<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1997
----------------
Commission file number: 1-12639
---------
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 94-3254883
- ------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. employer Identification no.)
incorporation or organization)
200 Crescent Court, Suite 1350, Dallas, Texas 75201
- ------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
(214) 871-5131
Registrant's telephone number, including area code:
- ------------------------------------------------------------------------------
FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the securities exchange act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
----- -----
Number of shares outstanding of registrant's common stock $0.01 par value
on May 9, 1997: 1,000 shares
Page 1 of 206 pages
Exhibit index on page 18
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
FIRST QUARTER 1997 REPORT ON FORM 10-Q
TABLE OF CONTENTS
PART 1 FINANCIAL INFORMATION Page
- ------ ----
Item 1. Financial Statements
Statement of Financial Condition
March 31, 1997 (unaudited) 3
Statement of Operations
Three Months ended March 31,1997 (unaudited) 4
Statement of Cash Flows
Three Months ended March 31, 1997 (unaudited) 5
Notes to Unaudited Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-16
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 6. Exhibits and Current Reports on Form 8-K 18
Signature 19
2
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
STATEMENT OF FINANCIAL CONDITION
March 31, 1997
(Unaudited)
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
ASSETS:
<S> <C>
Residential mortgage loans, net $ 967,540
Short-term investments 16,780
Due from affiliates 12,113
Accrued interest receivable 6,424
-------------
TOTAL ASSETS $ 1,002,857
=============
LIABILITIES:
Accrued expenses $ 7
-------------
TOTAL LIABILITIES 7
-------------
Commitments and contingencies --
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, liquidation value $25.00 per
share, 30,000,000 shares authorized, 20,000,000 shares issued and
outstanding 500,000
Common stock, par value $.01 per share, 30,000,000 shares
authorized, 1,000 shares issued and outstanding --
Additional paid-in capital 500,000
Retained earnings 2,850
-------------
TOTAL STOCKHOLDERS' EQUITY $ 1,002,850
-------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,002,857
=============
</TABLE>
See accompanying notes to unaudited financial statements.
3
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
STATEMENT OF OPERATIONS
Three Months Ended March 31, 1997
(Unaudited)
(in thousands)
NET INTEREST INCOME:
Residential mortgage loans $ 11,539
Less: servicing fees paid (564)
-----------
10,975
Short-term investments 67
-----------
Net interest income 11,042
Provision for loan losses (420)
-----------
Net interest income after provision for loan losses 10,622
-----------
NONINTEREST EXPENSE:
Director fees 34
Professional fees 7
-----------
Total noninterest expense 41
-----------
NET INCOME $ 10,581
===========
See accompanying notes to unaudited financial statements.
4
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1997
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
OPERATING ACTIVITIES:
<S> <C>
Net Income $ 10,581
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred loan fees and direct origination costs and purchase
discounts and premiums, net 22
Provision for loan losses 420
Increase in accrued interest receivable (245)
Increase in due from affiliates (154)
Increase in accrued expenses 7
------------
Net cash provided by operating activities 10,631
------------
INVESTING ACTIVITIES:
Purchase of mortgage loans (992,716)
Mortgage loan principal repayments 13,692
Purchase of accrued interest receivable (6,179)
------------
Net cash used by investing activities (985,203)
------------
FINANCING ACTIVITIES:
Proceeds from capital contributed by bank 499,083
Proceeds from preferred stock issued 500,000
Preferred stock dividends paid (7,731)
------------
Net cash provided by financing activities 991,352
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 16,780
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD --
------------
CASH AND CASH EQUIVALENTS AT MARCH 31, 1997 $ 16,780
============
</TABLE>
See accompanying notes to unaudited financial statements.
5
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
California Federal Preferred Capital Corporation, formerly First Nationwide
Preferred Capital Corporation (the "Company"), is a Maryland corporation
incorporated on November 19, 1996 which was created for the purpose of
acquiring, holding and managing real estate assets. The Company's outstanding
common stock is wholly-owned by California Federal Bank, a Federal Savings
Bank (the "Bank").
On January 31, 1997, the Company commenced its operations upon consummation of
an initial public offering of 20,000,000 shares of the Company's 9.125%
Noncumulative Exchangeable Preferred Stock, Series A (the "Series A Preferred
Shares"), $0.01 par value, which raised $500,000,000. The Series A Preferred
Shares are traded on the New York Stock Exchange. Expenses incurred relative
to the offering and the formation of the Company were borne by the Bank.
Concurrent with the sale of the Series A Preferred Shares, the Bank
contributed additional capital of $500,000,000 to the Company. As of March 31,
1997, $917,000 of the capital contributed by the Bank was a
noninterest-bearing receivable from the Bank which is included in due from
affiliates on the Company's statement of financial condition and was repaid
in April 1997.
The Company used the proceeds raised from the initial public offering of the
Series A Preferred Shares and the additional capital contribution by the Bank
to purchase from the Bank the Company's initial portfolio of residential
mortgage loans at their estimated fair value of $992,716,000. The residential
mortgage loans were recorded in the accompanying financial statements at the
Bank's historical cost basis which approximates their estimated fair values.
The Company has entered into a servicing agreement with the Bank's
wholly-owned mortgage banking subsidiary, First Nationwide Mortgage
Corporation ("FNMC") to service the Company's mortgage assets.
The accompanying financial statements were prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions for meeting the requirements of Regulation S-X, Article
10 and therefore do not include all disclosures necessary for complete
financial statements. In the opinion of management, all adjustments have been
made that are necessary for a fair presentation of the financial position and
results of operations and cash flows as of and for the period presented. All
such adjustments are of a normal recurring nature. The results of operations
for the three months ended March 31, 1997 are not necessarily indicative of
the results that may be expected for the entire fiscal year or any other
interim period.
The financial statements should be read in conjunction with the statement of
financial condition and accompanying note thereto as of December 31, 1996
included in the Company's Registration Statement on Form S-11. All terms used
but not defined elsewhere herein have meanings ascribed to them in the
Company's Registration Statement on Form S-11.
6
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
As the Company's common stock is wholly owned by the Bank, earnings per share
data is not presented.
A statement of condition at December 31, 1996 is not presented as operations
did not commence until January 31, 1997.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Residential Mortgage Loans:
Residential mortgage loans are carried at the principal amount
outstanding, net of deferred loan fees and direct origination costs
and purchase discounts and premiums. Deferred loan fees and direct
origination costs and discounts or premiums on one-to-four-family
residential mortgage loans are accreted or amortized to income using
the interest method over the contractual term of the loans.
Unaccreted or unamortized discounts or premiums on loans sold or paid
in full are recognized as income. Uncollectible interest on loans
that are contractually past due ninety days or more is charged off,
based on management's periodic evaluation. Amortization of premiums,
discounts and deferred fees net of deferred direct origination costs
associated with loans that are on nonaccrual are discontinued. An
allowance is established by a charge to interest income equal to all
interest previously accrued, and income is subsequently recognized
only to the extent that cash payments are received. When, in
management's judgment, the borrower's ability to make periodic
interest and principal payments resumes, the loan is returned to
accrual status.
Under Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS No. 114"),
as amended by Statement of Financial Accounting Standards No 118,
"Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures" ("SFAS No. 118"), a loan is impaired
when it is "probable" that a creditor will be unable to collect all
amounts due (i.e., both principal and interest) according to the
contractual terms of the loan agreement. The measurement of
impairment may be based on (i) the present value of the expected
future cash flows of the impaired loan discounted at the loan's
original effective interest rate, (ii) the observable market price of
the impaired loan, or (iii) the fair value of the collateral of a
collateral-dependent loan. SFAS No. 114 does not apply to large
groups of smaller balance homogeneous loans that are collectively
evaluated for impairment. The Company collectively reviews its
portfolio of residential mortgage loans for impairment.
Residential mortgage loans consist of adjustable rate mortgages which
adjust periodically based on changes in various indices including the
FHLB Eleventh District Cost of Funds, the one-year Treasury rate and
the six-month Treasury rate. Certain types of residential mortgage
loans contain an option for the mortgagor to convert the ARM to a
fixed rate loan for the remainder of the term.
7
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
(b) Allowance for loan losses:
The allowance for loan losses is a general allowance which is
increased by charges to income and decreased by charge-offs (net of
recoveries). Management's periodic evaluation of the adequacy of the
allowance is based on such factors as the Bank's and the Company's
past loan loss experience, delinquency trends, known and inherent
risks in the portfolio, potential adverse situations that may affect
the borrower's ability to repay, the estimated value of underlying
collateral, and current and prospective economic conditions.
Although management believes that its present allowance for loan
losses is adequate, it will continue to review its loan portfolio to
determine the extent to which any changes in loss experience may
require additional provisions in the future.
(c) Cash and Cash Equivalents:
For purposes of the statement of cash flows, cash and cash
equivalents include cash and amounts due from banks, and other
short-term investment securities with original maturities of three
months or less.
(d) Income Taxes:
The Company will elect to be treated as a Real Estate Investment
Trust ("REIT") for Federal income tax purposes and intends to comply
with the provisions of the Internal Revenue Code of 1986 (the "IRC"),
as amended. Accordingly, the Company will not be subject to Federal
income tax to the extent it distributes its income to shareholders
and as long as certain asset, income and stock ownership tests are
met in accordance with the IRC. As the Company expects to qualify as
a REIT for Federal income tax purposes, no provision for income taxes
is included in the accompanying financial statements.
NOTE 3 - RESIDENTIAL MORTGAGE LOANS, NET
At March 31, 1997, residential mortgage loans, net consisted of the following
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
1-4 unit residential mortgage loans $ 972,618
Deferred loan fees and direct origination costs and purchase discounts
and premiums, net 342
Allowance for loan losses (5,420)
-------------
Total residential mortgage loans, net $ 967,540
=============
</TABLE>
8
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
NOTE 4 - DIVIDENDS
Holders of Series A Preferred Shares will be entitled to receive, if, when and
as authorized and declared by the Board of Directors of the Company out of
funds legally available, noncumulative dividends at a rate of 9.125% per annum
of the initial liquidation preference ($25.00 per share). Dividends on the
Series A Preferred Shares will be payable quarterly in arrears, if authorized
and declared, on the last day of March, June, September and December.
Dividends on common stock will be paid when, as and if authorized and declared
by the Board of Directors out of funds legally available after all preferred
dividends have been paid.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company entered into a servicing agreement with FNMC pursuant to which
FNMC performs the actual servicing of the residential mortgage loans held by
the Company in accordance with normal industry practice. The servicing
agreement can be terminated without cause with at least thirty days written
notice to FNMC and payment to FNMC of a termination fee equal to 2% of the
outstanding principal balances of the loans. The servicing fee ranges from
0.25% to 0.50% per year of the outstanding principal balances. Servicing fees
paid totaled $564,000 for the three months ended March 31, 1997. FNMC is also
entitled to a 1% disposition fee on the aggregate proceeds obtained in the
sale of a defaulted residential mortgage loan. No disposition fees were earned
during the three months ended March 31, 1997.
In its capacity as servicer, FNMC holds in custodial accounts at the Bank
mortgage loan payments received on behalf of the Company. The balance of such
accounts totaled $11,042,000 at March 31, 1997. Such payments will be passed
through to the Company in April as provided in the servicing agreement. At
March 31, 1997, trust funds of approximately $1,082,000 representing escrows
received from borrowers, are on deposit in a trust account at the Bank and are
not included in the accompanying financial statements.
NOTE 6 - NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 28, 1996, the FASB issued Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 provides
accounting and reporting standards for transfers and servicing of financial
assets and extinguishments of liabilities based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. This statement provides consistent standards
for distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings.
9
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(FORMERLY FIRST NATIONWIDE PREFERRED CAPITAL CORPORATION)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
In December 1996, the FASB issued Statement of Financial Accounting Standards
No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125" ("SFAS No.127"). SFAS No. 127 defers for one year the
effective date (i) of paragraph 15 of SFAS No. 125 and (ii) of paragraphs 9-12
and 237(b) of SFAS No. 125 for repurchase agreement, dollar-roll, securities
lending and similar transactions. SFAS No. 127 provides additional guidance on
the types of transactions for which the effective date of SFAS No. 125 has been
deferred. It also requires that if it is not possible to determine whether a
transaction occurring during calendar-year 1997 is part of a repurchase
agreement, dollar-roll, securities lending or similar transaction, then
paragraphs 9-12 of SFAS No. 125 should be applied to that transfer. The
Company adopted SFAS No. 125, as amended by SFAS No. 127 on January 1, 1997.
Such adoption did not have a material impact on the Company's financial
statements.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- --------------------------------------------------------------------------------
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
(formerly First Nationwide Preferred Capital Corporation)
FINANCIAL HIGHLIGHTS
For The Three Months Ended March 31, 1997
(dollars in thousands)
STATEMENT OF OPERATIONS:
Net interest income $ 11,042
Net interest income after provision for loan losses $ 10,622
Net income $ 10,581
STATEMENT OF CONDITION:
Residential mortgage loans, net $ 967,540
Total assets $ 1,002,857
Total stockholders' equity $ 1,002,850
Average yield on mortgage loans 7.32%
11
<PAGE>
OVERVIEW
California Federal Preferred Capital Corporation's principal business
objective is to acquire, hold and manage residential mortgage loans that will
generate net income for distribution to stockholders. The Company currently
intends to invest in residential mortgage loans only. The Company's current
policy prohibits the acquisition of any mortgage loan which is delinquent at
the time of the proposed acquisition or which meets certain criteria for
non-performance during the preceding 12 months. The Company currently expects
that substantially all of the residential mortgage loans to be acquired will
be adjustable rate loans; however, the Company may from time to time acquire
fixed interest rate residential mortgage loans. The Company anticipates it
will continue to acquire all of its residential mortgage loans from the Bank
or affiliates of the Bank as whole loans secured by first mortgages or deeds
of trust on single-family (one-to-four-unit) residential real estate
properties, although mortgage loans may be acquired from unaffiliated third
parties. The Company may from time to time acquire fixed rate or variable rate
mortgage-backed securities issued or guaranteed by agencies of the federal
government or government sponsored agencies. The mortgage loans underlying the
mortgage-backed securities will be secured by single-family residential,
multifamily or commercial real estate properties located throughout the United
States.
On January 31, 1997, the Company commenced its operations upon the initial
public offering of 20,000,000 shares of the Company's Series A Preferred
Shares, which raised $500,000,000. The Series A Preferred Shares are traded on
the New York Stock Exchange. Concurrent with the sale of the Series A
Preferred Shares, the Bank contributed additional capital of $500,000,000 to
the Company. All common shares are held by the Bank.
The Bank and its affiliates are involved in virtually every aspect of the
Company's existence. The Bank is the sole holder of the common stock of the
Company. The Bank's wholly-owned subsidiary, First Nationwide Mortgage
Corporation ("FNMC") services the Company's residential mortgage loans in its
role as Servicer under the Servicing Agreement.
The Bank and its affiliates may have interests which are not identical to
those of the Company. Consequently, conflicts of interest may arise with
respect to transactions, including without limitation, future acquisitions of
residential mortgage loans from, or disposition of residential mortgage loans
to, the Bank, FNMC or their affiliates and the modification of the Servicing
Agreement.
It is the intention of the Company and the Bank that any agreements and
transactions between the Company on the one hand and the Bank or one of its
affiliates on the other hand, are fair to all parties and consistent with
market terms for such types of transactions. The requirement in the Company's
charter that certain actions of the Company be approved by a majority of the
independent directors is also intended to promote fair dealings between the
Company and the Bank and its affiliates. However, there can be no assurance
that such agreements or transactions will be on terms as favorable to the
Company as would have been obtained from unaffiliated third parties.
12
<PAGE>
RESULTS OF OPERATIONS
The Company reported net interest income of approximately $11,042,000 which
was comprised of approximately $10,975,000 ($11,539,000 gross interest income
less $564,000 servicing fees paid) from residential mortgages and $67,000 from
short-term investments, representing a total average yield on earning assets
of 7.30%. Net interest income after a $420,000 provision for loan losses was
approximately $10,622,000. After deduction of approximately $34,000 in
director fees and $7,000 in professional fees, the Company reported net income
of approximately $10,581,000.
In March 1997, the Company declared and paid a dividend of approximately
$7,731,000 on the outstanding Series A Preferred Shares. Net income available
to the common stockholder for the three months ended March 31, 1997 totaled
$2,850,000.
RESIDENTIAL MORTGAGE LOANS
The Company used the proceeds from its offering of Series A Preferred Shares,
coupled with a capital contribution from the Bank, to purchase residential
mortgage loans with estimated fair values totaling approximately $992,716,000.
As of March 31, 1997, the Company had $967,540,000 invested in residential
mortgage loans, representing a 2.5% decline in the initial amount invested
principally due to principal collections. Management intends to reinvest
principal collections in additional residential mortgage loans to be purchased
from either the Bank or its affiliates on a periodic basis beginning in the
near future.
At March 31, 1997, there were no nonaccrual residential mortgage loans.
The following table reflects residential mortgage loans with past due
principal and interest payments as of March 31, 1997:
Principal Balance Percent of Total Loans
(in thousands)
- --------------------------------------------------------------------------------
30 to 59 days past due $ 1,589 0.16%
60 to 89 days past due $ 596 0.06%
- --------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is available to absorb potential loan losses
from the entire residential mortgage loan portfolio. The Company deems its
allowance for loan losses as of March 31, 1997 to be adequate. Although the
Company considers that is has sufficient allowances to absorb losses that
currently may exist in the portfolio, but are not yet identifiable, the
precise loss content is subject to continuing review based on quality
indicators, industry and geographic concentrations, changes in business
conditions, and other external factors such as competition, legal and
regulatory requirements. The Company will continue to reassess the adequacy of
the allowance for loan losses.
13
<PAGE>
The following table reflects the activity in the Company's allowance for loan
losses for the three months ended March 31, 1997:
ALLOWANCE FOR LOAN LOSSES
(in thousands)
- ------------------------------------------------------------------------------
Balance - January 1, 1997 $ --
Allowance attributable to loans purchased from the Bank 5,000
Provision for loan losses 420
Charge-offs --
Recoveries --
------------
Balance - March 31, 1997 $ 5,420
============
- --------------------------------------------------------------------------------
The Company's allowance coverage ratio (allowance for loan losses to loans at
period-end) at March 31, 1997 was 0.56%.
INTEREST RATE RISK
The Company's income consists primarily of interest payments on residential
mortgage loans. The Company anticipates that most of its residential mortgage
loans will bear interest at adjustable rates. If there is a decline in
interest rates (as measured by the indices upon which the interest rates of
the residential mortgage loans are based), then the Company will experience a
decrease in income available to be distributed to its stockholders. In such an
interest rate environment the Company may experience an increase in
prepayments on its residential mortgage loans and may find it more difficult
to purchase additional residential mortgage loans bearing rates sufficient to
support payment of the dividends on the Series A Preferred Shares. In
addition, certain residential mortgage loan products which the Company holds
will allow borrowers in such an interest rate environment to convert an
adjustable rate mortgage to a fixed rate mortgage, thus "locking in" a lower
fixed interest rate. Because the dividend rate on the Series A Preferred
Shares is fixed, there can be no assurance that an interest rate environment
in which there is a significant decline in interest rates would not adversely
affect the Company's ability to pay such dividends.
In addition, approximately 49% of the residential mortgage loans held by the
Company at March 31, 1997 have the potential to negatively amortize, while
approximately 11% of such loans have negatively amortized such that the
current principal balance of the loan exceeds the original principal balance.
If there is an increase in interest rates on such residential mortgage loans
(as measured by the indices upon which the interest rates of the residential
mortgage loans are based), the Company may experience a decrease in income
available to be distributed to its stockholders where such increase in the
interest rate does not coincide with a corresponding adjustment of the
borrowers' monthly payments.
14
<PAGE>
SIGNIFICANT CONCENTRATION OF CREDIT RISK
Certain geographic regions of the United States from time to time will
experience natural disasters or weaker regional economic conditions and
housing markets and, consequently, may experience higher rates of loss and
delinquency on residential mortgage loans generally. Any concentration of the
residential mortgage loans in such a region may present risks in addition to
those generally present with respect to residential mortgage loans.
The Company's balance sheet exposure to geographic concentrations directly
affects the credit risk of the residential mortgage loans within the
portfolio. The following table shows the residential mortgage loan portfolio
by geographical area as of March 31, 1997:
Book Value
(in thousands) Percent
- --------------------------------------------------------------------------------
California $ 851,461 87.5%
Florida 36,905 3.8%
Other states (no state has more than 2%) 84,594 8.7%
---------- -------
$ 972,960 100.0%
========== =======
- --------------------------------------------------------------------------------
Approximately 87.5% of the Company's total residential mortgage loan portfolio
are loans secured by residential real estate properties located in California.
Consequently, these residential mortgage loans may be subject to a greater
risk of default than other comparable residential mortgage loans in the event
of adverse economic, political or business developments and natural hazards in
California that may affect the ability of residential property owners in
California to make payments of principal and interest on underlying mortgages.
LIQUIDITY RISK MANAGEMENT:
The objective of liquidity management is to ensure the availability of
sufficient cash flows to meet all of the Company's financial commitments and
to capitalize on opportunities for the Company's business expansion. In
managing liquidity, the Company takes into account various legal limitations
placed on a REIT. See "--Other Matters".
The Company's principal liquidity needs are to maintain the current portfolio
size through the acquisition of additional residential mortgage loans and to
pay dividends on the Series A Preferred Shares. The acquisition of additional
residential mortgage loans is funded with the proceeds obtained from repayment
of principal balances by individual mortgagees. The payment of dividends on
the Series A Preferred Shares will be made from legally available funds,
principally arising from the operating activities of the Company. The
Company's cash flows from operating activities principally consist of the
collection of interest on the residential mortgage loans. The Company does not
have and does not anticipate having any material capital expenditures.
15
<PAGE>
In order to remain qualified as a REIT, the Company must distribute annually
at least 95% of its REIT taxable income to its common and preferred
stockholders. The company currently expects to distribute annually dividends
equal to approximately 100% of the Company's REIT taxable income.
The Company anticipates that cash and cash equivalents on hand and the cash
flow from the residential mortgage loans will provide adequate liquidity for
its operating, investing and financing needs.
As presented in the accompanying statement of cash flows, the primary sources
of funds during the three months ended March 31, 1997 were $500,000,000 from
the issuance of the Series A Preferred Shares, and $499,083,000 additional
capital contributed by the Bank. Additional significant sources of funds were
$10,631,000 provided by operating activities and $13,692,000 provided by
mortgage loan principal repayments. The primary uses of funds were
$992,716,000 and $6,179,000 in purchases of mortgage loans and accrued
interest receivable, respectively and $7,731,000 in preferred stock dividends
paid.
OTHER MATTERS:
As of March 31, 1997, the Company believes that it was in full compliance with
the REIT tax rules and that it will continue to qualify as a REIT under the
provisions of the Internal Revenue Code.
The Company calculates:
o its Qualified REIT Assets, as defined in the Code, to be 99% of its
total assets, as compared to the Federal tax requirements that at
least 75% of its total assets must be Qualified REIT assets.
o that 99% of its revenue qualifies for the 75% source of income test
and 100% of its revenue qualifies for the 95% source of income test
under the REIT rules.
o none of the revenues during the period ended March 31, 1997 was
subject to the 30% income limitation under the REIT rules.
The Company also met all REIT requirements regarding the ownership of its
stock and anticipates meeting the annual distribution requirements.
16
<PAGE>
PART II OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not the subject of any material litigation. None of the
Company, the Bank or any of its affiliates is currently involved in nor, to
the Company's knowledge, is currently threatened with any material litigation
with respect to the residential mortgage loans included in the portfolio other
than routine litigation arising in the ordinary course of business, most of
which is covered by liability insurance.
17
<PAGE>
PART II OTHER INFORMATION
Item 6. Exhibits and Current Reports on Form 8-K
No Current Reports on Form 8-K were filed during the quarter ended March 31,
1997.
INDEX TO EXHIBITS
SEQUENTIALLY NUMBERED
EXHIBIT
NO. EXHIBITS
- ------- --------
3.1 Amended and Restated Charter of the Registrant
3.2 By-laws of the Registrant, as amended (Incorporated by
reference to Exhibit 3(b) to Amendment No. 2 to the
Registrant's Registration Statement on Form S-11 (File No.
333-11609)).
10.1 Mortgage Loan Purchase and Warranties Agreement, dated as of
January 24, 1997, by and between California Federal Preferred
Capital Corporation and California Federal Bank, A Federal
Savings Bank.
10.2 Servicing Agreement, entered into as of January 31, 1997, by and
between First Nationwide Mortgage Corporation and California
Federal Preferred Capital Corporation.
27 Financial Data Schedule
18
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
California Federal Preferred Capital Corporation
/s/ Richard H. Terzian
-----------------------------------
By: Richard H. Terzian
Executive Vice President, Chief
Financial Officer and Director
(Signing on behalf of the
Registrant and as the Principal
Financial Officer)
May 14, 1997
19
<PAGE>
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
FIRST: California Federal Preferred Capital Corporation, a Maryland
corporation (the "Corporation"), desires to amend and restate its charter
(the "Charter") as currently in effect and as hereinafter amended.
SECOND: The following provisions are all the provisions of the
charter currently in effect and as hereinafter amended:
ARTICLE I
INCORPORATOR
The undersigned. James J. Hanke, Jr., whose address is c/o Ballard
Spahr Andrews & Ingersoll, 300 East Lombard Street, Baltimore, Maryland 21202,
being at least 18 years of age, does hereby form a corporation under the
general laws of the State of Maryland.
ARTICLE II
NAME
The name of the corporation (the "Corporation") is: California Federal
Preferred Capital Corporation
ARTICLE III
PURPOSE
The purposes for which the Corporation is formed are to engage in any
lawful act or activity (including, without limitation or obligation, engaging
in business as a real estate
<PAGE>
investment trust under the Internal Revenue Code of 1986, as amended, or any
successor statute (the "Code")) for which corporations may be organized under
the general laws of the State of Maryland as now or hereafter in force. For
purposes of these Articles, "REIT" means a real estate investment trust under
Sections 856 through 860 of the Code.
ARTICLE IV
PRINCIPAL OFFICE IN STATE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of
Maryland is c/o Ballard Spahr Andrews & Ingersoll, 300 East Lombard Street,
Baltimore, Maryland 21202. Attention: James J. Hanks, Jr. The name of the
resident agent of the Corporation in the State of Maryland is James J.
Hanks, Jr., whose post address is c/o Ballard Spahr Andrews & Ingersoll, 300
East Lombard Street, Baltimore, Maryland 21202. The resident agent is a
citizen of and resides in the State of Maryland.
ARTICLE V
PROVISIONS FOR DEFINING, LIMITING
AND REGULATING CERTAIN POWERS OF THE
CORPORATION AND OF THE STOCKHOLDERS AND DIRECTORS
Section 5.1 Number of Directors. The business and affairs of the
Corporation shall be managed under the direction of the Board of Directors.
The number of directors of the Corporation initially shall be seven, which
number may be increased or decreased pursuant to the Bylaws, but shall never
be less than the minimum number required by the Maryland General Corporation
Law. At all times that any shares of Series A
- 2 -
<PAGE>
Preferred Stock (as herein defined) are outstanding, at least two of the
directors shall be Independent Directors (as defined herein). The name of the
directors who shall serve until the first annual meeting of stockholders and
until their successors are duly elected and qualify are:
Gerald J. Ford
Carl B. Webb
Christie S. Flanagan
James R. Staff
Richard H. Terzian
P. Richard Frieder
Robert Nichols
These directors may increase the number of directors and may fill any vacancy,
whether resulting from an increase in the number of directors or otherwise, on
the Board of Directors occurring before the first annual meeting of
stockholders in the manner provided in the Bylaws.
Section 5.2 Extraordinary Actions. Except as specifically provided in
Section 6.6, notwithstanding any provision of law permitting or requiring any
action to be taken or authorized by the affirmative vote of the holders of a
greater number of votes, any such action shall be effective and valid if taken
or authorized by the affirmative vote of holders of shares entitled to cast
a majority of all the votes entitled to be cast on the matter.
- 3 -
<PAGE>
Section 5.3 Authorization by Board of Stock Issuance. The Board of
Directors may authorize the issuance from time to time of shares of stock
of the Corporation of any class or series, whether now or hereafter
authorized, or securities or rights convertible into shares of its stock of
any class or series, whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable (or without
consideration in the case of a stock split or stock dividend), subject to
such restrictions or limitations, if any, as may be set forth in the Charter
or the Bylaws.
Section 5.4 Preemptive Rights. Except as may be provided by the Board
of Directors in setting the terms of classified or reclassified shares of
stock pursuant to Section 6.4, no holder of shares of stock of the Corporation
shall, as such holder, have any preemptive right to purchase or subscribe
for any additional shares of stock of the Corporation or any other security
of the Corporation which it may issue or sell.
Section 5.5 Indemnification. The Corporation shall have the power, to
the maximum extent permitted by Maryland law in effect from time to time, to
obligate itself to indemnify, and to pay or reimburse reasonable expenses
in advance of final disposition of a proceeding to, (a) any individual who
is a present or former director or officer of the Corporation or (b) any
individual who, while a director of the Corporation and at the request of the
Corporation, serves or has served as a
- 4 -
<PAGE>
director, officer, partner or trustee of another corporation, partnership,
joint venture, trust, employee benefit plan or any other enterprise from and
against any claim or liability to which such person may become subject or
which such person may incur by reason of his status as a present or former
director or officer of the Corporation. The Corporation shall have the power,
with the approval of the Board of Directors, to provide such indemnification
and advancement of expenses to a person who served a predecessor of the
Corporation in any of the capacities described in (a) or (b) above and to any
employee or agent of the Corporation or a predecessor of the Corporation.
Section 5.6 Determinations by Board. The determination as to any of the
following matters, made in good faith by or pursuant to the direction of the
Board of Directors consistent with the Charter and in the absence of actual
receipt of an improper benefit in money, property or services or active and
deliberate dishonesty established by a court, shall be final and conclusive
and shall be binding upon the Corporation and every holder of shares of its
stock: the amount of the net income of the Corporation for any period and the
amount of assets at any time legally available for the payment of dividends,
redemption of its stock or the payment of other distributions on its stock;
the amount of paid-in surplus, net assets, other surplus, annual or other net
profit, net assets in excess of capital, undivided profits or excess of
profits over losses on sales of assets; the amount, purpose, time of creation,
increase
- 5 -
<PAGE>
or decrease, alternation or cancellation of any reserves or charges and the
propriety thereof (whether or not any obligation or liability for which such
reserves or charges shall have been created shall have been paid or discharged);
the fair value, or any sale, bid or asked price to be applied in determining
the fair value, of any asset owned or held by the Corporation; and any matters
relating to the acquisition, holding and disposition of any assets by the
Corporation.
Section 5.7 REIT Qualification. The Board of Directors shall use its
reasonable best efforts to take such actions as are necessary or appropriate to
qualify and preserve the status of the Corporation as a REIT. If the Board of
Directors determines that it is no longer in the best interests of the
Corporation to continue to be qualified as a REIT, the Board of Directors may
revoke or otherwise terminate the Corporation's REIT election pursuant to
Section 856(g) of the Code; provided, however, that as long as any shares of
Series A Preferred Stock (as defined in Section 6.1) remain outstanding, any
such determination may not be made without the approval of a majority of the
Independent Directors.
Section 5.8 Removal of Directors. Subject to the rights of holders of one
or more classes or series of Preferred Stock to elect one or more directors,
any director, or the entire Board of Directors, may be removed from office
at any time, but only by the affirmative vote of the holders of at least a
- 6 -
<PAGE>
majority of the votes entitled to be cast in the election of directors.
Section 5.9 Adviser Agreements. Subject to such approval of stockholders
and other conditions, if any, as may be required by any applicable statute,
rule or regulation, the Board of Directors may authorize the execution and
performance by the Corporation of one or more agreements with any person,
corporation, association, company, trust, partnership (limited or general) or
other organization whereby, subject to the supervision and control of the Board
of Directors, any such other person, corporation, association, company, trust,
partnership (limited or general) or other organization shall render or make
available to the Corporation managerial, investment, advisory and/or related
services, office space and other services and facilities (including, if deemed
advisable by the Board of Directors, the management or supervision of the
investments of the Corporation) upon such terms and conditions as may be
provided in such agreement or agreements (including, if deemed fair and
equitable by the Board of Directors, the compensation payable thereunder
by the Corporation).
ARTICLE VI
STOCK
Section 6.1 Authorized Shares. The Corporation has authority to
issue 30,000,000 shares of Common Stock, $.01 par value per share ("Common
Stock") and 30,000,000 shares of Preferred Stock, $.01 par value per share
("Preferred Stock"), of which 20,000,000
- 7 -
<PAGE>
shares are classified as 9-1/8% Noncumulative Exchangeable Preferred Stock,
Series A (the "Series A Preferred Shares") with the preferences, conversion,
exchange or other rights, voting powers, restrictions, limitations as to
dividends or other distributions, qualifications and terms and conditions of
redemption as set forth in Section 6.6. The aggregate par value of all
authorized shares of stock having par value is $600,000.
Section 6.2 Common Stock. Subject to the provisions of Article VII,
each share of Common Stock shall entitle the holder thereof to one vote. The
Board of Directors may reclassify any unissued shares of Common Stock from
time to time in one or more classes or series of stock.
Section 6.3 Preferred Stock. The Board of Directors may classify any
unissued shares of Preferred Stock and reclassify any previously classified
but unissued shares of Preferred Stock of any class or series from time to
time, in one or more classes or series of stock.
Section 6.4 Classified or Reclassified Shares. Prior to issuance of
classified or reclassified shares of any class or series, the Board of
Directors by resolution shall: (a) designate that class or series to
distinguish it from all other classes and series of stock of the Corporation;
(b) specify the number of shares to be included in the class or series; (c)
set or change, subject to the provisions of Article VII and subject to the
express terms of any class or series of stock of the Corporation outstanding
at the time, the preferences, conversion or other rights, voting powers,
- 8 -
<PAGE>
restrictions, limitations as to dividends or other distributions, qualifications
and terms and conditions of redemption for each class or series; and (d) cause
the Corporation to file articles supplementary with the State Department of
Assessments and Taxation of Maryland ("SDAT"). Any of the terms of any class
or series of stock set or changed pursuant to clause (c) of this Section 6.4
may be made dependent upon facts or events ascertainable outside the charter
(including determinations by the Board of Directors or other facts or events
within the control of the Corporation) and may vary among holders thereof,
provided that the manner in which such facts, events or variations shall
operate upon the terms of such class or series of stock is clearly and expressly
set forth in the articles supplementary filed with the SDAT.
Section 6.5 Charter and Bylaws. All persons who shall acquire stock in the
Corporation shall acquire the same subject to the provisions of the charter and
the Bylaws.
Section 6.6 Series A Preferred Shares.
Section 6.6.1. Liquidation Value and Rank. Each Series A Preferred Share
shall have a stated liquidation value of $25.00 per share, plus an amount
per share equal to any dividends authorized and declared but unpaid, without
interest. The Series A Preferred Shares shall rank prior to all classes or
series of common stock of the Corporation (collectively, "Common Stock") and
to all other classes and series of equity securities of the Corporation now
or hereafter authorized, issued or outstanding (the Common Stock and such other
classes and series of equity securities of the
- 9 -
<PAGE>
Corporation are collectively referred to herein as the "Junior Stock"), other
than any class or series of equity securities of the Corporation expressly
designated as ranking on a parity with (the "Parity Stock") or senior to (the
"Senior Stock") the Series A Preferred Shares as to dividend rights and rights
upon voluntary or involuntary liquidation, winding up or dissolution of the
Corporation. The Series A Preferred Shares shall be junior to the creditors of
the Corporation. The Series A Preferred Shares shall be subject to the creation
of Senior Stock. Parity Stock and Junior Stock to the extent not expressly
prohibited by the Charter.
Section 6.6.2. Dividends.
(a) Payment of Dividends. Holders of Series A Preferred Shares shall
be entitled to receive, if, when and as authorized and declared by the Board of
Directors of the Corporation (the "Board of Directors"), out of assets of the
Corporation legally available therefor, noncumulative cash dividends at an
annual rate of 9 1/8% of the $25.00 stated liquidation value per share
($2.28125 per share per annum), and no more. Such noncumulative cash dividends
shall be payable, if authorized and declared, quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, or, if such day is not a
Business Day (as defined herein), on the next Business Day (each such date, a
"Dividend Payment Date"). Each authorized and declared dividend shall be
payable to holders of record of the Series A Preferred Shares as they appear on
the stock books of the Corporation at the close of business on such record
dates, not more than forty-five (45) calendar days nor less than ten
- 10 -
<PAGE>
(10) calendar days preceding the Dividend Payment Date therefor, as
determined by the Board of Directors (each such date, a "Record Date");
provided, however, that if a redemption date for the Series A Preferred
Shares occurs after a dividend is authorized and declared but before it is
paid, such dividend shall be paid as part of the redemption price to the
person to whom the redemption price is paid. Quarterly dividend periods
(each, a "Dividend Period") shall commence on and include the first day, and
shall end on and include the last day, of the calendar quarter in which the
corresponding Dividend Payment Date occurs; provided, however, that the first
Dividend Period (the "Initial Dividend Period") shall commence on and include
the first day upon which a share of Series A Preferred Shares shall be issued
and shall end on and include March 31, 1997.
The amount of dividends payable on each share outstanding on a Record Date
of the Series A Preferred Shares for each full Dividend Period shall be
$0.5703125. The amount of dividends payable for the Initial Dividend Period
and for any other Dividend Period which, as to a share of Series A Preferred
Shares (determined by reference to the issuance date and the redemption or
retirement date thereof), is greater or less than a full Dividend Period
shall be computed on the basis of the number of days elapsed in the period
using a 360-day year composed of twelve (12) thirty (30) day months,
provided, however, that in the event of the Automatic Exchange (as defined
herein), any accrued and unpaid dividends on the Series A Preferred Shares as
of the Time of Exchange (as defined herein)
- 11 -
<PAGE>
shall be deemed to be accrued and unpaid dividends on the Bank Preferred
Shares (as defined herein).
Holders of the Series A Preferred Shares shall not be entitled to any
interest, or any sum of money in lieu of interest, in respect of any dividend
payment or payments on the Series A Preferred Shares authorized and declared
by the Board of Directors which may be unpaid. Any dividend payment made on
the Series A Preferred Shares shall first be credited against the earliest
authorized and declared but unpaid cash dividend with respect to the Series A
Preferred Shares.
(b) Dividends Noncumulative. The right of holders of Series A Preferred
Shares to receive dividends is noncumulative. Accordingly, if the Board of
Directors does not authorize or declare a dividend payable in respect of any
Dividend Period, holders of Series A Preferred Shares shall have no right to
receive a dividend in respect of such Dividend Period, and the Corporation
shall have no obligation to pay a dividend in respect of such Dividend
Period, whether or not dividends are authorized and declared payable in
respect of any future Dividend Period.
(c) Priority as to Dividends. No full dividends or other distributions
shall be authorized, declared or paid or set apart for payment on any Parity
Stock or Junior Stock for any Dividend Period unless full dividends have been
or contemporaneously are authorized, declared and paid or authorized and
declared and a sum sufficient for the payment thereof set apart for such
payment on the Series A Preferred Shares for (i) the immediately preceding
- 12 -
<PAGE>
Dividend Period, in the case of Parity Stock, and (ii) such then-current
Dividend Period, in the case of Junior Stock. When dividends are not paid in
full (or a sum sufficient for such full payment is not so set apart) for any
Dividend Period on the Series A Preferred Shares and any Parity Stock,
dividends authorized and declared on the Series A Preferred Shares and Parity
Stock shall only be authorized and declared pro rata based upon the
respective amounts that would have been paid on the Series A Preferred Shares
and such Parity Stock had dividends been authorized and declared in full.
In addition to the foregoing restriction, the Corporation shall not
authorize, declare, pay or set apart funds for any dividends or other
distributions (other than in Common Stock or other Junior Stock) with respect
to any Common Stock or other Junior Stock of the Corporation or repurchase,
redeem or otherwise acquire, or set apart funds for repurchase, redemption or
other acquisition of, any Common Stock or other Junior Stock through a
sinking fund or otherwise, unless and until (i) the Corporation shall have
authorized, declared and paid full dividends on the Series A Preferred Shares
for the four (4) most recent preceding Dividend Periods (or such lesser
number of Dividend Periods during which Series A Preferred Shares have been
outstanding) or sufficient funds have been paid over to the dividend
disbursing agent of the Corporation for payment of such dividends and (ii)
the Corporation has authorized and declared a cash dividend on the Series A
Preferred Shares at the annual dividend rate for the then-current
- 13 -
<PAGE>
Dividend Period, and sufficient funds have been paid over to the dividend
disbursing agent for the Corporation for the payment of such cash dividend
for such then-current Dividend Period.
No dividend shall be paid or set aside for holders of Series A Preferred
Shares for any Dividend Period unless full dividends have been paid or set
aside for the holders of each class or series of equity securities of the
Corporation, if any, ranking prior to the Series A Preferred Shares as to
dividends for such Dividend Period.
(d) Any reference to "dividends" or "distributions" in this Section
6.6.2 shall not be deemed to include any distribution made in connection with
any voluntary or involuntary dissolution, liquidation or winding up of the
Corporation.
Section 6.6.3 Optional Redemption.
(a) General. The Series A Preferred Shares are not subject to mandatory
redemption, and except as hereinafter provided in Section 6.6.3(b) or in
Section 6.6.3(c) below, are not subject to optional redemption by the
Corporation prior to January 31, 2002. On or after January 31, 2002, the
Series A Preferred Shares may be redeemed by the Corporation or its successor
or any acquiring or resulting entity with respect to the Corporation
(including by any parent or subsidiary of the Corporation, any such
successor, or any such acquiring or resulting entity), as applicable, at its
option, in whole or in part, at any time or from time to time, upon notice as
provided in subsection (d) of this
- 14 -
<PAGE>
Section 6.6.3, at the redemption prices set forth below in cash, plus
authorized, declared and unpaid dividends to the date fixed for redemption,
without interest:
<TABLE>
<CAPTION>
IF REDEEMED DURING REDEMPTION PRICE PER
THE 12-MONTH PERIOD SHARE OF THE SERIES A
BEGINNING JANUARY 31, PREFERRED SHARES
- --------------------- ---------------------
<S> <C>
2002.................. $26.14
2003.................. 25.91
2004.................. 25.68
2005.................. 25.46
2006.................. 25.23
2007 and thereafter . 25.00
</TABLE>
The aggregate redemption price payable to each holder of record of Series
A Preferred Shares to be redeemed shall be rounded to the nearest cent
($0.01).
If less than all of the outstanding Series A Preferred Shares are to be
redeemed, the Corporation will select those shares to be redeemed pro rata,
by lot or by such other methods as the Board of Directors in its sole
discretion determines to be equitable, provided that such method satisfies
any applicable requirements of any securities exchange on which the Series A
Preferred Shares are then listed. If redemption is being effected by the
Corporation, on and after the date fixed for redemption, dividends shall
cease to accrue on the Series A Preferred Shares called for redemption, and
they shall be deemed to cease to be outstanding, provided that the redemption
price (including any authorized and declared but unpaid dividends to
- 15 -
<PAGE>
the date fixed for redemption, without interest) has been duly paid or
provided for. If redemption is being effected by an entity other than the
Corporation, on and as of the date fixed for redemption, such entity shall be
deemed to own the Series A Preferred Shares being redeemed for all purposes
of this Charter, provided that the redemption price (including the amount of
any authorized and declared but unpaid dividends to the date fixed for
redemption, without interest) has been duly paid or provided for.
(b) Tax Event. The Corporation will have the right, at any time upon the
occurrence of a Tax Event, to redeem the Series A Preferred Shares, in whole,
but not in part, upon notice as provided in subsection (d) of this Section
6.6.3, at a redemption price of $25.00 per share, plus all authorized,
declared and unpaid dividends thereon to the date fixed for redemption,
without interest. As used herein, "Tax Event" means the receipt by the
Corporation of an opinion of a nationally recognized legal counsel to the
Corporation, experienced in such matters to the effect that, as a result of
(i) any amendment to, clarification of, or change (including any announced
prospective change) in the laws, treatises or any regulations thereunder of
the United States or any political subdivision or taxing authority thereof or
therein affecting taxation, (ii) any judicial decision, official
administrative pronouncement, published or private ruling, regulatory
procedure, notice or announcement (including any notice or announcement or
intent to adopt such procedures or regulations) (each, an "Administrative
Action") or (iii) any amendment to, clarification of, or change in the
official positions or the
- 16 -
<PAGE>
interpretation of any such Administrative Action or any interpretation or
pronouncement that provides for a position with respect to any such
Administrative Action that differs from the theretofore generally accepted
position, in each case, by any legislative body, court, governmental
authority or regulatory body, irrespective of the manner in which such
amendment, clarification or change is made known, which amendment,
clarification or change is effective or such pronouncement of decision is
announced on or after the date of issuance of the Series A Preferred Shares,
there is more than an insubstantial risk that (A) dividends paid or to be
paid by the Corporation with respect to the stock of the Corporation are not,
or will not be, fully deductible by the Corporation for United States federal
income tax purposes or (B) the Corporation is, or will be, subject to more
than a de minimis amount of other taxes, duties or other governmental
charges.
(c) Change of Control. In addition to the redemption provisions of
subsections (a) and (b) above and not in lieu of or in substitution therefor,
in the event of a Change of Control, the Series A Preferred Shares shall be
redeemable at the option of the Corporation or its successor or any acquiring
or resulting entity with respect to the Corporation (including by any parent
or subsidiary of the Corporation, any such successor, or any such acquiring
or resulting entity), as applicable, on or prior to January 31, 2002, in
whole but not in part. Redemption of the Series A Preferred Shares pursuant
to this subsection (c) shall be effected by notice as provided in subsection
(d) of this Section 6.6.3, given by the
- 17 -
<PAGE>
Corporation or its successor or any acquiring or resulting entity with
respect to the Corporation (including by any parent or subsidiary of the
Corporation, any such successor, or any such acquiring or resulting entity),
as applicable, at a redemption price per share equal to (i) $25.00, plus (ii)
an amount equal to any authorized, declared and unpaid dividends to the date
fixed for redemption, without interest, and, without duplication, an
additional amount equal to the amount of dividends that would be payable on
the Series A Preferred Shares in respect of the period from the first day of
the Dividend Period in which the date fixed for redemption occurs to the date
fixed for redemption (assuming all such dividends were to be authorized and
declared), plus (iii) the Applicable Premium, payable in cash.
The aggregate redemption price payable to each holder of record of Series
A Preferred Shares to be redeemed shall be rounded to the nearest cent
($0.01).
Subject to subsection (d) of this Section 6.6.3, the Corporation or any
such successor or acquiring or resulting entity shall be entitled to issue a
notice of redemption under this subsection (c) after the Corporation or a
parent company shall have entered into a definitive binding agreement with a
third party that will result in a Change of Control, provided that (i) the
date fixed for redemption shall not be earlier than the date on which the
related Change of Control shall occur and (ii) the right and obligation to
effect such redemption shall be contingent upon the occurrence of such Change
of Control.
- 18 -
<PAGE>
If redemption is being effected by the Corporation, on and as of the date
fixed for redemption, dividends shall cease to accrue on the Series A
Preferred Shares called for redemption, and they shall be deemed to cease to
be outstanding, provided that the redemption price (including any authorized
and declared but unpaid dividends to the date fixed for redemption, without
interest) has been duly paid or provided for. If redemption is being effected
by an entity other than the Corporation, on and as of the redemption date
such entity shall be deemed to own the Series A Preferred Shares being
redeemed for all purposes of this Charter, provided that the redemption price
(including the amount of any authorized and declared but unpaid dividends to
the date fixed for redemption) has been duly paid or provided for.
"Affiliate" of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified person or (ii) any other Person who is a director
or executive officer (A) of such specified Person, (B) of any Subsidiary of
such specified Person or (C) of any Person described in clause (i) above. For
purposes of this definition, control of a Person means the power, direct or
indirect, to direct or cause the direction of the management and policies of
such Person whether by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Applicable Premium" means the greater of (i) $1.14 and (ii) the excess of
(A) the present value of (1) an amount equal to the
- 19 -
<PAGE>
amount of dividends that would be payable on the Series A Preferred Shares in
respect of the period from the date fixed for redemption through January 31,
2002 (assuming all such dividends were to be declared) plus (2) $26.14,
computed using a discount rate equal to the Treasury Rate plus 75 basis
points, over (B) $25.00.
"Business Day" means any day other than a Saturday, Sunday or a day on
which banking institutions are not required to be open in the State of New
York or the State of California.
"Capital Stock" of any Person means any and all shares, interests
(including partnership interests), rights to purchase, warrants, options,
participations or other equivalents of or interests in (however designated)
equity of such Person, including any Preferred Stock, but excluding any debt
securities convertible into or exchangeable for such equity.
"Change of Control" means the occurrence of any of the following events:
i. any Person other than a Permitted Holder shall be the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange
Act of 1934, as amended), directly or indirectly, of a majority in the
aggregate of the total voting power of the Voting Stock of California
Federal Bank, A Federal Savings Bank (the "Bank"), whether as a result of
issuance of securities of the Bank, any merger, consolidation, liquidation
or dissolution of the Bank, any direct or indirect transfer of securities
by a Permitted Holder or otherwise; or
- 20 -
<PAGE>
ii. a sale, transfer, conveyance or other disposition, in a single
transaction or in a series of related transactions (other than to an
Affiliate of the Bank or one or more of its subsidiaries), in either case
occurring outside the ordinary course of business, of more than 75% of the
assets and 75% of the deposit liabilities of the Bank shown on the
consolidated balance sheet of the Bank as of the end of the most recent
fiscal quarter ending at least 45 days prior to such transaction (or the
first in such related series of transactions); or
iii. a transaction or series of related transactions as a result of
which 20% or more of the Voting Stock or Common Stock (or Capital Stock
convertible or exchangeable into 20% of the Voting Stock or Common Stock)
of the Bank is held by one or more Persons other than First Nationwide
Holdings Inc. or its Wholly Owned Subsidiaries.
"Permitted Holder" means Ronald O. Perelman (or in the event of his
incompetence or death, his estate, heirs, executor, administrator, committee
or other personal representative (collectively, "heirs")) or any person
controlled, directly or indirectly, by Ronald O. Perelman or his heirs.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or agency or political subdivision thereof or any other entity.
"Subsidiary" means any corporation, association, partnership or other
business entity of which more than 50% of the total voting
- 21 -
<PAGE>
power of shares of Capital Stock or other interests (including partnership
interests) entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof is at the
time owned, directly or indirectly, by (i) a Person, (ii) such Person and one
or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such
Person.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15(519)
which has become publicly available at least two Business Days prior to the
date fixed for redemption (or, if such Statistical Release is no longer
published, any publicly available source of similar market data)) most nearly
equal to the then remaining period of time to January 31, 2002; provided,
however, that, if such period is not equal to the constant maturity of a
United States Treasury security for which a weekly average yield is given,
the Treasury Rate shall be obtained by linear interpolation (calculated to
the nearest one-twelfth of a year) from the weekly average yields of United
States Treasury securities for which such yields are given, except that, if
such period is less than one year, the weekly average yield on actually
traded United States Treasury securities adjusted to a constant maturity of
one year shall be used.
"Voting Stock" of a corporation means all classes of Capital Stock of such
corporation than outstanding and normally entitled to vote in the election of
directors.
- 22 -
<PAGE>
"Wholly Owned Subsidiary" means a subsidiary of a Person all the Capital
Stock of which (other than directors' qualifying shares) is owned by such
Person or another Wholly Owned Subsidiary.
d. Notice of Optional Redemption. Notice of any optional redemption,
setting forth (i) the date and place fixed for said redemption, (ii) the
redemption price and (iii) a statement that dividends on the Series A
Preferred Shares (A) to be redeemed by the Corporation will cease to accrue
on such redemption date, or (B) to be redeemed by an entity other than the
Corporation will thereafter accrue solely for the benefit of such entity,
shall be mailed at least thirty (30) days, but not more than sixty (60) days,
prior to said date fixed for redemption to each holder of record of Series A
Preferred Shares to be redeemed at his or her address as the same shall
appear on the stock ledger of the Corporation. If less than all of the Series
A Preferred Shares owned by such holder are then to be redeemed, such notice
shall specify the number of shares thereof that are to be redeemed and the
numbers of the certificates representing such shares. Notice of any
redemption shall be given by first class mail, postage prepaid. Neither
failure to mail such notice, nor any defect therein or in the mailing
thereof, to any particular holder shall affect the sufficiency of the notice
or the validity of the proceedings for redemption with respect to the other
holders. Any notice which was mailed in the manner herein provided shall be
conclusively presumed to have been duly given whether or not the holder
receives such notice.
- 23 -
<PAGE>
If such notice of redemption shall have been so mailed, and if, on or
before the date fixed for redemption specified in such notice, all funds
necessary for such redemption shall have been set aside by the Corporation
(or other entity as provided in subsection (a) or (c) of this Section 6.6.3)
separate and apart from its other funds in trust for the account of the
holders of Series A Preferred Shares to be redeemed (so as to be and continue
to be available therefor) or delivered to the redemption agent with
irrevocable instructions to effect the redemption in accordance with the
relevant notice of redemption, then, on and after said redemption date,
notwithstanding that any certificate for Series A Preferred Shares so called
for redemption shall not have been surrendered for cancellation or transfer,
the Series A Preferred Shares (i) so called for redemption by the Corporation
shall be deemed to be no longer outstanding and all rights with respect to
such Series A Preferred Shares so called for redemption shall forthwith cease
and terminate, or (ii) so called for redemption by an entity other than the
Corporation shall be deemed owned for all purposes of this Charter by such
entity, except in each case for the right of the holders thereof to receive,
out of the funds so set aside in trust, the amount payable on redemption
thereof, but without interest, upon surrender (and endorsement or assignment
for transfer, if required by the Corporation or such other entity) of their
certificates.
In the event that holders of Series A Preferred Shares that shall have
been redeemed shall not within two (2) years (or any longer period if
required by law) after the redemption date claim any amount
- 24 -
<PAGE>
deposited in trust with a bank or trust company for the redemption of such
shares, such bank or trust company shall, upon demand and if permitted by
applicable law, pay over to the Corporation (or other entity that redeemed
the shares) any such unclaimed amount so deposited with it, and shall
thereupon be relieved of all responsibility in respect thereof, and
thereafter the holders of such shares shall, subject to applicable escheat
laws, look only to the Corporation (or other entity that redeemed the shares)
for payment of the redemption price thereof, but without interest from the
date fixed for redemption.
(e) Status of Shares Redeemed. Series A Preferred Shares redeemed
pursuant to this Section 6.6.3, purchased or otherwise acquired for value by
the Corporation shall, after such acquisition, have the status of authorized
and unissued shares of Preferred Stock and may be reissued by the Corporation
at any time as shares of any series of Preferred Stock other than as Series A
Preferred Shares.
Section 6.6.4. Automatic Exchange.
(a) General. Subject to the terms and conditions of this Section
6.6.4, each Series A Preferred Share will be exchanged automatically (the
"Automatic Exchange") for one newly issued share of 9 1/8% Noncumulative
Preferred Stock, par value $.01 per share (a "Bank Preferred Share"), of the
Bank. The issuance of the Bank Preferred Shares has been duly authorized by
the Board of Directors of the Bank. The preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of the Bank Preferred Shares shall
be as set forth in
- 25 -
<PAGE>
the Fourth Supplementary Section to Section 5 of the Bank's charter which has
been filed with the Office of Thrift Supervision (the "OTS"). All corporate
action necessary for the Bank to issue the Bank Preferred Shares as of the
Time of Exchange was completed prior to or concurrently with completion of
the offering of the Series A Preferred Shares.
(b). Conditions of Exchange. The Automatic Exchange will occur only if
the appropriate federal regulatory agency directs in writing (a "Directive")
an exchange of the Series A Preferred Shares for Bank Preferred Shares
because (i) the Bank becomes "undercapitalized" under prompt corrective
action regulations, (ii) the Bank is placed into conservatorship or
receivership or (iii) the appropriate federal regulatory agency, in its sole
discretion, anticipates the Bank becoming "undercapitalized" in the near term
(the "Exchange Event").
(c) Surrender of Certificates. Upon the Exchange Event, each holder of
Series A Preferred Shares shall be unconditionally obligated to surrender to
the Bank the certificates representing each Series A Preferred Share held by
such holder, and the Bank shall be unconditionally obligated to issue to such
holder in exchange for each such Series A Preferred Share a certificate
representing one Bank Preferred Shares.
(d) Effectiveness of and Procedure for Exchange. The Automatic
Exchange shall occur as of 8:00 a.m. Eastern Time on the effective date of
such exchange as set forth in the Directive, or, if such date is not set
forth in the Directive, as of 8:00 a.m. Eastern
- 26 -
<PAGE>
Time on the first Business Day immediately following the date of the issuance
of the Directive (the "Time of Exchange"). As of the Time of Exchange, all of
the Series A Preferred Shares will be deemed canceled without any further
action on the part of the Corporation or any other Person, all rights of the
holders of the Series A Preferred Shares as stockholders of the Corporation
shall cease, and such persons shall thereupon and thereafter be deemed to be
and shall be for all purposes the holders of Bank Preferred Shares. Notice of
the occurrence of the Exchange Event shall be given by first-class mail,
postage prepaid, mailed within 30 days of such event, to each holder of
record of the Series A Preferred Shares, at such holder's address as the same
appears on the stock register of the Corporation. Each such notice shall
indicate the place or places where certificates for the Series A Preferred
Shares are to be surrendered by the holders thereof, and the Bank shall
deliver to each such holder certificates for Bank Preferred Shares upon
surrender of certificates for the Series A Preferred Shares. Until such
replacement share certificates are delivered (or in the event such
replacement certificates are not delivered), certificates previously
representing the Series A Preferred Shares shall be deemed for all purposes
to represent Bank Preferred Shares.
(e) Status of Shares Redeemed; Treatment of Dividends. Any Series A
Preferred Shares purchased or redeemed by the Corporation in accordance with
Section 6.6.3 hereof prior to the Time of Exchange shall not be deemed
outstanding and shall not be subject to the Automatic Exchange. In the event
of the Automatic Exchange,
- 27 -
<PAGE>
any accrued and unpaid dividends on the Series A Preferred Shares as of the
Time of Exchange shall be deemed to be accrued and unpaid dividends on the
Bank Preferred Shares.
Section 6.6.5. Liquidation Value.
(a) Liquidating Distributions. In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of Series A Preferred Shares shall be entitled to
receive for each share thereof, out of the assets of the Corporation legally
available for distribution to shareholders under applicable law, or the
proceeds thereof, before any payment or distribution of the assets shall be
made to holders of shares of Common Stock or any other Junior Stock (subject
to the rights of the holders of any class or series of equity securities
having preference with respect to distributions upon liquidation and the
Corporation's general creditors), liquidating distributions in the amount of
$25.00 per share, plus an amount per share equal to any dividends authorized
and declared but unpaid, without interest.
If the amounts available for distribution in respect of Series A Preferred
Shares and any outstanding Parity Stock upon any such voluntary or
involuntary liquidation, dissolution or winding up are not sufficient to
satisfy the full liquidation rights of all of the outstanding Series A
Preferred Shares and such Parity Stock, then the holders of such outstanding
shares shall ratably in any such distribution of assets in proportion to the
full respective preferential amounts to which they are entitled. After
payment of the full amount of the liquidating distribution to which they are
- 28 -
<PAGE>
entitled, the holders of Series A Preferred Shares will not be entitled to
any further participation in any liquidating distribution of any remaining
assets by the Corporation. All distributions made in respect of Series A
Preferred Shares in connection with such a liquidation, dissolution or
winding up of the Corporation shall be made pro rata to the holders entitled
thereto.
(b) Consolidation, Merger or Certain Other Actions. Neither the
consolidation, merger or other business combination of the Corporation with
or into any other person, nor the sale of all or substantially all of the
assets of the Corporation (including any business combination or sale, lease
or conveyance of assets that constitutes a Change of Control), shall be
deemed to be a liquidation, dissolution or winding up of the Corporation for
purposes of this Section 6.6.5.
Section 6.6.6. Voting Rights.
(a) General. Except as expressly provided in this Section 6.6.6, holders
of Series A Preferred Shares shall have no voting rights. When the holders of
Series A Preferred Shares are entitled to vote, each Series A Preferred Share
will be entitled to one vote.
(b) Right to Elect Directors. If full dividends on the Series A Preferred
Shares shall not have been paid for six (6) Dividend Periods, the maximum
authorized number of directors of the Corporation shall thereupon be
increased by two (2). Subject to compliance with any requirement for
regulatory approval of (or non-objection to) persons serving as directors,
the holders of Series A
- 29 -
<PAGE>
Preferred Shares, voting together as a class with the holders of any Parity
Stock upon which the same voting rights as those of the Series A Preferred
Shares have been conferred and are irrevocable, shall have the exclusive
right to elect the two additional directors at the Corporation's next annual
meeting of shareholders and at each subsequent annual meeting until full
dividends have been authorized, declared and paid or authorized and declared
and a sum sufficient for payment thereof is set apart for payment for four
(4) consecutive Dividend Periods. The term of such directors (each a
"Preferred Director") elected thereby shall terminate, and the total number
of directors shall be decreased by two (2), upon the first annual meeting of
stockholders after the payment or the authorization, declaration and setting
aside for payment of full dividends on the Series A Preferred Shares for four
(4) consecutive Dividend Periods. Any Preferred Director may be removed by,
and shall not be removed except by, the vote of the holders of record of the
outstanding Series A Preferred Shares and Parity Stock entitled to vote,
voting together as a single class without regard to series, at a meeting of
the Corporation's stockholders, or of the holders of Series A Preferred Shares
and Parity Stock entitled to vote, called for that purpose. As long as
dividends on the Series A Preferred Shares shall not have been paid for six
(6) Dividend Periods, (i) any vacancy in the office of a Preferred Director
may be filled (except as provided in the following clause (ii)) by an
instrument in writing signed by the remaining Preferred Director and filed
with the Corporation, and (ii) in the case of the removal of any Preferred
Director, the vacancy may be
- 30 -
<PAGE>
filled by the vote of the holders of the outstanding Series A Preferred
Shares and Parity Stock entitled to vote, voting together as a single class
without regard to series, at the same meeting at which such removal shall be
voted. Each director appointed as aforesaid by the remaining Preferred
Director shall be deemed, for all purposes hereof, to be a Preferred
Director.
(c) Certain Voting Rights. So long as any Series A Preferred Shares are
outstanding, the Corporation shall not, without the consent or vote of the
holders of at least two-thirds of the outstanding Series A Preferred Shares,
voting separately as a class, (i) amend, alter or repeal or otherwise change
any provision of the Charter if such amendment, alteration, repeal or change
would materially and adversely affect the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption of the
Series A Preferred Shares, or (ii) authorize, create or increase the
authorized amount of or issue any class or series of any equity securities of
the Corporation, or any warrants, options or other rights convertible or
exchangeable into any class or series of any equity securities of the
Corporation, ranking prior to the Series A Preferred Shares, either as to
dividend rights or rights on liquidation, dissolution or winding up of the
Corporation or (iii) merge, consolidate, reorganize or effect any other
business combination involving the Corporation, unless the resulting
corporation will thereafter have no class or series of equity securities
either authorized or outstanding ranking prior to the
- 31 -
<PAGE>
Series A Preferred Shares as to dividends or as to the distribution of assets
upon liquidation, dissolution or winding up, except the same number of shares
of such equity securities with the same preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications or terms or conditions of redemption as the
shares of equity securities of the Corporation that are authorized and
outstanding immediately prior to such transaction, and each holder of Series
A Preferred Shares immediately prior to such transaction shall receive shares
with the same preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other distributions,
qualifications or terms or conditions of redemption of the resulting
corporation as the Series A Preferred Shares held by such holder immediately
prior thereto.
The creation or issuance of Parity Stock or Junior Stock in respect of the
payment of dividends, or the distribution of assets upon liquidation,
dissolution or winding up of the Corporation, or an amendment that increases
the number of authorized shares of preferred stock, $.01 par value, of the
Series A Preferred Shares or any Junior Stock or Parity Stock, shall not be
deemed to be a material and adverse change requiring a vote of the holders of
Series A Preferred Shares pursuant to this Section 6.6.6(c).
6.6.7. Independent Directors.
(a) Number; Definition. As long as any Series A Preferred Shares are
outstanding, at least two directors on the Board of Directors shall be
Independent Directors. As used herein,
- 32 -
<PAGE>
"Independent Director" means any director of the Corporation who is either
(i) not a current officer or employee of the Corporation or a current
director, officer or employee of the Bank or any affiliate of the Bank, or
(ii) a Preferred Director.
(b) Approval of Independent Directors. As long as any Series A Preferred
Shares are outstanding, the Corporation may not take the following actions
without first obtaining the approval of a majority of the Independent
Directors: (i) the issuance of additional Preferred Stock ranking on a parity
with the Series A Preferred Shares, (ii) the incurrence of debt for borrowed
money in excess of 20% of the Corporation's total stockholders' equity, (iii)
the acquisition of real estate assets other than mortgage loans or mortgage
securities representing interests in or obligations backed by pools of
mortgage loans, (iv) the termination or modification of, or the election not
to renew the Servicing Agreement, dated January 31, 1997, by and between the
Corporation and First Nationwide Mortgage Corporation or the subcontracting
of any duties under the Servicing Agreement to third parties unaffiliated
with the Bank, (v) any material amendment to or modification of any
agreements pursuant to which the Corporation purchases its real estate
mortgage assets and (vi) the determination to revoke the Corporation's status
as a real estate investment trust under Sections 856 through 860 of the Code.
So long as the number of Independent Directors is two, the foregoing actions
must be approved by both of the Independent Directors.
(c) Determination by Independent Directors. In determining whether any
proposed action requiring their consent is in
- 33 -
<PAGE>
the best interests of the Corporation, the Independent Directors shall
consider the interests of holders of both the Common Stock and the Preferred
Stock, including, without limitation, the holders of the Series A Preferred
Shares. In considering the interests of the holders of the Preferred Stock,
including, without limitation, holders of the Series A Preferred Shares, the
Independent Directors shall owe the same duties that the Independent
Directors owe with respect to holders of shares of Common Stock.
Section 6.6.8. No Conversion Rights. The holders of Series A Preferred
Shares shall not have any rights to convert such shares into shares of any
other class or series of stock or into any other securities of, or any
interest in, the Corporation.
Section 6.6.9. No Sinking Fund. No sinking fund shall be established for
the retirement or redemption of Series A Preferred Shares.
Section 6.6.10. Preemptive or Subscription Rights. No holder of Series A
Preferred Shares shall have any preemptive or subscription rights in respect
of any shares of the Corporation that may be issued.
Section 6.6.11. No Other Rights. The Series A Preferred Shares shall not
have any designations, preferences or relative, participating, optional or
other special rights except as set forth in the Charter or as otherwise
required by law.
Section 6.6.12. Compliance with Applicable Law. Declaration by the Board
of Directors and payment by the Corporation of dividends to holders of the
Series A Preferred Shares and
- 34 -
<PAGE>
repurchase, redemption or other acquisition by the Corporation (or another
entity as provided in subsections (a) and (c) of Section 6.6.3 hereof) of
Series A Preferred Shares shall be subject in all respects to any and all
restrictions and limitations placed on dividends, redemptions or other
distributions by the Corporation (or any such other entity) under (i) laws,
regulations and regulatory conditions or limitations applicable to or
regarding the Corporation (or any such other entity) from time to time and
(ii) agreements with federal banking authorities with respect to the
Corporation (or any such other entity) from time to time in effect.
Section 6.6.13. Maintenance of Status as Reporting Company. As long as any
Series A Preferred Shares are outstanding, the Corporation shall maintain its
status as a reporting company under the Securities Exchange Act of 1934, as
amended.
ARTICLE VII
RESTRICTION ON TRANSFER AND OWNERSHIP OF SHARES
Section. 7.1. Definitions. For the purpose of this Article VII, the
following terms shall have the following meanings:
Ownership Limit. The term "Ownership Limit" shall mean the lesser of 1.25
percent of the value of the issued and outstanding shares of Capital Stock of
the Corporation or 2.5 percent of the number of issued and outstanding shares
of Preferred Stock of the Corporation. The number and value of the
outstanding shares of Capital Stock shall be determined by the Board of
Directors of the Corporation in good faith, which determination shall be
conclusive for all purposes hereof. The Board of Directors also may determine
that
- 35 -
<PAGE>
compliance with any restriction or limitation on stock ownership and transfer
set forth in this Article VII is no longer required for REIT qualification or
that, based upon then current law, such restriction or limitation may be
modified.
Constructive Ownership. The term "Constructive Ownership" shall mean
ownership of Capital Stock by a Person, whether the interest in the shares of
Capital Stock is held directly or indirectly (including by a nominee), and
shall include interests that would be treated as owned through the
application of Section 544 of the Code, as modified by Section 856(h)(1)(B)
of the Code. The terms "Constructive Owner," "Constructively Owns" and
"Constructively Owned" shall have the correlative meanings.
Business Day. The term "Business Day" shall mean any day, other than a
Saturday or Sunday, that is neither a legal holiday nor a day on which
banking institutions in New York City are authorized or required by law,
regulation or executive order to close.
Capital Stock. The term "Capital Stock" shall mean all classes or series
of stock of the Corporation, including, without limitation, Common Stock and
Preferred Stock.
Charitable Beneficiary. The term "Charitable Beneficiary" shall mean one
or more beneficiaries of the Trust as determined pursuant to Section 7.3.6,
provided that each such organization must be described in Section 501(c)(3)
of the Code and contributions to each such organization must be eligible for
deduction under each of Sections 170(b)(1)(A), 2055 and 2522 of the Code.
- 36 -
<PAGE>
Charter. The term "Charter" shall mean the charter of the Corporation, as
that term is defined in the MGCL.
Code. The term "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
Excepted Holder. The term "Excepted Holder" shall mean Ronald O. Perelman,
Gerald J. Ford, for each of which no ownership limit shall apply, and any
stockholder of the Corporation who is exempted from application of the
Ownership Limit or for whom the Ownership Limit is modified by these Articles
or by the Board of Directors pursuant to Section 7.2.7. Moreover, any person
which Constructively Owns Capital Stock of the Corporation due to the
ownership of Capital Stock by Ronald O. Perelman or Gerald J. Ford shall be
treated as an Excepted Holder in the same manner as Ronald O. Perelman or
Gerald J. Ford respectively.
Initial Date. The term "Initial Date" shall mean the date upon which the
Articles of Amendment containing this Article VII are filed with the SDAT.
Market Price. The term "Market Price" on any date shall mean, with respect
to any class or series of outstanding shares of Capital Stock, the Closing
Price for such Capital Stock on such date. The "Closing Price" on any date
shall mean the last sale price for such Capital Stock, regular way, or, in
case no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, for such Capital Stock, in either case as reported
in the principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the NYSE or, if such
- 37 -
<PAGE>
Capital Stock is not listed or admitted to trading on the NYSE, as reported
on the principal consolidated transaction reporting system with respect to
securities listed on the principal national securities exchange on which such
Capital Stock is listed or admitted to trading or, if such Capital Stock is
not listed or admitted to trading on any national securities exchange, the
last quoted price, or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System or, if
such system is no longer in use, the principal other automated quotation
system that may then be in use or, if such Capital Stock is not quoted by any
such organization, the average of the closing bid and asked prices as
furnished by a professional market maker making a market in such Capital
Stock selected by the Board of Directors of the Corporation or, in the event
that no trading price is available for such Capital Stock, the fair market
value of the Capital Stock, as determined in good faith by the Board of
Directors of the Corporation.
MGCL. The term "MGCL" shall mean the Maryland General Corporation Law, as
amended from time to time.
NYSE. The term "NYSE" shall mean the New York Stock Exchange.
Person. The term "Person" shall mean an individual, corporation,
partnership, estate, trust (including a trust qualified under Sections 401(a)
or 501(c)(17) of the Code), a portion of a trust permanently set aside for or
to be used exclusively for the purposes described in Section 642(c) of the
Code, association, private
- 38 -
<PAGE>
foundation within the meaning of Section 509(a) of the Code, joint stock
company or other entity.
Prohibited Owner. The term "Prohibited Owner" shall mean, with respect to
any purported Transfer, any Person who, but for the provisions of Section
7.2.1, would Constructively Own shares of Preferred Stock in violation of this
Article VII, and if appropriate in the context, shall also mean any Person
who would have been the record owner of the shares that the Prohibited Owner
would have so owned.
Restriction Termination Date. The term "Restriction Termination Date"
shall mean the first day after the Initial Date on which the Corporation
determines pursuant to Section 5.7 of the Charter that it is no longer in
the best interests of the Corporation to attempt to, or continue to, qualify
as a REIT.
Transfer. The term "Transfer" shall mean any issuance, sale, transfer,
gift, assignment, devise or other disposition, as well as any other event that
causes any Person to acquire Constructive Ownership of Preferred Stock or the
right to vote or receive dividends on Preferred Stock, or any agreement to
take any such actions or cause any such events, including (a) the granting or
exercise of any option to acquire shares of Preferred Stock (or any
disposition of any such option), (b) any disposition of any securities or
rights convertible into or exchangeable for Preferred Stock or any interest
in Preferred Stock or any exercise of any such conversion or exchange right
and (c) transfers of interests in other entities that result in changes in
Constructive Ownership of Preferred Stock; in each case, whether
- 39 -
<PAGE>
voluntary or involuntary, whether by operation of law or otherwise. The terms
"Transferring" and "Transferred" shall have the correlative meanings.
Trust. The term "Trust" shall mean any trust provided for in Section 7.3.1
Trustee. The term "Trustee" shall mean the Person unaffiliated with the
Corporation and a Prohibited Owner, that is appointed by the Corporation to
serve as trustee of the Trust.
Section 7.2 Capital Stock.
Section 7.2.1 Ownership Limitations. During the period commencing on
the Initial Date and prior to the Restriction Termination Date:
(a) Basic Restrictions.
(i) Except as otherwise provided in Section 7.2.7, no Person, other
than an Excepted Holder, shall Constructively Own shares of Preferred Stock
in excess of the Ownership Limit.
(ii) Notwithstanding any other provisions contained herein (except
Section 7.4), any Transfer of shares of Preferred Stock that, if effective,
would result in the Preferred Stock being beneficially owned by less than 100
Persons (determined under the principles of Section 856(a)(5) of the Code)
shall be void ab initio, and the intended transferee shall acquire no rights
in such shares of Preferred Stock.
(b) Transfer in Trust. If any Transfer of shares of Preferred Stock
occurs which, if effective, would result in any
- 40 -
<PAGE>
Person Constructively Owning shares of Preferred Stock in violation of
Section 7.2.1(a)(i),
(i) then that number of shares of the Preferred Stock the Constructive
Ownership of which otherwise would cause such Person to violate Section
7.2.1(a)(i) (rounded up to the nearest whole share) shall be automatically
transferred to a Trust for the benefit of a Charitable Beneficiary, as
described in Section 7.3, effective as of the close of business on the
Business Day prior to the date of such Transfer, and such Person shall
acquire no rights in such shares; or
(ii) if the transfer to the Trust described in clause (i) of this
sentence would not be effective for any reason to prevent the violation of
Section 7.2.1(a)(i), then the Transfer of that number of shares of Preferred
Stock that otherwise would cause any Person to violate Section 7.2.1(a)(i)
shall be void ab initio, and the intended transferee shall acquire no rights
in such shares of Capital Stock.
Section 7.2.2 Remedies for Breach. If the Board of Directors of the
Corporation or any duly authorized committee thereof shall at any time
determine in good faith that a Transfer or other event has taken place that
results in a violation of Section 7.2.1 or that a Person intends to acquire
or has attempted to acquire Constructive Ownership of any shares of Capital
Stock in violation of Section 7.2.1 (whether or not such violation is
intended), the Board of Directors or a committee thereof shall take such
action as it deems advisable to refuse to give effect to or to prevent such
Transfer or
- 41 -
<PAGE>
other event, including, without limitation, causing the Corporation to redeem
shares, refusing to give effect to such Transfer on the books of the
Corporation or instituting proceedings to enjoin such Transfer or other
event, provided, however, that any Transfers or attempted Transfers or other
events in violation of Section 7.2.1 shall automatically result in the
transfer to the Trust described above, and, where applicable, such Transfer
(or other event) shall be void ab initio as provided above irrespective of
any action (or non-action) by the Board of Directors or a committee thereof.
Section 7.2.3 Notice of Restricted Transfer. Any person who acquires or
attempts or intends to acquire Constructive Ownership of shares of Preferred
Stock that will or may violate Section 7.2.1(a), or any Person who would have
constructively owned shares of Preferred Stock that resulted in a transfer to
the Trust pursuant to the provisions of Section 7.2.1(b) shall immediately
give written notice to the Corporation of such event, or in the case of such
a proposed or attempted transaction, give at least 15 days prior written
notice, and shall provide to the Corporation such other information as the
corporation may request in order to determine the effect, if any, of such
Transfer on the Corporation's status as a REIT.
Section 7.2.4 Owners Required To Provide Information. From the Initial Date
and prior to the Restriction Termination Date:
(a) every owner of more than five percent (or such lower percentage as
required by the Code or the Treasury Regulations promulgated thereunder) of
the outstanding shares of Capital Stock,
- 42 -
<PAGE>
within 30 days after the end of each taxable year, shall give written notice
to the Corporation stating the name and address of such owner, the number of
shares of Capital Stock and other shares of the Capital Stock Constructively
Owned and a description of the manner in which such shares are held. Each
such owner shall provide to the Corporation such additional information as
the Corporation may request in order to determine the effect, if any, of such
Constructive Ownership on the Corporation's status as a REIT and to ensure
compliance with the Ownership Limit.
(b) each Person who is a Constructive Owner of Capital Stock and each
Person (including the stockholder of record) who is holding Capital Stock for
a Constructive Owner shall provide to the Corporation such information as the
Corporation may request, in good faith, in order to determine the
Corporation's status as a REIT and to comply with requirements of any taxing
authority or governmental authority or to determine such compliance.
Section 7.2.5 Remedies Not Limited. Subject to Sections 5.7 and 7.4 of the
Charter, nothing contained in this Section 7.2 shall limit the authority of
the Board of Directors of the Corporation to take such other action as it
deems necessary or advisable to protect the Corporation and the interests of
its stockholders in preserving the Corporation's status as a REIT.
Section 7.2.6 Ambiguity. In the case of an ambiguity in the application of
any of the provisions of this Section 7.2, Section 7.3, or any definition
contained in Section 7.1, the Board of Directors of the Corporation shall
have the power to determine the
- 43 -
<PAGE>
application of the provisions of this Section 7.2 or Section 7.3 with respect
to any situation based on the facts known to it. In the event Section 7.2 or
7.3 requires an action by the Board of Directors and the Charter fails to
provide specific guidance with respect to such action, the Board of Directors
shall have the power to determine the action to be taken so long as such
action is not contrary to the provisions of Sections 7.1, 7.2 or 7.3.
Section 7.2.7 Exceptions.
(a) Except as otherwise provided in this Section, the Board of Directors
of the Corporation, in its sole discretion, may exempt a Person from the
Ownership Limit and may establish or increase a different ownership limit for
such Person if it receives a ruling from the Internal Revenue Service, or the
advice of counsel, in either case in form and substance satisfactory to the
Board of Directors in its sole discretion, as it may deem necessary or
advisable in order to determine or ensure the Corporation's status as a REIT.
Notwithstanding the receipt of any ruling or opinion, the Board of Directors
may impose such conditions or restrictions as it deems appropriate in
connection with granting such exception.
(b) An underwriter which participates in a public offering or a private
placement of Capital Stock (or securities convertible into or exchangeable
for Capital Stock) may Constructively Own shares of Capital Stock (or
securities convertible into or exchangeable for Capital Stock) in excess of
the Ownership Limit, but only to the extent necessary to facilitate such
public offering or private placement.
- 44 -
<PAGE>
(c) (i) Any Person described in this Section 7.2.7(c) shall be exempt
from the Ownership Limit set forth in this Charter and shall be subject to
the Special Ownership Limit defined in this section if such Person satisfies
the notification requirements of Section 7.2.7(c)(ii). A Person shall be
treated as described in this Section 7.2.7(c) if (A) such Person is both not
a natural person and not an entity which is treated as an individual for
purposes of Section 542(a)(2) of the Code (as modified by Section 856(h)(3)
of the Code) and (B) no other Person constructively Owns more than 9.9
percent of the value of the ownership interests in such Person. The "Special
Ownership Limit" shall mean the lesser of (i) 20 percent of the number of the
issued and outstanding shares of Preferred Stock of the Corporation or (ii)
10 percent of the value of the issued and outstanding shares of Capital Stock
of the Corporation.
(ii) To the extent any Person acquires Capital Stock of the Corporation
requiring exemption from the Ownership Limit and application of the Special
Ownership Limit under this Section 7.2.7(c), such Person shall notify the
Corporation in writing within fourteen (14) days of the acquisition of such
Capital Stock and shall provide the Corporation with the number of shares of
Capital Stock owned by such Person and representations to the effect that
such Person qualifies for waiver of the Ownership Limit and application of
the Special Ownership Limit pursuant to Section 7.2.7(c). Moreover, such
Person shall represent and covenant that it will comply with the notification
requirements of Section 1.857-8(e) of the Code. Any person failing to comply
with the notification requirements of this
- 45 -
<PAGE>
Section 7.2.7(c)(ii) shall not qualify for waiver of the Ownership Limit and
application of the Special Ownership Limit under this Section 7.2.7(c).
Notwithstanding the foregoing, the Board of Directors of the Corporation may,
in its sole discretion, grant a waiver to any Person which fails to satisfy
the requirements of this Section 7.2.7(c) pursuant to Section 7.2.7(a)
(iii) Any Person which qualifies for exemption under this Section
7.2.7(c) and for any reason, whether through action or inaction, undergoes a
change in ownership such that such Person is no longer described in Section
7.2.7(c)(i) shall no longer qualify for the exemption from the Ownership
Limit and application of the Special Ownership Limit in Section 7.2.7(c) and
shall be subject to the Ownership Limit as described in Section 7.2.7(a).
Section 7.2.8 Legend. Each certificate for shares of Preferred Stock
shall bear substantially the following legend:
The shares represented by this certificate are subject to restrictions on
Constructive Ownership and Transfer for the purpose of the Corporation's
maintenance of its status as a Real Estate Investment Trust under the
Internal Revenue Code of 1986, as amended (the "Code"). Subject to certain
further restrictions and except as expressly provided in the
Corporation's Charter, (i) no Person may Constructively Own in excess of
the lesser of 1.25 percent of the value of the issued and outstanding
shares of Capital Stock of the Corporation or 2.5 percent of the number
of issued and outstanding shares of Preferred Stock of the Corporation;
and (ii) no Person may Transfer shares of Capital Stock if such Transfer
would result in the Capital Stock of the Corporation being owned
(directly or beneficially) by fewer than 100 Persons. Any Person who
attempts to Constructively Own shares of Capital Stock which causes or
will
- 46 -
<PAGE>
cause a Person to Constructively Own shares of Capital Stock in excess or
in violation of the above limitations must immediately notify the
Corporation. If any of the restrictions on transfer or ownership are
violated, the shares of Capital Stock represented hereby will be
automatically transferred to a Trustee of a Trust for the benefit of one
or more Charitable Beneficiaries. In addition, upon the occurrence of
certain events, attempted Transfers in violation of the restrictions
described above may be void ab initio. All capitalized terms in this
legend have the meanings defined in the charter of the Corporation, as the
same may be amended from time to time, a copy of which, including the
restrictions on transfer and ownership, will be furnished to each holder
of Capital Stock of the Corporation on request and without charge.
Instead of the foregoing legend, the certificate may state that the
Corporation will furnish a full statement about certain restrictions on
transferability to a stockholder on request and without charge.
Section 7.3 Transfer of Capital Stock In Trust.
Section 7.3.1 Ownership in Trust. Upon any purported Transfer or other
event that would result in a transfer of shares of Capital Stock to a Trust,
such shares of Capital Stock shall be deemed to have been transferred to the
Trustee as trustee of a Trust for the exclusive benefit of one or more
Charitable Beneficiaries. Such transfer to the Trustee shall be deemed to be
effective as of the close of business on the Business Day prior to the
purported Transfer or other event that results in the transfer to the Trust.
The Trustee shall be appointed by the Corporation and shall be a Person
unaffiliated with the Corporation and any Prohibited Owner. Each
- 47 -
<PAGE>
Charitable Beneficiary shall be designated by the Corporation as provided in
Section 7.3.6.
Section 7.3.2 Status of Shares Held by the Trustee. Shares of Capital
Stock held by the Trustee shall be issued and outstanding shares of Capital
Stock of the Company. The Prohibited Owner shall have no rights in the shares
held by the Trustee. The Prohibited Owner shall not benefit economically from
ownership of any shares held in trust by the Trustee, shall have no rights to
dividends and shall not possess any rights to vote or other rights
attributable to the shares held in the Trust.
Section 7.3.3 Dividend and Voting Rights. The Trustee shall have all
voting rights and rights to dividends or other distributions with respect to
shares of Capital Stock held in the Trust, which rights shall be exercised
for the exclusive benefit of the Charitable Beneficiary. Any dividend or
other distribution paid prior to the discovery by the Corporation that the
shares of Capital Stock have been transferred to the Trustee shall be paid by
the recipient of such dividend or distribution to the Trustee upon demand and
any dividend or other distribution authorized but unpaid shall be paid when
due to the Trustee. Any dividend or distribution so paid to the Trustee shall
be held in trust for the Charitable Beneficiary. The Prohibited Owner shall
have no voting rights with respect to shares held in the Trust and, subject
to Maryland, law, effective as of the date that the shares of Capital Stock
have been transferred to the Trustee, the Trustee shall have the authority
(at the Trustee's sole discretion) (i) to rescind as void any vote cast by a
Prohibited Owner
- 48 -
<PAGE>
prior to the discovery by the Corporation that the shares of Capital Stock
have been transferred to the Trustee and (ii) to recast such vote in
accordance with the desires of the Trustee acting for the benefit of the
Charitable Beneficiary; provided, however, that if the Corporation has
already taken irreversible corporate action, then the Trustee shall not have
the authority to rescind and recast such vote. Notwithstanding the provisions
of this Article VII, until the Corporation has received notification that
shares of Capital Stock have been transferred into a Trust, the Corporation
shall be entitled to rely on its share transfer and other stockholder records
for purposes of preparing lists of stockholders entitled to vote at meetings,
determining the validity and authority of proxies and otherwise conducting
votes of stockholders.
Section 7.3.4 Sale of Shares by Trustee. Within 20 days of receiving
notice from the Corporation that shares of Capital Stock have been
transferred to the Trust, the Trustee of the Trust shall sell the shares held
in the Trust to a person, designated by the Trustee, whose ownership of the
shares will not violate the ownership limitations set forth in this Article
VII. Upon such sale, the interest of the Charitable Beneficiary in the shares
sold shall terminate and the Trustee shall distribute the net proceeds of the
sale to the Prohibited Owner and to the Charitable Beneficiary as provided in
this Section 7.3.4. The Prohibited Owner shall receive the lesser of (1) the
price paid by the Prohibited Owner for the shares or, if the Prohibited Owner
did not give value for the shares in connection with the event causing the
shares to be held in the
- 49 -
<PAGE>
Trust (e.g., in the case of a gift, devise or other such transaction), the
Market Price of the shares on the day of the event causing the shares to be
held in the Trust and (2) the price per share received by the Trustee from
the sale or other disposition of the shares held in the Trust. Any net sales
proceeds in excess of the amount payable to the Prohibited Owner shall be
immediately paid to the Charitable Beneficiary. If, prior to the discovery by
the Corporation that shares of Capital Stock have been transferred to the
Trustee, such shares are sold by a Prohibited Owner, then (i) such shares
shall be deemed to have been sold on behalf of the Trust and (ii) to the
extent that the Prohibited Owner received an amount for such shares that
exceeds the amount that such Prohibited Owner was entitled to receive
pursuant to this Section 7.3.4, such excess shall be paid to the Trustee upon
demand.
Section 7.3.5 Purchase Right in Stock Transferred to the Trustee. Shares
of Capital Stock transferred to the Trustee shall be deemed to have been
offered for sale to the Corporation, or its designee, at a price per share
equal to the lesser of (i) the price per share in the transaction that
resulted in such transfer to the Trust (or, in the case of a devise or gift,
the Market Price at the time of such devise or gift) and (ii) the Market
Price on the date the Corporation, or its designee, accepts such offer. The
Corporation shall have the right to accept such offer until the Trustee has
sold the shares held in the Trust pursuant to Section 7.3.4. Upon such a sale
to the Corporation, the interest of the Charitable Beneficiary in
- 50 -
<PAGE>
the shares sold shall terminate and the Trustee shall distribute the net
proceeds of the sale to the Prohibited Owner.
Section 7.3.6 Designation of Charitable Beneficiaries. By written notice
to the Trustee, the Corporation shall designate one or more nonprofit
organizations to be the Charitable Beneficiary of the interest in the Trust
such that (i) the shares of Capital Stock held in the Trust would not violate
the restrictions set forth in this Article VII in the hands of such
Charitable Beneficiary and (ii) each such organization must be described in
Section 501(c)(3) of the Code and contributions to each such organization
must be eligible for deduction under each of Sections 170(b)(1)(A). 2055 and
2522 of the Code.
Section 7.4 NYSE Transactions. Nothing in this Article VII shall preclude
the settlement of any transaction entered into through the facilities of the
NYSE or any other national securities exchange or automated inter-dealer
quotation system.
Section 7.5 Enforcement. The Corporation is authorized specifically to
seek equitable relief, including injunctive relief, to enforce the provisions
of this Article VII.
Section 7.6 Non-Waiver. No delay or failure on the part of the
Corporation or the Board of Directors in exercising any right hereunder shall
operate as a waiver of any right of the Corporation or the Board of
Directors, as the case may be, except to the extent specifically waived in
writing.
- 51 -
<PAGE>
ARTICLE VIII
AMENDMENTS
The Corporation reserves the right from time to time to make any amendment
to its charter, now or hereafter authorized by law, including any amendment
altering the terms or contract rights, as expressly set forth in this
charter, of any shares of outstanding stock. All rights and powers conferred
by the charter on stockholders, directors and officers are granted subject to
this reservation. Subject to the rights of the holders of shares of Series A
Preferred Stock set forth in Section 6.6, any amendment to the charter shall
be valid only if approved by the affirmative vote of a majority of all the
votes entitled to be cast on the matter. Any amendment to Section 6.6 of the
charter shall be valid only if approved as provided therein.
ARTICLE IX
LIMITATION OF LIABILITY
To the maximum extent that Maryland law in effect from time to time permits
limitation of the liability of directors and officers of a corporation, no
director or officer of the Corporation shall be liable to the Corporation or
its stockholders for money damages. Neither the amendment nor repeal of this
Article IX, nor the adoption or amendment of any other provision of the
charter or Bylaws inconsistent with this Article IX, shall apply to or affect
in any respect the applicability of the preceding sentence with respect to any
act or failure to act which occurred prior to such amendment, repeal or
adoption.
- 52 -
<PAGE>
THIRD: The amendment to and restatement of the charter as hereinabove set
forth has been duly advised by the Board of Directors and approved by the
stockholders of the Corporation as required by law.
FOURTH: The current address of the principal office of the Corporation is
as set forth in Article IV of the foregoing amendment and restatement of the
charter.
FIFTH: The name and address of the Corporation's current resident agent
is as set forth in Article IV of the foregoing amendment and restatement of
the charter.
SIXTH: The number of directors of the Corporation and the names of those
currently in office are as set forth in Article V of the foregoing amendment
and restatement of the charter.
SEVENTH: The total number of shares of stock which the Corporation had
authority to issue immediately prior to this amendment and restatement was
1,000 shares, $.01 par value per share, all of one class. The aggregate par
value of all shares of stock having par value was $10.00.
EIGHTH: The total number of shares of stock which the Corporation has
authority to issue pursuant to the foregoing amendment and restatement of the
charter is 60,000,000 consisting of 30,000,000 shares of Common Stock, $.01
par value per share, and 30,000,000 shares of Preferred Stock, $.01 par value
per share. The aggregate par value of all authorized shares of stock having
par value is $600,000,
- 53 -
<PAGE>
NINTH: The undersigned President acknowledges these Articles of Amendment
and Restatement to be the corporate act of the Corporation and as to all
matters or facts required to be verified under oath, the undersigned
President acknowledges that to the best of his knowledge, information and
belief, these matters and facts are true in all material respects and that
this statement is made under the penalties for perjury.
By resolution of the Board of Directors of the Corporation, the signature
of the President of the Corporation may be attested by the undersigned Vice
President and Assistant Treasurer of the Corporation.
- 54 -
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment and Restatement to be signed in its name and on its behalf by its
President and attested to by its Secretary on this 31st day of January, 1997.
ATTEST:
CALIFORNIA FEDERAL PREFERRED
CAPITAL CORPORATION
/s/ Eric K. Kawamura By: /s/ Carl B. Webb
- -------------------- ---------------------
Eric K. Kawamura Carl B. Webb [SEAL]
Vice President and President
Assistant Treasurer
- 55 -
<PAGE>
- -------------------------------------------------------------------------------
MORTGAGE LOAN PURCHASE AND WARRANTIES AGREEMENT
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
Purchaser
CALIFORNIA FEDERAL BANK, A FEDERAL SAVINGS BANK
Seller
--------------------------
Dated as of January 24, 1997
Residential Mortgage Loans
- -------------------------------------------------------------------------------
<PAGE>
Page
----
TABLE OF CONTENTS
-----------------
Page
SECTION 1. Definitions................................................... 1
SECTION 2. Agreement to Purchase Initial Portfolio....................... 12
SECTION 3. Subsequent Purchases.......................................... 12
Section 4. Payment of Purchase Price..................................... 12
SECTION 5. Examination of Servicing Files................................ 13
SECTION 6. Conveyance from Seller to Purchaser........................... 14
Subsection 6.1 Possession of Servicing Files.................... 14
Subsection 6.2 Books and Records................................ 14
Subsection 6.3 Delivery of Mortgage Loan Documents.............. 14
SECTION 7. Servicing of the Mortgage Loans............................... 15
SECTION 8. Representations, Warranties and Covenants
of the Seller; Remedies for Breach.......................... 16
Subsection 8.1 Representations and Warranties
Regarding the Seller........................... 16
Subsection 8.2 Representations and Warranties
Regarding Individual Mortgage Loans............ 18
Subsection 8.3 Remedies for Breach of Representations
and Warranties................................. 31
SECTION 9. Closing...................................................... 33
SECTION 10. Closing Documents............................................ 34
SECTION 11. Costs........................................................ 35
SECTION 12. Merger or Consolidation of the Seller........................ 35
SECTION 13. Mandatory Delivery; Grant of Security Interest............... 36
SECTION 14. Notices...................................................... 36
SECTION 15. Severability Clause.......................................... 37
SECTION 16. Counterparts................................................. 37
SECTION 17. Governing Law................................................ 38
SECTION 18. Intention of the Parties..................................... 38
i
<PAGE>
Page
----
SECTION 19. Successors and Assigns; Assignment of
Purchase Agreement......................................... 38
SECTION 20. Waivers...................................................... 38
SECTION 21. Entire Agreement; Amendment.................................. 39
SECTION 22. General Interpretive Principles.............................. 39
SECTION 23. Reproduction of Documents.................................... 39
SECTION 24. Further Agreements........................................... 40
SECTION 25. Recordation of Assignments of Mortgage....................... 40
ii
<PAGE>
EXHIBITS
EXHIBIT A CONTENTS OF MORTGAGE FILES
EXHIBIT B FORM OF SERVICING AGREEMENT
EXHIBIT C FORM OF SELLER'S OFFICER'S CERTIFICATE
EXHIBIT D FORM OF OPINION OF COUNSEL TO THE SELLER
EXHIBIT E FORM OF SERVICER'S OFFICER'S CERTIFICATE
EXHIBIT F FORM OF OPINION OF COUNSEL TO THE SERVICER
EXHIBIT G FORM OF SECURITY RELEASE CERTIFICATION
EXHIBIT H FORM OF SECURITY RELEASE CERTIFICATION
EXHIBIT I INITIAL PORTFOLIO MORTGAGE LOAN SCHEDULE
EXHIBIT J FORM OF COMMITMENT LETTER
iii
<PAGE>
MORTGAGE LOAN PURCHASE AND WARRANTIES AGREEMENT
-----------------------------------------------
This MORTGAGE LOAN PURCHASE AND WARRANTIES AGREEMENT (the
"Agreement"), dated as of January 24, 1997, by and between California Federal
Preferred Capital Corporation, a Maryland corporation, having an office at 200
Crescent Court, Suite 1350, Dallas, Texas 75201 (the "Purchaser"), and
California Federal Bank, A Federal Savings Bank, a stock savings bank organized
under the laws of the United States of America, having an office at 135 Main
Street, San Francisco, California 94105 (the "Seller").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller desires to sell to the Purchaser, and the
Purchaser desires to purchase from the Seller, from time to time, certain
Mortgage Loans (as defined herein) on a servicing released basis as described
herein, and which shall be delivered as whole loans; and
WHEREAS, each Mortgage Loan, at the time it is sold by Seller to
Purchaser pursuant to this Agreement, will be secured by a mortgage, deed of
trust or other security instrument creating a first lien on a residential
dwelling located in the jurisdiction indicated on the related Mortgage Loan
Schedule or a pledge of stock allocated to a dwelling unit in a residential
cooperative housing corporation; and
WHEREAS, the Purchaser and the Seller wish to prescribe the manner of
the conveyance, servicing and control of the Mortgage Loans.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Purchaser and the Seller
agree as follows:
SECTION 1. Definitions.
For purposes of this Agreement and any Commitment Letter (as defined
herein), the following capitalized terms shall have the respective meanings set
forth below. Other capitalized terms used in this Agreement and not defined
herein shall have the respective meanings set forth in the Servicing Agreement
attached as Exhibit B hereto.
"Accepted Servicing Practices" means, with respect to any Mortgage
Loan, those mortgage servicing practices of prudent mortgage lending
institutions which service mortgage loans of the
<PAGE>
same type as such Mortgage Loan in the jurisdiction where the related Mortgaged
Property is located.
"Act" means The National Housing Act, as amended from time to time.
"Adjustable Rate Mortgage Loan" means any individual Mortgage Loan
(including a Convertible Mortgage Loan prior to the conversion date) purchased
pursuant to this Agreement the Mortgage Interest Rate of which adjusts
periodically.
"Affiliate" means, with respect to any specified Person, any other
Person controlling or controlled by or under common control with such specified
Person. For the purposes of this definition, "control" when used with respect
to any specified Person means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agreement" means this Mortgage Loan Purchase and Warranties
Agreement, all amendments hereof and supplements hereto and each Commitment
Letter hereunder.
"ALTA" means The American Land Title Association or any successor
thereto.
"Ancillary Income" means all late charges, assumption fees, escrow
account benefits, reinstatement fees, prepayment penalties, ARM conversion
fees, optional insurance commissions and similar types of fees arising from or
in connection with any Mortgage and collected from the related Mortgagor, to
the extent not otherwise payable to the Mortgagor under applicable law or
pursuant to the terms of the related Mortgage Note.
"Appraised Value" means the value set forth in an appraisal made in
connection with the origination of the related Mortgage Loan as the value of
the Mortgaged Property.
"Assignment of Mortgage" means an assignment of the Mortgage delivered
in blank, notice of transfer or equivalent instrument in recordable form,
sufficient under the laws of the jurisdiction wherein the related Mortgaged
Property is located to reflect the sale of the Mortgage Loan to the Purchaser.
"Business Day" means any day other than (i) a Saturday or Sunday, or
(ii) a day on which banking and savings and loan institutions in the State of
California or the State of Maryland are authorized or obligated by law or
executive order to be closed.
2
<PAGE>
"Classified" is used herein generally to describe a Mortgage Loan
which is troubled or deemed substandard or doubtful with respect to
collectability.
"Closing Date" means the Initial Closing Date and any other date on
which the parties hereto shall agree to close a sale of Mortgage Loans
hereunder as set forth in a duly executed Commitment Letter.
"Code" means Internal Revenue Code of 1986, as amended.
"Commitment Letter" means a letter agreement executed by the Purchaser
and the Seller providing for the purchase and sale of Mortgage Loans and
substantially in the form of Exhibit J hereto.
"Condemnation Proceeds" means all awards or settlements in respect of
a Mortgaged Property, whether permanent or temporary, partial or entire, by
exercise of the power of eminent domain or condemnation, to the extent not
required to be released to a Mortgagor in accordance with the terms of the
related Mortgage Loan documents.
"Convertible Mortgage Loan" means any individual Mortgage Loan
purchased pursuant to this Agreement which contains a provision whereby the
Mortgagor is permitted to convert the Mortgage Loan to a fixed rate Mortgage
Loan in accordance with the terms of the related Mortgage Note.
"Co-op Lease" means, with respect to a Co-op Loan, the lease with
respect to the dwelling unit occupied by the Mortgagor and relating to the
stock allocated to the related dwelling unit.
"Co-op Loan" means a Mortgage Loan secured by the pledge of stock
allocated to a dwelling unit in a residential cooperative housing corporation
and a collateral assignment of the related Co-op Lease.
"Co-op Project" means the real property owned by the residential
cooperative housing association upon which the cooperative unit which is the
subject of the Co-op Lease is situated, including the common areas associated
therewith,
"Custodial Account" means the separate trust account created and
maintained pursuant to Section 2.4 of the Servicing Agreement.
"Custodian's File" means, with respect to each Mortgage Loan, the
documents pertaining to such Mortgage Loan set forth in Section I of Exhibit A
hereto and any additional documents required to be included or added to the
Custodian's File pursuant to this Agreement.
3
<PAGE>
"Cut-off Date" means the Initial Cut-off Date and any other date as of
which the principal balance of Mortgage Loans will be determined for purposes
of calculating the Purchase Price for the purchase and sale of Mortgage Loans,
which date shall be set forth in the related Commitment Letter.
"Deleted Mortgage Loan" means a Mortgage Loan that is repurchased or
replaced with a Qualified Substitute Mortgage Loan by the Seller in accordance
with the terms of this Agreement.
"Due Date" means the day of the month on which the Monthly Payment is
due on a Mortgage Loan, exclusive of any days of grace.
"Escrow Account" means the separate account created and maintained
pursuant to Section 2.6 of the Servicing Agreement with respect to each
Mortgage Loan, as specified in the Servicing Agreement.
"Escrow Payments" means, with respect to any Mortgage Loan, the
amounts constituting ground rents, taxes, assessments, water rates, sewer
rents, municipal charges, mortgage insurance premiums, fire and hazard
insurance premiums, flood insurance premiums, earthquake insurance premiums,
condominium charges, and, to the extent that such items can become a lien on
the Mortgaged Property superior to the Mortgage, if unpaid, and are reportable
by the Servicer's tax lien reporting service, any other payments required to be
escrowed by the Mortgagor with the mortgagee pursuant to the Mortgage or any
other document.
"FHA" means the Federal Housing Administration, an agency within the
United States Department of Housing and Urban Development, or any successor
thereto and including the Federal Housing Commissioner and the Secretary of
Housing and Urban Development where appropriate under the FHA Regulations.
"FHLMC" means the Federal Home Loan Mortgage Corporation, or any
successor thereto.
"FNMA" means the Federal National Mortgage Association, or any
successor thereto.
"FNMC" means First Nationwide Mortgage Corporation, a Delaware
corporation and a wholly owned subsidiary of the Seller.
"Gross Margin" means, with respect to each Adjustable Rate Mortgage
Loan, the applicable fixed percentage which, when added to the applicable
Index, calculates to the current Mortgage Interest Rate paid by the related
Mortgagor (without taking into account any Lifetime Rate Caps, Periodic Rate
Caps, minimum interest rates or Payment Adjustment Caps).
4
<PAGE>
"HUD" means the Department of Housing and Urban Development, or any
federal agency or official thereof which may from time to time succeed to the
functions thereof with regard to FHA mortgage insurance. The term "HUD," for
purposes of this Agreement, is also deemed to include subdivisions thereof such
as the FHA and Government National Mortgage Association.
"Independent Directors" means the members of the Board of Directors of
the Purchaser who are not current employees or officers of the Purchaser or
current employees, officers or directors of the Seller or any affiliate of the
Seller. In addition, any members of the Board of Directors of the Purchaser
elected by holders of the preferred stock of the Purchaser, including the
Series A Preferred Shares, will be deemed to be "Independent Directors" for
purposes of approving actions requiring the approval of a majority of the
Independent Directors.
"Index" means, with respect to each Interest Rate Adjustment Date as
indicated on the Mortgage Loan Schedule (i) either the weekly auction average
(investment) rate on U.S. Treasury securities with a six-month maturity or the
cumulative average over a 26-week period of the weekly auction average rate on
United States Treasury securities with a six-month maturity, in each case as
made available by the Federal Reserve Board in Statistical Release H.15 (519);
(ii) the weekly average yield on United States Treasury securities adjusted to
a constant maturity of one year, as made available by the Federal Reserve Board
in Statistical Release H.15 (519); (iii) the then-current monthly weighted
average cost of funds for savings institutions in Arizona, California and
Nevada that are members of the Eleventh Federal Home Loan Bank District; or
(iv) such other index as is indicated on the Mortgage Loan Schedule.
"Initial Closing Date" means January 31, 1997, or such other date as
the parties hereto may mutually agree.
"Initial Cut-off Date" means January 1, 1997.
"Initial Portfolio Mortgage Loan Schedule" means the schedule of
Mortgage Loans to be purchased by the Purchaser on the Initial Closing Date,
attached hereto as Exhibit I.
"Initial Portfolio Purchase Price" means the amount set forth in
Section 2 of this Agreement.
"Insurance Proceeds" means, with respect to each Mortgage Loan,
proceeds of insurance policies insuring the Mortgage Loan or the related
Mortgaged Property, to the extent not required to be released to a Mortgagor in
accordance with the terms of the related Mortgage Loan documents.
5
<PAGE>
"Interest Rate Adjustment Date" means, with respect to each Adjustable
Rate Mortgage Loan, the date, specified in the related Mortgage Note and
Mortgage Loan Schedule, on which the Mortgage Interest Rate is adjusted.
"Lifetime Rate Cap" means the provision of each Mortgage Note related
to an Adjustable Rate Mortgage Loan which provides for an absolute maximum
Mortgage Interest Rate thereunder as set forth on the related Mortgage Loan
Schedule.
"Liquidation Proceeds" means cash received in connection with the
liquidation of a defaulted Mortgage Loan, whether through the sale or
assignment of such Mortgage Loan, trustee's sale, foreclosure sale or
otherwise, or the sale of the related Mortgaged Property if the Mortgaged
Property is acquired in satisfaction of such Mortgage Loan.
"Loan-to-Value Ratio" or "LTV" means, with respect to any Mortgage
Loan, the ratio (expressed as a percentage) of the original principal amount of
the Mortgage Loan to the lesser of (a) the Appraised Value of the related
Mortgaged Property at origination and (b) if the Mortgage Loan was made to
finance the acquisition of the related Mortgaged Property, the purchase price
of the Mortgaged Property.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Mortgage Loan.
"Mortgage" means (i) with respect to a Mortgage Loan that is not a
Co-op Loan, the mortgage, deed of trust or other instrument securing a Mortgage
Note, which creates a first lien on an unsubordinated estate in fee simple in
real property securing the Mortgage Note; except that with respect to real
property located in jurisdictions in which the use of leasehold estates for
residential properties is a widely accepted practice, the mortgage, deed of
trust or other instrument securing the Mortgage Note may secure and create a
first lien upon a leasehold estate of the Mortgagor and (ii) with respect to a
Co-op Loan, the security agreement creating a security interest in the stock
allocated to a dwelling unit in a residential cooperative housing corporation
that was pledged to secure such Co-op Loan and the related Co-op Lease.
"Mortgage File" means, with respect to each Mortgage Loan, the
Custodian's File and the Servicing File.
"Mortgage Interest Rate" means the annual rate of interest borne on a
Mortgage Note, which, in the case of an Adjustable Rate Mortgage Loan, shall be
adjusted from time to time, with respect to each Mortgage Loan.
"Mortgage Interest Rate Cap" means, with respect to
6
<PAGE>
each Adjustable Rate Mortgage Loan, the limit on each Mortgage Interest Rate
adjustment as set forth in the related Mortgage Note.
"Mortgage Loan" means an individual residential first mortgage loan
which is the subject of this Agreement, each Mortgage Loan originally sold
pursuant to this Agreement being identified on Exhibit I attached hereto, and
each Mortgage Loan sold pursuant to a Commitment Letter being identified on the
applicable Mortgage Loan Schedule, and each of which Mortgage Loans includes or
shall include, without limitation, the Mortgage File, the Monthly Payments,
Principal Prepayments, Liquidation Proceeds, Condemnation Proceeds, Insurance
Proceeds, and all other rights, benefits, proceeds and obligations arising from
or in connection with such Mortgage Loan, excluding replaced or repurchased
mortgage loans.
"Mortgage Loan Schedule" means (a)the Initial Portfolio Mortgage Loan
Schedule attached hereto as Exhibit I and (b) any schedule of Mortgage Loans in
similar form attached to and constituting part of a duly executed Commitment
Letter, in each case setting forth at least the following information with
respect to each Mortgage Loan set forth thereon: (1) the Seller's Mortgage Loan
identifying number; (2) the Mortgagor's name; (3) the street address of the
Mortgaged Property including the city, state and zip code; (4) a code
indicating whether the Mortgaged Property is owner-occupied, second home or
investor owned; (5) the property type, i.e., the type of residential units
constituting the Mortgaged Property; (6) the original months to maturity; (7)
the remaining months to maturity from the applicable Cut-off Date, based on the
original amortization schedule, and, if different, the maturity expressed in
the same manner but based on the actual amortization schedule; (8) the
Loan-to-Value Ratio at origination; (9) the Mortgage Interest Rate as of the
applicable Cut-off Date; (10) the stated maturity date; (11) the amount of the
Monthly Payment as of the applicable Cut-off Date; (12) the original principal
amount of the Mortgage Loan; (13) the principal balance of the Mortgage Loan as
of the close of business on the applicable Cut-off Date, after deduction of
payments of principal due on or before such Cut-off Date whether or not
collected; (14) a code indicating the purpose of the loan (i.e., purchase, rate
and term refinance, equity take-out refinance); (15) a code indicating the
documentation style (i.e. full, alternative or reduced); (16) a code indicating
whether the Mortgage Loan is a Convertible Mortgage Loan; (17) the number of
times during the 12 month period preceding the applicable Closing Date that any
Monthly Payment has been received thirty or more days after its Due Date; (18)
the type of Mortgage Loan product, if any; (19) the first payment Due Date;
(19) the initial Mortgage Interest Rate; (20) the amount of the first Monthly
Payment; (21) the name of any Qualified Insurer with respect to a PMI Policy;
(22) the Servicing Fee Rate; and
7
<PAGE>
(23) a code indicating whether the Mortgagor has the option to extend the
Maturity Date of the Loan. With respect to any Adjustable Rate Mortgage Loan,
such schedule shall also set forth (1) the Interest Rate Adjustment Dates; (2)
the Gross Margin; (3) the Lifetime Rate Cap; (4) any Periodic Rate Caps; (5)
any minimum interest rate, if other than the Gross Margin; (6) the first
Interest Rate Adjustment Date after the applicable Cut-off Date; (7) any
Payment Adjustment Cap; (8) the first Payment Adjustment Date after the related
Cut-off Date; (9) whether such Mortgage Loan has the potential to negatively
amortize; and (10) the name of the applicable Index, in each case, under the
terms of the Mortgage Note. With respect to the Mortgage Loans in the aggregate
set forth thereon, each Mortgage Loan Schedule shall set forth the following
information, as of the applicable Cut-off Date: (1) the number of Mortgage
Loans; (2) the current aggregate outstanding principal balance of the Mortgage
Loans; (3) the weighted average Mortgage Interest Rate of the Mortgage Loans;
and (4) the weighted average maturity of the Mortgage Loans.
"Mortgage Note" means the note or other evidence of the indebtedness
of a Mortgagor secured by a Mortgage.
"Mortgaged Property" means (i) with respect to a Mortgage Loan that is
not a Co-op Loan, the real property (or leasehold estate, if applicable)
securing repayment of the debt evidenced by a Mortgage Note and (ii) with
respect to a Co-op Loan, the dwelling unit that is the subject of the Co-op
Lease.
"Mortgagor" means the obligor on a Mortgage Note.
"Non-accrual Status" refers to Mortgage Loans that generally are 90
days or more past due in the payment of principal or interest.
"Officer's Certificate" means a certificate signed by the Chairman of
the Board or the Vice Chairman of the Board or a President or a Vice President
and by the Treasurer or the Secretary or one of the Assistant Treasurers or
Assistant Secretaries of the Seller or FNMC, as the case may be, and delivered
to the Purchaser as required by this Agreement.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Seller, reasonably acceptable to the Purchaser.
"Payment Adjustment Cap" means, with respect to an Adjustable Rate
Mortgage Loan, the maximum amount of the related Monthly Payment as adjusted on
a given Payment Adjustment Date in accordance with the terms of the related
Mortgage Note.
"Payment Adjustment Date" means, with respect to each Adjustable Rate
Mortgage Loan, the date set forth in the related
8
<PAGE>
Mortgage Note on which the Monthly Payment is adjusted in accordance with the
terms of the Mortgage Note.
"Periodic Rate Cap" means the provision of each Mortgage Note related
to each Adjustable Rate Mortgage Loan which provides for an absolute maximum
amount by which the Mortgage Interest Rate therein may increase or decrease on
an Interest Rate Adjustment Date above or below the Mortgage Interest Rate
previously in effect as set forth on the applicable Mortgage Loan Schedule.
"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, limited liability company,
unincorporated organization, government or any agency or political subdivision
thereof.
"PMI Policy" or "Primary Insurance Policy" means a policy of primary
mortgage guaranty insurance issued by a Qualified Insurer.
"Prime Rate" means the prime rate announced to be in effect from time
to time, as published as the average rate in The Wall Street Journal (Northeast
edition).
"Principal Prepayment" means any payment or other recovery of
principal on a Mortgage Loan which is received in advance of its scheduled Due
Date, including any prepayment penalty or premium thereon and which is not
accompanied by an amount of interest representing scheduled interest due on any
date or dates in any month or months subsequent to the month of prepayment.
"Purchase Price" means the price to be paid on the applicable Closing
Date by the Purchaser to the Seller in consideration for the Mortgage Loans to
be purchased by the Purchaser on such Closing Date (including, without
limitation, the Initial Portfolio Purchase Price to be paid by Purchaser at the
Initial Closing) as set forth in this Agreement or a duly executed Commitment
Letter, as the case may be.
"Purchaser" means California Federal Preferred Capital Corporation or
its successor in interest or assigns or any successor to the Purchaser under
this Agreement as herein provided.
"Qualified Appraiser" means, with respect to a Mortgaged Property, an
appraiser who had no interest, direct or indirect in such Mortgaged Property or
in any loan made on the security thereof, and whose compensation is not
affected by the approval or disapproval of the Mortgage Loan, and such
appraiser and the appraisal made by such appraiser both satisfy the
requirements of Title XI of the Federal Institutions Reform,
9
<PAGE>
Recovery, and Enforcement Act of 1989 and the regulations promulgated
thereunder, all as in effect on the date the Mortgage Loan was originated.
"Qualified Insurer" means an insurance company duly qualified as such
under the laws of the states in which the Mortgaged Properties are located,
duly authorized and licensed in such states to transact the applicable
insurance business and to write the insurance provided and approved as an
insurer by FNMA with respect to primary mortgage insurance.
"Qualified Substitute Mortgage Loan" means a mortgage loan eligible to
be substituted by the Seller for a Deleted Mortgage Loan which must, on the
date of such substitution, (i) have an outstanding principal balance, after
deduction of all scheduled payments due in the month of substitution (or in the
case of a substitution of more than one mortgage loan for a Deleted Mortgage
Loan, an aggregate principal balance), not in excess of the outstanding
principal balance of the Deleted Mortgage Loan (the amount of any shortfall
will be deposited in the Custodial Account by the Seller in the month of
substitution); (ii) have a Mortgage Interest Rate not less than and not more
than 1.00% greater than the Mortgage Interest Rate of the Deleted Mortgage
Loan; (iii) have a remaining term to maturity not greater than and not more
than one year less than that of the Deleted Mortgage Loan; (iv) be of the same
type as the Deleted Mortgage Loan (i.e., Mortgage Loan with the same Mortgage
Interest Rate Caps or fixed rate); and (v) comply with each representation and
warranty (respecting individual Mortgage Loans) set forth in Section 8.2
hereof.
"Remittance Date" means the date specified in the Servicing Agreement
(with respect to each Mortgage Loan, as specified therein).
"Repurchase Price" means, with respect to any Mortgage Loan, a price
equal to (i) the unpaid principal balance of such Mortgage Loan plus (ii)
interest, net of Servicing Fees, on such unpaid principal balance of such
Mortgage Loan at the Mortgage Interest Rate from the last date through which
interest has been paid or advanced to the Purchaser to the date of repurchase,
less, in the case of any Mortgage Loan repurchased by the Servicer, any
unreimbursed advances in respect of such repurchased Mortgage Loan.
"RESPA" means Real Estate Settlement Procedures Act, as amended from
time to time.
"Security Instruments" means, with respect to a Co-op Loan, the
Mortgage, the stock certificates representing the stock allocated to the
cooperative unit that is the subject of the Co-op Lease, the stock power
associated with such stock
10
<PAGE>
certificates, the Co-op Lease, the collateral assignment of the Co-op Lease and
the recognition agreement.
"Seller" means California Federal Bank, A Federal Savings Bank, and
its successors in interest and assigns.
"Series A Preferred Shares" means the 91/8% Noncumulative Exchangeable
Preferred Stock, Series A, par value $.01 per share, of the Purchaser.
"Servicer" means FNMC.
"Servicing Agreement" means the agreement, attached as Exhibit B
hereto, to be entered into by the Purchaser and FNMC, as servicer, providing
for FNMC to service the Mortgage Loans as specified by the Servicing Agreement.
"Servicing Fee" means, with respect to each Mortgage Loan, the amount
of the annual fee the Purchaser shall pay to FNMC, which shall for a period of
one full month be equal to one-twelfth of the product of (a) the Servicing Fee
Rate and (b) the Stated Principal Balance of such Mortgage Loan. Such fee shall
be payable monthly, computed on the basis of the same principal amount and
period in respect of which any related interest payment on a Mortgage Loan is
computed, and shall be pro rated for any portion of a month during which the
Mortgage Loan is serviced by FNMC under the Servicing Agreement. The obligation
of the Purchaser to pay the Servicing Fee with respect to any Mortgage Loan is
limited to, and the Servicing Fee is payable solely from, the interest portion
(including recoveries with respect to interest from Liquidation Proceeds, to
the extent permitted by the Servicing Agreement) of the related Monthly Payment
collected by FNMC, or as otherwise provided under the Servicing Agreement. In
addition to the Servicing Fee, FNMC shall be entitled to retain all Ancillary
Income.
"Servicing Fee Rate" means, with respect to each Mortgage Loan
acquired on the Initial Closing Date, the rate specified in the applicable
Mortgage Loan Schedule with respect to such Mortgage Loan and with respect to
each Mortgage Loan subsequently purchased by the Purchaser, a rate per annum
between 0.25% and 0.50% as specified on the applicable Mortgage Loan Schedule.
"Servicing File" means, with respect to each Mortgage Loan, the files
retained by FNMC during the period in which FNMC is acting as servicer pursuant
to the Servicing Agreement, consisting of the documents set forth in Section II
of Exhibit A hereto pertaining to such Mortgage Loan and such other documents
held by the Servicer as is consistent with Accepted Servicing Practices.
11
<PAGE>
"Stated Principal Balance" means as to each Mortgage Loan and any date
of determination, (i) the principal balance of the Mortgage Loan as of the
applicable Cut-off Date after giving effect to payments of principal due on or
before such date, whether or not received, minus (ii) all amounts previously
received by the Purchaser with respect to the related Mortgage Loan
representing payments or recoveries of principal or advances in lieu thereof.
SECTION 2. Agreement to Purchase Initial Portfolio.
The Seller hereby agrees to sell, transfer, assign, set over and
convey to the Purchaser on the Initial Closing Date, without recourse, but
subject to the terms of this Agreement, all right, title and interest of the
Seller in and to the Mortgage Loans set forth on the Initial Portfolio Mortgage
Loan Schedule and the related Mortgage Files and all rights and obligations
arising under the documents contained therein. Mortgage Loans on the Initial
Portfolio Mortgage Loan Schedule shall have an aggregate principal balance on
the Initial Cut-off Date in an amount equal to $901,125,418 (assuming
application of payments of principal due on or before the Initial Cut-off Date
whether or not received), or in such other amount as agreed by the Purchaser
and the Seller as evidenced by the actual aggregate principal balance of the
Mortgage Loans accepted by the Purchaser on the Initial Closing Date.
The Initial Portfolio Purchase Price payable by the Purchaser in
consideration for the Mortgage Loans listed on the Initial Portfolio Mortgage
Loan Schedule shall be $898,665,067.22, or such other amount as agreed by the
Purchaser and the Seller as evidenced by the actual aggregate principal balance
of the Mortgage Loans accepted by the Purchaser on the Initial Closing Date.
SECTION 3. Subsequent Purchases.
From time to time, by executing a Commitment Letter substantially in
the form of Exhibit J hereto, the Seller shall sell, transfer, assign, set over
and convey to the Purchaser, without recourse, but subject to the terms of this
Agreement, and the Purchaser will purchase, all the right, title and interest
of the Seller, as of the applicable Closing Date, in and to the Mortgage Loans
set forth in the Mortgage Loan Schedule attached to such Commitment Letter, and
the Purchaser shall pay to Seller the Purchase Price set forth in such
Commitment Letter on such Closing Date.
SECTION 4. Payment of Purchase Price.
In addition to the applicable Purchase Price payable by Purchaser on
any Closing Date as described above, the Purchaser
12
<PAGE>
shall pay to the Seller, at each Closing, accrued interest on the initial
principal amount of the related Mortgage Loans at the weighted average Mortgage
Interest Rate of such Mortgage Loans, minus any amounts attributable to
Servicing Fees as provided in the Servicing Agreement from the applicable
Cut-off Date through the day prior to the applicable Closing Date, inclusive.
The Purchase Price plus accrued interest as set forth in the preceding
paragraph shall be paid by Purchaser on the applicable Closing Date by wire
transfer of immediately available funds.
The Purchaser shall, with respect to any Mortgage Loan purchased
hereunder or pursuant to a duly executed Commitment Letter, be entitled to (1)
all scheduled principal due after the applicable Cut-off Date, (2) all other
recoveries of principal collected on or after the applicable Cut-off Date
(other than scheduled payments of principal due on or before such Cut-off
Date), and (3) all payments of interest on the Mortgage Loans (net of
applicable Servicing Fees as provided in the Servicing Agreement) collected on
or after such Cut-off Date (other than that portion of any such payment which
is allocable to the period prior to such Cut-off Date). The outstanding
principal balance of each Mortgage Loan as of the applicable Cut-off Date is
determined after application of payments of principal due on or before such
Cut-off Date whether or not received, together with any unscheduled principal
prepayments received prior to such Cutoff Date; provided, however, that
payments of scheduled principal and interest prepaid for a Due Date beyond such
Cut-off Date shall not be applied to the principal balance as of such Cut-off
Date. Such prepaid amounts shall be the property of the Purchaser. Any such
prepaid amounts shall be deposited into the Custodial Account, which account is
established pursuant to the Servicing Agreement for the benefit of the
Purchaser for subsequent remittance to the Purchaser.
SECTION 5. Examination of Mortgage Files.
Prior to the date hereof or the date of any duly executed Commitment
Letter, as the case may be, the Seller has or shall have (a) delivered to the
Purchaser or its designee in escrow, for examination with respect to each
Mortgage Loan to be purchased, the related Mortgage File pertaining to each
Mortgage Loan, or (b) made the related Mortgage File available to the Purchaser
for examination at the Seller's offices or such other location as shall
otherwise be agreed upon by the Purchaser and the Seller. The fact that the
Purchaser or its designee has conducted or has failed to conduct any partial or
complete examination of any Mortgage Files shall not affect the Purchaser's (or
any of its successor's) rights to demand repurchase, substitution or other
relief as provided herein.
13
<PAGE>
SECTION 6. Conveyance from Seller to Purchaser.
Subsection 6.1 Possession of Servicing Files.
The Servicing Files relating to any Mortgage Loans purchased by
Purchaser hereunder or pursuant to a duly executed Commitment Letter shall be
delivered to or retained by FNMC, as the case may be, in accordance with the
terms of the Servicing Agreement and, as provided therein, shall be
appropriately identified in the computer system and/or books and records of
FNMC, as appropriate, to clearly reflect the sale of the related Mortgage Loan
to the Purchaser.
Subsection 6.2 Books and Records.
Record title to each Mortgage Loan as of the applicable Closing Date
shall be in the name of the Seller, FNMC or one of their affiliates, or the
Purchaser or one or more of its designees, as the Purchaser shall select.
Notwithstanding the foregoing, each Mortgage and related Mortgage Note shall be
possessed solely by the Purchaser or the appropriate designee of the Purchaser,
as the case may be. All rights arising out of the Mortgage Loans including, but
not limited to, all amounts received by the Seller or FNMC after the applicable
Cut-off Date on or in connection with a Mortgage Loan (other than amounts due
prior to the applicable Cut-off Date) shall be vested in the Purchaser or one
or more of its designees; provided, however, that all amounts received on or in
connection with a Mortgage Loan (other than amounts due prior to the applicable
Cut-off Date) shall be received and held by the Seller or FNMC in trust for the
benefit of the Purchaser or its designee, as the case may be, as the owner of
the Mortgage Loans pursuant to the terms of this Agreement.
The sale of each Mortgage Loan shall be reflected on the Seller's
balance sheet and other financial statements as a sale of assets by the Seller.
Subsection 6.3 Delivery of Custodian's File.
On or prior to each Closing Date, the Seller shall deliver and release
to the Purchaser or its designee the Custodian's File with respect to each
Mortgage Loan sold to the Purchaser on such Closing Date.
The Seller shall forward, or shall cause FNMC to forward, to the
Purchaser or its designee all original documents evidencing an assumption,
modification, consolidation, conversion or extension of any Mortgage Loan
entered into on or prior to the date hereof within 30 days of their execution,
provided, however, that the Seller shall provide, or shall cause FMNC to
provide, the Purchaser or its designee with a certified true copy of any
14
<PAGE>
such document submitted for recordation within 30 days of its execution, and
shall promptly provide the original of any document submitted for recordation
or a copy of such document certified by the appropriate public recording office
to be a true and complete copy of the original within ninety (90) days of its
submission for recordation (provided, that with respect to assignments of the
Mortgages reflecting the assignment from the Seller to the Purchaser, one final
assignment shall be executed by Seller in blanket non-recordable form, and no
other forms of assignment of such Mortgages shall be executed or recorded
unless and until the Purchaser shall request execution of individual
Assignments of Mortgages pursuant to and in accordance with Section 25 hereof).
In the event that such original or copy of any document submitted for
recordation to the appropriate public recording office is not so delivered to
the Purchaser or its designee within 90 days following the Closing Date and in
the event that the Seller does not cure such failure within 30 days of
discovery or receipt of written notification of such failure from the
Purchaser, the related Mortgage Loan shall, upon the request of the Purchaser,
be repurchased by the Seller at the price and in the manner specified in
Subsection 8.3. The foregoing repurchase obligation shall not apply in the
event that the Seller cannot deliver, or cause to be delivered, such original
or copy of any document submitted for recordation to the appropriate public
recording office within the specified period due to a delay caused by the
recording office in the applicable jurisdiction; provided that the Seller shall
instead deliver, or cause to be delivered, a recording receipt of such
recording office or, if such recording receipt is not available, an officer's
certificate of a servicing officer of the Seller or FNMC, confirming that such
documents have been accepted for recording.
SECTION 7. Servicing of the Mortgage Loans.
All Mortgage Loans will be sold by the Seller to the Purchaser on a
servicing released basis.
The Purchaser shall retain FNMC as independent contract servicer of
the Mortgage Loans pursuant to and in accordance with the terms and conditions
contained in the Servicing Agreement. The Purchaser and FNMC shall execute the
Servicing Agreement on the Initial Closing Date in the form attached hereto as
Exhibit B.
Pursuant to the Servicing Agreement, FNMC shall service the Mortgage
Loans on behalf of the Purchaser and shall be entitled to the Servicing Fee and
any Ancillary Income with respect to each Mortgage Loan from the Closing Date
with respect to the sale and purchase thereof until the termination of the
Servicing Agreement with respect to such Mortgage Loan as set
15
<PAGE>
forth in the Servicing Agreement. FNMC shall conduct such servicing in
accordance with the terms of the Servicing Agreement.
SECTION 8. Representations, Warranties and Covenants of the Seller;
Remedies for Breach.
Subsection 8.1 Representations and Warranties Regarding the Seller.
The Seller represents, warrants and covenants to the Purchaser that as
of the date hereof and as of each Closing Date:
(a) Due Organization and Authority; Enforceability. The Seller is
a stock savings bank duly organized, validly existing and in good standing
under the laws of the United States of America and has all licenses necessary
to carry on its business as now being conducted and is licensed, qualified and
in good standing in each state wherein it owns or leases any material
properties or where a Mortgaged Property is located, if the laws of such state
require licensing or qualification in order to conduct business of the type
conducted by the Seller, and in any event the Seller is in compliance with the
laws of any such state to the extent necessary to ensure the enforceability of
the related Mortgage Loan in accordance with the terms of this Agreement; the
Seller has the full corporate power, authority and legal right to hold,
transfer and convey the Mortgage Loans and to execute and deliver this
Agreement and to perform its obligations hereunder; the execution, delivery and
performance of this Agreement (including all instruments of transfer to be
delivered pursuant to this Agreement) by the Seller and the consummation of the
transactions contemplated hereby have been duly and validly authorized; this
Agreement and all agreements contemplated hereby have been duly executed and
delivered and constitute the valid, legal, binding and enforceable obligations
of the Seller subject to bankruptcy laws and other similar laws of general
application affecting rights of creditors and subject to the application of the
rules of equity, including those respecting the availability of specific
performance, none of which will materially interfere with the realization of
the benefits provided thereunder, regardless of whether such enforcement is
sought in a proceeding in equity or at law; and all requisite corporate action
has been taken by the Seller to make this Agreement and all agreements
contemplated hereby valid and binding upon the Seller in accordance with their
terms;
(b) Ordinary Course of Business. The consummation of the transactions
contemplated by this Agreement are in the ordinary course of business of the
Seller, and the transfer, assignment and conveyance of the Mortgage Notes and
the Mortgages by the Seller pursuant to this Agreement are not subject to the
16
<PAGE>
bulk transfer or any similar statutory provisions in effect in any applicable
jurisdiction;
(c) No Conflicts. Neither the execution and delivery of this
Agreement, the sale of the Mortgage Loans to the Purchaser, the consummation of
the transactions contemplated hereby, nor the fulfillment of or compliance with
the terms and conditions of this Agreement, will conflict with or result in a
breach of any of the terms, conditions or provisions of the Seller's charter or
by-laws or any legal restriction or any agreement or instrument to which the
Seller is now a party or by which it is bound, or constitute a default or
result in an acceleration under any of the foregoing, or result in the
violation of any law, rule, regulation, order, judgment or decree to which the
Seller or its property is subject, or result in the creation or imposition of
any lien, charge or encumbrance that would have an adverse effect upon any of
its properties pursuant to the terms of any mortgage, contract, deed of trust
or other instrument or impair the ability of the Purchaser to realize on the
Mortgage Loans, impair the value of the Mortgage Loans, or impair the ability
of the Purchaser to realize the full amount of any mortgage insurance benefits
accruing pursuant to this Agreement;
(d) Ability to Perform; Solvency. The Seller does not believe, nor
does it have any reason or cause to believe, that it cannot perform each and
every covenant contained in this Agreement. The Seller is solvent and the sale
of the Mortgage Loans will not cause the Seller to become insolvent. The sale
of the Mortgage Loans is not undertaken with the intent to hinder, delay or
defraud any of the Seller's creditors;
(e) No Litigation Pending. There is no action, suit, proceeding or
investigation pending or threatened against the Seller, before any court,
administrative agency or other tribunal asserting the invalidity of this
Agreement, seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or which, either in any one instance or in the
aggregate, could result in any material adverse change in the business,
operations, financial condition, properties or assets of the Seller, or in any
material impairment of the right or ability of the Seller to carry on its
business substantially as now conducted, or which would draw into question the
validity of this Agreement or the Mortgage Loans or of any action taken or to
be taken in connection with the obligations of the Seller contemplated herein,
or which would be likely to impair materially the ability of the Seller to
perform under the terms of this Agreement;
(f) No Consent Required. No consent, approval, authorization or order
of, or registration or filing with, or notice to any court or governmental
agency or body including HUD
17
<PAGE>
is required for the execution, delivery and performance by the Seller of or
compliance by the Seller with this Agreement or the Mortgage Loans, the
delivery of a portion of the Mortgage Files to the Purchaser or its designee or
the sale of the Mortgage Loans or the consummation of the transactions
contemplated by this Agreement, or if required, such approval has been obtained
prior to the applicable Closing Date;
(g) Selection Process. The Mortgage Loans were selected from among the
outstanding one- to four-family residential and co-op mortgage loans in the
Seller's portfolio as of the applicable Closing Date as to which the
representations and warranties set forth in Subsection 8.2 could be made and
such selection was not made in a manner so as to affect adversely the interests
of the Purchaser;
(h) Initial Portfolio. The aggregate characteristics of the Mortgage
Loans set forth on the Initial Portfolio Mortgage Loan Schedule are as set
forth under the heading "Business and Strategy--Description of Initial
Portfolio" in the Prospectus relating to the Series A Preferred Shares of the
Purchaser, dated January 24, 1997;
(i) No Untrue Information. Neither this Agreement nor any information,
statement, tape, diskette, report, form, or other document furnished or to be
furnished pursuant to this Agreement or in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements contained herein or therein not misleading; and
(j) No Brokers. The Seller has not dealt with any broker, investment
banker, agent or other person that may be entitled to any commission or
compensation in connection with the sale of the Mortgage Loans.
Subsection 8.2 Representations and Warranties Regarding Individual
Mortgage Loans.
The Seller hereby represents and warrants to the Purchaser, as to each
Mortgage Loan and as of the applicable Closing Date for such Mortgage Loan (or
as of such other date as may be specified below), that:
(a) Mortgage Loans as Described. The information set forth in the
applicable Mortgage Loan Schedule is complete, true and correct in all material
respects;
(b) Payments Current; Status. All payments required to be made up to,
but not including, the applicable Cut-off Date for the Mortgage Loan under the
terms of the Mortgage Note have
18
<PAGE>
been made and credited. No payment required under the Mortgage Loan is
delinquent nor has any payment under the Mortgage Loan been 30 days or more
delinquent more than once within the period falling twelve (12) months prior to
the applicable Cut-off Date. The Mortgage Loan is not, and has not been at any
time in the twelve months immediately preceding the applicable Cut-off Date,
(i) Classified, (ii) in Nonaccrual Status or (iii) renegotiated due to the
financial deterioration of the Mortgagor;
(c) No Outstanding Charges. There are no defaults in complying with
the terms of the Mortgage, and all taxes, governmental assessments, insurance
premiums, water, sewer and municipal charges, leasehold payments or ground
rents which previously became due and delinquent have been paid, or an escrow
of funds has been established in an amount sufficient to pay for every such
item which remains unpaid and which has been assessed but is not yet due and
payable. The Seller has not advanced funds, or induced, solicited or knowingly
received any advance of funds by a party other than the Mortgagor, directly or
indirectly, for the payment of any amount required under the Mortgage Loan,
except for interest accruing from the date of the Mortgage Note or date of
disbursement of the Mortgage Loan proceeds, whichever is earlier, to the day
which precedes by one month the Due Date of the first installment of principal
and interest;
(d) Original Terms Unmodified. The terms of the Mortgage Note and
Mortgage have not been impaired, waived, altered or modified in any respect,
from the date of origination except by a written instrument which has been
recorded, if necessary to protect the interests of the Purchaser, and which has
been delivered to the Purchaser or its designee and the terms of which are
reflected in the related Mortgage Loan Schedule, if applicable. The terms of
any such waiver, alteration or modification are reflected on the related
Mortgage Loan Schedule, if applicable, and either (i) the substance of such
terms has been approved by the title insurer, if any, to the extent required by
the policy, or (ii) such waiver, alteration or modification has not and will
not affect the priority of the related Mortgage. No Mortgagor has been
released, in whole or in part, except in connection with an assumption
agreement, which assumption agreement is part of the Custodian's File delivered
to the Purchaser or its designee and the terms of which are reflected in the
related Mortgage Loan Schedule;
(e) No Defenses. The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including without limitation the
defense of usury, nor will the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right thereunder, render either
the Mortgage Note or the Mortgage unenforceable, in whole or in part and no
such right of rescission, set-off, counterclaim or
19
<PAGE>
defense has been asserted with respect thereto, and no Mortgagor is now or was,
at the time of origination of the related Mortgage Loan, a debtor in any state
or Federal bankruptcy or insolvency proceeding;
(f) Hazard Insurance. As to Mortgage Loans that are not Co-op Loans,
pursuant to the terms of the Mortgage, all buildings or other improvements upon
the Mortgaged Property are, and as to Co-op Loans, the Co-op Project is,
insured by a generally acceptable insurer against loss by fire, hazards of
extended coverage and such other hazards as are set forth in Section 2.10 of
the Servicing Agreement attached hereto as Exhibit B. If required by the Flood
Disaster Protection Act of 1973, as amended, the Mortgage Loan is covered by a
flood insurance policy meeting the requirements of the current guidelines of
the Federal Insurance Administration, which policy conforms to FNMA, as well as
all additional requirements set forth in Section 2.10 of the Servicing
Agreement attached hereto as Exhibit B. With respect to Mortgage Loans that are
not Co-op Loans, all individual insurance policies contain a standard mortgagee
clause naming the Seller and its successors and assigns as mortgagee, and all
premiums thereon have been paid. The Mortgage for each Mortgage Loan that is
not a Co-op Loan obligates the Mortgagor thereunder to maintain the hazard
insurance policy at the Mortgagor's cost and expense, and on the Mortgagor's
failure to do so, authorizes the holder of the Mortgage to obtain and maintain
such insurance at such Mortgagor's cost and expense, and to seek reimbursement
therefor from the Mortgagor. Where required by state law or regulation, the
Mortgagor has been given an opportunity to choose the carrier of the required
hazard insurance, provided the policy is not a "master" or "blanket" hazard
insurance policy covering a condominium, or any hazard insurance policy
covering the common facilities of a planned unit development. The hazard
insurance policy is the valid and binding obligation of the insurer, is in full
force and effect, and will be in full force and effect and inure to the benefit
of the Purchaser upon the consummation of the transactions contemplated by this
Agreement. The Seller has not engaged in, and has no knowledge of the
Mortgagor's having engaged in, any act or omission which would impair the
coverage of any such policy, the benefits of the endorsement provided for
herein, or the validity and binding effect of either including, without
limitation, no unlawful fee, commission, kickback or other unlawful
compensation or value of any kind has been or will be received, retained or
realized by any attorney, firm or other person or entity, and no such unlawful
items have been received, retained or realized by the Seller;
(g) Compliance with Applicable Laws. Any and all requirements of any
federal, state or local law including, without limitation, usury,
truth-in-lending, real estate settlement procedures, consumer credit
protection, fair housing,
20
<PAGE>
equal credit opportunity and disclosure laws applicable to the Mortgage Loan
have been complied with, the consummation of the transactions contemplated
hereby will not involve the violation of any such laws or regulations, and the
Seller shall maintain in its possession, available for the Purchaser's
inspection, and shall deliver to the Purchaser upon demand, evidence of
compliance with all such requirements;
(h) No Satisfaction of Mortgage. The Mortgage has not been satisfied,
canceled, subordinated or rescinded, in whole or in part, and the Mortgaged
Property has not been released from the lien of the Mortgage, in whole or in
part, nor has any instrument been executed that would effect any such release,
cancellation, subordination or rescission. The Seller has not waived the
performance by the Mortgagor of any action, if the Mortgagor's failure to
perform such action would cause the Mortgage Loan to be in default, nor has the
Seller waived any default resulting from any action or inaction by the
Mortgagor;
(i) Location and Type of Mortgaged Property. With respect to each
Mortgage Loan that is not a Co-op Loan the Mortgaged Property is located in the
state identified in the related Mortgage Loan Schedule and consists of a single
parcel of real property with a detached single family residence erected
thereon, or a townhouse, or a two- to four-family dwelling, or an individual
condominium unit in a condominium project, or an individual unit in a planned
unit development, provided, however, that no residence or dwelling is a single
parcel of real property with a cooperative housing corporation erected thereon,
a mobile home or a manufactured dwelling. As of the date of origination, no
portion of the Mortgaged Property is used for commercial purposes, and since
the date of origination no portion of the Mortgaged Property is used for
commercial purposes;
(j) Valid First Lien. With respect to each Mortgage Loan that is not a
Co-op Loan, the Mortgage is a valid, subsisting, enforceable and perfected
first lien on the Mortgaged Property, including all buildings and improvements
on the Mortgaged Property and all installations and mechanical, electrical,
plumbing, heating and air conditioning systems located in or annexed to such
buildings, and all additions, alterations and replacements made at any time
with respect to the foregoing. The lien of the Mortgage is subject only to:
(1) the lien of current real property taxes and assessments not yet
due and payable;
(2) covenants, conditions and restrictions, rights of way, easements
and other matters of the public record as of the date of recording
acceptable to prudent mortgage lending institutions generally and
specifically referred to in the lender's title insurance policy delivered
to the originator
21
<PAGE>
of the Mortgage Loan and (a) specifically referred to or otherwise
considered in the appraisal made for the originator of the Mortgage Loan or
(b) which do not adversely affect the Appraised Value of the Mortgaged
Property set forth in such appraisal; and
(3) other matters to which like properties are commonly subject which
do not materially interfere with the benefits of the security intended to
be provided by the Mortgage or the use, enjoyment, value or marketability
of the related Mortgaged Property.
With respect to Co-op Loans, the Mortgage is a valid, subsisting enforceable
and perfected first security interest in the stock of the residential
cooperative housing corporation and the Co-op Lease pledged to secure the Co-op
Loan, subject only to (a) the lien of the related residential cooperative
housing corporation for unpaid assessments representing the Mortgagor's pro
rata share of the corporation's payments for its blanket mortgage, current and
future real property taxes, insurance premiums, maintenance fees and other
assessments to which like collateral is commonly subject; and (b) other matters
to which like collateral is commonly subject which do not materially interfere
with the benefits of the security intended to be provided by the Mortgage. Also
with respect to a Co-op Loan, a cooperative lien search has been made by a
company competent to make same, which company is acceptable to FNMA and is
qualified to do business in the jurisdiction where the Co-op Project is
located.
Any security agreement, chattel mortgage or equivalent document related to and
delivered in connection with the Mortgage Loan establishes and creates a valid,
subsisting, enforceable and perfected first lien and first priority security
interest on the property described therein and the Seller has full right to
sell and assign the same to the Purchaser. The Mortgaged Property was not, as
of the date of origination of the Mortgage Loan, subject to a mortgage, deed of
trust, deed to secure debt or other security instrument creating a lien
subordinate to the lien of the Mortgage (except any such subordinate loan which
was created in connection with the origination of the related Mortgage Loan
details of which are contained in the related Mortgage File);
(k) Validity of Mortgage Documents. The Mortgage Note and the Mortgage
and any other agreement executed and delivered by a Mortgagor in connection
with a Mortgage Loan are genuine, and each is the legal, valid and binding
obligation of the maker thereof enforceable in accordance with its terms. All
parties to the Mortgage Note, the Mortgage and any other such related agreement
had legal capacity to enter into the Mortgage Loan and to execute and deliver
the Mortgage Note, the Mortgage and any such agreement, and the Mortgage Note,
the Mortgage and any other such related agreement have been duly and properly
executed by
22
<PAGE>
such parties. No fraud, error, omission, misrepresentation, negligence or
similar occurrence with respect to a Mortgage Loan has taken place on the part
of any Person, including without limitation, the Mortgagor, any appraiser, any
builder or developer, or any other party involved in the origination of the
Mortgage Loan;
(l) Full Disbursement of Proceeds. The Mortgage Loan has been closed
and the proceeds of the Mortgage Loan have been fully disbursed and there is no
requirement for future advances thereunder, and any and all requirements as to
completion of any on-site or off-site improvement and as to disbursements of
any escrow funds therefor have been complied with. All costs, fees and expenses
incurred in making or closing the Mortgage Loan and the recording of the
Mortgage were paid, and the Mortgagor is not entitled to any refund of any
amounts paid or due under the Mortgage Note or Mortgage;
(m) Ownership. The Seller is the sole owner of record and holder of
the Mortgage Loan and the indebtedness evidenced by each Mortgage Note, except
for the assignments of mortgage which have been sent for recording, and upon
recordation the Seller will be the owner of record of each Mortgage and the
indebtedness evidenced by each Mortgage Note, and upon the sale of the Mortgage
Loans to the Purchaser, the Seller will retain the Mortgage Files or any part
thereof not delivered to the Purchaser or its designee in trust only for the
purpose of servicing and supervising the servicing of each Mortgage Loan. The
Mortgage Loan is not assigned or pledged, and the Seller has good and
indefeasible title thereto, and has full right to transfer and sell the
Mortgage Loan to the Purchaser free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or security interest, and
has full right and authority subject to no interest or participation of, or
agreement with, any other party, to sell and assign each Mortgage Loan pursuant
to this Agreement and following the sale of each Mortgage Loan, the Purchaser
will own such Mortgage Loan free and clear of any encumbrance, equity,
participation interest, lien, pledge, charge, claim or security interest. The
Seller intends to relinquish all rights to possess, control and monitor the
Mortgage Loan, except indirectly for purposes of servicing the Mortgage Loan as
set forth in the Servicing Agreement. After the applicable Closing Date, the
Seller will have no right to modify or alter the terms of the sale of any
Mortgage Loan and the Seller will have no obligation or right to repurchase
such Mortgage Loan or substitute another Mortgage Loan therefor, except as
provided in this Agreement;
(n) Doing Business. All parties which have had any interest in the
Mortgage Loan, whether as mortgagee, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (1)
in compliance with
23
<PAGE>
any and all applicable licensing requirements of the laws of the state wherein
the Mortgaged Property is located and (2) either (i) organized under the laws
of such state, or (ii) qualified to do business in such state, or (iii) a
federal savings and loan association, a savings bank or a national bank having
a principal office in such state, or (3) not doing business in such state;
(o) PMI Policy. Each Mortgage Loan which at the time of its
origination was required to be insured as to payment defaults by a PMI Policy
in accordance with the underwriting policies customarily employed by the Seller
or one of its predecessors in interest during the period of such origination
was so insured. All provisions of each PMI Policy have been and are being
complied with, each such policy is valid and remains in full force and effect,
and all premiums due thereunder have been paid. No action, inaction, or event
has occurred and no state of facts exists that has, or will result in the
exclusion from, denial of, or defense to coverage by the PMI Policy. Any
Mortgage Loan subject to a PMI Policy obligates the Mortgagor thereunder to
maintain the PMI Policy and to pay all premiums and charges in connection
therewith. The Mortgage Interest Rate for each such Mortgage Loan as set forth
on the related Mortgage Loan Schedule is net of any such insurance premium;
(p) Title Insurance. The Mortgage Loan is covered by an ALTA lender's
title insurance policy or other generally acceptable form of policy or
insurance acceptable to FNMA and each such title insurance policy is issued by
a title insurer acceptable to FNMA and qualified to do business in the
jurisdiction where the Mortgaged Property is located, insuring the Seller, its
successors and assigns, as to the first priority lien of the Mortgage in the
original principal amount of the Mortgage Loan, subject only to the exceptions
contained in clauses (1), (2) and (3) of paragraph (j) of this Subsection 8.2,
and against any loss by reason of the invalidity or unenforce-ability of the
lien resulting from the provisions of the Mortgage providing for adjustment to
the Mortgage Interest Rate and Monthly Payment. Where required by state law or
regulation, the Mortgagor has been given the opportunity to choose the carrier
of the required mortgage title insurance. Additionally, such lender's title
insurance policy affirmatively insures ingress and egress, and against
encroachments by or upon the Mortgaged Property or any interest therein. The
Seller, its successor and assigns, are the sole insureds of such lender's title
insurance policy, and such lender's title insurance policy is valid and remains
in full force and effect and will be in force and effect upon the consummation
of the transactions contemplated by this Agreement. No claims have been made
under such lender's title insurance policy, and no prior holder of the related
Mortgage, including the Seller, has done, by act or omission, anything which
would impair the coverage of such lender's title insurance policy, including
without limitation, no unlawful fee,
24
<PAGE>
commission, kickback or other unlawful compensation or value of any kind has
been or will be received, retained or realized by any attorney, firm or other
person or entity, and no such unlawful items have been received, retained or
realized by the Seller;
(q) No Defaults. There is no default, breach, violation or event which
would permit acceleration existing under the Mortgage or the Mortgage Note and
no event which, with the passage of time or with notice and the expiration of
any grace or cure period, would constitute a default, breach, violation or
event which would permit acceleration, and neither the Seller nor its
predecessors have waived any default, breach, violation or event which would
permit acceleration;
(r) No Mechanics' Liens. With respect to each Mortgage Loan, as of its
date of origination, there was, and to the best knowledge of Seller there is,
no mechanics' or similar liens or claims filed for work, labor or material (and
no rights are outstanding that under law could give rise to such liens)
affecting the related Mortgaged Property which are or may be liens prior to, or
equal or coordinate with, the lien of the related Mortgage;
(s) Location of Improvements; No Encroachments. With respect to each
Mortgage Loan, to the best knowledge of Seller, all improvements which were
considered in determining the Appraised Value of the Mortgaged Property lay
wholly within the boundaries and building restriction lines of the Mortgaged
Property, and no improvements on adjoining properties encroach upon the
Mortgaged Property. No improvement located on or being part of the Mortgaged
Property is in violation of any applicable zoning law or regulation;
(t) Origination: Payment Terms. The Mortgage Loan was originated by a
mortgagee approved by the Secretary of Housing and Urban Development pursuant
to Sections 203 and 211 of the Act, a savings and loan association, a savings
bank, a commercial bank, credit union, insurance company or similar institution
which is supervised and examined by a federal or state authority. The
documents, instruments and agreements submitted for loan underwriting were not
falsified and contain no untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the
information and statements therein not misleading. Principal payments on the
Mortgage Loan commenced no more than sixty (60) days after funds were disbursed
in connection with the Mortgage Loan. The Mortgage Interest Rate, as well as
the Lifetime Rate Cap and the Periodic Rate Cap if the Mortgage Loan is an
Adjustable Rate Mortgage Loan, are as set forth on the applicable Mortgage Loan
Schedule. The Mortgage Note is payable each month in equal monthly installments
of principal and interest, which
25
<PAGE>
installments of principal and interest are subject to change if the Mortgage
Loan is an Adjustable Rate Mortgage Loan due to the adjustments to the Mortgage
Interest Rate on each Interest Rate Adjustment Date, with interest calculated
and payable in arrears, sufficient to amortize the Mortgage Loan fully by the
stated maturity date, over an original term of not more than forty years from
commencement of amortization. Each Convertible Mortgage Loan contains a
provision allowing the Mortgagor to convert the Mortgage Note from an
adjustable interest rate Mortgage Note to a fixed interest rate Mortgage Note
in accordance with the terms of the Mortgage Note or a rider to the related
Mortgage Note;
(u) Customary Provisions. The Mortgage contains customary and
enforceable provisions such as to render the rights and remedies of the holder
thereof adequate for the realization against the Mortgaged Property of the
benefits of the security provided thereby, including, (i) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (ii) otherwise
by judicial foreclosure. Upon default by a Mortgagor on a Mortgage Loan and
foreclosure on, or trustee's sale of, the Mortgaged Property pursuant to the
proper procedures, the holder of the Mortgage Loan will be able to deliver good
and merchantable title to the Mortgaged Property. There is no homestead or
other exemption available to a Mortgagor which would interfere with the right
to sell the Mortgaged Property at a trustee's sale or the right to foreclose
the Mortgage, subject to applicable federal and state laws and judicial
precedent with respect to bankruptcy and right of redemption or similar law.
The Mortgage contains due-on-sale provisions providing for the acceleration of
the payment of the unpaid principal balance of such Mortgage Loan in the event
that all or any part of the Mortgaged Property is sold or transferred without
the prior written consent of the Mortgagee. With respect to a Co-op Loan, (i)
there is no provision in any Co-op Lease which requires that Mortgagor, before
the shares owned by such Mortgagor are offered to a third party, to offer for
sale such shares to the residential cooperative housing corporation at a price
that is below the fair market price for such shares, as such fair market price
is determined at time of such offer, and (ii) there is no prohibition in any
Co-op Lease against pledging the shares or assigning the Co-op Lease;
(v) Conformance with Agency and Underwriting Standards. The Mortgage
Loan was underwritten in accordance with the underwriting standards of the
Seller or one of its predecessors in interest, as applicable, or FNMA's
underwriting standards (except that the principal balance of certain Mortgage
Loans may have exceeded the limits of FNMA), in each case in effect at the time
the Mortgage Loan was originated. The Mortgage Note and Mortgage are on forms
acceptable to the Purchaser, in its sole discretion, as evidenced by the
Purchaser's purchase of the related Mortgage Loans, and the
26
<PAGE>
Seller has not made any representations to a Mortgagor that are inconsistent
with the mortgage instruments used;
(w) Occupancy of the Mortgaged Property. As of the date of origination
of each Mortgage Loan, the related Mortgaged Property was, and to the best
knowledge of Seller, is, lawfully occupied under applicable law. To the best
knowledge of Seller, all inspections, licenses and certificates required to be
made or issued with respect to all occupied portions of the Mortgaged Property
and, with respect to the use and occupancy of the same, including but not
limited to certificates of occupancy and fire underwriting certificates, have
been made or obtained from the appropriate authorities;
(x) No Additional Collateral. The Mortgage Note is not and has not
been secured by any collateral except the lien of the corresponding Mortgage
and the security interest of any applicable security agreement or chattel
mortgage referred to in clause (j) above;
(y) Deeds of Trust. In the event the Mortgage constitutes a deed of
trust, a trustee, authorized and duly qualified under applicable law to serve
as such, has been properly designated and currently so serves and is named in
the Mortgage, and no fees or expenses are or will become payable by the
Purchaser to the trustee under the deed of trust, except in connection with a
trustee's sale after default by the Mortgagor;
(z) Value and Marketability. The Seller has no actual knowledge of any
circumstances or conditions with respect to the Mortgage, the Mortgaged
Property, the Mortgagor, the Mortgage File or the Mortgagor's credit standing
that can reasonably be expected to cause the Mortgage Loan to become
delinquent, or adversely affect the value or marketability of the Mortgage
Loan;
(aa) Delivery of Mortgage Documents. The Mortgage Note, the Mortgage,
the Assignment of Mortgage and any other documents in the Custodian's File for
each Mortgage Loan have been delivered to the Purchaser or its designee. FNMC
is in possession of a complete, true and accurate Servicing File, except for
such documents the originals of which have been delivered to the Purchaser or
its designee;
(bb) [reserved]
(cc) [reserved]
(dd) Assumability. Either (i) the documents in the Custodian's File
provide that a related Mortgage Loan may only be assumed if the party assuming
such Mortgage Loan meets certain credit requirements stated in such documents,
or (ii) the Mortgage Note with respect to such Mortgage Loan contains a "due-
27
<PAGE>
on-sale" provision which prevents the assumption of the Mortgage Loan by a
proposed transferee and accelerates the payment of the outstanding principal
balance of such Mortgage Loan;
(ee) No Buydown Provisions; No Graduated Payments or Contingent
Interests. The Mortgage Loan does not contain provisions pursuant to which
Monthly Payments are paid or partially paid with funds deposited in any
separate account established by the Seller, the Mortgagor, or anyone on behalf
of the Mortgagor, or paid by any source other than the Mortgagor nor does it
contain any other similar provisions which may constitute a "buydown"
provision. The Mortgage Loan is not a graduated payment mortgage loan and the
Mortgage Loan does not have a shared appreciation or other contingent interest
feature;
(ff) [reserved]
(gg) Mortgaged Property Undamaged; No Condemnation Proceedings. To the
best knowledge of Seller, there is no proceeding pending or threatened for the
total or partial condemnation of the Mortgaged Property. To the best knowledge
of Seller, the Mortgaged Property is undamaged by waste, fire, earthquake or
earth movement, windstorm, flood, tornado or other casualty so as to affect
adversely the value of the Mortgaged Property as security for the Mortgage Loan
or the use for which the premises were intended and each Mortgaged Property is
in good repair. There have not been any condemnation proceedings with respect
to the Mortgaged Property and the Seller has no knowledge of any such
proceedings in the future;
(hh) Collection Practices; Escrow Deposits; Interest Rate Adjustments.
The origination and collection practices used by the Seller with respect to the
Mortgage Loan have been in all respects in compliance with Accepted Servicing
Practices, applicable laws and regulations, and have been in all respects legal
and proper. With respect to escrow deposits and Escrow Payments, all such
payments are in the possession of, or under the control of, the Seller or FNMC
and there exist no deficiencies in connection therewith for which customary
arrangements for repayment thereof have not been made. All Escrow Payments have
been collected in full compliance with state and federal law and the provisions
of the related Mortgage Note and Mortgage. An escrow of funds is not prohibited
by applicable law and has been established in an amount sufficient to pay for
every item that remains unpaid and has been assessed but is not yet due and
payable. No escrow deposits or Escrow Payments or other charges or payments due
the Seller have been capitalized under the Mortgage or the Mortgage Note. All
Mortgage Interest Rate adjustments and adjustments to the Monthly Payment, if
the Mortgage Loan is an Adjustable Rate Mortgage Loan, have been made in strict
compliance with state and federal law and the terms of the related Mortgage and
Mortgage Note on the related Interest
28
<PAGE>
Rate Adjustment Date. With respect to each Adjustable Rate Mortgage Loan, the
Mortgage Interest Rate adjusts annually, semiannually or monthly as set forth
herein. If, pursuant to the terms of the Mortgage Note, another index was
selected for determining the Mortgage Interest Rate, the same index was used
with respect to each Mortgage Note which required a new index to be selected,
and such selection did not conflict with the terms of the related Mortgage
Note. The Seller executed and delivered any and all notices required under
applicable law and the terms of the related Mortgage Note and Mortgage
regarding the Mortgage Interest Rate and the Monthly Payment adjustments. Any
interest required to be paid pursuant to state, federal and local law has been
properly paid and credited;
(ii) Other Insurance Policies. No action, inaction or event has
occurred and no state of facts exists or has existed that has resulted or could
result in the exclusion from, denial of, or defense to coverage under any
hazard insurance policy or PMI Policy. In connection with the placement of any
such insurance, no commission, fee, or other compensation has been or will be
received by the Seller or by any officer, director, or employee of the Seller
or any designee of the Seller or any corporation in which the Seller or any
officer, director, or employee had a financial interest at the time of
placement of such insurance;
(jj) No Violation of Environmental Laws. To the knowledge of Seller,
there is no pending action or proceeding directly involving the Mortgaged
Property in which compliance with any environmental law, rule or regulation is
an issue; there is no violation of any environmental law, rule or regulation
with respect to the Mortgaged Property; and nothing further remains to be done
to satisfy in full all requirements of each such law, rule or regulation
constituting a prerequisite to use and enjoyment of said property;
(kk) Soldiers' and Sailors' Civil Relief Act. The Mortgagor has not
notified the Seller and the Seller has no knowledge of any relief requested or
allowed to the Mortgagor under the Soldiers' and Sailors' Civil Relief Act of
1940;
(ll) Appraisal. The Mortgage File contains an appraisal of the related
Mortgaged Property signed prior to the origination of the Mortgage Loan by a
Qualified Appraiser who had no interest, direct or indirect in the Mortgaged
Property or in any loan made on the security thereof, and whose compensation is
not affected by the approval or disapproval of the Mortgage Loan, and the
appraisal and appraiser both satisfy the requirements of FNMA and Title XI of
the Federal Institutions Reform, Recovery, and Enforcement Act of 1989 and the
regulations promulgated thereunder, all as in effect on the date the Mortgage
Loan was originated;
29
<PAGE>
(mm) Disclosure Materials. The Mortgagor has received all disclosure
materials required by and the Seller complied with all applicable law with
respect to the making of the Mortgage Loans, and the Servicing File contains a
signed statement of the Mortgagor to that effect;
(nn) Construction or Rehabilitation of Mortgaged Property. No Mortgage
Loan was made in connection with the construction or rehabilitation of a
Mortgaged Property or facilitating the trade-in or exchange of a Mortgaged
Property;
(oo) No Defense to Insurance Coverage. No action has been taken or
failed to be taken, no event has occurred and no state of facts exists or has
existed on or prior to the applicable Closing Date (whether or not known to the
Seller on or prior to such date) which has resulted or will result in an
exclusion from, denial of, or defense to coverage under any primary mortgage
insurance (including, without limitation, any exclusions, denials or defenses
which would limit or reduce the availability of the timely payment of the full
amount of the loss otherwise due thereunder to the insured) whether arising out
of actions, representations, errors, omissions, negligence, or fraud of the
Seller, the related Mortgagor or any party involved in the application for such
coverage, including the appraisal, plans and specifications and other exhibits
or documents submitted therewith to the insurer under such insurance policy, or
for any other reason under such coverage, but not including the failure of such
insurer to pay by reason of such insurer's breach of such insurance policy or
such insurer's financial inability to pay;
(pp) Escrow Analysis. With respect to each Mortgage, Seller has within
the last twelve months (unless such Mortgage was originated within such twelve
month period) analyzed the required Escrow Payments for each Mortgage and
adjusted the amount of such payments so that, assuming all required payments
are timely made, any deficiency will be eliminated on or before the first
anniversary of such analysis, or any overage will be refunded to the Mortgagor,
in accordance with RESPA and any other applicable law; and
(qq) Prior Servicing. Each Mortgage Loan has been serviced in all
material respects in compliance with Accepted Servicing Practices; provided
that, in the event of any breach of the representation and warranty set forth
in this Subsection (qq), the Seller shall not be required to repurchase any
such Mortgage Loan unless such breach had, and continues to have, a material
and adverse effect on the value of the related Mortgage Loan or the interest of
the Purchaser therein.
30
<PAGE>
Subsection 8.3 Remedies for Breach of Representations and Warranties.
It is understood and agreed that the representations and warranties
set forth in Subsections 8.1 and 8.2 shall survive the sale of the Mortgage
Loans to the Purchaser and shall inure to the benefit of the Purchaser,
notwithstanding any restrictive or qualified endorsement on any Mortgage Note
or Assignment of Mortgage or the examination or failure to examine any Mortgage
File. Upon discovery by either the Seller or the Purchaser of a breach of any
of the foregoing representations and warranties which materially and adversely
affects the interests of the Purchaser in the related Mortgage Loan, the party
discovering such breach shall give prompt written notice to the other.
The Seller, promptly after discovery of a breach of any representation
or warranty, shall notify the Purchaser of such breach and the details thereof.
Within ninety (90) days of the earlier of (i) notice by the Seller pursuant to
the immediately preceding sentence or (ii) notice by the Purchaser to the
Seller of any breach of a representation or warranty with respect to a Mortgage
Loan, the Seller shall use its best efforts promptly to cure such breach in all
material respects. If such breach can ultimately be cured but is not reasonably
expected to be cured within the 90 day period, Seller shall have such
additional time as is reasonably determined by Purchaser (not to exceed 180
days) to cure or correct such breach provided Seller has commenced curing or
correcting such breach and is diligently pursuing same. If such breach cannot
be or has not been cured, the Seller shall, upon the expiration of the cure
period described above, at the Purchaser's option and subject to the provisions
of this Subsection 8.3, repurchase such Mortgage Loan at the Repurchase Price,
unless the Seller elects to substitute a Qualified Substitute Mortgage Loan for
such Mortgage Loan pursuant to this Subsection 8.3. In the event that a breach
shall involve any representation or warranty set forth in Subsection 8.1, and
such breach cannot be cured within ninety (90) days of the earlier of either
discovery by or notice to the Seller of such breach, all of the Mortgage Loans
shall, at the Purchaser's option and subject to the provisions of this
Subsection 8.3, be repurchased by the Seller at the Repurchase Price. However,
if the breach shall involve a representation or warranty set forth in
Subsection 8.2, the Seller may, at the Seller's option and provided that the
Seller has a Qualified Substitute Mortgage Loan, rather than repurchase the
Mortgage Loan as provided above, remove such Mortgage Loan (a "Deleted Mortgage
Loan") and substitute in its place a Qualified Substitute Mortgage Loan or
Loans. If the Seller has no Qualified Substitute Mortgage Loan, it shall
repurchase the deficient Mortgage Loan. Any repurchase of a Mortgage Loan or
Mortgage Loans pursuant to the foregoing provisions of this Subsection 8.3
shall be accomplished by either (a) if the Servicing Agreement is in effect,
deposit in the
31
<PAGE>
Custodial Account of the amount of the Repurchase Price for payment to the
Purchaser on the next scheduled Remittance Date, after deducting therefrom any
amount received in respect of such repurchased Mortgage Loan or Loans and being
held in the Custodial Account for future distribution or (b) if the Servicing
Agreement is no longer in effect, by direct remittance of the Repurchase Price
to the Purchaser or its designee in accordance with the Purchaser's
instructions.
At the time of repurchase or substitution, the Purchaser and the
Seller shall arrange for the reassignment of the Deleted Mortgage Loan to the
Seller and the delivery to the Seller of any documents held by the Purchaser or
its designee relating to the Deleted Mortgage Loan. In addition, upon any such
repurchase, all funds maintained in the Escrow Account with respect to such
Deleted Mortgage Loan shall be transferred to the Seller. In the event of a
repurchase or substitution, the Seller shall, simultaneously with such
reassignment, give written notice to the Purchaser that such repurchase or
substitution has taken place, amend the related Mortgage Loan Schedule to
reflect the withdrawal of the Deleted Mortgage Loan from this Agreement, and,
in the case of substitution, identify a Qualified Substitute Mortgage Loan and
amend the related Mortgage Loan Schedule to reflect the addition of such
Qualified Substitute Mortgage Loan to this Agreement. In connection with any
such substitution, the Seller shall be deemed to have made as to such Qualified
Substitute Mortgage Loan the representations and warranties set forth in this
Agreement except that all such representations and warranties set forth in this
Agreement shall be deemed made as of the date of such substitution. The Seller
shall effect such substitution by delivering to the Purchaser or its designee
for such Qualified Substitute Mortgage Loan the documents required by
Subsection 6.3, with the Mortgage Note endorsed as required by Subsection 6.3.
No substitution will be made in any calendar month after the Investor Cut-off
Date for such month. The Seller shall deposit in the Custodial Account the
Monthly Payment, or in the event that the Servicing Agreement is no longer in
effect remit directly to the Purchaser or its designee in accordance with the
Purchaser's instructions the Monthly Payment less the Servicing Fee due, if
any, on such Qualified Substitute Mortgage Loan or Loans in the month following
the date of such substitution. Monthly Payments due with respect to Qualified
Substitute Mortgage Loans in the month of substitution shall be retained by the
Seller. For the month of substitution, payments to the Purchaser shall include
the Monthly Payment due on any Deleted Mortgage Loan in the month of
substitution, and the Seller shall thereafter be entitled to retain all amounts
subsequently received by the Seller in respect of such Deleted Mortgage Loan.
For any month in which the Seller substitutes a Qualified Substitute
Mortgage Loan for a Deleted Mortgage Loan,
32
<PAGE>
the Seller shall determine the amount (if any) by which the aggregate principal
balance of all Qualified Substitute Mortgage Loans as of the date of
substitution is less than the aggregate Stated Principal Balance of all Deleted
Mortgage Loans (after application of scheduled principal payments due in the
month of substitution). The amount of such shortfall shall be distributed by
the Seller directly to the Purchaser or its designee in accordance with the
Purchaser's instructions within two (2) Business Days of such substitution.
In addition to such repurchase or substitution obligation, the Seller
shall indemnify the Purchaser and hold it harmless against any losses, damages,
penalties, fines, forfeitures, reasonable and necessary legal fees and related
costs, judgments, and other costs and expenses resulting from any claim,
demand, defense or assertion based on or grounded upon, or resulting from, a
breach of the Seller representations and warranties contained in this
Agreement. It is understood and agreed that the obligations of the Seller set
forth in this Subsection 8.3 to cure, substitute for or repurchase a defective
Mortgage Loan and to indemnify the Purchaser as provided in this Subsection 8.3
constitute the sole remedies of the Purchaser respecting a breach of the
foregoing representations and warranties.
Any cause of action against the Seller relating to or arising out of
the breach of any representations and warranties made in Subsections 8.1 and
8.2 shall accrue as to any Mortgage Loan upon (i) discovery of such breach by
the Purchaser or notice thereof by the Seller to the Purchaser, (ii) failure by
the Seller to cure such breach or repurchase such Mortgage Loan as specified
above, and (iii) demand upon the Seller by the Purchaser for compliance with
this Agreement.
SECTION 9. Closing.
The closing for the purchase and sale of any Mortgage Loans shall take
place on (i) the Initial Closing Date with respect to the purchase and sale of
the Mortgage Loans set forth on the Initial Portfolio Mortgage Loan Schedule
and (ii) on the Closing Date set forth in a duly executed Commitment Letter
with respect to the purchase and sale of Mortgage Loans pursuant thereto. At
the Purchaser's option, any closing shall be either: by telephone, confirmed by
letter or wire as the parties shall agree, or conducted in person, at such
place as the parties shall agree.
The closing for the purchase and sale of Mortgage Loans to be
purchased on any Closing Date shall be subject to each of the following
conditions:
(a) all of the representations and warranties of the Seller
33
<PAGE>
under this Agreement and of FNMC under the Servicing Agreement (with
respect to each Mortgage Loan, as specified therein) shall be true and
correct as of such Closing Date, and no event shall have occurred
which, with notice or the passage of time, would constitute a default
under this Agreement or an Event of Default under the Servicing
Agreement;
(b) the Purchaser shall have received, or the Purchaser's attorneys shall
have received in escrow, all closing documents as specified in Section
10 of this Agreement, in such forms as are agreed upon and acceptable
to the Purchaser, duly executed by all signatories other than the
Purchaser as required pursuant to the terms hereof;
(c) the Seller shall have delivered and released to the Purchaser or its
designee all Mortgage Loan documents in the Custodian's File with
respect to each Mortgage Loan; and
(d) all other terms and conditions of this Agreement shall have been
complied with.
Subject to the foregoing conditions, the Purchaser shall pay to the
Seller on the applicable Closing Date the applicable Purchase Price, plus
accrued interest pursuant to Section 4 of this Agreement, by wire transfer of
immediately available funds to the account designated by the Seller.
SECTION 10. Closing Documents.
The closing documents for the Mortgage Loans to be purchased on any
Closing Date shall consist of fully executed originals of the following
documents:
1. on the Initial Closing Date only, this Agreement (and on all
subsequent Closing Dates, a Commitment Letter in the form of
Exhibit J hereto);
2. on the Initial Closing Date only, the Servicing Agreement, dated
as of the Initial Cut-off Date, in the form of Exhibit B hereto;
3. on the Initial Closing Date only, a Custodial Account Letter
Agreement or a Custodial Account Certification, as applicable, as
required under the Servicing Agreement;
4. on the Initial Closing Date only, an Escrow Account Letter
Agreement or an Escrow Account Certification, as applicable, as
required under the Servicing Agreement;
34
<PAGE>
5. an Officer's Certificate, in the form of Exhibit C hereto,
including all attachments thereto;
6. an Opinion of Counsel of the Seller (who may be an employee of
the Seller), in the form of Exhibit D hereto;
7. a Security Release Certification, in the form of Exhibit G or
Exhibit H, if applicable, hereto executed by any person, as
requested by the Purchaser, if any of the Mortgage Loans have at
any time been subject to any security interest, pledge or
hypothecation for the benefit of such person; and
8. a certificate or other evidence of merger or acquisition, if any
of the Mortgage Loans being purchased were acquired by Seller by
merger or acquisition.
The Seller shall bear the risk of loss of any closing documents and
Mortgage Loan documents until such time as they are received by the Purchaser
or its attorneys or designees, as applicable.
SECTION 11. Costs.
The Purchaser shall pay any commissions due its salesmen and the legal
fees and expenses of its attorneys. All other costs and expenses incurred in
connection with the transfer and delivery of the Mortgage Loans including
recording fees, fees for recording Assignments of Mortgages, fees for title
policy endorsements and continuations and, if applicable, the Seller's
attorney's fees, shall be paid by the Seller.
SECTION 12. Merger or Consolidation of the Seller.
The Seller will keep in full effect its existence, rights and
franchises as a corporation under the laws of the state of its incorporation
except as permitted herein, and will obtain and preserve its qualification to
do business as a foreign corporation in each jurisdiction in which such
qualification is or shall be necessary to protect the validity and
enforceability of this Agreement, or any of the Mortgage Loans and to perform
its duties under this Agreement.
Any Person into which the Seller may be merged or consolidated, or any
corporation resulting from any merger, conversion or consolidation to which the
Seller shall be a party, or any Person succeeding to the business of the
Seller, shall be the successor of the Seller hereunder, without the execution
or filing of any paper or any further act on the part of any of the
35
<PAGE>
parties hereto, anything herein to the contrary notwithstanding; provided,
however, that the successor or surviving Person shall have a tangible net worth
of at least $30,000,000.
SECTION 13. Mandatory Delivery; Grant of Security Interest.
The sale and delivery on any Closing Date of the Mortgage Loans
described on the applicable Mortgage Loan Schedule is mandatory from and after
the date of the execution of this Agreement or a Commitment Letter, as the case
may be, it being specifically understood and agreed that each Mortgage Loan is
unique and identifiable and that an award of money damages would be
insufficient to compensate the Purchaser for the losses and damages incurred by
the Purchaser (including damages to prospective purchasers of the Mortgage
Loans) in the event of the Seller's failure to deliver (i) each of the Mortgage
Loans or (ii) one or more Qualified Substitute Mortgage Loans or (iii) one or
more Mortgage Loans otherwise acceptable to the Purchaser on or before such
Closing Date. The Seller hereby grants to the Purchaser a lien on and a
continuing security interest in each Mortgage Loan set forth on the Initial
Portfolio Mortgage Loan Schedule and each document and instrument evidencing
each such Mortgage Loan to secure the performance by the Seller of its
obligations under this Agreement, and the Seller agrees that it shall hold such
Mortgage Loans in custody for the Purchaser subject to the Purchaser's (i)
right to reject any Mortgage Loan (or Qualified Substitute Mortgage Loan) under
the terms of this Agreement and to require another Mortgage Loan (or Qualified
Substitute Mortgage Loan) to be substituted therefor, and (ii) obligation to
pay the Initial Purchase Price plus accrued interest as set forth in Section 4
hereof for the Mortgage Loans. All rights and remedies of the Purchaser under
this Agreement are distinct from, and cumulative with, any other rights or
remedies under this Agreement or afforded by law or equity and all such rights
and remedies may be exercised concurrently, independently or successively.
SECTION 14. Notices.
All demands, notices and communications hereunder shall be in writing
and shall be deemed to have been duly given if mailed, by registered or
certified mail, return receipt requested, or, if by other means, when received
by the other party at the address as follows:
36
<PAGE>
(i) if to the Seller:
California Federal Bank,
A Federal Savings Bank
135 Main Street, 20th Floor
San Francisco, California 94105
Attention: Kenneth Shannon
Fax: (415) 904-0459
(ii) if to the Purchaser:
California Federal Preferred Capital Corporation
200 Crescent Court, Suite 1350
Dallas, Texas 75201
Attention: Christie S. Flanagan, Esq.
Fax: (214) 871-5199
or such other address as may hereafter be furnished to the other party by like
notice. Any such demand, notice or communication hereunder shall be deemed to
have been received on the date delivered to or received at the premises of the
addressee (as evidenced, in the case of registered or certified mail, by the
date noted on the return receipt).
SECTION 15. Severability Clause.
Any part, provision, representation or warranty of this Agreement
which is prohibited or unenforceable or is held to be void or unenforceable in
any jurisdiction shall be ineffective, as to such jurisdiction, to the extent
of such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction as to any Mortgage Loan shall not invalidate or render
unenforceable such provision in any other jurisdiction. To the extent permitted
by applicable law, the parties hereto waive any provision of law which
prohibits or renders void or unenforceable any provision hereof. If the
invalidity of any part, provision, representation or warranty of this Agreement
shall deprive any party of the economic benefit intended to be conferred by
this Agreement, the parties shall negotiate, in good faith, to develop a
structure the economic effect of which is nearly as possible the same as the
economic effect of this Agreement without regard to such invalidity.
SECTION 16. Counterparts.
This Agreement may be executed simultaneously in any number of
counterparts. Each counterpart shall be deemed to be an original, and all such
counterparts shall constitute one and the same instrument.
37
<PAGE>
SECTION 17. Governing Law.
This Agreement shall be deemed to have been made in the State of
California. The Agreement shall be construed in accordance with the laws of the
State of California and the obligations, rights and remedies of the parties
hereunder shall be determined in accordance with the substantive laws of the
State of California (without regard to conflicts of laws principles), except to
the extent preempted by Federal law.
SECTION 18. Intention of the Parties.
It is the intention of the parties that the Purchaser is purchasing,
and the Seller is selling the Mortgage Loans and not a debt instrument of the
Seller or another security. Accordingly, the parties hereto each intend to
treat the transaction for Federal income tax purposes as a sale by the Seller,
and a purchase by the Purchaser, of the Mortgage Loans.
SECTION 19. Successors and Assigns; Assignment of Purchase Agreement.
This Agreement shall bind and inure to the benefit of and be
enforceable by the Seller and the Purchaser and the respective permitted
successors and assigns of the Seller and the successors and assigns of the
Purchaser. This Agreement shall not be assigned, pledged or hypothecated by the
Seller to a third party without the consent of the Purchaser. This Agreement
may be assigned, pledged or hypothecated by the Purchaser without the prior
consent of the Seller. If the Purchaser assigns all or any of its rights as
Purchaser hereunder, the assignee of the Purchaser will become the "Purchaser"
hereunder to the extent of such assignment, provided that at no time shall
there be more than fifteen (15) persons having the status of "Purchaser"
hereunder.
SECTION 20. Waivers.
No term or provision of this Agreement may be waived or modified
unless such waiver or modification is in writing and signed by the party
against whom such waiver or modification is sought to be enforced.
SECTION 21. Entire Agreement; Amendment.
This Agreement (including the Schedules and Exhibits annexed hereto or
referred to herein) and any Commitment Letter duly executed by the parties
hereto contain the entire agreement between the parties with respect to the
transactions contemplated hereby and supersede all prior agreements, written or
oral, with respect thereto. No amendment, modification or alteration of the
terms or provisions of this Agreement shall be binding unless the
38
<PAGE>
same shall be in writing and duly executed by the authorized representatives of
the parties hereto, provided, however, that as long as any Series A Preferred
Shares remain outstanding, no material amendment to or modification or
alteration of this Agreement may be entered into or approved by the Purchaser
without the approval of a majority of the Independent Directors.
SECTION 22. General Interpretive Principles.
For purposes of this Agreement, except as otherwise expressly provided
or unless the context otherwise requires:
(a) the terms defined in this Agreement have the meanings assigned to
them in this Agreement and include the plural as well as the singular, and the
use of any gender herein shall be deemed to include the other gender;
(b) accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles;
(c) references herein to "Articles," "Sections," "Subsections,"
"Paragraphs," and other subdivisions without reference to a document are to
designated Articles, Sections, Subsections, Paragraphs and other subdivisions
of this Agreement;
(d) reference to a Subsection without further reference to a Section
is a reference to such Subsection as contained in the same Section in which the
reference appears, and this rule shall also apply to Paragraphs and other
subdivisions;
(e) the words "herein," "hereof," "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
provision; and
(f) the term "include" or "including" shall mean without limitation by
reason of enumeration.
SECTION 23. Reproduction of Documents.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications which may hereafter be
executed, (b) documents received by any party at any closing, and (c) financial
statements, certificates and other information previously or hereafter
furnished, may be reproduced by any photographic, photostatic, microfilm,
micro-card, miniature photographic or other similar process. The parties agree
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the
original is in existence and whether or not such reproduction was made by a
party in the regular course of
39
<PAGE>
business, and that any enlargement, facsimile or further reproduction of such
reproduction shall likewise be admissible in evidence.
SECTION 24. Further Agreements.
The Seller and the Purchaser each agree to execute and deliver to the
other such reasonable and appropriate additional documents, instruments or
agreements as may be necessary or appropriate to effectuate the purposes of
this Agreement.
SECTION 25. Recordation of Assignments of Mortgage.
The Seller and the Purchaser shall execute a blanket assignment of the
Mortgages underlying each Mortgage Loan (other than Co-op Loans) sold to the
Purchaser, whether pursuant to this Agreement or pursuant to a duly executed
Commitment Letter. Upon the written request of Purchaser (whether due to the
proposed sale of any Mortgage Loan by Purchaser or otherwise), or to the extent
deemed necessary by FNMC in connection with servicing a Mortgage Loan pursuant
to the terms of the Servicing Agreement, the Seller shall promptly prepare and
execute such individual Assignments of Mortgage (except those for Co-op Loans)
as Purchaser shall request, to be recorded in all appropriate public offices
for real property records in all the counties or other comparable jurisdictions
in which any or all of the related Mortgaged Properties are situated, and in
any other appropriate public recording office or elsewhere, such recordation to
be effected by the Purchaser or Purchaser's designee, but in any event, at the
Seller's expense for a single recordation with respect to each such Assignment
of Mortgage. Seller shall execute a limited power of attorney for the purpose
of enabling FNMC to execute Assignments of Mortgages on behalf of Seller in
accordance with this Section 25.
[Signatures Commence on Following Page]
40
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement under
seal as of the date and year first above written.
CALIFORNIA FEDERAL PREFERRED CAPITAL
CORPORATION
(the Purchaser)
By: /s/ Renee Nichols Tucei
------------------------------------
Name: Renee Nichols Tucei
----------------------------------
Title: Vice President and Assistant
---------------------------------
Treasurer
---------------------------------
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
(the Seller)
By: /s/ Renee Nichols Tucei
------------------------------------
Name: Renee Nichols Tucei
----------------------------------
Title: Senior Vice President and
---------------------------------
Controller
---------------------------------
41
<PAGE>
EXHIBIT A
CONTENTS OF MORTGAGE FILES
--------------------------
I. With respect to each Mortgage Loan, the Mortgage File shall include each of
the following items, which shall be available for inspection by the
Purchaser and any prospective Purchaser, and which shall be delivered to
the Purchaser or its designee pursuant to Section 6.3 of the Mortgage Loan
Purchase and Warranties Agreement to which this Exhibit is attached (the
"Agreement"):
1. The original Mortgage Note (or, with respect to Mortgage Loans,
if any, listed on Exhibit 1 to the related Mortgage Loan
Schedule, a lost note affidavit, executed by an officer of the
Seller, with a copy of the original note or a copy of the related
security agreement attached thereto) bearing all intervening
endorsements, endorsed "Pay to the order of __________ without
recourse" and signed in the name of the Seller by an authorized
officer. To the extent that there is no room on the face of the
Mortgage Notes for endorsements, the endorsement may be contained
on an allonge, if state law so allows. If the Mortgage Loan was
acquired by the Seller in a merger, the endorsement must be by
"California Federal Bank, A Federal Savings Bank, successor by
merger to [name of predecessor]". If the Mortgage Loan was
acquired or originated by the Seller while doing business under
another name, the endorsement must be by "California Federal
Bank, A Federal Savings Bank, formerly known as [previous name]".
2. The original of any guarantee executed in connection with the
Mortgage Note.
3. The original Mortgage, with evidence of recording thereon. If, in
connection with any Mortgage Loan, the Seller cannot deliver or
cause to be delivered the original Mortgage with evidence of
recording thereon on or prior to the applicable Closing Date
because of a delay caused by the public recording office
<PAGE>
where such Mortgage has been delivered for recordation, a
photocopy of such Mortgage certified by the Seller to be true and
correct will be delivered; if such Mortgage has been lost or if
such public recording office retains the original recorded
Mortgage, the Seller shall deliver or cause to be delivered to
the Purchaser a photocopy of such Mortgage, certified by such
public recording office to be a true and complete copy of the
original recorded Mortgage or containing recording information
thereon.
4. The originals of all assumption, modification, consolidation or
extension agreements, if any, with evidence of recording thereon
or if the originals thereof are unavailable, copies of such
documents certified by the public recording office where such
document has been delivered for recordation or containing
recording information thereon.
5. If requested by the Purchaser pursuant to Section 25 of the
Agreement, the original Assignment of Mortgage endorsed "Pay to
the order of __________" and signed in the name of the Seller by
an authorized officer. If the Mortgage Loan was acquired by the
Seller in a merger, the Assignment of Mortgage must be made by
"California Federal Bank, A Federal Savings Bank, successor by
merger to [name of predecessor]". If the Mortgage Loan was
acquired or originated by the Seller while doing business under
another name, the Assignment of Mortgage must be by "California
Federal Bank, A Federal Savings Bank, formerly known as [previous
name]". With respect to each Co-op Loan, the Assignment of
Mortgage shall include an assignment of Security Instruments.
6. Originals or copies of all intervening assignments of the
Mortgage with evidence of recording thereon if such intervening
assignment has been recorded.
7. Original Form UCC-1 with evidence of filing thereon entered into
by the Mortgagor with respect to such Mortgage
2
<PAGE>
Loan, which in the case of a Co-op Loan should indicate the unit
number or other identification of the Mortgaged Property subject
to the Co-op Lease, the name of the debtor and the address of the
cooperative building. Original Form UCC-3 in blank by the Seller
assigning the security interest covered by the Form UCC-1
referred to above and any intervening Forms UCC-3.
8. Any original security agreement, chattel mortgage or equivalent
executed in connection with the Mortgage.
9. With respect to a Co-op Loan that is not a refinance transaction,
a document executed by the cooperative association consenting to
the sale of the cooperative shares and assignment of the Co-op
Lease to the Mortgagor and certifying that all maintenance
charges relating to the cooperative unit that is the subject of
the Co-op Lease have been paid.
10. With respect to each Co-op Loan, the stock certificate(s)
representing the stock allocated to the cooperative unit in the
cooperative pledged with respect to such Mortgage Loan with a
stock power in blank.
11. With respect to each Co-op Loan, the original Co-op Lease and the
Collateral Assignment of Lease.
12. With respect to each Co-op Loan, the original Recognition
Agreement of the interests of the applicable Seller with respect
to the Mortgage Loan by the Cooperative, the stock of which was
pledged in respect of such Mortgage Loan, in the standard
"AZTECH" form or a form containing provisions not less favorable
to the lender than are contained in such a standard AZTECH form.
13. For Mortgage Loans that are not Co-op Loans, the original
mortgagee policy of title insurance or, in the event such
original title policy is unavailable, a true copy of the related
policy binder or commitment for title provided by the title
3
<PAGE>
insurance company. For Co-op Loans, a cooperative lien search
which has searched for (a) federal tax liens, mechanics' liens,
lis pendens, judgments or record or otherwise against the
cooperative association, the seller of the cooperative shares and
the Mortgagor (if the Co-op Loan is a refinance transaction); (b)
filings of financing statements against the cooperative shares;
and (c) the deed of the Co-op Project to the residential
cooperative housing corporation.
II. With respect to each Mortgage Loan, the Mortgage File shall also include
each of the following items:
14. For Mortgage Loans that are not Co-op Loans, the original hazard
insurance policy and, if required by law, flood insurance policy,
in accordance with Section 8.2(f) of the Agreement.
15. Residential loan application.
16. Mortgage Loan closing statement.
17. Verification of employment and income.
18. Verification of acceptable evidence of source and amount of down
payment.
19. Credit report on the Mortgagor.
20. Residential appraisal report.
21. Photograph of the Mortgaged Property.
22. Survey of the Mortgaged Property, if any.
23. Copy of each instrument necessary to complete identification of
any exception set forth in the exception schedule in the title
policy, i.e., map or plat, restrictions, easements, sewer
agreements, home association declarations, etc.
24. All required disclosure statements.
25. If available, termite report, structural engineer's report, water
portability and septic certification.
4
<PAGE>
26. Sales contract.
27. Tax receipts, insurance premium receipts, ledger sheets,
insurance claim files, correspondence, current and historical
computerized data files, and all other processing, underwriting
and closing papers and records which are customarily contained in
a mortgage loan file and which are required to document the
Mortgage Loan or to service the Mortgage Loan.
28. Evidence of a Primary Insurance Policy with respect to each
Mortgage Loan which at the time of origination was required to be
so insured in accordance with the underwriting policies
customarily employed by the Seller or one of its predecessors in
interest during the period of such origination.
5
<PAGE>
EXHIBIT B
FORM OF SERVICING AGREEMENT
<PAGE>
EXHIBIT C
FORM OF SELLER'S OFFICER'S CERTIFICATE
I, , hereby certify that I am the duly elected
[Vice] President of California Federal Bank, A Federal Savings Bank, a stock
savings bank organized under the laws of the United States of America (the
"Seller") and further as follows:
1. Attached hereto as Exhibit 1 is a true, correct and complete copy
of the federal stock charter of the Seller which is in full force and effect on
the date hereof and which has been in effect without amendment, waiver,
rescission or modification since.
2. Attached hereto as Exhibit 2 is a true, correct and complete copy
of the bylaws of the Seller which are in effect on the date hereof and which
have been in effect without amendment, waiver, rescission or modification
since.
3. Attached hereto as Exhibit 3 is an original certificate of
organization and existence the Seller issued within ten days of the date
hereof, and no event has occurred since the date thereof which would impair
such standing.
4. Attached hereto as Exhibit 4 is a true, correct and complete copy
of the corporate resolutions of the Board of Directors of the Seller
authorizing the Seller to execute and deliver each of the Mortgage Loan
Purchase and Warranties Agreement, dated as of _______, 1997, by and between
California Federal Preferred Capital Corporation (the "Purchaser") and the
Seller (the "Purchase Agreement"), the Commitment Letter, dated as of _______,
___, by and between the Purchaser and the Seller [if applicable] and to endorse
the mortgage notes and execute the assignments of mortgages by original [or
facsimile] signature, and such resolutions are in effect on the date hereof and
have been in effect without amendment, waiver, rescission or modification
since.
5. Either (i) no consent, approval, authorization or order of any
court or governmental agency or body is required for the execution, delivery
and performance by the Seller of or compliance by the Seller with the Purchase
Agreement [and the Commitment Letter], the sale of the mortgage loans or the
consummation of the transactions contemplated by the Purchase Agreement; or
(ii) any required consent, approval, authorization or
<PAGE>
order has been obtained by the Seller.
6. Neither the consummation of the transactions contemplated by, nor
the fulfillment of the terms of, the Purchase Agreement [and the Commitment
Letter] conflicts or will conflict with or results or will result in a breach
of or constitutes or will constitute a default under the charter or by-laws of
the Seller, the terms of any indenture or other agreement or instrument to
which the Seller is a party or by which it is bound or to which it is subject,
or any statute or order, rule, regulations, writ, injunction or decree of any
court, governmental authority or regulatory body to which the Seller is subject
or by which it is bound.
7. To the best of my knowledge, there is no action, suit, proceeding
or investigation pending or threatened against the Seller which, in my
judgment, either in any one instance or in the aggregate, may result in any
material adverse change in the business, operations, financial condition,
properties or assets of the Seller or in any material impairment of the right
or ability of the Seller to carry on its business substantially as now
conducted or in any material liability on the part of the Seller or which would
draw into question the validity of the Purchase Agreement [or the Commitment
Letter] or the Mortgage Loans or of any action taken or to be taken in
connection with the transactions contemplated hereby, or which would be likely
to impair materially the ability of the Seller to perform under the terms of
the Purchase Agreement [and the Commitment Letter].
8. Each person listed on Exhibit 5 attached hereto who, as an officer
or representative of the Seller, signed the Purchase Agreement [and the
Commitment Letter] and any other document delivered prior to or on the date
hereof in connection with any purchase described in the [Purchase Agreement]
[Commitment Letter] was, at the respective times of such signing and delivery,
and is now, a duly elected or appointed, qualified and acting officer or
representative of the Seller, who holds the office set forth opposite his or
her name on Exhibit 5, and the signatures of such persons appearing on such
documents are their genuine signatures.
9. The Seller is duly authorized to engage in the transactions
described and contemplated in the Purchase Agreement [and the Commitment
Letter].
2
<PAGE>
IN WITNESS WHEREOF, I have hereunto signed my name and affixed the
seal of the Seller.
Dated: , 19 By:
-------------- -- ------------------------------
Name:
----------------------------
[Seal] Title: Vice President
I, ________________________, an [Assistant] Vice President of California
Federal Bank, A Federal Savings Bank, hereby certify that
_______________________ is the duly elected, qualified and acting Vice
President of the Seller and that the signature appearing above is [her] [his]
genuine signature.
IN WITNESS WHEREOF, I have hereunto signed my name.
Dated: , 19 By:
-------------- -- ------------------------------
Name:
----------------------------
Title: [Assistant] Vice
President
3
<PAGE>
EXHIBIT 5
to Seller's Officer's Certificate
NAME TITLE SIGNATURE
4
<PAGE>
EXHIBIT D
FORM OF OPINION OF COUNSEL TO THE SELLER
, 1997
California Federal Preferred Capital Corporation
200 Crescent Court, Suite 1350
Dallas, Texas 75201
Dear Sirs:
You have requested my opinion, as Senior Vice President and Senior
Counsel to California Federal Bank, A Federal Savings Bank (the "Seller"), with
respect to certain matters in connection with the sale by the Seller of the
Mortgage Loans pursuant to that certain Mortgage Loan Purchase and Warranties
Agreement by and between the Seller and California Federal Preferred Capital
Corporation (the "Purchaser"), dated as of __________, 1997 (the "Purchase
Agreement") which sale is in the form of whole loans, delivered pursuant to the
Purchase Agreement and serviced pursuant to a Servicing Agreement, dated as of
__________, 1997, by and between the First Nationwide Mortgage Corporation (the
"Servicer") and the Purchaser (the "Servicing Agreement"). Capitalized terms
not otherwise defined herein have the meanings set forth in the Purchase
Agreement and the Servicing Agreement.
I have examined the following documents:
1. the Purchase Agreement;
2. the Servicing Agreement; and
3. such other documents, records and papers as we have deemed
necessary and relevant as a basis for this opinion.
To the extent I have deemed necessary and proper, I have relied upon
the representations and warranties of the Seller contained in the Purchase
Agreement. I have assumed the authenticity of all documents submitted to me as
originals, the genuineness of all signatures, the legal capacity of natural
persons and the conformity to the originals of all documents.
Based upon the foregoing, it is my opinion that:
1. The Seller is a savings bank organized, existing and in good standing
under the laws of
<PAGE>
the United States and is qualified to transact business in, and is in
good standing under, the laws of the United States.
2. The Seller has the power to engage in the transactions contemplated by
the Purchase Agreement and all requisite power, authority and legal
right to execute and deliver the Purchase Agreement and to perform and
observe the terms and conditions of such agreements.
3. The Purchase Agreement has been duly authorized, executed and
delivered by the Seller and is a legal, valid and binding agreement
enforceable in accordance with its respective terms against the
Seller, subject to bankruptcy laws and other similar laws of general
application affecting rights of creditors and subject to the
application of the rules of equity, including those respecting the
availability of specific performance, none of which will materially
interfere with the realization of the benefits provided thereunder or
with the Purchaser's ownership of the Mortgage Loans.
[4. The Seller has been duly authorized to allow any of its officers to
execute any and all documents by original signature in order to
complete the transactions contemplated by the Purchase Agreement and
by original [or facsimile] signature in order to execute the
endorsements to the Mortgage Notes, and the original [or facsimile]
signature of the officer at the Seller executing the endorsements to
the Mortgage Notes represents the legal and valid signature of said
officer of the Seller].
[5. Either (i) no consent, approval, authorization or order of any court
or governmental agency or body is required for the execution, delivery
and performance by the Seller of or compliance by the Seller with the
Purchase Agreement and the sale of the Mortgage Loans or the
consummation of the transactions contemplated by the Purchase
Agreement or (ii) any required consent, approval, authorization or
order has been obtained by the Seller.]
[6. Neither the consummation of the transactions contemplated by, nor the
fulfillment of the
2
<PAGE>
terms of, the Purchase Agreement conflicts or will conflict with or
results or will result in a breach of or constitutes or will
constitute a default under the charter or by-laws of the Seller, the
terms of any indenture or other agreement or instrument to which the
Seller is a party or by which it is bound or to which it is subject,
or violates any statute or order, rule, regulations, writ, injunction
or decree of any court, governmental authority or regulatory body to
which the Seller is subject or by which it is bound.]
This opinion is given to you for your sole benefit, and no other
person or entity is entitled to rely hereon except that the purchaser or
purchasers to which you initially and directly resell the Mortgage Loans may
rely on this opinion as if it were addressed to them as of its date.
Very truly yours,
-----------------------------------
Eric K. Kawamura
Senior Vice President and Senior
Counsel
3
<PAGE>
EXHIBIT G
, 199
---------------- -
Federal Home Loan Bank of
(the "Association")
- -----------------------------
- -----------------------------
- -----------------------------
- -----------------------------
Attention:
------------------------
------------------------
Re: Notice of Sale and Release of Collateral
Dear Sirs:
This letter serves as notice that California Federal Bank, A Federal
Savings, a stock savings bank, organized pursuant to the laws of the United
States of America (the "Bank") has committed to sell to California Federal
Preferred Capital Corporation under a Mortgage Loan Purchase and Warranties
Agreement, dated as of __________, 1997, certain mortgage loans originated by
the Association. The Bank warrants that the mortgage loans to be sold to
California Federal Preferred Capital Corporation are in addition to and beyond
any collateral required to secure advances made by the Association to the Bank.
The Bank acknowledges that the mortgage loans to be sold to California
Federal Preferred Capital Corporation shall not be used as additional or
substitute collateral for advances made by the Association. California Federal
Preferred Capital Corporation understands that the balance of the Bank's
mortgage loan portfolio may be used as collateral or additional collateral for
advances made by the Association, and confirms that it has no interest therein.
Execution of this letter by the Association shall constitute a full
and complete release of any security interest, claim, or lien which the
Association
<PAGE>
may have against the mortgage loans to be sold to California Federal Preferred
Capital Corporation.
Very truly yours,
---------------------------------------
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
Date:
----------------------------------
Acknowledged and approved:
FEDERAL HOME LOAN BANK OF
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
Date:
-----------------------------
2
<PAGE>
EXHIBIT H
FORM OF SECURITY RELEASE CERTIFICATION
I. Release of Security Interest
The financial institution named below hereby relinquishes any and all
right, title and interest it may have in all Mortgage Loans to be purchased by
California Federal Preferred Capital Corporation from California Federal Bank,
a Federal Savings pursuant to that certain Mortgage Loan Purchase and
Warranties Agreement, dated as of __________, 1997, and certifies that all
notes, mortgages, assignments and other documents in its possession relating to
such Mortgage Loans have been delivered and released to California Federal
Bank, a Federal Savings Bank or its designees, as of the date and time of the
sale of such Mortgage Loans to California Federal Preferred Capital
Corporation.
Name and Address of Financial Institution
- -----------------------------
(name)
- -----------------------------
(Address)
By:
--------------------------
II. Certification of Release
California Federal Bank, a Federal Savings Bank hereby certifies to
California Federal Preferred Capital Corporation that, as of the date and time
of the sale of the above-mentioned Mortgage Loans to California Federal
Preferred Capital Corporation, the security interests in the Mortgage Loans
released by the above named financial institution comprise all security
interests relating to or affecting any and all such Mortgage Loans. The Company
warrants that, as of such time, there are and will be no other security
interests affecting any or all of such Mortgage Loans.
-----------------------------------
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
<PAGE>
Exhibit J
FORM OF COMMITMENT LETTER
[Date]
California Federal Bank,
A Federal Savings Bank
135 Main Street
San Francisco, California 94105
Ladies and Gentlemen:
California Federal Preferred Capital Corporation, a Maryland
corporation ("Purchaser"), hereby agrees to purchase from you ("Seller"), and
you hereby agree to sell, transfer, assign and convey to Purchaser, on
_________ (the "Closing Date"), all of your right, title and interest in and to
those residential mortgage loans (the "Mortgage Loans") set forth on Schedule I
(the "Mortgage Loan Schedule") attached hereto, the related Mortgage Files and
all rights and obligations of Seller arising under the documents contained
therein, subject to the terms and conditions set forth in this Commitment
Letter and in that certain Mortgage Loan Purchase and Warranties Agreement,
dated as of January __, 1997 (the "Purchase Agreement"), by and between
Purchaser and Seller.
The Mortgage Loans shall have an aggregate principal balance on
__________ (the "Cut-off Date") of $_______, or such other amount as Purchaser
and Seller shall agree upon as evidenced by the aggregate principal balance of
the Mortgage Loans accepted by Purchaser on the Closing Date. The purchase
price payable by Purchaser to Seller at the Closing in consideration for the
Mortgage Loans set forth on the Mortgage Loan Schedule shall be $______ (the
"Purchase Price"), or such other amount as Purchaser and Seller shall agree
upon as evidenced by the aggregate principal balance of the Mortgage Loans
accepted by Purchaser on the Closing Date.
<PAGE>
The purchase and sale of the Mortgage Loans contemplated hereby shall
be consummated by Purchaser and Seller subject to and in accordance with the
terms and conditions of the Purchase Agreement, including, without limitation,
the representations and warranties of Seller contained in Section 8 thereof and
the provisions relating to the purchase and sale of Mortgage Loans and delivery
of related documents in connection therewith set forth in Sections 4, 5, 6, 9
and 10 thereof. Capitalized terms used but not defined herein shall have the
meanings ascribed to such terms in the Purchase Agreement.
Very truly yours,
CALIFORNIA FEDERAL PREFERRED
CAPITAL CORPORATION
By:
--------------------------------
Name:
Title:
Agreed and accepted as of the day first written above:
CALIFORNIA FEDERAL BANK,
A FEDERAL SAVINGS BANK
By:
-----------------------------
Name:
Title:
2
<PAGE>
SERVICING AGREEMENT
between
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
Purchaser
FIRST NATIONWIDE MORTGAGE CORPORATION
Servicer
Dated as of January 31, 1997
RESIDENTIAL MORTGAGE LOANS
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions................................................. 1
ARTICLE II
SERVICING
SECTION 2.1 Servicer to Act as Servicer................................. 7
SECTION 2.2 Liquidation of Mortgage Loans............................... 10
SECTION 2.3 Collection of Mortgage Loan Payments........................ 12
SECTION 2.4 Establishment of and Deposits to Custodial Account.......... 12
SECTION 2.5 Permitted Withdrawals From Custodial Account................ 14
SECTION 2.6 Establishment of and Deposits to Escrow Account............. 16
SECTION 2.7 Permitted Withdrawals From Escrow Account................... 17
SECTION 2.8 Payment of Taxes, Insurance and Other Charges; Tax
Contracts................................................... 18
SECTION 2.9 Protection of Accounts...................................... 18
SECTION 2.10 Maintenance of Hazard Insurance............................. 19
SECTION 2.11 Maintenance of Mortgage Impairment Insurance................ 21
SECTION 2.12 Maintenance of Fidelity Bond and Errors and Omissions
Insurance....................................................21
SECTION 2.13 Inspections................................................. 22
SECTION 2.14 Restoration of Mortgaged Property........................... 22
SECTION 2.15 Maintenance of PMI Policy, Claims........................... 23
SECTION 2.16 [Reserved].................................................. 24
SECTION 2.17 Title, Management and Disposition of REO Property .......... 24
SECTION 2.18 Permitted Withdrawals with Respect to REO Property.......... 26
SECTION 2.19 Real Estate Owned Reports................................... 26
SECTION 2.20 Reports Of Foreclosures and Abandonments.................... 27
SECTION 2.21 Notification of Adjustments................................. 27
ARTICLE III
PAYMENTS TO PURCHASER
SECTION 3.1 Remittances................................................. 27
SECTION 3.2 Statements to Purchaser..................................... 29
i
<PAGE>
Page
----
SECTION 3.3 Advances by Servicer........................................ 30
ARTICLE IV
GENERAL SERVICING PROCEDURES
SECTION 4.1 Transfers of Mortgaged Property............................. 30
SECTION 4.2 Satisfaction of Mortgages and
Release of Mortgage Files. ................................. 31
SECTION 4.3 Servicing Compensation...................................... 32
SECTION 4.4 Annual Statement as to Compliance........................... 33
SECTION 4.5 Annual Independent Public Accountants' Servicing Report..... 33
SECTION 4.6 Right to Examine Servicer Records........................... 33
ARTICLE V
SERVICER TO COOPERATE
SECTION 5.1 Provision of Information.................................... 34
SECTION 5.2 Financial Statements; Servicing Facilities.................. 34
ARTICLE VI
TERMINATION
SECTION 6.1 Agency Suspension........................................... 35
SECTION 6.2 Damages..................................................... 35
SECTION 6.3 Termination................................................. 35
SECTION 6.4 Termination Without Cause................................... 35
ARTICLE VII
BOOKS AND RECORDS
SECTION 7.1 Possession of Mortgage Files................................ 36
ARTICLE VIII
INDEMNIFICATION AND ASSIGNMENT
SECTION 8.1 Indemnification............................................. 38
SECTION 8.2 Limitation on Liability of Servicer and Others.............. 38
SECTION 8.3 Limitation on Assignment by Servicer........................ 39
SECTION 8.4 Assignment by Purchaser..................................... 40
SECTION 8.5 Merger or Consolidation of the Servicer..................... 40
ii
<PAGE>
Page
----
SECTION 8.6 Successor to the Servicer................................... 41
ARTICLE IX
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
SECTION 9.1 Due Organization and Authority.............................. 42
SECTION 9.2 No Conflicts................................................ 43
SECTION 9.3 Ability to Perform.......................................... 43
SECTION 9.4 No Litigation Pending....................................... 43
SECTION 9.5 No Consent Required......................................... 43
SECTION 9.6 Assistance.................................................. 44
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF SERVICER
SECTION 10.1 Due Organization and Authority.............................. 44
SECTION 10.2 Ordinary Course of Business................................. 45
SECTION 10.3 No Conflicts................................................ 45
SECTION 10.4 Ability to Service.......................................... 45
SECTION 10.5 Ability to Perform.......................................... 46
SECTION 10.6 No Litigation Pending....................................... 46
SECTION 10.7 No Consent Required......................................... 46
SECTION 10.8 No Untrue Information....................................... 46
SECTION 10.9 Reasonable Servicing Fee.................................... 46
SECTION 10.10 Financial Statements........................................ 47
SECTION 10.11 Conflict of Interest........................................ 47
ARTICLE XI
DEFAULT
SECTION 11.1 Events of Default........................................... 47
SECTION 11.2 Waiver of Defaults.......................................... 49
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.1 Notices..................................................... 50
SECTION 12.2 Waivers..................................................... 50
SECTION 12.3 Entire Agreement Amendment.................................. 51
SECTION 12.4 Execution: Binding Effect................................... 51
SECTION 12.5 Headings.................................................... 51
SECTION 12.7 Relationship of Parties..................................... 51
SECTION 12.8 Severability of Provisions.................................. 52
SECTION 12.9 Recordation of Assignments of Mortgage...................... 52
SECTION 12.10 Exhibits.................................................... 52
iii
<PAGE>
EXHIBITS
EXHIBIT 1 FORM OF MONTHLY REMITTANCE ADVICE
EXHIBIT 2 FORM OF CUSTODIAL ACCOUNT CERTIFICATION
EXHIBIT 3 FORM OF CUSTODIAL ACCOUNT LETTER AGREEMENT
EXHIBIT 4 FORM OF ESCROW ACCOUNT CERTIFICATION
EXHIBIT 5 FORM OF ESCROW ACCOUNT LETTER AGREEMENT
iv
<PAGE>
SERVICING AGREEMENT
This Servicing Agreement (the "Servicing Agreement" or the
"Agreement") is entered into as of January 31, 1997, by and between FIRST
NATIONWIDE MORTGAGE CORPORATION, a Delaware corporation (the "Servicer"), and
CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION, a Maryland corporation (the
"Purchaser").
WHEREAS, the Purchaser and California Federal Bank, A Federal Savings
Bank (the "Seller") entered into a Mortgage Loan Purchase and Warranties
Agreement dated as of January 24, 1997 (the "Purchase Agreement"), pursuant to
which the Purchaser agreed to purchase from the Seller from time to time
certain Mortgage Loans (as defined in the Purchase Agreement) on a servicing
released basis; and
WHEREAS, the Purchaser desires to have the Servicer service the
Mortgage Loans, the Servicer desires to service and administer the Mortgage
Loans on behalf of the Purchaser, and the parties desire to provide the terms
and conditions of such servicing by the Servicer.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements set forth herein and for other good and valuable consideration, the
receipt and the sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. All capitalized terms not otherwise defined
herein have the respective meanings set forth in the Purchase Agreement. The
following terms are defined as follows:
"Accepted Servicing Practices" means, with respect to any Mortgage
Loan, those mortgage servicing practices of prudent mortgage lending
institutions which service mortgage loans of the same type as such Mortgage
Loan in the jurisdiction where the related Mortgaged Property is located.
<PAGE>
"Ancillary Income" means all late charges, assumption fees, escrow
account benefits, reinstatement fees, prepayment penalties, ARM conversion fees
and optional insurance commissions and similar types of fees arising from or in
connection with any Mortgage Loan and collected from the related Mortgagor, to
the extent not otherwise payable to the Mortgagor under applicable law or
pursuant to the terms of the related Mortgage Note.
"Best's" means Best's Key Rating Guide.
"BIF" means The Bank Insurance Fund, or any successor thereto.
"Custodial Account" means the separate account or accounts created and
maintained pursuant to Section 2.4.
"Custodian's File" means, with respect to each Mortgage Loan,
originals of the documents pertaining to such Mortgage Loan set forth in
Section I of Exhibit A to the Purchase Agreement, and any additional documents
required to be included or added to the Custodian's File pursuant to this
Agreement or the Purchase Agreement.
"Condemnation Proceeds" means all awards or settlements in respect of
a Mortgaged Property, whether permanent or temporary, partial or entire, by
exercise of the power of eminent domain or condemnation, to the extent not
required to be released to a Mortgagor in accordance with the terms of the
related Mortgage Loan Documents.
"Due Period" means with respect to each Remittance Date, the period
commencing on the second day of the month preceding the month of the Remittance
Date and ending on the first day of the month of the Remittance Date.
"Errors and Omissions Insurance Policy" means an errors and omissions
insurance policy to be maintained by the Servicer pursuant to Section 2.12.
"Escrow Account" means the separate account or accounts created and
maintained pursuant to Section 2.6.
2
<PAGE>
"Escrow Payment" means, with respect to any Mortgage Loan, the amounts
constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, flood insurance premiums, earthquake insurance premiums, condominium
charges, and any other payments required to be escrowed by the Mortgagor with
the mortgagee pursuant to the Mortgage or any other document.
"Event of Default" means any one of the conditions or circumstances
enumerated in Section 11.1.
"FDIC" means The Federal Deposit Insurance Corporation, or any
successor thereto.
"Fidelity Bond" means a fidelity bond to be maintained by the Servicer
pursuant to Section 2.12.
"FNMA Guides" means the FNMA Sellers' Guide and the FNMA Servicers'
Guide and all amendments or additions thereto.
"Independent Directors" means the members of the Board of Directors of
the Purchaser who are not current employees or officers of the Purchaser or
current employees, officers or directors of the Seller or any affiliate of the
Seller. In addition, any members of the Board of Directors of the Purchaser
elected by holders of the preferred stock of the Purchaser, including the
Series A Preferred Shares, will be deemed to be "Independent Directors" for
purposes of approving actions requiring the approval of a majority of the
Independent Directors.
"Initial Closing Date" means January 31, 1997, or such other date as
is mutually agreed upon by the parties to the Purchase Agreement.
"Insurance Proceeds" means, with respect to each Mortgage Loan,
proceeds of insurance policies insuring the Mortgage Loan or the related
Mortgaged Property to the extent not required to be released to a Mortgagor in
accordance with the terms of the related Mortgage Loan documents.
3
<PAGE>
"Investor Cut-off Date" means the last Business Day of any month,
beginning with the Investor Cut-off Date on January 31, 1997.
"Liquidation Proceeds" means cash received in connection with the
liquidation of a defaulted Mortgage Loan, whether through the sale or
assignment of such Mortgage Loan, trustee's sale, foreclosure sale or
otherwise, or the sale of the related Mortgaged Property if the Mortgaged
Property is acquired in satisfaction of such Mortgage Loan.
"Monthly Payment" means the scheduled monthly payment of principal and
interest on a Mortgage Loan.
"Monthly Remittance Advice" means the monthly remittance advice, in
the form of Exhibit A annexed hereto, to be provided to the Purchaser pursuant
to Section 3.2.
"Mortgage File" means, with respect to each Mortgage Loan, the
Custodian's File and the Servicing File.
"Mortgage Impairment Insurance Policy" means a mortgage impairment or
blanket hazard insurance policy as described in Section 2.11.
"Nonrecoverable Advance" means any advance of principal and interest
previously made or proposed to be made in respect of a Mortgage Loan pursuant
to Section 3.3 which, in the good faith judgment of the Servicer, will not or,
in the case of a proposed advance of principal and interest, would not, be
ultimately recoverable from related Insurance Proceeds, Liquidation Proceeds or
otherwise. The determination by the Servicer that it has made a Nonrecoverable
Advance or that any proposed advance of principal and interest, if made, would
constitute a Nonrecoverable Advance, shall be evidenced by an Officers'
Certificate delivered to the Purchaser.
"Officer's Certificate" means a certificate signed by the Chairman of
the Board or the Vice Chairman of the Board or a President or a Vice President
and by the Treasurer or the Secretary or one of the Assistant Treasurers or
Assistant Secretaries of the Servicer, and delivered to the Purchaser as
required by this Agreement.
4
<PAGE>
"OTS" means Office of Thrift Supervision, or any successor thereto.
"PMI Policy" means a policy of primary mortgage guaranty insurance
issued by a Qualified Insurer with respect to a Mortgage Loan.
"Prime Rate" means the prime rate announced to be in effect from time
to time as published as the average rate in The Wall Street Journal (Northeast
edition).
"Principal Prepayment" means any payment or other recovery of
principal on a Mortgage Loan which is received in advance of its scheduled Due
Date, excluding any prepayment penalty or premium thereon and which is not
accompanied by an amount of interest representing scheduled interest due on any
date or dates in any month or months subsequent to the month of prepayment.
"Purchase Agreement" means the Mortgage Loan Purchase and Warranties
Agreement between the Purchaser and the Seller dated as of January 24, 1997.
"Qualified Depository" means a depository the accounts of which are
insured by the FDIC through the BIF or the SAIF.
"Qualified Insurer" means an insurance company duly qualified as such
under the laws of the states in which the Mortgaged Properties are located,
duly authorized and licensed in such states to transact the applicable
insurance business and to write the insurance provided, and approved as an
insurer by FNMA with respect to primary mortgage insurance.
"Remittance Date" means the 20th day (or if such 20th day is not a
Business Day, the first Business Day immediately following) of any month,
beginning with the first Remittance Date on February 20, 1997.
"REO Property" means a Mortgaged Property acquired by the Servicer on
behalf of the Purchaser through foreclosure or by deed in lieu of foreclosure,
as described in Section 2.17.
"SAIF" means The Savings Association Insurance Fund, or any successor
thereto.
5
<PAGE>
"Seller" means California Federal Bank, A Federal Savings Bank, a
federally chartered savings bank.
"Series A Preferred Shares" means the 9-1/8% Noncumulative
Exchangeable Preferred Stock, Series A, par value $.01 per share, of the
Purchaser.
"Servicer" means First Nationwide Mortgage Corporation, a Delaware
corporation.
"Servicer Employees" has the meaning set forth in Section 2.12.
"Servicing Advances" means all customary, reasonable and necessary
"out of pocket" costs and expenses (including reasonable attorneys' fees and
disbursements) incurred in the performance by the Servicer of its servicing
obligations, including, but not limited to, the cost of (a) the preservation,
restoration and protection of the Mortgaged Property, (b) any enforcement or
judicial proceedings, including foreclosures, (c) the management and
liquidation of the Mortgaged Property if the Mortgaged Property is acquired in
satisfaction of the Mortgage and (d) compliance with the obligations under
Section 2.8, (except with respect to any expenses incurred in connection with
procuring or transferring Tax Service Contracts, as provided therein).
"Servicing Agreement" means this agreement between the Purchaser and
the Servicer.
"Servicing Fee" means, with respect to each Mortgage Loan, the amount
of the annual fee the Purchaser shall pay to the Servicer, which shall, for a
period of one (1) full month, be equal to one-twelfth of the product of the
Servicing Fee Rate and (2) the Stated Principal Balance of such Mortgage Loan.
Such fee shall be payable monthly, computed on the basis of the same principal
amount and period in respect of which any related interest payment on a
Mortgage Loan is computed and shall be pro rated for any portion of a month
during which the Mortgage Loan is serviced by the Servicer under this
Agreement. The obligation of the Purchaser to pay the Servicing Fee with
respect to any Mortgage Loan is limited to, and such Servicing Fee is payable
solely from, the interest portion (including recoveries with respect to
interest from Liquidation Proceeds, to the extent permit-
6
<PAGE>
ted by Section 4.3) of the related Monthly Payment collected by the Servicer,
or as otherwise provided under Section 4.3.
"Servicing Fee Rate" means, with respect to each Mortgage Loan
acquired on the Initial Closing Date, the rate specified in the applicable
Mortgage Loan Schedule with respect to such Mortgage Loan and with respect to
each Mortgage Loans subsequently purchased by the Purchaser, a rate per annum
between 0.25% and 0.50% as specified in the applicable Mortgage Loan Schedule.
"Servicing File" means, with respect to each Mortgage Loan, the files
retained by the Servicer consisting of the documents set forth in Section II of
Exhibit A to the Purchase Agreement pertaining to such Mortgage Loan and such
other documents held by the Servicer as is consistent with Accepted Servicing
Practices.
"Tax Service Contract" means a tax service contract with First
American Real Estate Tax Service, Inc. or LERETA Corporation, as described in
Section 2.8 hereof
"Termination Fee" means the amount paid by the Purchaser to the
Servicer in the event of the Servicer's termination, without cause, as
servicer. Such fee shall equal the percentage amount set forth in Section 6.4
hereof of the then current aggregate unpaid principal balance of the related
Mortgage Loans.
ARTICLE II
SERVICING
SECTION 2.1 Servicer to Act as Servicer. From and after each Closing
Date for any purchase of Mortgage Loans by the Purchaser under the Purchase
Agreement, the Servicer, as an independent contractor, shall service and
administer the Mortgage Loans purchased by the Purchaser on such Closing Date
solely with a view to the interests of the Purchaser as owner of the Mortgage
Loans and without regard to the interests of Seller or its other Affiliates,
and shall have full power and authority, acting alone, to do any and all things
in connection with
7
<PAGE>
such servicing and administration which the Servicer may deem necessary or
desirable, consistent with the terms of this Agreement and with Accepted
Servicing Practices. Except as set forth in this Agreement, the Servicer shall
service the Mortgage Loans in strict compliance with the servicing provisions
related to the FNMA MBS Program (Special Servicing Option) of the FNMA Guides.
In the event of any conflict, inconsistency or discrepancy between any of the
servicing provisions of this Agreement and any of the servicing provisions of
the FNMA Guides, the provisions of this Agreement shall control and be binding
upon the Purchaser and the Servicer.
Consistent with the terms of this Agreement, the Servicer may waive,
modify or vary any term of any Mortgage Loan or consent to the postponement of
strict compliance with any such term or in any manner grant indulgence to any
Mortgagor if in the Servicer's reasonable and prudent determination such
waiver, modification, postponement or indulgence is not materially adverse to
the Purchaser, provided, however, that unless the Servicer has obtained the
prior written consent of the Purchaser, the Servicer shall not permit any
modification with respect to any Mortgage Loan that would change the Mortgage
Interest Rate, defer or forgive the payment of principal or interest, reduce or
increase the outstanding principal balance (except for actual payments of
principal) or change the final maturity date on such Mortgage Loan. In the
event of any such modification which permits the deferral of interest or
principal payments on any Mortgage Loan, the Servicer shall, on the Business
Day immediately preceding the Remittance Date in any month in which any such
principal or interest payment has been deferred, deposit in the Custodial
Account from its own funds, in accordance with Section 2.4, the difference
between (a) such month's principal payment and one (1) month's interest at the
Mortgage Interest Rate on the unpaid principal balance of such Mortgage Loan
and (b) the amount paid by the Mortgagor. The Servicer shall be entitled to
reimbursement for such advances to the same extent as for all other advances
made pursuant to Section 2.5. Without limiting the generality of the foregoing,
the Servicer shall continue, and is hereby authorized and empowered, to execute
and deliver on behalf of itself and the Purchaser, all instruments of
satisfaction or cancellation, or of partial or full release, discharge and all
other comparable instruments, with respect to the Mort-
8
<PAGE>
gage Loans and with respect to the Mortgaged Properties. If reasonably required
by the Servicer, the Purchaser shall furnish the Servicer with any powers of
attorney and other documents necessary or appropriate to enable the Servicer to
carry out its servicing and administrative duties under this Agreement.
In servicing and administering the Mortgage Loans, the Servicer shall
employ procedures (including collection procedures) and exercise the same care
that it customarily employs and exercises in servicing and administering
mortgage loans for its own account, giving due consideration to Accepted
Servicing Practices where such practices do not conflict with the requirements
of this Agreement, the FNMA Guides and the Purchaser's reliance on the
Servicer.
The Mortgage File retained by the Servicer pursuant to this Agreement
shall be appropriately marked and identified in the Servicer's computer system
to clearly reflect the sale of the related Mortgage Loan to the Purchaser. The
Servicer shall release from its custody the contents of any Mortgage File
retained by it only in accordance with this Agreement, or when such release is
required in connection with a repurchase of any such Mortgage Loan pursuant to
Section 8.3 of the Purchase Agreement.
The Servicer represents and warrants that it has, and covenants to
maintain, an internal quality control program that verifies, on a regular
basis, the existence and accuracy of the legal documents, credit documents,
property appraisals and underwriting decisions. The program must be capable of
evaluating and monitoring the overall quality of its loan production and
servicing activities. The program must ensure that the Mortgage Loans are
serviced in accordance with prudent mortgage banking practices and accounting
principles; guard against dishonest, fraudulent, or negligent acts; and guard
against errors and omissions by officers, employees, or other authorized
persons.
SECTION 2.2 Liquidation of Mortgage Loans. In the event that any
payment due under any Mortgage Loan and not postponed pursuant to Section 2.1
is not paid when the same becomes due and payable, or in the event the
Mortgagor fails to perform any other covenant or
9
<PAGE>
obligation under the Mortgage Loan and such failure continues beyond any
applicable grace period, the Servicer shall take such action as (1) the
Servicer would take under similar circumstances with respect to a similar
mortgage loan held for its own account for investment, (2) shall be consistent
with Accepted Servicing Practices, (3) the Servicer shall determine prudently
to be in the best interest of Purchaser, and (4) is consistent with any related
PMI Policy. In the event that any payment due under any Mortgage Loan is not
postponed pursuant to Section 2.1 and remains delinquent for a period of ninety
(90) days or more or any other default continues for a period of ninety (90)
days or more beyond the expiration of any grace or cure period (or such other
period as is required by law in the jurisdiction where the related Mortgaged
Property is located), the Servicer shall commence foreclosure proceedings in
accordance with the FNMA Guides. In such connection, the Servicer shall from
its own funds make all necessary and proper Servicing Advances, provided,
however, that the Servicer shall not be required to expend its own funds in
connection with any foreclosure or towards the restoration or preservation of
any Mortgaged Property, unless it shall determine (a) that such preservation,
restoration and/or foreclosure will increase the proceeds of liquidation of the
Mortgage Loan to Purchaser after reimbursement to itself for such expenses and
(b) that such expenses will be recoverable by it either through Liquidation
Proceeds (in respect of which it shall have priority for purposes of
withdrawals from the Custodial Account pursuant to Section 2.5) or through
Insurance Proceeds (in respect of which it shall have similar priority).
Notwithstanding anything to the contrary contained herein, in
connection with a foreclosure, in the event the Servicer has reasonable cause
to believe that a Mortgaged Property is contaminated by hazardous or toxic
substances or wastes, or if the Purchaser otherwise requests an environmental
inspection or review of such Mortgaged Property to be conducted by a qualified
inspector, the Servicer shall cause the Mortgaged Property to be so inspected
at the expense of the Purchaser. Upon completion of the inspection, the
Servicer shall promptly provide the Purchaser with a written report of the
environmental inspection.
10
<PAGE>
After reviewing the environmental inspection report, the Purchaser
shall determine how the Servicer shall proceed with respect to the Mortgaged
Property. In the event (a) the environmental inspection report indicates that
the Mortgaged Property is contaminated by hazardous or toxic substances or
wastes and (b) the Purchaser directs the Servicer to proceed with foreclosure
or acceptance of a deed in lieu of foreclosure, the Servicer shall be
reimbursed for all reasonable costs associated with such foreclosure or
acceptance of a deed in lieu of foreclosure and any related environmental clean
up costs, as applicable, from the related Liquidation Proceeds, or if the
Liquidation Proceeds are insufficient to fully reimburse the Servicer, the
Servicer shall be entitled to be reimbursed from amounts in the Custodial
Account pursuant to Section 2.5 hereof and to the extent amounts in the
Custodial Account are insufficient to fully reimburse the Servicer, the
Servicer shall be entitled to be reimbursed by the Purchaser for such
deficiencies (upon presentation of evidence of such deficiency). In the event
the Purchaser directs the Servicer not to proceed with foreclosure or
acceptance of a deed in lieu of foreclosure, the Servicer shall be reimbursed
for all Servicing Advances made with respect to the related Mortgaged Property
from the Custodial Account pursuant to Section 2.5 hereof.
SECTION 2.3 Collection of Mortgage Loan Payments. Continuously from
the applicable Closing Date, the Servicer shall proceed diligently to collect
all payments due under each Mortgage Loan when the same shall become due and
payable and shall take special care in ascertaining and estimating Escrow
Payments and all other charges that will become due and payable with respect to
such Mortgage Loan and the related Mortgaged Property, to the end that the
installments payable by the Mortgagor will be sufficient to pay such charges as
and when they become due and payable.
SECTION 2.4 Establishment of and Deposits to Custodial Account. The
Servicer shall segregate and hold all funds collected and received pursuant to
the Mortgage Loans separate and apart from any of its own funds and general
assets and shall establish and maintain one or more Custodial Accounts, in the
form of time deposit or demand accounts, titled "First Nationwide Mortgage
Corporation, as trustee and custodian for Purchaser of Resi-
11
<PAGE>
dential Mortgage Loans, and various Mortgagors". The Custodial Account shall be
established with a Qualified Depository acceptable to the Purchaser. Any funds
deposited in the Custodial Account shall at all times be fully insured to the
full extent permitted under applicable law. Funds deposited in the Custodial
Account may be drawn on by the Servicer in accordance with Section 2.5. The
creation of any Custodial Account shall be evidenced by a certification in the
form of Exhibit 2 hereto, in the case of an account established with the
Servicer, or by a letter agreement in the form of Exhibit 3 hereto, in the case
of an account held by a depository other than the Servicer. A copy of such
certification or letter agreement shall be furnished to the Purchaser and, upon
request, to any subsequent Purchaser.
The Servicer shall deposit in the Custodial Account within one
Business Day of receipt, and retain therein, the following collections received
by the Servicer and payments made by the Servicer after any Cutoff Date, other
than payments of principal and interest due on or before such Cut-off Date, or
received by the Servicer prior to such Cut-off Date but allocable to a period
subsequent thereto:
(i) all payments on account of principal on the Mortgage Loans,
including all Principal Prepayments;
(ii) all payments on account of interest on the Mortgage;
(iii) all Liquidation Proceeds and any amount received with
respect to REO Property;
(iv) all Insurance Proceeds including amounts required to be
deposited pursuant to Section 2.10 (other than proceeds to be held in the
Escrow Account and applied to the restoration or repair of the Mortgaged
Property or released to the Mortgagor in accordance with Section 2.14) and
Section 2.11;
(v) all Condemnation Proceeds which are not applied to the
restoration or repair of the Mortgaged Property or released to the
Mortgagor in accordance with Section 2.14;
12
<PAGE>
(vi) any amount required to be deposited in the Custodial Account
pursuant to Section 2.1, 2.9, 2.15, 2.17, 3.1, 3.3 or 4.2;
(vii) any amounts payable in connection with the repurchase of
any Mortgage Loan pursuant to Section 8.3 of the Purchase Agreement; and
(viii) any amounts required to be deposited by the Servicer
pursuant to Section 2.11 in connection with the deductible clause in any
blanket hazard insurance policy.
The foregoing requirements for deposit into the Custodial Account
shall be exclusive, it being understood and agreed that, without limiting the
generality of the foregoing, Ancillary Income need not be deposited by the
Servicer into the Custodial Account. Any interest paid on funds deposited in
the Custodial Account by the depository institution shall accrue to the benefit
of the Servicer and the Servicer shall be entitled to retain and withdraw such
interest from the Custodial Account pursuant to Section 2.5.
SECTION 2.5 Permitted Withdrawals From Custodial Account. Subject to
Section 2.17 hereof, the Servicer shall, from time to time, withdraw funds from
the Custodial Account for the following purposes:
(i) to make payments to the Purchaser in the amounts and in the
manner provided for in Section 3.1;
(ii) to pay to itself the Servicing Fee;
(iii) to reimburse itself for advances of the Servicer's funds
made pursuant to Section 3.3, the Servicer's right to reimburse itself
pursuant to this subclause (iii) being limited to amounts received on the
related Mortgage Loan which represent late payments of principal and/or
interest in respect of which any such advance was made, it being understood
that, in the case of any such reimbursement, the Servicer's right thereto
shall be prior to the rights of Purchaser, except that, where the Seller or
the Servicer is required to repurchase a Mortgage Loan pursuant to Section
8.3 of the Pur-
13
<PAGE>
chase Agreement or Section 4.2 of this Agreement, respectively, the
Servicer's right to such reimbursement shall be subsequent to the payment
to the Purchaser of the Repurchase Price pursuant to such sections and all
other amounts required to be paid to the Purchaser with respect to such
Mortgage Loan;
(iv) to reimburse itself for unreimbursed Servicing Advances
(except to the extent reimbursed pursuant to Section 2.7), any accrued but
unpaid Servicing Fees and for unreimbursed advances of Servicer funds made
pursuant to Sections 2.15 or 2.17, the Servicer's right to reimburse itself
pursuant to this subclause (iv) with respect to any Mortgage Loan being
limited to related Liquidation Proceeds, Condemnation Proceeds, Insurance
Proceeds and such other amounts as may be collected by the Servicer from
the Mortgagor or otherwise relating to the Mortgage Loan, it being
understood that, in the case of any such reimbursement, the Servicer's
right thereto shall be prior to the rights of the Purchaser except that,
where the Seller or the Servicer is required to repurchase a Mortgage Loan
pursuant to Section 8.3 of the Purchase Agreement or Section 4.2 of this
Agreement, respectively, the Servicer's right to such reimbursement shall
be subsequent to the payment to the Purchaser of the Repurchase Price
pursuant to such sections and all other amounts required to be paid to the
Purchaser with respect to such Mortgage Loan;
(v) to pay itself any interest earned on funds deposited in the
Custodial Account (all such interest to be withdrawn monthly not later than
each Remittance Date);
(vi) to retain a fee for any sale of REO Property equal to 1% of
the aggregate proceeds obtained in the sale of such REO Property, in
accordance with Section 2.17 of this Agreement;
(vii) to reimburse itself for any unreimbursed Monthly Advance or
Servicing Advance which is determined to be nonrecoverable after the making
of such advance, provided that the Servicer has furnished to the Purchaser
an Officer's Certificate evidencing the determination by the Servicer,
14
<PAGE>
in its reasonable opinion, that such unreimbursed advance is
non-recoverable by the Servicer from Liquidation Proceeds, Insurance
Proceeds, Condemnation Proceeds or otherwise with respect to a particular
Mortgage Loan;
(viii) to pay to itself, with respect to each Mortgage Loan that
has been repurchased pursuant to Section 8.3 of the Purchase Agreement or
Section 4.2 of this Agreement, all amounts received thereon and not
distributed as of the date on which the related Repurchase Price is
determined (except to the extent that such amounts constitute part of the
Repurchase Price to be remitted to the Purchaser as contemplated by Section
8.3 of the Purchase Agreement); and
(ix) to clear and terminate the Custodial Account upon the
termination of this Agreement.
In the event that the Custodial Account is interest bearing, on each
Remittance Date, the Servicer shall withdraw all funds from the Custodial
Account except for those amounts which, pursuant to Section 3.1, the Servicer
is not obligated to remit on such Remittance Date. The Servicer may use such
withdrawn funds only for the purposes described in this Section 2.5.
SECTION 2.6 Establishment of and Deposits to Escrow Account. The
Servicer shall segregate and hold all funds collected and received pursuant to
a Mortgage Loan constituting Escrow Payments separate and apart from any of its
own funds and general assets and shall establish and maintain one or more
Escrow Accounts, in the form of time deposit or demand accounts. The Escrow
Account or Accounts shall be established with a Qualified Depositary, in a
manner which shall provide maximum available insurance thereunder. Funds
deposited in the Escrow Accounts may be drawn on by the Servicer in accordance
with Section 2.7. The creation of any Escrow Account shall be evidenced by a
certification in the form of Exhibit 4 hereto, in the case of an account
established with the Servicer, or by a letter agreement in the form of Exhibit
5 hereto, in the case of an account held by a depository other than the
Servicer. A copy of such certification shall be furnished to the Purchaser and,
upon request, to any subsequent Purchaser.
15
<PAGE>
The Servicer shall deposit in the Escrow Account or Accounts within
one Business Day of receipt, and retain therein:
(i) all Escrow Payments collected on account of the Mortgage
Loans, for the purpose of effecting timely payment of any such items as
required under the terms of this Agreement; and
(ii) all amounts representing Insurance Proceeds or Condemnation
Proceeds which are to be applied to the restoration or repair of any
Mortgaged Property.
The Servicer shall make withdrawals from the Escrow Account only to
effect such payments as are required under this Agreement, as set forth in
Section 2.7. The Servicer shall be entitled to retain any interest paid on
funds deposited in the Escrow Account by the depository institution, other than
interest on escrowed funds required by law to be paid to the Mortgagor. To the
extent required by law, the Servicer shall pay from its own funds interest on
escrowed funds to the Mortgagor notwithstanding that the Escrow Account may be
noninterest bearing or that interest paid thereon is insufficient for such
purposes.
SECTION 2.7 Permitted Withdrawals From Escrow Account. Withdrawals
from each Escrow Account may be made by the Servicer only:
(i) to effect timely payments of ground rents, taxes,
assessments, water rates, mortgage insurance premiums, condominium charges,
fire and hazard insurance premiums, flood insurance premiums, earthquake
insurance premiums or other items constituting Escrow Payments for the
related Mortgage;
(ii) to reimburse the Servicer for any Servicing Advance made by
the Servicer pursuant to Section 2.9 (except with respect to any expenses
incurred in procuring or transferring Tax Service Contracts) with respect
to a related Mortgage Loan, but only from amounts received on the related
Mortgage Loan which represent late collections of Escrow Payments
thereunder;
16
<PAGE>
(iii) to refund to the related Mortgagor any funds found to be in
excess of the amounts required under the terms of the related Mortgage Loan
or applicable federal or state law or judicial or administrative ruling;
(iv) for transfer to the Custodial Account and application to
reduce the principal balance of the Mortgage Loan in accordance with the
terms of the related Mortgage and Mortgage Note;
(v) for application to restoration or repair of the related
Mortgaged Property in acco dance with the procedures outlined in Section
2.14;
(vi) to pay to the Servicer, or any Mortgagor to the extent
required by law, any interest paid on the funds deposited in the Escrow
Account; and
(vii) to clear and terminate the Escrow Account on the
termination of this Agreement.
SECTION 2.8 Payment of Taxes, Insurance and Other Charges; Tax
Contracts. With respect to each Mortgage Loan, the Servicer shall maintain
accurate records reflecting the status of ground rents, taxes, assessments,
water rates, sewer rents, and other charges, as applicable, which are or may
become a lien upon the Mortgaged Property and the status of PMI Policy premiums
and fire, hazard and other insurance coverage and shall obtain, from time to
time, all bills for the payment of such charges (including renewal premiums)
and shall effect payment thereof prior to the applicable penalty or termination
date, employing for such purpose deposits of the Mortgagor in the Escrow
Account which shall have been estimated and accumulated by the Servicer in
amounts sufficient for such purposes, as allowed under the terms of the
Mortgage. To the extent that a Mortgage does not provide for Escrow Payments,
the Servicer shall determine that any such payments relating to taxes or
maintaining insurance policies are made by the Mortgagor at the time they first
become due. The Servicer assumes full responsibility for the timely payment of
all such bills to the extent it has or should have notice of such bills and
shall effect timely payment of all such charges irrespective of each
Mortgagor's faithful performance in the
17
<PAGE>
payment of same or the making of the Escrow Payments, and the Servicer shall
make advances from its own funds to effect such payments, such advances to be
reimbursable to the same extent as Servicing Advances.
The Servicer shall ensure that each of the Mortgage Loans shall be
covered by a Tax Service Contract which shall be assigned to the Purchaser or
the Purchaser's designee at the Servicer's expense in the event that the
Servicer is terminated as servicer of the related Mortgage Loan(s) hereunder.
To the extent that a Mortgage Loan does not have a Tax Service Contract, the
Purchaser shall procure a Tax Service Contract for such Mortgage Loan and the
Servicer shall reimburse the Purchaser upon request for reasonable expenses
incurred in connection therewith.
SECTION 2.9 Protection of Accounts. The Servicer may transfer the
Custodial Account or the Escrow Account to a different Qualified Depository
from time to time. Such transfer shall be made only upon obtaining the consent
of the Purchaser, which consent shall not be withheld unreasonably.
The Servicer shall bear any expenses, losses or damages sustained by
the Purchaser which may result from the fact that the Custodial Account and/or
the Escrow Account are not demand deposit accounts.
SECTION 2.10 Maintenance of Hazard Insurance. The Servicer shall cause
to be maintained for each Mortgage Loan hazard insurance such that all
buildings upon the Mortgaged Property are insured by a generally acceptable
insurer rated A:VI or better in the current Best's against loss by fire,
hazards of extended coverage and such other hazards as are required to be
insured pursuant to the FNMA Guides, in an amount which is at least equal to
the lesser of (i) the maximum insurable value of the improvements securing such
Mortgage Loan and (ii) the greater of (a) the outstanding principal balance of
the Mortgage Loan and (b) an amount such that the proceeds thereof shall be
sufficient to prevent the Mortgagor or the loss payee from becoming a
co-insurer.
If required by the Flood Disaster Protection Act of 1973, as amended,
each Mortgage Loan is covered by a flood insurance policy meeting the
requirements of the
18
<PAGE>
current guidelines of the Federal Insurance Administration in effect with a
generally acceptable insurance carrier rated A:VI or better in Best's in an
amount representing coverage not less than the lesser of (i) the outstanding
principal balance of the related Mortgage Loan and (ii) the maximum amount of
insurance which is available under the Flood Disaster Protection Act of 1973,
as amended. If at any time during the term of the Mortgage Loan, the Servicer
determines in accordance with applicable law and pursuant to the FNMA Guides
that a Mortgaged Property is located in a special flood hazard area and is not
covered by flood insurance or is covered in an amount less than the amount
required by the Flood Disaster Protection Act of 1973, as amended, the Servicer
shall notify the related Mortgagor that the Mortgagor must obtain such flood
insurance coverage, and if said Mortgagor fails to obtain the required flood
insurance coverage within forty five (45) days after such notification, the
Servicer shall immediately purchase the required flood insurance on the
Mortgagor's behalf.
If a Mortgage is secured by a unit in a condominium project, the
Servicer shall verify that the coverage required of the owner's association,
including hazard, flood, liability, and fidelity coverage, is being maintained
in accordance with then current FNMA requirements, provided, however, that in
the alternative, the Servicer may elect to maintain single-interest (blanket)
coverage, at its own expense, in lieu of tracking insurance with respect to
individual condominium units.
The Servicer shall cause to be maintained on each Mortgaged Property
such other or additional insurance as may be required pursuant to such
applicable laws and regulations as shall at any time be in force and as shall
require such additional insurance, or pursuant to the requirements of any
primary mortgage guaranty insurer.
All policies required hereunder shall name the Servicer and its
successors and assigns as mortgagee and shall be endorsed with non-contributory
standard mortgagee clauses which shall provide for at least thirty (30) days'
prior written notice of any cancellation, reduction in amount or material
change in coverage.
19
<PAGE>
The Servicer shall not interfere with the Mortgagor's freedom of
choice in selecting either his insurance carrier or agent, provided, however,
that the Servicer shall not accept any such insurance policies from insurance
companies unless such companies are rated A:VI or better in Best's and are
licensed to do business in the jurisdiction in which the Mortgaged Property is
located. The Servicer shall determine that such policies provide sufficient
risk coverage and amounts as required pursuant to the FNMA Guides, that they
insure the property owner, and that they properly describe the property
address. To the extent reasonably possible the Servicer shall furnish to the
Mortgagor a formal notice of expiration of any such insurance in sufficient
time for the Mortgagor to arrange for renewal coverage by the expiration date,
provided, however, that in the event that no such notice is furnished by the
Servicer, the Servicer shall ensure that replacement insurance policies are in
place in the required coverage and the Servicer shall be solely liable for any
losses in the event such coverage is not provided.
Pursuant to Section 2.4, any amounts collected by the Servicer under
any such policies (other than amounts to be deposited in the Escrow Account and
applied to the restoration or repair of the related Mortgaged Property, or
property acquired in liquidation of the Mortgage Loan, or to be released to the
Mortgagor, in accordance with the Servicer's normal servicing procedures as
specified in Section 2.14) shall be deposited in the Custodial Account subject
to withdrawal pursuant to Section 2.5.
SECTION 2.11 Maintenance of Mortgage Impairment Insurance. In the
event that the Servicer or any subservicer of the Mortgage Loans shall obtain
and maintain a blanket policy insuring against losses arising from fire and
hazards covered under extended coverage on all of the Mortgage Loans, then, to
the extent such policy provides coverage in an amount equal to the amount
required pursuant to Section 2.10 and otherwise complies with all other
requirements of Section 2.10, it shall conclusively be deemed to have satisfied
its obligations as set forth in Section 2.10. Any amounts collected by the
Servicer under any such policy relating to a Mortgage Loan shall be deposited
in the Custodial Account subject to withdrawal pursuant to Section 2.5. Such
policy may
20
<PAGE>
contain a deductible clause, in which case, in the event that there shall not
have been maintained on the related Mortgaged Property a policy complying with
Section 2.10, and there shall have been a loss which would have been covered by
such policy, the Servicer shall deposit in the Custodial Account at the time of
such loss the amount not otherwise payable under the blanket policy because of
such deductible clause, such amount to be deposited from the Servicer's funds,
without reimbursement therefor. Upon request of the Purchaser, the Servicer
shall cause to be delivered to the Purchaser a certified true copy of such
policy and a statement from the insurer thereunder that such policy shall in no
event be terminated or materially modified without thirty days' prior written
notice to the Purchaser.
SECTION 2.12 Maintenance of Fidelity Bond and Errors and Omissions
Insurance. The Servicer shall maintain with responsible companies, at its own
expense, a blanket Fidelity Bond and an Errors and Omissions Insurance Policy,
with broad coverage on all officers, employees or other persons acting in any
capacity requiring such persons to handle funds, money, documents or papers
relating to the Mortgage Loans ("Servicer Employees"). Any such Fidelity Bond
and Errors and Omissions Insurance Policy shall be in the form of the Mortgage
Banker's Blanket Bond and shall protect and insure the Servicer against losses,
including forgery, theft, embezzlement, fraud, errors and omissions and
negligent acts of such Servicer Employees. Such Fidelity Bond and Errors and
Omissions Insurance Policy also shall protect and insure the Servicer against
losses in connection with the release or satisfaction of a Mortgage Loan
without having obtained payment in full of the indebtedness secured thereby. No
provision of this Section 2.12 requiring such Fidelity Bond and Errors and
Omissions Insurance Policy shall diminish or relieve the Servicer from its
duties and obligations as set forth in this Agreement. The minimum coverage
under any such Fidelity Bond and Errors and Omissions Insurance Policy shall be
at least equal to the corresponding amounts required by FNMA in the FNMA
Mortgage-Backed Securities Selling and Servicing Guide. Upon the request of the
Purchaser, the Servicer shall cause to be delivered to the Purchaser a
certified true copy of such Fidelity Bond and Errors and Omissions Insurance
Policy and a statement from the surety and the insurer that such Fidelity, Bond
and
21
<PAGE>
Errors and Omissions Insurance Policy shall in no event be terminated or
materially modified without thirty (30) days' prior written notice to the
Purchaser. In the event that the surety or insurer charges the Servicer a fee
for providing such evidence, the Purchaser shall reimburse the Servicer for the
reasonable expense incurred by the Servicer in furnishing such evidence.
SECTION 2.13 Inspections. The Servicer shall inspect the Mortgaged
Property as often as deemed necessary by the Servicer to assure itself that the
value of the Mortgaged Property is being preserved. In addition, if any
Mortgage Loan is more than sixty (60) days delinquent, the Servicer immediately
shall inspect the Mortgaged Property and shall conduct subsequent inspections
in accordance with Accepted Servicing Practices or as may be required by the
primary mortgage guaranty insurer. The Servicer shall keep a written report of
each such inspection.
SECTION 2.14 Restoration of Mortgaged Property. The Servicer need not
obtain the approval of the Purchaser prior to releasing any Insurance Proceeds
or Condemnation Proceeds to the Mortgagor to be applied to the restoration or
repair of the Mortgaged Property if such release is in accordance with Accepted
Servicing Practices and the terms of this Agreement. At a minimum, the Servicer
shall comply with the following conditions in connection with any such release
of Insurance Proceeds or Condemnation Proceeds:
(i) the Servicer shall receive satisfactory independent
verification of completion of repairs and issuance of any required
approvals with respect thereto;
(ii) the Servicer shall take all steps necessary to preserve the
priority of the lien of the Mortgage, including, but not limited to
requiring waivers with respect to mechanics' and materialmen's liens;
(iii) the Servicer shall verify that the Mortgage Loan is not in
default; and
22
<PAGE>
(iv) pending repairs or restoration, the Servicer shall place the
Insurance Proceeds or Condemnation Proceeds in the Escrow Account.
If the Purchaser is named as an additional mortgagee, the Servicer is
hereby empowered to endorse any loss draft issued in respect of such a claim in
the name of the Purchaser.
SECTION 2.15 Maintenance of PMI Policy, Claims. The Servicer will
maintain or cause the related Mortgagor to maintain, in accordance with the
FNMA Guides, each PMI Policy to the extent such policy is in effect with
respect to a Mortgage Loan at the time of the sale of such Mortgage Loan to the
Purchaser, such policy to be maintained until such time as it may be released
in accordance with the FNMA Guides.
In connection with its activities as servicer, the Servicer agrees to
prepare and present, on behalf of itself and the Purchaser, claims to the
insurer under any PMI Policy in a timely fashion in accordance with the terms
of such PMI Policy and, in this regard, to take such action as shall be
necessary to permit recovery under any PMI Policy with respect to a defaulted
Mortgage Loan. Pursuant to Section 2.4, any amounts collected by the Servicer
under any PMI Policy shall be deposited in the Custodial Account, subject to
withdrawal pursuant to Section 2.5.
SECTION 2.16 [Reserved]
SECTION 2.17 Title, Management and Disposition of REO Property. In the
event that title to any Mortgaged Property is acquired in foreclosure or by
deed in lieu of foreclosure, the deed or certificate of sale shall be taken in
the name of the Purchaser, or in the event the Purchaser is not authorized or
permitted to hold title to real property in the state where the REO Property is
located, or would be adversely affected under the "doing business" or tax laws
of such state by so holding title, the deed or certificate of sale shall be
taken in the name of such Person or Persons as shall be consistent with an
Opinion of Counsel obtained by the Servicer from any attorney duly licensed to
practice law in the state where the REO Property is located. The Person or
Persons holding such title other than the
23
<PAGE>
Purchaser shall acknowledge in writing that such title is being held as nominee
for the Purchaser.
The Servicer shall manage, conserve, protect and operate each REO
Property for the Purchaser solely for the purpose of its prompt disposition and
sale. The Servicer, either itself or through an agent selected by the Servicer
and reasonably acceptable to the Purchaser, shall manage, conserve, protect and
operate the REO Property in the same manner that it manages, conserves,
protects and operates other foreclosed property for its own account, and in the
same manner that similar property in the same locality as the REO Property is
managed. The Servicer shall attempt to sell the same (and may temporarily rent
the same for a period not greater than one (1) year, except as otherwise
provided below) on such terms and conditions as the Servicer deems to be in the
best interest of the Purchaser. The Servicer shall use its best efforts to
dispose of the REO Property as soon as practicable.
The Servicer shall also maintain on each REO Property fire and hazard
insurance with extended coverage in an amount which is at least equal to the
maximum insurable value of the improvements which are a part of such property,
liability insurance and, to the extent required and available under the Flood
Disaster Protection Act of 1973, as amended, flood insurance in the amount
required above.
The disposition of REO Property shall be carried out by the Servicer
at such price, and upon such terms and conditions, as the Servicer deems to be
in the best interests of the Purchaser. The proceeds of sale of the REO
Property shall be promptly deposited in the Custodial Account. As soon as
practicable thereafter the expenses of such sale shall be paid, the Servicer
shall retain a fee equal to 1% of the aggregate proceeds of the sale of such
REO Property pursuant to Section 2.5(vi), and the Servicer shall reimburse
itself pursuant to Section 2.5(iii) or 2.5(iv) hereof, as applicable, for any
related unreimbursed Servicing Advances, unpaid Servicing Fees and unreimbursed
advances made pursuant to this Section 2.17, and on the Remittance Date
immediately following the Due Period in which such sale proceeds are received
the net cash proceeds of such sale remaining in the Custodial Account shall be
distributed to the Pur-
24
<PAGE>
chaser; provided that such distribution shall, in any event, be made within
ninety (90) days from and after the closing of the sale of such REO Property.
In addition to the Servicer's obligations set forth in this Section
2.17, the Servicer shall deliver written notice to the Purchaser whenever title
to any Mortgaged Property is acquired in foreclosure or by deed in lieu of
foreclosure together with a copy of a broker's price opinion on the related
Mortgaged Property obtained by the Servicer on or prior to the date of such
acquisition. Notwithstanding anything to the contrary contained herein, the
Purchaser may, at the Purchaser's sole option, terminate the Servicer as
servicer of any such REO Property without payment of any Termination Fee with
respect thereto, provided that (i) the Purchaser gives the Servicer notice of
such termination within ten (10) Business Days of receipt of said written
notice from the Servicer which termination shall be effective no more than
thirty (30) days from and after the date of said notice from the Purchaser and
(ii) the Servicer shall on the date said termination takes effect be reimbursed
by Purchaser for any unreimbursed advances of the Servicer's funds made
pursuant to Section 3.2, any unpaid Servicing Fee and any unreimbursed
Servicing Advances, in each case relating to the Mortgage Loan underlying such
REO Property. In the event of any such termination, the provisions of Section
8.6 hereof shall apply to said termination and the transfer of servicing
responsibilities with respect to such REO Property to the Purchaser or its
designee.
With respect to each REO Property, the Servicer shall deposit all
funds collected and received in connection in the operation of the REO Property
in the Custodial Account. The Servicer shall cause to be deposited on a daily
basis upon the receipt thereof in the Custodial Account all revenues received
with respect to the conservation and disposition of the related REO Property.
SECTION 2.18 Permitted Withdrawals with Respect to REO Property. For
so long as the Servicer is acting as servicer of any Mortgage Loan relating to
any REO Property, the Servicer shall withdraw funds on deposit in the Custodial
Account with respect to each related REO Property necessary, for the proper
operation, management and maintenance of the REO Property, including the cost
of maintaining any hazard insurance pursuant to
25
<PAGE>
Section 2.10 and the fees of any managing agent acting on behalf of the
Servicer. The Servicer shall make monthly distributions on each Remittance Date
to the Purchaser of the net cash flow from the REO Property (which shall equal
the revenues from such REO Property net of the expenses described in Section
2.17 and of any reserves reasonably required from time to time to be maintained
to satisfy anticipated liabilities for such expenses).
SECTION 2.19 Real Estate Owned Reports. For so long as the Servicer is
acting as servicer of any Mortgage Loan relating to any REO Property, the
Servicer shall furnish to the Purchaser on or before the 15th day of each month
a statement with respect to any REO Property covering the operation of such REO
Property for the previous month, the Servicer's efforts in connection with the
sale of such REO Property, any rental of such REO Property incidental to the
sale thereof for the previous month and a liquidation report with respect to
any Mortgaged Property for which foreclosure sale was closed in the previous
month or which was acquired by the Purchaser in the previous month pursuant to
a deed in lieu of foreclosure. That statement shall be accompanied by such
other information as the Purchaser shall reasonably request.
SECTION 2.20 Reports Of Foreclosures and Abandonments. For so long as
the Servicer is acting as servicer of any Mortgage Loan relating to any REO
Property, following the foreclosure sale or abandonment of any Mortgaged
Property, the Servicer shall report such foreclosure or abandonment as required
pursuant to Section 6050J of the Code.
SECTION 2.21 Notification of Adjustments. With respect to each
Adjustable Rate Mortgage Loan, the Servicer shall adjust the Mortgage Interest
Rate on the related Interest Rate Adjustment Date and shall adjust the Monthly
Payment accordingly in compliance with the requirements of applicable law and
the related Mortgage and Mortgage Note. If, pursuant to the terms of the
Mortgage Note, another index is selected for determining the Mortgage Interest
Rate, the same index will be used with respect to each Mortgage Note which
requires a new index to be selected, provided that such selection does not
conflict with the terms of the related Mortgage Note. The Servicer shall
execute and deliver any and all neces-
26
<PAGE>
sary notices required under applicable law and the terms of the related
Mortgage Note and Mortgage regarding the Mortgage Interest Rate and the Monthly
Payment adjustments. The Servicer shall promptly upon written request therefor,
deliver to the Purchaser such notifications and any additional applicable data
regarding such adjustments and the methods used to calculate implement such
adjustments. Upon the discovery by the Servicer or the Purchaser that the
Servicer has failed to adjust a Mortgage Interest Rate or a Monthly Payment
pursuant to the terms of the related Mortgage Note and Mortgage, the Servicer
shall immediately deposit in the Custodial Account from its own funds the
amount of any interest loss caused the Purchaser thereby.
ARTICLE III
PAYMENTS TO PURCHASER
SECTION 3.1 Remittances. On each Remittance Date the Servicer shall
remit by wire transfer of immediately available funds to the Purchaser (a) all
amounts deposited in the Custodial Account as of the close of business on the
Business Day prior to the Remittance Date, except Principal Prepayments
received on or after the first day of the month in which the Remittance Date
occurs which shall be remitted to the Purchaser on the next following
Remittance Date, plus (b) an amount representing compensating interest (up to a
maximum amount equal to the aggregate Servicing Fee for the Mortgage Loans held
by the Purchaser with respect to such Mortgage Loans) which, when added to all
amounts allocable to interest received in connection with Principal Prepay-
ments received during the calendar month prior to the Remittance Date equals
thirty (30) days' interest at the Mortgage Interest Rate net of the Servicing
Fee Rate on the amount of principal so prepaid (net of charges against or
withdrawals from the Custodial Account pursuant to Section 2.5), plus (c) all
amounts, if any, which the Servicer is obligated to distribute pursuant to
Section 3.3 and minus (d) any amounts attributable to Monthly Payments
collected but due on a Due Date or Dates subsequent to the first day of the
month of the Remittance Date, which amounts shall be remitted on the Remittance
Date next succeeding the Due Period for such amounts.
27
<PAGE>
With respect to any remittance received by the Purchaser after the
second Business Day following the Business Day on which such payment was due,
the Servicer shall pay to the Purchaser interest on any such late payment at an
annual rate equal to the Prime Rate, adjusted as of the date of each change,
plus one (1) percentage point, but in no event greater than the maximum amount
permitted by applicable law. Such interest shall be deposited in the Custodial
Account by the Servicer on the date such late payment is made and shall cover
the period commencing with and including the day following such second Business
Day and ending with the Business Day on which such payment is made, exclusive
of such Business Day; provided, however, that in the event that the Servicer
remits such amounts after 11:00 A.M. (New York City time) on any day, such
period shall include such day. Such interest shall be remitted along with the
distribution payable on the next succeeding Remittance Date. The payment by the
Servicer of any such interest shall not be deemed an extension of time for
payment or a waiver of any Event of Default by the Servicer.
The Servicer and any of its Affiliates shall have the right to market
products and services to the Mortgagors and to retain any fees and other income
associated therewith and shall have no obligation to remit any of such income
to the Purchaser, provided, however, that in the event that Purchaser sells,
transfers or assigns its rights or interests under or with respect to any
Mortgage Loans, then the rights of the Servicer or any of its Affiliates
described in this sentence shall be terminated with respect to such Mortgage
Loans upon written notice to such effect given by the Purchaser.
SECTION 3.2 Statements to Purchaser. Not later than the Remittance
Date, the Servicer shall furnish to the Purchaser or its designee a listing of
the outstanding Mortgage Loans, including with respect to each Mortgage Loan:
the Mortgage Loan number, the actual balance, the actual paid-through dates and
the Mortgage Interest Rate and principal and interest payment, and with respect
to Adjustable Rate Mortgage Loans, the next Interest Rate Adjustment Date,
Payment Adjustment Date, the Mortgage Interest Rate and the principal and
interest payment effective as of the next Interest Rate Adjustment Date (if
available), and shall furnish to the Purchaser a Monthly Remittance Advice,
with a trial balance report
28
<PAGE>
attached thereto, in the form of Exhibit 1 annexed hereto as to the current
remittance and the period ending on the preceding Investor Cut-off Date.
In addition, not more than ninety (90) days after the end of each
calendar year, the Servicer shall furnish to each Person who was a Purchaser at
any time during such calendar year an annual statement in accordance with the
requirements of applicable federal income tax law as to the aggregate of
remittances for the applicable portion of such year.
Such obligation of the Servicer shall be deemed to have been satisfied
to the extent that substantially comparable information shall be provided by
the Servicer pursuant to any requirements of the Code as from time to time are
in force.
The Servicer shall prepare and file, with respect to each Mortgage
Loan, any and all tax returns, information statements or other filings required
to be delivered to any governmental taxing authority or to the Purchaser
pursuant to any applicable law with respect to the Mortgage Loans and the
transactions contemplated hereby. In addition, the Servicer shall provide the
Purchaser with such information concerning the Mortgage Loans as is necessary
for the Purchaser to prepare its federal income tax return as the Purchaser may
reasonably request from time to time.
SECTION 3.3 Advances by Servicer. On the Business Day immediately
preceding each Remittance Date, the Servicer shall deposit in the Custodial
Account from its own funds an amount equal to all Monthly Payments which were
due on the Mortgage Loans during the applicable Due Period and which are unpaid
as of such date or which were deferred pursuant to Section 2.1, provided that
the Servicer shall only be required to make such advances with respect to a
Mortgage Loan until such advances are, in the Servicer's good faith
determination as evidenced by an Officer's Certificate of the Servicer
delivered to the Purchaser on the Business Day immediately prior to the related
Remittance Date, deemed to be a Nonrecoverable Advance. The Servicer's
obligation to make such advances as to any Mortgage Loan will continue through
the earlier of (i) the disposition of such Mortgage Loan and (ii) the date of
foreclosure sale with
29
<PAGE>
respect to such Mortgage Loan. Except as otherwise provided herein, the
Servicer shall be entitled to first priority reimbursement pursuant to Section
2.5 hereof for principal and interest advances and for servicing advances from
recoveries from the related mortgagor or from all Liquidation Proceeds and
other payments or recoveries (including Insurance Proceeds and Condemnation
Proceeds) with respect to the related Mortgage Loan.
ARTICLE IV
GENERAL SERVICING PROCEDURES
SECTION 4.1 Transfers of Mortgaged Property. The Servicer shall be
required to enforce any "due-on-sale" provision contained in any Mortgage or
Mortgage Note and to deny assumption by the person to whom the Mortgaged
Property has been or is about to be sold whether by absolute conveyance or by
contract of sale, whether or not the Mortgagor remains liable on the Mortgage
and the Mortgage Note. When the Mortgaged Property has been conveyed by the
Mortgagor, the Servicer shall, to the extent it has knowledge of such
conveyance, exercise its rights to accelerate the maturity of such Mortgage
Loan under the "due-on-sale" clause applicable thereto, provided, however, that
the Servicer shall not exercise such rights if prohibited by law from doing so
or if the exercise of such rights would impair or threaten to impair any
recovery under the related PMI Policy, if any.
If the Servicer reasonably believes it is unable under applicable law
to enforce such "due-on-sale" clause, the Servicer, in the Purchaser's name,
shall, to the extent permitted by applicable law, enter into (i) an assumption
and modification agreement with the person to whom such Mortgaged Property has
been conveyed, pursuant to which such person becomes liable under the Mortgage
Note and the original Mortgagor remains liable thereon or (ii) in the event the
Servicer is unable under applicable law to require that the original Mortgagor
remain liable under the Mortgage Note and the Servicer has the prior consent of
the primary mortgagee guaranty insurer, a substitution of liability agreement
with the purchaser of the Mortgaged Property pursuant to which the original
Mortgagor is released from liability and the purchaser of
30
<PAGE>
the Mortgaged Property is substituted as Mortgagor and becomes liable under the
Mortgage Note. In connection with any such assumption, neither the Mortgage
Interest Rate borne by the related Mortgage Note, the term of the Mortgage Loan
nor the outstanding principal amount of the Mortgage Loan shall be changed.
To the extent that any Mortgage Loan is assumable, the Servicer shall
inquire diligently into the creditworthiness of the proposed transferee, and
shall use the underwriting criteria for approving the credit of the proposed
transferee which are used by FNMA with respect to underwriting mortgage loans
of the same type as the Mortgage Loans. If the credit of the proposed
transferee does not meet such underwriting criteria, the Servicer diligently
shall, to the extent permitted by the Mortgage or the Mortgage Note and by
applicable law, accelerate the maturity of the Mortgage Loan.
SECTION 4.2 Satisfaction of Mortgages and Release of Mortgage Files.
Upon the payment in full of any Mortgage Loan, or the receipt by the Servicer
of a notification that payment in full will be escrowed in a manner customary
for such purposes, the Servicer shall notify the Purchaser in the Monthly
Remittance Advice as provided in Section 3.2, and may request the release of
any Mortgage Loan Documents from the Purchaser in accordance with this Section
4.2 hereof. The Servicer shall obtain discharge of the related Mortgage Loan as
of record within any related time limit required by applicable law.
If the Servicer satisfies or releases a Mortgage without first having
obtained payment in full of the indebtedness secured by the Mortgage or should
the Servicer otherwise prejudice any rights the Purchaser may have under the
mortgage instruments, upon written demand of the Purchaser, the Servicer shall
repurchase the related Mortgage Loan at the Repurchase Price by deposit thereof
in the Custodial Account within two (2) Business Days of receipt of such demand
by the Purchaser. Upon such repurchase, all funds maintained in the Escrow
Account with respect to such repurchased Mortgage Loan shall be transferred to
the Servicer. The Servicer shall maintain the Fidelity Bond and Errors and
Omissions Insurance Policy as provided for in Section 2.12 insuring the
Servicer against any loss it may sustain with respect
31
<PAGE>
to any Mortgage Loan not satisfied in accordance with the procedures set forth
herein.
SECTION 4.3 Servicing Compensation. As consideration for servicing the
Mortgage Loans hereunder, the Servicer shall withdraw the Servicing Fee with
respect to each Mortgage Loan from the Custodial Account pursuant to Section
2.5 hereof. Such Servicing Fee shall be payable monthly with respect to each
Mortgage Loan and shall be computed on the basis of the same principal amount
and period in respect of which any related interest payment on a Mortgage Loan
is computed. The Servicing Fee shall be pro-rated when servicing is for less
than one month. The obligation of the Purchaser to pay, and the Servicer's
right to withdraw, the Servicing Fee is limited to, and the Servicing Fee is
payable solely from, the interest portion (including recoveries with respect to
interest from Liquidation Proceeds, to the extent permitted by Section 2.5) of
such Monthly Payment collected by the Servicer, or as otherwise provided under
Section 2.5.
Additional servicing compensation in the form of Ancillary Income
shall be retained by the Servicer. The Servicer shall be required to pay all
expenses incurred by it in connection with its servicing activities hereunder
and shall not be entitled to reimbursement thereof except as specifically
provided for herein.
SECTION 4.4 Annual Statement as to Compliance. The Servicer shall
deliver to the Purchaser, on or before March 31 each year beginning March 31,
1998, an Officer's Certificate, stating that (i) a review of the activities of
the Servicer during the preceding calendar year and of performance under this
Agreement has been made under such officer's supervision, and (ii) the Servicer
has complied in all material respects with the provisions of Article II and
Article IV, and (iii) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all its obligations under this Agreement
throughout such year or part thereof, or, if there has been a default in the
fulfillment of any such obligation, specifying each such default known to such
officer and the nature and status thereof and the action being taken by the
Servicer to cure such default.
32
<PAGE>
SECTION 4.5 Annual Independent Public Accountants' Servicing Report.
On or before March 31 each year beginning March 31, 1998, the Servicer at its
expense shall cause a firm of independent public accountants (who may also
render other services to the Servicer or any affiliate thereof) which is a
member of the American Institute of Certified Public Accountants to furnish a
statement to the Purchaser to the effect that such firm has, with respect to
the servicing operations of the Servicer, examined such operations in
accordance with the requirements of the Uniform Single Attestation Program for
Mortgage Bankers and stating such firm's conclusions relating thereto.
SECTION 4.6 Right to Examine Servicer Records. The Purchaser, upon
reasonable notice, shall have the right to examine and audit any and all of the
books, records, or other information of the Servicer, whether held by the
Servicer or by another on its behalf, with respect to or concerning this
Agreement or the Mortgage Loans, during business hours or at such other times
as may be reasonable under applicable circumstances, upon reasonable advance
notice.
ARTICLE V
SERVICER TO COOPERATE
SECTION 5.1 Provision of Information. During the term of this
Agreement, the Servicer shall furnish to the Purchaser such periodic, special,
or other reports or information, whether or not provided for herein, as shall
be necessary, reasonable, or appropriate with respect to the Purchaser or the
purposes of this Agreement. All such reports or information shall be provided
by and in accordance with all reasonable instructions and directions which the
Purchaser may give.
The Servicer shall execute and deliver all such instruments and take
all such action as the Purchaser may reasonably request from time to time, in
order to effectuate the purposes and to carry out the terms of this Agreement.
SECTION 5.2 Financial Statements; Servicing Facilities. In connection
with any proposed disposition
33
<PAGE>
of Mortgage Loans, the Purchaser may make available to a prospective purchaser
audited financial statements of the Servicer for the most recently completed
two (2) fiscal years for which such statements are available. If it has not
already done so, the Servicer shall furnish promptly to the Purchaser or a
prospective purchaser copies of the statements specified above, provided,
however, that prior to furnishing such statements or information to any
prospective purchaser, the Servicer may require such prospective purchaser to
execute a confidentiality agreement in form reasonably satisfactory to it.
The Servicer shall make available to the Purchaser or any prospective
Purchaser a knowledgeable financial or accounting officer for the purpose of
answering questions with respect to recent developments affecting the Servicer
or the financial statements of the Servicer, and to permit any prospective
purchaser to inspect the Servicer's servicing facilities for the purpose of
satisfying such prospective purchaser that the Servicer has the ability to
service the Mortgage Loans as provided in this Agreement.
ARTICLE VI
TERMINATION
SECTION 6.1 Agency Suspension. Should the Servicer or any subservicer
of the Mortgage Loans at any time during the term of this Agreement have its
right to service temporarily or permanently suspended by FNMA or FHLMC or
otherwise cease to be an approved seller/servicer of conventional residential
mortgage loans for FNMA or FHLMC, then the Purchaser may immediately terminate
this Agreement and accelerate performance of the provisions of the Purchase
Agreement to require immediate transfer of the Servicing Rights.
SECTION 6.2 Damages. The Purchaser shall have the right at any time to
seek and recover from the Servicer any damages or losses suffered by it as a
result of any failure by the Servicer to observe or perform any duties,
obligations, covenants or agreements herein contained, or as a result of a
party's failure to remain an approved FNMA mortgage servicer.
34
<PAGE>
SECTION 6.3 Termination. The respective obligations and
responsibilities of the Servicer shall terminate upon: (i) the later of the
final payment or other liquidation (or any advance with respect thereto) of the
last Mortgage Loan serviced by the Servicer or the disposition of all REO
Property serviced by the Servicer and the remittance of all funds due
hereunder; (ii) by mutual consent of the Servicer and the Purchaser in writing,
unless earlier terminated pursuant to this Agreement, or (iii) solely with
respect to any Mortgage Loans transferred, sold or assigned by the Purchaser to
a Person that is not an Affiliate of the Purchaser, the effective date of such
transfer, sale or assignment. To the extent that the Servicer is not retained
by a transferee, purchaser or assignee of the Purchaser to service such
Mortgage Loans transferred, sold or assigned as described in the preceding
clause (iii), the Servicer shall be entitled to a Termination Fee payable by
Purchaser equal to the product of (x) 2.0% and (y) the aggregate unpaid
principal balance, as of the effective date of the related termination, of the
Mortgage Loans so sold, transferred or assigned.
SECTION 6.4 Termination Without Cause. The Purchaser may, at its sole
option, upon not less than thirty (30) days' prior written notice to the
Servicer terminate any rights the Servicer may have hereunder with respect to
any or all of the Mortgage Loans, without cause, provided that the Servicer
shall have an additional period of not more than sixty (60) days from and after
the date of said notice from the Purchaser within which to effect the related
transfer of servicing, and provided further that as long as any Series A
Preferred Shares remain outstanding and except as otherwise provided in clause
(iii) of Section 6.3, the Purchaser shall not terminate, or elect not to renew,
any rights the Servicer may have hereunder with respect to any or all of the
Mortgage Loans without the approval of a majority of the Independent Directors.
Any such notice of termination shall be in writing and delivered to the
Servicer as provided in Section 12.1 of this Agreement. In the event of such
termination, the Servicer shall be entitled to a Termination Fee payable by
Purchaser equal to the product of (x) 2.0% and (y) the aggregate unpaid
principal balance of the related Mortgage Loans at the effective time of such
termination, provided, however, that the successor servicer is not an Affiliate
of the Servicer.
35
<PAGE>
ARTICLE VII
BOOKS AND RECORDS
SECTION 7.1 Possession of Mortgage Files. The contents of each
Mortgage File are and shall be held in trust by the Servicer for the benefit of
the Purchaser as the owner thereof. The possession of the Mortgage File by the
Servicer is at the will of the Purchaser for the sole purpose of servicing the
related Mortgage Loan, pursuant to this Agreement, and such retention and pos-
session by the Servicer is in its capacity as Servicer only and at the election
of the Purchaser. The Servicer shall release its custody of the contents of any
Mortgage File only in accordance with written instructions from the Purchaser
or other termination of the Servicer with respect to the related Mortgage
Loans, unless such release is required as incidental to the Servicer's
servicing of the Mortgage Loans pursuant to this Agreement, or is in
connection with a repurchase of any Mortgage Loan pursuant to Section 8.3 of
the Purchase Agreement or Section 4.2 of this Agreement.
The Servicer shall be responsible for maintaining, and shall maintain,
a complete set of books and records for each Mortgage Loan which shall be
marked clearly to reflect the ownership of each Mortgage Loan by the Purchaser.
In particular, the Servicer shall maintain in its possession, available for
inspection by the Purchaser or its designee during normal business hours, and
shall deliver to the Purchaser or its designee upon reasonable notice, evidence
of compliance with all federal, state and local laws, rules and regulations,
and requirements of FNMA, including but not limited to documentation as to the
method used in determining the applicability of the provisions of the Flood
Disaster Protection Act of 1973, as amended, to the Mortgaged Property,
documentation evidencing insurance coverage and eligibility of any condominium
project for approval by FNMA and periodic inspection reports as required by
Section 2.13 and the FNMA Guides.
To the extent that original documents are not required for purposes of
realization of Liquidation Proceeds or Insurance Proceeds, documents maintained
by the Servicer may be in the form of optical disk image so
36
<PAGE>
long as the Servicer complies with the requirements of the FNMA Guides.
The Servicer shall keep at its servicing office books and records in
which, subject to such reasonable regulations as it may prescribe, the Servicer
shall note transfers of Mortgage Loans. No transfer of a Mortgage Loan may be
made unless such transfer is in compliance with the terms hereof. For the
purposes of this Agreement, the Servicer shall be under no obligation to deal
with any person with respect to this Agreement or the Mortgage Loans unless the
books and records show such person as the owner of the Mortgage Loan. The
Purchaser may, subject to the terms of this Agreement, sell or transfer one or
more of the Mortgage Loans. The Purchaser also shall advise the Servicer of the
transfer. Upon receipt of notice of the transfer, the Servicer shall mark its
books and records to reflect the ownership of the Mortgage Loans of such
assignee, and shall release the Purchaser from its obligations hereunder with
respect to the Mortgage Loans sold or transferred.
ARTICLE VIII
INDEMNIFICATION AND ASSIGNMENT
SECTION 8.1 Indemnification. The Servicer agrees to indemnify and hold
the Purchaser harmless from any liability, claim, loss or damage (including,
without limitation, any reasonable legal fees, judgments or expenses relating
to such liability, claim, loss or damage) to the Purchaser directly or
indirectly resulting from the Servicer's failure to observe and perform any or
all of Servicer's duties, obligations, covenants, agreements, warranties or
representations contained in this Agreement or the Servicer's failure to comply
with all applicable requirements with respect to the transfer of servicing
rights as set forth herein.
The Servicer shall notify the Purchaser as soon as reasonably possible
if a claim is made by a third party with respect to this Agreement.
SECTION 8.2 Limitation on Liability of Servicer and Others. Neither
the Servicer nor any of the directors, officers, employees or agents of the
Servicer
37
<PAGE>
shall be under any liability to the Purchaser for any action taken or for
refraining from the taking of any action in good faith pursuant to this
Agreement or pursuant to the express written instructions of Purchaser, or for
errors in judgment, provided, however, that this provision shall not protect
the Servicer or any such person against any breach of warranties or
representations made herein, or failure to perform its obligations in material
compliance with any standard of care set forth in this Agreement, or any
liability which would otherwise be imposed by reason of any breach of the terms
and conditions of this Agreement. The Servicer and any director, officer,
employee or agent of the Servicer may rely in good faith on any document of any
kind prima facie properly executed and submitted by any Person with respect to
any matter arising hereunder. The Servicer shall not be under any obligation to
appear in, prosecute or defend any legal action which is not incidental to its
duties to service the Mortgage Loans in accordance with this Agreement and
which in its opinion may involve it in any expense or liability, provided,
however, that the Servicer may, with the prior written consent of the
Purchaser, undertake any such action which it may deem necessary or desirable
in respect to this Agreement and the rights and duties of the parties hereto.
In such event, the Servicer shall be entitled to reimbursement from the
Purchaser of the reasonable legal expenses and costs of such action.
SECTION 8.3 Limitation on Assignment by Servicer. Servicer shall not
(i) assign this Agreement or the servicing hereunder or (ii) delegate any
substantial part of its rights or duties hereunder without the prior written
consent of the Purchaser, which consent shall not be unreasonably withheld or
conditioned provided that (a) any delegation of such rights or duties shall not
release the Servicer from its obligations hereunder and the Servicer shall
remain responsible hereunder for all acts and omissions of any delegee as if
such acts or omissions were those of the Servicer and (b) any such assignee or
designee shall satisfy the requirements for a successor or surviving Person set
forth in Section 8.5 and Section 8.6 hereof, and provided further, that, so
long as any Series A Preferred Shares remain outstanding, Purchaser's consent
to any assignment or delegation of all or a portion of the Servicer's
obligations hereunder to a third party not affiliated with the Seller shall
38
<PAGE>
only be valid if given with the approval of a majority of the Independent
Directors. The Servicer shall notify the Purchaser in writing at least 30 days
prior to selling or otherwise disposing of all or substantially all of its
assets and receipt of such notice shall entitle the Purchaser to terminate this
Agreement except as set forth in Section 8.5 hereof.
The Servicer shall not resign from the obligations and duties hereby
imposed on it except by mutual consent of the Servicer and the Purchaser or
upon the determination that its duties hereunder are no longer permissible
under applicable law and such incapacity cannot be cured by the Servicer. Any
such determination permitting the resignation of the Servicer shall be
evidenced by an Opinion of Counsel to such effect delivered to the Purchaser.
No such resignation shall become effective until a successor shall have assumed
the Servicer's responsibilities and obligations hereunder in the manner
provided in Section 8.6.
Without in any way limiting the generality of this Section 8.3, in the
event that the Servicer shall assign this Agreement or the servicing
responsibilities hereunder or delegate its duties hereunder or any portion
thereof without (i) satisfying the requirements set forth herein or (ii) the
prior written consent of the Purchaser, then the Purchaser shall have the right
to terminate this Agreement as set forth in Section 6.4, without any payment of
any penalty or damages and without any liability whatsoever to the Servicer
(other than with respect to accrued but unpaid Servicing Fees and Servicing
Advances remaining unpaid) or any third party.
SECTION 8.4 Assignment by Purchaser. The Purchaser shall not assign
any of its rights or obligations under this Agreement without the written
consent of the Servicer.
SECTION 8.5 Merger or Consolidation of the Servicer. The Servicer will
keep in full effect its existence, rights and franchises as a corporation under
the laws of the State of Delaware except as permitted herein, and will obtain
and preserve its qualification to do business as a foreign corporation in each
jurisdiction in which such qualification is or shall be necessary to protect
the validity and enforceability of this Agree-
39
<PAGE>
ment, or any of the Mortgage Loans and to perform its duties under this
Agreement.
Any person into which the Servicer may be merged or consolidated, or
any corporation resulting from any merger, conversion or consolidation to which
the Servicer shall be a party, or any Person succeeding to the business of the
Servicer, shall be the successor of the Servicer hereunder, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto, anything herein to the contrary notwithstanding; provided,
however, that the successor or surviving Person shall be an institution whose
deposits are insured by FDIC or a company whose business includes the
origination and servicing of mortgage loans, shall be qualified to service
mortgage loans on behalf of FNMA or FHLMC and shall satisfy the requirements of
Section 8.6 with respect to the qualifications of a successor to the Servicer.
SECTION 8.6 Successor to the Servicer. Prior to termination of
Servicer's responsibilities and duties under this Agreement pursuant to
Sections 2.17, 6.4, 8.3 or 11.1, the Purchaser shall (i) succeed to and assume
all of the Servicer's responsibilities, rights, duties and obligations under
this Agreement, or (ii) appoint a successor having a tangible net worth of not
less than $30,000,000 and which shall succeed to all rights and assume all of
the responsibilities, duties and liabilities of the Servicer under this
Agreement prior to the termination of Servicer's responsibilities, duties and
liabilities under this Agreement. Any successor to the Servicer shall be a
FNMA- or FHLMC-approved servicer in good standing. In connection with such
appointment and assumption, the Purchaser may make such arrangements for the
compensation of such successor out of payments on Mortgage Loans as it and such
successor shall agree. In the event that the Servicer's duties,
responsibilities and liabilities under this Agreement should be terminated
pursuant to the aforementioned sections, the Servicer shall discharge such
duties and responsibilities during the period from the date it acquires
knowledge of such termination until the effective date thereof with the same
degree of diligence and prudence which it is obligated to exercise under this
Agreement, and shall take no action whatsoever that might impair or prejudice
the rights or financial condition of its successor. The
40
<PAGE>
resignation or removal of Servicer pursuant to the afore-mentioned Sections
shall not become effective until a successor shall be appointed pursuant to
Article X hereof this Section and shall in no event relieve the Servicer of the
representations, warranties and covenants made pursuant to and the remedies
available to the Purchaser with respect thereto, it being understood and agreed
that the provisions of such Article X shall be applicable to the Servicer
notwithstanding any such resignation or termination of the Servicer, or the
termination of this Agreement.
Any successor appointed as provided herein shall execute, acknowledge
and deliver to the Servicer and to the Purchaser, an instrument accepting such
appointment, whereupon such successor shall become fully vested with all the
rights, powers, duties, responsibilities, obligations and liabilities of the
Servicer, with like effect as if originally named as a party to this Agreement.
Any termination of this Agreement pursuant to Section 2.17, 6.4, 8.3 or 11.1
shall not affect any claims that the Purchaser may have against the Servicer
arising prior to any such termination or resignation.
The Servicer shall timely deliver to the successor the funds in the
Custodial Account and the Escrow Account and the Mortgage Files and related
documents and statements held by it hereunder and the Servicer shall account
for all funds. The Servicer shall execute and deliver such instruments and do
such other things all as may reasonably be required to more fully and
definitely vest and confirm in the successor all such rights, powers, duties,
responsibilities, obligations and liabilities of the Servicer. The successor
shall make arrangements as it may deem appropriate to reimburse the Servicer
for amounts the Servicer actually expended pursuant to this Agreement which the
successor is entitled to retain hereunder and which would otherwise have been
recovered by the Servicer pursuant to this Agreement but for the appointment of
the successor servicer.
Upon a successor's acceptance of appointment as such, the Servicer
shall notify by mail the Purchaser of such appointment.
41
<PAGE>
ARTICLE IX
REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER
As of each Closing Date, the Purchaser warrants and represents to, and
covenants and agrees with, the Servicer as follows:
SECTION 9.1 Due Organization and Authority. The Purchaser is a
corporation duly organized, validly existing and in good standing under the
laws of the state of Maryland. The Purchaser has the full corporate power and
authority to execute and deliver this Agreement and to perform in accordance
herewith; the execution, delivery and performance of this Agreement by the
Purchaser and the consummation of the transactions contemplated hereby have
been duly and validly authorized; this Agreement evidences the valid, binding
and enforceable obligation of the Purchaser, and all requisite corporate action
has been taken by the Purchaser to make this Agreement valid and binding upon
the Purchaser in accordance with its terms.
SECTION 9.2 No Conflicts. Neither the execution and delivery of this
Agreement, nor the fulfillment of or compliance with the terms and conditions
of this Agreement, will conflict with or result in a breach of any of the
terms, conditions or provisions of the Purchaser's charter or by-laws or any
legal restriction or any agreement or instrument to which the Purchaser is now
a party or by which it is bound, or constitute a default or result in an
acceleration under any of the foregoing, or result in the violation of any law,
rule, regulation, order, judgment or decree to which the Purchaser or its
property is subject.
SECTION 9.3 Ability to Perform. The Purchaser does not believe, nor
does it have any reason or cause to believe, that it cannot perform each and
every covenant made by it in this Agreement.
SECTION 9.4 No Litigation Pending. There is no action, suit,
proceeding or investigation pending or threatened against the Purchaser, before
any court, administrative agency or other tribunal asserting the invalidity of
this Agreement, seeking to prevent the consummation of any of the transactions
contemplated by
42
<PAGE>
this Agreement or which, either in any one instance or in the aggregate, may
result in any material adverse change in the business, operations, financial
condition, properties or assets of the Purchaser, or in any material impairment
of the right or ability of the Purchaser to carry on its business substantially
as now conducted, or which would draw into question the validity of this
Agreement or of any action taken or to be taken in connection with the
obligations of the Purchaser contemplated herein.
SECTION 9.5 No Consent Required. No consent, approval, authorization
or order of any court or governmental agency or body is required for the
execution, delivery and performance by the Purchaser or, or compliance by the
Purchaser with, this Agreement as evidenced by the consummation of the
transactions contemplated by this Agreement, or if required, such approval has
been obtained prior to the Closing Date.
SECTION 9.6 Assistance. To the extent reasonably possible, the
Purchaser shall cooperate with and assist the Servicer as requested by the
Servicer, in carrying out Servicer's covenants, agreements, duties and
responsibilities under the Purchase Agreement and in connection therewith shall
execute and deliver such papers, documents and instruments as may be necessary
and appropriate in furtherance thereof.
ARTICLE X
REPRESENTATIONS AND WARRANTIES OF SERVICER
As of each Closing Date, the Servicer warrants and represents to, and
covenants and agrees with, the Purchaser as follows:
SECTION 10.1 Due Organization and Authority. The Servicer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, has full power and authority to conduct its
business as now being conducted and is licensed, qualified and in good standing
in each state where a Mortgaged Property is located if the laws of such state
require licensing or qualification in order to conduct business of the type
conducted by the Servicer, and in any event
43
<PAGE>
the Servicer is in compliance with the laws of any such state to the extent
necessary to ensure the enforceability of the related Mortgage Loan in
accordance with the terms of this Agreement; the Servicer has the full
corporate power and authority to execute and deliver this Agreement and to
perform in accordance herewith; the execution, delivery and performance of this
Agreement (including all instruments of transfer to be delivered pursuant to
this Agreement) by the Servicer and the consummation of the transactions
contemplated hereby have been duly and validly authorized; this Agreement
evidences the valid, legal, binding and enforceable obligation of the Servicer
subject to bankruptcy laws and other similar laws of general application
affecting rights of creditors and subject to the application of the rules of
equity, including those respecting the availability of specific performance,
none of which will materially interfere with the realization of the benefits
provided thereunder, regardless of whether such enforcement is sought in a
proceeding in equity or at law; and all requisite corporate action has been
taken by the Servicer to make this Agreement valid and binding upon the
Servicer in accordance with its terms.
SECTION 10.2 Ordinary Course of Business. The consummation of the
transactions contemplated by this Agreement are in the ordinary course of
business of the Servicer.
SECTION 10.3 No Conflicts. Neither the execution and delivery of this
Agreement, nor the fulfillment of or compliance with the terms and conditions
of this Agreement, will conflict with or result in a breach of any of the
terms, conditions or provisions of the Servicer's charter of by-laws or any
legal restriction or any agreement or instrument to which the Servicer is now a
party or by which it is bound, or constitute a default or result in an
acceleration under any of the foregoing, or result in the violation of any law,
rule, regulation, order, judgment or decree to which the Servicer or its
property is subject, or impair the ability of the Purchaser to realize on the
Mortgage Loans, impair the value of the Mortgage Loans, or impair the ability
of the Purchaser to realize the full amount of any mortgage insurance benefit
accruing pursuant to this Agreement.
44
<PAGE>
SECTION 10.4 Ability to Service. The Servicer is an approved
seller/servicer of conventional residential mortgage loans for FNMA, with the
facilities, procedures, and experienced personnel necessary for the sound
servicing of mortgage loans of the same type as the Mortgage Loans. The
Servicer is duly qualified, licensed, registered and otherwise authorized under
all applicable federal, state and local laws, and regulations, if applicable,
meets the minimum capital requirements set forth by the OTS or the FDIC, and is
in good standing to enforce, originate, sell mortgage loans to, and service
mortgage loans in the jurisdiction wherein the Mortgaged Properties are located
for FNMA, and no event has occurred, including but not limited to a change in
insurance coverage, which would make the Servicer unable to comply with FNMA
eligibility requirements or which would require notification to FNMA.
SECTION 10.5 Ability to Perform. The Servicer does not believe, nor
does it have any reason or cause to believe, that it cannot perform each and
every covenant contained in this Agreement.
SECTION 10.6 No Litigation Pending. There is no action, suit,
proceeding or investigation pending or threatened against the Servicer, before
any court, administrative agency or other tribunal asserting the invalidity of
this Agreement, seeking to prevent the consummation of any of the transactions
contemplated by this Agreement or which, either in any one instance or in the
aggregate, may result in any material adverse change in the business,
operations, financial condition, properties or assets of the Servicer, or in
any material impairment of the right or ability of the Servicer to carry on its
business substantially as now conducted, or which would draw into question the
validity of this Agreement or the Mortgage Loans or of any action taken or to
be taken in connection with the obligations of the Servicer contemplated
herein, or which would be likely to impair materially the ability of the
Servicer to perform under the terms of this Agreement.
SECTION 10.7 No Consent Required. No consent, approval, authorization
or order of any court or governmental agency or body is required for the
execution, delivery and performance by the Servicer of or compliance by the
Servicer with this Agreement or the servicing of
45
<PAGE>
the Mortgage Loans as evidenced by the consummation of the transactions
contemplated by this Agreement, or if required, such approval has been
obtained.
SECTION 10.8 No Untrue Information. Neither this Agreement nor any
statement, tape, diskette, form, report or other document furnished or to be
furnished pursuant to this Agreement or in connection with the transactions
contemplated hereby contains any untrue statement of fact or omits to state a
fact necessary to make the statements contained therein not misleading.
SECTION 10.9 Reasonable Servicing Fee. The Servicer acknowledges and
agrees that the Servicing Fee represents reasonable compensation for performing
such services and that the entire Servicing Fee shall be treated by the
Servicer, for accounting and tax purposes, as compensation for the servicing
and administration of the Mortgage Loans pursuant to this Agreement.
SECTION 10.10 Financial Statements. The Servicer has delivered to the
Purchaser financial statements as to its last two complete fiscal years. All
such financial statements fairly present the pertinent results of operations
and changes in financial position for each of such periods and the financial
position at the end of each such period of the Servicer and its subsidiaries
and have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, except as set
forth in the notes thereto. There has been no change in the business,
operations, financial condition, properties or assets of the Servicer since the
date of the Servicer's financial statements that would have a material adverse
effect on its ability to perform its obligations under this Agreement.
SECTION 10.11 Conflict of Interest. The Servicer agrees that it shall
service the Mortgage Loans hereunder solely with a view toward the interests of
the Purchaser, and without regard to the interests of the Seller or its other
affiliates.
46
<PAGE>
ARTICLE XI
DEFAULT
SECTION 11.1 Events of Default. The following shall constitute an
Event of Default under this Agreement on the part of the Servicer:
(a) any failure by the Servicer to remit to the Purchaser any payment
required to be made under the terms of this Agreement which continues
unremedied for a period of five (5) Business Days after the date upon which
written notice of such failure, requiring the same to be remedied, shall have
been given to the Servicer by the Purchaser; or
(b) the failure by the Servicer duly to observe or perform in any
material respect any other of the covenants or agreements on the part of the
Servicer set forth in this Agreement which continues unremedied for a period of
thirty (30) days (except that such number of days shall be fifteen (15) in the
case of a failure to pay any premium for any insurance policy required to be
maintained under this Agreement) after the date on which written notice of such
failure, requiring the same to be remedied, shall have been given to the
Servicer by the Purchaser; or
(c) a decree or order of a court or agency or supervisory authority
having jurisdiction for the appointment of a conservator or receiver or
liquidator in any insolvency, bankruptcy, readjustment of debt, marshaling of
assets and liabilities or similar proceedings, or for the winding-up or
liquidation of its affairs, shall have been entered against the Servicer and
such decree or order shall have remained in force undischarged or unstayed for
a period of sixty (60) days; or
(d) the Servicer shall consent to the appointment of a conservator or
receiver or liquidator in any insolvency, bankruptcy, readjustment of debt,
marshaling of assets and liabilities or similar proceedings of or relating to
the Servicer or of or relating to all or substantially all of its obligations;
or
(e) the Servicer shall admit in writing its inability to pay its debts
generally as they become due,
47
<PAGE>
file a petition to take advantage of any applicable insolvency or
reorganization statute, make an assignment for the benefit of its creditors, or
voluntarily suspend payment of its obligations; or
(f) the Servicer ceases to meet the qualifications of a FNMA or FHLMC
seller/servicer which continues unremedied for a period of thirty (30) days
after the date of such cessation; or
(g) the Servicer, without the consent of the Purchaser, attempts to
assign this Agreement or the servicing responsibilities hereunder or to
delegate any substantial part of its duties hereunder or any portion thereof;
or
(h) the Servicer fails to maintain its license to do business or
service residential mortgage loans in any jurisdiction where the Mortgaged
Properties are located and such failure results in a material adverse effect on
the Mortgage Loans, the servicing of the Mortgage Loans, or the Purchaser's
rights with respect to the Mortgage Loans.
In each and every such case, so long as an Event of Default shall not
have been remedied, in addition to whatsoever rights the Purchaser may have at
law or equity to damages, including injunctive relief and specific performance,
the Purchaser, by notice in writing to the Servicer, may terminate without
compensation or reimbursement (other than Servicing Fees previously earned but
remaining unpaid and Servicing Advances remaining unreimbursed) all the rights
and obligations of the Servicer under this Agreement and in and to the Mortgage
Loans and the proceeds thereof.
Upon receipt by the Servicer of such written notice, all authority and
power of the Servicer under this Agreement, whether with respect to the
Mortgage Loans or otherwise, shall pass to and be vested in the successor
appointed pursuant to Section 8.6. Upon written request from the Purchaser, the
Servicer shall prepare, execute and deliver any and all documents and other
instruments reasonably requested by the Purchaser, place in such successor's
possession all Mortgage Files (to the extent not properly delivered to the
Purchaser by the Servicer previously), and do or accomplish all other acts
48
<PAGE>
or things necessary or appropriate to effect the purposes of such notice of
termination, whether to complete the transfer and endorsement or assignment of
the Mortgage Loans and related documents, or otherwise, at the Servicer's sole
expense. The Servicer agrees to reasonably cooperate with the Purchaser and
such successor in effecting the termination of the Servicer's responsibilities
and rights hereunder, including, without limitation, the transfer to such
successor for administration by it of all cash amounts which shall at the time
be credited by the Servicer to the Custodial Account or Escrow Account or
thereafter received with respect to the Mortgage Loans.
SECTION 11.2 Waiver of Defaults. The Purchaser may waive any default
by the Servicer in the performance of its obligations hereunder and its
consequences. Upon any such waiver of a past default, such default shall cease
to exist, and any Event of Default arising therefrom shall be deemed to have
been remedied for every purpose of this Agreement. No such waiver shall extend
to any subsequent or other default or impair any right consequent thereon
except to the extent expressly so waived.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.1 Notices. All notices, requests, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall be deemed to have been duly given upon the
delivery or mailing thereof, as the case may be, sent by registered or
certified mail, return receipt requested.
(a) If to Purchaser to:
California Federal Preferred
Capital Corporation
200 Crescent Court, Suite 1350
Dallas, Texas 75201
Attention: Christie S. Flanagan, Esq.
Fax: (214) 871-5199
49
<PAGE>
(b) If to Servicer to:
First Nationwide Mortgage
Corporation
5280 Corporate Drive
Frederick, Maryland 21701
Attention: Lawrence Washington
Fax: (301) 696-4097
SECTION 12.2 Waivers. Either the Servicer or the Purchaser may upon
consent of all parties, by written notice to the others:
(a) Waive compliance with any of the terms, conditions or covenants
required to be complied with by the others hereunder; and
(b) Waive or modify performance of any of the obligations of the
others hereunder.
The waiver by any party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any other subsequent breach.
SECTION 12.3 Entire Agreement Amendment. This Agreement and the
Purchaser Agreement constitute the entire agreement between the parties with
respect to servicing of the Mortgage Loans. This Agreement may be amended and
any provision hereof waived, but, only in writing signed by the party against
whom such enforcement is sought.
SECTION 12.4 Execution: Binding Effect. This Agreement may be executed
in one or more counterparts and by the different parties hereto on a separate
counter-parts, each of which, when so executed, shall be deemed to be an
original; such counterparts, together, shall constitute one and the same
agreement. Subject to Sections 8.3 and 8.4, this Agreement shall inure to the
benefit of and be binding upon the Servicer and the Purchaser and their
respective successors and assigns.
SECTION 12.5 Headings. Headings of the Articles and Sections in this
Agreement are for reference purposes only and shall not be deemed to have any
substantive effect.
50
<PAGE>
SECTION 12.6 Applicable Law. This Agreement shall be construed in
accordance with the laws of the State of California and the obligations, rights
and remedies hereunder shall be determined in accordance with the substantive
laws of the State of California (without regard to conflicts of laws
principles), except to the extent preempted by Federal law.
SECTION 12.7 Relationship of Parties. Nothing herein contained shall
be deemed or construed to create a partnership or joint venture between the
parties. The duties and responsibilities of the Servicer shall be rendered by
it as an independent contractor and not as an agent of the Purchaser. The
Servicer shall have full control of all of its acts, doings, proceedings,
relating to or requisite in connection with the discharge of its duties and
responsibilities under this Agreement.
SECTION 12.8 Severability of Provisions. If any one or more of the
covenants, agreements, provisions or terms of this Agreement shall be held
invalid for any reason whatsoever, then such covenants, agreements, provisions
or terms shall be deemed severable from the remaining covenants, agreements,
provisions or terms of this Agreement and shall in no way affect the validity
or enforceability of the other provisions of this Agreement.
SECTION 12.9 Recordation of Assignments of Mortgage. The parties
acknowledge that the Seller and the Purchaser have executed a blanket
assignment of the Mortgages underlying each Mortgage Loan (other than Co-op
Loans) sold to the Purchaser, whether pursuant to the Purchase Agreement or
pursuant to a duly executed Commitment Letter. Upon the written request of the
Purchaser (whether due to the proposed sale of any Mortgage Loan by the
Purchaser or otherwise) or to the extent deemed necessary by the Servicer in
connection with servicing a Mortgage Loan pursuant to the terms hereof, the
Servicer shall promptly execute such individual Assignments of Mortgages
(except for Co-op Loans) as Purchaser shall request, and such Assignments of
Mortgages shall be recorded in all appropriate public offices for real property
records in all the counties or other comparable jurisdictions in which any or
all of the related Mortgaged Properties are situated, and in any other
appropriate public recording office or elsewhere, such recordation to be
effected by the Purchaser or the Purchaser's designee,
51
<PAGE>
but in any event, at the Servicer's expense for a single recordation relating
to each such Assignment of Mortgage.
SECTION 12.10 Exhibits. The exhibits to this Agreement are hereby
incorporated and made a part hereof and are integral parts of this Agreement.
52
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year first above written.
CALIFORNIA FEDERAL PREFERRED
CAPITAL CORPORATION
(the Purchaser)
By: /s/ Eric K. Kawamura
------------------------------
Name: Eric K. Kawamura
----------------------------
Title: Vice President and
---------------------------
Assistant Treasurer
---------------------------
FIRST NATIONWIDE MORTGAGE
CORPORATION
(the Servicer)
By: /s/ Lawrence P. Washington
------------------------------
Name: Lawrence P. Washington
----------------------------
Title: Executive Vice President
---------------------------
53
<PAGE>
EXHIBIT 1
MONTHLY REMITTANCE ADVICE
<PAGE>
EXHIBIT 2
CUSTODIAL ACCOUNT CERTIFICATION
__________, 199_
___________ hereby certifies that it has established the account
described below as a Custodial Account pursuant to Section 2.4 of the Servicing
Agreement, dated as of __________, 1997.
Title of Account: "First Nationwide Mortgage Corpora-
tion, as trustee and custodian for
Purchaser of Residential Mortgage
Loans, and various Mortgagors."
Account Number:
--------------------
Address of office or branch of the Servicer at which Account is maintained:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
FIRST NATIONWIDE MORTGAGE
CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT 3
CUSTODIAL ACCOUNT LETTER AGREEMENT
__________, 199_
To:
-------------------------------
-------------------------------
-------------------------------
(the "Depository")
As Servicer under the Servicing Agreement, dated as of ___________,
1997 (the "Agreement"), we hereby authorize and request you to establish an
account, as a Custodial Account pursuant to Section 2.4 of the Agreement, to be
designated as "First Nationwide Mortgage Corporation, as trustee and custodian
for Purchaser of Residential Mortgage Loans, and various Mortgagors." All
deposits in the account shall be subject to withdrawal therefrom by order
signed by the Servicer. You may refuse any deposit which would result in
violation of the requirement that the account be fully insured as described
below. This letter is submitted to you in duplicate. Please execute and return
one original to us.
FIRST NATIONWIDE MORTGAGE
CORPORATION
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
The undersigned, as Depository, hereby certifies that the above
described account has been established under Account Number __________, at the
office of the Depository indicated above, and agrees to honor withdrawals on
such account as provided above. The full amount deposited at any time in the
account will be insured by the Federal Deposit Insurance Corporation through
the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF").
---------------------------------------
Depository
By:
------------------------------------
Name:
-------------------------------
Title:
------------------------------
Date:
-------------------------------
<PAGE>
EXHIBIT 4
ESCROW ACCOUNT CERTIFICATION
__________, 199_
hereby certifies that it has established the account described below
as an Escrow Account pursuant to Section 2.6 of the Servicing Agreement, dated
as of __________, 1997.
Title of Account: "First Nationwide Mortgage Corpora-
tion, as trustee and custodian for
Purchaser of Residential and various
Mortgagors."
Account Number:
-------------------------
Address of office or branch of the Servicer at which Account is maintained:
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
-----------------------------------
FIRST NATIONWIDE MORTGAGE
CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
EXHIBIT 5
ESCROW ACCOUNT LETTER AGREEMENT
__________, 199_
To:
--------------------------------
--------------------------------
--------------------------------
(the "Depository")
As Servicer under the Servicing Agreement, dated as of ___________,
1997 (the "Agreement"), we hereby authorize and request you to establish an
account, as a Escrow Account pursuant to Section 2.6 of the Agreement, to be
designated as "First Nationwide Mortgage Corporation, as trustee and custodian
for Purchaser of Residential Mortgage Loans, and various Mortgagors." All
deposits in the account shall be subject to withdrawal therefrom by order
signed by the Servicer. You may refuse any deposit which would result in
violation of the requirement that the account be fully insured as described
below. This letter is submitted to you in duplicate. Please execute and return
one original to us.
FIRST NATIONWIDE MORTGAGE
CORPORATION
By:
------------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
The undersigned, as Depository, hereby certifies that the above
described account has been established under Account Number __________, at the
office of the Depository indicated above, and agrees to honor withdrawals on
such account as provided above. The full 0amount deposited at any time in the
account will be insured by the Federal Deposit Insurance Corporation through
the Bank Insurance Fund ("BIF") or the Savings Association Insurance Fund
("SAIF").
---------------------------------------
Depository
By:
------------------------------------
Name:
--------------------------------
Title:
-------------------------------
Date:
--------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Balance Sheet and Statement of Income included in the Company's Form 10-Q
for the period ended March 31, 1997.
</LEGEND>
<CIK> 0001027283
<NAME> CALIFORNIA FEDERAL PREFERRED CAPITAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 0
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,780
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 972,960
<ALLOWANCE> 5,420
<TOTAL-ASSETS> 1,002,857
<DEPOSITS> 0
<SHORT-TERM> 0
<LIABILITIES-OTHER> 7
<LONG-TERM> 0
0
500,000
<COMMON> 0
<OTHER-SE> 502,850
<TOTAL-LIABILITIES-AND-EQUITY> 1,002,857
<INTEREST-LOAN> 10,975
<INTEREST-INVEST> 67
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 11,042
<INTEREST-DEPOSIT> 0
<INTEREST-EXPENSE> 0
<INTEREST-INCOME-NET> 11,042
<LOAN-LOSSES> 420
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 41
<INCOME-PRETAX> 10,581
<INCOME-PRE-EXTRAORDINARY> 10,581
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,581<F1>
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.30
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 5,420
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 5,420
<FN>
<F1> Net income available to common Stockholders: $2,850.
</FN>
</TABLE>
