paid to the Person in whose name this Mortgage Note is registered on such special record date and shall no longer be payable pursuant to the following clause (2). (2) The Owner Trust may make, or cause to be made, payment of any Defaulted Installment or Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which the Pass Through Certificates may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Owner Trust to the Corporate Indenture Trustee (as defined below) of the proposed payment pursuant to this clause, such payment shall be deemed practicable by the Corporate Indenture Trustee. If any amount payable under this Mortgage Note, or under the Indenture, falls due on a day that is not a Business Day, then such sum shall be payable on the next succeeding Business Day, without additional interest thereon for the period of such extension; subject to the foregoing, if any principal or premium payable under this Mortgage Note or under the Indenture is not paid or duly provided for when due, then interest shall accrue on such sum until payment thereof has been made. This Mortgage Note is one of the Mortgage Notes issued and to be issued under that certain Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement dated as of April __, 1995 (herein as amended, supplemented or modified from time to time -2- 134 called the "Indenture"), among the Owner Trust, The Bank of New York (the "Corporate Indenture Trustee"), and Todd N. Niemy (the "Co-Indenture Trustee", the Corporate Indenture Trustee and the Co-Indenture Trustee being referred to collectively as the "Indenture Trustees"). The Indenture Estate (as defined in the Indenture) secures the indebtedness evidenced by the Mortgage Notes. Payment of the principal of, premium, if any, and interest on this Mortgage Note will be made in immediately available funds by wire transfer to an account in the United States designated by the Holder hereof not later than the date provided therefor or the reverse side hereof, provided that the final installment of principal of this Mortgage Note shall be payable only upon presentation and surrender of this Mortgage Note. Wilmington Trust Company, William J. Wade, The Bank of New York, and Todd N. Niemy are not acting individually hereunder, but solely as trustees of the Owner Trust and as Indenture Trustees, respectively. Limitations on the obligations of the Owner Trust, and the trustees thereof, are set forth in Section 2.05 of the Indenture. Reference is made to the further provisions set forth on the reverse hereof. Such provisions shall for all purposes have the same effect as though fully set forth at this place. This Mortgage Note shall not be entitled to any benefit under the Indenture or be valid or obligatory for any purpose unless this Mortgage Note has been executed on behalf of the Owner Trust by the manual or facsimile signature of one of the officers of the Corporate Owner Trustee and authenticated on behalf of the Corporate Indenture Trustee by the manual signature of one of the officers of the Corporate Indenture Trustee, in each case as specified in Sections 2.02 and 2.03 of the Indenture. Nothing contained herein or in the Indenture shall be construed as creating any liability under this Mortgage Note of the Owner Trust or any beneficiary of the Owner Trust, or any of their respective affiliates or any of their respective officers, directors, shareholders, partners, venturers, trustees (except for the Owner Trustees which are governed by the immediately following paragraph), beneficiaries, employees or agents (the Owner Trust and such other Persons being collectively called "Lessor Parties"), individually or personally, except as otherwise specifically provided herein and in the Indenture. All such liability, if any, is expressly waived by the Holder by its acceptance of this Mortgage Note, for itself and for each person now or hereafter claiming by, through or under the Holder, and that, so far as any Lessor Party, individually or personally, is concerned, the Holder and any person claiming by, through or under the Holder shall look solely to the right, title and interest of the Owner Trust in the Indenture Estate or, with respect to the Owner Participant, to the right, title and interest of the Owner Participant in the Indenture Estate, except as provided in the Participation Agreement for the performance of any obligation under this Mortgage Note and the satisfaction of any liability arising therefrom. For purposes of this paragraph, the Owner Trust shall be deemed to include any permitted successors to the Owner Trust's interest in the Property. -3- 135 The Holder of this Mortgage Note, by its acceptance hereof, expressly understands and agrees that (i) this Mortgage Note is executed and delivered by Wilmington Trust Company not individually or personally but solely as Corporate Owner Trustee on behalf of the Owner Trust under the Trust Agreement, in the exercise of the powers and authority conferred and vested in it as the Corporate Owner Trustee, (ii) each of the undertakings and agreements herein made on the part of the Owner Trust (other than those specifically in the Indenture made by Wilmington Trust Company in its individual capacity) are made and intended not as personal undertakings and agreements by Wilmington Trust Company but are made and intended for the purpose for binding only the Trust Estate (as defined in the Trust Agreement) created by the Trust Agreement, (iii) nothing herein contained shall be construed as creating any liability on the part of Wilmington Trust Company or William J. Wade, individually or personally, to perform any covenant either expressed or implied contained herein or in the Indenture, all such liability, if any, being expressly waived by the Holder by its acceptance of this Mortgage Note, for itself and for any person claiming by, through or under the Holder and (iv) under no circumstances (except in respect of those representations, warranties, undertakings and agreements made by Wilmington Trust Company, in its individual capacity) shall Wilmington Trust Company or William J. Wade, be personally liable for the payment of any Indebtedness (as defined in the Indenture) or expenses of the Owner Trustees or the Owner Trust or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Owner Trustees or the Owner Trust under this Mortgage Note or the other Indenture Documents (as defined in the Indenture). Capitalized terms used herein without definition shall have the respective meanings assigned to such terms in the Indenture. IN WITNESS WHEREOF, the Owner Trust has caused this Mortgage Note to be duly executed in its name by an officer of the Corporate Owner Trustee thereunto duly authorized. Date: April __, 1995 Real Estate Finance Trust 1995-K-__, a Delaware business trust, By: Wilmington Trust Company, not in its individual capacity but solely as Corporate Owner Trustee By:_______________________________________ Authorized Officer -4- 136 INDENTURE TRUSTEE'S CERTIFICATE OF AUTHENTICATION This is one of the Mortgage Notes referred to in the within-mentioned Indenture. Dated: April __, 1995 The Bank of New York, not in its individual capacity but solely as Corporate Indenture Trustee By:_______________________________________ Authorized Signatory -5- 137 [Reverse] On each Installment Payment Date, the principal payable on this Mortgage Note shall be equal to the Installment Payment Percentage specified on Schedule I hereto for such Installment Payment Date multiplied by the initial principal amount of this Mortgage Note which is set forth on the face hereof (an "Installment Payment Amount"), subject to earlier redemption, in whole or in part, or mandatory tender for purchase described briefly below and more fully described in Article VI of the Indenture. As more fully provided in the Indenture, this Mortgage Note is subject to redemption in whole or in part, by notice mailed not less than 20 days prior to the applicable Redemption Date (unless, if this Mortgage Note is held by a Pass Through Trustee (as defined in the Indenture), a different method shall be acceptable to such Holder), under the circumstances set forth in Section 6.02 of the Indenture at a redemption price (the "Redemption Price") set forth below. The Corporate Indenture Trustee shall give prompt notice of any such redemption by first-class mail (unless, in the case of Mortgage Notes held by a Pass Through Trustee, a different method is acceptable to such Holder) to Holders stating the Redemption Date, the Redemption Price, the principal amount to be redeemed if less than the entire unpaid principal amount hereof, and the place or places where the Mortgage Notes may be surrendered if the entire principal amount hereof is to be redeemed. The Redemption Price of each Mortgage Note shall be equal to the unpaid principal amount hereof together with interest accrued thereon to the Redemption Date; together with, in certain circumstances more fully described in the Indenture, a premium, equal to the Make-Whole Premium (as defined in, and calculated by an Independent Investment Banker in accordance with, the Indenture). Any redemption of this Mortgage Note only in part shall be effected by the payment to the Holder (without the necessity of presentation or surrender of this Mortgage Note on the part of the Holder) of the amount necessary to effect such redemption in accordance with Article VI of the Indenture and the Corporate Indenture Trustee shall note on its records the fact of such payment and the amount of the principal amount of, and each remaining Installment Payment Amount of, this Mortgage Note remaining unpaid after such payment. Such notation, in the absence of manifest error, shall be conclusive evidence of the amount of such payment and the remaining unpaid principal amount, and each remaining Installment Payment Amount of, of this Mortgage Note and shall be binding upon the Holder and all subsequent Holders of this Mortgage Note issued upon registration of a transfer thereof or in exchange therefor. As a result of any such redemption in part, each subsequent Installment Payment Amount shall, effective as of the Installment Payment Date immediately following the Redemption Date, automatically (without further act) be reduced (but not below zero) by the percentage that the total aggregate unpaid principal portion of the redemption amount of this Mortgage Note and the other Mortgage Notes issued pursuant to the Indenture being redeemed bears to the total -6- 138 aggregate unpaid principal amount of this Mortgage Notes and the other Mortgage Note issued pursuant to the Indenture immediately before such redemption. Under Section 3.08 of the Indenture, the Company is, under certain circumstances, permitted to assume all of the liabilities and obligations of the Owner Trust under the terms of this Mortgage Note, and liabililities of the Owner Trust under the Indenture. In the event the Company assumes, on a full recourse basis, all of such liabilities and obligations, the lien of the Indenture on the Property (as defined in the Indenture) will continue except as provided in the next sentence. If certain legal opinions described in Section 3.08(b) of the Indenture are rendered, this Mortgage Note and the other Mortgage Notes issued under the Indenture will become general unsecured obligations of the Company, the lien on the Property will be released, and there will be a restatement of the Indenture so it shall thereafter contain terms which are essentially the same (except as provided in the Indenture) as those set forth in the Company's indenture, dated February 1, 1985, by and between the Company and The Bank of New York, as trustee, for certain unsecured debt obligations of the Company. In either event, the Company will execute an assumption of this Mortgage Note. As a result of any such assumption, the Owner Trust will be automatically released from any and all liabilities and obligations hereunder and under the Indenture. Reference is made to the Indenture and all supplements and amendments thereto (a copy of which is on file with the Corporate Indenture Trustee at its principal corporate trust office) for the definitions of capitalized terms used but not defined herein and for a more complete statement of the terms and provisions thereof, including a statement of the properties conveyed, pledged and assigned thereby, the nature and extent of the security, the respective rights of the Owner Trust, the Indenture Trustees and the Holders, and the terms upon which the Mortgage Notes are, and are to be, executed and delivered, to all of which terms and conditions in the Indenture each Holder hereof agrees by its acceptance of this Mortgage Note. In the event of any conflict or inconsistency between the provisions of this Mortgage Note and the Indenture, the Indenture will control. All payments of principal, premium, if any, and interest to be made hereunder and under the Indenture (other than payments made in connection with optional redemptions by the Owner Trust and payments made in connection with the exercise of cure rights by the Owner Trust), shall not be required to be made except from the Indenture Estate or the income and proceeds received by the Indenture Trustees therefrom and shall be made in accordance with the terms of Article II of the Indenture. Each Holder hereof, by its acceptance of this Mortgage Note, agrees (x) that except as expressly provided above, it will look solely to the Indenture Estate or the income and proceeds received by the Indenture Trustees therefrom, to the extent available for distribution to the Holder hereof as provided in the Indenture and (y) that neither the Owner Trust nor the Owner Participant is liable, and neither the Owner Trustees nor the Indenture Trustees are liable in their individual capacities, to the Holder hereof or, in the case of the Owner Trust and the Owner Trustees, to the Indenture Trustees, for any amounts payable under this Mortgage Note or the Indenture or, except as provided in the Indenture with respect to the -7- 139 Owner Trust and the Owner Trustees, or the Indenture Trustees, for any liability under the Indenture. If an Indenture Event of Default shall occur and be continuing, subject to the terms of the Indenture the principal of this Mortgage Note may be declared due and payable in the manner and with the effect provided in the Indenture, and the Indenture Trustees may, in certain circumstances, take possession of all or any part of the Indenture Estate and sell all or part of the Indenture Estate at public or private sale, as the Indenture Trustees may determine, or otherwise dispose of, hold, use, operate, lease to others or keep idle all or part of the Indenture Estate as the Indenture Trustees in their sole discretion may determine; provided, however, the Indenture Trustees shall not be obligated to use or operate all or part of the Indenture Estate directly or indirectly by themselves or through agents or representatives or to lease, license or otherwise permit or provide for the use or operation of all or part of the Indenture Estate by others with title remaining in the Indenture Trustees without adequate insurance or indemnification for liability for loss or damage to such Indenture Estate and for public liability and property damage as provided in the Indenture. The Indenture provides that in certain events any declaration of acceleration of the Mortgage Notes and its consequences may be rescinded by the Holders of at least a majority in aggregate principal amount of Outstanding Mortgage Notes. Moreover, if, and only if, a Lease Event of Default shall occur, the Indenture Trustees may declare the Lease to be in default, and may, to the exclusion of the Owner Trust, exercise one or more of the remedies of the Lessor provided in the Lease, subject to certain requirements and limitations set forth in the Indenture. The Owner Trust may, subject to certain limitations set forth in the Indenture, cure a default by the Company under the Lease arising from the failure of the Company to make any Basic Rent payments under the Lease if such failure shall constitute a Lease Event of Default and the Owner Trust shall not have previously effected on behalf of the Company three such consecutive payments or five such payments cumulatively. The Owner Trust may, subject to certain limitations set forth in the Indenture, cure any other default by the Company in the performance of its obligations under the Lease (i) which can be cured solely by the payment of money by making such payment on behalf of the Company and (ii) other than a default which can be effected by the payment of money, by taking such action as may otherwise be required under any covenant, condition or agreement to be performed or observed by the Company under the Lease. The right of the Holder hereof to institute an action for any remedy under the Indenture is subject to certain restrictions specified in the Indenture, except that the right of the Holder of this Mortgage Note to receive payment of the principal of and interest and the premium if any on this Mortgage Note on the respective due dates or the Redemption Price on any Redemption Date, and to institute suit for the enforcement of any such payment, shall not be impaired or affected without the consent of the Holder. Notwithstanding anything to the contrary herein, (i) no Holder shall have the right to enforce any judgment or otherwise exercise remedies against -8- 140 certain indemnity and reimbursement payments to which the Owner Trust or the Owner Participant may be entitled under the terms of the lease of the Property (which are referred to in the Indenture as the "Excepted Rights and Payments"), and (ii) no one or more Holders of the Mortgage Notes shall have any right in any manner whatever by virtue of, or by availing of, any provision of the Indenture to affect, disturb or prejudice the rights of any other Holders of the Mortgage Notes, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under the Indenture, except in the manner therein provided and for the ratable benefit of all the Holders. The Mortgage Notes are issuable only as registered Mortgage Notes without coupons in denominations of $1,000,000 and integral multiples thereof (provided that one Mortgage Note maturing on each Maturity Date may be in a different principal amount in order to represent the balance of the principal indebtedness evidenced by all Mortgage Notes maturing on such Maturity Date). So long as any of the Mortgage Notes remain Outstanding, the Corporate Indenture Trustee will maintain an office or agency in New York, New York where the Mortgage Notes may be presented for payment, registration of transfer and exchange as provided in the Indenture. As provided in the Indenture and subject to certain limitations therein, this Mortgage Note is transferable, and upon surrender of this Mortgage Note for registration of transfer at the principal corporate trust office of the Corporate Indenture Trustee, or at the office or agency maintained for such purposes, duly endorsed by, or accompanied by a written instrument of transfer in form satisfactory to the Owner Trust and the Corporate Indenture Trustee duly executed by, the Holder or his/her attorney-in-fact duly authorized in writing, one or more new Mortgage Notes having the same Maturity Date, Installment Payment Dates, scheduled aggregate Installment Payment Amounts, Interest Payment Dates and interest rate and of authorized denominations and for the same aggregate principal amount will be issued to the designated transferee or transferees. As a condition to any such transfer the Corporate Indenture Trustee shall require evidence satisfactory to it as to the compliance of any such transfer with the Securities Act and shall not permit any transfer if, in the opinion of counsel to the Company or the Owner Trust, the transfer would be required to be registered thereunder. As provided in the Indenture and subject to certain limitations therein, the Mortgage Notes are exchangeable for an equal aggregate principal amount of Mortgage Notes having the same Maturity Date, Installment Payment Dates, scheduled aggregate Installment Payment Amounts, Interest Payment Dates, interest rate and of authorized denominations, as requested by the Holder surrendering the same, upon presentation thereof for such purpose at the principal corporate trust office of the Corporate Indenture Trustee, or at an office or agency maintained for such purpose. No service charge to the Holder shall be made for any such registration of transfer or exchange, but the Corporate Indenture Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. -9- 141 Prior to the due presentment for registration of transfer of this Mortgage Note, the Owner Trust, the Indenture Trustees, any agent of the Owner Trust or the Indenture Trustees, and the Registrar, may deem and treat the person in whose name this Mortgage Note is registered as the absolute owner hereof for all purposes whether or not this Mortgage Note is overdue, and neither the Owner Trust, the Indenture Trustees (nor any agent of the Owner Trust or the Indenture Trustees), nor the Registrar, shall be affected by notice to the contrary. Except as provided in the Indenture, the Indenture and the Mortgage Notes shall be construed in accordance with and governed by the laws of the State of New York. -10- 142 SCHEDULE I Installment Payment Installment Payment Date Percentage ___________ ________% ___________ ________% ___________ ________% ___________ ________% ___________ ________% ___________ ________% ___________ ________% ___________ ________% [Repeat as required] [Repeat as required] -11- EX-4.5 5 EXHIBIT 4.5 1 EXHIBIT 4.5 PARTICIPATION AGREEMENT among KMART CORPORATION, as Tenant ____________________________________ as Owner Participant ____________________________________, as Owner Participant and as Owner Participant Parent WILMINGTON TRUST COMPANY, not in its individual capacity (except as expressly stated herein) but solely as Owner Trustee under 16 separate Trust Agreements with the related Owner Participant dated as of the date hereof, as Owner Trustee WILLIAM J. WADE, not in his individual capacity (except as expressly stated herein) but solely as Owner Trustee of Real Estate Finance Trust 1995-K-4, 1995-K-15 and 1995-K-17 REAL ESTATE FINANCE TRUST 1995-K-3, 1995-K-4, 1995-K-5, 1995-K-6, 1995-K-7, 1995-K-8, 1995-K-9, 1995-K-10, 1995-K-12, 1995-K-14, 1995-K-15, 1995-K-16, 1995-K-17, 1995-K-18, 1995-K-19 and 1995-K-20, Delaware business trusts created under the Trust Agreements, as Landlord THE BANK OF NEW YORK and TODD N. NIEMY, acting not individually but solely as trustees under 16 instruments captioned "Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement," dated as of the date hereof, as Indenture Trustee REMAINDERMART LIMITED PARTNERSHIP, as Remainderman Participant WILMINGTON TRUST COMPANY, not in its individual capacity (except as expressly stated herein) but solely as Remainderman Trustee under the Remainderman Trust Agreement with Remainderman Participant dated as of the date hereof, and THE REMAINDERMART TRUST, a Delaware business trust created under the Remainderman Trust Agreement, as Remainderman Dated as of April __, 1995 2 TABLE OF CONTENTS
Article Page ------- ---- 1. CERTAIN DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2. RESTRICTION OF TRANSFERS BY OWNER PARTICIPANT AND LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. OWNER PARTICIPANT AS COMPETITOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4. TRANSFER BY REMAINDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 5. OWNER PARTICIPANT COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11 6. COVENANTS OF TENANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12 7. LANDLORD COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15 8. COVENANTS OF OWNER TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16 9. COVENANTS OF INDENTURE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 10. COVENANTS OF REMAINDERMAN PARTICIPANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 11. COVENANTS OF REMAINDERMAN TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17 12. COVENANTS OF REMAINDER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 13. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 14. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37 15. SEVERABILITY; BINDING EFFECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38 16. INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 17. PAYMENT OF EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 18. TERMINATION OR REVOCATION OF TRUST UNDER TRUST AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39 19. EXCHANGE OF OBLIGATION OF LANDLORD BY THE TENANT . . . . . . . . . . . . . . . . . . . . . . . . .40 20. INTERIM INTEREST PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 21. BASIC RENTAL ADJUSTMENTS AFTER CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40 22. GENERAL INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
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Article Page - ------- ---- 23. GENERAL TAX INDEMNITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 24. TRUSTEE LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 25. EXTENT OF INTEREST OF NOTEHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 26. NO MERGER OF TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 27. REMAINDERMAN PARTICIPANT'S GRANT OF RIGHT OF FIRST OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 28. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 29. FURTHER ASSURANCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 30. SURVIVAL OF AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 31. ENVIRONMENTAL REPORTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 32. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 33. NO WAIVER; REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 34. INTENT OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 35. METHOD OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Exhibit A - Form of Assignment and Assumption Agreement Exhibit B - Form of Company Indenture - ii - 4 INDEX OF DEFINED TERMS
Term Where Defined - ---- ------------- Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indenture Business Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indenture Competitor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2 & 3 Competitor Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3 Competitor Option Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3 Competitor Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3 Corporate Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indenture Corporate Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction Estate of Years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease Event of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 6 Exercise Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3 Fee Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2 GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 13 Governmental Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 13 Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Ground Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Option Agreement Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indenture Improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction Indenture Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction Individual Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction Institution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2 Landlord . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction Lease . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Recitals Legal Requirement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Lessor Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indenture Material Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease Maturity Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indenture Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Lease Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 14 Operative Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Option Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Owner Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction Owner Participant Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction Owner Participant Parent Guaranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Owner Participant Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 2 Owner Participant 6-Month Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 3 Owner Participant's Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Section 21 Owner Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Introduction Owner Trustee Deeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Owner Trustee Purchase Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Purchase Agreement Pass Through Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indenture Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Indenture
- iii - 5
Term Where Defined - ---- ------------- Personalty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Purchase Agreement Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals Purchase Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Recitals Remainderman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction Remainderman Participant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction Remainderman Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction Remainderman Purchase Deeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Purchase Agreement Remainderman Purchase Lien . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Lease Rent Payment Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Lease Rental Adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 21 Sale Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 3 Tenant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction Tenant Competitor Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 3 Tenant Supplement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 3 Third Party Buyer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 3 Third Party Competitor Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 3 Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 2 Tripartite Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Purchase Agreement Trust Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Introduction Trust Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 2 U.S. Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Section 2
- iv - 6 PARTICIPATION AGREEMENT AGREEMENT, DATED AS OF APRIL ___, 1995, among KMART CORPORATION, a Michigan corporation, having an address at 3100 West Big Beaver Road, Troy, Michigan 48084 ("Tenant"), _________________, a Delaware corporation, having an address at c/o ________________________________________________ (an "Owner Participant"), _______________________________, a Delaware corporation, having an address at _________________________ (an "Owner Participant" and "Owner Participant Parent"), REAL ESTATE FINANCE TRUST 1995-K-3, REAL ESTATE FINANCE TRUST 1995-K-4, REAL ESTATE FINANCE TRUST 1995-K-5, REAL ESTATE FINANCE TRUST 1995-K-6, REAL ESTATE FINANCE TRUST 1995-K-7, REAL ESTATE FINANCE TRUST 1995-K-8, REAL ESTATE FINANCE TRUST 1995-K-9, REAL ESTATE FINANCE TRUST 1995-K-10, REAL ESTATE FINANCE TRUST 1995-K-12, REAL ESTATE FINANCE TRUST 1995-K-14, REAL ESTATE FINANCE TRUST 1995-K-15, REAL ESTATE FINANCE TRUST 1995-K-16, REAL ESTATE FINANCE TRUST 1995-K-17, REAL ESTATE FINANCE TRUST 1995-K-18, REAL ESTATE FINANCE TRUST 1995-K-19 and REAL ESTATE FINANCE TRUST 1995-K-20, Delaware business trusts created under 16 separate Trust Agreements, dated as of even date herewith, for the benefit of the related Owner Participant (the "Trust Agreements"), having an address at c/o Wilmington Trust Company, Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attn: Corporate Trust Administration (collectively, or with respect to a single entity, "Landlord"), WILMINGTON TRUST COMPANY ("Corporate Owner Trustee") and, with respect to Real Estate Finance Trust 1995-K-4, 1995-K-15 and 1995-K-17, WILLIAM J. WADE ("Individual Owner Trustee"), acting not individually (except as expressly stated herein) but solely as Owner Trustee (collectively "Owner Trustee") under the Trust Agreements with the related Owner Participant, having an address at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, THE BANK OF NEW YORK, a New York banking corporation ("Corporate Indenture Trustee") and TODD N. NIEMY ("Individual Indenture Trustee"), having an address at 101 Barclay Street, New York, New York 10286, acting not individually (except as expressly provided herein) but solely as trustees (collectively, the "Indenture Trustee") under 16 instruments captioned Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement, dated as of even date herewith, between the related Landlord and the Indenture Trustee (collectively, or, with respect to a single instrument in respect of a single Property, the "Indenture"), REMAINDERMART LIMITED PARTNERSHIP, a Connecticut limited partnership, having an address at c/o Relco, Inc., 3 Stamford Landing, 46 Southfield Avenue, Stamford, Connecticut 06092 ("Remainderman Participant"), THE REMAINDERMART TRUST, a Delaware business trust created under the Remainderman Trust Agreement, dated as of even date herewith, for the benefit of Remainderman Participant (the "Remainderman Trust Agreement"), having an address at c/o Wilmington Trust Company, Rodney Square North, 1100 7 North Market Street, Wilmington, Delaware 19890-0001, Attn: Corporate Trust Department ("Remainderman") and WILMINGTON TRUST COMPANY, not in its individual capacity (except as expressly stated herein) but solely as Remainderman Trustee under the Remainderman Trust Agreement with Remainderman Participant, having an address at Rodney Square North, 1100 North Market Street, Wilmington, Delaware 19890-0001, Attn: Corporate Trust Department ("Remainderman Trustee"). W I T N E S S E T H: WHEREAS, the parties hereto have, as of the date hereof, entered into certain agreements, including a certain Agreement for Sale of Real Estate (the "Purchase Agreement") among Tenant, as seller, Landlord, as purchaser and Remainderman as remainder purchaser, and 16 leases (collectively, the "Leases", or with respect to a single lease in respect of a single Property, the "Lease") between the related Landlord, as lessor, and Tenant, as lessee, pursuant to which property more particularly described therein (individually, a "Property" and collectively, the "Properties") has been leased by Landlord to Tenant; and WHEREAS, the parties hereto desire to enter into this Agreement in order to undertake certain obligations and to clarify certain of their obligations pursuant to the Lease and the other Operative Documents. NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Certain Definitions. Capitalized terms used herein, unless otherwise defined, shall have the same meanings ascribed to them in the Lease, except to the extent of a specific reference to another Operative Document in connection with such term or in the Index of Defined Terms. 2. Restriction on Transfers by Owner Participant and Landlord. (a) Notwithstanding anything to the contrary contained in this Agreement or any other Operative Document, no Owner Participant shall (except as permitted by Sections 2(b), (c) and (f)) Transfer all or any part of its Owner Participant Interest by transferring the beneficial interest with respect to such Property to any Person (other than Tenant pursuant to Section 3 or pursuant to the terms of the Lease, including Article 21 thereof). "Owner Participant Interest" means, with respect to each Property, the related Owner Participant's right, title and interest in and to the related Trust Agreement, the trust estate created and held under - 3 - 8 such Trust Agreement, as defined in Section 2.02 of such Trust Agreement (the "Trust Estate"), such Property and the Operative Documents (to the extent related to such Property). "Transfer" means a sale, assignment, conveyance, mortgaging, grant of security interest or other transfer. Notwithstanding anything to the contrary contained in this Agreement, the appointment of a co-trustee or a successor to a trustee or co-trustee of Landlord or any merger, conversion, consolidation or sale of substantially all of the corporate trust business of any trustee or co-trustee of Landlord shall not constitute a Transfer under this Agreement. (b) Each Owner Participant may effect a Transfer of all (but not less than all) of its interest in one or more Properties through the assignment of its beneficial interest therein or may Transfer all (but not less than all) of its Owner Participant Interest upon not less than thirty (30) days' prior written notice from such Owner Participant to Tenant, Owner Trustee and Indenture Trustee if: (i) the transferee is (I)(A) a United States Person for federal income tax purposes (a "U.S. Person"), (B) any bank, finance company, insurance company, credit company, leasing corporation or other financial institution or institutional investor (an "Institution") and (C) either (x) has a tangible net worth (computed in accordance with generally accepted accounting principles consistently applied) of at least $75,000,000, or (y) provides a full and unconditional guaranty, in a form reasonably satisfactory to Tenant and Owner Trustee, of all of such transferee's obligations by an Institution or a corporation which has a tangible net worth (as so computed) of at least $75,000,000, provided, that this clause (C) shall not be applicable to any holder of a lien for the benefit of the holders of the Notes as provided in the Operative Documents (a "Fee Mortgage") permitted under the Lease, the designee of any such holder or any purchaser or other transferee of such holder or its designee at foreclosure or by deed or assignment in lieu thereof or (II) a wholly-owned subsidiary of Owner Participant Parent which is a U.S. Person, provided, that if the subsidiary does not have a tangible net worth of at least $75,000,000, Owner Participant Parent shall provide a guaranty, in substantially the form of the Owner Participant Parent Guaranty, of all of such transferee's obligations; (ii) the transferee enters into an agreement or agreements (substantially in the form attached as Exhibit A) whereby the transferee (A) confirms that it has the requisite power and authority to enter into and carry out the transactions contemplated hereby and that it shall be deemed a party to this Agreement, the Tax Indemnification Agreement, the related Trust Agreements and each and every Operative - 4 - 9 Document entered into by the transferring Owner Participant (except if the transferee is any purchaser or other transferee of the holder of a Fee Mortgage permitted under the Lease or its designee at foreclosure or by deed or assignment in lieu thereof, then such confirmation shall not apply to the Tax Indemnification Agreement or any other Operative Document (other than the related Trust Agreements) not assigned or pledged to such holder of a Fee Mortgage), (B) agrees to be bound by all the terms of, and to undertake all the obligations of the transferring Owner Participant contained in this Agreement, the Tax Indemnification Agreement, the related Trust Agreements and any such Operative Document with respect to the interest being transferred, and (C) makes the representations and warranties in substantially the form made in Section 13(b) by such Owner Participant (with such changes as are appropriate to reflect such transferee's form of organization), provided that this clause (ii) shall not apply to the holder of a Fee Mortgage permitted under the Lease or any designee of such holder; (iii) provided that no Material Default under any Lease has occurred and is continuing, the transferee is not, and is not an Affiliate of, a Competitor of Tenant; for purposes of this Section 2, "Competitor" means any national general merchandise retailer operating a business similar to Kmart as of the Closing Date; provided, a transferee and any of its Affiliates shall not be deemed to be a Competitor solely by reason of their ownership of securities or other interests of any entity that is a national general merchandise retailer operating a business similar to Kmart so long as either (A) in the case of a transferee that is an Institution, (a) such securities are held as portfolio investments and (b) either (1) the consolidated sales of such entity for its latest fiscal year were less than $100,000,000.00, (2) such transferee or its Affiliates do not beneficially own in the aggregate more than a 25% equity interest in such entity on a fully diluted basis and such entity is not an Affiliate (other than by virtue of the rights and powers that arise solely from the ownership of such equity interest) of such transferee or any of its Affiliates or (3) the book value of the interest of the transferee and its Affiliates in such entity does not exceed 1% of the consolidated assets of the transferee and its Affiliates determined at the end of its latest fiscal year or (B) in all other cases, (a) such entity is not an Affiliate of such transferee or any of its Affiliates and (b) the transferee and its Affiliates do not beneficially own in the aggregate more than a 5% equity interest in such entity on a fully diluted basis; (iv) the Transfer does not violate or create a relationship that would be in violation of any applicable law, - 5 - 10 order or regulation and does not constitute a "prohibited transaction" within the meaning of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"); (v) no registration pursuant to the Securities Act of 1933, as amended, and the rules and regulations thereunder is required in connection with the Transfer; and (vi) Owner Participant and the transferee furnish to Tenant and Owner Trustee evidence of, and legal opinions of counsel reasonably acceptable to Tenant and Owner Trustee with respect to, compliance with the immediately preceding clauses (ii)(A) and (v) (in form and substance reasonably satisfactory to Tenant). (c) Notwithstanding anything to the contrary contained in this Section 2, each Owner Participant may effect a Transfer of all (but not less than all) of its interest in one or more Properties or all (but not less than all) of its Owner Participant Interest, in each case as security for the Notes. (d) Notwithstanding anything to the contrary contained in this Agreement or any other Operative Document and provided no Material Default under any Lease has occurred and is continuing, but subject to any other restrictions contained in the Indenture, Landlord shall not Transfer all or any part of its right, title or interest in and to any Property or any Operative Document to any Person (other than Tenant pursuant to this Agreement or the Lease) during the term of the Lease with respect to such Property except (i) as security for the Notes, (ii) in connection with a Transfer contemplated by the Lease (including as security to any holder of a Fee Mortgage permitted under the Lease and including pursuant to an exercise of remedies under Article 21 of the Lease), (iii) in connection with a Transfer permitted by Section 3, or (iv) in connection with the foreclosure (or deed or assignment in lieu of foreclosure) by any holder (or designee of any holder) of a Fee Mortgage permitted under the Lease; provided, that, after the Notes shall no longer be outstanding, each Owner Participant shall have the right to terminate its related Trust Agreements and direct Landlord to transfer Landlord's right, title or interest in and to the related Properties, Trust Estate, this Agreement, Trust Agreements, the Tax Indemnification Agreement or any other Operative Document to such Owner Participant and to amend, supplement or modify any of the Operative Documents or to enter into such other agreements as such Owner Participant deems reasonably necessary to evidence such transactions, in each case, in form and substance reasonably satisfactory to Tenant. (e) The transferring Owner Participant shall pay all reasonable costs and expenses (including, without limitation, those of Tenant) incurred in connection with any Transfer pursuant to - 6 - 11 Section 2(b) or, if such costs and expenses are incurred by any other party, they shall be reimbursed by such Owner Participant to such party, within 30 days following demand. Tenant shall pay all reasonable costs and expenses (including, without limitation, those of the affected Owner Participant) incurred in connection with any Transfer pursuant to Sections 2(c), 2(d)(i), (ii), (iii) and (iv) (but only a foreclosure in connection with an Event of Default under the Lease) or, if such costs and expenses are incurred by any other party, they shall be reimbursed by Tenant to such party, within 30 days following demand. The payment of expenses in connection with a Transfer pursuant to Section 2(d)(ii) shall be governed by the provisions of this Section 2(e), except as otherwise expressly provided in the Lease. (f) Notwithstanding anything to the contrary contained in this Agreement or any other Operative Document, upon or at any time after termination of the Lease with respect to a Property, no provision of this Agreement (including, without limitation, this Section 2), other than Sections 13, 14, 15, 22, 23 and 30 shall apply with respect to such Property or interest thereon or with respect thereto. (g) From and after any Transfer effected in accordance with this Section 2, the transferee shall be deemed an "Owner Participant" (or, in the case of a complete Transfer by each Owner Participant, the "Owner Participant") for all purposes of the Operative Documents and shall be deemed to have paid that portion of the [equity portion of the Owner Trustee Purchase Price allocable to the transferring Owner Participant], or in the case of a partial Transfer, that portion of the [equity portion of the Owner Trustee Purchase Price] previously made by the transferring Owner Participant to the extent attributable to the interest transferred to it, and each reference to the transferring Owner Participant contained in the Operative Documents shall be deemed to include a reference to the transferee for all purposes. Notwithstanding the foregoing provisions of this Section 2, after any Transfer effected in accordance with this Section 2, the transferring Owner Participant shall not be released from any obligation arising or accruing prior to such Transfer, but shall not be liable for any obligation arising or accruing after such Transfer to the extent of such Transfer. Notwithstanding any Transfer effected in accordance with this Section 2, the transferring Owner Participant shall nevertheless be entitled to all benefits accrued and all rights vested or arising with respect to the period prior to such Transfer, including, without limitation, any right to indemnification under this Agreement or the Tax Indemnification Agreement, to the exclusion of the transferee unless the transferring Owner Participant shall have assigned such benefits and rights to the transferee and provided - 7 - 12 evidence of such assignment in form and substance satisfactory to Tenant. Notwithstanding anything in this Section 2 to the contrary, the transfer restrictions set forth in this Section 2 shall not apply to any transfer of stock by the stockholders of any Owner Participant or any Affiliate of such Owner Participant. Unless as may otherwise be specifically provided, and except for any successor or assign that is an Affiliate of any Owner Participant, the foregoing sentence shall not be binding upon, inure to the benefit of, or be enforceable by any successor or assign of any of the Owner Participants named herein. 3. Owner Participant as Competitor. (a) Notwithstanding anything to the contrary contained in this Agreement or any other Operative Document, if any Owner Participant enters a new line of business and thereby becomes a Competitor (as defined in subsection (h) below) (or an Affiliate of a Competitor) of Tenant at any time during the term of the Lease, Tenant shall have the exclusive and irrevocable option (the "Competitor Option"), so long as no Material Default or Event of Default under any Lease has occurred and is continuing, for a period of one year (the "Competitor Option Period") after an executive officer of Tenant having oversight of the transactions contemplated by the Operative Documents has actual knowledge that such Owner Participant has become a Competitor (or an Affiliate of a Competitor), to cause such Owner Participant to sell all (but not less than all) of its Owner Participant Interest, all (but not less than all) of the related Properties or all (but not less than all) of its interest in all of the related Properties as provided in this Section 3. (b) The Competitor Option shall be exercisable by an irrevocable exercise notice (an "Exercise Notice") delivered by Tenant to the affected Owner Participant and the Indenture Trustee. The Exercise Notice shall specify the date on which Tenant obtained knowledge that such Owner Participant has become a Competitor as set forth in subsection (a) above. (c) The affected Owner Participant shall have the sole right for a period of 6 months following receipt of the Exercise Notice ("Owner Participant 6-Month Period") in which to sell its Owner Participant Interest, the related Properties or its interest in the related Properties to a transferee other than Tenant or its affiliates pursuant to Section 2(b) hereof. (d) In the event that a sale has not occurred pursuant to subsection (c), Tenant shall, during the period beginning on the - 8 - 13 day following expiration of the Owner Participant 6-Month Period and ending on the last day of the Competitor Option Period, obtain cash bids for the purchase of the Owner Participant Interest or the Properties from persons other than Tenant or its affiliates that meet the requirements set forth in Section 2(b) hereof ("Third Party Buyer"). If Tenant obtains a bid acceptable to Tenant and Owner Participant, Third Party Buyer shall purchase the Owner Participant Interest or the Properties, as the case may be, as set forth in subsection (e) below. If Tenant is unable to obtain an acceptable bid from a Third Party Buyer before the end of the Competitor Option Period, Tenant shall purchase the Owner Participant Interest or the Properties, as the case may be, as set forth in subsection (e) below. In either case, Tenant shall deliver a notice (the "Sale Notice") to Owner Participant and Indenture Trustee that Tenant or Third Party Buyer, as the case may be, has elected to purchase the Owner Participant Interest or the Properties. (e) If Tenant shall deliver the Sale Notice, Landlord shall sell either to Third Party Buyer (a "Third Party Competitor Sale") or Tenant (a "Tenant Competitor Sale"), as the case may be, the Owner Participant Interest or the Properties for the price defined below (the "Competitor Price"). In the event of a Third Party Competitor Sale, (A) the Competitor Price payable by the Third Party Buyer to Landlord shall be an amount equal to the bid acceptable to Tenant and Owner Participant as set forth in subsection (d) hereof and (B) Tenant shall pay or cause to be paid to the Landlord, at the closing of the Third Party Competitor Sale, an amount (the "Tenant Supplement") equal to the excess, if any, of Termination Value determined as of the closing of the Third Party Competitor Sale and in accordance with Schedule D of the Lease (as adjusted as the case may be) over the net proceeds from such Third Party Competitor Sale. In the event of a Tenant Competitor Sale, the Competitor Price payable by Tenant to Landlord shall be an amount equal to Termination Value determined as of the closing of the Tenant Competitor Sale and in accordance with Schedule D of the Lease (as adjusted as the case may be). The closing of any sale pursuant to a Sale Notice shall take place at the principal office of Tenant on the next scheduled Rent Payment Date occurring at least 40 days after the date of the Sale Notice. (f) At any closing of any sale pursuant to this Section 3, Tenant shall pay or cause to be paid in immediately available funds to the same account to which Basic Rent is payable (A) to Landlord, any accrued but unpaid installments of Basic Rent (other than any portion of Basic Rent payable in advance) and (B) to Landlord or the Person entitled thereto, any accrued but unpaid Additional Rent that is payable under the Lease (including, but not limited to, an amount equal to the Make-Whole Premium, if any, on the Notes). In the case of a Third Party Competitor Sale or a Tenant Competitor Sale, the purchaser of either the Properties or the Owner Participant Interest may elect to take title to the - 9 - 14 Properties or to purchase the Owner Participant Interest, in each case, subject to the lien of the Indenture or to cause the Notes to be redeemed in accordance with Section __ of the Indenture. In the case of any Tenant Competitor Sale, if Tenant elects to purchase the Owner Participant Interest or the Properties subject to the lien of the Indenture, Tenant shall assume in accordance with and subject to the terms of the Indenture (by instruments reasonably satisfactory to Landlord and the Indenture Trustee) personal liability for the payment of the Notes. In the event of any purchase hereunder subject to the lien of the Indenture, an amount equal to the principal amount of the Notes secured by such Properties then outstanding plus accrued interest thereon shall be credited against the Competitor Price or, in the case of a sale pursuant to section 3(c), the sale price payable hereunder. Upon receipt of the Competitor Price, the Tenant Supplement, if any, and all such accrued but unpaid Basic Rent and Additional Rent, Landlord shall deliver to Tenant, Third Party Buyer or any other purchaser hereunder limited warranty deeds to the Properties and any other instruments necessary to convey title thereto, subject only to Permitted Liens (other than (A) those specified in clause (b) of the definition thereof in Article [19] of the Lease and (B) any Fee Mortgage (other than the Indenture) and any liens or encumbrances that Tenant is obligated (or which, if filed, Tenant would be obligated) to discharge of record pursuant to Article [19] of the Lease). (g) Tenant shall pay all costs and expenses incident to such conveyance, including, without limitation, recording fees, Landlord's and Owner Participant's reasonable attorneys' fees, Landlord's and Owner Participant's reasonable out-of-pocket expenses and all applicable transfer taxes which may be imposed by reason of the conveyance and delivery of such deeds and other instruments. (h) For purposes of this Section 3, "Competitor" means any national general merchandise retailer operating a business similar to Kmart as of the Closing Date; provided that Owner Participant and any of its Affiliates shall not be deemed to be a Competitor solely by reason of their ownership of securities or other interests of any entity that is a national general merchandise retailer so long as either (A) the consolidated sales of such entity for its latest fiscal year were less than $100,000,000.00, (B) Owner Participant or its Affiliates do not beneficially own in the aggregate more than a 10% equity interest in such entity on a fully diluted basis and such entity is not an Affiliate (other than by virtue of the rights and powers that arise solely from the ownership of such equity interest) of Owner Participant or any of its Affiliates or (C) the book value of the interest of Owner Participant and its Affiliates in such entity does not exceed 1% of the consolidated assets of Owner Participant and its Affiliates determined at the end of its latest fiscal year. - 10 - 15 (i) Notwithstanding the foregoing provisions of this Section 3, after any sale effected in accordance with this Section 3, the transferring Owner Participant shall not be released from any obligation arising or accruing prior to such sale, but shall not be liable for any obligation arising or accruing after such sale to the extent of such sale. Notwithstanding any sale effected in accordance with this Section 3, the transferring Owner Participant shall nevertheless be entitled to all benefits accrued and all rights vested or arising with respect to the period prior to such sale, including, without limitation, any right to indemnification under this Agreement or the Tax Indemnification Agreement, to the exclusion of the transferee unless the transferring Owner Participant shall have assigned such benefits and rights to the transferee and provided evidence of such assignment in form and substance satisfactory to Tenant. 4. Transfers by Remainderman. Remainderman shall not Transfer all or any part of or interest in its interest in the Properties except pursuant to the Tripartite Agreement or the Option Agreement. 5. Owner Participant Covenants. Each Owner Participant covenants and agrees as follows: (a) Negative Covenants. Without limiting the generality of any other provision of this Agreement, Owner Participant shall not (i) Transfer its interest in the Trust Estate or any part thereof, except as permitted by Section 2, or (ii) create or suffer to be created, any Lessor Lien upon or against Owner Participant's interest in the Trust Estate or any part thereof except for any Lessor Lien in favor of the Indenture Trustee pursuant to the Operative Documents, and except for any Lessor Lien attributable to the Owner Participant that is being contested by Owner Participant in good faith and by appropriate proceedings diligently conducted, so long as such proceedings do not (A) involve any danger of the sale, forfeiture or loss of any Property or any part thereof or interest therein, (B) interfere with the use, possession or disposition of any Property or any part thereof or interest therein, (C) interfere with the payment of Rent, or (D) impair the validity, perfection or priority of the lien of the Indenture. After the termination of the Leases and payment in full of the related Notes, Owner Participant may create, incur, assume or suffer to exist any Lessor Liens attributable to it or any of its Affiliates on or against Owner Participant's interest in a Property or any part thereof or interest therein. (b) Affirmative Covenants. Owner Participant shall hold itself out as a legal entity separate and distinct from the Landlord, shall not commingle its assets with those of the Landlord, shall conduct business with Landlord only on an arm's-length basis except as may be specifically provided in the Trust - 11 - 16 Agreements, shall maintain books and records and bank accounts separate from the Landlord, shall file its own tax returns (except to the extent required or permitted by law, regulation or rule), and shall not take any action that would cause Landlord to violate its agreements under Section 3.05(b) of the Indenture. (c) Quiet Enjoyment. Owner Participant acknowledges and agrees that, unless an Event of Default shall have occurred and be continuing and the applicable Lease shall have been declared in default pursuant to Section [21] of such Lease, Tenant shall have the exclusive rights to possession, control, use and enjoyment of the Properties and Owner Participant will not take any action that would interrupt or interfere with Tenant's peaceable possession, control, use and enjoyment of any respective Property in any manner that is not otherwise prohibited by Article [23] of such Lease. (d) Compliance with and Amendment of Trust Agreements. Owner Participant agrees that (i) it shall comply with all of the terms of the Trust Agreements applicable to it and direct Owner Trustee to comply with all the terms of the Trust Agreements applicable to Owner Trustee and (ii) prior to the end of the Lease term, but without limiting its right to terminate the trust created under the Trust Agreements following the discharge of the lien of the Indenture, it shall not amend or supplement, or consent to any amendment of or supplement to the Trust Agreements and shall not permit Owner Trustee to amend, supplement or consent to any amendment of or supplement to, the Trust Agreements, in each case without the prior written consent of Tenant, unless such amendment or supplement would not adversely affect the rights or obligations of Tenant under this Agreement, the Lease or any other Operative Document or, so long as any of the Notes are outstanding, the validity, perfection or priority of the Lien of the Indenture and any supplemental indenture, or any rights of the Indenture Trustee under the Indenture or any supplemental indenture (in which case the prior written consent of the Indenture Trustee to such amendment or supplement also must be obtained). 6. Covenants of Tenant. Tenant covenants and agrees as follows: (a) Chief Executive Office. Tenant shall give Landlord and Indenture Trustee notice not less than 30 days before any relocation of its chief executive office or principal place of business from its present location, as identified herein, and any change in Tenant's legal structure, corporate name or the name under which it conducts its business, which notice shall be accompanied, to the extent required by applicable law, by original executed UCC amendment financing statements (each in form and substance reasonably satisfactory to Landlord and Indenture Trustee) to all UCC financing statements filed in connection with the transactions contemplated by the Operative Documents, and thereafter, promptly upon demand by Landlord or Indenture Trustee, Tenant shall execute and deliver to Landlord and Indenture Trustee - 12 - 17 such other documents (each in form and substance reasonably satisfactory to Landlord and Indenture Trustee) as either thereof may reasonably require. (b) UCC Statements. Upon the reasonable request of Landlord or Indenture Trustee from time to time, Tenant shall cause appropriate UCC protective financing statements and continuation statements with respect thereto (each in form and substance reasonably satisfactory to Indenture Trustee and Landlord), to be recorded and filed, as appropriate, in such manner and in such places, and will pay all costs, charges and taxes with respect to such recordation and filing and will comply with all applicable laws, statutes and regulations, as may be necessary or appropriate in order to establish, preserve and protect the interests and rights of Landlord under the Lease and the interests and rights of Indenture Trustee under the Indenture and Other Indenture Documents (as defined in the Indenture). (c) Financial Statements. During the term of the Lease, Tenant shall deliver to Landlord and Indenture Trustee within 45 days after filing thereof, copies of each Form 10-K and Form 10-Q which the Tenant files with the Securities and Exchange Commission; provided, that if Tenant shall no longer be required to file such reports, it shall deliver to Landlord and Indenture Trustee (i) annual audited financial statements prepared in accordance with generally accepted accounting principles within 120 days after the end of Tenant's fiscal year and (ii) unaudited financial statements within 90 days after the end of each of the first three fiscal quarters of Tenant's fiscal year. (d) Certificate. Tenant shall deliver to Landlord and Indenture Trustee within 120 days after the end of each fiscal year of Tenant, a certificate of Tenant signed by its Treasurer or Chief Financial Officer, to the effect that such officer has reviewed or caused to be reviewed by individuals under his supervision, this Agreement and the other Operative Documents to which Tenant is a party and has made, or has caused to be made under his supervision, a review of the transactions contemplated hereby and thereby and the condition of Tenant during such preceding fiscal year, and such review does not disclose the existence during such fiscal year nor does such officer have knowledge of the existence as at the date of such certificate, of any condition or event that constitutes a Default or an Event of Default or, if such condition or event existed or exists, specifying the nature and period of the existence thereof and any action that the Tenant has taken, is taking or proposes to take with respect thereto. (e) Notice of Certain Events. Tenant shall deliver to Landlord, Remainderman, Indenture Trustee and Owner Participant, promptly upon Tenant becoming aware of the existence thereof, notice specifying any condition that constitutes a Default, an - 13 - 18 Event of Default or an Event of Loss. "Event of Loss" shall mean a casualty under Article 14(e) or (f) of the Lease or a condemnation under Article 15(a) or (b) of the Lease. (f) Consolidation, Merger or Sale. Tenant shall not consolidate with any Person, merge into any Person, or convey, transfer, lease or otherwise dispose of to any Person all or substantially all of its assets in any single transaction (or series of related transactions), unless: (i) the surviving party shall be a corporation or organization organized under the laws of the United States of America, a state or commonwealth thereof or the District of Columbia and shall have assumed each obligation, and succeeded to each right, of Tenant under the Operative Documents to which Tenant is a party; (ii) the surviving party, if other than Tenant, immediately prior to such transaction, shall execute and deliver to each of the parties hereto an agreement, in form and substance reasonably satisfactory to each of Owner Participant and Indenture Trustee, containing the assumption by the surviving party of each obligation of Tenant under this Agreement and each other Operative Document to which, immediately prior to such transaction, Tenant was a party; (iii) the surviving party shall have delivered to each of the parties hereto an Officers' Certificate stating that such transaction complies with all the terms and conditions of this Section and that all Governmental Action, if any, required in connection with such transaction have been obtained; (iv) the surviving party shall represent and warrant to the parties, and shall have delivered to each of the parties hereto an opinion of counsel, in form and substance reasonably satisfactory to each of Remainderman, Owner Participant and Indenture Trustee, that (A) the surviving party is a corporation in good standing in the state of its incorporation and is qualified to do business in each state in which a Property is located; (B) all documents executed and delivered by the surviving party pursuant to this Section have been duly authorized, executed and delivered by the surviving party and constitute the valid, legal and binding obligations of the surviving party; and (C) all of the Operative Documents to which Tenant is a party will, upon the consummation of such transaction, be the valid, legal and binding obligations of the surviving party; and (v) such transaction shall not cause any material adverse Federal, state or local tax consequences to Landlord or Owner Participant (other than consequences for which Owner - 14 - 19 Participant and Landlord would be indemnified by Tenant pursuant to the terms of the Tax Indemnification Agreement, this Agreement or another written undertaking by Tenant, if any, to indemnify Owner Participant and Landlord). Upon the consummation of such transaction, the surviving party, if other than Tenant immediately prior thereto, shall succeed to, and be substituted for, and may exercise every right and power of, Tenant immediately prior to such transaction under each Operative Document to which Tenant was a party immediately prior to such transaction, with the same effect as if the surviving party had been named herein and therein, and Tenant shall have no further obligation under this Agreement or any other Operative Document. (g) Operating Lease. Tenant intends that each Lease be an operating Lease under applicable state law and agrees that it shall not take any action inconsistent with such position. (h) Tenant Not to Claim Tax Ownership Benefits. After the Closing Date with respect to any Property, Tenant will not claim tax ownership benefits with respect to such Property, or any interest therein for so long as Tenant shall not have reacquired title to such Property (it being understood by the parties that the foregoing is not intended to prevent Tenant from claiming tax benefits, if any, for leasehold improvements made at Tenant's expense after the Closing Date, which tax benefits Tenant, as lessee of such leasehold improvements, is entitled to claim under applicable tax law). (i) No Purchase of Notes. Tenant shall not acquire any interest in the Notes or the Certificates. 7. Landlord Covenants. Each Landlord covenants and agrees as follows: (a) ERISA. Each Landlord agrees that (i) it shall not permit any ERISA Plan sponsored or maintained by Landlord, any ERISA Affiliate or any PTE 89-88 Affiliate thereof to purchase or hold any Note or Certificate, and (ii) neither Landlord nor any PTE 89-88 Affiliate thereof shall act in a fiduciary capacity with respect to the purchase or holding by any ERISA Plan of any Note or Certificate, in either case (i) or (ii) which would constitute a non-exempt "prohibited transaction" within the meaning of ERISA Section 406 or Code Section 4975. "ERISA Affiliate" shall mean any entity treated as a single employer with any Person pursuant to Code Section 414(b), (c), (m) or (o); "ERISA Plan" shall mean an employee benefit plan (or its related trust) subject to Part 4 of Subtitle B of Title I of ERISA or a "plan" (or its related trust) within the meaning of Code section 4975(e)(1); and "PTE 89-88 - 15 - 20 Affiliate" shall mean an "affiliate" as defined in Prohibited Transaction Exemption 89-88. (b) Lessor Liens. Each Landlord hereby unconditionally agrees with and for the benefit of the parties to this Agreement that Landlord will not directly or indirectly create, incur, assume or suffer to exist any Lessor Lien on or against any part of the Indenture Estate, except for any Lessor Lien in favor of the Indenture Trustee pursuant to the Operative Documents, and Landlord agrees that it will at its own cost and expense (without right to indemnity under this Agreement) promptly take such action as may be necessary to duly discharge and satisfy in full all such Lessor Liens. Each Landlord hereby indemnifies and holds harmless Tenant, Remainderman, Owner Trustee, Indenture Trustee and each Owner Participant from and against any loss, cost or expense (including reasonable fees and expenses) which may be suffered or incurred by any of them as the result of the failure of Landlord to discharge and satisfy any such Lessor Liens created or incurred as a result of any action or inaction of Landlord. 8. Covenants of Owner Trustee. Owner Trustee, in its individual capacity solely with respect to (a) and (b) below, and otherwise in its trust capacity, covenants and agrees as follows: (a) Compliance with and Amendment of Trust Agreements. (i) Owner Trustee shall comply with all of the terms of the Trust Agreements applicable to it and (ii) prior to the end of the Lease term, it shall not amend or supplement or consent to any amendment of or supplement to, the Trust Agreements without the prior written consent of Tenant unless such amendment or supplement would not adversely affect the rights or obligations of Tenant under this Agreement, each Lease or any other Operative Document or, so long as any of the Notes are outstanding, the validity, perfection or priority of the Lien of the Indenture or any rights of the Indenture Trustee under the Indenture (in which case the prior written consent of the Indenture Trustee to such amendment or supplement also must be obtained). (b) Lessor Liens. Owner Trustee hereby unconditionally agrees with and for the benefit of the parties to this Agreement that Owner Trustee will not directly or indirectly create, incur, assume or suffer to exist any Lessor Lien attributable to Owner Trustee in its individual capacity on or against any part of the Indenture Estate, except for any Lessor Lien in favor of the Indenture Trustee pursuant to the Operative Documents, and Owner Trustee in its individual capacity agrees that it will at its own cost and expense (without right to indemnity under this Agreement) promptly take such action as may be necessary to duly discharge and satisfy in full all such Lessor Liens. Owner Trustee hereby indemnifies and holds harmless Tenant, Remainderman, each Landlord, Indenture Trustee and each Owner Participant from and against any - 16 - 21 loss, cost or expense (including reasonable fees and expenses) which may be suffered or incurred by any of them as the result of the failure of Owner Trustee to discharge and satisfy any such Lessor Liens created or incurred as a result of any action or inaction of the Owner Trustee in its individual capacity. (c) No Unauthorized Action. Owner Trustee agreed that it shall not take any action under any of the Trust Agreements or any other Operative Document unless it has been authorized by the Owner Participant to do so pursuant to the terms of the applicable Trust Agreement or pursuant to the Owner Participant's prior written consent. 9. Covenants of Indenture Trustee. Indenture Trustee covenants and agrees as follows: (a) Indenture Trustee Liens. Indenture Trustee hereby unconditionally agrees with and for the benefit of the parties to this Agreement that Indenture Trustee will not directly or indirectly create, incur, assume or suffer to exist any Indenture Trustee Lien on or against any part of the Indenture Estate. (b) Quiet Enjoyment. Notwithstanding any other provision of the Indenture or of any other Operative Document, Indenture Trustee warrants, covenants and agrees that, unless an Event of Default shall have occurred and be continuing, Indenture Trustee (i) shall not name Tenant as a party in any action or procedures to foreclose the Lien of the Indenture, unless such joinder shall be required under applicable law, and in which case Indenture Trustee shall not seek affirmative relief from Tenant in such action nor shall any Lease be cut off or terminated nor Tenant's possession thereunder be disturbed in any such action or proceeding, (ii) Tenant shall have the exclusive rights to possession, control, use and enjoyment of the Properties and Indenture Trustee will not take any other action that would interrupt or interfere with Tenant's peaceable possession, control, use and enjoyment of any respective Property in any manner, and (iii) subject to the next succeeding sentence of this Section 8(b), Indenture Trustee will recognize each Lease and Tenant's rights thereunder. Upon any acquisition by Indenture Trustee or any purchaser at foreclosure or transferee pursuant to a plan of reorganization under Chapter 11 of the Bankruptcy Code (collectively, a "Successor Landlord") of Owner Trustee's or Landlord's interest in any Lease, such Lease shall continue as a direct Lease between the Successor Landlord and Tenant upon all terms, covenants and conditions set forth in such Lease, except that the Successor Landlord shall not be (A) liable for any previous act or omission of Landlord under such Lease, (B) subject to any offsets, claims, defenses or counterclaims Tenant may have against Owner Trustee, (C) bound by any prepayment of Rent not actually received by Successor Landlord or (D) bound by any - 17 - 22 amendment to such Lease requiring Indenture Trustee's consent unless such consent was obtained. 10. Covenants of Remainderman Participant. Remainderman Participant covenants and agrees as follows: (a) Remainderman's Activities and Liens. Remainderman Participant hereby unconditionally agrees with and for the benefit of the parties to this Agreement that Remainderman Participant will not engage in any business other than holding the beneficial interest in the Remainderman or any activity related thereto or directly or indirectly create, incur, assume or suffer to exist any Remainder Purchaser Liens attributable to it on or against any part of the Remainderman Trust Estate, the Trust Estate, the Indenture Estate or the Properties, and the Remainderman Participant agrees that it will at its own cost and expense (without right to indemnity under this Agreement) promptly take such action as may be necessary to duly discharge and satisfy in full all such Remainder Purchaser Liens. Remainderman Participant hereby indemnifies and holds harmless Tenant, Indenture Trustee, Owner Trustee, each Landlord and each Owner Participant from and against any loss, cost or expense (including reasonable legal fees and expenses) which may be suffered or incurred by any of them as the result of the failure of Remainderman Participant to discharge and satisfy any such Remainder Purchaser Lien. (b) Quiet Enjoyment. Remainder Participant acknowledges and agrees that, unless an Event of Default shall have occurred and be continuing and the Leases shall have been declared in default pursuant to Article [21] of such Leases and the Ground Lease (as defined in the Option Agreement) shall have been entered into, Tenant shall have the exclusive rights to possession, control, use and enjoyment of the Properties and Remainderman Participant will not take any action that would interrupt or interfere with Tenant's peaceable possession, control, use and enjoyment of any respective Property in any manner that is not otherwise prohibited by Article [23] of such Leases. (c) Right of First Offer. If at any time during the term of any Lease or at a time when Landlord has rights under Ground Leases or the Option Agreements, the Remainderman Participant desires to sell or transfer its interest in the Remainderman, it shall first offer such interest to Landlord on the terms and conditions set forth in Section 27. 11. Covenants of Remainderman Trustee. Remainderman Trustee in its individual capacity covenants and agrees as follows: (a) Remainderman's Liens. Remainderman Trustee hereby unconditionally agrees with and for the benefit of the parties to this Agreement that Remainderman Trustee will not directly or - 18 - 23 indirectly create, incur, assume or suffer to exist any Remainder Purchaser Liens attributable to it in its individual capacity on or against any part of the Trust Estate, the Indenture Estate or the Properties, and Remainderman Trustee agrees that it will at its own cost and expense (without right to indemnity under this Agreement) promptly take such action as may be necessary to duly discharge and satisfy in full all such Remainder Purchaser Liens attributable to it in its individual capacity. Remainderman Trustee hereby indemnifies and holds harmless Tenant, Indenture Trustee, Owner Trustee, each Landlord and each Owner Participant from and against any loss, cost or expense (including reasonable legal fees and expenses) which may be suffered or incurred by any of them as the result of the failure of Remainderman Trustee to discharge and satisfy any such Remainder Purchaser Lien attributable to it in its individual capacity. 12. Covenants of Remainderman. Remainderman, and Remainderman Trustee and Remainderman Participant with respect to paragraph (c) below, covenants and agrees as follows: (a) Activities of Remainderman; Existence; Remainderman Liens. Remainderman will engage in no activities or businesses and will not incur any indebtedness for money borrowed, other than those contemplated under the Remainderman Trust Agreement and other Operative Documents and will maintain its existence as a Delaware business trust for so long as it shall have any obligations hereunder or under any of the other Operative Documents. Remainderman will keep the Remainderman Trust Estate free and clear of Remainder Purchaser Liens and shall not, prior to the termination of any Lease sell, assign, or otherwise transfer its interest in the Remainderman Trust Estate except as contemplated by the Operative Documents. (b) Chief Place of Business of the Remainderman Trust, etc. Remainderman agrees that it shall not change its chief place of business, its chief executive office or the office where it keeps its records concerning the Remainderman Trust Estate, unless it shall have given Owner Participant and Tenant at least 30 days' prior written notice of such change. (c) Bankruptcy Proceedings. None of Remainderman Participant, Remainderman Trustee nor the Remainderman shall (i) institute, take, or cause to be taken, any action intended to result in the institution against Remainderman of any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings, or other proceedings under any federal or state bankruptcy or similar law, (ii) consent to, or execute any document specifically acquiescing in the taking by Remainderman of, any action that - 19 - 24 would result in the commencement of any such proceedings against Remainderman, or (iii) execute any document specifically acquiescing in any such proceedings commenced by others against Remainderman. (d) Quiet Enjoyment. Remainderman acknowledges and agrees that, unless an Event of Default shall have occurred and be continuing and the Leases shall have been declared in default pursuant to Article [21] of such Leases and the Ground Lease (as defined in the Option Agreement) shall have been entered into, Tenant shall have the exclusive rights to possession, control, use and enjoyment of the Properties and Remainderman will not take any action that would interrupt or interfere with Tenant's peaceable possession, control, use and enjoyment of any respective Property in any manner that is not otherwise prohibited by Article [23] of such Leases. 13. Representations and Warranties. (a) Tenant represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Tenant is a corporation duly organized, validly existing and in good standing under the laws of the State of Michigan and has the corporate power and authority to enter into and perform its obligations under each Operative Document to which it is a party, and it is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its failure to be so qualified would have a material adverse effect upon its ability to perform its obligations under the Operative Documents. (ii) Authorization; No Conflict. The execution, delivery and performance by Tenant of, the consummation by it of the transactions provided for in, and the compliance by it with all of the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary corporate action on its part and neither the execution, delivery and performance thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (A) requires any approval of its stockholders, (B) requires any approval or consent of any trustee or holders of any of its indebtedness or obligations, except for such approvals and consents as have been duly obtained and are in full force and effect, (C) contravenes any current Legal Requirement applicable to or binding on it or any of the Properties, which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, (D) contravenes or - 20 - 25 results in any breach of or constitutes any default under, or results in the creation of any lien (other than Permitted Liens) upon any of its property under, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, lease, articles of incorporation, by-laws or other agreement or instrument to which it is a party, by which it may be bound or affected or by which any of the Properties may be affected, which contravention, breach or default would materially adversely affect its ability to perform its obligations under the Operative Documents, or (E) requires any Governmental Action, except for the filings and recordings necessary or advisable to perfect the rights of Landlord, Remainderman and the Indenture Trustee intended to be created by the Operative Documents and any filings that are required in the ordinary course of business in connection with the ownership, use and operation of the Properties. "Governmental Action" means all permits, authorizations, registrations, consents, approvals, waivers, exceptions, variances, orders, judgments, decrees, licenses, exemptions, publications, filings, notices to and declarations of or with, or required by, applicable Governmental Authorities, or required by any Legal Requirements. (iii) Enforceability. Assuming the due authorization, execution and delivery by all other parties to each Operative Document to which Tenant is a party, each such Operative Document is, respectively, a legal, valid and binding obligation of Tenant, enforceable against Tenant in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' or lessors' rights and to general equity principles. (iv) No Actions Pending. There is no action, suit or proceeding before any court, governmental body, agency, commission or other tribunal now pending or, to the actual knowledge of any executive officer of Tenant having oversight of the transactions contemplated by the Operative Documents, threatened in writing against or affecting Tenant or the Properties or naming Tenant as a party, that questions the validity or enforceability of this Agreement or any other Operative Document to which Tenant is or is to become a party or that would, if adversely determined, have a material adverse effect on the ability of Tenant to perform its obligations under any Operative Document. (v) Financial Statements. The consolidated balance sheets of Tenant and its consolidated subsidiaries as of January 26, 1994 and July 27, 1994, and the related statements of income and cash flows of Tenant and its consolidated - 21 - 26 subsidiaries for the fiscal year ended January 26, 1994 and the six months ended July 27, 1994, contained or incorporated by reference in Tenant's Annual Report on Form 10-K for the fiscal year ended January 26, 1994 and Tenant's Quarterly Report on Form 10-Q for the fiscal quarter ended July 27, 1994, respectively, fairly present the consolidated financial condition of Tenant and its consolidated subsidiaries as of such dates and the result of operations of Tenant and its consolidated subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles ("GAAP") consistently applied. (vi) No Material Adverse Change. Since October 26, 1994, there has been no material adverse change in the financial condition of Tenant and its subsidiaries taken as a whole, except for such changes as have been disclosed in filings made by Tenant with the Securities and Exchange Commission. (vii) No Defaults. No Material Default or Event of Default has occurred and is continuing, and no condition exists that constitutes, or with the giving of notice or lapse of time, or both, would constitute, an event of default by Tenant under any material indenture, mortgage, loan agreement, lease or other agreement or instrument to which Tenant is a party or by which it or any of its properties may be bound. No Event of Loss has occurred and no event or condition has occurred which would, with the passage of time or the giving of notice, or both, constitute an Event of Loss. (viii) ERISA. Assuming that Owner Participant is not acquiring its interest in the Trust Estate with assets of any "employee benefit plan" (or its related trust) as defined in Section 3(3) of ERISA or of any "plan" (or its related trust) as defined in Section 4975(e)(1) of the Code, the execution, delivery and performance by Tenant of this Agreement and the other Operative Documents to which Tenant is or is to become a party will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. (ix) Compliance. After giving effect to the transactions contemplated by the Operative Documents, including without limitation, the due execution, delivery and recordation of the Owner Trustee Deeds, the Remainder Purchaser Deeds and the Leases, the ownership of the Improvements and the Estate for Years by the Landlord and the Remainderman Interest by the Remainderman, and the use and occupancy of the Properties by Tenant, in each case, in the operation of Tenant's business, shall comply with applicable Legal Requirements, including, without limitation, all applicable zoning and similar land use laws and regulations, as of the Closing Date, except in any case where the failure to comply would not have an adverse - 22 - 27 effect on the value or remaining useful life of the respective Improvements except to an insignificant extent or where applicable Legal Requirements do not require Tenant of the Properties to be in compliance. (x) Legal Effect. The Owner Trustee Deeds are effective, under each state law in which the Properties are respectively located, to convey all of Tenant's right, title and interest in the Improvements and the Estates for Years. The Leases constitute operating Leases under each state law in which the Properties are respectively located. (xi) Offer of Interest. Except as contemplated herein or by the Indentures and Pass Through Trust Agreements, neither Tenant, nor any person authorized by Tenant to act on its behalf, has directly or indirectly offered to any person for sale, or solicited offers to buy from any person or otherwise approached or negotiated with any person, with respect to interests in all or any portion of the Properties or any indebtedness secured by any interest in the Properties, including any indebtedness evidenced by the Certificates or Notes, or any securities similar to any of the foregoing, in any case under circumstances which would subject such interest or indebtedness to registration under the Securities Act of 1933, as amended. (xii) No Brokers. Tenant has dealt with no broker, finder, advisor or other party that could claim a commission, fee or other compensation arising out of the transactions contemplated hereby, other than Goldman, Sachs & Co. and Morgan Stanley & Co. Incorporated. (xiii) No Consents Required. No consent, Governmental Approval, authorization, filing or registration (including any such item relating to any Environmental Law as hereinafter defined) is required to be obtained or made by Tenant in connection with the execution, delivery and performance by Tenant of this Agreement or the execution, delivery and performance by Tenant of the other Operative Documents required to be made or delivered by Tenant pursuant hereto or pursuant to the Purchase Agreement. (xiv) No Investment Company. Tenant is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xv) Chief Executive Offices. The chief executive office (as such term is used in Article 9 of the Uniform Commercial Code) and the principal place of business of Tenant is located in Troy, Michigan, and the office where Tenant will keep its - 23 - 28 corporate records concerning the Leases and the Personalty is located in Troy, Michigan. (b) Each Owner Participant represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Owner Participant is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to enter into and perform its obligations under each Operative Document to which it is a party. (ii) Authorization; No Conflict. The execution, delivery and performance by Owner Participant of, the consummation by it of the transactions provided for in, and the compliance by it with all the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary action on its part and neither the execution, delivery and performance thereof by the Owner Participant, nor the consummation by it of the transactions contemplated thereby, nor the compliance by it with any of the terms and provisions thereof (A) requires any approval of its stockholders, (B) requires any approval or consent of any trustee or holders of any of its indebtedness or obligations, except for such approvals and consents as have been duly obtained and are in full force and effect, (C) contravenes any current Legal Requirements applicable to or binding on it (except no representation or warranty is made as to any Legal Requirement to which Owner Participant may be subject because of the activities of Tenant), which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, (D) contravenes or results in any breach of or constitutes any default under, or results in the creation of any lien (other than Permitted Liens) upon any of its property under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, lease, certificate of incorporation, by-laws or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which contravention, breach or default would materially adversely affect its ability to perform its obligations under the Operative Documents, or (E) requires any Governmental Action, except for filings and recordings necessary or advisable to perfect the rights of Landlord, Remainderman, Indenture Trustee and Tenant intended to be created by the Operative Documents. (iii) Enforceability. Assuming the due authorization, execution and delivery by all other parties to each Operative Document to which Owner Participant is a party, each such - 24 - 29 Operative Document is, respectively, a legal, valid and binding obligation of Owner Participant, enforceable against Owner Participant in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) No Actions Pending. There is no action, suit or proceeding before any court, governmental body, agency, commission or other tribunal now pending or, to the actual knowledge of any executive officer of Owner Participant having oversight of the transactions contemplated by the Operative Documents, threatened against or affecting Owner Participant or naming Owner Participant as a party, that questions the validity or enforceability of this Agreement or any other Operative Document to which Owner Participant is or is to become a party or that would, if adversely determined, have a material adverse effect on the ability of Owner Participant to perform its obligations under any Operative Document. (v) Institutional Investor. Owner Participant is an "institutional investor" as defined in the Securities Act of 1933, as amended, or the regulations promulgated thereunder, or is directly or indirectly wholly owned by Owner Participant Parent, which is an institutional investor. Owner Participant is acquiring its beneficial interest in the Trust Estate for its own account for investment and not with a view to resale or distribution thereof. (vi) ERISA. Owner Participant is not acquiring its interest in the Trust Estate with the assets of any "employee benefit plan" (or its related trust) as defined in Section 3(3) of ERISA or with the assets of any "plan" (or its related trust) as defined in Section 4975(e)(1) of the Code. (vii) Investment Company. Owner Participant is not an "investment company" or a company "controlled" by an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (vii) Offer of Interest. Except as contemplated herein or by the Indentures and Pass Through Trust Agreements, each Owner Participant has not offered any interest in the Leases, the Notes, the Certificates or any similar securities of Tenant or the Trust Estate to, or solicited any offer to acquire any of the same from, any Person, nor has it authorized any Person to take any such action. (ix) No Brokers. Owner Participant has dealt with no broker, finder, advisor or other party that could claim a - 25 - 30 commission, fee or other compensation arising out of the transactions contemplated hereby. (c) Owner Participant Parent represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Owner Participant Parent is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to enter into and perform its obligations under each Operative Document to which it is a party. (ii) Authorization; No Conflict. The execution, delivery and performance by Owner Participant Parent of, the consummation by it of the transactions provided for in, and the compliance by it with all the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary action on its part and neither the execution, delivery and performance thereof by Owner Participant Parent, nor the consummation by it of the transactions contemplated thereby, nor the compliance by it with any of the terms and provisions thereof (A) requires any approval of its stockholders, (B) requires any approval or consent of any trustee or holders of any of its indebtedness or obligations, except for such approvals and consents as have been duly obtained and are in full force and effect, (C) contravenes any current Legal Requirements applicable to or binding on it (except no representation or warranty is made as to any Legal Requirement to which Owner Participant Parent may be subject because of the activities of Tenant), which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, (D) contravenes or results in any breach of or constitutes any default under, or results in the creation of any lien (other than Permitted Liens) upon any of its property under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, lease, certificate of incorporation, by-laws or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which contravention, breach or default would materially adversely affect its ability to perform its obligations under the Operative Documents, or (E) requires any Governmental Action, except for filings and recordings necessary or advisable to perfect the rights of Landlord, Remainderman, Indenture Trustee and Tenant intended to be created by the Operative Documents. (iii) Enforceability. Assuming the due authorization, execution and delivery by all other parties to each Operative - 26 - 31 Document to which Owner Participant Parent is a party, each such Operative Document to which Owner Participant Parent is a party is, respectively, a legal, valid and binding obligation of Owner Participant Parent, enforceable against Owner Participant Parent in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) No Actions Pending. There is no action, suit or proceeding before any court, governmental body, agency, commission or other tribunal now pending or, to the actual knowledge of any executive officer of Owner Participant Parent having oversight of the transactions contemplated by the Operative Documents, threatened against or affecting Owner Participant Parent or naming Owner Participant Parent as a party, that questions the validity or enforceability of this Agreement or any other Operative Document to which Owner Participant Parent is or is to become a party or that would, if adversely determined, have a material adverse effect on the ability of Owner Participant Parent to perform its obligations under any Operative Document. (v) Owner Participant Subsidiary. _____________________ is a direct, wholly-owned subsidiary of Owner Participant Parent. (vi) Offer of Interest. Except as contemplated herein or by the Indentures and Pass Through Trust Agreements, Owner Participant Parent has not offered any interest in the Leases, the Notes, the Certificates or similar securities of Tenant or the Trust Estate to, or solicited any offer to acquire any of the same from, any Person, nor has it authorized any Person to take any such action. (d) Each Landlord represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Landlord is a business trust, duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to enter into and perform its obligations under the Operative Documents to which it is a party. (ii) Authorization; No Conflict. The execution, delivery and performance by Landlord of, the consummation by it of the transactions provided for in, and the compliance by it with all of the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary action on its part and neither the execution, delivery and performance thereof, nor the consummation of the transactions - 27 - 32 contemplated thereby, nor compliance by it with any of the terms and provisions thereof (A) requires any approval of its beneficial owners, (B) requires approval or consent of any trustee or holders of any of its indebtedness or obligations, except for such approvals and consents as have been duly obtained and are in full force and effect, (C) contravenes any current Legal Requirement applicable to or binding on it, which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, (D) contravenes or results in any breach of or constitutes any default under, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, lease, charter, by-laws or other agreement or instrument to which it is a party, or by which it or its properties may be bound or affected, which contravention, breach or default would materially adversely affect its ability to perform its obligations under the Operative Documents or (E) requires any Governmental Action, except for (x) filing of the certificate of trust with the Delaware Secretary of State pursuant to the Trust Agreement, (y) filings and recordings necessary or advisable to perfect the rights of Landlord, Remainderman, Indenture Trustee and the Tenant intended to be created by the Operative Documents and (z) any filings that are required in the ordinary course of business in connection with the ownership, use and operation of the Properties. (iii) Enforceability. Assuming the due authorization, execution and delivery by the other parties to each Operative Document to which Landlord is a party, each such Operative Document is, respectively, a legal, valid and binding obligation of Landlord, enforceable against Landlord in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) No Actions Pending. There is no action, suit or proceeding before any court, governmental body, agency, commission or other tribunal now pending or, to the actual knowledge of any executive officer of Landlord having oversight of the transactions contemplated by the Operative Documents, threatened in writing against or affecting Landlord or naming Landlord as a party, that questions the validity or enforceability of this Agreement or any other Operative Document to which Landlord is or is to become a party or that would, if adversely determined, have a material adverse effect on the ability of Landlord to perform its obligations under any Operative Document. - 28 - 33 (v) No Lessor Liens. No Lessor Lien is in existence, except for any Lessor Lien in favor of the Indenture Trustee pursuant to the Operative Documents. The execution, delivery and performance by the Landlord of the Operative Documents to which it is a party (as Landlord) will not subject the Indenture Estate, or any portion thereof, to any Lessor Liens, except for any Lessor Lien in favor of the Indenture Trustee pursuant to the Operative Documents. (vi) Offer of Interest. Except as contemplated herein or by the Indentures or Pass Through Trust Agreements, neither Landlord, nor any person authorized by Landlord to act on its behalf, has directly or indirectly offered to any person for sale, or solicited offers to buy from any person or otherwise approached or negotiated with any person, with respect to interests in all or any portion of the Properties or any beneficial or other interest in or under the Trust Agreements or any indebtedness secured by any interests in the Properties, including any indebtedness evidenced by the Certificates or Notes, or any securities similar to any of the foregoing, in any case under circumstances which would subject such interest or indebtedness to registration under the Securities Act of 1933, as amended. (vii) No Brokers. Landlord has dealt with no broker, finder, advisor or other party that could claim a commission, fee or other compensation arising out of the transactions contemplated hereby. (e) Owner Trustee, in its individual capacity, represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Corporate Owner Trustee is a banking corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power and authority to enter into and perform its obligations under the Trust Agreements and the other Operative Documents to which it is a party. (ii) Authorization; No Conflict. The execution, delivery and performance by Owner Trustee of, the consummation by it of the transactions provided for in, and the compliance by it with all of the provisions of this Agreement and the Trust Agreements have been duly authorized by all necessary action on its part and neither the execution, delivery and performance thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof, (A) requires any approval of its stockholders, (B) requires approval or consent of any trustee or holders of any of its indebtedness or obligations, except for such approvals and consents as have been duly obtained and - 29 - 34 are in full force and effect, (C) contravenes any current Legal Requirement of the State of Delaware or the United States governing its banking or trust powers applicable to or binding on it, which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, (D) contravenes or results in any breach of or constitutes any default under, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, lease, charter, by- laws or other agreement or instrument to which it is a party, or by which it or its properties may be bound or affected, which contravention, breach or default would materially adversely affect its ability to perform its obligations under the Operative Documents or (E) requires any Governmental Action of the State of Delaware or the United States governing its banking or trust powers. (iii) Enforceability. Assuming the due authorization, execution and delivery by all other parties to this Agreement and the Trust Agreements, each of this Agreement and the Trust Agreements is, respectively, a legal, valid and binding obligation of Owner Trustee, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles. (iv) No Lessor Liens. No Lessor Lien attributable to Owner Trustee in its individual capacity is in existence. The execution, delivery and performance by Owner Trustee of the Operative Documents to which it is a party (in its individual capacity) will not subject the Indenture Estate, or any portion thereof, to any Lessor Liens attributable to Owner Trustee in its individual capacity, except for any Lessor Lien in favor of the Indenture Trustee pursuant to the Operative Documents. (v) Offer of Interest. Except as contemplated herein or by the Indentures or Pass Through Trust Agreements, neither Owner Trustee, nor any person authorized by Owner Trustee to act on its behalf, has directly or indirectly offered to any person for sale, or solicited offers to buy from any person or otherwise approached or negotiated with any person, with respect to interests in all or any portion of the Properties or any beneficial or other interest in or under the Trust Agreements or any indebtedness secured by any interests in the Properties, including any indebtedness evidenced by the Certificates or Notes, or any securities similar to any of the foregoing, in any case under circumstances which would subject such interest or indebtedness to registration under the Securities Act of 1933, as amended. - 30 - 35 (vi) No Brokers. Owner Trustee has dealt with no broker, finder, advisor or other party that could claim a commission, fee or other compensation arising out of the transactions contemplated hereby. (f) The Corporate Indenture Trustee, in its individual capacity, represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Corporate Indenture Trustee is a New York banking corporation duly organized, validly existing and in good standing under the laws of the State of New York and has the corporate power and authority to enter into and perform its obligations under the Operative Documents to which it is a party. (ii) Authorization; No Conflict. The execution, delivery and performance by Indenture Trustee of, the consummation by it of the transactions provided for in, and the compliance by it with all of the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary action on its part and neither the execution, delivery and performance thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof (A) contravenes any current Legal Requirement of the United States or the State of New York governing its banking and trust powers applicable to or binding on it, which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, or (B) requires any Governmental Action of the United States or the State of New York governing its banking and trust powers, except for filings and recordings necessary or advisable to perfect the rights of the Landlord, Indenture Trustee and the Tenant intended to be created by the Operative Documents. (iii) Enforceability. Assuming the due authorization, execution and delivery by the other parties to each Operative Document to which Indenture Trustee is a party, each such Operative Document is, respectively, a legal, valid and binding obligation of Indenture Trustee, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) No Actions Pending. There is no action, suit or proceeding before any court, governmental body, agency, commission or other tribunal now pending or, to Indenture Trustee's actual knowledge, threatened in writing against or affecting Indenture Trustee or naming Indenture Trustee as a party, that questions the validity or enforceability of this - 31 - 36 Agreement or any other Operative Document to which Indenture Trustee is or is to become a party or that would, if adversely determined, have a material adverse effect on the ability of Indenture Trustee to perform its obligations under any Operative Document to which it is a party. (v) No Indenture Trustee's Liens. No Lien attributable to Indenture Trustee in its individual capacity (as described in Section 9.17 of the Indenture and herein "Indenture Trustee Liens") is in existence. The execution, delivery and performance by Indenture Trustee of the Operative Documents to which it is a party will not subject the Indenture Estate, or any portion thereof, to any Indenture Trustee Liens. (vi) Offer of Interest. Except as contemplated herein or by the Indentures or Pass Through Trust Agreements, neither Indenture Trustee, nor any person authorized by Indenture Trustee to act on its behalf, has directly or indirectly offered to any person for sale, or solicited offers to buy from any person or otherwise approached or negotiated with any person, with respect to interests in all or any portion of the Properties or any beneficial or other interest in or under the Trust Agreements or any indebtedness secured by any interests in the Properties, including any indebtedness evidenced by the Certificates or Notes, or any securities similar to any of the foregoing, in any case under circumstances which would subject such interest or indebtedness to registration under the Securities Act of 1933, as amended. (vii) No Brokers. Indenture Trustee has dealt with no broker, finder, advisor or other party that could claim a commission, fee or other compensation arising out of the transactions contemplated hereby. (g) Remainderman represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Remainderman is a business trust duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite power and authority to enter into and perform its obligations under each Operative Document to which it is a party. (ii) Authorization; No Conflict. The execution, delivery and performance by Remainderman of, the consummation by it of the transactions provided for in, and the compliance by it with all the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary action on its part and neither the execution, delivery and performance thereof, nor the consummation of the transactions contemplated thereby, nor the compliance by it with any of the - 32 - 37 terms and provisions thereof (A) requires any approval of its beneficial owners, (B) requires any approval or consent of any trustee or holders of any of its indebtedness or obligations, except for such approvals and consents as have been duly obtained and are in full force and effect, (C) contravenes any current Legal Requirements applicable to or binding on it, which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, (D) contravenes or results in any breach of or constitutes any default under, or results in the creation of any lien (other than Permitted Liens) upon any of its property under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, lease, charter, by- laws or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which contravention, breach or default would materially adversely affect its ability to perform its obligations under the Operative Documents, or (E) requires any Governmental Action, except for (x) filing of the certificate of trust with the Delaware Secretary of State pursuant to the Remainderman Trust Agreement and (y) filings and recordings necessary or advisable to perfect the rights of the Landlord, Indenture Trustee and the Tenant intended to be created by the Operative Documents. (iii) Enforceability. Assuming the due authorization, execution and delivery by all other parties to each Operative Document to which Remainderman is a party, each such Operative Document is, respectively, a legal, valid and binding obligation of Remainderman, enforceable against Remainderman in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) No Actions Pending. There is no action, suit or proceeding before any court, governmental body, agency, commission or other tribunal now pending or, to the actual knowledge of any executive officer of Remainderman having oversight of the transactions contemplated by the Operative Documents, threatened against or affecting Remainderman or naming Remainderman as a party, that questions the validity or enforceability of this Agreement or any other Operative Document to which Remainderman is or is to become a party or that would, if adversely determined, have a material adverse effect on the ability of Remainderman to perform its obligations under any Operative Document. (v) No Remainderman's Liens. No Remainder Purchaser Lien attributable to Remainderman is in existence. The - 33 - 38 execution, delivery and performance by Remainderman of the Operative Documents to which it is or is to become a party will not subject the Trust Estate, the Indenture Estate, the Properties or any portion of any thereof to any Remainder Purchaser Liens. (vi) Offer of Interest. Except as contemplated herein or by the Indentures or Pass Through Trust Agreements, neither Remainderman, nor any person authorized by Remainderman to act on its behalf, has directly or indirectly offered to any person for sale, or solicited offers to buy from any person or otherwise approached or negotiated with any person, with respect to interests in all or any portion of the Properties or any beneficial or other interest in or under the Remainderman Trust Agreement or any indebtedness secured by any interests in the Properties, including any indebtedness evidenced by the Certificates or Notes, or any securities similar to any of the foregoing, in any case under circumstances which would subject such interest or indebtedness to registration under the Securities Act of 1933, as amended. (vii) No Brokers. Remainderman has dealt with no broker, finder, advisor or other party that could claim a commission, fee or other compensation arising out of the transactions contemplated hereby. (h) Remainderman Participant represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Remainderman Participant is a limited partnership duly organized, validly existing and in good standing under the laws of the State of Connecticut and has all requisite power and authority to enter into and perform its obligations under each Operative Document to which it is a party. (ii) Authorization; No Conflict. The execution, delivery and performance by Remainderman Participant of, the consummation by it of the transactions provided for in, and the compliance by it with all the provisions of, each Operative Document to which it is a party have been duly authorized by all necessary action on its part and neither the execution, delivery and performance thereof, nor the consummation of the transactions contemplated thereby, nor the compliance by it with any of the terms and provisions thereof (A) requires any approval of its partners, (B) requires any approval or consent of any trustee or holders of any of its indebtedness or obligations, except for such approvals and consents as have been duly obtained and are in full force and effect, (C) contravenes any current Legal Requirements - 34 - 39 applicable to or binding on it, which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, (D) contravenes or results in any breach of or constitutes any default under, or results in the creation of any lien (other than Permitted Liens) upon any of its property under any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, lease, certificate of incorporation, by-laws or other agreement or instrument to which it is a party or by which it or its properties may be bound or affected, which contravention, breach or default would materially adversely affect its ability to perform its obligations under the Operative Documents, or (E) requires any Governmental Action, except for filings and recordings necessary or advisable to perfect the rights of the Landlord, Remainderman, Indenture Trustee and the Tenant intended to be created by the Operative Documents. (iii) Enforceability. Assuming the due authorization, execution and delivery by all other parties to each Operative Document to which Remainderman Participant is a party, each such Operative Document is, respectively, a legal, valid and binding obligation of Remainderman Participant, enforceable against Remainderman Participant in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. (iv) No Actions Pending. There is no action, suit or proceeding before any court, governmental body, agency, commission or other tribunal now pending or, to the actual knowledge of any executive officer of Remainderman Participant having oversight of the transactions contemplated by the Operative Documents, threatened against or affecting Remainderman Participant or naming Remainderman Participant as a party, that questions the validity or enforceability of this Agreement or any other Operative Document to which Remainderman Participant is or is to become a party or that would, if adversely determined, have a material adverse effect on the ability of Remainderman Participant to perform its obligations under any Operative Document. (v) Offer of Interest. Except as contemplated herein or by the Indentures and Pass Through Trust Agreements, neither the Remainderman Participant, nor any person authorized by Remainderman Participant to act on its behalf, has directly or indirectly offered to any person for sale or solicited offers to buy from any person or otherwise approached or negotiated with any person with respect to interests in all or any portion of the Properties or any beneficial or other interest in or under the Remainderman Trust Agreement or any - 35 - 40 indebtedness secured by any interests in the Properties, including any indebtedness evidenced by the Certificates or Notes, or any securities similar to any of the foregoing, in any case under circumstances which would subject such interest or indebtedness to registration under the Securities Act of 1933, as amended. (vi) No Brokers. Remainderman Participant has dealt with no broker, finder, advisor or other party that could claim a commission, fee or other compensation arising out of the transactions contemplated hereby. (vii) No Remainderman Lien. No Remainder Purchaser Lien attributable to Remainderman Participant is in existence. The execution, delivery and performance by Remainderman Participant of the Operative Documents to which it is a party will not subject the Trust Estate, the Indenture Estate, any of the Properties or any portion of any thereof to any Remainder Purchase Lien. (i) Remainderman Trustee, in its individual capacity, represents and warrants as of the date hereof as follows: (i) Due Organization, etc. Remainderman Trustee is a banking corporation, duly organized, validly existing and in good standing under the laws of the State of Delaware, and has the power and authority to enter into and perform its obligations under the Operative Documents to which it is a party. (ii) Authorization; No Conflict. The execution, delivery and performance by Remainderman Trustee of, the consummation by it of the transactions provided for in, and the compliance by it with all of the provisions of this Agreement and the Remainderman Trust Agreement have been duly authorized by all necessary action on its part and neither the execution, delivery and performance thereof, nor the consummation of the transactions contemplated thereby, nor compliance by it with any of the terms and provisions thereof, (A) requires any approval of its stockholders, (B) requires approval or consent of any trustee or holders of any of its indebtedness or obligations, except for such approvals and consents as have been duly obtained and are in full force and effect, (C) contravenes any current Legal Requirement of the State of Delaware or the United States governing its banking or trust powers applicable to or binding on it, which contravention would materially adversely affect its ability to perform its obligations under the Operative Documents, (D) contravenes or results in any breach of or constitutes any default under, any indenture, mortgage, chattel mortgage, deed of trust, conditional sales contract, bank loan or credit agreement, - 36 - 41 lease, charter, by-laws or other agreement or instrument to which it is a party, or by which it or its properties may be bound or affected, which contravention, breach or default would materially adversely affect its ability to perform its obligations under the Operative Documents or (E) requires any Governmental Action of the State of Delaware or the United States governing its banking or trust powers. (iii) Enforceability. Assuming the due authorization, execution and delivery by all other parties to this Agreement and the Remainderman Trust Agreement, each of this Agreement and the Remainderman Trust Agreement is, respectively, a legal, valid and binding obligation of Remainderman Trustee, enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors rights and to general equity principles. (iv) No Remainderman Liens. No Remainder Purchaser Lien attributable to Remainderman Trustee in its individual capacity is in existence. The execution, delivery and performance by Remainderman Trustee of the Operative Documents to which it is a party (in its individual capacity) will not subject the Indenture Estate, or any portion thereof, to any Remainder Purchaser Liens attributable to Remainderman Trustee in its individual capacity. (v) Offer of Interest. Except as contemplated herein or by the Indentures or Pass Through Trust Agreements, neither Remainderman Trustee, nor any person authorized by Remainderman Trustee to act on its behalf, has directly or indirectly offered to any person for sale, or solicited offers to buy from any person or otherwise approached or negotiated with any person, with respect to interests in all or any portion of the Properties or any beneficial or other interest in or under the Remainderman Trust Agreement or any indebtedness secured by any interests in the Properties, including any indebtedness evidenced by the Certificates or Notes, or any securities similar to any of the foregoing, in any case under circumstances which would subject such interest or indebtedness to registration under the Securities Act of 1933, as amended. (vi) No Brokers. Remainderman Trustee has dealt with no broker, finder, advisor or other party that could claim a commission, fee or other compensation arising out of the transactions contemplated hereby. 14. Notices. Any notice, demand, request, approval, revocation, confirmation, election, consent, waiver or other communication hereunder (a "notice") must be in writing and must be - 37 - 42 given by hand delivery or by a nationally recognized overnight courier or by mailing the same by registered or certified mail, return receipt requested, addressed to the respective parties at their addresses above set forth. Copies of all notices to Landlord hereunder shall be sent to Owner Participant at its address set forth above. Any party may designate by notice, in writing given in the manner herein specified, a new or other address to which a notice shall thereafter be so given. All notices shall be deemed given when delivered by hand, or five Business Days after being sent by registered or certified mail, or on the next Business Day when sent by overnight courier. The inability to make delivery because of changed address of which no notice was given, or rejection or refusal to accept any notice offered for delivery shall be deemed to be receipt of the notice as of the date of attempted delivery. 15. Severability: Binding Effect. (a) Each provision of this Agreement shall be separate and independent and the breach of any such provision by any party hereto shall not discharge or relieve any other party from any of such other party's obligations hereunder. Each provision of this Agreement shall be valid and shall be enforceable to the extent not prohibited by law. If any provision hereof or the application thereof to any Person or circumstance shall to any extent be determined by competent authority to be invalid or unenforceable in any jurisdiction, the remaining provisions hereof, or the application of such provision to Persons or circumstances other than those as to which it is invalid or unenforceable in such jurisdiction, shall not be affected thereby, and any such invalidation or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (b) Except as otherwise expressly provided herein, all provisions contained in this Agreement shall be binding upon, inure to the benefit of, and be enforceable by, the successors, legal representatives and permitted assigns of the parties hereto to the same extent as if each such successor, legal representative and permitted assign were named as a party hereto. All references herein to any party shall include such party and its successors, legal representatives, and permitted assigns. (c) The provisions of this Agreement may not be waived, modified or terminated except by a writing signed by the party to be charged. (d) This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York (other than the conflict of laws rules thereof), except to the extent that the - 38 - 43 jurisdiction in which a given Property is located requires that the laws of that jurisdiction be applied to this Agreement, in which case and to such extent, this Agreement shall be governed by and construed in accordance with the laws of such jurisdiction. (e) If any right or option provided in this Agreement would, in the absence of the limitation imposed by this sentence, be invalid or unenforceable as being in violation of the rule against perpetuities or any other rule of law relating to the vesting of an interest in or the suspension of the power of alienation of property, then such right or option shall be exercisable only during the period which shall end 21 years after the date of death of the last survivor of the descendants of Joseph P. Kennedy, the late ambassador to the Court of St. James, alive on the date of the execution, acknowledgment and delivery of this Agreement. (f) Notwithstanding anything to the contrary contained in this Agreement, no default by Owner Participant or Landlord hereunder shall in any way adversely affect the rights accorded to the Indenture Trustee pursuant to Article 49 of the Lease. 16. Indenture. Each of Landlord and Indenture Trustee agrees, for the benefit of Tenant and Owner Participant, (i) to comply with the provisions of the Indenture, (ii) not to waive any provision of the Indenture requiring Tenant's consent thereunder, and (iii) not to amend, supplement, waive or otherwise modify any provision of the Indenture in such a manner as to adversely affect the rights or increase the obligations of any such party without the prior written consent of such party. 17. Payment of Expenses. Tenant covenants and agrees that, unless payment thereof is governed by a specific provision of an Operative Document, it shall pay all reasonable out-of-pocket expenses, including reasonable attorneys' fees, incurred by each Owner Participant, each Landlord, Owner Trustee (and any co-trustee or separate trustee), Remainderman Trustee (and any co-trustee or separate trustee), Remainderman Participant, Remainderman or Indenture Trustee in connection with (i) the enforcement of any rights of such parties under any of the Operative Documents, (ii) the entering into or giving or withholding of any proposed amendment, modification, supplement, waiver, termination, approval or consent requested by Tenant or (iii) any Event of Loss or any redemption, prepayment, refinancing or assumption of the Notes by Tenant, at Tenant's request or attributable to the events specified in Section 3 of this Agreement or Articles [9, 10, 13, 14, 15, 21, 39, 40 and 41] of each Lease, as the case may be; provided, however, that Tenant shall not be obligated to pay any such expenses to the extent that they relate to or arise out of any of the circumstances described in Section 22(b) below with respect to such party. - 39 - 44 18. Termination or Revocation of Trust Under Trust Agreements. Without prejudice to any right under the Trust Agreements of the Owner Trustees (in their individual capacities) under the Trust Agreements to resign, or of Owner Participant under the Trust Agreements to remove the Owner Trustees (in their individual capacities), subject in each case to the requirement that such resignation shall not be effective unless and until a successor trustee shall have been appointed and shall have accepted such appointment, each of Owner Participant and Owner Trustees hereby irrevocably and unconditionally agrees with Tenant and Indenture Trustee not to terminate or revoke the trust created by the Trust Agreements prior to the termination of the Indenture except as permitted by Article VIII of the Trust Agreement. 19. Exchange of Obligations of Landlord by the Tenant. (a) Upon the conditions and as more fully provided in Section 3.08 of the Indenture, each of Owner Trustee, Landlord, Owner Participant, Remainderman, Remainderman Participant, Remainderman Trustee and Indenture Trustee agree that if any Lease is terminated pursuant to Article [39] thereof, Tenant may elect to exchange new unsecured or secured, as the case may be, full recourse securities of Tenant for the related Notes by giving notice of such exchange to each such party and each such party will execute and deliver appropriate documentation (i) releasing Owner Trustee and the affected Owner Participant from all obligations with respect to such Notes and the Properties, or obligations under such Notes and the related supplemental indentures; (ii) to the extent provided in the Indenture, releasing the security interest in the Properties; and (iii) taking all such other actions as are reasonably necessary to permit such exchange by Tenant and that do not materially adversely affect Remainderman, Owner Trustee or Owner Participant. As a condition to the exchange of securities under this Section 19 and Section 3.08 of the Indenture, Tenant shall deliver an Officer's Certificate to Owner Participant stating that the exchange complies with applicable Legal Requirements including, but not limited to, applicable securities laws. (b) Attached as Exhibit B is the form of the "Company Indenture" referenced in Section 3.08 of the Indenture. 20. Interim Interest Payments. Each Landlord hereby agrees with Tenant, and only with Tenant, and not for the benefit of any other party to this Agreement, that so long as no Material Default or Event of Default shall have occurred and be continuing, it will pay or cause to be paid to the Indenture Trustee sufficient funds to effect the payment of the amount of interest due on the Notes on [INSERT DATES], such payment to be made on or before 11:00 a.m., New York time, on such date and to be applied by the Indenture Trustee to the payment of interest due and payable on the Notes on such dates pursuant to the provisions of the Indenture. Each Owner Participant agrees to give Tenant notice by 11:00 a.m. on [INSERT - 40 - 45 DATES] if Landlord has failed to make the payment due on such dates. Each Owner Participant hereby agrees with Tenant and only with Tenant, and not for the benefit of any other party to this Agreement, to the terms and conditions set forth in Article 3(b) of the Leases. 21. Basic Rental Adjustments After Closing. (a) If (i) there shall be a material tax law change (including a change in Code or applicable regulations) enacted or promulated prior to Closing or if a material tax law change shall have been proposed the relevant provisions of which have been specifically identified in a notice delivered by Owner Participant to Tenant prior to Closing and the identified provisions or provisions substantially comparable to such provisions are enacted or promulated in final form after Closing, or (ii) there shall be a refinancing of the Notes in accordance with the Indentures, primary term Basic Rent and Termination Value under the Lease for the affected Property or Properties will be adjusted up or down ("Rental Adjustment"). Any Rental Adjustment shall be subject to Section 3(d) of the Lease. (b) Any Rental Adjustment shall be based on the same calculation methods and Pricing Assumptions (as defined in the Purchase Agreement) (including the income tax assumptions) as were used initially by Landlord and Tenant in determining Basic Rent and Termination Value for such Property (except and only to the extent any such assumption is required to be changed by virtue of the event giving rise to the Rental Adjustment, any event giving rise to any prior adjustments or any tax indemnity payments by Tenant). Any such adjustment (i) shall preserve Owner Participant's Economics (as hereinafter defined) that would have been realized had the event causing the Rental Adjustment not occurred, and to the greatest extent possible, shall minimize average annual Basic Rent payments and preserve Tenant's off- balance sheet treatment and (ii) shall (A) satisfy the cash flow and profits tests of Revenue Procedures 75-21, 1975-1 C.B. 715 and 75-28, 1975-1 C.B. 752 and any successor or supplemental procedure or provision relating thereto and (B) be made in a manner designed to comply with Section 467 of the Code and any successor or supplemental provisions of federal tax law and any regulations thereunder. All such adjustments shall be submitted by Owner Participant to Tenant promptly after the event causing such adjustment. (c) When any Rental Adjustment required to be made pursuant hereto is submitted to Tenant, Owner Participant shall confirm in a writing, executed by one of its authorized officers to Tenant and Indenture Trustee that the assumptions, methods and computations employed in the applicable initial calculations of Basic Rent and Termination Value for such Property were used in calculating such adjustment and that such adjustment was made in compliance with the applicable provisions of this Section. If requested by Tenant, such determination shall be verified by an - 41 - 46 independent and nationally recognized accounting firm agreed upon by Tenant and Owner Participant and which is not then engaged by either of them as its auditor, which review and verification shall determine whether Owner Participant's computations are mathematically accurate and are properly based on the methodology and assumptions required hereunder. If such accounting firm determines that Owner Participant's Rental Adjustments are incorrect, then such accounting firm shall determine the correct adjustments, and such determination shall be final and binding in the absence of manifest error. The cost of any such determination by such accounting firm shall be borne by Tenant unless the determination results in a reduction in the present value of the Basic Rent (discounted semiannually at seven and one-half percent (7-1/2%)) by ten basis points or more from the amount proposed by Owner Participant, in which case the costs of determination shall be borne by Owner Participant. Owner Participant shall make available to such accounting firm on a satisfactory confidential basis such information as may be required by them to verify and determine the computations pursuant hereto provided, however, in no event shall Owner Participant be required to disclose its tax returns to Tenant or any other Person in connection with such verification procedure or otherwise. Tenant and Owner Participant agree that the sole responsibility of the independent accounting firm shall be to verify and determine the calculation of a Rental Adjustment hereunder and that matters of interpretation of this Agreement, the Leases or any other Operative Document are outside the scope of the independent accounting firm's responsibility. (d) "Owner Participant's Economics" shall mean Owner Participant's nominal after-tax yield, total after-tax cash flow and total FASB after-tax lease income for the first five years utilizing the multiple investment sinking fund method of analysis computed on the basis of the same methodology and assumptions as were utilized in Owner Participant's original calculation of Basic Rent and Termination Value. 22. General Indemnity. (a) Tenant agrees, whether or not any of the transactions contemplated by this Agreement, the Purchase Agreement, Leases, Trust Agreements and Indentures and the other Operative Documents ("Sale and Leaseback Documents") shall be consummated, to assume liability for, and to indemnify, protect, defend, save, make whole and keep harmless each Indemnitee on an After-Tax Basis, from and against any and all Claims that may be imposed on, incurred by or asserted against any Indemnitee, whether or not such Indemnitee shall also be indemnified as to any such Claim by any other Person and whether or not such Claim arises or accrues prior to the date of this Agreement in any way relating to or arising out of: (i) (without regard to any representation or warranty by Tenant that may have been qualified by the phrase "to the best - 42 - 47 knowledge of Kmart" or words of similar import) any of the Properties or the ownership, operation, possession, use, improvement, rental, leasing, subleasing, financing pursuant to the Indentures, storage, preparation, installation, inspection, transfer of title, sale, return or other application or disposition, reconveyance, repair or maintenance, subdivision, delivery, non-delivery, construction, design, purchase, acceptance, rejection, modification, substitution or condition of all or any part of any interest in any Property, or the granting of easements, licenses, or any similar rights with respect to, or any dedication, condemnation, or taking of or with respect to, all or any part of, or interest in any Property or any Lease (including any property substituted for any such Property pursuant to the Lease relating to such substituted property) including, without limitation, (x) claims or penalties arising from any products liability, negligence, statutory liability or violation of law or in tort (strict, absolute or otherwise), or (y) latent or other defects, whether or not discoverable; (ii) a Release, a violation of or non-compliance with any Environmental Law, any Hazardous Material, any Environmental Claim, or any other loss of or damage or injury to any property, Person or the environment (including, without limitation air, water vapor, surface water, ground water, drinking water, land (including surface and subsurface), plant, aquatic and animal life) relating to or arising in connection with any Property (including without limitation, any Property for which a substitution is made under Article 41 of the Lease), any Lease or Tenant (including, without limitation, all costs and expenses associated with remediation, response, removal, containment, restoration, corrective action, financial assurance, environmental liens, natural resource damages and the protection of wildlife, aquatic species, vegetation, flora and fauna, and any mitigative action required under applicable Environmental Laws); (iii) any of the Operative Documents or any transactions contemplated thereby or by the Underwriting Agreement; (iv) any (A) breach by Tenant of any of its representations or warranties set forth in the Operative Documents, (B) failure by Tenant (or any permitted lessee) to perform or observe any covenant or agreement to be performed by it under any of the Operative Documents or (C) untrue statement of a material fact contained in any registration statement or any prospectus delivered in connection with the transactions contemplated by the Operative Documents or any omission to state therein a material fact required to be - 43 - 48 stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; (v) with respect to Owner Participant Parent and Owner Participant only, the application of Part 4 and 5 of Subtitle B of Title I of ERISA as a result of the sale of the Certificates or Notes in accordance with the Operative Documents; or (iv) the offer, sale, purchase, holding or delivery of the Notes or Certificates or any other securities issued in connection with the Operative Documents. (b) Tenant shall not be required to indemnify an Indemnitee under this Section 22 for any of the following: (i) with respect to an Indemnitee, (A) any Claim attributable to the gross negligence or willful misconduct of such Indemnitee; (B) any Claim attributable to a transfer by such Indemnitee of any Property or any interest therein, or, with respect to Owner Participant, any transfer of its Owner Participant Interest, other than (x) any transfer of a Property or any interest therein while a Material Default or Event of Default shall have occurred and be continuing under any Lease, or (y) any Claim attributable to a transfer of any Property or any interest therein under Articles [14, 15, 21, 39, 40 or 41] of the Lease or Section 3 of this Agreement; (ii) any fee, cost or expense expressly provided under the Operative Documents to be paid or borne by an Indemnitee to the extent that such Indemnitee shall have expressly agreed in the Operative Documents to bear such fee, cost or expense without right of reimbursement or indemnity under the Operative Documents; (iii) any Claim in respect of any Indemnified Taxes or Indemnified Assessments, other than any payment necessary to make payments under this Section 22 on an After-Tax Basis (it being understood that Section 23 hereof, Article 6 of the Leases and the Tax Indemnification Agreement exclusively provide for Tenant's liability with respect to such Taxes); (iv) any Claim to the extent attributable solely to acts, events or circumstances which first occur after the later of (A) the expiration or earlier termination of the applicable Lease and the repayment of the applicable Notes in whole and - 44 - 49 (B) Tenant's actual surrender or return of possession of the applicable Property in accordance with the applicable Lease; (v) any Claim attributable to a breach by any Indemnitee of its representations or warranties set forth in the Operative Documents to which it is a party or from a violation of laws by such Indemnitee, unless such breach or violation is attributable to any act, omission, breach, violation or misrepresentation of a Person other than such Indemnitee; (vi) the failure of such Indemnitee to perform or observe any covenant, agreement or condition on its part (including, without limitation, the obligation to remove Lessor Liens, Remainder Purchaser Liens, or Indenture Trustee Liens) required to be performed or observed in this Agreement or any of the other Operative Documents; (vii) the offer, sale or disposition by or on behalf or for the account of such Indemnitee of any Notes or Certificates or any similar interest (other than each Owner Participant, Owner Trustee and each Landlord); (viii) a failure on the part of such Indemnitee to distribute in accordance with the Indenture, any supplemental indenture, or the Trust Agreements, as the case may be, any amounts received and distributable by it thereunder; (ix) the authorization or giving or withholding of any amendment, modification, supplement, waiver, termination, approval or consent with respect to this Agreement or any of the other Operative Documents other than such as have been consented to or requested by Tenant and other than such as occur while an Event of Default has occurred and is continuing and that are not given or entered into in violation of any of the Operative Documents (other than to the extent that such actions violate the provisions of the Operative Documents requiring the consent of Tenant); (x) any amount constituting an amount payable by Landlord under the Indenture or the Notes resulting from an Indenture Event of Default or Indenture Default that does not also constitute an Event of Default; and (xi) any Claim that constitutes or arises from any Indemnitee's exercise of its contest rights with respect to a Permitted Lien attributable to such Indemnitee. (c) With respect to any amount that Tenant is requested by an Indemnitee to pay by reason of this Section 22, such Indemnitee shall, if so requested by Tenant, at Tenant's expense, - 45 - 50 submit such information or additional information and/or documentation to Tenant as Tenant may reasonably request properly to substantiate the requested payment. (d) In case any action, suit or proceeding shall be brought against any Indemnitee for which such Indemnitee is entitled to indemnification under this Section 22, such Indemnitee shall promptly notify Tenant of the commencement thereof (but the failure to do so shall not relieve Tenant of its obligation to indemnify such Indemnitee except to the extent that Tenant is prejudiced as a result of such failure). Tenant shall have the right to investigate, and the right in its sole discretion to defend or compromise, any Claim for which indemnification is sought under this Section 22, and at Tenant's expense, each Indemnitee shall cooperate with all reasonable requests of Tenant in connection therewith; provided that Tenant shall not be entitled to assume and control the defense of any such action, suit or proceeding if, in the reasonable opinion of such Indemnitee, such defense or compromise involves the potential imposition of criminal liability on such Indemnitee or a conflict of interest between such Indemnitee and Tenant. Where Tenant undertakes the defense of an Indemnitee with respect to a Claim, no additional legal fees or expenses of such Indemnitee in connection with the defense of such Claim shall be indemnified hereunder unless such fees or expenses were incurred at the request of Tenant. An Indemnitee shall be entitled, at its own expense, acting through counsel acceptable to Tenant, to participate in any action, suit or proceeding the defense of which has been assumed by Tenant pursuant to the preceding provisions, provided, that such party's participation does not, in the opinion of independent counsel to Tenant, interfere with such control; and such participation shall not constitute a waiver of the indemnification provided in this Section 22. Notwithstanding anything to the contrary contained herein, Tenant shall not under any circumstances be liable for the fees and expenses of more than one counsel for each of (i) the Owner Participants, the Landlords and the Owner Trustee (and their respective successors and permitted assigns, agents and servants), and (ii) the Indenture Trustee and the Pass Through Trustee (and their respective successors and permitted assigns, agents and servants). (e) Notwithstanding anything in this Section to the contrary, in any action, suit or proceeding to which any Indemnitee is a party, Tenant shall not enter into any settlement or other compromise with respect to any Claim without the prior written consent of the Indemnitee, which consent shall not be unreasonably withheld, unless Tenant acknowledges in writing reasonably satisfactory to such Indemnitee such Indemnitee's right to full indemnification under this Section 22 with respect to such Claim; provided, however, that such acknowledgment shall not preclude Tenant from raising a defense to liability under this Section 22 if - 46 - 51 a court of competent jurisdiction has rendered a decision that the cause of the Claim is not one for which Tenant is responsible to pay an indemnity to such Indemnitee under this Agreement. Unless a Material Default shall have occurred and be continuing under any Lease, no Indemnitee shall enter into any settlement or other compromise with respect to any Claim which it asserts is entitled to be indemnified under this Section 22 without the prior written consent of Tenant, which consent shall not be unreasonably withheld, unless such Indemnitee waives its right to be indemnified under this Section 22 with respect to such Claim. (f) Upon payment in full of any Claim by Tenant pursuant to this Section 22 to or on behalf of an Indemnitee, Tenant, without any further action, shall be subrogated to the indemnified Claim and any and all claims that such Indemnitee may have relating thereto (other than claims in respect of insurance policies maintained by such Indemnitee at its own expense), and such Indemnitee shall execute such instruments of assignment and conveyance, evidence of claims and payment and such other documents, instruments and agreements as may be reasonably necessary to preserve any such claims and otherwise cooperate with Tenant and give such further assurances as are reasonably necessary or advisable to enable Tenant to pursue such claims. (g) Nothing in this Section 22 shall (i) be construed as a guaranty by Tenant of any residual value in any Property or as a guaranty of any of the Notes or the Certificates to be issued pursuant to the Pass Through Trust Agreements or (ii) modify or limit the rights and obligations under any Operative Document with respect to any party hereto as to any Claim covered hereby. (h) For purposes of this Section 22, the following terms shall have the meanings ascribed to them below. "After-Tax Basis" shall have meaning set forth in Section 23(h) except that for purposes of this Section the term Tax Indemnitee shall be deemed to mean an Indemnitee as defined herein. "Claims" shall mean liabilities, obligations, damages, losses, penalties, fines, claims (including, without limitation, Environmental Claims), actions, suits, judgments, administrative or judicial orders, settlements, utility charges, costs, expenses and disbursements (including, without limitation, reasonable legal fees and expenses and costs of investigation) of any kind and nature whatsoever, whether or not subject to litigation. "Environmental Claims" shall mean any and all administrative, regulatory or judicial actions or causes of action, suits, obligations, liabilities, losses, proceedings, decrees, judgments, penalties, fees, orders, directives, (including any - 47 - 52 obligations involving liability in tort, strict, absolute or otherwise), liens, notices of noncompliance or violation, and legal fees or costs of investigation or proceedings, relating in any way to any Environmental Law or arising from the presence or Release (or alleged presence or Release) into the environment of any Hazardous Materials (hereinafter "Claims") including, without limitation, and regardless of the merit of such Claim, any and all Claims by any governmental or regulatory authority or by any third party for enforcement, cleanup, removal, containment, restoration, corrective action, response, remedial or other actions or damages, contribution, indemnification, cost recovery, compensation or injunctive relief pursuant to any Environmental Law or any alleged injury or threat of injury to human health, safety, the environment or natural resources. "Environmental Law(s)" shall mean all federal, state, and local laws, ordinances, rules, regulations, requirements, permits, licenses, authorizations, approvals, criteria, guidelines, and judicial and administrative orders, decrees, or judgments, now or hereafter in effect, and in each case as amended, and any judicial or administrative interpretation thereof, relating to the regulation and protection of human health, safety, the environment and natural resources including, without limitation, laws (and all other items recited above) relating to emissions, discharges, releases, threatened releases or remediation of, or any other response action related to, Hazardous Materials (as herein defined) or otherwise relating to the generation, use, treatment, storage, recycling, disposal, transport, or handling of or exposure to Hazardous Materials. Environmental Laws include but are not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"); the Resource Conservation and Recovery Act ("RCRA"); the Federal Insecticide, Fungicide, and Rodenticide Act; the Toxic Substances Control Act; the Clean Air Act; the Federal Water Pollution Control Act; the Oil Pollution Act of 1990, the Endangered Species Act; the National Environmental Policy Act; the Hazardous Materials Transportation Act; the Occupational Safety and Health Act; and the Safe Drinking Water Act; each as amended from time to time, and each of their state and local counterparts or equivalents. "Hazardous Material(s)" shall mean (i) "hazardous substances," as defined by CERCLA, as amended from time to time and any regulations promulgated thereunder; (ii) "hazardous wastes," as defined by RCRA, as amended from time to time and any regulations promulgated thereunder; (iii) any pollutant or contaminant or hazardous, restricted, dangerous or toxic chemicals, materials, wastes or substances within the meaning of any Environmental Law; (iv) any chemical, material, substance, or waste, the presence, use, generation, treatment, release, emission, discharge, transport, storage, or disposal of which is now or hereafter prohibited, limited or regulated by any Environmental Law or - 48 - 53 governmental authority; (v) any substance, material, product, chemical, derivative, compound, mixture, mineral, waste, gas, medical waste, contaminant or pollutant which would require investigation, response or remediation as a result of any public or private action brought pursuant to any Environmental Law; (vi) any radioactive material, asbestos in any form or condition, petroleum or petroleum products, flammable explosives, urea formaldehyde foam insulation, polychlorinated biphenyls, and radon gas. "Indemnitee" shall mean each Owner Participant, Owner Participant Parent, each Landlord, each Trust Estate, Remainderman Participant, Remainderman, Remainderman Trustee (in its individual capacity and as trustee under the Remainderman Trust Agreement), Indenture Trustee (in its individual capacity and as trustee under each of the Indentures) and Corporate Owner Trustee and Individual Owner Trustee (each in its individual capacity and as trustee under the Trust Agreements together with any co-trustees permitted under such Trust Agreements) and each of their respective Affiliates, permitted successors, assigns, and transferees, servants, employees, agents, shareholders, partners, directors and officers. "Release" shall mean the release, deposit, disposal or leak of any Hazardous Material into, upon or under any land, water or air, or otherwise into the environment in violation of Environmental Laws, including without limitation by means of burial, disposal, discharge, emission, injection, spillage, leakage, seepage, leaching, dumping, pumping, pouring, escaping, emptying, placement and the like. 23. General Tax Indemnity. (a) Notwithstanding Section 23(b), whether or not any of the transactions contemplated hereby or by any of the Operative Documents shall be consummated, Tenant shall pay and discharge, and shall indemnify and hold harmless, on an After-Tax Basis, each Tax Indemnitee with respect to all Indemnified Taxes. (b) Notwithstanding Section 23(a), Tenant shall not be required to pay, reimburse or indemnify any Tax Indemnitee for or with respect to: (i) any Excluded Tax (irrespective of whether absent this subsection (b) such Tax might otherwise be an Indemnified Tax), provided however, that this clause (i) shall not apply, in the case of any Owner Participant Tax Indemnitee, to (A) any net income tax imposed by the state of Ohio arising in connection with or attributable to any Original Property or part thereof that is located therein or any Substitute Property that is located in Ohio and replaces an Original Property that is located in Ohio; (B) any Tax that is or is in - 49 - 54 the nature of franchise Tax imposed by any state or local government in the United States or any political subdivision or taxing authority thereof or therein where any of the Original Properties or any part thereof is located or any Substitute Property that replaces an Original Property and that is located in the same state in which the Original Property that it replaces is located; provided, further, that the total amount of all such incremental franchise Taxes and Ohio state income Tax paid (in each case, excluding any interest, penalties, fines and additions to Tax thereon or thereto), reimbursed or indemnified by Tenant under this clause (i) (A) and (B) to all Owner Participant Tax Indemnities discounted to the Closing Date on an annual basis at 10 percent shall not exceed $575,000; provided, however, (1) if a Substitute Property is located in the same state as an Original Property it replaces, the opinion required for purposes of paragraph (b) of Article 41 of the Lease shall not take into account for purposes of considering whether or not such substitution will result in any material incremental adverse Tax consequences the fact that the Owner Trustee and the Owner Participant may be entitled to indemnification with respect to either any incremental increase in Ohio state income Tax with respect to such Ohio Substitute Property pursuant to subsection (i)(A) or with respect to any incremental increase in any Tax that is or is in the nature of a franchise Tax with respect to any other such Substitute Property pursuant to subsection (i)(B); and, (2) if a Substitute Property replaces an Original Property that is located in Texas, Ohio or New York and such Substitute Property is located in a state that is different from the state in which the Original Property is located, the Tax Cap shall be decreased by the amount specified in Schedule ___ hereto for such Original Property for the year in which such substitution occurs; and (C) any net income Tax and any Tax that is or is in the nature of a franchise Tax in each case imposed by any state or local government in the United States or any political subdivision or taxing authority thereof or therein where any Substitute Property or any part thereof is located if (x) such Substitute Property replaces an Original Property and is located in a state other than the state in which the Original Property that it replaces is located or (y) such Substitute Property replaces any Substitute Property. (ii) any Indemnified Tax imposed upon the sale or transfer by any Tax Indemnitee of all or a part of any Property or interest in the Lease or the Remainder Interest except for: (A) a sale and transfer pursuant to Tenant's Purchase Offer or otherwise to Tenant as set forth in Articles 14, 15, or 40 of the relevant Lease or any sale to a third party under Article [39] of the relevant Lease; (B) any disposition or transfer resulting in connection with Articles - 50 - 55 [9, 10, 13, 21 or 41] of the relevant Lease; (C) a transfer in connection with an Event of Default under the applicable Lease; and (D) any disposition or transfer resulting in connection with Section 3 of this Agreement; (iii) any Indemnified Tax imposed or levied on or assessed against any income or any business activity of a Tax Indemnitee solely to the extent such Indemnified Tax would have been imposed or levied in the absence of the transactions contemplated by the Operative Documents (including any intangibles tax imposed with respect to any debt or investment paper of any Tax Indemnitee that is unrelated to the transactions contemplated by the Operative Documents or the Owner Participant's Financing); (iv) any Indemnified Tax imposed on a Tax Indemnitee resulting from the willful misconduct or gross negligence of such Tax Indemnitee or any breach by such Tax Indemnitee of any of its representations, warranties or covenants in the Operative Documents to which it is a party unless such breach or violation results from Tenant's acts, omissions or misrepresentations; (v) with respect to any Indemnified Tax, any interest, penalties, fines or additions to tax imposed on or payable by a Tax Indemnitee resulting from the failure of such Tax Indemnitee to file any return or report in a procedurally proper and in a timely manner pursuant to its obligations under Section 23 hereof except to the extent such failure is caused by the failure of the Tenant to fulfill its obligations, if any, hereunder with respect to such return or report; (vi) any Indemnified Tax imposed on or payable by a Tax Indemnitee that would not have been imposed but for any failure of such Tax Indemnitee to comply with: (A) certification, information, documentation, reporting or other similar requirements (each a "Requirement") concerning nationality, residence, identity or connection with the jurisdiction imposing such Indemnified Taxes, if such compliance is required by statute or regulation of the jurisdiction imposing such Indemnified Taxes as a precondition to relief or exemption from such Indemnified Taxes and such Tax Indemnitee was eligible to comply with such Requirement; provided that this clause (A) shall not apply to any Owner Participant Tax Indemnitee; or (B) any other Requirements under the tax laws or regulations of the jurisdiction imposing such Indemnified Taxes that would establish entitlement to otherwise applicable relief or exemption from such Taxes if such compliance by such Tax Indemnitee was timely requested by the Tenant in writing and such Tax Indemnitee was eligible to - 51 - 56 comply with such Requirement; provided, however, that in no event shall any Tax Indemnitee be required to take any action hereunder which, in its sole discretion, exercised in good faith, would have any unindemnified adverse consequence to it and provided however, that if in the opinion of such Tax Indemnitee it would be so affected, such Tax Indemnitee shall provide to Tenant a written statement articulating the reasons for the Tax Indemnitee's failure to comply with the requested action and the estimated cost to Tax Indemnitee of the unindemnified adverse consequence to be relied upon and provided further that Tax Indemnitee shall undertake such compliance requested by Tenant pursuant to this subsection if Tenant shall so elect and provide such Tax Indemnitee at Tenant's election with either (x) a cash payment in the full amount of the estimated cost as set forth in the Tax Indemnitee's written statement or (y) such alternative means of full indemnification as may be agreed upon by the parties negotiating in good faith indemnification for the unindemnified adverse consequences relating thereto; (vii) with respect to any Property, any Indemnified Tax to the extent attributable to acts, events or circumstances which occur after the later of (A) the expiration or earlier termination of the applicable Lease with respect to such Property and (y) the Tenant's actual surrender or return of possession of such Property in accordance with the applicable Lease; provided that this clause (viii) shall not apply to Indemnified Taxes attributable to or arising from any act, event or circumstance occurring on or before the later to occur of (x) and (y) or relating to payments due pursuant to the Operative Documents; or (viii) any Indemnified Tax expressly included in the Transaction Expenses to be paid by the Owner Participant (so long as any such Taxes paid to Tenant are paid by Tenant to the appropriate taxing authority) or provided under the Operative Documents to be borne by any party other than Tenant or an Owner Participant Tax Indemnitee. (c) Notwithstanding any other provision of this Section 23 to the contrary, (i) the Tenant will indemnify, on an After-Tax Basis, each Trust, each Owner Trustee (individually and as Owner Trustee), each Owner Participant and each of their respective permitted assigns, successors, or transferees (and any affiliate of any of the foregoing) for any obligation with respect to United States federal withholding taxes imposed on or payable by any Trust, any Owner Trustee (individually and as Owner Trustee) any Owner Participant or any of their respective permitted assigns, successors, or transferees (or any affiliate of any of the foregoing) (x) with respect to the Owner Participant's Financing (or any debt permitted to be issued to refinance or refund such - 52 - 57 Owner Participant's Financing, or (y) as a result of a claim by the Internal Revenue Service asserted against any Trust, any Owner Trustee (individually and as Owner Trustee) or any Owner Participant or any of their respective permitted assigns, successors, or transferees (or any affiliate of any of the foregoing) with respect to the Owner Participant's Financing. (d) (i) If any written claim shall be made against any Tax Indemnitee or if any proceeding shall be commenced against any Tax Indemnitee (including a written notice of such proceeding) for any Indemnified Taxes as to which the Tenant may have any payment, discharge or indemnity obligation pursuant to this Section 23, such Tax Indemnitee shall promptly notify the Tenant in writing and shall not take any action with respect to such claim, proceeding or Indemnified Tax without the written consent of the Tenant (which consent shall not be unreasonably withheld or delayed) for 60 days after the receipt of such notice by the Tenant; provided, however, that, in the case of any such claim or proceeding or Indemnified Tax, if such Tax Indemnitee shall be required by applicable Laws to take action prior to the end of such 60-day period, such Tax Indemnitee shall in such notice to the Tenant, so inform the Tenant, and such Tax Indemnitee shall not take any action with respect to such claim, proceeding or Indemnified Tax without the written consent of Tenant (which consent shall not be unreasonably withheld or delayed) for 10 days after the receipt of such notice by the Tenant unless the Tax Indemnitee shall be required by applicable Laws to take action prior to the end of such 10-day period, in which case the Tax Indemnitee may take any action with respect to such claim, proceeding or Indemnified Tax prior to the end of such 10-day period, provided such Tax Indemnitee has not, at the time of taking such action, received a written request contemplated by Section 23(d)(ii) below. (ii) If requested by the Tenant within 60 days (or such shorter period as specified in Section 23(d) (i) above), after receipt by the Tenant of the required notice with respect to the claim or proceeding that is the subject of such notice; or, in the case of any claim or proceeding with respect to which Tenant (as opposed to the Tax Indemnitee) receives notice, upon the request of the Tenant, the applicable Tax Indemnitee either: (A) in the case of a claim or proceeding or Indemnified Tax which may be contested in the name of the Tenant or of any Tax Indemnitee other than an Owner Participant Tax Indemnitee and independently (without joinder, contribution or otherwise) from any claim, proceeding or Indemnified Tax that is not subject to indemnification by the Tenant, shall permit the Tenant to, or, in the case of any claim or proceeding, may request the Tenant to, or (B) in the case of a claim, proceeding or Indemnified Tax which must be contested in the name of an Owner Participant Tax Indemnitee, but which may be contested independently (without joinder, - 53 - 58 contribution or otherwise) from any claim, proceeding or Tax that is not subject to indemnification by the Tenant may, upon prior written consent of the applicable Owner Participant Tax Indemnitee which consent shall be in its sole discretion exercised in good faith, permit Tenant to (so long as, in the good faith judgment of such Owner Participant Tax Indemnitee, there is no reasonable possibility that the Tenant's direction of such contest could have any adverse impact on the financial or public relation interests of such Owner Participant Tax Indemnitee, in which case, such Owner Participant Tax Indemnitee may assert or reassert control of the Contest; provided, however, the foregoing right to assert or reassert control shall not apply to any ad valorem real estate or personal property Tax contest) (any contest of any claim, proceeding or Indemnified Tax ("Contest") described in the foregoing clauses (i) or (ii) (for so long as the Tenant controls the Contest) being hereinafter referred to as a "Tenant-Controlled Contest"), or (iii) in the case of a Contest which is not a Tenant-Controlled Contest, shall itself, contest in good faith (including, without limitation, by pursuit of appeals and administrative procedures), the validity, applicability or amount of Taxes at issue in such claim or proceeding. (iii) No matter who is in control, a Contest at the election of the Controlling Party (as defined herein) may include, without limitation, a challenge to the validity, applicability or amount of any Indemnified Tax by: (A) resisting payment thereof; (B) not paying the same except under protest (which protest must be pursued using reasonable efforts in appropriate administrative and/or judicial proceedings) if protest shall be necessary and proper; or, (C) if payment shall be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and/or judicial proceedings, (it being understood that Tenant may appeal or require the Tax Indemnitee to appeal to any appropriate administrative or judicial appeal body; provided, however that no appeal shall be permitted or required hereunder to the United States Supreme Court with respect to any Contest in which the Tax Indemnitee is an Owner Participant Tax Indemnitee). (iv) In the case of any Contest with respect to which the Tax Indemnitee is an Owner Participant Tax Indemnitee, in no event shall any such Contest be required or permitted unless, - 54 - 59 (A) in the case of any such Contest (1) which must be contested in the name of the Tax Indemnitee or (2) which is contested by the Tax Indemnitee in the name of the Tenant, the amount at issue (taking into account all similar and logically related claims with respect to the transactions contemplated by the Operative Documents to the extent relating to the Property with respect to which the claim was made or the proceeding was commenced that have been or could be raised in an audit by the taxing authority in question for any other taxable period with respect to which an assessment of a tax deficiency is not barred by a statute of limitations, including, without limitation, such claims that may arise in future periods) exceeds $25,000; (B) Tenant shall have agreed in writing to pay the applicable Tax Indemnitee and shall pay on an After-Tax Basis as incurred all reasonable out-of-pocket costs and expenses that such Tax Indemnitee shall incur in connection with the contest of such claim (including, without limitation, all reasonable costs, expenses, legal and accounting fees and disbursements); (C) the applicable Tax Indemnitee shall have determined in its sole discretion exercised in good faith that the action to be taken will not result in any material danger of sale, forfeiture or loss of any Property or Remainder Interest with respect to which the claim was made or the proceeding was commenced or any other Property or Remainder Interest located within the same taxing jurisdiction or state as the taxing authority with respect to which the requested action is to be taken or any part thereof or interest therein or the creation of any Lien on any Property or Remainder Interest with respect to which the claim was made or the proceeding was commenced or any other Property or Remainder Interest located within the same taxing jurisdiction or state as the taxing authority with respect to which the requested action is to be taken or any part thereof or interest therein other than any Permitted Liens and that there is no risk of criminal liability that may be imposed on or with respect to such Tax Indemnitee; (D) if such contest is to be effected by payment of the claim, Tenant shall advance the amount thereof plus, as applicable, interest, penalties and additions to tax with respect thereto to the applicable Tax Indemnitee on an interest-free basis (at no additional net after-tax cost to such Tax Indemnitee but taking into account any net tax savings associated with such advance); - 55 - 60 (E) no Material Default or Event of Default shall have occurred and be continuing under the applicable Lease; and, (F) in the case of a Contest which must be contested in the name of the Tax Indemnitee or which is contested by the Tax Indemnitee in the name of the Tenant, (1) prior to initiating the Contest the Tenant shall have furnished the Tax Indemnitee with an opinion of Tenant's Tax Counsel, which opinion shall be furnished solely at the Tenant's expense, to the effect that a Reasonable Basis exists for such Contest; and, (2) prior to the appeal of any adverse judicial determination, Tenant shall have furnished the Tax Indemnitee with an opinion of Tenant's Tax Counsel, which opinion shall be furnished solely at the Tenant's expense, to the effect that there is a Reasonable Basis for concluding that there will be a reversal or other substantial favorable modification of such determination on appeal; (G) After the completion of an administrative proceeding of first instance and prior to any administrative appeal, the Tenant shall have acknowledged in writing its obligation to indemnify the applicable Tax Indemnitee for the Indemnified Tax pursuant to this Section 23 in the event the contest is unsuccessful (in whole or in part) or shall, in good faith, have notified such Tax Indemnitee of the reasons the Tenant is not or may not be liable for the Indemnified Tax if the Contest is unsuccessful (in whole or in part). Notwithstanding the foregoing, the Tenant shall have acknowledged in writing its obligation to indemnify (in whole or in part) the Tax indemnitee for any Indemnified Tax pursuant to this Section 23 in the event that the Contest is unsuccessful (in whole or in part) prior to any petition or complaint to a court. Any such acknowledgement shall not preclude Tenant from raising a defense to liability under this Section 23 if a court of competent and proper jurisdiction has rendered a decision that the cause of the claim is not one for which Tenant is responsible to pay an indemnity hereunder; and (H) if the subject matter of the claim, proceeding or Indemnified Tax shall be of a continuing nature and shall have previously been the subject of an adverse final determination hereunder after exercise by the Tenant of its rights pursuant to this Section 23, the Tenant shall have delivered to such Tax Indemnitee at Tenant's expense an opinion of Tenant's Tax Counsel to the effect that as a result of a change in law or fact it is more likely than not that the Tax Indemnitee will prevail in the contest of such claim. (v) The Tenant shall conduct any Tenant-Controlled Contest and the relevant Tax Indemnitee shall control any - 56 - 61 Contest other than a Tenant-Controlled Contest. The party conducting the Contest ("Controlling Party") shall consult in good faith with the other party ("Noncontrolling party") and its counsel with respect to such Contest but the decisions regarding what actions to be taken shall be made by the Controlling Party in its sole judgment (exercised in good faith). In addition, the Controlling Party shall keep the Noncontrolling Party reasonably informed as to the progress of the Contest, and shall provide the Noncontrolling Party with a copy of (or appropriate excerpts from) any reports or claims issued by the relevant auditing agents or taxing authority to the Controlling Party or any affiliate thereof, in connection with such claim, proceeding, Indemnified Tax or Contest. (vii) Except as provided in the next sentence of this Section 23(d)(vii), no Tax Indemnitee shall settle any Contest hereunder without the consent of Tenant, which consent shall not be unreasonably withheld. Notwithstanding anything contained in this Section 23, a Tax Indemnitee shall not be required to contest any claim or permit the Tenant to contest any claim and may settle any Contest without the consent of the Tenant if such Tax Indemnitee: (A) shall waive its right to payment, discharge and indemnity under this Section 23 and, if applicable, any corresponding claim under Article 6 of the Lease with respect to such Indemnified Tax (and any claim made by the claiming taxing authority or any other taxing authority with respect to the same or any other taxable periods that are based, in whole or in part, upon the resolution of such claim) and (B) shall pay to the Tenant any amount previously paid or advanced by the Tenant pursuant to this Section 23 with respect to such claim for such Indemnified Tax or the contest of such Indemnified Tax other than the costs and expenses of the contest of such claim paid by the Tenant in accordance with clause (B) of Section 23 (d)(v). (vii) If any Tax Indemnitee shall receive a refund of all or part of any Indemnified Taxes paid, reimbursed or advanced by the Tenant with respect to any Contest under this Section 23, then, provided no Material Default or Event of Default shall have occurred and be continuing, such Tax Indemnitee shall pay to the Tenant within 60 days of such receipt an amount equal to the lesser of: (A) the amount of such refund of such Indemnified Taxes plus or minus any net tax benefit or cost (taking into account any Indemnified Taxes incurred by such Tax Indemnitee by reason of the receipt or accrual of such refund) realized by such Tax Indemnitee as a result of any payment made pursuant to this sentence (including this clause (A)), and (B) the amount of such Indemnified Taxes paid, reimbursed or advanced by the Tenant to the Tax Indemnitee, it being intended that such Tax Indemnitee shall retain a net tax benefit pursuant to this - 57 - 62 Section 23 only if the Tenant shall first have been reimbursed for all Indemnified Taxes it paid to such Tax Indemnitee pursuant to this Section. If, in addition to such refund, such Tax Indemnitee shall receive an amount representing interest on the amount of such refund, such Tax Indemnitee shall pay the Tenant within 60 days of receipt, that portion of such interest that shall be fairly attributable to Indemnified Taxes paid, reimbursed or advanced by the Tenant prior to the receipt of such refund. Any subsequent denial, loss, repayment or recapture of such refund will be treated as an Indemnified Tax for which the Tenant is responsible hereunder subject to the Tenant's right to contest such denial, loss, repayment or recapture under, and in accordance with, Section 23(a) as though it were a new claim, proceeding or Indemnified Tax hereunder. (e) (i) Any amount payable by the Tenant to a Tax Indemnitee pursuant to this Section 23 shall be paid within 60 days after receipt by the Tenant of a written demand there for from such Tax Indemnitee accompanied by a written statement describing in reasonable detail the amount so payable, but (except as provided in Article 6 of the Lease) shall in no event be payable before the date such Indemnified Tax is due. Any payments made pursuant to this Section 23 shall be made directly to the Tax Indemnitee entitled thereto or the Tenant, as the case may be, in immediately payable funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee and mailed to the payee by certified mail, postage prepaid at its address as set forth in this Agreement or as provided to the payor from time to time in writing. Any Indemnified Taxes indemnified hereunder shall be payable by the Tenant, to the extent allowed, directly to the appropriate taxing authority on or before the time, and in the manner, prescribed by applicable Laws, without the necessity of any prior demand by a Tax Indemnitee. (ii) In the event the Tenant fails to make any payment required under this Section 23, and the Tax Indemnitee makes a payment with respect to any such Indemnified Taxes that are due and payable at the time of such payment (other than with funds advanced to the Tax Indemnitee on an interest-free basis by the Tenant pursuant to this Section 23) the Tenant shall pay to the Tax Indemnitee interest on the amount of such payment at the Default Rate (as defined in Article 1(b)(ii) of the Lease) from (A) the date of payment by the Tax Indemnitee if it notifies the Tenant that such payment has been made within 5 days of making such payment, or (B) from the date the Tax Indemnitee notifies the Tenant of such payment in all other cases, in either case to the date of payment by the Tenant to the Tax Indemnitee hereunder. Any - 58 - 63 amount payable under this Section 23 that is not paid when due shall bear interest at the Default Rate (as defined in Article 1(b)(ii) of the Lease) from and including the due date thereof to but excluding the date of payment thereof. (iii) Any amount payable to Tenant pursuant to this Section 23 shall not be paid or retained by Tenant if at the time of such payment or retention a Material Default or Event of Default shall have occurred and be continuing. At such time as there shall not be continuing any such Material Default or Event of Default such payment shall be paid to Tenant to the extent not previously paid to Tenant. (f) With respect to any report, return or statement (a "Filing") required to be filed with respect to any Indemnified Tax that is subject to reimbursement or indemnification under this Section 23: (i) Seller shall promptly notify the appropriate Tax Indemnitee in writing of any Filing (other than a Filing which relates to a Tax described in Section 23(b)(i)(A), (B) or (C)) required to be made by any Tax Indemnitee that (x) Seller has knowledge of; (y) Seller should have knowledge of based on either the Transaction Documents or the responsibilities which are customary for an operator, user or lessee (in a triple net lease) of similar property. Upon receipt of such notice, the recipient Tax Indemnitee shall promptly notify the Seller in a writing satisfying the requirements of subsection (ii) whether it will make such Filing or requests the Seller to make such Filing. (ii) if permitted by applicable Laws to do so, the Tenant shall timely file or cause to be filed such Filing with respect to such Indemnified Tax (except for any such Filing that a Tax Indemnitee has notified Tenant in writing that such Tax Indemnitee intends to file) and will (if ownership of a Property or any part thereof or interest therein is required to be shown on such Filing) show the ownership of the Property in the name of the Owner Trustee and send a copy of such Filing to the appropriate Tax Indemnitee; provided, however, that such Tax Indemnitee shall have furnished the Tenant, at the Tenant's written request, with such information, not within the control of the Tenant, as is in such Tax Indemnitee's control or is reasonably available to such Tax Indemnitee and necessary to file such Filing; provided, further, however, Tenant shall pay all out-of-pocket expenses of the Tax Indemnitee in connection therewith. (iii) if the Tenant is not permitted by applicable Laws to file any Filing contemplated by subsection (ii), the Tenant will promptly notify the appropriate Tax Indemnitee of such - 59 - 64 requirement in writing and prepare and deliver to the appropriate Tax Indemnitee a proposed form of such Filing within a reasonable time, and in all events at least 15 days prior to the time such Filing is required to be filed. (iv) in the case of any Filing contemplated by subsection (ii) either required to reflect items in addition to Indemnified Taxes imposed on or indemnified against by the Tenant under this Section 23 or which the Tax Indemnitee has notified the Tenant in writing that it will prepare and file, Tenant shall at its expense, upon the written request of such Tax Indemnitee, provide such Tax Indemnitee with such information as is within Tenant's reasonable control or access. (v) Tenant shall hold each Tax Indemnitee harmless from and against any liabilities, including, but not limited to penalties, additions to tax, fines and interest, arising out of any insufficiency or inaccuracy in any Filing contemplated by subsection (ii), if such insufficiency or inaccuracy is attributable to Tenant. (g) With respect to any Indemnified Tax which is subject to reimbursement or indemnification under Section 23 hereof, (i) Any payment or indemnity to or for the benefit of any Tax Indemnitee shall (A) reflect the current combined net savings actually realized by such Tax Indemnitee resulting from the current deduction of such Indemnified Tax and (B) include, after taking into account the savings described in clause (A), the amount necessary to hold such Tax Indemnitee harmless on an After-Tax Basis. (ii) If, by reason of any Indemnified Tax payment, discharge or indemnity made to or for the account of a Tax Indemnitee by or on behalf of the Tenant pursuant to this Section 23 (or the circumstances or event giving rise thereto), such Tax Indemnitee actually realizes a net tax benefit, refund, saving, deduction or credit against Taxes not indemnified by the Tenant under any Operative Document, which benefit, refund, saving, deduction or credit was not previously taken into account in computing such payment, and provided no Material Default or Event of Default under the applicable Lease has occurred and is continuing, such Tax Indemnitee shall promptly pay to Tenant an amount equal to the sum of: (A) the actual net reduction in Taxes, if any, realized by such Tax Indemnitee which is attributable to such net tax benefit, refund, saving, deduction or credit; and, (B) the actual net reduction in any Taxes, if any, realized by such Tax Indemnitee as the result of any payment made by such Tax Indemnitee pursuant to this sentence. - 60 - 65 (iii) Notwithstanding the foregoing subsection (ii), no Tax Indemnitee shall be required to make any payment to the Tenant pursuant to this Section 23(g) to the extent such payment would exceed, in the aggregate at any time of: (A) the amount of all prior payments made by or on behalf of Tenant to such Tax Indemnitee of the Indemnified Tax giving rise to such tax savings less, (B) the amount of all prior payments made by the Tax Indemnitee to Tenant hereunder of tax savings in respect of such Indemnified Tax pursuant to this Section 23(g), but any such excess shall reduce pro tanto any amount that the Tenant is subsequently obligated to pay such Indemnified Party pursuant to this Section 23 with respect to such Indemnified Tax. (iv) If any amount otherwise payable to the Tenant is not payable by reason of the occurrence and continuation of a Material Default or an Event of Default under the applicable Lease, such amount shall be payable when such Material Default or Event of Default is no longer continuing. (v) The disallowance or reduction of any tax benefit, refund, savings, deduction or credit with respect to which a Tax Indemnitee has made a payment to the Tenant under this Section 23 or which was taken into account in calculating any such payment under this Section 23 shall be treated as an Indemnified Tax for which the Tenant is obligated to pay, reimburse or indemnify such Tax Indemnitee hereunder subject to the Tenant's rights to contest such Indemnified Tax under, and in accordance with, Section 23(d) as through it were a new claim or proceeding hereunder. (h) For purposes of this Section 23, the following terms shall have the meanings ascribed to them below: "Affiliated Group" shall mean an affiliated group of corporations, within the meaning of Section 1504 of the Code, filing or which will file a consolidated Federal income tax return. "After-Tax Basis" shall mean (i) with respect to any payment to be received by Tax Indemnitee, the amount of such payment supplemented by a further payment or payments so that, after deducting from such aggregate payments the amount of all Taxes (net of any actual current credits, deductions or other tax benefits arising from the payment by the Tax Indemnitee of any amount, including Taxes, for which the payment to be received is made) actually imposed currently on the Tax Indemnitee by any Governmental Authority or taxing authority with respect to such payments, the balance of such payment shall be equal to the original payment to be received and (ii) with respect to any such payment to be made by the Tax Indemnitee; the amount of such payment to be made by the Tax Indemnitee; the amount of such - 61 - 66 payment supplemented by a further payment or payments so that, after increasing such payment by the amount of any current credits or other tax benefits realized by the Tax Indemnitee under the laws of any Governmental Authority or taxing authority resulting from the making of such payments that net amount of such payment (net of such credits or benefits) shall be equal to the original payment to be made; provided, however, for the purposes of this definition, it shall be assumed that for the Owner Participant as a Tax Indemnitee (or any Affiliate thereof) Federal, state and local income taxes are payable at the highest marginal Federal, state and local statutory income tax rates applicable to corporations from time to time. "Excluded Taxes" shall mean any and all federal, state or municipal net income Tax, or any net profit, capital gains, excess profits, alternative minimum, accumulated earnings or personal holding company Taxes, and any inheritance, estate, succession, gift, or franchise Tax (regardless how named or denominated) except for: (i) any such Tax which is in direct substitution (which direct substitution is documented by published administrative regulation, fiat or other official ruling, notice or release of any kind and/or in a statutory enactment or legislative history thereof by the state or political subdivision or other taxing authority which enacted and/or levied any such Tax) for any Indemnified Tax which Tenant is obligated to pay, reimburse or indemnify a Tax Indemnitee under this Agreement; (ii) any Tax which is, or is in the nature of, a real property franchise charge, or a sales, use, rental, property, value added, stamp, license or transfer tax; and (iii) any Tax which is indemnified as necessary to make any payments hereunder on an After-Tax Basis. "Final Determination" shall mean: (i) a decision, judgment, decree or other order by any court of competent jurisdiction, which decision, judgment, decree or other order has become final after all appeals allowable by law and the applicable Operative Documents have been exhausted by either party to the action or the time for filing such appeals has expired or in any case where judicial review shall at the time be unavailable because the proposed adjustment involves a decrease in net operating loss carryforwards or business credit carryforwards, a decision, judgment, decree or other order of an administrative official or agency of competent jurisdiction which decision, judgment, decree or other order has become final (i.e., where, all - 62 - 67 administrative appeals have been exhausted by all parties thereto); (ii) a closing agreement entered into under (x) Section 7121 of the Code or any other settlement agreement entered into in connection with an administrative or judicial proceeding and (y) with the consent of Kmart; (iii) the expiration of the time for instituting suit with respect to the claimed deficiency; or (iv) the expiration of the time for instituting a claim for refund, or if such a claim was filed, the expiration of the time for instituting suit with respect thereto. "Indemnified Taxes" shall mean any and all Taxes levied, assessed or imposed on or with respect to a Tax Indemnitee, the Tenant, any Tenant, the Owner Participant's Financing (including without limitation, the Notes, the Pass Through Certificates and any amounts and expenses payable thereunder), the Properties or any part thereof or interest therein or any addition, alteration, modification or improvement thereto, any Remainder Interest, or the Rent payable under any Lease including, without limitation, taxes or such other amounts that are or are in the nature of sales, use, rental, value added, filing, recording and transfer taxes, and any and all water, sewer or other such charges, excises, levies, fees, licenses, duties, withholdings, permits, inspections, real property franchise charges and other governmental charges of every character (in each case, regardless how named or denominated) or any excise taxes, charges or penalties imposed on any Tax Indemnitee under Section 4975 of the Code or Section 502 (i) or (1) of ERISA which, may be levied, assessed or imposed on or in connection with or with respect to: (i) any Property, any part thereof or any estate, right, title or interest therein, or any construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership, condition, maintenance, repair, storage, substitution, return, occupancy, operation, leasing, subleasing, use or possession of, or sales from, or other activity conducted on any Property or any part thereof, or any transfer, mortgaging, pledging, financing of any Property or any part thereof or any addition, alteration, modification or improvement of or to the Property or any such part thereof, (ii) any Remainder Interest, or any part thereof or interest therein, - 63 - 68 (iii) any Lease, or any other Operative Document (including in each case any amendment, supplement, waiver or consent thereto), (iv) the Owner Participant's Financing (including without limitation, the Notes, the Pass Through Certificates and any payments and expenses thereunder), (v) the Rents, or receipts arising from or received with respect to the Properties or any part thereof or any interest therein or any applications or permitted dispositions thereof, (vi) otherwise with respect to or in connection with the transactions contemplated by the Operative Documents. It is the parties' intention that, Indemnified Taxes shall include, without limitation, (i) any and all Property Assessments; and, (ii) all Taxes that are specifically carved out of the exclusions provided in Section 23(b) herein. "Original Property" shall mean any Property purchased by the Owner Trustee and leased to Kmart on the Closing Date. "Owner Participant Tax Indemnitee" shall mean each of the Owner Participants, the Owner Trustees, the Trusts, and each of their respective affiliates, successors, permitted assigns and permitted transferees. "Property Assessments" shall have the meaning set forth in Section 6(a) of the Lease. "Reasonable Basis" for a position shall exist if tax counsel may properly advise reporting such position on a tax return in accordance with Formal Opinion 85-352 issued by the Standing Committee on Ethics and Professional Responsibility of the American Bar Association. "Regulations" shall mean the income tax regulations issued, published or promulgated from time to time under and pursuant to the Code. "Tenant's Tax Counsel" shall mean nationally recognized independent tax counsel selected by Kmart and reasonably acceptable to the Owner Participant. Kmart shall notify the Owner Participant of its selection (including the name of the person to contact at such counsel) whenever requested by the Owner Participant or whenever Tax Counsel is required to be designated under this Agreement. - 64 - 69 "Substitute Property" shall mean any property which is substituted for any other Property in accordance with Article 41 of the Lease. "Taxes" shall mean all taxes, levies, charges, licenses, fees, imposts, duties, withholdings, liabilities, costs, expenses or assessments of the United States of America or any state or political subdivision or taxing authority thereof or therein (including any interest, penalties, fines and additions to tax thereon or thereto), which are levied, assessed or imposed. "Tax Indemnitee" shall mean the Owner Participants, each of the Owner Trustees (in their individual capacity and as trustees under the Trust Agreements) and any successor trustees thereto or co-trustees permitted under the applicable trust agreement, each of the Remainderman Trustees (in their individual capacity and as trustees under the Remainderman Trust Agreement) and any successor trustees thereto or co-trustees permitted under the applicable trust agreement, the Remainder Purchaser, the Trusts, the Remainderman Trust, the Indenture Trustees (in their individual capacity and as trustees under each Indenture for the benefit of the holders of the Notes), the Indenture Estates, and the respective affiliates, successors, permitted assigns, permitted transferees, servants, employees, agents, shareholders, directors and officers of each of the foregoing. 24. Trustee Liability. It is expressly understood and agreed by the parties hereto that: (a) Owner Trustee Liability. (i) This Agreement is executed and delivered by Corporate Owner Trustee and Individual Owner Trustee, not individually or personally, but solely as owner trustees on behalf of Landlord, in the exercise of the powers and authority conferred and vested in them as the owner trustees under the Trust Agreements, (ii) each of the representations, warranties, undertakings, covenants and agreements herein made by Landlord (other than those made by Owner Trustee in its individual capacity) are made and intended not as personal representations, warranties, undertakings, covenants and agreements by the Owner Trustees but are made and intended for the purpose of binding only the Trust Estate created by the Trust Agreements, (iii) nothing herein contained shall be construed as creating any liability on the Owner Trustees, individually or personally, to perform any covenant either expressed or implied contained herein, all such liability, if any, being expressly waived by the other parties to this Agreement and by any Person claiming by, through or under any such party and (iv) under no circumstances (except in respect of those - 65 - 70 representations, warranties, undertakings, covenants and agreements made by Owner Trustee in its individual capacity) shall the Owner Trustees be personally liable for the payment of any indebtedness or expenses of the Owner Trustees or Landlord under this Agreement or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by the Owner Trustees or Landlord under this Agreement; provided, however, that Owner Trustee in its individual capacity shall be liable in its individual capacity (A) for its own willful misconduct or gross negligence, and to each Owner Participant for the breach of its obligations to each Owner Participant in respect of the related Trust Agreement and Trust Estate, (B) for any Tax based on or measured by any fees, commission or compensation received by it for acting as trustee in connection with any of the transactions contemplated by the Operative Documents, or (C) in respect of the representations, warranties and covenants of Owner Trustee made in its individual capacity as expressly set forth herein or in any other Operative Document to which it is a party. Neither any of the Owner Participants nor the Owner Participant Parent shall have any obligation to any of the other parties hereto with respect to the transactions contemplated by the Operative Documents except those obligations of each Owner Participant and the Owner Participant Parent expressly set forth in the Operative Documents to which it is a party or except as set forth in the instruments delivered in connection therewith to which it is a party, and each of the Owner Participants and the Owner Participant Parent shall not be personally liable for performance by any other party hereto of such other party's obligations under the Operative Documents. Notwithstanding the foregoing provisions of this Section 24(a), nothing herein shall be deemed to prevent any party hereto from having recourse to and seeking enforcement against the Trust Estate for performance and observance of covenants, agreements and conditions required to be performed or observed by Owner Trustee or any Owner Participant in this Agreement and the other Operative Documents. (b) Remainderman Trustee Liability. (i) This Agreement is executed and delivered on behalf of Remainderman by Remainderman Trustee not in its individual capacity but solely as trustee under the Remainderman Trust Agreement, in the exercise of the powers and authority conferred and vested in it under the Remainderman Trust Agreement, (ii) each of the representations, warranties, undertakings, covenants and agreements herein made by Remainderman Trustee (other than those made by Remainderman Trustee in its individual capacity) are made and intended not as personal representations, warranties, undertakings, covenants and agreements by Remainderman Trustee but are made and intended for the purpose of binding only the Remainderman, and (iii) under no circumstances (except in respect of those representations, warranties, undertakings, covenants and agreements made by Remainderman Trustee in its individual capacity) shall Remainderman Trustee be -66- 71 personally liable for the payment of any indebtedness or expenses of Remainderman or be liable for the breach or failure of any obligation, representation, warranty, undertaking or covenant made or undertaken by Remainderman under this Agreement or the other Operative Documents; provided, that this Section 24(b) shall not limit the ability of any Person to look to the Remainderman Trust Estate for satisfaction of such liability or responsibility, to the extent provided in the Operative Documents. (c) Indenture Trustee Liability. (i) Except as expressly provided otherwise herein, this Agreement is executed and delivered by Corporate Indenture Trustee not individually or personally but solely as Indenture Trustee in the exercise of the powers and authority conferred and vested in it as Indenture Trustee, (ii) each of the representations, warranties, undertakings, covenants and agreements herein made by Indenture Trustee (other than those made by Corporate Indenture Trustee in its individual capacity) are made and intended not as personal representations, warranties, undertakings, covenants and agreements by the Indenture Trustee but are made and intended for the purpose of binding only the Indenture Estate, (iii) except as expressly provided otherwise herein, nothing herein contained shall be construed as creating any liability on the Indenture Trustee, individually or personally, to perform any covenant of Indenture Trustee either expressed or implied contained herein, and (iv) under no circumstances (except in respect of those representations, warranties, undertakings, covenants and agreements made by Corporate Indenture Trustee in its individual capacity) shall Indenture Trustee be personally liable for the payment of any indebtedness or expenses of Indenture Trustee solely in its capacity as Indenture Trustee or be liable for the breach or failure of any obligation, representation, warranty or covenant made or undertaken by Indenture Trustee under this Agreement or the other Operative Documents. 25. Extent of Interest of Noteholders. No Noteholder shall have any further interest in, or other right with respect to the Indenture Estate when and if the principal of, Premium, if any, and interest on all Notes held by such Noteholder and all other sums payable to such Noteholder or the Indenture Trustee under the Indenture and such Notes shall have been paid in full. The Pass Through Trustee and, by its acceptance of a Note, any other Noteholder agrees that they will look solely to the income and proceeds from the Indenture Estate to the extent available for the distribution to such Noteholders as provided for in Section 2.05 of the Indenture and that none of the Owner Participants, Owner Participant Parent, any Landlord, or Owner Trustee shall be directly or indirectly personally liable to the Pass Through Trustee or any other Noteholder for any amount payable under the Notes, the Indenture or hereunder. -67- 72 26. No Merger of Title. Except as provided in the Indenture, the remainderman interest, estate for years interest and leasehold estate with respect to each Property, shall not merge but shall always be kept separate and distinct, notwithstanding the union of such estates or any part thereof in Landlord, Tenant, Remainderman or any other party, whether by purchase or otherwise. 27. Remainderman Participant's Grant of Right of First Offer. (a) If at any time during the term of any Lease or during the term of any Ground Lease, Remainderman Participant (i) desires to sell or assign all or part of its rights in Remainderman or (ii) receives an unsolicited offer to purchase all or part of its rights in Remainderman, Remainderman Participant shall, as a condition of such sale or assignment, first offer all or such part of its rights in Remainderman (the "Offered Interest") to Landlord at a purchase price and on such other terms and conditions as Remainderman Participant would accept from another Person. Landlord may within thirty (30) days of receipt of such offer, elect to purchase the Offered Interest, whereupon Landlord shall be bound to purchase from Remainderman Participant, and Remainderman Participant shall be bound to sell to Landlord, the Offered Interest on such terms and conditions. If Landlord does not accept such offer, Remainderman Participant, subject to the provisions of this Section 27, may sell or assign its rights in the Offered Interest to another Person for a period of up to eighteen (18) months from the end of such thirty (30) day period on terms and conditions that are no less favorable to Remainderman Participant than the terms and conditions offered to Landlord (it being understood that a "no less favorable" purchase price for the Offered Interest is any purchase price that exceeds 96% of the purchase price originally offered to Landlord). If Landlord does not accept such offer and Remainderman Participant during such eighteen (18) month period desires to sell or assign the Offered Interest to another Person on terms and conditions less favorable (as defined in the preceding sentence) to Remainderman Participant than those offered to Landlord, then Remainderman Participant shall notify Landlord of such proposed sale or assignment and Landlord shall have the right within thirty (30) days of receipt thereof to purchase Remainderman Participant's rights in the Offered Interest on terms and conditions no less favorable to Remainderman Participant than the terms and conditions offered to such other Person (it being understood that a "no less favorable" purchase price for the Offered Interest is any purchase price that exceeds 96% of the purchase price originally offered to Landlord). If Landlord does not notify Remainderman Participant of its election to purchase the Offered Interest within such thirty (30) days, Remainderman Participant may thereafter complete the proposed sale or assignment of its rights in the Offered Interest to such other Person for such terms without any further obligation to Landlord under this Section 27. -68- 73 (b) Purchase and Transfer. If Landlord shall have exercised any of its purchase rights in Section 27(a), Landlord shall pay for and purchase the Offered Interest on the terms and conditions required by Section 27(a) and Remainderman Participant shall transfer to Landlord, without recourse or warranty, but free and clear of all Remainder Purchaser Liens all Remainderman Participant's right, title and interest in the Offered Interest. 28. Counterparts. This Agreement may be executed in multiple counterparts, each of which, when so executed and delivered, shall constitute an original, fully enforceable counterpart for all purposes, but all of which shall together constitute one and the same instrument. 29. Further Assurances. Each party hereto shall cause to be promptly and duly taken, executed, acknowledged and delivered all such further acts, documents and assurances as each other party hereto from time to time may reasonably request in order to carry out more effectively the intent and purposes of this Agreement and the other Operative Documents and the transactions contemplated hereby and thereby. 30. Survival of Agreement. (a) The representations, warranties, covenants, indemnities and agreements of the parties provided for in this Agreement shall survive the occurrence of the transactions contemplated by this Agreement and the other Operative Documents, subject to and in accordance with, the terms of the Operative Documents, and shall not be affected by any investigation made by any party hereto and the fact that any such party may waive compliance with any of the other provisions of this Agreement. (b) The indemnities contained in Sections 22 and 23 shall survive the expiration or earlier termination of the Lease. 31. Environmental Reports. Owner Participant, Landlord and Remainderman hereby acknowledge and agree that the Environmental Reports (as defined in the Purchase Agreement) are to be used solely for the purposes of evaluating the purchase of the Properties by them and may not be disclosed or delivered by them to any person or entity other than (i) their respective directors, officers, employees, agents, representatives, permitted transferees and permitted assignees who must be advised of such information for the purpose of evaluating the purchase of the Properties (collectively, "Advisors"), (ii) any parties that will constitute lenders or investors with respect to the financing of the transactions contemplated hereby, whether such investors act as lenders or as equity participants including, without limitation, the Indenture Trustee, the Pass Through Trustees and the Underwriter (as defined in the Purchase Agreement) and their respective counsel, directors, officers, employees, agents and representatives (collectively, "Investors"), and (iii) to the extent required by any court, tribunal or Governmental Authority or -69- 74 as otherwise required by law, regulation or Environmental Law. The Advisors and Investors will be informed of the confidential nature of the Environmental Reports and will be directed by Owner Participant, Landlord and Remainderman to treat the information confidentially. 32. Headings. The division of this Agreement into sections, the provision of a table of contents and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this Agreement. 33. No Waiver; Remedies Cumulative. No failure to exercise and no delay in exercising on the part of any party to this Agreement of any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof, or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law. 34. Intent of Parties. Landlord and Tenant intend that each of the Leases be operating leases under applicable state law. 35. Method of Payment. All amounts due from Landlord under the Indenture or the Notes that are required to be paid to the Indenture Trustee by any other party hereunder or under any of the other Operative Documents shall be paid to the Indenture Trustee in U.S. dollars in immediately available funds no later than 12:00 p.m. (New York City time) on the date such payment shall be due and payable to an account in the United States designated by Corporate Indenture Trustee. Except as otherwise provided in any Operative Document or as agreed to by the affected parties, all other amounts required to be paid by any party to any other party hereunder or under any of the other Operative Documents shall be paid in U.S. dollars in immediately available funds no later than 3:00 p.m., local time at the place of receipt, on the date such payment shall be due and payable and shall be paid to such Person as shall be entitled to receive such payment at such address as such Person may specify by notice to the parties hereto. If the date on which any payment is due and payable is not a Business Day, such payment shall be made as aforesaid on the next succeeding Business Day, with the same force and effect as if made on the nominal due date. IN WITNESS WHEREOF, the parties hereto have hereby executed this Agreement as of the date first written above. -70- 75 KMART CORPORATION By:_____________________________ Its:______________________ [OWNER PARTICIPANT] By:_____________________________ Its:______________________ [OWNER PARTICIPANT PARENT] By:_____________________________ Its:______________________ REAL ESTATE FINANCE TRUST 1995-K-3, REAL ESTATE FINANCE TRUST 1995-K-4, REAL ESTATE FINANCE TRUST 1995-K-5, REAL ESTATE FINANCE TRUST 1995-K-6, REAL ESTATE FINANCE TRUST 1995-K-7, REAL ESTATE FINANCE TRUST 1995-K-8, REAL ESTATE FINANCE TRUST 1995- K-9, REAL ESTATE FINANCE TRUST 1995-K-10, REAL ESTATE FINANCE TRUST 1995-K-12, REAL ESTATE FINANCE TRUST REAL ESTATE FINANCE TRUST 1995-K-15, REAL ESTATE FINANCE TRUST 1995-K-16, REAL ESTATE FINANCE TRUST 1995-K-17, REAL ESTATE FINANCE TRUST 1995-K-18, REAL ESTATE FINANCE TRUST 1995-K-19, and REAL ESTATE FINANCE TRUST 1995-K-20, Delaware business trusts created under the Trust Agreements -71- 76 By: WILMINGTON TRUST COMPANY, acting in its individual capacity solely for the purposes of the representations set forth in Section 13(e) and otherwise not in its individual capacity but solely as trustee for the trusts created under the Trust Agreements By:_____________________________ Its:______________________ By: WILLIAM J. WADE, acting in his individual capacity solely for the purposes of the representations set forth in Section 13(e) and otherwise not in his individual capacity but solely as trustee for Real Estate Finance Trust 1995-K-4, 1995-K-15 and 1995-K-17 ________________________________ THE BANK OF NEW YORK, acting solely as trustee under 16 instruments captioned "Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement," dated as of the date hereof By:_____________________________ Its:______________________ -72- 77 TODD N. NIEMY _______________________________, acting solely as trustee under 16 instruments captioned "Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement," dated as of the date hereof ________________________________ REMAINDERMART LIMITED PARTNERSHIP By:_____________________________ Its:______________________ THE REMAINDERMART TRUST, a Delaware business trust created under the Remainderman Trust Agreement By: WILMINGTON TRUST COMPANY, acting in its individual capacity solely for the purposes of the representations set forth in Section 13(i) and otherwise not in its individual capacity but solely as trustee for the trust created under the Remainderman Trust Agreement By:_____________________________ Its:______________________ -73- 78 EXHIBIT A --------- FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT [Intentionally Omitted] 79 EXHIBIT B --------- FORM OF COMPANY INDENTURE [Intentionally Omitted] EX-4.6 6 EXHIBIT 4.6 1 EXHIBIT 4.6 FORM OF LEASE KMART CORPORATION, Tenant, and [insert trust name], a Delaware Business (Trust created under a Trust Agreement between _______________________, solely as Owner Trustee and ______________, a __________________, as Owner Participant) - -or- [insert Trustee name], solely as Owner Trustee under Trust Agreement with ___________, a ___________ as Owner participant Landlord. LEASE ________________________________________ Kmart Store No.: ____ Location: _______________________ Owner Trust No.: _______________ Dated as of April __, 1995 2 TABLE OF CONTENTS
Article Page - ------- ---- 1. DEMISED PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. TERM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 3. BASIC AND ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 4. NET LEASE; NON-TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 5. NO CONTINUOUS OPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 6. REAL ESTATE TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 7. LIABILITY INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 8. OPTIONS TO EXTEND LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 9. REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 10. ALTERATIONS AND ADDITIONAL CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . 21 11. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 12. GOVERNMENTAL REGULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 13. LANDLORD TO GRANT EASEMENTS, DEDICATIONS, ETC. . . . . . . . . . . . . . . . . . . 24 14. INSURANCE; DAMAGE TO DEMISED PREMISES . . . . . . . . . . . . . . . . . . . . . . 25 15. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 16. INSURANCE PROCEEDS, CLAIMS SETTLEMENT . . . . . . . . . . . . . . . . . . . . . . 30 17. USE, ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . . . . . . . . . . . 33 18. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 19. LIENS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 20. TENANT DEFAULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 21. LANDLORD REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 22. INTENTIONALLY DELETED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 23. COVENANT OF QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 24. LANDLORD EXCULPATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
(i) 3
Article Page - ------- ---- 25. REMEDIES CUMULATIVE . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 26. ESTOPPEL LETTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 27. CONDITION OF PREMISES AT TERMINATION . . . . . . . . . . . . . . . . . . . 43 28. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 29. NOTICE OF ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . . . 46 30. ENTRY BY LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 31. CAPTIONS AND DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . 46 32. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . 47 33. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 34. INDEPENDENT COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . 47 35. CHOICE OF LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 36. WAIVER AND MODIFICATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 47 37. MEMORANDUM OF LEASE . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 38. HAZARDOUS MATERIALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 39. ECONOMIC ABANDONMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 40. TENANT'S PURCHASE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . 51 41. PROPERTY SUBSTITUTION . . . . . . . . . . . . . . . . . . . . . . . . . . 52 42. LANDLORD'S RIGHT TO CURE TENANT'S DEFAULT . . . . . . . . . . . . . . . . 54 43. NO MERGER OF TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 44. OWNERSHIP OF THE LEASED PROPERTY . . . . . . . . . . . . . . . . . . . . . 55 45. PROCEDURE FOR APPRAISALS . . . . . . . . . . . . . . . . . . . . . . . . . 55 46. SURVIVAL OF TENANT'S OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . 56 47. COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 48. LIABILITIES OF LANDLORD . . . . . . . . . . . . . . . . . . . . . . . . . 57 49. NOTE INDENTURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
(ii) 4 SCHEDULES AND EXHIBITS Exhibit A Legal Description Exhibit B Depiction of Site Exhibit C Rents and Rent Payment Dates Exhibit C-1 Landlord's Debt Exhibit C-2 Rental Adjustment Certificate Exhibit D Termination Value Exhibit E Form of Estoppel Letter (iii) 5 LEASE THIS LEASE made and entered into as of this ______ day of April__, 1995, between Real Estate Finance Trust K-_____, a Delaware Business Trust created under a Trust Agreement dated _______ (as it may be amended from time to time, the "Trust Agreement") between _____________________________________, a __________________________, not in its individual capacity, except as expressly set forth herein, but solely as Owner Trustee ("Owner Trustee"), _________________________________, a __________________________ (insert Trustee name) and __________________________, a ______________________________, as Owner Participant (the "Owner Participant") having its principal office at _________________________________________________________ ("Landlord"), and KMART CORPORATION, a Michigan corporation having its principal office at 3100 West Big Beaver Road, Troy, Michigan 48084 ("Tenant" as tenant hereunder, and "Kmart" in its individual capacity). RECITALS: A. By Agreement for Sale of Real Estate of even date herewith ("Purchase Agreement"), Tenant has sold to Landlord an Estate for Years interest in Land (as hereinafter defined) and a fee interest in the site and building improvements and certain personalty thereon, and has sold to ______________________, a ________________________ ("Remainder Purchaser") a remainder interest in such Land (the "Remainder Interest"); B. Tenant desires and Landlord has agreed to lease back the Demised Premises (as hereinafter defined) to Tenant on the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the rents, covenants and conditions herein set forth, Landlord and Tenant do hereby covenant, promise and agree as follows: 6 1. Demised Premises. (a) Landlord demises unto Tenant and Tenant does lease from Landlord for the Lease Term all of Landlord's right, title and interest in the following property: the land as legally described in Exhibit A, attached hereto and made a part hereof, and situated in the City of _______________, County of _______________, State of ________________ and depicted on Exhibit B attached hereto and made a part hereof ("Land"), the building (designated Kmart), personalty and all site improvements now or hereafter constructed or located thereon, together with all licenses, rights, privileges and easements appurtenant thereto. (The Land and such building, personalty and site improvements being collectively referred to as the "Demised Premises"). (b) Tenant hereby acknowledges and agrees that the Demised Premises are let by Landlord in an "as is" condition without any warranty, express or implied, of habitability or fitness for any particular purpose and without representation or warranty with regard to any latent or patent faults or defects therein or as to the value or operation thereof. 2. Term. The interim term of this Lease ("Interim Term") shall commence on the date hereof and shall terminate on ______________, 199__ and the base term of this Lease ("Base Term") shall commence on _______________, 199__ and terminate on ________________, 20__; provided, however, the Lease Term may be extended as provided in Article 8 hereof. The phrase "Lease Term," as used in this Lease, shall be the Interim Term and Base Term of this Lease together with any extension thereof pursuant to Article 8. 3. Basic and Additional Rent. (a) Tenant shall pay by wire transfer of funds to Landlord or its designee, at such place as Landlord shall designate in writing from time to time, (i) rent during the Interim Term ("Interim Rent") in such amounts and semiannually on such dates ("Interim Rent Payment Dates") as set forth in Exhibit C attached hereto and made a part hereof; and (ii) rent, payable in advance or arrears, as applicable, during the Base Term and during any extended term pursuant to Article 8 ("Basic Rent") in such amounts and semiannually on such dates ("Rent Payment Dates") as set forth in Exhibit C. No Basic Rent shall be due and payable during the Interim Term. Tenant shall also pay during the Lease Term all amounts of Additional Rent as and when due. Basic Rent and Additional Rent are referred to herein collectively as "Rent." "Additional Rent" shall mean: (i) all other monetary obligations of Tenant hereunder or under any of the other Operative Documents (as hereinafter defined) of any nature or type 2 7 whatsoever, including but not limited to payment of taxes, insurance, expenses for repairs, maintenance and replacements and an amount equal to any Make-Whole Premium (each as hereinafter defined) expressly required to be paid under this Lease, and Special Additional Rent (as hereinafter defined), (ii) Landlord's (and Tenant's) share of expenses under the REA (as hereinafter defined), (iii) Trustee Expenses (as defined below), (iv) amounts due and payable by Tenant under that certain Participation Agreement ("Participation Agreement") and that certain Tax Indemnification Agreement ("Tax Indemnification Agreement"), each of even date herewith (collectively, "Indemnification Agreements"), (v) excess condemnation proceeds or excess insurance proceeds applied under Articles 15(d) or 16(c) as the case may be to prepay the Notes and (vi) any amounts payable by Tenant to the Remainder Purchaser pursuant to Article 8(a)(ii) hereof. Notwithstanding the foregoing sentence, to the extent that any amounts relate solely to a property or properties other than the Demised Premises, such amounts shall not be treated as Additional Rent hereunder. "Trustee Expenses" shall mean (i) the ordinary and extraordinary fees and expenses of ___________ as the Owner Trustee under the Trust Agreement and as Remainderman Trustee ("Remainderman Trustee") under that certain Trust Agreement dated March 15, 1995 with Remainder Purchaser ("Remainderman Trust Agreement"), but not including fees and expenses incurred as a result of Owner Participant's, Owner Trustee's, Remainderman or Remainderman Trustee's breach of their obligations under the Operative Documents (as defined in the Purchase Agreement), except to the extent caused by Tenant's default hereunder or under any other Operative Document; (ii) the ordinary and extraordinary fees and expenses of __________________________, as trustee ("Indenture Trustee") under that certain Indenture, Mortgage and Deed of Trust, Assignment of Rents and Security Agreement with Landlord of even date herewith ("Note Indenture"), but excluding any principal, interest, prepayment premium or penalties on Landlord's indebtedness evidenced by the Note Indenture ("Landlord's Debt" or "Notes") and excluding any expenses arising out of or in connection with an Indenture Event of Default (as defined in the Note Indenture) which is not an Event of Default under this Lease; and (iii) the ordinary and extraordinary fees and expenses of each of the Pass Through Trustees (being herein collectively referred to as the "Pass Through Trustee") under those certain separate Pass Through Trust Agreements 1995-K-[1/2] of even date herewith (collectively referred to as the "Pass Through Trust Agreement") with Tenant, but excluding any principal, interest, prepayment premiums or penalties on the Pass Through Certificates issued under the Pass Through Trust Agreement except as provided in the Pass Through Trust Agreement. (b) Tenant shall pay, as Additional Rent (the "Special Additional Rent"), on [INSERT DATE], an amount equal to the Interim Rent due on any Interim Payment Date unless the Indenture Trustee 3 8 shall have received such payment from the Owner Trustee on such due date, sufficient for payment in full of the amounts then due and owing on the Notes in accordance with Section 20 of the Participation Agreement. So long as no Material Default or Event of Default (as each are hereinafter defined) has occurred and is continuing and in the event Tenant pays Special Additional Rent pursuant to this paragraph and is not promptly reimbursed therefor by the Owner Participant after demand for such reimbursement, Tenant shall be entitled to offset and deduct (without duplication) against each succeeding payment or portion thereof (other than as limited by the proviso to this sentence) due from Tenant to Landlord in respect of Rent, Termination Value or any other amount due hereunder or under any other Operative Document to the Owner Participant (either directly or through Landlord) (in the order in which the same become due), until Tenant has been fully reimbursed for such payment of Special Additional Rent plus interest on the unreimbursed portion thereof at the Default Rate (as defined in Article 3(c)(ii) hereof), and in each case, such offset shall be deemed to constitute a reduction in the amount of such Special Additional Rent so payable. No such offset or aggregate combined effect of separate offsets shall reduce the amount of any installment of Basic Rent to an amount insufficient, together with all other amounts payable simultaneously by Tenant, to pay in full the payments then required to be made on the account of the principal amount of and any interest on the Notes then outstanding and the Additional Rent described in clauses (i), (ii), (iii), (v) and (vi) of the definition thereof. (c) In the event any Rent payable to Landlord is not received by Landlord on the due date therefor, a late charge shall be incurred and shall be paid as Additional Rent hereunder on the amount due from the due date therefor to the date of payment thereof in an amount equal to (i) one percent (1%) above the weighted average annual coupon rate of interest on such portion of Rent equal to the then due principal, interest and premium thereon on the Notes and (ii) in the case of such portion of Rent not described in clause (i), interest on any other Rent not paid when due at a rate per annum equal to the rate of interest publicly announced by Citibank, N.A., in New York, New York from time to time at its "prime rate" for United States dollar loans plus two percent (2%) but not to exceed in any event the maximum rate of interest payable under applicable law. If such bank shall no longer exist, or shall no longer publicly announce a "prime rate", then the parties shall designate a substitute banking institution of equivalent recognition and standing of such bank as of the date hereof to determine the "prime rate". Such charges at such rates are referred to herein collectively as the "Default Rate." (d) Tenant covenants to Landlord and Indenture Trustee that (i) as of the date hereof and as of the date of each Rental Adjustment (as referenced below) during the Base Term, each installment of Interim Rent and Basic Rent as of the due date of 4 9 such installment as set forth on Exhibit C hereto is, and shall be, at least equal to the amount of principal and interest on the Landlord's Debt as set forth on Exhibit C-1 required to be paid by Landlord under the Note Indenture (as in effect on the date hereof) on the corresponding due date of such installment of Interim Rent and Basic Rent; and (ii) as of the date hereof, the date of each Rental Adjustment (as referenced below) and the date of each Termination Value (as defined on Exhibit D attached hereto) adjustment pursuant to Article 15(d), during the Base Term the sum of all Interim Rent and Basic Rent payable in arrears on such date together with each Termination Value set forth on Exhibit D hereto is, and shall be, sufficient to enable Landlord to pay in full, as of the date of payment thereof, the aggregate unpaid principal of the outstanding Landlord's Debt required to be paid by Landlord as of such date under the Note Indenture (as in effect on the date hereof or as may be subsequently amended with Tenant's consent), together with all unpaid interest thereon accrued to such date. (e) In the event that a Rental Adjustment shall be required pursuant to and in accordance with Section 21 of the Participation Agreement, Landlord and Tenant shall execute and deliver (i) to each other and to Indenture Trustee a supplement to the Lease, to reflect such adjustment, provided that such adjustment shall be effective for all purposes of this Lease regardless of whether such supplement is actually executed and delivered, and (ii) to Indenture Trustee, a certificate substantially in the form of Exhibit C-2 hereto. "Rental Adjustment" shall have the meaning set forth in Section 21 of the Participation Agreement and shall include adjustment of Termination Values pursuant to such Section. 4. Net Lease; Non-Termination. (a) Tenant acknowledges and agrees that this Lease is an absolute net lease. All monetary obligations under this Lease, including, but not limited to, payment of all Rent shall be absolutely and unconditionally paid by Tenant without notice, demand, setoff, counterclaim, abatement, deduction or defense (except as provided in Article 3(b) hereof with respect to Special Additional Rent). Tenant shall have no right to terminate this Lease (except as expressly provided in Articles 14, 15 and 39 hereof) nor shall Tenant be entitled to any abatement or reduction of Rent hereunder (except to the extent this Lease is terminated as expressly provided in Articles 14, 15 and 39 hereof), nor shall the obligations of Tenant under this Lease be affected, by reason of: (i) any damage to or destruction of all or any part of the Demised Premises from whatever cause, (ii) the taking of the Demised Premises or any portion thereof by eminent domain or other taking by a party empowered with the authority of eminent domain, (iii) the prohibition, limitation or restriction of Tenant's use of all or any part of the Demised Premises, or any interference with such use, (iv) any default on the part of Landlord under this Lease, (v) 5 10 any eviction by a holder of paramount title or otherwise, (vi) any purported merger of estates resulting from Tenant's acquisition or ownership of all or any part of the Demised Premises otherwise than as expressly provided herein, or (vii) any other cause whether similar or dissimilar to the foregoing, any present or future law to the contrary notwithstanding. (b) Tenant agrees that it will remain obligated under this Lease in accordance with its terms, and that it will not take any action to terminate, rescind or void this Lease, notwithstanding (i) the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution or winding-up or other proceeding affecting Landlord or its successors in interest, or (ii) any action with respect to this Lease which may be taken by any trustee or receiver of Landlord or its successor in interest or by any court in any such proceeding. 5. No Continuous Operation. Nothing contained in this Lease shall be construed to be a covenant or other obligation on the part of Tenant, either express or implied, to operate a business at the Demised Premises, except as the same may be required by Laws or by any agreement Tenant is required to comply with pursuant to Article 9(b) hereof. Notwithstanding the cessation of business operations at the Demised Premises, Tenant shall continue to perform and observe all of its obligations under this Lease and shall, unless Tenant is entitled and has elected to self-insure, shall maintain insurance coverage with respect to the Demised Premises in accordance with the requirements of this Lease. 6. Real Estate Taxes. (a) Tenant shall pay and discharge all ad valorem real estate taxes or other taxes in the nature thereof and all assessments, general or specific (regardless how named or denominated), levied or imposed against or with respect to (i) the Demised Premises or any part thereof or interest therein or any addition, alteration, modification or improvement thereto, (ii) the Remainder Interest, (iii) the Rent, or (iv) Landlord's interest in this Lease or in the Demised Premises, including, in each case, any interest, penalties and additions to tax relating to such taxes or assessments (collectively referred to as "Property Assessments") at any time prior to, during or with respect to any period ending on or prior to, or resulting from or attributable in any respect to acts or events occurring on or prior to or relating to payments made by Tenant under the Operative Documents at any time prior to or after, the later of (x) the expiration or earlier termination of the Lease and (y) Tenant's actual return of possession of the Demised Premises in accordance with this Lease. 6 11 (b) Tenant shall also pay and discharge all taxes, levies, charges, licenses, fees, imposts, duties, withholdings, liabilities, costs, expenses or assessments of the United States of America or any state or political subdivision or taxing authority thereof or therein (including any interest, penalties and additions to tax thereon or thereto), which are levied, assessed or imposed on or with respect to Landlord, Tenant, the Demised Premises or any part thereof or interest therein or any addition, alteration, modification or improvements thereto, the Remainder Interest or the Rent payable hereunder including, without limitation, taxes or such other amounts that are or are in the nature of sales, use, rental, value added, filing, recording and transfer taxes, and any and all water, sewer or other such charges, excises, levies, fees, licenses, duties, withholdings, permits, inspections, real property franchise charges and other governmental charges of every character (in each case, regardless how named or denominated) which, at any time prior to, during or with respect to any period ending on or prior to, or resulting from or attributable in any respect to acts or events occurring on or prior to or relating to payments made by the Tenant under the Operative Documents at any time prior to or after, the later of (x) the expiration or earlier termination of the Lease and (y) the Tenant's actual return of possession of the Demised Premises in accordance with this Lease, may be levied, assessed or imposed on or in connection with or with respect to (i) the Demised Premises, or any estate, right, title or interest therein, or any construction, preparation, installation, inspection, delivery, non-delivery, acceptance, rejection, purchase, ownership, condition, maintenance, repair, storage, abandonment, retirement, substitution, transfer, occupancy, operation, leasing, subleasing, use or possession of, or sales from, or other activity conducted on the Demised Premises, any part thereof or any addition, alteration, modification or improvement thereto, (ii) the Remainder Interest, (iii) this Lease, (iv) the Rent or receipts or earnings arising from or received by a party entitled to the benefits of this Article 6 with respect to the Demised Premises or any part thereof or any interest therein or any dispositions thereof, (v) any other amount paid or payable pursuant to the Lease or any document, amendment, supplement, waiver or consent relating thereto or (vi) otherwise with respect to or in connection with the transactions contemplated by this Lease or the Operative Documents. Any such taxes, levies, charges, assessments or other amounts payable by Tenant hereunder together with Property Assessments payable by Tenant hereunder shall be referred to as "Assessments" for all purposes of this Lease. (c) Nothing in paragraphs (a) and (b) shall require Tenant to pay or reimburse Landlord for the payment of (w) any federal, state or municipal net income tax (including any interest, penalties and additions to tax thereon or thereto), or any net profit, inheritance, estate, succession, gift, or franchise tax (regardless how named or denominated) except for any such tax (i) which is in Direct Substitution (which Direct Substitution is 7 12 documented by published administrative regulation, fiat or other official ruling, notice or release of any kind and/or in a statutory enactment or legislative history thereof by the state or political subdivision which enacted and/or levied any such tax) for any Assessment which Tenant is obligated to pay under this Lease, (ii) which is, or is in the nature of, a real property franchise charge, or a sales, use, rental, property, value added, transfer, stamp or license tax, (iii) which is necessary to make any payments hereunder on an After-Tax Basis (as defined in the Participation Agreement), (x) any transfer tax imposed upon the sale of all or a part of the Demised Premises by Landlord except for (i) a sale and transfer pursuant to Tenant's Purchase Offer set forth or in Articles 14, 15 or 40 hereof or any sale to a third party under Article 39, hereof, (ii) any disposition or transfer resulting in connection with Articles 9, 10, 13, 21 or 41 hereof, and (iii) a transfer in connection with an Event of Default hereunder, (y) any tax, assessment, charge or levy imposed or levied upon or assessed against any property, any income or any business activity of Landlord, Remainder Purchaser or Remainder Participant solely to the extent such tax, assessment, charge or levy would have been imposed or levied on Landlord, Remainder Purchaser or Remainder Participant in the absence of the transactions contemplated by the Operative Documents (including any intangibles tax imposed with respect to any debt or investment paper that is unrelated to the transactions contemplated by the Operative Documents, the Notes or the Pass Through Certificates or (z) with respect to Landlord, Remainder Purchaser or Remainder Participant any tax resulting from the willful misconduct (including tax fraud) or gross negligence of Landlord, Remainder Purchaser or Remainder Participant. (d) The date of levy of all Assessments shall be deemed to be the earlier of the due date for such Assessment or the date specified by each applicable taxing jurisdiction on which such taxes shall become a lien on the Demised Premises. Tenant's liability and obligation hereunder to pay such Assessments shall be fully accrued, fixed and final on the date of levy thereof subject to the rights to contest any such Assessments provided in this Article 6. In the event any such Assessments shall under law be payable to the applicable taxing authority in a lump sum or on an installment basis, so long as no Material Default or Event of Default shall have occurred and be continuing, Tenant shall have the sole right to elect the basis of legal payment. If Tenant shall elect to pay such Assessments on the installment basis, then Tenant shall pay those installments which relate to Assessments payable by Tenant hereunder directly to the applicable taxing authority. During the continuance of an Event of Default hereunder, Tenant shall provide Landlord with evidence of payment of any Assessment, the non-payment of which could result in a Lien. (e) (1) If any written claim shall be made against Landlord, Remainder Purchaser or Remainder Participant or if any proceeding shall be commenced against Landlord, Remainder Purchaser 8 13 or Remainder Participant (including a written notice of such proceeding) for any Assessments as to which Tenant may be obligated pursuant to this Article 6, Landlord (or if applicable Remainder Purchaser or Remainder Participant) shall promptly notify Tenant in writing and shall not take any action with respect to such claim, proceeding or Assessments without the written consent of Tenant, which consent shall not be unreasonably withheld or delayed, for 60 days after the receipt of such notice by Tenant; provided, however, that, in the case of any such claim, proceeding or Assessment, if Landlord shall be required by law or regulation to take action prior to the end of such 60-day period, Landlord shall in such notice to Tenant, so inform Tenant, and Landlord shall not take any action with respect to such claim, proceeding or Assessment without the written consent of Tenant, which consent shall not be unreasonably withheld or delayed, for 10 days after the receipt of such notice by Tenant unless Landlord shall be required by law or regulation to take action prior to the end of such 10-day period, in which case Landlord may take any action with respect to such claim, proceeding or Assessment prior to the end of such 10-day period, provided Landlord has not, at the time of taking such action, received a written request contemplated by 6(e)(2), below. (2) If requested by Tenant within 60 days or such shorter period as specified in 6(e)(1) above, after receipt by Tenant of the required notice with respect to the claim or proceeding that is the subject of such notice, or, in the case of any claim or proceeding with respect to which Tenant, Remainder Purchaser or Remainder Participant (as opposed to Landlord) receives notice, upon the request of Tenant, Landlord (or if applicable Remainder Purchaser or Remainder Participant) either (i) in the case of an Assessment which may be contested in the name of Tenant, Remainder Purchaser or Remainder Participant and independently (without joinder, contribution or otherwise) from any claim, proceeding or Assessment that is not subject to indemnification by Tenant, shall permit the Tenant to control or, in the case of any claim, proceeding or Assessment, may request the Tenant to control, or (ii) in the case of a claim, proceeding or Assessment which must be contested in the name of Landlord, but which may be contested independently (without joinder, contribution or otherwise) from any claim, proceeding or Assessment that is not subject to indemnification by Tenant, may, upon prior written consent by Landlord which consent shall be in its sole discretion, exercised in good faith, permit Tenant to control (so long as, in the good faith judgment of Owner Participant, there is no reasonable possibility that the Tenant's direction of such contest could have any adverse impact on the financial or public relations interests of Landlord or Owner Participant, in which case, Landlord may assert or reassert control of the contest; provided, however, the foregoing right to assert or reassert control shall not apply to any ad valorem real estate or personal property tax contest) (any contest of any claim, proceeding or Assessment ("Contest") described in the foregoing clauses (i) or (ii) and for so long as 9 14 Tenant controls the Contest being hereinafter referred to as a "Tenant-Controlled Contest,") or (iii) in the case of an Assessment the Contest of which is not a Tenant-Controlled Contest, shall itself, contest in good faith (including, without limitation, by pursuit of appeals and administrative procedures) the validity, applicability or amount of such Assessments. (3) No matter who is in control, a Contest, at the election of the Controlling Party (as defined herein), may include, without limitation, a challenge to the validity, applicability or amount of such Assessment by: (i) resisting payment thereof; (ii) not paying the same except under protest (which protest must be pursued using reasonable efforts in appropriate administrative and/or judicial proceedings) if protest shall be necessary and proper; or (iii) if payment shall be made, using reasonable efforts to obtain a refund thereof in appropriate administrative and/or judicial proceedings (it being understood that Tenant may appeal or require Landlord to appeal to any appropriate administrative or judicial appeal body; provided, however, that no appeal shall be permitted or required hereunder to the United States Supreme Court.) (4) In no event shall such Contest be required or permitted unless: (i) in the case of a contest (A) which must be contested in the name of Landlord or (B) which is contested by Landlord in the name of Tenant, the amount at issue (taking into account all similar and logically related claims with respect to the transactions contemplated by the Operative Documents to the extent relating to the Demised Premises that have been or could be raised in an audit by the taxing authority in question for any other taxable period with respect to which an assessment of a tax deficiency is not barred by a statute of limitations, including, without limitation, such claims that may arise in future periods) exceeds $25,000; (ii) Tenant shall have agreed in writing to pay Landlord (or, if applicable Remainder Purchaser) and shall pay on an After-Tax Basis (as defined in the Participation Agreement) as incurred all reasonable out-of-pocket costs and expenses Owner Participant and Landlord shall incur in connection with the contest of such claim (including, without limitation, all reasonable 10 15 costs, expenses, legal and accounting fees and disbursements); (iii) Landlord shall have determined in its sole discretion, exercised in good faith, that the action to be taken will not result in any material danger of sale, forfeiture or loss of any of the Demised Premises, the Remainder Interest or any part thereof or interest therein or the creation of any lien on any of the Demised Premises, the Remainder Interest or any part thereof or interest therein, other than any Permitted Liens and that there is no risk of criminal liability that may be imposed on or with respect to Landlord, Owner Participant, or, if applicable Remainder Purchaser and Remainderman Participant; (iv) if such Contest is to be effected by payment of the claim, Tenant shall advance the amount thereof plus, as applicable, interest, penalties and additions to tax with respect thereto on an interest-free basis (at no additional net after-tax cost to Landlord but taking into account any net tax savings associated with such advance); (v) no Material Default or Event of Default shall have occurred and be continuing; (vi) in the case of a Contest which must be contested in the name of Landlord or which is contested by Landlord in the name of Tenant, (A) prior to initiating the Contest, Tenant shall have furnished Landlord with an opinion of independent tax counsel selected by the Tenant and reasonably acceptable to Landlord ("Tax Counsel"), which opinion shall be furnished solely at Tenant's expense, to the effect that a Reasonable Basis (as defined in the Participation Agreement) exists for such Contest and (B) prior to the appeal of any adverse judicial determination, Tenant shall have furnished Landlord with an opinion of Tax Counsel, which opinion shall be furnished solely at Tenant's expense, to the effect that there is a Reasonable Basis for concluding that there will be a reversal or other substantial favorable modification of such determination on appeal; and (vii) After the completion of an administrative proceeding of first instance and prior to any administrative appeal, Tenant shall have acknowledged in writing its obligation unconditionally to indemnify Landlord (and if applicable Remainder Purchaser) for the Assessment hereunder in the event the Contest is unsuccessful (in whole or in part) or shall, in good 11 16 faith, have notified Landlord of the reasons Tenant is not or may not be liable for the Assessment if the Contest is unsuccessful (in whole or in part). Notwithstanding the foregoing, Tenant shall have acknowledged in writing its obligation to indemnify (in whole or in part) Landlord (and if applicable Remainder Purchaser) for the Assessment hereunder in the event that the Contest is unsuccessful (in whole or in part) prior to any petition or complaint to a court. Any such acknowledgment hereunder shall not preclude Tenant from raising a defense to liability under this Article 6 if a court of competent and proper jurisdiction has rendered a decision that the cause of the claim is not one for which Tenant is responsible to pay an Assessment hereunder or an indemnity under Section 22 of the Participation Agreement. (5) In no event shall Landlord be required to contest any claim, proceeding or Assessment if the subject matter of such claim, proceeding or Assessment shall be of a continuing nature and shall have previously been the subject of an adverse final determination hereunder or under the Participation Agreement after exercise by Tenant of its rights pursuant to this Article 6 or under the Participation Agreement, unless Tenant shall have delivered to Landlord at Tenant's expense an opinion of Tax Counsel to the effect that as a result of a change in law or fact it is more likely than not that Landlord will prevail in the contest of such claim. (6) Tenant shall conduct any Tenant-Controlled Contest and Landlord shall control any Contest other than a Tenant-Controlled Contest. The party conducting the Contest ("Controlling Party") shall consult in good faith with the other party ("Noncontrolling Party") and its counsel with respect to such Contest but the decisions regarding what actions to be taken shall be made by the Controlling Party in its sole judgment (exercised in good faith). In addition, the Controlling Party shall keep the Noncontrolling Party reasonably informed as to the progress of the Contest, and shall provide the Noncontrolling Party with a copy of (or appropriate excerpts from) any reports or claims issued by the relevant auditing agents or taxing authority to the Controlling Party or any affiliate thereof, in connection with such claim, proceeding or Assessment and/or the contest thereof. (7) Except as provided in the next sentence hereof, Landlord shall not settle any Contest hereunder without the consent of Tenant, which consent shall not be unreasonably withheld. Notwithstanding anything contained in this Article 6, Landlord shall not be required to contest any claim or permit Tenant to contest any claim and may settle any Contest without the consent of Tenant if Landlord (i) shall waive its right to reimbursement or indemnity under this Article 6 and under the Participation 12 17 Agreement or otherwise with respect to such claim for such claim, proceeding or Assessment (and any claim made by the claiming taxing authority or any other taxing authority with respect to the same or any other taxable periods that are based, in whole or in part, upon the resolution of such claim), and (ii) shall pay to Tenant any amount previously paid or advanced by Tenant pursuant to this Article 6 or under the Participation Agreement with respect to such claim for such Assessment or the contest of such Assessment other than the costs and expenses of the contest of such claim paid or reimbursed by Tenant in accordance with Article 6(e)(4) (ii) hereof or Section 21(c)(4)(ii) of the Participation Agreement. (f) (1) Any amount payable by Tenant to Landlord (or if applicable Remainder Purchaser) pursuant to this Article 6 shall be paid within 30 days after receipt by Tenant of a written demand therefor from Landlord or Remainder Purchaser accompanied by a written statement describing in reasonable detail the amount so payable, but (except as provided in this Article 6) shall in no event be payable before the date such Assessment is due. Any payments made pursuant to this Article 6 shall be made directly to Landlord or Remainder Purchaser or to Tenant, as the case may be, in immediately payable funds at such bank or to such account as specified by the payee in written directions to the payor, or, if no such direction shall have been given, by check of the payor payable to the order of the payee and mailed to the payee by certified mail, postage prepaid at its address as set forth herein, or in the Purchase Agreement or as provided to the payor from time to time in writing. Any Assessments which are the obligation of Tenant hereunder shall be payable by Tenant, to the extent allowed, directly to the appropriate taxing authority on or before the time, and in the manner, prescribed by applicable Laws without the necessity of any prior demand by Landlord. (2) In the event Tenant fails to make any payment required under this Article 6, and Landlord makes a payment with respect to any such Assessments that are due and payable at the time of such payment (other than with funds advanced to Landlord on an interest-free basis by Tenant pursuant to this Article 6) Tenant shall pay to Landlord interest on the amount of such payment at the Default Rate (as defined in Article 1(b)(ii)) from (A) the date of payment by Landlord if it notifies Tenant that such payment has been made within 5 days of making such payment, or (B) from the date Landlord notifies Tenant of such payment in all other cases, in either case to the date of payment by Tenant to Landlord hereunder. Any amount payable under this Article 6 that is not paid when due shall bear interest at the Default Rate (as defined in Article 1(b)(ii)). (3) Any amount payable to Tenant pursuant to this Article 6 shall not be paid or retained by Tenant if at the time of such payment or retention a Material Default or Event of Default shall have occurred and be continuing. At such time as there shall 13 18 not be continuing any such Material Default or Event of Default, such amounts shall be paid to Tenant to the extent not previously paid to Tenant. (g) If any report, return or statement ("Filing") is required to be filed with respect to any Assessment that is subject to reimbursement or indemnification under this Article 6 or otherwise, Tenant shall promptly notify Landlord of such requirement in writing and, if permitted by applicable Laws and regulations to do so, Tenant shall timely file or cause to be filed such Filing with respect to such Assessment (except for any such Filing that Landlord has notified Tenant in writing that Landlord intends to file) and will (if ownership of the Demised Premises or any part thereof or interest therein is required to be shown on such Filing) show the ownership of the Demised Premises in the name of Landlord and send a copy of such Filing to Landlord; provided, however, that Landlord, at Tenant's written request, shall have furnished Tenant with such information, not within the control of Tenant, as is in Landlord's control or is reasonably available to Landlord and necessary to file such Filing; provided, however, Tenant shall pay all out-of-pocket expenses of Landlord and Owner Participant in connection therewith. If Tenant is not permitted by applicable Laws to file any such Filing, Tenant will promptly notify Landlord of such requirement in writing and prepare and deliver to Landlord a proposed form of such Filing within a reasonable time, and in all events at least 15 days prior to the time such Filing is required to be filed. In the case of any Filing either required to reflect items in addition to Assessments imposed on Tenant under this Article 6 (or indemnified against by Kmart under Section 22 of the Participation Agreement) or which Landlord has notified Tenant in writing that it will prepare and file, Tenant shall, at its expense, upon the written request of Landlord, provide Landlord with such information as is within Tenant's reasonable control or access. Tenant shall hold Landlord harmless from and against any liabilities, including, but not limited to penalties, additions to tax, fines and interest, arising out of any insufficiency or inaccuracy in any such Filing, if such insufficiency or inaccuracy and is attributable to Tenant. (h) Tenant's obligations provided for in this Article 6 shall be those of a primary obligor whether or not Landlord (and if applicable Remainder Purchaser) may also be indemnified with respect to the same matter under the terms of the Purchase Agreement, the Trust Agreement, the Participation Agreement or any other document or instrument and Landlord may in seeking reimbursement or indemnification from Tenant proceed directly against Tenant without seeking to enforce any other right of indemnification (it being agreed that the foregoing is not intended to grant Landlord and Remainder Purchaser any right to any double recovery or double indemnity with respect to any claim, proceeding or Assessment hereunder of amounts for which Landlord and Remainder Purchaser has received under such other document or instrument (and 14 19 is entitled to retain full indemnification)). If Tenant shall have fully reimbursed or indemnified Landlord and Remainder Purchaser, then Tenant shall be subrogated to the rights of Landlord and Remainder Purchaser with respect to any such reimbursed or indemnified claim. Tenant further acknowledges and agrees that nothing contained herein is intended to reduce or impair any rights of Landlord and Remainder Purchaser or any other Tax Indemnitee (as defined in the Participation Agreement) or any obligations of Tenant under Section 21 of the Participation Agreement (including, without limitation, Tenant's obligations with respect to contest preconditions). (i) If Landlord (or if applicable Remainder Purchaser) shall receive a refund of all or part of any Assessments paid, reimbursed or advanced by Tenant with respect to any Contest under this Article 6, then, provided no Material Default or Event of Default shall have occurred and be continuing, Landlord (or if applicable Remainder Purchaser) shall pay to Tenant within 30 days of such receipt an amount equal to the lesser of (A) the amount of such refund of such Assessment plus or minus any net tax benefit or cost (taking into account any Assessments incurred by Landlord (or if applicable Remainder Purchaser) by reason of the receipt or accrual of such refund) realized by Landlord (or if applicable Remainder Purchaser) as a result of any payment made pursuant to this sentence (including this clause (A)), and (B) the amount of such Assessment paid, reimbursed or advanced by Tenant to Landlord or Remainder Purchaser), it being intended that Landlord (or if applicable Remainder Purchaser) shall retain a net tax benefit pursuant to this Article 6 only if Tenant shall first have been reimbursed for all Assessments it paid to Landlord and Remainder Purchaser, respectively, pursuant to this Article 6. If, in addition to such refund, Landlord (or if applicable Remainder Purchaser) shall receive an amount representing interest on the amount of such refund, Landlord (or if applicable Remainder Purchaser) shall pay Tenant within 30 days of receipt, that portion of such interest that shall be fairly attributable to Assessments paid, reimbursed or advanced by Tenant prior to the receipt of such refund. Any subsequent denial, loss, repayment or recapture of such refund will be treated as an Assessment for which the Tenant is responsible hereunder subject to Tenant's rights to contest such denial, loss, repayment or recapture under, and in accordance with, Article 6(e) as though it were a new claim, proceeding or Assessment hereunder. (j) Any payment or indemnity to or for the benefit of Landlord with respect to any Assessment which is subject to payment and indemnification under this Article 6 shall (A) reflect the current combined net savings actually realized by Landlord (or if applicable Remainder Purchaser) resulting from the current deduction of such indemnified Assessment and (B) include, after taking into account the savings described in clause (A), the amount necessary to hold Landlord (or if applicable Remainder Purchaser) 15 20 harmless on an After-Tax Basis (as defined in the Participation Agreement). If, by reason of any Assessment payment made to or for the account of Landlord (or if applicable Remainder Purchaser) by or on behalf of Tenant pursuant to this Article 6 (or the circumstances or event giving rise thereto), Landlord or Remainder Purchaser actually realizes a net tax benefit, refund, saving, deduction or credit against Assessments not indemnified by Tenant under any Operative Document, which benefit, refund, saving, deduction or credit was not previously taken into account in computing such payment, provided no Material Default or Event of Default has occurred and is continuing, Landlord (or if applicable Remainder Purchaser) shall promptly pay to Tenant an amount equal to the sum of (I) the actual net reduction in Assessments, if any, realized by Landlord (or if applicable Remainder Purchaser) which is attributable to such net tax benefit, refund, saving, deduction or credit and (II) the actual net reduction in Assessments, if any, realized by Landlord as the result of any payment made by Landlord (or if applicable Remainder Purchaser) pursuant to this sentence. Notwithstanding the foregoing, Landlord (or if applicable Remainder Purchaser) shall not be required to make any payment to Tenant pursuant to this Article 6 to the extent such payment would exceed, in the aggregate at any time, the amount of all prior payments made by or on behalf of Tenant to Landlord (or if applicable Remainder Purchaser) of the Assessment giving rise to such tax savings less the amount of all prior payments made by Landlord (or if applicable Remainder Purchaser) to Tenant of tax savings in respect of such Assessment pursuant to this Article 6, but any such excess shall reduce pro tanto any amount that Tenant is subsequently obligated to pay Landlord pursuant to this Article 6 with respect to such Assessment. If any amount otherwise payable to Tenant is not payable by reason of the occurrence and continuation of a Material Default or an Event of Default, such amount shall be payable when such Material Default or Event of Default is no longer continuing. The disallowance or reduction of any tax benefit, refund, savings, deduction or credit with respect to which Landlord (or if applicable Remainder Purchaser) has made a payment to Tenant under this Article 6 or which was taken into account in calculating any such payment under this Article 6 shall be treated as an Assessment as to which Tenant is obligated to pay or reimburse Landlord hereunder subject to Tenant's rights to contest such Assessment under, and in accordance with, Article 6(e) as though it were a new claim, proceeding or Assessment hereunder. 7. Liability Insurance. (a) During the Lease Term, Tenant at its sole expense shall keep Landlord, the Owner Participant, Landlord's mortgagees, Landlord's ground lessor, if any, Remainder Purchaser, Remainderman Participant and Tenant insured, under an insurance policy of comprehensive general liability with broad form (including contractual liability) coverage on an occurrence form basis, against liabilities of any nature or type whatsoever, to the extent 16 21 such coverage is available, for damage to persons or property including loss of life sustained by any person or persons within or arising out of the Demised Premises, including parking areas, sidewalks and driveways (hereinafter referred to as "Common Areas"), whether caused by Landlord's or Tenant's negligence or otherwise, in a policy or policies with minimum coverage of Five Million and No/100 Dollars ($5,000,000.00) with respect to injury to any one person and Five Million and No/100 Dollars ($5,000,000.00) with respect to any one accident or disaster, and Five Million and No/100 Dollars ($5,000,000.00) with respect to damage to property, or such greater amount as may be consistent, in Tenant's reasonable judgment, with commercially prudent practice. (b) All policies of insurance shall be issued by an insurance company licensed to do business in the state where the Demised Premises are located, rated in the Best's Insurance Guide as not less than an A+ "rating classification," and with a VII "financial size category," or better, or a comparable rating by any successor agency. All such policies shall bear endorsements to the effect that Landlord, the Owner Participant, Landlord's mortgagee, ground lessor, if any, Remainder Purchaser, Remainderman Participant and Tenant are named as additional insureds as their interests may appear and that all such parties shall be notified not less than thirty (30) days in advance of any termination, expiration, modification or cancellation thereof. Said policy or policies shall expressly provide that it or they are primary insurance and not excess over or contributory with any valid, existing or applicable insurance in effect for or on behalf of Landlord or any other additional insured. While the Note Indenture remains in full force and effect and to the extent such rating agency is providing a rating for the Pass Through Certificates, all insurance companies providing such insurance shall have a Standard & Poors Rating Group ("Standard & Poors") claims paying ability rating of at least BBB-, a Moody's Investors Services, Inc. ("Moody's") claims paying ability of Baa and a Duff and Phelps Credit Rating Co. claims paying ability rating of A, as the case may be. Copies of such policies, so endorsed, or certificates evidencing the existence thereof, shall be promptly delivered to Landlord, Owner Participant, Landlord's mortgagee, and/or ground lessor, if any, Remainder Purchaser and Remainderman Participant prior to the commencement date of this Lease and at least thirty (30) days prior to the expiration of any policy. In the event Tenant fails to effect or maintain such insurance, Landlord may obtain such insurance and Tenant shall reimburse Landlord for the cost thereof with interest at the Default Rate from the date incurred by Landlord. (c) Tenant also agrees to maintain and keep in force, during the term hereof pursuant to its excess liability insurance coverage, statutory worker's compensation insurance coverage meeting all state and local requirements, including insurance for 17 22 employer's liability with limits of no less than Five Million and No/100 Dollars ($5,000,000.00). (d) Notwithstanding the foregoing, Tenant shall be entitled to self-insure the aforesaid insurance obligations (including its workers' compensation insurance to the extent permitted by law) at any time that Kmart has and maintains a consolidated tangible net worth of at least Seven Hundred Fifty Million and No/100 Dollars ($750,000,000.00) calculated in accordance with generally accepted accounting principles ("Net Worth Standard"). Tenant shall at all times maintain in effect such insurance coverages as provided in this Article 7 as to the Demised Premises as maintained by Kmart with respect to similar properties owned or leased by Kmart and located in the state and general geographic area where the Demised Premises is located. 8. Options to Extend Lease. (a) Provided that no Material Default or Event of Default (each as defined in Article 20 hereof) hereunder has occurred and is continuing, upon expiration of the Base Term Tenant shall have six (6) successive options to extend the Lease Term for an additional period of five (5) years on each such option, such extended term(s) to begin respectively upon the expiration of the prior term(s). The same terms and conditions as herein set forth shall apply to each such extended term except that (i) Basic Rent for each such extended term shall be equal to eighty percent (80%) of the average annual Basic Rent paid during the Base Term (the "Average Basic Rent") as set forth on Exhibit C attached hereto (inclusive of any Rental Adjustments made pursuant to Article 3(d) hereof), adjusted as provided in clause (ii) of this Article 8(a), and (ii) on account of payments due to the Remainder Purchaser (the "Ground Rent") during the extended terms pursuant of the ground lease of the Demised Premises ("Ground Lease") entered into between Remainder Purchaser, as ground lessor, and Landlord, as ground lessee, Tenant shall pay, as Additional Rent, the amount of One and no/100 Dollars ($1.00) per year during the first extended term, and for each such extended term thereafter, Tenant shall pay the Ground Rent directly to Remainder Purchaser as ground lessor, and the Basic Rent payable to Lessor for each such extended term shall be reduced by an amount equal to fifty percent (50%) of the Ground Rent, provided, that if fifty percent (50%) of the Ground Rent is an amount which is greater than ten percent (10%) of the Average Basic Rent (inclusive of any Rental Adjustment made pursuant to Article 3(d) hereof), the Basic Rent payable to Lessor for each such extended term shall be further reduced by an amount equal to the excess of fifty percent (50%) of the Ground Rent over ten percent (10%) of the Average Basic Rent (as so adjusted). Basic Rent and Additional Rent as set forth in the preceding sentence during each such extended term, calculated as set forth in this clause (a), shall be payable semiannually in arrears in equal installments on each _________ and ____________, and Tenant's 18 23 portion of Ground Rent payable pursuant to this clause (a) shall be payable by Tenant directly to Remainder Purchaser. Termination Value during each extended term shall be that in effect on the last day of the Base Term. If Tenant shall elect to exercise the aforesaid options, the aforesaid options, it shall do so by notice in writing and otherwise in accordance with the requirements of Article 28 hereof given to Landlord not less than nine (9) months prior to the expiration of the Base Term of this Lease or of the Lease Term as extended. The Tenant shall notify Landlord not less than twelve (12) months prior to such expiration of its intention to extend or not to extend the Lease Term, provided such notice shall not be binding on Tenant and Tenant's failure to give such notice shall not be a default under this Lease. If Tenant shall fail to exercise an option to extend the term of this Lease, this Lease shall expire upon the expiration of the then current term and Tenant shall not have any further option to extend the Lease Term. Notwithstanding the foregoing, (i) Tenant shall not have the right to extend the term of the Lease beyond the Base Term unless it shall have exercised its initial option to extend the Base Term for five (5) years for not less than twenty-five percent (25%) of the leases for Properties originally covered by the Purchase Agreement and in effect on the date such option is exercised ("Leases" for purposes of this paragraph) and (ii) if Tenant has exercised its initial option to extend the Base Term for more than twenty-five percent (25%) of such Leases but less than fifty percent (50%) of such Leases, the Basic Rent for each extended term shall be one hundred percent (100%) of the Average Basic Rent (inclusive of any Rental Adjustment made pursuant to Article 3(d) hereof) payable as set forth above. If the product of the calculation under (i) or (ii) above is a fraction, the fraction shall be rounded up to the next whole number. (b) Provided that no Material Default or Event of Default hereunder has occurred and is continuing, prior to the expiration of the last extended term provided for in paragraph (a) above, Tenant may, at its expense, obtain an appraisal in accordance with the next succeeding sentence to determine the end of the extended term uninflated fair market value and remaining economic life of the building, site improvements and personalty. Based upon the determination of remaining economic life and uninflated residual value, Tenant shall be granted a number of additional successive five (5) year extended terms (or such shorter period as is appropriate in the case of the last such extended term) up to the maximum number of years (not to exceed twenty (20) years) (taking into account the Tenant's right to extend the Lease under paragraph (c) below) (i) which, taken together with the Interim Term and Base Term and all prior extended terms provided for in paragraph (a) above, does not exceed eighty percent (80%) of the sum of the remaining economic life of the building, site improvements and personalty and the prior number of years of the 19 24 Lease Term (including the Interim Term, Base Term and all extended terms provided for in paragraph (a) above) and (ii) at the end of which the remaining fair market value (without taking into account inflation or deflation, but taking into account any costs to the Landlord to obtain possession of such property) of the building, site improvements and personalty equals or exceeds twenty percent (20%) of Owner Participant's Purchase Price applicable thereto as set forth in Schedule C of the Purchase Agreement. Such appraisal shall be completed prior to the sixth (6th) month after Tenant's notice of its intent to exercise an option to extend. Basic Rent for each of the first two additional extended terms pursuant to this paragraph (b) shall equal the Basic Rent payable during the last year of the Base Term. Basic Rent for each of the remaining additional extended terms shall be fair market value rent. Termination Value for each of the additional renewal terms pursuant to this paragraph (b) shall be that in effect on the last day of the Base Term. (c) In the event Tenant has elected not to renew the Lease upon the expiration of the Base Term or any renewal term, Tenant shall have the one-time option to extend the last term of this Lease for such period of time as shall cause the last day of the last term of this Lease to be the January 31 next succeeding the date upon which the term of this Lease would expire but for the exercise of this option. This option shall be deemed to have been exercised by Tenant unless Landlord shall have received notice from Tenant to the contrary not less than six (6) months prior to the expiration of the last term of this Lease. Basic Rent during this additional option period shall be the same rental payable under the terms of this Lease during the immediately preceding term except that Basic Rent shall be prorated upon a daily basis for the additional period. 9. Repairs and Maintenance. (a) Tenant shall make and pay for all maintenance, replacement, alteration and repair of the Demised Premises on a timely basis whether foreseeable or not foreseeable, including, without limitation, roof repair and replacement, necessary to keep all of the Demised Premises, both structural and non-structural portions, in a good state of repair and tenantable condition, ordinary wear and tear excepted, consistent with the standard of maintenance employed by Tenant as of the date of this Lease with respect to similar properties owned or leased by Kmart and located in the general geographic area where the Demised Premises is located, applicable Laws, Environmental Laws (as defined in Article 12), standards of health and safety required by applicable public authorities and private insurers, and in keeping with the objective of preserving the fair market value and useful life of the Demised Premises. 20 25 Tenant shall pay for all of the costs of maintaining the Common Areas (as defined in Article 7(a) hereof) and common facilities located on the Demised Premises, including, but not limited to, the following: All amounts paid for (1) cleaning and re-striping the parking areas, sidewalks and driveways; (2) repairing, maintaining and replacing paved areas; (3) maintaining, repairing and replacing planted or landscaped areas; (4) lighting of parking lot including repair, replacements and maintenance of bulbs and lighting standards within said Common Areas and lighting fixtures affixed to any building; (5) paying all wages and salaries of persons directly and actually performing services described herein; (6) removing rubbish; and (7) removing of ice, snow and mud. (b) During the Lease Term, notwithstanding that title to the Demised Premises has been transferred to Landlord and Remainder Purchaser, Tenant acknowledges and agrees that, in addition to Tenant's obligations under this Lease, Tenant shall comply with all of the terms and conditions of, perform all obligations of the owner of the Demised Premises and pay all expenses which the owner of the Demised Premises shall be required to pay in accordance with (i) all of the Permitted Exceptions as defined in the Purchase Agreement, including without limitation that [insert reference to applicable easement or operating agreements] (the "REA") and (ii) the Permitted Liens defined in Article 19(f) hereof. Without limiting the foregoing, in the event the responsible party fails to perform its obligations under the REA with respect to the Common Areas, Tenant shall perform such obligations and shall charge the responsible party with the obligations thereunder. Tenant agrees to provide notice to the responsible parties under the REA such that the responsible parties shall also notify Landlord of any event which triggers an obligation to provide Tenant with notice under the terms of the REA. Tenant shall be entitled to retain any and all sums paid to it as result of performing the duties and obligations of the responsible party under the REA. Tenant's obligations under this Article 9(b) shall extend to any amendments or modifications of the REA, but only to the extent Tenant has consented to such amendments or modifications. (c) Tenant shall have no right to offset against any amounts otherwise owing under this Lease any payments made by Tenant under the provisions of Paragraphs (a) and (b) above. Tenant shall not agree to any amendment to the REA without the written consent of Landlord and the Indenture Trustee if such amendment could have a material adverse effect on the Demised Premises or Landlord's interest therein. Tenant shall provide Landlord with a copy of all amendments or supplements to the REA promptly following execution thereof. 21 26 10. Alterations and Additional Construction. (a) Provided no Material Default or Event of Default hereunder has occurred and is continuing and subject to any applicable restrictions under the REA, Tenant may, at its own expense, from time to time make such alterations and additions, structural or otherwise, in and to the building constituting a part of the Demised Premises as it may deem necessary or suitable and erect or construct additional buildings or structures on and within any portion of the Demised Premises; provided, however, that Tenant shall not have the right to make any such alterations, additions, or erect or construct additional buildings or additional structures which would other than to an insignificant extent diminish the fair market value or remaining useful life of the Demised Premises or cause the Demised Premises to be characterized as limited use property (as described in Section 4.09 of Revenue Procedure 75-28 or Revenue Procedure 76-30); and provided further that Tenant shall provide written notice to Landlord together with its drawings and specifications for structural alterations, additions or additional buildings or structures and certify that: (i) the new structures shall be built under the supervision of a certified architect, (ii) the structural integrity of the existing buildings will not be impaired by such work, (iii) Tenant is complying with all applicable Laws and the requirements of the Permitted Exceptions as defined in the Purchase Agreement, (iv) Tenant has obtained any licenses or permits required, copies of which shall be delivered to Landlord upon request, and (v) such structural alterations, additions or additional buildings or structures will not encroach upon any adjacent premises and shall be diligently pursued and completed prior to expiration of the Lease Term. Tenant shall be entitled to proceed with such structural alterations, additions or additional buildings or structures unless Landlord shall have notified Tenant within fifteen (15) days after its receipt of Tenant's notice that, in Landlord's reasonable opinion, such structural alterations, additions or additional buildings or structures would other than to an insignificant extent diminish the fair market value, or remaining useful life of the Demised Premises or cause the Demised Premises to be characterized as limited use property (as described in Section 4.09 of Revenue Procedure 75-28 or Revenue Procedure 76-30). In the event of a dispute with regard to the diminution of fair market value or remaining useful life, an appraisal shall be performed in accordance with the procedures of Article 45 hereof, and the result of the appraisal as to the expected diminution, if any, of fair market value or remaining useful life shall be binding upon the parties. The term "structural alterations," as used herein, shall not include moving of non-load bearing partitions, minor plumbing and electrical work, or modification and rearrangement of Tenant's fixtures or other minor changes of a similar nature. 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. 22 27 (b) The provisions of this Lease shall apply to and shall govern Tenant's rights and obligations with respect to all such alterations, additions, additional buildings or structures and the same shall be considered part of the Demised Premises. All Assessments levied thereon shall be paid by Tenant as provided in this Lease. Tenant shall be required to maintain liability and property insurance on said additional improvements (or to self-insure to the extent permitted hereunder) in the same manner as is required in this Lease. In the event Tenant constructs any such additions or additional buildings or structures, Landlord shall not be obligated to furnish additional parking areas in substitution of areas thereby built over. (c) In connection with any alterations, additions or erection of additional improvements, Tenant shall perform, diligently pursue and complete all work in a first class workmanlike manner in compliance with applicable Laws, free of liens except for Permitted Liens. Tenant shall maintain at all times during construction all risk builders insurance and comprehensive general liability insurance naming Landlord, Remainder Purchaser and Landlord's mortgagee as additional insureds. Tenant shall be entitled to self-insure with respect to the insurance required by the immediately preceding paragraph during such time that Kmart meets the Net Worth Standard. (d) All alterations, additions or additional buildings or structures made or erected by Tenant on the Demised Premises shall without further act become the property of Landlord (except for the assignment of Condemnation proceeds expressly provided herein in the second paragraph of Article 15(d)) and Landlord shall not be required to compensate Tenant therefor; provided, however, Tenant may claim all tax benefits and incidents attendant thereto as lessee thereof which Tenant is entitled to claim under applicable tax law. Tenant will execute any necessary deed or bill of sale required to convey title thereto to Landlord. 11. Utilities. Tenant shall pay all charges for all utilities (including, without limitation, gas, water, oil, sewage, telephone and electricity) furnished to the Demised Premises during the Lease Term. Tenant acknowledges and agrees that it shall obtain and use its reasonable efforts to maintain service with respect to all such utilities at the Demised Premises. 12. Governmental Regulations. (a) Tenant shall observe and comply (other than to an insignificant extent) in all respects with all requirements of laws, rules, codes, orders and regulations of the federal, state 23 28 and municipal governments or other duly constituted public or quasi-public authority applicable to the Demised Premises, including, but not limited to, all Environmental Laws (as defined below) and the Americans With Disabilities Act ("ADA"), as amended from time to time, together with all regulations promulgated thereunder (collectively, "Laws"). Tenant shall make all alterations or changes to the Demised Premises, subject to Article 10 hereof, as may be required from time to time to comply with applicable Laws. Such alterations or changes shall be made in compliance with and shall be governed by Article 10(b), (c) and (d) and title thereto shall immediately vest in Landlord. (b) Tenant shall also comply (other than to an insignificant extent) in all respects with all Environmental Laws now or hereafter applicable to the Demised Premises, or the use, modification, maintenance or operation thereof, and shall have sole responsibility for the expenses, including legal and other professional fees and expenses and costs of investigation associated with such compliance, including compliance with any such Environmental Law directed to Landlord or Owner Participant or Remainder Purchaser or to which Landlord or Owner Participant or Remainder Purchaser may become subject with respect to the Demised Premises. For purposes of this Lease, Environmental Laws shall mean all federal, state, and local laws, ordinances, rules, regulations, requirements, permits, authorizations, licenses, approvals, criteria, guidelines, and judicial and administrative orders, decrees, or judgments, now or hereafter in effect, and in each case as amended, and any judicial or administrative interpretation thereof, relating to the regulation and protection of human health, safety, the environment and natural resources including, without limitation, laws (and all other items recited above) relating to emissions, discharges, releases, threatened releases or remediation of, or any other response action related to, Hazardous Materials (as defined in Article 38) or otherwise relating to the generation, use, treatment, storage, recycling, disposal, transport, or handling of or exposure to Hazardous Materials. Environmental Laws include but are not limited to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"); the Resource Conservation and Recovery Act ("RCRA"); the Federal Insecticide, Fungicide, and Rodenticide Act; the Toxic Substances Control Act; the Clean Air Act; the Federal Water Pollution Control Act; the Oil Pollution Act of 1990; the Endangered Species Act; the National Environmental Policy Act; the Hazardous Materials Transportation Act; the Occupational Safety and Health Act; and the Safe Drinking Water Act; each as amended from time to time, and each of their state and local counterparts or equivalents. For purposes of this Lease, "Environmental Claims" shall mean any and all administrative, regulatory or judicial actions or causes of action, suits, obligations, liabilities, losses, proceedings, decrees, judgments, penalties, fees, demands, demand 24 29 letters, orders, directives, claims (including any claims involving liability in tort, strict, absolute or otherwise), liens, notices of non- compliance or violation, and legal fees or costs of investigations or proceedings, relating in any way to any Environmental Law or arising from the presence or release (or alleged presence or release) into the environment of any Hazardous Materials (as defined in Article 38) (hereinafter "Claims") including, without limitation, and regardless of the merit of such Claim, any and all Claims by any governmental or regulatory authority or by any third party for enforcement, cleanup, removal, containment, restoration, corrective action, response, remedial or other actions or damages, contribution, indemnification, cost recovery, compensation or injunctive relief pursuant to any Environmental Law or any alleged injury or threat of injury to human health, safety, the environment or natural resources. 13. Landlord to Grant Easements, Dedications, Etc. Provided that no Material Default or Event of Default hereunder has occurred and is continuing and subject to the proviso contained in this sentence and the provisions of the succeeding sentence, Landlord does hereby (and shall by a separate instrument if requested by Tenant, from time to time, upon thirty (30) days' prior written notice to Landlord at Tenant's cost and expense) irrevocably make, name, constitute and appoint Tenant the true and lawful agent and attorney-in-fact, coupled with an interest, of Landlord during the term of this Lease, with full power and authority to do and perform the following acts, at no cost to Landlord: (i) grant easements and other rights in the nature of easements, (ii) release existing easements or other rights in the nature of easements which are for the benefit of the Demised Premises, (iii) dedicate or transfer unimproved portions of the Demised Premises for road, highway or other public purposes, (iv) execute petitions to have the Demised Premises annexed to any municipal corporation or utility district, (v) execute amendments to any covenants and restrictions affecting the Demised Premises, and Landlord shall execute and deliver to any person any instrument appropriate to confirm or effect such grants, releases, dedications and transfers to the extent of its interest in the Demised Premises (or execute such instrument in its own name); provided, however, that the rights granted to Tenant pursuant to the provisions of this paragraph (and the obligation of Landlord to execute such instrument) are subject to thirty (30) days' prior written notice to Landlord and Remainder Purchaser which notice shall include (x) a certificate of an authorized officer of Tenant (A) describing such grant, release, dedication, transfer, petition or amendment, (B) stating that such grant, release, dedication, transfer, petition or amendment is not detrimental to the proper conduct of the business of Tenant on the Demised Premises and does not, other than to an insignificant extent, impair the usefulness of the Demised Premises for the purposes contemplated and permitted hereby, or reduce the fair market value or remaining useful life of 25 30 the Demised Premises, or impair the Landlord's, Owner Participant's or Remainder Purchaser's or any of their respective assignees interest in the Demised Premises, or cause the Demised Premises to be characterized as limited use property (as described in Section 4.09 of the Revenue Procedure 75-28 or Revenue Procedure 76-30, and (C), the consideration, if any, being paid for such grant, release, dedication, transfer, petition or amendment and (y) duly authorized and binding unconditional undertakings of Tenant that it will remain obligated hereunder to the same extent as if such grant, release, dedication, transfer, petition or amendment had not been made (including, without limitation, the obligation to pay all Rent in accordance with the terms hereof), and that Tenant will perform all obligations of Landlord and Remainder Purchaser under such instrument. In the case of those grants, releases, dedications, transfers or amendments referred to in subparagraphs (i), (iii) and (v) of the preceding sentence, the prior written approval of Landlord shall be required (which approval shall not be unreasonably withheld or delayed), provided if Tenant requests such approval in writing and Landlord has not approved or disapproved the same within thirty (30) days of such request, it shall be deemed approved, and provided further, if such grants, releases, dedications, transfers or amendments do not by their respective terms extend beyond the expiration or earlier termination of this Lease, the approval of Landlord shall not be required. The consideration, if any, received by Landlord or Tenant for such grant, release, dedication, transfer, petition or amendment shall be applied pursuant to Article 15, as if such consideration were net proceeds from an event of Condemnation. Tenant hereby accepts said agency and power of attorney and agrees and consents to its terms, conditions and provisions. 14. Insurance; Damage to Demised Premises. (a) From and after the commencement of the Lease Term, Tenant shall insure the buildings and improvements on the Demised Premises, including Tenant's buildings, against damage or destruction by fire and other casualties under a policy of insurance including broad form, extended coverage all risk endorsements, including but not limited to fire, theft, flood, water damage, collapse, windstorm, hail, boiler & machinery (if objects exist), lightning, explosion, falling objects (i.e. aircraft), back-up & seepage of sewers and drains, and business interruption to the extent maintained by Tenant with respect to similar properties owned or leased by Tenant and located in the state and general geographic area where the Demised Premises is located. Such endorsements shall be subject to annual review by Landlord to identify additional coverages payable by Tenant made necessary by market conditions or made available by insurers of similar improvements for risks now or hereafter deemed commercially reasonable to insure. Said insurance shall be in an amount equal to not less than one hundred percent (100%) of the full insurable replacement value of the Demised Premises (except for a Fifty 26 31 Million and No/100 Dollars ($50,000,000) per occurrence/aggregate sublimit for flood damage). At any time during the term of this Lease that Tenant is not self-insuring pursuant to the terms of this Article, Tenant shall obtain at its sole cost and expense and deliver to Landlord every three (3) years during the Lease Term an independent appraiser's or engineer's certification of the full replacement cost of the Demised Premises. In no event shall the deductible amount under such policies of insurance exceed Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) in the aggregate. (b) Landlord and Landlord's mortgagee (including the Indenture Trustee) shall be named as loss payees and additional insureds thereunder. All required insurance policies shall bear endorsements to the effect that Landlord and Landlord's mortgagee and ground lessor (if any) shall be notified not less than thirty (30) days in advance of modification or cancellation thereof and that Tenant has waived any right of recovery from Landlord. Such policies shall contain no condition to disbursement of proceeds based on actual restoration of the Demised Premises and shall provide that such insurance is primary insurance and not excess over or contributory with any valid, existing or applicable insurance in effect for or on behalf of Landlord. Copies of such insurance policies or certificates evidencing the existence thereof so endorsed, or a certificate of self-insurance evidencing Tenant's election to self-insure such obligations, shall be promptly delivered to Landlord prior to commencement of the Lease Term and at least thirty (30) days prior to the expiration of any policy. Any policy of insurance shall be issued by an insurance company licensed to do business in the state where the Demised Premises are located rated in the Best's Insurance Guide as not less than an A+ "rating classification" and with a VII "financial size category," or better or rated by a successor agency at comparable ratings. At any time during the term of this Lease that either respective rating shall fall below A+ or VII (or such comparable ratings of any successor agency), Tenant shall obtain insurance from a replacement insurer carrying an A+ and VII rating or comparable rating. While the Note Indenture remains in full force and effect and to the extent such rating agency is providing a rating for the Pass Through Certificates, all insurance companies providing such insurance shall have a Standard & Poors claims paying ability rating of at least BBB-, a Moody's claims paying ability rating of at least Baa and a Duff and Phelps Credit Rating Co. claims paying ability rating of A. (c) Notwithstanding the foregoing, Tenant shall be entitled to self-insure its aforesaid insurance obligations at any time that Tenant meets the Net Worth Standard. (d) Irrespective of the cause thereof, Landlord shall not be liable for any loss or damage to the Demised Premises 27 32 resulting from fire, explosion or any other casualty. In the event of Tenant's failure to obtain or maintain the insurance called for under this Lease, Landlord shall have the right, together with Landlord's remedies set forth herein, to obtain the policies of insurance required under this Lease and to bill Tenant for the premium payments therefor, together with interest at the Default Rate. Landlord shall have no obligation to maintain insurance of any nature or type whatsoever on the Land described in Exhibit A, any improvements thereon owned by Landlord or Tenant or the Demised Premises and neither Tenant nor Tenant's insurer shall have any rights to direct actions or subrogation against any policy of insurance obtained by Landlord. (e) In the event that, at any time during the Lease Term, the building and/or site improvements included in the Demised Premises shall be damaged or destroyed (partially or totally) by fire, the elements or any other casualty (including, without limitation, erosion caused by the encroachment of any river or stream onto the Land), whether insured or not, Tenant shall without abatement of Rent, at its expense, promptly and with due diligence repair, rebuild and restore the same as nearly as practicable to the condition existing just prior to such damage or destruction consistent with the maintenance and repair obligations of Tenant in Article 10 of this Lease. Provided that no Material Default or Event of Default has occurred and is continuing, at any time that Tenant or Kmart meets the Net Worth Standard or in the event of a loss below Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), insurance proceeds from insurance maintained pursuant to the requirements of this Lease shall be released to Tenant for restoration and repair; otherwise the Indenture Trustee shall have the right to receive any insurance settlement fund in escrow subject to disbursement pursuant to the terms set forth in Article 16 hereof. Tenant shall complete such restoration prior to the expiration of the current term of this Lease, but if additional time is required to complete such work and Tenant otherwise does not extend the term of this Lease as provided in Article 8 hereof, Tenant shall use diligent and reasonable effort to complete such work as soon as possible following the termination of this Lease and pay to Landlord daily rent at the rate referred to in Article 8(c). (f) Notwithstanding the foregoing paragraph, in the event of a substantial or total casualty of the land, such building or improvements, Tenant may give written notice to Landlord and Remainder Purchaser within thirty (30) days after such damage or destruction of its intention to terminate this Lease and Tenant shall simultaneously make and deliver to Landlord and Remainder Purchaser Tenant's Purchase Offer in accordance with Article 40 hereof. In the event Landlord rejects Tenant's Purchase Offer pursuant to Article 40, an amount equal to all proceeds of insurance or self-insurance, as the case may be, shall be paid to Landlord on the Purchase Offer Termination Date together with the 28 33 amount of any deductible under any such insurance and together with all other amounts specified in Article 40(c). In the event Landlord accepts Tenant's Purchase Offer, all such insurance proceeds shall be paid to Tenant on the Purchase Offer Termination Date. 15. Eminent Domain. (a) In the event of (i) a permanent Condemnation (as defined below) of all of the Demised Premises, (ii) a temporary Condemnation of all or any portion of the Demised Premises, or a permanent Condemnation of any substantial portion of the Demised Premises (which, in either case, is sufficient in Tenant's judgment to render the Demised Premises unsuitable for the use and occupancy of Tenant), or (iii) a Condemnation of the points of ingress-egress to public roadways such that they shall be materially impaired (with no reasonable replacement points of ingress-egress provided so as to render the Demised Premises unsuitable for its intended use), Tenant shall deliver to Landlord Tenant's Purchase Offer in accordance with Article 40 hereof within thirty (30) days (or, with respect to a Condemnation of less than all the Demised Premises, ninety (90) days) after the entry of a final order of taking. In the event Landlord rejects Tenant's Purchase Offer pursuant to Article 40 and provided that the parties have satisfied their obligations under Article 40, the Condemnation proceeds shall be paid to Landlord on the Purchase Offer Termination Date, together with all other amounts specified in Article 40(c) (except as otherwise provided in paragraph (d) below). In the event Landlord accepts Tenant's Purchase Offer pursuant to Article 40 and provided that the parties have satisfied their obligations under Article 40, Landlord shall assign the Condemnation proceeds to Tenant on the Purchase Offer Termination Date. For purposes hereof, a "Condemnation" shall mean a condemnation, confiscation, seizure, requisition or other taking or sale of the use or occupancy of, or title to the Demised Premises pursuant to the power of eminent domain or through a deed in lieu of condemnation. (b) In the event of a taking of any portion of the Demised Premises constituting less than a substantial portion, this Lease shall continue as to that portion of the Demised Premises which shall not have been taken with no abatement of Basic Rent, in which event Tenant shall promptly and with due diligence restore the Demised Premises to as nearly as practicable the condition which existed just prior to such taking, consistent with the maintenance and repair obligations of Tenant under Article 9 hereof. Provided that no Material Default or Event of Default has occurred and is continuing, at any time that Tenant or Kmart meets the Net Worth Standard or in the event of an award of less than Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) the portion 29 34 of the Condemnation award not in excess of the cost of such restoration shall be released to Tenant for restoration; otherwise the Indenture Trustee (or Landlord if the Indenture has been discharged as to the Demised Premises) shall take possession of such award to disburse payment to Tenant pursuant to the terms set forth in Article 16 hereof. Tenant shall complete such restoration prior to the expiration of the current term of this Lease, but if additional time is required to complete such work and Tenant otherwise does not extend the term of this Lease as provided in Article 8 hereof, Tenant shall use diligent and reasonable effort to complete such work as soon as possible following the termination of this Lease and pay to Landlord daily rent at the rate specified in Article 8(c) hereof. (c) Without limiting the foregoing, in the event a portion of the Land shall be subject to a permanent Condemnation by public or quasi-public authority, Tenant shall make reasonable efforts to substitute equivalent and similarly improved lands contiguous to and properly integrated with the remainder of the site depicted on Exhibit B. Any substitute land together with the remaining Demised Premises shall meet the standards set forth in Article 41 hereof. Tenant shall be entitled to receive the Condemnation award to the extent required to acquire substitute land subject to the rights of Landlord's mortgagee as above stated. Any such land acquired by Tenant shall be part of the Demised Premises subject to this Lease, and an Estate for Years interest therein (or, after the Base Term, a ground lease interest) shall vest in Landlord subject to this Lease, and a remainder interest herein (or, after the Base Term, fee title subject to this Lease and to a ground lease) shall vest in Remainder Purchaser. Tenant shall take all actions necessary to vest title to such land in Landlord. If Tenant shall be unable to substitute such lands and if one or more Condemnations shall in total deprive Tenant of any substantial portion of the Demised Premises which is sufficient in Tenant's judgment to render the remaining portion thereof unsuitable for the use or occupancy of Tenant, then, in such event, subsection (a) of this Article 15 above shall apply. (d) Tenant's obligation to restore the Demised Premises in the event of a partial taking is not conditioned upon the adequacy of the Condemnation proceeds to complete such restoration. In the event of an inadequate award, the amount of such award held by the Indenture Trustee shall be disbursed pro rata until completion of restoration pursuant to the terms set forth in Article 16 hereof. Tenant shall fund the deficits in the pro rata progress payments disbursed by the Indenture Trustee in accordance with Article 16 hereof. In the event the Condemnation proceeds exceed the actual cost of restoration, the Proceeds Trustee shall have the right to retain the excess proceeds (other than any excess proceeds allocable to the Remainder Purchaser), as Additional Rent, 30 35 and apply the same in accordance with the Note Indenture and any such excess proceeds which are not retained by the Proceeds Trustee shall be paid to Landlord in accordance with Section 4 of the Tripartite Agreement, or, if Landlord's Debt is no longer outstanding, such excess proceeds shall be paid to Landlord in accordance with Section 4 of the Tripartite Agreement. To the extent applied in respect of Landlord's Debt, Termination Values hereunder shall be correspondingly reduced by an amount equal to such excess proceeds; provided that no adjustment shall be required hereunder unless such excess proceeds exceed One Hundred Thousand and No/100 Dollars ($100,000). In the event that at the time of any Condemnation of the buildings on the Demised Premises, Tenant shall not have fully amortized expenditures which it may have made on account of any improvements, alterations or changes to such buildings after the date hereof or if Tenant shall have suffered a loss of business, so long as no Material Default or Event of Default is continuing, Landlord shall assign to Tenant that portion of any award payable as a result of such taking as shall be expressly attributed by the terms of such award (i) to such loss of business or (ii) to the unamortized portion of Tenant's expenditures; provided that in no event shall the award otherwise payable to Landlord be diminished in any manner by an amount allocated to Tenant. 16. Insurance Proceeds, Claims Settlement. (a) In the event of loss or damage to the Demised Premises, Tenant shall promptly notify Landlord thereof in writing and shall prepare and present timely claims (unless Tenant is at the time self-insuring the risk for which such claim would be presented) to the appropriate insurers on behalf of Tenant, Landlord and Landlord's mortgagee. Tenant shall adjust and settle such non-self-insured claim, provided that if Tenant has failed to settle such claims within three (3) years of the event of loss or damage, then Landlord and/or its mortgagee shall have the right to adjust and settle such claims. At any time (i) Tenant or Kmart does not meet the Net Worth Standard and the claim for damage to the Demised Premises involves net proceeds of more than Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), or (ii) a Material Default or Event of Default has occurred and is continuing, no settlement shall be made without Landlord's consent, which will not be unreasonably withheld or delayed, and Landlord and its mortgagee shall be entitled to participate in the adjustment process. (b) In the event the net proceeds of any such claim are not in excess of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00), and provided further that no Material Default or Event of Default hereunder has occurred and is continuing, such proceeds shall be payable to Tenant. In the event the net proceeds are in excess of Two Hundred Fifty Thousand and No/100 Dollars ($250,000.00) and Tenant or Kmart does not meet the Net Worth 31 36 Standard, or a Material Default or Event of Default hereunder has occurred and is continuing, such sum shall be paid to Indenture Trustee, or at such time as Landlord's Debt is no longer outstanding, to such other person mutually agreeable to Landlord and Tenant (herein called the "Proceeds Trustee") as trustee for Landlord and Tenant and disbursed in the manner hereinafter provided. Insurance proceeds shall be deposited in an interest bearing account and shall be distributed to Tenant upon progress of completion of restoration, repair, replacement or rebuilding, provided no Material Default or Event of Default has occurred and is continuing hereunder. Insurance proceeds shall be disbursed to Tenant by the Proceeds Trustee upon receipt by Landlord and Proceeds Trustee of the following: (1) A certificate signed by Tenant, dated not more than thirty (30) days prior to the application for such disbursement, setting forth in substance the following: (i) that the sum then requested to be disbursed either has been paid by Tenant or is justly due to contractors, subcontractors, materialmen, engineers, architects or other persons who have rendered and furnished certain labor and materials for the work; giving a brief description of such services and materials and the principal subdivisions or categories thereof and the amounts so paid or due to each of said persons in respect thereof, and stating the progress of the work up to the date of said certificate; (ii) that the sum then requested to be disbursed, plus all sums previously disbursed, does not exceed the cost of the work as actually accomplished up to the date of such certificate; (iii) that except for the amounts, if any, stated in said certificate pursuant to the foregoing clause (i) of this paragraph to be due for services or materials, there is no outstanding indebtedness known to the person signing the certificate, after due inquiry, which is then due and payable for work, labor, services and materials in connection with the work, which, if unpaid, might become the basis of a vendor's, mechanic's, laborer's, materialman's statutory or similar lien upon Tenant's leasehold estate or Tenant's or Landlord's interest in the Demised Premises or any part thereof; 32 37 (iv) that all materials and all property described in the certificate are free and clear of all liens and encumbrances except for Permitted Liens (as hereinafter defined); and (v) that the amount remaining in the possession of the Proceeds Trustee after disbursement of the sum then requested at least equals the estimated unpaid costs to complete work (and if insufficient funds remain, Tenant shall deposit additional funds with the Proceeds Trustee sufficient to enable Tenant to make the foregoing certification). (2) Evidence reasonably satisfactory to the Proceeds Trustee and Landlord showing that there has not been filed with respect to Tenant's leasehold estate or Tenant's or Landlord's interest in the Demised Premises or any part thereof any vendor's, mechanic's, laborer's or materialmen's statutory or similar lien which has not been discharged of record other than Permitted Liens, except such as will be discharged upon payment of the amount then requested to be disbursed, or affirmative title insurance coverage over such liens. (3) Lien waivers from each person entitled to a mechanics' or materialman's lien against the Premises by reason of such work, or affirmative title insurance over all such inchoate liens. Upon compliance with the foregoing provisions, the Proceeds Trustee shall, out of the deposited sums, disburse to the persons named in the certificate the respective amounts stated in said certificate to be due to them and/or shall disburse to Tenant the amount stated in said certificate to have been paid by Tenant. (c) At any time after the completion in full of the work, provided that no Event of Default hereunder shall have occurred and then be continuing, the whole balance of the deposited sums not theretofore disbursed pursuant to the foregoing provisions of this Article 16 shall be disbursed to or upon the order of Tenant, upon receipt by the Proceeds Trustee of (1) a certificate signed by Tenant, dated not more than thirty (30) days prior to the application of such disbursement, setting forth in substance the following to the best knowledge of Tenant, after due inquiry, (i) that the work has been completed in full in compliance with this Lease; (ii) that all amounts which Tenant is or may be entitled to have disbursed under the foregoing provisions of this Article 16 on account of services rendered or materials furnished in connection with the work have been disbursed under said provisions, and (iii) 33 38 that all amounts for whose payment Tenant is or may become liable in respect of the work have been paid in full except to the extent, if any, of any retainage and which retainage shall be applied to the final payments of the amounts due, (2) a copy of the final plans and specifications of the improvements on the Demised Premises, which plans and specifications shall be delivered to Landlord, (3) an official search or a certificate of a title company reasonably satisfactory to the Proceeds Trustee showing that there has not been filed with respect to Tenant's leasehold estate or Tenant's or Landlord's interest in the Demised Premises or any part thereof, any vendor's, mechanic's, laborer's or materialmen's statutory or similar lien or other than Permitted Liens which have not been discharged of record or for which affirmative insurance has not been provided, and (4) a final certificate of occupancy or equivalent governmental approval. Any insurance proceeds remaining after completion of the reconstruction as specified shall be paid to Tenant so long as no Material Default or Event of Default has occurred and is continuing. If the conditions for the release of money to Tenant are not met after a period of three (3) years after the date of completion of reconstruction (such three-year period to be extended by the length of any delay caused by reasons beyond the control of Tenant), any funds held by the Proceeds Trustee shall be disbursed to the Indenture Trustee as Additional Rent to be used for the pro rata prepayment of the Notes pursuant to the Note Indenture, or to Landlord if the Indenture has been discharged as to the Demised Premises. 17. Use, Assignment and Subletting. The Demised Premises may be used for any lawful purposes except that no use may be made (whether by Tenant or any assignee or subtenant of Tenant or otherwise) which: (i) is a public nuisance, (ii) causes the Demised Premises to become "tax-exempt use property" within the meaning of Section 168(h) of the Internal Revenue Code, as amended, or any successor statute thereto ("Code") or "tax-exempt bond financed property" within the meaning of Section 168 (g)(5) of the Code, (iii) would void any certificate of occupancy required for the Demised Premises, (iv) makes it commercially unreasonable to obtain, or results in the cancellation of policies of, the insurance required by this Lease, or (v) increases the risk of environmental liability to Landlord; provided, however, (but without limiting Tenant's obligations under Articles 12 and 38) that any retail or office use shall not be deemed to increase the risk of environmental liability for purposes of this provision. Tenant may assign this Lease or sublet the whole or any part of the Demised Premises provided (i) no Material Default or Event of Default hereunder has occurred and is continuing, (ii) that such assignment or sublease shall be expressly subject and 34 39 subordinate to this Lease in a manner reasonably satisfactory to Landlord, and (iii) that Kmart shall remain fully and primarily liable for the performance of Tenant's obligations hereunder and in respect of any of its obligations under any of the other Operative Documents. Tenant's liability hereunder shall continue notwithstanding the rejection of this Lease or any sublease of this Lease pursuant to Section 365 of Title 11 of the United States Code or any similar law relating to bankruptcy, insolvency, reorganization or the rights of creditors, which arises subsequent to such assignment. In the event Tenant assigns this Lease and it shall thereafter be rejected in a bankruptcy or similar proceeding affecting such assignee, a new lease identical to this Lease shall be deemed reinstituted as between Landlord and the Kmart without further act of either party. Nothing herein shall be construed to permit Tenant to mortgage, pledge, hypothecate or encumber in any manner or nature whatsoever Tenant's interest under this Lease in whole or in part. Tenant shall provide notice to Landlord of such assignment or sublease within fifteen (15) days prior to the effective date thereof. Prior to the date of this Lease, Tenant, as the owner or lessee of the Demised Premises may have entered into leases and/or vendor licenses with other retail and service operators for space within the building, which leases and licenses may be terminated by Tenant as set forth therein. Landlord and Tenant agree that (a) such leases have been assigned to Landlord and shall be deemed subleases of this Lease, but Tenant shall perform all of the obligations of the landlord under such leases and provided that no Event of Default hereunder has occurred and is continuing, Tenant shall be entitled to retain all benefits, entitlements, rent and other sums paid by the tenants under said leases, and (b) the licenses are the exclusive right and obligation of Tenant and Tenant shall be entitled to retain all benefits, entitlements, rent and other sums paid by the licensees thereunder. Tenant shall not amend any existing lease or license in any manner which would limit Tenant's rights to terminate the interests granted thereby. 18. Signs. (a) The Demised Premises shall be referred to only by such designation as Tenant may indicate. Landlord expressly recognizes that the service mark and trademark "Kmart" is the valid and exclusive property of Tenant, and Landlord agrees that it shall not either during the term of this Lease or thereafter directly or indirectly contest the validity of said mark "Kmart," or any of Tenant's registrations pertaining thereto in the United States or elsewhere, nor adopt or use said mark or any term, word, mark or designation which is in any aspect similar to the mark of Tenant. Landlord further agrees that it will 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 Tenant's right, title and interest in the aforesaid mark, and Landlord shall not in 35 40 any manner represent that it has an ownership interest in the aforesaid mark or registrations therefor, and specifically acknowledges that any use thereof pursuant to this Lease shall not create in Landlord any right, title or interest in the aforesaid mark. (b) Tenant shall have the option to erect, subject to applicable Laws and matters of title to which this Lease is subordinate, and at its sole cost and expense, upon any portion of the Demised Premises signs of such height and other dimensions, bearing such legend or inscription as Tenant shall determine. Tenant shall have the option to utilize the lighting standards in the parking lot for advertising purposes by attaching, or causing to be attached, signs advertising any and all products and services as Tenant shall elect provided same are in compliance with all applicable Laws. Provided no Event of Default hereunder has occurred and is continuing, Tenant shall be entitled to remove any signs, billboards or posters to which it has not consented in writing and to prohibit the same to be displayed on any portion of the Demised Premises. 19. Liens. Tenant covenants and agrees that it shall not, during the Lease Term, directly or indirectly create, incur, assume, suffer or permit any lien on or with respect to the Demised Premises or any part thereof, any Rent, title thereto or interest therein except for Permitted Liens (as herein defined). Tenant shall promptly, but no later than thirty (30) days after the attachment thereof, at its own expense, discharge or eliminate or bond in a manner satisfactory to Landlord any such lien. In the event such lien is not so discharged, eliminated or bonded, Landlord may, but shall not be obligated to, pay and discharge the same and relieve the Demised Premises therefrom, and Tenant agrees to repay and reimburse Landlord upon demand for the amount so paid by Landlord together with interest thereon at the Default Rate. "Permitted Liens" shall mean (a) the respective rights and interests of Tenant, Landlord, Owner Participant, Remainder Purchaser, Indenture Trustee, and Pass Through Trustee as provided in the Operative Documents; (b) Lessor Liens and Remainder Purchaser Liens; (c) liens for taxes and assessments that either are not yet due and payable or are being contested in good faith and by appropriate proceedings diligently conducted, so long as such proceedings do not (i) subject the Demised Premises or interest therein to imminent risk of foreclosure, forfeiture or loss or result in the sale of the Demised Premises or interest therein, (ii) interfere other than to an insignificant extent with the use, possession or disposition of the Demised Premises or any interest therein, (iii) interfere with the payment of Rent or (iv) involve any risk of loss of the priority of the lien of the Note Indenture; (d) materialmen's, mechanics', workers', repairmen's, 36 41 employees' or other like liens arising prior to or after the date hereof in the ordinary course of business for amounts either not yet due or being contested in good faith and by appropriate proceedings so long as such proceedings shall not involve any risk of the sale, forfeiture or loss of any part of the Demised Premises, the Trust Estate, title thereto or any interest therein and shall not materially interfere with the use, occupancy or disposition of the Demised Premises or the Trust Estate or interfere with the payment of Rent or involve any risk of loss of the priority of the lien of the Note Indenture; (e) liens arising after the date hereof out of judgments or awards with respect to which at the time an appeal or proceeding for review is being prosecuted diligently and in good faith and which either have been bonded to the satisfaction of Landlord and Indenture Trustee or the enforcement of which has been continuously stayed pending such appeal or review; (f) easements, rights-of-way, reservations, servitudes and rights of others against the Land which (i) are defined as Permitted Exceptions in the Purchase Agreement or (ii) are granted pursuant to the specific provisions of the Lease; and (g) assignments, leases and subleases expressly permitted by the Operative Documents. Tenant represents and warrants that the Permitted Liens affecting title to the Demised Premises at the time of the execution of the Indenture do not adversely affect the use, leasing and operation of the Demised Premises as contemplated on the date of the Indenture and do not affect Tenant's ability to pay Basic Rent, Special Additional Rent or Additional Rent when due hereunder. For purposes of this Lease, "Lessor Liens" shall mean liens on or against the Property, the Lease, the Trust Estate (as defined in the Purchase Agreement) or any payment of Rent (a) which result from any act of, or any claim against, Landlord (in its individual capacity or in its trust capacity) or Owner Participant unrelated to the transactions contemplated by the Purchase Agreement, or (b) which result from any violation by Landlord (in its individual capacity or in its trust capacity) or Owner Participant of any of the terms of the Operative Documents, or (c) which result from liens in favor of any taxing authority by reason of any Tax owed by Landlord (in its individual capacity or in its trust capacity) or Owner Participant, the payment of which is not the obligation of Tenant or Kmart under the Operative Documents. For purposes of this Lease, "Remainder Purchaser Liens" shall mean Liens on or against the Property, the Lease or any payment of Rent (a) which result from any act of, or any claim against, Remainder Purchaser unrelated to the transactions contemplated by the Purchase Agreement or which result from any violation by Remainder Purchaser of any of the terms of the Operative Documents or (b) which result from Liens in favor of any taxing authority by reason of any Tax owed by Remainder Purchaser, 37 42 the payment of which is not the obligation of Tenant or Kmart under the Operative Documents. 20. Tenant Defaults. The following shall constitute an Event of Default by Tenant under this Lease (whatever the reason for such event and whether it shall be voluntary or involuntary, or come about or be effected by operation of law, or be pursuant to or in compliance with any applicable Law or Governmental Action), and any such event shall continue to be an Event of Default if and for so long as it shall not have been remedied, cured or waived (each, herein referred to as an "Event of Default"): (i) failure to pay any installment of Basic Rent within five (5) days after notice to Tenant and Kmart the same is due; (ii) failure to make any payment constituting Additional Rent within fifteen (15) days after notice of non-payment to Tenant and Kmart; (iii) failure to maintain any insurance required to be maintained hereunder, (iv) Tenant's failure to perform any of its other covenants or obligations under this Lease or Kmart's failure to perform any of its covenants or obligations under any of the other Operative Documents (other than the Tax Indemnification Agreement) within thirty (30) days after notice thereof to Tenant and Kmart provided that any non-monetary default that is curable but is not susceptible to a cure within thirty (30) days shall not be deemed a default if a cure is commenced within thirty (30) days after such notice and is diligently pursued thereafter; provided further that in no event shall such cure period for a non-monetary default exceed one hundred and eighty (180) days or the expiration of the Lease Term, whichever shall first occur; (v) Kmart shall commence a voluntary case or proceeding seeking liquidation, reorganization or other relief 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 Kmart, or Kmart shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors; or an involuntary case or other proceeding shall be commenced against Kmart 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 and such involuntary case or other proceeding shall remain undismissed or unstayed for a period of ninety (90) consecutive days; and (vi) any representation or warranty by Tenant or Kmart in this Lease or any of the other Operative Documents (other than the Tax Indemnification Agreement) to or in any document or certificate expressly required to be delivered pursuant hereto or thereto which shall have been false or incorrect when made in any respect material to Landlord, Owner Participant or any of their respective assignees, and such falseness or incorrectness is material to 38 43 Landlord, Owner Participant or any of their respective assignees, and continues to be material and which shall not have been cured within thirty (30) days after receipt of written notice by Tenant and Kmart from Landlord, unless the default is curable and Tenant or Kmart shall be diligently proceeding to correct such failure; provided that in no event shall such cure period extend beyond sixty (60) days from the date of such notice or the expiration of the Lease Term, whichever shall first occur. For purposes of this Lease, a "Material Default" shall mean an event of the type specified under clauses (i) or (v) in the foregoing paragraph which with the passage of time or the giving of notice, or both, would become an Event of Default. Notwithstanding anything stated herein to the contrary, to the extent any failure by Tenant or Kmart to perform any covenant or obligation or breach of a representation or warranty relates not to the Demised Premises but solely to a property or properties other than the Demised Premises, it shall not give rise to an Event of Default hereunder. 21. Landlord Remedies. If an Event of Default has occurred and is continuing beyond any applicable cure periods, Landlord at its option may, by notice to Tenant, declare this Lease to be in default, and at any time thereafter following the expiration of the applicable cure period (unless all Events of Default shall have been remedied, cured or waived), or if there shall exist an Event of Default described in Section 20(v) hereof, Landlord may, to the extent permitted by applicable law, exercise one or more of the following remedies, except as hereinbelow expressly otherwise set forth, as Landlord in its sole discretion may elect: (a) Re-enter the Demised Premises without terminating the Lease and remove Tenant from possession of the Demised Premises and all of Tenant's property therefrom at Tenant's expense, and Tenant shall remain liable for the equivalent of the amount of Rent reserved for the balance of the Lease Term less the avails of reletting by Landlord, if any, after deducting therefrom the reasonable cost of arrears, alterations necessary to prepare for reletting and for leasing commissions payable in procuring the substitute lease. (b) Landlord may sell the Demised Premises or any part thereof, together with any interest of Landlord under the Deed (subject to the rights of the Remainderman), at public or private sale, conducted in accordance with applicable Law, as Landlord may determine, free and clear of any rights of Tenant therein and without any duty to account to Tenant with respect to such sale or for the proceeds thereof (except to the extent required by clause (d) below if Landlord shall elect to exercise its rights 39 44 thereunder), in which event Tenant's obligation to pay Basic Rent with respect to the Demised Premises or the part thereof that has been sold, as the case may be, for periods commencing after the date of such sale shall terminate (except to the extent that Basic Rent is to be included in computations under clause (d) below if Landlord shall elect to exercise its rights thereunder). (c) Landlord may terminate Tenant's right to possession of the Demised Premises by any lawful means, in which case this Lease and the Lease Term shall terminate and Tenant shall immediately surrender possession of the Demised Premises to Landlord. In addition, and regardless of whether Landlord shall elect to terminate Tenant's right to possession, Landlord shall be entitled to recover from Tenant: the sum of (A)(I) if the Final Payment Date (as defined below) is a Rent Payment Date, all accrued and unpaid Basic Rent payable in arrears and due and unpaid as of the Final Payment Date or (II) if the Final Payment Date is not a Rent Payment Date, the arrears Basic Rent accrued as of such Final Payment Date (it being understood, in the case of clauses (I) and (II) above, that Tenant shall pay when due any Basic Rent in arrears due on a Rent Payment Date which occurs on or after the Event of Default but prior to the Final Payment Date), plus (B) all Additional Rent due and payable, plus (C) all other amounts due on Landlord's Debt as of the Final Payment Date which shall not be covered by payments made pursuant to clauses (A) or (B) above, plus the amount pursuant to Article 21(d) hereof. (d) Unless Landlord shall have sold the Demised Premises pursuant to clause (b) above, Landlord may, whether or not Landlord shall have exercised or shall thereafter at any time exercise its rights under clause (a), (c) or (e) of this Article 21(d), by written notice to Tenant specifying a date ("Final Payment Date") not earlier than ten (10) days after the date of such notice, demand that Tenant pay to Landlord, and Tenant shall pay to Landlord, on the Final Payment Date, (A) as liquidated damages for loss of a bargain and not as a penalty (the parties agreeing that Landlord's actual damages would be difficult to predict and the liquidated damages amounts below represent a reasonable approximation of such amount) (in lieu of Rent due after the Final Payment Date) and (B) in the case of a payment pursuant to Article 21(d)(iv), as consideration for the obligation to transfer the Demised Premises to Tenant and to surrender the Estate for Years interest, any unpaid Rent due as of the Final Payment Date, plus whichever one of the following amounts Landlord, in its sole discretion, shall specify in such notice (together with interest on such amount at the Default Rate from the Final Payment Date specified in such notice to the date of actual payment): (i) an amount equal to the excess, if any, of the Termination Value for the Demised Premises computed as of the Final Payment Date, over the fair market sales value 40 45 of the Demised Premises as of the Final Payment Date (such fair market sales value to be determined by mutual agreement of Landlord and Tenant or, if they cannot agree within ten (10) days after such notice, by an appraisal); or (ii) an amount equal to the excess, if any, of the Termination Value for the Demised Premises computed as of the Final Payment Date over the present value of the fair market rental value for the Demised Premises for the balance of the Lease Term discounted semiannually at a _____ percent (__%) annual interest rate (such fair market rental value to be determined by mutual agreement of Landlord and Tenant or, if they cannot agree within ten (10) days of such notice, by an appraisal); or (iii) an amount equal to the excess of (A) the present value as of the Final Payment Date of all installments of Basic Rent through the end of the Base Term or the then applicable renewal term, discounted semiannually at a _____ percent (__%) annual interest rate over (B) the present value as of such Final Payment Date of the fair market rental value of the Demised Premises (such fair market rental value to be determined by mutual agreement of Landlord and Tenant or, if they cannot agree within ten (10) days of such notice, by an appraisal) through the end of the Base Term or the then applicable renewal term, discounted semiannually at a ______ percent (__%) annual interest rate; or (iv) an amount equal to the greater of (A) Termination Value determined as of the Final Payment Date, (B) the discounted Basic Rent computed as of the Final Payment Date as set forth in clause (iii) of this Article and (C) the fair market sales value computed as of the Final Payment Date as set forth in clause (d)(i) of this Article. Upon payment of the amounts set forth in Article 21(c) hereof and Article 21(d)(iv), and any other amounts payable by Tenant under the Operative Documents, Landlord shall convey to Tenant all of Landlord's right, title and interest in and to the Demised Premises, without recourse or warranty, subject to all matters of record other than Lessor Liens. 41 46 (e) If Landlord shall have sold the Demised Premises or any part thereof pursuant to clause (b) of this Article 21, Landlord, if it shall so elect by notice to Tenant, may demand that Tenant pay to Landlord, and Tenant shall pay to Landlord, on the date of such sale, as liquidated damages for loss of bargain and not as a penalty (in lieu of Basic Rent due for periods commencing after the next Rent Payment Date following the date of such sale), any unpaid Rent due as of the next Rent Payment Date following the date of such sale, plus the amount of any deficiency between the Sale Proceeds (as defined below) and Termination Value, computed as of such Rent Payment Date, together with interest at the Default Rate, on the amount of such Rent and such deficiency from the date of such sale until the date of actual payment. "Sale Proceeds" shall mean, with respect to any sale of any Demised Premises or any part thereof by Landlord, the gross proceeds of such sale paid in cash, less all reasonable costs and expenses incurred by Landlord, the Indenture Trustee, the Remainder Purchaser and/or the Owner Participant in connection therewith. (f) In the event that Landlord rescinds or terminates this Lease, (i) no reletting, reentry or taking of possession of the Demised Premises by Landlord will be construed as an election on Landlord's part to terminate this Lease unless a written notice of such intention is given to Tenant, (ii) notwithstanding any reletting, reentry, or taking of possession, Landlord may at any time thereafter elect to terminate this Lease for a continuing Event of Default and (iii) no act or thing done by Landlord or any of its agents, representatives or employees shall be deemed an acceptance of a surrender of the Demised Premises, and no agreement accepting a surrender of the Demised Premises shall be valid unless the same be made in writing and be executed by Landlord. (g) Landlord may, as a matter of right and without notice to Tenant or anyone claiming under Tenant, apply to any court having jurisdiction to appoint a receiver or receivers of the Demised Premises, and Tenant hereby irrevocably consents to such appointment and waives notice of any application therefor. Any such receiver or receivers shall have all the usual powers and duties of receivers in like or similar cases, including, without limitation, the right to collect rents, and the rights to perform any acts which it deems necessary or desirable to preserve the value, marketability or rentability of the Demised Premises, or part thereof or interest therein. (h) Landlord may (A) demand that Tenant, at Tenant's expense, return possession of the Demised Premises promptly to Landlord in the manner and condition required by, and otherwise in accordance with provisions of, Article 27, and (B) without prejudice to any other remedy Landlord may have for possession (to the exclusion of Tenant) of the Demised Premises and expel or remove Tenant and any other Person who may be occupying the Demised Premises or any part thereof, all without liability to Landlord, 42 47 except for Landlord's gross negligence or willful misconduct, for or by reason of such entry or taking of possession, whether for the restoration of damage to property caused by such taking or otherwise. 22. Intentionally deleted. 23. Covenant of Quiet Enjoyment. Landlord covenants that it and any person rightfully claiming by, through or under Landlord, shall not interfere with Tenant's quiet enjoyment and use of the Demised Premises and all rights, easements, appurtenances and privileges belonging or in any way appertaining thereto during the Lease Term, provided that no Event of Default shall have occurred and be continuing. 24. Landlord Exculpation. Anything to the contrary in this Lease notwithstanding, the covenants contained in this Lease to be performed by Landlord shall not be binding personally, but instead said covenants are made for the purpose of binding only all of Landlord's right, title and interest in and to the Demised Premises and the Option Agreement (as defined in the Purchase Agreement) with respect to the Land and Landlord shall have no liability under this Lease in excess of, and Tenant shall have no recourse against Landlord except with respect to, Landlord's interest in the Demised Premises and the Option Agreement. 25. Remedies Cumulative. To the extent permitted by, and subject to the mandatory requirements of, applicable Laws, each and every right, power and remedy herein specifically given to Landlord or otherwise in this Lease shall be cumulative and shall be in addition to every other right, power and remedy herein specifically given or now or hereafter existing at law, in equity or by statute, and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time and as often and in such order as may be deemed expedient by Landlord. No delay or omission by Landlord in the exercise of any right, power or remedy or in the pursuit of any remedy shall impair any such right, power or remedy or be construed to be a waiver of any default on the part of Tenant or to be an acquiescence therein. Landlord's consent to any request made by Tenant shall not be deemed to constitute or preclude the necessity for obtaining Landlord's consent, in the future, to all similar requests. No waiver by Landlord of any default shall in any way be, or be construed to be, a waiver of any future or subsequent default. 26. Estoppel Letters. 43 48 Tenant will execute, acknowledge and deliver to Landlord, within fifteen (15) days of a good faith request by Landlord and Landlord will execute, acknowledge and deliver to Tenant, within fifteen (15) days of a good faith request by Tenant a certificate in the form attached hereto as Exhibit E and incorporated by reference herein executed by an authorized officer of Tenant or Landlord, certifying (a) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the modifications); (b) that Tenant has accepted possession of the Demised Premises and the date on which the Lease Term commenced and will expire; (c) as to the amount of any prepaid Rent or any credit due to Tenant hereunder; and (d) as to whether, to the best of such party's knowledge, information and belief, the requesting party is then in default in performing any of its obligations hereunder (and, if so, specifying the nature of each such default); and (e) as to any other fact or condition reasonably requested by the requesting party. 27. Condition of Premises at Termination. (a) Unless the Demised Premises have been purchased by Tenant pursuant to Articles 14, 15, 21, or 39, at the expiration or earlier termination of the Lease Term Tenant shall surrender the Demised Premises to Landlord or its designee, together with all alterations, additions and improvements then existing thereon, in good order and condition except for ordinary wear and tear consistent with the provisions of Articles 9 and 19 hereof and free and clear of all liens or encumbrances of any type whatsoever, except for Permitted Liens of the type specified in clauses (a), (b), (e) of the definition thereof (but only if such liens do not impair or restrict the use or sale of the Demised Premises and are satisfactory to Landlord, in its reasonable discretion) and (f) of the definition of "Permitted Liens" in Article 19 hereof, and such other liens or encumbrances for which Tenant has provided assurance of full payment or complete discharge and adequate assurance that such lien will not impair the fair market value of the Demised Premises to Landlord or its designee to Landlord's and such designee's satisfaction. All furniture and trade fixtures installed in said buildings at the expense of Tenant or other occupant shall remain the property of Tenant or such other occupant and shall be removed by Tenant at its expense prior to the expiration or earlier termination of the Lease; provided, however, Tenant shall, at any time and from time to time during the Lease Term, have the option to relinquish its property rights with respect to such trade fixtures, which option shall be exercised by notice of such relinquishment to Landlord, and from and after the exercise of said option the property specified in said notice shall be the property of Landlord. (b) With respect to environmental matters, not more than one hundred eighty (180) days nor less than sixty (60) days prior 44 49 to the expiration or upon the earlier termination of the Lease Term (except where Tenant is purchasing the Demised Premises hereunder) Tenant shall, at its sole cost and expense, provide to Landlord and Remainder Purchaser an environmental site assessment report performed by a reputable environmental consultant selected by Tenant and satisfactory to Landlord and Remainder Purchaser, in their reasonable discretion, which reveals no evidence that Hazardous Materials (as defined in Article 38) have been generated, produced, manufactured, processed, distributed, maintained, used, handled, treated, managed, stored, contained, recycled, transported, released, emitted, discharged, deposited or disposed of on, in, to or from the Demised Premises other than in compliance with applicable Environmental Laws. If such is not the case, the report shall set forth recommendations for such additional investigation or remedial or other response action relating to the Demised Premises as may be deemed necessary or advisable by the consultant. If any reporting requirements must be complied with under applicable Environmental Laws with respect to the Demised Premises, then it shall be the sole responsibility and cost of Tenant to comply with these requirements. In the event the report recommends any investigation or remedial or other response action, it shall be Tenant's obligation, at Tenant's sole cost and expense, to timely develop and implement in compliance with all relevant Environmental Laws such remedial action plan. If it is required by applicable Environmental Laws, such remedial action plan shall be submitted by Tenant to the appropriate governmental agency for review and approval. Any investigation, recommendations for remedial or other response, or remedial action plan shall include, but shall not be limited to, plans for full response, remediation, cleanup, removal, containment, restoration or other corrective action, and the protection, or mitigative action associated, as appropriate, with the protection of natural resources including wildlife, aquatic species, and vegetation associated with the Demised Premises, as required by applicable Environmental Laws. 28. Notices. Notices required under this Lease shall be in writing and shall be deemed to be properly served on receipt thereof if sent by certified or registered mail to Remainder Purchaser at the notice address set forth in the Purchase Agreement and to Landlord at the following address (include fax and telephone number): c/o Wilmington Trust Company Rodney Square North 1100 North Market Street Wilmington, DE 19890-0001 Telephone No. (302) 651-8681 Telecopy No. (302) 651-8882 Attn: Corporate Trust Administration 45 50 or to Tenant at the following address (include fax and telephone number): Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084 Attn: Vice President - Real Estate Telephone No. (810) 637-8950 Telecopy No. (810) 643-2689 with a copy to: Erik J. Stone, Esq. Dickinson, Wright, Moon, Van Dusen & Freeman 525 North Woodward Avenue Bloomfield Hills, Michigan 48304 Telephone No. (810) 433-7236 Telecopy No. (810) 433-7274 or to any subsequent address which Tenant or Landlord shall designate for such purpose in writing in accordance with this Article. Notices sent by overnight delivery or by hand delivery shall be deemed received upon delivery. Notices sent by facsimile machine shall be deemed received one (1) day after facsimile transmission provided that telephonic confirmation is received of the transmission. 29. Notice of Environmental Matters. Tenant shall provide Landlord and Remainder Purchaser with prompt written notice of any pending Environmental Claim in connection with the Demised Premises. Tenant also shall provide Landlord and Remainder Purchaser with prompt written notice of any threatened Environmental Claim in connection with the Demised Premises made by a reputable environmental group. All such notices shall describe in detail the nature of the Environmental Claim and Tenant's response thereto. In addition, Tenant shall promptly provide to Landlord and Remainder Purchaser copies of all written communications with any governmental authority relating to any Environmental Law in connection with the Demised Premises. Tenant shall promptly provide such reasonably detailed reports of any such Environmental Claims as may be reasonably requested by Landlord or Remainder Purchaser. Tenant shall provide Landlord with prompt written notification of any known (i) violation or non-compliance with any applicable Environmental Law with respect to the Demised Premises, and (ii) release of Hazardous Materials on, in, at or from the Demised Premises which is required to be reported to any governmental agency pursuant to applicable Environmental Laws. Tenant shall also promptly provide Landlord and Remainder Purchaser with copies of all correspondence, reports and other documentation 46 51 relating to such violation or release and Tenant's remedial or response action. 30. Entry by Landlord. From time to time during the term of this Lease, Landlord and Remainder Purchaser shall have the right during normal business hours after twenty-four (24) hours' notice to Tenant or without notice in the event of emergency or if an Event of Default shall have occurred and is continuing to enter the Demised Premises for the purpose of: (i) inspecting the condition of the Demised Premises, (ii) showing the Demised Premises to prospective purchasers or mortgagees, (iii) inspecting for compliance with such matters as Tenant is obligated for (including compliance with Environmental Laws), (iv) advertising the Demised Premises for rent or sale during the final year of the Base Term or any renewal term or in accordance with Article 21. Landlord acknowledges and agrees that Landlord will not interfere with the conduct of Tenant's business to the extent reasonably practicable in re-entering the Demised Premises for the purposes set forth herein, provided, if an Event of Default has occurred and is continuing, Landlord shall be entitled to exercise the remedies upon default herein provided for. 31. Captions and Definitions. Captions of Articles of this Lease are solely for convenience of reference and shall not in any way limit or amplify the terms and provisions thereof. The necessary grammatical changes which shall be required to make the provision of this Lease apply (a) in the plural sense if there shall be more than one Landlord, and (b) to any landlord which shall be either a corporation, an association, a partnership, or an individual, male or female, shall in all instances be assumed as though in each case fully expressed. 32. Successors and Assigns. The conditions, covenants and agreements contained in this Lease shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, executors, administrators, successors and assigns. All covenants and agreements of this Lease shall run with the Land. 33. Severability. If any one or more of the provisions contained herein shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality, unenforceability shall not affect any other provision of this Lease, but this Lease shall be construed as if such invalid, illegal or unenforceable provision had not been contained herein. 47 52 34. Independent Covenants. The covenants of Landlord and Tenant herein are independent and several covenants and the performance of any covenant is not conditioned upon the performance or compliance with any other covenant of this Lease. 35. Choice of Law. This Lease shall be construed and enforced in accordance with the laws of the state where the Demised Premises are located without regard to provisions governing conflict of laws. The language in all parts of this Lease shall in all cases be construed as a whole according to its fair meaning and not strictly for or against either Landlord or Tenant. 36. Waiver and Modifications. The failure of either party to insist in any one or more instances upon the strict performance of any one or more of the agreements, terms, covenants, conditions or obligations of this Lease, or to exercise any rights, remedy or election herein contained, shall not be construed as a waiver or relinquishment for the future of the performance of such agreements, terms, covenants, conditions or obligations of this Lease or of the right to exercise such right, remedy or election, but the same shall continue and remain in full force and effect with respect to any subsequent breach, act or omission. This Lease may be changed or amended only by a writing signed by the party against whom enforcement thereof is sought. 37. Memorandum of Lease. The parties hereto have simultaneously with the execution and delivery of this Lease executed and delivered a memorandum of Lease in form and content mutually agreeable to Landlord and Tenant which Tenant shall at its sole expense cause to be recorded. 38. Hazardous Materials. For purposes of this Lease, Hazardous Materials are defined as (i) "hazardous substances," as defined by CERCLA, as amended from time to time and any regulations promulgated thereunder; (ii) "hazardous wastes," as defined by RCRA, as amended from time to time and any regulations promulgated thereunder; (iii) any pollutant or contaminant or hazardous, restricted, dangerous or toxic chemicals, materials, wastes or substances within the meaning of any Environmental Law; (iv) any chemical, material, substance, or waste, the presence, use, generation, treatment, release, emission, discharge, transport, storage, or disposal of which is now or hereafter prohibited, limited or regulated by any Environmental Law; (v) any substance, material, product, chemical, 48 53 derivative, compound, mixture, mineral, waste, gas, medical waste, contaminant or pollutant which would require investigation, response or remediation as a result of any public or private action brought pursuant to any Environmental Law; and (vi) any radioactive material, asbestos in any form or condition, petroleum or petroleum products, flammable explosives, urea formaldehyde foam insulation, polychlorinated biphenyls, and radon gas. Tenant agrees that it shall not cause or permit any Hazardous Material to exist on or be brought upon, generated, produced, manufactured, processed, distributed, maintained, handled, treated, managed, contained, recycled, transported, deposited, used, stored, released, disposed of, emitted or discharged from, at, on or to the Demised Premises during the term of this Lease except in compliance with applicable Environmental Laws. Tenant shall assume any and all costs and expenses incurred in connection with, and shall promptly and diligently undertake, any investigation of site conditions or any clean up, response, remedial, removal, containment, corrective action or restoration work required pursuant to any applicable Environmental Law or by any federal, state or local government or political subdivision thereto arising before or during the Lease Term because of Hazardous Material present in, on, under or at the soil, surface water, ground water, sediment, air or any other media associated with the Demised Premises. Without limiting the foregoing, if the presence of any Hazardous Material at the Demised Premises results in contamination of the Demised Premises, Tenant shall promptly take all actions at its sole expense as are necessary to return the Demised Premises to the condition existing prior to the introduction of any such Hazardous Material to the Demised Premises, provided, however, that in the event the Demised Premises are contaminated by a release from a source not upon the Demised Premises, Tenant shall not be obligated promptly to undertake any remedial action, unless otherwise required to do so pursuant to applicable Environmental Laws or by any governmental agency with jurisdiction. Without limiting Tenant's obligations hereunder, Tenant may seek environmental response costs from any third party not a party to this Lease or the Purchase Agreement (and not related to any party to this Lease or the Purchase Agreement), and Landlord shall cooperate, at Tenant's expense, to a reasonable extent in any such effort. 39. Economic Abandonment. (a) Notwithstanding anything contained in this Lease to the contrary, Landlord and Tenant acknowledge that it is possible that, during the Base Term of this Lease, due to changes in the conduct of Tenant's business or other factors, the Demised Premises may become obsolete or may no longer be economic for Tenant's use or surplus to the Tenant's needs. Therefore, on any Rent Payment 49 54 Date on and after the 5th anniversary of the commencement of the Lease Term and before the expiration of the Base Term upon determination by Tenant in good faith that the Demised Premises are obsolete or are no longer economic because of reasons as stated hereinabove or surplus to the Tenant needs, provided no Material Default or Event of Default has occurred and is continuing, Tenant may, by providing at least twelve (12) months and not more than eighteen (18) months notice to Landlord and Remainder Purchaser ("Notice of Termination"), terminate this Lease on the Rent Payment Date specified in such notice ("Termination Date"). Such notice (which for purposes of the Note Indenture will be a "Redemption Notice") may be revoked by Tenant on not more than one occasion during the Lease Term provided such revocation shall have been made not less than ninety (90) days prior to the Termination Date and provided further that Landlord shall not have accepted Tenant's request to terminate the Lease and to return the Demised Premises to Landlord by delivering written notice of acceptance to Tenant within one hundred (100) days after its receipt of Notice of Termination ("Landlord's Acceptance"). No purported Landlord's Acceptance shall be valid unless accompanied by the Indenture Trustee's written confirmation of receipt of deposited funds pursuant to Section 6.06 of the Indenture. Tenant's Notice of Termination shall be accompanied by a certificate, signed and sworn to by a duly authorized and acting Senior Financial Officer of Tenant, stating that Tenant has made the determination that the Demised Premises are obsolete or are no longer economic for Tenant's use or surplus to the Tenant's needs and reciting the reasons for such determination. (b) If Landlord's Acceptance has not been made, Tenant, as non-exclusive agent for Landlord, shall use its reasonable efforts at its own expense on behalf of Landlord to obtain cash bids for the purchase of all of Landlord's right, title and interest in the Demised Premises from persons other than Tenant or any of its affiliates. Landlord shall also have the right to obtain cash bids for the purchase thereof, either directly or through Landlord's agents. Tenant shall certify to Landlord in writing the amount and terms of each bid received by Tenant and the name and address of the person submitting a bid. (c) If Landlord's Acceptance has not been made, on the Termination Date Landlord shall (subject to Tenant's receipt in immediately available funds of the net sales price on such date for the benefit of Landlord and Tenant's payment of all additional payments specified in clauses (A), (B), (C), (D) and (E) below), without recourse or warranty, sell all of its right, title and interest in the Demised Premises to the bidder which shall have submitted the highest all cash bid prior to such date. On the Termination Date, the total sales price realized at such sale net of all expenses incurred by Landlord shall be paid to Tenant and Tenant shall pay to Landlord (or, in the case of Additional Rent, to Landlord or the person entitled thereto) the sum of (A) the 50 55 Termination Value of the Demised Premises determined as of the Termination Date, plus (B) the excess, if any, of the net sales price of the Demised Premises over such Termination Value, plus (C) all Basic Rent due and unpaid to and including the Termination Date (other than any portion of Basic Rent payable in advance on the Termination Date), plus (D) all Additional Rent owing by Tenant to and including the Termination Date, plus (E) an amount equal to the Make-Whole Premium, if any, on Landlord's Debt, and any additional amounts necessary to pay Landlord's Debt in full. (d) In the event Landlord's Acceptance has been made, on the Termination Date Tenant shall pay to Landlord solely the amounts set forth in clauses (C), (D) and (E) of the preceding paragraph. Upon receipt by Landlord of such amounts and upon compliance by Tenant with Article 27 hereof, this Lease shall terminate. Landlord shall use its best efforts to determine any non-compliance with Article 27 hereof and shall give notice of any such non-compliance within thirty (30) days after Landlord's Acceptance. Any such notice or any failure to give such notice shall not impair Landlord's right to give Tenant further notices of non-compliance with Article 27 until the Lease terminates in accordance with the immediately preceding paragraph. (e) If Landlord's Acceptance has not been made and a sale shall not have occurred as of the Termination Date, Landlord shall have the option of either (i) transferring the Demised Premises on the Termination Date without recourse or warranty to Tenant in which event Tenant shall pay to Landlord (or, in the case of Additional Rent, to Landlord or the person entitled thereto) the amounts set forth in clauses (C), (D) and (E) of paragraph (c) above together with the higher of the (x) then fair market sales value of the Demised Premises as agreed to by the parties or as determined by an appraisal reasonably satisfactory to Landlord and Tenant obtained at Landlord's sole cost and expense, to be performed in accordance with Article 45 hereof, or (y) Termination Value of the Demised Premises determined as of the Termination Date, or (ii) retaining the Demised Premises on the Termination Date, in which case Tenant shall pay to Landlord on such date solely the amounts set forth in clauses (C), (D) and (E) of paragraph (c) above, provided that Landlord may not exercise the option described in clause (ii) unless it shall have deposited funds with the Indenture Trustee pursuant to Section 6.06 of the Indenture. Upon receipt by Landlord of such amounts and upon compliance by Tenant with Article 27 hereof, this Lease shall terminate. In the event Landlord elects to transfer the Demised Premises to Tenant on the Termination Date, it shall transfer all of its right, title and interest in the Demised Premises in an "as is" condition without warranty, except that the Demised Premises shall be free and clear of Lessor Liens. 51 56 Notwithstanding the foregoing, if Tenant shall elect to exchange full recourse securities for the Notes pursuant to Section 19 of the Participation Agreement, the amount payable to Landlord pursuant to clause (e)(i) above shall be reduced by an amount equal to the unpaid principal balance of such Notes. (f) Landlord shall be under no duty to solicit bids, or to inquire into the efforts of Tenant to obtain bids or otherwise to take any action in connection with any sale hereunder other than to sell the Demised Premises to the highest independent third party bidder in accordance with the terms hereof. In the event that Tenant terminates this Lease under this Article 39, the Tenant covenants that it shall not use the Demised Premises for any purpose. 40. Tenant's Purchase Offer. (a) At any time that a Tenant's Purchase Offer shall have been made pursuant to Articles 14 or 15 of this Lease, Landlord shall notify Tenant within sixty (60) days of Tenant's Purchase Offer whether Landlord accepts or rejects such offer. Failure by Landlord to notify Tenant of Landlord's election within such sixty (60) day period shall be deemed acceptance of Tenant's Purchase Offer. No purported rejection of such offer shall be valid unless accompanied by the Indenture Trustee's confirmation of receipt of deposited funds pursuant to Section 6.06 of the Indenture. (b) In the event Landlord accepts Tenant's Purchase Offer and subject to the satisfaction of the conditions set forth in this Article 40, the Lease shall terminate on the next scheduled Rent Payment Date occurring not less than one-hundred (100) days from the date of Tenant's Purchase Offer ("Purchase Offer Termination Date"). On the Purchase Offer Termination Date, Tenant shall pay to Landlord (or in the case of Additional Rent to Landlord or the person entitled thereto) an amount equal to the sum of (A) the Termination Value of the Demised Premises determined as of the Purchase Offer Termination Date, (B) all Basic Rent due and unpaid to and including the Purchase Offer Termination Date (other than any portion of Basic Rent payable in advance on the Purchase Offer Termination Date), plus (C) all Additional Rent owing by Tenant to and including the Purchase Offer Termination Date (other than any portion payable in advance on the Purchase Offer Termination Date). In addition, any Basic Rent paid in advance and not yet accrued as of the Purchase Offer Termination Date shall be refunded to Tenant on such date. On the Purchase Offer Termination Date, and subject to the receipt by Landlord of the amounts specified in the preceding paragraph, Landlord shall convey all of its right, title and interest in and to the Demised Premises by limited warranty deed in 52 57 an "as is" condition without warranty, except that the Demised Premises shall be free and clear of Lessor Liens. Tenant shall pay, on an After-Tax Basis (as defined in the Participation Agreement), all costs and expenses incurred in connection with the sale of the Demised Premises to Tenant pursuant to Tenant's Purchase Offer, including, without limitation, real estate transfer taxes. In addition, in the event of a sale pursuant to Article 39 hereof, Tenant shall also pay an amount equal to the Make-Whole Premium, if any, as defined in the Note Indenture. (c) In the event Landlord rejects Tenant's Purchase Offer, on the Purchase Offer Termination Date Tenant shall pay to Landlord (or in the case of Additional Rent to Landlord or the person entitled thereto) an amount equal to the sum of clauses (B) and (C) of the second sentence of paragraph (b) above and the Lease shall thereupon terminate. Any Rent and other charges paid in advance and not yet accrued as of the Purchase Offer Termination Date shall be refunded to Tenant on such date. 41. Property Substitution. (a) Provided no Material Default or Event of Default has occurred and is continuing, at any time Tenant shall be entitled or required to acquire the Demised Premises pursuant to Articles 14, 15 or 39 hereunder, Tenant shall be entitled in lieu thereof to substitute a retail store (the "substituted property") for the Demised Premises provided that (i) the fair market value of the substitute property and the respective interests therein of Landlord and Remainder Purchaser as determined by appraisal procedures set forth in Article 45 hereof shall be not less than the fair market value of the Demised Premises and the respective interests therein of Landlord and Remainder Purchaser immediately prior to the event which gave rise to the substitution; (ii) the useful life of the substitute property as determined by appraisal procedures set forth in Article 45 hereof shall be not less than the useful life of the Demised Premises immediately prior to the event which gave rise to the substitution; (iii) the representations and warranties of Kmart made with respect to the Demised Premises shall be remade and true with respect to the substitute property on the effective date of substitution; and (iv) an environmental due diligence report, survey and title report, each in form and substance satisfactory to Landlord, Remainder Purchaser and Indenture Trustee, concerning the land and property to be substituted, shall have been provided in sufficient time for appropriate review by Landlord, Remainder Purchaser and Indenture Trustee prior to the effective date of such substitution. In the event a Phase I environmental due diligence report recommends further environmental analysis in connection with the substitute property, Tenant shall determine in its sole discretion whether to undertake such further analysis or to substitute another retail 53 58 store for the Demised Premises, pursuant to the terms of this paragraph. (b) On the substitution date, the substitute property will be subjected to the terms and conditions of this Lease and Landlord (and Remainder Purchaser) shall convey all of its right, title and interest in and to the Demised Premises to Tenant by deed in an "as is" condition, except that it shall be free and clear of Lessor Liens, upon delivery by Tenant to Landlord and Remainder Purchaser, as applicable, of all of the following: (i) those documents with respect to the substitute property which are set forth in Sections 7A (1), (2), (3), (4), (9), (10), (11) and (12) of the Purchase Agreement. (ii) an amendment to this Lease and any memorandum thereof duly executed and acknowledged in form and substance reasonably satisfactory to Landlord and Tenant to replace the description of the Land with the description of all land included in the substitute property for the then-remaining term of the Lease (including all options under Article 8 hereof) and make such other changes herein as may be reasonably necessary or appropriate under the circumstances; provided, however, that in no event shall the Basic Rent be reduced, deferred or abated, but shall be equal to the Basic Rent which would otherwise have been payable under this Lease on each subsequent Rent Payment Date; (iii) a copy of a final as-built ALTA survey of the substitute property, dated a recent date, reasonably satisfactory in form and substance to Landlord and Remainder Purchaser and meeting the survey requirements for the Demised Premises set forth in the Purchase Agreement; (iv) a supplement to the Note Indenture substituting the substitute property for these Demised Premises, in proper form for recording; (v) counterparts of ALTA owner's policies insuring the interests of Landlord and Remainder Purchaser and loan policy of title insurance (or such other form of loan policy as may be prescribed by statute in a particular state) covering the substitute property (or the valid, binding, unconditional commitment therefor), dated the substitution date, in form and substance reasonably satisfactory to Landlord, Remainder Purchaser and Indenture Trustee in the amount of (i) the outstanding principal balance of the related Mortgage Notes with respect to the loan policy and (ii) the 54 59 respective fair market sales value of the substitute property with respect to the owner's policies insuring the interests of Landlord and Remainder Purchaser, issued to them by a title insurance company reasonably satisfactory to Indenture Trustee, Landlord and Remainder Purchaser and; (vi) certificates of insurance, if any, required with respect to the substitute property pursuant to Articles 7 and 14 hereof; (vii) a copy of the appraisal required hereunder; (viii) a certificate of an officer of Kmart setting forth, with respect to the substituted property, the representations and warranties made by Kmart in Section 5A (other than 5A(8)) of the Purchase Agreement with respect to the Demised Premises; provided that, if such Demised Premises was a Developer Property (as defined in the Purchase Agreement) and substituted property is to be conveyed by Kmart, the representations and warranties to be contained in such certificate with respect to the substitute property shall be made without the knowledge qualifications made by Kmart with respect to such Demised Premises; provided, further that, if such Demised Premises was a Kmart Property (as defined in the Purchase Agreement) and the substituted property is to be conveyed by a third party at Kmart's direction, the representations and warranties to be contained in such certificate with respect to the substitute property may be made with the knowledge qualifications made by Kmart in the Purchase Agreement with respect to the Developer Properties; and (ix) an amendment to the Option Agreement, if applicable, and to the Tripartite Agreement substituting the substitute property for the Demised Premises; (x) evidence that Tenant has paid or will pay when invoiced, as applicable, any and all transfer taxes, recording fees, mortgage recording taxes, intangible taxes and similar charges with respect to the substitution, together with the reasonable costs and expenses (including reasonable attorneys' fees) incurred by Landlord, the Indenture Trustee and Remainder Purchaser in connection with the substitution; and (xi) such other certificates, documents, opinions of counsel, surveys, certified copies of duly adopted resolutions of the respective boards of directors of Landlord, Remainder Purchaser and Tenant authorizing the substitution of the substitute property and the documents 55 60 executed in connection therewith, and any other instruments as may be reasonably required by either of them. Notwithstanding the foregoing the Tenant shall not be permitted to exercise its substitution rights (i) unless the long-term senior debt securities of Kmart shall have been rated in one of the generic rating categories that signifies "investment grade" by the Approved Rating Agencies (as defined below), and (ii) if within sixty (60) days of receipt by Landlord of a written notice setting forth in reasonable detail all of the material terms and conditions of, together with all other material information and documentation relating to, the substitution and the substitute property, the Owner Participant shall have delivered to the Tenant an opinion of independent tax counsel selected by the Owner Participant and reasonably acceptable to the Tenant that there is a reasonable basis to believe that the substitution could result in material adverse tax consequences to the Landlord, the Owner Participant or with respect to the transactions contemplated by the Operative Documents which are not indemnified by the Tenant pursuant to the Operative Documents unless the Tenant shall agree either to restructure the substitution transaction in a form and manner which in the opinion of Owner Participant and its tax counsel would eliminate the risk of any material adverse tax consequences to Landlord, Owner Participant or with respect to the transactions contemplated by the Operative Documents or to indemnify the Landlord and the Owner Participant for such adverse tax consequences in a form and manner satisfactory to the Owner Participant. As used herein "Approved Rating Agencies" shall mean Standard & Poor's and Moody's; but if one of them is no longer in existence, "Approved Rating Agencies" shall mean the other one of them and one nationally recognized statistical rating organization that is providing a rating for the Pass Through Certificate; but if both Standard & Poor's and Moody's are no longer in existence, "Approved Rating Agencies" shall mean at least two nationally recognized statistical rating organizations which are providing a rating for the Pass Through Certificate. 42. Landlord's Right to Cure Tenant's Default. If Tenant shall be in default of any of its obligations (after applicable notice and cure periods) under this Lease, Landlord, without waiving or releasing any obligation or default, may (but shall be under no obligation to) at any time thereafter make such payment or perform such act for the account and at the expense of Tenant, and may enter upon the Demised Premises for such purpose and take all such action thereon as, in Landlord's opinion, may be necessary or appropriate therefor. No such entry shall be deemed an eviction of Tenant. All sums so paid by Landlord and all costs and expenses (including, without limitation, attorneys' fees and expenses) so incurred, together with a late charge thereon (to the extent permitted by law) at the Default Rate (or at the maximum 56 61 rate permitted by law, whichever is the lesser) from the date on which such sums or expenses are paid or incurred by Landlord, shall be paid by Tenant to Landlord on demand. 43. No Merger of Title. There shall be no merger of this Lease or of the leasehold estate created hereby by reason of the fact that the same person, firm, corporation or other entity may acquire, own or hold, directly or indirectly, (a) this Lease or the leasehold estate created hereby or any interest in this Lease or such leasehold estate and (b) the fee estate in the Demised Premises or any interest therein. 44. Ownership of the Leased Property. Tenant acknowledges that the Demised Premises are the property of Landlord and that Tenant has only the right to the possession and use of the Demised Premises upon the terms and conditions of this Lease. 45. Procedure for Appraisals. In each instance under this Lease where an appraisal shall be required (except with respect to an appraisal required by Article 22), such appraisal shall be conducted as follows: (a) The party desiring such appraisal shall give notice to that effect to the other party, specifying therein the name and address of the person designated to act as appraiser on its behalf. Within fifteen (15) days after the service of such notice, the other party shall give notice to the first party specifying the name and address of the person designated to act as appraiser on its behalf. If such party fails to notify the other party of the appointment of its appraiser within or by the time above specified, the designated appraiser shall be the sole appraiser and the determination of such appraiser shall be binding upon the parties. (b) The appraisers so chosen shall meet within ten (10) days after the second appraiser is appointed and if within thirty (30) days of such first meeting the two appraisers agree on the value which they have been appointed to determine, such agreed upon value shall be the appraised value for the purposes for which the appraisal was required. If within thirty (30) days after such first meeting the two appraisers shall be unable to agree upon such valuation within fifteen (15) days thereafter they shall appoint a third appraiser who shall be competent and impartial. Within thirty (30) days after the appointment of such third appraiser, the third appraiser shall deliver its appraisal. With respect to the three appraisals, the appraisal most different from the average of the other two shall be discarded and such average shall be binding on Landlord and Tenant; provided that if the highest appraisal and the 57 62 lowest appraisal are equidistant from the third appraisal, the third appraisal shall be binding on Landlord and Tenant. (c) In the event the two appraisers are unable to agree upon the appointment of a third appraiser within fifteen (15) days after their being unable to agree upon a valuation, such third appraiser shall be selected by the parties themselves if they can agree thereon within a further period of fifteen (15) days. If the parties do not so agree, then either party may apply to a court in the county where the Demised Premises is located for the appointment of such appraiser, and such party shall not raise any question as to the court's full power and jurisdiction to entertain the application and make the appointment. (d) Any appraiser appointed pursuant to this Article shall be an appraiser who is a member of the American Institute of Real Estate Appraisers (or a successor organization), and shall have been doing business as such for a period of at least ten (10) years before the date of his appointment. All appraisers chosen or appointed pursuant to this Article shall be sworn fairly and impartially to perform their duties as such appraiser. In the event of the failure, refusal or inability of any appraiser to act, his successor shall be appointed within ten (10) days by the party who originally appointed him or in the event such party shall fail so to appoint such successor, or in the case of the third appraiser, his successor shall be appointed as provided in paragraph (a) above. (e) Unless otherwise expressly provided herein, each party shall pay the fees and expenses of its respective appraiser and both shall share the fees and expenses of the third appraiser, if any. Each party shall be responsible for the fees and expenses of its own attorneys and other representatives. Photocopies of the reports of all appraisers shall be provided to all the parties. In rendering their decision, the appraisers shall have no power to modify or reform any of the provisions of this Lease. (f) In the event of an appraisal under Article 21, Landlord shall appoint an appraiser who meets the requirements of subparagraph (d) above. 46. Survival of Tenant's Obligations. No termination of this Lease shall relieve Tenant or Kmart of any of its liabilities and obligations hereunder arising, occurring or relating to the period occurring prior to such termination. In addition, the Tenant's obligations under Article 6 shall survive the termination of, and the payment in full by the Tenant of all of its other payment obligations under, the Lease. 58 63 47. Counterparts. This Lease may be executed by the parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all such counterparts shall together constitute one and the same instrument. 48. Liabilities of Landlord. Landlord is entering into this Lease solely in its capacity as owner trustee under the Trust Agreement and not in its individual capacity, and in no event whatsoever shall [Owner Trustee] (or any entity acting as successor trustee, co-trustee or separate trustee under the Trust Agreement) be liable in its individual capacity on, or for any loss in respect of, any of Landlord's statements, representations, warranties, agreements or obligations (except those explicitly entered into in its individual capacity) hereunder or under any of the other Operative Documents, or any other document executed by Landlord in connection herewith for any reason whatsoever, all as to which the parties agree to look solely to the Trust Estate (as defined in the Purchase Agreement). 49. Note Indenture. In order to secure the Notes, Landlord provides in the Note Indenture, among other things, for the assignment (to the extent provided therein) by Landlord to Indenture Trustee of its right, title and interest to this Lease. Tenant hereby: (1) consents to such assignment pursuant to the terms of the Note Indenture; (2) covenants to pay directly to Indenture Trustee (or, after receipt of notice from Indenture Trustee stating that the Note Indenture has been satisfied and discharged, to Landlord) Basic Rent and Additional Rent due to Landlord hereunder or under any other Operative Document which shall be required to be paid to Indenture Trustee pursuant to the Note Indenture or any other Operative Document; (3) agrees that the right of Indenture Trustee to such payments hereunder shall be absolute and unconditional and shall not be affected by any circumstances whatsoever; and (4) agrees that until release of the Note Indenture as to the Property, except with respect to Excepted Rights and Payments, (p) the Indenture Trustee shall have such right to enforce the provisions of this Lease as is provided in the Note Indenture; (q) Landlord 59 64 shall not, for any reason, seek to recover from the Indenture Trustee any moneys paid to the Indenture Trustee by virtue of the Note Indenture; (r) all sums payable to the Indenture Trustee pursuant to the Note Indenture shall be paid by bank wire transfer in such manner that on the date on which sums are due and payable, as of 12:00 noon (New York City time), or such earlier date or time as may be necessary to ensure timely payments on the Certificates, the Indenture Trustee shall be in actual receipt of immediately available funds; (s) Tenant shall deliver to the Indenture Trustee duplicate originals of all notices and other instruments which Tenant may deliver pursuant to this Lease (and no payment of such sums or delivery of such notices or other instruments by Tenant shall be of any force or effect unless, with respect to payments, paid in accordance with written directions from Indenture Trustee and, with respect to notices, delivered to Landlord and the Indenture Trustee as provided above); (t) Tenant shall not pay any Basic Rent or Additional Rent payable to Landlord more than ten (10) days prior to such payment's scheduled due date under this Lease; (u) while the Note Indenture remains in full force and effect, any notice, approval, estoppel, consent or other delivery purportedly delivered or given (or deemed delivered or given) by or on behalf of Landlord to Tenant pursuant to this Lease shall be of no force or effect unless in writing and executed also by the Indenture Trustee; (v) Tenant shall not enter into any agreement subordinating or (except as expressly permitted by the terms of this Lease as in effect on the date hereof) terminating this Lease without the prior written consent of the Indenture Trustee, and any such attempted subordination or termination without such consent shall be void, and, except as otherwise provided in Section [12.07] of the Note Indenture and except with respect to Excepted Rights and Payments, Tenant shall not enter into any amendment or modification of this Lease without the prior written consent of the Indenture Trustee, and any such attempted amendment or modification without such consent shall be void; (w) if this Lease shall be amended, it shall continue to be subject to the provisions of the Note Indenture without the necessity of any further act by Landlord, Tenant or the Indenture Trustee; (x) Tenant shall not take any action to terminate, rescind or avoid this Lease, notwithstanding, to the fullest extent permitted by law, the bankruptcy, insolvency, reorganization, composition, readjustment, liquidation, dissolution or other proceeding affecting Landlord or any assignee of Landlord and notwithstanding any action with respect to this Lease which may be taken by an assignee, trustee or receiver of Landlord or of any such assignee or by any court in any 60 65 such proceedings; (y) if Tenant shall purchase Landlord's interest in the Property pursuant to the terms of this Lease, Tenant shall accept an instrument conveying such interest which is executed and delivered by the Indenture Trustee, pursuant to its power of attorney by Landlord contained in Section 16.01 of the Note Indenture; and (z) in the event of a foreclosure under the Note Indenture by the Indenture Trustee, or conveyance in lieu thereof, Tenant shall attorn hereunder to the purchaser at foreclosure or recipient of a conveyance in lieu thereof, as applicable, and notwithstanding anything herein that may be construed to the contrary, if the Notes are deemed canceled, paid or otherwise satisfied (in whole or in part) by reason of such foreclosure or conveyance in lieu thereof, then provisions of this Lease relating to Tenant's obligations with respect to amounts payable to Landlord in excess of amounts payable under the Note Indenture shall continue unaffected and shall be construed for all purposes as if the Notes and the Note Indenture were still in full force and effect and that payments made hereunder by Tenant were applied to the reduction of the indebtedness evidenced by the Notes in the manner and at the times provided for in the Note Indenture. The Indenture Trustee is an express third party beneficiary of the agreements contained in this Article. Tenant, at Tenant's expense, shall cause the Note Indenture, a memorandum of this Lease and all necessary financing statements and continuation statements under the Uniform Commercial Code (including, without limitation, financing statements with respect to fixtures included within the building) to be recorded, registered and filed from time to time in such manner and in such places as may be required by law and shall take all such other actions as may be required in order to make effective, perfect and maintain perfection of the rights, liens and security interests intended to be created in connection with this Lease and the Note Indenture, in each case, promptly after the execution and delivery thereof. 61 66 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. WITNESSES: "LANDLORD" [OWNER TRUSTEE], a national banking association, not in its individual capacity, except as expressly stated herein, but solely as Owner Trustee aforesaid ____________________________ By:_________________________________ ____________________________ Its:_____________________________ "TENANT" KMART CORPORATION, a Michigan corporation ____________________________ By:_________________________________ M. L. Skiles ____________________________ Its: Senior Vice President 62 67 ACKNOWLEDGEMENTS STATE OF MICHIGAN ) ) SS COUNTY OF ________ ) The foregoing instrument was acknowledged before me this ____ day of _______________, 1994 by ______________________________, the _________________________ of ___________________________ a national banking association, not in its individual capacity, except as expressly stated herein, but solely as Owner Trustee under Trust Agreement aforesaid of even date herewith, on behalf of said association. ____________________________________ Notary Public, ______________ County State of Michigan My Commission Expires: STATE OF MICHIGAN ) ) SS COUNTY OF ________ ) The foregoing instrument was acknowledged before me this ____ day of ______________________, 1994 by M. L. Skiles, the Senior Vice President of KMART CORPORATION, a Michigan corporation, on behalf of the Corporation. ____________________________________ Notary Public, ______________ County State of Michigan My Commission Expires: 63 68 EXHIBIT A Legal Description [Exhibit A Intentionally Omitted] 64 69 EXHIBIT B Depiction of Site [Exhibit B Intentionally Omitted] 65 70 EXHIBIT C Rents and Rent Payment Dates [Exhibit C Intentionally Omitted] 66 71 EXHIBIT C-1 Landlord's Debt [Exhibit C-1 Intentionally Omitted] 67 72 EXHIBIT C-2 Rental Adjustment Certificate [Exhibit C-2 Intentionally Omitted] 68 73 EXHIBIT D Termination Value [Exhibit D Intentionally Omitted] 69 74 EXHIBIT E Form of Estoppel Letter [Exhibit E Intentionally Omitted] 70 EX-5.1 7 EXHIBIT 5.1 1 EXHIBIT 5.1 [DICKINSON LETTERHEAD] April 3, 1995 Board of Directors Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084 Ladies and Gentlemen: We have acted as special counsel to Kmart Corporation, a Michigan corporation (the "Company"), in connection with the proposed offer and sale by means of an underwritten public offering of up to $155,000,000 of pass through certificates (the "Pass Through Certificates") evidencing interests in two separate pass through trusts (the "Pass Through Trusts") formed pursuant to two separate pass through trust agreements (the "Pass Through Trust Agreements"), between The Bank of New York Trust Company of Florida, National Association, as Pass Through Trustee under Pass Through Trust Agreement 1995-K-1, and The Bank of New York Trust Company of California, as Pass Through Trustee under Pass Through Trust Agreement 1995-K-2 (hereinafter The Bank of New York Trust Company of Florida, National Association and The Bank of New York Trust Company of California are referred to individually as the "Pass Through Trustee" and collectively as the "Pass Through Trustees"), and the Company, as contemplated in the Company's Registration Statement on Form S-3 (Registration No. 33-56465) as filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. The trust property of each Pass Through Trust will consist of mortgage notes (the "Mortgage Notes") issued as non-recourse obligations of separate owner trusts (the "Owner Trusts") to finance the sale-leaseback transactions involving 16 of the Company's retail stores, each acquired by one of the Owner Trusts and leased by that Owner Trust to the Company. Each Mortgage Note will be issued under an indenture, mortgage and deed of trust, assignment of rents and security agreement (an "Indenture"), by and between the related Owner Trust and The Bank of New York and Todd N. Niemy, acting solely as indenture trustees. You have requested our opinion regarding the legality of the Pass Through Certificates. We have examined such statutes, regulations, agreements, documents and certificates of public officials and corporate officers as we deemed necessary for the purpose of this opinion. In rendering this opinion, we have assumed that each of the Company and the Pass Through Trustee will have duly authorized, executed and delivered the respective Pass Through Trust Agreement, that at the time of such authorization, execution and delivery, each of the Company and such Pass Through Trustee will have had the full power, authority and legal right to have done so, and that the Underwriting Agreement to be entered into by the Company and Goldman, Sachs & Co. relating to the Pass Through Certificates (the "Underwriting Agreement") will have been duly authorized, executed and delivered. With respect to matters which are governed by the laws of the State of New York, we have relied upon the opinion of even date herewith of Sullivan & Cromwell. Based on the foregoing and upon such legal considerations as we deem relevant, we are of the opinion that (i) each Pass Through Trust Agreement, when duly executed and delivered, will 2 Board of Directors April 3, 1995 Page Two constitute the valid and binding agreement of the Company and the respective Pass Through Trustee, and (ii) each of the Pass Through Certificates, when duly executed, issued, delivered and authenticated in accordance with the terms of the Pass Through Trust Agreement under which it is issued and sold in accordance with the terms set forth in the Underwriting Agreement, will be the valid and binding obligation of the respective Pass Through Trustee, and the holder thereof will be entitled to the benefits provided by the Pass Through Trust Agreement under which such Pass Through Certificate is issued. We are members of the Michigan Bar and, for purposes of this opinion, do not hold ourselves out as experts on, nor are we, in rendering our opinion herein, passing on any matter of the laws of any jurisdiction other than the federal laws of the United States and the laws of the State of Michigan. The undersigned consents to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Validity of the Certificates". Very truly yours, [SIG.] DICKINSON, WRIGHT, MOON, VAN DUSEN & FREEMAN EX-8.1 8 EXHIBIT 8.1 1 EXHIBIT 8.1 [LETTERHEAD] April 3, 1995 Board of Directors Kmart Corporation 3100 Big Beaver Road Troy, Michigan 48084 Ladies and Gentlemen: We have acted as special counsel to Kmart Corporation, a Michigan corporation (the "Company"), with respect to certain tax matters in connection with the proposed offer and sale by means of an underwritten public offering of up to $155,000,000 of pass through certificates (the "Pass Through Certificates") as contemplated in the Company's Registration Statement on Form S-3 (Registration No. 33-56465) as filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended. You have requested our opinion regarding certain tax matters relating to the sale of the Pass Through Certificates as described in the Registration Statement. We are of the opinion that the discussion in the Prospectus constituting part of the Registration Statement under the caption "Certain Federal Income Tax Consequences," insofar as it relates to statements of law or legal conclusions, is correct in all material respects. We consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under "Certain Federal Income Tax Consequences" in the Prospectus constituting part of the Registration Statement. Very truly yours, [SIG] DICKINSON, WRIGHT, MOON, VAN DUSEN & FREEMAN EX-8.2 9 EXHIBIT 8.2 1 EXHIBIT 8.2 [SQUIRE, SANDERS & DEMPSEY LETTERHEAD] April 3, 1995 Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084 Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Morgan Stanley & Co. Incorporated 1221 Avenue of the Americas New York, New York 10020 Re: Kmart Corporation Pass Through Trusts Pass Through Certificates 1995-K-1 Ladies and Gentlemen: We have acted as Florida counsel to The Bank of New York Trust Company of Florida, National Association, a national banking association, as trustee (the "1995-K-1 Pass Through Trustee"), in connection with its execution and delivery of a Pass Through Trust Agreement 1995-K-1 (the "1995-K-1 Pass Through Agreement") between the 1995-K-1 Pass Through Trustee and Kmart Corporation (the "Company"), pursuant to which the Kmart Corporation Pass Through Trusts Pass Through Certificates 1995-K-1 (the "1995-K-1 Pass Through Certificates") will be issued and sold. Capitalized terms used herein and not otherwise defined shall have the same meanings set forth in the 1995-K-1 Pass Through Agreement. We have examined the 1995-K-1 Pass Through Agreement and such other documents, records and matters of law as we have deemed necessary for purposes of this opinion, and based thereupon, but subject to the qualifications and assumptions expressed herein, we are of the opinion that, (a) assuming that the pass through trust created pursuant to the 1995-K-1 Pass Through Agreement (the "1995-K-1 Pass Through Trust") will not be taxable as a corporation, but, rather, will be treated as an investment trust and will be classified as a grantor trust under subpart E, Part I of Subchapter J of the Internal Revenue Code of 1986, as amended, there are no fees, taxes or other charges payable (except taxes imposed on fees payable to the 1995-K-1 2 [SQUIRE, SANDERS & DEMPSEY LETTERHEAD] Kmart Corporation Goldman, Sachs & Co. and Morgan Stanley & Co. Inc. April 3, 1995 Page 2 Pass Through Trustee and occupational license taxes imposed on the 1995-K-1 Pass Through Trustee for conducting its trust business in the City of Jacksonville) to the State of Florida or the consolidated City of Jacksonville/Duval County in connection with the execution, delivery and performance of the 1995-K-1 Pass Through Agreement or the purchase, holding or sale of the 1995-K-1 Pass Through Certificates which would not have been imposed if the 1995-K-1 Pass Through Trustee had not had its principal place of business in or performed its duties under the 1995-K-1 Pass Through Agreement in the City of Jacksonville, Florida, and (b) none of the 1995-K-1 Pass Through Trustee, the 1995-K-1 Pass Through Trust or the holders of 1995-K-1 Pass Through Certificates will be subject to any fee, tax or other charge under the laws of the State of Florida or the consolidated City of Jacksonville/Duval County on, based on or measured by, directly or indirectly, any payments on the 1995-K-1 Pass Through Certificates or the gross receipts, net or gross income, tangible or intangible property, net worth or capital of the 1995-K-1 Pass Through Trust which would not have been imposed if the 1995-K-1 Pass Through Trustee had not had its principal place of business in or performed its duties under the 1995-K-1 Pass Through Agreement in the City of Jacksonville, Florida. The foregoing opinions are subject to the following assumptions and qualifications: A. The opinions expressed herein are limited to the present laws of the State of Florida and the consolidated City of Jacksonville/Duval County and judicial and administrative interpretations thereunder. Such authorities are subject to change, which may be prospective or retroactive. We can provide no assurance as to the effect of any such change on the conclusions reached in our opinion. Further, we express no opinion with respect to the laws of any other jurisdiction or the effect thereof on the opinions expressed herein. In addition, we express no opinion as to whether any particular Certificateholder may be subject to any fee, tax or other charge under the laws of the State of Florida, the City of Jacksonville or the County of Duval because of such holder's individual circumstances. Certificateholders should consult their own tax advisors in determining the tax consequences to them of the purchase, ownership and disposition of Certificates. B. Our opinion is based on the assumption that the description of the facts relating to 1995-K-1 Pass Through Certificates set forth in the Registration Statement referenced in the final paragraph of this opinion letter is accurate and complete, that the 1995-K-1 Pass Through Agreement will be duly executed and delivered by each of the parties thereto in the form of such agreement we have reviewed and that the 1995-K-1 Pass Through Trust will be operated in a manner consistent with the 1995-K-1 Pass Through Agreement and related documents we have reviewed. A change in such facts, terms of the 1995-K-1 Pass Through Agreement or method of operation could adversely affect our opinion. 3 [SQUIRE, SANDERS & DEMPSEY LETTERHEAD] Kmart Corporation Goldman, Sachs & Co. and Morgan Stanley & Co. Inc. April 3, 1995 Page 3 C. No opinion is expressed herein on the accuracy, completeness or sufficiency of the Prospectus and the Registration Statement referenced in the final paragraph of this opinion letter or other offering material relating to the 1995-K-1 Pass Through Certificates. D. The opinions expressed herein are provided solely for your benefit, with the understanding that we are not hereby assuming any professional responsibility to any other person or entity whatsoever. Without our prior written consent, the opinions expressed herein may not be quoted in whole or in part or otherwise referred to in any legal opinion, document or other report, except as provided in the following paragraph, and may not be relied upon by any other person or entity whatsoever. We hereby consent to the filing of this opinion as Exhibit 8.2 to Registration Statement No. 33-56465 on Form S-3 filed by the Company to effect registration of the 1995-K-1 Pass Through Certificates under the Securities Act of 1993, as amended, and to the reference to us under the caption "Certain Taxes" in the Prospectus constituting a part of such Registration Statement. Very truly yours, SQUIRE, SANDERS & DEMPSEY /s/ SQUIRE, SANDERS & DEMPSEY EX-8.3 10 EXHIBIT 8.3 1 EXHIBIT 8.3 [JONES, DAY, REAVIS & POGUE LETTERHEAD] April 3, 1995 Kmart Corporation 3100 West Big Beaver Road Troy, Michigan 48084 Goldman, Sachs & Co. 85 Broad Street New York, New York 10004 Morgan Stanley & Co. Incorporated 1251 Avenue of the Americas New York, New York 10020 Re: Kmart Corporation Pass Through Trusts Pass Through Certificates 1995-K-2 Ladies and Gentlemen: We have acted as California counsel to The Bank of New York Trust Company of California, a California corporation, as trustee (the "1995-K-2 Pass Through Trustee"), in connection with its execution and delivery of that certain Pass Through Trust Agreement 1995-K-2 (the "1995-K-2 Pass Through Agreement") between the 1995-K-2 Pass Through Trustee and Kmart Corporation (the "Company"), pursuant to which the Kmart Corporation Pass Through Trusts Pass Through Certificates 1995-K-2 (the "1995-K-2 Pass Through Certificates) will be issued and sold. Capitalized terms used herein and not otherwise defined shall have the same meanings set forth in the 1995-K-2 Pass Through Agreement. We have examined the 1995-K-2 Pass Through Agreement and such other documents, records and matters of law as we have deemed necessary for purposes of this opinion, and based thereupon, but subject to the qualifications and assumptions expressed herein, we are of the opinion that, assuming that the pass through trust created pursuant to the 1995-K-2 Pass Through Agreement (the "1995-K-2 Pass Through Trust") will not be taxable as a corporation, but, rather, will be treated as an investment trust and will be classified as a grantor trust under subpart E, Part I of Subchapter J of the Internal Revenue Code of 1986, as 2 JONES, DAY, REAVIS & POGUE Kmart Corporation, Goldman, Sachs & Co. and Morgan Stanley & Co. Inc. April 3, 1995 Page 2 amended, (a) there are no fees, taxes or other charges payable (except taxes imposed on fees payable to the 1995-K-2 Pass Through Trustee and utility user taxes imposed on the 1995-K-2 Pass Through Trustee for conducting its trust business in the City of Los Angeles) to the State of California, the City of Los Angeles or the County of Los Angeles in connection with the execution, delivery and performance of the 1995-K-2 Pass Through Agreement or the purchase, holding or sale of the 1995-K-2 Pass Through Certificates which would not have been imposed if the 1995-K-2 Pass Through Trustee had not had its principal place of business in or performed its duties under the 1995-K-2 Pass Through Agreement in the City of Los Angeles, California, and (b) none of the 1995-K-2 Pass Through Trustee, the 1995-K-2 Pass Through Trust or the holders of 1995-K-2 Pass Through Certificates will be subject to any fee, tax or other charge under the laws of the State of California, the City of Los Angeles or the County of Los Angeles on, based on or measured by, directly or indirectly, any payments on the 1995-K-2 Pass Through Certificates or the gross receipts, net or gross income, tangible or intangible property, net worth or capital of the 1995-K-2 Pass Through Trust which would not have been imposed if the 1995-K-2 Pass Through Trustee had not had its principal place of business in or performed its duties under the 1995-K-2 Pass Through Agreement in the City of Los Angeles, California. The foregoing opinions are subject to the following assumptions and qualifications: A. The opinions expressed herein are limited to the present laws of the State of California, the City of Los Angeles and the County of Los Angeles and judicial and administrative interpretations thereunder. Such authorities are subject to change, which may be prospective or retroactive. We can provide no assurance as to the effect of any such change on the conclusions reached in our opinion. Further, we express no opinion with respect to the laws of any other jurisdiction or the effect thereof on the opinions expressed herein. In addition, we express no opinion as to whether any particular Certificateholder may be subject to any fee, tax or other charge under the laws of the State of California, the City of Los Angeles or the County of Los Angeles because of such holder's individual circumstances. Certificateholders should consult their own tax advisors in determining the tax consequences to them of the purchase, ownership and disposition of Certificates. 3 JONES, DAY, REAVIS & POGUE Kmart Corporation, Goldman, Sachs & Co. and Morgan Stanley & Co. Inc. April 3, 1995 Page 3 B. We note that judicial decisions and administrative rulings of the California Franchise Tax Board ("FTB") generally indicate that the characterization of a transaction for tax purposes depends upon the facts and circumstances of each case. No ruling has been requested from the FTB concerning the 1995-K-2 Pass Through Trust. Opinions of counsel are not binding on the FTB, and the FTB may assert positions contrary to those stated in our Opinion. C. Further, our opinion is based on the assumption that the description of the facts relating to 1995-K-2 Pass Through Certificates set forth in the Registration Statement referenced in the final paragraph of this opinion letter is accurate and complete, that the 1995-K-2 Pass Through Agreement will be duly executed and delivered by each of the parties thereto in the form of such agreement we have reviewed and that the 1995-K-2 Pass Through Trust will be operated in a manner consistent with the 1995-K-2 Pass Through Agreement and related documents we have reviewed. A change in such facts, terms of the 1995-K-2 Pass Through Agreement or method of operation could adversely affect our opinion. D. No opinion is expressed herein on the accuracy, completeness or sufficiency of the Prospectus and the Registration Statement referenced in the final paragraph of this opinion letter or other offering material relating to the 1995-K-2 Pass Through Certificates. E. The opinions expressed herein are provided solely for your benefit, with the understanding that we are not hereby assuming any professional responsibility to any other person or entity whatsoever. Without our prior written consent, the opinions expressed herein may not be quoted in whole or in part or otherwise referred to in any legal opinion, document or other report, except as provided in the following paragraph, and may not be relied upon by any other person or entity whatsoever. We hereby consent to the filing of this opinion as Exhibit 8.3 to Registration Statement No. 33-56465 on Form S-3 filed by the Company to effect registration of the 1995-K-2 Pass Through Certificates under the Securities Act of 1933, as 4 JONES, DAY, REAVIS & POGUE Kmart Corporation, Goldman, Sachs & Co. and Morgan Stanley & Co. Inc. April 3, 1995 Page 4 amended, and to the reference to us under the caption "Certain Taxes" in the Prospectus constituting a part of such Registration Statement. Very truly yours, /s/ JONES, DAY, REAVIS & POGUE Jones, Day, Reavis & Pogue EX-12 11 EXHIBIT 12 1 KMART CORPORATION AND SUBSIDIARY COMPANIES EXHIBIT 12 - INFORMATION ON RATIO OF EARNINGS TO FIXED CHARGES COMPUTATION Restated to exclude discontinued operations
Fiscal Year Ended Trailing 52 Weeks Ended ----------------------------------------- -------------------------- January 29, January 27, January 26, October 26, October 27, (Millions) 1992 1993 1994 1994 1993 ----------- ------------ ----------- --------- --------- Pre-tax income from continuing operations (1) $1,189 $1,327 $(550) $ (759) $1,197 Equity income of unconsolidated affiliated retail companies that exceeds distributions (26) (12) (20) (39) (19) Fixed charges per below 582 664 763 776 722 Less interest capitalized during the period (10) (14) (11) (11) (14) ------ ------ ----- ------ ------ Earnings from continuing operations 1,735 1,965 182 (33) 1,886 ====== ====== ===== ====== ====== Fixed Charges: Interest expense 398 442 490 504 500 Rent expense - portion of operating rentals representative of the interest factor 172 206 260 260 206 Other 12 16 13 12 16 ------ ------ ----- ------ ------ 582 664 763 776 722 ====== ====== ===== ====== ====== Ratio of earnings to fixed charges (2) 3.0 3.0 N/A N/A $ 2.61 ====== ====== ===== ====== ======
(1) Pre-tax income from continuing operations for 1993 includes a pre-tax provision of $1,348 million for store restructuring and other charges. (2) The deficiency of income from continuing retail operations versus fixed charges was $581 million for the fiscal year ended January 26, 1994 and $809 million for the 52 weeks ended October 26, 1994. EX-23.1 12 EXHIBIT 23.1 1 EXHIBIT 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of Amendment No. 1 to this Registration Statement on Form S-3 of our report dated March 15, 1994, which appears on Annex V page V-21 of Kmart Corporation's definitive Proxy Statement dated April 28, 1994, which is incorporated by reference in Kmart Corporation's Annual Report on Form 10-K for the year ended January 26, 1994. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 11 of such Annual Report on Form 10-K. We also consent to the reference to us under the heading "Experts" in such Prospectus. [SIG] Price Waterhouse LLP Detroit, Michigan 48243 March 31, 1995 EX-25.1 13 EXHIBIT 25.1 1 EXHIBIT 25.1 ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b) [_] THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, NATIONAL ASSOCIATION (Exact name of trustee as specified in its charter) 59-2283428 (Jurisdiction of incorporation (I.R.S. employer or organization if not identification number) a U.S. national bank) 701 Brickell Avenue Miami, Florida 33131 (Address of principal executive offices) (Zip code) Jacqueline R. McSwiggan Office of the Secretary, The Bank of New York 48 Wall Street, New York, NY 10286 (212) 495-1727 (Name, address and telephone number of agent for service) ____________________________________ KMART CORPORATION (Exact name of obligor as specified in its charter) Michigan 38-0729500 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 3100 West Big Beaver Road Troy, Michigan 48084 (Address of principal executive offices) (Zip code) ____________________________________ Pass Through Certificates (Title of indenture securities) ============================================================================== 2 1. GENERAL INFORMATION. (a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Name Address ---- ------- Comptroller of the Currency Washington, D.C. 20219 Federal Reserve Bank of Atlanta Atlanta, GA 30303 Board of Governors of the Washington, D.C. 20551 Federal Reserve System (b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. None. (See Note on page 2) 16. LIST OF EXHIBITS. 1. Amended and Restated Articles of Association of the Trustee. 2.1 Copy of Certificate of the Comptroller of the Currency, dated June 20, 1983, authorizing the Trustee to commence the business of banking as a National Banking Association. 2.2 Copy of letter from the Comptroller of the Currency, dated November 6, 1989, certifying the merger of Irving Trust Company Florida with and into the Trustee under the charter of the Trustee and authorizing the relocation of the Trustee's head office. 3. Copy of Certificate of the Comptroller of the Currency, dated June 20, 1983, authorizing the Trustee to act in all fiduciary capacities permitted by the statutes of the United States. 4. Copy of By-Laws of the Trustee. 6. Consent of the Trustee required by Section 321(b) of the Act. 7. Copy of latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 3 NOTE Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of all facts on which to base a responsive answer to Item 2, the answer to said Item is based on incomplete information. Item 2 may, however, be considered as correct unless amended by an amendment to this Form T-1. 2 4 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York Trust Company of Florida, National Association, a national association organized and existing under the laws of the United States of America, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Jacksonville, and State of Florida, on the 13th day of March, 1995. THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, NATIONAL ASSOCIATION By: /s/Martin P. Henry ---------------------- Name: Martin P. Henry Title: Vice President 3 5 EXHIBIT 1 AMENDED AND RESTATED ARTICLES OF ASSOCIATION OF THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, NATIONAL ASSOCIATION For the purpose of organizing an association to carry on the business of banking of a national association, the undersigned do enter the following Amended and Restated Articles of Association: FIRST. The title of this association shall be The Bank of New York Trust Company of Florida, National Association (the "Association"). SECOND. The main office of the Association shall be in the City of Miami, County of Dade, State of Florida. The general business of the Association shall be conducted at its main office and its branches. THIRD. The Board of Directors of the Association shall consist of not less than five nor more than twenty-five persons, the exact number to be fixed and determined from time to time by resolution of a majority of the full Board of Directors or by resolution of the shareholders at any annual or special meeting thereof. Each director, during the full term of his directorship, shall own a minimum of $1,000 par value of the capital stock of the Association, or an equivalent interest, as determined by the Comptroller of the Currency, in any Company which controls the Association within the meaning of the applicable laws of the United States. Any vacancy in the Board of Directors may be filled by action of the Board of Directors. FOURTH. There shall be an annual meeting of the shareholders the purposes of which shall be the election of directors and the transaction of whatever other business may be brought before said meeting. It shall be held at the main office or other convenient place as the Board of Directors may designate, on the day of each year specified therefor in the By-laws, but if no election is held on such day, it may be held on any subsequent day according to such lawful rules as may be prescribed by the Board of Directors. Nominations for election to the Board of Directors may be made by the Board of Directors or by any shareholder of any outstanding class of capital stock of the Association entitled 6 - 2 - to vote for the election of directors. Nominations, other than those made by or on behalf of the existing management of the Association, shall be made in writing and shall be delivered or mailed to the President of the Association and to the Comptroller of the Currency, Washington, D.C., not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors; provided, however, that if less than 21 days' notice of the meeting is given to shareholders, such nomination shall be mailed or delivered to the President of the Association and to the Comptroller of the Currency not later than the close of business on the seventh day following the day on which the notice of meeting was mailed. Such notification shall contain the following information to the extent known to the notifying shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee, (c) the total number of shares of capital stock of the Association that will be voted for each proposed nominee; (d) the name and residence address of the notifying shareholder; and (e) the number of shares of capital stock of the Association owned by the notifying shareholder. Nominations not made in accordance herewith may, in his discretion, be disregarded by the chairman of the meeting, and upon the chairman's instructions, the vote tellers may disregard all votes cast for each such nominee. FIFTH. The authorized amount of capital stock of the Association shall be 15,000 shares of common stock of a par value of FIFTY DOLLARS ($50) each, but said capital stock may be increased or decreased from time to time, in accordance with the provisions of the laws of the United States. No holder of shares of any class of the capital stock of the Association shall have any pre-emptive or preferential right of subscription to any shares of any class of capital stock of the Association, whether now or hereafter authorized, or to any obligations convertible into stock of the Association, issued, or sold, nor any right of subscription to any thereof other than such, if any, as the Board of Directors in its discretion may from time to time determine and at such price as the Board of Directors may from time to time fix. The Association, at any time and from time to time, may authorize and issue debt obligations, whether or not subordinated, without the approval of the shareholders. SIXTH. The Board of Directors shall appoint one of its members President of the Association, who shall be Chairman of the Board, unless the Board appoints another director to be Chairman. The Board of Directors shall have the power to appoint one or more Vice Presidents; and to appoint a Secretary and such other officers and employees as may be required to transact the business of the Association. 7 - 3 - The Board of Directors shall have the power to define the duties of the officers and employees of the Association; to fix the salaries to be paid to them; to dismiss them; to require bonds from them and to fix the penalty thereof; to regulate the manner in which any increase of the capital of the Association shall be made; to manage and administer the business and affairs of the Association; to make all By-laws that it may be lawful for them to make; and in general to do and perform all acts that it may be legal for a Board of Directors to do and perform. SEVENTH. The Board of Directors shall have the power to change the location of the main office to any authorized branch location within the limits of Miami, Florida upon written notice to the Comptroller of the Currency, or with a vote of the shareholders owning two-thirds of the capital stock of the Association and upon receipt of a certificate of approval from the Comptroller of the Currency, to any other location within or outside the limits of Miami, Florida, but not more than 30 miles beyond such limits; and shall have the power to establish or change the location of any branch or branches of the Association to any other location, without the approval of the shareholders but subject to the approval of the Comptroller of the Currency. EIGHTH. The corporate existence of the Association shall continue until terminated in accordance with the laws of the United States. NINTH. The Board of Directors of the Association, or any three or more shareholders owning, in the aggregate, not less than 25 percent of the stock of the Association, may call a special meeting of shareholders at any time. Unless otherwise provided by the laws of the United States, a notice of the time, place, and purpose of every annual and special meeting of the shareholders shall be given by first-class mail, postage prepaid, mailed at least ten days prior to the date of such meeting to each shareholder of record at his address as shown upon the books of the Association. TENTH. Any person, his heirs, executors, or administrators, may be indemnified or reimbursed by the Association for reasonable expenses actually incurred in connection with any action, suit or proceeding, civil or criminal, to which he or they shall be made a party by reason of being or having been a director, officer, or employee of the Association or of any firm, corporation, or organization which he or they served in any such capacity at the request of the Association; provided, however that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit, or proceeding as to which he or they shall finally be adjudged to have been guilty of or liable for gross 8 - 4 - negligence, willful misconduct or criminal acts in the performance of his duties for the Association; and provided further, that no person shall be so indemnified or reimbursed in relation to any matter in such action, suit, or proceeding which has been made the subject of a compromise settlement except with the approval of a court of competent jurisdiction, or the holders of record of a majority of the outstanding shares of the Association, or the Board of Directors, acting by vote of directors not parties to the same or substantially the same action, suit, or proceeding constituting a majority of the whole number of directors. The foregoing right of indemnification or reimbursement shall not be exclusive of other rights to which such person, his heirs, executors, or administrators, may be entitled as a matter of law. The Association may, upon the affirmative vote of a majority of its Board of Directors, purchase insurance for the purpose of indemnifying its directors, officers and other employees to the extent that such indemnification is allowed in the preceding paragraph. Such insurance may, but need not, be for the benefit of all directors, officers, or employees. ELEVENTH. These Articles of Association may be amended at any regular or special meeting of the shareholders by the affirmative vote of the holders of a majority of the stock of the Association, unless the vote of the holders of a greater amount of stock is required by law, and in that case by the vote of the holders of such greater amount. IN WITNESS WHEREOF, we have signed this Amended and Restated Articles of Association this 18th day of January, 1985. THE BANK OF NEW YORK COMPANY, INC. By: /s/ Robert J. Goebert ---------------------- Robert J. Goebert Secretary 9 EXHIBIT 2.1 Comptroller of the Currency TREASURY DEPARTMENT OF THE UNITED STATES Washington, D.C. WHEREAS, satisfactory evidence has been presented to the Comptroller of the Currency that "THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, NATIONAL ASSOCIATION" located in MIAMI, State of FLORIDA, has complied with all provisions of the statutes of the United States required to be complied with before being authorized to commence the business of banking as a National Banking Association; NOW, THEREFORE, I hereby certify that the above-named association is authorized to commence the business of banking as a National Banking Association. IN TESTIMONY WHEREOF, witness my signature and seal of office this 20TH day of JUNE, 1983. /s/C. T. Conover Charter No. 17871. Comptroller of the Currency 10 EXHIBIT 2.2 COMPTROLLER OF THE CURRENCY ADMINISTRATOR OF NATIONAL BANKS Southeastern District Marquis One Tower, Suite 600 245 Peachtree Center Avenue, N.E. Atlanta, Georgia 30303 November 6, 1989 Ms. Margaret A. Murphy-Anderson Associate Counsel The Bank of New York One Wall Street New York, New York 10286 Re: 89-SE-02-024 - The Bank of New York Trust Company of Florida, National Association, Miami, Florida Dear Ms. Murphy-Anderson: This letter is the official certification of the Comptroller of the Currency for the merger of Irving Trust Company Florida, Miami, Florida (Certificate No. 26957) with and into The Bank of New York Trust Company of Florida, National Association, Miami, Florida (Charter No. 17871), and effective as of November 6, 1989 under the charter of The Bank of New York Trust Company of Florida, National Association, and under the title of "The Bank of New York Trust Company of Florida, National Association". This letter is also the official certification of the Comptroller of the Currency allowing The Bank of New York Trust Company of Florida, National Association, Charter No. 17871, the receiving institution, to relocate its head office from 800 Brickell Avenue, Miami, Florida to 701 Brickell Avenue, Miami, Florida, which is the present head office of Irving Trust Company Florida, Miami, Florida. The shareholders' meetings of the respective banks may be finally adjourned. Very truly yours, /s/Vernon E. Fasbender - ---------------------- Vernon E. Fasbender, Director for Analysis Charter No. 17871 11 EXHIBIT 3 Comptroller of the Currency TREASURY DEPARTMENT OF THE UNITED STATES Washington, D.C. WHEREAS, THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, NATIONAL ASSOCIATION, located in Miami, State of Florida, being a National Banking Association, organized under the statutes of the United States, has made application for authority to act as fiduciary AND WHEREAS, applicable provisions of the statutes of the United States authorize the grant of such authority; NOW THEREFORE, I hereby certify that the necessary approval has been given and that the said association is authorized to act in all fiduciary capacities permitted by such statutes. IN TESTIMONY WHEREOF, witness my signature and seal of Office this twentieth day of June, 1983. /s/C. T. Conover [SEAL] Comptroller of the Currency Charter No. 17871 12 EXHIBIT 4 Amended and restated at Board of Directors Meeting June 18, 1992 Further Amended January 21, 1994 BY-LAWS OF THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, N.A. ARTICLE I Offices Section 1.1 The principal office of the Association shall be located in the City of Miami, County of Dade, State of Florida. Section 1.2 The Association may also have offices at such other places either within or without the State of Florida as the Board of Directors may from time to time determine, or the business of the Association may require. ARTICLE II Meetings of Shareholders Section 2.1 Annual Meeting. The regular annual meeting of the shareholders, for the election of directors and transaction of whatever other business as may properly come before the meeting shall be held on January 15th of each year or, in case the date for the annual meeting shall fall on a public holiday, such meeting shall be held on the next succeeding business day either within or without the State of Florida as may be determined by the Board of Directors. Notice of such meeting shall me mailed, postage prepaid, at least ten days prior to the date thereof, addressed to each shareholder at the address appearing on the books of the Association. 13 - 2 - Section 2.2. Action of Shareholders Without a Meeting. Any action required to be taken at a meeting of the Shareholders or any action which may be taken at a meeting of the Shareholders may be taken without a meeting if a consent in writing setting forth the action so to be taken is signed by a majority of all shares held and entitled to vote, and is filed in the minutes of the proceedings of the Association. Such consent shall have the same effect as a unanimous vote of the shareholders. Section 2.3. Special Meetings. Except as otherwise specifically provided by statute, special meetings of the shareholders may be called for any purpose at any time by the Board of Directors or the holders of a majority of all shares entitled to vote. Every such special meeting, unless otherwise provided by law, shall be called by mailing a notice, postage prepaid, not less than ten days prior to the date fixed for such meeting, to each shareholder of record entitled to vote. Section 2.4. Proxies. Shareholders may vote at any meeting of the shareholders by proxies duly authorized in writing, but no officer or employee of this Association shall act as proxy. Proxies shall be valid only for one meeting, to be specified therein, and any adjournments of such meeting. Proxies shall be dated and filed with the records of the meeting. Section 2.5. Quorum. A majority of the outstanding capital stock, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders, unless otherwise provided by law; but less than a quorum may adjourn any meeting, from time to time, and the meeting may be held, as 14 - 3 - adjourned, without further notice. A majority of the votes cast shall decide every question or matter submitted to the shareholders at any meeting, unless otherwise provided by law or by the Articles of Association. ARTICLE III Directors Section 3.1. Board of Directors. The Board of Directors (hereinafter referred to as the "Board"), shall have the power to manage and administer the business and affairs of the Association. Except as expressly limited by law, all corporate powers of the Association shall be vested in and may be exercised by said Board. Section 3.2. Number. The Board shall consist of not less than five nor more than twenty-five persons, the exact number within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full Board or by resolution of the shareholders at any meeting thereof; provided, however, that a majority of the full Board of Directors may not increase the number of directors to a number which: (i) exceeds by more than two the number of directors last elected by shareholders where such number was fifteen or less, and (ii) to a number which exceeds by more than four the number of directors last elected by shareholders where such number was sixteen or more, but in no event shall the number of directors exceed twenty-five. 15 - 4 - Section 3.3. Term of Office. Directors shall hold office until the next annual meeting of shareholders and until their successors are duly elected and qualified. Section 3.4. Organization Meeting. The Secretary, upon determining the result of any election, shall notify the directors-elect of their election and request that the Board convene for the purpose of organizing the new Board and electing officers of the Association for the succeeding year. Such meeting shall be held on the day of the election or as soon thereafter as practicable, and, in any event, within thirty days thereof. If, at the time fixed for such meeting, there shall not be a quorum present, the directors present may adjourn the meeting, from time to time, until a quorum is obtained. Section 3.5. Regular Meetings. Regular meetings of the Board of Directors may be held at such places either within or without the State of Florida and at such times as the Board may from time to time determine. Each member of the Board shall be given notice stating the time and place by telephone, letter, or in person. Section 3.6. Special Meetings. Special meetings of the Board may be called by the Chairman of the Association, or, upon the written request of any two directors or by the President. Each member of the Board shall be given notice stating the time and place, by telephone, letter, or in person. Special meetings may be held either within or without the State of Florida as determined by the Board. 16 - 5 - Section 3.7. Quorum. A majority of the directors shall constitute a quorum at any meeting, except when otherwise provided by law; but a lesser number may adjourn any meeting, from time to time, and the meeting may be held, as adjourned, without further notice. Except as otherwise required by law, the Articles of Association, or these By-laws, the vote of a majority of the directors present at a meeting at the time of such vote, if a quorum is present, shall be the act of the Board. Section 3.8. Removal. Any one or more of the directors may be removed for cause by action of the Board. Any or all of the directors may be removed with or without cause by vote of the shareholders. Section 3.9. Vacancies. When any vacancy occurs among the directors, the remaining members of the Board, in accordance with the laws of the United States, may appoint a director to fill such vacancy at any Regular Meeting of the Board, at any Special Meeting of the Board or by Unanimous Written Consent of the remaining members of the Board. Section 3.10. Compensation. Members of the Board, except members who are officers of the Association or any of its affiliates, shall be entitled to receive such compensation and such fees for attendance as the Board shall fix from time to time. Section 3.11. Telephonic Participation. Directors may participate in a meeting of the Board or any committee designated by the Board by means of a conference telephone or similar communications equipment by means of which all persons 17 - 6 - participating in the meeting can hear each other at the same time. Participation by such means shall constitute presence in person at a meeting. Section 3.12. Action Without a Meeting. Any action required to be taken at a meeting of the Board or any action which may be taken at a meeting of the Board or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so to be taken, signed by all of the Directors, or all the members of the committee, as the case may be, is filed in the minutes of the proceedings of the Board or of the committee. Such consent shall have the same effect as a unanimous vote. ARTICLE IV Officers and Employees Section 4.1. Chairman. The Board of directors shall appoint one of its members to be Chairman of the Board. Such person shall preside at all meetings of the Board of Directors; shall have general executive powers, as well as specific powers conferred by these By-laws; shall, in the absence of the Chief Executive Officer, perform all the duties of the Chief Executive Officer; and shall also have and may exercise such further powers and duties as from time to time may be conferred upon or assigned by the Board. Section 4.2. Chief Executive Officer. The Board of Directors shall appoint one of its members to be Chief Executive Officer of the Association. The Chief Executive Officer shall 18 - 7 - supervise the carrying out of the policies adopted or approved by the Board; shall be the senior and principal executive officer of the Association; shall have general executive powers, as well as the specific powers conferred by these By-laws; shall, in the absence of the Chairman, perform all the duties of the Chairman; and shall also have and may exercise such further powers and duties as from time to time may be conferred upon or assigned by the Board. Section 4.3. President. The Board shall appoint one of its members to be President of the Association. In the absence of the Chairman and the Chief Executive Officer, the President shall preside at any meeting of the Board. Subject to the senior executive powers of the Chief Executive Officer, the President shall have general executive powers, and shall have and may exercise any and all other powers and duties pertaining by law, regulation, or practice, to the office of President, or imposed by these By-laws. The President shall have and may exercise such further powers and duties as from time to time may be conferred or assigned by the Board. Section 4.4. Vice President. The Board may appoint one or more Senior Vice Presidents and one or more Vice Presidents. Each Senior Vice President or Vice President shall have such powers and duties as may be assigned by the Board. One Senior Vice President shall be designated by the Board, in the absence of the President, to perform all the duties of the President. 19 - 8 - Section 4.5. Secretary. The Board shall appoint a person who shall be Secretary of the Board and of the Association, and shall keep accurate minutes of all meetings. The Secretary shall attend to the giving of all notices required by these By-laws to be given; shall be custodian of the corporate seal, records, documents and papers of the Association; shall provide for the keeping of proper records of all transactions of the Association; shall have and may exercise any and all other powers and duties pertaining by law, regulation or practice, or imposed by these By-laws; and shall also perform such other duties as may be assigned from time to time by the Board. Section 4.6. Assistant Secretary. The Assistant Secretary or, if there be more than one, the Assistant Secretaries in the order determined by the Board of Directors, shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. Section 4.7. Treasurer and Comptroller. The Board may appoint a Treasurer and Comptroller, which offices may be filled by one person. The Treasurer and Comptroller shall be responsible for the financial management and reporting for the Association. Section 4.8. Auditor. The Board may appoint an Auditor. The Auditor shall be responsible for the auditing of the activities of the Association. 20 - 9 - Section 4.9. Other Officers. The Board or the Chairman may appoint one or more Assistant Vice Presidents, one or more Assistant Secretaries or Assistant Treasurers and such other officers and Attorneys-in-fact as from time to time may appear to the Board to be required or desirable to transact the business of the Association. Such officers shall respectively exercise such powers and perform such duties as pertain to their several offices, or as may be conferred upon, or assigned to, them by the Board, the Chairman of the Board, or the President. Any two or more offices may be held by the same person. Section 4.10. Tenure of Office. The President and all other officers shall hold office for the current year for which the Board was elected, unless they shall resign, become disqualified, or be removed; and any vacancy occurring in the offices of the Chief Executive Officer or the President shall be filled promptly by the Board. ARTICLE V Signing Authority Section 5.1. Senior Signing Powers. The Chief Executive Officer or the President are authorized to accept, endorse, execute or sign any document, instrument or paper in the name of, or on behalf of, the Association in its own right or in any fiduciary, representative or agency capacity and, when required, to affix the seal of the Association thereto. In such instances as in the judgment of the Chief Executive Officer or the President it may be proper and desirable that either officer 21 - 10 - may authorize in writing any other officer to have the powers set forth in this section applicable only to the performance or discharge of the duties of such officer within his or her particular division or function. Any officer of the Association authorized in or pursuant to Section 5.2 to have the powers set forth therein, other than the officer signing pursuant to this Section 5.1, is authorized to attest to the seal of the Association on any documents requiring such seal. Section 5.2. General Signing Powers. All acceptances; authentications; bills of exchange; bills of lading; bills receivable; certificates of deposit; certifications required for transfers and deliveries of securities; certifications; checks; disclosure notices required by law; documents required in connection with any Individual Retirement Account or Keogh Plan or similar plan; drafts; endorsements; guarantees of signatures to assignments of stock, bonds or other instruments; letters of credit; notes; documents of any type required for the prosecution or defense of judicial, regulatory or administrative proceedings; orders for the payment of money; other instruments obligating the Association for the payment of money; purchasing, investing in, selling, transferring, exchanging or otherwise disposing of, and generally dealing in foreign currencies and in or with any and all forms of securities, including but not limited to options and futures thereon; receipts; and all accounts, petitions, schedules and verifications, may be accepted, endorsed or signed in the name of, or on behalf of, the Association in its own right or in any fiduciary, representative or agency capacity by the Chief 22 - 11 - Executive Officer or the President. In such instances as in the judgment of the Chief Executive Officer or the President, it may be proper and desirable that either officer may authorize in writing any other officer, employee or individual to have the powers set forth in this section applicable only to the performance or discharge of the duties of such officer, employee or individual within his or her division or function. Section 5.3. Rescission of Signing Powers. Any signing authority authorized by the Chief Executive Officer or the President may be rescinded at any time by any one of said officers and any signing power authorized in or pursuant to Section 5.1 or 5.2 shall terminate without necessity of further action when the officer or employee having such power leaves the employ of the Association. ARTICLE VI Trust Administration and Investment Section 6.1. Trust Investment Committee. The Board shall appoint a Trust Investment Committee of not less than three and not more than seven members, who shall be capable and experienced officers or directors of the Association. All investments of funds held in a fiduciary capacity shall be made, retained or disposed of only with the approval of the Trust Investment Committee; and the Committee shall keep minutes of all its meetings, showing the disposition of all matters considered and passed upon by it. The Committee shall, promptly after the 23 - 12 - acceptance of an account for which the Association has investment responsibilities, review the assets thereof to determine the advisability of retaining or disposing of such assets. The Committee shall conduct a similar review at least once during each calendar year thereafter and within fifteen months of the last such review. A report of all such reviews, together with the action taken as a result thereof, shall be noted in the minutes of the Committee. Section 6.2. Trust Audit Committee. The Board shall appoint a committee of not less than two Directors, exclusive of any active officer of the Association, which shall, at least once during each calendar year and within fifteen months of the last such audit, make suitable audits of the fiduciary activities of the Association or cause suitable audits to be made by auditors responsible only to the Board, and at such time shall ascertain whether the fiduciary activities of the Association have been administered in accordance with law, Part 9 of the Regulations of the Comptroller of the Currency and sound fiduciary principles. Section 6.3. Committees of the Board. In addition to the Committees designated under Article VI of the By-laws, the Board may appoint, from time to time, from its own members, other committees of one or more persons, for such purposes and with such powers as the Board may determine. Section 6.4. Trust Records. Files shall be maintained which contain all fiduciary records necessary to assure that the fiduciary responsibilities of the Association have been properly undertaken and discharged. 24 - 13 - Section 6.5. Trust Investments. Funds held in a fiduciary capacity shall be invested in accordance with the instrument establishing the fiduciary relationship and local law. Where such instrument does not specify the character and class of investments to be made and does not vest in the Association a discretion in the matter, funds held pursuant to such instrument shall be invested in investments in which corporate fiduciaries may invest under local law. ARTICLE VII Stock and Stock Certificates Section 7.1. Transfer. Shares of stock shall be transferable on the books of the Association, and a transfer book shall be kept in which all transfers of stock shall be recorded. Every person becoming a shareholder by such transfer shall, in proportion to his shares, succeed to all rights of the prior holder of such shares. Section 7.2. Stock Certificates. Certificates of stock shall bear the signature of the Chairman of the Board or the President (which may be engraved, printed or impressed), and shall be signed manually or by facsimile process by the Secretary, Assistant Secretary, or any other officer appointed by the Board of Directors for that purpose, to be known as an Authorized Officer, and the seal of the Association shall be engraved thereon. Each certificate shall recite on its face that 25 - 14 - the stock represented thereby is transferable only upon the books of the Association properly endorsed. ARTICLE VIII Corporate Seal Section 8.1. The Chairman, the Chief Executive Officer, the President, the Secretary or any Assistant Secretary, or other officers thereunto designated by the Board, shall have authority to affix the corporate seal to any document requiring such seal, and to attest the same. ARTICLE IX Miscellaneous Section 9.1. Fiscal Year. The fiscal year of the Association shall be the calendar year. Section 9.2. Records. The Articles of Association, the By-laws and the proceedings of all meetings of the shareholders, the Board and standing committees of the Board, shall be recorded in appropriate minute books provided for the purpose. The minutes of each meeting shall be signed by the Secretary or Assistant Secretary or other officer appointed to act as Secretary of the meeting. Section 9.3. Inspection of By-laws. A copy of the By-laws, with all amendments thereto, shall at all times be kept in a convenient place at the Principal Office of the Association, 26 - 15 - and shall be open for inspection to all shareholders during banking hours. Section 9.4. Amendments. The By-laws may be amended, altered or repealed, at any meeting of the Board, by a vote of a majority of the total number of the Directors. 27 EXHIBIT 6 Before the SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. CONSENT Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, the undersigned consents that reports of examinations by Federal, State, Territorial, or District authorities, including but not limited to the Treasury Department, the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Reserve Banks, and the Federal Deposit Insurance Corporation, may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Dated: March 13, 1995 THE BANK OF NEW YORK TRUST COMPANY OF FLORIDA, NATIONAL ASSOCIATION By:/s/ Martin P. Henry ---------------------- Name: Martin P. Henry Title: Vice President 28 EXHIBIT 7 - ----------------------------------------------------------------- REPORT OF CONDITION Consolidating domestic subsidiaries of the BNY TRUST CO. OF FLORIDA of MIAMI in the state of Florida, at the close of business on December 31, 1994, published in response to call made by
Dollar Amounts in Thousands Statement of Resources and Liabilities ASSETS Cash and balances due from depository institutions: Noninterest-bearing balances and currency and coin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,925 Interest-bearing balances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,999 Securities: Held-to-maturity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,394 Available-for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 87 Federal funds sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Securities purchased under agreements to resell . . . . . . . . . . . . . . . . . . . . . 0 Loans and lease financing receivables: Loans and leases, net of unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . LESS: Allowance for loan and lease losses . . . . . . . . . . . . . . . . . . 0 . . . . . . LESS: Allocated transfer risk reserve . . . . . . . . . . . . . . . . . . . . 0 . . . . . . Loans and leases, net of unearned income, allowance, and reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Assets held in trading accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Premises and fixed assets (including capitalized leases) . . . . . . . . . . . . . . . . 303 Other real estate owned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Investments in unconsolidated subsidiaries and associated companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 754 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,462 Losses deferred pursuant to 12 U.S.C. 1823(j) . . . . . . . . . . . . . . . . . . . . . . 0 Total assets and losses deferred pursuant to 12 U.S.C. 1823(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,462 Continued
FDIC 8040/54C (3-90) 29 - ------------------------------------------------------------------------------- BNY TRUST CO. OF FLORIDA REPORT OF CONDITION (Continued) - -------------------------------------------------------------------------------
Dollar Amounts in Thousands LIABILITIES Deposits: In domestic offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,443 Noninterest-bearing . . . . . . . . . . . . . . . . . . . . . . . . 2,443 . . . . . . Interest-bearing . . . . . . . . . . . . . . . . . . . . . . . . . 0 . . . . . . Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Securities sold under agreements to repurchase . . . . . . . . . . . . . . . . . . . . . 0 Demand notes issued to the U.S. Treasury . . . . . . . . . . . . . . . . . . . . . . . . 0 Trading liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Other borrowed money: With original maturity of one year or less . . . . . . . . . . . . . . . . . . . . . 0 With original maturity of more than one year . . . . . . . . . . . . . . . . . . . . 0 Mortgage indebtedness and obligations under capitalized leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Bank's liability on acceptances executed and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,799 Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,242 Limited-life preferred stock and related surplus . . . . . . . . . . . . . . . . . . . . 0 EQUITY CAPITAL Perpetual preferred stock and related surplus . . . . . . . . . . . . . . . . . . . . . . 0 Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750 Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,150 Undivided profits and capital reserves . . . . . . . . . . . . . . . . . . . . . . . . . 5,320 Net unrealized holding gains (losses) on available- for-sale securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 Total equity capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,220 Losses deferred pursuant to 12 U.S.C. 1823(j) . . . . . . . . . . . . . . . . . . . . . . 0 Total equity capital and losses deferred pursuant to 12 U.S.C. 1823(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,220 Total liabilities, limited-life preferred stock, equity capital, and losses deferred pursuant to 12 U.S.C. 1823(j) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,462
We, the undersigned directors, attest to the correctness of this statement of resources and liabilities. We declare that it has been examined by us, and to the best of our knowledge and belief has been prepared in conformance with the instructions and is true and correct. /s/Richard G. Jackson ---------------------- Richard G. Jackson /s/Nicholas G. English ---------------------- Nicholas G. English /s/Karen B. Shupenko ---------------------- Karen B. Shupenko I, of the above-named bank do hereby declare that this Report of Condition is true to the best of my knowledge and belief. /s/Robert E. Keilman -------------------- Signature EX-25.2 14 EXHIBIT 25.2 1 EXHIBIT 25.2 ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM T-1 STATEMENT OF ELIGIBILITY UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Check if an Application to Determine Eligibility of a Trustee Pursuant to Section 305(b) [_] THE BANK OF NEW YORK TRUST COMPANY OF CALIFORNIA (Exact name of trustee as specified in its charter) California 95-3571558 (Jurisdiction of incorporation (I.R.S. employer or organization if not identification number) a U.S. national bank) 700 South Flower Street Los Angeles, California 90017 (Address of principal executive offices) (Zip code) Jacqueline R. McSwiggan Office of the Secretary, The Bank of New York 48 Wall Street, New York, NY 10286 (212) 495-1727 (Name, address and telephone number of agent for service) ____________________________________ KMART CORPORATION (Exact name of obligor as specified in its charter) Michigan 38-0729500 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 3100 West Big Beaver Road Troy, Michigan 48084 (Address of principal executive offices) (Zip code) ____________________________________ Pass Through Certificates (Title of indenture securities) ============================================================================== 2 1. GENERAL INFORMATION. (A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO WHICH IT IS SUBJECT. Name Address ---- ------- Federal Deposit Insurance 25 Ecker Street Corporation San Francisco, CA 94105 State Banking Department 111 Pine Street, Suite 1100 San Francisco, CA 94111 (B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS. Yes. 2. AFFILIATIONS WITH OBLIGOR. None. (See Note on page 3) 16. LIST OF EXHIBITS. 1.1 Articles of Incorporation of Security Trust Company, as filed in the office of the Secretary of State of the State of California on November 13, 1980 and filed in the office of the Superintendent of Banks, State of California on November 17, 1980. 1.2 Certificate of Amendment of Articles of Incorporation (changing the name of the Trustee from Security Trust Company to Bradford Trust Company of California), as filed in the office of the Secretary of State of the State of California on January 7, 1985. 1.3 Certificate of Amendment of Articles of Incorporation (changing the name of the Trustee from Bradford Trust Company of California to FIDATA Trust Company California), as filed in the office of the Secretary of State of the State of California on April 11, 1985. 1.4 Certificate of Amendment of Articles of Incorporation (changing the name of the Trustee from FIDATA Trust Company California to Wall Street Trust Company California), as filed in the office of the Secretary of State of the State of California on February 5, 1986. 1.5 Certificate of Amendment of Articles of Incorporation (changing the name of the Trustee from Wall Street Trust Company California to The Bank of New York Trust Company of California), as filed in the office of the Secretary of State of the State of California on April 15, 1988. 3 3. Copy of Certificate of the State Banking Department, State of California, dated January 24, 1994, authorizing the Trustee to transact a commercial banking business and to engage in the trust business at 700 South Flower Street, Los Angeles, California. 4. Copy of By-Laws of the Trustee. 6. Consent of the Trustee required by Section 321(b) of the Act. 7. Copy of latest report of condition of the Trustee published pursuant to law or to the requirements of its supervising or examining authority. 2 4 NOTE Inasmuch as this Form T-1 is filed prior to the ascertainment by the Trustee of all facts on which to base a responsive answer to Item 2, the answer to said Item is based on incomplete information. Item 2 may, however, be considered as correct unless amended by an amendment to this Form T-1. 3 5 SIGNATURE Pursuant to the requirements of the Act, the Trustee, The Bank of New York Trust Company of California, a corporation organized and existing under the laws of the State of California, has duly caused this statement of eligibility to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City of Los Angeles, and State of California, on the 13th day of March, 1995. THE BANK OF NEW YORK TRUST COMPANY OF CALIFORNIA By: /s/William F. Chambers --------------------------- Name: William F. Chambers Title: Assistant Vice President 4 6 EXHIBIT 1.1 APPROVED NOV 11 1980 Richard M. Dominguez Superintendent of Banks State of California By /s/Alida R. Buchanan Alida R. Buchanan Counsel ENDORSED FILED In the office of the Secretary of State of the State of California NOV 13 1980 MARCH FONG EU, Secretary of State Leslie Glenn Deputy ARTICLES OF INCORPORATION OF SECURITY TRUST COMPANY One: The name of the corporation is Security Trust Company. Two: The purpose of the corporation is to engage in commercial banking business and trust business and any other lawful activities which are not, by applicable laws or regulations, prohibited to a commercial bank authorized to engage in trust business; provided, however, that this corporation shall not engage in the business of making commercial loans, nor shall this corporation engage in the business of accepting deposits except for deposits related to the securities clearance business of this corporation and its affiliates, this corporation's business as acting as trustee or agent in connection with individual retirement accounts or retirement, profit sharing or other plans for corporations, partnerships or other business associations, or other trust businesses in which this corporation may engage and except for deposits from banks, trust companies or other companies affiliated with this corporation. Three: The name of the corporation's initial agent for service of process is C T Corporation System, a corporation incorporated under the laws of Delaware. Four: The total number of shares which the corporation is authorized to issue is one thousand (1,000). 7 The shares of the corporation are subject to assessment by the corporation upon order of the Superintendent of Banks of the State of California for the purpose of correcting an impairment of contributed capital in the manner and to the extent provided in Division 1 of the California Financial Code. Five: No amendment to these Articles of Incorporation shall become effective unless the certificate of amendment or other instrument setting forth such amendment is filed with the Secretary of State with the approval of the Superintendent of Banks of the State of California endorsed thereon. Promptly after the amendment becomes effective, a copy of such certificate of amendment or other instrument certified by the Secretary of State shall be filed with the Superintendent of Banks. IN WITNESS WHEREOF, the undersigned has executed these Articles of Incorporation this 3rd day of November, 1980. /s/Rodney R. Peck -------------------- Rodney R. Peck Incorporator Rodney R. Peck declares that he is the person who executed the foregoing Articles of Incorporation and that said instrument is his act and deed. /s/Rodney R. Peck -------------------- 8 FILED NOV 17 1980 Richard M. Dominguez Superintendent of Banks State of California By /s/Alida R. Buchanan Alida R. Buchanan Counsel STATE OF CALIFORNIA OFFICE OF THE SECRETARY OF STATE I, MARCH FONG EU, Secretary of State of the State of California hereby certify: That the annexed transcript has been compared with the record on file in this office, of which it purports to be a copy, and that same is full, true and correct. IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the State of California this NOV 13 1980 [SEAL] /s/March Fong Eu Secretary of State 9 EXHIBIT 1.2 ENDORSED APPROVED JAN 3 - 1985 LOUIS CARTER Superintendent of Banks State of California By /s/George W. Wright ENDORSED FILED In the office of the Secretary of State JAN 7 - 1985 MARCH FONG EU, Secretary of State By JAMES E. HARRIS Deputy CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION WILLIAM P. LYONS, JR. and WILLIAM J. WINKELMANN certify that: 1. They are the President and the Assistant Secretary, respectively, of Security Trust Company, a California corporation. 2. Article One of the Articles of Incorporation of Security Trust Company is amended to read as follows: "One: The name of the corporation is Bradford Trust Company of California." 3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by unanimous written consent of Security Trust Company's sole shareholder pursuant to Section 603 of the California General Corporation Law. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated: December 10, 1984. /s/Bill Lyons ------------------------- President /s/William J. Winkelmann ------------------------- Assistant Secretary 10 EXHIBIT 1.3 ENDORSED APPROVED APR 4 - 1985 LOUIS CARTER Superintendent of Banks State of California By /s/George W. Wright ENDORSED FILED In the office of the Secretary of State APR 11 1985 MARCH FONG EU, Secretary of State By JAMES E. HARRIS Deputy CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION WILLIAM P. LYONS, JR. and WILLIAM J. WINKELMANN certify that: 1. They are the President and the Assistant Secretary, respectively, of Bradford Trust Company of California, a California corporation. 2. Article One of the Articles of Incorporation of Bradford Trust Company of California is amended to read as follows: "One: The name of the corporation is FIDATA Trust Company California." 3. The foregoing amendment of Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of Articles of Incorporation has been duly approved by unanimous written consent of Bradford Trust Company of California's sole shareholder pursuant to Section 603 of the California General Corporation Law. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated: 2-20-85. /s/Bill Lyons ------------------------ President /s/William J. Winkelmann ------------------------ Assistant Secretary 11 EXHIBIT 1.4 ENDORSED APPROVED FEB 3 - 1986 LOUIS CARTER Superintendent of Banks State of California By /s/Diana H. Ashima Counsel ENDORSED FILED In the office of the Secretary of State of the State of California FEB 5 1986 MARCH FONG EU, Secretary of State By JAMES E. HARRIS Deputy CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION WILLIAM P. LYONS, JR., and WILLIAM J. WINKELMANN certify that: 1. They are the President and the Assistant Secretary, respectively, of Fidata Trust Company California, a California corporation. 2. Article One of the Articles of Incorporation of Fidata Trust Company California is amended to read as follows: "One: The name of the corporation is Wall Street Trust Company California." 3. The foregoing amendment of the Articles of Incorporation has been duly approved by the Board of Directors. 4. The foregoing amendment of the Articles of Incorporation has been duly approved by unanimous written consent of Fidata Trust Company California's sole shareholder pursuant to section 603 of the California General Corporation Law. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated: 2/3/86, at Los Angeles, California /s/Bill Lyons ------------------------ President /s/William J. Winkelmann ------------------------ Assistant Secretary 12 EXHIBIT 1.5 ENDORSED APPROVED APR 12 1988 HOWARD GOULD Superintendent of Banks State of California By /s/Joy Pepperman Joy Pepperman Counsel ENDORSED FILED In the office of the Secretary of State of the State of California APR 15 1988 MARCH FONG EU, Secretary of State CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION WILLIAM P. LYONS, JR., and JACQUELINE R. MC SWIGGAN certify that: 1. They are the President and Secretary, respectively, of Wall Street Trust Company California, a California corporation. 2. Article One of the Articles of Incorporation of Wall Street Trust Company California is amended to read as follows: "One: The name of the corporation is The Bank of New York Trust Company of California." 3. The foregoing amendment of the Articles of Incorporation has been duly approved by unanimous written consent of the Board of Directors of Wall Street Trust Company California pursuant to section 307(b) of the California General Corporation Law. 4. The foregoing amendment of the Articles of Incorporation has been duly approved by written consent of the sole shareholder of Wall Street Trust Company California pursuant to section 603 of the California General Corporation Law. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. Dated: February 26, 1988, at Los Angeles, California. /s/Bill Lyons --------------------------- President Dated: February 22, 1988, at New York, New York. /s/Jacqueline R. McSwiggan --------------------------- Secretary 13 EXHIBIT 3 No. 1321 STATE OF CALIFORNIA STATE BANKING DEPARTMENT WHEREAS, after due examination it appears that THE BANK OF NEW YORK TRUST COMPANY OF CALIFORNIA having its principal place of business in THE CITY OF LOS ANGELES County of LOS ANGELES, State of California, has complied with all the provisions of the Banking Law of the State of California, and with all other necessary requirements of law relating thereto; NOW, THEREFORE, I, the undersigned, Superintendent of Banks of the State of California, do certify that said bank is qualified and is hereby authorized to transact a COMMERCIAL banking business AND TO ENGAGE IN THE TRUST BUSINESS at 700 SOUTH FLOWER STREET in THE CITY OF LOS ANGELES County of LOS ANGELES State of California [SEAL] IN TESTIMONY WHEREOF witness my hand and Seal this 24TH day of JANUARY 1994 at San Francisco, California. /s/J E Gilleran Superintendent of Banks State of California 14 EXHIBIT 4 B Y - L A W S of THE BANK OF NEW YORK TRUST COMPANY OF CALIFORNIA ARTICLE I Head Office Section 1. The head office for the transaction of the business of the corporation is hereby fixed and located at 700 South Flower Street, 2nd fl., Los Angeles, California. AMENDED The board of directors may change said head office from one 12/1/93 location to another with the written approval of the Superintendent of Banks of the State of California. Section 2. The board of directors may establish and maintain one or more branch offices within the State of California when authorized by the Superintendent of Banks of the State of California. ARTICLE II Meetings of Shareholders Section 1. All meetings of the shareholders shall be held at any place within or without the State of California which may be designated either by the board of directors or by the written consent of all shareholders entitled to vote thereat and not present at the meeting given either before or after the meeting and filed with the secretary of the corporation. In the absence of any such designation, 15 2 shareholders' meetings shall be held at the head office of the corporation. Section 2. The annual meeting of the shareholders of the corporation shall be held on the second Tuesday of March of each year, at 10:00 A.M. of said day; provided, however, that should said day fall upon a legal holiday, then any such annual meeting of the shareholders shall be held at the same time and place on the next business day thereafter ensuing which is not a legal holiday. At such meeting, directors shall be elected and any other proper business may be transacted which is within the powers of the shareholders. Written notice of each annual meeting shall be given to each shareholder entitled to vote either personally or by first-class mail or other means of written communication (which includes, without limitation and wherever used in these by-laws, telegraphic and facsimile communication), charges prepaid, addressed to each shareholder at the address appearing on the books of the corporation, or given by the shareholder to the corporation for the purpose of notice. If any notice or report addressed to the shareholder at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice or report to the shareholder at such address, all future notices or reports shall be deemed to have been duly given without further mailing 16 3 if the same shall be available for the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one (1) year from the date of the giving of the notice or report to all other shareholders. If no address of a shareholder appears on the books of the corporation or is given by the shareholder to the corporation, notice is duly given to him if sent by mail or other means of written communication addressed to the place where the principal executive office of the corporation is located or if published at least once in a newspaper of general circulation in the county in which said principal executive office is located. All such notices shall be given to each shareholder entitled thereto not less than ten (10) days nor more than sixty (60) days before each annual meeting. Any such notice shall be deemed to have been given at the time when delivered personally or deposited in the United States mail or delivered to a common carrier for transmission to the recipient or actually transmitted by the person giving the notice by electronic means to the recipient or sent by other means of written communication. Such notices shall state: (a) the place, date and hour of the meeting; (b) those matters which the board, at the time of the mailing of the notice, intends to present for action by the shareholders; 17 4 (c) if directors are to be elected, the names of nominees intended at the time of the notice to be presented by management for election; (d) such other matters, if any, as may be expressly required by statute. Section 3. Special meetings of the shareholders for the purpose of taking any action permitted to be taken by the shareholders under the California General Corporation Law, the California Banking Law and the articles of incorporation of this corporation, may be called by the chairman of the board or the president, or any vice president or by the board of directors, or by the holders of shares entitled to cast not less than ten per cent (10%) of the votes at the meeting. Except in special cases where other express provision is made by statute, notice of such special meetings shall be given in the same manner and contain the same statements as required for annual meetings of shareholders. Notice of any special meeting shall also specify the general nature of the business to be transacted, and no other business may be transacted at such meeting. Section 4. The presence in person or by proxy of the holders of a majority of the shares entitled to vote at any meeting shall constitute a quorum for the transaction of business. The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact 18 5 business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than adjournment) is approved by at least a majority of the shares required to constitute a quorum. In the absence of a quorum, any meeting of shareholders may be adjourned from time to time by the vote of a majority of the shares represented either in person or by proxy, but no other business may be transacted except as provided in the preceding sentence. Section 5. The affirmative vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively shall constitute at least a majority of the required quorum) shall be the act of the shareholders except as may otherwise be provided by (i) Section 4 of this Article II, (ii) the cumulative voting provisions for the election of directors as stated in this Section below, and (iii) the California General Corporation Law, the California Banking Law or the articles of incorporation of this corporation. Subject to the requirements of the next sentence, every shareholder entitled to vote at any election for directors may cumulate his votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which his shares are normally entitled, or distribute his votes on the same principle among as many candidates as he shall think fit. 19 6 No shareholder shall be entitled to cumulate votes unless such candidate or candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate his votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for candidates in nomination. The candidates receiving the highest number of votes of shares entitled to be voted for them, up to the number of directors to be elected, shall be elected. Section 6. Any action which, under any provision of the laws of the State of California, may be taken at a meeting of the shareholders, may be taken without a meeting if authorized by a writing signed by persons entitled to vote a majority of the shares of the corporation, and filed with the secretary of the corporation. Section 7. Every person entitled to vote or execute consents shall have the right to do so either in person or by one or more agents authorized by a written proxy executed by such person or his duly authorized agent and filed with the secretary. Proxies shall be valid and shall be exercised in accordance with the General Corporation Law, Section 705 or successor section thereto. ARTICLE III Board of Directors Section 1. Subject to the provisions of the General Corporation Law, the California Banking Law and any limitations 20 7 in the articles of incorporation and these by-laws as to action to be authorized or approved by the shareholders, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. Section 2. The authorized number of directors shall not be less than five (5) nor more than nine (9). The exact authorized number of directors shall be fixed from time to time, within the limits specified in this Section by the board of directors, or by a by-law or amendment thereof duly adopted by the vote of a majority of the shares represented and voting at a duly held meeting at which a quorum is present (which shares voting affirmatively also constitute at least a majority of the required quorum) or by the written consent of the holders of a majority of the outstanding shares entitled to vote, until changed by a duly adopted amendment to the articles of incorporation or by an amendment to this by-law adopted by approval of the outstanding shares. No amendment shall be adopted reducing the minimum authorized number of directors to a number less than five (5). Subject to the foregoing provisions for changing the authorized number of directors, the authorized number of directors of this corporation shall be six (6). Section 3. The directors shall be elected at each annual meeting of shareholders, but if any such annual meeting 21 8 is not held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that purpose or by written consent. Each director, including a director elected to fill a vacancy, shall hold office until his successor is elected, except as otherwise provided by statute. Section 4. Each director upon taking office, after the corporation's receipt of a Certificate of Authority to transact business as a bank from the Superintendent of Banks of the State of California, shall make an oath or affirmation as required by Section 682 of the California Financial Code or successor section thereto, and each such oath, subscribed by the director and certified by the officer before whom it is taken, shall be immediately filed with the Superintendent of Banks of the State of California. Section 5. Vacancies in the board of directors, except for a vacancy created by the removal of a director, may be filled by a majority of the directors then in office, whether or not less than a quorum, or by a sole remaining director. ARTICLE IV Meetings of Directors Section 1. The board of directors may fix by AMENDED resolution the time and place for the regular quarterly 8/21/86 meeting of the board without other notice than such resolution. Notice 22 9 of any change in the time or place of the regular quarterly meeting shall be given to all of the directors in the same manner as notice for special meetings of the board of directors. Immediately following each annual meeting of the shareholders there shall be a regular meeting of the board of directors of the corporation at the place of said annual meeting or at such other place as shall have been designated by the board of directors for the purpose of organization, election of officers and the transaction of other business. Notice of regular meetings of the directors is hereby dispensed with and no notice whatever of any such meeting need be given, provided that notice of any change in the time or place of regular meetings shall be given to all of the directors in the same manner as notice for special meetings of the board of directors. Each regular meeting of the directors shall be held within the State of California. Any regular meeting or special meeting is valid wherever held if held upon written consent of all members of the board given either before or after the meeting and filed with the Secretary of the Corporation. Section 2. Special meetings of the board of directors may be held at any place which has been designated in the notice of the meeting, or, if not designated in the AMENDED notice of the meeting, or, if there is no notice, at the head 8/21/86 office of the corporation. Special meetings of the board of directors for any purpose or purposes may be called at any time by the 23 10 chairman of the board or president or by any two directors. Notice of the time and place of special meetings shall be delivered personally or by telephone to each director, or sent by first-class mail or telegram or facsimile transmission, charges prepaid, addressed to him at his address as it appears upon the records of the corporation or, if it is not so shown on the records and is not readily ascertainable, at the place at which the meetings of the directors are regularly held. In case such notice is mailed, it shall be deposited in the United States mail at least four (4) business days prior to the time of the holding of the meeting. In case such notice is telegraphed or sent by facsimile transmission, it shall be delivered to a common carrier for transmission to the director or actually transmitted by the person giving the notice by electronic means to the director at least twenty-four (24) hours prior to the time of the holding of the meeting. In case such notice is delivered personally or by telephone as above provided, it shall be so delivered at least twenty-four (24) hours prior to the time of the holding of the meeting. Any notice given personally or by telephone may be communicated to either the director or to a person at the office of the director whom the person giving the notice has reason to believe will promptly communicate it to the director. Such deposit in the mail, delivery to a common carrier, transmission by electronic means or delivery, personally or by telephone, as 24 11 above provided, shall be due, legal and personal notice to such directors. The notice need not specify the place of the meeting if the meeting is to be held at the head office of the corporation, and need not specify the purpose of the meeting. Each special meeting of the directors shall be held within the State of California unless all directors have given their written consent to the holding of the special meeting outside the State, either before or after the meeting, and each such consent has been filed with the Secretary. RE-NUMBERED Section 3. Presence of a majority of the 8/21/86 authorized number of directors at a meeting of the board of directors constitutes a quorum for the transaction of business, except as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the board of directors, subject to the provisions of Sections 310, 311 and 317 of the California General Corporation Law. Members of the board may participate in a meeting through use of conference telephone or similar communications equipment, so long as all members participating in such meeting can hear one another. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, provided that any action taken is approved by at least a majority of the required quorum for such meeting. A majority of the directors present, whether or not a quorum is 25 12 present, may adjourn any meeting to another time and place. If the meeting is adjourned for more than twenty-four (24) hours, notice of any adjournment to another time or place shall be given prior to the time of the adjourned meeting to the directors who were not present at the time of the adjournment. RE-NUMBERED Section 4. Notice of a meeting need not be given 8/21/86 to any director who signs a waiver of notice or consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. RE-NUMBERED Section 5. Any action required or permitted to be 8/21/86 taken by the board of directors may be taken without a meeting if all members of the board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with the minutes of the proceedings of the board. Such action by written consent shall have the same force and effect as a unanimous vote of such directors. RE-NUMBERED Section 6. The provisions of this Article IV shall 8/21/86 also apply, with necessary changes in points of detail, to committees of the board of directors, if any, and to actions by such committees (except that regular meetings of committees shall be established by the committee and except that special 26 13 meetings of a committee may also be called at any time by any two members of the committee), unless otherwise provided by these by-laws or by the resolution of the board of directors designating such committees. For such purpose, references to "the board" or "the board of directors" shall be deemed to refer to each such committee and references to "directors" or "members of the board" shall be deemed to refer to members of the committee. Committees of the board of directors which have the authority of the board may be designated, and shall be subject to the limitations on their authority, as provided in Section 311 of the California General Corporation Law or successor section thereto. The appointment of members or alternate members of such a committee requires the vote of a majority of the authorized number of directors. RE-NUMBERED Section 7. Directors and members of committees 8/21/86 may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the board. ARTICLE V Officers Section 1. The officers of the corporation shall be a chairman of the board or a president, or both, an AMENDED auditor, a secretary, and a treasurer, who shall also be the 8/21/86 chief financial officer of the corporation. The corporation may also have, at the discretion of the board of directors, one or more 27 14 vice chairmen of the board, one or more senior executive vice presidents, one or more executive vice presidents, one or more senior vice presidents, one or more vice presidents, one or more assistant vice presidents, one or more deputy secretaries, one or more assistant treasurers, a comptroller, one or more deputy comptrollers, a cashier, one or more assistant cashiers, one or more trust officers, one or more assistant trust officers, and such other officers as may be designated from time to time by the board of directors. Any number of offices may be held by the same person. The officers shall be elected by the board of directors and shall hold office at the pleasure of such board. Chairman of the Board Section 2. The chairman of the board shall, if present, preside at all meetings of the board of directors and of the shareholders and exercise and perform such other powers and duties as may be from time to time assigned to him by the board of directors or prescribed by the by-laws. The chairman of the board shall, in addition, be the general manager and chief executive officer of the corporation and shall, subject to the control of the board of directors, have general supervision, direction and control of the business and officers of the corporation. President Section 3. In the absence or disability or refusal to act, of the chairman of the board, the president shall perform 28 15 all of the duties of the chairman and when so acting shall have all the powers of and be subject to all the restrictions upon the chairman. The president shall have such further powers and shall perform such further duties as may be prescribed for him by the board of directors. Vice Presidents Section 4. In the absence or disability or refusal to act of the chairman of the board, or the president, the vice presidents in order of their rank as fixed by the board of directors, or, if not ranked, the vice president designated by the president or the board of directors, shall perform all of the duties of the chairman and when so acting shall have all the powers of and be subject to all the restrictions upon the chairman. The vice presidents shall have such other powers and perform such other duties as from time to time may be prescribed for them, respectively, by the board of directors or the by-laws. Secretary Section 5. The secretary shall keep or cause to be kept at the head office of the corporation or such other place as the board of directors may order, a book of minutes of all proceedings of the shareholders, the board of directors and committees of the board, with the time and place of holding, whether regular or special, and if special how authorized, the notice thereof given, the names of those present at directors' 29 16 and committee meetings, and the number of shares present or represented at shareholders' meetings. The secretary shall keep or cause to be kept at the head office a record of shareholders or a duplicate record of shareholders showing the names of the shareholders and their addresses, the number of shares and classes of shares held by each, the number and date of certificates issued for the same and the number and date of cancellation of every certificate surrendered for cancellation. The secretary or an assistant secretary, or, if they are absent or unable or refuse to act, any other officer of the corporation, shall give or cause to be given notice of all the meetings of the shareholders, the board of directors and committees of the board required by the by-laws or by law to be given, and he shall keep the seal of the corporation, if any, in safe custody and shall have such other powers and perform such other duties as may be prescribed by the board of directors or by the by-laws. Section 6. It shall be the duty of the assistant secretaries to assist the secretary in the performance of his duties and generally to perform such other duties as may be delegated to them by the board of directors. Section 7. The treasurer shall be the chief financial officer of the corporation and shall keep and maintain, or cause to be kept and maintained, adequate and correct books and records of account of the corporation. He shall receive and 30 17 deposit all moneys and other valuables belonging to the corporation in the name and to the credit of the corporation and shall disburse the same only in such manner as the board of directors or the appropriate officers of the corporation may from time to time determine, shall render to the president and the board of directors, whenever they request it, an account of all his transactions as treasurer and of the financial condition of the corporation, and shall perform such further duties as the board of directors may require. Section 8. It shall be the duty of the assistant treasurers to assist the treasurer in the performance of his duties and generally to perform such other duties as may be delegated to them by the board of directors. Section 9. Any officer may be removed, either with or without cause, by the board of directors, at any regular or special meeting thereof, or by any officer upon whom such power of removal may be conferred by the board of directors. Any officer may resign at any time by giving written notice to the board of directors, the president, or the secretary. Resignations shall take effect at the date of receipt of notice thereof, or at any later time specified therein; and, unless otherwise specified therein, the acceptance of a resignation shall not be necessary to make it effective. Section 10. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause 31 18 shall be filled in the manner prescribed in the by-laws for regular appointments to that office. ARTICLE VI Annual Report Section 1. So long as the corporation shall have fewer than one hundred (100) shareholders of record (determined as provided in Section 605 of the California General Corporation Law), the requirement of Section 1501 of said law that an annual report be sent to the shareholders is expressly waived. ARTICLE VII As Amended Signing Authorities June 1, 1987 Section 1. Real property owned by the Corporation in its own right shall not be deeded, conveyed, mortgaged, assigned or transferred except when duly authorized by a resolution of the Board of Directors. The Board of Directors may from time to time authorize officers to deed, convey, mortgage, assign or transfer real property owned by the Corporation in its own right with such maximum values as the Board of Directors may fix in its authorizing resolution. Section 2. Subject to the exception provided in Section 1 of this Article, the Chairman, the President, any Vice Chairman of the Board of Directors, any Senior Executive Vice President, any Executive Vice President or any Senior Vice President is authorized to accept, endorse, execute or sign any document, instrument or paper in the name of, or on behalf of, 32 19 the Corporation in its own right or in any fiduciary, representative or agency capacity and, when required, to affix the seal of the Corporation thereto. In such instances as in the judgment of the Chairman, the President, any Vice Chairman of the Board of Directors, any Senior Executive Vice President or any Executive Vice President may be proper and desirable, any one of said officers may authorize in writing any other officer to have the powers set forth in this section applicable only to the performance or discharge of the duties of such officer within his or her particular division or function. Any officer of the Corporation authorized in or pursuant to Section 3 of this Article to have the powers set forth therein, other than the officer signing pursuant to this Section 2 of this Article, is authorized to attest to the seal of the Corporation on any documents requiring such seal. Section 3. All acceptances; authentications; bills of exchange; bills of lading; bills receivable; certificates of deposit; certifications required for transfers and deliveries of securities; certifications; checks; disclosure notices required by law; documents required in connection with any Individual Retirement Account or Keogh Plan or similar plan; drafts; endorsements; guarantees of signatures to assignments of stock, bonds or other instruments; letters of credit; notes; documents of any type required for the prosecution or defense of judicial, regulatory or administrative proceedings; orders for the payment of money; other instruments obligating the Corporation for the payment of money; purchasing, investing in, 33 20 selling, transferring, exchanging or otherwise disposing of, and generally dealing in foreign currencies and in or with any and all forms of securities, including but not limited to options and futures thereon; receipts; and all accounts, petitions, schedules and verifications, may be accepted, endorsed or signed in the name of, or on behalf of, the Corporation in its own right or in any fiduciary, representative or agency capacity by the Chairman, the President, any Vice Chairman of the Board of Directors, any Senior Executive Vice President, any Executive Vice President or any Senior Vice President. In such instances as in the judgment of the Chairman, the President, any Vice Chairman of the Board of Directors, any Senior Executive Vice President or any Executive Vice President may be proper and desirable, any one of said officers may authorize in writing any other officer, employee or individual to have the powers set forth in this section applicable only to the performance or discharge of the duties of such officer, employee or individual within his or her division or function. Section 4. The Auditor or any officer designated by the Auditor is authorized to certify in the name of, or on behalf of the Corporation, in its own right or in a fiduciary or representative capacity, as to the accuracy and completeness of any account, schedule of assets, or other document, instrument or paper requiring such certification. 34 21 Section 5. Any signing authority authorized by the Chairman, the President, any Vice Chairman of the Board of Directors, any Senior Executive Vice President or any Executive Vice President may be rescinded at any time by any one of said officers and any signing power authorized in or pursuant to Sections 1, 2 or 3 of this Article shall terminate without necessity of further action when the officer or employee having such power leaves the employ of the Corporation. RE-NUMBERED ARTICLE VIII 8/21/86 Amendments Section 1. New by-laws may be adopted or these by-laws may be amended or repealed by the affirmative vote or written consent of a majority of the outstanding shares entitled to vote, except as otherwise provided by law or by the articles of incorporation or these by-laws. Section 2. Subject to the right of shareholders as provided in Section 1 of this Article to adopt, amend or repeal by-laws, and except as otherwise provided by law or by the articles of incorporation, by-laws, other than a by-law or amendment thereof changing the maximum or minimum number of directors, may be adopted, amended or repealed by the board of directors. Section 3. Any amendment to these by-laws shall become effective only when approved by the Superintendent of Banks of the State of California and when a copy thereof, certified by the secretary of this corporation has been filed with the Superintendent. 35 EXHIBIT 6 Before the SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. CONSENT Pursuant to Section 321(b) of the Trust Indenture Act of 1939, as amended, the undersigned consents that reports of examinations by Federal, State, Territorial, or District authorities, including but not limited to the Treasury Department, the Comptroller of the Currency, the Board of Governors of the Federal Reserve System, the Federal Reserve Banks, and the Federal Deposit Insurance Corporation, may be furnished by such authorities to the Securities and Exchange Commission upon request therefor. Dated: March 13, 1995 THE BANK OF NEW YORK TRUST COMPANY OF CALIFORNIA By:/s/William F. Chambers ---------------------------- Name: Title: 36 EXHIBIT 7 Consolidated Report of Condition of "THE BANK OF NEW YORK TRUST COMPANY OF CALIF." - ---------------------------------------------- (Legal title of bank) of Los Angeles, Los Angeles, - ---------------------------- (City) (County) and Domestic _____________________ Subsidiaries at the close of business on 12-31, 1994. State Bank No. 1321
ASSETS Dollar Amounts in Thousands 1. Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . 195 1. 2. a. Securities, held-to-maturity . . . . . . . . . . . . . . . . . . 2,228 2a. b. Securities, available for sale . . . . . . . . . . . . . . . . . 0 2b. 3. Trading account securities . . . . . . . . . . . . . . . . . . . . 0 3. 4. Federal funds sold and securities purchased under agreements to resell in domestic offices . . . . . . . . . . 23,280 4. 5. a. Loans, Total (excluding unearned income) . . . . . . . . . . . . 0 5a. b. Less: Allowance for possible loan losses . . . . . . . . . . . . 0 5b. c. Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 5c. 6. Bank premises, F.F.& E. (including $0 capitalized leases) . . . . . 214 6. 7. Real estate owned other than bank premises . . . . . . . . . . . . 0 7. 8. Investments in unconsolidated subsidiaries and associated companies . . . . . . . . . . . . . . . . . . . . 0 8. 9. Customers' liability to this bank on acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . 0 9. 10. Other assets (including $0 intangible) . . . . . . . . . . . . . . 1,338 10. ------ 11. TOTAL ASSETS (sum of items 1 thru 10) . . . . . . . . . . . . . . . 27,255 11. ====== LIABILITIES 12. a. TOTAL DEPOSIT IN DOMESTIC OFFICES . . . . . . . . . . . . . . . 3,536 12a. (1) Total demand deposits . . . . . . . . . . . . . . . . . 881 (1) (2) Total time and savings deposits . . . . . . . . . . . . 2,655 (2) b. TOTAL DEPOSITS IN FOREIGN OFFICES . . . . . . . . . . . . . . . 0 12b. c. TOTAL DEPOSITS IN DOMESTIC AND FOREIGN OFFICES (sum of items 13a & b) . . . . . . . . . . . . . 3,536 12c. 13. Federal funds purchased and securities sold under agreements to repurchase in domestic offices . . . . . . . . 0 13. 14. Other liabilities for borrowed money, including note balances of U.S. Treasury . . . . . . . . . . . . . . . 0 14. 15. Mortgage indebtedness (including $0 capital leases) . . . . . . . 0 15. 16. Acceptances executed by or for account of this bank and outstanding . . . . . . . . . . . . . . . . . . . . 0 16. 17. Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . 3,785 17. ------ 18. TOTAL LIABILITIES (excluding subordinated notes and debentures . . . . . . . . . . . . . . . . . . . . . . . 7,321 18. ====== 19. Subordinated notes and debentures . . . . . . . . . . . . . . . . 0 19. SHAREHOLDER'S EQUITY 20. Preferred stock a. No. shares outstanding 0 Amount . . . . . . . . . . . . . 0 20. 21. Common stock a. No. shares authorized 1,000 21a. b. No. shares outstanding 1,000 Amount . . . . . . . . . . . . . 1,000 21b. 22. Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,074 22. 23. TOTAL CONTRIBUTED CAPITAL (sum of items 21, 22 & 23) . . . . . . . 14,074 23. 24. a. Undivided profits and capital reserves . . . . . . . . . . . . 5,860 24a. b. Net unrealized gain (loss) on available for sale securities . . 0 24b. 25. Cumulative foreign currency translation adjustment . . . . . . . . 0 25. 26. TOTAL SHAREHOLDER'S EQUITY (sum of items 23, 24 & 25) . . . . . . 19,934 26. ------ 27. TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY . . . . . . . . . . . . 27,255 27. ====== MEMORANDUM: AMOUNT OUTSTANDING AS OF REPORT DATE Standby letters of credit . . . . . . . . . . . . . . . . . . . . 0
The undersigned, James L. Birdwell, President and William J. Winkelmann, Vice Pres. ---------------------------- ---------------------------------- (Name and Title) (Name and Title) 37 of the above-named bank, each declares for himself alone and not for the other: I have personal knowledge of the matters contained in this report and I believe that each statement in said report is true. Each of the undersigned, for himself alone and not for the other, certifies under penalty of perjury that the foregoing is true and correct. Executed on 1-25-95, at Los Angeles, California ------- ----------- (Date) (County) /s/James L. Birdwell /s/William J. Winkelmann - ----------------------- ---------------------------- (Signature) (Signature) -----END PRIVACY-ENHANCED MESSAGE-----