<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 1996
REGISTRATION NOS. 333-2336
333-2336-01
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2 TO
FORM S-4
EXCHANGE OFFER
UNDER
THE SECURITIES ACT OF 1933
----------------
CBM FUNDING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7011 52-1955658
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
COURTYARD II ASSOCIATES, L.P.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7011 52-1955662
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
</TABLE>
----------------
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
----------------
BRUCE F. STEMERMAN
PRESIDENT
CBM FUNDING CORPORATION
10400 FERNWOOD ROAD
BETHESDA, MARYLAND 20817
(301) 380-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPY TO:
J. WARREN GORRELL, JR., ESQ.
BRUCE W. GILCHRIST, ESQ.
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-5600
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Exchange Offer becomes effective.
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company, check the following box.
[_]
----------------
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED OFFERING PRICE PER CERTIFICATE AGGREGATE OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Multiclass Mortgage
Pass-Through
Certificates, Series
1996-1B................ $409,200,305 100% $409,200,305 $141,103.60(1)
</TABLE>
================================================================================
(1) Previously Paid.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
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.
================================================================================
<PAGE>
CBM FUNDING CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED
BY FORM S-4
<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM LOCATION IN PROSPECTUS
--------------------------- ----------------------
<C> <S>
A. INFORMATION ABOUT THE TRANSACTION
1.Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus............................ Cover Page of Registration Statement;
Outside Front Cover Page of Prospectus
2.Inside Front and Outside Back Cover
Pages of Prospectus................... Inside Front and Outside Back Cover Pages
of Prospectus; Available Information
3.Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information........ Summary; Risk Factors; The Issuer; The
Company; Selected Consolidated Financial
and Operating Data
4.Terms of the Transaction................ Front Cover Page of Prospectus; Summary;
Description of the Mortgage Loan,
Description of the Mortgages; Description
of the Management Agreement; Description
of the Trust and Servicing Agreement; The
Exchange Offer; Description of the New
Certificates; Yield, Prepayment and
Maturity Considerations; Certain Federal
Income Tax Considerations; Plan of
Distribution
5.Pro Forma Financial Information......... Not Applicable
6.Material Contracts With the Company
Being Acquired........................ Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............. Not Applicable
8.Interests of Named Experts and Counsel.. Not Applicable
9.Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities........................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10.Information with Respect to S-3
Registrants........................... Not Applicable
11.Incorporation of Certain Information by
Reference............................. Not Applicable
12.Information with Respect to S-2 or S-3
Registrants........................... Not Applicable
13.Incorporation of Certain Information by
Reference............................. Not Applicable
14.Information With Respect to Registrants
Other Than S-2 or S-3 Registrants..... The Issuer; The Company; Description of the
Mortgaged Properties; Selected
Consolidated Financial and Operating Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations, Financial Statements
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15.Information With Respect to S-3
Companies............................. Not Applicable
16.Information With Respect to S-2 or S-3
Companies............................. Not Applicable
17.Information With Respect to Companies
Other Than S-3 or S-2 Companies....... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18.Information if Proxies, Consents or
Authorizations Are to be Solicited.... Not Applicable
19.Information if Proxies, Consents or
Authorizations Are Not to be Solicited
or in an Exchange Offer............... Management; Certain Relationships and
Related Transactions
</TABLE>
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+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 MAY 23, 1996
PRELIMINARY PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING
MULTICLASS MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-1A
FOR
MULTICLASS MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-1B
OF
CBM FUNDING CORPORATION
-----------
CBM Funding Corporation ("CBM Funding" or the "Issuer") is offering upon the
terms and subject to the conditions set forth in this Prospectus and the
accompanying letter of transmittal (the "Letter of Transmittal") (which
together constitute the "Exchange Offer"), to exchange registered Multiclass
Mortgage Pass-Through Certificates, Series 1996-1B (the "New Certificates") for
unregistered Multiclass Mortgage Pass-Through Certificates, Series 1996-1A,
initially purchased by Lehman Brothers Inc. in a private offering, (the "Old
Certificates" and together with the New Certificates, the "Offered
Certificates") which represent beneficial ownership interests in a trust fund
(the "Trust Fund") established by CBM Funding. The form and terms of the New
Certificates are substantially identical to the form and terms of the Old
Certificates, except that the New Certificates will be registered under the
Securities Act of 1933, as amended (the "Securities Act"), and will not bear
any legends restricting their transfer. The Exchange Offer is being made to
satisfy certain contractual obligations of CBM Funding and Courtyard II
Associates, L.P. (the "Company"), a Delaware limited partnership. See "The
Exchange Offer" and "Description of the New Certificates." CBM Funding is a
wholly owned subsidiary of the Company.
The Trust Fund consists of a single, fixed rate, non-recourse mortgage loan
(the "Mortgage Loan") made on January 24, 1996 by CBM Funding to the Company,
together with various loan documents and collateral securing the Mortgage Loan.
The Company owns 69 Courtyard by Marriott hotel properties located in 29
states, which are managed by a wholly owned subsidiary of Marriott
International, Inc. ("MII"). One Courtyard by Marriott hotel property (the
"Deerfield Hotel") is owned by an affiliate of the Company (the 69 Courtyard by
Marriott hotel properties and the Deerfield Hotel are collectively referred to
as the "Hotels"). As of May 1, 1996, the Mortgage Loan had a principal balance
of $407,182,129. The terms of the Mortgage Loan provide for monthly payments of
interest in an amount equal to the aggregate amount of interest accruing on the
Certificates for such month and monthly payments of principal based on a 204-
month amortization schedule, computed using an interest rate equal to 7.5% per
annum. The Mortgage Loan has a scheduled maturity date of January 28, 2008 (the
"Scheduled Balloon Maturity Date"), on which date a balloon payment, which is
scheduled to be $180.3 million, will be due. The Mortgage Loan may not be
prepaid, in whole or in part, except upon payment of a premium equal to the
greater of 1% of the principal amount of the Mortgage Loan being prepaid and a
Treasury-based yield maintenance amount (the "Prepayment Premium"), provided
that no Prepayment Premium is required in the event of a prepayment made (i) in
connection with casualty or condemnation events, (ii) in connection with sales
of not more than five Mortgaged Properties made in order to avoid or to cure
certain defaults, or (iii) on or after the date that is six months prior to the
Scheduled Balloon Maturity Date. The Mortgage Loan is secured primarily by 69
cross-defaulted and cross-collateralized mortgages (the "Mortgages"),
representing first priority mortgage liens on fee or leasehold interests in the
69 Hotels owned by the Company and fee interests in land leased from MII or its
affiliates (collectively, the "Marriott Ground Lessors") on which 53 Hotels are
situated, and related assets (collectively, the "Mortgaged Properties") and a
pledge of the Company's membership interest in, and the related right to
receive distributions from, the entity that owns the Deerfield Hotel. The
Mortgage Loan is non-recourse to CBM Funding, the Company and its partners, and
the Marriott Ground Lessors. See "Description of the Mortgage Loan,"
"Description of the Mortgaged Properties," and "Description of the Mortgages."
The New Certificates consist of seven classes (each, a "Class"), designated
as the Class A-1, Class A-2, Class A-3P&I, Class A-3IO, Class B, Class C, and
Class D Certificates. Each Class of New Certificates will represent the same
beneficial ownership interests in the Trust Fund as the corresponding Class of
Old Certificates and will be issued pursuant to, and entitled to the benefits
of, the Trust and Servicing Agreement governing the Old Certificates (the
"Trust and Servicing Agreement"). Distributions on the New Certificates will be
made, to the extent of available funds, on the first day of each calendar month
or, if any such first day is not a Business Day, then on the next succeeding
Business Day without additional interest (each, a "Distribution Date"),
beginning 1, 1996. As more fully described herein, distributions
allocable to interest on each Class of New Certificates on each Distribution
Date will be computed based on the applicable per annum
(Cover continued on page 2)
SEE "RISK FACTORS" BEGINNING ON PAGE 28, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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.
May , 1996
<PAGE>
pass-through rate set forth below, and the aggregate Certificate Balance, or
with respect to the Class A-3IO Certificates, the aggregate Notional Balance,
of such New Certificate outstanding at the beginning of the applicable
interest accrual period. Distributions in respect of principal payable on any
Class of New Certificates will be made in the amounts and in accordance with
the priorities described herein. See "Description of the New Certificates--
Distributions."
<TABLE>
<CAPTION>
ASSUMED FINAL
INITIAL CLASS PASS- CERTIFICATE
CLASS OF CERTIFICATE THROUGH DISTRIBUTION
CERTIFICATES BALANCE(1) RATE DATE(2)
------------ ------------- ------- ----------------
<S> <C> <C> <C>
Class A-1 $ 45,500,000 7.550% July 1, 1999
Class A-2 $ 50,000,000 6.880% July 1, 2002
Class A-3P&I $129,500,000 7.080% November 1, 2007
Class A-3IO (3) 0.933% November 1, 2007
Class B $ 75,000,000 7.480% February 1, 2008
Class C $100,000,000 7.860% February 1, 2008
Class D $ 10,200,000 8.645% February 1, 2008
</TABLE>
- --------
(1) Represents the Class Certificate Balance as of January 24, 1996 (the
"Issue Date"). The Class A-1 Certificate Balance has been reduced to
$42,482,129 as of May 1, 1996. In addition to distribution of principal
(if applicable) and interest, holders of the New Certificates will be
entitled to receive a portion of any Prepayment Premiums received with
respect to the Mortgage Loan. Holders of New Certificates (other than the
Class A-3IO Certificates) will also be entitled to receive, under certain
circumstances, any Net Default Interest received with respect to a default
under the Mortgage Loan. See "Description of the New Certificates--
Distributions."
(2) Determined assuming no prepayments, no defaults, and no acceleration of
the maturity of the Mortgage Loan. This date is earlier than the related
Rated Final Distribution Date upon which the rating of such Class of
Certificates is based. The Rated Final Distribution Date with respect to
each Class of Offered Certificates is the fifth anniversary of the Assumed
Final Certificate Distribution Date. The Scheduled Balloon Maturity Date
may not be extended beyond the Rated Final Distribution Date with respect
to any then outstanding Class of Offered Certificates without the consent
of 100% of holders of such Class. See "Ratings."
(3) The Class A-3IO Certificates do not have a Certificate Balance and,
accordingly, do not receive distributions in respect of principal. The
Class A-3IO Certificates have a Notional Balance at any time equal to the
Certificate Balance of the Class A-3P&I Certificates.
INVESTORS IN THE CLASS A-3IO CERTIFICATES SHOULD CONSIDER CAREFULLY THE RISK
THAT RAPID PRINCIPAL PREPAYMENTS ON THE MORTGAGE LOAN COULD RESULT IN THE
FAILURE OF SUCH INVESTORS TO RECOVER SOME OR ALL OF THEIR INITIAL INVESTMENT.
SEE "RISK FACTORS--RISKS RELATING TO PASS-THROUGH CERTIFICATES--SENSITIVITY OF
THE CLASS A-3IO CERTIFICATES."
Elections will be made to treat the Trust Fund, exclusive of Net Default
Interest, payments of Liquidated Damages with respect to registration rights,
and certain specified accounts, as two real estate mortgage investment
conduits ("REMICs") under the Internal Revenue Code of 1986, as amended
(collectively, the "Trust REMICs" and individually, the "Lower-Tier REMIC" and
the "Upper-Tier REMIC"). The Class A-1, Class A-2, Class B, Class C and Class
D Certificates in part represent beneficial interests in a portion of the
"regular interests" in the Lower-Tier REMIC. The "residual interest" in the
Lower-Tier REMIC is evidenced by the Class R Certificate issued under the
Trust and Servicing Agreement. There also is one uncertificated class of
"regular interests" in the Lower-Tier REMIC (the "Class A-3L Interest") which
is held by the Trustee as the primary asset of the Upper-Tier REMIC. The Class
A-3P&I and Class A-3IO Certificates in part represent beneficial interests in
the "regular interests" in the Upper-Tier REMIC, and the Class UR Certificate
evidences the "residual interest" in the Upper-Tier REMIC. See "Certain
Federal Income Tax Considerations." The Class R Certificate and the Class UR
Certificate are not part of the Exchange Offer. The Offered Certificates
together with the Class R Certificate and Class UR Certificate are
collectively referred to as the "Certificates."
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
, 1996, OR SUCH LATER DATE AND TIME TO WHICH IT IS EXTENDED (THE
"EXPIRATION DATE").
Each broker-dealer that receives New Certificates for its own account in
exchange for Old Certificates, where those Old Certificates were acquired by
the broker-dealer as a result of its market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of those New Certificates. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of New Certificates received in exchange for
Old Certificates where such Old Certificates were acquired as a result of
market-making activities or other trading activities. See "Plan of
Distribution." The Old Certificates are designated for trading in the Private
Offerings, Resales and Trading through Automated Linkages ("PORTAL") market.
To the extent Old Certificates are tendered and accepted in the Exchange
Offer, the aggregate amount of outstanding Old Certificates will decrease with
a resulting decrease in the liquidity in the market therefor. Following the
consummation of the Exchange Offer, holders of Old Certificates who were
eligible to participate in the Exchange Offer but who did not tender their Old
Certificates will not be entitled to certain rights under the Registration
Rights Agreement (as herein defined) and such Old Certificates will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity
in the market for the Old Certificates could be adversely affected. No
assurance can be given as to the liquidity of the trading market for either
the Old Certificates or the New Certificates.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY 5
OWNERSHIP AND MANAGEMENT STRUCTURE 27
RISK FACTORS
. Risks Relating to the Lodging
Industry and the Mortgaged
Properties....................... 28
. Risks Relating to Real Estate
Investments...................... 29
. Risks of Forward Looking
Information...................... 32
. Risks Relating to Pass-Through
Certificates..................... 32
THE ISSUER 35
THE COMPANY 35
SELECTED CONSOLIDATED FINANCIAL AND
OPERATING DATA 36
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS 37
. General.......................... 37
. Capital Resources and Liquidity.. 37
. Results of Operations............ 39
. Twelve Weeks Ended March 24, 1995
Compared to Twelve Weeks Ended
March 22, 1996................... 40
. 1994 Compared to 1995............ 41
. 1993 Compared to 1994............ 42
. Competition...................... 43
. Inflation........................ 43
. Seasonality...................... 43
DESCRIPTION OF THE MORTGAGED PROPER-
TIES 44
. General.......................... 44
. Courtyard by Marriott System..... 44
. Strategy......................... 45
. The Lodging Industry............. 46
. Competition...................... 46
. Ground Leases.................... 47
. Description of the Portfolio and
Specific Property Information.... 50
DESCRIPTION OF DEERFIELD LLC 72
DESCRIPTION OF THE MORTGAGE LOAN 72
. General.......................... 72
. Principal and Interest........... 72
. Prepayments...................... 73
. Security for the Mortgage Loan... 74
. Representations and Warranties... 75
. Certain Mortgage Loan Covenants.. 75
. Sales of Mortgaged Properties.... 76
. Casualty and Condemnation........ 78
. Mortgage Loan Events of Default.. 79
. Financial Statements and Other
Information...................... 80
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF THE MORTGAGES 80
. General......................... 80
. Representations, Warranties, and
Covenants....................... 81
. Discharge of Liens.............. 81
. Insurance....................... 81
. Modification of Mortgages and
Other Loan Documents............ 82
. Title Insurance................. 83
THE EXCHANGE OFFER 83
. Purpose and Effect.............. 83
. Consequences of Failure to
Exchange........................ 84
. Terms of the Exchange Offer..... 84
. Expiration Date; Extensions;
Amendments...................... 85
. Interest On the New
Certificates.................... 85
. Procedures For Tendering........ 85
. Book-Entry Transfer............. 87
. Guaranteed Delivery Procedures.. 87
. Withdrawal Rights............... 88
. Conditions...................... 88
. Exchange Agent.................. 89
. Solicitations of Tenders; Fees
and Expenses.................... 89
. Transfer Taxes.................. 89
MANAGEMENT 90
. Beneficial Ownership............ 90
. Management Remuneration......... 91
. Limited Liability and
Indemnification with Respect to
the Company..................... 91
. Special Purpose Entity Covenants
of the Company.................. 92
OWNERSHIP OF INTERESTS IN CBM
FUNDING AND THE MANAGING GENERAL
PARTNER 92
. Ownership of Interests in CBM
Funding......................... 92
. Ownership of Interests in the
Managing General Partner........ 92
CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS 92
. Relationship with Host
Marriott........................ 92
. Relationship with MII........... 92
. Payments to MII and
Subsidiaries.................... 93
. Payments to Host Marriott and
Subsidiaries.................... 94
. Mortgage Debt Guarantees........ 94
</TABLE>
3
<PAGE>
TABLE OF CONTENTS--(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DESCRIPTION OF THE MANAGEMENT AGREE-
MENT 94
. General.......................... 94
. Subordination of Certain Fees and
Other Payments................... 94
. Compensation..................... 95
. Management Services.............. 96
DESCRIPTION OF THE NEW CERTIFICATES 98
. General.......................... 98
. Distributions.................... 100
. Voting Rights.................... 104
. Reports to Certificateholders;
Available Information............ 105
. Other Information................ 106
. Book-Entry Registration.......... 106
. Definitive Certificates.......... 108
. Exchange Offer; Registration
Rights........................... 108
DESCRIPTION OF THE TRUST AND
SERVICING AGREEMENT 109
. Assignment of the Mortgage Loan.. 109
. The Servicer..................... 110
. Responsibilities of the
Servicer......................... 110
. Servicing Fee.................... 110
. Conflicts of Interest............ 110
. The Trustee...................... 111
. Duties of the Trustee............ 111
. Servicing of the Mortgage Loan;
Inspections...................... 111
. Modification of the Loan
Documents........................ 112
. Flow of Funds; Accounts.......... 113
. Withdrawals from the Collection
Account.......................... 115
. Realization Upon the Mortgaged
Properties....................... 116
. Advances......................... 117
. Events of Default Under the Trust
and Servicing Agreement.......... 119
. Rights Upon Trust and Servicing
Event of Default................. 119
. Evidence as to Compliance........ 120
. Certain Matters Regarding CBM
Funding and the Servicer......... 120
. Amendments....................... 121
. Termination...................... 122
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
YIELD, PREPAYMENT AND MATURITY
CONSIDERATIONS 122
. General.......................... 122
. Effects of P&I Shortfalls on the
Mortgage Loan, Additional Trust
Fund Expenses and Other Matters.. 124
. Weighted Average Life............ 124
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS 128
. General.......................... 128
. Exchange of Old Certificates for
New Certificates................. 128
. Qualification of the Trust REMICs
as REMICs........................ 128
. Taxation of the Certificates..... 129
. Taxation of the Regular
Interests........................ 130
. Taxation of the REMICs........... 134
. Prohibited Transactions and Other
Taxes............................ 134
. Liquidation and Termination...... 135
. Taxation of the Non-REMIC
Interests........................ 135
. Backup Withholding............... 136
. Reporting of Certain
Information...................... 136
. Foreign Holders.................. 136
STATE AND LOCAL TAX CONSIDERATIONS 137
ERISA CONSIDERATIONS 137
. General.......................... 137
. Plan Assets Regulation........... 138
. Prohibited Transaction
Exemptions....................... 138
LEGAL INVESTMENT 140
PLAN OF DISTRIBUTION 140
LEGAL MATTERS 141
EXPERTS 141
RATINGS 141
AVAILABLE INFORMATION 142
INDEX OF DEFINED TERMS 143
FINANCIAL STATEMENTS F-1
ANNEX I: FORM OF SERVICER'S MONTHLY
REPORT I-1
</TABLE>
4
<PAGE>
SUMMARY
The following summary is qualified in its entirety by reference to the
detailed information appearing elsewhere in this Prospectus. Capitalized terms
used in this summary and not defined herein have the meanings given to them
elsewhere in this Prospectus. See "Index of Significant Terms." Unless the
context indicates or requires otherwise, references in this Prospectus to the
"Company" are, for periods ended on or before January 24, 1996, to Courtyard by
Marriott II Limited Partnership, a Delaware limited partnership, and for the
periods ending subsequent to January 24, 1996, Courtyard II Associates, L.P., a
Delaware limited partnership, and its subsidiaries and their respective
operations. See "Risk Factors" for a description of certain risks and other
special considerations relevant to an investment in the Offered Certificates.
CBM Funding................... CBM Funding Corporation, a Delaware corporation
and wholly owned subsidiary of the Company,
established for the purpose of making the
Mortgage Loan to the Company and conveying the
Mortgages, the Mortgage Note, and related
documents to the Trust Fund. See "Ownership and
Management Structure" herein for a chart
showing the relationships among CBM Funding,
the Company, the Manager, and certain
affiliates.
Company....................... Courtyard II Associates, L.P., a "bankruptcy-
remote" single purpose Delaware limited
partnership. A "bankruptcy-remote" entity is
one whose business is limited to owning and
operating the assets that provide the security
for a specific debt obligation, that is
restricted from incurring additional
obligations, and whose assets and liabilities
are unlikely to be consolidated with those of
any related entity in the event of a bankruptcy
of the related entity. Courtyard by Marriott II
Limited Partnership, a Delaware limited
partnership and former owner of the Hotels
("CBM II L.P."), owns a 98% limited partner
interest and a 1% general partner interest in
the Company. Courtyard II Associates Management
Corporation, a "bankruptcy-remote" single
purpose Delaware corporation and a wholly owned
subsidiary of CBM II L.P. (the "Managing
General Partner"), owns a 1% managing general
partner interest in the Company. The Company
does not have significant assets other than the
Mortgaged Properties and a 99% membership
interest in CBM Associates II LLC, a
"bankruptcy-remote" single purpose Delaware
limited liability company ("Deerfield LLC"),
which owns the Hotel in Chicago/Deerfield,
Illinois (the "Deerfield Hotel"). The sole
general partner of CBM II L.P. is a wholly
owned subsidiary of Host Marriott Corporation
("Host Marriott").
Servicer...................... Bankers Trust Company, a New York banking
corporation. The Servicer is required to
perform the customary functions of a servicer
of mortgage loans, including collection of
payments from the Company, remittance of
payments received in respect of the Mortgage
Loan into the Distribution Account for the
benefit of the Certificateholders, and making
advances in accordance with its obligations
under the Trust and Servicing Agreement. See
"Description of the Trust and Servicing
Agreement--Advances."
Trustee....................... Marine Midland Bank, a New York banking
corporation and trust company. The Trustee is
the holder of the Mortgage Loan, the mortgagee
of the Mortgages (or the beneficiary under the
deeds
5
<PAGE>
of trust, as applicable), and the secured party
or beneficiary under other security and related
documents (including the pledge of the
Company's membership interest in Deerfield LLC
and the related right to receive distributions
in respect thereof). See "Description of the
Trust and Servicing Agreement--Duties of the
Trustee." The Trustee has appointed Bankers
Trust Company to act as Custodian, Paying
Agent, Authenticating Agent, Certificate
Registrar, and Transfer Agent under the Trust
and Servicing Agreement.
Manager....................... Courtyard Management Corporation, a Delaware
corporation (the "Manager") and a wholly owned
subsidiary of Marriott International, Inc., a
Delaware corporation ("MII"). The Hotels are
managed by the Manager under two management
agreements with substantially similar terms,
one covering the 69 Mortgaged Properties and
one covering the Deerfield Hotel (such two
agreements as so amended and restated, the
"Management Agreement"). The Management
Agreement expires February 22, 2013, and
provides for renewals at the option of the
Manager for one or more of the Hotels for up to
35 years thereafter. The Manager has agreed to
subordinate a portion of its management fees
and to grant the Trustee certain cure rights in
the event of a default under the Management
Agreement. The Hotels are operated as part of
the Courtyard by Marriott hotel system which,
as of December 31, 1995, included 249 hotels
located in 39 states in the United States and
four hotels located in the United Kingdom.
Inclusion of the Hotels within the Courtyard by
Marriott hotel system provides the benefits of
name recognition by customers; centralized
reservations; system-wide marketing, promotion,
and advertising; and centralized purchasing,
training, and support services. See
"Description of the Management Agreement."
Notes Offering................ Concurrently with the closing on January 24,
1996 (the "Issue Date") of the offering of the
Old Certificates (the "Old Certificates
Offering"), CBM II L.P. and Courtyard II
Finance Company, a Delaware corporation and
wholly owned subsidiary of CBM II L.P., engaged
in an offering (the "Notes Offering") of
$127,400,000 senior secured notes due 2008 (the
"Notes") pursuant to exemptions from
registration under the Securities Act. The
Notes are secured by a pledge of CBM II L.P.'s
limited and general partnership interests in
the Company and its ownership interest in the
Managing General Partner. THE COMPANY HAS NO
LIABILITY WITH RESPECT TO THE NOTES, AND THE
NOTES ARE NOT SECURED BY THE MORTGAGED
PROPERTIES OR ANY OTHER ASSETS OF THE COMPANY.
Although payments on the Notes are made from
distributions of excess cash or other assets of
the Company to CBM II L.P., such distributions
are prohibited upon any monetary event of
default under the Mortgage Loan, or upon
acceleration of the Mortgage Loan as a result
of any non-monetary event of default
thereunder.
6
<PAGE>
Trust Fund.................... The Certificates represent in the aggregate the
entire beneficial ownership interest in the
Trust Fund, which consists of: (i) the Mortgage
Loan, the Mortgages, the pledge of the
Company's membership interest in (and the
related right to receive distributions from)
Deerfield LLC, and the other Loan Documents,
and all payments under the Mortgage Loan and
Loan Documents, (ii) funds or assets from time
to time on deposit in the Collection Account,
the Distribution Account, the Upper-Tier
Distribution Account, the Default Interest
Distribution Account, and the Liquidated
Damages Distribution Account, (iii) any
Mortgaged Property acquired on behalf of the
Trust Fund through foreclosure or deed in lieu
of foreclosure (upon acquisition, a "Foreclosed
Property") and any funds deposited into any
account (a "Foreclosed Property Account")
established in connection with Foreclosed
Properties, and (iv) the right to receive
payment of Liquidated Damages under the
Registration Rights Agreement. The Trustee also
has security interests in the funds or assets
from time to time on deposit in the FF&E
Reserve Account, the Lockbox Account, and the
Cash Collateral Account and certain other
assets of the Company. See "Description of the
Trust and Servicing Agreement--Flow of Funds;
Accounts."
Risk Factors.................. In addition to the risks described below under
"Special Yield Considerations," an investment
in the Offered Certificates involves certain
risks, including, but not limited to, the
following:
. The Company is dependent on the Manager to
manage and operate the Hotels. If the
Management Agreement were terminated by the
Manager, the Company would lose the right to
use the Courtyard by Marriott name, its
access to the Manager's central reservation
system, and the other benefits under the
Management Agreement.
. General and regional economic factors beyond
the control of the Manager or the Company may
affect the performance and value of the
Mortgaged Properties.
. A decline in business travel or the tourism
industry could have a negative impact on the
operating performance of the Hotels.
. The Mortgage Loan is not insured or
guaranteed by CBM Funding, the Servicer, the
Trustee, Host Marriott, MII, the Manager, any
affiliate of any of the foregoing, or any
governmental agency or instrumentality or any
other person or entity.
. The assets in the Trust Fund are the only
source of payments for the Offered
Certificates. The Trustee, for the benefit of
the holders of the Offered Certificates, will
have recourse only to the Mortgaged
Properties and other Collateral upon the
occurrence of a Mortgage Loan Event of
Default.
. The Company may be unable to make the Balloon
Payment under the Mortgage Loan when due if
it is unable to refinance or sell one or more
of the Mortgaged Properties.
7
<PAGE>
. Certain Offered Certificates are subordinated
to others.
. There may not be a secondary market for the
Offered Certificates.
See "Risk Factors" for a description of these
and other risks and special considerations that
should be considered before making an
investment in the Offered Certificates.
Special Yield The yield to investors on any of the Offered
Considerations................ Certificates will depend upon the purchase
price thereof and the rate and timing of
principal payments on the Mortgage Loan
(including voluntary prepayments and
prepayments resulting from defaults,
casualties, or condemnations affecting one or
more of the Mortgaged Properties). An investor
should purchase Offered Certificates only after
performing an analysis of such Offered
Certificates based upon the investor's own
assumptions as to future rates of principal
payments. In addition, while a prepayment of
the Mortgage Loan and its application to any
component thereof may have the effect of
shortening the average lives of the other
components of the Mortgage Loan and the
Certificates corresponding thereto, holders of
such corresponding Certificates will not
receive any Prepayment Premium payable in
connection with such prepayment. Such
Prepayment Premium will instead be paid only to
holders of the Certificates to whom such
prepayment is distributed and to the holders of
the Class A-3P&I Certificates and the Class A-
3IO Certificates in the case of distributions
in respect of the Class A-3L Interest. See
"Yield, Prepayment and Maturity
Considerations."
THE MORTGAGE LOAN
Payments.................... As of May 1, 1996, the Mortgage Loan, which had
an original principal balance of $410,200,000,
has a principal balance of $407,182,129. The
Mortgage Loan provides for payment of interest
and principal each month on the third Business
Day (each, a "Due Date") preceding each
Distribution Date with respect to the
Certificates.
For purposes of calculating interest and other
amounts payable on the Mortgage Loan, the
Mortgage Loan is divided into six components,
each corresponding to one Class of Offered
Certificates (considering, for these purposes
only, the Class A-3P&I Certificates and the
Class A-3IO Certificates as a single Class).
Accordingly, each component has a principal
balance and an interest rate equal to the
Certificate Balance and Pass-Through Rate for
the corresponding Class of Offered
Certificates, except that the component
corresponding to the Class A-3L Interest has a
principal balance equal to the Class A-3P&I
Certificate Balance and an interest rate equal
to the sum of the Pass-Through Rate of the
Class A-3P&I Certificates and the Pass-Through
Rate of the Class A-3IO Certificates. Payments
on the Mortgage Loan allocable to principal
reduce the component principal balances of the
Mortgage Loan in the same order of priority as
distributions
8
<PAGE>
of principal on the Offered Certificates reduce
the Certificate Balances of the corresponding
Classes of Offered Certificates. See
"Description of the New Certificates--
Distributions." The amount of interest payable
on each Due Date will be equal to the sum of
the interest accruing on each component for the
calendar month in which the Due Date occurs
(each such period, a "Due Period"), computed
using the principal balance of each component
as of the first day of the related Due Period
and the interest rate on such component.
Interest will be computed on the basis of a
360-day year consisting of twelve 30-day
months. Late payments of interest, principal,
and any other amounts required to be paid by
the Company under the Mortgage Loan will accrue
interest during each Due Period, until paid, at
a default rate of interest (the "Default Rate")
equal to the greater of (a) 2% over the
Weighted Average Interest Rate as of the first
day of such Due Period and (b) the Prime Rate.
Principal on the Mortgage Loan is payable in
144 monthly installments and began on February
27, 1996, with the final installment being a
balloon payment (the "Balloon Payment"), in
accordance with a 204-month principal
amortization schedule, computed using an
interest rate equal to 7.5% per annum. The
Balloon Payment is scheduled to be $180.3
million.
In addition to payments of principal and
interest, the Company is required to pay the
fees of the Servicer (which will include the
fees of the Trustee) and to reimburse certain
expenses incurred by the Servicer and the
Trustee.
Scheduled Balloon Maturity
Date........................ The Balloon Payment will be due and payable by
the Company on January 28, 2008 (the "Scheduled
Balloon Maturity Date"). In the event of a
failure of the Company to pay the Balloon
Payment on that date, the Scheduled Balloon
Maturity Date may be extended by the Servicer
with the consent of holders of Offered
Certificates (excluding the holders of the
Class A-3IO Certificates) evidencing not less
than 66 2/3% of the aggregate Voting Rights of
all then outstanding Offered Certificates to a
date not later than the latest Rated Final
Distribution Date with respect to the then
outstanding Classes of Offered Certificates;
provided that the Scheduled Balloon Maturity
Date may not be extended beyond the Rated Final
Distribution Date with respect to any then
outstanding Class of Offered Certificates
without the consent of 100% of the holders of
such Class (including the holders of the Class
A-3IO Certificates).
Mortgaged Properties and
Other Collateral........... The Mortgage Loan is secured by first priority,
cross-defaulted, and cross-collateralized
Mortgages on 69 Hotels located in 29 states,
including the Company's fee or leasehold
interest in each of the parcels on which such
Hotels are situated, and fee interests of MII
and its affiliates in 53 of such parcels
(collectively, the "Mortgaged Properties"),
liens and security interests in all
9
<PAGE>
related assets, including furniture, fixtures,
and equipment ("FF&E"), certain contract rights
of the Company (including a collateral
assignment of the Management Agreement), a
pledge of the Company's membership interest in,
and the related right to receive distributions
from, Deerfield LLC, the funds in certain
deposit accounts, and the FF&E Reserve Account
(together with the Mortgaged Properties, the
"Collateral"). Eight Hotels are situated on
land that is owned in fee by the Company; 53
Hotels are situated on land (the "MII Land")
leased from MII or its affiliates
(collectively, the "Marriott Ground Lessors");
seven Hotels are situated on land leased from
other third parties; and one Hotel is situated
on land partly owned in fee by the Company and
partly leased from a third party. MII or its
affiliates (as applicable) has granted fee
mortgages with respect to the MII Land to
secure the Mortgage Loan.
The Hotels.................. The Hotels are designed to attract business and
leisure travelers, rather than the group
meeting or convention markets. The Hotels
contained a total of 10,335 guest rooms as of
December 31, 1995. Each Hotel generally
contains a small lobby, a restaurant with
seating for approximately 50 guests, a lounge,
a hydrotherapy pool, a guest laundry, an
exercise room, and two meeting rooms. Most of
the Hotels are located in suburban areas near
office parks or other commercial activities.
Each Hotel is situated on approximately four to
seven acres. See "Description of the Mortgaged
Properties--General."
FF&E Reserve Account........ Under the terms of the Loan Agreement and the
Management Agreement, the Company is required
to maintain a reserve account (an "FF&E Reserve
Account") for replacement of FF&E and certain
other improvements at the Mortgaged Properties.
The Manager is required to deposit, on behalf
of the Company, an amount equal to 5% of annual
total sales from operations of the Mortgaged
Properties into an FF&E Reserve Account, with
deposits made every four weeks. The balance in
the FF&E Reserve Account for the Mortgaged
Properties, as of December 31, 1995, was
approximately $33.1 million, which is pledged
as security for the Mortgage Loan. The Manager
is entitled to receive disbursements from the
FF&E Reserve Account in accordance with certain
procedures set forth in the Management
Agreement in order to make expenditures for the
purposes described above. See "Description of
the Management Agreement--Management Services--
FF&E Replacements."
Initial Debt Service
Coverage Ratio; Ratio of
Earnings to Fixed Charges... Based on (i) the scheduled principal and
interest payments due on the Mortgage Loan for
the first 12 months after January 24, 1996
(based, with respect to interest payments, on
the initial Weighted Average Interest Rate of
7.7045% per annum plus the Servicing Fee), and
(ii) the Mortgaged Properties' aggregate pro
forma cash flow available for debt service of
approximately $83.6 million for the 12 months
ended December 31, 1995, the initial
10
<PAGE>
Debt Service Coverage Ratio on the Mortgage
Loan is approximately 1.91. The Debt Service
Coverage Ratio is calculated by dividing the
aggregate Net Operating Income ("NOI") of the
applicable Mortgaged Properties for the
applicable period by the scheduled payments of
principal and interest under the Mortgage Loan
during such period (excluding the Balloon
Payment). The Company may sell one or more of
the Mortgaged Properties and obtain a release
of the Mortgage thereon so long as, among other
things, it satisfies certain requirements
concerning its Debt Service Coverage Ratio. See
"Sale of Mortgaged Properties" below. The
Company's ratio of earnings to fixed charges
for the year ended December 31, 1995 was 1.57x.
Prepayments................. Except as described below, prepayments of
principal on the Mortgage Note by the Company
are not permitted, in whole or in part, except
upon the payment of a premium (the "Prepayment
Premium") equal to the greater of (x) 1% of the
principal amount of the Mortgage Loan being
prepaid and (y) a yield maintenance amount
based on a spread over Treasuries of 0.25% for
prepayments applied to components corresponding
to the Class A-1, Class A-2, Class A-3P&I,
Class A-3IO, and Class B Certificates, and
0.55% for prepayments applied to components
corresponding to the Class C and Class D
Certificates, as described more fully under
"Description of the Mortgage Loan--
Prepayments." No Prepayment Premium will be
required in the event of a prepayment made (i)
in connection with casualty or condemnation
events, (ii) in connection with sales of not
more than five Mortgaged Properties made in
order to avoid or to cure certain defaults
arising from title or environmental matters, or
(iii) on or after the date which is six months
prior to the Scheduled Balloon Maturity Date.
Prepayments of principal will be applied in
reduction of the components of the Mortgage
Loan in the same order of priority as regularly
scheduled payments of principal on the Mortgage
Loan and will be distributed to
Certificateholders as described below under "--
Distributions."
Sales of Mortgaged
Properties.................. The Company may sell one or more of the
Mortgaged Properties and obtain a release of
the Mortgage thereon so long as (i) such sale
will not adversely affect the classification of
either the Upper-Tier REMIC or the Lower-Tier
REMIC as a REMIC, or cause the remaining
portion of the Trust Fund to fail to qualify as
a grantor trust that is not a taxable mortgage
pool, (ii) the Company shall pay to the Trustee
in connection with such sale, and the Trustee
shall apply to the repayment of the Mortgage
Loan, an amount (the "Release Price") equal to
125% of the then outstanding principal amount
of the Mortgage Loan allocated to such
Mortgaged Property (hereinafter defined as the
"Allocated Loan Amount"), plus accrued interest
thereon to the end of the current Due Period
plus any applicable Prepayment Premium, and
(iii) either (x) the
11
<PAGE>
Debt Service Coverage Ratio for the 13 full
four-week accounting periods immediately
preceding such release for the Mortgaged
Properties that would remain after such release
is not less than the Debt Service Coverage
Ratio for such period for all the Mortgaged
Properties immediately prior to such release,
or (y) (1) the pro forma Debt Service Coverage
Ratio for the Mortgaged Properties that would
remain after such release is not less than
2.60:1, (2) such release, either alone or
together with all other releases in the 13 full
four-week accounting periods immediately
preceding such release, would not result in a
decrease on a pro forma basis in the Debt
Service Coverage Ratio of more than 0.05:1, and
(3) such release would satisfy the condition
for release under the Notes requiring that the
pro forma consolidated interest coverage ratio
of CBM II L.P. for the four full fiscal
quarters immediately preceding such release,
after giving effect to the release of such
Mortgaged Property, is at least equal to the
lesser of 2.50:1 or such ratio immediately
prior to giving effect to such release (or such
condition is waived by the holders of the
Notes). The requirements for sales of
individual properties are intended to prevent
deterioration in the loan to value and debt
service coverage of the portfolio, although
there can be no assurance that this would be
the effect in all cases. The Loan Documents
contain exceptions to these provisions for
sales of Mortgaged Properties following a
casualty or condemnation and sales of not more
than five Mortgaged Properties during the term
of the Mortgage Loan made by reason of defaults
arising from certain title, environmental, or
change in law events relating to a Mortgaged
Property. See "Description of the Mortgage
Loan--Sales of Mortgaged Properties." After the
Issue Date, the initial Allocated Loan Amounts
will be adjusted, proportionally among all
remaining Mortgaged Properties, in connection
with each reduction in the principal balance of
the Mortgage Loan, whether as a result of
scheduled amortization, prepayment or otherwise
(including in connection with any release,
casualty or condemnation). Such adjustments of
Allocated Loan Amount are described in
"Description of the Mortgage Loan--Sales of
Mortgaged Properties."
Flow of Funds; Accounts..... For so long as the Manager is a wholly owned
subsidiary of MII and the senior long-term
unsecured debt of MII is rated at least "BBB+"
by Standard & Poor's Ratings Services ("S&P")
and "BBB" by Duff & Phelps Credit Rating Co.
("DCR," and together with S&P, the "Rating
Agencies"), revenues from operations of the
Mortgaged Properties will be deposited in the
Manager's local bank account for the Mortgaged
Properties or local bank accounts maintained
for individual Mortgaged Properties in the name
of the Manager or a segregated subaccount (the
"Manager's Account") of MII's cash management
system and thereafter may be commingled with
funds from other hotels managed by MII or its
affiliates. The senior long-term unsecured
12
<PAGE>
debt of MII is currently rated "A-" by both S&P
and DCR. From the funds of the Company
deposited into the local accounts, the
Manager's Account, or MII's cash management
system, the Manager will pay operating expenses
of the Mortgaged Properties, including all fees
and other payments due and payable (and not
subordinated) under the Management Agreement
and the Marriott Ground Leases, make deposits
in the FF&E Reserve Account, and, biweekly,
transfer funds to a segregated account
established by the Servicer in the name of the
Trustee (the "Cash Collateral Account").
Distributions received by the Company from
Deerfield LLC also are deposited into the Cash
Collateral Account.
In the event that, and for so long as, MII's
senior long-term unsecured debt is rated below
"A-" by S&P or "BBB+" by DCR, the Company will
be required to maintain certain escrows for
real estate taxes and insurance premiums, which
will be funded from the Cash Collateral Account
prior to the remittance of any amounts to the
Company.
In the event that, and for so long as, MII's
senior long-term unsecured debt is rated below
"BBB+" by S&P or "BBB" by DCR, (i) revenues
from operations of the Mortgaged Properties
will be deposited directly into a lockbox
account maintained by the Servicer, rather than
into the Manager's Account, or into the local
bank accounts, (ii) all funds in the lockbox
account will be transferred daily to the Cash
Collateral Account, (iii) all excess funds in
the local accounts will be transferred twice
each week into the lockbox account, and (iv)
the Company will be required to maintain, in
addition to escrows for real estate taxes and
insurance premiums, an escrow of one-month's
scheduled debt service on the Mortgage Loan.
All such escrows must be funded to the required
levels each month from cash receipts from
operations of the Mortgaged Properties or
additional funds from the Company prior to any
payment of operating expenses.
On each Due Date, the Servicer will transfer
from the Cash Collateral Account in the
following order of priority: (i) funds in an
amount necessary to make all payments required
to be made under the Mortgage Loan (other than
the portion of Default Interest representing
Net Default Interest), including Servicing
Fees, to a segregated account, established by
the Servicer in the name of the Trustee (the
"Collection Account"), (ii) funds required to
pay Net Default Interest to a segregated
account established by the Servicer in the name
of the Trustee (the "Default Interest
Distribution Account"), (iii) funds required to
pay Liquidated Damages to a segregated account
established by the Servicer in the name of the
Trustee (the "Liquidated Damages Distribution
Account"), (iv) amounts necessary to pay
subordinated management fees, ground rent and
advances made by the Manager or the Marriott
Ground Lessors, subject to the terms of the
applicable subordination agreements, to the
Manager
13
<PAGE>
and the Marriott Ground Lessors, (v) at the
Company's election, amounts necessary to fund
any escrows required by the immediately
preceding two paragraphs, (vi) amounts
necessary to fund any shortfall in the FF&E
Reserve Account, and (vii) provided that no
event of default exists under the Loan
Documents, the balance to the Company, after
retaining any insurance or condemnation
proceeds being held to fund any repair or
restoration of the Mortgaged Properties and any
other amounts held in escrow or reserve
accounts. In general, all amounts collected on
the Mortgage Loan and under the Loan Documents
will be deposited in the Collection Account,
except for revenues derived from Foreclosed
Properties (which will initially be deposited
in the Foreclosed Property Account) and Net
Default Interest.
On the Business Day immediately preceding each
Distribution Date (each such date, a "Servicer
Remittance Date"), the Servicer will transfer
funds necessary to make distributions on the
Certificates on such Distribution Date (other
than distributions of Net Default Interest and
Liquidated Damages, which will be made from the
Default Interest Distribution Account and the
Liquidated Damages Distribution Account,
respectively) from the Collection Account to a
segregated account established by the Servicer
in the name of the Trustee (the "Distribution
Account") and, in the case of distributions on
the Class A-3P&I and Class A-3IO Certificates,
from the Distribution Account to a second
segregated account established by the Servicer
in the name of the Trustee (the "Upper-Tier
Distribution Account"). Any P&I Advances made
by the Servicer will be concurrently deposited
into the Distribution Account. Funds necessary
to make distributions on the Class A-3P&I and
Class A-3IO Certificates will be transferred to
the Trustee, as holder of the Class A-3L
Interest, and deposited in the Upper-Tier
Distribution Account.
See "Description of the Trust and Servicing
Agreement--Flow of Funds; Accounts."
THE CERTIFICATES
<TABLE>
<CAPTION>
CLASS
CERTIFICATE PERCENT OF
CLASS OF BALANCE AGGREGATE
OFFERED AS OF ISSUE DCR S&P CERTIFICATE
CERTIFICATES DATE RATING RATING BALANCE
------------ ------------ ------ ------ -----------
<S> <C> <C> <C> <C>
Class A-1 $ 45,500,000 AAA AA 11.1%
Class A-2 $ 50,000,000 AAA AA 12.2%
Class A-3P&I $129,500,000 AAA AA 31.6%
Class A-3IO (1) AAA AAr (1)
Class B $ 75,000,000 AA A 18.3%
Class C $100,000,000 BBB BBB 24.4%
Class D $ 10,200,000 BBB- BBB- 2.5%
</TABLE>
--------
(1) The Class A-3IO Certificates do not have a
Certificate Balance, but have a Notional
Balance at any time equal to the
Certificate Balance of the Class A-3P&I
Certificates.
14
<PAGE>
The New Certificates........ Multiclass Mortgage Pass-Through Certificates,
Series 1996-1B, issued pursuant to the Trust
and Servicing Agreement, consisting of the
following Classes and Certificate Balances:
$45,500,000 Class A-1 Multiclass Mortgage Pass-
Through Certificates (the "Class A-1
Certificates," the aggregate Certificate
Balance of which has been reduced to
$42,482,129 as of May 1, 1996 as a result of
principal distributions);
$50,000,000 Class A-2 Multiclass Mortgage Pass-
Through Certificates (the "Class A-2
Certificates");
$129,500,000 Class A-3P&I Multiclass Mortgage
Pass-Through Certificates (the "Class A-3P&I
Certificates");
Class A-3IO Multiclass Mortgage Pass-Through
Certificates (the "Class A-3IO Certificates");
$75,000,000 Class B Multiclass Mortgage Pass-
Through Certificates (the "Class B
Certificates");
$100,000,000 Class C Multiclass Mortgage Pass-
Through Certificates (the "Class C
Certificates"); and
$10,200,000 Class D Multiclass Mortgage Pass-
Through Certificates (the "Class D
Certificates").
The New Certificates have the Assumed Final
Certificate Distribution Dates set forth on the
cover page of this Prospectus and the Rated
Final Distribution Dates set forth under
"Ratings." Each New Certificate (other than the
Class A-3P&I Certificates and Class A-3IO
Certificates) represents a beneficial ownership
interest in a "regular interest" in the Lower-
Tier REMIC, and each Class A-3P&I Certificate
and Class A-3IO Certificate represents a
beneficial ownership interest in a "regular
interest" in the Upper-Tier REMIC. Each New
Certificate (other than the Class A-3IO
Certificates) also represents a beneficial
ownership interest in certain other assets of
the Trust Fund, including any Net Default
Interest distributable from the Trust Fund.
The "Certificate Balance" of any Class of New
Certificates (other than the Class A-3IO
Certificates) at any time represents the
maximum dollar amount that holders of such
Class are entitled to receive as distributions
allocable to principal from payments and
collections received by the Trust Fund in
respect of the Mortgage Loan. The Class A-3IO
Certificates do not have a Certificate Balance
and are not entitled to any distributions
allocable to principal. The "Notional Balance"
of the Class A-3IO Certificates at any time
represents the amount on which interest payable
on such Class of Offered Certificates will be
calculated. The Class A-3IO Certificates have a
Notional Balance at any time equal to the
Certificate Balance of the Class A-3P&I
15
<PAGE>
Certificates. Accordingly, the Notional Balance
of the Class A-3IO Certificates shall be
reduced dollar for dollar as and when the
Certificate Balance of the Class A-3P&I
Certificates is reduced. The Certificate
Balance of the Class A-3L Interest will equal
the Certificate Balance of the Class A-3P&I
Certificates.
The Class R and Class UR
Certificates................ The Class R Certificate (the "Class R
Certificate") and the Class UR Certificate (the
"Class UR Certificate") evidence the "residual
interests" in the Lower-Tier REMIC and the
Upper-Tier REMIC, respectively. The Class R
Certificate and the Class UR Certificate do not
have Pass-Through Rates or Certificate
Balances. CBM Funding holds the Class R
Certificate and the Class UR Certificate and
has no right to scheduled distributions of
principal or interest, but is entitled to
receive any amounts remaining in the Lower-Tier
REMIC and the Upper-Tier REMIC, respectively,
after the Certificate Balances of all
Certificates have been reduced to zero, the
holders of all Certificates (the
"Certificateholders") have received all other
distributions to which they are entitled, the
Servicer has been reimbursed for all Advances
with interest and unpaid fees, and all expenses
of the Trust REMICs have been paid in full. The
Class R Certificate and the Class UR
Certificate are not part of the Exchange Offer.
Pass-Through Rates.......... Each Class of New Certificates is entitled to
interest at the fixed Pass-Through Rate set
forth below:
<TABLE>
<CAPTION>
CLASS PASS-THROUGH RATE
----- -----------------
<S> <C>
A-1 7.550%
A-2 6.880%
A-3P&I 7.080%
A-3IO 0.933%
B 7.480%
C 7.860%
D 8.645%
</TABLE>
The Pass-Through Rate of the Class A-3L
Interest is equal to the sum of the Class A-
3P&I and Class A-3IO Pass-Through Rates.
Interest on the New Certificates is computed on
the basis of a 360-day year consisting of
twelve 30-day months. See "Description of the
New Certificates--Distributions."
Distribution and Record
Dates....................... Distributions will be paid to the
Certificateholders on the first day of each
calendar month (or, if such day is not a
Business Day, on the following Business Day
without additional interest), and commenced
with respect to the Old Certificates on
February 1, 1996 (each, a "Distribution Date").
The record date (the "Record Date") for each
distribution on the New Certificates will be
the 15th day of the month preceding the
applicable Distribution Date, or, if such day
is not a Business Day, on the following
Business Day.
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<PAGE>
The "Interest Accrual Period" with respect to
any Distribution Date will commence on and
include the first day of the calendar month
preceding such Distribution Date and will end
on and include the last day of such calendar
month.
Distributions............... On each Distribution Date, distributions of the
Available Distribution Amount will be made to
Certificateholders in accordance with the
priorities described below.
The "Available Distribution Amount" with
respect to any Distribution Date will be an
amount equal to (i) all cash received with
respect to the Mortgage Loan that is deposited
by the Servicer into the Collection Account
during the related Due Period, plus (ii) the
P&I Advances, if any, made by the Servicer with
respect to such Distribution Date, plus (iii)
all other amounts deposited in the Collection
Account by the Servicer during the related Due
Period, less (a) amounts paid to reimburse the
Servicer for Advances plus interest thereon,
(b) all Servicing Fees paid in respect of such
Distribution Date, (c) all amounts paid to the
Servicer or Trustee in reimbursement of
expenses and other amounts permitted to be
retained by the Servicer pursuant to the Trust
and Servicing Agreement, (d) all Unscheduled
Payments, and (e) Prepayment Premiums.
Interest. Interest accrued during each Interest
Accrual Period on the Certificate Balance (or,
in the case of the Class A-3IO Certificates, on
the Notional Balance) of each Class of Offered
Certificates at the applicable Pass-Through
Rate (the "Interest Distribution Amount") will
be distributed to Certificateholders, to the
extent of the Available Distribution Amount, on
the Distribution Date following such Interest
Accrual Period in accordance with the
priorities described below. In the event that
the amount of interest distributed on any
Distribution Date with respect to a Class of
Offered Certificates is less than the Interest
Distribution Amount for such Class, the
shortfall (an "Interest Shortfall") will be
distributed on the earliest possible
Distribution Date thereafter, without interest,
to the extent of the Available Distribution
Amount on such Distribution Date, in accordance
with the priorities described below.
Principal. On each Distribution Date,
distributions in reduction of the Certificate
Balances of the Offered Certificates (other
than the Class A-3IO Certificates) will be
made, to the extent of the Available
Distribution Amount remaining after
distributions in respect of interest and
Interest Shortfalls, in accordance with the
priorities described below.
Unscheduled Payments and Prepayment Premiums.
Unscheduled Payments of principal on the
Mortgage Loan will be distributed to
Certificateholders (other than the Class A-3IO
Certificates) on the first Distribution Date
following such Unscheduled Payment in
accordance with the priorities set forth under
"Description of
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<PAGE>
the New Certificates--Distributions." The
holders of the Class A-3IO Certificates will
not receive any distributions of Unscheduled
Payments. Prepayment Premiums paid in
connection with Unscheduled Payments will be
distributed on such Distribution Date to
Certificateholders entitled thereto (which may
include the Class A-3IO Certificateholders) in
accordance with the priorities set forth under
"Description of the New Certificates--
Distributions." See also "Description of the
Mortgage Loan--Prepayments."
Other Amounts. Distributions in respect of Net
Default Interest and Liquidated Damages will be
made in accordance with the separate priorities
set forth herein. The holders of the Class
A-3IO Certificates will not be entitled to any
distributions of Net Default Interest or
Liquidated Damages.
See "Description of the New Certificates--
Distributions."
Distribution Priorities..... On each Distribution Date (except as provided
below), the Available Distribution Amount will
be allocated among the Classes of Offered
Certificates (excluding the Class A-3P&I
Certificates and Class A-3IO Certificates) and
the Class A-3L Interest, and distributed to the
holders of record thereof including the
Trustee, as holder of the Class A-3L Interest
(who will concurrently distribute the same to
the holders of the Class A-3P&I Certificates,
Class A-3IO Certificates, and the Class UR
Certificate in the manner described below), and
to the holder of the Class R Certificate as of
the related Record Date as follows:
first, to the Class A-1 Certificates, Class A-2
Certificates, and Class A-3L Interest, pro
rata, based upon the amount distributable and
the respective Interest Distribution Amount for
each Class, in an amount up to the aggregate
Interest Distribution Amount for the Class A-1
Certificates, Class A-2 Certificates, and Class
A-3L Interest;
second, to the Class A-1 Certificates, Class A-
2 Certificates, and Class A-3L Interest, pro
rata, based upon the amount distributable and
the respective Interest Shortfall for each
Class, in an amount up to the aggregate
Interest Shortfall for the Class A-1
Certificates, Class A-2 Certificates, and Class
A-3L Interest;
third, to the Class B Certificates in an amount
up to the Interest Distribution Amount for the
Class B Certificates;
fourth, to the Class B Certificates in an
amount up to the Class B Interest Shortfall;
fifth, to the Class C Certificates in an amount
up to the Interest Distribution Amount for the
Class C Certificates;
sixth, to the Class C Certificates in an amount
up to the Class C Interest Shortfall;
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<PAGE>
seventh, to the Class D Certificates in an
amount up to the Interest Distribution Amount
for the Class D Certificates;
eighth, to the Class D Certificates in an
amount up to the Class D Interest Shortfall;
ninth, to the Class A-1 Certificates in
reduction of the Certificate Balance thereof,
in an amount up to the Principal Distribution
Amount, until the Certificate Balance of the
Class A-1 Certificates has been reduced to
zero;
tenth, when the Certificate Balance of the
Class A-1 Certificates has been reduced to
zero, to the Class A-2 Certificates in
reduction of the Certificate Balance thereof in
an amount up to the Principal Distribution
Amount, until the Certificate Balance of the
Class A-2 Certificates has been reduced to
zero;
eleventh, when the Certificate Balances of the
Class A-1 and Class A-2 Certificates have been
reduced to zero, to the Class A-3L Interest in
reduction of the Certificate Balance thereof,
in an amount up to the Principal Distribution
Amount, until the Certificate Balance of the
Class A-3L Interest has been reduced to zero;
twelfth, when the Certificate Balances of all
prior Classes have been reduced to zero, to the
Class B Certificates in reduction of the
Certificate Balance thereof in an amount up to
the Principal Distribution Amount, until the
Certificate Balance of the Class B Certificates
has been reduced to zero;
thirteenth, when the Certificate Balances of
all prior Classes have been reduced to zero, to
the Class C Certificates in reduction of the
Certificate Balance thereof in an amount up to
the Principal Distribution Amount, until the
Certificate Balance of the Class C Certificates
has been reduced to zero;
fourteenth, when the Certificate Balances of
all prior Classes have been reduced to zero, to
the Class D Certificates in reduction of the
Certificate Balance thereof in an amount up to
the Principal Distribution Amount, until the
Certificate Balance of the Class D Certificates
has been reduced to zero; and
fifteenth, when the Certificate Balances of all
prior Classes have been reduced to zero and
after payment in full of any expenses of the
Lower-Tier REMIC, to the Class R Certificate
any remaining Available Distribution Amount.
Notwithstanding the foregoing, in the event
that there is a P&I Shortfall with respect to
any Distribution Date, the priorities for
distributions in reduction of the Certificate
Balances of Class A-1 Certificates, Class A-2
Certificates, and Class A-3L Interest will be
modified for such Distribution Date so that, in
lieu of the
19
<PAGE>
ninth, tenth, and eleventh priorities set forth
above, the ninth priority will be "ninth, to
the Class A-1 Certificates, Class A-2
Certificates, and Class A-3L Interest, pro
rata, based upon the amount distributable and
the respective Certificate Balance of each such
Class, in reduction of the Certificate Balances
thereof, in an amount up to the Principal
Distribution Amount, until the Certificate
Balances of the Class A-1 Certificates, Class
A-2 Certificates, and Class A-3L Interest have
been reduced to zero."
On each Distribution Date, amounts distributed
to the Trustee, as holder of the Class A-3L
Interest, and deposited in the Upper-Tier
Distribution Account will be distributed, in
each case to the extent of the amount on
deposit in the Upper-Tier Distribution Account,
to holders of the Class A-3P&I Certificates,
Class A-3IO Certificates, and Class UR
Certificate in the following order of priority:
first, to the Class A-3P&I Certificates and
Class A-3IO Certificates, pro rata, based upon
the amount distributable and the respective
Interest Distribution Amount for each such
Class, in an amount up to the aggregate
Interest Distribution Amount for such Classes;
second, to the Class A-3P&I Certificates and
Class A-3IO Certificates, pro rata, based upon
the amount distributable and the respective
Interest Shortfall for each such Class, in an
amount up to the aggregate Interest Shortfall
for such Classes; third, to the Class A-3P&I
Certificates in reduction of the Certificate
Balance thereof, until the Certificate Balance
of the Class A-3P&I Certificates has been
reduced to zero; and fourth, when the
Certificate Balance of the Class A-3P&I
Certificates has been reduced to zero and after
payment in full of any expenses of the Upper-
Tier REMIC, to the Class UR Certificate, any
amount remaining in the Upper-Tier Distribution
Account.
The distribution priorities for Unscheduled
Payments, Prepayments, Net Default Interest,
and Liquidated Damages are described under
"Description of the New Certificates--
Distributions."
Advances.................... The Servicer will be obligated to make an
advance on the Servicer Remittance Date in
respect of any scheduled payment of principal
or interest on the Mortgage Loan that is not
made on the previous Due Date (each such
advance, a "P&I Advance"), subject to the
limitations described herein. The Servicer also
will be obligated to make cash advances
("Property Protection Advances" and, together
with P&I Advances, "Advances") to pay
delinquent real estate taxes, assessments, and
hazard insurance premiums and to cover other
similar costs and expenses necessary to
preserve the priority of any Mortgage.
Advances, together with interest thereon at the
Prime Rate, will be reimbursed as described
herein. The Servicer will have no obligation to
advance the Balloon Payment, but, in the event
of a
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<PAGE>
default by the Company in payment thereof, the
Servicer will be obligated to make Advances in
respect of the assumed monthly principal and
interest payments that would have been due
based on the original 204-month principal
amortization schedule, subject to the
recoverability limitation described below.
The Servicer shall be obligated to make an
Advance only if the Servicer believes that the
amount to be advanced, together with any
previous Advances and interest thereon as
described above, will be recoverable from
subsequent payments or collections (including
Insurance Proceeds and Liquidation Proceeds) in
respect of the Mortgage Loan. The Servicer's
right of reimbursement for Advances will be
prior to the rights of the Certificateholders
to receive any amounts recovered with respect
to the Mortgaged Properties and, as a result,
Certificateholders could experience losses in
respect of Advances that are not recovered. See
"Description of the Trust and Servicing
Agreement--Advances."
Certain Tax
Considerations.............. The exchange pursuant to the Exchange Offer
will not be a taxable event for federal income
tax purposes. The New Certificates, which are
identical to the Old Certificates in all
material respects, merely represent a
continuation of the interests represented by
the Old Certificates in the Trust Fund.
An election will be made to treat certain
assets of the Trust Fund as two separate real
estate mortgage investment conduits for federal
income tax purposes (collectively, the "Trust
REMICs" (each, a "REMIC" or, individually, the
"Lower-Tier REMIC" and the "Upper-Tier REMIC,"
respectively)). In the opinion of Hogan &
Hartson L.L.P., counsel to CBM Funding ("Tax
Counsel"), based in part upon certain
representations of the Company, the Trust
REMICs will each qualify as a REMIC for federal
income tax purposes. The assets of the Lower-
Tier REMIC consist principally of the Mortgage
Loan. The Offered Certificates, excluding the
Class A-3P&I Certificates and the Class A-3IO
Certificates, will represent in part beneficial
interests in a portion of the "regular
interests" in the Lower-Tier REMIC, and the
Class R Certificate will evidence the "residual
interest" in the Lower-Tier REMIC. The Class A-
3L Interest will be the remaining "regular
interest" in the Lower-Tier REMIC and will
constitute the principal asset of the Upper-
Tier REMIC. The Class A-3P&I and Class A-3IO
Certificates will represent in part beneficial
interests in the "regular interests" in the
Upper-Tier REMIC, and the Class UR Certificate
will evidence the "residual interest" in the
Upper-Tier REMIC. The Offered Certificates, to
the extent they constitute beneficial interests
in the regular interests in the Upper-Tier
REMIC or the Lower-Tier REMIC, generally will
be taxable as debt, and income thereon must be
reported by Certificateholders on the accrual
method of accounting, regardless of a
Certificateholder's usual method of accounting.
21
<PAGE>
The Class A-3IO Certificates were issued with
original issue discount ("OID") for federal
income tax purposes. In general, OID must be
included in income in advance of the receipt of
cash representing that income. Because there is
no basis on which to assume a rate of
prepayment on the Mortgage Loan, for purposes
of determining the rate of accrual of OID or
premium and whether the amount of OID is de
minimis for federal income tax purposes, it
will be assumed that there will be no
prepayment of the Mortgage Loan (other than
scheduled payments of principal provided for
thereon).
The holders of the Offered Certificates, other
than the ClassA-3IO Certificates, also will be
treated as owning beneficial interests in any
Net Default Interest and Liquidated Damages
held by the Trust Fund. These assets will be
treated as a portion of the Trust Fund that is
separate from the Trust REMICs. In the opinion
of Tax Counsel, such portion will be treated as
a grantor trust and will not be treated as a
taxable mortgage pool for federal income tax
purposes. See "Description of the New
Certificates--Distributions" and "Certain
Federal Income Tax Considerations--Taxation of
the Non-REMIC Interests."
The portion of the Offered Certificates
attributable to regular interests in either the
Upper-Tier REMIC or the Lower-Tier REMIC
generally will be treated as a "qualifying real
property loan" for mutual savings banks and
domestic building and loan associations, and a
"real estate asset" for real estate investment
trusts ("REITs"). In addition, pass-through
interest with respect to the Offered
Certificates generally will be treated as
"interest on obligations secured by mortgages
on real property" for REITs to the extent that
such Offered Certificates are treated as "real
estate assets." See "Certain Federal Income Tax
Considerations."
In addition to the federal income tax
consequences described herein, potential
investors should consider the state and any
applicable local income tax consequences of an
investment in the Offered Certificates. See
"State and Local Tax Considerations."
ERISA Considerations........ The United States Department of Labor has
issued an individual exemption, PTE-91-14 (the
"Exemption"), to Lehman Brothers Inc. which
generally exempts from the application of
certain of the prohibited transaction
provisions of Section 406 of the Employee
Retirement Income Security Act of 1974, as
amended ("ERISA"), and the excise taxes and
civil penalties imposed on such prohibited
transactions by Section 4975(a) and (b) of the
Internal Revenue Code of 1986, as amended (the
"Code") and Section 502(i) of ERISA,
transactions relating to the purchase, sale,
and holding of certificates in pass-through
trusts underwritten by it, such as the Class A-
1, Class A-2, Class A-3P&I, and Class A-3IO
Certificates, and those relating to the
22
<PAGE>
servicing and operation of the Trust Fund,
provided that certain conditions are satisfied.
Transactions relating to the purchase, sale,
and holding of the Class A-1, Class A-2, Class
A-3P&I, and Class A3-IO Certificates may meet
the requirements of the Exemption, as the
described herein. See "ERISA Considerations."
Transactions relating to the purchase, sale,
and holding of the Class B, Class C, and Class
D Certificates are not exempted from the
application of such provisions and taxes by
reason of such Exemption. Any Plan fiduciary
who proposes to cause a Plan to purchase any
Class of Offered Certificates should consult
with its counsel to determine if such
investment is permitted by the Plan documents
and to ensure that the Plan's acquisition,
sale, or holding of the Certificates satisfies
the insurance company general account
Prohibited Transaction Class Exemption 95-60 or
otherwise does not result in a non-exempt
transaction prohibited or otherwise
impermissible under ERISA or Section 4975 of
the Code.
Legal Investment............ The appropriate characterization of the Offered
Certificates under various legal investment
restrictions, and thus the ability of investors
subject to these restrictions to purchase any
Class of Offered Certificates, may be subject
to significant interpretative uncertainties.
The Offered Certificates will not be "mortgage
related securities" within the meaning of the
Secondary Mortgage Market Enhancement Act of
1984 ("SMMEA").
In addition, institutions whose investment
activities are subject to review by certain
regulatory authorities may be or may become
subject to restrictions, which may be
retroactively imposed by such regulatory
authorities, on the investment by such
institutions in certain forms of mortgage-
backed securities. Accordingly, investors
should consult their own legal advisors to
determine whether and to what extent the
Offered Certificates constitute legal
investments for them. See "Legal Investment."
Ratings..................... The Class A-1, Class A-2, and Class A-3P&I
Certificates are rated "AAA" by DCR and "AA" by
S&P; the Class A-3IO Certificates are rated
"AAA" by DCR and "AAr" by S&P; the Class B
Certificates are rated "AA" by DCR and "A" by
S&P; the Class C Certificates are rated "BBB"
by each of the Rating Agencies; and the Class D
Certificates are rated "BBB-" by each of the
Rating Agencies. The ratings address the
likelihood of full and timely payment to the
Certificateholders of all distributions of
pass-through interest on the Offered
Certificates on each Distribution Date and the
full payment of the ultimate principal balance
of each Class of Offered Certificates on a date
that is not later than the Rated Final
Distribution Date with respect to such Class of
Certificates. The ratings on the Offered
Certificates do not address the likelihood of
receipt of Prepayment Premiums, Net Default
Interest, or Liquidated Damages. In general,
the ratings address credit risk and not
prepayment risk,
23
<PAGE>
and do not represent any assessment of the
yield to maturity that investors may experience
as a result of the rate of principal
prepayments. For example, the ratings do not
address the possibility that holders of the
Class A-3IO Certificates might not fully
recover their investment in the event of rapid
principal prepayments on the Mortgage Loan. See
"Risk Factors--Risks Relating to Pass-Through
Certificates--Sensitivity of the Class A-3IO
Certificates." A security rating is not a
recommendation to buy, sell, or hold securities
and may be subject to revision or withdrawal at
any time by the assigning rating agency. See
"Ratings."
THE EXCHANGE OFFER
The Exchange Offer applies to all outstanding Old Certificates. The form and
terms of the New Certificates are substantially the same as the form and terms
of the Old Certificates except that the New Certificates will be registered
under the Securities Act and, therefore, will not bear legends restricting
their transfer. The New Certificates will evidence the beneficial ownership
interests in the Trust Fund as the Old Certificates and will be entitled to the
same benefits as the Old Certificates under the Trust and Servicing Agreement.
The Old Certificates and the New Certificates are sometimes referred to
collectively herein as the "Certificates." See "Description of the New
Certificates."
THE EXCHANGE OFFER............ New Certificates in exchange for all
outstanding Old Certificates. As of May 1,
1996, the aggregate outstanding Certificate
Balance of the Old Certificates was
$407,182,129. The term of each Class of New
Certificates is identical to the corresponding
Class of Old Certificates, except that the New
Certificates will be registered under the
Securities Act and will not bear any legends
restricting their transfer.
Based on an interpretation by the Commission's
staff set forth in no-action letters issued to
third parties unrelated to the Issuer and the
Company, the Issuer and the Company believe
that, with the exceptions discussed herein, New
Certificates issued pursuant to the Exchange
Offer in exchange for Old Certificates may be
offered for resale, resold and otherwise
transferred by any person receiving the New
Certificates, whether or not that person is the
holder (other than any such holder or such
other person that is an "affiliate" of the
Issuer or the Company within the meaning of
Rule 405 under the Securities Act), without
compliance with the registration and prospectus
delivery provisions of the Securities Act;
provided that (i) the New Certificates are
acquired in the ordinary course of business of
that holder or such other person, (ii) neither
the holder nor such other person is engaging in
or intends to engage in a distribution of the
New Certificates, and (iii) neither the holder
nor such other person has an arrangement or
understanding with any person to participate in
the distribution of the New Certificates.
However, the Issuer and the Company have not
sought, and do not intend to seek, a no-action
letter with respect to the Exchange Offer, and
there can be no assurance that the Commission's
staff would make a similar determination with
24
<PAGE>
respect to the Exchange Offer. See "The
Exchange Offer--Purpose and Effect." Each
broker-dealer that receives New Certificates
for its own account in exchange for Old
Certificates, where those Old Certificates were
acquired by the broker-dealer as a result of
its market-making activities or other trading
activities, must acknowledge that it will
deliver a prospectus in connection with any
resale of those New Certificates. See "Plan of
Distribution."
EXCHANGE OFFER; REGISTRATION
RIGHTS........................ The Old Certificates were sold by the Issuer on
January 24, 1996 in a private placement. In
connection with the sale, CBM Funding and the
Company entered into a registration rights
agreement (the "Registration Rights Agreement")
with the initial purchaser of the Old
Certificates providing for the Exchange Offer.
See "The Exchange Offer--Purpose and Effect."
Pursuant to the Registration Rights Agreement,
if the Exchange Offer is not permitted by
applicable law, CBM Funding will be required to
file as promptly as practicable a shelf
registration statement (the "Shelf Registration
Statement") to cover resales of the Old
Certificates by the holders thereof. See "The
Exchange Offer--Purpose and Effect."
RECORD DATE................... The Issuer has fixed the close of business on
, 1996, as the record date for the
Exchange Offer (the "Record Date") for the
purpose of determining the persons to whom this
Prospectus, together with the accompanying
letter of transmittal (the "Letter of
Transmittal"), will initially be sent.
EXPIRATION DATE............... The Exchange Offer will expire at 5:00 p.m.,
New York City time, , 1996, or such
later date and time to which it is extended
(the "Expiration Date").
WITHDRAWAL RIGHTS............. The tender of Old Certificates pursuant to the
Exchange Offer may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. Any Old Certificate not
accepted for exchange for any reason will be
returned without expense to the tendering
holder thereof as promptly as practicable after
the expiration or termination of the Exchange
Offer.
INTEREST ON THE NEW
CERTIFICATES.................. The New Certificates will bear interest from
the first day of the calendar month in which
the last payment of interest on the Old
Certificates was made.
CONDITIONS.................... The Exchange Offer is subject to certain
customary conditions, certain of which may be
waived by the Company. See "The Exchange
Offer--Conditions."
PROCEDURES FOR TENDERING OLD
CERTIFICATES................. Each holder of Old Certificates wishing to
accept the Exchange Offer must complete, sign
and date the Letter of Transmittal, or a copy
thereof, in accordance with the instructions
contained herein
25
<PAGE>
and therein, and mail or otherwise deliver the
Letter of Transmittal, or the copy, together
with the Old Certificates and any other
required documentation, to the Exchange Agent
(as defined herein) at the address set forth
herein. Persons holding Old Certificates
through the Depository Trust Company (the
"DTC") and wishing to accept the Exchange Offer
must do so pursuant to the DTC's Automated
Tender Offer Program, by which each tendering
participant will agree to be bound by the
Letter of Transmittal. By executing or agreeing
to be bound by the Letter of Transmittal, each
holder will represent to the Issuer that, among
other things, (i) the New Certificates acquired
pursuant to the Exchange Offer are being
acquired in the ordinary course of business of
the person receiving such New Certificates,
whether or not such person is the holder of the
Old Certificates, (ii) neither the holder nor
any such other person is engaging in or intends
to engage in a distribution of such New
Certificates,(iii) neither the holder nor any
such other person has an arrangement or
understanding with any person to participate in
the distribution of such New Certificates, and
(iv) neither the holder nor any such other
person is an "affiliate" (as defined under Rule
405 promulgated under the Securities Act) of
the Issuer.
ACCEPTANCE OF THE OLD
CERTIFICATES AND DELIVERY OF
THE NEW CERTIFICATES.......... The Issuer will accept for exchange any and all
Old Certificates which are properly tendered in
the Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Certificates issued pursuant to the Exchange
Offer will be delivered promptly following the
Expiration Date. See "The Exchange Offer--Terms
of the Exchange Offer."
EXCHANGE AGENT................ Bankers Trust Company is serving as Exchange
Agent in connection with the Exchange Offer
(the "Exchange Agent").
EFFECT OF NOT TENDERING....... Old Certificates that are not tendered or that
are tendered but not accepted will, following
the completion of the Exchange Offer, continue
to be subject to the existing restrictions upon
transfer thereof. The Issuer will have no
further obligation to provide for the
registration under the Securities Act of such
Old Certificates.
DISSENTERS' RIGHTS............ Holders of Old Certificates do not have any
appraisal or dissenters' rights under the
General Corporation Law of the State of
Delaware or the Trust and Servicing Agreement
in connection with the Exchange Offer.
26
<PAGE>
OWNERSHIP AND MANAGEMENT STRUCTURE
[FLOW CHART APPEARS HERE]
27
<PAGE>
RISK FACTORS
Prospective investors should review the specific considerations set forth
below, as well as the financial and other information contained in this
Prospectus, before making an investment in the New Certificates.
RISKS RELATING TO THE LODGING INDUSTRY AND THE MORTGAGED PROPERTIES
Competition and Risks of the Lodging Industry. The profitability of the
Hotels is subject to general economic conditions, the management ability of
the Manager, competition, desirability of particular locations, and other
factors relating to the operation of the Hotels. The moderately-priced segment
of the lodging industry in which the Hotels operate is highly competitive, and
the Hotels generally operate in geographic areas that contain numerous other
competitors. The Hotels' success in their markets, in large part, will be
dependent upon their ability to compete on the basis of access, location,
quality of accommodations, room rate structure, and, to a lesser extent, the
quality and scope of food and beverage facilities. During the 1980s,
construction of lodging facilities in the United States resulted in an excess
supply of available rooms. This over-supply had an adverse effect on occupancy
levels and room rates in the industry. Although the current outlook for the
industry has improved, the lodging industry, including the Company and the
Hotels, may be adversely affected in the future by (i) national and regional
economic conditions, (ii) changes in travel patterns, (iii) taxes and
government regulations which influence or determine wages, prices, interest
rates, construction procedures, and costs, and (iv) the availability and cost
of credit. Hotel investments are relatively illiquid. Such illiquidity will
tend to limit the ability of the Company to respond to changes in economic or
other conditions.
Reliance on the Manager. The Company is dependent upon the Manager, a wholly
owned subsidiary of MII, to manage and operate the Hotels. In addition, MII or
an affiliate of MII is the ground lessor with respect to the land on which 53
Hotels are located (collectively, the "Marriott Ground Leases"). Under certain
limited circumstances, including the revocation of any material licenses or
permits, failure to provide adequate working capital or funds for required
FF&E Replacements and building alterations, or the occurrence of material
casualty or force majeure events, the Manager may terminate the Management
Agreement with respect to one or more Hotels, and in that event the Company
would lose the right to use the Courtyard by Marriott name with respect to
such Hotels, its access to the Manager's central reservation system, and the
other benefits under the Management Agreement. See "Description of the
Management Agreement--Management Services." Because the Company has no
independent management capability, a new manager would have to be obtained.
There can be no assurance that a new manager would be able to generate as much
net operating cash flow from the Hotels as the Manager. Additionally, the
possible desire of the Company from time to time to finance, refinance, or
effect a sale of any of the Hotels may, depending upon the structure of such
transactions, result in a need to modify the Management Agreement and/or any
Marriott Ground Leases with respect to such Hotel. Any such modification
proposed by the Company may not be acceptable to the Manager or the applicable
Marriott Ground Lessors, and the lack of consent from such party could
adversely affect the Company's ability to consummate such financing or sale.
In addition, the Manager or the affiliates of the Manager, in their capacities
as managers or franchisors of competing lodging properties, may take actions
which may not necessarily be in the best interests of the Company. If MII
sells or otherwise disposes of its interests in the management of the Hotels,
which it may do in connection with the sale of its management interests in all
the hotels in the Courtyard by Marriott chain, such sale or other disposition
might adversely affect the performance of the Hotels.
Potential Conflicts of Interest. Because Host Marriott, the parent of the
general partner of the CBM II L.P., and MII and their respective affiliates
own and/or operate hotels other than the Hotels, and because MII and its
affiliates license others to operate hotels under the various brand names
owned by MII and its affiliates, potential conflicts of interest exist. With
respect to these potential conflicts of interest, Host Marriott and MII retain
the right to compete with the Hotels, including the right to develop competing
hotels in markets in which the Hotels are located, as well as to operate
existing hotels which may currently compete directly or indirectly with the
Hotels.
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In addition, Host Marriott and MII share two common directors--J.W.
Marriott, Jr. and Richard E. Marriott. J.W. Marriott, Jr. serves as Chairman
of the Board of Directors, Chief Executive Officer, and President of MII and
also serves as a director of Host Marriott. Richard E. Marriott is a director
of MII and Chairman of the Board of Directors of Host Marriott. Messrs. J.W.
Marriott, Jr. and Richard E. Marriott, as well as certain other officers and
directors of MII and Host Marriott, also own shares (and/or options or other
rights to acquire shares) in both companies. Policies and procedures have been
established by the Board of Directors of Host Marriott and MII to limit the
involvement of Messrs. J.W. Marriott, Jr. and Richard E. Marriott (and, if
appropriate, other officers and directors of such companies) in conflict
situations, including requiring them to abstain from voting as directors of
either Host Marriott or MII (or as directors of any of their subsidiaries) on
certain matters which present a conflict between the companies.
Foreclosure. The Mortgage Loan is secured by the Mortgages on the Company's
fee or leasehold in the land underlying 69 Hotels and the Marriott Ground
Lessors' fee interests in the land underlying 53 of such Hotels; a security
interest in certain personal property associated with each Mortgaged Property,
including FF&E; business records; contracts; cash flow; and other general
intangibles; an assignment of the Company's right to receive net cash flow
from the Deerfield Hotel; and a security interest in certain accounts, the
rights of the Company under the Management Agreement, and certain other
contracts. The Mortgages are cross-defaulted and cross-collateralized. In the
event that funds generated by the operations of the Hotels are not sufficient
to pay debt service on the Mortgage Loan or in the event that the Balloon
Payment cannot be paid in full when due, or upon any other event of default
under the Loan Documents (each, a "Mortgage Loan Event of Default"), the
Mortgages may be foreclosed. Foreclosure is an expensive and lengthy process
and could lead to a significant delay in the recovery by the Trustee of
amounts owed under the Mortgage Note. Furthermore, there can be no assurance
that the net proceeds realized from foreclosures on the Mortgages, after
payment of all foreclosure expenses, would be sufficient to pay the principal,
interest, Prepayment Premiums, and other expenses, if any, which are due. In
addition, if the Trust Fund were to become the owner of any of the Hotels as
Foreclosed Properties, (i) any manager of such Hotels would have to qualify as
an "independent contractor" for purposes of the REIT provisions of the Code in
order for the Trust Fund to avoid a tax equal to 100% of the net income
derived with respect to such Hotels, and (ii) income attributable to such
Hotels would have to constitute "qualifying income" for a REIT under certain
REIT provisions of the Code in order for the Trust Fund to avoid federal
income tax (at the highest corporate rate) on net income attributable to such
Hotels. As currently owned and operated, income from the Hotels would not
constitute "qualifying income" under the REIT provisions. The Servicer may
obtain a new manager or restructure the manner in which a Hotel is operated so
as to prevent such adverse tax consequences, but there can be no assurance in
that regard. See "Certain Federal Income Tax Considerations--Prohibited
Transactions and Other Taxes."
Risk of Bankruptcy of Manager or MII. For so long as the Manager is a wholly
owned subsidiary of MII and the senior long-term unsecured debt of MII is
rated at least "BBB+" by S&P and "BBB" by DCR, all revenues from the operation
of the Mortgaged Properties will be deposited into local bank accounts or the
Manager's Account, and thereafter may be commingled with funds from other
hotels managed by MII or its affiliates. The Manager's Account, the local bank
accounts and the MII Master Account will be controlled by the Manager or MII
and will not be pledged as security for the Mortgage Loan. The Manager will
make disbursements on behalf of the Company from the funds in the local
accounts, the Manager's Account, or MII's cash management system to pay all
operating expenses of the Hotels, other than subordinated management fees and
ground rent, make deposits in the FF&E Reserve Account, and, biweekly,
transfer funds to the Cash Collateral Account. In the event of a bankruptcy or
other insolvency proceeding involving the Manager or MII, there is a risk that
the ability of the Company to receive payment of revenues previously collected
by the Manager may be delayed or otherwise impaired and, therefore, the
Certificateholders may experience losses.
RISKS RELATING TO REAL ESTATE INVESTMENTS
Effects of Economic Conditions and Cyclicality. Real estate values are
sensitive to changes in local market and economic conditions and to
fluctuations in the economy as a whole. Equity real estate investments are
relatively illiquid. Such illiquidity will tend to limit the ability of the
Manager on behalf of the Company to
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respond to changes in economic or other conditions. There can be no assurance
that downturns or prolonged adverse conditions in the real estate or capital
markets or in the economy as a whole will not have a material adverse impact
on the Company.
Possible Environmental Liabilities. Under various federal, state, and local
laws, ordinances, and regulations, an owner or operator of real property may
become liable for the costs of removal or remediation of certain hazardous
substances released on or in its property. Environmental laws often impose
this liability without regard to whether the owner or operator knew of, or was
responsible for, the release of such hazardous substances. The presence of
hazardous substances, or the failure to remediate hazardous substances
properly, may adversely affect the owner's ability to sell or use the real
estate or to borrow using the real estate as collateral. In addition, some
environmental laws create a lien on contaminated property in favor of the
government for costs it incurs in connection with the contamination. In
addition to clean-up actions brought by the federal, state, and local agencies
and private parties, the presence of hazardous substances on a property may
lead to claims of personal injury, property damage, or other claims by private
plaintiffs.
Under the federal Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"), and under state law in certain states, a
secured party which takes a deed-in-lieu of foreclosure, purchases a mortgaged
property at a foreclosure sale, or operates a mortgaged property may become
liable in certain circumstances for the costs of cleaning up hazardous
substances regardless of whether or not that secured party contaminated the
property. CERCLA imposes strict, as well as joint and several, liability on
several classes of potentially responsible parties, including current owners
and operators of the property who did not cause or contribute to the
contamination. Furthermore, liability under CERCLA is not limited to the
original or unamortized principal balance of a loan or to the value of the
property securing a loan. Lenders may be held liable under CERCLA as owners or
operators unless they qualify for the secured creditor exemption to CERCLA.
However, court interpretations of the secured creditor exemption have been
inconsistent. Other federal and state laws in certain circumstances may impose
liability on a secured party which takes a deed-in-lieu of foreclosure,
purchases a mortgaged property at a foreclosure sale, or operates a mortgaged
property on which contaminants other than CERCLA hazardous substances are
present. Moreover, certain federal and state statutes impose a lien for any
cleanup costs incurred by the applicable governmental agency on the property
that is the subject of such cleanup costs (an "environmental lien"). All
subsequent liens on such property generally are subordinated environmental
liens and, in some states, even prior recorded liens are subordinated to
environmental liens.
Phase I environmental assessments have been performed on all the Hotels
within the last nine months by Dames & Moore, Inc. (the "Environmental
Consultant"). Under ASTM (formerly known as American Society for Testing and
Materials) standards, a Phase I assessment consists of a site visit, an
historical record review, interviews, and a report, with the purpose of
identifying potential environmental conditions associated with the subject
real estate. The Environmental Consultant identified six sites on which the
Hotels are located which are in close proximity to properties reported as
having indications of contamination or the potential for contamination based
on their prior or current uses or conditions. As to each of such sites, the
Company, after consultation with the Environmental Consultant, determined that
the next level of environmental site testing (a "Phase II Assessment") was not
necessary because there was no indication that the off-site contamination, if
any, had spread to such sites. The Company has obtained environmental
insurance coverage for such six Hotels as well as one other Hotel. With
respect to three other sites, following the recommendations of the
Environmental Consultant which were based on the prior uses of these sites,
Phase II Assessments were undertaken and revealed no evidence of environmental
contamination requiring further action.
In addition, a Phase II Assessment was undertaken with respect to the
Deerfield Hotel. A report of such assessment, dated November 29, 1995,
disclosed contamination of the shallow groundwater at the site resulting from
the prior use of the site as a landfill and not from any use of such site by
CBM II L.P., Deerfield LLC's predecessor-in-interest with respect to the
Deerfield Hotel. The Deerfield Hotel was contributed by CBM II L.P. directly
to Deerfield LLC. Although the Company's interest in Deerfield LLC has been
pledged to the Trustee on behalf of the Trust Fund, the Deerfield Hotel is not
subject to any Mortgage.
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The Company currently is analyzing the results of this Phase II Assessment
and its potential liability, if any. Based on currently available information,
the Company is unable to determine the need for remediation, its potential
responsibility, if any, for remediation, the scope of any remediation that may
be required, and the extent of the Company's possible liability for any
remediation costs. The Company currently estimates that the costs to evaluate
the situation further are not likely to be significant. Based on the
foregoing, including the limited amount of information currently available
concerning the Deerfield Hotel, and the fact that the Company has not been,
and will not be, an owner or operator of that Hotel, and while there can be no
assurance that the Company will not have liability in respect of remediation
of contamination at that site, the Company does not believe that any of the
environmental matters described above are likely to have a material adverse
effect on the business and operations of the Company.
No assurances can be given, however, that all potential environmental
liabilities have been identified or properly quantified or that no prior
owner, operator, or past or current guest or occupant has created an
environmental condition not known to the Company. Moreover, no assurances can
be given that (i) future laws, ordinances, or regulations will not impose any
material environmental liability or (ii) the current environmental condition
of the Hotels will not be affected by the condition of land or operations in
the vicinity of the Hotels (such as the presence of underground storage
tanks), or by third parties unrelated to the Company.
The Trust and Servicing Agreement provides that the Servicer, acting on
behalf of the Trust Fund, may not acquire, at foreclosure or by deed-in-lieu
thereof, title to any of the Mortgaged Properties or take over any of their
operations unless the Servicer has previously determined, based on a report
prepared by an independent person who regularly conducts environmental site
assessments for purchasers of comparable properties, that (i) such Mortgaged
Property is in compliance with applicable environmental laws or that taking
the actions necessary to comply with such laws is reasonably likely to produce
a greater recovery on a present value basis than not taking such actions and
(ii) there are no circumstances known to the Servicer relating to the use of
hazardous substances or petroleum-based materials which require investigation
or remediation, or that if such circumstances exist, taking such remedial
action is reasonably likely to produce a greater recovery on a present value
basis than not taking such actions. The procedure required by the Trust and
Servicing Agreement may delay or adversely affect the Servicer's ability to
foreclose on such Mortgaged Property. Moreover, any such environmental
assessment may not reveal all potential environmental liabilities to which
such Mortgaged Property may be subject. There can be no assurance that the
requirements of the Trust and Servicing Agreement, even if fully observed,
will in fact insulate the Trust Fund from liability for environmental
conditions. See "Description of the Trust and Servicing Agreement--Realization
Upon the Mortgaged Properties."
Limitations on Real Estate Lenders Imposed by State Laws. State laws may
restrict the ability of the Trustee, as a mortgage lender, to accelerate the
indebtedness upon a Mortgage Loan Event of Default and to enforce the
Mortgages and related collateral security documents. State laws also may limit
any deficiency judgment following a foreclosure to the excess of the
outstanding debt over the fair market value of the property foreclosed upon.
Limitations on Foreclosures. Because foreclosure actions are brought in
state court, and because courts of one state cannot exercise jurisdiction over
property in another state, it may be necessary upon a Mortgage Loan Event of
Default to foreclose on the related Mortgages in a particular order rather
than simultaneously in order to insure that the liens of the Mortgages are not
impaired or released. For example, the "antideficiency" or "one-action" laws
of certain states, including California, may make it necessary or desirable
for the Trustee to complete foreclosures on Mortgaged Properties in those
states before initiating foreclosure actions in other states. In addition,
certain state laws may limit the amount of the recovery on a particular
property which is located within that state and which is being foreclosed,
after the foreclosure of one or more properties in the same or other states,
to the difference between the amount of the outstanding indebtedness and the
value of the property or properties previously foreclosed, as opposed to the
actual amounts recovered in such foreclosure or foreclosures. Also, the
enforcement of remedial actions in one state may adversely effect the
enforcement of remedial actions in other states.
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Uninsured Losses. The Manager, through blanket policies obtained by MII or
self-insurance programs, carries comprehensive general public liability, all-
risk property insurance (not including earthquake insurance in certain areas),
business interruption insurance, worker's compensation insurance, and
employer's liability insurance with respect to the Hotels with policy
specifications and insured limits customarily carried for similar properties.
There are, however, certain types of losses (such as from wars) that may be
either uninsurable or, in the opinion of the Company, not economically
insurable, and there is a risk of underinsured losses. The Company has agreed
to obtain earthquake insurance covering the Hotels located in California and
will maintain such insurance so long as it is available on commercially
reasonable terms unless adequate reserves are established and maintained by
the Company. Should an uninsured or underinsured loss occur, the Company could
lose both its capital invested in, and anticipated profits from, one or more
Hotels, and the Company's ability to make interest and principal payments on
the Mortgage Loan could be adversely affected. In the opinion of the Company,
the Hotels are adequately insured in accordance with industry standards.
Ground Leases. The land on which eight Hotels are situated is leased in
whole or in part by the Company, as lessee, under ground leases with third
parties unaffiliated with MII and its affiliates, as lessors. The Company's
right to remain in possession of such leaseholds will be conditioned on the
Company's payment of ground rent when due and compliance with the other terms
of the applicable ground lease.
Geographic Concentration. Although the Mortgaged Properties are
geographically diversified, several Mortgaged Properties are located in common
geographic regions, with eight Mortgaged Properties in each of Illinois and
California (each representing 11.6% of all Mortgaged Properties), five
Mortgaged Properties in Florida (representing 7.2% of all Mortgaged
Properties), and four Mortgaged Properties in each of Georgia and Texas (each
representing 5.8% of all Mortgaged Properties). Economic downturns, changes in
local law or regulation, and similar localized events could affect the
performance of all the Mortgaged Properties which are located in a common
region.
RISKS OF FORWARD LOOKING INFORMATION
This Prospectus contains forward-looking statements relating to the
Company's expectations regarding annual room demand growth and room supply
growth in the U.S. lodging industry over the next several years and the
Company's expectations regarding the resulting growth in the industry's
average daily room rate. The forward-looking statements are contained in
"Description of the Mortgage Properties." These statements are based upon the
Company's review of third-party industry studies, which studies necessarily
are based on various assumptions, including national economic conditions and
trends in travel patterns. Any of these assumptions, if unrealized, could have
a material adverse effect on the accuracy of the forward-looking statements.
RISKS RELATING TO PASS-THROUGH CERTIFICATES
Sources of Payments on the Offered Certificates. The Offered Certificates
represent beneficial ownership interests solely in the assets of the Trust
Fund and do not represent an interest in, or obligation of, CBM Funding or any
other person. CBM Funding does not have, nor is it expected to have, any
significant assets. The primary asset of the Trust Fund is the Mortgage Loan,
and the primary security and source of payment for the Mortgage Loan is the
Mortgaged Properties and the other Collateral. Payments on the Offered
Certificates are expected to be derived from payments made by the Company on
the Mortgage Loan. There is and can be no assurance that the cash flow from
the Mortgaged Properties and the proceeds of any sale or refinancing of the
Mortgaged Properties will be sufficient to pay the principal of, and interest
on, the Offered Certificates. The Mortgage Loan is not insured or guaranteed
by CBM Funding, the Servicer, the Trustee, Host Marriott, MII, the Company or
any of their respective affiliates, or by any governmental entity or
instrumentality or by any other person or entity.
The liquidation value of the Mortgaged Properties may be adversely affected
by risks generally incident to interests in real property, including changes
in general or local economic conditions or specific industry segments;
declines in real estate values; variations in supply and demand in the market
for hotels; declines in occupancy
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rates; increases in interest rates, real estate tax rates, personal property
tax rates, energy costs, and other operating expenses; fluctuations in the
availability of real estate financing for hotel properties; changes in
governmental rules, regulations, and fiscal policies, including environmental
legislation; acts of God; and other factors which are beyond the control of
the Company, the Manager, the Trustee, and the Servicer.
Principal Balloon Repayment. The ability of the Company to make the Balloon
Payment under the Mortgage Loan, and thus the likelihood of the
Certificateholders to be repaid in full, will depend upon the Company's
ability either to refinance the Mortgage Loan or to sell the Mortgaged
Properties.
The ability of the Company to accomplish either of these goals will be
affected by the factors described under "Risks Relating to Real Estate
Investments" above and by other factors at such time including, without
limitation, obtaining any required consent of the limited partners of CBM II
L.P., making any necessary amendments to the Management Agreement and the
Marriott Ground Leases, available mortgage rates at the time, the Company's
equity in the Mortgaged Properties, the financial condition of the Company,
the operating history of the Mortgaged Properties, tax laws, and general,
regional, and local economic conditions. A high interest rate environment may
make it more difficult for the Company to accomplish a refinancing or sale and
may result in delinquency or default on the Mortgage Loan, which, in turn,
could cause delays in distributions or losses to the Certificateholders. CBM
Funding, the Manager, the Servicer, the Trustee, and their affiliates are not
obligated to provide the funds to refinance the Mortgage Loan or to purchase
any of the Mortgaged Properties. In addition, the willingness of the Manager
to extend the Management Agreement beyond February 22, 2013 (or,
alternatively, the Company's ability to obtain a new Manager as of such date)
is a factor affecting the ability of the Company to refinance the Balloon
Payment and the likelihood that Certificateholders will be repaid in full.
Competitive conditions adversely affecting any of the Mortgaged Properties
may make it more difficult for the Company to refinance the Mortgage Loan or
to sell any of the Mortgaged Properties in order to make the Balloon Payment.
In addition, there is and can be no assurance that the value of any of the
Mortgaged Properties will not decline during the term of the Mortgage Loan. A
decline in the value of any of the Mortgaged Properties may adversely affect
the sale or refinancing proceeds available to make distributions on the
Certificates.
Enforceability of Prepayment Premium. To the extent that a Prepayment
Premium due to the Trust Fund is construed by a court as a penalty and not as
interest, the Trust Fund's right to such Prepayment Premium could be
unenforceable. In addition, the ratings assigned to the Certificates do not
address the Company's ability or obligation to pay the Prepayment Premium.
Sensitivity of the Class A-3IO Certificates. As described herein, the
amounts payable with respect to the Class A-3IO Certificates consist only of
interest. The ratings assigned to the Class A-3IO Certificates address the
likelihood of timely receipt of interest on the Notional Amount of the Class
A-3IO Certificates, but not the timing or magnitude of reductions in the
Notional Amount as a result of principal prepayments on the Mortgage Loan.
Investors in the Class A-3IO Certificates should consider carefully the risk
that rapid principal prepayments on the Mortgage Loan could result in the
failure of such investors to recover some or all of their initial investment.
See "Ratings."
Subordination. On each Distribution Date, payments of interest, Interest
Shortfalls, and principal, optional principal prepayments, other Unscheduled
Payments, and the Balloon Payment will be distributed to Certificateholders in
the manner and in the priorities set forth under "Description of the New
Certificates--Distributions." As a result of such priorities, any loss on the
Mortgage Loan will generally be borne by the then outstanding Class D, Class
C, and Class B Certificateholders, and then the Class A-1, Class A-2, Class A-
3P&I, and Class A-3IO Certificateholders considered as a single group, in that
order, although there may be instances in which the Class D, Class C, and
Class B Certificates would receive distributions of interest, even though the
Available Distribution Amount is insufficient to pay the Principal
Distribution Amount for the Class A-1, Class A-2, and Class A-3P&I
Certificates. See "Descriptions of the New Certificates--Distributions."
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Risks in Bankruptcy of the Company. In the event of the bankruptcy or
insolvency of the Company or its Managing General Partner, the application of
certain provisions of the Bankruptcy Code could have a material adverse effect
on the Certificateholders. In addition, by reason of the "automatic stay"
provisions (which could delay (perhaps significantly) the Trustee's ability to
cause the liquidation of the Mortgaged Properties) and other provisions of the
Bankruptcy Code, delays in payments on the Certificates and reductions in the
Certificate Balances thereof (each of which could be significant) could occur.
It is also possible that the bankruptcy trustee or the Company as debtor-in-
possession could argue, and the bankruptcy court could agree that,
notwithstanding the existence of a security interest in the Hotel receivables,
the "equities of the case" provision in the Bankruptcy Code dictates that the
Certificateholders' security interest should not extend post-petition.
The Company has agreed to restrict its business to the ownership and
operation of the Mortgaged Properties and those activities related or
incidental to that business, as well as the ownership of its 99% membership
interest in the Deerfield LLC. Similarly, the certificate of incorporation of
the Managing General Partner limits its permitted activities, in general, to
serving as the managing general partner of the Company, as well as the
ownership of its 1% membership interest in the Deerfield LLC. There is and can
be no assurance, however, that either the Company or the Managing General
Partner will not become bankrupt or insolvent.
The Company and its owners have numerous affiliates. Although the Company
has been structured so as to limit the possibility that it will be a debtor in
a bankruptcy proceeding other than for reasons related to the ownership of the
Mortgaged Properties, there is and can be no assurance that, in a bankruptcy
of such owners or any of their affiliates, the Mortgaged Properties will be
protected from the creditors of such owners or affiliates.
Ratings of Certificates. The ratings assigned to the Offered Certificates by
the Rating Agencies are based on characteristics of the Mortgaged Properties
and other relevant structural features of the transaction and reflect only the
views of such Rating Agencies. Future events could have an adverse impact on
the ratings of the Offered Certificates. There is no assurance that any such
rating will continue for any period of time or that it will not be reviewed,
revised, suspended, or withdrawn entirely by either Rating Agency if, in its
judgment, circumstances so warrant. There is no obligation on behalf of CBM
Funding, the Company, the Servicer, the Trustee, MII, or the Manager to
maintain any particular rating. Adverse changes affecting the Mortgaged
Properties, CBM Funding, the Company, the Servicer, the Trustee, MII, or the
Manager may have an adverse effect on the ratings of the Offered Certificates,
and thus the market value of the Offered Certificates, although such adverse
changes may not be a Mortgage Loan Event of Default. The ratings address the
likelihood of full and timely payment to the Certificateholders of all
distributions of interest on the Offered Certificates on each Distribution
Date and the full payment of the ultimate principal balance of Certificates on
a date that is not later than the Rated Final Distribution Date for such
Class. See "Ratings." The ratings of the Offered Certificates do not address
the Company's ability to pay any Prepayment Premium, Net Default Interest, or
Liquidated Damages, or the tax attributes of the Certificates or the Trust
REMICs.
Limited Liquidity. The Old Certificates are designated for trading in the
PORTAL market. The New Certificates are a new issue of securities with no
established trading market. Although the initial purchaser of the Old
Certificates has advised the Issuer that it presently intends to make a
secondary market in the New Certificates, it has no obligation to do so and
may discontinue any such market making at any time without notice. There can
be no assurance that a secondary market in the New Certificates will develop
or, if it does develop, that it will provide Certificateholders with liquidity
of investment or will continue for the life of the New Certificates. The
Issuer does not intend to list the New Certificates on any national securities
exchange or to seek admission thereof to trading in the National Association
of Securities Dealers Automated Quotation System. Consequently, any sale of
the New Certificates by Certificateholders in any secondary market which may
develop may be at a discount from the purchase price paid by such holder.
REMIC Status. If an entity intended to qualify as a REMIC fails to satisfy
one or more of the requirements of the Code for REMIC status during any
taxable year, the Code provides that such entity will not be treated as a
REMIC for such year and any year thereafter. In such event, the Trust Fund,
including each of the Trust REMICs, would likely be treated as one or more
separate associations taxable as a corporation under Treasury
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regulations, and the Certificates may be treated as stock interests therein
and not as debt instruments. The Code authorizes the granting of relief from
disqualification if failure to meet one or more of the requirements for REMIC
status occurs inadvertently and steps are taken to correct the conditions
which caused disqualification within a reasonable time after the discovery of
the disqualifying event. The relief may be granted by either allowing
continuation as a REMIC or by ignoring the cessation entirely. However, any
such relief may be accompanied by sanctions, such as the imposition of a
corporate tax on all or a portion of the REMIC's income for the period of time
during which the requirements for REMIC status are not satisfied. While the
Treasury Department is authorized to issue regulations regarding the granting
of relief from disqualification if the failure to meet one or more of the
requirements of REMIC status occurs inadvertently and in good faith, no such
regulations have been issued.
THE ISSUER
CBM Funding was organized in the State of Delaware on December 29, 1995, as
a corporation to facilitate the refinancing of the Company's indebtedness by
selling the Old Certificates, making the Mortgage Loan to the Company, and
contributing the Mortgages and the Mortgage Note to the Trust Fund. CBM
Funding is owned 100% by the Company. Neither CBM Funding nor any of CBM
Funding's affiliates will be liable for the payment of principal of, or
interest on, the Certificates.
The principal executive offices of CBM Funding are located at 10400 Fernwood
Road, Bethesda, Maryland 20817, telephone (301) 380-9000.
THE COMPANY
The Company, a Delaware limited partnership, was formed on December 22,
1995. The Company is a "bankruptcy-remote," single purpose affiliate of CBM II
L.P. Pursuant to the Company's partnership agreement, dated as of December 22,
1995 (the "Partnership Agreement"), the Company will dissolve on December 31,
2087, unless sooner terminated in accordance with the terms of the Partnership
Agreement.
The principal executive offices of the Company are located at 10400 Fernwood
Road, Bethesda, Maryland 20817, telephone (301) 380-9000.
Deerfield LLC is a Delaware limited liability company that was formed on
December 28, 1995, as a single purpose affiliate of the Company and the
Managing General Partner. Deerfield LLC is the owner of the Deerfield Hotel.
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SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents selected historical and certain unaudited pro
forma consolidated information for the Company and its subsidiaries (CBM
Funding and Deerfield LLC) for each of the five years in the period ended
December 31, 1995 and for the twelve weeks ended March 24, 1995 and March 22,
1996. The consolidated financial information presented below has been
restated, under "pushdown" accounting, for all fiscal years presented to
reflect the transfer of substantially all the assets of CBM II L.P. to the
Company and Deerfield LLC in connection with the refinancing and the
allocation to the Company of $410,200,000 of CBM II L.P.'s mortgage debt
repaid with the proceeds of the Old Certificates Offering. The historical
information has been derived from the historical consolidated financial
statements of the Company, which statements have been audited by Arthur
Andersen LLP, independent public accountants for the years 1993 through 1995.
The pro forma consolidated financial information of the Company is unaudited
and presented for informational purposes only and may not reflect the
Company's future results of operations and financial position or what the
results of operations and financial position of the Company would have been
had such transactions occurred as of the dates indicated. This financial data
should be read in connection with the Company's financial statements and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations," each contained elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWELVE WEEKS ENDED
---------------------------------------------- ---------------------------
1991 1992 1993 1994 1995 MAR. 24, 1995 MAR. 22, 1996
-------- -------- -------- -------- -------- ------------- -------------
(IN THOUSANDS, EXCEPT RATIOS AND OPERATING DATA AND PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues (1)............ $ 88,047 $ 93,434 $102,916 $112,392 $121,737 $26,892 $27,989
Net income (loss)....... $(10,543) $ (4,972) $ 5,085 $ 6,160 $ 18,977 $ 3,805 $ 3,321
OTHER DATA:
Pro forma interest
expense on Offered
Certificates (2)....... -- -- -- -- $32,492 -- $ 7,424
Ratio of earnings to
fixed charges (3)...... -- -- 1.13x 1.17x 1.57x 1.52x 1.39x
Deficiency of earnings
to fixed charges (3)... 10,543 4,972 -- -- -- -- --
BALANCE SHEET DATA (AT
PERIOD END):
Total assets............ $585,165 $563,313 $546,427 $531,362 $526,783 528,491 540,736
Mortgage debt........... $410,200 $410,200 $410,200 $410,200 $410,200 410,200 409,200
Total liabilities....... $455,269 $460,184 $461,391 $464,583 $468,876 460,550 461,482
Investment in and Net
Advances to Company.... $129,896 $103,129 $ 85,036 $ 66,779 $ 57,907 -- --
Partners' Capital....... -- -- -- -- -- 67,941 79,254
</TABLE>
- --------
(1) Revenues represent house profit, which is hotel sales less direct hotel
expenses (excluding certain operating costs and expenses such as
depreciation, real and personal property taxes, ground rent, insurance and
management fees). Revenues consist of (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWELVE WEEKS ENDED
--------------------------------------------- -----------------------------
1991 1992 1993 1994 1995 MARCH 24, 1995 MARCH 22, 1996
--------- -------- -------- -------- -------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Hotel sales:
Rooms.................. $ 172,413 $180,497 $192,116 $204,203 $218,955 $48,670 $51,576
Food and beverage...... 24,704 24,078 21,551 18,483 17,628 3,979 4,149
Other.................. 7,898 8,415 8,599 9,396 9,242 2,084 2,174
--------- -------- -------- -------- -------- ------- -------
Total hotel sales...... 205,015 212,990 222,266 232,082 245,825 54,733 57,899
Direct hotel expenses... 116,968 119,556 119,350 119,690 124,088 27,841 29,910
--------- -------- -------- -------- -------- ------- -------
Revenues................ $ 88,047 $ 93,434 $102,916 $121,392 $121,737 $26,892 $27,989
========= ======== ======== ======== ======== ======= =======
</TABLE>
(2) Pro forma interest expense is unaudited and reflects the issuance of the
Certificates at a weighted average interest rate of 7.70% and amortization
of deferred financing costs relating to the transaction. If the
transaction had occurred at the beginning of 1995 the above effect on
interest expense would have reduced net income by $3,412,000 to
$15,565,000 for the year ended December 31, 1995 and by $16,000 to
$3,305,000 for the twelve weeks ended March 22, 1996. The transaction
would have no effect on the Company's financial position as of December
31, 1995 and March 22, 1996.
(3) The ratio of earnings to fixed charges is unaudited and is computed by
dividing the Company's income before interest expense and other fixed
charges by total fixed charges. Fixed charges consist of interest expense
(including amortization of deferred financing costs) and the portion of
rent expense attributed to interest. The Company's earnings were
inadequate to cover fixed charges by $10.5 million in 1991 and $5.0
million in 1992. The deficiencies are largely the result of depreciation
and amortization of $32.1 million in 1991 and $29.8 million in 1992. The
Company's earnings in 1993, 1994, 1995 and the twelve weeks ended March
24, 1995 and March 22, 1996 were adequate to cover fixed charges.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The following discussion and analysis addresses results of operations for
the fiscal years ended December 31, 1993, 1994 and 1995 and for the twelve
weeks ended March 24, 1995 and March 22, 1996. The consolidated financial
statements of the Company present the financial position, results of
operations and cash flows of the Company and its subsidiaries (CBM Funding and
Deerfield LLC) as if the Company were a separate subsidiary of CBM II L.P. for
all periods presented. CBM II L.P.'s historical basis in the assets and
liabilities contributed to the Company and such subsidiaries has been carried
over. The consolidated financial information has been restated, under
"pushdown" accounting, for all fiscal periods presented to reflect the
transfer of substantially all the assets of CBM II L.P. to the Company and
Deerfield LLC in connection with refinancing and the allocation to the Company
of $410,200,000 of CBM II L.P.'s mortgage debt repaid with the proceeds of the
Old Certificates Offering. Changes in Investment in and Net Advances to the
Company for all periods presented represent the net income of the Company and
subsidiaries net of cash transferred to CBM II L.P. There are no terms of
settlement or interest charges associated with the Investment in and Net
Advances to Associates balance.
During the period from 1993 through 1995, the Company's revenues grew from
$102.9 million to $121.7 million, while the Company's total hotel sales grew
from $222.3 million to $245.8 million. Growth in room sales, and thus hotel
sales, is primarily a function of combined average occupancy and room rates.
Combined average occupancy for the Hotels during the three year period
remained stable at 81%. In addition, the Hotels' average room rate increased
by $8.67 from $62.82 to $71.49.
The Company's operating costs and expenses are, to a great extent, fixed.
Therefore, the Company derives substantial operating leverage from increases
in revenue. This operating leverage is offset in part by variable expenses,
including (i) base and Courtyard management fees under the management
agreement, which are 3 1/2% and 2 1/2% of gross hotel sales, respectively (ii)
Incentive Management Fees and (iii) variable ground lease payments. As
described below, recent hotel performance has resulted in the Company's hotels
reaching levels which have allowed the Manager to share in the growth of
profits in the form of incentive management fees. The Company views this as a
positive development as it helps to strengthen the alignment of the Manager's
interest with the Company. This trend is continuing in 1996 as the hotel
industry in general, and the moderately-priced segment in particular,
continues to strengthen.
CAPITAL RESOURCES AND LIQUIDITY
Principal Sources and Uses of Cash. The Company's principal source of cash
is cash from operations. Cash provided from operations was $37.5 million,
$36.4 million and $42.6 million for the years ended December 31, 1993, 1994,
and 1995, respectively, and $4.4 million and $7.0 million for the twelve weeks
ended March 24, 1995 and March 22, 1996, respectively. The Company's principal
uses of cash are to fund the property improvement fund and to make
distributions to CBM II L.P. In 1993, 1994, 1995 and the twelve weeks ended
March 24, 1995 and March 22, 1996, the Company utilized cash from operations
for contributions to the property improvement fund established pursuant to the
management agreement to fund replacements of furniture, fixtures and equipment
("FF&E") and to make distributions to CBM II L.P. of $23.3 million, $24.3
million, $28.4 million and $2.6 million for the years 1993, 1994, and 1995 and
the twelve weeks ended March 24, 1995, respectively. For the twelve weeks
ended March 22, 1996, CBM II L.P. contributed $18.0 million to the Company to
pay refinancing costs and to fund various reserve accounts. Historically, the
Company has not had any debt amortization requirements. Following the
consummation of the Old Certificates Offering and the Notes Offering, debt
amortization has become a significant principal use of cash from operations.
The Company expects to amortize $10.3 million of the principal balance of the
Certificates in 1996. In the first quarter of 1996, the Company repaid $1.0
million in principal on the Certificates.
37
<PAGE>
The Company believes that cash from hotel operations combined with the
ability to defer certain management fees to the Manager and ground rent
payments to MII and affiliates, if necessary, will provide adequate funds in
the short term and long term for the operational and capital needs of the
Company.
The Management Agreement requires annual contributions to a property
improvement fund to ensure that the physical condition and product quality of
the Hotels are maintained. Contributions to this fund are based on a
percentage of annual total hotel sales, currently equal to 5%. The Company
believes that the 5% contribution requirement is consistent with industry
standards and provides a sufficient reserve for the future capital repair and
replacement needs of the Hotels. In accordance with the Management Agreement,
the annual required contribution percentage may increase to up to 6% after
December 31, 2000. The balance in the fund totaled $33.1 million as of
December 31, 1995 and $33.0 million as of March 22, 1996. During the period
from 1992 through 1995, room renovation projects were completed at all of the
Hotels at an aggregate cost of approximately $30.7 million. Total capital
expenditures for 1993, 1994 and 1995 were $8.3 million, $13.4 million and $8.8
million, respectively; and $2.3 million and $3.0 million for the twelve weeks
ended March 24, 1995 and March 22, 1996, respectively. All such capital
expenditures were funded from the property improvement fund.
Debt Financing and Refinancing. As of December 31, 1995, CBM II L.P. had
outstanding bank mortgage indebtedness of $275 million ("Mortgage Debt A")
related to 36 Hotels and $230.5 million ("Mortgage Debt B") related to 29
Hotels. As of December 31, 1995, CBM II L.P. also had approximately $25.6
million of industrial revenue bond financing (the "IRB Debt") on the remaining
five Hotels and owed approximately $6.5 million to Host Marriott in connection
with such IRB Debt with respect to those five Hotels ("Host Marriott's IRB
Liability"). On January 24, 1996, proceeds from the placement of the Notes and
the Certificates and existing cash of CBM II L.P. were used as follows: (i) to
repay existing Mortgage Debt A and Mortgage Debt B, (ii) to repay the IRB Debt
of $25.6 million by March 1, 1996, (iii) to repay the Host Marriott IRB
Liability loans of $6.5 million and (iv) to pay certain costs of structuring
and issuing the Notes and the Certificates. During first quarter 1996, the
Company paid $8.1 million in refinancing costs.
The Notes were issued by CBM II L.P. and Courtyard II Finance Company. The
Notes bear interest at 10 3/4%, require semi-annual payments of interest and
require no payments of principal until maturity on February 1, 2008. The Notes
are secured by a first priority pledge by CBM II L.P. of (i) its 99%
partnership interest (consisting of a 98% limited partner interest and a 1%
general partner interest) in the Company and (ii) its 100% equity interest in
the Managing General Partner. The Notes are not redeemable prior to February
1, 2001. Thereafter, the Notes may be redeemed, at the option of CBM II L.P.,
at a premium declining to par in 2004. The Notes are non-recourse to CBM II
L.P. and its partners.
The terms of the Notes include requirements of CBM II L.P. to establish and
fund a debt service reserve account in an amount equal to one six-month
interest payment on the Notes ($6,848,000) and to maintain certain levels of
excess cash flow, as defined. The debt service reserve was funded by CBM II
L.P. on January 24, 1996. In the event CBM II L.P. fails to maintain the
required level of excess cash flow, CBM II L.P. will be required to (i)
suspend distributions to its partners and other restricted payments, as
defined, (ii) to fund a separate supplemental debt service reserve account
(the "Supplemental Debt Service Reserve") in an amount up to two six-month
interest payments on the Notes and (iii) if such failure were to continue, to
offer to purchase a portion of the Notes at par.
Operating profit from the Hotels in excess of debt service on the Mortgage
Loan is available to be distributed to CBM II L.P. Amounts distributed to the
CBM II L.P. are used for the following, in order of priority: (i) for debt
service on the Notes, (ii) to fund the Supplemental Debt Service Reserve, if
necessary, (iii) to offer to purchase a portion of the Notes at par, if
necessary, (iv) for working capital as discussed below, and (v) for
distributions to the partners of the CBM II L.P. Therefore, the Company will
not accumulate cash flow in excess of what is necessary for debt service on
the Mortgage Loan. The Company will distribute excess cash to its partners,
CBM II L.P. and Managing General Partner. CBM II L.P. will utilize these
distributions for debt service payments on the Notes and for distributions to
its partners.
MII Ground Leases. In connection with the refinancing on January 24, 1996,
CBM II L.P., as lessee, transferred it rights and obligations pursuant to the
53 ground leases with MII and affiliates to the Company. Additionally, MII and
affiliates agreed to defer receipt of their ground lease payments to the
extent that CBM II L.P. or the Company has insufficient funds for debt service
payments on the Notes and the Mortgage Loan.
38
<PAGE>
Working Capital Agreement. The refinancing required certain enhancements to
the cash management system of the Manager such that additional working capital
may be required for the operation of the Hotels. Therefore, on January 24,
1996, CBM II L.P., the Company and the Manager entered in a working capital
maintenance agreement (the "Working Capital Agreement") and deposited $2.5
million as additional working capital for the operation of the Hotels which is
included in restricted cash in the consolidated balance sheet at March 22,
1996. Prior to December 31, 1996, the Company and the Manager will determine
the amount of working capital that is required. The Company has agreed to
provide up to another $2.5 million, if necessary.
In addition, the Working Capital Agreement provides that the CBM II L.P. and
the Company, collectively, reserve $2 million by February 1, 1997 and
additional amounts such that the total balance is $5 million by February 1,
1998 (the "Working Capital Reserve"). The Working Capital Reserve will be
available for the funding of certain reserves for payment of hotel operating
expenses, which would be required under the terms of the Mortgage Loan in the
event that there is a downgrade in the long-term senior unsecured debt of MII
to below a certain level. See "Description of the Trust and Servicing
Agreement--Flow of Funds; Accounts."
The obligation to fund the amounts required by the Working Capital Agreement
is subordinate to debt service on the Senior Notes and the Mortgage Loan.
RESULTS OF OPERATIONS
The following table shows selected combined operating and financial
statistics for the Hotels on a consolidated basis.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWELVE WEEKS ENDED
---------------------------- -------------------
MARCH 24, MARCH 22,
1993 1994 1995 1995 1996
-------- -------- -------- --------- ---------
(IN THOUSANDS, EXCEPT COMBINED AVERAGE
OCCUPANCY,
COMBINED DAILY ROOM RATE,
REVPAR, AND NUMBER OF ROOMS)
<S> <C> <C> <C> <C> <C>
Combined average occupancy.. 81.3% 81.1% 81.4% 78.2% 78.3%
Combined average daily room
rate....................... $ 62.82 $ 66.95 $ 71.49 $ 71.69 $ 75.91
REVPAR...................... $ 51.07 $ 54.30 $ 58.19 $ 56.06 $ 59.44
Number of rooms............. 10,335 10,335 10,335 10,335 10,335
Room sales.................. $192,116 $204,203 $218,955 $48,670 $51,576
Food and beverage sales..... 21,551 18,483 17,628 3,979 4,149
Other hotel sales........... 8,599 9,396 9,242 2,084 2,174
-------- -------- -------- ------- -------
Total hotel sales......... 222,266 232,082 245,825 54,733 57,899
Direct hotel operating costs
and expenses............... 119,350 119,690 124,088 27,841 29,910
-------- -------- -------- ------- -------
Revenues.................... $102,916 $112,392 $121,737 $26,892 $27,989
======== ======== ======== ======= =======
</TABLE>
39
<PAGE>
The following table shows selected components of the Company's operating
income as a percentage of total Hotel sales.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWELVE WEEKS ENDED
------------------------- -------------------
MARCH 24, MARCH 22,
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C>
Hotel sales:
Room sales................... 86.4% 88.0% 89.1% 88.9% 89.1%
Food and beverage sales...... 9.7 8.0 7.2 7.3 7.2
Other........................ 3.9 4.0 3.7 3.8 3.7
------- ------- ------- ----- -----
Total hotel sales.......... 100.0 100.0 100.0 100.0 100.0
Direct operating costs and ex-
penses........................ 53.7 51.6 50.5 50.8 51.7
------- ------- ------- ----- -----
Revenues....................... 46.3 48.4 49.5 49.2 48.3
Indirect operating costs and
expenses:
Depreciation and amortiza-
tion........................ 12.5 12.1 11.3 11.7 11.0
Base and Courtyard management
fees........................ 6.0 6.0 6.0 6.0 6.0
Ground rent.................. 4.5 4.6 4.7 4.8 4.6
Property taxes............... 4.1 4.1 3.8 4.0 3.8
Incentive management fees.... 0.0 4.1 4.3 4.2 4.2
Insurance and other.......... 0.7 0.8 -- * -- * .2
------- ------- ------- ----- -----
Total indirect hotel operating
costs and expenses............ 27.8 31.7 30.1 30.7 29.8
------- ------- ------- ----- -----
Operating income........... 18.5% 16.7% 19.4% 18.5% 18.5%
======= ======= ======= ===== =====
</TABLE>
- --------
* Calculates to less than .1%.
TWELVE WEEKS ENDED MARCH 24, 1995 COMPARED TO TWELVE WEEKS ENDED MARCH 22,
1996:
Revenues. Revenues (hotel sales less direct hotel operating costs and
expenses) increased by $1.1 million for the twelve weeks ended March 22, 1996,
to $28.0 million, a 4.1% increase when compared to the same period in 1995.
This increase in revenues was achieved primarily through an increase in hotel
sales offset by an increase in hotel operating costs and expenses, as
discussed below.
Hotel sales. For the twelve weeks ended March 22, 1996, hotel sales
increased $3.2 million to $57.9 million, a 5.8% increase over the comparable
period in 1995. This increase was achieved primarily through an increase in
the combined average room rate of $4.22 to $75.91 from $71.69 for the twelve
weeks ended March 24, 1995. The increase in average room rate was primarily
due to the Manager's efforts to eliminate lower room rated business. As a
result, room sales for the twelve weeks ended March 22, 1996 increased by
$2.9 million, or 6.0%, to $51.6 million from $48.7 million in the comparable
period in 1995 while occupancy remained stable at approximately 78% during
these periods. Twenty-six of the 70 Hotels posted occupancy rates exceeding
80% for the twelve weeks ended on March 22, 1996. Food and beverage sales
increased slightly from $4.0 million for the twelve weeks ended March 24, 1995
to $4.1 million for the comparable period in 1996.
Direct hotel operating costs and expenses. Direct hotel operating costs and
expenses increased from $27.8 million for the twelve weeks ended March 24,
1995 to $29.9 million for the same period in 1996. As a percentage of total
hotel sales, these costs and expenses increased slightly to 51.7% in first
quarter 1996 as compared to 50.8% in first quarter 1995. The increase is due
to an increase in various hotel room expenses as well as an increase in food
and beverage cost of sales. As a percentage of food and beverage sales, food
and beverage costs increased 1.7 percentage points over the first quarter
1995.
Indirect hotel operating costs and expenses. Indirect hotel operating costs
and expenses increased by $.5 million, or 3.1%, from $16.7 million for the
twelve weeks ended March 24, 1995 to $17.3 million in the same period in 1996.
As a percentage of total hotel sales, these costs and expenses decreased to
29.8% of total hotel sales for the twelve weeks ended March 22, 1996, from
30.7% for the same period in 1995. The components of this category are
discussed below:
40
<PAGE>
Depreciation. Depreciation increased slightly in the first quarter 1996 as
compared to the same period in 1995.
Base and Courtyard management fees. The increase in base and Courtyard
management fees of 5.8%, from $3.3 million for the first quarter 1995 to $3.5
million for the same quarter in 1996 is due to the improved combined hotel
sales for the 70 Hotels.
Ground rent. The first quarter 1996 ground rent expense of $2.7 million
represents a 2.2% increase over the same quarter in 1995 due to improved hotel
operations which resulted in more hotels paying ground rent as a percentage of
sales, rather than the minimum rent. As a percentage of total hotel sales,
ground rent expense decreased slightly from 4.8% to 4.6% for the first quarter
1996 as compared to the same quarter in 1995.
Incentive management fees. In accordance with the Management Agreement, in
the first quarter of 1996 $2.4 million of incentive management fees were
earned as compared to $2.3 million earned in the same period in 1995. The
increase in incentive management fees earned was the result of improved
combined hotel operating results.
Operating income. Operating income (revenues less all costs and expenses
other than interest expense) increased by $0.5 million to $10.7 million for
the twelve weeks ended March 22, 1996, from $10.2 million for the same period
in 1995, primarily due to increased hotel sales.
Interest expense. Interest expense increased 16.5% to $7.4 million for the
twelve weeks ended March 22, 1996, from $6.4 million for the same period in
1995. The increase is due to the refinancing of the debt at fixed rates which
are higher than the prior year's variable interest rates. The weighted average
interest rate for first quarter 1996 was 8.0% as compared to 6.8% for first
quarter 1995.
Net income. For the twelve weeks ended March 22, 1996, the Company had net
income of $3.3 million, a decrease of $.5 million, from net income of $3.8
million for the same period in 1995. This decrease was primarily due to higher
interest expense offset by higher revenues as discussed above.
1994 COMPARED TO 1995:
Revenues. Revenues (hotel sales less direct hotel operating costs and
expenses) increased by $9.3 million in 1995, to $121.7 million, a 8.3%
increase when compared to 1994. This increase in revenues was achieved
primarily through an increase in hotel sales combined with stable hotel
operating costs and expenses, as discussed below.
Hotel sales. Total 1995 hotel sales of $245.8 million represented a $13.7
million, or 5.9%, increase over 1994 results. This increase was achieved
primarily through increases in the combined average room rate from $66.95 in
1994 to $71.49 in 1995. As a result, 1995 room sales increased by $14.8
million, or 7.2%, to $219.0 million from $204.2 million in 1994 despite stable
occupancy of approximately 81% during these periods. Forty-five of the Hotels
posted occupancy rates exceeding 80% for 1995. Food and beverage sales
decreased by 4.6% from $18.5 million in 1994 to $17.6 million in 1995, as a
result of the Manager's continued efforts to match restaurant service to
customer demand by eliminating under-utilized services at low volume
restaurants.
Direct hotel operating costs and expenses. Direct hotel operating costs and
expenses in 1995 increased $4.4 million, or 3.7%. The increase in direct hotel
operating costs and expenses is primarily due to an increase in certain
variable costs related to the increase in room sales. However, as a percentage
of total hotel sales, these costs and expenses decreased to 50.5% in 1995 as
compared to 51.6% in 1994.
Indirect hotel operating costs and expenses. Indirect hotel operating costs
and expenses increased by $345,000 or .5%, from $73.3 million in 1994 to $73.7
million in 1995. As a percentage of total hotel sales these costs and expenses
decreased to 30.0% of total hotel sales in 1995 from 31.6% in 1994. The
components of this category are discussed below:
Depreciation and amortization. Depreciation and amortization decreased
slightly in 1995 as compared to 1994 due to a portion of the Hotels' furniture
and equipment becoming fully depreciated in 1994.
Base and Courtyard management fees. The increase in base and Courtyard
management fees of 5.9%, from $13.9 million in 1994 to $14.7 million in 1995
is due to the improved combined hotel sales for the 70 Hotels for 1995 when
compared to 1994.
41
<PAGE>
Ground rent. The 1995 ground rent expense of $11.5 million represents a 7.1%
increase over 1994 levels as improved hotel operations resulted in more Hotels
paying ground rent as a percent of sales rather than the minimum rent. As a
percentage of total hotel sales, ground rent expense remained the same at 4.7%
in 1994 and 1995.
Incentive management fees. In accordance with the Management Agreement, in
1995 $10.5 million of incentive management fees were earned as compared to
$9.4 million earned in 1994. The increase in incentive management fees earned
was the result of improved combined hotel operating results.
Operating income. Operating income (hotel expenses less all costs and
expenses other than interest expense) increased by $9 million to $48.1 million
in 1995, from $39.1 million in 1994, primarily due to higher hotel sales.
Interest expense. Interest expense decreased 11.6% to $29.1 million in 1995
from $32.9 million in 1994. This decrease in interest expense was due to the
expiration of the interest rate swaps on Mortgage Debt A and Mortgage Debt B
on August 4, 1994 and October 18, 1994, respectively.
Net income. The Company's net income increased by $12.8 million from $6.2
million in 1994 to $19 million in 1995. This increase was primarily due to
higher revenues and lower interest expense due to the expiration of the
Partnership's interest rate swap agreements.
1993 COMPARED TO 1994:
Revenues. Revenues (hotel sales less direct hotel operating costs and
expenses) increased by $9.5 million in 1994, to $112.3 million, a 9.2%
increase when compared to 1993. This increase in revenues was achieved
primarily through an increase in hotel sales combined with stable hotel
operating costs and expenses, as discussed below.
Hotel sales. Total 1994 hotel sales of $232.1 million represented a $9.8
million, or 4.4%, increase over 1993 results. Room sales increased by $12.1
million, or 6.3%, to $204.2 million from $192.1 million in 1993. These
increases were achieved primarily through an increase in the combined average
room rate to $66.95 in
1994 from $62.82 in 1993 to $66.95 in 1994. Occupancy remained stable at
approximately 81% during these periods. Forty of the Hotels posted occupancy
rates exceeding 80% for 1994. Food and beverage sales decreased by 14.4% from
$21.6 million in 1993 to $18.5 million in 1994 as a result of the Manager's
continued efforts to match restaurant service to customer demand by
eliminating under utilized services at low volume restaurants.
Direct hotel operating costs and expenses. Direct hotel operating costs and
expenses in 1994 increased by $340,000 or .3% to $119.7 million when compared
to 1993. As a percentage of total hotel sales, these costs and expenses
decreased to 51.6% in 1994 as compared to 53.7% in 1993.
Indirect hotel operating costs and expenses. Indirect hotel operating costs
and expenses increased by $11.5 million, or 18.6%, from $61.8 million in 1993
to $73.3 million in 1994. As a percentage of total hotel sales these costs and
expenses increased to 31.6% in 1994 from 27.8% in 1993. The components of this
category are discussed below:
Depreciation and amortization. Depreciation and amortization remained stable
in 1994 ($28.0 million) as compared to 1993 ($27.9 million).
Base and Courtyard management fees. Base and Courtyard management fees
increased 4.4%, to $13.9 million in 1994 from $13.3 million in 1993 due to the
improved aggregate hotel sales for the 70 Hotels for 1994 when compared to
1993.
Ground rent. The 1994 ground rent expense of $10.8 million represents a 7.6%
increase over 1993 levels as improved hotel operations resulted in more Hotels
paying ground rent as a percent of sales rather than the minimum rent at the
beginning of 1994. As a percentage of total hotel sales, ground rent expense
increased slightly to 4.6% in 1994 from 4.5% in 1993.
42
<PAGE>
Incentive management fees. Incentive management fees were earned for the
first time in 1994 as a result of improved hotel operating results and the
scheduled change in the formula under the Management Agreement for earning
such fees. Prior to 1994, fees earned were limited to 55% of operating profit
(as defined in the Management Agreement) less debt service and the priority
return (as defined in the Management Agreement). Beginning in 1994, fees
earned equal 15% of operating profit, as defined. In 1994, $9.4 million of
incentive management fees were earned by the Manager; however, $3.8 million
was paid and $5.6 million was deferred.
Operating income. Operating income (hotel expenses less all costs and
expenses other than interest expense) decreased by $2.0 million to $39.1
million in 1994, from $41.1 million in 1993, primarily due to higher hotel
sales which were offset by the incentive management fees earned in 1994. As a
percentage of total hotel sales, operating income decreased to 16.7% in 1994
from 18.5% in 1993. Excluding the impact of incentive management fees earned
in 1994, operating income as a percentage of total hotel sales increased to
20.9% in 1994.
Interest expense. Interest expense decreased 8.6% to $32.9 million in 1994
from $36 million in 1993. This decrease in interest expense was due to the
expiration of the interest rate swaps on Mortgage Debt A and Mortgage Debt B
on August 4, 1994 and October 18, 1994, respectively.
Net income. The Company's net income increased by $1.1 million, or 21.1%, to
$6.2 million in 1994, from $5.1 million in 1993, primarily due to higher
revenues and lower interest expense, as discussed above, offset by the
incentive management fees earned by the Manager beginning in 1994.
COMPETITION
The moderately-priced lodging segment is highly competitive. Although a
slight increase in supply growth occurred in 1995, the Company believes that
Courtyard by Marriott hotels, including the Hotels, generally command a
significant share of the markets in which they are located. On a combined
basis, competitive forces affecting the Hotels are not, in the opinion of the
Company, more adverse than the overall competitive forces affecting the
lodging industry generally.
INFLATION
For the three fiscal years ended December 31, 1995, the rate of inflation
has been relatively low and, accordingly, has not had a significant impact on
the Company's revenues and net losses. The Manager is generally able to pass
through increased costs to customers through higher room rates. In 1995,
average room rates of Courtyard by Marriott hotels exceeded those of direct
competitors as well as the general level of inflation. Subsequent to year end
the Company refinanced its mortgage debt and fixed its interest costs thereby
eliminating the Company's exposure to the impact of inflation on future
interest costs.
SEASONALITY
Demand, and thus room occupancy, is affected by normally recurring seasonal
patterns. For most of the Hotels, demand is higher in the spring and summer
months (March through October) than during the remainder of the year.
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DESCRIPTION OF THE MORTGAGED PROPERTIES
GENERAL
The Mortgaged Properties consist of 69 Courtyard by Marriott hotels owned by
the Company, located in 29 states, including the Company's fee or leasehold
interest in the underlying land and the Marriott Ground Lessors' fee interests
in the land underlying 53 of such Hotels. The Hotels range in age from six to
ten years, with an average age of 7.5 years, and contained 10,335 guest rooms
as of December 31, 1995. Eight Hotels are situated on land owned in fee by the
Company; 53 Hotels are situated on land leased from the Marriott Ground
Lessors; seven Hotels are situated on land leased from other third parties;
and one Hotel is situated on land partly owned in fee by the Company and
partly leased from a third party. The Deerfield Hotel, which is owned by
Deerfield LLC, is not a Mortgaged Property. The Company owns a 99% membership
interest in Deerfield LLC. The Company's right to receive net cash flow from
the Deerfield Hotel has been assigned to the Trustee as additional security
for the Mortgage Loan, but no portion of the Mortgage Loan has been allocated
to the Deerfield Hotel.
The Hotels are designed to meet the needs of business and leisure travelers
who desire high quality accommodations at moderate prices, rather than the
group meeting or convention markets. Approximately 60% of the guests at
Courtyard by Marriott hotels are individual business travelers, 30% are
leisure travelers, and 10% are guests attending small group meetings. Each
Hotel generally contains a small lobby, a restaurant with seating for
approximately 50 guests, a lounge, a hydrotherapy pool, a guest laundry, an
exercise room, and two meeting rooms. Most of the Hotels are located in
suburban areas near office parks or other commercial activities. Each Hotel is
situated on approximately four to seven acres.
Each Hotel is operated by the Manager under the Management Agreement as part
of the Courtyard by Marriott hotel system. The Management Agreement expires
February 22, 2013, with renewals at the option of the Manager for one or more
of the Hotels for three periods of 10 years each and a fourth period of five
years. The Management Agreement obligates the Company to provide at least the
same services to the Hotels as it and its affiliates now or hereafter provide
to other Courtyard by Marriott hotel properties that they manage. See
"Description of the Management Agreement--Management Services."
COURTYARD BY MARRIOTT SYSTEM
The first Courtyard by Marriott hotel opened in October 1983, marking
Marriott Corporation's entry into the moderately-priced segment of the lodging
industry. As of December 31, 1995, 249 Courtyard by Marriott hotels (with a
total of 36,594 rooms) were open and operating in 39 states in the United
States and four hotels were open and operating in the United Kingdom. Based on
information provided by MII, the Company expects that in 1996, 39 new
Courtyard by Marriott hotels (with a total of 4,442 rooms) will open and 57
new Courtyard by Marriott hotels (with a total of 6,615 rooms) will be
approved for development. As of December 31, 1995, 196 of the 253 hotels in
the Courtyard by Marriott system were managed by MII or one of its affiliates,
helping to maintain uniform standards and consistent operations. The Courtyard
by Marriott hotels managed by MII and its affiliates comprise one of the
largest moderately-priced hotel systems under common management in the United
States. In 1995, according to Smith Travel Research*, Courtyard by Marriott
hotels supplied 4.2% of the moderately-priced market as measured by number of
hotels and number of rooms, but captured 4.9% of roomnights in the moderately-
priced segment of the U.S. lodging industry.
The objective of the Courtyard by Marriott system, including the Hotels, as
expressed by MII, is to provide consistently superior lodging at a fair price
with an appealing, friendly, and contemporary residential character. Courtyard
by Marriott hotels generally provide large, high quality guest rooms, which
contain furnishings comparable in quality to those found in traditional full-
service Marriott hotels, but do not contain as much public space and related
facilities as traditional full-service Marriott hotels. Courtyard by Marriott
hotels have fewer guest rooms than traditional, full-service Marriott hotels,
which typically contain 350 or more guest rooms. Most Courtyard by Marriott
hotels are designed around a courtyard area containing a swimming pool (indoor
pool in northern climates), walkways, landscaped areas, and a gazebo.
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STRATEGY
The Company's strategy is to continue to capitalize on the competitive
advantages of the Courtyard by Marriott system, specifically:
Courtyard by Marriott Brand Name. Inclusion of the Hotels within the
nationwide Courtyard by Marriott hotel system provides the benefits of
enhanced name recognition by customers, system-wide marketing, promotion,
and advertising, centralized purchasing, training, and support services,
and a sophisticated centralized reservations system. Approximately 55.4% of
the total rooms sold in 1995 at the hotels in the Courtyard by Marriott
System which are managed by MII were sold through Courtyard by Marriott's
reservations systems, a percentage that the Company believes is well above
the average in the moderately-priced segment of the U.S. lodging industry.
The Company believes that the Courtyard by Marriott brand name represents
one of the stronger brand affiliations in the moderately-priced segment.
Specifically, the Hotels and the Courtyard by Marriott brand each
significantly outperforms the moderately-priced segment of the U.S. lodging
industry in both occupancy, average daily room rate ("ADR"), and revenues
per available room ("REVPAR"), as illustrated in the table below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Hotels
Average occupancy............................... 81.3% 81.1% 81.4%
Average daily room rate......................... $ 62.82 $ 66.95 $ 71.49
REVPAR.......................................... $ 51.07 $ 54.30 $ 58.19
Courtyard by Marriott System (1)
Average occupancy............................... 80.5% 79.9% 80.8%
Average daily room rate......................... $ 63.84 $ 68.04 $ 72.40
REVPAR.......................................... $ 51.38 $ 54.38 $ 58.52
U.S. Moderately-Priced Segment (2)
Average occupancy............................... 63.9% 65.8% 66.7%
Average daily room rate......................... $ 56.22 $ 58.30 $ 60.97
REVPAR.......................................... $ 35.93 $ 38.38 $ 40.65
</TABLE>
--------
(1) Does not include the four hotels in the United Kingdom; includes
all franchised hotels.
(2) Source: Smith Travel Research.
- --------
*Smith Travel Research has not provided any form of consultation, advice, or
counsel regarding, and is not associated in any way with, any aspect of this
Prospectus.
Management by MII. Pursuant to the Management Agreement, the Hotels are
managed by an affiliate of MII, one of the premier hotel operators in the
world. As of December 31, 1995, MII and its affiliates managed 516 hotel
properties comprising 73,028 hotel rooms consisting of full service,
moderately-priced, extended stay, and economy properties. Courtyard by
Marriott hotels accounted for approximately 38% of the properties operated
by MII and its affiliates as of December 31, 1995. The Company believes
that the management of the Hotels by the Manager provides a significant
competitive advantage due to MII's breadth and depth of experience in the
lodging industry, the substantial management, training, and support
resources available through MII, and MII's sophisticated reservation system
and state-of-the-art yield management system.
Efficiency of Operations/Cost Advantages. The smaller size of Courtyard
by Marriott hotels and the simplified scale of operations as compared to
full-service hotels allow for standardization of the hotels and
centralized, multi-hotel management, resulting in operating cost
advantages. First, centralized support areas perform many of the
administrative functions normally performed at an individual hotel such as
accounting, reservations, and marketing, resulting in a significant
reduction in labor costs for the hotel system. Second, a Courtyard by
Marriott hotel typically operates with approximately one employee for every
four rooms,
45
<PAGE>
while a typical full-service hotel operates with approximately one employee
for each room. Increased efficiency, reduction in on-site personnel
requirements, and the centralized, multi-hotel management system reduce
costs and allow Courtyard by Marriott hotels to maintain a competitive
price structure.
Room Renovation and Upgrade Program. The Management Agreement and the
Mortgage Loan currently require the Company to contribute 5% of annual
total hotel sales from the Mortgaged Properties to the FF&E Reserve
Account, the proceeds of which are used to maintain or upgrade product
standards in order to satisfy guest expectations and maximize hotel
revenue. The FF&E Reserve Account is designed to permit the Manager to
adhere to a strict renovation timetable, implemented through five- and ten-
year cycles. Since 1992, all of the Hotels were renovated at an aggregate
cost of approximately $30.7 million. The balance in the existing FF&E
Reserve Account for the Mortgaged Properties as of March 22, 1996 was
approximately $32.2 million.
System-wide Marketing Program. The marketing strategy for the Courtyard
by Marriott system concentrates on both business and leisure travelers.
This strategy is implemented through the use of national advertising which
focuses on Courtyard by Marriott's heritage of having been designed by
business travelers. Courtyard by Marriott's primary advertising vehicles
are spot and network radio advertising, national magazines, USA Today, and
cable television. Courtyard by Marriott also has developed several
marketing programs to encourage repeat guest visits. These programs, known
as Courtyard Club and Courtyard Connection, provide a variety of benefits,
including priority reservations, express check-in and check-out services,
guaranteed late arrival, advance room requests, and other personalized
services. Members of these programs account for 25% of the business of the
Courtyard by Marriott system.
THE LODGING INDUSTRY
The lodging industry as a whole is benefiting from a cyclical recovery as
well as a shift in the supply/demand relationship with supply flat and demand
strengthening. According to Smith Travel Research, from 1989 to 1991, room
supply increased an average of 2.9% annually. This growth slowed to an
approximately 1.4% average annual growth rate from 1990 through 1995.
While new hotel supply growth has slowed, room demand has been rising. With
the increase in travel in an expanding economy, hotel occupancy has grown
steadily over the past several years, and room rates recently have begun to
increase. Overall industry occupancy grew .8 percentage points in 1995 to over
65.5%, while room rate growth exceeded inflation for the third consecutive
year.
According to Smith Travel Research, for the five-year period ended December
31, 1995, the moderately-priced segment of the U.S. lodging industry reported
the following operating results:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1991 1992 1993 1994 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average occupancy.......................... 61.4% 62.6% 63.9% 65.8% 66.7%
Average daily room rate.................... $55.09 $54.99 $56.22 $58.30 $60.97
% change in average daily room rate........ (0.6%) (0.2%) 2.2% 3.7% 4.6%
Growth in room supply...................... 2.4% 1.7% 1.1% 2.0% 2.4%
Growth in room demand...................... 0.2% 3.8% 3.2% 5.0% 3.8%
</TABLE>
COMPETITION
The United States lodging industry generally is comprised of two broad
segments: full-service hotels and limited-service hotels. Full-service hotels
generally offer restaurant and lounge facilities and meeting spaces, as well
as a wide range of services, typically including bell service and room
service. Limited-service hotels generally offer accommodations with limited or
no services and amenities. As moderately-priced hotels, the Hotels compete
effectively with both full-service and limited-service hotels in their
respective markets by providing streamlined services and amenities exceeding
those provided by typical limited-service hotels at prices that are
significantly lower than those available at full-service hotels.
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<PAGE>
Significant competitors in the moderately-priced lodging segment include
Holiday Inn, Ramada Inn, Sheraton Inn, Hampton Inn, and Hilton Inn. The
lodging industry in general, and the moderately-priced segment in particular,
is highly competitive, but the degree of competition varies from location to
location and over time. Although a slight increase in supply growth occurred
in 1995, the Company believes that Courtyard by Marriott hotels, including the
Hotels, generally command a significant share of the geographic markets in
which they are located. On a combined basis, competitive forces affecting the
Hotels are not, in the opinion of the Company, more adverse than the overall
competitive forces affecting the lodging industry generally.
GROUND LEASES
Ground Leases with MII and Its Affiliates.
The Marriott Ground Lessors have leased to the Company the land on which 53
Hotels are located. Each Marriott Ground Lease expires on December 31, 2068
and requires the Company to pay annual rent ("Rental") equal to the greater of
a minimum rent (the "Minimum Rental") or a percentage rent (the "Percentage
Rental"). The annual Minimum Rental varies from $96,000 to $329,000 per Hotel.
The Percentage Rental also varies from Hotel to Hotel and ranges from 3% to 8%
of annual total Hotel sales, as defined in the leases. For the year ended
December 31, 1995, the Company paid aggregate Minimum Rental of $10.0 million
and aggregate Percentage Rental (in addition to Minimum Rental) of $1.5
million. Generally, as of the beginning of the sixth year after the opening of
each Hotel, and as of every three years thereafter, the annual Minimum Rental
increases to the greater of (i) 75% of the average Rental per year during the
three preceding years, (ii) the prior year's Minimum Rental, and (iii) the
then existing Minimum Rental increased by 80% of the percentage increase in
the Consumer Price Index for the preceding three years.
The Marriott Ground Lessors have subordinated their right to receive Rental
payments under the Marriott Ground Leases to the payment of debt service on
the Mortgage Loan and the Notes (including extensions thereof through February
1, 2018) and Qualifying Refinancings (as defined below) thereof (together,
"Qualifying Debt Service") and not to terminate the leases solely because
payments of Rental are deferred in accordance with such subordination
agreement. All deferred Rental payments must be paid out of the Company's cash
flow after payment of Qualifying Debt Service. Contemporaneously with (i) a
voluntary sale of any Hotel, (ii) a release of any Mortgage, (iii) the
exercise by the Company of its purchase option under any Marriott Ground
Lease, or (iv) a change in the use or demolition of any Hotel or certain other
events, a ratable portion of all deferred Rental payments then outstanding
under the Marriott Ground Leases must be paid by the Company. The Company may
pledge or encumber its leasehold interest in any Marriott Ground Lease to any
bona fide institutional lender (as defined in the Marriott Ground Leases). In
addition, the Marriott Ground Lessors have agreed to mortgage their fee
interests in the MII Land, on a non-recourse basis, as security for the
Mortgage Loan and for refinancings of the Mortgage Loan and the Notes, in
which (i) the maturity of any such refinancing is not later than February 1,
2018 and (ii) the principal amount of such refinancing does not exceed the
principal amount being refinanced plus certain reasonable expenses
("Qualifying Refinancings"). See "Description of the Mortgage Loan--Security
for the Mortgage Loan." The Marriott Ground Lessors have agreed to grant the
holders of any permitted leasehold mortgages, including the Trustee, certain
recognition and cure rights including, without limitation, (i) the right to
notice of any default by the Company under a Marriott Ground Lease and an
opportunity and reasonable period of time to cure such default, (ii) the right
to obtain a new ground lease from the Marriott Ground Lessor if the ground
lease is terminated, (iii) the right to consent before any modification or
amendment to a Marriott Ground Lease is made, and (iv) the right to assign the
lessee's interest under the Marriott Ground Lease following foreclosure of the
Company's leasehold interest (if the fee interest is not also foreclosed or is
not foreclosable), without the consent of the Marriott Ground Lessor. The
Marriott Ground Lessors will have the right, but not the obligation, to
advance funds to cure or to avoid potential defaults under the Mortgage Loan
or the Notes, which advances will be treated as loans to CBM II L.P.
(subordinate in payment to the Notes).
Under each of the Marriott Ground Leases, the Company has the right (subject
to certain restrictions under the Loan Agreement and the Mortgages; see
"Description of the Mortgage Loan--Certain Mortgage Loan Covenants") to (i)
construct, alter, repair, replace, or remove the improvements on the leased
premises, subject to certain conditions, (ii) demolish a Hotel on 90 days
prior written notice to the Marriott Ground Lessor (10 days
47
<PAGE>
for demolition following a casualty) and change the use of the affected Hotel,
whereupon Rental will be adjusted, (iii) assign the lease to affiliates of
Host Marriott or other creditworthy assignees, subject to certain limitations,
(iv) sublet, under certain circumstances, all or part of the subject land
without the consent of the Marriott Ground Lessor, provided that such sublease
will be subject to the terms and provisions of the applicable Marriott Ground
Lease, and (v) acquire the land and the landlord's reversionary interest in
the improvements made after the opening date of the applicable Hotel from the
Marriott Ground Lessor at its then fair market value after the earliest to
occur of (a) a sale of the applicable Hotel and (b) February 1, 2008 . The
Marriott Ground Leases require the Company to (i) discharge all liens other
than permitted liens, (ii) maintain all necessary operational permits and
licenses, (iii) maintain the leased premises in good repair (subject to any
restrictions under the Loan Documents), (iv) comply with all laws and
regulations, (v) pay all taxes and impositions, (vi) maintain public liability
and workers' compensation insurance, and (vii) indemnify and hold the Marriott
Ground Lessor harmless from all claims and liabilities arising out of the
Company's use or possession of the leased premises.
If, during the term of any Marriott Ground Lease, a Hotel is damaged or
destroyed by fire or other casualty, the Company as tenant shall, under such
Marriott Ground Lease, at its expense, repair or restore such Hotel. If such
damage exceeds 30% of the fair market value of such Hotel immediately before
such damage or destruction, the Company may, subject to certain restrictions
in the Loan Documents and fulfillment by the Company of its lease obligations
arising prior to termination, terminate the lease and return the leased
premises (cleared of debris) to the Marriott Ground Lessor. Rental will not
abate under a Marriott Ground Lease following a casualty unless the lease is
terminated.
Under the Marriott Ground Leases, in the event of condemnation of the fee
estate: (i) if all the land subject to the Marriott Ground Lease is materially
impaired, such lease will terminate, (ii) if a portion of the land subject to
such Marriott Ground Lease is materially impaired such that the Company's
ability to conduct business on the leased premises is materially impaired or
the cost of restoring the improvements exceeds 30% of their fair market value
before such condemnation, the Company may, subject to certain restrictions in
the Loan Documents, either terminate such Marriott Ground Lease or pay a
proportionately reduced Minimum Rental, or (iii) if a portion of the land
subject to such Marriott Ground Lease is materially impaired such that the
Company's ability to conduct business on the leased premises is not materially
impaired, the Company will pay a proportionately reduced Minimum Rental. If
all or any portion of the leased premises subject to a Marriott Ground Lease
is taken for temporary use, such lease will continue in full force and effect
and Rental will continue to be paid. Notwithstanding anything in the foregoing
to the contrary, the Company may not terminate or materially amend any
Marriott Ground Lease or waive any material rights thereunder without the
consent of the Trustee or the Servicer in accordance with the Trust and
Servicing Agreement.
The following constitute events of default under the Marriott Ground Leases:
(i) the Company's failure to make required payments of Rental when due (except
subordinated Rental payments), which failure is not cured within 20 days after
written notice from the applicable Marriott Ground Lessor, (ii) failure to pay
any subordinated Rental or repay advances made by a Marriott Ground Lessor
when such payment is due in accordance with the applicable subordination
agreement and the Management Agreement, which failure is not cured within 20
days after written notice from the applicable Marriott Ground Lessor, and
(iii) violation by either party of any covenants, terms, or conditions of the
Marriott Ground Lease or failure of a warranty contained in a Marriott Ground
Lease to be accurate and complete, which violation or failure is not cured
within 30 days after written notice by the other party, except that if the
violation or failure is not capable of being cured within 30 days, it will not
be an event of default if the defaulting party promptly commences to cure
within such 30-day period and thereafter diligently pursues such cure to
completion. Following an event of default by the Company under a Marriott
Ground Lease, the Marriott Ground Lessor may, subject to certain rights of
leasehold mortgagees (described above), terminate such ground lease and take
possession of the leased premises.
Upon expiration of any Marriott Ground Lease, the applicable Marriott Ground
Lessor is required to purchase the applicable Hotel at its then fair market
value, provided that the tenant has complied with all its obligations under
such Marriott Ground Lease and the Hotel is still on the leased premises.
Otherwise, the tenant, at the landlord's option, may be required to remove the
improvements from the site or to convey such property
48
<PAGE>
to the Marriott Ground Lessor. The Marriott Ground Lessors are not required to
pay the fair market value of any improvements that the Company or any
subsequent tenant has made since the opening of the Hotels, and may require
the Company or any subsequent tenant to remove such improvements from the
land. If the Marriott Ground Lessors do not require the removal of any such
improvements, such improvements will become the Marriott Ground Lessors'
property upon termination, without any additional payment.
The Marriott Ground Lessors have agreed that the Company, as tenant, and any
successor tenant will generally have no personal liability under the Marriott
Ground Leases except for fraud, misappropriation of funds or certain
environmental matters (which exceptions shall not apply to the Trustee as
successor tenant). Upon an event of default by the Company under any Marriott
Ground Lease, the Marriott Ground Lessors generally will have recourse only to
the Company's interest in the applicable leased premises and the Hotel located
thereon.
Ground Leases with Third Parties Unaffiliated with MII and its Affiliates.
Cupertino. The Cupertino, California Hotel is subject to a ground lease
which will expire on December 30, 2033. The term of this ground lease will be
automatically extended for three terms of 10 years each unless terminated at
the option of the Company. Such ground lease currently provides for an annual
rent equal to the greater of (a) minimum annual rental of $233,040 or (b) a
percentage rental of 6% of annual gross sales. The minimum annual rental is
adjusted every five years to equal the greater of (i) the minimum annual
rental most recently in effect multiplied by 75% of the percentage increase in
the Consumer Price Index during the five preceding years or (ii) a percentage
rental equal to 6% of annual gross sales.
Fresno. The Fresno, California Hotel is subject to a ground lease executed
on June 26, 1984, which expires on June 30, 2024. Such ground lease provides
for an annual rent equal to the greater of (i) an annual minimum rental
(currently $290,403 per year) which is increased by 3% each year and (ii) a
percentage rental equal to 6% of the tenant's annual gross sales for such
year.
Norwalk. The Norwalk, Connecticut Hotel is subject to a ground lease
executed on January 6, 1986. The initial term of the ground lease began on
January 6, 1986 and will expire on December 31, 2023. The term will be
automatically extended for eight terms of five years each unless terminated at
the option of the Company. Such ground lease currently provides for full
rental equal to $268,875. Every five years, the rental increases by an amount
equal to the greater of (a) 12.5% of the annual rental rate then prevailing or
(b) 60% of the percentage increase in the Consumer Price Index during the
preceding five-year period.
Tampa/Westshore. A portion of the land on which the Tampa/Westshore, Florida
Hotel is located is subject to a ground lease with a Florida corporation. The
ground lease will expire on June 30, 2068. The ground lease provides for an
annual rental of $19,294 and provides that every 10 years thereafter
throughout the term of the ground lease, the annual rental shall be increased
by 5% of the annual rental rate then in effect.
Atlanta/Roswell. The initial term of Atlanta/Roswell, Georgia Hotel ground
lease began on June 19, 1986, and will expire on December 28, 2018. The term
of the ground lease will be automatically extended at the option of the
Company, unless sooner terminated, for four renewal terms of 10 years each.
Such ground lease currently provides for an annual rental equal to the greater
of (a) a minimum annual rental of $265,313 or (b) a percentage rental of 5% of
annual gross sales. The minimum annual rental will be increased every five
years by an amount equal to the then prevailing annual minimum rental times
the greater of (i) 15% or (ii) 75% of the increase in the Consumer Price Index
from the previous adjustment date through the adjustment date.
Poughkeepsie. The Poughkeepsie, New York Hotel is subject to a ground lease
with a Vermont general partnership. The initial term of such ground lease
began on September 22, 1986, and will expire on December 29, 2018. The term of
this ground lease will be automatically extended for three terms of five
fiscal years each unless terminated at the option of the Company. Such ground
lease provides for annual rental equal to the greater of (a) a minimum annual
rental of $110,000 per year or (b) a percentage rental of 3.5% of annual gross
sales at the Hotel.
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<PAGE>
Charlotte/Southpark. The Charlotte/Southpark, North Carolina Hotel is
subject to a ground lease which began on January 19, 1987, and will expire on
December 31, 2019. The term of this ground lease will be automatically
extended for three terms of 10 years each unless terminated at the option of
the Company. Such ground lease currently provides that rentals will be the
greater of (a) a minimum annual rental of $352,051 or (b) a percentage rental
of 6% of annual gross sales at the Hotel.
Philadelphia/Devon. The Philadelphia/Devon, Pennsylvania Hotel is subject to
a ground lease with a Pennsylvania limited partnership. The initial term of
such ground lease began on July 15, 1986 and will expire on December 28, 2018.
The term will be automatically extended for two 10-year terms unless
terminated at the option of the Company. The ground lease provides that rental
will be the greater of (a) a minimum annual rental of $240,000 per year or (b)
a percentage rental of 4.25% of annual gross sales. On the first day of each
extended term, the minimum annual rental will be adjusted to equal 80% of the
average total annual rental paid during the five years preceding such
adjustment date. The Company is also responsible for paying common area
maintenance and other charges levied pursuant to the Office Park Declaration
to the landlord or such other party as is designated to collect such payment.
Each such ground lease provides that during the term thereof, the Company
will have all ownership rights in the improvements located thereon. Upon
termination of each such ground lease, the Hotel and any other improvements
(other than furniture, furnishings, trade equipment, inventories, and other
personal property) become the property of the landlord. The tenant under each
such ground lease will have a limited right to assign its interest thereunder
subject to restrictions set forth in such ground lease.
All the ground leases with a party not affiliated with MII permit the
Company, as tenant under the ground lease, to pledge or encumber the leasehold
interest in such ground lease, without the landlord's consent, to the Trustee
or any other bona fide institutional mortgage lender and, except for the
Tampa/Westshore ground lease, contain certain customary protections for
leasehold mortgagees, including without limitation, (i) the right to notice of
any default by the Company and an opportunity and reasonable period of time to
cure, (ii) the right to obtain a new lease from the ground lessor if the
ground lease is terminated, (iii) the right to consent to any modification or
amendment to the ground lease, and (iv) the right to assign the ground lease
upon foreclosure without the consent of the ground lessor. The Tampa/Westshore
ground lease affords the leasehold mortgagee more limited rights, including
the right to notice of any default by the tenant under the ground lease and an
opportunity and reasonable period of time to cure.
DESCRIPTION OF THE PORTFOLIO AND SPECIFIC PROPERTY INFORMATION
The information set forth in the following maps and tables is calculated as
of January 24, 1996 with respect to the Mortgaged Properties. The sum in any
column of any of the following tables may not equal the indicated total due to
rounding.
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The following summary presents certain additional information concerning
each of the Mortgaged Properties.
[MAP APPEARS HERE]
BIRMINGHAM/HOMEWOOD, ALABAMA
Located five miles southeast of downtown Birmingham and two miles north of I-
459 on Shades Creek Parkway across from Brookwood Mall in the Homewood commer-
cial and residential area. Nearby attractions include the Robert Trent Jones
Public Golf Course, Brookwood Medical Center, Galleria Mall, and Samford Uni-
versity. Area companies include Southern Company Services, ACIPCO, Vulcan
Chemicals, and Denver/Thomas Services.
[MAP APPEARS HERE]
BIRMINGHAM/HOOVER, ALABAMA
Located in the Riverchase Galleria area in greater southwest Birmingham 1/2
mile from I-459 and Route 31 (Montgomery Highway). Nearby attractions include
the Riverchase Galleria Regional Shopping Mall and office complex, the Chase
Corporate Center Office Park, the Chase Lake Country Club, Hoover Stadium, and
the Birmingham Civic Center. Area companies include Bell South, Hewlett Pack-
ard, and Blue Cross/Blue Shield.
[MAP APPEARS HERE]
HUNTSVILLE, ALABAMA
Located on University Drive, two miles from the Redstone Arsenal, the U.S.
Space and Rocket Center, and U.S. Space Camp. Military groups and private de-
fense-related companies located at Redstone Arsenal include the Missile Com-
mand Headquarters, Lockheed/Martin Marietta, Rockwell International, McDonnell
Douglas, and TRW. Also nearby is NASA's Marshall Space Flight Center.
[MAP APPEARS HERE]
PHOENIX/MESA, ARIZONA
Located at the intersection of Southern Avenue and Westwood Street, approxi-
mately 1/2 mile north of the Superstition Freeway and 1/2 mile east of Fiesta
Mall. Nearby national forests offer recreational activities including camping,
hiking, biking, rock climbing, and hunting and the Mesa Community Center at-
tracts conventions, trade shows, and large scale entertainment. Area companies
include McDonnell Douglas, General Motors, TRW Safety Systems, and Motorola.
[MAP APPEARS HERE]
PHOENIX METROCENTER, ARIZONA
Located in northwest Phoenix adjacent to Interstate 17, within 14 miles of the
Sky Harbor International Airport and minutes from downtown. Nearby attractions
include the Metrocenter Shopping Mall, the Cave Creek Recreational Facility,
the YWCA Leadership Development Center, and Arizona State University. Area
companies include Honeywell, American Express, Federated Insurance, GMAC, and
Liberty Mutual.
[MAP APPEARS HERE]
TUCSON AIRPORT, ARIZONA
Located 1/2 mile north of Tucson International Airport at the intersection of
Tucson Boulevard and Executive Avenue. Convenient to downtown Tucson, the ho-
tel is located near Hughes Missile Systems, LearJet Company, Davis-Monthan Air
Force Base, IBM, and Xerox.
[MAP APPEARS HERE]
LITTLE ROCK, ARKANSAS
Located in West Little Rock on Financial Center Parkway, just west of the in-
tersection of Shackleford Road and I-630/I-430. Nearby attractions include the
downtown Statehouse Convention Center and the University of Arkansas. Area
companies include Alltel, Alcoa, Southwestern Bell, and AT&T.
[MAP APPEARS HERE]
BAKERSFIELD, CALIFORNIA
Located off the Golden State (#99) Freeway at Rosedale Highway in north Ba-
kersfield, approximately two miles from the Bakersfield Business District.
Nearby attractions include the Mesa Marin Raceway, the Kern County Airport,
and Kern County Fairgrounds. Area companies include Shell California, Occiden-
tal Petroleum, and Contel.
[MAP APPEARS HERE]
CUPERTINO, CALIFORNIA
Located in Silicon Valley near Santa Clara, at the intersection of Route 208
and Wolfe Road in the center of commercial and retail development. Nearby at-
tractions include Great America Theme Park, the Santa Clara Convention Center,
the San Jose International Airport, and the Vallco Fashion Park regional mall.
Area companies include Hewlett Packard, Tandem Computers, and Apple Computers.
[MAP APPEARS HERE]
FOSTER CITY, CALIFORNIA
Located eight miles south of San Francisco International Airport, at the
southeast corner of Metro Center Boulevard and Shell Boulevard, within the
Foster City commercial and residential development. Nearby attractions include
the Hillsdale Shopping Mall, the Bay Meadows Race Track, and the San Mateo
Fair Grounds. Area companies include SAP America, Perkin-Elmer, Sprint,
Microsoft, Federal Express, Wells Fargo, and VISA USA and International.
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[MAP APPEARS HERE]
FRESNO, CALIFORNIA
Located in north Fresno just off Highway 41 at Shaw Avenue. Nearby attractions
include Fresno State University, the Fresno Conference Center and the Fresno
Convention Center. Area companies include Kraft Foods, Dole Foods, Mutual Life
Insurance Company, IBM, the Employment Development Department for California,
and the Department of Transportation for California.
[MAP APPEARS HERE]
HACIENDA HEIGHTS, CALIFORNIA
Located just south of the City of Industry, which is considered the commercial
district of the Greater La Puenta Valley, east of Los Angeles at South Azusa
Avenue and Freeway 60. Nearby attractions include Disneyland, Knotts Berry
Farm, California Polytechnic University--Pomona Campus, and the Puente Hills
Mall.
[MAP APPEARS HERE]
MARIN/LARKSPUR LANDING, CALIFORNIA
Located approximately ten miles north of San Francisco in Marin County off
Highway 101 in Larkspur Landing, a commercial and residential development.
Nearby attractions include the Marin Civic Center, Sausalito and a Redwood
forest. Area companies include Chevron, Lucas Films, Synon, Autodesk, American
Express, the Pride Institute, Headland Mortgage, and Phoenix Leasing.
[MAP APPEARS HERE]
PALM SPRINGS, CALIFORNIA
Located at the intersection of Tahquitz Canyon Way and Sunrise Boulevard, 1.5
miles from the Palm Springs Airport and one mile from downtown Palm Springs.
Nearby attractions include the Palm Springs Convention Center, the Desert Hos-
pital, the Palm Springs Tramway, the Palm Springs Tennis Center, the Mesquite
Country Club, and the Oasis Waterpark.
[MAP APPEARS HERE]
TORRANCE, CALIFORNIA
Located on Sepulveda Boulevard, west of Crenshaw Boulevard, in a residential
and commercial area. Nearby attractions include the Del Amo Fashion Center,
the Galleria at South Bay, the South Bay Pavilion at Carson, U.C.L.A. Medical
Center, and the Torrance Municipal Airport. Area companies include Allied Sig-
nal, Hughes Electronics, Hi-Shear, Epson America, Toyota, and American Honda.
[MAP APPEARS HERE]
BOULDER, COLORADO
Located at Pearl East Circle off of Pearl Street, in a business park in the
north central area of Boulder, just three miles east of downtown Boulder.
Nearby attractions include the University of Colorado at Boulder, the Cross-
roads Regional Mall, and the Rocky Flats environmental clean-up and waste man-
agement technology site. Area companies include IBM and Clinicom. The U.S.
government is also a major employer in the area.
[MAP APPEARS HERE]
DENVER, COLORADO
Located near the intersection of I-70 and Quebec Avenue, approximately one-
half mile from Stapleton Airport. Nearby attractions include the Denver Zoo,
the Cherry Creek Mall, the Rocky Mountain Arsenal, the U.S. Mint, and the
United Airlines Training Center.
[MAP APPEARS HERE]
DENVER/SOUTHEAST, COLORADO
Located in southeast Denver off I-25 and Arapahoe Road, within one mile of the
Denver Tech Center and Inverness Office Park and 12 miles south of downtown
Denver. Nearby attractions include Coors Field, Mile High Stadium, the U.S.
Mint, the Denver Zoo, and the IMAX Theater and Planetarium. Area companies in-
clude AT&T, Conoco-DuPont, and Lockheed/Martin Marietta.
[MAP APPEARS HERE]
NORWALK, CONNECTICUT
Located on Main Avenue, approximately 1/4 mile off of the Merritt Parkway,
fronting Route 7. The nearby Norwalk Maritime Center is a popular tourist at-
traction. Area companies include Perkin-Elmer, U.S. Surgical, Deloitte and
Touche, Caldor's, and the Financial Accounting Standards Board.
[MAP APPEARS HERE]
WALLINGFORD, CONNECTICUT
Located at the Route 68 and I-91 interchange in an office and commercial de-
velopment. The hotel is near Choate-Rosemary Hall, Barnes Industrial Park, and
the Centract Office Park. Area companies include Bristol-Myers Squibb, South-
ern New England Telephone, and Pratt & Whitney.
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[MAP APPEARS HERE]
FT. MYERS, FLORIDA
Located at the intersection of Colonial Boulevard and Metro Parkway in the
Metro Park office development, approximately five miles from downtown Ft.
Myers and 12 miles from the Southwest Florida International Airport. Close to
General Electric Client Services Unit, the Southwest Florida Regional Medical
Center, and various state and Federal government facilities.
[MAP APPEARS HERE]
FT. LAUDERDALE/PLANTATION, FLORIDA
Located in Broward County, west of central Ft. Lauderdale, approximately one
mile southwest of the intersection of University Drive and Broward Boulevard.
The site is located in the heart of the retail and office developments near
Broward Mall, Broward General Medical Center, and the Northwest Regional Hos-
pital. Area companies include American Express Travel, Motorola, and Kemper
National Services.
[MAP APPEARS HERE]
ST. PETERSBURG, FLORIDA
Located on Ulmerton Road near Roosevelt Boulevard, within two miles of the St.
Petersburg-Clearwater Airport and 12 miles of the Tampa International Airport.
Nearby attractions include Busch Gardens Theme Park, the Florida Aquarium,
downtown Tampa, Gulf Coast beaches, and the Showboat Dinner Theater. Area com-
panies include the AT&T Paradyme Training facilities, the Timeplex computer
training center, and the Home Shopping Network.
[MAP APPEARS HERE]
TAMPA/WESTSHORE, FLORIDA
Located within three miles of the Tampa International Airport at the intersec-
tion of I-275 and Dale Mabry Highway in the greater Tampa Westshore office and
commercial development area. Nearby attractions include the Tampa Stadium,
Busch Gardens Theme Park, Clearwater Beach, the Florida Aquarium, the downtown
Convention Center, and the MacDill Air Force Base. Area companies include
Barclays Bank, General Motors, and Gillette.
[MAP APPEARS HERE]
WEST PALM BEACH, FLORIDA
Located near the intersection of I-95 and 45th Street in the Northpoint Busi-
ness Center. Nearby attractions include the Port of Palm Beach, the Palm Beach
International Airport, Columbia Hospital, St. Mary's Hospital, and the Palm
Beach Mall. Area companies include Palm Beach Cruise Lines, Florida Power and
Light, Advanced Vacation Packages, and various government facilities.
[MAP APPEARS HERE]
ATLANTA AIRPORT SOUTH, GEORGIA
Located near the I-85 and Riverdale Road Interchange, approximately one mile
from Hartsfield International Airport, in a commercial area. Nearby attrac-
tions include Fulton County Stadium, the Phoenix Office Park, the South Fulton
Tennis Center, and the Georgia International Convention Center. Area companies
include Ford Motor Company, Hertz, and Xerox.
[MAP APPEARS HERE]
ATLANTA/GWINNETT MALL, GEORGIA
Located in northeast Atlanta just northwest of the intersection of I-85 and
Pleasant Hill Road. The hotel is adjacent to the Gwinnett Place Mall in a com-
mercial area. Nearby attractions include Stone Mountain Park and Six Flags
Over Georgia. Area companies include AT&T, Scientific Atlanta, OKI Telecom,
and Torington.
[MAP APPEARS HERE]
ATLANTA/PERIMETER CENTER, GEORGIA
Located in north Atlanta, one mile north of I-285 and Peachtree-Dunwoody Road
near office and commercial developments. Nearby attractions include the Perim-
eter Mall, Northside Hospital, St. Joseph's Hospital, and Scottish Rite
Children's Hospital. Area companies include AT&T, UPS, Prudential, MCI, Hew-
lett Packard, Southern Bell, Southern Company Services, GTE, Unisys, HBO, Cox
Enterprises, Travelers Insurance, and General Motors.
[MAP APPEARS HERE]
ATLANTA/ROSWELL, GEORGIA
Located approximately twelve miles north of Atlanta near the intersection of
Georgia Highway 400 and Holcomb Bridge Road in the Holcomb Woods office com-
plex. Nearby attractions include Historic Roswell, Chattahoochee Nature Cen-
tre, Willis Park Equestrian Center, and the Roswell Conference Center. Area
companies include AT&T, Kimberly-Clark, Siemens Energy and Automation,
CibaVision, UPS, Digital Equipment, Verifone Inc., and American Honda.
[MAP APPEARS HERE]
ARLINGTON HEIGHTS SOUTH, ILLINOIS
Located in the western Chicago area just off I-90 near the intersection of Ar-
lington Heights Road and Algonquin Road, approximately 10 miles from O'Hare
International Airport near commercial and residential developments. Nearby at-
tractions include the Arlington Park Race Track, the Rosemont-O'Hare Expo Cen-
ter, the Woodfield Mall and the Rosemont Horizon Stadium. Area companies in-
clude UOP Chemical, Motorola, IBM, Hewlett Packard, and Panasonic.
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[MAP APPEARS HERE]
CHICAGO/GLENVIEW, ILLINOIS
Located in the northwest Chicago area near the intersection of Milwaukee Ave-
nue and West Lake Avenue, near several commercial and residential develop-
ments. Nearby attractions include downtown Chicago, the Northbrook Court Shop-
ping Center, Six Flags Great America, and the Gurnee Mills Outlet Mall. Corpo-
rate headquarters for Kraft/General Foods, ITW/Signode Corporation and Zenith
Electronics are nearby. Other area companies include Allstate Insurance,
Household International, and Culligan.
[MAP APPEARS HERE]
CHICAGO/HIGHLAND PARK, ILLINOIS
Located approximately 25 miles north of Chicago, at the intersection of I-94
(Edens Expressway) and Lake Cook Road. Nearby attractions include Six Flags
Great America, Ravinia, the Chicago Botanical Gardens, Crosswoods Mall, and
Northbrook Court Shopping Center. Area companies include Solo Cup, CorSource,
Morton Grove Pharmaceutical, and Melson Technology.
[MAP APPEARS HERE]
CHICAGO/LINCOLNSHIRE, ILLINOIS
Located 20 miles north of Chicago O'Hare Airport, across from Lincolnshire
Corporate Center on Milwaukee Avenue, near several office park developments.
Nearby attractions include historic Long Grove Village, the Gurnee Mills Out-
let Mall, Six Flags Great America, and the Hawthorne Shopping Mall. Area com-
panies include Moore Business Forms, Charmilles Technology, Fuji America, Hew-
itt Associates, Motorola, Kemper Insurance, and Abbott Laboratories.
[MAP APPEARS HERE]
CHICAGO/OAKBROOK TERRACE, ILLINOIS
Located 25 miles west of downtown Chicago in TransAm Plaza office development
near the intersection of I-88 West and 22nd Street. The hotel is near office
and commercial developments in Oakbrook and Oakbrook Terrace. Nearby attrac-
tions include the Oak Brook Shopping Center, the Sports Core-Polo Club, and
the Brookfield Zoo. Area companies include American Presidents Line, Synon,
Eastman Kodak, and IBM.
[MAP APPEARS HERE]
CHICAGO/WAUKEGAN, ILLINOIS
Located thirty miles north of Chicago near the intersection of Route 43 and
Route 120, adjacent to the Lakehurst Shopping Center. Nearby attractions in-
clude the Great Lakes Naval Training Center, the Gurnee Mills Outlet Mall, and
Six Flags Great America. Area companies include Abbott Laboratories, Outboard
Marine Corporation, Fansteel, Inc., Baxter, Manville Corporation, National
Gypsum Company, and V/R Wesson.
[MAP APPEARS HERE]
CHICAGO/WOOD DALE, ILLINOIS
Located approximately 25 miles west of Chicago, near the intersection of Wood
Dale Road and Thorndale Road. Nearby attractions include the Rosemont Horizon
Stadium, the Rosemont-O'Hare Expo Center, the Arlington International Race-
course, and the Woodfield Mall. Area companies include Videojet, Freightliner,
Comdisco, Hanover Insurance, Enesco, Tandem, Mitsubishi, Monsanto, and Fuji
Film.
[MAP APPEARS HERE]
ROCKFORD, ILLINOIS
Located approximately 87 miles northwest of Chicago near the intersection of
I-90 and Business 20 (State Street), 15 miles from the Rockford Airport.
Nearby attractions include the Sports Core sporting complex, the Magic Water
Park, and a satellite campus of Northern Illinois University. Area companies
include Chrysler, UPS, Sundstrand, and Ingersol Milling.
[MAP APPEARS HERE]
INDIANAPOLIS/CASTLETON, INDIANA
Located in northeast Indianapolis just off I-465 at Allisonville Road, near
Castleton Mall and Castle Creek Corporate Center. Nearby attractions include
the Deer Creek Music Center, Conner Prairie Settlement, and the Indiana State
Fairgrounds. Area companies include Banc One Financial Services, McDonald's
Corp., GTE, NHP Properties, and General Motors.
[MAP APPEARS HERE]
KANSAS CITY/OVERLAND PARK, KANSAS
Located south of downtown Kansas City on 112th Street and Metcalf Avenue just
off I-435, adjacent to the Kansas City Trade Mart/Convention Center and sev-
eral commercial and office complexes. Nearby attractions include the NCAA Vis-
itors Center, Johnson County Community College, and downtown Kansas City. Area
companies include Sprint Corporation, AT&T, Yellow Freight, and Aetna.
[MAP APPEARS HERE]
LEXINGTON NORTH, KENTUCKY
Located at Newtown Court, in the northeast quadrant of the Route 4/Newtown
Pike interchange in the northwest section of Lexington. Nearby attractions in-
clude downtown Lexington, the Keeneland Race Track, the Kentucky Horse Park,
and the University of Kentucky, all located less than ten miles from the ho-
tel. Area companies include IBM, Lexmark, and Toyota.
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[MAP APPEARS HERE]
ANNAPOLIS, MARYLAND
Located on the southwest corner of Riva Road and Admiral Cochran Drive, just
south of the U.S. 50 interchange near the Riva Office Park. Area attractions
include the Annapolis Historic District, the Annapolis Mall, the United States
Naval Academy, and the Curtis Bay Coast Guard Station. Area companies include
ARINC, IIT Research, UNC, and AMI.
[MAP APPEARS HERE]
SILVER SPRING, MARYLAND
Located near the intersection of U.S. 29 and Cherry Hill Road, approximately
four miles north of I-495 and two miles west of I-95. The hotel is near sev-
eral commercial and retail centers, including the Meadows Corporate Park, and
the Seventh-Day Adventist World Headquarters. Area companies include Bell At-
lantic, AT&T, and Manor Care.
[MAP APPEARS HERE]
BOSTON/ANDOVER, MASSACHUSETTS
Located approximately 22 miles from downtown Boston on Campanelli Drive near
Exit 45 on I-93, in the Riverfront Industrial Park. Nearby attractions include
Merrimack College, the Massachusetts School of Law, and Phillips Andover Acad-
emy. Area companies include AT&T, Digital Equipment, Raytheon, Hewlett Pack-
ard, Malden Mills, Gillette, UPS, and Vicor Corporation.
[MAP APPEARS HERE]
DETROIT AIRPORT, MICHIGAN
Located on Flynn Drive, just north of the Merriman Road/I-94 interchange,
within four miles of the Detroit Metropolitan Airport in a commercial and re-
tail area. Nearby attractions include downtown Detroit, the Detroit Zoo,
Greenfield Village/Ford Museum, and the University of Michigan. Nearby compa-
nies include General Motors, Chrysler, Ford Motor Company, Lear Siegler Group,
Kelsey-Hayes, and Northwest Airlines.
[MAP APPEARS HERE]
DETROIT/LIVONIA, MICHIGAN
Located in western Detroit, just east of the I-275 and Six Mile Road inter-
change in the Laurel Park office and retail development and near the Plymouth
Road industrial and office developments. Laurel Park Place Mall, one of
Detroit's major regional retail centers, is located next door to the hotel.
Area companies include General Motors, Ford Motor Company, UPS, Toyota, and
Isuzu.
[MAP APPEARS HERE]
MINNEAPOLIS AIRPORT, MINNESOTA
Located approximately two miles from the Minneapolis/Saint Paul International
Airport, near the intersection of I-494 and Pilot Knob Road in the Mendota
Heights office development. Nearby attractions include the Mall of America, Le
Fleur's Bluff State Park, the Ross Barnett Reservoir, and the North Park Mall.
Area companies include Unisys, Northwest Airlines, Blue Cross/Blue Shield,
Cenex, and West Publishing.
[MAP APPEARS HERE]
ST. LOUIS/CREVE COEUR, MISSOURI
Located east of downtown St. Louis, approximately five miles from the Lambert-
St. Louis International Airport, just off I-270 at Olive Road. The hotel is
located near several office developments, including West Port Plaza and the
Progress West Industrial Park. There are seven colleges and universities in
the area, including the University of Missouri-St. Louis and Washington Uni-
versity. Area companies include Monsanto, Arch Mineral, and Bridge Information
Systems.
[MAP APPEARS HERE]
ST. LOUIS/WESTPORT, MISSOURI
Located in St. Louis County in the West Port Business Park, just off I-270 and
Page Avenue. Seven colleges and universities, including the University of Mis-
souri-St. Louis and Washington University, are located in the area. Nearby
companies include Monsanto, McDonnell Douglas, Southwestern Bell, PepsiCo,
Chrysler, and Ford Motor Company.
[MAP APPEARS HERE]
LINCROFT/RED BANK, NEW JERSEY
Located approximately 45 miles south of New York City, just off of the Garden
State Parkway, within 35 miles of the Newark International Airport. Nearby at-
tractions include the Sea Bright Beach, the Monmouth Mall, Great Adventure
Theme Park and the Monmouth Race Track. Area companies include Engineered Pre-
cision Casting Co., AT&T/Bell Labs, Prudential, and Bellcorp.
[MAP APPEARS HERE]
POUGHKEEPSIE, NEW YORK
Located just off of Route 9, south of downtown Poughkeepsie. Nearby attrac-
tions include the Galleria Mall, the South Hills Mall, Vassar College, and the
Culinary Institute of America. Area companies include IBM, Central Hudson Gas
and Electric, Saint Francis Hospital, Texaco, NYNEX, and Laerdal Medical.
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[MAP APPEARS HERE]
RYE, NEW YORK
Located in Westchester County, New York near the intersection of I-95 and I-
287, close to corporate, commercial and residential developments in Rye and
White Plains. Nearby attractions include the Westchester County Convention
Center and the Westchester Galleria. Area companies include IBM, Avon,
PepsiCo, Consolidated Edison Company of New York, NYNEX, and General Motors.
[MAP APPEARS HERE]
CHARLOTTE/SOUTHPARK, NORTH CAROLINA
Located in the SouthPark area of Charlotte, near the intersection of Fairview
Road and Park Road, just five miles from downtown Charlotte and within nine
miles of the Charlotte/Douglas International Airport. Nearby attractions in-
clude the Charlotte Coliseum, Paramount's Carowinds Amusement Park, and the
SouthPark Mall. The hotel is located one mile from the headquarters of
Celanese Inc. and J.A. Jones Company. Other area companies include AT&T,
DuPont, and Monsanto.
[MAP APPEARS HERE]
RALEIGH/CARY, NORTH CAROLINA
Located approximately 8 miles from downtown Raleigh, within minutes of both
State Highway 64 and I-40 in the MacGregor Village office and shopping park.
The hotel is located within 13 miles of the Raleigh Durham International Air-
port and 17 miles from Research Triangle Park. Area companies include Siemens
Corporation, Hewlett Packard, AT&T, MCI, Syntel Corporation, Mericel Software
Development, and Raychem.
[MAP APPEARS HERE]
DAYTON MALL, OHIO
Located at Prestige Place less than one mile from the I-72 and Route 725 in-
terchange, approximately 1/4 mile from Dayton Mall in a suburban office, com-
mercial, retail and residential area of Dayton. Nearby companies include Mead,
AT&T Corporation (NCR Division), General Motors, and Kettering. Local attrac-
tions include the nearby Wright-Patterson Air Force Base, and the Dayton Mall.
[MAP APPEARS HERE]
TOLEDO, OHIO
Located in the northwest quadrant of the I-475 and Airport Highway inter-
change, approximately two miles from the Toledo Express Airport, 10 miles east
of downtown Toledo and 50 miles south of Detroit, Michigan. Area companies in-
clude Johnson Controls, Unisys, Alpha Tube Corporation, Spicer Universal Joint
Division, Dynamic Dies, Inc., Flight Safety Corp., Owens Illinois, and Dayna
Corp.
[MAP APPEARS HERE]
OKLAHOMA CITY AIRPORT, OKLAHOMA
Located just off I-40 at the Meridian Avenue Interchange on Highline Blvd.,
approximately four miles north of Will Rogers World Airport and four miles
east of the Oklahoma City Central Business District. Nearby attractions in-
clude the Oklahoma City State Fairgrounds and the Remington Park Horse Race-
track. Area companies include Southwestern Bell, Seagate Technology, American
Floral Services, and Innovative Computing.
[MAP APPEARS HERE]
PORTLAND/BEAVERTON, OREGON
Located on S.W. Nimbus Drive, just south of Hall Boulevard in the Koll Busi-
ness Center. Nearby attractions include the Beaverton Mall, Beaver Creek Cen-
ter, Beaverton Town Square, the Washington Square regional mall, and the Pro-
gress Downs Golf Course. Area companies include NIKE, Intel, Tektronix, Aptec,
FPS Computer, and Cogent Research.
[MAP APPEARS HERE]
PHILADELPHIA/DEVON, PENNSYLVANIA
Located on Route 30 (West Lancaster Avenue), adjacent to the Devon Business
Park, approximately 15 miles east of Philadelphia and 25 miles from the Phila-
delphia International Airport. Nearby attractions include American
College/Gregg Conference Center, Villanova University, Haverford University,
the Devon Horse Show, the Devon Dressage, and the Valley Forge Music Fair.
Area companies include Vanguard, Unisys, Philadelphia Electric Company, SEI,
Relational Technology, Inc., and Johnson-Matthey, Inc.
[MAP APPEARS HERE]
COLUMBIA, SOUTH CAROLINA
Located on Zimalcrest Drive, northwest of the intersection of I-25 and Bush
River Road in northwest Columbia. Nearby attractions include historic Civil
War sites, the Dutch Square Shopping Center, Richland Memorial Shopping Cen-
ter, and the South Carolina State Zoo. Area companies include Bell South, Blue
Cross & Blue Shield of South Carolina, Policy Management Systems Corporation,
and NationsBank of South Carolina.
[MAP APPEARS HERE]
GREENVILLE, SOUTH CAROLINA
Located in suburban Greenville near the intersection of I-385 and Haywood
Road, approximately seven miles from each of the Greenville/Spartanburg Air-
port and the Greenville Municipal Airport. Nearby attractions include the Hay-
wood Mall, the Greenville Memorial Auditorium, Bob Jones University, the Pal-
metto International Exposition Center, and the Peace Center for the Performing
Arts. Area companies include BMW, AT&T, Michelin, General Electric, Hitachi,
Gerber, Mita, and NationsBank.
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[MAP APPEARS HERE]
MEMPHIS AIRPORT, TENNESSEE
Located approximately one mile from Memphis International Airport, near the
intersection of I-240 and I-55. The Memphis Central Business District is ap-
proximately 10 miles northwest of the hotel. Nearby attractions include the
Memphis Zoo, Mud Island, Liberty Island, and Liberty Bowl Stadium. Area compa-
nies include Federal Express, Sofamor Danek, Parts, Inc., and Pharmathera.
[MAP APPEARS HERE]
NASHVILLE AIRPORT, TENNESSEE
Located on the northeast corner of Elm Hill Pike, near the intersection of I-
40 and Briley Parkway, approximately two miles south of the Nashville Metro
Airport and eight miles from downtown Nashville. Nearby attractions include
Opryland U.S.A., the Grand Ole Opry, the Country Music Hall of Fame, and the
Tennessee State Fairgrounds. Area companies include Hennessy Industries,
Willis Corron, and Rohm Corp.
[MAP APPEARS HERE]
DALLAS/NORTHEAST, TEXAS
Located on South Sherman Street, just off of US-75 (Central Expressway), ap-
proximately 25 miles northeast of downtown Dallas. The hotel is approximately
three miles south of the Richardson "Telecom Corridor," which is so named for
the 450 high technology and telecommunications companies located there. Area
companies include Northern Telecom, Texas Instruments, Alcatel Network Sys-
tems, Ericsson North America, and MCI.
[MAP APPEARS HERE]
DALLAS/PLANO, TEXAS
Located in north Dallas, near the intersection of Preston Road and Plano Park-
way. Nearby attractions include South Fork Ranch, The Galleria and the
Willowbend Polo & Hunt Club. The hotel is approximately six miles southeast of
the Legacy Park area, which is home to the headquarters of JC Penney, EDS,
Frito-Lay, and Countrywide Funding Corporation. Other area companies include
DSC Communications, ARCO, Eastman Kodak, and Texas Instruments.
[MAP APPEARS HERE]
DALLAS/STEMMONS, TEXAS
Located in an office and commercial area near the southeast corner of North-
west Highway and Stemmons Freeway, approximately six miles from the Love Field
Airport. Nearby attractions include the Dallas Convention Center, downtown
Dallas, and Texas Stadium. Area companies include Mobil Oil, Eastman Kodak,
and Mary Kay Cosmetics.
[MAP APPEARS HERE]
SAN ANTONIO/DOWNTOWN, TEXAS
Located at the intersection of Santa Rosa Street South and Durango Boulevard,
near I-10, approximately 14 miles from the San Antonio Airport. Nearby attrac-
tions include The Alamo, the Riverwalk retail complex, Market Center, the
Tower of the Americas, the San Antonio Zoo, the Alamodome, and the San Antonio
Convention Center. Area companies include the United States Automobile Associ-
ation, and Southwestern Bell.
[MAP APPEARS HERE]
CHARLOTTESVILLE, VIRGINIA
Located on Hillsdale Drive, near the intersection of Hillsdale Drive and Route
29, approximately five miles north of the University of Virginia. Area attrac-
tions include the University of Virginia, Fashion Square Mall, Monticello, Ash
Lawn, and the Michie Tavern Museum. Area companies include General Electric,
Sperry Marine, Comdial, State Farm Insurance, Sprint Centel, DuPont, and Lib-
erty Fabrics.
[MAP APPEARS HERE]
MANASSAS, VIRGINIA
Located on Battleview Parkway, near the intersection of Battleview Parkway and
Route 234 (Sudley Road). Area attractions include the Manassas National Bat-
tlefield and Northern Virginia Community College. Directly to the east of the
hotel is the Battlefield Business Park, which is tenanted by AT&T and GTE
Spacenet, among others. Other area companies include IBM and Loral Corpora-
tion.
[MAP APPEARS HERE]
SEATTLE/SOUTHCENTER, WASHINGTON
Located near the intersection of Stander Boulevard and Andover Park West, ap-
proximately seven miles east of the Seattle-Tacoma (SEATAC) International Air-
port and five miles from downtown Seattle. Nearby attractions include the
Southcenter Regional Mall, the Tukwila Ponds wetlands, and the Washington
State Convention Center. Area companies include Boeing and Microsoft Corpora-
tion.
57
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
58
<PAGE>
PROPERTY AND LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
ACTUAL
OR PROJECTED
MORTGAGED NUMBER DATE OF DATE OF 10-
PROPERTY DATE OF 5-YEAR ROOMS YEAR ROOMS TITLE TO
NUMBER CITY STATE OPENED ROOMS RENOVATION(1) RENOVATION(3) LAND
- --------- ------------------------- ----- -------- ------ ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1 MARIN/LARKSPUR LANDING CA 07/25/87 146 1992 1997 LEASE(4)
2 ATLANTA/GWINNETT MALL GA 03/19/87 146 1992 1997 LEASE(4)
3 BOULDER CO 08/06/88 149 1993 1998 LEASE(4)
4 NORWALK CT 07/30/88 145 1993 1998 LEASE(5)
5 DALLAS/PLANO TX 05/07/88 149 1993 1998 FEE
6 Portland/Beaverton OR 02/11/89 149 1994 1999 Lease(4)
7 Rye NY 03/19/88 145 1994 1999 Lease(4)
8 St. Louis/Creve Coeur MO 07/22/87 154 1992 1997 Lease(4)
9 Cupertino CA 05/14/88 149 1993 1998 Lease(5)
10 Chicago/Lincolnshire IL 07/20/87 146 1992 1997 Fee
11 KANSAS CITY/OVERLAND PARK KS 01/14/89 149 1994 1999 LEASE(4)
12 SILVER SPRING MD 08/06/88 146 1993 1998 LEASE(4)
13 FOSTER CITY CA 09/26/87 147 1993 1998 LEASE(4)
14 ST. LOUIS/WESTPORT MO 08/20/88 149 1993 1998 LEASE(4)
15 TAMPA/WESTSHORE FL 10/27/86 145 1991 1996 (6)
16 Atlanta/Perimeter Ctr. GA 12/12/87 145 1992 1997 Lease(4)
17 Oklahoma City Airport OK 07/23/88 149 1993 1998 Lease(4)
18 Detroit/Livonia MI 03/12/88 149 1993 1998 Lease(4)
19 Ft. Lauderdale/Plantation FL 09/21/88 149 1993 1998 Lease(4)
20 San Antonio/Downtown TX 02/03/90 149 1995 2000 Lease(4)
21 SEATTLE/SOUTHCENTER WA 03/11/89 149 1994 1999 LEASE(4)
22 INDIANAPOLIS/CASTLETON IN 06/06/87 146 1992 1997 LEASE(4)
23 ANNAPOLIS MD 03/04/89 149 1994 1999 LEASE(4)
24 ROCKFORD IL 04/12/86 147 1995(2) 2001 FEE
25 ARLINGTON HEIGHTS SOUTH IL 12/20/85 146 1995(2) 2000 FEE
26 Raleigh/Cary NC 06/25/88 149 1994 1999 Lease(4)
27 Toledo OH 04/30/88 149 1993 1998 Lease(4)
28 Atlanta/Roswell GA 06/11/88 154 1993 1998 Lease(5)
29 Poughkeepsie NY 06/04/88 149 1993 1998 Lease(5)
30 Chicago/Waukegan IL 05/28/88 149 1994 1999 Lease(4)
31 LINCROFT/RED BANK NJ 05/28/88 146 1993 1998 LEASE(4)
32 BIRMINGHAM/HOOVER AL 08/08/87 153 1992 1997 LEASE(4)
33 BOSTON/ANDOVER MA 12/03/88 146 1994 1999 LEASE(4)
34 DALLAS/NORTHEAST TX 01/16/88 149 1993 1998 LEASE(4)
35 DENVER/SOUTHEAST CO 05/30/87 155 1993 1998 LEASE(4)
</TABLE>
- --------
(1) 5-year room renovations include replacing carpet, wall-coverings,
bedspreads, and draperies, as needed.
(2) Date is for 10-year room renovation.
(3) 10-year room renovations include replacing the same items as in the 5-year
room renovations plus furniture such as beds, sofas, dressers, and chairs,
as needed.
(4) Subject to a Marriott Ground Lease.
(5) Subject to a ground lease with a third party unaffiliated with MII and its
affiliates.
(6) A portion of the land is subject to a ground lease with a party not
affiliated with MII and its affiliates and a portion of the land is owned
in fee.
59
<PAGE>
PROPERTY AND LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
% OF
ALLOCATED TOTAL LOAN-TO-
PRO LOAN ALLOCATED ALLOCATED VALUE
FORMA AMOUNT AS LOAN PER LOAN RATIO SCHEDULED
DSCR OF ROOM AS OF AMOUNT AS OF AS OF ALLOCATED MORTGAGED
JULY 1994- JANUARY 24, JANUARY 24, JANUARY 24, OCTOBER 1, LOAN AMOUNT PROPERTY
JULY 1995 1996 1996 1996 1995(1) AT MATURITY NUMBER
---------- ----------- ----------- ------------ ---------- ------------ ---------
<C> <S> <C> <C> <C> <C> <C>
1.82X $10,937,350 $74,913 2.7% 66.7% $4,806,664 1
1.82 8,670,667 59,388 2.1 66.3 3,810,520 2
1.82 8,443,869 56,670 2.1 60.5 3,710,848 3
1.82 8,390,819 57,868 2.0 58.6 3,687,534 4
1.89 8,079,302 54,224 2.0 69.0 3,550,631 5
1.82 7,952,700 53,374 1.9 63.9 3,494,993 6
1.82 7,762,730 53,536 1.9 55.1 3,411,506 7
1.82 7,418,964 48,175 1.8 59.2 3,260,430 8
1.82 7,418,938 49,792 1.8 58.2 3,260,419 9
1.82 7,358,089 50,398 1.8 55.8 3,233,678 10
1.82 7,189,288 48,250 1.8 60.1 3,159,494 11
1.82 7,163,129 49,063 1.7 54.4 3,147,998 12
1.82 7,135,583 48,541 1.7 62.3 3,135,892 13
1.82 7,104,385 47,680 1.7 56.3 3,122,182 14
1.82 7,021,587 48,425 1.7 61.3 3,085,794 15
1.82 6,996,244 48,250 1.7 65.9 3,074,657 16
1.82 6,894,150 46,269 1.7 58.9 3,029,789 17
1.82 6,792,097 45,585 1.7 54.9 2,984,940 18
1.82 6,786,707 45,548 1.7 59.4 2,982,571 19
1.82 6,774,820 45,469 1.7 59.6 2,977,347 20
1.82 6,701,085 44,974 1.6 59.6 2,944,943 21
1.82 6,642,768 45,498 1.6 56.6 2,919,314 22
1.82 6,626,063 44,470 1.6 56.8 2,911,972 23
1.82 6,345,418 43,166 1.5 56.8 2,788,637 24
1.82 6,330,755 43,361 1.5 52.7 2,782,193 25
1.82 6,214,567 41,709 1.5 56.9 2,731,131 26
1.82 6,182,807 41,495 1.5 56.4 2,717,174 27
1.82 6,180,898 40,136 1.5 60.8 2,716,335 28
1.82 6,146,852 41,254 1.5 53.8 2,701,372 29
1.82 6,146,408 41,251 1.5 49.1 2,701,177 30
1.82 6,082,627 41,662 1.5 56.5 2,673,147 31
1.82 6,080,761 39,744 1.5 54.7 2,672,327 32
1.82 6,076,761 41,622 1.5 50.6 2,670,569 33
1.82 6,067,633 40,722 1.5 65.9 2,666,558 34
1.82 6,062,429 39,112 1.5 58.8 2,666,271 35
</TABLE>
- --------
(1) October 1, 1995 is the date as of which the Mortgaged Properties were
appraised for the purpose of the Mortgage Loan.
60
<PAGE>
PROPERTY AND LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
ACTUAL
OR PROJECTED
MORTGAGED NUMBER DATE OF DATE OF 10-
PROPERTY DATE OF 5-YEAR ROOMS YEAR ROOMS TITLE TO
NUMBER CITY STATE OPENED ROOMS RENOVATION(1) RENOVATION(3) LAND
- --------- ------------------------ ----- -------- ------ ------------- ------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
36 PHOENIX/MESA AZ 03/19/88 148 1993 1998 LEASE(4)
37 PHOENIX/METROCENTER AZ 11/29/87 146 1992 1997 LEASE(4)
38 LEXINGTON/NORTH KY 06/04/88 146 1994 1999 LEASE(4)
39 BAKERSFIELD CA 02/13/88 146 1993 1998 LEASE(4)
40 MINNEAPOLIS AIRPORT MN 06/13/87 146 1992 1997 LEASE(4)
41 Chicago/Highland Park IL 06/10/88 149 1994 1999 Lease(4)
42 Little Rock AR 05/28/88 149 1993 1998 Lease(4)
43 Chicago/Wood Dale IL 07/02/88 149 1994 1999 Lease(4)
44 Chicago/Oakbrook Terrace IL 05/09/86 147 1995(2) 2001 Fee
45 Nashville Airport TN 01/23/88 145 1995(2) 2001 Lease(4)
46 TORRANCE CA 10/15/88 149 1993 1998 LEASE(4)
47 DAYTON MALL OH 09/19/87 146 1992 1997 LEASE(4)
48 CHARLOTTESVILLE VA 01/21/89 150 1994 1999 LEASE(4)
49 CHARLOTTE/SOUTH PARK NC 03/25/89 149 1994 1999 LEASE(5)
50 ATLANTA AIRPORT SOUTH GA 06/15/86 144 1995(2) 2001 FEE
51 St. Petersburg FL 10/14/89 149 1994 1999 Lease(4)
52 Birmingham/Homewood AL 12/21/85 140 1991 1996 Fee
53 Tucson Airport AZ 10/01/88 149 1993 1998 Lease(4)
54 Greenville SC 03/05/88 146 1994 1999 Lease(4)
55 Denver CO 08/15/87 146 1992 1997 Fee
56 WALLINGFORD CT 04/21/90 149 1995 2000 LEASE(4)
57 PHILADELPHIA/DEVON PA 11/19/88 149 1994 1999 LEASE(5)
58 FRESNO CA 09/13/86 146 1991 1996 LEASE(5)
59 CHICAGO/GLENVIEW IL 07/08/89 149 1994 1999 LEASE(4)
60 COLUMBIA SC 01/28/89 149 1993 1998 LEASE(4)
61 Detroit Airport MI 12/12/87 146 1992 1997 Lease(4)
62 Ft Myers FL 08/27/88 149 1993 1998 Lease(4)
63 Dallas/Stemmons TX 09/12/87 146 1992 1997 Lease(4)
64 Memphis Airport TN 07/15/87 145 1992 1997 Lease(4)
65 Manassas VA 03/04/89 149 1994 1999 Lease(4)
66 HUNTSVILLE AL 08/15/87 149 1992 1997 LEASE(4)
67 PALM SPRINGS CA 10/08/88 149 1993 1998 LEASE(4)
68 HACIENDA HEIGHTS CA 03/28/90 150 1995 2000 LEASE(4)
69 WEST PALM BEACH FL 01/14/89 149 1993 1998 LEASE(4)
--- ---- ----
Total/Average 148 1993 1998
=== ==== ====
</TABLE>
- --------
(1) 5-year room renovations include replacing carpet, wall-coverings,
bedspreads, and draperies, as needed.
(2) Date is for 10-year room renovation.
(3) 10-year room renovations include replacing the same items as in the 5-year
room renovations plus furniture such as beds, sofas, dressers, and chairs,
as needed.
(4) Subject to a Marriott Ground Lease.
(5) Subject to a ground lease with a third party unaffiliated with MII and its
affiliates.
61
<PAGE>
PROPERTY AND LOAN CHARACTERISTICS
<TABLE>
<CAPTION>
% OF TOTAL
ALLOCATED ALLOCATED ALLOCATED LOAN-TO-
PRO FORMA LOAN LOAN PER LOAN VALUE SCHEDULED
DSCR AMOUNT AS OF ROOM AS OF AMOUNT AS OF RATIO AS OF ALLOCATED MORTGAGED
JULY 1994- JANUARY 24, JANUARY 24, JANUARY 24, OCTOBER 1, LOAN AMOUNT PROPERTY
JULY 1995 1996 1996 1996 1995(1) AT MATURITY NUMBER
- ---------- ------------ ----------- ------------ ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1.82X $5,862,729 $39,613 1.4% 58.2% $2,576,508 36
1.82 5,849,241 40,063 1.4 54.1 2,570,581 37
1.82 5,821,917 39,876 1.4 52.5 2,558,572 38
1.82 5,686,072 38,946 1.4 59.2 2,498,872 39
1.82 5,668,934 38,828 1.4 52.7 2,491,341 40
1.82 5,547,329 37,230 1.4 53.2 2,437,898 41
1.82 5,538,333 37,170 1.4 58.7 2,433,945 42
1.82 5,502,546 36,930 1.3 54.2 2,418,218 43
1.82 5,462,405 37,159 1.3 56.7 2,400,577 44
1.82 5,444,329 37,547 1.3 58.4 2,392,633 45
1.82 5,435,593 36,480 1.3 55.6 2,388,793 46
1.82 5,411,979 37,068 1.3 53.3 2,378,416 47
1.82 5,408,515 36,057 1.3 58.4 2,376,894 48
1.82 5,276,668 35,414 1.3 57.7 2,318,951 49
1.82 5,245,199 36,425 1.3 55.0 2,305,120 50
1.82 5,207,189 34,948 1.3 55.9 2,288,416 51
1.82 5,194,689 37,105 1.3 54.8 2,282,923 52
1.82 5,168,583 34,688 1.3 55.8 2,271,450 53
1.82 5,052,708 34,608 1.2 56.5 2,220,526 54
2.22 5,009,029 34,308 1.2 69.0 2,201,330 55
1.82 4,998,830 33,549 1.2 47.8 2,196,848 56
1.82 4,815,730 32,320 1.2 52.8 2,116,381 57
1.82 4,575,409 31,338 1.1 60.8 2,010,766 58
1.82 4,476,729 30,045 1.1 51.9 1,967,399 59
1.82 4,452,611 29,883 1.1 56.3 1,956,800 60
1.82 4,403,193 30,159 1.1 51.9 1,935,082 61
1.82 4,239,887 28,456 1.0 53.9 1,863,314 62
1.82 3,859,967 26,438 0.9 50.3 1,696,349 63
1.82 3,670,944 25,317 0.9 42.6 1,613,279 64
1.82 3,653,157 24,518 0.9 49.9 1,605,462 65
1.82 3,437,853 23,073 0.8 51.2 1,510,842 66
1.82 3,134,343 21,036 0.8 51.5 1,377,458 67
1.82 3,126,711 20,845 0.8 51.8 1,374,103 68
1.82 2,381,399 15,983 0.6 38.3 1,046,559 69
------------ ------- ----- ---- ------------
1.82x $410,200,000 $40,218 100.0% 57.3% $180,271,616
============ ======= ===== ==== ============
</TABLE>
- --------
(1) October 1, 1995 is the date as of which the Mortgaged Properties were
appraised for the purpose of the Mortgage Loan.
62
<PAGE>
PROPERTY OPERATING INFORMATION BY REGION
<TABLE>
<CAPTION>
AVERAGE
OCCUPANCY
MORTGAGED AVERAGE AVERAGE JULY AVERAGE AVERAGE
PROPERTY OCCUPANCY OCCUPANCY 1994-JULY DAILY ROOM DAILY ROOM
DESIGNATION REGION 1993 1994 1995 RATE 1993 RATE 1994
- ----------- ---------------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
A1 Arizona 90.9% 86.1% 84.3% $49.19 $59.32
A2 Arizona 79.8 81.0 79.9 57.10 63.71
A3 Arizona 83.5 83.8 83.6 56.84 59.92
F1 Florida 85.2 84.1 83.7 69.62 75.34
F2 Florida 89.7 87.4 84.6 60.97 65.52
F3 Florida 79.9 82.1 81.5 53.10 57.60
F4 Florida 84.4 78.2 76.7 58.49 64.39
F5 Florida 76.4 81.7 79.6 53.68 54.09
G1 Georgia 90.0 88.9 88.1 57.76 66.39
G2 Georgia 85.8 85.8 83.5 61.09 67.74
G3 Georgia 82.6 85.8 85.6 59.89 63.96
G4 Georgia 84.9 85.6 84.2 62.03 67.96
I1 Illinois 78.9 78.0 78.4 63.96 67.00
I2 Illinois 79.1 79.9 80.0 64.54 69.31
MCh1 Metro Chicago 78.1 79.5 79.4 66.02 71.26
MCh2 Metro Chicago 77.9 79.7 78.7 68.54 73.93
MCh3 Metro Chicago 74.9 72.9 76.4 58.12 64.62
MCh4 Metro Chicago 78.3 76.3 77.8 61.51 65.59
MCh5 Metro Chicago 77.5 79.1 78.3 62.62 66.39
MCh6 Metro Chicago 78.1 77.8 79.4 58.22 62.52
MA1 Mid Atlantic (1) 82.0 79.8 80.5 67.86 72.87
MA2 Mid Atlantic (1) 76.6 76.9 78.5 63.72 69.33
MA3 Mid Atlantic (1) 83.0 82.7 85.3 55.29 57.05
MA4 Mid Atlantic (1) 77.3 73.5 71.9 50.64 54.50
MC1 Mid Central (2) 82.0 82.7 81.7 66.29 71.10
MC2 Mid Central (2) 78.9 79.6 79.7 64.48 70.01
MC3 Mid Central (2) 79.3 81.1 81.1 56.43 57.87
ME1 Mid East (3) 75.3 78.0 79.5 66.00 68.60
ME2 Mid East (3) 76.7 76.5 77.3 58.41 64.91
ME3 Mid East (3) 81.3 82.3 82.4 59.89 63.17
ME4 Mid East (3) 83.8 86.8 86.3 59.55 64.14
ME5 Mid East (3) 76.6 75.0 74.3 59.68 67.01
ME6 Mid East (3) 75.7 76.7 77.6 58.58 64.49
ME7 Mid East (3) 84.8 84.6 81.4 54.85 57.71
</TABLE>
- --------
(1) Includes the states of Maryland and Virginia.
(2) Includes the states of Arkansas and Missouri.
(3) Includes the states of Indiana, Michigan, Ohio and Tennessee.
(4) Includes the states of Kansas, Minnesota and Oklahoma.
(5) Includes the state of Colorado.
(6) Includes the states of Connecticut and Massachusetts.
(7) Includes the states of New York, New Jersey and Pennsylvania.
(8) Includes the states of Oregon and Washington.
(9) Includes the states of Alabama, Kentucky, North Carolina and South
Carolina.
63
<PAGE>
PROPERTY OPERATING INFORMATION BY REGION
<TABLE>
<CAPTION>
AVERAGE DAILY REVENUE PER
ROOM RATE REVENUE PER REVENUE PER AVAILABLE ROOM MORTGAGED
JULY 1994- AVAILABLE AVAILABLE JULY 1994- PROPERTY
JULY 1995 ROOM 1993 ROOM 1994 JULY 1995 DESIGNATION
------------- ----------- ----------- -------------- -----------
<C> <S> <C> <C> <C>
$65.19 $44.72 $51.08 $54.95 A1
69.63 45.56 51.63 55.62 A2
65.78 47.48 50.23 55.00 A3
78.10 59.31 63.36 65.38 F1
71.59 54.67 57.24 60.59 F2
60.33 42.42 47.29 49.20 F3
62.80 49.37 50.32 48.17 F4
56.71 41.00 44.19 45.12 F5
73.34 51.97 59.05 64.61 G1
73.76 52.39 58.13 61.59 G2
70.07 49.44 54.91 60.01 G3
71.46 52.67 58.15 60.15 G4
68.26 50.46 52.28 53.55 I1
72.88 51.05 55.38 58.30 I2
73.37 51.53 56.66 58.27 MCh1
76.59 53.40 58.92 60.28 MCh2
66.08 43.54 47.10 50.49 MCh3
66.99 48.14 50.08 52.12 MCh4
67.51 48.51 52.50 52.87 MCh5
64.58 45.48 48.66 51.28 MCh6
74.65 55.65 58.15 60.12 MA1
71.03 48.82 53.29 55.79 MA2
57.23 45.88 47.18 48.85 MA3
55.38 39.17 40.05 39.80 MA4
73.76 54.33 58.79 60.23 MC1
72.49 50.88 55.75 57.75 MC2
61.16 44.76 46.93 49.58 MC3
71.37 49.72 53.51 56.76 ME1
68.74 44.80 49.63 53.12 ME2
65.47 48.72 52.01 53.97 ME3
68.88 49.90 55.71 59.47 ME4
68.44 45.70 50.28 50.81 ME5
66.65 44.35 49.44 51.75 ME6
63.34 46.49 48.84 51.55 ME7
</TABLE>
64
<PAGE>
PROPERTY OPERATING INFORMATION BY REGION
<TABLE>
<CAPTION>
AVERAGE
OCCUPANCY
MORTGAGED AVERAGE AVERAGE JULY AVERAGE AVERAGE
PROPERTY OCCUPANCY OCCUPANCY 1994-JULY DAILY ROOM DAILY ROOM
DESIGNATION REGION 1993 1994 1995 RATE 1993 RATE 1994
- ----------- ------------------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
MW1 Mid West (4) 83.5% 82.5% 82.6% $65.75 $70.41
MW2 Mid West (4) 82.2 82.6 83.2 61.65 65.21
MW3 Mid West (4) 84.0 84.0 82.4 63.31 69.77
M1 Mountain (5) 78.9 80.1 81.4 72.94 76.42
M2 Mountain (5) 80.8 81.6 79.4 58.03 62.79
M3 Mountain (5) 87.3 91.1 86.3 71.01 69.22
NE1 New England (6) 82.7 82.9 82.3 85.92 90.56
NE2 New England (6) 75.5 78.2 76.1 62.72 67.02
NE3 New England (6) 77.4 75.5 77.7 61.84 66.90
NoE1 North East (7) 83.0 80.9 79.4 83.41 87.75
NoE2 North East (7) 77.4 80.0 80.1 68.89 72.80
NoE3 North East (7) 78.9 80.0 79.2 71.68 73.31
NoE4 North East (7) 78.1 78.3 78.8 65.30 69.98
NC1 Northern Cal 87.4 88.3 87.3 87.81 90.45
NC2 Northern Cal 84.5 85.1 86.1 77.53 80.96
NC3 Northern Cal 86.5 86.1 87.0 74.46 78.94
NC4 Northern Cal 88.2 83.2 82.4 73.16 73.95
PNW1 Pacific North W (8) 85.3 83.4 84.2 70.70 72.65
PNW2 Pacific North W (8) 82.9 82.1 86.0 70.00 71.41
SE1 South East (9) 87.8 88.2 88.0 50.73 55.61
SE2 South East (9) 80.9 80.6 80.0 63.02 64.39
SE3 South East (9) 74.5 75.6 73.8 66.09 66.05
SE4 South East (9) 82.3 85.9 84.8 57.78 62.10
SE5 South East (9) 80.9 83.3 81.6 59.65 61.24
SE6 South East (9) 81.6 77.0 80.0 56.44 59.94
SE7 South East (9) 83.8 79.4 78.7 50.99 57.75
SE8 South East (9) 77.7 73.6 72.4 44.63 49.71
SC1 Southern Cal 81.6 78.7 80.8 64.50 64.66
SC2 Southern Cal 81.7 83.7 84.8 60.56 63.73
SC3 Southern Cal 72.5 72.6 74.2 60.66 57.93
SC4 Southern Cal 79.9 77.7 76.2 47.21 51.41
T1 Texas 88.3 89.4 88.4 67.65 73.22
T2 Texas 85.5 79.8 76.0 75.52 78.65
T3 Texas 83.5 83.7 87.3 56.15 61.43
T4 Texas 78.6 74.2 73.7 56.66 64.58
---- ---- ---- ------ ------
Totals: 81.7% 81.6% 81.4% $64.14 $68.33
==== ==== ==== ====== ======
</TABLE>
- --------
(1) Includes the states of Maryland and Virginia.
(2) Includes the states of Arkansas and Missouri.
(3) Includes the states of Indiana, Michigan, Ohio and Tennessee.
(4) Includes the states of Kansas, Minnesota and Oklahoma.
(5) Includes the state of Colorado.
(6) Includes the states of Connecticut and Massachusetts.
(7) Includes the states of New York, New Jersey and Pennsylvania.
(8) Includes the states of Oregon and Washington.
(9) Includes the states of Alabama, Kentucky, North Carolina and South
Carolina.
65
<PAGE>
PROPERTY OPERATING INFORMATION BY REGION
<TABLE>
<CAPTION>
AVERAGE DAILY REVENUE PER
ROOM RATE REVENUE PER REVENUE PER AVAILABLE ROOM MORTGAGED
JULY 1994- AVAILABLE AVAILABLE JULY 1994- PROPERTY
JULY 1995 ROOM 1993 ROOM 1994 JULY 1995 DESIGNATION
------------- ----------- ----------- -------------- -----------
<C> <S> <C> <C> <C>
$72.88 $54.90 $58.11 $60.19 MW1
67.25 50.68 53.87 55.95 MW2
73.13 53.19 58.60 60.27 MW3
80.96 57.53 61.22 65.86 M1
67.21 46.88 51.26 53.35 M2
71.30 62.02 63.07 61.52 M3
94.37 71.01 75.11 77.63 NE1
69.23 47.38 52.40 52.68 NE2
69.72 47.85 50.54 54.17 NE3
91.68 69.24 70.96 72.78 NoE1
74.62 53.32 58.22 59.74 NoE2
75.95 56.54 58.67 60.14 NoE3
72.46 51.01 54.77 57.09 NoE4
93.90 76.78 79.84 81.97 NC1
82.05 65.53 68.93 70.66 NC2
80.16 64.39 67.93 69.78 NC3
73.66 64.52 61.52 60.73 NC4
74.94 60.30 60.59 63.07 PNW1
73.17 58.03 58.64 62.92 PNW2
59.91 44.52 49.04 52.72 SE1
67.88 50.97 51.93 54.32 SE2
68.51 49.27 49.94 50.56 SE3
66.56 47.54 53.33 56.42 SE4
64.58 48.28 50.99 52.71 SE5
60.34 46.07 46.18 48.26 SE6
57.14 42.71 45.82 45.00 SE7
52.50 34.67 36.58 38.02 SE8
64.21 52.63 50.87 51.86 SC1
64.72 49.48 53.33 54.88 SC2
59.97 43.99 42.05 44.52 SC3
52.68 37.71 39.96 40.14 SC4
76.68 59.71 65.48 67.81 T1
79.98 64.58 62.78 60.80 T2
64.00 46.88 51.42 55.88 T3
67.03 44.54 47.94 49.42 T4
------ ------ ------ ------
$71.15 $52.49 $55.84 $58.02
====== ====== ====== ======
</TABLE>
66
<PAGE>
MORTGAGED PROPERTIES BY STATE
<TABLE>
<CAPTION>
AVERAGE
ALLOCATED ALLOCATED AVERAGE % OF TOTAL WEIGHTED
LOAN AMOUNT LOAN ALLOCATED ALLOCATED LOAN AVERAGE SCHEDULED TOTAL AVERAGE
NUMBER OF AS OF AMOUNT AS LOAN AMOUNT AS OF LOAN-TO- ALLOCATED NUMBER NUMBER
MORTGAGED JANUARY 24, OF JANUARY AMOUNT JANUARY 24, VALUE LOAN AMOUNT OF OF
STATE PROPERTIES 1996 24, 1996 PER ROOM 1996 RATIO AT MATURITY ROOMS ROOMS
- ----- ---------- ------------ ---------- --------- -------------- -------- ------------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AL 3 $ 14,713,303 $4,904,434 $33,307 3.6% 53.9% $ 6,466,092 442 147
AR 1 5,538,333 5,538,333 37,170 1.4 58.7 2,433,945 149 149
AZ 3 16,880,553 5,626,851 38,122 4.1 56.1 7,418,539 443 148
CA 8 47,449,998 5,931,250 40,236 11.6 60.0 20,852,969 1,182 148
CO 3 19,515,327 6,505,109 43,364 4.8 62.2 8,576,450 450 150
CT 2 13,389,650 6,694,825 45,708 3.3 54.6 5,884,383 294 147
FL 5 25,636,769 5,127,354 34,672 6.2 56.3 11,266,655 741 148
GA 4 27,093,008 6,773,252 46,050 6.6 62.8 11,906,632 589 147
IL 8 47,169,679 5,896,210 39,943 11.5 53.9 20,729,776 1,182 148
IN 1 6,642,768 6,642,768 45,498 1.6 56.6 2,919,314 146 146
KS 1 7,189,288 7,189,288 48,250 1.8 60.1 3,159,494 149 149
KY 1 5,821,917 5,821,917 39,876 1.4 52.5 2,558,572 146 146
MA 1 6,076,761 6,076,761 41,622 1.5 50.6 2,670,569 146 146
MD 2 13,789,192 6,894,596 46,766 3.4 55.6 6,059,971 295 148
MI 2 11,195,290 5,597,645 37,872 2.7 53.7 4,920,022 295 148
MN 1 5,668,934 5,668,934 38,828 1.4 52.7 2,491,341 146 146
MO 2 14,523,348 7,261,674 47,928 3.5 57.8 6,382,612 303 152
NC 2 11,491,235 5,745,618 38,561 2.8 57.3 5,050,082 298 149
NJ 1 6,082,627 6,082,627 41,662 1.5 56.5 2,673,147 146 146
NY 2 13,909,582 6,954,791 47,395 3.4 54.5 6,112,879 294 147
OH 2 11,594,786 5,797,393 39,282 2.8 54.9 5,095,590 295 148
OK 1 6,894,150 6,894,150 46,269 1.7 58.9 3,029,789 149 149
OR 1 7,952,700 7,952,700 53,374 1.9 63.9 3,494,993 149 149
PA 1 4,815,730 4,815,730 32,320 1.2 52.8 2,116,381 149 149
SC 2 9,505,319 4,752,659 32,245 2.3 56.4 4,177,326 295 148
TN 2 9,115,272 4,557,636 31,432 2.2 52.1 4,005,911 290 145
TX 4 24,781,722 6,195,430 41,713 6.0 62.8 10,890,895 593 148
VA 2 9,061,673 4,530,836 30,287 2.2 55.0 3,982,356 299 150
WA 1 6,701,085 6,701,085 44,974 1.6 59.6 2,944,943 149 149
--- ------------ ---------- ------- ----- ---- ------------ ------ ---
Total 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 10,204 148**
=== ============ ========== ======= ===== ==== ============ ====== ===
</TABLE>
- ------
* Weighted Average
** Average
67
<PAGE>
MORTGAGED PROPERTIES BY ALLOCATED LOAN AMOUNTS
<TABLE>
<CAPTION>
ALLOCATED AVERAGE WEIGHTED
LOAN ALLOCATED AVERAGE % OF TOTAL WEIGHTED WEIGHTED AVERAGE
AMOUNT AS LOAN ALLOCATED ALLOCATED LOAN AVERAGE SCHEDULED AVERAGE DAILY
NUMBER OF OF AMOUNT AS LOAN AMOUNT AS OF LOAN-TO- ALLOCATED OCCUPANCY RATES
ALLOCATED LOAN MORTGAGED JANUARY 24, OF JANUARY AMOUNT JANUARY 24, VALUE LOAN AMOUNT JULY 1994- JULY 1994-
AMOUNTS PROPERTIES 1996 24, 1996 PER ROOM 1996 RATIO AT MATURITY JULY 1995 JULY 1995
- ------------------- ---------- ------------ ---------- --------- -------------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$2,000,001-
3,000,000.......... 1 $ 2,381,399 $2,381,399 $15,983 0.6% 38.3% $ 1,046,559 79.55% $56.71
3,000,001-
4,000,000.......... 6 20,882,975 3,480,496 23,538 5.1 49.4 9,177,493 74.98 58.74
4,000,001-
5,000,000.......... 7 31,962,389 4,566,056 30,822 7.8 53.6 14,046,591 78.79 66.89
5,000,001-
6,000,000.......... 20 108,793,986 5,439,699 37,023 26.5 56.4 47,811,964 81.32 66.13
6,000,001-
7,000,000.......... 20 128,131,851 6,406,593 43,065 31.2 57.3 56,310,424 81.20 70.52
7,000,001-
8,000,000.......... 10 73,525,393 7,352,539 49,723 17.9 58.7 32,312,388 82.43 77.49
8,000,001-
9,000,000.......... 4 33,584,657 8,396,164 57,037 8.2 63.6 14,759,533 85.03 81.31
9,000,001+........ 1 10,937,350 10,937,350 74,913 2.7 66.7 4,806,664 87.29 93.90
--- ------------ ---------- ------- ----- ---- ------------ ----- ------
Total: 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 81.41%* $71.15*
=== ============ ========== ======= ===== ==== ============ ===== ======
<CAPTION>
WEIGHTED
AVERAGE
REVENUE
PER
AVAILABLE TOTAL AVERAGE
ROOM NUMBER NUMBER
ALLOCATED LOAN JULY 1994- OF OF
AMOUNTS JULY 1995 ROOMS ROOMS
- ------------------- ---------- ------ -------
<S> <C> <C> <C>
$2,000,001-
3,000,000.......... $45.12 149 149
3,000,001-
4,000,000.......... 44.11 888 148
4,000,001-
5,000,000.......... 52.74 1,037 148
5,000,001-
6,000,000.......... 53.77 2,939 147
6,000,001-
7,000,000.......... 57.19 2,977 149
7,000,001-
8,000,000.......... 63.88 1,479 148
8,000,001-
9,000,000.......... 68.95 589 147
9,000,001+........ 81.97 146 146
---------- ------ -------
Total: $58.02* 10,204 148**
========== ====== =======
</TABLE>
Average:.......$ 5,944,928
Minimum:.......$ 2,381,399
Maximum:.......$10,937,350
MORTGAGED PROPERTIES BY LOAN-TO-VALUE RATIO
<TABLE>
<CAPTION>
AVERAGE WEIGHTED
ALLOCATED ALLOCATED AVERAGE % OF TOTAL WEIGHTED WEIGHTED AVERAGE
LOAN AMOUNT LOAN ALLOCATED ALLOCATED LOAN AVERAGE SCHEDULED AVERAGE DAILY
NUMBER OF AS OF AMOUNT AS LOAN AMOUNT AS OF LOAN-TO- ALLOCATED OCCUPANCY RATES
MORTGAGED JANUARY 24, OF JANUARY AMOUNT JANUARY 24, VALUE LOAN AMOUNT JULY 1994- JULY 1994-
LOAN-TO-VALUE RATIO PROPERTIES 1996 24, 1996 PER ROOM 1996 RATIO AT MATURITY JULY 1995 JULY 1995
- ------------------- ---------- ------------ ---------- --------- -------------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LESS THAN 50.00%.. 5 $ 20,850,738 $4,190,148 $28,123 5.1% 46.6% $ 9,163,326 78.21% $65.53
50.01-55.00....... 21 109,081,404 5,194,353 35,243 26.6 53.1 47,938,276 77.97 68.28
55.01-60.00....... 30 186,008,299 6,287,277 41,859 45.3 57.5 81,745,531 81.80 70.61
60.01-65.00....... 7 48,499,335 6,928,476 46,676 11.8 61.5 21,314,123 83.83 76.17
65.01-70.00....... 6 45,760,224 7,626,704 51,968 11.2 67.1 20,110,360 86.96 77.45
--- ------------ ---------- ------- ----- ---- ------------ ----- ------
Total: 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 81.41%* $71.15*
=== ============ ========== ======= ===== ==== ============ ===== ======
<CAPTION>
WEIGHTED
AVERAGE
REVENUE
PER
AVAILABLE TOTAL AVERAGE
ROOM NUMBER NUMBER
JULY 1994- OF OF
LOAN-TO-VALUE RATIO JULY 1995 ROOMS ROOMS
- -------------------- ---------- ------ -------
<S> <C> <C> <C>
LESS THAN 50.00%.. $51.37 741 148
50.01-55.00....... 53.31 3,098 148
55.01-60.00....... 57.71 4,445 148
60.01-65.00....... 63.84 1,039 148
65.01-70.00....... 67.37 881 147
---------- ------ -------
Total: $58.02* 10,204 148**
========== ====== =======
</TABLE>
Weighted
Average:.......... 57.29%
Minimum:.......... 38.29%
Maximum:.......... 69.00%
* Weighted Average
** Average
68
<PAGE>
MORTGAGED PROPERTIES BY SCHEDULED ALLOCATED LOAN AMOUNT AT MATURITY
<TABLE>
<CAPTION>
AVERAGE
ALLOCATED ALLOCATED AVERAGE % OF TOTAL WEIGHTED WEIGHTED WEIGHTED
LOAN AMOUNT LOAN ALLOCATED ALLOCATED LOAN AVERAGE SCHEDULED AVERAGE AVERAGE
CHEDULED ALLOCATEDS NUMBER OF AS OF AMOUNT AS OF LOAN AMOUNT AS OF LOAN-TO- ALLOCATED OCCUPANCY DAILY RATES
LOAN AMOUNT MORTGAGED JANUARY 24, JANUARY 24, AMOUNT JANUARY 24, VALUE LOAN AMOUNT JULY 1994- JULY 1994-
AT MATURITY PROPERTIES 1996 1996 PER ROOM 1996 RATIO AT MATURITY JULY 1995 JULY 1995
- ------------------- ---------- ------------ ------------ --------- -------------- -------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$1,000,001-
1,500,000......... 3 $ 8,642,453 $2,880,818 $19,288 2.1% 47.9% $ 3,798,120 76.41% $56.43
1,500,001-
2,000,000......... 8 32,194,340 4,024,293 27,236 7.8 51.2 14,148,527 76.66 61.42
2,000,001-
2,500,000......... 20 105,650,069 5,282,503 35,906 25.8 56.3 46,430,299 81.41 66.65
2,500,001-
3,000,000......... 21 131,775,344 6,275,016 42,206 32.1 56.5 57,911,639 80.73 70.15
3,000,001-
3,500,000......... 12 87,415,787 7,284,649 49,313 21.3 59.3 38,416,834 82.57 76.38
3,500,001-
4,000,000......... 4 33,584,657 8,396,164 57,037 8.2 63.6 14,759,533 85.03 81.31
4,000,001........ 1 10,937,350 10,937,350 74,913 2.7 66.7 4,806,664 87.29 93.90
--- ------------ ---------- ------- ----- ---- ------------ ----- ------
Total: 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 81.41%* $71.15*
=== ============ ========== ======= ===== ==== ============ ===== ======
<CAPTION>
WEIGHTED
AVERAGE
REVENUE
PER
AVAILABLE TOTAL AVERAGE
CHEDULED ALLOCATEDS ROOM NUMBER NUMBER
LOAN AMOUNT JULY 1994- OF OF
AT MATURITY JULY 1995 ROOMS ROOMS
- -------------------- ---------- ------ -------
<S> <C> <C> <C>
$1,000,001-
1,500,000......... $43.10 448 149
1,500,001-
2,000,000......... 47.15 1,182 148
2,000,001-
2,500,000......... 54.25 2,943 147
2,500,001-
3,000,000......... 56.56 3,123 149
3,000,001-
3,500,000......... 63.08 1,773 148
3,500,001-
4,000,000......... 68.95 589 147
4,000,001........ 81.97 146 146
---------- ------ -------
Total: $58.02* 10,204 148**
========== ====== =======
</TABLE>
Average:......$2,612,632
Minimum:......$1,046,559
Maximum:......$4,806,664
MORTGAGED PROPERTIES BY OCCUPANCY -- JULY 1994-JULY 1995
<TABLE>
<CAPTION>
AVERAGE WEIGHTED WEIGHTED
AVERAGE ALLOCATED % OF TOTAL AVERAGE SCHEDULED AVERAGE
NUMBER OF ALLOCATED LOAN ALLOCATED LOAN LOAN ALLOCATED LOAN LOAN-TO- ALLOCATED OCCUPANCY
MORTGAGED AMOUNT AS OF AMOUNT AS OF AMOUNT AMOUNT AS OF VALUE LOAN AMOUNT JULY 1994-
OCCUPANCY PROPERTIES JANUARY 24, 1996 JANUARY 24, 1996 PER ROOM JANUARY 24, 1996 RATIO AT MATURITY JULY 1995
- ------------------------ ---------- ---------------- ---------------- --------- ---------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
70.01-75.00%............ 6 $ 25,319,216 $4,219,869 $28,668 6.2% 51.7% $ 11,127,099 73.47%
75.01-80.00............. 26 146,414,669 5,631,331 38,078 35.7 54.4 64,345,219 78.47
80.01-85.00............. 25 155,198,220 6,207,929 42,026 37.8 57.9 68,205,348 82.52
85.01-90.00............. 12 83,267,895 6,938,991 46,859 20.3 63.0 36,593,949 86.94
--- ------------ ---------- ------- ----- ---- ------------ -----
Total:.................. 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 81.41%*
=== ============ ========== ======= ===== ==== ============ =====
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REVENUE
AVERAGE PER
DAILY AVAILABLE TOTAL AVERAGE
RATES ROOM NUMBER NUMBER
JULY 1994- JULY 1994- OF OF
OCCUPANCY JULY 1995 JULY 1995 ROOMS ROOMS
- ------------------------ ---------- ---------- ------ -------
<S> <C> <C> <C> <C>
70.01-75.00%............ $63.14 $46.44 885 148
75.01-80.00............. 70.30 55.18 3,849 148
80.01-85.00............. 71.55 59.04 3,691 148
85.01-90.00............. 74.33 64.64 1,779 148
---------- ---------- ------ -------
Total:.................. $71.15* $58.02* 10,204 148**
========== ========== ====== =======
</TABLE>
Weighted
Average:........... 81.41%
Minimum:........... 71.87%
Maximum:........... 88.44%
69
<PAGE>
MORTGAGED PROPERTIES BY AVERAGE DAILY RATE -- JULY 1994-JULY 1995
<TABLE>
<CAPTION>
AVERAGE WEIGHTED WEIGHTED
AVERAGE ALLOCATED % OF TOTAL AVERAGE SCHEDULED AVERAGE
NUMBER OF ALLOCATED LOAN ALLOCATED LOAN LOAN ALLOCATED LOAN LOAN-TO- ALLOCATED OCCUPANCY
AVERAGE DAILY MORTGAGED AMOUNT AS OF AMOUNT AS OF AMOUNT AMOUNT AS OF VALUE LOAN AMOUNT JULY 1994-
RATE PROPERTIES JANUARY 24, 1996 JANUARY 24, 1996 PER ROOM JANUARY 24, 1996 RATIO AT MATURITY JULY 1995
- ------------------------ ---------- ---------------- ---------------- --------- ---------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$50.01-55.00............ 2 $ 6,564,563 $3,282,282 $21,959 1.6% 51.5% $ 2,884,945 74.21%
55.01-60.00............ 6 25,244,592 4,207,432 28,197 6.2 53.7 11,094,304 80.96
60.01-65.00............ 10 50,569,776 5,056,978 34,380 12.3 56.2 22,224,025 81.69
65.01-70.00............ 20 112,894,812 5,644,741 38,132 27.5 55.1 49,614,164 79.38
70.01-75.00............ 20 130,547,878 6,527,394 44,051 31.8 58.5 57,372,201 82.47
75.01-80.00............ 5 34,289,091 6,857,818 46,628 8.4 60.3 15,069,112 81.58
80.01-85.00............ 3 22,998,390 7,666,130 51,668 5.6 60.3 10,107,160 84.66
90.01-95.00............ 3 27,090,899 9,030,300 62,106 6.6 60.9 11,905,705 83.47
--- ------------ ---------- ------- ----- ---- ------------ -----
Total:.................. 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 81.41%*
<CAPTION> === ============ ========== ======= ===== ==== ============ =====
WEIGHTED
AVERAGE
WEIGHTED REVENUE
AVERAGE PER
DAILY AVAILABLE TOTAL AVERAGE
RATES ROOM NUMBER NUMBER
AVERAGE DAILY JULY 1994- JULY 1994- OF OF
RATE JULY 1995 JULY 1995 ROOMS ROOMS
- ------------------------ ---------- ---------- ------ -------
<S> <C> <C> <C> <C>
$50.01-55.00............ $52.59 $39.03 299 150
55.01-60.00............ 57.90 46.92 895 149
60.01-65.00............ 63.01 51.49 1,471 147
65.01-70.00............ 67.57 53.62 2,960 148
70.01-75.00............ 72.87 60.09 2,963 148
75.01-80.00............ 77.48 63.18 735 147
80.01-85.00............ 81.06 68.63 445 148
90.01-95.00............ 93.41 77.99 436 145
---------- ---------- ------ -------
Total:.................. $71.15* $58.02* 10,204 148**
========== ========== ====== =======
Weighted
Average:..........$71.15
Minimum:..........$52.50
Maximum:..........$94.37
MORTGAGED PROPERTIES BY REVENUE PER AVAILABLE ROOM -- JULY 1994-JULY 1995
<CAPTION>
AVERAGE AVERAGE WEIGHTED WEIGHTED
ALLOCATED LOAN ALLOCATED % OF TOTAL AVERAGE SCHEDULED AVERAGE
NUMBER OF ALLOCATED LOAN AMOUNT AS OF LOAN ALLOCATED LOAN LOAN-TO- ALLOCATED OCCUPANCY
REVENUE PER MORTGAGED AMOUNT AS OF JANUARY AMOUNT AMOUNT AS OF VALUE LOAN AMOUNT JULY 1994-
AVAILABLE ROOM PROPERTIES JANUARY 24, 1996 24, 1996 PER ROOM JANUARY 24, 1996 RATIO AT MATURITY JULY 1995
- ------------------------ ---------- ---------------- ---------------- --------- ---------------- -------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LESS THAN $50.00...... 12 $ 49,492,673 $4,124,389 $27,751 12.1% 53.8% $ 21,750,668 78.23%
50.01-55.00........... 21 116,249,049 5,535,669 37,453 28.3 54.6 51,088,259 79.59
55.01-60.00........... 12 74,521,645 6,210,137 41,915 18.2 56.3 32,750,213 81.35
60.01-65.00........... 16 104,746,455 6,546,653 44,284 25.5 59.9 46,033,186 82.93
65.01-70.00........... 4 30,680,341 7,670,085 51,965 7.5 63.3 13,483,166 85.08
70.01-75.00........... 2 15,181,668 7,590,834 51,664 3.7 56.6 6,671,925 82.68
75.01-80.00........... 1 8,390,819 8,390,819 57,868 2.0 58.6 3,687,534 82.26
80.01-85.00........... 1 10,937,350 10,937,350 74,913 2.7 66.7 4,806,664 87.29
--- ------------ ---------- ------- ----- ---- ------------ -----
Total:.................. 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 81.41%*
=== ============ ========== ======= ===== ==== ============ =====
<CAPTION>
WEIGHTED
AVERAGE
WEIGHTED REVENUE
AVERAGE PER
DAILY AVAILABLE TOTAL AVERAGE
RATES ROOM NUMBER NUMBER
REVENUE PER JULY 1994- JULY 1994- OF OF
AVAILABLE ROOM JULY 1995 JULY 1995 ROOMS ROOMS
- ------------------------ ---------- ---------- ------ -------
<S> <C> <C> <C> <C>
LESS THAN $50.00...... $58.94 $46.12 1,784 149
50.01-55.00........... 66.40 52.85 3,103 148
55.01-60.00........... 70.47 57.25 1,778 148
60.01-65.00........... 73.85 61.19 2,364 148
65.01-70.00........... 78.99 67.18 590 148
70.01-75.00........... 86.97 71.75 294 147
75.01-80.00........... 94.37 77.63 145 145
80.01-85.00........... 93.90 81.97 146 146
---------- ---------- ------ -------
Total:.................. $71.15* $58.02* 10,204 148**
========== ========== ====== =======
</TABLE>
Weighted
Average:..........$58.02
Minimum:..........$38.02
Maximum:..........$81.97
*Weighted Average
**Average
70
<PAGE>
MORTGAGED PROPERTIES BY FIVE-YEAR ROOMS RENOVATION DATE
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED WEIGHTED AVERAGE
5-YEAR AVERAGE ALLOCATED % OF TOTAL AVERAGE SCHEDULED AVERAGE DAILY
ROOMS NUMBER OF ALLOCATED LOAN ALLOCATED LOAN LOAN ALLOCATED LOAN LOAN-TO- ALLOCATED OCCUPANCY RATES
RENOVATION MORTGAGED AMOUNT AS OF AMOUNT AS OF AMOUNT AMOUNTS AS OF VALUE LOAN AMOUNT JULY 1994- JULY 1994-
DATE PROPERTIES JANUARY 24, 1996 JANUARY 24, 1996 PER ROOM JANUARY 24, 1996 RATIO AT MATURITY JULY 1995 JULY 1995
- ---------- ---------- ---------------- ---------------- --------- ---------------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1991 3 $16,791,685 $5,597,228 $38,956 4.1% 59.2% $ 7,379,484 82.73% 72.71%
1992 15 91,415,983 6,094,399 41,441 22.3 58.3 40,174,810 81.34 72.75
1993 25 152,831,774 6,113,271 41,115 37.3 58.2 67,165,360 82.44 71.55
1994 18 105,432,092 5,857,338 39,507 25.7 55.7 46,334,504 80.56 69.12
1995 8 43,728,467 5,466,058 37,190 10.7 55.2 19,217,458 79.51 70.70
--- ------------ ---------- ------- ----- ---- ------------ ----- ------
Total: 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 81.41%* $71.15*
=== ============ ========== ======= ===== ==== ============ ===== ======
<CAPTION>
WEIGHTED
AVERAGE
REVENUE
PER
5-YEAR AVAILABLE TOTAL AVERAGE
ROOMS ROOM NUMBER NUMBER
RENOVATION JULY 1994- OF OF
DATE JULY 1995 ROOMS ROOMS
- ----------- ---------- ------ -------
<S> <C> <C> <C>
1991 $60.20 431 144
1992 59.45 2,206 147
1993 59.06 3,720 149
1994 55.67 2,670 148
1995 56.20 1,177 147
---------- ------ -------
Total: $58.02* 10,204 148**
========== ====== =======
</TABLE>
Weighted
Average:......... 1993
Minimum:......... 1991
Maximum:......... 1995
MORTGAGED PROPERTIES BY TEN-YEAR ROOMS RENOVATION DATE
<TABLE>
<CAPTION>
ACTUAL OR WEIGHTED
PROJECTED AVERAGE WEIGHTED WEIGHTED AVERAGE
10-YEAR AVERAGE ALLOCATED % OF TOTAL AVERAGE SCHEDULED AVERAGE DAILY
ROOMS NUMBER OF ALLOCATED LOAN ALLOCATED LOAN LOAN ALLOCATED LOAN LOAN-TO- ALLOCATED OCCUPANCY RATES
RENOVATION MORTGAGED AMOUNT AS OF AMOUNT AS OF AMOUNT AMOUNTS AS OF VALUE LOAN AMOUNT JULY 1994- JULY 1994-
DATE PROPERTIES JANUARY 24, 1996 JANUARY 24, 1996 PER ROOM JANUARY 24, 1996 RATIO AT MATURITY JULY 1995 JULY 1995
- ---------- ---------- ---------------- ---------------- --------- ---------------- -------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 3 $ 16,791,685 $5,597,228 $38,956 4.1% 59.2% $ 7,379,484 82.73% $72.71
1997 15 91,415,983 6,094,399 41,441 22.3 58.3 40,174,810 81.34 72.75
1998 25 152,831,774 6,113,271 41,115 37.3 58.2 67,165,360 82.44 71.55
1999 18 105,432,092 5,857,338 39,507 25.7 55.7 46,334,504 80.56 69.12
2000/2001 8 43,728,467 5,466,058 37,190 10.7 55.2 19,217,458 79.51 70.70
--- ------------ ---------- ------- ----- ---- ------------ ----- ------
Total: 69 $410,200,000 $5,944,928** $40,218** 100.0% 57.3%* $180,271,616 81.41%* $71.15*
=== ============ ========== ======= ===== ==== ============ ===== ======
<CAPTION>
WEIGHTED
AVERAGE
ACTUAL OR REVENUE
PROJECTED PER
10-YEAR AVAILABLE TOTAL AVERAGE
ROOMS ROOM NUMBER NUMBER
RENOVATION JULY 1994- OF OF
DATE JULY 1995 ROOMS ROOMS
- ----------- ---------- ------ -------
<S> <C> <C> <C>
1996 $60.20 431 144
1997 59.45 2,206 147
1998 59.06 3,720 149
1999 55.67 2,670 148
2000/2001 56.20 1,177 147
---------- ------ -------
Total: $58.02* 10,204 148**
========== ====== =======
</TABLE>
Weighted
Average:......... 1998
Minimum:......... 1996
Maximum:......... 2001
*Weighted Average
**Average
71
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DESCRIPTION OF DEERFIELD LLC
Deerfield LLC is a Delaware limited liability company that was formed on
December 28, 1995 as a single purpose affiliate of the Company and the
Managing General Partner. Deerfield LLC is the owner in fee simple of the
Deerfield Hotel. The principal executive offices of Deerfield LLC are located
at 10400 Fernwood Road, Bethesda, Maryland 20817, telephone (301) 380-9000.
The Deerfield Hotel is north of metropolitan Chicago in Deerfield, Illinois.
The Deerfield Hotel opened January 2, 1986, and as of December 31, 1995,
contains 131 rooms. The average occupancy for the years ended December 31,
1993, 1994 and 1995 were 77.7%, 78.1% and 76.3%, respectively. The average
daily room rates for the years ended December 31, 1993, 1994 and 1995 were
$65.67, $69.62 and $73.29, respectively. The REVPAR for the years ended
December 31, 1993, 1994 and 1995 was $51.27, $53.13 and $56.95, respectively.
The 5-year rooms renovation and 10-year rooms renovation took place during
1990 and 1995, respectively.
DESCRIPTION OF THE MORTGAGE LOAN
The following is a summary of the principal provisions of the Mortgage Loan.
This summary does not purport to be complete, and is qualified in its entirety
by references to the Loan Agreement, the Mortgage Note, the Mortgages, and the
other loan documents (collectively, the "Loan Documents"), copies of which may
be obtained upon request from the Company.
GENERAL
The principal asset of the Trust Fund is the Mortgage Loan, which was made
pursuant to the Loan Agreement between the Company and CBM Funding (the "Loan
Agreement") and is evidenced by one or more mortgage notes (collectively, the
"Mortgage Note") in the original aggregate principal amount of $410,200,000.
The Mortgage Loan and the Mortgage Note are secured by first priority liens on
the Mortgaged Properties, a pledge of Company's membership interest in
Deerfield LLC and the related right to receive distributions in respect
thereof, and the other Collateral pursuant to the Mortgages and other Loan
Documents.
The Mortgage Loan was initially made by CBM Funding to the Company and
thereafter transferred by CBM Funding to the Trust Fund. The Servicer will
service the Mortgage Loan pursuant to the Trust and Servicing Agreement. See
"Description of the Trust and Servicing Agreement."
PRINCIPAL AND INTEREST
Interest is payable monthly on each Due Date and began January 26, 1996, and
accrues during each Due Period on the outstanding principal balance of the
Mortgage Loan as of the first day of such Due Period. For purposes of
calculating interest payable and other amounts on the Mortgage Loan, the
Mortgage Loan is divided into six components, each corresponding to one Class
of Offered Certificates (considering, for these purposes only, the Class A-
3P&I Certificates and the Class A-3IO Certificates as a single Class).
Accordingly, each component has an initial principal balance and interest rate
equal to the initial Certificate Balance and Pass-Through Rate for the
corresponding Class of Offered Certificates, except that the component
corresponding to the Class A-3L Interest will have an initial principal
balance equal to the initial Class A-3P&I Certificate Balance and an interest
rate equal to the sum of the Pass-Through Rates of the Class A-3P&I
Certificates and the Class A-3IO Certificates. Payments on the Mortgage Loan
allocable to principal reduce the component principal balances in the same
order of priority as distributions of principal on the Offered Certificates
reduce the Certificate Balances of the corresponding Classes of Offered
Certificates (other than the Class A-3IO Certificates). See "Description of
the New Certificates--Distributions." The amount of interest payable on each
Due Date is equal to the sum of the interest accrued on each component during
the applicable Due Period, computed using the principal balance of each
component as of the first day of the Due Period and the interest rate for such
component. See "Description of the New Certificates--General." Interest is
computed on the basis of a 360-day year consisting of twelve 30-day months.
The Due Date is the third Business Day preceding the related Distribution
Date. The Due Period with respect to any Due Date commences on and includes
the first day of the calendar month in which such Due Date occurs (other than
the initial Due Period which commenced on and included the Issue Date) and
will end on and include the last day of such calendar month. A "Business Day"
is any day other than (i) a Saturday or a Sunday or (ii) a day on which
federally insured depository institutions in New York are authorized or
obligated by law, governmental decree, or executive order to be closed.
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<PAGE>
The Mortgage Note provides for monthly payments of principal on each Due
Date and began on February 27, 1996, in 144 monthly installments, with the
final installment being the Balloon Payment, in accordance with a 204-month
principal amortization schedule, computed using an interest rate equal to 7.5%
per annum. The Balloon Payment, which is scheduled to be $180.3 million, will
be due and payable by the Company on January 28, 2008. Assuming payment on
such date, the Balloon Payment will be distributed to Certificateholders on
February 1, 2008 (or if such day is not a Business Day, the next occurring
Business Day). In the event that the Company fails to pay the Balloon Payment
on such date, the Scheduled Balloon Maturity Date may be extended by the
Servicer with the consent of holders of Offered Certificates (excluding the
Class A-3IO Certificates) evidencing not less than 66 2/3% of the aggregate
Voting Rights of all then outstanding Offered Certificates to a date not later
than the latest Rated Final Distribution Date with respect to the then
outstanding Classes of Offered Certificates; provided that the Scheduled
Balloon Maturity Date may not be extended beyond the Rated Final Distribution
Date with respect to any then outstanding Class of Offered Certificates
without the consent of 100% of the holders of such Class (including the
holders of the Class A-3IO Certificates). See "Description of the Mortgages--
Modification of Mortgages and Other Loan Documents." Following any extension
of the maturity of the Mortgage Loan, no distributions will be made to the
Company. The Servicer will be obligated to make Advances, including P&I
Advances, on each Servicer Remittance Date, subject to the limitations
described herein. See "Description of the Trust and Servicing Agreement--
Advances."
Late payments of interest, principal, and any other amounts required to be
paid by the Company under the Loan Documents will accrue interest during each
Due Period, until paid, at a default rate of interest (the "Default Rate")
equal to the greater of (a) 2% over the Weighted Average Interest Rate as of
the first day of such Due Period and (b) the Prime Rate in effect as of such
day.
The "Weighted Average Interest Rate" as of any date will be a fraction,
expressed as a percentage, the numerator of which equals the sum of the
products of the principal balances of each component as of such date
multiplied by the interest rate for each such component and the denominator of
which is the principal balance of the Mortgage Loan as of such date.
Under the Loan Agreement, if there is inadequate cash to make all payments
due on any date, cash will be applied in the following order of priority: (i)
to pay the Servicing Fee and to reimburse expenses of the Trustee and
Servicer, to the extent required, (ii) to pay interest (other than Default
Interest) due or past due on the Mortgage Loan, (iii) to make principal
payments due or past due on the Mortgage Loan (whether scheduled, voluntary,
or required (including upon acceleration)), (iv) to pay Prepayment Premiums,
and (v) to pay Default Interest.
PREPAYMENTS
The Mortgage Loan may be prepaid, in whole or in part, together with accrued
interest, on any Due Date (each, a "Prepayment Date"), effective as of the
last day of the applicable Due Period, provided that(i) no Mortgage Loan Event
of Default shall have occurred and be continuing (other than a Mortgage Loan
Event of Default that will be cured by such prepayment), (ii) the Company
shall have given not less than 30 days' notice to the Servicer setting forth
the Prepayment Date, and (iii) the Company pays a Prepayment Premium
calculated in the manner set forth below, except that no Prepayment Premium
will be required for any prepayment (x) made on or after the date that is six
months prior to the Scheduled Balloon Maturity Date, (y) required under the
Loan Documents due to a casualty or condemnation affecting any Mortgaged
Property, or (z) made in connection with the sale of not more than five
Mortgaged Properties made by reason of certain defaults based on title defects
or environmental problems. See "--Sales of Mortgaged Properties." Repayment of
the Mortgage Loan following acceleration of the maturity thereof will be
treated as a prepayment requiring payment of a Prepayment Premium.
The "Prepayment Premium" required to be paid in connection with a prepayment
of the Mortgage Loan will be calculated separately for each component of the
Mortgage Loan to which the prepaid principal will be applied. The Prepayment
Premium for each such component will equal the greater of (i) 1% of the
principal
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<PAGE>
amount of such component being prepaid or (ii) an amount equal to the Present
Value, as of the end of the applicable Due Period, of a series of payments
equal to the Payment Differential with respect to each of the remaining Due
Dates prior to the Assumed Final Certificate Distribution Date for the Class
of Offered Certificates (considering, for these purposes only, the Class A-
3P&I Certificates and the Class A-3IO Certificates as a single Class).
Corresponding to such component, after giving effect to the regularly
scheduled payment of principal on the Prepayment Date, discounted at the
Reinvestment Yield.
The term "Reinvestment Yield" as used herein is the Treasury Rate plus the
Applicable Margin, converted to a monthly compounded nominal yield. The term
"Treasury Rate" as used herein shall be equal to the lesser of (A) the yield
on the U.S. Treasury issue (primary issue) with a maturity date closest to the
Assumed Final Certificate Distribution Date for the Class of Offered
Certificates corresponding to the component being prepaid and (B) the yield on
the U.S. Treasury issue (primary issue) with a maturity equal to the remaining
average life of such component, with each such yield being based on the bid
price for such issue as published in The Wall Street Journal on the date that
is 14 days prior to the Prepayment Date set forth in the notice provided by
the Company or date of acceleration by the Trustee (or if such bid price is
not published on that date, the next preceding date on which such bid price is
so published). The term "Applicable Margin" as used herein means (a) for a
prepayment of any component of the Mortgage Loan that corresponds to the Class
A-1 Certificates, Class A-2 Certificates, Class A-3L Interest, or Class B
Certificates, 0.25% and (b) for a prepayment of any component that corresponds
to the Class C or Class D Certificates, 0.55%.
The term "Payment Differential" for any component as used herein shall
equal, for any Due Date, (x) the interest rate for such component minus the
Reinvestment Yield, divided by (y) 12 and multiplied by (z) an amount equal to
the amount of the principal prepayment that is to be applied to such
component.
Prepayments of principal will be applied in reduction of the components of
the Mortgage Loan in the same order of priority as regularly scheduled
payments of principal and will be distributed to Certificateholders as
described under "Description of the New Certificates--Distributions--
Prepayment Premiums." The original principal amortization schedule for the
Mortgage Loan will not be adjusted following a prepayment of the Mortgage
Loan. The amount of interest payments, however, will decline due to the
reduced outstanding principal balance that will remain outstanding after any
such prepayment.
SECURITY FOR THE MORTGAGE LOAN
The Mortgage Loan is secured by (i) the Mortgages, which will create first
priority liens on the Mortgaged Properties (including the Company's fee or
leasehold interests in the land underlying such Hotels, the Company's
ownership interest in all improvements, and the fee interests of the Marriott
Ground Lessors in the MII Land), (ii) the assignments of leases and rents by
the Company with respect to the Mortgaged Properties (including, without
limitation, all rights of the Company under the ground leases), (iii) a
collateral assignment of the Company's rights under the Management Agreement
for the Mortgaged Properties and certain other contracts, (iv) a pledge of the
Company's membership interest in Deerfield LLC and the related right to
receive distributions therefrom, and (v) a pledge of the funds from time to
time on deposit in the Lockbox Account, the Operating Account, the FF&E
Reserve Account for the Mortgaged Properties, and the Cash Collateral Account.
Each Mortgage secures the entire indebtedness under the Mortgage Loan, except
(a) where prohibited by law or by the terms of a third party ground lease or
(b) where mortgage taxes would have to be paid on the full face amount of the
Mortgage Note rather than on the Allocated Loan Amount applicable to a
Mortgaged Property (in which cases the applicable Mortgage will secure a
portion of the Mortgage Loan equal to 125% of the Allocated Loan Amount).
The Mortgage Loan is non-recourse to the Company, its partners, and the
Marriott Ground Lessors, and is not insured or guaranteed by CBM Funding, the
Servicer, the Trustee, the Manager, Host Marriott, MII, or any of their
respective affiliates, or by any governmental entity or instrumentality or by
any other person or entity.
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<PAGE>
REPRESENTATIONS AND WARRANTIES
The Loan Agreement contains representations and warranties by the Company
that are customary in transactions similar to the Mortgage Loan, including
representations as to the due formation of the Company; the authority of the
Company and its partners to enter into and to perform under the Loan
Documents; the authority of the Company to conduct its business and its
registration or qualification to do business in all states where such
registration or qualification is required (including the states where the
Hotels are located); the due authorization and execution of the Loan Documents
and other related documents by the Company and its general partners; the
absence of any consents necessary to enter into and perform under the Loan
Documents; compliance with applicable laws (including zoning, environmental,
and federal pension laws); the absence of material defaults by the Company
under other agreements; the payment of taxes and other charges against the
Hotels (other than those being contested by appropriate proceedings and
covered by deposits maintained with the Servicer in the amount of 125% of the
contested payment); the absence of material litigation; the absence of
transactions with affiliates; the maintenance of all necessary permits; and
the maintenance of all necessary insurance.
CERTAIN MORTGAGE LOAN COVENANTS
Limitations on Additional Indebtedness. The Company has covenanted not to,
and will not take any action to cause Deerfield LLC to, incur, create, or
assume (a) any liabilities and obligations, contingent or otherwise, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of the Company or Deerfield LLC or only to a portion
thereof), (ii) evidenced by bonds, notes, debentures, and/or similar
instruments, (iii) representing the balance deferred and unpaid of the
purchase price of any property or services, except those incurred in the
ordinary course of its business that would constitute ordinarily a trade
payable to trade creditors, (iv) representing deferred obligations to pay
management fees under the Management Agreement, (v) evidenced by bankers'
acceptances, (vi) for the payment of money relating to a capitalized lease
obligation or sale/leaseback obligation (but excluding any obligations under
any ground lease in existence as of the Issue Date that may be a capitalized
lease obligation), or (vii) evidenced by a letter of credit or a reimbursement
obligation of such person with respect to any letter of credit; or (b) any
liabilities and obligations of others of the kind described in the preceding
clause (a) that the Company or Deerfield LLC has guaranteed or that is
otherwise its legal liability or which are secured by any assets or property
of the Company or Deerfield LLC including any obligations to purchase, redeem,
or acquire any capital stock or similar interests (all of the foregoing being
"Indebtedness"); provided that, the Company may (and may allow Deerfield LLC
to) incur, create, or assume the following Indebtedness:
(x) if no Mortgage Loan Event of Default has occurred and is continuing,
or no event has occurred and is continuing which could become a Mortgage
Loan Event of Default, purchase money indebtedness and capitalized lease
obligations for the purchase or lease of FF&E in the ordinary course of
business (and not inconsistent with customary industry practices), which
indebtedness may be secured by a first priority lien on the goods and
equipment that have been so purchased or leased up to an aggregate of $5
million at any one time;
(y) indebtedness in respect of deferred management or incentive fees
payable to the Manager pursuant to the Management Agreement or deferred
ground rent payments payable to the Marriott Ground Lessors pursuant to the
Marriott Ground Leases, in each case provided such indebtedness is
unsecured and subordinated in all respects to the Mortgage Loan in
accordance with the terms of the Loan Documents; and
(z) if no Mortgage Loan Event of Default has occurred and is continuing,
indebtedness solely in respect of reimbursement or similar obligations
incurred to secure for the Company surety and appeal bonds, performance
bonds, and other obligations of a like nature (to the extent that such
incurrence does not result in any obligation to repay any indebtedness
relating to borrowed money of others), all in the ordinary course of
business in accordance with customary industry practices.
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<PAGE>
Maintenance, Repair, and Alterations. The Company has covenanted in the Loan
Agreement (i) to maintain the Mortgaged Properties in good and clean order and
condition such that the utility and operation of the Mortgaged Properties, as
required by the Management Agreement or otherwise, will not be affected in any
material adverse respect, subject to ordinary wear and tear and casualty, (ii)
subject to the provisions of the Loan Agreement, the Mortgages, and the
Management Agreement regarding casualty and condemnation, to make or cause to
be made all necessary or appropriate repairs, replacements, and renewals to
the Mortgaged Properties within agreed-upon periods, and (iii) not to commit
or permit any waste of the Mortgaged Properties or any part thereof. Under the
Loan Agreement and the Management Agreement, the Company is required to
contribute a percentage of total sales from the Mortgaged Properties to the
FF&E Reserve Account. So long as the Management Agreement remains in effect,
the Manager will have the right to direct the disbursement of funds in the
FF&E Reserve Account for the replacement and repair of FF&E and for repairs,
alterations, improvements, and reserves or replacements of equipment and
building systems at the Mortgaged Properties in accordance with the Management
Agreement. See "Description of the Management Agreement." The FF&E Reserve
Account will be pledged by the Company to the Trustee as additional security
for the Mortgage Loan and such account will be maintained by the Servicer.
The Company may make, or permit to be made, alterations with respect to a
Mortgaged Property only if certain restrictions set forth in the Mortgages are
satisfied, including a requirement that the alteration could not reasonably be
expected to decrease the value of the Mortgaged Property or to affect
adversely the ability of the Company to make principal and interest payments
on the Mortgage Loan when due. The cost of alterations cannot be funded by
borrowings by the Company and cannot be secured by liens on any of the
Mortgaged Properties.
Other Covenants. The Loan Agreement also contains covenants by the Company
that are customary in transactions similar to the Mortgage Loan, including
covenants regarding the timely payment of all amounts due in respect of the
Mortgage Note and the Company's other agreements and obligations; the use of
the Mortgage Loan proceeds solely to repay existing debt and to pay certain
transaction costs; continued compliance with the terms of the Management
Agreement and ground leases (and an agreement not to enter into material
amendments thereto without the Trustee's consent); the provision of periodic
financial and other reports to the Trustee; maintenance of the business of the
Company (and an agreement not to (or permit Deerfield LLC to) enter into other
businesses or acquire other assets not related to the Hotels); maintenance of
the Company's (and Deerfield LLC's, as applicable) existence and its
respective registration or qualification to do business in all necessary
jurisdictions; maintenance of books and records; the giving of certain notices
of defaults, litigation, and other matters to the Servicer; the continued
maintenance of the Mortgaged Properties and insurance thereon; and
restrictions on merger, consolidation, and reorganization of the Company (or
Deerfield LLC, as applicable), except in compliance with the Loan Documents.
SALES OF MORTGAGED PROPERTIES
The Mortgage Loan permits the Company to sell one or more of the Mortgaged
Properties and obtain a release of the Mortgage thereon so long as (i) such
sale will not adversely affect the classification of either of the Trust
REMICs as a REMIC or the remaining portion of the Trust Fund as a grantor
trust that is not a taxable mortgage pool, (ii) the Company shall pay to the
Trustee in connection with such sale, and the Trustee shall apply to the
repayment of the Mortgage Loan, a Release Price equal to 125% of the then
Allocated Loan Amount, plus accrued interest thereon to the end of the current
Due Period, plus any applicable Prepayment Premium, and (iii) either (x) the
Debt Service Coverage Ratio for the 13 full four-week accounting periods
immediately preceding such release for the Mortgaged Properties remaining
after such release is not less than the actual Debt Service Coverage Ratio for
such period for all the Mortgaged Properties immediately prior to such
release, or (y) (1) the pro forma Debt Service Coverage Ratio for the
Mortgaged Properties remaining after such release is not less than 2.60:1, (2)
such release, either alone or together with all other releases in the 13 full
four-week accounting periods immediately preceding such release, would not
result in a decrease on a pro forma basis in the Debt Service Coverage Ratio
of more than 0.05:1, and (3) such release would satisfy the condition for
release
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<PAGE>
under the Notes requiring that the pro forma consolidated interest coverage
ratio of CBM II L.P. for the four full fiscal quarters immediately preceding
such release, after giving effect to the release of such Mortgaged Properties,
is at least equal to the lesser of 2.50:1 or such ratio immediately prior to
giving effect to such release (or such condition is waived by the holders of
the Notes). The Company shall be permitted to cause Deerfield LLC to sell the
Deerfield Hotel only if the net sales proceeds are at least $4.8 million, plus
the Prepayment Premium (if any) payable upon the application of such $4.8
million to the prepayment of the Mortgage Loan, and the Company makes such
prepayment.
"Debt Service Coverage Ratio" is a fraction, the numerator of which is the
aggregate Net Operating Income of the applicable Mortgaged Properties for the
applicable period and the denominator of which is the scheduled payments of
principal and interest under the Mortgage Loan during such period (excluding
the Balloon Payment).
"Net Operating Income" (also referred to as "NOI") equals Gross Revenues
less Adjusted Operating Expenses. NOI should not be construed as an
alternative to operating income (as determined in accordance with GAAP) as an
indicator of the Mortgaged Properties' operating performance, or to cash flows
from operating activities (as determined in accordance with GAAP) as a measure
of liquidity or ability to make payments under the Mortgage Loan. NOI consists
of net income before interest expense, depreciation and amortization,
incentive management fees, ground rent payable to the Marriott Ground Lessors,
the Subordinated Courtyard Management Fee, the Company's administrative
expenses, interest income, and after deducting each property's contribution to
the property improvement fund. "Gross Revenues" means all revenues and income
of any kind derived from the Mortgaged Properties, including rentals or other
payments from lessees, licensees, or concessionaires (but not including gross
receipts of any of the foregoing except as may be received by or on behalf of
the Company as rent), the proceeds of business interruption insurance and
telephone charges, excluding refunds, rebates and credits of a similar nature
given, paid or returned by or on behalf of the Company. "Adjusted Operating
Expenses" means all expenses incurred or accrued in operation of the Mortgaged
Properties plus (without duplication) costs of FF&E Replacements, repairs, and
maintenance (excluding any such costs paid from funds in the FF&E account),
but not including any fees or Rental payments subordinated under the
Management Agreement or the Marriott Ground Leases.
"Allocated Loan Amount" means, with respect to a Mortgaged Property, the
portion of the outstanding principal balance of the Mortgage Loan that is
allocated to such Mortgaged Property as of any time. After the Issue Date, the
initial Allocated Loan Amounts are adjusted in connection with each reduction
in the principal balance of the Mortgage Loan, whether as a result of
scheduled amortization, prepayment or otherwise (including in connection with
any Release, casualty or condemnation), such that the Allocated Loan Amount
for each remaining Mortgaged Property after any such reduction shall equal the
product of (x) a fraction the numerator of which is the Allocated Loan Amount
of such Mortgaged Property immediately before such adjustment and the
denominator of which is the aggregate Allocated Loan Amounts immediately
before such adjustment for all Mortgaged Properties (other than any being
released concurrently with such reduction), multiplied by (y) the outstanding
principal balance of the Mortgage Loan immediately after such adjustment;
provided, however, that any reduction in the principal balance of the Mortgage
Loan resulting from a prepayment made in connection with the Release of or a
casualty or condemnation relating to a specified Mortgaged Property will first
reduce the Allocated Loan Amount for such Mortgaged Property until the
Allocated Loan Amount for the affected Mortgaged Property is reduced to zero,
prior to adjustment of the Allocated Loan Amounts for all other Mortgaged
Properties as described above.
In the event of a sale of a Mortgaged Property following certain casualty or
condemnation events, the Release Price shall equal the greater of (A) the sum
of (x) the total amount of Insurance Proceeds or Condemnation Proceeds
received (unless previously applied in accordance with the terms of the
applicable Mortgage, including to eliminate any hazardous condition or prevent
imminent physical deterioration), plus (y) any net sale proceeds received upon
the sale of such Mortgaged Property and (B) the Allocated Loan Amount, plus,
in either case, accrued interest thereon to the end of the current Due Period.
No Debt Service Coverage Ratio test shall apply with respect to such sales and
no Prepayment Premium will be owed.
In the event of a sale of a Mortgaged Property by reason of a default
arising from certain title, environmental, or change in law events affecting
such Mortgaged Property, the Release Price for such Mortgaged Property shall
be the greater of (A) the net sale proceeds received upon the sale of such
Mortgaged Property and
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(B) the Allocated Loan Amount, plus, in either case, accrued interest thereon
to the end of the current Due Period (plus, in either case, a Prepayment
Premium in the case of a change in law event only); provided, however, that
(i) such event was not caused by the Manager or the Company, (ii) such event
was not known to the Manager or prior to the Issue Date, (iii) such sale is to
a bona fide third party or on bona fide third party terms, and (iv) the
satisfaction of the requirements contained in the foregoing clauses (i)-(iii)
shall be confirmed by the Rating Agencies and the Servicer or its designated
nominee; and provided further, that no more than (a) five Mortgaged Properties
or (b) such lesser number of Mortgaged Properties having Allocated Loan
Amounts as of the Issue Date representing in the aggregate not more than 5% of
the initial principal balance of the Mortgage Loan, may be sold pursuant to
this exception. No Debt Service Coverage Ratio test shall apply with respect
to such sales.
CASUALTY AND CONDEMNATION
In the event of a casualty affecting a Mortgaged Property and provided that
there exists no Mortgage Loan Event of Default or any default that may mature
into a Mortgage Loan Event of Default, the Company will be entitled to receive
payment of any Insurance Proceeds up to $100,000 to be applied to the cost of
restoring such Mortgaged Property. If the Insurance Proceeds exceed $100,000
(excluding proceeds under public liability or workers' compensation
insurance), all of such Insurance Proceeds must be paid into a special
subaccount of the Cash Collateral Account to be applied (a) as work
progresses, to the cost of restoring such Mortgaged Property as nearly as
possible to its condition before the casualty or (b) to prepayment of the
Mortgage Loan as described below. The Company shall not be required or
permitted to repair and restore the affected Hotel if the nature of a casualty
is such that (a) the Company is not required under any ground lease to restore
the premises and (b) either (i) the restoration adversely affects the cash
flow from the premises in any material respect and restoration cannot
reasonably be expected to be completed within a period of eighteen months from
the date of the casualty (or, if shorter, when the proceeds of business
interruption insurance are no longer available) or (ii) the extent of the
damage makes it impracticable in the Company's reasonable judgment to restore
the premises to substantially the same condition as existed prior to the
casualty. In such cases, the Company must prepay the Mortgage Note in an
amount equal to the greater of (x) the remaining Insurance Proceeds less
amounts required to eliminate any hazardous condition on or prevent imminent
physical deterioration to the premises on any land subject to a Marriott
Ground Lease and (y) the Allocated Loan Amount for such Mortgaged Property,
plus, in either case, accrued interest, but without a Prepayment Premium. Any
sale of a Mortgaged Property following a casualty with respect to which
restoration is not required will be treated as described under "--Sales of
Mortgaged Properties" above. If the Company restores a Mortgaged Property and
receives Insurance Proceeds in excess of those used for restoration, first,
such excess proceeds must be applied to repay amounts owed to the Servicer and
the Trustee under the Trust and Servicing Agreement and second, any remaining
proceeds shall be retained by the Company.
In the event of a condemnation affecting a Mortgaged Property and provided
that there exists no Mortgage Loan Event of Default or default that may mature
into a Mortgage Loan Event of Default, the Company will be entitled to receive
payment of Condemnation Proceeds up to $100,000 to be applied to the cost of
restoring such Mortgaged Property, if restoration is required. Condemnation
Proceeds of more than $100,000 will be deposited into a special subaccount of
the Cash Collateral Account to be applied to the cost of restoring such
Mortgaged Property to a condition as nearly as possible as to its condition
before the condemnation or to prepayment of the Mortgage Loan as described
below. The Company shall not be required or permitted to restore the affected
Mortgaged Property, if (i) the condemnation is of the entire premises or
results in a perpetual easement on the entire premises, or (ii) restoration is
not required under any applicable Ground Lease, the condemnation adversely
affects the cash flow from the premises in any material respect, and
restoration cannot reasonably be expected to be completed within a period of
one year from the date of the condemnation, or (iii) the Ground Lease is
terminated pursuant to its terms as a result of such condemnation. In such
cases, the Company shall be required to prepay the Mortgage Note in an amount
equal to the greater of (x) the amount of the Condemnation Proceeds and (y)
the Allocated Loan Amount, plus, in either case, accrued interest, but without
a Prepayment Premium. In the event that the Condemnation Proceeds exceed the
costs of restoration, such excess proceeds must be applied to repay amounts
owed to the Servicer and the Trustee under the Trust and Servicing Agreement,
and any remaining proceeds shall then be applied by the Trustee to repay the
Mortgage
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Loan without a Prepayment Premium. Any sale of a Mortgaged Property following
a condemnation with respect to which restoration is not required will be
treated as described under "--Sales of Mortgaged Properties" above.
If the cost of any restoration as to which Insurance Proceeds or
Condemnation Proceeds have been deposited into the Cash Collateral Account is
expected to be $250,000 or less in the aggregate, the Trustee will agree,
provided that no Mortgage Loan Event of Default has occurred and is
continuing, to release funds from the Cash Collateral Account for the payment
of the costs of restoration upon receipt of a certificate of an officer of the
Managing General Partner that (A) the amount requested is necessary to pay
invoices submitted to the Company in connection with the restoration and (B)
such officer expects the remaining amounts of such Insurance Proceeds or
Condemnation Proceeds then held in the Cash Collateral Account to be
sufficient to complete the restoration. If the cost of any such restoration is
expected to exceed $250,000, the Trustee shall have the right to approve the
plans and specifications for such restoration before the restoration work
begins, to appoint a supervising architect or engineer to oversee the
restoration, and to require, as a condition to the release of funds from the
Cash Collateral Account to pay the costs of such restoration, (x) a
certificate of the supervising architect or engineer certifying as to the
matters described in clauses (A) and (B) above and further certifying that the
restoration work for which such proceeds are requested has been completed in
accordance with the approved plans and specifications and with applicable law,
and (y) lien waivers from all materialmen, laborers, and contractors who are
to be paid with such advances. If at any time the amount remaining on deposit
in the Cash Collateral Account with respect to any such casualty or
condemnation after the making of any advance shall be reasonably believed by
the Trustee to be insufficient to complete the restoration, the Trustee shall
be entitled to require the Company to deposit additional funds into the Cash
Collateral Account until the deficiency in the Cash Collateral Account is
eliminated.
MORTGAGE LOAN EVENTS OF DEFAULT
Each of the following constitutes a Mortgage Loan Event of Default: (a) the
Company shall fail to make any scheduled payment of principal or interest on
the Mortgage Note, or to pay any Prepayment Premium or other payment required
under the Mortgage Note or other Loan Documents on the date such payment is
due, (b) any representation or warranty made by the Company in any Loan
Document (or by any Marriott Ground Lessor in any Mortgage on a Hotel that is
subject to a Marriott Ground Lease) shall fail to have been true in any
material and adverse respect when made or the Company shall breach any non-
monetary covenant contained in the Loan Agreement in any material and adverse
respect, which failure or breach, in either case, remains uncured, following
receipt by the Company of notice of such failure or breach (i) for 10 days,
with respect to any failure or breach of covenant relating to the payment of
taxes or maintenance of insurance, and (ii) for 30 days, with respect to all
other such failures or breaches (provided that, if such failure or breach is
curable but the cure cannot be effected within the applicable cure period, it
will not be a Mortgage Loan Event of Default if the Company promptly commences
such cure and thereafter diligently pursues such cure to completion (including
by consummation of a sale of the affected Mortgaged Property and the payment
of the applicable Release Price and Prepayment Premium, but in no event later
than 180 days after the Company receives notice of such failure or breach),
(c) the Manager shall cease to manage all the Hotels (unless (i) the Manager
is replaced with a nationally recognized hotel operator acceptable to the
Servicer, (ii) the Hotels continue to be part of a comparable nationally
recognized hotel system acceptable to the Servicer, (iii) each of the Rating
Agencies delivers a letter confirming that such replacement will not result in
a downgrade, withdrawal, or qualification of the ratings assigned by it to the
Certificates, and (iv) such replacement does not result in a default under the
Mortgage), (d) there shall at any time be (i) a final unsatisfied judgment
against the Company or the Managing General Partner, not covered by insurance,
exceeding $10 million at any one time which is not stayed, bonded, or
discharged within 60 days or (ii) a default in Indebtedness of the Company or
the Managing General Partner with an aggregate principal amount exceeding $5
million, (e) the Company or Managing General Partner shall fail to pay its
debts as they become due or shall file, or there shall have been filed against
it, a petition in bankruptcy or seeking the dissolution or winding up of the
affairs of the Company or the Managing General Partner, a petition seeking the
appointment of a receiver for the Company or the Managing General Partner or
for the Mortgaged Properties, or similar filings or proceedings for the
protection of the creditors of the Company or the Managing General Partner
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(which, in the case of an involuntary petition, is not fully stayed or
discharged within 60 days after filing), (f) the Manager shall fail to pay its
debts as they become due or shall file, or there shall have been filed against
it, a petition in bankruptcy or seeking the dissolution or the winding up of
the affairs of the Manager or similar proceedings for the protection of the
Manager's creditors (which, in the case of an involuntary petition, is not
fully stayed or discharged within 60 days after filing) unless (i) the Manager
is replaced with a nationally recognized hotel operator acceptable to the
Servicer, (ii) the Hotels continue to be part of a comparable nationally
recognized hotel system acceptable to the Servicer, (iii) each of the Rating
Agencies delivers a letter confirming that such replacement will not result in
a downgrade, withdrawal, or qualification of the ratings assigned by it to the
Certificates, and (iv) such replacement does not result in a default under the
Mortgage Note, (g) the Managing General Partner ceases to be a general partner
of the Company, fails to have at least one director who is not affiliated with
Host or MII, to be owned or controlled, directly or indirectly, by one or more
Persons with substantial experience in the ownership and operation of hotels,
(h) the Company acquires any assets not directly related to the Hotels (other
than holding the Class R Certificate and Class UR Certificate), (i) the
Managing General Partner engages, directly or indirectly, in any business or
activity except serving as the Managing General Partner of the Company, (j)
the declaration by any Marriott Ground Lessor of its intent to terminate the
applicable Marriott Ground Lease as a result of an event of default under a
Marriott Ground Lease or the occurrence of an event of default under any
ground lease other than a Marriott Ground Lease, or (k) the occurrence of
certain events with respect to Deerfield LLC, including the incurrence of any
Liens (other than Permitted Liens) on the property, terminating the management
agreement for the Deerfield Hotel (with certain exceptions), or sale of the
Deerfield Hotel without satisfying certain conditions.
Upon the occurrence of a Mortgage Loan Event of Default described in clause
(e) above relating to the Company, the Mortgage Loan will automatically
accelerate without any declaration or other act on the part of the Trustee or
the Certificateholders. Upon the occurrence and during the continuance of any
other Mortgage Loan Event of Default, the Trustee will be entitled to
accelerate the Mortgage Loan and exercise its default remedies, except that
the Trustee will not be entitled to initiate foreclosure proceedings upon the
Mortgaged Properties, except upon five Business Days prior written notice to
the Company and, where applicable, the Manager and the Marriott Ground
Lessors.
FINANCIAL STATEMENTS AND OTHER INFORMATION
The Company is required to deliver to the Trustee, the Servicer, and the
Rating Agencies (i) not later than 90 days after the end of each fiscal
quarter the unaudited consolidated balance sheet and consolidated statement of
income and expenses relating to the Company for such quarter and for the
fiscal year to date, which shall be certified by an appropriate officer of the
Managing General Partner, (ii) not later than 120 days after the end of each
fiscal year, the consolidated audited balance sheet and consolidated statement
of income and expenses of the Company for such year, (iii) a consolidated
annual itemized operating budget and, for each Hotel, a capital expenditure
budget, and (iv) not later than 30 days after the end of each four-week
accounting period, operating statements, occupancy statements, and average
room rates for such accounting period for each Hotel.
DESCRIPTION OF THE MORTGAGES
The following is a summary of the principal provisions of the Mortgages.
This summary does not purport to be complete and is qualified in its entirety
by reference to the Mortgages, a copy of the form of which may be obtained
upon request from CBM Funding.
GENERAL
The Mortgages created first priority mortgage, deed of trust, or similar
liens on the Company's fee or leasehold interests in 69 Hotels and the
Marriott Ground Lessors' fee interests in the MII land. The Mortgages are
cross-defaulted and cross-collateralized and each secures the payment in full
of the Mortgage Note and other charges that may become due and payable under
the Loan Documents, including the compensation to be paid to
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the Trustee and the Servicer in respect of their activities under the Trust
and Servicing Agreement, except (a) where prohibited by law or by the terms of
a third party ground lease or (b) where mortgage taxes would have to be paid
on the full face amount of the Mortgage Note rather than on the Allocated Loan
Amount applicable to a Mortgaged Property (in which cases the applicable
Mortgage will secure a portion of the Mortgage Loan equal to 125% of the
Allocated Loan Amount).
The Trustee's recourse for the satisfaction of indebtedness due under the
Mortgage Note and for the payment and performance of all of the obligations
and liabilities of the Company under the Mortgages and the related security
documents will be limited to the Mortgaged Properties and the other
Collateral. There shall be no recourse to the assets of CBM Funding or the
Company or, where applicable, to the Marriott Ground Lessors (other than to
the Mortgaged Properties, funds on deposit in the Accounts, and the other
Collateral), or to the partners, controlling persons, officers, directors,
trustees, beneficiaries, employees, agents, or affiliates of the Company, CBM
Funding, or any other person or entity or their respective successors or
assigns.
REPRESENTATIONS, WARRANTIES, AND COVENANTS
The Company has agreed to make certain representations, warranties, and
covenants with respect to each Mortgaged Property and other Collateral that
are typical in commercial mortgages securing transactions similar to the
Mortgage Loan, including (a) representations regarding the Company's good
title to the Mortgaged Property and other Collateral, (b) covenants (i) to
maintain good title to the Mortgaged Property and other Collateral, (ii) to
maintain insurance required with respect to the Mortgaged Property and other
Collateral, (iii) to comply with laws, a failure of which would have a
material and adverse effect on the Company, the Mortgaged Property, and other
Collateral, or the Trustee's interest therein, (iv) to allow no liens to be
created against the Mortgaged Property and other Collateral other than liens
permitted by the Loan Documents, (v) to comply with the terms and conditions
of any applicable ground lease, (vi) to make no sale or assignment of any
interest in the Mortgaged Property or other Collateral to anyone other than
the Trustee, except for the granting of customary easements and similar rights
in the ordinary course of business, (vii) to pay property taxes, assessments,
and similar charges against the Mortgaged Property as they become due, (viii)
to maintain the Mortgaged Property in good condition consistent with the
standards required under the Management Agreement, (ix) to make no alterations
in violation of the terms of the Loan Documents, (x) to comply in all material
respects with the terms of the Management Agreement, (xi) to rebuild or
restore the Mortgaged Property after a casualty or condemnation (except where
the Loan Documents provide that such repair or restoration is not required),
(xii) to maintain the validity and priority of the Trustee's security interest
in the Mortgaged Property and other Collateral, (xiii) to make no material
amendment to the Management Agreement or any ground lease without the prior
consent of the Trustee, and (xiv) to not be a party to any merger,
consolidation, or reorganization not permitted by the Loan Documents.
DISCHARGE OF LIENS
The Company covenants to discharge by payment or by procurement of an
appropriate surety bond, or otherwise, within 30 days after receiving written
notice of the filing thereof (and in any event before foreclosure is permitted
under law), any lien, encumbrance, or charge upon any Mortgaged Property not
permitted under the terms of the respective Mortgage (subject to certain
rights to contest those liens upon making deposits with the Servicer equal to
125% of the contested claim).
INSURANCE
The Company is required to maintain throughout the term of the Mortgage Note
insurance with respect to each Mortgaged Property against any peril included
within the form of insurance commonly referred to as "extended coverage" in
amounts sufficient to prevent the Company (or Deerfield LLC, as applicable) or
the Trustee from becoming a co-insurer, but in any case in an amount equal to
the replacement cost of the improvements (without considering depreciation and
exclusive of excavations and foundations), which may be maintained in a
blanket policy which insures other properties so long as there is sufficient
coverage to replace the Mortgaged Property. In addition, for each Mortgaged
Property, the Company shall be required to maintain
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business interruption insurance in an amount sufficient to provide proceeds
covering not less than one year's gross annual revenues (on a twelve month
trailing basis), which may also be maintained in a blanket policy which
insures other property so long as there is sufficient coverage to replace the
required cash flow from the Mortgaged Property. The Company is also required
to maintain boiler and machinery insurance; comprehensive general liability
insurance; statutory workers' compensation insurance; umbrella liability
insurance and such other insurance as is generally available on commercially
reasonable terms and is generally required by institutional lenders on loans
secured by similar properties. The Company has agreed to obtain earthquake
insurance covering the Hotels located in California by April 1, 1996 and will
maintain such insurance so long as it is available on commercially reasonable
terms unless certain specified reserves are established and maintained by the
Company. The Company also has agreed to obtain environmental insurance with
respect to seven Hotels. See "Risk Factors--Risks Relating to Real Estate
Investments--Possible Environmental Liabilities." Required insurance coverage
must be provided by insurance carriers having minimum claims paying abilities,
as rated by S&P and DCR (if rated by DCR) of not less than "A," or be
otherwise acceptable to the Rating Agencies, provided that workers'
compensation insurance may be provided by a state approved and regulated
employer's self-insurance fund. Each policy of insurance, other than any
workers' compensation insurance policy, must name the Trustee and Servicer,
where applicable, as additional insureds or as loss payees. See "Description
of the Management Agreement--Management Services."
MODIFICATION OF MORTGAGES AND OTHER LOAN DOCUMENTS
Without the consent of the Certificateholders, the Company, the Trustee, CBM
Funding, and, where applicable the Marriott Ground Lessors, upon their mutual
agreement, may enter into supplements (i) to correct or clarify the
description of any property subject to the lien of any Mortgage; (ii) to
pledge to the Trustee any additional property; (iii) to add other covenants
and agreements thereafter to be observed by the Company or to surrender any
right or power reserved to or conferred upon the Company under any Mortgage or
any other Loan Document; (iv) to cure any ambiguity, or to cure, correct, or
supplement any defective or inconsistent provision contained in any Mortgage,
in the Mortgage Note, or in any other Loan Document, provided that such change
does not adversely affect the interest of any Certificateholder in any
material respect, or to evidence any succession and the assumption by any such
successor of the respective covenants therein; (v) to qualify any Mortgage or
any other Loan Document, or to permit the qualification of the Trust and
Servicing Agreement, under the Trust Indenture Act of 1939, as amended, or any
similar federal statute hereafter in effect; or (vi) in connection with any
amendment or supplement to the Trust and Servicing Agreement that is approved
as provided therein. Notwithstanding the foregoing, the Servicer shall not
permit any modification or amendment with respect to the Mortgage Loan that
would extend the maturity date of the Mortgage Loan beyond the Scheduled
Balloon Maturity Date without the consent of holders of not less than 66 2/3%
of the aggregate Voting Rights of the outstanding Offered Certificates (other
than the Class A-3IO Certificates) affected thereby, provided, that no such
modification or amendment shall be made unless the Servicer shall have
obtained a Nondisqualification Opinion with respect to such modification or
amendment and satisfaction of certain other conditions. Following any
extension of the maturity date of the Mortgage Loan, no distributions will be
made to the Company. Notwithstanding the foregoing, the Servicer shall not
permit any modification or amendment that would (i) change the interest rate
payable on any component of the Mortgage Note; (ii) extend the maturity date
of the Mortgage Loan beyond the Rated Final Distribution Date with respect to
any then outstanding Class of Offered Certificates; (iii) forgive any payment
of principal or interest on the Mortgage Note; (iv) cause either of the Trust
REMICs to fail to qualify as a REMIC or cause the remaining portion of the
Trust Fund to fail to qualify as a grantor trust that is not a taxable
mortgage pool at any time Offered Certificates are outstanding; (v) impair any
holder's right to receive payments of principal or interest on the Offered
Certificates; or (vi) impair any holder's benefit of the priority of the
security interest in the Mortgaged Property, in each case, without the consent
of 100% of the holders of Offered Certificates (including the Class A-3IO
Certificates) affected thereby. The Mortgages and other Loan Documents may be
modified in other respects with the written consent of the holders of 66 2/3%
of the Voting Rights of the outstanding Offered Certificates (other than the
Class A-3IO Certificates).
No modification may be made that would impair the Servicer's or the
Trustee's rights under any Mortgage without the consent of the Servicer or
Trustee, as applicable.
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TITLE INSURANCE
As a condition to the closing of the Old Certificates Offering, the Company
delivered to the Trustee a title insurance policy insuring each Mortgage as a
valid first lien on the related Mortgaged Property and the assignment of such
Mortgage to the Trustee, in an aggregate amount not less than the Allocated
Loan Amount applicable to the related Mortgaged Property. The title insurance
policy was issued by Commonwealth Land Title Insurance Company.
THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Old Certificates were sold by the Issuer on January 24, 1996 in a
private placement. In connection with that placement, CBM Funding and the
Company entered into the Registration Rights Agreement, which requires CBM
Funding to file a registration statement under the Securities Act with respect
to the New Certificates and, upon the effectiveness of that registration
statement, offer to the holders of the Old Certificates the opportunity to
exchange their Old Certificates for a like principal amount of New
Certificates, which will be issued without a restrictive legend and may be
reoffered and resold by the holder without registration under the Securities
Act. The Registration Rights Agreement further provides that CBM Funding must
use its best reasonable efforts to cause the registration statement with
respect to the Exchange Offer to be declared effective as promptly as possible
by the Commission. A copy of the Registration Rights Agreement has been filed
as an exhibit to the registration statement of which this Prospectus is a
part. As a result of the filing and the effectiveness of the registration
statement, certain liquidated damages provided for in the Registration Rights
Agreement and the Trust and Servicing Agreement will not be owed. Following
the completion of the Exchange Offer, holders of Old Certificates not tendered
will not have any further registration rights and those Old Certificates will
continue to be subject to certain restrictions on transfer. Accordingly, the
liquidity of the market for the Old Certificates could be adversely affected
upon completion of the Exchange Offer.
To participate in the Exchange Offer, a holder must represent to the Issuer,
among other things that (i) the New Certificates acquired pursuant to the
Exchange Offer are being acquired in the ordinary course of business of the
person receiving the New Certificates, whether or not such person is the
holder of the Old Certificates, (ii) neither the holder nor any such other
person is engaging in or intends to engage in a distribution of the New
Certificates, (iii) neither the holder nor any such other person has an
arrangement or understanding with any person to participate in the
distribution of the New Certificates, and (iv) neither the holder nor any such
other person is an "affiliate" (as defined under Rule 405 promulgated under
the Securities Act) of the Issuer.
The Old Certificates are designated for trading in the PORTAL market. To the
extent Old Certificates are tendered and accepted in the Exchange Offer, the
principal amount of outstanding Old Certificates will decrease, which will
result in a decrease in the liquidity in the market of the Old Certificates.
Following the consummation of the Exchange Offer, holders of Old Certificates
who were eligible to participate in the Exchange Offer but who did not tender
the Old Certificates will not be entitled to certain rights under the
Registration Rights Agreement and such old Certificates will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
Old Certificates could be adversely affected. No assurance can be given as to
the liquidity of the trading market for either the Old Certificates or the New
Certificates.
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Issuer and the Company, the
Issuer and the Company believe that, with the exceptions discussed herein, New
Certificates issued pursuant to the Exchange Offer in exchange for Old
Certificates may be offered for resale, resold and otherwise transferred by
any person receiving the New Certificates, whether or not that person is the
holder (other than any such holder or such other person that is an "affiliate"
of the Issuer or the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that (i) the New
Certificates are acquired in the ordinary course of business of that holder or
such other person, (ii) neither the holder nor such other person is engaging
in or intends to engage in a distribution of the New Certificates, and (iii)
neither the holder nor such
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other person has an arrangement or understanding with any person to
participate in the distribution of the New Certificates. However, the Issuer
and the Company have not sought, and do not intend to seek, a no-action
letter, and there can be no assurance that the Commission's staff would make a
similar determination with respect to the Exchange Offer. Each broker-dealer
that receives New Certificates for its own account in exchange for Old
Certificates, where those Old Certificates were acquired by the broker-dealer
as a result of its market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
those New Certificates. See "Plan of Distribution."
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Certificates who do not exchange their Old Certificates for
New Certificates pursuant to the Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Certificates as set forth in the
legend thereon as a consequence of the offer or sale of the Old Certificates
pursuant to exemptions from, or in transactions not subject to, the
registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Certificates may not be offered or sold,
unless registered under the Securities Act and applicable state securities
laws, except pursuant to an exemption from, or in a transaction not subject
to, the Securities Act and applicable state securities laws. The Issuer does
not intend to register the Old Certificates under the Securities Act and,
after consummation of the Exchange Offer, will not be obligated to do so.
Based on an interpretation by the staff of the Commission set forth in a
series of no-action letters issued to third parties unrelated to the Issuer,
the Issuer believes that, except as set forth in the next sentence, New
Certificates issued pursuant to the Exchange Offer in exchange for Old
Certificates may be offered for resale, resold or otherwise transferred by
holders thereof (other than any such holder that is an "affiliate" of the
Issuer within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act; provided that such Old Certificates are acquired in the
ordinary course of such holders' business and such holders have no arrangement
with any person to participate in the distribution of such New Certificates.
Each broker-dealer that receives New Certificates for its own account in
exchange for Old Certificates, where such Old Certificates were acquired by
such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Certificates. See "Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Issuer will accept any and all Old
Certificates validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Issuer will issue a New Certificate in
exchange for each outstanding Old Certificate accepted in the Exchange Offer.
Holders may tender some or all of their Old Certificates pursuant to the
Exchange Offer.
The form and terms of the New Certificates are substantially the same as the
form and terms of the Old Certificates except that the New Certificates have
been registered under the Securities Act and will not bear legends restricting
their transfer. The New Certificates will evidence the same beneficial
interest in the "regular interests" in the two REMICs that are part of the
Trust Fund as the Old Certificates and will be issued pursuant to, and
entitled to the benefits of, the Trust and Servicing Agreement pursuant to
which the Old Certificates were, and the New Certificates will be, issued.
As of May 1, 1996, $407,182,129 principal balance of the Old Certificates
were outstanding. The Issuer has fixed the close of business on , 1996,
as the Record Date for the Exchange Offer for purposes of determining the
persons to whom this Prospectus, together with the Letter of Transmittal, will
initially be sent. As of the Record Date, there was one registered holder of
the Old Certificates. Holders of Old Certificates do not have any appraisal or
dissenters' rights under the General Corporation Law of the State of Delaware
or the Trust and Servicing Agreement in connection with the Exchange Offer.
The Issuer intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission promulgated thereunder.
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The Issuer shall be deemed to have accepted validly tendered Old
Certificates when, as, and if the Issuer has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders for the purpose of receiving the New Certificates from the
Issuer. If any tendered Old Certificates are not accepted for exchange because
of an invalid tender, the occurrence of certain other events set forth herein
or otherwise, certificates for any such unaccepted Old Certificates will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old Certificates in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Old Certificates pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "--Solicitation of Tenders; Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1996, unless the Issuer, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. To extend the Exchange Offer,
the Issuer will notify the Exchange Agent of any extension by oral or written
notice prior to 9:00 a.m., New York City time, on the next business day after
the previously scheduled Expiration Date. The Issuer reserves the right, in
its sole discretion, (i) to delay accepting any Old Certificates, to extend
the Exchange Offer or, if any of the conditions set forth under "--Conditions"
shall not have been satisfied, to terminate the Exchange Offer, by giving oral
or written notice of such delay, extension or termination to the Exchange
Agent, or (ii) to amend the terms of the Exchange Offer in any manner.
INTEREST ON THE NEW CERTIFICATES
The New Certificates will bear interest from the first day of the calendar
month in which the last payment of interest on the Old Certificates was made.
No interest will be paid on the Old Certificates accepted for exchange.
PROCEDURES FOR TENDERING
Only a holder of Old Certificates may tender the Old Certificates in the
Exchange Offer. Except as set forth under "--Book-Entry Transfer," to tender
in the Exchange Offer a holder must complete, sign and date the Letter of
Transmittal, or a copy thereof, have the signatures thereon guaranteed if
required by the Letter of Transmittal, and mail or otherwise deliver the
Letter of Transmittal or copy to the Exchange Agent prior to the Expiration
Date. In addition, either (i) certificates for such Old Certificates must be
received by the Exchange Agent along with the Letter of Transmittal, (ii) a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation") of
such Old Certificates, if that procedure is available, into the Exchange
Agent's account at The Depository Trust Company (the "DTC" or the "Book-Entry
Transfer Facility") pursuant to the procedure for book-entry transfer
described below, must be received by the Exchange Agent prior to the
Expiration Date, or (iii) the holder must comply with the guaranteed delivery
procedures described. To be tendered effectively, the Old Certificates, Letter
of Transmittal and other required documents must be received by the Exchange
Agent at the address set forth under "--Exchange Agent" prior to the
Expiration Date.
The tender by a holder that is not withdrawn before the Expiration Date will
constitute an agreement between that holder and the Issuer in accordance with
the terms and subject to the conditions set forth herein and in the Letter of
Transmittal.
THE METHOD OF DELIVERY OF OLD CERTIFICATES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
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<PAGE>
DATE AND PROPER INSURANCE SHOULD BE OBTAINED. NO LETTER OF TRANSMITTAL OR OLD
CERTIFICATES SHOULD BE SENT TO THE ISSUER. HOLDERS MAY REQUEST THEIR
RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES, OR NOMINEES TO
EFFECT THESE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Certificates are registered in the name of a
broker, dealer, commercial bank, trust company, or other nominee and who
wishes to tender should contact the registered holder promptly and instruct
the registered holder to tender on the beneficial owner's behalf. If the
beneficial owner wishes to tender on the owner's own behalf, the owner must,
prior to completing and executing the Letter of Transmittal and delivering the
owner's Old Certificates, either make appropriate arrangements to register
ownership of the Old Certificates in the beneficial owner's name or obtain a
properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined herein)
unless Old Certificates tendered pursuant thereto are tendered (i) by a
registered holder who has not completed the box titled "Special Registration
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
or (ii) for the account of an Eligible Institution. If signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, are required to
be guaranteed, the guarantee must be by any eligible guarantor institution
that is a member of or participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program, the Stock
Exchange Medallion Program, or an "eligible guarantor institution" within the
meaning of Rule 17Ad-15 under the Exchange Act (each an "Eligible
Institution").
If the Letter of Transmittal is signed by a person other than the registered
holder of any Old Certificates listed therein, the Old Certificates must be
endorsed or accompanied by a properly completed bond power, signed by the
registered holder as that registered holder's name appears on the Old
Certificates.
If the Letter of Transmittal or any Old Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and evidence
satisfactory to the Company of their authority to so act must be submitted
with the Letter of Transmittal unless waived by the Company.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Certificates will be
determined by the Issuer in its sole discretion, which determination will be
final and binding. The Issuer reserves the absolute right to reject any and
all Old Certificates not properly tendered or any Old Certificates the
Issuer's acceptance of which would, in the opinion of counsel for the Issuer,
be unlawful. The Issuer also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Certificates. The
Issuer's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Certificates must be cured within such time as
the Issuer shall determine. Although the Issuer intends to notify holders of
defects or irregularities with respect to tenders of Old Certificates, neither
the Issuer, the Exchange Agent nor any other person shall incur any liability
for failure to give such notification. Tenders of Old Certificates will not be
deemed to have been made until such defects or irregularities have been cured
or waived. Any Old Certificates received by the Exchange Agent that the Issuer
determines are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering holders, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
In addition, the Issuer reserves the right in its sole discretion to
purchase or make offers for any Old Certificates that remain outstanding after
the Expiration Date or, as set forth under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Old
Certificates in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
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<PAGE>
By tendering, each holder will represent to the Issuer and the Company that,
among other things, (i) the New Certificates acquired pursuant to the Exchange
Offer are being acquired in the ordinary course of business of the person
receiving such New Certificates, whether or not such person is the holder,
(ii) neither the holder nor any such other person is engaging in or intends to
engage in a distribution of such New Certificates, (iii) neither the holder
nor any such other person has an arrangement or understanding with any person
to participate in the distribution of such New Certificates, and (iv) neither
the holder nor any such other person is an "affiliate" (as defined in Rule 405
of the Securities Act) of the Issuer or the Company. Each broker-dealer that
receives New Certificates for its own account in exchange for Old
Certificates, where such Old Certificates were acquired by such broker-dealer
as a result of market-making activities or other trading activities (other
than Old Certificates acquired directly from the Issuer), may participate in
the Exchange Offer but may be deemed an "underwriter" under the Securities Act
and, therefore, must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such New Certificates.
The Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. See "Plan of
Distribution."
In all cases, issuance of New Certificates for Old Certificates that are
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of certificates for such Old Certificates
or a timely Book-Entry Confirmation of such Old Certificates into the Exchange
Agent's account at the Book-Entry Transfer Facility, a properly completed and
duly executed Letter of Transmittal (or, with respect to the DTC and its
participants, electronic instructions in which the tendering holder
acknowledges its receipt of and agreement to be bound by the Letter of
Transmittal), and all other required documents. If any tendered Old
Certificates are submitted for a greater principal amount than the holder
desires to exchange, such unaccepted or non-exchanged Old Certificates will be
returned without expense to the tendering holder thereof (or, in the case of
Old Certificates tendered by book-entry transfer into the Exchange Agent's
account at the Book-Entry Transfer Facility, pursuant to the book-entry
transfer procedures described below, such non-exchanged Old Certificates will
be credited to an account maintained with such Book-Entry Transfer Facility)
as promptly as practicable after the expiration or termination of the Exchange
Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Certificates at the Book-Entry Transfer Facility for purposes of
the Exchange Offer within two business days after the date of this Prospectus,
and any financial institution that is a participant in the Book-Entry Transfer
Facility system may make book-entry delivery of Old Certificates being
tendered by causing the Book-Entry Transfer Facility to transfer such Old
Certificates into the Exchange Agent's account at the Book-Entry Transfer
Facility in accordance with such Book-Entry Transfer Facility's procedures for
transfer. However, although delivery of Old Certificates may be effected
through book-entry transfer at the Book-Entry Transfer Facility, the Letter of
Transmittal or copy thereof, with any required signature guarantees and any
other required documents, must, in any case other than as set forth in the
following paragraph, be transmitted to and received by the Exchange Agent at
the address set forth under "--Exchange Agent" on or prior to the Expiration
Date or the guaranteed delivery procedures described below must be complied
with.
The DTC's Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through the DTC. To accept the Exchange Offer
through ATOP, participants in the DTC must send electronic instructions to the
DTC through the DTC's communication system in place of sending a signed, hard
copy Letter of Transmittal. The DTC is obligated to communicate those
electronic instructions to the Exchange Agent. To tender Old Certificates
through ATOP, the electronic instructions sent to the DTC and transmitted by
the DTC to the Exchange Agent must contain the character by which the
participant acknowledges its receipt of and agrees to be bound by the Letter
of Transmittal.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Certificates desires to tender such Old
Certificates and the Old Certificates are not immediately available, or time
will not permit such holder's Old Certificates or other required documents to
reach the Exchange Agent before the Expiration Date, or the procedure for
book-entry transfer cannot be
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<PAGE>
completed on a timely basis, a tender may be effected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile transmission, mail or hand delivery), setting forth
the name and address of the holder of Old Certificates and the amount of Old
Certificates tendered, stating that the tender is being made thereby and
guaranteeing that within five New York Stock Exchange ("NYSE") trading days
after the date of execution of the Notice of Guaranteed Delivery, the
certificates for all physically tendered Old Certificates, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent, and (iii) the certificates for
all physically tendered Old Certificates, in proper form for transfer, or a
Book-Entry Confirmation, as the case may be, and all other documents required
by the Letter of Transmittal, are received by the Exchange Agent within five
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Certificates may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date.
For a withdrawal of a tender of Old Certificates to be effective, a written
or (for DTC participants) electronic ATOP transmission notice of withdrawal
must be received by the Exchange Agent at its address set forth herein prior
to 5:00 p.m., New York City time, on the Expiration Date. Any such notice of
withdrawal must (i) specify the name of the person having deposited the Old
Certificates to be withdrawn (the "Depositor"), (ii) identify the Old
Certificates to be withdrawn (including the certificate number or numbers and
principal amount of such Old Certificates), (iii) be signed by the holder in
the same manner as the original signature on the Letter of Transmittal by
which such Old Certificates were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old Certificates register the transfer of such Old
Certificates into the name of the person withdrawing the tender, and (iv)
specify the name in which any such Old Certificates are to be registered, if
different from that of the Depositor. All questions as to the validity, form
and eligibility (including time of receipt) of such notices will be determined
by the Company, in its sole discretion, whose determination shall be final and
binding on all parties. Any Old Certificates so withdrawn will be deemed not
to have been validly tendered for exchange for purposes of the Exchange Offer.
Any Old Certificates which have been tendered for exchange but which are not
exchanged for any reason will be returned to the holder thereof without cost
to such holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Certificates may be
retendered by following one of the procedures described under "--Procedures
for Tendering" at any time on or prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Issuer shall not
be required to accept for exchange, or exchange New Certificates for, any Old
Certificates, and may terminate the Exchange Offer as provided herein before
the acceptance of such Old Certificates, if:
(a) the Exchange Offer shall violate applicable law or any applicable
interpretation of the staff of the Commission; or
(b) any action or proceeding is instituted or threatened in any court or
by any governmental agency that might materially impair the ability of the
Issuer to proceed with the Exchange Offer or any material adverse
development has occurred in any existing action or proceeding with respect
to the Company; or
(c) any governmental approval has not been obtained, which approval the
Issuer shall deem necessary for the consummation of the Exchange Offer.
All conditions to the Exchange Offer must be satisfied or waived (other than
the receipt of necessary governmental approvals, which may not be waived)
prior to the consummation of the Exchange Offer.
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<PAGE>
If the Issuer determines in its sole discretion that any of the conditions
are not satisfied, the Issuer may (i) refuse to accept any Old Certificates
and return all tendered Old Certificates to the tendering holders (or, in the
case of Old Certificates tendered by book-entry transfer into the Exchange
Agent's account at the Book-Entry Transfer Facility pursuant to the book-entry
transfer procedures described above, such Old Certificates will be credited to
an account maintained with such Book-Entry Transfer Facility), (ii) extend the
Exchange Offer
and retain all Old Certificates tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such
Old Certificates (see "--Withdrawal Rights") or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old Certificates which have not been withdrawn. If such waiver constitutes a
material change to the Exchange Offer, the Issuer will promptly disclose such
waiver by means of a prospectus supplement that will be distributed to the
registered holders, and the Issuer will extend the Exchange Offer for a period
of five to ten business days, depending upon the significance of the waiver
and the manner of disclosure to the registered holders, if the Exchange Offer
would otherwise expire during such five-to-ten-business-day period.
EXCHANGE AGENT
All executed Letters of Transmittal should be directed to the Exchange
Agent. Bankers Trust Company has been appointed as Exchange Agent for the
Exchange Offer. Questions, requests for assistance and requests for additional
copies of this Prospectus or of the Letter of Transmittal should be directed
to the Exchange Agent addressed as follows:
BY REGISTERED OR CERTIFIED MAIL,
BY OVERNIGHT COURIER OR BY HAND:
Bankers Trust Company
3 Park Plaza
Irvine, CA 92714
Attn: Courtyard by Marriott Exchange Offer
BY FACSIMILE:
(714) 253-7577
CONFIRM BY TELEPHONE:
(714) 253-7575
SOLICITATIONS OF TENDERS; FEES AND EXPENSES
The Issuer will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The Issuer has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others soliciting acceptances of the Exchange Offer. The Company,
however, will pay the Exchange Agent reasonable and customary fees for its
services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
TRANSFER TAXES
Holders who tender their Old Certificates for exchange will not be obligated
to pay any transfer taxes in connection therewith, except that holders who
instruct the Issuer to register New Certificates in the name of, or request
that Old Certificates not tendered or not accepted in the Exchange Offer be
returned to, a person other than the registered tendering holder will be
responsible for the payment of any applicable transfer tax thereon.
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<PAGE>
MANAGEMENT
BENEFICIAL OWNERSHIP
The Company's managing general partner is Courtyard II Associates Management
Corporation, the Managing General Partner, which owns a 1% managing general
partner interest in the Company. CBM II L.P. owns a 1% general partner
interest and a 98% limited partner interest in the Company.
The Company has no directors or officers. The business and policy making
functions of the Company are carried out through the directors and executive
officers of the Managing General Partner who are listed, along with the
directors and executive officers of CBM Funding, below:
<TABLE>
<CAPTION>
NAME AGE POSITIONS HELD
- ---- --- --------------
<S> <C> <C>
Bruce F. Stemerman...... 40 President, Chief Accounting Officer and Director of
the Managing General Partner and President, Chief
Accounting Officer and Sole Director of CBM Funding
Christopher J. 33 Vice President of each of the Managing General Partner
Nassetta............... and CBM Funding
Christopher G. 48 Vice President and Secretary of each of the Managing
Townsend............... General Partner and CBM Funding
Robert E. Parsons....... 40 Vice President of each of the Managing General Partner
and CBM Funding
Scott A. LaPorta........ 33 Treasurer of each of the Managing General Partner and
CBM Funding
Stephen J. McKenna...... 55 Vice President of each of the Managing General Partner
and CBM Funding
Douglas H. S. Greene.... 35 Vice President of each of the Managing General Partner
and CBM Funding
Pamela J. Murch......... 36 Vice President, Assistant Secretary and Assistant
Treasurer of each of the Managing General Partner and
CBM Funding
William E. Einstein..... 43 Vice President of each of the Managing General Partner
and CBM Funding
Mark A. Ferrucci........ 43 Director of the Managing General Partner
</TABLE>
Bruce F. Stemerman joined Host Marriott in 1989 as Director--Partnership
Services. He became Vice President--Lodging Partnerships in 1994. Prior to
joining Host Marriott, Mr. Stemerman spent ten years with Price Waterhouse. He
also serves as a director and an officer of numerous Host Marriott
subsidiaries.
Christopher J. Nassetta joined Host Marriott in October 1995 as Executive
Vice President. Prior to joining Host Marriott, Mr. Nassetta served as
President of Bailey Realty Corporation from 1991 to 1995 and in various
positions with The Oliver Carr Company from 1984 through 1991.
Christopher G. Townsend joined Host Marriott's Law Department in 1982 as a
Senior Attorney. In 1984 he was made Assistant Secretary of Host Marriott. In
1986 he was made an Assistant General Counsel. He was made Senior Vice
President, Corporate Secretary and Deputy General Counsel of Host Marriott in
1993. He also serves as a director and an officer of numerous Host Marriott
subsidiaries.
Robert E. Parsons joined Host Marriott's Corporate Finance Planning staff in
1981. In 1984, Mr. Parsons was made Director, Project Finance of Host
Marriott's Treasury Department and in 1986 he was made Vice President, Project
Finance of Host Marriott's Treasury Department. He was made Assistant
Treasurer of Host Marriott in 1988 and was made Senior Vice President and
Treasurer of Host Marriott in 1993. In 1995, he was made Executive Vice
President and Chief Financial Officer of Host Marriott. He also serves as a
director and an officer of numerous Host Marriott subsidiaries.
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Scott A. LaPorta joined Host Marriott in 1989 as a Senior Financial Analyst
of Financial Planning & Analysis and was named Manager in 1990. He was
appointed Director, Financial Planning & Analysis in 1992 and was appointed
Director of Corporate Finance in 1993. Prior to joining Host Marriott, Mr.
LaPorta spent three years with Price Waterhouse. Mr. LaPorta was named Senior
Vice President and Treasurer of Host Marriott in October 1995.
Stephen J. McKenna joined Host Marriott in 1973 as an attorney. He was
appointed Assistant General Counsel in 1976, and was promoted to Vice
President and Assistant General Counsel in 1986. He became Vice President and
Associate General Counsel in 1990 and became Senior Vice President and General
Counsel in 1993. In 1995, he became Executive Vice President. Prior to joining
Host Marriott, Mr. McKenna was employed as an attorney in the airline and
aircraft manufacturing industries. He also serves as a director and an officer
of numerous Host Marriott subsidiaries.
Douglas H. S. Greene joined Host Marriott's Hotel Development Staff in 1982.
In 1985, Mr. Greene joined the Project Finance Department as Manager. In 1987,
he became a Director, in 1990 he became a Senior Director and in 1993, he was
made a Vice President of Host Marriott's Project Finance Group. In 1995, he
became Senior Vice President, Acquisitions.
Pamela J. Murch joined Host Marriott Corporation in 1989 as an attorney in
its Law Department, and in 1993 was appointed Assistant General Counsel and
Assistant Secretary. Ms. Murch has been a Vice President of Host Marriott
since 1993.
William E. Einstein joined Host Marriott Corporation in 1982 as a Manager,
Income Taxes and was made Director, Income Taxes in 1985, Vice President,
Income Taxes in 1990 and Vice President, Partnership Services in 1991. In
1993, he became Vice President--Taxes of Host Marriott. He also serves as a
director and an officer of numerous Host Marriott subsidiaries.
Mark A. Ferrucci joined CT Corporation System in 1977 as an Account
Representative. In 1990 he became an Assistant Secretary of CT Corporation
System and in 1992 he became Assistant Vice President.
MANAGEMENT REMUNERATION
The Company has no directors or officers nor does it have any employees.
Under the Partnership Agreement, however, the Managing General Partner has the
exclusive right to conduct the business and affairs of the Company subject
only to the Management Agreement described in "Description of the Management
Agreement." The Managing General Partner is required to devote to the Company
such time as may be necessary for the proper performance of its duties, but
the officers and directors of the Managing General Partner are not required to
devote their full time to the performance of such duties. No officer or
director of the Managing General Partner devotes a significant percentage of
his or her time to Company matters. To the extent that any officer or director
does devote time to the Company, the Managing General Partner is entitled to
reimbursement for the cost of providing such services. For information
regarding all payments made by the Company to Host Marriott and its
subsidiaries, see "Certain Relationships and Related Transactions."
LIMITED LIABILITY AND INDEMNIFICATION WITH RESPECT TO THE COMPANY
The Partnership Agreement for the Company states that it shall indemnify and
hold harmless the Managing General Partner against and in respect of any
liability incurred by reason of or in connection with the performance of its
duties as Managing General Partner of the Company unless it is established
that the act or omission of the Managing General Partner was material to the
matter giving rise to the proceeding or was the result of willful misconduct,
gross negligence, or fraud of the Managing General Partner. The by-laws of the
Managing General Partner provide for indemnification of any person who is or
was serving at the request of the Managing General Partner as a director,
officer, employee, or agent of a corporation, partnership, joint venture,
trust, or other enterprise, as permitted by the laws of the State of Delaware,
provided that the indemnitee acted in good faith, in a manner reasonably
believed to be in or not opposed to the best interests of the Managing General
Partner and without reasonable cause to believe his or her conduct was
unlawful.
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<PAGE>
SPECIAL PURPOSE ENTITY COVENANTS OF THE COMPANY
The Loan Agreement and the Partnership Agreement contain provisions
restricting the Company from engaging in any business other than the ownership
and operation of the Mortgaged Properties (as well as the ownership of a 99%
membership interest in the Deerfield LLC) and from incurring debt other than
pursuant to the Mortgage Loan or as described under "Description of the
Mortgage Loan--Certain Mortgage Loan Covenants." In addition, the Loan
Agreement and the Partnership Agreement contain provisions intended to reduce
the likelihood that the assets and liabilities of the Company would be
consolidated with those of any affiliate of the Company in the event of a
bankruptcy of such affiliate, including provisions prohibiting the commingling
of assets of the Company with the assets of its general partners and requiring
the maintenance of separate books and records.
OWNERSHIP OF INTERESTS IN CBM FUNDING AND THE MANAGING GENERAL PARTNER
OWNERSHIP OF INTERESTS IN CBM FUNDING
The Company owns 100% of the outstanding common stock, par value $.01 per
share, of CBM Funding.
OWNERSHIP OF INTERESTS IN THE MANAGING GENERAL PARTNER
CBM II L.P. owns, indirectly through affiliates, 100% of the outstanding
common stock, par value $.01 per share, of the Managing General Partner.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH HOST MARRIOTT
Neither the Managing General Partner, CBM Funding nor the Company has any
employees. Host Marriott provides the services of certain employees (including
the Managing General Partner's executive officers) of Host Marriott to the
Company, CBM Funding and the Managing General Partner. The Company, CBM
Funding and the Managing General Partner anticipate that each of the executive
officers of the Managing General Partner and CBM Funding will generally devote
a sufficient portion of his or her time to the business of the Company and CBM
Funding. However, each of such executive officers also will devote a
significant portion of his or her time to the business of Host Marriott and
its other subsidiaries. No officer or director of the Managing General
Partner, CBM Funding or employee of Host Marriott devotes a significant
percentage of time to Company or CBM Funding matters. To the extent that any
officer, director or employee does devote time to the Company, CBM Funding or
the Managing General Partner, Host Marriott is entitled to reimbursement for
the cost of providing such services.
RELATIONSHIP WITH MII
The Management Agreement
The Hotels are managed by the Manager, a wholly owned subsidiary of MII,
pursuant to the terms of the Management Agreement. The Management Agreement
has a current term expiring on February 22, 2013. Thereafter, the Management
Agreement will be extended for up to three successive terms of ten years each
and one final term of five years, at the Manager's option. The Company and the
Manager may each terminate the Management Agreement under certain
circumstances. See "Description of the Management Agreement."
Marriott Ground Leases
The land on which 53 of the Hotels are located is leased from the Marriott
Ground Lessors of MII. The Marriott Ground Leases have remaining terms
(including all renewal options) expiring in 2068. The Marriott Ground Leases
provide for rent based on specific percentages (from 3% to 8%) of total hotel
sales subject to
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<PAGE>
minimum amounts. The minimum rentals are adjusted at various anniversary dates
throughout the lease terms, as defined in the agreements. See "Description of
the Mortgaged Properties--Ground Leases."
Policies and Procedures for Addressing Conflicts
The ongoing relationships between MII and Host Marriott, may present certain
conflict situations for J.W. Marriott, Jr. who serves as Chairman of the Board
of Directors, Chief Executive Officer and President of MII and also serves as
a director of Host Marriott and for Richard E. Marriott, who serves as a
director of MII and Chairman of the Board of Directors of Host Marriott.
Messrs. J.W. Marriott, Jr., Richard E. Marriott, as well as certain other
officers and directors of MII and Host Marriott, also own shares (and/or
options or other rights to acquire shares) in both companies. Host Marriott
and MII have adopted appropriate policies and procedures to be followed by the
Board of Directors of each company to limit the involvement of Messrs. J.W.
Marriott, Jr. and Richard E. Marriott (and, if appropriate, other officers and
directors of such companies) in conflict situations, including matters
relating to contractual relationships or litigation between Host Marriott and
MII. Such procedures include requiring J.W. Marriott, Jr. and Richard E.
Marriott (or such other officers and directors) to abstain from making
management decisions in their capacities as officers of MII and Host Marriott,
respectively, and to abstain from voting as directors of either Host Marriott
or MII (or as directors of any of their subsidiaries), with respect to matters
which present a significant conflict of interest between the companies.
Whether or not a significant conflict of interest situation exists is
determined on a case-by-case basis depending on such factors as the dollar
value of the matter, the degree of personal interest of J.W. Marriott, Jr. and
Richard E. Marriott (or such other officers and directors) in the matter and
the likelihood that resolution of the matter has significant strategic,
operational or financial implications for the business of the applicable
company. See "Risk Factors--Risks Relating to the Lodging Industry and the
Mortgaged Properties."
PAYMENTS TO MII AND SUBSIDIARIES
The following table sets forth the amount paid to MII and affiliates under
both the Management Agreement and the Marriott Ground Leases for the years
ended December 31, 1993, 1994 and 1995 and the twelve weeks ended March 24,
1995 and March 22, 1996. The table also sets forth fees due to MII and its
affiliates which were deferred in each of the periods indicated (in
thousands). For a description of the Management Agreement and the Marriott
Ground Leases, see "Description of the Management Agreement" and "Description
of the Mortgaged Properties--Ground Leases."
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWELVE WEEKS ENDED
----------------------- -----------------------------
1993 1994 1995 MARCH 24, 1995 MARCH 22, 1996
------- ------- ------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Ground rent............. $ 8,465 $ 9,284 $ 9,856 $2,224 $2,276
Chain services alloca-
tion................... 9,220 8,981 9,224 2,107 2,062
Base management fee..... 7,779 8,123 8,604 1,916 2,027
Courtyard management
fee.................... 5,146 5,802 6,145 1,368 1,447
Incentive management
fee.................... -- 3,839 10,480 2,285 1,486
Deferred incentive man-
agement fee............ -- -- 162 -- --
------- ------- ------- ------ ------
$30,610 $36,029 $44,471 $9,900 $9,298
======= ======= ======= ====== ======
Deferred fees:
Courtyard management
fee.................... $ 411 $ -- $ -- $ -- $ --
Base management fee..... -- -- -- -- --
Incentive management
fee.................... -- 5,564 -- -- 949
------- ------- ------- ------ ------
$ 411 $ 5,564 $ -- $ -- $ 949
======= ======= ======= ====== ======
</TABLE>
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PAYMENTS TO HOST MARRIOTT AND SUBSIDIARIES
The following sets forth amounts paid by CMB II L.P. to Host Marriott and
its subsidiaries for the years ended December 31, 1993, 1994 and 1995 and the
twelve weeks ended March 24, 1995 and March 22, 1996 (in thousands).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWELVE WEEKS ENDED
--------------------------------------------
MARCH 24, MARCH 22,
1993 1994 1995 1995 1996
-------- -------- ---------------- ---------
<S> <C> <C> <C> <C> <C>
Principal and interest on general
partner loans................... $ 5,565 $ 4,161 $445 $445 $7,508
Administrative expenses reim-
bursed.......................... 153 219 306 108 141
Cash distributions (as a limited
partner)........................ 123 123 76 -- --
-------- -------- ------ ---- ------
$ 5,841 $ 4,503 $827 $553 $7,649
======== ======== ====== ==== ======
</TABLE>
MORTGAGE DEBT GUARANTEES
Host Marriott guaranteed payment of up to $32.6 million of debt service on
certain of CBM II L.P. bank mortgage indebtedness in the aggregate principal
amount of $275 million ("Mortgage Debt A") and $27.4 million of debt service
on certain other bank mortgage indebtedness in the aggregate principal amount
of $230.5 million ("Mortgage Debt B"). Any payments by Host Marriott under the
Mortgage Debt guarantees were treated as loans to CMB II L.P. with an interest
rate of one percentage point in excess of the prime rate. During 1995, Host
Marriott was released from its original Mortgage Debt A guarantee obligation
of $32.6 million as certain debt service coverage requirements were met. Each
of Mortgage Debt A and Mortgage Debt B were repaid with a portion of the
combined proceeds of the Old Certificates Offering and the Notes Offering,
thus releasing Host Marriott from its guarantee liability.
DESCRIPTION OF THE MANAGEMENT AGREEMENT
GENERAL
The Company is party to a Management Agreement with Courtyard Management
Corporation, the Manager and wholly owned subsidiary of MII. Under the
Management Agreement, the Manager manages each Hotel on behalf of and as agent
for the Company. The initial term of the Management Agreement expires February
22, 2013. Thereafter, the Management Agreement may be renewed at the option of
the Manager for three successive terms of 10 years each and one final term of
five years. The Manager may, however, in its sole discretion notify the
Company at least one year prior to the commencement of a renewal term that it
will not extend the Management Agreement as to some or all the Hotels. The
Manager is required to manage the Hotels in a manner consistent with the level
and quality of services prevailing in other Courtyard by Marriott hotel system
properties managed by the Manager or its affiliates. In furtherance of these
obligations, the Manager, where applicable, implements its standard
administrative, accounting, budgeting, and computer systems and marketing,
personnel, and operational practices, and arranges for maintenance, utilities,
security, supplies, and other services as required for orderly operation of
the Hotels, all as described below.
SUBORDINATION OF CERTAIN FEES AND OTHER PAYMENTS
In connection with Old Certificates Offering and the Notes Offering, the
Manager and the Marriott Ground Lessors agreed to subordinate, as applicable,
payment of (i) the Subordinated Courtyard Management Fee, (ii) all Incentive
Management Fees, (iii) all Deferred Management Fees, (iv) the payment of
Rentals under the Marriott Ground Leases, and (v) any advances made by the
Manager or any Marriott Ground Lessor to CBM II L.P. (collectively, the
"Subordinated Obligations") to the payment in full of all amounts owing under
the Mortgage Loan and the Notes and qualified modifications and refinancings
thereof. Failure to pay Subordinated Obligations as a result of such
subordination will not give the Manager or any Marriott Ground Lessor the
right to terminate the Management Agreement or any Marriott Ground Lease, as
the case may be. So long as no event of default under the Mortgage Loan or the
Notes has occurred and is continuing, the Manager and the Marriott Ground
Lessors will be entitled to receive payment of Subordinated Obligations in
accordance with the priorities of
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payment set forth in the Management Agreement and the other Loan Documents to
which the Manager is a party. If such an event of default has occurred and is
continuing under the Mortgage Loan or the Notes, the Manager and the Marriott
Ground Lessors will not be entitled to receive any payments in respect of the
Subordinated Obligations; provided that, with respect to any individual non-
monetary event of default, payment of Subordinated Obligations will not be
blocked for more than 180 days, unless the maturity of the Mortgage Loan or
the Notes, as the case may be, is accelerated as a result of such event of
default. In addition, if there are inadequate funds from operations of the
Hotels (after certain permitted payments) to make all required debt service
payments (other than balloon payments of principal payable at the maturity of
the Mortgage Loan or the Notes), the Manager and the Marriott Ground Lessors
will be required to pay to the Servicer, or the Notes trustee, as the case may
be, an aggregate amount equal to the lesser of (i) the amount of such
shortfall and (ii) the aggregate amount of Subordinated Obligations paid to
the Manager and the Marriott Ground Lessors with respect to the fiscal year
with respect to which such debt service payment is due or, for such payments
due on or before February 1 of any fiscal year, all such amounts paid with
respect to any period since the beginning of the prior fiscal year and, for
such payments due upon acceleration of maturity to a date on or before June 30
of any year, all such amounts paid with respect to the preceding six months.
COMPENSATION
Under the Management Agreement, the Manager may receive the following
compensation for its services:
Base Management Fee. The Manager is paid an annual Base Management Fee equal
to 3.5% of total Hotel sales in each fiscal year for services of the Manager
in providing corporate planning and policy services, financial planning and
corporate financial services, risk planning and insurance services, corporate
executive management, legislative, and governmental representation, certain
in-house legal services, and protection of the "Marriott" tradename and
trademark.
Courtyard Management Fee. The Manager earns an annual "Courtyard Management
Fee" equal to 2 1/2% of total Hotel sales in each fiscal year for providing
divisional executive management, divisional financial services, product
planning and development, employee planning, protection of the "Courtyard by
Marriott" tradename and trademark, food service product development, and the
services of the Manager's technical and operational experts making periodic
inspection and consultation visits to the Hotels.
The Manager has agreed to subordinate payment of one percentage point of the
Courtyard Management Fee (the "Subordinated Courtyard Management Fee") to the
payment of the Mortgage Loan and the Notes, as described above.
Incentive Management Fee. The Manager earns an "Incentive Management Fee"
equal to 15% of annual Operating Profit (as defined) attributable to the
Hotels on a combined basis. In the event that the partners of CBM II L.P.
receive cumulative distributions of refinancing proceeds and sale proceeds in
a specified amount, the Incentive Management Fee will increase to 20% of
Operating Profit. Payment of any Incentive Management Fee is limited to 80% of
Operating Profit remaining after payment of debt service, the Priority Return
(as defined in the Management Agreement), and certain other priority payments.
Payment of Incentive Management Fees is subordinated to the payment of the
Mortgage Loan and the Notes as described above.
Deferred Management Fees. Subordinated Courtyard Management Fees and
Incentive Management Fees not payable currently, together with all existing
deferred Management Fees (collectively, "Deferred Management Fees"), will be
deferred. As of December 31, 1995, there was a total of approximately $36
million of Deferred Management Fees. Subject to the terms of the Notes,
Deferred Management Fees are payable (without interest) out of 50% of
Operating Profit remaining after payment of (i) Qualifying Debt Service (which
includes all principal, interest, and other amounts payable on the Mortgage
Loan and the Notes), (ii) the current year's Priority Return to CBM II L.P.
and (iii) Incentive Management Fees for the current year, payment of such
Incentive Management Fees is made out of 80% of Operating Profit remaining
after the Priority Return and
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certain other priority payments. Payment of Deferred Management Fees is
subordinated to the payment of the Mortgage Loan and the Notes as described
above.
Upon termination of the Management Agreement as to all the Hotels, any
remaining Deferred Management Fees will not be payable.
MANAGEMENT SERVICES
The Manager provides complete management services to the Company in
connection with its management of the Hotels. The services to be provided
include the following:
Operational Services. The Manager has sole responsibility and exclusive
authority for all activities necessary for the day-to-day operation of the
Hotels, including establishment of all room rates, the processing of
reservations, procurement of inventories, supplies, and services, periodic
inspection and consultation visits to the Hotels by the Manager's technical
and operational experts, and promotion and publicity of the Hotels.
Executive Supervision and Management Services. The Manager provides all
managerial and other employees for the Hotels; reviews the operation and
maintenance of the Hotels; prepares reports, budgets, and projections;
provides other administrative and accounting support services, such as
planning and policy services, financial planning, divisional financial
services, risk planning services, product planning and development, employee
planning, corporate executive management, legislative and governmental
representation, and certain in-house legal services; and protects the
"Marriott" and "Courtyard by Marriott" trademarks and other tradenames,
trademarks, and service marks. The Manager also provides a national
reservations system for Courtyard by Marriott.
Chain Services. The Management Agreement requires the Manager to furnish
certain services ("Chain Services") that are furnished generally on a central
or regional basis to hotels in the Courtyard by Marriott hotel system,
including (i) the development and operation of computer systems and
reservation services, (ii) regional management and administrative services,
regional marketing and sales services, regional training services, manpower
development, and relocation costs of regional personnel, and (iii) such
additional central or regional services as may from time to time be more
efficiently performed on a regional or group level. Costs and expenses
incurred in providing such services are allocated among all hotels in the
Courtyard by Marriott hotel system managed by the Manager or its affiliates,
and the Company is required to reimburse the Manager for its allocable share
of such costs and expenses.
Working Capital and Fixed Asset Supplies. The Company provides working
capital for each Hotel and is required to fund the cost of providing fixed
asset supplies, which principally consist of linen and similar items. The
Company is responsible for providing funds to meet the cash needs for
operating the Hotels if at any time the funds available from operations are
insufficient to meet the financial requirements of the Hotels.
Use of Affiliates. The Manager employs the services of its affiliates
(including MII, as appropriate) to provide certain services under the
Management Agreement. The terms of any such employment must be no less
favorable to the Company, in the reasonable judgment of the Manager, than
those that would be available from the Manager.
FF&E Replacements. The Management Agreement provides that once each year the
Manager provide the Company with a list of FF&E to be acquired and certain
routine repairs that are normally capitalized to be performed in the next year
("FF&E Replacements") and an estimate of the amounts necessary therefor. Such
list is subject to approval by the Company. If the Company and Manager agree,
the Company will acquire or otherwise provide the FF&E Replacements set forth
on the approved list. If the Company and the Manager are unable to agree on
the list within 60 days of its submission, the Company will be required to
make only those FF&E Replacements specified on such list that are no more
extensive than the system standards for FF&E Replacements that the Manager
requires for Courtyard by Marriott hotels generally. For purposes of funding
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<PAGE>
FF&E Replacements, the Loan Agreement requires the Company to deposit into the
FF&E Reserve Account every four weeks an amount currently equal to 5% of total
Hotel sales for such four-week period. In accordance with the Management
Agreement, the required percentage contribution may, at the option of the
Manager, increase to 6% after fiscal year 2000.
Building Alterations, Improvements, and Renewals. The Management Agreement
provides that the Manager prepare an annual estimate of the expenditures
necessary for major repairs, alterations, improvements, renewals, and
replacements to the structural, mechanical, electrical, heating, ventilating,
air conditioning, plumbing, and vertical transportation elements of each
Hotel. Such estimate is submitted to the Company for its approval. If the
Company and the Manager are unable to agree on the estimate within 60 days of
its submission, the Company will be required to make only those expenditures
that are no more extensive than the Manager requires for Courtyard by Marriott
hotels generally. The Company bears the cost of all such repairs, alterations,
improvements, renewals, or replacements which, at the option of the Manager,
may be paid from the FF&E Reserve Account.
Courtyard by Marriott Service Marks. During the term of the Management
Agreement, the service marks "Courtyard by Marriott" and other symbols, logos,
and service marks currently used by the Manager and its affiliates in the
Courtyard by Marriott system may be used in the operation of the Hotels. MII
(or its applicable affiliates) intends to retain its legal ownership of these
marks. Any right to use the service mark, logo, and symbol of Courtyard by
Marriott and related trademarks and service marks used in the Courtyard by
Marriott system will terminate with respect to a Hotel upon termination of the
Management Agreement with respect to such Hotel.
Sale of Hotels. The Management Agreement provides that the Company may not,
before December 31, 2007, sell more than 20 Hotels free of the Management
Agreement; thereafter, the Company may sell any one or more of the Hotels at
any time free of the Management Agreement. If a sale is made and the Manager
or an affiliate of the Manager does not continue to manage the Hotel, such
agreement will terminate as to the particular Hotel or Hotels being sold, and
the Manager will generally be entitled to payment of a termination fee. See
"--Termination Fee" below.
Termination Fee. Under the Management Agreement, the Manager is entitled to
payment of a fee upon termination of the Management Agreement as to any Hotel
that is sold or condemned, or destroyed by fire or other casualty and not
restored (except that the connection with the Old Certificates Offering, the
Manager agreed to waive the termination fee upon the sale of a Hotel in
connection with or in lieu of a foreclosure, as a result of a Mortgage Loan
Event of Default, or by the Trustee to a third party following acquisition of
the Hotel by the Trustee as the result of foreclosure or a deed in lieu of
foreclosure). The purpose of the termination fee is to compensate the Manager
for the loss of anticipated future Incentive Management Fees in the event of a
premature termination of the Management Agreement as to any Hotel. The Manager
is entitled to the termination fee only if, as a result of such premature
termination, the Manager no longer manages the Hotel in question. The
termination fee is calculated in accordance with a formula specified in the
Management Agreement and is payable only out of cash proceeds, current or
deferred, arising from the sale, destruction, or condemnation of the Hotel in
question after payment of outstanding indebtedness of the Company and under
the Notes. Such proceeds will first be applied to the payment of the
applicable Release Price and any Prepayment Premium under the Mortgage Loan
and to any payments required on the Notes in connection with the sale or other
event. To the extent that there are insufficient sales proceeds remaining
after payments required under the Mortgage Loan and the Notes to pay a
termination fee in full, the shortfall will not be payable. The Company has
agreed not to sell any Hotels if payment of a termination fee would be
required and the Company would not have sufficient funds to pay such fee.
Termination by the Company. The Management Agreement provides that the
Company may terminate the Management Agreement and remove the Manager without
payment of the termination fee if, during any three consecutive years, on an
aggregate basis, average operating profit before real and personal property
taxes and
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Subordinated Obligations fails to exceed a specified percentage of the sum of
the aggregate original costs incurred by the Mortgagor for the purchase of the
Hotels and any subsequent expansions. Under the terms of the partnership
agreement of CBM II L.P.'s, this right to terminate may be exercised by a
majority in interest of the CBM II L.P.'s limited partners without the consent
of the Company. The Manager may, however, prevent termination by paying to the
Company the amount by which actual operating results were less than the
specified minimum operating results.
The Management Agreement also gives the Company the option, under certain
circumstances, to terminate the Management Agreement with respect to a Hotel,
following severe damage as a result of fire or other casualty, if the Hotel
cannot be repaired within one year or following condemnation affecting all or
substantially all of a Hotel.
In connection with the Old Certificates Offering, the Mortgagor agreed not
to exercise its rights to terminate the Management Agreement as to one or more
Hotels without the prior consent of the Servicer. It will be a Mortgage Loan
Event of Default if the Management Agreement is terminated unless (i) the
Manager is replaced with a nationally recognized hotel operator acceptable to
the Servicer, (ii) the Hotels continue to be part of a comparable nationally
recognized hotel system acceptable to the Servicer, (iii) each of the Rating
Agencies delivers a letter confirming that such replacement will not result in
a downgrade, withdrawal, or qualification of any of the ratings then assigned
by it to the Certificates, and (iv) such replacement does not result in a
default under the Notes (unless such default is waived by or on behalf of the
holders thereof).
Substitution of a new manager for the Cupertino, California; Fresno,
California; Norwalk, Connecticut; Tampa, Florida; Atlanta-Roswell, Georgia;
Poughkeepsie, New York; Charlotte-Southpark, North Carolina; and Philadelphia-
Devon, Pennsylvania Hotels would, under certain circumstances, require the
consent of the ground lessors of those Hotels. Thus, the termination right
could, under certain circumstances, as a practical matter, only be exercised
with the consent of the ground lessors other than the Marriott Ground Lessors.
Termination by the Manager. In connection with the Old Certificates
Offering, the Manager agreed to limit its right to terminate the Management
Agreement as to one or more Hotels until the Mortgage Loan is paid in full.
The Manager agreed to terminate the Management Agreement only (i) with respect
to a Hotel that is damaged by fire or other casualty and not restored within
one year, (ii) with respect to a Hotel where operations are interrupted for
more than a temporary period by force majeure, (iii) with respect to a Hotel
if any material license or permit necessary for the continued lawful operation
of the Hotel is revoked or withdrawn, for reasons beyond the Manager's
control, and all appeals have been exhausted, (iv) with respect to all of the
Hotels, if the Company fails to provide adequate working capital or to pay for
required FF&E Replacements or required building alterations, improvements, and
renewals, or (v) at the end of the initial term or any renewal term, provided
that the Manager must give the Company notice before the end of any such term
of its intention not to renew the Management Agreement with respect to one or
more Hotels.
DESCRIPTION OF THE NEW CERTIFICATES
GENERAL
The Old Certificates were, and the New Certificates will be issued pursuant
to the Trust and Servicing Agreement and consist of seven Classes, designated
as the Class A-1, Class A-2, Class A-3P&I, Class A-3IO, Class B, Class C and
Class D Certificates. The terms of the New Certificates are identical in all
material respects to the Old Certificates, except that the New Certificates
have been registered under the Securities Act and, therefore, will not bear
legends restricting their transfer.
The Certificates represent in the aggregate beneficial ownership interests
in the Trust Fund, which consists of: (i) the Mortgage Loan, the Mortgages and
the related Loan Documents, and all payments under the Mortgage Loan and such
related Loan Documents (including the pledge of the Company's membership
interest in Deerfield
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LLC and the related right to receive distributions in respect thereof), (ii)
funds or assets from time to time on deposit in the Collection Account, the
Distribution Account, the Upper-Tier Distribution Account, the Default
Interest Distribution Account, and the Liquidated Damages Distribution
Account, (iii) any Foreclosed Property and any funds deposited into the
Foreclosed Property Account, and (iv) the right to receive payment of
Liquidated Damages under the Registration Rights Agreement.
For purpose of calculating interest and other amounts payable on the
Mortgage Loan, the Mortgage Loan will be divided into six components, each
corresponding to one Class of Offered Certificates (considering, for these
purposes only, the Class A-3P&I and Class A-3IO Certificates as a single
Class). Accordingly, each component will have an initial principal balance and
an interest rate equal to the initial Certificate Balance and Pass-Through
Rate for the corresponding Class of Offered Certificates, except that the
component corresponding to the Class A-3L Interest will have an initial
principal balance equal to the initial Class A-3P&I Certificate Balance and an
interest rate equal to the sum of the Pass-Through Rates of the Class A-3P&I
Certificates and the Class A-3IO Certificates (8.013%). Payments on the
Mortgage Loan allocable to principal will reduce the component principal
balances of the Mortgage Loan in the same order of priority as distributions
of principal on the Offered Certificates reduce the Certificate Balances of
the corresponding Classes of Offered Certificates.
The Certificate Balance and Pass-Through Rate of each Class of Offered
Certificates as of March 1, 1996 is as follows:
<TABLE>
<CAPTION>
CLASS OF OFFERED INITIAL CLASS PASS-
CERTIFICATES CERTIFICATE BALANCE THROUGH RATE
---------------- ------------------- ------------
<S> <C> <C>
Class A-1................................ $ 45,500,000(1) 7.550%
Class A-2................................ $ 50,000,000 6.880%
Class A-3P&I............................. $129,500,000 7.080%
Class A-3IO.............................. (2) 0.933%
Class B.................................. $ 75,000,000 7.480%
Class C.................................. $100,000,000 7.860%
Class D.................................. $ 10,200,000 8.645%
</TABLE>
- --------
(1) The Class A-1 Certificate Balance has been reduced to $42,482,129 as of
May 1, 1996 as a result of principal distributions.
(2) The Class A-3IO Certificates will have no Certificate Balance but will
have a Notional Balance equal to the Certificate Balance of the Class A-
3P&I Certificate.
Interest is payable monthly on each Distribution Date and accrues during
each Interest Accrual Period on the Certificate Balance (or Notional Balance,
in the case of the Class A-3IO Certificates) of each Class of Offered
Certificates as of the first day of such Interest Accrual Period at the
applicable Pass-Through Rate for such Class. Payments of principal will reduce
the Certificate Balances of the Classes of Offered Certificates (excluding the
Class A-3IO Certificates) and the Class A-3L Interest in the order of priority
described below.
The "Certificate Balance" of any Class of Certificates (excluding the Class
A-3P&I and Class A-3IO Certificates) and the Class A-3L Interest at any time
represents the maximum dollar amount that holders of such Class are entitled
to receive as distributions allocable to principal from payments and
collections received by the Lower-Tier REMIC in respect of the Mortgage Loan.
The "Certificate Balance" of the Class A-3P&I Certificates represents the
maximum dollar amount that holders of such Class is entitled to receive as
distributions allocable to principal from payments and collections received by
the Upper-Tier REMIC in respect of the Class A-3L Interest. The Certificate
Balance of the Class A-3L Interest is equal to the Certificate Balance of the
Class A-3P&I Certificates. The "Notional Balance" of the Class A-3IO
Certificates at any time represents the amount on which interest payable on
the Class A-3IO Certificates will be calculated. The Certificate Balance of
each Class of Offered Certificates (other than the Class A-3IO Certificates)
will be reduced in each case by amounts actually distributed thereon that are
allocable to principal. Any reduction in the Certificate Balance of the Class
A-3P&I Certificates will reduce dollar for dollar the Notional Balance of the
Class A-3IO Certificates.
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The Class R Certificate and the Class UR Certificate evidence the "residual
interests" in the Lower-Tier REMIC and the Upper-Tier REMIC, respectively. The
Class R Certificate and the Class UR Certificate do not have a Pass-Through
Rate or a Certificate Balance. CBM Funding, the holder of the Class R
Certificate and the Class UR Certificate, has no right to scheduled
distributions of principal or interest, but is entitled to receive any amounts
remaining in the Lower-Tier REMIC and the Upper-Tier REMIC, respectively,
after the Certificate Balances of all Offered Certificates have been reduced
to zero, the holders of the Offered Certificates have received all other
distributions to which they are entitled, and all expenses of the Trust REMICs
have been paid in full. Neither the Class R Certificate nor the Class UR
Certificate are part of the Exchange Offer.
DISTRIBUTIONS
Method, Timing, and Amount. Distributions on the New Certificates will be
made on the first day of each month or, if such day is not a Business Day, on
the following Business Day without additional interest, commencing [ ],
1996, to each Certificateholder of record on the related Record Date.
Distributions will be made by wire transfer in immediately available funds for
the account of each holder of Offered Certificates with an initial Certificate
Balance of not less than $1,000,000, provided that such holder has provided
the Paying Agent with a written request and appropriate wire instructions, and
for every other holder, by check mailed to the address of such holder as it
appears on the certificate register. The final payment on any Offered
Certificate will be made only upon presentation and surrender of such Offered
Certificate at the offices of the Trustee or its agent or such office or
agency as is specified in the notice of final distribution to holders of
Offered Certificates being retired. Distributions on the Offered Certificates
will be made on each Distribution Date to holders of record at the close of
business as of the Record Date.
The aggregate distribution to be made on the Offered Certificates on any
Distribution Date will equal the Available Distribution Amount, plus any
Unscheduled Payments, Prepayment Premiums, Net Default Interest, and
Liquidated Damages distributable on such Distribution Date. Such amounts
(other than Net Default Interest and Liquidated Damages) will generally be
distributed by the Lower-Tier REMIC to the Class A-1, Class A-2, Class B,
Class C, and Class D Certificates, and to the Class A-3L Interest as an asset
of the Upper-Tier REMIC. Such amounts received by the Upper-Tier REMIC will
generally be distributed to the Class A-3P&I Certificates and Class A-3IO
Certificates.
The "Available Distribution Amount" with respect to any Distribution Date
will be an amount equal to (i) all cash received with respect to the Mortgage
Loan that is deposited by the Servicer into the Collection Account during the
related Due Period, plus (ii) the P&I Advances, if any, made by the Servicer
with respect to such Distribution Date, plus (iii) all other amounts deposited
in the Collection Account by the Servicer during the related Due Period
pursuant to the Trust and Servicing Agreement, less:
(a) amounts paid to reimburse the Servicer for unreimbursed Advances plus
interest thereon as described herein under "Description of the Trust and
Servicing Agreement--Advances;"
(b) all Servicing Fees paid in respect of such Distribution Date;
(c) all amounts paid to the Servicer or Trustee in reimbursement of
certain expenses and other amounts permitted to be retained by the Servicer
or withdrawn pursuant to the Trust and Servicing Agreement;
(d) all Unscheduled Payments; and
(e) Prepayment Premiums.
"Unscheduled Payments" are all payments and collections received with
respect to the Mortgage Loan or upon foreclosure or liquidation of any
Mortgaged Property (net of related expenses) during the related Due Period
other than Monthly Payments, Prepayment Premiums, Default Interest, and
payments required to be made to the Servicer or Trustee for payment of fees or
reimbursement of Property Protection Advances or expenses, including, but not
limited to, Prepayments and Condemnation Proceeds, Insurance Proceeds,
Foreclosure Proceeds, and Net Liquidation Proceeds deposited into the
Collection Account during the related Due Period.
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"Net Default Interest" with respect to any Distribution Date is an amount
(not less than zero) equal to the amount of any Default Interest received on
the Mortgage Loan during the preceding Due Period, less any portion of such
Default Interest withdrawn from the Cash Collateral Account to pay interest on
P&I Advances.
"Default Interest" with respect to any Distribution Date is interest paid on
the Mortgage Loan in excess of interest accruing during the preceding Due
Period on the outstanding principal balance of the Mortgage Loan as of the
first day of such Due Period at the Weighted Average Interest Rate as of the
first day of such Due Period, but excluding any amount of interest paid on
such related Due Date that accrued during an earlier Due Period at the then
applicable Weighted Average Interest Rate and was not paid when due.
Priorities. As used below in describing the priorities of distribution of
the Available Distribution Amount, the terms set forth below will have the
following meanings:
The "Interest Distribution Amount" with respect to any Distribution Date for
any Class of Offered Certificates or the Class A-3L Interest, is equal to
interest (whether or not received) accruing during the related Interest
Accrual Period at the Pass-Through Rate for such Interest Accrual Period on
the Certificate Balance (or the Notional Balance, in the case of the Class A-
3IO Certificates) of such Class as of the first day of such Interest Accrual
Period.
An "Interest Shortfall" with respect to any Distribution Date for any Class
of Offered Certificates or the Class A-3L Interest is the amount by which the
Interest Distribution Amount for such Class exceeds the interest paid to such
Class on such Distribution Date.
The "Monthly Payment" with respect to any Distribution Date is the scheduled
monthly payment of principal and interest on the Mortgage Loan, including the
Balloon Payment (or, in the event of a delinquency in the payment of the
Balloon Payment, an amount equal to a monthly principal and interest payment
calculated by the Servicer to enable the Mortgage Loan to be repaid over the
original 204-month principal amortization schedule), which is due and payable
on the immediately preceding Due Date.
A "P&I Shortfall" will be deemed to exist on any Distribution Date if a
default in payment of principal or interest on the Mortgage Loan has occurred
and is continuing on any Due Date and the Servicer has not made P&I Advances
in an amount equal to the outstanding aggregate delinquency in the Monthly
Payments.
The "Principal Distribution Amount" with respect to any Distribution Date is
the principal portion of the Monthly Payment which is due and payable on the
Mortgage Loan on the related Due Date (including the Balloon Payment, or, from
and after the Scheduled Balloon Maturity Date if the Balloon Payment is
delinquent, an amount equal to the sum of (i) the principal portion of the
Monthly Payment that would have been due based on the original 204-month
amortization schedule for the Mortgage Loan plus (ii) any portion of the
Balloon Payment actually received).
On each Distribution Date, the Available Distribution Amount will be
allocated among the Classes of Certificates (excluding the Class A-3P&I and
Class A-3IO Certificates) and the Class A-3L Interest and distributed to the
holders of the Offered Certificates (excluding the Class A-3P&I Certificates
and Class A-3IO Certificates), to the Trustee, as holder of the Class A-3L
Interest (who will concurrently distribute the same to the holders of the
Class A-3P&I Certificates, Class A-3IO Certificates and Class UR Certificate
in the manner described below), and to the holder of the Class R Certificate,
as of the related Record Date as follows:
first, to the Class A-1 Certificates, Class A-2 Certificates, and Class
A-3L Interest, pro rata, based upon the amount distributable and the
respective Interest Distribution Amount for each Class, in an amount up to
the aggregate Interest Distribution Amount for the Class A-1 Certificates,
Class A-2 Certificates, and Class A-3L Interest,
second, to the Class A-1 Certificates, Class A-2 Certificates, and Class
A-3L Interest, pro rata, based upon the amount distributable and the
respective Interest Shortfall for each Class, in an amount up to the
aggregate Interest Shortfall for the Class A-1 Certificates, Class A-2
Certificates, and Class A-3L Interest,
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third, to the Class B Certificates in an amount up to the Interest
Distribution Amount for the Class B Certificates,
fourth, to the Class B Certificates in an amount up to the Class B
Interest Shortfall,
fifth, to the Class C Certificates in an amount up to the Interest
Distribution Amount for the Class C Certificates,
sixth, to the Class C Certificates in an amount up to the Class C
Interest Shortfall,
seventh, to the Class D Certificates in an amount up to the Interest
Distribution Amount for the Class D Certificates,
eighth, to the Class D Certificates in an amount up to the Class D
Interest Shortfall,
ninth, to the Class A-1 Certificates, in reduction of the Certificate
Balance thereof, in an amount up to the Principal Distribution Amount,
until the Certificate Balance of the Class A-1 Certificates has been
reduced to zero,
tenth, when the Certificate Balance of the Class A-1 Certificates has
been reduced to zero, to the Class A-2 Certificates, in reduction of the
Certificate Balance thereof, in an amount up to the Principal Distribution
Amount, until the Certificate Balance of the Class A-2 Certificates has
been reduced to zero,
eleventh, when the Certificate Balances of the Class A-1 and Class A-2
Certificates have been reduced to zero, to the Class A-3L Interest, in
reduction of the Certificate Balance thereof, in an amount up to the
Principal Distribution Amount until the Certificate Balance of the Class A-
3L Interest has been reduced to zero,
twelfth, when the Certificate Balances of all prior Classes have been
reduced to zero, to the Class B Certificates, in reduction of the
Certificate Balance thereof, in an amount up to the Principal Distribution
Amount, until the Certificate Balance of the Class B Certificates has been
reduced to zero,
thirteenth, when the Certificate Balances of all prior Classes have been
reduced to zero, to the Class C Certificates, in reduction of the
Certificate Balance thereof, in an amount up to the Principal Distribution
Amount, until the Certificate Balance of the Class C Certificates has been
reduced to zero,
fourteenth, when the Certificate Balances of all prior Classes have been
reduced to zero, to the Class D Certificates, in reduction of the
Certificate Balance thereof, in an amount up to the Principal Distribution
Amount, until the Certificate Balance of the Class D Certificates has been
reduced to zero, and
fifteenth, when the Certificate Balances of all Classes of Offered
Certificates (excluding the Class A-3P&I and Class A-3IO Certificates) and
the Class A-3L Interest have been reduced to zero, and after payment in
full of all expenses of the Lower-Tier REMIC, to the Class R Certificate
any remaining Available Distribution Amount.
Notwithstanding the foregoing, in the event that there is a P&I Shortfall
with respect to any Distribution Date, the priorities for distributions in
reduction of the Certificate Balances of Class A-1 Certificates, Class A-2
Certificates, and the Class A-3L Interest will be modified for such
Distribution Date so that, in lieu of the ninth, tenth, and eleventh
priorities set forth above, the ninth priority will be "ninth, to the Class A-
1 Certificates, Class A-2 Certificates, and Class A-3L Interest, pro rata
based upon the amount distributable and the respective Certificate Balance of
each such Class, in reduction of the aggregate Certificate Balances thereof,
in an amount up to the Principal Distribution Amount, until the Certificate
Balances of the Class A-1 Certificates, Class A-2 Certificates, and Class A-3L
Interest have been reduced to zero."
On each Distribution Date, amounts (other than Unscheduled Payments and
Prepayment Premiums) distributed to the Trustee, as holder of the Class A-3L
Interest, and deposited in the Upper-Tier Distribution Account will be
distributed by the Paying Agent to holders of the Class A-3P&I, Class A-3IO,
and Class UR Certificates in the following order of priority, in each case to
the extent of the amount on deposit in the Upper-Tier Distribution Account:
first, to the Class A-3P&I and Class A-3IO Certificates, pro rata, based upon
the amount distributable and the respective Interest Distribution Amount for
each Class, in an amount up to the
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aggregate Interest Distribution Amounts for the Class A-3P&I and Class A-3IO
Certificates; second, to the Class A-3P&I and Class A-3IO Certificates, pro
rata, based upon the amount distributable and the respective Interest
Shortfalls, for each Class, in an amount up to the aggregate Interest
Shortfall for the Class A-3P&I and Class A-3IO Certificates; third, to the
Class A-3P&I Certificates in reduction of the Certificate Balance thereof,
until the Certificate Balance of the Class A-3P&I Certificates has been
reduced to zero; and fourth, when the Certificate Balance of the Class A-3P&I
Certificates has been reduced to zero and after payment in full of all
expenses of the Upper-Tier REMIC, to the holder of the Class UR Certificate,
any amount remaining in the Upper-Tier Distribution Account.
Unscheduled Payments. Distributions of the aggregate amount of Unscheduled
Payments will be made by the Paying Agent from the Lower-Tier REMIC on each
Distribution Date in the following priority: first, to the Class A-1
Certificates, in reduction of the Certificate Balance thereof, in an amount up
to the amount of Unscheduled Payments, until the Certificate Balance of the
Class A-1 Certificates has been reduced to zero, second, when the Certificate
Balance of the Class A-1 Certificates has been reduced to zero, to the
Class A-2 Certificates, in reduction of the Certificate Balance thereof, in an
amount up to the amount of any remaining Unscheduled Payments until the
Certificate Balance of the Class A-2 Certificates has been reduced to zero,
third, when the Certificate Balances of all prior Classes have been reduced to
zero, to the Class A-3L Interest, in reduction of the Certificate Balance
thereof, in an amount up to the amount of any remaining Unscheduled Payments
until the Certificate Balance of the Class A-3L Interest has been reduced to
zero (which amounts the Trustee will distribute to the holders of the Class A-
3P&I Certificates as set forth below), fourth, when the Certificate Balances
of all prior Classes have been reduced to zero, to the Class B Certificates,
in reduction of the Certificate Balance thereof, in an amount up to the amount
of any remaining Unscheduled Payments until the Certificate Balance of the
Class B Certificates has been reduced to zero, fifth, when the Certificate
Balances of all prior Classes have been reduced to zero, to the Class C
Certificates, in reduction of the Certificate Balance thereof, in an amount up
to the amount of any remaining Unscheduled Payments until the Certificate
Balances of the Class C Certificates has been reduced to zero, sixth, when the
Certificate Balances of all prior Classes have been reduced to zero, to the
Class D Certificates, in reduction of the Certificate Balance thereof, in an
amount up to the amount of any remaining Unscheduled Payments until the
Certificate Balance of the Class D Certificates has been reduced to zero, and
seventh, when the Certificate Balances of all Classes have been reduced to
zero, to be treated as an Available Distribution Amount and distributed in
accordance with the priorities therefor.
Notwithstanding the foregoing, in the event that there is a P&I Shortfall on
any Distribution Date, the priorities for distributions of Unscheduled
Payments in reduction of the Certificate Balances of Class A-1 Certificates,
the Class A-2 Certificates, and the Class A-3L Interest, will be modified for
such Distribution Date so that, in lieu of the first, second, and third
priorities, set forth above, the first priority will be "first, to the Class
A-1 Certificates, the Class A-2 Certificates, and the Class A-3L Interest, pro
rata, based on the amount distributable and the respective Certificate Balance
of each Class, in reduction of the Certificate Balance thereof, in an amount
up to the Unscheduled Payments, until the aggregate Certificate Balances of
the Class A-1 and Class A-2 Certificates, and the Class A-3L Interest have
been reduced to zero."
Any distribution of Unscheduled Payments made to the Trustee as holder of
the Class A-3L Interest in turn will be distributed to the Class A-3P&I
Certificates until the Certificate Balance of the Class A-3P&I Certificate has
been reduced to zero. Any remaining such amounts will be distributed among the
holders of the Class A-3P&I, Class A-3IO, and Class UR Certificates in the
order of priorities set forth above with respect to the Available Distribution
Amount.
Prepayment Premiums. On each Distribution Date, the Prepayment Premium paid
by the Company during the preceding Due Period with respect to prepayments of
principal applied to any component of the Mortgage Loan will be distributed,
pro rata, to the holders of the corresponding Class of Offered Certificates
(excluding the Class A-3P&I and Class A-3IO Certificates) and to the Trustee
as the holder of the Class A-3L Interest (which in turn will distribute such
amounts to the holders of the Class A-3P&I and Class A-3IO Certificates as set
forth below). Notwithstanding the foregoing, if the Company fails to pay the
full amount of any Prepayment Premiums owing with respect to principal
prepayments made on any component of the Mortgage Loan during
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the preceding Due Period (plus any unpaid Prepayment Premiums accrued during
prior Due Periods), then the aggregate amount of Prepayment Premiums actually
paid during the preceding Due Period will be distributed sequentially to the
Classes of Offered Certificates (excluding the Class A-3P&I and Class A-3IO
Certificates) and the Class A-3L Interest corresponding to components as to
which prepayments have been made in the same order of priority as Unscheduled
Payments. Each such Class of Offered Certificates and the Class A-3L Interest
will be entitled to receive distributions of all accrued Prepayment Premiums
payable for principal prepayments on the corresponding component of the
Mortgage Loan before any Class subordinate thereto receives any payment of
accrued Prepayment Premiums.
Prepayment Premiums received with respect to the Class A-3L Interest will be
distributed to holders of the Class A-3P&I Certificates and the Class A-3IO
Certificates, pro rata based on the amount of Prepayment Premium the holders
of the Class A-3P&I Certificates are entitled to receive (the "Class A-3P&I
Premium Amount") and the amount of Prepayment Premium the holders of the Class
A-3IO Certificates are entitled to receive (the "Class A-3IO Premium Amount")
as described in the next sentence. The Class A-3P&I Premium Amount shall equal
that portion of the Prepayment Premium that would have been payable with
respect to the Class A-3L Interest if the interest rate applicable under the
Loan Agreement to the component of the Mortgage Loan corresponding to the
Class A-3L Interest were equal to the Class A-3P&I Pass-Through Rate. The
Class A-3IO Premium Amount shall equal that portion of the Prepayment Premium
distributed to the Upper-Tier REMIC with respect to the Class A-3L Interest
minus the Class A-3P&I Premium Amount.
Net Default Interest. On each Distribution Date, Net Default Interest
received during the related Due Period shall be distributed to holders of
Offered Certificates (other than the Class A-3IO Certificates), pro rata,
based on the initial Certificate Balances of such Offered Certificates divided
by the initial aggregate principal balance of the Mortgage Loan. The holders
of such Class of Offered Certificates (other than the Class A-3IO
Certificates) will be entitled to receive the foregoing distributions of Net
Default Interest on the Distribution Date relating to the Due Period in which
such amounts were received regardless of the Certificate Balance of such
Class, and even if the Certificate Balance of such Class has previously been
reduced to zero.
Liquidated Damages. On each Distribution Date, Liquidated Damages paid by
the Company during the preceding Due Period shall be distributed to the
holders of Certificates (other than the Class A-3IO Certificates), pro rata,
based on the initial Certificate Balances of such Offered Certificates divided
by the initial aggregate principal balance of the Mortgage Loan. The holders
of each such Class of Offered Certificates (other than the Class A-3IO
Certificates) will be entitled to receive the foregoing distributions of
Liquidated Damages on the Distribution Date relating to the Due Period in
which such payments were received regardless of the Certificate Balance of
such Class, and even if the Certificate Balance of such Class has previously
been reduced to zero.
VOTING RIGHTS
The Offered Certificates (other than the Class A-3IO Certificates) will be
allocated voting rights (the "Voting Rights") for purposes of certain actions
that may be taken pursuant to the Trust and Servicing Agreement. At any time
that any such Offered Certificates are outstanding, the Voting Rights will be
allocated 100% to such outstanding Certificates, and will be allocated among
such Offered Certificates (other than the Class A-3IO Certificates) in
proportion to their respective Certificate Balances, as such balances may
change from time to time. The Class A-3IO Certificates shall have no Voting
Rights except in certain circumstances where the consent of 100% of all
Offered Certificates or 100% of the Class A-3IO Certificates is required.
Upon the occurrence and during the continuance of any event of default under
the Trust and Servicing Agreement, Certificateholders evidencing, in the
aggregate, not less than a majority of the Voting Rights may direct the time,
method, and place of conducting remedies available to the Trustee upon
adequate indemnification of the Trustee by the requesting Certificateholders.
Holders of Offered Certificates evidencing, in the aggregate, 66 2/3% of the
Voting Rights may remove the Trustee and appoint a successor Trustee as
provided in the Trust and Servicing Agreement.
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Certain amendments to the Trust and Servicing Agreement and the Loan
Documents are also subject to the consent of Certificateholders. See
"Description of the Trust and Servicing Agreement--Amendments" and "--
Modification of the Loan Documents" and "Description of the Mortgages--
Modifications of Mortgages and Other Loan Documents."
If three or more Certificateholders (i) state that such Certificateholders
desire to communicate with other Certificateholders with respect to their
rights under the Trust and Servicing Agreement or under the Certificates, and
(ii) provide a copy of the communication which such Certificateholders propose
to transmit, then the Trustee must, within 10 Business Days after the receipt
of such communication, transmit such communication to the other
Certificateholders as of the most recent Record Date. The expense of
transmitting any such communication shall be borne by the requesting
Certificateholders and will not be borne by the Trustee.
REPORTS TO CERTIFICATEHOLDERS; AVAILABLE INFORMATION
On each Distribution Date, the Paying Agent shall forward by mail to the
initial purchaser, the Trustee, the Rating Agencies, the Company, and each
Certificateholder a statement, prepared by the Servicer, in respect of the
distributions made on such Distribution Date (a "Distribution Date Statement")
setting forth, among other things:
(a) For each Class of Offered Certificates, the amount of the
distributions made on such Distribution Date allocable to interest and the
amount allocable to principal (including Unscheduled Payments (specifying
the source thereof)), and the amount of distributions made on such
Distribution Date attributable to Prepayment Premiums, Net Default
Interest, and Liquidated Damages;
(b) If the amount of the distributions to the holders of each Class of
Offered Certificates was less than the full amount that would have been
distributable to such holders if there had been a sufficient Available
Distribution Amount, the amount of the shortfall, stating separately the
amounts allocable to interest and principal;
(c) The amount of any P&I Advance by the Servicer included in the amounts
distributed to the Certificateholders, stating separately the amounts
allocable to interest and principal;
(d) The Certificate Balance or Notional Balance of each Class of Offered
Certificates after giving effect to any distribution in reduction of the
Certificate Balance or Notional Balance on such Distribution Date;
(e) The aggregate principal balance of the Mortgage Loan and the
principal balance of each component thereof as of such Distribution Date;
(f) The aggregate amount of Unscheduled Payments (and the nature thereof)
made during the related Due Period;
(g) Identification of any Mortgage Loan Event of Default, or any event of
default under the Trust and Servicing Agreement as of the close of business
on the last day of the immediately preceding calendar month;
(h) The amount of the servicing compensation paid to the Servicer with
respect to such Distribution Date, including the Servicing Fee, any other
Company charges retained by the Servicer;
(i) The gross sales, gross expenses, aggregate NOI for the Mortgaged
Properties for the immediately preceding 13 accounting periods, computed as
provided in the Loan Agreement, and the current Debt Service Coverage Ratio
for the Mortgage Loan, computed as provided in the Loan Agreement. For
purposes of these reports, the Debt Service Coverage Ratio will be
calculated using the Weighted Average Interest Rate applicable to the
Mortgage Loan as of the beginning of such 12-month period; and
(j) The REVPAR for the most recent four week accounting period preceding
the Distribution Date for which information is available, average
occupancy, and average daily room rate for each of the Hotels, and an
update of the information provided on the tables included within
"Description of the Mortgaged Properties--Description of the Portfolio and
Specific Property Information."
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The Trustee will make such additional reports available to
Certificateholders as are required under the Trust Indenture Act of 1939. The
Servicer will be required to provide the Paying Agent and the Trustee with the
information described above, and the Paying Agent's obligation, on behalf of
the Trustee, to provide such information to Certificateholders and others will
be contingent on its receipt of such information from the Servicer. To the
extent that the information required to be furnished by the Servicer is based
on information required to be provided by the Company, the Servicer's
obligation to furnish such information to the Paying Agent will be contingent
on its receipt of such information from the Company. The Servicer will be
entitled to rely on information supplied by the Company without independent
verification.
On a quarterly basis, within 90 days following the end of each fiscal
quarter of the Company (except for the last fiscal quarter), the Company will
be required to forward by mail to the Servicer, the Rating Agencies, the
initial purchaser, and the Trustee, and the Servicer will be required to
forward to each Certificateholder (together with a calculation of the current
Debt Service Coverage Ratio provided by the Company), a report setting forth
the average occupancy rate, average daily room rate, and REVPAR for each Hotel
and the balance of the FF&E Reserve Account.
On an annual basis, within 120 days following the end of the fiscal year,
the Company will be required to forward by mail to the Servicer, CBM Funding,
the Rating Agencies, the initial purchaser, the Trustee, and the Servicer will
be required to forward to each Certificateholder (together with a calculation
of the Debt Service Coverage Ratio for that year provided by the Company), an
annual report summarizing on an annual basis (if appropriate) the items
provided in the Distribution Date Statements, including in such report, among
other items, the NOI, the average year-end occupancy rate, average daily room
rate, and REVPAR for each Hotel for that year, and the balance of the FF&E
Reserve Account.
OTHER INFORMATION
The Trust and Servicing Agreement requires that the Servicer make available
at its offices primarily responsible for servicing the Mortgage Loan, during
normal business hours, for review by any Certificateholder or other person
designated by a Certificateholder to the Servicer, originals or copies of,
among other things, the following items (except to the extent not permitted by
applicable law or under any of the Loan Documents): (i) the Trust and
Servicing Agreement and any amendments thereto; (ii) all Distribution Date
statements delivered to Certificateholders since January 24, 1996; (iii) all
annual officer's certificates and accountant's reports required to be
delivered by the Company and the Servicer to the Trustee since January 24,
1996 regarding compliance with the relevant agreements; (iv) the most recent
property inspection report prepared by or on behalf of the Servicer in respect
of each Hotel; (v) the most recent operating statements, if any, collected by
or on behalf of the Servicer with respect to the Mortgaged Properties; (vi)
any and all modifications, waivers, or amendments of the terms of the Loan
Agreement or the Mortgages entered into by the Servicer; (vii) any and all
officer's certificates and other evidence delivered to the Trustee to support
the Servicer's determination that any Advance was, or if made would be, a
Nonrecoverable Advance. Copies of any and all of the foregoing items will be
available from the Servicer upon request; however, the Servicer will be
permitted to require payment of a sum sufficient to cover reasonable costs and
expenses of providing such copies.
BOOK-ENTRY REGISTRATION
Each Class of New Certificates will initially be represented by one or more
New Certificates registered in the name of the nominee of DTC. DTC has advised
CBM Funding that DTC's nominee will be Cede & Co. ("Cede"). Accordingly, Cede
is expected to be the holder of record of each Class of Offered Certificates
sold to Qualified Institutional Buyers ("QIBs"). Only Institutional Accredited
Investors who are holders of New Certificates will be initially entitled to
receive a certificate representing such person's interest in the Offered
Certificates. Unless and until Definitive Certificates are issued to QIBs
under the limited circumstances described herein, all references to actions by
Certificateholders shall, with respect to holders of DTC Registered
Certificates, refer to actions taken by DTC upon instructions from DTC
Participants, and all references herein to distributions, notices, reports,
and statements to Certificateholders shall, with respect to holders of DTC
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Registered Certificates, refer to distributions, notices, reports, and
statements to Cede, as the registered holder of each Class of Offered
Certificates, for distribution to DTC Participants in accordance with DTC
procedures, provided that, all notices, reports, communications, or other
information to be distributed under the Trust and Servicing Agreement shall be
distributed to any Certificateholder that provides information and an
acceptable certification regarding its name, address and beneficial ownership.
Certificateholders may hold their Certificates through DTC if they are DTC
Participants or indirectly through organizations which are DTC Participants.
Transfers between DTC Participants will occur in accordance with DTC rules.
DTC has advised CBM Funding that it is a limited-purpose trust company
organized under the New York Banking Law, a "banking organization" within the
meaning of the New York Banking Law, a member of the Federal Reserve System, a
"clearing corporation" within the meaning of the New York Uniform Commercial
Code (the "UCC"), and a "clearing agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended.
DTC was created to hold securities for its DTC Participants and to facilitate
the clearance and settlement of securities transactions between DTC
Participants through electronic computerized book-entry changes in accounts of
DTC Participants, thereby eliminating the need for physical movement of
certificates. DTC Participants include the initial purchaser, other securities
brokers and dealers, banks, trust companies, and clearing corporations, and
may include certain other organizations. Indirect access to the DTC system
also is available to other entities, 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 DTC Participants").
The rules applicable to DTC, DTC Participants, and Indirect DTC Participants
are on file with the Commission.
Certificateholders that are not DTC Participants but desire to purchase,
sell, or otherwise transfer ownership of or other interests in New
Certificates may do so only through DTC Participants. In addition, unless
Definitive Certificates are issued, Certificateholders will receive all
distributions on the New Certificates through DTC Participants. Under a book-
entry format, Certificateholders will receive payments after the related
Distribution Date because, while payments are required to be forwarded to
Cede, as nominee for DTC, on each such date, DTC will forward such payments to
DTC Participants which thereafter will be required to forward them to Indirect
DTC Participants or Certificateholders. Accordingly, Certificateholders that
are not DTC Participants may experience delays in their receipt of payment.
Unless Definitive Certificates are issued as described below, the sole
registered holder of each Class of New Certificates will be Cede, as nominee
of DTC.
Under the rules, regulations, and procedures creating and affecting DTC and
its operations (the "Rules"), DTC is required to make book-entry transfers
among DTC Participants on whose behalf it acts with respect to the New
Certificates and is required to receive and transmit through DTC payments of
principal, interest, and Prepayment Premium, if any, on such New Certificates.
DTC Participants and Indirect DTC Participants with which Certificateholders
have accounts similarly are required to make book-entry transfers and receive
and transmit such payments on behalf of their respective Certificateholders.
Accordingly, although owners of DTC Registered Certificates will not possess
physical certificates, the Rules provide a mechanism by which owners of the
New Certificates through their DTC Participants will receive payments and will
be able to transfer their interests in such New Certificates.
Because DTC can only act on behalf of DTC Participants, who in turn act on
behalf of Indirect DTC Participants and certain banks, the ability of an owner
of New Certificates to pledge DTC Registered Certificates to persons or
entities that do not participate in the DTC system, or otherwise take actions
in respect of such New Certificates, may be limited due to the lack of a
physical certificate for such New Certificates.
DTC has advised CBM Funding that it will take any action permitted to be
taken by Certificateholders under the Trust and Servicing Agreement only at
the direction of one or more DTC Participants to whose account the DTC
Registered Certificates are credited. DTC may take conflicting actions with
respect to other New
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Certificates to the extent that such actions are taken on behalf of DTC
Participants whose holdings include such New Certificates.
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of DTC Registered Certificates among DTC Participants, it is under
no obligation to perform or to continue to perform such procedures and such
procedures may be discontinued at any time.
DEFINITIVE CERTIFICATES
The New Certificates will be issued as Definitive Certificates ("Definitive
Certificates") to Certificateholders or their nominees, rather than to DTC or
its nominee, only (a) to Institutional Accredited Investors as defined under
Rule 501 (a), (1), (2), (3), or (7) of the Securities Act and (b) to QIBs (i)
if CBM Funding advises the Certificate Registrar in writing that DTC is no
longer willing or able to discharge properly its responsibilities as
depository with respect to the New Certificates and the Trustee and CBM
Funding are unable to locate a qualified successor, (ii) if CBM Funding, at
its option, elects to terminate the book-entry system through DTC or
(iii) upon the occurrence of any event of default under the Trust and
Servicing Agreement.
Upon notice of the occurrence of any of the events described in clauses (b)
(i)-(iii) of the preceding paragraph, DTC is required to notify all DTC
Participants of the availability to QIBs of Definitive Certificates. Upon
surrender by DTC of the New Certificates and receipt from DTC of instructions
for re-registration, the Certificate Registrar will issue such Certificates in
the form of Definitive Certificates, and thereafter the Trustee, the Paying
Agent, the Certificate Registrar, and the Servicer will recognize the
recordholders of such Definitive Certificates as Certificateholders under the
Trust and Servicing Agreement.
Definitive Certificates will be transferable and exchangeable at the offices
of the Trustee or its agent. Definitive Certificates surrendered to the
Certificate Registrar for registration of transfer or exchange must be
accompanied by a written instrument of transfer in form satisfactory to the
Certificate Registrar. No service charge will be made for any registration of
transfer or exchange of Definitive Certificates, but, in the case of a
transfer, payment of a sum sufficient to cover any tax or other governmental
charge may be required.
In no event shall a Definitive Certificate representing Class B, Class C, or
Class D Certificates or any interest therein be transferred unless the
prospective transferee shall have provided to CBM Funding, the Trustee, and
Servicer a certification or opinion of counsel, at their discretion and in a
form satisfactory to them that either (1) such prospective transferee is not a
Plan, or a person acting on behalf of a Plan or using the assets of such a
Plan to acquire the Definitive Certificates, or (2) no "prohibited
transaction" under ERISA or the Code will occur in connection with such
prospective transferee's acquisition, sale, and holding of the Class B, Class
C, or Class D Certificate, or the acquisition, sale, and holding of the Class
B, Class C, or Class D Certificate by such prospective transferee is subject
to a statutory or administrative exemption from the "prohibited transaction"
provisions of ERISA and the Code. If the Trustee, CBM Funding, and the
Servicer seek an opinion of counsel, such opinion shall be obtained at the
expense of the prospective transferor or transferee, and shall be delivered to
the Trustee, CBM Funding, and the Servicer prior to or contemporaneously with
any such transfer.
EXCHANGE OFFER; REGISTRATION RIGHTS
In connection with the issuance of the Old Certificates, CBM Funding, the
Company and the initial purchaser of the Old Certificates entered into the
Registration Rights Agreement pursuant to which the Issuer agreed to, (i) no
later than 90 days after the Issue Date use its reasonable best efforts to
file a registration statement ("the Exchange Offer Registration Statement")
with the Commission in accordance with the Securities Act to exchange the Old
Certificates for the New Certificates, which will be substantially identical
to the Old Certificates (except that such New Certificates will not contain
legends with respect to transfer restrictions) and (ii) use its reasonable
best efforts to cause such Exchange Offer Registration Statement to be
declared effective under the Securities Act within 150 days after the Issue
Date.
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In the event that applicable interpretations of the staff of the Commission
do not permit the Issuer to effect such an Exchange Offer as contemplated in
the Registration Rights Agreement, the Issuer will, (a) as promptly as
practicable (but in no event later than 30 days after such filing obligation
arises), file a shelf registration statement (a "Shelf Registration Statement"
and, together with the Exchange Offer Registration Statement, and each
individually or if certain holders are not eligible to participate in such
Exchange Offer, a "Registration Statement") covering resales of the Old
Certificates, (b) use its reasonable best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act as
promptly as practicable thereafter (but in no event later than 90 days after
such filing obligation arises), and (c) use its reasonable best efforts to
keep effective such Shelf Registration Statement until the earlier of 36
months following the effective date of the Shelf Registration Statement and
such time as all of the Old Certificates have been sold thereunder or
otherwise cease to be a Registrable Security (as defined in the Registration
Rights Agreement). The Issuer will, in the event that a Shelf Registration
Statement is required to be filed, provide to each holder of the Old
Certificates copies of the prospectus, which is a part of such Shelf
Registration Statement, notify each such holder when such Shelf Registration
Statement for the Old Certificates has become effective, and take certain
other actions as are required to permit unrestricted resales of the Old
Certificates. A holder of Old Certificates who sells such Old Certificates
pursuant to the Shelf Registration Statement generally will be required to be
named as a selling security holder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions under the Securities Act in connection with such sales, and will be
entitled to the benefits of and be bound by the provisions of the Registration
Rights Agreement (including certain indemnification and contribution rights
and obligations).
If (a) the Issuer fails to consummate the Exchange Offer within 45 days of
the effectiveness of the Exchange Offer Registration Statement, (b) the Issuer
fails to file, or the Commission does not declare the effectiveness of the
Shelf Registration Statement, if required, within the time periods specified
therefor in the Registration Rights Agreement, or (c) the Exchange Offer
Registration Statement or the Shelf Registration Statement is declared
effective but thereafter ceases to be effective or usable in connection with
resales of Old Certificates during the period specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (c)
above, a "Registration Default"), then the Company will pay Liquidated Damages
to the Trust Fund on each Due Date in an amount, on a per annum basis, equal
to 0.20% of the outstanding principal balance on the Mortgage Loan on the
first day of the related Due Period for so long as the Registration Default
continues. On each Distribution Date, Liquidated Damages paid by the Company
during the preceding Due Period will be distributed to the holders of Old
Certificates (other than the Class A-3IO Certificates) as described under, "--
Distributions" above. If Liquidated Damages are not paid by the Company when
due because of insufficient cash flow, then such Liquidated Damages will be
deferred, without interest, until such time as sufficient amounts are received
by the Trust Fund. Such deferral will not constitute a Mortgage Loan Event of
Default.
DESCRIPTION OF THE TRUST AND SERVICING AGREEMENT
The following summaries of certain provisions of the Trust and Servicing
Agreement are summaries only, do not purport to be complete and are qualified
in their entirety by reference to the Trust and Servicing Agreement, a copy of
the form of which was filed as an exhibit to the registration statement of
which this Prospectus is a part. Reference should be made to the Trust and
Servicing Agreement for further details, however wherever particular
provisions of the Trust and Servicing Agreement are referred to in these
summaries, such provisions are incorporated by reference as a part of the
statements made and such statements are qualified in their entirety by such
reference.
ASSIGNMENT OF THE MORTGAGE LOAN
On the Issue Date, CBM Funding assigned the Mortgage Loan, without recourse
(except to the extent provided in the Trust and Servicing Agreement), to the
Trustee for the benefit of the Certificateholders, and delivered to the
Trustee, or its designee, among other things, (i) the original Mortgage Note
endorsed, without recourse, to the order of the Trustee, as trustee, (ii) the
original Mortgages or certified copies thereof, (iii) original Mortgage
assignments in recordable form in favor of the Trustee, as trustee, (iv) to
the extent not contained in the Mortgages, the original assignments of leases,
rents, and profits or counterparts thereof, (v) if applicable, assignments in
favor of the Trustee of such assignments of leases, rents, and profits, (vi)
where applicable, a
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certified copy of the UCC-1 financing statements, if any, including UCC-3
continuation statements and UCC-3 assignments, (vii) original lender's title
insurance policies (or marked commitments to insure), and (viii) all other
instruments, if any, constituting additional security for the repayment of the
Mortgage Loan. The Trustee will hold or cause to be held such documents in
trust for the benefit of the Certificateholders. The Trustee, or its designee,
reviewed such Loan Documents and reported no defects therein to CBM Funding.
Upon the conveyance of the Mortgage Loan as provided above, the Authenticating
Agent authenticated and delivered the Old Certificates to the written
direction of CBM Funding.
THE SERVICER
Bankers Trust Company is acting as Servicer pursuant to the Trust and
Servicing Agreement. The Servicer is a New York banking corporation. The
Servicer's offices are located at Four Albany Street, New York, New York
10006. In addition, the Trustee has appointed Bankers Trust Company to serve
as Custodian, Paying Agent, Authenticating Agent, Certificate Registrar, and
Transfer Agent under the Trust and Servicing Agreement.
RESPONSIBILITIES OF THE SERVICER
The Servicer is required to service and administer the Mortgage Loan solely
on behalf of, in the best interest of, and for the benefit of, the
Certificateholders, in accordance with the Trust and Servicing Agreement and
the Mortgage Loan and the higher of the following standards: (i) the same
care, skill, prudence, and diligence with which, the Servicer services and
administers similar mortgage loans that are held for other third-party
portfolios, giving due consideration to customary and usual standards of
practice of prudent institutional commercial mortgage lenders and loan
servicers of assets comparable to the Mortgage Loan, and with a view to
maximizing the timely recovery of interest and principal on the Mortgage Loan,
and (ii) the same care, skill, prudence, and diligence which the Servicer uses
for loans which the Servicer owns, but without regard to (a) any relationship
that the Servicer, or any affiliate of the Servicer, may have with the Company
or any affiliate thereof, (b) the ownership of any Certificate by the Servicer
or any affiliate of the Servicer, (c) the Servicer's obligation to make
Advances or to incur servicing expenses with respect to the Mortgage Loan, or
(d) the Servicer's right to receive compensation for its services under the
Trust and Servicing Agreement or with respect to any particular transaction.
The Servicer is permitted to utilize a subservicer, at its own expense. The
Servicer is permitted to utilize other agents or attorneys in performing
certain of its obligations under the Trust and Servicing Agreement, including
without limitation, the enforcement of any Mortgage, which will be an expense
of the Trust Fund, payable from the Collection Account or as reimbursement of
Property Protection Advances if paid by the Servicer from its funds. The
Servicer will not be relieved of any obligation carried out by its
subservicer, agents, or attorneys, but will not be responsible for the acts
and omissions of any subservicers, agents, or attorneys selected with due
care.
SERVICING FEE
The principal compensation to be paid to the Servicer in respect of its
servicing activities is the Servicing Fee. The Servicing Fee is payable
monthly by the Company and accrues at a rate of .035% per annum, computed on
the basis of the same principal amount and for the same period respecting
which any related interest payment on the Mortgage Loan is computed. The
Servicer is responsible for paying the Trustee's regular fee and any co-
trustee fee out of the Servicing Fee.
CONFLICTS OF INTEREST
The Servicer or its affiliates own and are in the business of acquiring
assets similar to the Mortgage Loan held by the Trust Fund. To the extent that
any mortgage loans owned and/or serviced by the Servicer or its affiliates are
similar to the Mortgage Loan held by the Trust Fund, the mortgaged properties
related to such mortgage loans may, depending upon certain circumstances such
as the location of the mortgaged property, compete with the Mortgaged
Properties related to the Mortgage Loan held by the Trust Fund for purchasers,
financing, and similar resources.
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THE TRUSTEE
Marine Midland Bank, a New York banking corporation and trust company, is
acting as Trustee pursuant to the Trust and Servicing Agreement. The Trustee's
corporate trust office is located at 140 Broadway, New York, New York 10005.
The Trustee receives a trustee fee in respect of its trust activities which is
paid by the Servicer out of the Servicing Fee.
DUTIES OF THE TRUSTEE
The Trustee makes no representation as to the validity or sufficiency of the
Trust and Servicing Agreement (other than its execution thereof), the Mortgage
Loan, or Loan Documents. The Trustee is not accountable for the use or
application by CBM Funding of any of the Certificates issued to it or of the
proceeds of such Certificates, or for the use of or application of any funds
paid to CBM Funding in respect of the assignment of the Mortgage Loan to the
Trust Fund, or any funds deposited in or withdrawn from the Cash Collateral
Account, Lockbox Account, Operating Account, Collection Account, Distribution
Account, Upper-Tier Distribution Account, Default Interest Distribution
Account, the Liquidated Damages Distribution Account, or any account
maintained by or on behalf of the Servicer, other than any funds held by the
Trustee in accordance with the Trust and Servicing Agreement. The Trustee will
be obligated, among other things, to pursue remedies under the Trust and
Servicing Agreement in the event of a breach of an obligation thereunder,
subject to the terms of the Trust and Servicing Agreement.
If no Trust and Servicing event of default has occurred and after the curing
of all Trust and Servicing events of default which may have occurred, the
Trustee is required to perform only those duties specifically required under
the Trust and Servicing Agreement. Upon receipt of the various documents
related to the Mortgage Loan required to be furnished to it, the Trustee is
required to examine such documents and to determine whether they conform on
their face to the requirements of the Trust and Servicing Agreement.
The Trustee may resign at any time by giving written notice to CBM Funding,
the initial purchaser, the Servicer, the Rating Agencies, the Certificate
Registrar, and the Certificateholders not less than 60 days before the date
specified in such notice for such resignation to take effect, provided that a
successor trustee must have been appointed by CBM Funding and must have
accepted such appointment before such resignation can take effect. If no
successor trustee is appointed within 30 days after the giving of such notice
of resignation, the resigning trustee may petition the court for appointment
of a successor trustee.
CBM Funding may remove the Trustee if the Trustee ceases to be eligible to
continue as such under the Trust and Servicing Agreement or if, at any time,
the Trustee becomes incapable of acting, or is adjudged bankrupt or insolvent,
or a receiver of the Trustee or its property is appointed, or any public
officer takes charge or control of the Trustee or of its property for the
purpose of rehabilitation, conservation, or liquidation. Certificateholders
evidencing not less than a majority of the Voting Rights of the Certificates
may remove the Trustee upon written notice to CBM Funding, the Servicer, and
the Trustee. Any resignation or removal of the Trustee and appointment of a
successor trustee will not become effective until acceptance of the
appointment by the successor trustee.
SERVICING OF THE MORTGAGE LOAN; INSPECTIONS
The Trust and Servicing Agreement requires the Servicer to service and
administer the Mortgage Loan on behalf of the Trustee and in the best
interests of and for the benefit of the Certificateholders (as determined by
the Servicer in the exercise of its reasonable judgment) in accordance with
the terms of the Trust and Servicing Agreement and the Mortgage Loan, and to
provide to the Paying Agent, no later than each Distribution Date, information
to enable the Paying Agent to prepare a statement setting forth the amount to
be distributed on such Distribution Date, stating the amounts of distributions
to be made on each Class of the Certificates and setting forth certain other
information with respect to the Mortgage Loan as set forth under "Description
of the New Certificates--Reports to Certificateholders."
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Until the principal and interest on the Mortgage Loan is paid in full, the
Servicer is required to proceed diligently to collect all payments called for
under the terms and provisions of the Mortgage Loan, and is required to follow
such collection procedures as it follows with respect to mortgage loans
comparable to the Mortgage Loan serviced by the Servicer for third parties to
the extent that such procedures are (i) consistent with the Trust and
Servicing Agreement and (ii) in accordance with accepted servicing practices
described therein. If the Servicer determines that a modification, waiver, or
amendment of the terms of the Mortgage Loan is reasonably likely to produce a
greater recovery on a present value basis than liquidation of the Mortgaged
Properties or would not be reasonably likely to adversely affect the timely
receipt of payments under the Mortgage Loan, then the Servicer may, but is not
required to, agree to a modification, waiver, or amendment of any of the terms
of the Mortgage Loan, provided, however, that each of the following conditions
are met: (i) there shall exist no Mortgage Loan Event of Default; (ii) the
action cannot reasonably be expected to result in an increase in the then
current loan-to-value ratio; (iii) the action cannot reasonably be expected to
result in a decrease in the Debt Service Coverage Ratio; (iv) the action will
not result in the imposition of any lien on any Mortgaged Property that is not
a Permitted Lien under the terms of the related Mortgage; (v) the action
complies with all applicable legal requirements, including, without
limitation, all zoning, environmental, and building laws, ordinances, and
regulations and any condition, easement, right-of-way, covenant, or
restriction of record applicable to any Mortgaged Property; (vi) to the extent
any additional criteria are specified for consent to a specific action, such
criteria have been satisfied in all material respects; (vii) the consent of
such action is otherwise consistent with accepted servicing practices; and
(viii) all other conditions precedent to the grant of such consent set forth
in the Loan Documents have been satisfied.
The Servicer shall, at its expense, inspect or cause to be inspected each
Mortgaged Property in such manner as shall be consistent with accepted
servicing practices, (i) at least once each year, (ii) upon receiving
information that such Mortgaged Property has been damaged, left vacant, or
abandoned, or waste is being committed thereto, or (iii) upon knowledge of a
material default under the Loan Documents. If the Company fails to pay any
sums due under the Mortgage Loan, Mortgage Note, or any Mortgage on or before
their due date and such failure is not remedied within five days, or if an
inspection is otherwise warranted in accordance with accepted servicing
practices, a Mortgaged Property shall be inspected by the Servicer as soon as
practicable at the expense of the Trust Fund. The cost of any such additional
inspection shall constitute a Property Protection Advance.
MODIFICATION OF THE LOAN DOCUMENTS
The Servicer shall not permit any modification or amendment with respect to
the Mortgage Loan that would extend the maturity date of the Mortgage Loan
beyond the Scheduled Balloon Maturity Date, unless the Servicer has notified
the Trustee in writing and the Servicer, on behalf of the Trustee, has
notified the Certificateholders in writing of such proposed modification or
amendment and such modification or amendment has been approved in writing by
holders of not less than 66 2/3% of the aggregate Voting Rights of all then
outstanding Offered Certificates (other than the Class A-3IO Certificates)
affected by such modification or amendment; provided, that no such
modification or amendment shall be made unless the Servicer shall have
obtained a Nondisqualification Opinion with respect to such modification or
amendment (which opinion shall be an expense of the Company) and certain other
conditions are satisfied.
Notwithstanding the foregoing, without the consent of 100% of the
Certificateholders (including the Class A-3IO Certificateholders) affected
thereby, the Servicer shall not permit any modification or amendment that
would (i) change the interest rate payable on any component of the Mortgage
Note; (ii) extend the maturity date of the Mortgage Loan beyond the Rated
Final Distribution Date with respect to any then outstanding Class of Offered
Certificates; (iii) forgive any payment of principal or interest on the
Mortgage Note; (iv) cause either of the Trust REMICs to fail to qualify as a
REMIC, or cause the remaining portion of the Trust Fund to fail to qualify as
a grantor trust that is not a taxable mortgage pool at any time Offered
Certificates are outstanding; (v) impair any holder's right to receive
payments of principal or interest on the Offered Certificates; or (vi) impair
any holder's benefit of the priority of the security interest in the Mortgaged
Property.
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FLOW OF FUNDS; ACCOUNTS
Collections and Disbursements by the Manager. The Company will cause all
payments from credit card companies and other cash receipts from operations of
each Mortgaged Property (other than petty cash held at the Mortgaged
Properties) to be deposited directly into the Manager's Account, a segregated
subaccount of MII's cash management system (the "MII Master Account"), for
which separate accounting is maintained and into which only funds from the
Mortgaged Properties are deposited or, in the case of certain cash and credit
card receipts, to local bank accounts maintained for the Manager and
individual Mortgaged Properties by the Manager. At least twice each week,
excess amounts held in each such local bank account are transferred by the
Manager into the Manager's Account. The Manager's Account, the local bank
accounts, and the MII Master Account are controlled by the Manager or MII and
are not pledged as security for the Mortgage Loan. Funds deposited into the
Manager's Account may be commingled with other funds held in the MII Master
Account.
The Manager makes disbursements on behalf of the Company from funds in the
Manager's Account, the local bank accounts, the MII Master Account, or petty
cash to pay all operating expenses of the Mortgaged Properties, including all
management fees due under the Management Agreement (other than Subordinated
Obligations). The Manager also uses such funds to make deposits every four
weeks into the FF&E Reserve Account which, under the terms of the Management
Agreement, currently requires annual FF&E Reserve Account deposits aggregating
5% of total sales for the Mortgaged Properties.
The FF&E Reserve Account is maintained in the name of the Servicer on behalf
of the Trustee and is pledged as security for the Mortgage Loan. For so long
as the Manager is a subsidiary of MII, the Management Agreement is in effect,
and the senior long-term unsecured debt of MII is rated at least "BBB+" by S&P
and "BBB" by DCR, the Manager will be entitled to receive disbursements from
the FF&E Reserve Account to cover estimated expenditures for FF&E
Replacements. By making a request for disbursements, the Manager will be
deemed to have certified that all amounts previously drawn from the FF&E
Reserve Account and expended were expended solely for FF&E Replacements and
that to the best of the Manager's knowledge, there are no accounts payable of
the Mortgaged Properties for FF&E Replacements with an unpaid balance of more
than $25,000 individually or more than $300,000 in the aggregate that are more
than 60 days past due (unless they are being contested) except as otherwise
stated by the Manager. If S&P's rating or DCR's rating of MII's senior long-
term unsecured debt falls below "BBB+" or "BBB," respectively, the Manager
will be required to submit lists of persons to be paid and amounts to be
expended in connection with each draw request and will be required to deliver
the certifications described above.
Every two weeks, the Manager will transfer into the Cash Collateral Account,
which has been established by the Servicer in the name of the Trustee and is
pledged as collateral for the Mortgage Loan, as described further below, an
amount equal to operating profit of the Mortgaged Properties (calculated
without deducting Subordinated Obligations). Such transfers will alternatively
represent 50% of budgeted operating profit and actual operating profit for the
preceding accounting period. Distributions received by the Company from
Deerfield LLC also will be deposited into the Cash Collateral Account.
In the event, and for so long as, the senior unsecured long-term debt of MII
is rated less than "A-" by S&P or "BBB+" by DCR, the Company will be required
to establish escrow accounts with the Servicer, which shall be subaccounts of
the Cash Collateral Account, for real estate tax and insurance premium
payments. These escrow accounts will be required to be funded to prescribed
levels before any amounts are distributed to the Company or any Subordinated
Obligations are paid in any month.
Notwithstanding the foregoing, if the Manager is no longer a subsidiary of
MII or in the event that the senior long-term unsecured debt of MII is rated
less than "BBB+" by S&P or "BBB" by DCR, (i) all revenues from operations of
the Hotels will be required to be deposited into the Lockbox Account, which is
established by the Servicer in the name of the Trustee and pledged as
collateral for the Mortgage Loan, rather than into the Manager's Account, or
into the local bank accounts, (ii) all excess funds in the local bank accounts
will be transferred twice each week into the Lockbox Account and (iii) certain
escrow accounts will be established, as described further below.
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Accounts Maintained by the Servicer. In the event that the senior long-term
unsecured debt of MII is rated less than "BBB+" by S&P or "BBB" by DCR, the
Servicer will establish one or more segregated accounts in the name of the
Company (collectively, the "Lockbox Account") into which all receipts from the
Hotels and all cash previously held in the Manager's Account will be
deposited. Agreements governing the Lockbox Account will provide that the
Manager and the Company will have no withdrawal or transfer rights with
respect thereto. Funds deposited into the Lockbox Account will be transferred
daily into the Cash Collateral Account. Provided that escrow accounts for real
estate taxes, insurance premiums, and the next scheduled debt service payment
under the Mortgage Loan are fully funded, funds will be transferred daily by
the Servicer to a segregated account established by the Servicer in the name
of the Trustee, with respect to which the Manager will have authorization to
pay operating expenses of the Mortgaged Properties (the "Operating Account").
Prior to each Due Date, the Servicer will transfer from the Operating Account
to the Cash Collateral Account an amount equal to the available operating
profit of the Hotels (calculated without deduction of Subordinated Obligations
and amounts deposited during the relevant period in the tax or insurance
escrows, all of which shall be paid by the Servicer from funds in the Cash
Collateral Account, and subtracting any amounts for the relevant period
previously transfered to the debt service escrow).
The Cash Collateral Account is a segregated account established by the
Servicer in the name of the Trustee into which the Manager will transfer
operating profit of the Hotels biweekly (unless the lockbox agreements
described above are in effect), and into which funds from any Lockbox Account
will be deposited. Insurance Proceeds and Condemnation Proceeds, other than
those that the Company is permitted to retain, and the escrow funds described
above will be deposited into separate subaccounts of the Cash Collateral
Account, where they will be held pending completion of restoration or
application to prepayment of the Mortgage Loan, as described under
"Description of the Mortgage Loan--Casualty and Condemnation," or other
applicable purposes. The Cash Collateral Account is pledged as collateral for
the Mortgage Loan.
The Servicer will, on each Due Date, transfer from the Cash Collateral
Account (i) funds in an amount necessary to make all payments required under
the Mortgage Loan (excluding the portion of Default Interest representing Net
Default Interest) including Servicer Fees to the Collection Account, a
segregated account established by the Servicer in the name of the Trustee,
(ii) any funds required to pay Net Default Interest to the Default Interest
Distribution Account, a segregated account established by the Servicer in the
name of the Trustee, (iii) any funds required to pay Liquidated Damages to the
Liquidated Damages Distribution Account, a segregated account established by
the Servicer in the name of the Trustee, (iv) to the Manager or the Marriott
Ground Lessors, as applicable, to pay Subordinated Obligations then due,
subject to the terms of the subordination agreements entered into by the
Manager and the Marriott Ground Lessors and the priorities set forth in the
Management Agreement and the other Loan Documents to which the Manager or the
Marriott Ground Lessors are parties, (v) at the election of the Company, any
amounts required to fund escrow accounts for the next month, (vi) amounts
necessary to fund any shortfall in the FF&E Reserve Account, and
(vii) provided that there is no event of default under the Loan Documents, the
excess (less Insurance Proceeds and Condemnation Proceeds held pending
completion or restoration of any Mortgaged Properties and any other amounts
held in escrow or reserve accounts) to the Company. The Collection Account is
an asset of the Trust Fund and the Lower-Tier REMIC. The Default Interest
Distribution Account and the Liquidated Damages Distribution Account will be
part of the Trust Fund, but not part of either of the Trust REMICs.
On each Servicer Remittance Date, the Servicer will withdraw from the
Collection Account and deposit in immediately available funds into a
segregated account established by the Servicer in the name of the Trustee for
the benefit of the Certificateholders (excluding holders of the Class A-3P&I
Certificates and the Class A-3IO Certificates) and the Trustee, as holder of
the Class A-3L Interest (the "Distribution Account"), an amount equal to the
Available Distribution Amount plus Unscheduled Payments and Prepayment
Premiums for the related Distribution Date. See "Description of the
Certificates--Distributions." The Distribution Account will be part of the
Trust Fund and the Lower-Tier REMIC. Payments from the Distribution Account to
the Trustee, as holder of Class A-3L Interest, will be deposited into the
Upper-Tier Distribution Account. The Upper-Tier Distribution Account will be
part of the Trust Fund and the Upper-Tier REMIC.
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In the event that title to Foreclosed Property is acquired by the Servicer
in the name of the Trustee for the benefit of the Certificateholders, the
Servicer will segregate and hold all funds collected and received in
connection with the operation of the Foreclosed Property, separate and apart
from its own funds and general assets, and will establish the Foreclosed
Property Account, an account held in trust for the Trustee for the benefit of
the Certificateholders in lieu of the Collection Account. On or before each
Servicer Remittance Date, the Servicer will withdraw the funds in the
Foreclosed Property Account and deposit them into the Collection Account in
immediately available funds for distribution on such Distribution Date. The
Foreclosed Property Account will be part of the Trust Fund and the Lower-Tier
REMIC.
The Cash Collateral Account, the Collection Account, the Distribution
Account, the Upper-Tier Distribution Account, the Default Interest
Distribution Account, the Liquidated Damages Distribution Account, and the
Foreclosed Property Account are "Eligible Accounts." An "Eligible Account"
means either (i) an account maintained with a federal or state chartered
depository institution or trust company, the long-term unsecured debt
obligations of which (or, in the case of a depository institution or trust
company that is the principal subsidiary of a holding company, the long-term
unsecured debt obligations of such holding company) are rated by each Rating
Agency in one of its two highest rating categories (or such other ratings as
will not result in the ratings of any of the Offered Certificates being
reduced below their respective ratings as of the Issue Date and as to which
the Rating Agencies may otherwise agree as evidenced in writing by each Rating
Agency) at the time of the deposit therein, or the short-term unsecured debt
obligations of such depository institution or trust company (or holding
company), as the case may be, are rated not lower than A-1+ (or its equivalent
rating) by each Rating Agency, or (ii) a segregated trust account maintained
with the trust department of a federal or state chartered depository
institution or trust company acting in its fiduciary capacity provided that
such account is subject to fiduciary funds on deposit regulations
substantially similar to 12 C.F.R.(S)9.10(b), or (iii) an account in any other
insured depository institution reasonably acceptable to the Servicer and the
Trustee if each of the Rating Agencies delivers a letter confirming that the
maintenance of such account in such institution will not result in the
downgrading, withdrawal, or qualification of the rating then assigned to any
of the Certificates by such Rating Agency. Amounts on deposit in the Cash
Collateral Account, the Collection Account, the Distribution Account, the
Upper-Tier Distribution Account, the Default Interest Distribution Account,
the Liquidated Damages Distribution Account, and the Foreclosed Property
Account may be invested in certain United States government securities and
other high-quality investments specified in the Loan Agreement (which must be
passive investments earning a return in the nature of interest) ("Permitted
Investments"). If a net investment loss is realized, the Servicer is required
by the Trust and Servicing Agreement to deposit additional funds immediately
into the Collection Account to make up any such net loss. In the event the
Servicer fails to make up any net investment loss, Certificateholders could
realize a loss. Interest or other income earned (net of any losses) on funds
in the Collection Account will be paid to the Servicer.
WITHDRAWALS FROM THE COLLECTION ACCOUNT
The Servicer may make withdrawals from the Collection Account for the
following purposes, to the extent permitted and in the priorities provided in
the Trust and Servicing Agreement: (i) to remit on or before each Servicer
Remittance Date to the Distribution Account, an amount equal to the Available
Distribution Amount and any Unscheduled Payments and Prepayment Premiums for
such Distribution Date, (ii) to pay or reimburse the Servicer for Advances
made by it and interest on Advances (other than interest thereon required to
be paid from the Default Interest Distribution Account), the Servicer's right
to reimbursement for items described in this clause (ii) being limited as
described herein under " -- Advances," (iii) to pay on or before each Servicer
Remittance Date to the Servicer as compensation, the aggregate unpaid
Servicing Fee in respect of the immediately preceding calendar month; (iv) to
the extent not reimbursed or paid pursuant to any of the above clauses, to pay
the Servicer for unpaid Servicing Fees and to reimburse the Servicer and the
Trustee for certain other unreimbursed expenses incurred by such person
pursuant to and to the extent reimbursable under the Trust and Servicing
Agreement and to satisfy any indemnification obligations of the Trust Fund
under the Trust and Servicing Agreement; (v) to pay (or set aside for eventual
payment) any and all taxes imposed on the Trust REMICs by federal, state, or
local governmental authorities to the extent such taxes have not been paid
under the Trust and Servicing Agreement; (vi) to withdraw any amount deposited
into the Collection Account that was not required to be deposited therein;
(vii) to pay to the Servicer any income earned (net of any losses) on the
investment of funds deposited in the Collection Account; (viii) to make such
payments to the holder of the Class
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R Certificate as are necessary or advisable to ensure that no payments
received under the Mortgage Loan and earnings received on Permitted
Investments are retained in the Collection Account for longer than 13 months
after deposit of such payments into, or accruals of such earnings in, the
Collection Account; and (ix) to clear and terminate the Collection Account
pursuant to a plan for termination and liquidation of the Trust Fund.
REALIZATION UPON THE MORTGAGED PROPERTIES
Upon a Mortgage Loan Event of Default, the Trustee may, subject to the
provisions of the Loan Agreement and the Mortgages, after consulting with the
Servicer, direct the Servicer to foreclose on one or more of the Mortgaged
Properties. The Trustee may, if it so elects, require the approval of
Certificateholders holding not less than a majority of the Voting Rights prior
to directing the Servicer to institute such a foreclosure. Notwithstanding the
foregoing, the Servicer shall promptly commence foreclosure following the
Scheduled Balloon Maturity Date, unless the term of the Mortgage Loan has been
extended with the approval of Certificateholders holding not less than 66 2/3%
of the aggregate Voting Rights of all then outstanding Offered Certificates
(excluding the Class A-3IO Certificateholders) and the Servicer and the
Trustee have received an opinion of counsel prepared at the expense of the
Trust Fund that such action will not cause (i) either of the Trust REMICs to
fail to qualify as a REMIC at any time that Offered Certificates are
outstanding, (ii) a "prohibited transaction" or "prohibited contribution" tax
to be imposed on either of the Trust REMICs, or (iii) the portion of the Trust
Fund consisting of Net Default Interest, the right to receive Liquidated
Damages under the Registration Rights Agreement, and Liquidated Damages, at
any time that Offered Certificates are outstanding, (a) to fail to qualify as
a "grantor trust" under subpart E, Part 1, subchapter J, Chapter 1 of Subtitle
A of the Code, or (b) to be treated as a taxable mortgage pool under Section
7701(i) of the Code (a "Nondisqualification Opinion"). The Servicer may not,
however, obtain title to a Mortgaged Property on behalf of the Trust Fund, or
take any other action that would cause the Trustee, on behalf of the Trust
Fund, to be considered to hold title to, to be a "mortgagee-in-possession" of,
or to be an "owner" or "operator" of, such Mortgaged Property within the
meaning of CERCLA or any comparable law, unless the Servicer has previously
determined, based on a report prepared at the expense of the Trust Fund by an
independent person who regularly conducts site assessments for purchasers of
comparable properties, that (i) the Mortgaged Property is in compliance with
applicable environmental laws or that taking the actions necessary to comply
with such laws is reasonably likely to produce a greater recovery on a present
value basis than not taking such actions and (ii) there are no circumstances
known to the Servicer relating to the use of hazardous substances or
petroleum-based materials which require investigation or remediation, or that
if such circumstances exist, taking such remedial actions is reasonably likely
to produce a greater recovery on a present value basis than not taking such
actions.
If the Servicer has so determined based on satisfaction of the criteria
above that, despite such condition, it would be in the best economic interest
of the Trust Fund to take any such actions, the Servicer shall notify the
Certificateholders of such report and of their right to object to such
proposed action. Such proposed action shall be taken unless the Servicer
receives, within 30 days after such notification, written instructions from
such holders evidencing, in the aggregate, a majority of the Voting Rights of
the then outstanding Offered Certificates directing it not to take such
action. The Servicer is not obligated to make Advances to fund any such
environmental remediation.
If the Servicer acquires the Foreclosed Property in the name of and on
behalf of the Trust Fund, the Servicer will be empowered, subject to the REMIC
provisions and the specific requirements and prohibitions of the Trust and
Servicing Agreement, to do any and all things in connection with the
management and operation thereof, all on terms and for such period as the
Servicer deems to be in the best interest of the Certificateholders. The Trust
and Servicing Agreement requires the Servicer to sell the Foreclosed Property
pursuant to the procedures specified in the Trust and Servicing Agreement
within two years after such property has been acquired by the Trust Fund
(within the meaning of the REMIC provisions of the Code), unless the Trustee,
or the Servicer on behalf of the Trustee, has received a ruling from the
Internal Revenue Service to the effect that the holding by the Trust Fund of
the Foreclosed Property for an additional specified period will neither result
in the imposition of taxes on "prohibited transactions" of either of the Trust
REMICs as defined in Section 860F of the Code, nor
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cause either of the Trust REMICs to fail to qualify as a REMIC (or the
remaining portion of the Trust Fund to fail to qualify as a grantor trust that
is not a taxable mortgage pool) at any time that Offered Certificates are
outstanding, in which event such two-year period will be extended by such
additional specified period. See "Certain Federal Income Tax Considerations."
No consent of Certificateholders would be required in connection with such an
extension. The Servicer is required to accept the highest cash bid for the
Foreclosed Property received from any person in an amount at least equal to
the sum of the Allocated Loan Amount for such Foreclosed Property plus fees
and amounts owed to the Servicer, the Trustee, and the Manager with respect to
such Foreclosed Property, and all unpaid interest and Prepayment Premiums, if
any, accrued with respect to such Foreclosed Property through the date of sale
and all reasonably estimated liquidation expenses. In the absence of any such
bid, the Servicer must accept the highest cash bid which is not less than the
fair market value of such Mortgaged Property, as determined by liquidation
value appraisal. In the absence of such a bid, the Servicer will offer such
Mortgaged Property to any person other than the Company, the Manager, CBM
Funding, any affiliate of CBM Funding, the Servicer, or any Certificateholder
(each, an "Interested Person"). If a bid is not received, any Interested
Person may resubmit its original bid, and the Servicer may bid the amount of
any moneys owed to it under the Trust and Servicing Agreement, and the
Servicer will accept the highest outstanding cash bid, regardless of whom it
is received from and regardless of its amount. If the highest bidder is an
Interested Person, the Trustee based upon an independent appraisal at the
expense of the Trust Fund shall determine the fairness of the highest bid.
These requirements of the Trust and Servicing Agreement may result in lower
sales proceeds than would otherwise be the case.
In order to avoid the imposition of taxes on "prohibited transactions" as
defined in Section 860F of the Code (which would be imposed at a rate equal to
100% of the net income therefrom), any Foreclosed Property held by the
Servicer on behalf of the Trust Fund would have to qualify as "foreclosure
property" as that term is defined under the provisions of the Code governing
REITs. In order for a Hotel to satisfy this requirement, it would, among other
things, have to be operated by an entity that would qualify as an "independent
contractor" for purposes of the REIT provisions of the Code commencing 90 days
after the Servicer acquires a Hotel as Foreclosed Property. The Hotels
currently are operated by the Manager, and it is likely that the Manager would
continue to operate any Hotels that become Foreclosed Property. Whether the
Manager would qualify as an "independent contractor" for this purpose would
depend upon a number of factual issues, including whether persons who
collectively own (directly or by attribution under complex attribution rules
set forth in Code) 35% or more of the stock of the Manager are considered to
own (directly or by attribution) 35% or more of the Lower-Tier REMIC. The
Company believes that the Manager would qualify as an "independent
contractor," but there cannot be certainty in this regard (due in part to the
fact that the Manager is owned by MII, a public corporation; the ownership
attribution rules that are applied in making this determination are complex
and quite broad; there are a number of uncertainties about how these rules are
applied in the context of a REMIC; and the determination would depend upon the
circumstances existing at the time a Hotel became a Foreclosed Property). The
Trust Fund would have a right to terminate the Manager with respect to a Hotel
that becomes a Foreclosed Property.
Even if the Trust REMICs are not subject to the tax on "prohibited
transactions" with respect to a Hotel that becomes Foreclosed Property, the
Lower-Tier REMIC will be subject to federal income tax (at the highest
corporate rate) on net income attributable to the Hotel if that income would
not constitute "qualifying income" for a REIT under certain of the REIT
provisions of the Code. It is likely that any net income derived by the Lower-
Tier REMIC with respect to a Hotel that becomes Foreclosed Property would not
be "qualifying" income for a REIT and thus would be subject to federal income
tax at the highest corporate rate, unless the Foreclosed Property could be
leased to an unrelated entity. The Trustee or Servicer will have the right to
seek to implement such an arrangement if the Trustee or Servicer determines
that such an arrangement would be in the best interests of Certificateholders.
ADVANCES
In the event that a Monthly Payment, or any portion thereof, on the Mortgage
Loan has not been received by the close of business on the Due Date, the
Servicer, subject to its determination that such amounts are not
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Nonrecoverable Advances, will be obligated to make a P&I Advance, for deposit
into the Distribution Account not later than the Servicer Remittance Date, in
an amount equal to the Monthly Payment (which includes, in the event of a
default in the payment of the Balloon Payment, an amount equal to the assumed
monthly principal and interest payment that would have been due on the related
Due Date based upon the original 204-month principal amortization schedule) or
any such portion of the Monthly Payment on the Mortgage Loan which was
delinquent as of the close of business on such Due Date. The Servicer is also
required to advance all customary, reasonable, and necessary "out-of-pocket"
costs and expenses incurred by the Servicer during the immediately preceding
Interest Accrual Period in the performance of its servicing obligations,
including, but not limited to, the costs and expenses incurred in connection
with (i) the preservation, restoration, and protection of such Mortgaged
Property which, in the Servicer's judgment and discretion, are necessary to
prevent an immediate or material loss to the Trust Fund's interest in such
Mortgaged Property, (ii) the payment of (A) real estate taxes, assessments,
and governmental charges that may be levied or assessed against the Company or
any Mortgaged Property or revenues therefrom or which become liens on such
Mortgaged Property, (B) insurance premiums, (C) payments required to be made
under the ground leases other than ground rent payments under the Marriott
Ground Leases, (D) all customary, reasonable, and necessary "out-of-pocket"
costs and expenses incurred by the Trustee pursuant to the Trust and Servicing
Agreement, and (E) the costs and expenses of the Servicer (including, without
limitation, reasonable attorneys' fees and expenses) incurred in connection
with a release of any of the Mortgaged Properties from the lien of the
respective Mortgages, (iii) any enforcement or judicial proceedings, including
foreclosures and including, but not limited to, court costs, attorneys' fees,
and expenses, costs for third-party experts, including environmental and
engineering consultants, and (iv) the management and liquidation of a
Mortgaged Property if such Mortgaged Property is acquired by the Servicer in
the name of the Trustee (collectively, the "Property Protection Advances").
The P&I Advances and Property Protection Advances are sometimes referred to
collectively as the "Advances."
The Servicer will be obligated to make an Advance only to the extent that
the Servicer determines that the amount so advanced and interest thereon will
not constitute a Nonrecoverable Advance if made. A "Nonrecoverable Advance" is
any portion of an Advance previously made and not previously reimbursed, or
proposed to be made, which in the good faith judgment of the Servicer would
not be ultimately recoverable from subsequent payments or collections
(including Insurance Proceeds and Liquidation Proceeds and proceeds from the
operation of the Mortgaged Properties) in respect of the Mortgage Loan or from
any funds on deposit in the Cash Collateral Account or Collection Account. The
Servicer shall be entitled to reimbursement for any such Advances by retaining
from amounts to be deposited into the Distribution Account a sum equal to each
such Advance. In addition, any such Advance will accrue interest for each day
that such Advance is outstanding at a rate of interest equal to the prime rate
as published in The Wall Street Journal (the "Prime Rate") for each such day
on the basis of a year of 360 days and the actual days elapsed in a month. The
Servicer's right of reimbursement for Advances will be prior to the rights of
the Certificateholders to receive any amounts recovered with respect to the
Mortgaged Properties and, as a result, Certificateholders could experience
losses in respect of Advances that are not recovered.
The determination by the Servicer that it has made a Nonrecoverable Advance
or that any proposed Advance, if made, would constitute a Nonrecoverable
Advance, shall be evidenced by an officer's certificate of the Servicer
delivered to the Trustee and the Depositor and detailing the reasons for such
determination, with copies of an appraisal of the Mortgaged Properties made
during the preceding 12 months and, if such report is to be used to determine
that any Advance would be nonrecoverable, any engineers' reports,
environmental surveys, or other information relevant thereto which support
such determination by the Servicer. The cost of obtaining such appraisals,
reports, surveys, and other information shall be an expense of the Trust Fund,
payable from the Collection Account, and shall constitute a Property
Protection Advance if paid by the Servicer from its funds. The Servicer will
not be responsible for advancing (i) the Balloon Payment, (ii) amounts
required to cure any damages resulting from uninsured causes, any failure of a
Mortgaged Property to comply with any applicable law, including any
environmental law, or (except in connection with the foreclosure or other
acquisition of a Mortgaged Property upon the occurrence of a Mortgage Loan
Event of Default) to investigate, test, monitor, contain, clean up, or remedy
an environmental condition present at a Mortgaged Property, (iii) any losses
arising with respect to defects in the title to a Mortgaged Property, (iv)
Liquidated Damages, (v) Subordinated
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Obligations, and (vi) any costs of capital improvements to a Mortgaged
Property other than those necessary to prevent an immediate or material loss
to the Trust Fund's interest in such Mortgaged Property. The Servicer's
obligations to make Advances are intended to provide liquidity for the
Mortgagor but do not represent insurance with respect to the payment
obligations of the Mortgagor under the Mortgage Loan or similar credit
enhancement.
EVENTS OF DEFAULT UNDER THE TRUST AND SERVICING AGREEMENT
The following constitute events of default under the Trust and Servicing
Agreement (each, a "Trust and Servicing Event of Default"):
(i) any failure by the Servicer to remit any payment required to be made
or remitted by it (other than Advances described under (vi) below) under
the terms of the Trust and Servicing Agreement;
(ii) any failure by the Servicer to observe or perform in any material
respect any other of the covenants or agreements on the part of such person
contained in the Trust and Servicing Agreement, which failure shall
continue unremedied for a period of 30 days (except that such number of
days shall be 15 in the case of a failure to pay the premium for any
required insurance policy) after the date on which written notice of such
failure shall have been given to the person required to observe or perform
such covenants or agreements by CBM Funding or the Trustee;
(iii) a representation or warranty of the Servicer set forth in the Trust
and Servicing Agreement shall prove to be incorrect as of the time made in
any respect that materially and adversely affects the interests of the
Certificateholders, and the circumstances or condition in respect of which
such representation or warranty was incorrect shall not have been
eliminated or cured within 60 days after the date on which written notice
thereof shall have been given to the Servicer by the Trustee or by CBM
Funding;
(iv) the entry of a decree or order of a court or agency or supervisory
authority having jurisdiction in the premises for the appointment of a
conservator, receiver, or liquidator in any insolvency, readjustment of
debt, marshaling of assets and liabilities, or similar proceedings against
the Servicer, or for the winding-up or liquidation of the Servicer's
affairs, and such decree or order remains unstayed and in effect for a
period of 60 days;
(v) the consent by the Servicer to the appointment of a conservator or
receiver or liquidator or liquidating committee in any insolvency,
readjustment of debt, marshaling of assets and liabilities, voluntary
liquidation, or similar proceedings of or relating to the Servicer or of or
relating to all or substantially all of its property;
(vi) any failure of the Servicer to (a) make any P&I Advance required to
be made pursuant to the Trust and Servicing Agreement on or prior to the
applicable Distribution Date; or (b) make any Property Protection Advance
required to be made pursuant to the Trust and Servicing Agreement on a
timely basis; or
(vii) either Rating Agency shall lower or withdraw the outstanding rating
of any Class of Offered Certificates because the existing or prospective
financial condition or mortgage loan servicing capability of the Servicer
is insufficient to maintain such outstanding rating.
When a responsible officer of the Trustee obtains actual knowledge of the
occurrence of any Trust and Servicing Event of Default, the Trustee shall
promptly transmit by mail to all Certificateholders, who have, within two
years preceding such transmission, filed their names and addresses with the
Trustee for that purpose and all other holders whose names and addresses have
been furnished to or received by the Trustee from the Company or CBM Funding,
notice of such Trust and Servicing Event of Default, unless such Trust and
Servicing Event of Default shall have been cured or waived.
RIGHTS UPON TRUST AND SERVICING EVENT OF DEFAULT
If a Trust and Servicing Event of Default relating to the Servicer shall
occur then, and in each and every such case, so long as such Trust and
Servicing Event of Default shall not have been remedied, either (i) the
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Trustee may, or (ii) upon the written direction of the Certificateholders
evidencing, in the aggregate, not less than 25% of the Voting Rights of the
Certificates, the Trustee shall, terminate all of the rights and obligations
of the Servicer under the Trust and Servicing Agreement, other than rights and
obligations accrued prior to such termination, and in and to the Mortgage Loan
and the proceeds thereof by notice in writing to the Servicer. Upon any
termination of the Servicer or appointment of a successor to the Servicer, the
Trustee shall, as soon as practicable, give written notice thereof to each
Rating Agency and to the Certificateholders at their respective addresses
appearing in the Certificate register.
EVIDENCE AS TO COMPLIANCE
The Trust and Servicing Agreement requires the Servicer to cause a
nationally recognized firm of independent public accountants, which is a
member of the American Institute of Certified Public Accountants, to furnish
to the Trustee on or before April 30 of each year, beginning April 30, 1997, a
statement to the effect that such firm has examined certain documents and
records relating to the servicing of the Mortgage Loan during the preceding
calendar year (or the period from the Issue Date to the last day of the
calendar year with respect to the first such statement), and that its
examination, conducted substantially in compliance with the Uniform Single
Audit Program for Mortgage Bankers, disclosed no exceptions or errors in
records relating to the servicing of the Mortgage Loan in accordance with the
terms of the Trust and Servicing Agreement that in its opinion are material,
except for such exceptions as are set forth in its statement. Copies of such
statement will be provided to any Certificateholder or Rating Agency, upon the
written request thereof, by the Servicer, or by the Trustee at the Servicer's
expense, if the Servicer fails to provide such copies.
The Trust and Servicing Agreement also requires both the Servicer and CBM
Funding, respectively, to deliver to the Trustee and each Rating Agency, on or
before April 30 of each calendar year beginning in 1997, an officer's
certificate stating that, to the best of such officer's knowledge, the
Servicer or CBM Funding as the case may be, has fulfilled its obligations
under the Trust and Servicing Agreement throughout the preceding year or, if
there has been a default in the performance of such obligations, specifying
each such default known to such officer and the action, if any, being taken by
the entity to remedy the same.
CERTAIN MATTERS REGARDING CBM FUNDING AND THE SERVICER
The Trust and Servicing Agreement provides that the Servicer may not resign
from its obligations and duties as Servicer thereunder, except upon the
determination that performance of its duties is no longer permissible under,
or is in material conflict by reason of, applicable law. No such resignation
may become effective until the Trustee or a successor servicer, as the case
may be, has assumed the obligations of the Servicer under the Trust and
Servicing Agreement.
The Trust and Servicing Agreement also provides that neither CBM Funding,
the Servicer nor any of their respective directors, officers, employees,
affiliates, or agents will be under any liability to the Trust Fund or the
Certificateholders for any action taken or for refraining from the taking of
any action in good faith pursuant to the Trust and Servicing Agreement, or for
errors in judgment; provided, however, that neither CBM Funding, the Servicer
nor any such person will be protected against any breach of representations or
warranties made in the Trust and Servicing Agreement or any liability which
would otherwise be imposed by reason of willful misfeasance, bad faith, or
negligence in the performance of duties thereunder or by reason of negligent
disregard of obligations and duties thereunder. The Trust and Servicing
Agreement further provides that the Servicer, and any director, officer,
employee, affiliate, or agent of the Servicer will be entitled to
indemnification by the Trust Fund and will be held harmless by the Trust Fund
against any loss, liability, claim, demand, or expense relating to the Trust
and Servicing Agreement, the Mortgage Loan, the Mortgaged Properties, or the
Offered Certificates other than any loss, liability, or expense incurred by
reason of willful misfeasance, bad faith, or negligence in the performance of
duties or by reason of negligent disregard of obligations and duties. The
payment of such indemnification will reduce the amount available for
distribution to the Certificateholders to the extent not paid by the Company.
The indemnification is limited to direct damages and does not extend to
consequential damages.
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In addition, the Trust and Servicing Agreement provides that the Servicer
will not be under any obligation to appear in, prosecute, or defend any legal
action which is not incidental to its respective duties under the Trust and
Servicing Agreement and which in its opinion may involve it in any expense or
liability. The Servicer may, however, in its discretion undertake any such
action which it may deem necessary or desirable with respect to the Trust and
Servicing Agreement, the rights and duties of the parties thereto, and the
interests of the Certificateholders thereunder. In such event, the legal
expenses and costs of such action and any liability resulting therefrom will
be expenses, costs, and liabilities of the Trust Fund and the Servicer will be
entitled to be reimbursed therefrom and to charge the Collection Account and
such amounts paid by the Servicer will constitute Property Protection
Advances.
CBM Funding is not obligated to monitor or supervise the performance of the
Servicer or the Trustee under the Trust and Servicing Agreement. CBM Funding
may, but is not obligated to, enforce the obligations of the Servicer (if the
Trustee fails to do so) and the Trustee under the Trust and Servicing
Agreement and may, but is not obligated to, perform or cause a designee to
perform any defaulted obligation of the Servicer or the Trustee or exercise
any right of the Servicer or the Trustee under the Trust and Servicing
Agreement. In the event CBM Funding undertakes any such action, it will be
indemnified by the Trust Fund in accordance with the standard set forth above.
Any such action by CBM Funding will not relieve the Servicer or the Trustee of
its obligations under the Trust and Servicing Agreement.
Any person into which CBM Funding or the Servicer may be merged or
consolidated, or any person resulting from any merger or consolidation to
which CBM Funding or the Servicer is a party, or any person succeeding to the
business of CBM Funding or the Servicer, will, subject to the provisions of
the Trust and Servicing Agreement, be the successor of CBM Funding or the
Servicer, as the case may be, under the Trust and Servicing Agreement and
shall be deemed to have assumed all of the liabilities and obligations of CBM
Funding or the Servicer under the Trust and Servicing Agreement, provided that
such successor or surviving person would not result in a withdrawal,
downgrading or qualification of the then current rating or any Class of
Offered Certificates by any Rating Agency (as evidenced in writing and
delivered to the Trustee).
AMENDMENTS
The Trust and Servicing Agreement may be amended by the consent of CBM
Funding, the Servicer, and the Trustee, without the consent of any of the
Certificateholders, (i) to cure any ambiguity, (ii) to correct or supplement
any provision therein which may be inconsistent with any other provision
therein, (iii) to maintain the qualification of each of the Lower-Tier REMIC
and the Upper-Tier REMIC as a REMIC and the grantor trust as a grantor trust
(under the grantor trust provisions) that is not a taxable mortgage pool, or
(iv) to make any other provisions with respect to matters or questions arising
under the Trust and Servicing Agreement, provided that in each case such
action shall not adversely affect in any material respect the interests of any
Certificateholder without the consent of each Certificateholder adversely
affected thereby in the case of an amendment pursuant to (i), (ii), or (iv),
or adversely affect the status of each of the Lower-Tier REMIC and the Upper-
Tier REMIC as a REMIC and the grantor trust as a grantor trust (under the
grantor trust provisions) that is not a taxable mortgage pool.
The Trust and Servicing Agreement may be amended by the consent of CBM
Funding, the Servicer, and the Trustee with the written consent of the
Certificateholders (excluding the Class A-3IO Certificateholders) evidencing,
in the aggregate, not less than 66 2/3% of the Voting Rights of the
Certificates for the purpose of adding any provision or changing in any manner
or eliminating any of the provisions of the Trust and Servicing Agreement or
of modifying in any manner the rights of the Certificateholders; provided,
however, that no such amendment shall (i) reduce in any manner the amount of,
delay the timing of, or change the manner in which, payments received on or
with respect to the Mortgage Loan are required to be distributed with respect
to any Offered Certificate without the consent of the Certificateholder
(including, if applicable, the holders of the Class A-3IO Certificates), (ii)
adversely affect in any material respect the interests of the holders of a
Class of the Offered Certificates in a manner other than as set forth in (i)
above without the consent of the holders of such Class evidencing, in the
aggregate, 100% of the Voting Rights of such Class (including, if applicable,
the holders
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of the Class A-3IO Certificates), (iii) alter the obligations of the Servicer
to make an Advance or alter the servicing standards set forth in the Trust and
Servicing Agreement, (iv) reduce the aforesaid percentages of Voting Rights of
the Offered Certificates, the holders of which are required to consent to any
such amendment without the consent of 100% of the Certificateholders of the
affected Class (including, if applicable, the holders of the Class A-3IO
Certificates), or (v) amend any provisions thereof relating to the
administration of either the Lower-Tier REMIC or the Upper-Tier REMIC as a
REMIC, without the consent of the Class R Certificateholder or Class UR
Certificateholder, as applicable.
TERMINATION
The respective obligations and responsibilities of the Servicer, CBM
Funding, the Custodian, the Paying Agent, and the Trustee created under the
Trust and Servicing Agreement (other than the obligation of the Paying Agent
to make certain payments to Certificateholders after the final Distribution
Date and other than the indemnification obligations of the parties to the
Trust and Servicing Agreement) shall terminate upon the last action required
to be taken by the Trustee upon the later of (i) the final payment on the
Mortgage Loan or (ii) the liquidation or abandonment of the Mortgaged
Properties.
The Trust Fund shall be terminated in accordance with the following
additional requirements, unless the Servicer and the Trustee have been
furnished, at the expense of the Trust Fund, with a Nondisqualification
Opinion: (A) within 89 days prior to the final Distribution Date, upon the
written request of the Servicer and upon being furnished with the form of such
a plan, the Trustee shall adopt a plan of complete liquidation of the Lower-
Tier REMIC and the Upper-Tier REMIC which, in the opinion of counsel, meets
the requirements of a qualified liquidation with respect to each of the REMICs
under the REMIC provisions of the Code; (B) at or after the time of adoption
of such a plan of complete liquidation and at or prior to the final
Distribution Date, the Trustee shall sell any remaining assets of the Lower-
Tier REMIC and credit the proceeds thereof to the Lower-Tier REMIC; (C) at or
after such time as the proceeds from the disposition of the remaining assets
of the Lower-Tier REMIC shall have been credited to the Lower-Tier REMIC, the
Trustee shall cause all remaining amounts held as part of the Lower-Tier REMIC
to be distributed to the holders of Certificates (excluding the Class A-3P&I
and Class A-3IO Certificates), the Class A-3L Interest and the holder of the
Class R Certificate; (D) at or immediately after the distribution with respect
to the Class A-3L Interest is received pursuant to clause (C) above, the
Paying Agent shall cause final payment to be made from the Upper-Tier REMIC to
the holders of the Class A-3P&I and Class A-3IO Certificates; (E) at the time
of the making of the final payment on the Class A-3P&I and Class A-3IO
Certificates pursuant to clause (D) above, the Paying Agent shall distribute
or credit, or cause to be distributed or credited, to the Class UR
Certificateholder all cash on hand after such final payment (other than cash
retained to meet claims), and the Trust Fund shall terminate at that time; and
(F) in no event may the final payment on either the Class A-3L Interest or the
Certificates (except with respect to Certificateholders who fail to surrender
their Certificates) be made after the 89th day from the date on which the plan
of complete liquidation is adopted.
YIELD, PREPAYMENT AND MATURITY CONSIDERATIONS
GENERAL
The yield to maturity on any Certificate will be affected by the price paid
by the holder thereof, the related Pass-Through Rate, the rate and timing of
principal payments on the Mortgage Loan (including voluntary prepayments or
prepayments resulting from condemnations, casualties or defaults affecting one
or more of the Mortgaged Properties) and the extent to which such principal
payments are applied in reduction of the Certificate Balance of such Offered
Certificate.
The rate of principal payments on the Offered Certificates (and,
accordingly, in reduction of the corresponding components of the Mortgage
Loan) will be affected by the rate of principal payments (including
prepayments) on the Mortgage Loan. Generally, prepayments on the Mortgage Loan
will tend to shorten the weighted average lives of the Class A-1, Class A-2,
Class A-3P&I, Class A-3IO, Class B, Class C, and/or Class
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D Certificates whereas delays in liquidation and modifications extending the
maturity of the Mortgage Loan will tend to lengthen the weighted average lives
of such Offered Certificates. Any changes in such weighted average lives may
adversely affect the yield to holders of the Class A-1, Class A-2, Class
A-3P&I, Class A-3IO, Class B, Class C, and/or Class D Certificates.
Prepayments resulting in a shortening of such weighted average lives may be
made at a time of low interest rates when holders of such Offered Certificates
may be unable to reinvest such prepayments at interest rates equal to the
Pass-Through Rates payable on their Offered Certificates, while delays and
extensions resulting in the lengthening of such weighted average lives may
occur at a time of high interest rates when holders of such Offered
Certificates may have been able to reinvest payments received by them at
higher rates.
Principal prepayments may be influenced by a variety of economic,
geographic, demographic, tax, legal and other factors. In general, if
prevailing interest rates fall significantly below the Weighted Average
Interest Rate on the Mortgage Loan from time to time, the Mortgage Loan may be
subject to higher prepayments than if prevailing rates remain at or above such
Weighted Average Interest Rate (although the Mortgage Loan provides for
Prepayment Premiums in connection with most voluntary prepayments).
Conversely, if prevailing interest rates rise significantly above the Weighted
Average Interest Rate on the Mortgage Loan, the rate of prepayment may
decrease. Other factors affecting prepayment of the Mortgage Loan include the
availability of credit for mortgage refinancing, changes in tax laws
(including depreciation benefits), changes in net equity in the Mortgaged
Properties, servicing decisions, prevailing general economic conditions and
the relative economic vitality of the areas in which the Mortgaged Properties
are located, the quality of management of the Mortgaged Properties and the
availability of other opportunities for investment. No representation is made
hereby as to the particular factors that will affect the rate of prepayment of
the Mortgage Loan, the relative importance of any such factors, the percentage
of the principal balance of the Mortgage Loan that will be paid as of any date
or the overall rate of prepayments on the Mortgage Loan. Because the Mortgage
Loan is subject to prepayment, the Certificate Balance of one or more Classes
of the Offered Certificates may be reduced to zero prior to their respective
Assumed Final Distribution Dates. In addition, delinquencies could result in
distributions on one or more Classes of Offered Certificates occurring after
their respective Assumed Final Distribution Dates. As a result, the
Certificate Balance of each Class of Offered Certificates may be reduced to
zero significantly earlier or later than its Assumed Final Distribution Date.
If a purchaser of an Offered Certificate offered at a discount from its
initial Certificate Balance calculates its anticipated yield to maturity based
on an assumed rate of payment that is faster than that actually experienced on
the Mortgage Loan, the actual yield to maturity may be lower than that so
calculated. Conversely, if the purchaser of an Offered Certificate offered at
a premium calculates its anticipated yield to maturity based on an assumed
rate of payment that is slower than that actually experienced on the Mortgage
Loan, the actual yield to maturity may be lower than that so calculated.
The timing of changes in the rate of prepayments on the Mortgage Loan may
significantly affect an investor's actual yield to maturity, even if the
average rate of principal payments is consistent with a investor's
expectation. In general, the earlier a prepayment of principal of the Mortgage
Loan occurs, the greater the effect on an investor's yield to maturity. The
effect on an investor's yield of principal payments occurring at a rate higher
(or lower) than the rate anticipated by the investor during the period
immediately following the issuance of the Offered Certificates may not be
offset by a subsequent like decrease (or increase) in the rate of principal
payments.
Prepayments on mortgage loans are commonly measured relative to a prepayment
standard or model. The prepayment model used in this Prospectus represents an
assumed constant prepayment rate ("CPR") each month (which is quoted on a per
annum basis) relative to the then outstanding principal balance of the
Mortgage Loan for the life of the Mortgage Loan. CPR does not purport to be a
prediction of the anticipated rate of prepayment of the Mortgage Loan. No
representations are made hereby as to the appropriateness of the CPR model.
Investors in the Class A-3IO Certificates should consider the risk that a
rapid rate of principal prepayments on the Mortgage Loan could result in the
failure of such investors to recover some or all of their initial investment.
Investors in the Class A-3IO Certificates should also consider the risk that
the receipt of the Prepayment Premiums to which the Class A-3IO Certificates
may be entitled may not offset the reduction in yield that such Class may
realize as a result of principal prepayments on the Mortgage Loan which
require the
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<PAGE>
payment of Prepayment Premiums. In certain circumstances, Prepayment Premiums
that are distributed to the Upper-Tier REMIC in respect of the Class A-3L
Interest will be distributed entirely to holders of the Class A-3P&I
Certificates, and no portion of such Prepayment Premiums would be distributed
to the holders of the Class A-3IO Certificates. See "Description of the New
Certificates--Distributions."
EFFECTS OF P&I SHORTFALLS ON THE MORTGAGE LOAN, ADDITIONAL TRUST FUND EXPENSES
AND OTHER MATTERS
The yield to maturity of any Class of Offered Certificates will be sensitive
to the loss experience on the Mortgage Loan (including shortfalls due to
certain additional compensation being required to be paid to the Servicer as a
result of a Mortgage Loan Event of Default and interest on Advances not being
fully compensated by Default Interest). Because of the priority of payments on
the New Certificates, any P&I Shortfalls at any time generally will be borne
as described above in "Description of the New Certificates--Distributions" and
will, through the diminished cash distributions from the Mortgage Loan to be
made in respect of the affected Class of Offered Certificates, negatively
impact the yield to maturity of any Certificateholder of such Class.
In addition, to the extent that the holders of any Class of Offered
Certificates experience an Interest Shortfall, such Interest Shortfall will be
payable on subsequent Distribution Dates, but will not bear interest and would
therefore adversely affect the yield to maturity of such Class of Offered
Certificates for as long as such Interest Shortfall is outstanding.
WEIGHTED AVERAGE LIFE
Weighted average life refers to the average amount of time from the date of
issuance of a security until each dollar of principal of such security will be
repaid to the investor. The "weighted average life" of a Class A-1, Class A-2,
Class A-3P&I, Class B, Class C, or Class D Certificate is determined by (i)
multiplying the amount of each distribution in reduction of the outstanding
Certificate Balance of such Certificate by the number of years from the date
of issuance of such Certificate to the related Distribution Date, (ii) adding
the results and (iii) dividing the sum by the original Certificate Balance of
such Certificate. The "weighted average life" of the Class A-3IO Certificates
is the same as the weighted average life of the Class A-3P&I Certificates. The
table set forth below for each of the Class A-1, Class A-2, Class A-3P&I,
Class B, Class C, and Class D Certificates indicates the weighted average life
of each such Class of Offered Certificates that would result, and the
percentage of the initial Certificate Balance of each such Class of Offered
Certificates that would be outstanding after each of the dates shown, if the
Mortgage Loan were to prepay in accordance with the assumptions set forth in
the following paragraph.
The tables below have been prepared as of the Issue Date and on the basis of
the assumptions (collectively, the "Mortgage Loan Assumptions") that (i) the
Class sizes are as shown on the cover of this Prospecuts, (ii) there are no
delinquencies or defaults with respect to the Mortgage Loan, and all Monthly
Payments, including the Balloon Payment, are timely received on their
respective Due Dates, (iii) the Mortgage Loan prepays monthly at the specified
percentages of CPR as set forth in the following tables, (iv) each principal
prepayment is received on the Due Date in each month (commencing with the
initial Due Date) and is accompanied by one month's interest thereon, (v)
there are no Mortgage Loan Events of Default, (vi) the Mortgage Loan is not
modified, (vii) no additional Trust Fund expenses occur, and (viii) no
Prepayment Premiums are collected.
It is not likely that the Mortgage Loan will have all of the characteristics
assumed, even if the Mortgage Loan has the weighted average characteristics
set forth herein. Furthermore, it is unlikely that the Mortgage Loan will
prepay at any of the levels of CPR indicated in the tables or at any constant
level.
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<PAGE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING FOR THE
CLASS A-1 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
----------------------
0% 2% 4% 6%
---- ---- ---- ----
<S> <C> <C> <C> <C>
Distribution Date
Initial................................................. 100% 100% 100% 100%
January 1, 1997......................................... 75 58 40 22
January 1, 1998......................................... 46 12 0 0
January 1, 1999......................................... 14 0 0 0
January 1, 2000......................................... 0 0 0 0
Weighted average life (years)........................... 1.8 1.1 0.8 0.6
</TABLE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING FOR THE
CLASS A-2 CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
----------------------
0% 2% 4% 6%
---- ---- ---- ----
<S> <C> <C> <C> <C>
Distribution Date
Initial................................................. 100% 100% 100% 100%
January 1, 1997......................................... 100 100 100 100
January 1, 1998......................................... 100 100 81 52
January 1, 1999......................................... 100 69 27 0
January 1, 2000......................................... 82 27 0 0
January 1, 2001......................................... 49 0 0 0
January 1, 2002......................................... 13 0 0 0
January 1, 2003......................................... 0 0 0 0
Weighted average life (years)........................... 4.9 3.4 2.6 2.0
</TABLE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING FOR THE
CLASS A-3P&I CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
----------------------
0% 2% 4% 6%
---- ---- ---- ----
<S> <C> <C> <C> <C>
Distribution Date
Initial................................................. 100% 100% 100% 100%
January 1, 1997......................................... 100 100 100 100
January 1, 1998......................................... 100 100 100 100
January 1, 1999......................................... 100 100 100 95
January 1, 2000......................................... 100 100 90 71
January 1, 2001......................................... 100 94 71 49
January 1, 2002......................................... 100 77 51 28
January 1, 2003......................................... 90 59 32 8
January 1, 2004......................................... 74 42 14 0
January 1, 2005......................................... 57 23 0 0
January 1, 2006......................................... 38 5 0 0
January 1, 2007......................................... 18 0 0 0
January 1, 2008......................................... 0 0 0 0
Weighted average life (years)........................... 9.3 7.5 6.1 5.0
</TABLE>
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<PAGE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING FOR THE
CLASS B CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
---------------------
0% 2% 4% 6%
---- ---- ---- ---
<S> <C> <C> <C> <C>
Distribution Date
Initial.................................................. 100% 100% 100% 100%
January 1, 1997.......................................... 100 100 100 100
January 1, 1998.......................................... 100 100 100 100
January 1, 1999.......................................... 100 100 100 100
January 1, 2000.......................................... 100 100 100 100
January 1, 2001.......................................... 100 100 100 100
January 1, 2002.......................................... 100 100 100 100
January 1, 2003.......................................... 100 100 100 100
January 1, 2004.......................................... 100 100 100 81
January 1, 2005.......................................... 100 100 92 51
January 1, 2006.......................................... 100 100 61 21
January 1, 2007.......................................... 100 76 30 0
January 1, 2008.......................................... 93 42 * 0
January 1, 2009.......................................... 0 0 0 0
Weighted average life (years)............................ 12.0 11.5 10.3 9.0
</TABLE>
*Less than 0.5%
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING
FOR THE CLASS C CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
----------------------
0% 2% 4% 6%
Distribution Date ---- ---- ---- ----
<S> <C> <C> <C> <C>
Initial................................................. 100% 100% 100% 100%
January 1, 1997......................................... 100 100 100 100
January 1, 1998......................................... 100 100 100 100
January 1, 1999......................................... 100 100 100 100
January 1, 2000......................................... 100 100 100 100
January 1, 2001......................................... 100 100 100 100
January 1, 2002......................................... 100 100 100 100
January 1, 2003......................................... 100 100 100 100
January 1, 2004......................................... 100 100 100 100
January 1, 2005......................................... 100 100 100 100
January 1, 2006......................................... 100 100 100 100
January 1, 2007......................................... 100 100 100 95
January 1, 2008......................................... 100 100 100 76
January 1, 2009......................................... 0 0 0 0
Weighted average life (years)........................... 12.0 12.0 12.0 11.9
</TABLE>
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<PAGE>
PERCENT OF INITIAL AGGREGATE CERTIFICATE PRINCIPAL AMOUNT OUTSTANDING
FOR THE CLASS D CERTIFICATES AT THE RESPECTIVE PERCENTAGES OF CPR
<TABLE>
<CAPTION>
PERCENTAGE OF CPR
----------------------
0% 2% 4% 6%
Distribution Date ---- ---- ---- ----
<S> <C> <C> <C> <C>
Initial................................................. 100% 100% 100% 100%
January 1, 1997......................................... 100 100 100 100
January 1, 1998......................................... 100 100 100 100
January 1, 1999......................................... 100 100 100 100
January 1, 2000......................................... 100 100 100 100
January 1, 2001......................................... 100 100 100 100
January 1, 2002......................................... 100 100 100 100
January 1, 2003......................................... 100 100 100 100
January 1, 2004......................................... 100 100 100 100
January 1, 2005......................................... 100 100 100 100
January 1, 2006......................................... 100 100 100 100
January 1, 2007......................................... 100 100 100 100
January 1, 2008......................................... 100 100 100 100
January 1, 2009......................................... 0 0 0 0
Weighted average life (years)........................... 12.0 12.0 12.0 12.0
</TABLE>
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following summary of certain anticipated federal income tax consequences
of the purchase, ownership, and disposition of the Offered Certificates, and
the exchange of Old Certificates for New Certificates, is based upon the
advice of Hogan & Hartson L.L.P. ("Tax Counsel"). The summary is based upon
the provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
the regulations promulgated thereunder, including, where applicable, proposed
regulations and in particular, regulations under the REMIC provisions of the
Code (the "REMIC Regulations"), and judicial and administrative rulings and
decisions now in effect, all of which are subject to change or different
interpretation by the Internal Revenue Service or a court. Any such change or
different interpretation may be applied retroactively.
The summary does not purport to deal with all aspects of federal income
taxation that may affect particular investors in light of their individual
circumstances, nor with certain types of investors (for example, banks and
insurance companies) subject to special treatment under the federal income tax
laws. This summary focuses primarily upon investors who will hold the Offered
Certificates as "capital assets" (generally, property held for investment)
within the meaning of Section 1221 of the Code, but much of the discussion is
applicable to other investors as well. Potential investors of the New
Certificates are advised to consult their own tax advisors concerning the
federal, state, or local tax consequences to them of the purchase, holding,
and disposition of the Offered Certificates, and the exchange of Old
Certificates for New Certificates.
EXCHANGE OF OLD CERTIFICATES FOR NEW CERTIFICATES
The exchange of Old Certificates for New Certificates will not be treated as
an exchange for federal income tax purposes because the New Certificates will
not differ materially in kind or extent from the Old Certificates. As a
result, holders who exchange their Old Certificates for New Certificates will
not recognize any income, gain or loss for federal income tax purposes. A
holder will have the same adjusted issue price, adjusted basis and holding
period in the New Certificates immediately after the exchange as it had in the
Old Certificates immediately before the exchange.
QUALIFICATION OF THE TRUST REMICS AS REMICS
In the opinion of Tax Counsel, which opinion relies on certain
representations of the Mortgagor, if (i) the REMIC elections are properly made
and (ii) all of the provisions of the Trust and Servicing Agreement and
certain other documents are complied with, then (x) each of the Trust REMICs
qualifies as a REMIC, (y) the portion of each of the Offered Certificates,
excluding the Class A-3P&I and the Class A-3IO Certificates, that is
attributable to the regular interests in the Lower-Tier REMIC qualifies as a
regular interest in the Lower-Tier REMIC, and the Class R Certificate
qualifies as the residual interest in the Lower-Tier REMIC, and (z) the
portions of the Class A-3P&I and Class A-3IO Certificates that are
attributable to the regular interests in the Upper-Tier REMIC qualify as
regular interests in the Upper-Tier REMIC, and the Class UR Certificate
qualifies as the residual interest in the Upper-Tier REMIC, all on the date
the Certificates were issued and thereafter as long as any changes in the
statutory and regulatory requirements are complied with.
An election will be made to treat the Trust Fund, exclusive of Net Default
Interest in respect of the Mortgage Loan, Liquidated Damages, the Default
Interest Distribution Account, and the Liquidated Damages Distribution Account
(such portion of the Trust Fund being referred to collectively as the Trust
REMICs, or, in the alternative, the "Lower-Tier REMIC" and the "Upper-Tier
REMIC," respectively), as two separate REMICs within the meaning of Section
860D of the Code. The Cash Collateral Account, the Lockbox Account, the
Operating Account, and the FF&E Reserve Account are treated as beneficially
owned by the Mortgagor for federal income tax purposes and are not part of
either the Trust Fund or the Trust REMICs.
In addition to representing beneficial interests in "regular interests" in
the Upper-Tier REMIC or the Lower-Tier REMIC, as the case may be, the Offered
Certificates, other than the Class A-3IO Certificates, also represent the
right to receive certain amounts of Net Default Interest on the Mortgage Loan
and Liquidated
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<PAGE>
Damages, as described above under "Description of New Certificates--
Distributions." The right of a Class of Offered Certificates to receive a
portion of any Net Default Interest and any Liquidated Damages does not
represent an amount payable with respect to either of the Trust REMICs, but
rather separate beneficial interests in a stripped coupon on the Mortgage Loan
and in the Registration Rights Agreement that are held outside of the Trust
REMICs. The portion of the Trust Fund consisting of Net Default Interest in
respect of the Mortgage Loan, the Default Interest Distribution Account, the
Registration Rights Agreement, Liquidated Damages and the Liquidated Damages
Distribution Account are treated as a grantor trust for federal income tax
purposes. See "Taxation of the Offered Certificates" and "Taxation of Non-
REMIC Interests."
In order for the Trust REMICs each to qualify as a REMIC, each must comply
with certain ongoing requirements set forth in the Code. The Trust REMICs each
must fulfill an asset test, which requires that substantially all of the
assets of the Upper-Tier REMIC or the Lower-Tier REMIC, as the case may be,
(as of the close of the third calendar month beginning after the "Startup
Date" (generally the date that the Certificates are issued) and at all times
thereafter) consist of "qualified mortgages" and "permitted investments"
(generally, temporary investments of collections on qualified mortgages,
qualified reserve assets, and certain foreclosure property) as those terms are
defined in the Code, except during the 90-day period after the Upper-Tier
REMIC or the Lower-Tier REMIC, as the case may be, has adopted a plan of
liquidation. One of the requirements for a mortgage loan to be a "qualified
mortgage" is that the loan be principally secured by an interest in real
property, which requirement is treated as being met if the fair market value
of the real property securing the mortgage loan equals at least 80% of the
adjusted issue price of the mortgage loan (generally the proceeds to the
borrower) either at the time it was originated or at the time it was
contributed to the REMIC. Tax Counsel has not independently investigated the
fair market values of the Mortgaged Properties but, as described above, has
relied solely on a representation of the Company regarding the values of the
Mortgaged Properties and the portions thereof that constitute real property
under the REMIC Regulations. The term "qualified mortgage" generally includes
any regular interest in another REMIC. Thus, the REMIC status of the Upper-
Tier REMIC, which has as its only assets the Class A-3L Interest and the
Upper-Tier Distribution Account, is dependent upon the REMIC status of the
Lower-Tier REMIC. In addition, a REMIC must establish reasonable arrangements
designed to insure that residual interests therein are not held by
"disqualified organizations" (in general, entities that are not subject to
federal income tax) and that if a residual interest is acquired by a
disqualified organization, the REMIC will provide the Internal Revenue Service
and the transferor (or its agent) of the residual interest the information
needed to compute the tax imposed under Code Section 860E(e) on transfers of
residual interests to disqualified organizations. The Trust and Servicing
Agreement requires compliance with these provisions.
If a REMIC fails to satisfy one or more of the requirements of the Code for
REMIC status during any taxable year, the Code provides that the entity will
not be treated as a REMIC for such year and any year thereafter. In this
event, the classification of the Trust REMICs for federal income tax purposes
is uncertain, and the Offered Certificates may not be accorded the status or
given the tax treatment described below. In such event, the Trust Fund
(including the Trust REMICs) would likely be treated as a separate association
taxable as a corporation under Treasury regulations, and the Certificates may
be treated as stock interests therein and not as debt instruments. The Code
authorizes the granting of relief from disqualification if failure to meet one
or more of the requirements for REMIC status occurs inadvertently and steps
are taken to correct the conditions which caused disqualification within a
reasonable time after the discovery of the disqualifying event. The relief may
be granted by either allowing continuation as a REMIC or by ignoring the
cessation entirely. However, any such relief may be accompanied by sanctions,
such as the imposition of a corporate tax on all or a portion of the REMIC's
income for the period of time during which the requirements for REMIC status
are not satisfied. While the Treasury Department is authorized to issue
regulations regarding the granting of relief from disqualification if the
failure to meet one or more of the requirements of REMIC status occurs
inadvertently and in good faith, no such regulations have been issued.
TAXATION OF THE CERTIFICATES
As discussed above, each Offered Certificate represents in part a beneficial
interest in a portion of a regular interest in the Upper-Tier REMIC or the
Lower-Tier REMIC, as the case may be, and also (except in the case of the
Class A-3IO Certificates) the right to receive certain amounts of Net Default
Interest on the Mortgage Loan
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<PAGE>
and Liquidated Damages, as described above under "Description of the New
Certificates--Distributions." To the extent that an Offered Certificate
represents a beneficial interest in a regular interest in one of the Trust
REMICs, the taxation on that Offered Certificate is as set forth below under
"Taxation of the Regular Interests." To the extent that an Offered Certificate
represents the right to receive certain amounts of Net Default Interest on the
Mortgage Loan and Liquidated Damages, the taxation of that Certificate is as
set forth below under "Taxation of Non-REMIC Interests." The tax treatment of
the Certificates depends, in part, upon the amount of the purchase price
therefor that must be allocated respectively to the regular interest
represented by the Certificate and to the rights to receive Net Default
Interest and Liquidated Damages. CBM Funding believes that initial investors
in the Offered Certificates should not be required to allocate any portion of
their purchase price to the right to receive Net Default Interest and/or
Liquidated Damages (based upon the assumption that the value of such rights as
of the Issue Date will be negligible). Whether a subsequent investor in the
Offered Certificates is required to allocate its purchase price between the
regular interest represented by the purchased Certificate and the right to
receive Net Default Interest and/or Liquidated Damages depends upon the value
of those respective interests at the time of such purchase. No representation
is made as to the value of the right to receive Net Default Interest and/or
Liquidated Damages as of the initial issue date of the Offered Certificates,
the date of this Prospectus or at any time thereafter.
TAXATION OF THE REGULAR INTERESTS
The references in this section to Offered Certificates are to the portion of
each Offered Certificate that represents a regular interest in the Upper-Tier
REMIC or Offered the Lower-Tier REMIC, as the case may be.
Special Tax Attributes. Offered Certificates held by (i) a mutual savings
bank or domestic building and loan association represent interests in
"qualifying real property loans" within the meaning of Section 593(d) of the
Code (assuming that at least 95% of the Upper-Tier REMIC's assets or the
Lower-Tier REMIC's assets, as the case may be, are "qualifying real property
loans") and (ii) a real estate investment trust constitute "real estate
assets" within the meaning of Code Section 856(c)(5)(A), and income with
respect to the Offered Certificates is considered "interest on an obligation
secured by a mortgage on real property" within the meaning of Code Section
856(c)(3)(B) (assuming, for both purposes, that at least 95% of the Upper-Tier
REMIC's assets or the Lower-Tier REMIC's assets, as the case may be, are "real
estate assets"). If less than 95% of the Upper-Tier REMIC's assets or the
Lower-Tier REMIC's assets, as the case may be, consist of assets described in
(i) or (ii) above, then an Offered Certificate qualifies for the tax treatment
described in (i) or (ii) in the proportion that such assets are qualifying
assets under those clauses. In addition, payments on the Mortgage Loan held
pending distribution on the Certificates are considered to be "qualifying real
property loans" for purposes of Code Section 593(d)(1) and "real estate
assets" for purposes of Code Section 856(c). Offered Certificates held by
certain financial institutions constitute "evidence of indebtedness" within
the meaning of Code Section 582(c)(1). If certain conditions are satisfied,
Offered Certificates also are "qualified mortgages" within the meaning of Code
Section 860G(a)(3) with respect to other REMICs. Offered Certificates held by
a domestic building and loan association are not considered to represent an
interest in "loans . . . secured by an interest in real property" within the
meaning of Code Section 7701(a)(19)(C).
General. Certificates representing regular interests in a REMIC, such as the
Offered Certificates, are generally taxable to holders in the same manner as
evidences of indebtedness issued by the REMIC. In general, interest, original
issue discount, and market discount on the Offered Certificates are taxable as
ordinary income. Such income, however, must be taken into account under the
accrual method of accounting, regardless of the Certificateholder's normal
accounting method. Any Prepayment Premiums generally are treated as ordinary
income to the holders of the Offered Certificates as and when such amounts
become due to such holders.
Original Issue Discount. The Class A-3IO Certificates were issued with
"original issue discount" ("OID") within the meaning of Code Section 1273. The
following discussion is based in part on Treasury regulations issued on
January 27, 1994, (the "OID Regulations") and in part on the provisions of the
Tax Reform Act of 1986. Holders of Offered Certificates should be aware,
however, that the OID Regulations do not adequately address certain issues
relevant to prepayable securities, such as the Offered Certificates. Investors
are advised to consult their own tax advisors as to the appropriate method for
reporting interest and OID with respect to the Offered Certificates.
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The Code requires that the amount and rate of accrual of OID on the Offered
Certificates be calculated based on the anticipated rate of prepayments and
anticipated reinvestment rate, if any, relating to the Offered Certificates
(the "Prepayment Assumption") and prescribes a method for adjusting the amount
and rate of accrual of OID where the actual prepayment rate differs from the
Prepayment Assumption. Under the Code, the Prepayment Assumption must be
determined in the manner prescribed by regulations, which regulations have not
yet been issued. The legislative history of the Tax Reform Act of 1986
provides, however, that Congress intended the regulations to require that the
Prepayment Assumption be the prepayment assumption that is used in determining
the initial offering price of such Offered Certificates. Because there was no
basis on which to assume a rate of prepayment on the Mortgage Loan, the
Prepayment Assumption was that there would be no prepayment of the Mortgage
Loan or of the Class A-3L Interest (other than scheduled payments of principal
provided for therein). No representation is made that the Offered Certificates
will prepay at the Prepayment Assumption or at any other rate.
In general, OID, if any, equals the difference between the "stated
redemption price at maturity" of an Offered Certificate and its "issue price."
A holder of an Offered Certificate must include such OID in gross income as
ordinary interest income as it accrues under a "constant yield" method taking
into account an economic accrual of the discount. In general, the holder of a
Certificate must include OID in income in advance of the receipt of the cash
representing that income and in increasing amounts over the life of the
Offered Certificate. The amount of OID on an Offered Certificate is considered
to be zero if it is less than a de minimis amount determined under the Code
(generally, 1/4 of 1 percent of the stated redemption price at maturity
multiplied by the weighted average maturity). Each Offered Certificate
indicates on its face if it is issued with OID.
The issue price of an Offered Certificate is generally the initial offering
price at which a substantial amount of Offered Certificates of that Class were
sold to the public (excluding bond houses, brokers, underwriters, or
wholesalers). The issue price of an Offered Certificate also includes the
amount paid by an initial Certificateholder for accrued interest that relates
to a period prior to the issue date of the Offered Certificate, unless the
Certificateholder elects to exclude such amount from the issue price and to
recover it on the first distribution date. The stated redemption price at
maturity is the sum of all payments on the Offered Certificate other than any
"qualified stated interest" payments. Qualified stated interest is generally
defined as any one of a series of payments equal to the product of the
outstanding principal balance of the Certificate and a single fixed rate, or
certain variable rates, unconditionally payable at least annually during the
entire term of the instrument. Because the failure to pay interest on the
Offered Certificates (which could occur as a result of a default in payment of
the Mortgage Loan) does not entitle the Certificateholders to exercise
remedies to compel payment (other than by exercising remedies under the
Mortgage Loan), it is possible that interest on the Offered Certificates may
not be considered to be "unconditionally payable" under this provision. As a
result, all of the interest on the Offered Certificates could be included in
the stated redemption price at maturity of such Certificates and would then be
taxable under the OID provisions of the Code, rather than as qualified stated
interest. In this event, all of the income derived from the Offered
Certificates would be treated as OID, regardless of the issue price of such
Certificates. Tax returns of the Trust REMICs will take the position that the
interest paid on the Offered Certificates, excluding the Class A-3IO
Certificates, constitutes "qualified stated interest." Under the OID
provisions of the Code, all payments received by holders of Class A-3IO
Certificates are included in the stated redemption price at maturity of such
Certificates for purposes of determining the amount taxable as OID.
The holder of an Offered Certificate issued with OID must include in gross
income for all days during its taxable year on which it holds such Offered
Certificate the sum of the "daily portions" of such OID. As noted above, the
amount of OID to be included in income by a holder of a debt instrument, such
as an Offered Certificate, that is subject to acceleration due to prepayments
on other debt obligations securing such instruments, is generally computed by
taking into account the Prepayment Assumption. The amount of OID includable in
income by a holder is computed by allocating to each day during a taxable year
a pro rata portion of the OID that accrued during the relevant accrual period.
The amount of OID that accrues during an accrual period (generally the period
between interest payments or compounding dates) is the excess (if any) of (i)
the sum of (a) the present value as of the
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close of the accrual period of all payments remaining to be made on the
Offered Certificate and (b) the payments during the accrual period of amounts
included in the stated redemption price at maturity of the Offered
Certificate, over (ii) the "adjusted issue price" of the Offered Certificate
at the beginning of the accrual period. The adjusted issue price of an Offered
Certificate is the sum of its issue price plus prior accruals of OID, reduced
by the total payments made with respect to such Offered Certificate in all
prior periods, other than qualified stated interest payments. The present
value of the remaining payments is determined on the basis of three factors:
(i) using a discount rate equal to the original yield to maturity of the
Offered Certificate (based on the Prepayment Assumption, and determined on the
basis of compounding at the end of each accrual period and properly adjusted
for the length of the accrual period), (ii) events (including actual
prepayments) which have occurred before the end of the accrual period, and
(iii) the assumption that the remaining payments will be made in accordance
with the original Prepayment Assumption.
A subsequent holder of an Offered Certificate who purchases the Offered
Certificate at a cost less than its remaining stated redemption price at
maturity is also required to include OID in gross income, but such a holder
who purchases such Offered Certificate for an amount that exceeds its adjusted
issue price is entitled (as is an initial holder who pays more than an Offered
Certificate's issue price) to offset such OID by comparable economic accruals
of portions of such excess.
Market Discount and Premium. A purchaser of an Offered Certificate may also
be subject to the market discount rules of the Code. Such purchaser generally
is required to recognize ordinary income to the extent of accrued market
discount on Offered Certificates as distributions includable in the stated
redemption price at maturity are received, in an amount not exceeding any such
distribution. Market discount is the amount by which the purchaser's original
basis in the Offered Certificate (i) is exceeded by the then current stated
redemption price at maturity of the Offered Certificate, or (ii) in the case
of an Offered Certificate having OID, is exceeded by the "revised" issue price
(generally, the adjusted issue price) of such Offered Certificate at the time
of purchase. Such purchaser also generally is required to treat a portion of
any gain on a sale or exchange of the Offered Certificate as ordinary income
to the extent of the market discount accrued to the date of disposition, less
any accrued market discount previously reported as ordinary income on partial
distributions in reduction of stated redemption price at maturity. The amount
of market discount on an Offered Certificate is considered to be zero if it is
less than a de minimis amount determined under the Code (generally, 1/4 of 1
percent of the remaining stated redemption price at maturity multiplied by the
remaining weighted average maturity). In general terms, until regulations are
promulgated under the Code, market discount in such cases may be treated as
accruing, at the election of the holder, either (i) under a constant yield
method, taking into account the Prepayment Assumption or (ii) in proportion to
accruals of OID (or, if there is no OID, in proportion to accruals of stated
interest). A holder of an Offered Certificate having market discount may also
be required to defer a portion of the interest deductions attributable to any
indebtedness incurred or continued to purchase or carry the Offered
Certificate. As an alternative to the inclusion of market discount in income
on the foregoing basis, the holder may elect to include market discount in
income currently as it accrues on all market discount instruments acquired by
such holder in that taxable year or thereafter, in which case the interest
deduction deferral rule will not apply.
A holder who purchases an Offered Certificate at a cost greater than its
remaining stated redemption price at maturity generally is considered to have
purchased the Offered Certificate at a premium, which it may elect to amortize
as an offset to interest income (including any OID) on such Offered
Certificate (and not as a separate deduction item) using a constant yield
method. Although no regulations addressing the computation of premium accrual
on collateralized mortgage obligations or REMIC regular interests have been
issued, the legislative history of the Tax Reform Act of 1986 indicates that
premium is to be accrued in the same manner as market discount. Accordingly,
it appears that the accrual of premium on an Offered Certificate is calculated
using the Prepayment Assumption. If a holder makes an election to amortize
premium on an Offered Certificate, such election will apply to all taxable
debt instruments (including all REMIC regular interests) held by the holder at
the beginning of the taxable year in which the election is made, and to all
taxable debt instruments acquired thereafter by such holder, and will be
irrevocable without the consent of the Internal Revenue Service. Purchasers
who pay a premium for Offered Certificates should consult their tax advisors
regarding the election to amortize premium and the method to be employed.
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Election to Treat All Interest Under the Constant Yield Method. The OID
Regulations permit a holder to elect to accrue all interest, discount
(including de minimis market or original issue discount), and premium in
income as interest, under a constant yield method. A holder generally may make
such an election on an instrument by instrument basis or for a class or group
of debt instruments. However, if the holder makes such an election with
respect to a debt instrument with amortizable bond premium or with market
discount, the holder is deemed to have made elections to amortize bond premium
or to report market discount income currently as it accrues under the constant
yield method, respectively, for all debt instruments acquired by the holder in
the same taxable year or thereafter (and for all debt instruments with
amortizable bond premium held by the holder at the beginning of the taxable
year for which the election is made). The election is irrevocable except with
the approval of the Internal Revenue Service. Investors should consult their
own tax advisors regarding the advisability of making such an election.
Effects of Defaults and Delinquencies. Holders are required to report income
with respect to Offered Certificates under an accrual method without giving
effect to delays and reductions in distributions attributable to a default or
delinquency on the Mortgage Loan, except to the extent that it can be
established that such amounts are uncollectible. As a result, the amount of
income reported by a holder of such a Certificate in any period could
significantly exceed the amount of cash distributed to such holder in that
period. The holder will eventually be allowed a loss (or will be allowed to
report a lesser amount of income) to the extent that the aggregate amount of
distributions on the Certificate is reduced as a result of a Mortgage Loan
default. However, the timing and character of such losses or reductions in
income are uncertain and, accordingly, holders should consult their own tax
advisors on this point.
Sale or Exchange. A holder's tax basis in an Offered Certificate is the
price such holder pays for the Offered Certificate, increased by amounts of
OID and market discount included in income and reduced (but not below zero) by
any payments received (other than qualified stated interest payments) and any
amortized premium. Except (in the case of gain) to the extent of any accrued
market discount that has not been included in the holder's income, and except
to the extent allocable to accrued but unpaid interest, gain or loss
recognized on a sale, exchange, or redemption of an Offered Certificate,
measured by the difference between the amount realized and the Offered
Certificate's basis as so adjusted, will generally be capital gain or loss,
assuming that the Offered Certificate is held as a capital asset, and will be
long-term if the holder held the Offered Certificate for more than one year.
However, gain from the disposition of an Offered Certificate that might
otherwise be capital gain will be treated as ordinary income to the extent
such gain does not exceed the excess, if any, of (i) the amount that would
have been included in the holder's income if the yield on such Offered
Certificate had equaled 110% of the applicable federal rate as of the
beginning of such holder's holding period, over (ii) the amount of ordinary
income actually recognized by the holder with respect to such Offered
Certificate.
REMIC Expenses. As a general rule, all of the non-interest expenses of a
REMIC are taken into account by holders of the REMIC residual interests. In
the case of a "single class REMIC," however, such expenses are allocated,
under Treasury regulations, among the holders of the REMIC regular interests
and the holders of the REMIC residual interests on a daily basis in proportion
to the relative amounts of income accruing to each Certificateholder on that
day. In the case of regular interest Certificateholders in a single class
REMIC who are "pass-through interest holders," including individuals, trusts,
estates, partnerships, non-publicly offered regulated investment companies,
and other pass-through entities, but not including real estate investment
trusts, such holder's allocable share of the non-interest expenses of the
REMIC would be required to be added to its gross income, and an equivalent
amount would be treated as an investment expense. Such expenses are deductible
only to the extent that, when aggregated with the regular interest holder's
other miscellaneous itemized deductions for that year, they exceed two percent
of such holder's adjusted gross income. In addition, the amount of itemized
deductions otherwise allowable for the taxable year for an individual whose
adjusted gross income exceeds the applicable amount (for 1995, $114,700, or
$57,350 in the case of a separate return by a married individual within the
meaning of Code Section 7703, which amounts shall be adjusted for inflation)
is reduced by the lesser of (i) 3% of the excess of adjusted gross income over
the applicable amount and (ii) 80% of the amount of itemized deductions
otherwise allowable for such taxable year. Moreover, a regular interest
Certificateholder that is an individual estate or trust that is subject to the
alternative minimum tax may not deduct
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its share of the REMIC's fees and expenses for AMT purposes. In general terms,
a single class REMIC is one that either (i) would be classified as an
investment trust under Treas. Reg. (S)301.7701-4(c)(1) but for its
qualification as a REMIC (treating all interests as ownership interests, even
if they would be classified as debt for federal income tax purposes) because
the existence of multiple classes of ownership is merely incidental to
facilitating a direct investment in the trust assets (including the Mortgage
Loan in this case) or (ii) is substantially similar to such a trust and is
structured with the principal purpose of avoiding the single class REMIC
rules. Absent clarification from the Internal Revenue Service, tax returns of
each of the Trust REMICs and reports to Certificateholders will be prepared
assuming that neither of the Trust REMICs will be classified as a single class
REMIC. However, Certificateholders that are "pass-through interest holders"
should consult their own tax advisors regarding the impact of these rules on
an investment in the Certificates.
TAXATION OF THE REMICS
General. Although a REMIC is a separate entity for federal income tax
purposes, a REMIC generally is not subject to entity-level tax, except with
respect to income from prohibited transactions and certain other transactions.
See "Prohibited Transactions and Other Taxes" below. Rather, the taxable
income or net loss of a REMIC generally is taken into account by the holders
of residual interests, or, in the case of a single class REMIC, by the holders
of regular and residual interests. The regular interests are generally treated
as debt of the REMIC unless the REMIC is a single class REMIC. See "Taxation
of the Regular Interests" above. The following discussion assumes that neither
of the Trust REMICs is a single class REMIC.
Calculation of REMIC Income. The taxable income or net loss of a REMIC is
determined under an accrual method of accounting and in the same manner as in
the case of an individual, with certain adjustments. In general, the taxable
income or net loss is the difference between (i) the gross income produced by
the REMIC's assets, including stated interest and any OID or market discount
on loans and other assets, and (ii) deductions, including stated interest and
OID accrued on regular interests in the REMIC, amortization of any premium
with respect to loans, and servicing fees and other expenses of the REMIC.
For purposes of computing its taxable income or net loss, the REMIC should
have an initial aggregate tax basis in its assets equal to the aggregate fair
market value of the regular interests and the residual interests on the
startup day (generally, the day that the interests are issued). That aggregate
basis is allocated among the assets of the REMIC in proportion to their
respective fair market values.
Subject to possible application of the de minimis rules, the method of
accrual by the Lower-Tier REMIC or the Upper-Tier REMIC of OID income on the
Mortgage Loan or the Class A-3L Interest, respectively, is equivalent to the
method under which holders of Offered Certificates accrue OID (i.e., under the
constant yield method taking into account the Prepayment Assumption). The
Trust REMICs each deduct OID on the Offered Certificates in the same manner
that the holders of the Offered Certificates include such discount in income,
but without regard to the de minimis rules. See "Taxation of the Regular
Interests" above.
To the extent that the Lower-Tier REMIC's basis in the Mortgage Loan or the
Upper-Tier REMIC's basis in the Class A-3L Interest, respectively, exceeds the
principal amount of the Mortgage Loan or the Class A-3L Interest,
respectively, the resulting premium is amortized over the life of the Mortgage
Loan or the Class A-3L Interest, as the case may be, (taking into account the
Prepayment Assumption) using a constant yield method.
PROHIBITED TRANSACTIONS AND OTHER TAXES
The Code imposes a tax on REMICs equal to 100% of the net income derived
from "prohibited transactions." In general, subject to certain specified
exceptions, a prohibited transaction means the disposition of a qualified
mortgage (in this case, the Mortgage Loan), the receipt of income from a
source other than a qualified mortgage or certain other permitted investments,
the receipt of compensation for services, or gain from the disposition of an
asset purchased with the payments on a qualified mortgage for temporary
investment pending distribution on Certificates in the REMIC.
In addition, certain contributions to a REMIC made after the day on which
such REMIC issues all of its interests could result in the imposition of a tax
on the REMIC equal to 100% of the value of the contributed property.
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It is not anticipated that either of the Trust REMICs will receive income or
contributions subject to tax under the preceding two paragraphs.
A REMIC also may be subject to federal income tax at the highest corporate
rate on "net income from foreclosure property," determined by reference to the
rules applicable to real estate investment trusts. "Net income from
foreclosure property" generally means income from foreclosure property other
than qualifying income for a real estate investment trust. It is likely,
unless the Hotels were to be leased to an unrelated entity, that any income
derived by the Lower-Tier REMIC with respect to a Hotel that becomes
Foreclosed Property would not be qualifying income for a real estate
investment trust and thus would be "net income from foreclosure property"
subject to federal income tax. Any such tax on income derived by the Trust
Fund with respect to Foreclosed Properties would reduce the amount available
for distribution to the holders of the Certificates. The Trustee or the
Servicer has the right to lease any Hotel to an unrelated entity, or to seek
to implement any other arrangement designed to reduce such federal income
taxes if the Trustee or the Servicer determines that such an arrangement would
be in the best interests of the Certificateholders.
LIQUIDATION AND TERMINATION
If a REMIC adopts a plan of complete liquidation, within the meaning of Code
Section 860F(a)(4)(A)(i), which may be accomplished by designating in the
REMIC's final tax return a date on which such adoption is deemed to occur, and
sells all of its assets (other than cash) within a 90-day period beginning on
the date of the adoption of the plan of liquidation, the REMIC will generally
not be subject to the prohibited transactions rules on the sale of its assets,
provided that the REMIC credits or distributes in liquidation all of the sale
proceeds plus its cash (other than amounts retained to meet claims) to holders
of regular interests and residual interests within the 90-day period.
TAXATION OF THE NON-REMIC INTERESTS
In the opinion of Tax Counsel, the portion of the Trust Fund consisting of
Net Default Interest in respect of the Mortgage Loan, rights under the
Registration Rights Agreement, and Liquidated Damages is treated for federal
income tax purposes as a grantor trust under subpart E, Part 1, subchapter J,
Chapter 1 of Subtitle A of the Code and not as a REMIC, an association taxable
as a corporation, or a "taxable mortgage pool" within the meaning of Code
Section 7701(i). The holder of each Offered Certificate, other than a
Class A-3IO Certificate, is treated as the owner of a pro rata undivided
interest in the ordinary income and corpus of the portion of such grantor
trust represented by the Offered Certificate and is treated as the beneficial
owner of a pro rata undivided interest in the Net Default Interest obligation
in respect of the Mortgage Loan, the Registration Rights Agreement, and any
Liquidated Damages. Accordingly, a holder of an Offered Certificate, other
than a Class A-3IO Certificate, is required to report on its federal income
tax return its pro rata share of all income of the Trust Fund attributable to
Net Default Interest in respect of the Mortgage Loan, the Registration Rights
Agreement, and Liquidated Damages (in addition to any income attributable to
the regular interest in one of the REMIC Trusts represented by such Offered
Certificate). A holder of an Offered Certificate, other than a Class A-3IO
Certificate, generally is able to deduct (subject to certain limitations) its
pro rata share of any Trust Fund expenses that are attributable to Net Default
Interest in respect of the Mortgage Loan, the Registration Rights Agreement,
and Liquidated Damages. The treatment of Net Default Interest and Liquidated
Damages by an investor in the Offered Certificates is uncertain. It is
possible (but unlikely) that an investor would be required to report income
over the life of the related Offered Certificates, other than the Class A-3IO
Certificates, based on an estimate of the Net Default Interest and the
Liquidated Damages expected to be received with respect to such Offered
Certificate. The time of reporting of any such income is uncertain, and the
failure to receive Net Default Interest and/or Liquidated Damages previously
reported as income most likely would constitute a capital loss. It is more
likely that Net Default Interest and/or Liquidated Damages represent ordinary
income to an investor for the period in which such amounts actually accrue, in
an amount equal to the Net Default Interest and/or Liquidated Damages that
accrued during such period less the portion, if any, of the investor's basis
in the Offered Certificate that is allocable to the right to receive Net
Default Interest and/or Liquidated Damages (see "Taxation of the Offered
Certificates" above). No representation is made as to the method of the
recovery of any such
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basis. Each prospective purchaser of the Offered Certificates, (other than the
Class A-3IO Certificates), should consult its own tax advisor as to the effect
on it of the right to receive Net Default Interest and/or Liquidated Damages.
BACKUP WITHHOLDING
Holders of Offered Certificates may, under certain circumstances, be subject
to "backup withholding" at the rate of 31% with respect to distributions that
represent interest or OID on the Offered Certificates and with respect to the
proceeds of a sale of Offered Certificates to or through a broker. This
withholding generally applies if the holder of an Offered Certificate (i)
fails to furnish the Trustee with its taxpayer identification number ("TIN");
(ii) furnishes the Paying Agent an incorrect TIN; (iii) in the case of
interest or OID, fails to report properly interest, dividends, or other
"reportable payments" as defined in the Code or (iv) under certain
circumstances in the case of interest or OID, fails to provide the Paying
Agent or such holder's broker with a certified statement, signed under penalty
of perjury, that the TIN provided is its correct number and that the holder is
not subject to backup withholding. Backup withholding will not apply, however,
with respect to certain payments made to holders, including payments to
certain exempt recipients (such as exempt organizations) and to nonresident
alien individuals, foreign corporations, or certain other non-U.S. persons
("Nonresidents") that certify as to their non-U.S. status under penalties of
perjury or otherwise establish an exemption. Holders of the Offered
Certificates should consult their tax advisors as to their qualification for
an exemption from backup withholding and the procedure for obtaining the
exemption. Any amounts withheld from distribution on Offered Certificates
would be refunded by the Internal Revenue Service or allowed as a credit
against the holder's federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
REPORTING OF CERTAIN INFORMATION
Reports of accrued interest, original issue discount, information necessary
to compute the accrual of any market discount on the Offered Certificates, and
certain other required information will be made annually to the Internal
Revenue Service and to holders of record of Offered Certificates.
FOREIGN HOLDERS
Under the Code, unless interest (including OID) paid on an Offered
Certificate is considered to be "effectively connected" with a trade or
business conducted in the United States by a Nonresident holder (and, if
certain tax treaties apply, is attributable to a permanent establishment
maintained by the holder in the United States), such interest normally
qualifies as portfolio interest (except where (i) the recipient is a holder,
directly or by attribution, of 10% or more of (a) the capital or profits
interest in the issuer, if the issuer is a partnership, or (b) the combined
voting power of all voting stock of the issuer, if the issuer is a
corporation, or (ii) the recipient is a controlled foreign corporation to
which the issuer is a related person) and is exempt from federal income tax.
Upon receipt of qualifying statements of non-U.S. ownership, the issuer
normally is relieved of obligations to withhold tax from such interest
payments. These provisions supersede the generally applicable provisions of
the United States law that would otherwise require the issuer to withhold at a
30% rate (unless such rate were reduced or eliminated by an applicable tax
treaty) on, among other things, interest and other fixed or determinable
annual or periodic income paid to Nonresidents. Gain or loss realized by a
Nonresident holder on a disposition of an Offered Certificate is not subject
to federal income taxation unless such gain or loss is "effectively connected"
income (and, if certain tax treaties apply, is attributable to a United States
permanent establishment) or the holder is present in the United States for 183
days or more in the taxable year of the disposition and certain other
conditions apply.
Interest or OID received by a Nonresident is not subject to withholding if
such interest or OID is effectively connected with a United States business
conducted by the holder and the holder so certifies on Form 4224. Such
Nonresident is, however, generally subject to the regular United States income
tax on interest and OID in respect of Offered Certificates.
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STATE AND LOCAL TAX CONSIDERATIONS
In addition to the federal income tax consequences described herein,
potential investors should consider the state and any applicable local income
tax consequences of the acquisition, ownership, and disposition of the Offered
Certificates. State and local income tax law may differ substantially from the
corresponding federal law, and this discussion does not purport to describe
any aspect of the income tax laws of any state or taxing authority thereof or
therein.
The Company is not aware of any state or local taxing jurisdictions which
have asserted and successfully enforced income or other taxes against
nonresident holders of obligations in a case where the obligations are treated
in the same manner as the Offered Certificates for federal income tax purposes
and are issued by an entity that holds assets similar to the assets to be held
by the Trust Fund, solely by reason of the location in the jurisdiction of the
Trustee, the entity or the obligors on or the assets securing the loans held.
It is possible, however, that one or more jurisdictions may attempt to tax
nonresident Certificateholders on one or more of those bases or some other
basis, may require nonresident Certificateholders to file returns therein or
may attempt to impose penalties for failure to file such returns; and it is
possible that any such jurisdiction will ultimately succeed in collecting such
taxes or penalties from nonresident Certificateholders. There accordingly can
be no assurance that Certificateholders will not be subject to tax in any
particular state or local taxing jurisdiction. For example, the Company has
been advised that the state of Florida's administrative rules provide that
financial organizations (which for purposes of the rule include investment
companies) are subject to the Florida corporate income or franchise tax if
they earn or receive interest on loans secured by real or tangible property
located in Florida. The Florida Department of Revenue has indicated that this
rule also applies to corporations that are not "financial organizations."
While the Company is not aware of any instance where the Florida Department of
Revenue has successfully enforced its tax rule with respect to a person that
has no ties to Florida other than the purchase or ownership of debt
obligations similar to the Certificates (as contrasted with the holder of a
debt obligation obtained as a result of a direct private loan), there can be
no assurance that the Florida Department of Revenue would not seek to enforce
the rule. If any tax or penalty were successfully asserted by any state or
local taxing jurisdiction, none of the Trust Fund or the Trustee would be
obligated to indemnify or otherwise to reimburse the Certificateholders
therefor. Certificateholders should consult their tax advisors regarding state
and local tax matters.
POTENTIAL INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
THE VARIOUS STATE AND LOCAL TAX CONSEQUENCES OF AN INVESTMENT IN THE OFFERED
CERTIFICATES.
ERISA CONSIDERATIONS
GENERAL
The Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
imposes certain restrictions on covered employee benefit plans ("ERISA Plans")
and on those persons who are fiduciaries of ERISA Plans. In accordance with
the general fiduciary standards of ERISA, a fiduciary of an ERISA Plan should
consider whether an investment in the Certificates is permitted by the
documents and instruments governing the ERISA Plan, consistent with the ERISA
Plan's overall policy and appropriate in view of the composition of its
investment portfolio.
In addition to imposing general fiduciary standards, ERISA prohibits sales,
exchanges, loans, extensions of credit, leases, and certain other transactions
involving assets of an ERISA Plan and certain related persons ("Parties in
Interest"), and either taxes any such transaction under Section 4975 of the
Code or imposes civil penalties under Section 502(i) of ERISA, unless an
exemption applies. In addition, Section 4975 of the Code separately prohibits
and taxes such transactions involving Keogh plans and individual retirement
accounts not subject to ERISA (collectively with ERISA Plans, "Plans"), unless
an exemption applies. Violation of the prohibited transaction rules could
result in the imposition of other penalties under ERISA. Depending on whether
there are Party in Interest relationships and how the Trust Fund is operated,
the purchase of Offered Certificates
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by a Plan or an investor utilizing the assets of a Plan may itself be a
prohibited transaction or may be prohibited because it is deemed an indirect
investment in the Trust Fund.
PLAN ASSETS REGULATION
The United States Department of Labor ("DOL") has issued a final regulation
(the "Final Regulation") determining when assets of an entity in which a Plan
makes an equity investment will be treated as assets of the investing Plan. If
the Certificates are treated as debt with no substantial equity features under
applicable local law, these Final Regulations do not apply to the Offered
Certificates. Such treatment may vary by Class of Certificates. Assuming the
Offered Certificates would not be treated as debt with no substantial equity
features under local law, unless the Final Regulation provides an exemption,
an undivided portion of the assets of the Trust Fund will be treated, for
purposes of applying the fiduciary standards and prohibited transaction rules
of ERISA and Section 4975 of the Code, as an asset of each Plan which becomes
a direct or indirect Certificateholder.
The Final Regulation provides an exemption from "plan asset" treatment for
(1) securities issued by an entity if, immediately after the most recent
acquisition of an equity interest in the entity, less than 25% of the value of
each class of equity interests in the entity, excluding interests held by a
person who has discretionary authority or control with respect to the assets
of the entity (or any affiliate of such a person), are held by "benefit plan
investors" (e.g., Plans, governmental and other benefit plans not subject to
ERISA, and entities holding assets deemed to be "plan assets"); and (2)
"publicly offered securities" sold pursuant to an effective Securities Act
registration statement, subsequently registered under Section 12(b) or (g) of
the Securities Exchange Act of 1934 (the "Exchange Act"), and held by at least
100 persons independent of the issuer and each other. There can be no
assurance that the Offered Certificates will qualify for the other exemption,
if necessary.
PROHIBITED TRANSACTION EXEMPTIONS
Certain prohibited transaction class exemptions issued by DOL, including
Prohibited Transaction Class Exemption ("PTCE") 84-14 relating to Independent
Qualified Professional Asset Managers, and PTCE 90-1, PTCE 91-38, PTCE 95-60,
and PTCE 75-1 (for insurance company pooled accounts, bank collective trusts,
insurance company general accounts, and securities sales, respectively), may
apply to Certificateholders and to some or all transactions involving the
Trust Fund. A prospective investor that is a Plan or that utilizes the assets
of Plans should consult with its counsel with regard to the applicability of
the above-referenced exemptions to the purchase, holding, or sale of Offered
Certificates and the underlying transactions including the Trust.
DOL has issued to Lehman Brothers Inc. ("Lehman") Prohibited Transaction
Exemption 91-14 (the "Exemption"), which generally exempts from the
application of certain of the prohibited transaction provisions of Section 406
of ERISA, and the excise taxes and civil penalties imposed on such prohibited
transactions pursuant to Section 4975(a) and (b) of the Code and Section
502(i) of ERISA, certain transactions, among others, relating to the servicing
and operation of mortgage pools and the purchase, placement, and holding of
certificates in pass-through trusts underwritten by Lehman, provided that
certain conditions set forth in the Exemption are satisfied. For purposes of
this "ERISA Considerations" section, the term "Lehman" shall include (a)
Lehman and (b) any person, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with
Lehman.
The Exemption sets forth six general conditions which must be satisfied for
a transaction involving the purchase, sale, and holding of certificates to be
eligible for exemptive relief thereunder. First, the acquisition of
certificates by employee benefit plans subject to Section 406 of ERISA, or by
individual retirement accounts or other plans subject to Section 4975 of the
Code (each, a "Plan"), must be on terms that are at least as favorable to the
Plan as they would be in an arm's-length transaction with an unrelated party.
Second, the rights and interests evidenced by the certificates must not be
subordinated to the rights and interests evidenced by the other classes of
certificates. Third, the certificates at the time of acquisition by the Plan
must have received a rating at the time of acquisition that is in one of the
three highest generic rating categories from either S&P, Moody's Investors
Service, Inc., DCR, or Fitch Investors Service, L.P. Fourth, the Trustee
cannot be an affiliate of any
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other member of the "Restricted Group," which consists of Lehman, the Trustee,
CBM Funding, the Servicer, and the Company, and any affiliate of each of the
foregoing. Fifth, the sum of all payments made to and retained by Lehman must
represent not more than reasonable compensation for the underwriting of the
certificates, the sum of all payments made to and retained by CBM Funding
pursuant to the assignment of the Mortgage Loan to the Trustee must represent
not more than the fair market value of such obligations, and the sum of all
payments made to and retained by the Servicer must represent not more than
reasonable compensation for such person's services under the Trust and
Servicing Agreement and reimbursement of such person's reasonable expenses in
connection therewith. Sixth, the investing Plan must be an accredited investor
as defined in Rule 501(a)(1) of Regulation D of the Securities Act.
The Class A-1, Class A-2, Class A-3P&I and Class A-3IO Certificates
(collectively, the "Class A Certificates") are not subordinated to any other
Class of Certificates. As among the respective Class A Certificates, interest
payments on the Class A-1, Class A-2, Class A-3P&I and Class A-3IO
Certificates are not subordinated to interest payments on any other Class of
Offered Certificates, and principal payments on the Class A-2 and Class A-3P&I
Certificates are not subordinated to principal payments on the Class A-1
Certificates in the event the amount available on any Distribution Date is
insufficient to make such principal payments. Accordingly, the second general
condition set forth above (relating to subordination) would be satisfied. The
Class A Certificates have been rated at least "AA" ("AAr" with respect to the
Class A-3IO Certificate) by S&P and "AAA" by DCR. Accordingly, the third
general condition set forth above has been satisfied. A fiduciary of a Plan
contemplating purchasing a Class A Certificate in the secondary market must
make its own determination that at the time of such acquisition, such Class
A Certificate continues to satisfy the third general condition set forth
above. As of the date hereof, the Trustee is not an affiliate of any other
member of the Restricted Group. A fiduciary of a Plan contemplating purchasing
a Class A Certificate must make its own determination that the general
conditions set forth above will be satisfied with respect to such Class A
Certificate.
In addition, the Exemption provides relief from certain self-
dealing/conflict of interest prohibited transactions that may occur when a
Plan fiduciary causes a Plan to acquire Class A Certificates in which the
fiduciary, or its affiliate, is an obligor on the Mortgage Loan provided that,
among other requirements: (i) in the case of an acquisition in connection with
the initial issuance of the Class A Certificates, at least fifty percent of
each Class of Offered Certificates in which Plans have invested is acquired by
persons independent of the Restricted Group and at least fifty percent of the
aggregate interest in the trust is acquired by persons independent of the
Restricted Group; (ii) such fiduciary, or its affiliate, is an obligor with
respect of five percent or less of the fair market value of the Mortgage
Loans; (iii) the Plan's investment in Class A Certificates does not exceed
twenty-five percent of all of the Class A Certificates outstanding at the time
of investment; and (iv) no more than twenty-five percent of the assets of the
Plan are invested in certificates representing an interest in, or denominated
as debt and issued by, one or more trusts containing assets sold or serviced
by the same entity. The Exemption does not apply to Plans sponsored by Lehman,
CBM Funding, the Trustee, the Servicer, and the Company.
As noted above, the Exemption would apply to transactions relating to the
purchase and holding of the Class A Certificates, provided that the first,
fifth and sixth conditions described above are satisfied. Because the
characteristics of the Class B, Class C, and Class D Certificates do not meet
all the requirements of the Exemption, the purchase or holding of such
Certificates by a Plan may result in prohibited transactions or the imposition
of excise taxes or civil penalties. As a result, no transfer of a Class B,
Class C, or Class D Certificate or any interest therein may be made to a Plan
or to any person who is directly or indirectly purchasing such Certificate or
interest therein on behalf of, as named fiduciary of, as trustee of, or with
assets of a Plan, unless the prospective transferee (at its own expense)
provides the Trustee, CBM Funding, and the Servicer with a certification or an
opinion of counsel, at their discretion and in a form to their satisfaction,
which establish to their satisfaction that such transfer, holding, and sale of
a Class B, Class C, or Class D Certificate by such person either (1) will not
result in a violation of the prohibited transaction provisions of ERISA or the
Code, or (2) is subject to a statutory or administrative exemption from the
prohibited transaction provisions of ERISA and the Code.
139
<PAGE>
Any Plan fiduciary considering whether to purchase a New Certificate on
behalf of a Plan should consult with its counsel regarding the applicability
of the fiduciary responsibility and prohibited transaction provisions of ERISA
and the Code to such investment.
LEGAL INVESTMENT
The appropriate characterization of the New Certificates under various legal
investment restrictions, and thus the ability of investors subject to these
restrictions to purchase any Class of New Certificates, may be subject to
significant interpretative uncertainties. The New Certificates will not be
"mortgage related securities" within the meaning of the Secondary Mortgage
Market Enhancement Act of 1984 ("SMMEA").
In addition, institutions whose investment activities are subject to review
by certain regulatory authorities may be or may become subject to
restrictions, which may be retroactively imposed by such regulatory
authorities, on the investment by such institutions in certain forms of
mortgage-backed securities. Accordingly, investors should consult their own
legal advisors to determine whether and to what extent the Offered
Certificates constitute legal investments for them.
PLAN OF DISTRIBUTION
Based on an interpretation by the Commission's staff set forth in no-action
letters issued to third parties unrelated to the Issuer, the Issuer believes
that, with the exceptions set forth below, New Certificates issued pursuant to
the Exchange Offer in exchange for Old Certificates may be offered for resale,
resold and otherwise transferred by any person receiving such New
Certificates, whether or not such person is the holder (other than any such
holder or such other person which is an "affiliate" of the Issuer within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act;
provided that the New Certificates are acquired in the ordinary course of
business of the holder or such other person and neither the holder nor such
other person has an arrangement or understanding with any person to
participate in the distribution of such New Certificates. The Issuer, however,
has not sought, and does not intend to seek, their own no-action letter and
there can be no assurance that the Commission's staff would make a similar
determination with respect to the Exchange Offer. Any holder who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
New Certificates cannot rely on this interpretation by the Commission's staff
and must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with a secondary resale transaction.
Each broker-dealer that receives New Certificates for its own account in
exchange for Old Certificates, where the Old Certificates were acquired by
that broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Certificates. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Certificates received in exchange for Old
Certificates where such Old Certificates were acquired as a result of market-
making activities or other trading activities. The Company has agreed that it
will make this Prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale for such period of
time as such persons must comply with such requirements in order to resell the
New Certificates.
The Issuer will not receive any proceeds from any sale of New Certificates
by broker-dealers. New Certificates received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such New Certificates. Any
140
<PAGE>
broker-dealer that resells New Certificates that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Certificates may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Certificates and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
The Issuer will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal for such period of time as such
persons must comply with such requirements in order to resell the New
Certificates. The Company has agreed to pay all expenses incident to the
Exchange Offer other than commissions or concessions of any brokers or
dealers.
LEGAL MATTERS
The legality of the New Certificates will be passed upon for CBM Funding by
Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters relating to
federal income tax considerations will be passed upon for CBM Funding by Hogan
& Hartson L.L.P., Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of the Company, the
balance sheet of CBM Funding and the balance sheet of the Managing General
Partner included in this Registration Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports
with respect thereto and have been included herein in reliance upon the
authority of said firm as experts in giving said reports.
RATINGS
The Class A-1, Class A-2, Class A-3P&I Certificates have received a rating
of "AAA" from DCR and "AA" by S&P; the Class A-3IO Certificates are rated
"AAA" by DCR and "AAr" by S&P; the Class B Certificates are rated "AA" by DCR
and "A" by S&P; the Class C Certificates are rated at least "BBB" by each of
the Rating Agencies; and the Class D Certificates are rated at least "BBB-" by
each of the Rating Agencies.
The ratings on the Offered Certificates address the likelihood of the
receipt by the Certificateholders of full and timely payment of all
distributions of pass-through interest on the Offered Certificates on each
Distribution Date and the full payment of the ultimate principal balance of
each Class of Offered Certificates on a date that is not later than the Rated
Final Distribution Date with respect to such Class. The Rated Final
Distribution Date with respect to each Class of Offered Certificates is the
fifth anniversary of the Assumed Final Certificate Distribution Date of such
Class. Such ratings take into consideration the credit quality of the
underlying Mortgages and Mortgage Loan, structural and legal aspects
associated with the Offered Certificates, and the extent to which the payment
stream of the Mortgage Loan is adequate to make payments required under the
Offered Certificates. Such ratings on the Offered Certificates do not,
however, address the tax attributes of the Offered Certificates or the Trust
REMICs, or constitute an assessment of the likelihood or frequency of
prepayments on the Mortgage Loan. For example, as described herein, the
amounts payable with respect to the Class A-3IO Certificates consist only of
interest. In the event that holders of such Certificates do not fully recover
their investment as a result of rapid principal prepayments on the Mortgage
Loan, all amounts "due" to such holders will nevertheless have been paid, and
such result is consistent with the ratings assigned to such Certificates. In
addition, the ratings on the Offered Certificates do not address the
likelihood of receipt of Prepayment Premiums, Net Default Interest, or
Liquidated Damages. See "Risk Factors."
141
<PAGE>
There can be no assurance as to whether any rating agency not requested to
rate the Offered Certificates will nonetheless issue a rating and, if so, what
such rating would be. A rating assigned to the Offered Certificates by a
rating agency that has not been required by CBM Funding to do so may be lower
than the ratings assigned by S&P or DCR pursuant to CBM Funding's request.
The ratings of the Offered Certificates should be evaluated independently
from similar ratings on other types of securities. A security rating is not a
recommendation to buy, sell, or hold securities and may be subject to revision
or withdrawal at any time by the assigning rating agency. A security rating
does not address the frequency or likelihood of prepayments (whether voluntary
or involuntary) of the Mortgage Loan, the corresponding effect on the yield to
investors, or the Company's ability to pay any Prepayment Premium.
AVAILABLE INFORMATION
CBM Funding and the Company have filed with the Securities and Exchange
Commission (the "Commission") an Exchange Offer on Form S-4 (herein, together
with all amendments and exhibits, referred to as the "Registration Statement")
under the Securities Act. This Prospectus does not contain all 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, which can
be inspected and copied at the public reference facilities maintained by the
Commission in Washington, D.C. and at the Regional Offices of the Commission
at 7 World Trade Center, Suite 1300, New York, NY 10048; and Northwestern
Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661.
Copies of such material can be obtained at prescribed rates from the Public
Reference Room of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549.
142
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINITION PAGE
- ---------- -----
<S> <C>
Adjusted Operating Expenses............................................... 77
ADR....................................................................... 45
Advance(s)................................................................ 20
Allocated Loan Amount..................................................... 11
Applicable Margin......................................................... 74
ATOP...................................................................... 87
Available Distribution Amount............................................. 17
Balloon Payment........................................................... 9
Bankruptcy--Remote........................................................ 5
Book-Entry Confirmation................................................... 85
Book-Entry Transfer Facility.............................................. 85
Business Day.............................................................. 72
Capital Assets............................................................ 128
Cash Collateral Account................................................... 13
CBM Funding............................................................... cover
CBM II L.P................................................................ 5
Cede...................................................................... 106
CERCLA.................................................................... 30
Certificateholder(s)...................................................... 16
Certificate Balance....................................................... 15
Certificates.............................................................. 24
Chain Services............................................................ 96
Class..................................................................... cover
Class A-1 Certificates.................................................... 15
Class A-2 Certificates.................................................... 15
Class A-3IO Certificates.................................................. 15
Class A-3L Interest....................................................... 2
Class A-3IO Premium Amount................................................ 104
Class A-3P&I Certificates................................................. 15
Class A-3P&I Premium Amount............................................... 104
Class B Certificates...................................................... 15
Class C Certificates...................................................... 15
Class D Certificates...................................................... 15
Class R Certificate....................................................... 16
Class UR Certificate...................................................... 16
Code...................................................................... 22
Collateral................................................................ 10
Collection Account........................................................ 13
Company................................................................... cover
Commission................................................................ 142
CPR....................................................................... 123
DCR....................................................................... 12
Debt Service Coverage Ratio............................................... 77
Deerfield Hotel........................................................... 5
Deerfield LLC............................................................. 5
Default Interest.......................................................... 101
Default Interest Distribution Account..................................... 13
Default Rate.............................................................. 9
</TABLE>
143
<PAGE>
<TABLE>
<CAPTION>
DEFINITION PAGE
- ---------- -----
<S> <C>
Deferred Management Fees.................................................. 95
Definitive Certificate(s)................................................. 108
Depositor................................................................. 88
Disqualified Organizations................................................ 129
Distribution Account...................................................... 14
Distribution Date......................................................... cover
Distribution Date Statement............................................... 105
DOL....................................................................... 138
DTC....................................................................... 26
DTC Participant(s)........................................................ 107
Due Date.................................................................. 8
Due Period................................................................ 9
Eligible Account.......................................................... 115
Eligible Institution...................................................... 86
Environmental Consultant.................................................. 30
<CAPTION>
Environmental Lien........................................................ 30
<S> <C>
ERISA..................................................................... 22
ERISA Plans............................................................... 137
Exchange Act.............................................................. 138
Exchange Agent............................................................ 26
Exchange Offer............................................................ cover
Exchange Offer Registration Statement..................................... 108
Exemption................................................................. 22
Expiration Date........................................................... 25
Extended Coverage......................................................... 81
FF&E...................................................................... 10
FF&E Replacements......................................................... 96
FF&E Reserve Account...................................................... 10
Final Regulation.......................................................... 138
Foreclosed Property....................................................... 7
Foreclosed Property Account............................................... 7
Gross Revenues............................................................ 77
Host Marriott............................................................. 5
Host Marriott IRB Liability............................................... 38
Hotels.................................................................... cover
Incentive Management Fee.................................................. 95
Indebtedness.............................................................. 75
Indirect DTC Participant(s)............................................... 107
Interest Accrual Period................................................... 17
Interest Distribution Amount.............................................. 17
Interest Shortfall........................................................ 17
Interested Person......................................................... 117
IRB Debt.................................................................. 38
Issue Date................................................................ 2
Issuer ................................................................... cover
Lehman.................................................................... 138
Letter of Transmittal..................................................... cover
Liquidated Damages........................................................ 13
Liquidated Damages Distribution Account................................... 13
Loan Agreement............................................................ 72
</TABLE>
144
<PAGE>
<TABLE>
<CAPTION>
DEFINITION PAGE
- ---------- -----
<S> <C>
Loan Documents............................................................ 72
Lockbox Account........................................................... 113
Lower-Tier REMIC.......................................................... 21
Management Agreement...................................................... 6
Manager................................................................... 6
Manager's Account......................................................... 12
Managing General Partner.................................................. 5
Marriott Ground Leases.................................................... 28
Marriott Ground Lessors................................................... cover
MII....................................................................... 6
MII Land.................................................................. 10
MII Master Account........................................................ 113
Minimum Rental............................................................ 47
Monthly Payment........................................................... 101
Mortgage(s)............................................................... cover
Mortgage Debt A........................................................... 38
Mortgage Debt B........................................................... 38
Mortgage Loan............................................................. cover
Mortgage Loan Assumptions................................................. 124
Mortgage Loan Event of Default............................................ 29
Mortgage Note............................................................. 72
Mortgaged Properties...................................................... cover
Mortgage Related Securities............................................... 23
Net Default Interest...................................................... 101
Net Income Foreclosure Property........................................... 135
Net Operating Income...................................................... 77
New Certificate(s)........................................................ cover
Nondisqualification Opinion............................................... 116
Nonrecoverable Advance.................................................... 118
Nonresident(s)............................................................ 136
Notes..................................................................... 6
Notes Offering............................................................ 6
Notional Balance.......................................................... 15
NYSE...................................................................... 88
Offered Certificates...................................................... cover
Old Certificate(s)........................................................ cover
Old Certificates Offering................................................. 6
OID....................................................................... 22
OID Regulations........................................................... 130
Operating Account......................................................... 114
Operating Income.......................................................... 42
Partnership Agreement..................................................... 35
Payment Differential...................................................... 74
P&I Advance(s)............................................................ 20
P&I Shortfall............................................................. 101
Percentage Rental......................................................... 47
Permitted Investments..................................................... 115
Phase II Assessment....................................................... 30
</TABLE>
145
<PAGE>
<TABLE>
<CAPTION>
DEFINITION PAGE
- ---------- -----
<S> <C>
Plan(s)................................................................... 138
Plan Assets............................................................... 138
PORTAL.................................................................... 2
Prepayment Assumption..................................................... 131
Prepayment Date........................................................... 73
Prepayment Premium........................................................ 11
Prime Rate................................................................ 118
Principal Distribution Amount............................................. 101
Prohibited Transaction.................................................... 134
Property Protection Advance(s)............................................ 20
PTCE...................................................................... 138
QIB....................................................................... 106
Qualifying Debt Service................................................... 47
Qualifying Real Property Loan............................................. 22
Qualifying Refinancings................................................... 47
Rating Agencies........................................................... 12
Real Estate Assets........................................................ 130
Record Date............................................................... 16
Registration Default...................................................... 109
Registration Rights Agreement............................................. 25
Registration Statement.................................................... 109
Regular Interests......................................................... 15
REITs..................................................................... 22
Reinvestment Yield........................................................ 74
Release Price............................................................. 11
REMIC..................................................................... 21
REMIC Regulations......................................................... 128
Rental.................................................................... 47
Residual Interests........................................................ 16
Restricted Group.......................................................... 139
Revised Issue Price....................................................... 132
REVPAR.................................................................... 45
Rules..................................................................... 107
S&P....................................................................... 12
Scheduled Balloon Maturity Date........................................... cover
Securities Act............................................................ cover
Servicer.................................................................. 5
Servicer Remittance Date.................................................. 14
Servicing Fee(s).......................................................... 110
Shelf Registration Statement.............................................. 25
Subordinated Obligations.................................................. 94
Subordinated Courtyard Management Fee..................................... 95
Supplemental Debt Service Reserve......................................... 38
SMMEA..................................................................... 23
Tax Counsel............................................................... 21
TIN....................................................................... 136
Treasury Rate............................................................. 74
Trust and Servicing Agreement............................................. cover
Trust and Servicing Event of Default...................................... 119
</TABLE>
146
<PAGE>
<TABLE>
<CAPTION>
DEFINITION PAGE
- ---------- -----
<S> <C>
Trust Fund................................................................ cover
Trust REMICs.............................................................. 21
Trustee................................................................... 5
UCC....................................................................... 107
Unscheduled Payment(s).................................................... 100
Upper-Tier Distribution Account........................................... 14
Upper-Tier REMIC.......................................................... 21
Voting Right(s)........................................................... 104
Weighted Average Interest Rate............................................ 73
Weighted Average Life..................................................... 124
Working Capital Agreement................................................. 39
Working Capital Reserve................................................... 39
</TABLE>
147
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Courtyard II Associates, L.P. and Subsidiaries Consolidated Financial
Statements:
Report of Independent Public Accountants................................ F-2
Consolidated Statement of Operations for the years ended December 31,
1993, 1994 and 1995.................................................... F-3
Consolidated Balance Sheet as of December 31, 1994 and 1995............. F-4
Consolidated Statement of Cash Flows for the years ended December 31,
1993, 1994 and 1995.................................................... F-5
Notes to Consolidated Financial Statements.............................. F-6
Condensed Consolidated Statement of Operations for the twelve weeks
ended March 24, 1995 and March 22, 1996 (Unaudited).................... F-20
Condensed Consolidated Balance Sheet as of December 31, 1995 and March
22, 1996 (Unaudited)................................................... F-21
Condensed Consolidated Statement of Cash Flows for the twelve weeks
ended March 24, 1995 and March 22, 1996 (Unaudited).................... F-22
Notes to Condensed Consolidated Financial Statements.................... F-23
CBM Funding Corporation Financial Statement:
Report of Independent Public Accountants................................ F-24
Balance Sheet as of December 31, 1995 and March 22, 1996 (Unaudited).... F-25
Notes to Balance Sheet.................................................. F-26
Courtyard II Associates Management Corporation Financial Statement:
Report of Independent Public Accountants................................ F-28
Balance Sheet as of December 31, 1995 and March 22, 1996 (Unaudited).... F-29
Note to Balance Sheet................................................... F-30
Courtyard by Marriott II Limited Partnership Financial Statement:
Report of Independent Public Accountants................................ F-31
Consolidated Balance Sheet as of December 31, 1995 and March 22, 1996
(Unaudited)............................................................ F-32
Notes to Consolidated Balance Sheet..................................... F-33
Report of Independent Public Accountants on Schedule III.................. F-45
Schedule III--Real Estate and Accumulated Depreciation.................... F-46
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES:
We have audited the accompanying consolidated balance sheet of Courtyard II
Associates, L.P. (a Delaware limited partnership) and subsidiaries as of
December 31, 1994 and 1995, and the related consolidated statements of
operations and cash flows for each of the three years in the period ended
December 31, 1995. These financial statements are the responsibility of the
General Partner of Courtyard by Marriott II Limited Partnership. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Courtyard
II Associates, L.P. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Washington, D.C.,
February 22, 1996
F-2
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994, AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
REVENUES (Note 3).................................. $102,916 $112,392 $121,737
OPERATING COSTS AND EXPENSES
Interest......................................... 35,996 32,897 29,080
Depreciation and amortization.................... 27,856 27,980 27,720
Base management and Courtyard fees (paid to
related parties)................................ 13,336 13,925 14,749
Ground rent (including ground rent paid to
related parties of $8.5 million, $9.3 million
and $9.9 million in 1993, 1994 and 1995,
respectively)................................... 10,028 10,787 11,550
Incentive management fees........................ -- 9,403 10,480
Property taxes................................... 9,005 9,453 9,324
Insurance and other.............................. 1,610 1,787 (143)
-------- -------- --------
97,831 106,232 102,760
-------- -------- --------
NET INCOME......................................... $ 5,085 $ 6,160 $ 18,977
======== ======== ========
ALLOCATION OF NET INCOME
General Partners................................. $ 102 $ 123 $ 380
Limited Partner.................................. 4,983 6,037 18,597
-------- -------- --------
$ 5,085 $ 6,160 $ 18,977
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Property and equipment, net............................... $494,500 $474,480
Due from Courtyard Management Corporation................. 8,389 7,078
Deferred financing costs, net............................. 665 12,127
Prepaid expenses.......................................... 137 --
Property improvement fund................................. 27,671 33,098
Cash and cash equivalents................................. -- --
-------- --------
$531,362 $526,783
======== ========
LIABILITIES AND INVESTMENT IN AND NET ADVANCES TO ASSOCIATES
LIABILITIES
Mortgage debt............................................. $410,200 $410,200
Due to Host Marriott Corporation.......................... 600 747
Management fees due to Courtyard Management Corporation... 35,971 35,809
Due to Marriott International, Inc. and affiliates........ 9,508 9,402
Accounts payable and accrued liabilities.................. 8,304 12,718
-------- --------
Total liabilities....................................... 464,583 468,876
-------- --------
INVESTMENT IN AND NET ADVANCES TO ASSOCIATES (See discussion
of distribution restrictions in Note 2).................... 66,779 57,907
-------- --------
$531,362 $526,783
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 5,085 $ 6,160 $18,977
Noncash items:
Depreciation and amortization................... 27,856 27,980 27,720
(Gain) loss on sale of equipment................ -- 1,185 (12)
Amortization of deferred financing costs as
interest....................................... 451 454 493
Deferred management fees........................ 411 5,564 --
Interest on IRB advances from Host Marriott
Corporation.................................... 157 260 147
Changes in operating accounts:
Due from Courtyard Management Corporation....... 2,784 (2,260) 1,311
Accounts payable and accrued liabilities........ 660 (2,710) (5,911)
Prepaid expenses and other...................... 56 (138) 137
Management fees due to Courtyard Management
Corporation.................................... -- -- (162)
Due to Marriott International, Inc.............. 18 (64) (106)
------- ------- -------
Cash provided by operations................... 37,478 36,431 42,594
------- ------- -------
INVESTING ACTIVITIES
Additions to property and equipment, net.......... (8,268) (13,361) (8,786)
Change in property improvement fund............... (5,926) 1,229 (5,427)
------- ------- -------
Cash used in investing activities............. (14,194) (12,132) (14,213)
------- ------- -------
FINANCING ACTIVITIES
Investment in and net advances to Associates...... (23,284) (24,299) (28,381)
------- ------- -------
Cash used in financing activities............. (23,284) (24,299) (28,381)
------- ------- -------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS.... -- -- --
CASH AND CASH EQUIVALENTS at beginning of year...... -- -- --
------- ------- -------
CASH AND CASH EQUIVALENTS at end of year............ $ -- $ -- $ --
======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest......... $35,063 $36,153 $32,116
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994 AND 1995
NOTE 1. COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
Description
Courtyard II Associates, L.P. ("Associates"), Delaware limited partnership,
was formed on December 22, 1995. Substantially all of the assets of
Associates, as defined below, were contributed to Associates by Courtyard by
Marriott II Limited Partnership (the "Partnership") on January 24, 1996 in
connection with the Partnership's refinancing (see Note 10). The managing
general partner of Associates is Courtyard II Associates Management
Corporation (a wholly owned subsidiary of the Partnership) with a 1% interest
and the Partnership owns a 1% general partner interest and a 98% limited
partner interest. CBM Funding Corporation ("CBM Funding") a wholly owned
subsidiary of Associates, was formed on December 29, 1995 to make a mortgage
loan to Associates in connection with the refinancing (see Note 10).
Associates directly owns 69 Courtyard hotels and the land on which certain of
the Hotels are located. One hotel located in Deerfield, Illinois (the
"Deerfield Hotel") is owned indirectly by Associates through its wholly-owned
subsidiary, CBM Associates II LLC ("Associates II"). The 70 hotel properties
(the "Hotels") are located in 29 states in the United States: nine in
Illinois; eight in California; five in Florida; four in Georgia; four in Texas
and three or less in each of the other 24 states. The Hotels are managed as
part of the Courtyard by Marriott hotel system by Courtyard Management
Corporation (the "Manager"), a wholly owned subsidiary of Marriott
International, Inc. ("MII").
Partnership Allocations and Distributions
Allocations and distributions for Associates are generally made in
accordance with the respective ownership interests as follows: (i) 98% to the
limited partner, the Partnership and (ii) 1% to each general partner, the
Partnership and Courtyard II Associates Management Corporation.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements of Associates present the financial
position, results of operations and cash flows of Associates as if it were a
separate subsidiary of the Partnership for all periods presented. The
Partnership's historical basis in the assets and liabilities contributed to
Associates have been carried over. Intercompany transactions and balances
between Associates and its subsidiaries have been eliminated. Changes in
Investment in and Net Advances to Associates for all periods presented
represent the net income of Associates net of cash transferred to the
Partnership. There are no terms of settlement or interest charges associated
with the Investment in and Net Advances to Associates balance.
An analysis of the activity in Investment in and Net Advances to Associates
for the three years ended December 31, 1995 are as follows (in millions):
<TABLE>
<S> <C>
Balance, December 31, 1992............................................. $103
Cash transfers to (from) Associates, net............................. (23)
Net income........................................................... 5
----
Balance, December 31, 1993............................................. 85
Cash transfers to (from) Associates, net............................. (24)
Net income........................................................... 6
----
Balance, December 31, 1994............................................. 67
Cash transfers to (from) Associates, net............................. (28)
Net income........................................................... 19
----
Balance, December 31, 1995............................................. $ 58
====
</TABLE>
F-6
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
The average balance for Investment in and Net Advances to Associates for
each of the years 1993, 1994, and 1995 was $94 million, $76 million and $62.5
million, respectively.
On January 24, 1996, Associates consummated the offering of $410,200,000 of
multi-class mortgage pass- through certificates (the "Certificates"), the net
proceeds of which were used to repay certain obligations of the Partnership as
discussed in Note 10. The accompanying consolidated financial statements
present the pushed-down effects of the debt which was repaid with the proceeds
of the offering as discussed in Note 10.
A concurrent offering of $127,400,000 of senior notes (the "Senior Notes")
by the Partnership was also completed on January 24, 1996. The Senior Notes
are secured by a first priority pledge of the Partnership's 99% partnership
interest in Associates and the Partnership's 100% equity interest in Courtyard
II Associates Management Corporation. As a result, the Partnership owns
directly or indirectly 100% of Associates. The Senior Notes are not reflected
in the accompanying financial statements of Associates because Associates does
not guarantee the Senior Notes nor do the assets of Associates secure the
Senior Notes. Payments on the Senior Notes are made from distributions of the
excess cash of Associates to the Partnership; such distributions are
restricted only upon a monetary event of default under the Mortgage Loan, as
defined in Note 10. The Partnership has no other source of cash flow other
than distributions from Associates.
Basis of Accounting
The records of Associates are maintained on the accrual basis of accounting
and its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Working Capital and Supplies
Pursuant to the terms of the management agreement discussed in Note 8,
Associates is required to provide the Manager with working capital and
supplies to meet the operating needs of the Hotels. The Manager converts cash
advanced by Associates into other forms of working capital consisting
primarily of operating cash, inventories, and trade receivables and payables
which are maintained and controlled by the Manager. Upon the termination of
the management agreement, the Manager is required to convert working capital
and supplies into cash and return it to Associates. As a result of these
conditions, the individual components of working capital and supplies
controlled by the Manager are not reflected in the accompanying consolidated
balance sheet.
Revenues and Expenses
Revenues represent house profit from the Hotels because Associates has
delegated substantially all of the operating decisions related to the
generation of house profit of the Hotels to the Manager. House profit reflects
hotel operating results which flow to Associates as property owner and
represents hotel sales less property-level expenses, excluding depreciation
and amortization, base, Courtyard and incentive management fees, real and
personal property taxes, ground rent and equipment rent, insurance and certain
other costs, which are disclosed separately in the consolidated statement of
operations.
F-7
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C> <C>
Buildings and improvements................... 40 years
Leasehold improvements....................... 40 years
Furniture and equipment...................... 4-10 years
</TABLE>
Certain property and equipment was pledged to secure the mortgage debt
described in Note 6.
Associates assesses impairment of its real estate properties based on
whether estimated undiscounted future cash flows from such properties on an
individual hotel basis will be less than their net book value. If a property
is impaired its basis is adjusted to fair market value.
Deferred Financing
Deferred financing costs consist of costs incurred in connection with
obtaining Partnership financing for Mortgage Debt A and B, as defined in Note
6. Financing costs are amortized using the straight-line method, which
approximates the effective interest rate method, over the remaining life of
the respective mortgage debt. At December 31, 1994 and 1995, accumulated
amortization of financing costs totalled $2,411,000 and $2,904,000,
respectively. During 1994 and 1995, the Partnership paid $20,000 and
$2,990,000, respectively, in financing costs related to the debt refinancing
discussed in Note 10. Pursuant to "pushdown" accounting, financing costs of
$20,000 and $2,610,000 for 1994 and 1995, respectively, have been pushed-down
to Associates. Additionally, as of December 31, 1995, the Partnership accrued
$15,246,000 in financing costs related to the debt refinancing. Of this
amount, $9,325,000 in accrued financing costs have been pushed down to
Associates. These pushed-down amounts are reflected on the accompanying
consolidated balance sheet.
Cash and Cash Equivalents
Associates considers all highly liquid investments with a maturity of three
months or less at date of purchase to be cash equivalents.
Ground Rent
The land leases with MII or affiliates of MII (see Note 7) include scheduled
increases in minimum rents per property. These scheduled rent increases, which
are included in minimum lease payments, are being recognized by Associates on
a straight-line basis over the lease terms which approximate 80 years. The
adjustment included in ground rent expense and Due to Marriott International,
Inc. and affiliates to reflect minimum lease payments on a straight-line basis
for 1993, 1994 and 1995 totalled $(28,000), $(119,000) and $(119,000),
respectively.
Income Taxes
Provision for Federal taxes has not been made in the accompanying
consolidated financial statements since Associates does not pay income taxes,
but rather, allocates its profits and losses to the individual partners.
Interest Rate Swap Agreements
Associates was a party to two interest rate swap agreements (prior to their
expiration in 1994) to reduce Associates' exposure to floating interest rates.
Associates accounted for the swap arrangements as a hedge of
F-8
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
obligations to pay floating rates of interest and accordingly, recorded
interest expense based upon its payment obligations at fixed interest rates.
Interest expense on the consolidated statement of operations reflects the
"pushed down" effect of a proportionate amount of total swap interest.
New Statement of Financial Accounting Standards
Associates is required to adopt Statement of Financial Accounting Standards
("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" no later than its fiscal year ending
December 31, 1996. Associates does not expect that the adoption of SFAS No.
121 will have a material effect on its consolidated financial statements.
NOTE 3. REVENUES
Revenues for Associates consist of Hotel operating results for the three
years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
HOTEL SALES
Rooms............................................. $192,116 $204,203 $218,955
Food and beverage................................. 21,551 18,483 17,628
Other............................................. 8,599 9,396 9,242
-------- -------- --------
222,266 232,082 245,825
-------- -------- --------
HOTEL EXPENSES
Departmental Direct Costs
Rooms........................................... 43,246 45,088 48,091
Food and beverage............................... 17,028 15,162 15,006
Other hotel operating expenses.................... 59,076 59,440 60,991
-------- -------- --------
119,350 119,690 124,088
-------- -------- --------
REVENUES............................................ $102,916 $112,392 $121,737
======== ======== ========
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Land........................................................ $ 25,392 $ 25,392
Leasehold improvements...................................... 434,330 435,913
Building and improvements................................... 75,824 77,053
Furniture and equipment..................................... 134,781 135,908
-------- --------
670,327 674,266
Less accumulated depreciation and amortization.............. (175,827) (199,786)
-------- --------
$494,500 $474,480
======== ========
</TABLE>
F-9
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
NOTE 5. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994 AS OF DECEMBER 31, 1995
------------------------ ------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
----------- ------------ ----------- ------------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
FINANCIAL LIABILITIES
Mortgage debt................ $ 410,200 $ 396,486 $ 410,200 $ 410,200
Management fees due to
Courtyard Management
Corporation................. 35,971 4,447 35,809 9,995
Due to Host Marriott
Corporation................. 600 260 747 747
</TABLE>
The 1995 estimated fair values of mortgage debt obligations and amounts due
to Host Marriott Corporation are based on their carrying amounts as these
items were repaid on January 24, 1996. Consistent with the prior year, the
1995 management fees due to the Courtyard Management Corporation are valued
based on the expected future payments from operating cash flow discounted at
risk adjusted rates.
The 1994 estimated fair value of mortgage debt obligations was based on the
expected future debt service payments discounted at estimated market rates,
adjusted for the presence of the debt service guarantees. The 1994 amount due
to Host Marriott Corporation was valued based on the expected future payments
from operating cash flow discounted at risk adjusted rates.
NOTE 6. MORTGAGE DEBT
Overview
For 1994 and 1995, the accompanying consolidated financial statements
reflect the pushed-down effects of an equivalent principal amount of the
Partnership's debt which was repaid with the proceeds of the offering as
discussed in Note 10. Therefore, debt consists of the following at December
31, 1994 and 1995 (in thousands):
<TABLE>
<CAPTION>
PARTNERSHIP ASSOCIATES
----------- ----------
<S> <C> <C>
Mortgage Debt A.......................................... $275,000 $209,612
Mortgage Debt B.......................................... 230,500 175,976
IRB Debt................................................. 25,600 19,690
Host Marriott IRB Liability loans........................ 6,489 4,922
-------- --------
$537,589 $410,200
======== ========
</TABLE>
The following discussion of bank mortgage debt, swaps, debt service
guarantees, foreclosure guarantees, Host Marriott IRB Liability advances and
repayments and the ground rent facility reflect actual amounts in relation to
the Partnership. Therefore, amounts discussed herein are not reflective of
"pushdown" amounts to Associates.
Bank Mortgage Debt
As discussed in Note 10, Mortgage Debt A and Mortgage Debt B were refinanced
on January 24, 1996 and the Banks were repaid in full.
F-10
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
Mortgage Debt A of $275 million was non-recourse and bore interest at a
floating rate equal to (i) the adjusted CD Rate or LIBOR, as defined, plus
(ii) .75 percentage points. Mortgage Debt A required no principal amortization
prior to maturity on December 15, 1995. On August 4, 1989, the Partnership
entered into a $275 million (notional amount) five-year interest rate exchange
agreement ("Swap A") with the banks. Under Swap A, the Partnership was
obligated to pay a fixed rate of interest and was entitled to receive variable
rates of interest. Swap A was intended to reduce the Partnership's exposure to
floating interest rates and, in February 1990, it enabled the Partnership to
effectively fix the interest rate on $275 million of its Mortgage Debt A at
approximately 9.25%. Swap A expired on August 4, 1994.
Mortgage Debt B of $230.5 million was non-recourse and bore interest at a
floating rate equal to (i) the adjusted CD Rate or LIBOR, as defined, plus
(ii) .75 percentage points. On October 18, 1989, the Partnership entered into
an additional $190 million (notional amount) five-year interest rate exchange
agreement ("Swap B") with the banks which, in January 1990, enabled the
Partnership to effectively fix the interest rate on $190 million of its
Mortgage Debt B at approximately 9.4%. Swap B expired on October 18, 1994. The
average interest rate on the $30.9 million unswapped portion of Mortgage Debt
B was 4.07% for 1993, and 5.26% for 1994. Mortgage Debt B required no
principal amortization prior to the scheduled maturity on September 5, 1996.
The combined effective interest rate for Mortgage Debt A and B was 8.95% for
1993, 8.08% for 1994, and 7% for 1995. The combined average interest rate at
December 31, 1995 for Mortgage Debt A and B was 6.81%.
As security for the Mortgage Debt A (36 Hotels) and Mortgage Debt B (29
Hotels) the banks held mortgages on the Partnership's fee or leasehold
interest on the respective Hotels. The banks also had security interests under
their respective mortgages in the personal property associated with those
Hotels and obtained an assignment of the Partnership's rights under the
management agreement and the Purchase Agreement.
On December 15, 1995, the Partnership and the Mortgage Debt A lenders
amended the loan agreement to extend the maturity date of Mortgage Debt A from
December 15, 1995 to February 15, 1996 (the "Extension Period"). This
amendment provided for interest during the Extension Period equal to the
following:
<TABLE>
<S> <C>
December 16, 1995
through January 15,
1996................... Adjusted CD Rate or LIBOR plus 1 percentage point
January 16, 1996 through
February 15, 1996...... Adjusted CD Rate or LIBOR plus 1.25 percentage points
</TABLE>
In connection with the Mortgage Debt A extension, the Partnership paid an
extension fee to the banks of $1,085,000 of which the 1995 portion is included
in interest expense on the consolidated statement of operations.
Bank Mortgage Debt Guarantees
Host Marriott guaranteed payment of $32.6 million on Mortgage Debt A and
$27.4 million on Mortgage Debt B. Any payments by Host Marriott under the
Mortgage Debt guarantees are treated as loans to the Partnership and bear
interest at one percentage point in excess of the prime rate of interest
announced by Bankers Trust Company of New York (the "Prime Rate").
Host Marriott will be released from the original guarantees on the date on
which debt service coverage, as defined, has exceeded 1.3 for each of the
prior eight consecutive quarters for Mortgage Debt A and Mortgage Debt B or on
the date when Mortgage Debt A and Mortgage Debt B are repaid in full. However,
during 1994, Host Marriott extended its debt service guarantees in an amount
of aggregate principal and interest of $5.4 million on Mortgage Debt A and
$4.6 million on Mortgage Debt B. The guarantees were extended in order to
obtain waivers from the Mortgage Debt A and B lenders for any possible
conflicts caused by the division of
F-11
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
Marriott Corporation, the parent company of the Partnership's general partner,
on October 8, 1993. The Partnership did not bear any costs associated with
these arrangements. The maximum amount that Host Marriott could be required to
fund under its guarantees remained at the original guarantee amounts until the
debt service coverage requirement is met. Upon meeting the debt service
coverage requirements and being released from the original guarantees, the
extended guarantees would be in effect through the respective loan maturities.
During 1995, Host Marriott was released from its original Mortgage Debt A
guarantee obligation of $32.6 million as certain debt service coverage
requirements were met. As a result, as of December 31, 1995, $5.4 million and
$27.4 million, respectively, was available under Mortgage Debt A and B
guarantees.
In addition, the general partner of the Partnership, CBM Two Corporation
("General Partner"), a wholly-owned subsidiary of Host Marriott had provided a
guarantee to the banks that, in the event of a foreclosure, proceeds under
Mortgage Debt A and Mortgage Debt B would be at least $75 million. This
foreclosure guarantee was allocated $40.8 million to Mortgage Debt A and $34.2
million to Mortgage Debt B.
As discussed in Note 10, upon completion of the debt refinancing on January
24, 1996, Host Marriott was released from the Mortgage Debt A and Mortgage
Debt B debt service guarantee obligations. Additionally, on January 24, 1996
Host Marriott was released from its obligations pursuant to the foreclosure
guarantee.
IRB Debt
As discussed in Note 10, the IRB Debt was refinanced on January 24, 1996 and
the IRB Debt was repaid in full. The $25.6 million of IRB Debt outstanding at
December 31, 1995 was backed by direct-pay letters of credit from commercial
banks which were to expire in February, November and December, 1996. These
issues were subject to mandatory prepayment upon expiration of the letters of
credit unless replacement letters of credit were secured. The IRB Debt bore
interest at daily, weekly or fixed rates at the option of the Partnership, and
was limited to a maximum interest rate of 15%. In 1994 and 1995, the interest
rates on the IRB Debt ranged from 1.15% to 6.05% and 1.9% to 6.1%,
respectively. The interest rate on the IRB Debt was 5.45% at December 31,
1995.
The bondholders had the right to demand purchase of any of the bonds at the
expiration of specified interest rate periods. Should the Partnership fail to
make the required payments of principal and interest on the IRB Debt, Host
Marriott was required to make such payments ("Host Marriott's IRB Liability").
Through December 31, 1995, the Partnership purchased a total of $15.4 million
of bonds/IRB Debt with proceeds advanced by Host Marriott (see below) when
presented by certain bondholders. These loans bore interest at one percentage
point in excess of the Prime Rate (9.5% at December 31, 1995). The weighted
average interest rate was 8.14% for 1994 and 9.83% for 1995. The two General
Partner loans from Host Marriott would have matured on the earlier of
(i) December 1997 and June 1998, respectively, or (ii) the date upon which the
bonds were remarketed. During 1993, the Partnership was able to remarket $.8
million of bonds and used the proceeds to repay Host Marriott. Additionally,
during 1993, the Partnership repaid $4.2 million of General Partner loans with
excess Partnership working capital. During 1994, the Partnership repaid $3.9
million in General Partner loans from operating cash flow. Advances under Host
Marriott's IRB Liability were to be repaid with cash from operations after
debt service, the 10% priority return and current incentive management fees.
As of December 31, 1995, $6.5 million of Host Marriott IRB Liability loans
were outstanding. As discussed in Note 10, the $6.5 million of Host Marriott
IRB Liability loans were repaid on January 24, 1996, from proceeds of the debt
refinancing.
Ground Rent Facility
Marriott Financial Services, Inc. ("MFS"), a wholly-owned subsidiary of Host
Marriott, had agreed to lend the Partnership up to $25 million (the "Ground
Rent Facility") to the extent that the Partnership has insufficient
F-12
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
funds to pay ground rent under any ground lease after payment of (i)
deductions (except for ground rent), as defined, and (ii) debt service. The
Ground Rent Facility was available until December 31, 1997, and all amounts
outstanding, if any, would have been due December 31, 2002. Advances would
bear interest at one percentage point over the Prime Rate and were to be
repaid from available cash flow after payment of current debt service and
ground rent. No amounts were outstanding under the Ground Rent Facility as of
December 31, 1995. As discussed in Note 10, MFS was released from the Ground
Rent Facility upon the refinancing of the Partnership's debt on January 24,
1996.
NOTE 7. LEASES
The land on which 53 of the Hotels are located is leased from MII or
affiliates of MII. In addition, eight of the Hotels are located on land leased
from third parties. The land leases have remaining terms (including all
renewal options) expiring between the years 2024 and 2068. The MII land leases
and the third party land leases provide for rent based on specific percentages
(from 2% to 15%) of certain sales categories subject to minimum amounts. The
minimum rentals are adjusted at various anniversary dates throughout the lease
terms, as defined in the agreements. Associates also rents certain equipment
for use in the Hotels.
As a result of the refinancing discussed in Note 10, MII has agreed to
subordinate their right to receive rental payments under the MII ground leases
to the payment of debt service on the Mortgage Loan and the Senior Notes.
Minimum future rental payments during the term of these operating leases are
as follows (in thousands):
<TABLE>
<CAPTION>
TELEPHONE OTHER
LEASE YEAR LAND LEASES EQUIPMENT LEASES LEASES
---------- ----------- ---------------- ------
<S> <C> <C> <C>
1996.................................... $ 9,230 $1,090 $1,378
1997.................................... 9,230 1,125 966
1998.................................... 9,230 1,106 561
1999.................................... 9,230 787 101
2000.................................... 9,230 589 --
Thereafter.............................. 551,443 -- --
-------- ------ ------
$597,593 $4,697 $3,006
======== ====== ======
</TABLE>
Total rent expense on operating leases for the three years ended December
31, 1995 consisted of (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Minimum rental on operating leases................... $10,090 $10,328 $10,626
Additional rentals based on sales.................... 463 1,018 1,429
------- ------- -------
$10,553 $11,346 $12,055
======= ======= =======
</TABLE>
NOTE 8. MANAGEMENT AGREEMENT
The management agreement was restated on December 30, 1995, see Note 10 for
a discussion of significant changes in terms.
The Partnership entered into a long-term management agreement (the
"Management Agreement") with the Manager to operate the Hotels as part of the
Courtyard by Marriott hotel system. The Management Agreement
F-13
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
has an initial term expiring on December 31, 2002. The Manager may renew the
term, as to one or more of the Hotels, at its option, for up to four
successive terms of 10-years each and one final term of five years. The
Partnership may terminate the Management Agreement if, during any three
consecutive years after 1992, specified minimum operating results are not
achieved. However, the Manager may prevent termination by paying the
Partnership the amount by which the minimum operating results were not
achieved.
The Management Agreement provides for annual payments of (i) the base
management fee equal to 3 1/2% of gross sales from the Hotels, (ii) the
Courtyard management fee equal to 2 1/2% of gross sales from the Hotels, and
(iii) the incentive management fee equal to 15% of operating profit, as
defined (20% of operating profit after the partners of the Partnership have
received refinancing proceeds equal to 50% of the excess of (a) $154,736,842
over (b) cumulative distributions of adjusted sale proceeds (the "First Equity
Refinancing")).
In 1988 through 1990, the Courtyard management fee was deferred to the
extent the Partnership was not provided with its 10% priority return, as
defined. In addition, until 1998, the Courtyard management fee will be
deferred to the extent the Partnership does not have sufficient funds for debt
service. Prior to 1994, the incentive management fee earned and paid was
limited to a maximum of 55% of the remainder of (i) available cash flow, as
defined, less (ii) the priority return. Thereafter, payment of any earned
incentive management fee is limited to 80% of the amount by which available
cash flow exceeds the priority return.
Effective January 1, 1990, the Management Agreement was amended to extend
the Courtyard management fee deferral and to provide for a base management fee
deferral to the extent that available cash flow, as defined, to the
Partnership did not equal at least $4,999,740 for 1990 and $8,820,000 per year
for 1991 through 1993 (the "Partnership Objective"). The Partnership Objective
was intended to provide a 6% per annum minimum return on the limited partner's
invested capital in the Partnership, as defined. In order to meet the
Partnership Objective, the Courtyard management fee was first subject to
deferral followed by the base management fee.
To the extent any Courtyard management fee, base management fee or incentive
management fee is deferred, it will be added to deferred management fees.
Deferred management fees accrue without interest, and will be payable out of
50% of available cash flow after payment of the current year's priority return
and incentive management fee and repayment of advances and interest under the
debt service guarantees and Host Marriott's IRB Liability. During 1995,
$162,000 of deferred incentive management fees were repaid. Deferred incentive
management fees were $5,564,000 and $5,402,000 as of December 31, 1994 and
1995, respectively. Deferred Courtyard management fees totalled $22,341,000 as
of December 31, 1994 and 1995. Deferred base management fees as of December
31, 1994 and 1995 were $8,066,000.
The Manager is required to furnish certain services ("Chain Services") which
are furnished generally on a central or regional basis to all hotels managed,
owned or leased in the Courtyard by Marriott hotel system. The cost of certain
Chain Services that were allocated to the Partnership prior to December 31,
1993 was limited to 4% of gross Hotel sales. The total amount of Chain
Services allocated to the Partnership was $9,220,000 in 1993, $8,981,000 in
1994, and $9,224,000 in 1995.
The Partnership is required to provide the Manager with working capital and
fixed asset supplies to meet the operating needs of the Hotels. Upon
termination of the Management Agreement, the working capital and supplies will
be returned to the Partnership. Of the $8,846,000 originally advanced to the
Manager for working capital, $2,585,000 of excess working capital was returned
to the Partnership in 1991. At December 31, 1994 and 1995, accumulated
depreciation related to the supplies totalled $2,060,000.
F-14
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
The Management Agreement provides for the establishment of a repairs and
equipment reserve (property improvement fund) for the Hotels. The funding of
this reserve is based on a percentage of gross Hotel sales. During 1994, the
Management Agreement was amended in order to reduce the contribution to the
property improvement fund from 6% to 5% of gross Hotel sales for the Mortgage
Debt A and B properties for 1993 through the respective loan maturities. The
contribution for the five IRB Hotels remained at 6%. Upon completion of the
refinancing, as discussed in Note 10, the contribution to the property
improvement fund has been established initially at 5% for all Hotels.
Pursuant to the terms of the Management Agreement and the ground lease
agreements with MII and its affiliates, MII and its affiliates do not have the
right to offset the amounts reflected in the accompanying balance sheet as Due
from Courtyard Management Corporation, Due to Courtyard Management Corporation
and Due to Marriott International, Inc. and affiliates.
NOTE 9. ENVIRONMENTAL CONTINGENCY
Based upon a study completed in December 1995, the Partnership has become
aware of environmental contamination at one of its fee-owned properties, the
Deerfield Hotel, caused by the previous use of the site as a landfill and not
caused by the Partnership. The property represents less than 5% of Associates'
total assets and revenues as of December 31, 1995 and for the year ended,
respectively. Based on the limited amount of information currently available
concerning the Deerfield Hotel, the Partnership is unable to determine the
need for remediation, its potential responsibility, if any, for remediation
and the extent of the Partnership's possible liability for any remediation
costs. However, there can be no assurance that the Partnership will not have
liability with respect to remediation of contamination at that site. The
Partnership does not believe that any of the environmental matters are likely
to have a material adverse effect on the business and operations of the
Partnership or Associates.
NOTE 10. EVENTS SUBSEQUENT TO DECEMBER 31, 1995
Partnership Structure
On January 24, 1996, the Partnership completed a refinancing of the
Partnership's existing debt through the private placements of $127.4 million
of senior secured notes (the "Senior Notes") and $410.2 million of multi-class
commercial mortgage pass-through certificates (the "Certificates").
In connection with the refinancing, the limited partners approved certain
amendments to the partnership agreement and the management agreement. The
partnership agreement amendment, among other things, allowed the formation of
certain subsidiaries of the Partnership, including Courtyard II Finance
Company ("Finance"), a wholly-owned subsidiary of the Partnership, who along
with the Partnership is the co-issuer of the Senior Notes.
Additionally, the Partnership formed a wholly-owned subsidiary Courtyard II
Associates Management Corporation ("Managing General Partner"). Managing
General Partner was formed to be the managing general partner with a 1%
general partner interest in Associates. The Partnership owns a 1% general
partner interest and a 98% limited partner interest in Associates. On January
24, 1996, the Partnership contributed 69 Hotels and their related assets to
Associates. Formation of Associates resulted in the Partnership's primary
assets being its direct and indirect interest in Associates. Additionally,
substantially all of Associates' net equity will be restricted to dividends,
loans or advances to the Partnership.
F-15
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
Associates holds a 99% membership interest in CBM Associates II LLC
("Associates II") and Managing General Partner holds the remaining 1%
membership interest. On January 24, 1996, the Partnership contributed the
Hotel located in Deerfield, IL (the "Deerfield Hotel") and its related assets
to Associates II.
Each of the Managing General Partner, Associates and Associates II were
formed as a single purpose bankruptcy-remote entity to facilitate the
refinancing.
CBM Funding Corporation, ("CBM Funding") a wholly-owned subsidiary of
Associates, was also formed on December 29, 1995 to make a mortgage loan (the
"Mortgage Loan") to Associates from the proceeds of the sale of the
Certificates.
Debt Refinancing--Overview
On January 24, 1996, proceeds from the placement of the Senior Notes and the
Certificates and existing Partnership cash were used as follows: (i) to repay
the Partnership's existing Mortgage Debt A of $275 million and Mortgage Debt B
of $230.5 million, (ii) to repay the IRB Debt of $25.6 million by March 1,
1996, (iii) to repay the Host Marriott IRB Liability loans of $6.5 million and
(iv) to pay certain costs of structuring and issuing the Senior Notes and the
Certificates.
Upon repayment of Mortgage Debt A and Mortgage Debt B, Host Marriott was
released from its obligations under (i) the Mortgage Debt A and Mortgage Debt
B debt service guarantees, (ii) the foreclosure guarantee and (iii) the Ground
Rent Facility.
Debt Refinancing--Senior Notes
The Senior Notes of $127.4 million were issued by the Partnership and
Finance. The Senior Notes bear interest at 10 3/4%, require semi-annual
payments of interest and require no payments of principal until maturity on
February 1, 2008. The Senior Notes are secured by a first priority pledge by
the Partnership of (i) its 99% partnership interest (consisting of a 98%
limited partner interest and a 1% general partner interest) in Associates and
(ii) its 100% equity interest in the Managing General Partner. Finance has
nominal assets, does not conduct any operations and will not provide any
additional security for the Senior Notes.
The terms of the Senior Notes include requirements of the Partnership to
establish and fund a debt service reserve account in an amount equal to one
six-month interest payment on the Senior Notes ($6,848,000) and to maintain
certain levels of excess cash flow, as defined. In the event the Partnership
fails to maintain the required level of excess cash flow, the Partnership will
be required to (i) suspend distributions to its partners and other restricted
payments, as defined, (ii) to fund a separate supplemental debt service
reserve account (the "Supplemental Debt Service Reserve") in an amount up to
two six-month interest payments on the Senior Notes and (iii) if such failure
were to continue, to offer to purchase a portion of the Senior Notes at par.
The Senior Notes are not redeemable prior to February 1, 2001. Thereafter,
the Senior Notes may be redeemed, at the option of the Partnership, at a
premium declining to par in 2004. The Senior Notes are non-recourse to the
Partnership and its partners.
Debt Refinancing--Certificates
The Certificates in an initial principal amount of $410.2 million were
issued by CBM Funding. Proceeds from the sale of the Certificates were
utilized by CBM Funding to provide a Mortgage Loan to Associates. The
Certificates/Mortgage Loan require monthly payments of principal and interest
based on a 17-year amortization
F-16
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1994 AND 1995
schedule. The Mortgage Loan matures on January 28, 2008. However, the maturity
date of the Certificates/Mortgage Loan may be extended until January 28, 2013
with the consent of 66 2/3% of the holders of the outstanding Certificates
affected thereby. The Certificates were issued in the following classes and
pass-through rates of interest.
<TABLE>
<CAPTION>
PASS-
INITIAL CERTIFICATE THROUGH
CLASS BALANCE RATE
----- ------------------- -------
<S> <C> <C>
Class A-1................... $ 45,500,000 7.550%
Class A-2................... $ 50,000,000 6.880%
Class A-3P & I.............. $129,500,000 7.080%
Class A-3IO................. Not Applicable 0.933%
Class B..................... $ 75,000,000 7.480%
Class C..................... $100,000,000 7.860%
Class D..................... $ 10,200,000 8.645%
</TABLE>
The Class A-3IO Certificates receive payments of interest only.
The Certificates/Mortgage Loan maturities are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................... $ 10,283
1997............................................... 13,216
1998............................................... 14,242
1999............................................... 15,347
2000............................................... 16,539
Thereafter......................................... 340,573
--------
$410,200
========
</TABLE>
The Mortgage Loan is secured primarily by 69 cross-defaulted and cross-
collateralized mortgages representing first priority mortgage liens on (i) the
fee or leasehold interest in the 69 Hotels, related furniture, fixtures and
equipment and the property improvement fund, (ii) the fee interest in the land
leased from MII or their affiliates on which 53 Hotels are located, (iii) a
pledge of Associates membership interest in and the related right to receive
distributions from Associates II which owns the Deerfield Hotel and (iv) an
assignment of the Restated Management Agreement, as defined below. The
Mortgage Loan is non-recourse to Associates, the Partnership and its partners.
Operating profit from the Hotels in excess of debt service on the Mortgage
Loan is available to be distributed to the Partnership. Amounts distributed to
the Partnership are used for the following, in order of priority: (i) for debt
service on the Senior Notes, (ii) to fund the Supplemental Debt Service
Reserve, if necessary, (iii) to offer to purchase a portion of the Senior
Notes at par, if necessary, (iv) for working capital as discussed later in
this Note 10 and (v) for distributions to the partners of the Partnership.
Prepayments of the Mortgage Loan are permitted with the payment of a premium
(the "Prepayment Premium") subject to certain exceptions. The Prepayment
Premium is equal to the greater of (i) one percent of the Mortgage Loan being
prepaid or (ii) a yield maintenance amount based on a spread of .25% or .55%
over the U.S. treasury rate, as defined.
F-17
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
Marriott International, Inc. Ground Leases
In connection with the refinancing, the Partnership, as lessee, transferred
its rights and obligations pursuant to the 53 ground leases with MII and
affiliates to Associates. Additionally, MII and affiliates agreed to defer
receipt of their ground lease payments to the extent that the Partnership or
Associates has insufficient funds for debt service payments on the Senior
Notes and the Mortgage Loan.
Restated Management Agreement
To facilitate the refinancing, effective December 30, 1995, the original
Management Agreement was restated into two separate management agreements.
Associates entered into a management agreement with the Manager for the 69
Hotels which Associates directly owns and Associates II entered into a
management agreement for the Deerfield Hotel which Associates II owns,
collectively, (the "Restated Management Agreement").
The Restated Management Agreement contains provisions which differ from the
original Management Agreement. The primary new provisions are as follows (see
Note 8 for original Management Agreement provisions):
. The initial term expires in 2013. The Manager may renew the term, as to
one or more of the Hotels, at its option, for up to three successive
terms of 10-years each and one final term of five years.
. One percent of the Courtyard management fee will be deferred through
maturity of the Senior Notes and the Mortgage Loan to the extent that
the Partnership or Associates has insufficient funds for debt service
payments on the Senior Notes and the Mortgage Loan. This change
eliminated the previous deferral of the total Courtyard management fee
to debt service through December 31, 1997.
. The priority return to the Partnership, as defined, was reduced from 10%
of the invested capital of the partners of the Partnership, as defined
to 7% in 1996, 8% in 1997, 9% in 1998 and then returning to 10% for 1999
and thereafter. Operating profit from the Hotels (which reflects the
deduction of the base and Courtyard management fees and MII ground rent)
will be used to pay the following, in order of priority: (i) debt
service on the Senior Notes and Mortgage Loan, (ii) to repay working
capital loans to the Manager, (iii) to repay deferred ground rent to MII
and their affiliates, (iv) to repay ground lease advances to MII and
their affiliates, (v) the priority return to Associates which is 7% of
the invested capital of the partners of the Partnership, as defined for
1996, (vi) eighty percent of the remaining operating profit is applied
to the payment of current incentive management fees, (vii) to repay
advances to the Partnership, (viii) to repay foreclosure avoidance
advances to the Manager and (ix) fifty percent of the remaining
operating profit to repay deferred management fees to the Manager and
fifty percent of remaining operating profit is paid to Associates.
. The property improvement fund contribution equals 5% of gross Hotel
sales for all Partnership Hotels and may be increased, at the option of
the Manager, to 6% of gross Hotel sales in 2001.
Working Capital Agreement
As discussed in Note 8, Associates is required to provide the Manager with
working capital to meet the operating needs of the Hotels. The refinancing
required certain enhancements to the cash management system of the Manager
such that additional working capital may be required for the operation of the
Hotels. Therefore, on January 24, 1996, the Partnership, Associates and the
Manager entered into a working capital maintenance agreement (the "Working
Capital Agreement") and deposited $2.5 million as additional working capital
for the operation of the Hotels. Prior to December 31, 1996, Associates and
the Manager will determine the amount of
F-18
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1995 AND 1994
additional working capital that is required. Associates has agreed to provide
up to another $2.5 million if necessary.
In addition, the Working Capital Agreement provides that the Partnership and
Associates, collectively, reserve $2 million by February 1, 1997 and
additional amounts such that the total balance is $5 million by February 1,
1998 (the "Working Capital Reserve"). The Working Capital Reserve will be
available for payment of hotel operating expenses in the event that there is a
downgrade in the long-term senior unsecured debt of MII to below a certain
level, as described in the Mortgage Loan.
The obligation to fund the amounts required by the Working Capital Agreement
is subordinate to debt service on the Senior Notes and the Mortgage Loan.
F-19
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
--------------------
MARCH 24, MARCH 22,
1995 1996
---------- ---------
<S> <C> <C>
REVENUES.................................................. $26,892 $27,989
OPERATING COSTS AND EXPENSES
Interest................................................ 6,354 7,408
Depreciation............................................ 6,378 6,397
Ground rent, taxes and other (including ground rent paid
to related parties of $2.2 million and $2.3 million for
the twelve weeks ended March 24, 1995 and March 22,
1996, respectively).................................... 4,786 4,954
Base and Courtyard management fees (paid to related
parties)............................................... 3,284 3,474
Incentive management fee................................ 2,285 2,435
------- -------
23,087 24,667
------- -------
NET INCOME................................................ $ 3,805 $ 3,321
======= =======
ALLOCATION OF NET INCOME
General Partners........................................ $ 66
Limited Partner......................................... 3,255
-------
$ 3,321
=======
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-20
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND MARCH 22, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 22,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Property and equipment, net........................... $474,480 $471,099
Due from Courtyard Management Corporation............. 7,078 9,424
Other assets.......................................... 45,225 47,236
Restricted cash....................................... -- 3,506
Cash and cash equivalents............................. -- 9,471
-------- --------
$526,783 $540,736
======== ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES
Debt................................................ $410,200 $409,200
Management fees due to Courtyard Management
Corporation........................................ 35,809 36,758
Due to Marriott International, Inc. and affiliates.. 9,402 9,384
Due to Host Marriott Corporation.................... 747 --
Accounts payable and accrued liabilities............ 12,718 6,140
-------- --------
Total Liabilities................................. $468,876 $461,482
-------- --------
PARTNERS' CAPITAL
General Partners.................................... -- 1,585
Limited Partner..................................... -- 77,669
Investments in and net advances to Associates....... 57,907 --
-------- --------
Total Partners' Capital........................... 57,907 79,254
-------- --------
$526,783 $540,736
======== ========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
F-21
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
TWELVE WEEKS ENDED
-------------------
MARCH 24, MARCH 22,
1995 1996
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................... $ 3,805 $ 3,321
Noncash items............................................ 6,484 7,731
Changes in operating accounts............................ (5,915) (4,040)
------- ---------
Cash provided by operating activities.................. 4,374 7,012
------- ---------
INVESTING ACTIVITIES
Additions to property and equipment...................... (1,224) (3,016)
Change in property improvement funds..................... (353) 79
------- ---------
Cash used in investing activities...................... (1,577) (2,937)
------- ---------
FINANCING ACTIVITIES
Proceeds from debt....................................... -- 410,200
Repayments of debt....................................... -- (411,200)
Investment in and net advances (from) to Associates...... (2,643) 17,974
Payment of financing costs............................... (154) (8,072)
Change in reserve accounts............................... -- (3,506)
------- ---------
Cash (used in) provided by financing activities........ (2,797) 5,396
------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........... -- 9,471
CASH AND CASH EQUIVALENTS at beginning of period........... -- --
------- ---------
CASH AND CASH EQUIVALENTS at end of period................. $ -- $ 9,471
======= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for mortgage and other interest.............. $ 8,810 $ 7,852
======= =========
</TABLE>
The accompanying notes are an integral part of the condensed consolidated
financial statements.
F-22
<PAGE>
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 22, 1996
(UNAUDITED)
1. The accompanying condensed consolidated financial statements have been
prepared by Courtyard II Associates, L.P. ("Associates") without audit.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted from the accompanying statements.
Associates believes the disclosures made are adequate to make the information
presented not misleading. However, the condensed consolidated financial
statements should be read in conjunction with Associates' consolidated
financial statements and notes thereto included on the previous pages. In the
opinion of Associates, the accompanying unaudited condensed consolidated
financial statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of
Associates as of December 31, 1995 and March 22, 1996, and the results of
operations for the twelve weeks ended March 24, 1995 and March 22, 1996.
Interim results are not necessarily indicative of fiscal year performance
because of seasonal and short-term variations.
For financial reporting purposes, the net income of Associates is allocated
98% to the limited partner, Courtyard by Marriott II Limited Partnership (the
"Partnership") and 1% to each general partner, the Partnership and Courtyard
II Associates Management Corporation (the "Managing General Partner").
Significant differences exist between the net income for financial reporting
purposes and the net income reported for Federal income tax purposes. These
differences are due primarily to the use for income tax purposes of
accelerated depreciation methods, shorter depreciable lives for the assets,
differences in the timing of the recognition of certain fees and straight-line
rent adjustments.
The consolidated financial statements of Associates present the financial
position, results of operations and cash flows of Associates as if it were a
separate subsidiary of the Partnership for all periods presented. The
Partnership's historical basis in the assets and liabilities contributed to
Associates have been carried over. Intercompany transactions and balances
between Associates and its subsidiaries have been eliminated. Changes in
Investment in and Net Advances to Associates for all periods presented prior
to January 24, 1996 represent the net income of Associates net of cash
transferred to the Partnership. There are no terms of settlement or interest
charges associated with the Investment in and Net Advances to Associates'
balance.
On January 24, 1996, Associates, wholly owned subsidiary, CBM Funding
Corporation ("Funding") consummated the offering of $410,200,000 of Multiclass
Mortgage Pass-Through Certificates (the "Certificates"), the net proceeds of
which were used to fund a mortgage loan to Associates, which used such funds
to repay certain obligations of the Partnership. The accompanying consolidated
financial statements for periods prior to consummation of the offering on
January 24, 1996 present the pushed-down effects of the debt which was repaid
with the proceeds of the offering.
In connection with this refinancing, the Partnership and the Managing
General Partner entered into two contribution agreements. One agreement with
Associates for 69 of the 70 Partnership hotels and another agreement with CBM
Associates II LLC ("Deerfield LLC") for the remaining one hotel located in
Deerfield, Illinois. On January 24, 1996, the Partnership contributed net
assets of $76.9 million to Associates. Additionally, on behalf of Associates,
the Partnership contributed net assets of $8.4 million to Deerfield LLC.
2. Revenues represent house profit which is hotel sales less hotel-level
expenses, excluding certain operating costs and expenses such as depreciation,
real and personal property taxes, ground rent, insurance and management fees.
Revenues consist of the following for the twelve weeks ended (in thousands):
<TABLE>
<CAPTION>
MARCH 24, 1995 MARCH 22, 1996
-------------- --------------
<S> <C> <C>
HOTEL SALES
Rooms........................................ $48,670 $51,576
Food and beverage............................ 3,979 4,149
Other........................................ 2,084 2,174
------- -------
54,733 57,899
------- -------
HOTEL EXPENSES
Departmental direct costs
Rooms...................................... 10,639 11,380
Food and beverage.......................... 3,352 3,562
Other........................................ 13,850 14,968
------- -------
27,841 29,910
------- -------
REVENUES....................................... $26,892 $27,989
======= =======
</TABLE>
3. In the first quarter of 1996, Associates adopted Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of." Adoption of SFAS
No. 121 did not have a material effect on its condensed consolidated financial
statements.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO CBM FUNDING CORPORATION
We have audited the accompanying balance sheet of CBM Funding Corporation as
of December 31, 1995. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CBM Funding Corporation as of
December 31, 1995 in conformity with generally accepted accounting principles.
Arthur Andersen llp
Washington, D.C.,
April 26, 1996
F-24
<PAGE>
CBM FUNDING CORPORATION
BALANCE SHEET
AS OF DECEMBER 31, 1995 AND MARCH 22, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 22,
1995 1996
ASSETS ------------ -----------
(UNAUDITED)
<S> <C> <C>
Mortgage Loan to Associates.......................... $-- $409,200
Deferred financing costs, net........................ -- 13,965
Interest receivable.................................. -- 1,873
Cash and cash equivalents............................ 1 1
---- --------
Total Assets..................................... $ 1 $425,039
==== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
LIABILITIES
Certificates payable................................. $-- $409,200
Interest payable..................................... -- 1,873
---- --------
Total Liabilities................................ -- 411,073
---- --------
SHAREHOLDER'S EQUITY
Common stock (1,000 shares of .01 par value stock
issued and outstanding)............................. -- --
Additional paid-in capital........................... 1 14,094
Accumulated deficit.................................. -- (128)
---- --------
Total Shareholder's Equity....................... 1 13,966
---- --------
$ 1 $425,039
==== ========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-25
<PAGE>
CBM FUNDING CORPORATION
NOTES TO BALANCE SHEET
DECEMBER 31, 1995
BASIS OF PRESENTATION
CBM Funding Corporation (the "Company"), a Delaware corporation and wholly
owned subsidiary of Courtyard II Associates, L.P. (the "Mortgagor") which is a
wholly owned subsidiary of Courtyard by Marriott II Limited Partnership was
formed on December 28, 1995 for the purpose of (i) making the single, fixed
rate, non-recourse $410.2 million mortgage loan (the "Mortgage Loan") to the
Mortgagor and (ii) conveying the Mortgage Loan and other instruments securing
the Mortgage Loan including the 69 cross defaulted and cross collaterized
mortgages, representing first priority liens on fee or leasehold interests in
69 Hotels (the "Hotels") owned by the Mortgagor, fee interests in land leased
from Marriott International, Inc. or its affiliates on which 53 hotels are
situated in, and related assets, and a pledge of the Mortgagor's membership
interests in, and the related right to receive distributions from, the entity
that owns the hotel located in Chicago/Deerfield, Illinois ("Deerfield LLC"),
to the trustee (the "Trustee") under a Trust and Servicing Agreement dated
January 24, 1996 (the "Trust and Servicing Agreement") in exchange for
Multiclass Mortgage Pass-Through Certificates (the "Certificates") which
represent interests in the trust fund under the Trust and Servicing Agreement.
For financial accounting purposes the assets and liabilities of the Trustee
are included in the financial statements of the Company. However, legally, the
Company transferred the Mortgage Loan to the Trustee without recourse and has
no interest in the Mortgage Loan, no obligations with respect to the
Certificates and does not control the Trustee.
Debt Refinancing--Certificates
The Certificates in an initial principal amount of $410.2 million were
issued by the Trustee. Proceeds from the sale of the Certificates were
utilized by the Company to provide a Mortgage Loan to the Mortgagor. The
Certificates and Mortgage Loan each require monthly payments of principal and
interest based on a 17-year amortization schedule. The Mortgage Loan matures
on January 28, 2008. However, the maturity date of the Certificates and
Mortgage Loan each may be extended until January 28, 2013 with the consent of
66 2/3% of the holders of the outstanding Certificates affected thereby. The
Certificates were issued in the following classes and pass-through rates of
interest.
<TABLE>
<CAPTION>
PASS-
INITIAL CERTIFICATES THROUGH
CLASS BALANCE RATE
----- -------------------- -------
<S> <C> <C>
Class A-1..................................... $ 45,500,000 7.550%
Class A-2..................................... $ 50,000,000 6.880%
Class A-3P & I................................ $129,500,000 7.080%
Class A-3IO................................... Not Applicable 0.933%
Class B....................................... $ 75,000,000 7.480%
Class C....................................... $100,000,000 7.860%
Class D....................................... $ 10,200,000 8.645%
</TABLE>
The Class A-3IO Certificates receive payments of interest only.
The Certificates/Mortgage Loan maturities are as follows (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 10,283
1997.............................................................. 13,216
1998.............................................................. 14,242
1999.............................................................. 15,347
2000.............................................................. 16,539
Thereafter........................................................ 340,573
--------
$410,200
========
</TABLE>
F-26
<PAGE>
CBM FUNDING CORPORATION
NOTES TO BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
The Mortgage Loan is secured primarily by 69 cross-defaulted and cross-
collateralized mortgages representing first priority mortgage liens on (i) the
fee or leasehold interest in the 69 Hotels, related furniture, fixtures and
equipment and the property improvement fund, (ii) the fee interest in the land
leased from Marriott International Inc. or their affiliates on which 53 Hotels
are located, (iii) a pledge of the Mortgagor's membership interest in and the
related right to receive distributions from Deerfield LLC and (iv) an
assignment of the restated management agreement. The Mortgage Loan is non-
recourse to the Mortgagor, Courtyard by Marriott II Limited Partnership (the
"Partnership") and its partners.
Operating profit from the Hotels and the Deerfield Hotel in excess of debt
service on the Mortgage Loan is available to be distributed to the
Partnership. Amounts distributed to the Partnership are used for the
following, in order of priority: (i) for debt service on the $127.4 million of
senior notes (the "Senior Notes") issued in a concurrent offering by the
Partnership and its wholly owned subsidiary, Courtyard II Finance Company,
(ii) to fund a supplemental debt service reserve, if necessary, (iii) to offer
to purchase a portion of the Senior Notes at par, if necessary, (iv) for
working capital as discussed in the working capital agreement with Marriott
International, Inc. and (v) for distributions to the partners of the
Partnership.
Prepayments of the Mortgage Loan are permitted with the payment of a premium
(the "Prepayment Premium"), subject to certain exceptions. The Prepayment
Premium is equal to the greater of (i) one percent of the Mortgage Loan being
prepaid or (ii) a yield maintenance amount based on a spread of .25% or .55%
over the U.S. treasury rate, as defined.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO COURTYARD II ASSOCIATES MANAGEMENT CORPORATION
We have audited the accompanying balance sheet of Courtyard II Associates
Management Corporation (a Delaware corporation) as of December 31, 1995. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Courtyard II Associates
Management Corporation as of December 31, 1995, in conformity with generally
accepted accounting principles.
Arthur Andersen llp
Washington, D.C.,
April 26, 1996
F-28
<PAGE>
COURTYARD II ASSOCIATES MANAGEMENT CORPORATION
BALANCE SHEET
AS OF DECEMBER 31, 1995 AND MARCH 22, 1996
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 22,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Investment in Courtyard II Associates, L.P........... $-- $793
Investment in CBM Associates II LLC.................. -- 89
Cash and cash equivalents............................ 1 1
--- ----
Total Assets..................................... $ 1 $883
=== ====
SHAREHOLDER'S EQUITY
Common stock (1,000 shares of .01 par value stock
issued and outstanding)............................. $-- $ --
Additional paid-in capital........................... 1 859
Retained earnings.................................... -- 24
--- ----
Total Shareholder's Equity....................... $ 1 $883
=== ====
</TABLE>
The accompanying note is an integral part of this balance sheet.
F-29
<PAGE>
COURTYARD II ASSOCIATES MANAGEMENT CORPORATION
NOTE TO BALANCE SHEET
DECEMBER 31, 1995
BASIS OF PRESENTATION
Courtyard II Associates Management Corporation (the "Company"), a
"bankruptcy-remote," single purpose Delaware corporation was formed on
December 22, 1995 to own a 1% managing general partner interest in Courtyard
II Associates L.P. and a 1% membership interest in CBM Associates II LLC which
owns the Deerfield, Illinois Courtyard hotel. The Company is a wholly-owned
subsidiary of Courtyard by Marriott II Limited Partnership (the
"Partnership"). On January 24, 1996 the Partnership contributed to the Company
its 1% individual interest in the net assets contributed to Courtyard II
Associates L.P. and CBM Associates II LLC which the Company in turn
contributed to each of these entities in return for a 1% managing general
partner interest or membership interests in each of these entities. The
Company has no other assets and no independent operations. The Company
accounts for its investments under the equity method.
F-30
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP:
We have audited the accompanying consolidated balance sheet of Courtyard by
Marriott II Limited Partnership (a Delaware limited partnership) as of
December 31 1995. This financial statement is the responsibility of the
General Partner's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance about whether the consolidated balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated balance sheet. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated balance sheet referred to above presents
fairly, in all material respects, the financial position of Courtyard by
Marriott II Limited Partnership as of December 31, 1995, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Washington, D.C.,
February 22, 1996
F-31
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 22,
1995 1996
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Property and equipment, net.......................... $474,480 $471,099
Due from Courtyard Management Corporation............ 7,078 9,424
Deferred financing costs, net of accumulated amorti-
zation.............................................. 18,482 19,463
Property improvement fund............................ 33,098 32,985
Other assets......................................... -- 292
Restricted cash...................................... 6,684 10,390
Cash and cash equivalents............................ 27,708 13,888
-------- --------
$567,530 $557,541
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
LIABILITIES
Debt................................................. $531,100 $536,600
Management fees due to Courtyard Management Corpora-
tion................................................ 35,809 36,758
Due to Marriott International, Inc. and affiliates... 9,402 9,384
Due to Host Marriott Corporation..................... 7,469 --
Accounts payable and accrued liabilities............. 19,250 9,813
-------- --------
Total Liabilities................................ 603,030 592,555
-------- --------
PARTNERS' CAPITAL (DEFICIT)
General Partner
Capital contribution............................... 11,306 11,306
Cumulative net losses.............................. (5,768) (5,744)
Capital distributions.............................. (278) (278)
-------- --------
5,260 5,284
-------- --------
Limited Partners
Capital contributions, net of offering costs of
$17,189........................................... 129,064 129,064
Cumulative net losses.............................. (109,596) (109,134)
Capital distributions.............................. (60,043) (60,043)
Investor notes receivable.......................... (185) (185)
-------- --------
(40,760) (40,298)
-------- --------
Total Partners' Deficit........................ (35,500) (35,014)
-------- --------
$567,530 $557,541
======== ========
</TABLE>
The accompanying notes are an integral part of this consolidated balance sheet.
F-32
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995
NOTE 1. THE PARTNERSHIP
Description of the Partnership
Courtyard by Marriott II Limited Partnership (the "Partnership"), a Delaware
limited partnership, was formed August 31, 1987 to acquire and own 70
Courtyard by Marriott hotels (the "Hotels") and the land on which certain of
the Hotels are located. The Partnership's 70 hotel properties are located in
29 states in the United States: nine in Illinois; eight in California; five in
Florida; four in Georgia; four in Texas and three or less in each of the other
24 states. On October 8, 1993, Marriott Corporation's operations were divided
into two separate companies: Host Marriott Corporation and Marriott
International, Inc. ("MII"). On December 29, 1995, Host Marriott Corporation's
operations were divided into two separate companies: Host Marriott Corporation
("Host Marriott") and Host Marriott Services Corporation. The Hotels are
managed as part of the Courtyard by Marriott hotel system by Courtyard
Management Corporation (the "Manager"), a wholly-owned subsidiary of MII. The
sole general partner of the Partnership, with a 5% interest, is CBM Two
Corporation (the "General Partner"), a wholly-owned subsidiary of Host
Marriott.
On January 18, 1988 (the "Final Closing Date"), 1,470 limited partnership
interests (the "Units"), representing a 95% interest in the Partnership, had
been sold in a private placement offering. The offering price per Unit was
$100,000, $21,200 payable at subscription with the balance due in four annual
installments through February 28, 1991, or, as an alternative, $94,357 in cash
at closing as full payment of the subscription price. The limited partners
paid $39,938,000 as of the Final Closing Date, representing 1,350 Units
purchased on the installment basis and 120 Units paid in full. The limited
partners' obligations to make the installment payments were evidenced by
promissory notes (the "Investor Notes") payable to the Partnership and secured
by the Units. On October 30, 1987 (the "Initial Closing Date"), the General
Partner made a capital contribution of equipment valued at $11,306,000 for its
5% general partner interest.
On the Initial Closing Date, the Partnership began operations and executed a
purchase agreement (the "Purchase Agreement") with Host Marriott to acquire
the Hotels and the land on which certain of the Hotels are located for a total
price of $643.1 million. Of the total purchase price, $507.9 million was paid
in cash from the proceeds of the mortgage financing and sale of the Units,
$40.2 million from assumption of industrial development revenue bond financing
(the "IRB Debt") from Host Marriott and $95 million from a note (the "Deferred
Purchase Note") payable to Host Marriott. Twenty of the Hotels were conveyed
to the Partnership in 1987, thirty-four Hotels in 1988, twelve Hotels in 1989
and the final four Hotels during the first half of 1990.
Under the Purchase Agreement, Host Marriott agreed to reduce the purchase
price of the Hotels by up to $9.3 million if the Hotels did not provide cash
flow in excess of debt service, as defined, equivalent to $9.3 million in
1989, (the "Price Adjustment"). The required Price Adjustment for 1989 was
$8,843,000. The Price Adjustment was allocated as a reduction to the
Partnership's property and equipment in the accompanying consolidated
financial statements.
On December 18, 1995, the Partnership obtained the required approval of the
limited partners to allow the Partnership to form subsidiaries. Thereafter,
the Partnership formed five subsidiaries: Courtyard II Finance Company
("Finance"), Courtyard II Associates Management Corporation ("Managing General
Partner"), Courtyard II Associates, L.P. ("Associates"), CBM Associates II LLC
("Associates II") and CBM Funding Corporation ("CBM Funding"). As discussed in
Note 7, these subsidiaries were formed in connection with refinancing the
Partnership's debt on January 24, 1996.
F-33
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
Partnership Allocations and Distributions
Partnership allocations and distributions are generally made as follows:
a. Cash available for distribution is distributed (i) first, 5% to the
General Partner and 95% to the limited partners until the General Partner
and the limited partners (collectively, the "Partners") have received
cumulative distributions of sale proceeds and/or refinancing proceeds
("Capital Receipts") equal to $77,368,421; (ii) next, 10% to the General
Partner and 90% to the limited partners until the Partners have received
cumulative distributions of Capital Receipts equal to $158,306,000; and
(iii) thereafter, 25% to the General Partner and 75% to the limited
partners. Distributions to the General Partner are subordinate to an annual
10% non-cumulative preferred return to the limited partners on their
invested capital, as defined.
b. Refinancing proceeds not retained by the Partnership will be
distributed (i) first, 5% to the General Partner and 95% to the limited
partners until the Partners have received cumulative distributions of
refinancing proceeds equal to $158,306,000 minus adjusted sale proceeds, as
defined; and (ii) thereafter, 25% to the General Partner and 75% to the
limited partners.
c. Proceeds not retained by the Partnership from the sale or other
disposition of less than substantially all of the assets of the Partnership
will be distributed (i) first, 5% to the General Partner and 95% to the
limited partners until the Partners have received cumulative distributions
of Capital Receipts equal to $158,306,000; and (ii) thereafter, 25% to the
General Partner and 75% to the limited partners.
Proceeds from the sale of substantially all of the assets of the
Partnership or from a related series of Hotel sales leading to the sale of
substantially all of the assets of the Partnership will be distributed to
the Partners pro-rata in accordance with their capital account balances.
d. Net profits are generally allocated in the same ratio in which cash
available for distribution is distributed.
e. All items of gain, deduction or loss attributable to the contributed
equipment will be allocated to the General Partner.
f. In general, gain recognized by the Partnership will be allocated, with
respect to any year, in the following order of priority: (i) to all
Partners whose capital accounts have negative balances until such negative
balances are brought to zero; (ii) to all Partners up to the amount
necessary to bring their respective capital account balances to an amount
equal to their invested capital, as defined; and (iii) thereafter 25% to
the General Partner and 75% to the limited partners.
Gain arising from the sale or other disposition (or from a related series
of sales or dispositions) of substantially all the assets of the
Partnership will be allocated (i) to the limited partners in an amount
equal to the excess, if any, of (1) the sum of 15% times the weighted
average of the limited partners' invested capital each year, over (2) the
sum of distributions to the limited partners of Capital Receipts in excess
of the limited partners' cumulative capital and distributions to limited
partners of cash available for distribution; and (ii) next, to the General
Partner until it has been allocated an amount equal to 33.33% of the amount
allocated to the limited partners under clause (i); and (iii) thereafter,
25% to the General Partner and 75% to the limited partners.
g. For financial reporting purposes, profits and losses are generally
allocated among the Partners based on their stated interests in cash
available for distribution.
F-34
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The Partnership records are maintained on the accrual basis of accounting
and its fiscal year coincides with the calendar year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates.
Working Capital and Supplies
Pursuant to the terms of the Partnership's management agreement discussed in
Note 6, the Partnership is required to provide the Manager with working
capital and supplies to meet the operating needs of the Hotels. The Manager
converts cash advanced by the Partnership into other forms of working capital
consisting primarily of operating cash, inventories, and trade receivables and
payables which are maintained and controlled by the Manager. Upon the
termination of the management agreement, the Manager is required to convert
working capital and supplies into cash and return it to the Partnership. As a
result of these conditions, the individual components of working capital and
supplies controlled by the Manager are not reflected in the accompanying
consolidated balance sheet.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<S> <C>
Buildings and improvements..................................... 40 years
Leasehold improvements......................................... 40 years
Furniture and equipment........................................ 4-10 years
</TABLE>
Certain property and equipment was pledged to secure the mortgage debt
described in Note 5.
The Partnership assesses impairment of its real estate properties based on
whether estimated undiscounted cash flows from such properties on an
individual hotel basis will be less than their net book value. If a property
is impaired, its basis is adjusted to fair market value.
Deferred Financing
Deferred financing costs consist of costs incurred in connection with
obtaining Partnership financing for Mortgage Debt A and B, as defined in Note
5. Financing costs are amortized using the straight-line method, which
approximates the effective interest rate method, over the remaining life of
the respective mortgage debt. At December 31, 1995, accumulated amortization
of financing costs totalled $3,806,00. During 1995, the Partnership paid
$2,990,000 in financing costs related to the debt refinancing discussed in
Note 7. Additionally, as of December 31, 1995, the Partnership accrued
$15,246,000 in financing costs related to the debt financing.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with a maturity of
three months or less at date of purchase to be cash equivalents.
F-35
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
Income Taxes
The Partnership does not pay income taxes, but rather, allocates its profits
and losses to the individual Partners. Significant differences exist between
the net income/loss for financial reporting purposes and the net income/loss
reported in the Partnership's tax return. These differences are due primarily
to the use for income tax purposes of accelerated depreciation methods,
shorter depreciable lives for the assets, difference in the timing of
recognition of certain fees and straight-line rent adjustments. As a result of
these differences, the excess of the net Partnership liabilities reported in
the accompanying consolidated financial statements over the tax basis in the
net Partnership liabilities was $3,381,000 as of December 31, 1995.
New Statement of Financial Accounting Standards
The Partnership is required to adopt Statement of Financial Accounting
Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" no later than its fiscal year
ending December 31, 1996. The Partnership does not expect that the adoption of
SFAS No. 121 will have a material effect on its consolidated financial
statements.
NOTE 3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31 (in
thousands):
<TABLE>
<CAPTION>
1995
---------
<S> <C>
Land............................................................ $ 25,392
Leasehold improvements.......................................... 435,913
Building and improvements....................................... 77,053
Furniture and equipment......................................... 135,908
---------
674,266
Less accumulated depreciation and amortization.................. (199,786)
---------
$ 474,480
=========
</TABLE>
NOTE 4. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values of financial instruments are shown below. The fair
values of financial instruments not included in this table are estimated to be
equal to their carrying amounts.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
------------------------
ESTIMATED
CARRYING FAIR
AMOUNT VALUE
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
FINANCIAL LIABILITIES
Mortgage debt...................................... $531,100 $531,100
Management fees due to Courtyard Management Corpo-
ration............................................ 35,809 9,995
Due to Host Marriott Corporation................... 7,469 7,469
</TABLE>
The 1995 estimated fair values of mortgage debt obligations and amounts due
to Host Marriott Corporation are based on their carrying amounts as these
items were repaid on January 24, 1996. The 1995 management fees due to the
Courtyard Management Corporation are valued based on the expected future
payments from operating cash flow discounted at risk adjusted rates.
F-36
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
NOTE 5. MORTGAGE DEBT
Overview
The Partnership's initial financing consisted of up to $500 million of non-
recourse mortgage debt (the "MFS Mortgage Debt") from Marriott Financial
Services, Inc. ("MFS"), a wholly-owned subsidiary of Host Marriott, to provide
financing for the purchase of 65 of the Hotels (the "non-IRB Hotels"). The
Partnership assumed the $40.2 million of IRB Debt to provide financing for the
purchase of the remaining 5 Hotels (the "IRB Hotels"). In 1988 and 1989, the
Partnership began two refinancings which fully replaced the MFS Mortgage Debt
by the end of 1990. On December 6, 1988, the Partnership borrowed $275 million
(the "Mortgage Debt A") from two banks (the "Banks") to repay $271.9 million
of outstanding MFS Mortgage Debt related to 36 of the non-IRB Hotels and to
pay refinancing costs of approximately $1.7 million, with the remainder
available for working capital. On September 5, 1989, the Partnership entered
into another loan agreement with the same Banks to borrow up to $230.5 million
(the "Mortgage Debt B") to provide replacement financing for the remaining 29
non-IRB Hotels and to pay refinancing costs of approximately $1.4 million. As
of December 31, 1990, the Partnership had borrowed the full amount under both
loans and had repaid all outstanding MFS Mortgage Debt.
Bank Mortgage Debt
As discussed in Note 7, Mortgage Debt A and Mortgage Debt B were refinanced
on January 24, 1996 and the Banks were repaid in full.
Mortgage Debt A was non-recourse and bore interest at a floating rate equal
to (i) the adjusted CD Rate or LIBOR, as defined, plus (ii) .75 percentage
points. Mortgage Debt A required no principal amortization prior to maturity
on December 15, 1995.
Mortgage Debt B was non-recourse and bore interest at a floating rate equal
to (i) the adjusted CD Rate or LIBOR, as defined, plus (ii) .75 percentage
points. Mortgage Debt B required no principal amortization prior to the
scheduled maturity on September 5, 1996.
The combined effective interest rate for Mortgage Debt A and B was 7% for
1995. The combined average interest rate at December 31, 1995 for Mortgage
Debt A and B was 6.81%.
As security for the Mortgage Debt A (36 Hotels) and Mortgage Debt B (29
Hotels) the Banks held mortgages on the Partnership's fee or leasehold
interest on the respective Hotels. The Banks also had security interests under
their respective mortgages in the personal property associated with those
Hotels and obtained an assignment of the Partnership's rights under the
management agreement and the Purchase Agreement.
On December 15, 1995, the Partnership and the Mortgage Debt A lenders
amended the loan agreement to extend the maturity date of Mortgage Debt A from
December 15, 1995 to February 15, 1996 (the "Extension Period"). This
amendment provided for interest during the Extension Period equal to the
following:
<TABLE>
<S> <C>
December 16, 1995 through January 15, 1996.................... Adjusted CD Rate or LIBOR plus 1 percentage point
January 16, 1996 through February 15, 1996................... Adjusted CD Rate or LIBOR plus 1.25 percentage points
</TABLE>
F-37
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
Bank Mortgage Debt Guarantees
Prior to the refinancing, in 1987 Host Marriott had guaranteed payment of up
to $60 million of debt service on the MFS Mortgage Debt. As a result of the
refinancing, this guarantee was allocated $32.6 million to Mortgage Debt A and
$27.4 million to Mortgage Debt B. Any payments by Host Marriott under the
Mortgage Debt guarantees are treated as loans to the Partnership and bear
interest at one percentage point in excess of the prime rate of interest
announced by Bankers Trust Company of New York (the "Prime Rate").
Host Marriott will be released from the original guarantees on the date on
which debt service coverage, as defined, has exceeded 1.3 for each of the
prior eight consecutive quarters for Mortgage Debt A and Mortgage Debt B or on
the date when Mortgage Debt A and Mortgage Debt B are repaid in full. However,
during 1994, Host Marriott extended its debt service guarantees in an amount
of aggregate principal and interest of $5.4 million on Mortgage Debt A and
$4.6 million on Mortgage Debt B. The guarantees were extended in order to
obtain waivers from the Mortgage Debt A and B lenders for any possible
conflicts caused by the division of Marriott Corporation's operations on
October 8, 1993. The Partnership did not bear any costs associated with these
arrangements. The maximum amount that Host Marriott could be required to fund
under its guarantees remained at the original guarantee amounts until the debt
service coverage requirement is met. Upon meeting the debt service coverage
requirements and being released from the original guarantees, the extended
guarantees would be in effect through the respective loan maturities. During
1995, Host Marriott was released from its original Mortgage Debt A guarantee
obligation of $32.6 million as certain debt service coverage requirements were
met. As a result, as of December 31, 1995, $5.4 million and $27.4 million,
respectively, was available under Mortgage Debt A and B guarantees.
Additionally, during 1994, the Partnership, Manager and Mortgage Debt A and
B lenders agreed that the Partnership would establish reserve accounts for
Mortgage Debt A and B and contribute 1% of Hotel sales on the respective
Mortgage Debt A and B properties to these reserves for 1993 through the
respective loan maturities. The initial contribution, made in 1994, included
the required contribution for 1993. These reserves may not be used except to
pay costs associated with the refinancing of these loans and to repay a
portion of these loans upon maturity. As of December 31, 1995, the balance of
the Mortgage Debt A and B reserves was $3,767,000 and $2,917,000,
respectively, and is shown as restricted cash on the consolidated balance
sheet.
In addition, the General Partner had provided a guarantee to MFS that, in
the event of a foreclosure, proceeds under the MFS Mortgage Debt would be at
least $75 million. This foreclosure guarantee was allocated $40.8 million to
Mortgage Debt A and $34.2 million to Mortgage Debt B.
As discussed in Note 7, upon completion of the debt refinancing on January
24, 1996, Host Marriott was released from the Mortgage Debt A and Mortgage
Debt B debt service guarantee obligations. Additionally, on January 24, 1996,
Host Marriott was released from its obligations pursuant to the foreclosure
guarantee.
IRB Debt
As discussed in Note 7, the IRB Debt was refinanced on January 24, 1996 and
the IRB Debt was repaid in full. The $25.6 million of IRB Debt outstanding at
December 31, 1995 was backed by direct-pay letters of credit from commercial
banks that were to expire in February, November and December 1996. These
issues were subject to mandatory prepayment upon expiration of the letters of
credit unless replacement letters of credit were
F-38
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
secured. The IRB Debt bore interest at daily, weekly or fixed rates at the
option of the Partnership, and was limited to a maximum interest rate of 15%.
In 1995 the interest rate on the IRB Debt ranged from 1.9% to 6.1%. The
interest rate on the IRB Debt was 5.45% at December 31, 1995.
The bondholders had the right to demand purchase of any of the bonds at the
expiration of specified interest rate periods. Should the Partnership fail to
make the required payments of principal and interest on the IRB Debt, Host
Marriott was required to make such payments ("Host Marriott's IRB Liability").
Through December 31, 1995, the Partnership purchased a total of $15.4 million
of bonds/IRB Debt with proceeds advanced by Host Marriott (see below) when
presented by certain bondholders. These loans bore interest at one percentage
point in excess of the Prime Rate (9.5% at December 31, 1995). The weighted
average interest rate was 9.83% for 1995. The two General Partner loans would
have matured on the earlier of (i) December 1997 and June 1998, respectively,
or (ii) the date upon which the bonds were remarketed. During 1993, the
Partnership was able to remarket $.8 million of bonds and used the proceeds to
repay the General Partner. Additionally, during 1993, the Partnership repaid
$4.2 million of General Partner loans with excess Partnership working capital.
During 1994, the Partnership repaid $3.9 million in General Partner loans from
operating cash flow. Advances under Host Marriott's IRB Liability were to be
repaid with cash from operations after debt service, the 10% priority return
and current incentive management fees. As of December 31, 1995, $6.5 million
of Host Marriott IRB Liability loans were outstanding. As discussed in Note 7,
the $6.5 million of Host Marriott IRB Liability loans were repaid on
January 24, 1996, from proceeds of the debt refinancing.
Ground Rent Facility
MFS had agreed to lend the Partnership up to $25 million (the "Ground Rent
Facility") to the extent that the Partnership had insufficient funds to pay
ground rent under any ground lease after payment of (i) deductions (except for
ground rent), as defined, and (ii) debt service. The Ground Rent Facility was
available until December 31, 1997, and all amounts outstanding, if any, would
have been due December 31, 2002. Advances would bear interest at one
percentage point over the Prime Rate and were to be repaid from available cash
flow after payment of current debt service and ground rent. No amounts were
outstanding under the Ground Rent Facility as of December 31, 1995. As
discussed in Note 7, MFS was released from the Ground Rent Facility upon
refinancing the Partnership debt on January 24, 1996.
NOTE 6. MANAGEMENT AGREEMENT
The Management Agreement (as defined below) was restated as of December 30,
1995. See Note 7 for a discussion of significant changes in terms.
The Partnership entered into a long-term management agreement (the
"Management Agreement") with the Manager to operate the Hotels as part of the
Courtyard by Marriott hotel system. The Management Agreement has an initial
term expiring on December 31, 2002. The Manager may renew the term, as to one
or more of the Hotels, at its option, for up to four successive terms of 10-
years each and one final term of five years. The Partnership may terminate the
Management Agreement if, during any three consecutive years after 1992,
specified minimum operating results are not achieved. However, the Manager may
prevent termination by paying to the Partnership the amount by which the
minimum operating results were not achieved.
The Management Agreement provides for annual payments of (i) the base
management fee equal to 3 1/2% of gross sales from the Hotels, (ii) the
Courtyard management fee equal to 2 1/2% of gross sales from the Hotels, and
(iii) the incentive management fee equal to 15% of operating profit, as
defined (20% of operating profit after the Partners have received refinancing
proceeds equal to 50% of the excess of (a) $154,736,842 over (b) cumulative
distributions of adjusted sale proceeds (the "First Equity Refinancing")).
F-39
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
In 1988 through 1990, the Courtyard management fee was deferred to the
extent the Partnership was not provided with its 10% priority return, as
defined. In addition, until 1998, the Courtyard management fee will be
deferred to the extent the Partnership does not have sufficient funds for debt
service. Prior to 1994, the incentive management fee earned and paid was
limited to a maximum of 55% of the remainder of (i) available cash flow, as
defined, less (ii) the priority return. Thereafter, payment of any earned
incentive management fee is limited to 80% of the amount by which available
cash flow exceeds the priority return.
Effective January 1, 1990, the Management Agreement was amended to extend
the Courtyard management fee deferral and to provide for a base management fee
deferral to the extent that available cash flow, as defined, to the
Partnership did not equal at least $4,999,740 for 1990 and $8,820,000 per year
for 1991 through 1993 (the "Partnership Objective"). The Partnership Objective
was intended to provide a 6% per annum minimum return on limited partner
invested capital, as defined. In order to meet the Partnership Objective, the
Courtyard management fee was first subject to deferral followed by the base
management fee.
To the extent any Courtyard management fee, base management fee or incentive
management fee is deferred, it will be added to deferred management fees.
Deferred management fees accrue without interest, and will be payable out of
50% of available cash flow after payment of the current year's priority return
and incentive management fee and repayment of advances and interest under the
debt service guarantees and Host Marriott's IRB Liability. During 1995,
$162,000 of deferred incentive management fees were repaid. Deferred incentive
management fees were $5,402,000 as of December 31, 1995. Deferred Courtyard
management fees totalled $22,341,000 as of December 31, 1995. Deferred base
management fees as of December 31, 1995 were $8,066,000.
The Manager is required to furnish certain services ("Chain Services") which
are furnished generally on a central or regional basis to all hotels managed,
owned or leased in the Courtyard by Marriott hotel system. The cost of certain
Chain Services that were allocated to the Partnership prior to December 31,
1993 was limited to 4% of gross Hotel sales. The total amount of Chain
Services allocated to the Partnership was $9,224,000 in 1995.
The Partnership is required to provide the Manager with working capital and
fixed asset supplies to meet the operating needs of the Hotels. Upon
termination of the Management Agreement, the working capital and supplies will
be returned to the Partnership. Of the $8,846,000 originally advanced to the
Manager for working capital, $2,585,000 of excess working capital was returned
to the Partnership in 1991. At December 31, 1995, accumulated depreciation
related to the supplies totalled $2,060,000.
The Management Agreement provides for the establishment of a repairs and
equipment reserve (property improvement fund) for the Hotels. The funding of
this reserve is based on a percentage of gross Hotel sales. During 1994, the
Partnership, Manager and the Mortgage Debt A and B lenders agreed that the
Partnership would establish reserve accounts and contribute 1% of Hotel sales
on the respective Mortgage Debt A and B properties to these reserves.
Correspondingly, the Management Agreement was amended in order to reduce the
contribution to the property improvement fund from 6% to 5% of gross Hotel
sales for the Mortgage Debt A and B properties for 1993 through the respective
loan maturities. The contribution for the five IRB Hotels remained at 6%. Upon
completion of the refinancing, as discussed in Note 7, the contribution to the
property improvement fund was established initially at 5% for all Hotels.
Pursuant to the terms of the Management Agreement and the ground lease
agreements with MII and affiliates, MII and its affiliates do not have the
right to offset the amounts reflected in the accompanying balance sheet as Due
from Courtyard Management Corporation, Due to Courtyard Management Corporation
and Due to Marriott International, Inc. and affiliates.
F-40
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
NOTE 7. EVENTS SUBSEQUENT TO DECEMBER 31, 1995
Partnership Structure
On January 24, 1996, the Partnership completed a refinancing of the
Partnership's existing debt through the private placements of $127.4 million
of senior secured notes (the "Senior Notes") and $410.2 million of multi-class
commercial mortgage pass-through certificates (the "Certificates").
In connection with the refinancing, the limited partners approved certain
amendments to the partnership agreement and the Management Agreement. The
partnership agreement amendment, among other things, allowed the formation of
certain subsidiaries of the Partnership, including Courtyard II Finance
Company ("Finance"), a wholly-owned subsidiary of the Partnership, who along
with the Partnership is the co-issuer of the Senior Notes.
Additionally, the Partnership formed a wholly-owned subsidiary, Courtyard II
Associates Management Corporation ("Managing General Partner"). Managing
General Partner was formed to be the managing general partner with a 1%
general partner interest in Associates, a Delaware limited partnership. The
Partnership owns a 1% general partner interest and a 98% limited partner
interest in Associates. On January 24, 1996, the Partnership contributed 69
Hotels and their related assets to Associates. Formation of Associates
resulted in the Partnership's primary assets being its direct and indirect
interest in Associates. Additionally, substantially all of Associates' net
equity will be restricted to dividends, loans or advances to the Partnership.
Associates holds a 99% membership interest in CBM Associates II LLC
("Associates II") and Managing General Partner holds the remaining 1%
membership interest. On January 24, 1996, the Partnership contributed the
Hotel located in Deerfield, IL (the "Deerfield Hotel") and it's related assets
to Associates II.
Each of the Managing General Partner, Associates and Associates II were
formed as a single purpose bankruptcy-remote entity to facilitate the
refinancing.
CBM Funding Corporation ("CBM Funding"), a wholly-owned subsidiary of
Associates, was also formed to make a mortgage loan (the "Mortgage Loan") to
Associates from the proceeds of the sale of the Certificates.
Debt Refinancing--Overview
On January 24, 1996, net proceeds from the placement of the Senior Notes and
the Certificates and existing Partnership cash were used as follows: (i) to
repay the Partnership's existing Mortgage Debt A of $275 million and Mortgage
Debt B of $230.5 million, (ii) to repay the IRB Debt of $25.6 million by March
1, 1996, (iii) to repay the Host Marriott IRB Liability loans of $6.5 million
and (iv) to pay certain costs of structuring and issuing the Senior Notes and
the Certificates.
Upon repayment of Mortgage Debt A and Mortgage Debt B, Host Marriott was
released from its obligations under (i) the Mortgage Debt A and Mortgage Debt
B debt service guarantees, (ii) the foreclosure guarantee and (iii) the Ground
Rent Facility.
Debt Refinancing--Senior Notes
The Senior Notes of $127.4 million were issued by the Partnership and
Finance. The Senior Notes bear interest at 10 3/4%, require semi-annual
payments of interest and require no payments of principal until maturity on
February 1, 2008. The Senior Notes are secured by a first priority pledge by
the Partnership of (i) its 99% partnership interest (consisting of a 98%
limited partner interest and a 1% general partner interest) in Associates and
(ii) its 100% equity interest in the Managing General Partner. Finance has
nominal assets, does not conduct any operations and will not provide any
additional security for the Senior Notes.
F-41
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
The terms of the Senior Notes include requirements of the Partnership to
establish and fund a debt service reserve account in an amount equal to one
six-month interest payment on the Senior Notes ($6,848,000) and to maintain
certain levels of excess cash flow, as defined. In the event the Partnership
fails to maintain the required level of excess cash flow, the Partnership will
be required to (i) suspend distributions to its partners and other restricted
payments, as defined, (ii) to fund a separate supplemental debt service
reserve account (the "Supplemental Debt Service Reserve") in an amount up to
two six-month interest payments on the Senior Notes and (iii) if such failure
were to continue, to offer to purchase a portion of the Senior Notes at par.
The Senior Notes are not redeemable prior to February 1, 2001. Thereafter,
the Senior Notes may be redeemed, at the option of the Partnership, at a
premium declining to par in 2004. The Senior Notes are non-recourse to the
Partnership and its partners.
Debt Refinancing--Certificates
The Certificates in an initial principal amount of $410.2 million were
issued by CBM Funding. Proceeds from the sale of the Certificates were
utilized by CBM Funding to provide a Mortgage Loan to Associates. The
Certificates/Mortgage Loan require monthly payments of principal and interest
based on a 17-year amortization schedule. The Mortgage Loan matures on January
28, 2008. However, the maturity date of the Certificates/Mortgage Loan may be
extended until January 28, 2013 with the consent of 66 2/3% of the holders of
the outstanding Certificates affected thereby. The Certificates were issued in
the following classes and pass-through rates of interest.
<TABLE>
<CAPTION>
INITIAL CERTIFICATE PASS-THROUGH
CLASS BALANCE RATE
----- ------------------- ------------
<S> <C> <C>
Class A-1................................ $ 45,500,000 7.550%
Class A-2................................ $ 50,000,000 6.880%
Class A-3P & I........................... $ 129,500,000 7.080%
Class A-3IO.............................. Not Applicable 0.933%
Class B.................................. $ 75,000,000 7.480%
Class C.................................. $ 100,000,000 7.860%
Class D.................................. $ 10,200,000 8.645%
</TABLE>
The Class A-3IO Certificates receive payments of interest only.
The Certificates/Mortgage Loan maturities are as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................. $ 10,283
1997............................................................. 13,216
1998............................................................. 14,242
1999............................................................. 15,347
2000............................................................. 16,539
Thereafter....................................................... 340,573
--------
$410,200
========
</TABLE>
The Mortgage Loan is secured primarily by 69 cross-defaulted and cross-
collateralized mortgages representing first priority mortgage liens on (i) the
fee or leasehold interest in 69 Hotels, related furniture, fixtures and
equipment and the property improvement fund, (ii) the fee interest in the land
leased from MII or their affiliates on which 53 Hotels are located, (iii) a
pledge of Associates membership interest in and the related right to receive
distributions from Associates II which owns the Deerfield Hotel and (iv) an
assignment of the Restated
F-42
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
Management Agreement, as defined below. The Mortgage Loan is non-recourse to
Associates, the Partnership and its partners.
Operating profit from the Hotels in excess of debt service on the Mortgage
Loan is available to be distributed to the Partnership. Amounts distributed to
the Partnership are used for the following, in order of priority: (i) for debt
service on the Senior Notes, (ii) to fund the Supplemental Debt Service
Reserve, if necessary, (iii) to offer to purchase a portion of the Senior
Notes at par, if necessary, (iv) for working capital as discussed later in
this Note 7 and (v) for distributions to the partners of the Partnership.
Prepayments of the Mortgage Loan are permitted with the payment of a premium
(the "Prepayment Premium") subject to certain exceptions. The Prepayment
Premium is equal to the greater of (i) one percent of the Mortgage Loan being
prepaid or (ii) a yield maintenance amount based on a spread of .25% or .55%
over the U.S. treasury rate, as defined.
Marriott International, Inc. Ground Leases
In connection with the refinancing, the Partnership, as lessee, transferred
its rights and obligations pursuant to the 53 ground leases with MII and
affiliates to Associates. Additionally, MII and affiliates agreed to defer
receipt of their ground lease payments to the extent that the Partnership or
Associates has insufficient funds for debt service payments on the Senior
Notes and the Mortgage Loan.
Restated Management Agreement
To facilitate the refinancing, effective December 30, 1995, the original
Management Agreement was restated into two separate management agreements.
Associates entered into a management agreement with the Manager for the 69
Hotels which Associates directly owns and Associates II entered into a
management agreement for the Deerfield Hotel which Associates II owns,
collectively, (the "Restated Management Agreement").
The Restated Management Agreement contains provisions which differ from the
original Management Agreement. The primary new provisions are as follows (See
Note 6 for original Management Agreement provisions):
. The initial term expires in 2013. The Manager may renew the term, as to
one or more of the Hotels, at its option, for up to three successive
terms of 10-years each and one final term of five years.
. One percent of the Courtyard management fee will be deferred through
maturity of the Senior Notes and the Mortgage Loan to the extent that
the Partnership or Associates has insufficient funds for debt service
payments on the Senior Notes and the Mortgage Loan. This change
eliminated the previous deferral of the total Courtyard management fee
to debt service through December 31, 1997.
. The priority return to the Partnership, as defined, was reduced from 10%
of invested capital to 7% in 1996, 8% in 1997, 9% in 1998 and then
returning to 10% for 1999 and thereafter. Operating profit from the
Hotels (which reflects the deduction of the base and Courtyard
management fees and MII ground rent) will be used to pay the following,
in order of priority: (i) debt service on the Senior Notes and Mortgage
Loan, (ii) to repay working capital loans to the Manager, (iii) to repay
deferred ground rent to MII and their affiliates, (iv) to repay ground
lease advances to MII and their affiliates, (v) the priority return to
the Partnership which is 7% of invested capital for 1996, (vi) eighty
percent of the remaining operating profit is applied to the payment of
current incentive management fees, (vii) to repay advances to the
Partnership, (viii) to repay foreclosure avoidance advances to the
Manager and
F-43
<PAGE>
COURTYARD BY MARRIOTT II LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
DECEMBER 31, 1995
(ix) fifty percent of the remaining operating profit to repay deferred
management fees to the Manager and fifty percent of remaining operating
profit is paid to the Partnership.
. The property improvement fund contribution equals 5% of gross Hotel
sales for all Partnership Hotels and may be increased, at the option of
the Manager, to 6% of gross Hotel sales in 2001. Additionally, the
Partnership is no longer required to contribute 1% of gross Hotel sales
from the Mortgage Debt A and Mortgage Debt B Hotels to the refinancing
reserves.
Working Capital Agreement
As discussed in Note 6, the Partnership was required to provide the Manager
with working capital to meet the operating needs of the Hotels. The
refinancing required certain enhancements to the cash management system of the
Manager such that additional working capital may be required for the operation
of the Hotels. Therefore, on January 24, 1996, the Partnership, Associates and
the Manager entered into a working capital maintenance agreement (the "Working
Capital Agreement") and deposited $2.5 million as additional working capital
for the operation of the Hotels. Prior to December 31, 1996, Associates and
the Manager will determine the amount of working capital that is required.
Associates has agreed to provide up to another $2.5 million, if necessary.
In addition, the Working Capital Agreement provides that the Partnership and
Associates, collectively, reserve $2 million by February 1, 1997 and
additional amounts such that the total balance is $5 million by February 1,
1998 (the "Working Capital Reserve"). The Working Capital Reserve will be
available for payment of hotel operating expenses in the event that there is a
downgrade in the long-term senior unsecured debt of MII to below a certain
level, as described in the Mortgage Loan.
The obligation to fund the amounts required by the Working Capital Agreement
is subordinate to debt service on the Senior Notes and the Mortgage Loan.
F-44
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE III
TO COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of Courtyard II Associates, L.P. and
subsidiaries, included in this registration statement and have issued our
report thereon dated February 22, 1996. Our audits were made for the purpose
of forming an opinion on the basic financial statements taken as a whole. The
schedule appearing on page F-46 is the responsibility of the General Partner's
management and is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic consolidated financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Washington, D.C.
February 22, 1996
F-45
<PAGE>
SCHEDULE III
COURTYARD II ASSOCIATES, L.P. AND SUBSIDIARIES
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
INITIAL COSTS GROSS AMOUNT AT DECEMBER 31, 1995
-------------------- SUBSEQUENT ------------------------------------------ DATE OF
BUILDINGS & COSTS BUILDINGS & ACCUMULATED COMPLETION OF DATE
DESCRIPTION DEBT LAND IMPROVEMENTS CAPITALIZED LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED
----------- -------- ------- ------------ ----------- ------- ------------ -------- ------------ ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
70 Courtyard by
Marriott
Hotels......... $410,200 $25,392 $493,565 $19,401 $25,392 $512,966 $538,358 $97,726 1987-1990 1987-1990
<CAPTION>
DEPRECIATION
DESCRIPTION LIFE
----------- ------------
<S> <C>
70 Courtyard by
Marriott
Hotels......... 40 years
</TABLE>
Notes:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
(a)Reconciliation of Real Estate:
Balance at beginning of year..................... $528,835 $531,750 $533,546
Capital Expenditures........................... 2,915 3,796 2,812
Disposition.................................... -- -- --
-------- -------- --------
Balance at end of year........................... $531,750 $535,546 $538,358
======== ======== ========
(b)Reconciliation of Accumulated Depreciation:
Balance at beginning of year..................... $ 56,030 $ 69,346 $ 83,321
Depreciation................................... 13,316 13,975 14,405
-------- -------- --------
Balance at end of year........................... $ 69,346 $ 83,321 $ 97,276
======== ======== ========
(c) The aggregate cost of land, buildings and
improvements for Federal income tax purposes is
approximately $509,043 at December 31, 1995.
(d) The Debt balance is as of December 31, 1995 and
includes Mortgage
Debt A of $209.6 million, Mortgage Debt B of
$176.0 million and $24.6 million of IRB Debt.
</TABLE>
F-46
<PAGE>
ANNEX I
CBM FUNDING CORPORATION, MULTICLASS MORTGAGE PASS-THROUGH CERTIFICATES MORTGAGE
TRUST, SERIES 1996-1
COMPARATIVE FINANCIAL STATUS REPORT
AS OF
<TABLE>
<CAPTION>
ORIGINAL UNDERWRITING INFORMATION PRIOR FULL YEAR OPERATING INFORMATION
---------------------------------------- --------------------------------------------
BASE YEAR AS OF NORMALIZED
---------------------------------------- -------------------------------- -----------
LAST LAST
CURRENT PAID ANNUAL PROP. FINANCIAL PROP. FINANCIAL
PROP. SCHED THRU DEBT INSPECT INFO AS OF % TOTAL $ % INSPECT INFO AS OF % TOTAL $
NAME BALANCE DATE SERVICE DATE DATE OCC ADR REV. NOI DSC DATE DATE OCC ADR REV. NOI % DSC
----- ------- ---- ------- ------- ---------- --- --- ----- --- --- ------- ---------- --- --- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
List all loans currently in deal with or without information largest to smallest loan
Total: $ $ WA $ $ WA WA $ $ WA
<CAPTION>
"ACTUAL"
-------------------------
CURRENT ANNUAL OPERATING INFORMATION YTD FINANCIAL INFORMATION NET CHANGE*
-------------------------------------------- ----------------------------- -----------------
AS OF NORMALIZED MONTH REPORTED CURRENT & BASIS
-------------------------------- ----------- ----------------------------- -----------------
LAST LAST
PROP. FINANCIAL PROP. %
PROP. INSPECT INFO AS OF % TOTAL $ % INSPECT % TOTAL $ % % TOTAL %
NAME DATE DATE OCC ADR REV. NOI DSC DATE OCC ADR REV. NOI DSC OCC ADR REV. DSC
----- ------- ---------- --- --- ----- ----- ----- ------- --- --- ----- --- --- --- --- ---- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total: WA $ $ WA WA $ $ WA WA $ WA
<CAPTION>
RECEIVED REQUIRED
--------------- ---------------
FINANCIAL INFORMATION: LOANS BALANCE LOANS BALANCE
- ---------------------- ------- ------- ------- -------
$ % $ % $ % $ %
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Current Full Year:
Current Full Yr. received
with DSC:
Prior Full Year:
Prior Full Yr. received
with DSC:
Quarterly Financials:
</TABLE>
* Net change should compare the latest year to the underwriting year
I-1
<PAGE>
CBM FUNDING CORPORATION, MULTICLASS MORTGAGE PASS-THROUGH CERTIFICATES SERIES
1996-1
OPERATING STATEMENT ANALYSIS
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY OVERVIEW
LB Control Number
Servicer Loan Number
Asset Name
Property Address
Number of Rooms
Year Built/Year
Renovated
Year of Operations Underwriting 1993 1994 1995 YTD
Occupancy Rate*
Average Daily Rate
* Occupancy rates are year end or the ending date of the financial statement for the period.
*REVENUES: No. of Mos.
Number of Mos.
Annualized Prior Year Current Year
Period Ended Underwriting 1993 1994 1995 1996 YTD** 1995-Base 1995-1994
Statement Classification Base Line Normalized Normalized Normalized as of / /95 Variance Variance
Rooms
Food & Beverage
Telephone & Other
Revenues
------------- ----------- ----------- ------------- --------------- ---------- ---------
TOTAL REVENUES $0.00 $0.00 $0.00 $0.00 $0.00 % %
============= =========== =========== ============= =============== ========== =========
*DEPARTMENTAL PROFIT:
Rooms
Food & Beverage
Telephone & Other
------------- ----------- ----------- ------------- --------------- ---------- ---------
TOTAL DEPARTMENTAL PROFIT
============= =========== =========== ============= =============== ========== =========
GROSS OPERATING INCOME
============= =========== =========== ============= =============== ========== =========
Normalized--Full year Financial statements that have been reviewed by the underwriter or Servicer
** Servicer will not be expected to "Normalize" these YTD numbers.
*UNDISTRIBUTED OPERATING
EXPENSES:
General and
Administrative
Heat, Light and Power
Repairs and Maintenance
Accidents
Marketing
------------- ----------- ----------- ------------- --------------- ---------- ---------
TOTAL UNDIST. OPER.
EXPENSES $0.00 $0.00 $0.00 $0.00 $0.00 % %
============= =========== =========== ============= =============== ========== =========
GROSS OPERATING PROFIT
============= =========== =========== ============= =============== ========== =========
*FIXED EXPENSES
Property Taxes
Insurance
Miscellaneous
Ground Rent (Third Party
Only)
Reserve for Replacements
Management Fee--5%
Chain Services
------------- ----------- ----------- ------------- --------------- ---------- ---------
TOTAL FIXED EXPENSES $0.00 $0.00 $0.00 $0.00 $0.00 $0.00
============= =========== =========== ============= =============== ========== =========
NET OPERATING INCOME $0.00 $0.00 $0.00 $0.00 $0.00
============= =========== =========== ============= =============== ========== =========
DEBT SERVICE (PER
SERVICER) $0.00 $0.00 $0.00 $0.00 $0.00
============= =========== =========== ============= =============== ========== =========
CASH FLOW AFTER DEBT
SERVICE $0.00 $0.00 $0.00 $0.00 $0.00
============= =========== =========== ============= =============== ========== =========
DSCR: (NOI/DEBT SERVICE)
============= =========== =========== ============= =============== ========== =========
DSCR: (AFTER RESERVES/CAP
EXP.)
============= =========== =========== ============= =============== ========== =========
SOURCE OF FINANCIAL DA-
TA:
(ie. operating statements, financial statements, tax return, other)
</TABLE>
NOTES AND ASSUMPTIONS:
- --------------------------------------------------------------------------------
The years shown above will roll always showing a three year history. 1995 is
the current year financials; 1994 is the prior year financials.
INCOME: COMMENT
EXPENSE: COMMENT
CAPITAL ITEMS: COMMENT
- --------
*The level of detail for these items may vary from the level presented on this
schedule.
I-2
<PAGE>
CBM FUNDING CORPORATION, MULTICLASS MORTGAGE PASS-THROUGH CERTIFICATES SERIES
1996-1
NOI ADJUSTMENT WORKSHEET FOR "YEAR"
<TABLE>
<S> <C> <C> <C>
PROPERTY OVERVIEW
LB Control Number
Servicer Loan Number
Asset Name
Property Address
Number of Rooms
Year Built/Year
Renovated
Year of Operations Borrower Adjustment Normalized
Occupancy Rate*
Average Daily Rate
*Occupancy rates are year end or the ending date of the
financial statement for the period.
*REVENUES:
Number of Mos.
Annualized "Year"
Period Ended Borrower Adjustment Normalized
Statement
Classification Actual
Rooms
Food & Beverage
Telephone & Other
Revenues
Total Revenues $0.00 $0.00 $0.00
Normalized--Full year Financial statements that have been
reviewed by the underwriter or Servicer
*DEPARTMENTAL PROFIT:
Rooms
Food & Beverage
Telephone & Other
Total Departmental
Profit $0.00 $0.00 $0.00
Gross Operating Income $0.00 $0.00 $0.00
*UNDISTRIBUTED OPERATING
EXPENSES:
General and
Administrative
Heat, Light and Power
Repairs and
Maintenance
Accidents
Marketing
Total Undist. Oper.
Expenses $0.00 $0.00 $0.00
Gross Operating Profit $0.00 $0.00 $0.00
*FIXED EXPENSES:
Property Taxes
Insurance
Miscellaneous
Ground Rent (Third
Party Only)
Reserve for
Replacements
Management Fee--5%
Chain Services
Total Fixed Expenses $0.00 $0.00 $0.00
Net Operating Income $0.00 $0.00 $0.00
Debt Service (per
Servicer) $0.00 $0.00 $0.00
Cash Flow after debt
service $0.00 $0.00 $0.00
DSCR: (NOI/Debt Service)
DSCR: (after reserves)
Source of Finance Data:
(i.e. operating statements, financial statements, tax
return, other)
</TABLE>
NOTES AND ASSUMPTIONS:
- --------------------------------------------------------------------------------
This report should be completed by the Servicer for any "Normalization" of the
Borrower's numbers
INCOME: COMMENTS
EXPENSE: COMMENTS
CAPITAL ITEMS: COMMENTS
- --------
* The level of detail for these items may vary from the level presented on
this schedule.
I-3
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCOR-
PORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE EXCHANGE OFFER
MADE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTA-
TIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CBM FUNDING OR THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER
THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICI-
TATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF CBM FUNDING OR THE COMPANY SINCE THE DATE
HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary.................................................................. 5
Ownership and Management Structure....................................... 27
Risk Factors............................................................. 28
The Issuer............................................................... 35
The Company.............................................................. 35
Selected Consolidated Financial and Operating Data....................... 36
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Description of the Mortgaged Properties.................................. 44
Description of Deerfield LLC............................................. 72
Description of the Mortgage Loan......................................... 72
Description of the Mortgages............................................. 80
The Exchange Offer....................................................... 83
Management............................................................... 90
Ownership of Interests in CBM Funding and the Managing General Partner... 92
Certain Relationships and Related Transactions........................... 92
Description of the Management Agreement.................................. 94
Description of the New Certificates...................................... 98
Description of the Trust and Servicing Agreement......................... 109
Yield, Prepayment and Maturity Considerations ........................... 122
Certain Federal Income Tax Considerations................................ 128
State and Local Tax Considerations....................................... 137
ERISA Considerations..................................................... 137
Legal Investment......................................................... 140
Plan of Distribution..................................................... 140
Legal Matters............................................................ 141
Experts.................................................................. 141
Ratings.................................................................. 141
Available Information.................................................... 142
Index of Defined Terms................................................... 143
Financial Statements..................................................... F-1
Annex I: Form of Servicer's Monthly Report............................... I-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$407,182,129
CBM FUNDING CORPORATION
COURTYARD II ASSOCIATES, L.P.
MULTICLASS MORTGAGE PASS-THROUGH CERTIFICATES, SERIES 1996-1B
------------------
PRELIMINARY
PROSPECTUS
------------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) CBM Funding. Section 145 of the Delaware General Corporation Law
provides that a Delaware corporation may indemnify any persons, including
officers and directors, who are, or are threatened to be made, parties to any
threatened, pending or completed legal action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of such corporation), by reason of the fact that such person was
an officer or director of such corporation, or is or was serving at the
request of such corporation as a director, officer, employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such officer or director acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
corporation's best interests and, for criminal proceedings, had no reasonable
cause to believe that his conduct was unlawful. A Delaware corporation may
indemnify officers and directors in an action by or in the right of the
corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to
be liable to the corporation. Where an officer or director is successful on
the merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses which such officer or
director actually and reasonably incurred.
The Trust and Servicing Agreement provides that CBM Funding and any
director, officer, employee or agent of the CBM Funding will be entitled to
indemnification by the Trust and will be held harmless against any loss,
liability or expense incurred in connection with any legal action relating to
the Trust and Servicing Agreement or the Certificates, other than any loss,
liability or expense incurred by reason of willful misfeasance, bad faith or
negligence in the performance of his or its duties thereunder or by reason of
reckless disregard of his or its obligations and duties thereunder.
(b) The Company. The Partnership Agreement for the Company states that it
shall indemnify and hold harmless the Managing General Partner against and in
respect of any liability incurred by reason of or in connection with the
performance of its duties as Managing General Partner of the Company except
for any such liability that results from the willful misconduct, gross
negligence, or fraud of the Managing General Partner. The by-laws of the
Managing General Partner provide for indemnification of any person who is or
was serving at the request of the Managing General Partner as a director,
officer, employee, or agent of a corporation, partnership, joint venture,
trust, or other enterprise, as permitted by the laws of the State of Delaware,
provided that the indemnitee acted in good faith, in a manner reasonably
believed to be in or not opposed to the best interests of the Managing General
Partner and without reasonable cause to believe his or her conduct was
unlawful.
(c) The Managing General Partner. The Managing General Partner's By-Laws
provide for indemnification of directors and officers of the Managing General
Partner on generally the same terms as permitted by Delaware Law. The Managing
General Partner shall advance expenses incurred by an officer or director of
the Managing General Partner in defending any such action if the director or
officer undertakes to repay such amount if it is determined that he or she is
not entitled to indemnification.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
*3.1 Agreement of Limited Partnership of the Company (the
"Partnership Agreement")
*3.2 Certificate of Limited Partnership of the Company
*3.3 Amended and Restated Certificate of Incorporation of CBM Funding
*3.4 By-laws of CBM Funding
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
*4.1 Trust and Servicing Agreement dated as of January 1, 1996 among
CBM Funding, the Servicer and the Trustee.
*4.2 Forms of New Certificates
4.3 Exchange and Registration Rights Agreement dated as of January 24,
1996 among CBM Funding, CBM II L.P., the Company and Lehman
Brothers Inc. (Incorporated herein by reference to Exhibit 4.6 in
the Registration Statement on Form S-4 of CBM II L.P. and
Courtyard II Finance Company previously filed with the Commission
on March 7, 1996 (the "CBM II L.P. Form S-4"))
4.4 Intercreditor Agreement dated as of January 24, 1996 among IBJ
Schroder Bank & Trust Company, the Servicer, the Trustee, CBM II
L.P., Courtyard II Finance Company, the Company, the Managing
General Partner and CBM Funding. (Incorporated herein by
reference to Exhibit 4.4 to CBM II L.P. Form S-4)
4.5 Indenture dated as of January 24, 1996 among CBM II L.P.,
Courtyard II Finance Company, and IBJ Schroder Bank & Trust
Company (the "Indenture") (Incorporated herein by reference to
Exhibit 4.1 to CBM II L.P. Form S-4)
4.6 Exchange and Registration Rights Agreement dated as of January 24,
1996 among CBM II L.P., Courtyard II Finance Company and Lehman
Brothers Inc. (Incorporated herein by reference to Exhibit 4.3 to
CBM II L.P. Form S-4)
**5.1 Opinion re: legality of New Certificates being registered
*8. Opinion re: tax matters
*10.1 Assignment and Assumption of Management Agreement dated as of
January 24, 1996 by CBM II L.P. to the Company with attached
Management Agreement
10.2 Contribution Agreement dated as of January 24, 1996 among CBM II
L.P., the Managing General Partner and the Company. (Incorporated
herein by reference to Exhibit 10.13 in the Amendment No. 1 to
CBM II L.P. Form S-4 previously filed with the Commission on
April 25, 1996 (the "CBM II L.P. Form S-4 Amendment No. 1"))
10.3 Bill of Sale and Assignment and Assumption Agreement dated as of
January 24, 1996 by CBM II L.P. to the Company. (Incorporated
herein by reference to Exhibit 10.14 to CBM II L.P. Form S-4)
10.4 The Company received an assignment from CBM II L.P., which had
received an assignment from Host Marriott, of 15 ground leases
for land that Host Marriott had previously leased from various
affiliates (the "Original Landlords"). The ground leases are
identical in all material respects except as to their assignment
dates to CBM II L.P. and the rents due (Exhibit A of each ground
lease). The schedule below sets forth the terms of each ground
lease not filed which differ from the copy of the example ground
lease (Hoover, AL) which was previously filed with the
Commission. In addition, a copy of Exhibit A was filed for each
excluded ground lease. (Incorporated herein by reference to
Exhibit 10.11 in CMB II L.P.'s Annual Report on Form
10-K in the fiscal year ended December 31, 1994 previously filed
with the Commission on October 4, 1995 (the "CBM II L.P. 10-K"))
</TABLE>
<TABLE>
<CAPTION>
ASSIGNMENT
PROPERTY STATE DATE ORIGINAL LANDLORD
-------- ----- ---------- -----------------
<S> <C> <C> <C>
Foster City.................... CA 10/30/87 Essex House Condominium
Corporation ("Essex")
Marin/Larkspur Landing......... CA 10/30/87 Essex
Denver/Southeast............... CO 10/30/87 Essex
Atlanta/Perimeter Center....... GA 02/24/88 Essex
Indianapolis/Castleton......... IN 10/30/87 Essex
Lexington/North................ KY 10/07/88 Essex
Annapolis...................... MD 05/19/89 Essex
Minneapolis Airport............ MN 10/30/87 Essex
St. Louis/Creve Couer.......... MO 10/30/87 Essex
Rye............................ NY 03/29/88 Essex
Greenville..................... SC 03/29/88 Essex
Memphis Airport................ TN 10/30/87 Essex
Nashville Airport.............. TN 02/24/88 Essex
Dallas/Stemmon................. TX 10/30/87 Essex
San Antonio/Downtown........... TX 03/23/90 Essex
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.5 The Company received an assignment from CBM II L.P. of 38 ground
leases which CBM II L.P. had entered into with Marriott
International, Inc. ("MII"). The 38 ground leases are identical
in all material respects except as to their effective lease dates
and the rents due (Exhibit A of each ground lease). The schedule
below sets forth the terms of each ground lease not filed which
differ from the copy of the example ground lease (Huntsville, AL)
which was previously filed with the Commission. In addition, a
copy of Exhibit A was filed for each excluded ground lease.
(Incorporated by reference herein to Exhibit 10.12 to CBM II L.P.
10-K)
</TABLE>
<TABLE>
<CAPTION>
EFFECTIVE
PROPERTY STATE LEAST DATE
-------- ----- ----------
<S> <C> <C>
Birmingham/Hoover................ AL 10/30/87
Huntsville....................... AL 10/30/87
Phoenix/Mesa..................... AZ 04/22/88
Phoenix/Metrocenter.............. AZ 10/01/87
Tucson Airport................... AZ 12/30/88
Little Rock...................... AR 09/09/88
Bakersfield...................... CA 05/20/88
Hacienda Heights................. CA 03/30/90
Palm Springs..................... CA 12/20/88
Torrance......................... CA 12/30/88
Boulder.......................... CO 11/04/88
Wallingford...................... CT 04/24/90
Ft. Myers........................ FL 11/04/88
Ft. Lauderdale/Plantation........ FL 12/02/88
St. Petersburg................... FL 01/26/90
West Palm Beach.................. FL 02/24/89
Atlanta/Gwinnett Mall............ GA 10/30/87
Chicago/Glenview................. IL 10/06/89
Chicago/Highland Park............ IL 07/15/88
Chicago/Waukegan................. IL 08/12/88
Chicago/Wood Dale................ IL 09/09/88
Kansas City/Overland Park........ KS 04/21/89
Silver Spring.................... MD 10/07/88
Boston/Andover................... MA 02/24/89
Detroit Airport.................. MI 02/24/88
Detroit/Livonia.................. MI 03/29/88
St. Louis/Westport............... MO 10/07/88
Lincroft/Red Bank................ NJ 07/15/88
Raliegh/Cary..................... NC 08/12/88
Dayton Mall...................... OH 10/30/87
Toledo........................... OH 07/15/88
Oklahoma City Airport............ OK 10/07/88
Portland/Beaverton............... OR 05/19/89
Columbia......................... SC 04/21/89
Dallas/Northeast................. TX 04/22/88
Charlottesville.................. VA 04/21/89
Manassas......................... VA 05/19/89
Seattle/Southcenter.............. WA 05/19/89
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.6 The Company, as mortgagor, and CBM Funding, as mortgagee, entered
into 53 fee and leasehold mortgages, each dated as of January 24,
1996. The 53 mortgages are identical in all material respects
except as to the underlying property to which they relate and, in
certain instances, additional parties thereto. The schedule below
sets forth the terms of each mortgage not filed which differ from
the copy of the example mortgage (Birmingham/Hoover, AL) which is
filed herewith. (Incorporated by reference herein to Exhibit
10.27 to CBM II L.P. Form S-4)
</TABLE>
<TABLE>
<CAPTION>
PROPERTY STATE ADDITIONAL PARTY
-------- ----- ---------------------
<S> <C> <C>
Birmingham/Hoover........ AL Essex
Huntsville............... AL MII
Phoenix/Mesa............. AZ MII
Phoenix/Metrocenter...... AZ MII
Tucson Airport........... AZ MII
Little Rock.............. AR MII
Bakersfield.............. CA MII
Foster City.............. CA MII
Hacienda Heights......... CA MII
Marin/Larkspur Landing... CA MII
Palm Springs............. CA MII
Torrance................. CA MII
Boulder.................. CO MII
Denver/Southeast......... CO Essex
Wallingford.............. CT MII
Ft. Myers................ FL MII
Ft.
Lauderdale/Plantation... FL MII
St. Petersburg........... FL MII
West Palm Beach.......... FL MII
Atlanta/Gwinnett Mall.... GA MII
Atlanta/Perimeter
Center.................. GA Essex
Chicago/Glenview......... IL MII
Chicago/Highland Park.... IL MII
Chicago/Waukegan......... IL MII
Chicago/Wood Dale........ IL MII
Indianapolis/Castleton... IN Essex
Kansas City/Overland
Park.................... KS MII
Lexington/North.......... KY Essex
Annapolis................ MD Essex and CBM II L.P.
Silver Spring............ MD MII and CBM II L.P.
Boston/Andover........... MA MII
Detroit Airport.......... MI MII
Detroit/Livonia.......... MI MII
Minneapolis Airport...... MN Essex
St. Louis/Creve Couer.... MO Essex
St. Louis/Westport....... MO MII
Lincroft/Red Bank........ NJ MII
Rye...................... NY Essex
Raleigh/Cary............. NC MII
Dayton Mall.............. OH MII
Toledo................... OH MII
Oklahoma City Airport.... OK MII
Portland/Beaverton....... OR MII
Columbia................. SC MII
Greenville............... SC Essex
Memphis Airport.......... TN Essex
Nashville Airport........ TN Essex
Dallas/Northeast......... TX MII
Dallas/Stemmons.......... TX Essex
San Antonio/Downtown..... TX Essex
Charlottesville.......... VA MII
Manassas................. VA MII
Seattle/Southcenter...... WA MII
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.7 The Company, as mortgagor, and CBM Funding, as mortgagee, entered
into 16 fee and leasehold mortgages, each dated as of January 24,
1996. The 16 mortgages are identical in all material respects
except as to the underlying property to which they relate. The
schedule below sets forth the terms of each mortgage not filed
which differ from the copy of the example mortgage
(Birmingham/Homewood, AL) which is filed herewith. (Incorporated
by reference herein to Exhibit 10.28 to CMB II L.P. Form S-4)
</TABLE>
<TABLE>
<CAPTION>
PROPERTY STATE
-------- -----
<C> <S> <C>
Birmingham/Homewood....................... AL
Cupertino................................. CA
Fresno.................................... CA
Denver Airport............................ CO
Norwalk................................... CT
Tampa/Westshore........................... FL
Atlanta Airport South..................... GA
Atlanta/Roswell........................... GA
Arlington Heights South................... IL
Chicago/Lincolnshire...................... IL
Chicago/Oakbrook Terrace.................. IL
Rockford.................................. IL
Poughkeepsie.............................. NY
Charlotte/South Park...................... NC
Philadelphia/Devon........................ PA
Dallas/Plano.............................. TX
</TABLE>
<TABLE>
<C> <S>
10.8 Contribution Agreement dated as of January 24, 1996 among CBM II L.P.
, the Managing General Partner and Courtyard II Associates LLC
("Deerfield LLC") (Incorporated by reference herein to Exhibit 10.16
to CBM II L.P. Form S-4 Amendment No. 1)
10.9 Bill of Sale and Assignment and Assumption Agreement dated as of
January 24, 1996 by CBM II L.P. to Deerfield LLC (Incorporated by
reference herein to Exhibit 10.17 to CBM II L.P. Form S-4 Amendment
No. 1)
10.10 Deed to the Courtyard by Marriott Hotel in Chicago/Deerfield,
Illinois dated as of January 24, 1996 by CBM II L.P. to Deerfield
LLC (Incorporated by reference herein to Exhibit 10.18 to CBM II
L.P. Form S-4)
10.11 Assignment and Assumption of Management Agreement dated as January
24, 1996 by CBM II L.P. to Deerfield LLC (Incorporated by reference
herein to Exhibit 10.19 to CBM II L.P. Form S-4)
10.12 Loan Agreement dated as of January 24, 1996 by and between the
Company and CBM Funding (Incorporated by reference herein to Exhibit
10.20 to CBM II L.P. Form S-4)
10.13 Mortgage Note, dated as of January 24, 1996, in the principal amount
of $410,200,000.00 by the Company to CBM Funding (Incorporated by
reference herein to Exhibit 10.21 to CBM II L.P. Form S-4)
10.14 Security Agreement dated as of January 24, 1996 by and between the
Company and CBM Funding (Incorporated by reference herein to Exhibit
10.22 to CBM II L.P. Form S-4)
10.15 Pledge Agreement dated as of January 24, 1996 by and between the
Company and CBM Funding (Incorporated by reference herein to Exhibit
10.23 to CBM II L.P. Form S-4)
10.16 Collateral Assignment of Management Agreement and Subordination
Agreement dated as of January 24, 1996, by and among the Company,
the Manager and CBM Funding (Incorporated by reference herein to
Exhibit 10.24 to CBM II L.P. Form S-4)
10.17 Amendment of Ground Leases dated as of January 24, 1996 by and among
the Company, Marriott International, Inc. and Essex House
Condominium Corporation (Incorporated by reference herein to Exhibit
10.25 to CBM II L.P. Form S-4)
10.19 Environmental Indemnity Agreement dated as of January 24, 1996 by the
Company and the Managing General Partner for the benefit of CBM
Funding (Incorporated by reference herein to Exhibit 10.26 to CBM II
L.P. Form S-4)
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<C> <S>
10.22 Assignment of Loan Documents dated as of January 24, 1996 by CBM
Funding to Trustee
(Incorporated by reference herein to Exhibit 10.29 to CBM II L.P.
Form S-4)
*10.23 Working Capital Agreement dated as of January 24, 1996 by and
among CBM II L.P., the Company and the Manager
10.24 Management Agreement dated as of December 30, 1995 between CBM II
L.P. and the Manager (Incorporated by reference herein to Exhibit
10.2 to CBM II L.P. Form S-4)
*12. Statements re: Computation of Ratios
*21.1 Subsidiaries of the Company
**23.1 Consent of Arthur Andersen LLP
**23.2 Consent of Hogan & Hartson L.L.P.
*23.3 Consent of Smith Travel Research
*25.1 Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of Marine Midland Bank, as Trustee
for CBM Funding (separately bound)
*25.2 Form T-1 Statement of Eligibility and Qualification under the
Trust Indenture Act of 1939 of Marine Midland Bank, as Trustee
for the Company (separately bound)
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- --------
*Previously filed.
**Filed herewith.
(b) Financial Statement Schedules:
Schedule III--Real Estate and Accumulated Depreciation
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of either
Registrant pursuant to the foregoing provisions, or otherwise, such Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by a
Registrant of expenses incurred or paid by a director, officer or controlling
person of such Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the affected 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 and will be governed by the final adjudication
of such issue.
The undersigned Registrants hereby undertake:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
II-6
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this Registration Statement or
any material change to such information in this Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-7
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EACH REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN BETHESDA, MARYLAND ON THE 23RD DAY
OF MAY, 1996.
CBM FUNDING CORPORATION
By: /s/ Bruce Stemerman____________________
Name: Bruce Stemerman______________________
Title: President___________________________
COURTYARD II ASSOCIATES, L.P.
By: Courtyard II Associates Management
Corporation As Managing General
Partner
By: /s/ Bruce Stemerman____________________
Name: Bruce Stemerman______________________
Title: President___________________________
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE INDICATED
CAPACITIES AT COURTYARD II ASSOCIATES MANAGEMENT CORPORATION, AS MANAGING
GENERAL PARTNER OF COURTYARD II ASSOCIATES, L.P., AND CBM FUNDING CORPORATION
ON THE 23RD DAY OF MAY, 1996.
SIGNATURE TITLE
President, Chief Accounting Officer and
Director of each of Courtyard II
/s/ Bruce F. Stemerman Associates Management Corporation and
- ------------------------------------ CBM Funding Corporation (Principal
BRUCE F. STEMERMAN Executive Officer and Principal
Accounting Officer of Courtyard II
Associates Management Corporation and
CBM Funding Corporation)
Treasurer of each of CBM Funding
Corporation and Courtyard II Associates
/s/ Scott A. LaPorta Management Corporation (Principal
- ------------------------------------ Financial Officer of each of CBM Funding
SCOTT A. LAPORTA Corporation and Courtyard II Associates
Management Corporation)
Director of Courtyard II Associates
Management Corporation
- ------------------------------------
MARK A. FERRUCCI
II-8
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, EACH REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN BETHESDA, MARYLAND ON THE 23RD DAY
OF MAY, 1996.
CBM FUNDING CORPORATION
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
COURTYARD II ASSOCIATES, L.P.
By: Courtyard II Associates Management
Corporation As Managing General
Partner
By: _______________________________________
Name: _____________________________________
Title: ____________________________________
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION
STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE INDICATED
CAPACITIES AT COURTYARD II ASSOCIATES MANAGEMENT CORPORATION, AS MANAGING
GENERAL PARTNER OF COURTYARD II ASSOCIATES, L.P., AND CBM FUNDING CORPORATION
ON THE 23RD DAY OF MAY, 1996.
SIGNATURE TITLE
President, Chief Accounting Officer and
- ------------------------------------ Director of each of Courtyard II
BRUCE F. STEMERMAN Associates Management Corporation and
CBM Funding Corporation (Principal
Executive Officer and Principal
Accounting Officer of Courtyard II
Associates Management Corporation and
CBM Funding Corporation)
Treasurer of each of CBM Funding
- ------------------------------------ Corporation and Courtyard II Associates
SCOTT A. LAPORTA Management Corporation (Principal
Financial Officer of each of CBM
Funding
Corporation and Courtyard II Associates
Management Corporation)
Director of Courtyard II Associates
Management Corporation
/s/ Mark A. Ferrucci
- ------------------------------------
MARK A. FERRUCCI
II-9
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
*3.1 Agreement of Limited Partnership of the Company (the
"Partnership Agreement")
*3.2 Certificate of Limited Partnership of the Company
*3.3 Amended and Restated Certificate of Incorporation of
CBM Funding
*3.4 By-laws of CBM Funding
*4.1 Trust and Servicing Agreement dated as of January 1,
1996 among CBM Funding, the Servicer and the Trustee.
*4.2 Forms of New Certificates
4.3 Exchange and Registration Rights Agreement dated as of
January 24, 1996 among CBM Funding, CBM II L.P., the
Company and Lehman Brothers Inc. (Incorporated herein
by reference to Exhibit 4.6 in the Registration
Statement on Form S-4 of CBM II L.P. and Courtyard II
Finance Company previously filed with the Commission
on March 7, 1996 (the "CBM II L.P. Form S-4"))
4.4 Intercreditor Agreement dated as of January 24, 1996
among IBJ Schroder Bank & Trust Company, the Servicer,
the Trustee, CBM II L.P., Courtyard II Finance
Company, the Company, the Managing General Partner and
CBM Funding. (Incorporated herein by reference to
Exhibit 4.4 to CBM II L.P. Form S-4)
4.5 Indenture dated as of January 24, 1996 among CBM II
L.P., Courtyard II Finance Company, and IBJ Schroder
Bank & Trust Company (the "Indenture") (Incorporated
herein by reference to Exhibit 4.1 to CBM II L.P. Form
S-4)
4.6 Exchange and Registration Rights Agreement dated as of
January 24, 1996 among CBM II L.P., Courtyard II
Finance Company and Lehman Brothers Inc. (Incorporated
herein by reference to Exhibit 4.3 to CBM II L.P. Form
S-4)
**5.1 Opinion re: legality of New Certificates being
registered
*8. Opinion re: tax matters
*10.1 Assignment and Assumption of Management Agreement dated
as of January 24, 1996 by CBM II L.P. to the Company
with attached Management Agreement.
10.2 Contribution Agreement dated as of January 24, 1996
among CBM II L.P., the Managing General Partner and
the Company. (Incorporated herein by reference to
Exhibit 10.13 in the Amendment No. 1 to CBM II L.P.
Form S-4 previously filed with the Commission on April
25, 1996 (the "CBM II L.P. Form S-4 Amendment No. 1"))
10.3 Bill of Sale and Assignment and Assumption Agreement
dated as of January 24, 1996 by CBM II L.P. to the
Company. (Incorporated herein by reference to Exhibit
10.14 to CBM II L.P. Form S-4 Amendment No. 1)
10.4 The Company received an assignment from CBM II L.P.,
which had received an assignment from Host Marriott,
of 15 ground leases for land that Host Marriott had
previously leased from various affiliates (the
"Original Landlords"). The ground leases are identical
in all material respects except as to their assignment
dates to CBM II L.P. and the rents due (Exhibit A of
each ground lease). The schedule below sets forth the
terms of each ground lease not filed which differ from
the copy of the example ground lease (Hoover, AL)
which was previously filed with the Commission. In
addition, a copy of Exhibit A was filed for each
excluded ground lease. (Incorporated herein by
reference to Exhibit 10.11 in CMB II L.P.'s Annual
Report on Form 10-K in the fiscal year ended December
31, 1994 previously filed with the Commission on
October 4, 1995 (the "CBM II L.P. 10-K"))
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ASSIGNMENT
PROPERTY STATE DATE ORIGINAL LANDLORD
-------- ----- ---------- -----------------
<S> <C> <C> <C>
Foster City.................... CA 10/30/87 Essex House Condominium
Corporation ("Essex")
Marin/Larkspur Landing......... CA 10/30/87 Essex
Denver/Southeast............... CO 10/30/87 Essex
Atlanta/Perimeter Center....... GA 02/24/88 Essex
Indianapolis/Castleton......... IN 10/30/87 Essex
Lexington/North................ KY 10/07/88 Essex
Annapolis...................... MD 05/19/89 Essex
Minneapolis Airport............ MN 10/30/87 Essex
St. Louis/Creve Couer.......... MO 10/30/87 Essex
Rye............................ NY 03/29/88 Essex
Greenville..................... SC 03/29/88 Essex
Memphis Airport................ TN 10/30/87 Essex
Nashville Airport.............. TN 02/24/88 Essex
Dallas/Stemmon................. TX 10/30/87 Essex
San Antonio/Downtown........... TX 03/23/90 Essex
</TABLE>
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
EXHIBIT NO. EXHIBIT PAGE
----------- ------- ------------
<C> <S> <C>
10.5 The Company received an assignment from CBM II L.P.
of 38 ground leases which CBM II L.P. had entered
into with Marriott International, Inc. ("MII").
The 38 ground leases are identical in all material
respects except as to their effective lease dates
and the rents due (Exhibit A of each ground
lease). The schedule below sets forth the terms of
each ground lease not filed which differ from the
copy of the example ground lease (Huntsville, AL)
which was previously filed with the Commission. In
addition, a copy of Exhibit A was filed for each
excluded ground lease. (Incorporated herein by
reference to Exhibit 10.12 to CBM II L.P. 10-K)
</TABLE>
<TABLE>
<CAPTION>
EFFECTIVE
PROPERTY STATE LEAST DATE
-------- ----- ----------
<S> <C> <C>
Birmingham/Hoover................ AL 10/30/87
Huntsville....................... AL 10/30/87
Phoenix/Mesa..................... AZ 04/22/88
Phoenix/Metrocenter.............. AZ 10/01/87
Tucson Airport................... AZ 12/30/88
Little Rock...................... AR 09/09/88
Bakersfield...................... CA 05/20/88
Hacienda Heights................. CA 03/30/90
Palm Springs..................... CA 12/20/88
Torrance......................... CA 12/30/88
Boulder.......................... CO 11/04/88
Wallingford...................... CT 04/24/90
Ft. Myers........................ FL 11/04/88
Ft. Lauderdale/Plantation........ FL 12/02/88
St. Petersburg................... FL 01/26/90
West Palm Beach.................. FL 02/24/89
Atlanta/Gwinnett Mall............ GA 10/30/87
Chicago/Glenview................. IL 10/06/89
Chicago/Highland Park............ IL 07/15/88
Chicago/Waukegan................. IL 08/12/88
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EFFECTIVE
PROPERTY STATE LEAST DATE
-------- ----- ----------
<S> <C> <C>
Chicago/Wood Dale................ IL 09/09/88
Kansas City/Overland Park........ KS 04/21/89
Silver Spring.................... MD 10/07/88
Boston/Andover................... MA 02/24/89
Detroit Airport.................. MI 02/24/88
Detroit/Livonia.................. MI 03/29/88
St. Louis/Westport............... MO 10/07/88
Lincroft/Red Bank................ NJ 07/15/88
Raliegh/Cary..................... NC 08/12/88
Dayton Mall...................... OH 10/30/87
Toledo........................... OH 07/15/88
Oklahoma City Airport............ OK 10/07/88
Portland/Beaverton............... OR 05/19/89
Columbia......................... SC 04/21/89
Dallas/Northeast................. TX 04/22/88
Charlottesville.................. VA 04/21/89
Manassas......................... VA 05/19/89
Seattle/Southcenter.............. WA 05/19/89
</TABLE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
10.6 The Company, as mortgagor, and CBM Funding, as
mortgagee, entered into 53 fee and leasehold
mortgages, each dated as of January 24, 1996. The 53
mortgages are identical in all material respects
except as to the underlying property to which they
relate and, in certain instances, additional parties
thereto. The schedule below sets forth the terms of
each mortgage not filed which differ from the copy
of the example mortgage (Birmingham/Hoover, AL)
which is filed herewith. (Incorporated by reference
herein to Exhibit 10.27 to CBM II L.P. Form S-4)
</TABLE>
<TABLE>
<S> <C> <C>
Birmingham/Hoover.......................... AL Essex
Huntsville................................. AL MII
Phoenix/Mesa............................... AZ MII
Phoenix/Metrocenter........................ AZ MII
Tucson Airport............................. AZ MII
Little Rock................................ AR MII
Bakersfield................................ CA MII
Foster City................................ CA MII
Hacienda Heights........................... CA MII
Marin/Larkspur Landing..................... CA MII
Palm Springs............................... CA MII
Torrance................................... CA MII
Boulder.................................... CO MII
Denver/Southeast........................... CO Essex
Wallingford................................ CT MII
Ft. Myers.................................. FL MII
Ft. Lauderdale/Plantation.................. FL MII
St. Petersburg............................. FL MII
West Palm Beach............................ FL MII
Atlanta/Gwinnett Mall...................... GA MII
Atlanta/Perimeter Center................... GA Essex
Chicago/Glenview........................... IL MII
Chicago/Highland Park...................... IL MII
Chicago/Waukegan........................... IL MII
Chicago/Wood Dale.......................... IL MII
Indianapolis/Castleton..................... IN Essex
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PROPERTY STATE ADDITIONAL PARTY
-------- ----- ---------------------
<S> <C> <C>
Kansas City/Overland
Park.................... KS MII
Lexington/North.......... KY Essex
Annapolis................ MD Essex and CBM II L.P.
Silver Spring............ MD MII and CBM II L.P.
Boston/Andover........... MA MII
Detroit Airport.......... MI MII
Detroit/Livonia.......... MI MII
Minneapolis Airport...... MN Essex
St. Louis/Creve Couer.... MO Essex
St. Louis/Westport....... MO MII
Lincroft/Red Bank........ NJ MII
Rye...................... NY Essex
Raleigh/Cary............. NC MII
Dayton Mall.............. OH MII
Toledo................... OH MII
Oklahoma City Airport.... OK MII
Portland/Beaverton....... OR MII
Columbia................. SC MII
Greenville............... SC Essex
Memphis Airport.......... TN Essex
Nashville Airport........ TN Essex
Dallas/Northeast......... TX MII
Dallas/Stemmons.......... TX Essex
San Antonio/Downtown..... TX Essex
Charlottesville.......... VA MII
Manassas................. VA MII
Seattle/Southcenter...... WA MII
</TABLE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
10.7 The Company, as mortgagor, and CBM Funding, as
mortgagee, entered into 16 fee and leasehold
mortgages, each dated as of January 24, 1996. The 16
mortgages are identical in all material respects
except as to the underlying property to which they
relate. The schedule below sets forth the terms of
each mortgage not filed which differ from the copy
of the example mortgage (Birmingham/Homewood, AL)
which is filed herewith. (Incorporated by reference
herein to Exhibit 10.28 to CMB II L.P. Form S-4)
</TABLE>
<TABLE>
<CAPTION>
PROPERTY STATE
-------- -----
<S> <C>
Birmingham/Homewood............................. AL
Cupertino....................................... CA
Fresno.......................................... CA
Denver Airport.................................. CO
Norwalk......................................... CT
Tampa/Westshore................................. FL
Atlanta Airport South........................... GA
Atlanta/Roswell................................. GA
Arlington Heights South......................... IL
Chicago/Lincolnshire............................ IL
Chicago/Oakbrook Terrace........................ IL
Rockford........................................ IL
Poughkeepsie.................................... NY
Charlotte/South Park............................ NC
Philadelphia/Devon.............................. PA
Dallas/Plano.................................... TX
</TABLE>
<TABLE>
<C> <S>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE
------- ------- ------------
<C> <S> <C>
10.8 Contribution Agreement dated as of January 24, 1996
among CBM II L.P. , the Managing General Partner and
Courtyard II Associates LLC (Incorporated by reference
herein to Exhibit 10.16 to CMB II L.P. Form S-4
Amendment No. 1)
10.9 Bill of Sale and Assignment and Assumption Agreement
dated as of January 24, 1996 by CBM II L.P. to
Deerfield LLC (Incorporated by reference herein to
Exhibit 10.17 to CBM II L.P. Form S-4 Amendment No. 1)
10.10 Deed to the Courtyard by Marriott Hotel in
Chicago/Deerfield, Illinois dated as of January 24,
1996 by CBM II L.P. to Deerfield LLC (Incorporated by
reference herein to Exhibit 10.18 to CBM II L.P. Form
S-4)
10.11 Assignment and Assumption of Management Agreement dated
as January 24, 1996 by CBM II L.P. to Deerfield LLC
(Incorporated by reference herein to Exhibit 10.19 to
CBM II L.P. Form S-4)
10.12 Loan Agreement dated as of January 24, 1996 by and
between the Company and CBM Funding (Incorporated by
reference herein to Exhibit 10.20 to CBM II L.P. Form
S-4)
10.13 Mortgage Note, dated as of January 24, 1996, in the
principal amount of $410,200,000.00 by the Company to
CBM Funding (Incorporated by reference herein to
Exhibit 10.21 to CBM II L.P. Form S-4)
10.14 Security Agreement dated as of January 24, 1996 by and
between the Company and CBM Funding (Incorporated by
reference herein to Exhibit 10.22 to CBM II L.P. Form
S-4)
10.15 Pledge Agreement dated as of January 24, 1996 by and
between the Company and CBM Funding (Incorporated by
reference herein to Exhibit 10.23 to CBM II L.P. Form
S-4)
10.16 Collateral Assignment of Management Agreement and
Subordination Agreement dated as of January 24, 1996,
by and among the Company, the Manager and CBM Funding
(Incorporated by reference herein to Exhibit 10.24 to
CBM II L.P. Form S-4)
10.17 Amendment of Ground Leases dated as of January 24, 1996
by and among the Company, Marriott International, Inc.
and Essex House Condominium Corporation (Incorporated
by reference herein to Exhibit 10.25 to CBM II L.P.
Form S-4)
10.19 Environmental Indemnity Agreement dated as of January
24, 1996 by the Company and the Managing General
Partner for the benefit of CBM Funding (Incorporated
by reference herein to Exhibit 10.26 to CBM II L.P.
Form S-4)
10.22 Assignment of Loan Documents dated as of January 24,
1996 by CBM Funding to Trustee (Incorporated by
reference herein to Exhibit 10.29 to CBM II L.P. Form
S-4)
*10.23 Working Capital Agreement dated as of January 24, 1996
by and among CBM II L.P., the Company and the Manager.
10.24 Management Agreement dated as of December 30, 1995
between CBM II L.P. and the Manager (Incorporated by
reference herein to Exhibit 10.2 to CBM II L.P. Form
S-4)
*12. Statements re: Computation of Ratios
*21.1 Subsidiaries of the Company
**23.1 Consent of Arthur Andersen LLP
**23.2 Consent of Hogan & Hartson L.L.P.
*23.3 Consent of Smith Travel Research
*25.1 Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of Marine
Midland Bank, as Trustee for CBM Funding (separately
bound)
*25.2 Form T-1 Statement of Eligibility and Qualification
under the Trust Indenture Act of 1939 of Marine
Midland Bank, as Trustee for the Company (separately
bound)
*99.1 Form of Letter of Transmittal
*99.2 Form of Notice of Guaranteed Delivery
</TABLE>
- --------
* Previously filed.
** Filed herewith.
<PAGE>
Exhibit 5.1
[LETTERHEAD OF HOGAN & HARTSON APPEARS HERE]
May 23, 1996
Courtyard II Associates, L.P.
CBM Funding Corporation
10400 Fernwood Road
Bethesda, Maryland 20817
Ladies and Gentlemen:
We are acting as special counsel to Courtyard II Associates, L.P., a
limited partnership organized under the laws of Delaware (the "Company"), and
CBM Funding Corporation, a Delaware corporation ("CBM Funding," and together
with the Company, the "Issuers"), in connection with their registration
statement on Form S-4, as amended (the "Registration Statement"), filed with the
Securities and Exchange Commission relating to the proposed offering of up to
$407,182,129 in aggregate principal amount of Multiclass Mortgage Pass-Through
Certificates, Series 1996-1B (the "New Certificates"), in exchange for up to
$407,182,129 in aggregate principal amount of outstanding Multiclass Mortgage
Pass-Through Certificates, Series 1996-1A (the "Old Certificates"). This
opinion letter is furnished to you at your request to enable you to fulfill the
requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R. (S) 229.601(b)(5),
in connection with the Registration Statement.
For purposes of this opinion letter, we have examined copies of the
following documents:
1. An executed copy of the Registration Statement.
2. The Certificate of Limited Partnership of the Company, as
certified by the Secretary of State of the State of Delaware on
May 2, 1996 and as certified by the Secretary of Courtyard II
Associates Management Corporation, as managing general partner of
the Company, on the date hereof as being complete, accurate and
in effect.
3. The Agreement of Limited Partnership of the Company dated as of
December 22, 1996, as certified by the Secretary of Courtyard II
Associates Management Corporation, as managing general
<PAGE>
HOGAN & HARTSON L.L.P.
Courtyard II Associates, L.P.
CBM Funding Corporation
May 23, 1996
Page 2
partner of the Company, on the date hereof as being complete,
accurate and in effect.
4. The Amended and Restated Certificate of Incorporation of CBM
Funding, as certified by the Secretary of State of the State of
Delaware on May 2, 1996 and as certified by the Secretary of CBM
Funding on the date hereof as being complete, accurate and in
effect.
5. The by-laws of CBM Funding, as certified by the Secretary of CBM
Funding on the date hereof as being complete, accurate and in
effect.
6. The Certificate of Incorporation of Courtyard II Associates
Management Corporation, as certified by the Secretary of State of
the State of Delaware on May 2, 1996 and as certified by the
Secretary of Courtyard II Associates Management Corporation on
the date hereof as being complete, accurate and in effect.
7. The by-laws of Courtyard II Associates Management Corporation, as
certified by the Secretary of Courtyard II Associates Management
Corporation on the date hereof as being complete, accurate and in
effect.
8. An executed copy of the Trust and Servicing Agreement dated as of
January 1, 1996, among CBM Funding, Bankers Trust Company, as
Servicer, and Marine Midland Bank, as Trustee Company
("Trustee"), including the form of New Certificate to be issued
pursuant thereto, as filed as Exhibits 4.1 and 4.2 to the
Registration Statement (the "Trust and Servicing Agreement").
9. Certain resolutions of the Board of Directors of Courtyard II
Associates Management Corporation, as managing general partner of
the Company, and certain resolutions of the Board of Directors of
CBM Funding, each adopted on January 23, 1996, as certified by
the Secretary of Courtyard II Associates Management Corporation,
as managing general partner of the Company, and the Secretary of
CBM Funding, respectively, on
<PAGE>
HOGAN & HARTSON L.L.P.
Courtyard II Associates, L.P.
CBM Funding Corporation
May 23, 1996
Page 3
the date hereof as then being complete, accurate and in effect,
relating to the issuance and sale of the New Certificates and
arrangements in connection therewith.
In our examination of the aforesaid documents, we have assumed the
genuineness of all signatures, the legal capacity of natural persons, the
authenticity, accuracy and completeness of all documents submitted to us, and
the conformity with the original documents of all documents submitted to us as
certified, telecopied, photostatic, or reproduced copies. This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware, the Delaware Revised Uniform
Limited Partnership Act, as amended, and the contract law of the State of New
York (but not including any statutes, ordinances, administrative decisions,
rules or regulations of any political subdivision of the State of New York). We
express no opinion herein as to any other laws, statutes, regulations, or
ordinances.
Upon surrender of the Old Certificates and proper execution,
authentication and delivery of New Certificates of like denomination in
accordance with the provisions of the Trust and Servicing Agreement, the New
Certificates will be validly and legally issued, under the Trust and Servicing
Agreement and fully paid and non-assessable.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has been
prepared solely for your use in connection with the filing of the Registration
Statement on the date of this opinion letter and should not be quoted in whole
or in part or otherwise be referred to, nor filed with or furnished to any
governmental agency or other person or entity, without the prior written consent
of this firm.
<PAGE>
HOGAN & HARTSON L.L.P.
Courtyard II Associates, L.P.
CBM Funding Corporation
May 23, 1996
Page 4
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus constituting a part of the
Registration Statement. In giving this consent, we do not thereby admit that we
are an "expert" within the meaning of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HOGAN & HARTSON L.L.P.
HOGAN & HARTSON L.L.P.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
Arthur Andersen LLP
Washington, D.C. May 22, 1996
<PAGE>
Exhibit 23.2
We hereby consent to the filing of the opinion letter as Exhibit
8 to the registration statement on Form S-4, as amended (the "Registration
Statement") of CBM Funding Corporation and Courtyard II Associates, L.P. and to
the reference to this firm under the caption "Legal Matters" in the prospectus
constituting a part of the Registration Statement. In giving this consent, we do
not thereby admit that we are an "expert" within the meaning of the Securities
Act of 1933, as amended.
/s/ HOGAN & HARTSON L.L.P.
HOGAN & HARTSON L.L.P.
May 23, 1996
