-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, d1isqsFhtrYrcRX6cbS7+RKkCVe34fZuLofHUjNZdiA8jRET5MTNuRiQTg8C19NE VlfrmT179xB2RN74AyrkuA== 0000950148-94-000173.txt : 19940404 0000950148-94-000173.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950148-94-000173 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 13 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CITY NATIONAL CORP CENTRAL INDEX KEY: 0000201461 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 952568550 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-10521 FILM NUMBER: 94519670 BUSINESS ADDRESS: STREET 1: 400 N ROXBURY DR CITY: BEVERLY HILLS STATE: CA ZIP: 90210 BUSINESS PHONE: 3108584270 10-K 1 FORM 10-K FOR THE YEAR ENDED 12/31/93 1 SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1993 Commission File Number 1-10521 CITY NATIONAL CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter)
Delaware 95-2568550 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 400 North Roxbury Drive, Beverly Hills, California 90210 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (310) 550-5400 Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange Title of each class on which registered ----------------------------- ----------------------- Common Stock, $1.00 par value New York Stock Exchange
No securities are registered pursuant to Section 12(g) of the Act 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 ------- -------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Number of shares of common stock outstanding at March 10, 1994: 45,038,721 Aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 10, 1994: $299,089,383 Documents Incorporated by Reference ----------------------------------- 1. Pages 7 through 53 of the Annual Report to Shareholders for the year ended December 31, 1993. (Part II of Form 10-K.) 2. Specified material on pages 2 through 13 and 19 through 22 of the Notice of Annual Meeting and Proxy Statement dated March 18, 1994. (Part III of Form 10-K.) 2 PART I ITEM 1. BUSINESS City National Corporation (the Corporation) was organized in Delaware in 1968 to acquire the outstanding capital stock of City National Bank (the Bank). Because the Bank comprises substantially all of the business of the Corporation, references to the "Company" reflect the consolidated activities of the Corporation and the Bank. The Corporation owns all the outstanding shares of the Bank. The Bank, which was founded in 1953, conducts business in Southern California and operates 19 banking offices in Los Angeles County, two in Orange County, and one in San Diego County. In November 1993, the Bank closed one office in Los Angeles County and announced a consolidation plan to improve efficiency and operational productivity in its branch network. The streamlining will involve closures of five additional branches in Los Angeles County and one branch in Orange County, while also designating four of the remaining locations as regional lending centers. The Bank expects to complete the closures in early 1994. The Bank primarily serves middle-market companies, professional and business borrowers and associated individuals with commercial banking and fiduciary needs. The Bank provides revolving lines of credit, term loans, asset based loans, real estate secured loans, trade facilities, and deposit, cash management and other business services. Real estate construction lending has been substantially curtailed since late 1990. The Bank also operates an Investment Management and Trust Services Division offering personal, employee benefit and corporate trust and estate services, and deals in money market and other investments for its own account and for its customers. The Bank offers mutual funds and residential home mortgages in association with other companies. Effective January 1, 1991, the Bank entered into an agreement to subcontract with Systematics, Inc. (now Systematics Financial Services, Inc.) for applications software, computer operations and integration services. In December 1992, the Bank entered into an agreement to sell its data processing business, City National Information Services (CNIS), to Systematics, Inc. for $12.0 million. A pretax gain of $10.8 million, which is net of certain software licensing payments and programming expenses shared with Systematics, Inc. was recognized at closing, June 1, 1993. Effective January 1, 1993, the Bank sold its merchant credit card processing business and customer contracts to NOVA Information Systems, Inc., for $1.9 million. -1- 3 Competition The banking business is highly competitive. The Bank competes with domestic and foreign banks for deposits, loans and other banking business. In addition, other financial intermediaries, such as savings and loans, money market mutual funds, credit unions and other financial services companies, compete with the Bank. Non-depository institutions can be expected to increase the extent to which they act as financial intermediaries. Large institutional users and sources of credit may also increase the extent to which they interact directly, meeting business credit needs outside the banking system. Furthermore, the geographic constraints on portions of the financial services industry can be expected to continue to erode. Monetary Policy The earnings of the Bank are affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities in the U.S. and abroad. In particular, the Board of Governors of the Federal Reserve System (Federal Reserve Board) exerts a substantial influence on interest rates and credit conditions, primarily through open market operations in U.S. government securities, varying the discount rate on member bank borrowings and setting reserve requirements against deposits. Federal Reserve Board monetary policies have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future. SUPERVISION AND REGULATION Bank holding companies, banks and their non-bank affiliates are extensively regulated under both federal and state law. The following is not intended to be an exhaustive description of the statutes and regulations applicable to the Corporation's or the Bank's business. The description of statutory and regulatory provisions is qualified in its entirety by reference to the particular statutory or regulatory provisions. Moreover, major new legislation and other regulatory changes affecting the Corporation, the Bank, banking and the financial services industry in general have occurred in the last several years and can be expected to occur in the future. The nature, timing and impact of new and amended laws and regulations cannot be accurately predicted. -2- 4 Bank Holding Companies Bank holding companies are regulated under the Bank Holding Company Act (BHC Act) and are supervised by the Federal Reserve Board. Under the BHC Act, the Corporation files reports of its operations with the Federal Reserve Board and is subject to examination by it. The BHC Act requires, among other things, the Federal Reserve Board's prior approval whenever a bank holding company proposes to (i) acquire all or substantially all the assets of a bank, (ii) acquire direct or indirect ownership or control of more than 5% of the voting shares of a bank, or (iii) merge or consolidate with another bank holding company. The Federal Reserve Board may not approve an acquisition, merger or consolidation that would result in or further a monopoly, or may substantially lessen competition in any section of the country, or in any other manner would be in restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the convenience and needs of the community. The BHC Act prohibits the Federal Reserve Board from approving a bank holding company's application to acquire a bank or bank holding company located outside the state where its banking subsidiaries' operations are principally conducted, unless such acquisition is specifically authorized by statute of the state where the bank or bank holding company to be acquired is located. California law permits bank holding companies in other states to acquire California banks and bank holding companies, provided the acquiring company's home state has enacted "reciprocal" legislation that expressly authorizes California bank holding companies to acquire banks or bank holding companies in that state on terms and conditions substantially no more restrictive than those applicable to such an acquisition in California by a bank holding company from the other state. The BHC Act also prohibits a bank holding company, with certain exceptions, from acquiring more than 5% of the voting shares of any company that is not a bank and from engaging in any activities without the Federal Reserve Board's prior approval other than (1) managing or controlling banks and other subsidiaries authorized by the BHC Act, or (2) furnishing services to, or performing services for, its subsidiaries. The BHC Act authorizes the Federal Reserve Board to approve the ownership of shares in any company, the activities of which have been determined to be so closely related to banking or to managing or controlling banks as to be a proper incident thereto. The Federal Reserve Board has by regulation determined that certain activities are closely related to banking within the meaning of the BHC Act. Consistent with its "source of strength" policy (see "Capital Adequacy Requirements," below), the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding -3- 5 company generally should not pay cash dividends unless its net income available to common shareholders has been sufficient to fund fully the dividends, and the prospective rate of earnings retention appears consistent with the company's capital needs, asset quality and overall financial condition. The Corporation ceased paying dividends in the third quarter of 1991. Dividend payments are expected to resume, based on achieved earnings, and when the Board of Directors determines that such payments are consistent with the long-term objectives of the Corporation. A bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with the extension of credit. The Federal Reserve Board may, among other things, issue cease-and-desist orders with respect to activities of bank holding companies and nonbanking subsidiaries that represent unsafe or unsound practices or violate a law, administrative order or written agreement with a federal banking regulator. The Federal Reserve Board can also assess civil money penalties against companies or individuals who violate the BHC Act or other federal laws or regulations, order termination of nonbanking activities by nonbanking subsidiaries of bank holding companies and order termination of ownership and control of a nonbanking subsidiary by a bank holding company. National Banks The Bank is a national bank and, as such, is subject to supervision and examination by the Office of the Comptroller of the Currency (OCC) and requirements and restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged, and limitations on the types of investments that may be made and services that may be offered. Various consumer laws and regulations also affect the Bank's operations. These laws primarily protect depositors and other customers of the Bank, rather than the Corporation and its shareholders. The laws and regulations affecting the Bank were significantly altered and augmented by the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA). "Brokered deposits" are deposits obtained by a bank from a "deposit broker" or that pay above-market rates of interest. Under FDICIA, only a well capitalized depository institution may accept brokered deposits without the prior approval of the Federal Deposit Insurance Corporation (FDIC). Banks that are not at least adequately capitalized cannot obtain such approval. For purposes of this provision, the capital category definitions are similar, but not identical, to the OCC's definitions of those categories for the purpose of requiring prompt corrective action. See -4- 6 "Capital Adequacy Requirements," below. Although the Bank sought, and received, the permission of the FDIC to accept brokered deposits in 1993, no such deposits have in fact been accepted. The Corporation's principal asset is its investment in, and its loans and advances to, the Bank. Bank dividends are one of the Corporation's principal sources of liquidity. The Bank's ability to pay dividends is limited by certain statutes and regulations. OCC approval is required for a national bank to pay a dividend if the total of all dividends declared in any calendar year exceeds the total of the bank's net profits (as defined) for that year combined with its retained net profits for the preceding two calendar years, less any required transfer to surplus. A national bank may not pay any dividend that exceeds its net profits then on hand after deducting its loan losses and bad debts, as defined by the OCC. The OCC and the Federal Reserve Board have also issued banking circulars emphasizing that the level of cash dividends should bear a direct correlation to the level of a national bank's current and expected earnings stream, the bank's need to maintain an adequate capital base and other factors. National banks that are not in compliance with regulatory capital requirements generally are not permitted to pay dividends. The OCC also can prohibit a national bank from engaging in an unsafe or unsound practice in its business. Depending on the bank's financial condition, payment of dividends could be deemed to constitute an unsafe or unsound practice. Under FDICIA, a bank may not, except under certain circumstances and with prior regulatory approval, pay a dividend if, after so doing, it would be undercapitalized. The Bank's ability to pay dividends in the future is, and could be further, influenced by regulatory policies or agreements and by capital guidelines. The Bank ceased paying dividends in the second quarter of 1991. Dividend payments were also restricted in 1993 by the terms of the Bank's Agreement with the OCC, which was terminated on January 21, 1994. See "Regulatory Agreements," below. Dividend payments are expected to resume, based on achieved earnings, and when the Board of Directors of the Bank determine that such payments are consistent with the long-term objectives of the Bank. The Bank's ability to make funds available to the Corporation is also subject to restrictions imposed by federal law on the Bank's ability to extend credit to the Corporation to purchase assets from it, to issue a guarantee, acceptance or letter of credit on its behalf (including an endorsement or standby letter of credit), to invest in its stock or securities, or to take such stock or securities as collateral for loans to any borrower. Such extensions of credit and issuances generally must be secured and are generally limited, with respect to the Corporation, to 10% of the Bank's capital stock and surplus. -5- 7 The Bank is insured by the FDIC and therefore is subject to its regulations. Among other things, FDICIA provided authority for special assessments against insured deposits and required the FDIC to develop a general risk-based assessment system. The insurance assessment is set forth in a schedule issued by the FDIC that specifies, at semiannual intervals, target reserve ratios for the Bank Insurance Fund designed to increase to at least 1.25% of estimated insured deposits in 15 years. During 1992, the assessment rate for all banks was 0.23% of the average assessment base. However, in October 1992, the FDIC adopted a risk-based assessment system under which insured institutions will be assigned to one of nine categories, based on capital levels and degree of supervisory concern. Depending on its category (which may not be disclosed without the permission of the FDIC), a bank's assessment now ranges from 0.23% to 0.31% of the base, effective January 1, 1993. Due to declines in total deposits, the increases in FDIC insurance assessment rates that became effective in July 1, 1992 and January 1, 1993 did not result in an increase in FDIC insurance assessment expense. FDICIA also contains numerous other regulatory requirements. Annual examinations are required for all insured depository institutions by the appropriate federal banking agency, with some exceptions. In December 1992, the Federal Reserve Board issued regulations under FDICIA requiring institutions to adopt policies limiting their exposure to correspondent institutions in relation to the correspondent's financial condition and, in particular, to limit exposure to any correspondent that is not adequately capitalized, as defined, to not more than 25% of the exposed institution's total capital. FDICIA also requires the banking agencies to review and, under certain circumstances, prescribe more stringent accounting and reporting standards than required by generally accepted accounting principles. In addition, FDICIA contains a number of consumer banking provisions, including disclosure requirements and substantive contractual limitations with respect to deposit accounts. Under FDICIA, institutions other than small institutions must prepare a management report stating management's responsibility for preparing the institution's annual financial statements, complying with designated safety and soundness laws and regulations and other related matters. The report also must contain an assessment by management of the effectiveness of internal controls over financial reporting and of the institution's compliance with designated laws and regulations. The institution's independent public accountant must examine, attest to, and report separately on, the assertions of management concerning internal controls over financial -6- 8 reporting and must apply procedures agreed to by the FDIC to test compliance by the institution with designated laws and regulations concerning loans to insiders and dividend restrictions. Banks and bank holding companies are also subject to the Community Reinvestment Act of 1977, as amended (CRA). CRA requires the Bank to ascertain and meet the credit needs of the communities it serves, including low- and moderate-income neighborhoods. The Bank's compliance with CRA is reviewed and evaluated by the OCC, which assigns the Bank a publicly available CRA rating at the conclusion of the examination. Further, an assessment of CRA compliance is also required in connection with applications for OCC approval of certain activities, including establishing or relocating a branch office that accepts deposits or merging or consolidating with, or acquiring the assets or assuming the liabilities of, a federally regulated financial institution. An unfavorable rating may be the basis for OCC denial of such an application, or approval may be conditioned upon improvement of the applicant's CRA record. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve Board will assess the CRA record of each subsidiary bank of the applicant, and such records may be the basis for denying the application. In the most recent completed examination, conducted in 1993, the OCC assigned the Bank a rating of "Satisfactory," the second highest of four possible ratings. From time to time, banking legislation has been proposed that would require consideration of the Bank's CRA rating in connection with applications by the Corporation or the Bank to the Federal Reserve Board or the OCC for permission to engage in additional lines of business. The Corporation cannot predict whether such legislation will be adopted, or its effect upon the Bank and the Corporation if adopted. The federal regulatory agencies recently issued proposed revisions to the rules governing CRA compliance. The proposed rules are intended to simplify CRA compliance evaluations by establishing performance-based criteria. The regulatory agencies have extended the time for comment on, and consideration of, the proposed rules, and management is unable to predict when, or in what form, such rules will be adopted, or the effect of the rules on the Bank's CRA rating. The OCC has enforcement powers with respect to national banks for violations of federal laws or regulations that are similar to the powers of the Federal Reserve Board with respect to bank holding companies and nonbanking subsidiaries. See "Bank Holding Companies," above. On December 21, 1993, an interagency policy statement was issued on the allowance for loan and lease losses (the Policy Statement). The Policy Statement requires that federally-insured depository institutions maintain an allowance for loan and lease losses (ALLL) adequate to absorb -7- 9 credit losses associated with the loan and lease portfolio, including all binding commitments to lend. The Policy Statement defines an adequate ALLL as a level that is no less than the sum of the following items, given the appropriate facts and circumstances as of the evaluation date: (1) For loans and leases classified as substandard or doubtful, all credit losses over the remaining effective lives of those loans. (2) For those loans that are not classified, all estimated credit losses forecast for the upcoming twelve months. (3) Amounts for estimated losses from transfer risk on international loans. Additionally, the Policy Statement provides that an adequate level of ALLL should reflect an additional margin for imprecision inherent in most estimates of expected credit losses. The Policy Statement also provides guidance to examiners in evaluating the adequacy of a bank's ALLL. Among other things, the Policy Statement directs examiners to check the reasonableness of ALLL methodology by comparing the reported ALLL against the sum of the following amounts: (a) 50 percent of the portfolio that is classified doubtful. (b) 15 percent of the portfolio that is classified substandard; and (c) For the portions of the portfolio that have not been classified (including those loans designated special mention), estimated credit losses over the upcoming twelve months given the facts and circumstances as of the evaluation date (based on the institutions's average annual rate of net charge-offs experienced over the previous two or three years on similar loans, adjusted for current conditions and trends). The Policy Statement specifies that the amount of ALLL determined by the sum of the amounts above is neither a floor nor a "safe harbor" level for an institution's ALLL. However, it is expected that examiners will review a shortfall relative to this amount as indicating a need to more closely review management's analysis to determine whether it is reasonable, supported by the weight of reliable evidence and that all relevant factors have been appropriately considered. The Company has reviewed the Policy Statement and believes that it will not have a material impact on the level of the Company's allowances for loan losses. -8- 10 Capital Adequacy Requirements Both the Federal Reserve Board and the OCC have adopted similar, but not identical, "risk-based" and "leverage" capital adequacy guidelines for bank holding companies and national banks, respectively. Under the risk-based capital guidelines, different categories of assets are assigned different risk weights, ranging from zero percent for risk-free assets (e.g., cash) to 100% for relatively high-risk assets (e.g., commercial loans). These risk weights are multiplied by corresponding asset balances to determine a risk-adjusted asset base. Certain off-balance sheet items (e.g., standby letters of credit) are added to the risk-adjusted asset base. The minimum required ratio of total capital to risk-weighted assets for both bank holding companies and national banks is presently 8%. At least half of the total capital is required to be "Tier 1 capital," consisting principally of common shareholders' equity, a limited amount of perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less certain goodwill items. The remainder (Tier 2 capital) may consist of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock and a limited amount of the general loan-loss allowance. As of December 31, 1993, the Corporation had a ratio of Tier 1 capital to risk-weighted assets (Tier 1 risk-based capital ratio) of 15.75% and a ratio of total capital to risk-weighted assets (total risk-based capital ratio) of 17.06%, while the Bank had a Tier 1 risk-based capital ratio of 14.78% and a total risk-based capital ratio of 16.09%. The minimum Tier 1 leverage ratio, consisting of Tier 1 capital to average adjusted total assets, is 3% for bank holding companies and national banks that have the highest regulatory examination rating and are not contemplating significant growth or expansion. All other bank holding companies and national banks are expected to maintain a ratio of at least 1% to 2% or more above the stated minimum. As of December 31, 1993, the Corporation had a Tier 1 leverage ratio of 9.95%, and the Bank's Tier 1 leverage ratio was 9.38%. The OCC has adopted regulations under FDICIA establishing capital categories for national banks and prompt corrective actions for undercapitalized institutions. The regulations create five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The following table shows the minimum total risk-based capital, Tier 1 risk- based capital and Tier 1 leverage ratios, all of which must be satisfied for a bank to be classified as well capitalized, adequately capitalized or undercapitalized, respectively, together with the Bank's ratios at December 31, 1993: -9- 11
Minimum total Minimum Tier 1 Minimum risk-based risk-based Tier 1 capital ratio capital ratio leverage ratio - --------------------------------------------------------------------------- Well capitalized(1) 10.00% 6.00% 5.00% Adequately capitalized 8.00% 4.00% 4.00%(2) Undercapitalized 6.00% 4.00% 3.00% City National Bank (at December 31, 1993) 16.09% 14.78% 9.38%
(1) A bank may not be classified as well capitalized if it is subject to a specific agreement with the OCC to meet and maintain a specified level of capital. (2) 3% for institutions having a composite rating of "1" in the most recent OCC examination. If any one or more of a bank's ratios are below the minimum ratios required to be classified as undercapitalized, it will be classified as substantially undercapitalized or, if in addition its ratio of tangible equity to total assets is 2% or less, it will be classified as critically undercapitalized. A bank may be reclassified by the OCC to the next level below that determined by the criteria described above if the OCC finds that it is in an unsafe or unsound condition or if it has received a less-than-satisfactory rating for any of the categories of asset quality, management, earnings or liquidity in its most recent examination and the deficiency has not been corrected, except that a bank cannot be reclassified as critically undercapitalized for such reasons. Under FDICIA and its implementing regulations, the OCC may subject national banks to a broad range of restrictions and regulatory requirements. A national bank may not pay management fees to any person having control of the institution, nor, except under certain circumstances and with prior regulatory approval, make any capital distribution if, after doing so, it would be undercapitalized. Undercapitalized banks are subject to increased monitoring by the OCC, are restricted in their asset growth, must obtain regulatory approval for certain corporate activities, such as acquisitions, new branches and new lines of business, and, in most cases, must submit to the OCC a plan to bring their capital levels to the minimum required in order to be classified as adequately capitalized. The OCC may not approve a capital restoration plan unless the bank's holding company guarantees that the bank will comply with it. Significantly and critically undercapitalized banks are subject to additional mandatory and discretionary restrictions and, in the case of critically undercapitalized institutions, must be placed into conservatorship or receivership unless the OCC and the FDIC agree otherwise. Under Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to commit resources to support each such -10- 12 bank. In addition, a bank holding company is required to guarantee that its subsidiary bank will comply with any capital restoration plan required under FDICIA. The amount of such a guarantee is limited to the lesser of (i) 5% of the bank's total assets at the time it became undercapitalized, or (ii) the amount which is necessary (or would have been necessary) to bring the bank into compliance with all applicable capital standards as of the time the bank fails to comply with the capital restoration plan. A guaranty by the Corporation of a capital restoration plan for the Bank would result in a priority claim to the Corporation's assets ahead of the Corporation's other unsecured creditors and shareholders that would be enforceable even in the event of the Corporation's bankruptcy or the Bank's insolvency. Regulatory Agreements On November 18, 1992, the Bank entered into a written agreement with the OCC (the Agreement) with respect to capital and other matters described below, which replaced a memorandum of understanding dated June 26, 1991, between the Bank and the OCC. The Agreement required the Bank to generate through internal and external sources a minimum of $65 million in Tier 1 capital by June 30, 1993, so as to maintain a Tier 1 risk-based capital ratio of at least 10% and a Tier 1 leverage ratio of at least 7%. In June 1993, the Corporation completed an offering and sale of 12.7 million shares of common stock (the Offering) at a price of $6.375 per share. The gross proceeds of the Offering were $81.1 million before expenses of the issuance of $4.6 million. Upon completion of the Offering, the Corporation contributed $65 million in capital to the Bank to comply with the $65 million capital - raising requirement in the Agreement with the OCC. The Agreement also required the Bank to develop a three-year capital plan and a three-year business plan and continue to improve its policies and procedures in the lending and credit administration areas. Each of these requirements was successfully met prior to December 31, 1993. As a result, on January 21, 1994, the OCC lifted the Agreement. On February 24, 1993, the Corporation entered into a memorandum of understanding with the Federal Reserve Bank of San Francisco. The memorandum of understanding required the Corporation to submit to the Federal Reserve Bank a summary of measures to improve the Bank's financial condition and ensure the Bank's compliance with the Agreement, a plan to ensure the Corporation's maintenance of adequate consolidated capital levels commensurate with its risk profile, and quarterly progress reports. Under the memorandum of understanding, the Corporation -11- 13 was required to give prior notice to the Federal Reserve Bank of the declaration of any cash dividends or the incurrence of debt, other than operating expenses, and the Corporation was not permitted to repurchase any of its outstanding stock without the Federal Reserve Bank's prior approval. In February 1994, the Federal Reserve Bank of San Francisco notified the Corporation that the memorandum of understanding was lifted. ITEM 2. PROPERTIES The Company has its principal offices in the City National Bank Building, 400 North Roxbury Drive, Beverly Hills, California 90210, which the Bank owns and occupies. As of December 31, 1993, the Bank and its subsidiaries actively maintained premises composed of 22 banking offices, a computer center, a regional data capture center, a warehouse, and certain other properties. Since 1967, the Bank's Pershing Square Regional Office and a number of Bank departments have been the major tenant of the office building located at 600 South Olive Street in downtown Los Angeles. The building was originally developed and built by a partnership between a wholly-owned subsidiary of the Bank, Citinational Bancorporation, and Buckeye Construction Co. and Buckeye Realty and Management Corporation (two corporations then affiliated with Mr. Bram Goldsmith, Chairman of the Board and Chief Executive Officer of the Corporation and the Bank); since its completion, the building has been owned by Citinational-Buckeye Building Co., a limited partnership of which Citinational Bancorporation and Olive-Sixth Buckeye Co. are the only general partners, each with a 29% partnership interest. Citinational Bancorporation has an additional 3% interest as a limited partner of Citinational-Buckeye Building Co.; the remainder is held by other, unaffiliated limited partners. Olive-Sixth Buckeye Co. is a limited partnership of which Mr. Goldsmith is a 49% general partner; therefore, Mr. Goldsmith has an indirect 14% ownership interest in Citinational-Buckeye Building Co. The remaining general partner and all limited partners of Olive-Sixth Buckeye Co. are not affiliated with the Corporation. Since 1990, Citinational-Buckeye Building Co. has managed the building, which is expected to require capital investment of approximately $2.2 million over the next four years, the source of which is uncertain. The major encumbrance on real properties owned directly by the Bank or its subsidiaries is a deed of trust on the 600 South Olive Street building, securing a note in favor of City National Bank on which the unpaid balance at December 31, 1993, was $16,650,842. -12- 14 The Bank's subsidiary, Citinational Bancorporation, also owns two buildings located on Olympic Boulevard in downtown Los Angeles, approximately 80,000 square feet of which is subject to a lease between Citinational Bancorporation and Systematics Financial Services, Inc., that expires on December 31, 2000. Twenty additional branch locations throughout Southern California are leased by the Bank at annual rentals (exclusive of operating charges and real property taxes) of approximately $4,500,000, with expiration dates ranging from 1994 to 2016, exclusive of renewal options. The Northridge earthquake of January 17, 1994, resulted in damage to several of the Bank's facilities, of which two remain closed. Of these, one will be closed permanently as part of the Bank's branch restructuring, and the Bank is negotiating for alternate facilities to replace the other. ITEM 3. LEGAL PROCEEDINGS The Corporation and its subsidiaries are defendants in various pending lawsuits claiming substantial amounts. Based on present knowledge, management and in-house counsel are of the opinion that the final outcome of such lawsuits will not have a material adverse effect upon the financial position or the future results of its operations. The Company is not aware of any material proceedings to which any director, officer or affiliate of the Company, any owner of record or beneficially of more than 5% of the voting securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or any of its subsidiaries or has a material interest adverse to the Company or any of its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There was no submission of matters to a vote of security holders during the fourth quarter of the year ended December 31, 1993. -13- 15 EXECUTIVE OFFICERS OF THE REGISTRANT Shown below are names and ages of all executive officers of the Corporation and officers of the Bank who may be deemed to be executive officers of the Corporation, with indication of all positions and offices with the Corporation and the Bank. There was no family relationship among the executive officers.
Capacities in which served: Present principal occupation and principal Name Age occupation during the past five years - ---------------- --- --------------------------------------------------------------------------------------------------- Bram Goldsmith 71 Chairman of the Board and Chief Executive Officer, City National Bank and City National Corporation George H. Benter, Jr. 52 President and Chief Operating Officer, City National Bank, since May, 1992; President, City National Corporation, since February 1993; Vice Chairman and Chief Credit Officer, Security Pacific Corporation (1991 to 1992), Vice Chairman, Security Pacific National Bank, prior to 1991 Steven D. Broidy 56 Vice Chairman and Chief Administrative Officer, City National Bank, since May 1992; Vice Chairman, City National Corporation, since February 1993; Partner, Loeb and Loeb, October 1988 to 1992 Frank P. Pekny 50 Executive Vice President and Chief Financial Officer, City National Bank, since October 1992; Executive Vice President and Treasurer/Chief Financial Officer, City National Corporation, since December 1992; Executive Vice President, BankAmerica Corporation, April 1992 to September 1992; Executive Vice President, Security Pacific Corporation, October 1990 to April 1992; Vice Chairman and Chief Financial Officer, Security Pacific National Bank, October 1988 to April 1992 Charles D. Kenny 48 Executive Vice President, Secretary and General Counsel, City National Bank, since September 1992; and Manager, Investment Management and Trust Services since October 1993; Executive Vice President, Secretary and General Counsel, City National Corporation, since February 1993; Managing Director and Chief Administrative Officer, World Cup U.S.A. 1994, Inc., June 1991 to September 1992; Executive Vice President, Sanwa Bank California, January 1991 to June 1991, Executive Vice President, General Counsel and Secretary, Union Bank, prior to June 1991
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Capacities in which served: Present principal occupation and principal Name Age occupation during the past five years - ---------------- --- ------------------------------------------------------------------------------------------------------- Robert A. Moore 51 Executive Vice President and Manager, Credit Services, City National Bank, since April 1992; Senior Vice President and Chief Credit Officer, Corporate Banking Group, Security Pacific National Bank, 1991 to April 1992; Senior Vice President, Wells Fargo Bank, 1988 to 1991 Jeffery L. Puchalski 38 Executive Vice President and Senior Risk Management Officer, Risk Management, City National Bank from November 1991; Principal, The Secura Group, national bank and thrift consulting firm, from August 1988 Heng W. Chen 41 Senior Vice President, Finance, City National Bank from August 1988; Assistant Treasurer, City National Corporation from April 1991
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The information regarding the market for the Corporation's Common Stock and related stockholder matters appearing under the caption "Market Data on Shares of Common Stock" on page 33 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1993, is incorporated by reference in this Annual Report on Form 10-K. Information regarding restrictions on the Corporation's payment of dividends appearing under "Capital" and Note 12 to the consolidated financial statements of the Company and its subsidiaries, appearing on pages 20 and 49 respectively of the Corporation's Annual Report to Shareholders for the year ended December 31, 1993, are hereby incorporated by reference. ITEM 6. SELECTED FINANCIAL DATA The selected financial data for the five years ended December 31, 1993, appearing under "Selected Financial Information" on page 7 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1993, is incorporated by reference in this Annual Report on Form 10-K. -15- 17 The Corporation's dividend payout ratio for 1990 and 1989 was 47.4% and 31.0%, respectively. Due to the Corporation's loss in 1991, the dividend payout ratio for 1991 is not meaningful. The Corporation did not pay any dividends in 1993 or 1992. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information required by this item appearing on pages 8 through 33 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1993, is incorporated by reference in this Annual Report on Form 10-K. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the Corporation and its subsidiaries and the notes thereto, and the condensed financial statements of the registrant (the Corporation), together with the report thereon of KPMG Peat Marwick dated January 21, 1994, appearing on pages 35 through 53, and the supplementary data under "1993 Quarterly Operating Results" and "1992 Quarterly Operating Results" on page 34 of the Corporation's Annual Report to Shareholders for the year ended December 31, 1993, together with the report of Price Waterhouse dated January 13, 1993, are incorporated by reference in this Annual Report on Form 10-K. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The information required by this item appearing in Item 4 of the Registrant's Form 8-K/A dated August 25, 1993 is incorporated by reference in this Annual Report on Form 10-K. There were no disagreements with accountants on accounting and financial disclosure matters. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT To the extent not provided above, the information required by this item appearing under the captions "Election of Directors" and "Compliance With Section 16(a) of Securities Exchange Act of 1934" on pages 4 through 6 and 22 of the Registrant's Notice of Annual Meeting and Proxy Statement dated March 18, 1994, is incorporated by reference in this Form 10-K Annual Report. See "Executive Officers of the Registrant," above. -16- 18 ITEM 11. EXECUTIVE COMPENSATION The information required by this item regarding executive compensation appearing under the caption "Compensation of Directors and Executive Officers" on pages 7 through 18 of the Registrant's Notice of Annual Meeting and Proxy Statement dated March 18, 1994, is incorporated by reference in this Form 10-K Annual Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item appearing under the captions "Record Date and Number of Shares Outstanding; Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" on pages 2, 3 and 19 through 21 of the Registrant's Notice of Annual Meeting and Proxy Statement dated March 18, 1994, is incorporated by reference in this Form 10-K Annual Report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required by this item appearing under the captions "Compensation Committee Interlocks and Insider Participation" and "Certain Transactions with Management and Others" on page 14, 21 and 22 of the Registrant's Notice of Annual Meeting and Proxy Statement dated March 18, 1994, is incorporated by reference in this Form 10-K Annual Report. -17- 19 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report:
Page in Annual Report* ------------- 1. Financial Statements: Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Consolidated Balance Sheet at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . 36 Consolidated Statement of Operations for each of the three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . . . . . 37 Consolidated Statement of Cash Flows for each of the three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Consolidated Statement of Changes in Shareholders' Equity for each of the three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . 39 Footnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40-53 Condensed Balance Sheet (Parent Company) at December 31, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Condensed Statement of Operations (Parent Company) for each of the three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . . . . . 53 Condensed Statement of Cash Flows (Parent Company) for each of the three years in the period ended December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 *Incorporated by reference from the indicated pages of the 1993 Annual Report to Shareholders. 2. All other schedules and separate financial statements of 50% or less owned companies accounted for by the equity method have been omitted because they are not applicable.
-18- 20 3. Exhibits (listed by numbers corresponding to Exhibit Table of Item 601 in Regulation S-K)
No. -- 3.1 Certificate of Incorporation (This Exhibit is incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.) 3.2 By-Laws, as amended to date 10.1 Data Processing Agreement by and between Systematics, Inc. and City National Bank dated January 1, 1991, as amended (This Exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) 10.2 Employment Agreement made as of January 31, 1990, by and between Bram Goldsmith and City National Bank (This Exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) 10.2.1 Description of amendments of Bram Goldsmith employment agreement effective September 1, 1992 (This exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) 10.3 Split Dollar Life Insurance Agreement Collateral Assignment Plan between City National Bank and the Goldsmith 1980 Insurance Trust, dated as of June 13, 1980, as amended to date (This Exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) 10.4 Description of amendments to Bram Goldsmith employment agreement (This Exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) 10.5 Lease dated January 11, 1991, between Citinational-Buckeye Building Co. and City National Bank for rental of space on the 14th floor on a month-to-basis, as amended (This Exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) 10.6 Lease dated January 11, 1991, between Citinational-Buckeye Building Co. and City National Bank for rental of space on the 20th floor until December 31, 1996, as amended (This Exhibit is incorporated by reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1991.)
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No. -- 10.7 Lease dated September 30, 1991, between Citinational-Buckeye Building Co. and City National Bank for rental of space on the 9th floor until December 31, 1996 (This Exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1991.) 10.8 Lease dated March 6, 1991, between Citinational-Buckeye Building Co. and City National Bank for rental of space on the 16th floor on a month-to-month basis, as amended (This Exhibit is incorporated by reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1991.) 10.10 City National Corporation 1985 Stock Option Plan, as amended to date (This Exhibit is incorporated by reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1991.) 10.11 Agreement By and Between City National Bank Beverly Hills, California and the Comptroller of the Currency, dated November 18, 1992 (This Exhibit is incorporated by reference to the Registrant's Current Report in Form 8-K dated November 18, 1992.) 10.11.1 Termination of the Formal Agreement, Office of the Comptroller of the Currency, dated January 21, 1994. 10.12 Memorandum of Understanding by and between City National Corporation and the Federal Reserve Bank of San Francisco, dated February 24, 1993 (This exhibit is incorporated by reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1992.) 10.12.1 Letter from The Federal Reserve Bank of San Francisco to City National Bank dated February 23, 1994. 10.13 Asset Purchase Agreement by and between Systematics Financial Services, Inc. and City National Bank, dated December 17, 1992 (This exhibit is incorporated by reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1992.) 10.14 Letter from City National Bank to George H. Benter, Jr., dated March 31, 1992 (This exhibit is incorporated by reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1992.)
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No. -- 10.15 Letter from City National Bank to Steven D. Broidy, dated March 31, 1992 (This exhibit is incorporated by reference to the Company's Annual Report in Form 10-K for the year ended December 31, 1992.) 10.17 Agreement by and among City National Corporation and the directors thereof, dated as of November 18, 1992 (This exhibit is incorporated by reference to the Company's Annual Report on Form 10-K for the year ended December 31, 1992.) 10.18 Asset Sale Agreement (Pool 1) by and between City National Bank as Seller and WHC-THREE Investors, L.P., as Purchaser, dated November 1, 1993. 10.19 Asset Sale Agreement (Pools 2 Through 6) by and between City National Bank as Seller and WHC-THREE Investors, L.P., as Purchaser, dated November 1, 1993. 10.20 Agreement for Separation From Employment and Release by and between Alexander L. Kyman and City National Bank, dated November 3, 1993. 10.20.1 Letter from City National Bank to Alexander L. Kyman, dated November 3, 1993. 13 Pages 7 through 53 of Annual Report to Security Holders for the year ended December 31, 1993 13.1 Report of Price Waterhouse, dated January 13, 1993. 16 Letter from Price Waterhouse (This Exhibit is incorporated by reference to the Company's Current Report on Form 8-K/A, dated August 25, 1993.) 21 Subsidiaries of the registrant 23.1 Consent of KMPG Peat Marwick 23.2 Consent of Price Waterhouse
(b) During the calendar quarter ended December 31, 1993, the registrant did not file any current reports on Form 8-K. -21- 23 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. City National Corporation ------------------------- (Registrant) March 23, 1994 By /s/ Bram Goldsmith ------------------------ Bram Goldsmith, Chairman of the Board and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - -------------------------------- ------------------------------ -------------- /s/ Bram Goldsmith Chairman of the Board, Chief March 23, 1994 - ----------------------------------- Executive Officer and Director Bram Goldsmith (Principal Executive Officer) /s/ Frank P. Pekny Executive Vice President and March 23, 1994 - ----------------------------------- Treasurer/Chief Financial Officer Frank P. Pekny (Principal Financial Officer) /s/ Heng W. Chen Assistant Treasurer March 23, 1994 - ----------------------------------- Heng W. Chen (Principal Accounting Officer) /s/ George H. Benter, Jr. President and Director March 23, 1994 - ----------------------------------- George H. Benter, Jr. /s/ Steven D. Broidy Vice Chairman and Director March 23, 1994 - ----------------------------------- Steven D. Broidy
24 /s/ Richard L. Bloch Director March 23, 1994 - ----------------------------------- Richard L. Bloch /s/ Mirion P. Bowers, M.D. Director March 23, 1994 - ----------------------------------- Mirion P. Bowers, M.D. /s/ Stuart D. Buchalter Director March 23, 1994 - ----------------------------------- Stuart D. Buchalter /s/ Russell D. Goldsmith Director March 23, 1994 - ----------------------------------- Russell D. Goldsmith /s/ Burton S. Horwitch Director March 23, 1994 - ----------------------------------- Burton S. Horwitch /s/ Charles E. Rickershauser, Jr. Director March 23, 1994 - ----------------------------------- Charles E. Rickershauser, Jr. /s/ Edward Sanders Director March 23, 1994 - ----------------------------------- Edward Sanders /s/ Andrea L. Van De Kamp Director March 23, 1994 - ----------------------------------- Andrea L. Van de Kamp Director March 23, 1994 - ----------------------------------- Kenneth Ziffren
25 INDEX TO EXHIBITS
Exhibit No. ----------- 3.2 By-Laws, as amended to date 10.11.1 Termination of the Formal Agreement, Office of the Comptroller of the Currency, dated January 21, 1994 10.12.1 Letter from The Federal Reserve Bank of San Francisco to City National Bank dated February 23, 1994. 10.18 Asset Sale Agreement (Pool 1) by and between City National Bank as Seller and WHC-THREE Investors, L.P., as Purchaser, dated November 1, 1993. 10.19 Asset Sale Agreement (Pools 2 Through 6) by and between City National Bank as Seller and WHC-THREE Investors, L.P., as Purchaser, dated November 1, 1993. 10.20 Agreement for Separation From Employment and Release by and between Alexander L. Kyman and City National Bank, dated November 3, 1993. 10.20.1 Letter from City National Bank to Alexander L. Kyman, dated November 3, 1993. 13 Pages 7 through 53 of Annual Report to Security Holders for the year ended December 31, 1993. 13.1 Report of Price Waterhouse, dated January 13, 1993. 21 Subsidiaries of the registrant 23.1 Consent of KMPG Peat Marwick 23.2 Consent of Price Waterhouse
EX-3.2 2 BY - LAWS, AS AMENDED TO DATE. 1 EXHIBIT 3.2 City National Corporation Bylaws As amended to date 2 EXHIBIT 3.2 CITY NATIONAL CORPORATION BYLAWS ARTICLE I OFFICES Section 1. The registered office shall be in the City of Wilmington, County of New Castle, State of Delaware. Section 2. The corporation may also have offices at such other places both within and without the State of Delaware as the board of directors may from time to time determine or the business of the corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS Section 1. All meetings of the stockholders for the election of directors shall be held in the City of Beverly Hills, State of California, at such place as may be fixed from time to time by the board of directors, or at such other place either within or without the State of Delaware as shall be designated from time to time by the board of directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual meetings of stockholders shall be held on the third Tuesday of April, if not a legal holiday, and if a legal holiday, then on the next secular day following at 4:00 P.M., or at such other date and time as shall be designated from time to time by the board of directors and stated in the notice of meeting, at which they shall elect by a plurality vote a board of directors, and transact such other business as may be brought before the meeting. (January 27, 1982) Section 3. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten nor more than fifty days before the date of the meeting. Section 4. The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in 3 the notice of the meeting, or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof, and may be inspected by any stockholder who is present. Section 5. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the certificate of incorporation, may be called by the president and shall be called by the president or secretary at the request in writing of a majority of the board of directors. Such request shall state the purpose or purposes of the proposed meeting. (Amended January 22, 1986) Section 6. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called, shall be given not less than ten nor more then fifty days before the date of the meeting, to each stockholder entitled to vote at such meeting. Section 7. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. Section 8. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the certification of incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 9. When a quorum is present at any meeting, the vote of the holders of a majority of the stock having voting power present in person or represented by proxy shall decide any question brought before such meeting, unless the question is one upon which by express provision of the statutes or of the certificate of incorporation, a different vote is required in which case such express provision shall govern and control the decision of such question. Section 10. Each stockholder shall at every meeting of the stockholders be entitled to one vote in person or by proxy for each share of the capital stock having voting power held by such stockholder, but no proxy shall be voted on after three years from its date, unless the proxy provides for a longer period. Section 11. Whenever the vote of stockholders at a meeting thereof is required or permitted to be taken for or in connection with any corporate action, by any provision of the statutes, the meeting and vote of stockholders may be dispensed with if all of the stockholders who would have been entitled to vote upon the action if such meeting were held shall consent in writing to such corporate action being taken; or if the certificate of incorporation authorizes the action to 2 4 be taken with the written consent of the holders of less than all of the stock who would have been entitled to vote upon the action if a meeting were held, then on the written consent of the stockholders having not less than the minimum percentage of the vote required by statute for the proposed corporate action, and provided that prompt notice must be given to all stockholders of the taking of corporate action without a meeting and by less than unanimous written consent. ARTICLE III DIRECTORS Section 1. (a) The number of directors which shall constitute the whole board shall be not less than five nor more than twenty-five, all of whom must be stockholders of this corporation. The first board shall consist of three directors. Thereafter, within the limits above specified, the number of directors shall be determined by resolution of the board of directors or by the stockholders as provided in Section 1(b) below. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this ARTICLE, and each director elected shall hold office until his successor is elected and qualified. (January 27, 1982) Section 1. (b) Nominations for the election of directors may be made by the board of directors or by any stockholder entitled to vote for the election of directors. Such nominations other than by the board of directors shall be made by notice in writing, delivered or mailed by first class United States mail, postage prepaid, to the Secretary of the Corporation not less than 60 days prior to the first anniversary of the date of the last meeting of the stockholders of the Corporation called for the election of directors. (January 27, 1982) Each notice shall set forth (i) the name, age, business address and, if known, the residence address of each nominee proposed in such notice; (ii) the principal occupation or employment of each such nominee; (iii) the number of shares of stock of the Corporation which are beneficially owned by such nominee and (iv) such other information as would be required by the Federal Securities Law and the Rules and Regulations promulgated thereunder in respect of an individual nominated as a director of the Corporation and for whom proxies are solicited by the board of directors of the Corporation. (January 27, 1982) The Chairman of any meeting of stockholders may, if the fact warrant, determine and declare to the meeting that a nomination was not in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. (January 27, 1982) Section 2. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then office, though less than a quorum, or by a sole remaining director, and the directors so chosen shall hold office until the next annual election and until their successors are duly elected and shall qualify, unless sooner displaced. If there are no directors in office, then an election of directors may be held in the manner provided by statute. If, at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), a Court of competent jurisdiction 3 5 may, upon application of any stockholder or stockholders holding at least ten percent of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office. Section 3. The business of the corporation shall be managed by its board of directors which may exercise all such powers of the corporation and do all such lawful acts and things as are not by statute or by the certificate of incorporation or by these bylaws directed or required to be exercised or done by the stockholders. MEETINGS OF THE BOARD OF DIRECTORS Section 4. The board of directors of the corporation may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. The first meeting of each newly elected board of directors shall be held at such time and place as shall be fixed by the vote of the stockholders at the annual meeting and no notice of such meeting shall be necessary to the newly elected directors in order legally to constitute the meeting, provided a quorum shall be present. In the event of the failure of the stockholders to fix the time or place of such first meeting of the newly elected board of directors, or in the event such meeting is not held at the time and place so fixed by the stockholders, the meeting may be held at such time and place as shall be specified in a notice given as hereinafter provided for special meetings of the board of directors, or as shall be specified in a written waiver signed by all of the directors. Section 6. Regular meetings of the board of directors may be held without notice at such time and at such place as shall from time to time be determined by the board. Section 7. Special meetings of the board may be called by the president on two days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the president or secretary in like manner and on like notice on the written request of three directors. Section 8. At all meetings of the board a majority of the directors shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the board of directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation. If a quorum shall not be present at any meeting of the board of directors the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the board of directors or of any committee thereof may be taken without a meeting, if all members of the board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board or committee. 4 6 COMMITTEES OF DIRECTORS Section 10. The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of two or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. Any such committee, to the extent provided in the resolution, shall have and may exercise the powers of the board of directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; provided, however, that in the absence or disqualification of any member of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the board of directors. Section 11. Each committee shall keep regular minutes of its meetings and report the same to the board of directors when required. COMPENSATION OF DIRECTORS Section 12. The directors may be paid their expenses, if any, of attendance at each meeting of the board of directors and may be paid a fixed sum for attendance at each meeting of the board of directors or a stated salary as director. No such payment shall preclude any director from serving the corporation in any other capacity and receiving compensation therefor. Members of special or standing committees may be allowed like compensation for attending committee meetings. MANDATORY RETIREMENT Section 13. All directors upon reaching the age of 72 years shall thereupon be ineligible to stand for reelection to the Board and such directorship shall automatically terminate effective upon the first to occur of (a) resignation of such director pursuant to call therefor by the Chairman of the Board; (b) the nomination and election to the Board of a successor or replacement or (c) the attainment of such directors' 73rd birthday. The provisions of this section shall apply to all present and future members of the Board of Directors of this Association, except that such provisions shall not apply to any contractual relationship relating to the employment or services of any director with this Corporation or its subsidiary, City National Bank, that may exist. January 24, 1979; February 28, 1990; January 22, 1992) ARTICLE IV NOTICES Section 1. Whenever, under the provisions of the statutes or of the certificate of incorporation or of these bylaws, notice is required to be given to any director or stockholder, 5 7 it shall not be construed to mean personal notice, but such notice may be given in writing, by mail addressed to such director or stockholder, at his address as it appears on the records of the corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telegram. Section 2. Whenever any notice is required to be given under the provisions of the statues or of the certificate of incorporation or of these bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. ARTICLE V OFFICERS Section 1. The officers of the Corporation shall be chosen by the board of directors and shall be a chairman of the board, a president, a vice president, a secretary and a chief financial officer/treasurer. The board of directors may also choose additional vice presidents, and one or more assistant secretaries and assistant chief financial officer/assistant treasurers. Any number of offices may be held by the same person, unless the certificate of incorporation or these bylaws otherwise provide. (Amended January 12, 1977; December 16, 1992) Section 2. The board of directors at its first meeting after each annual meeting of stockholders shall choose a chairman of the board, a president, one or more vice presidents, a secretary and a chief financial officer/treasurer. (Amended January 12, 1977; December 16, 1992) Section 3. The board of directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the board. (Amended January 12, 1977) Section 4. The salaries of all officers and agents of the corporation shall be fixed by the board of directors. (Amended January 12, 1977) Section 5. The officers of the corporation shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the board of directors may be removed at any time by the affirmative vote of a majority of the board of directors. Any vacancy occurring in any office of the corporation shall be filled by the board of directors. (Amended January 12, 1977) THE CHAIRMAN OF THE BOARD Section 6. The chairman of the board shall be the chief executive officer of the corporation. He shall preside at all meetings of the stockholders and the board of directors and shall be an ex-officio member of all committees of the board of directors. (Amended January 12, 1977) 6 8 THE PRESIDENT Section 7. The president shall, in the absence of the chairman of the board, be the chief executive officer of the corporation and shall preside at all meetings of stockholders and the board of directors. The president shall have general executive powers, and shall have and may exercise any and all other powers and duties pertaining by law, regulation, or practice, to the office of president, or imposed by these bylaws. He shall also have and may exercise such further powers and duties as from time to time may be conferred to or assigned to, him by the board of directors. (Amended January 12, 1977) Section 8. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the board of directors to some other officer or agent of the corporation. (Amended January 12, 1977) THE VICE CHAIRMEN Section 8.1 In the absence of the president or in the event of his inability or refusal to act, the vice chairman (or in the event there be more than one vice chairman, the vice chairmen in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. The vice chairmen shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. (Amended April 20, 1993) THE VICE PRESIDENTS Section 9. In the absence of the president or any vice chairman, if there be any, or in the event all are unable or refuse to act, the vice president (or in the event there be more than one vice president, the vice presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president. Unless otherwise designated by the board of directors, if there be vice presidents designated of different titles, the relative authority shall first be executive vice president, then senior vice president, and then vice president. The vice presidents shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. (Amended January 12, 1977; April 20, 1993) THE SECRETARY AND ASSISTANT SECRETARY Section 10. The secretary shall attend all meetings of the board of directors and all meetings of the stockholders and record all the proceedings of the meetings of the corporation and of the board of directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the board of directors, and shall perform such other duties as may be prescribed by the board of directors or president, under whose supervision 7 9 he shall be. He shall have custody of the corporate seal of the corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The board of directors may give general authority to any other officer to affix the seal of the corporation and to attest the affixing by his signature. (Amended January 12, 1977) Section 11. The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability or refusal to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. THE CHIEF FINANCIAL OFFICER/TREASURER AND ASSISTANT CHIEF FINANCIAL OFFICER/ASSISTANT TREASURERS Section 12. The chief financial officer/treasurer shall have the custody of the corporation funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation and shall deposit all monies and other valuable effects in the name and to the credit of the corporation in such depositories as may be designated by the board of directors. (Amended January 12, 1977; December 16, 1992) Section 13. He shall disburse the funds of the corporation as may be ordered by the board of directors, taking proper vouchers for such disbursements, and shall render to the president and the board of directors, at its regular meetings, or when the board of directors so requires, an account of all his transactions as chief financial officer/treasurer and of the financial condition of the corporation. (Amended January 12, 1977; December 16, 1992) Section 14. If required by the board of directors, he shall give the corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the board of directors for the faithful performance of the duties of his office and for the restoration to the corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers money and other property of whatever kind in his possession or under his control belonging to the corporation. (Amended January 12, 1977) Section 15. The assistant chief financial officer/assistant treasurer, or if there shall be more than one, the assistant chief financial officer/assistant treasurers in the order determined by the board of directors (or if there be no such determination, then in the order of their election), shall, in the absence of the chief financial officer/treasurer or in the event of his inability or refusal to act, perform the duties and exercise the powers of the chief financial officer/treasurer and shall perform such other duties and have such other powers as the board of directors may from time to time prescribe. (Amended January 12, 1977; December 16, 1992) 8 10 ARTICLE VI CERTIFICATES OF STOCK Section 1. Every holder of stock in the corporation shall be entitled to have a certificate, signed by, or in the name of the corporation by, the chairman or vice chairman of the board of directors, or the president or a vice president and the chief financial officer/treasurer, or the secretary or an assistant secretary of the corporation, certifying the number of shares owned by him in the corporation. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in section 202 of the General Corporation Law of Delaware, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stock holder who so requests the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. (Amended December 16, 1992) Section 2. Where a certificate is countersigned (1) by a transfer agent other than the corporation or its employee, or, (2) by a registrar other than the corporation or its employee, any other signature on the certificate may be facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. LOST CERTIFICATES Section 3. The board of directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the board of directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen or destroyed. TRANSFERS OF STOCK Section 4. Upon surrender to the corporation or the transfer agent of the corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the corporation to issue a new 9 11 certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. FIXING RECORD DATE Section 5. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the board of directors may fix, in advance, a record date, which shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to any other action. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the board of directors may fix a new record date for the adjourned meeting. REGISTERED STOCKHOLDERS Section 6. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VII GENERAL PROVISIONS DIVIDENDS Section 1. Dividends upon the capital stock of the corporation, subject to the provisions of the certificate of incorporation, if any, may be declared by the board of directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the certificate of incorporation. Section 2. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the directors shall think conducive to the interest of the corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. 10 12 ANNUAL STATEMENT Section 3. The board of directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the corporation. CHECKS Section 4. All checks or demands for money and notes of the corporation shall be signed by such officer or officers or such other persons or persons as the board of directors may from time to time designate. FISCAL YEAR Section 5. The fiscal year of the corporation shall be the calendar year. (Amended January 26, 1983) SEAL Section 6. The corporate seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Delaware." The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE VIII AMENDMENTS Section 1. These bylaws may be altered, amended or repealed or new bylaws may be adopted by the stockholders or by the board of directors, when such power is conferred upon the board of directors by the certificate of incorporation at any regular meeting of the stockholders or of the board of directors or at any special meeting of the stockholders or of the board of directors if notice of such alteration, amendment, repeal or adoption of new bylaws be contained in the notice of such special meeting. 11 EX-10.11.1 3 TERMINATION OF THE FORMAL AGREEMENT/COMPTROLLER 1 EXHIBIT 10.11.1 Termination of the Formal Agreement, Office of the Comptroller of the Currency, dated January 21, 1994 2 EXHIBIT 10.11.1 IN THE MATTER OF CITY NATIONAL BANK BEVERLY HILLS, CALIFORNIA TERMINATION OF FORMAL AGREEMENT UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY OFFICE OF THE COMPTROLLER OF THE CURRENCY 3 UNITED STATES OF AMERICA DEPARTMENT OF THE TREASURY OFFICE OF THE COMPTROLLER OF THE CURRENCY IN THE MATTER OF ) CITY NATIONAL BANK ) BEVERLY HILLS, CALIFORNIA ) - ----------------------------------- TERMINATION OF THE FORMAL AGREEMENT WHEREAS, in an effort to protect the depositors, other customers and shareholders of the City National Bank, Beverly Hills, CA (BANK), and to ensure the BANK's safe and sound operation, the BANK and the Comptroller of the Currency of the United States of America (COMPTROLLER), entered into a Formal Agreement, dated November 18, 1992; and WHEREAS, the COMPTROLLER believes that the protection of the depositors, other customers and shareholders of the BANK as well as its safe and sound operation do not require the continued existence of said Formal Agreement; NOW, THEREFORE, the COMPTROLLER directs that the Formal Agreement between the BANK and the COMPTROLLER be, and it hereby is, TERMINATED. IN TESTIMONY WHEREOF, the undersigned, designated by the COMPTROLLER as his authorized representative, has hereunto set his hand. /s/ RUFUS O. BURNS, JR. 1-24-94 _______________________________ _______________________ Rufus O. Burns, Jr. Date DISTRICT ADMINISTRATOR Western District or Designee EX-10.12.1 4 LETTER FROM THE FED. RESERVE BANK OF SF TO CNB 1 EXHIBIT 10.12.1 Letter from The Federal Reserve Bank of San Francisco to City National Bank dated February 23, 1994 2 EXHIBIT 10.12.1 FEDERAL RESERVE BANK OF SAN FRANCISCO 101 MARKET STREET, SAN FRANCISCO, CALIFORNIA 94105 February 23, 1994 VIA HAND DELIVERY - ----------------- Mr. Bram Goldsmith Chairman of the Board City National Corporation 400 North Roxbury Drive Beverly Hills, California 90210 Dear Mr. Goldsmith: This letter is in response to Executive Vice President and General Counsel Charles D. Kenny's correspondence, dated January 24, 1994, addressed to Vice President Terry S. Schwakopf. In that letter, Mr. Kenny requested that the Memorandum of Understanding (MOU) dated February 24, 1993, between City National Corporation and the Federal Reserve Bank of San Francisco be terminated. Accordingly, we hereby terminate the Memorandum of Understanding effective the date of this letter, based upon: 1) our most recent review of key financial factors of the City National Corporation as of December 31, 1993, which continue to reflect favorable financial trends throughout the Corporation; 2) the Comptroller of the Currency's recent termination of its formal agreement with the Corporation's subsidiary bank, City National Bank; and 3) the Corporation's full compliance with the terms of the MOU. If you have any questions, please feel free to contact me at (415) 974-2914 or Examining Officer Thomas J. Backer at (213) 974-2277. Very truly yours, /s/ Richard S. Campos Richard S. Campos Assistant Vice President RSC:ml EX-10.18 5 ASSET SALE AGREEMENT (POOL 1) 1 EXHIBIT 10.18 Asset Sale Agreement (Pool 1) by and between City National Bank as Seller and WHC-THREE Investors, L.P., as Purchaser, dated November 1, 1993 2 EXHIBIT 10.18 POOL 1 ASSET SALE AGREEMENT BY AND BETWEEN CITY NATIONAL BANK AS SELLER AND WHC-THREE INVESTORS, L.P. AS PURCHASER DATED AS OF: NOVEMBER 1, 1993 3 TABLE OF CONTENTS
PAGE NO. ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II PURCHASE AND SALE OF THE ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.1 PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.2 INITIAL PURCHASE PRICE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.3 MODIFICATIONS TO MORTGAGE LOAN AND REAL PROPERTY SCHEDULE . . . . . . . . . . . . . . . . 19 Section 2.4 FINANCING OF MORTGAGE LOANS AND REAL PROPERTY; SALE OF REAL PROPERTY . . . . . . . . . . 20 ARTICLE III DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 3.1 DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 3.2 DISTRIBUTION OF DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE IV CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.1 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.2 TRANSFER AND RECORDATION TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.3 ESCROW ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.4 LIMITATIONS ON LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE V DUE DILIGENCE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.1 DUE DILIGENCE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.2 DUE DILIGENCE REVIEW OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.3 SELLER'S COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.4 ACCEPTANCE OF ASSETS AND REMEDIES FOR DEFECTS . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.5 PROCEDURE IN RESPECT OF A STRUCTURAL DEFECT OR NATURAL CONDITION. . . . . . . . . . . . . 25 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.1 PURCHASER'S REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 7.1 SURVIVING REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . 33 Section 7.2 DUE DILIGENCE REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . 35 Section 7.3 TERMINATION OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . 39 Section 7.4 SCOPE OF INVESTIGATION AND OTHER DUE DILIGENCE . . . . . . . . . . . . . . . . . . . . . 40 Section 7.5 ASSERTION OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
i 4 ARTICLE VIII CERTAIN COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 8.1 SELLER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE IX CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 9.1 MUTUAL OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 9.2 SELLER'S DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 9.3 PURCHASER'S CLOSING ITEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE X REPURCHASE BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 10.1 MANDATORY REPURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 10.2 REPURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE XI DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 11.1 PURCHASER'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 11.2 SELLER'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE XII SUBSEQUENT DOCUMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE XIII NOTICE OF MORTGAGOR CLAIMS OR LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE XIV FILES AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE XV SALE OF REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE XVI NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE XVII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 17.1 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 17.2 RIGHTS CUMULATIVE; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 17.3 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.4 CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.5 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.6 PRIOR UNDERSTANDINGS; INTEGRATED AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.7 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 17.8 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 17.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 17.10 NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 17.11 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 17.12 SELLER FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ii 5 TABLE OF EXHIBITS A. [ ] Mortgage Loan and Real Property Schedule B. [ ] Asset Acceptance Certificate C. [ ] Form of Assignment of Mortgage Loan C-1. [ ] Assignment of Additional Collateral D. [ ] Certificate of Defective Assets E. [ ] Supplemental Certificate of Defective Assets F. [ ] Deletion Certificate G. [ ] Valuation Methodology H. [ ] Valuation Certificate I. [ ] Notice to Mortgagors J. [ ] Real Property Sales Contract K. [ ] Loan and Security Agreement L. [ ] Interim Mortgage M. [ ] Interim Mortgage Note N. [ ] Grant Deed
iii 6 ASSET SALE AGREEMENT This Asset Sale Agreement ("Agreement") is entered into as of the first day of November, 1993, by and between CITY NATIONAL BANK, a national banking association ("Seller") and WHC- THREE INVESTORS, L.P., a Delaware limited partnership ("Purchaser"). W I T N E S S E T H: WHEREAS, Seller owns certain Assets as defined in this Agreement; and WHEREAS, Purchaser is a sophisticated and experienced purchaser of mortgage loans and real property with access to expert technical and legal advice with respect thereto; and WHEREAS, Seller desires to sell the Assets listed on the Mortgage Loan and Real Property Schedule, attached hereto at Exhibit A, all in accordance with the terms and conditions set forth herein; and WHEREAS, Purchaser desires to purchase the Assets; NOW THEREFORE, in consideration of the mutual promises herein set forth and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following terms shall have the meanings indicated below: "Acceptance Certificate" has the meaning given that term in Section 5.4(a) hereof. "Additional Collateral Assignment" means the document to be delivered to Purchaser on the Closing Date, in accordance with Section 9.2(f) hereof and in the form attached hereto as Exhibit C-1. "Additional Deposit" means an amount equal to two percent (2.0%) of the aggregate Initial Purchase Price, which sum is to be delivered by Purchaser to Seller in immediately available funds concurrently with the execution hereof. "Adjusted Purchase Price" means, with respect to an Asset, either (i) the Initial Purchase Price, if no adjustment is required hereunder, or (ii) the Initial Purchase Price as adjusted by any adjustment required pursuant to Section 5.4 or Section 5.5 hereof, provided, however, in no event shall the Adjusted Purchase Price exceed the Initial Purchase Price. 1 7 "Adjustment Date" shall mean the date ten (10) calendar days after the later of (x) the day on which the last Due Diligence Period with respect to any Asset terminates, or (y) if Purchaser has delivered to Seller a Certificate of Defective Asset during the Due Diligence Period, the last day for Seller to repurchase such Defective Asset under Section 10.1(a) hereof. With respect to the representations and warranties made by Seller in Section 7.1(d) hereof, the Adjustment Date shall in no event be later than the Surviving Representation Expiration Date, except to the extent that a Certificate of Defective Asset has been given in respect of a particular Asset, in which case the Adjustment Date shall be ten (10) days after the last day of the Cure Period available in connection with the respective Defect. In any of the above events, if such day is not a Business Day, the Adjustment Date shall be the next Business Day thereafter. "Affiliate" means, with respect to any Person (herein the "Person Specified"), any other Person that (i) directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Person Specified, (ii) is a director or officer of the Person Specified or any Person covered by clause (i) above, (iii) is a partner, beneficiary of a trust or owner of any stock or other evidence of beneficial ownership of the Person Specified or any Person covered by clause (i) above, or (iv) is related by blood (including grandparents of the Person Specified and of his or her spouse and all lineal descendants of such grandparents), marriage or close business association to the Person Specified or any Person covered by clause (i) above, or to the spouse of any of the foregoing Persons. For purposes of this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting stock, by contract or otherwise. "Affiliate Purchaser" means Purchaser or a wholly-owned Affiliate of the Purchaser, which, simultaneously with the execution of this Agreement, will execute a Sales Contract with Seller covering all of the Real Property and, prior to the Closing of the sale of any Real Property under the Sales Contract, shall assign the right to purchase one or more parcels of the Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule to one or more Qualified Affiliates on the one hand, and any one or more of the remaining parcels of Real Property not designated "industrial" on the Mortgage Loan and Real Property Schedule to one or more other Qualified Affiliates on the other, for closing in accordance with the terms of the Sales Contract. "Agreement" means this Asset Sale Agreement, including all addenda, exhibits and schedules hereto, as the same may be amended, supplemented, restated or modified. "Applicable Rate" means a per annum rate of interest equal to the ask yield published as of the Business Day immediately prior to the Closing Date in the Wall Street Journal under Treasury Bonds, Notes & Bills corresponding to the 6-7/8 Treasury Notes due in February 1994, based upon a 360-day year for the actual number of days elapsed. "Asset Data Sheet" means the document labeled "Asset Data Sheet" and bearing the same pool number and Mortgage Loan number or Real Property number as those of the corresponding Mortgage Loan or Real Property listed in the Mortgage Loan and Real Property Schedule, which Asset Data Sheet appears as part of the Due Diligence Materials, as such Asset Data Sheet has 2 8 been amended, supplemented, corrected or otherwise modified on or before the Due Diligence Cut-Off Date to the extent same has been provided to Purchaser or described in writing to Purchaser and made available on or prior to the Due Diligence Cut-Off Date. "Asset Documents" means, with respect to each Mortgage Loan or Real Property, as the case may be, all documents, agreements or instruments relating to such Mortgage Loan or Real Property, including, but not limited to, the Mortgage Note or Mortgage Notes secured by a Mortgage or Mortgages and each and every collateral document or account or security instrument or agreement securing or relating to such documents and the transactions evidenced thereby, including, but not limited to, any Security Agreement, assignment of rents, pledge agreement, guarantee, indemnification agreement, assignment of stock or partnership units, title insurance policy, other insurance and other document, agreement or instrument under which legal rights or obligations are created or exist, if any, provided to Seller or its predecessor in interest to evidence or secure such Mortgage Loan and held by Seller, whether or not identified by Seller in the Due Diligence Materials, together with any assignment, reinstatement, extension, endorsement or modification of any thereof and, with respect to Real Property, evidence of Seller's ownership of same, whether by foreclosure, deed in lieu of foreclosure, or otherwise. "Asset File" with respect to any Asset means the set of files in the possession of Seller relating to such Asset from which the Investor File is derived and which Seller will deliver to Purchaser at the Closing, excluding those documents reasonably determined by Seller to be of a privileged or confidential nature, or that Seller reasonably and in good faith believes not to be relevant to the analysis by Purchaser of the Assets, such as memoranda, notes, analyses, summaries and correspondence by, between or among officers, directors, employees or agents of Seller. "Asset Proceeds" with respect to an Asset shall mean the sum of Cash Flow plus Liquidation Proceeds. "Assets" means the Mortgage Loans and Real Property offered for sale under this Agreement. "Asset Valuation Package" means the materials forming a part of the Due Diligence Materials, which disclose the facts and assumptions used in arriving at the Valuation of an Asset, and which materials were also included in the package of materials distributed to Purchaser on or prior to the Due Diligence Cut-Off Date, as the same has been amended, supplemented, corrected or otherwise modified on or before the Due Diligence Cut-Off Date based upon information provided to Purchaser or described in writing to Purchaser and made available on request on or before the Due Diligence Cut-Off Date, and includes with respect to each Asset an executive summary, property description, Asset Data Sheet, property inspection report, valuation summary, underwriting analysis, and any Disclosed Remedial Cost Estimate, all as more particularly described in the Offering Memorandum. "Business Day" means any day other than a Saturday, Sunday or day on which banks in Los Angeles, California are authorized or obligated by law or local proclamation to be closed. 3 9 "Capital Expenditure" means an expenditure the full amount of which would qualify as a "capital" item under the Internal Revenue Code of 1986, as amended, as in effect on the date of the expenditure (i.e., any expense the total cost of which may not be included as a deduction from gross income in the year it is spent in accordance with the Internal Revenue Code of 1986, as amended, in effect on the date of the expenditure or is treated as a capitalized item under Generally Accepted Accounting Principles (as defined in the Loan and Security Agreement), including, but not limited to, engineering, legal, architectural and development expenses). "Cash Flow" with respect to any particular Asset (and any particular Due Date with respect to any Interim Mortgage Note) means the sum of all income, revenues, fees, proceeds, reimbursements and payments from whatever source received by or on behalf of Purchaser as holder of such Mortgage Loan or the collateral therefor or as owner of any Real Property during the month immediately preceding the calendar month in which a Due Date occurs (or with respect to the calculation of the Repurchase Price, during any time after the Cut-Off Date), including, without limitation, any principal payments, interest, penalties, late charges and participations as well as any rents, leases, revenues, fees, proceeds, reimbursements and payments received after ownership of such collateral is acquired by or for the benefit of Purchaser, Seller or both, whether through foreclosure, deed in lieu of foreclosure, or otherwise, but not including the following: (a) any amounts constituting Liquidation Proceeds; and (b) interest actually paid on sums on deposit from time to time in the Cash Collateral Account under the Loan and Security Agreement and any other accounts or instruments in which Asset Proceeds are held. Notwithstanding the foregoing, for the initial Due Date under any Interim Mortgage Note, amounts constituting "Cash Flow" thereunder will relate to amounts collected during the period from and after the Cut-Off Date and received by or for the account of Purchaser or a Qualified Affiliate. "Cash Portion of the Repurchase Price" with respect to a Deleted Asset means an amount equal to the aggregate of: (a) (i) the sum of the Downpayment Percentage multiplied by the Adjusted Purchase Price of the Deleted Asset (subject to any reduction pursuant to Article X hereof), plus interest thereon at the Applicable Rate from the Cut-Off Date to the Repurchase Date, plus Prepayments (to the extent not included below), plus (ii) the sum of interest (A) at the Stated Interest Rate on the Financed Portion of the Repurchase Price, from the Cut-Off Date to the Repurchase Date, (B) at the Stated Interest Rate on Prepayments from the Cut-Off Date to the first day of the month following the month of such Prepayments and (C) at the Applicable Rate on Prepayments from the first day of the month following the month of such Prepayments to the Repurchase Date, minus 4 10 (iii) the sum of (A) Net Cash Flow allocable to such Deleted Asset plus Net Liquidation Proceeds relating to such Deleted Asset with respect to all periods from and after the Cut-Off Date (plus interest thereon at the Applicable Rate from the first day of the month following receipt of such Net Cash Flow or Net Liquidation Proceeds, as applicable, to the Repurchase Date) received by or accrued for the account of Purchaser or any Qualified Affiliate with respect to such Deleted Asset during such period, plus (B) the amount of any payments due and unpaid under the Promissory Note and the Loan and Security Agreement on the Repurchase Date, plus (C) to the extent not included above, all sums paid or credited to Purchaser with respect to the Deleted Asset pursuant to Section 8.1(d) hereof on the Closing Date or as part of the adjustments on the Closing Date with interest thereon at the Applicable Rate from the Cut-Off Date to the Repurchase Date; plus (b) the sum of the following amounts actually expended by Purchaser or any Qualified Affiliate with respect to such Deleted Asset and not recovered from Net Cash Flow or Net Liquidation Proceeds of the underlying Mortgaged Property or Real Property, as the case may be, or otherwise; (i) one hundred percent (100%) of Permitted Real Estate Tax Expenses; plus (ii) one hundred percent (100%) of Permitted Insurance Expenses,; plus (iii) one hundred percent (100%) of Permitted Leasing Commissions; plus (iv) one hundred percent (100%) of unamortized Permitted Tenant Improvement Expenses (as used herein, "unamortized" means the number that results from dividing (i) that portion of the aggregate rent due under such lease for the lease term remaining, by (ii) the aggregate rent due under any lease from the inception of such lease through the expiration thereof); plus (v) to the extent not previously reimbursed, recovered or otherwise included within the definition of Repurchase Price, Permitted Legal Expenses, but only to the extent satisfactory evidence of payment is received by Seller; plus (vi) with respect to Surviving Representations and Warranties only, one hundred percent (100%) of Capital Expenditures that have been approved by Seller under the Loan and Security Agreement or, if not so approved or if Seller-financing was not utilized in the Asset sale contemplated hereby, that portion of Capital Expenditures that, in Seller's reasonable discretion, meet the criteria set forth in the Loan and Security Agreement. "Certificate of Defective Asset" means a fully and properly completed and executed Certificate of Purchaser in the form attached hereto as Exhibit D delivered to Seller in accordance with Section 5.4 or 5.5 hereof. "Claim" means any claim, demand or action of any kind brought in a legal proceeding. 5 11 "Closing" means the purchase and sale of the Assets following the payment of the Initial Purchase Price and the fulfillment or waiver of certain conditions precedent to Closing specified in Article IX hereof. "Closing Date" means the date of Closing, which shall be November 18, 1993, or any date mutually agreed upon in writing by Purchaser and Seller, but in no event later than November 30, 1993. "Control Number" means the number (however designated) that identifies each Mortgage Loan and parcel of Real Property on the Mortgage Loan and Real Property Schedule. "Cure Period" means, with respect to a Defect in a Defective Asset, the period ending on the date one hundred and fifty (150) days after Seller's receipt from Purchaser of a Certificate of Defective Asset under Section 5.4 or 5.5 with respect to such Defect or such later date as may be agreed to in writing by Purchaser and Seller. "Current Fully Extended Maturity Date" means, with respect to a Mortgage Loan, the maturity date, as such may have been extended or as such extension may be available under the terms thereof as of the Closing Date as set forth on the Mortgage Loan and Real Property Schedule. For purposes of the surviving representations and warranties set forth in Section 7.1 hereof, if the Current Fully Extended Maturity Date occurs prior to the Closing Date, the Closing Date shall be deemed the Current Fully Extended Maturity Date. "Cut-Off Date" means close of business on the day immediately preceding the Closing Date, which shall be the date through which interest on each Mortgage Loan and rents on each Real Property shall accrue for the benefit of Seller. "Default Notice" has the meaning given to that term in Section 11.1 hereof. "Defect" means, with respect to Section 5.4 hereof, a breach of a representation and warranty under Section 7.1 or 7.2 hereof or, with respect to Section 5.5 hereof, a Structural Defect or Natural Condition that has a material adverse effect on the value of the related Asset. "Defective Asset" means an Asset as to which a Defect exists and as to which Purchaser has timely delivered a Certificate of Defective Asset pursuant to Section 5.4 or 5.5 hereof. "Deleted Asset" means any Asset that is repurchased by Seller pursuant to Article X hereof. "Deposit" means the aggregate of any moneys remaining from Purchaser's Due Diligence Deposit, plus the Initial Deposit and the Additional Deposit, all with interest thereon until the Cut-Off Date. "Disclosed Remedial Cost Estimate" has the meaning ascribed thereto in Section 5.5 hereof. 6 12 "Downpayment" shall mean (i) with respect to all of the Mortgage Loans and Real Property purchased by Purchaser hereunder, the aggregate amount of Eight Hundred and Eighty-Four Thousand Dollars ($884,000.00), i.e., the "Equity Investment" of Purchaser on Purchaser's Statement of Offered Purchase Price delivered pursuant to the Offering Memorandum that was accepted by Seller, and (ii) with respect to any individual Mortgage Loan or Real Property, the Downpayment Percentage multiplied by the Initial Purchase Price of such Mortgage Loan or Real Property. "Downpayment Percentage" shall mean twenty-five percent (25.0%), i.e., the Downpayment Percentage for all Assets as specified in the Statement of Offered Purchase Price. "Due Date" means the fifth day of each month or, if such fifth day is not a Business Day, the following Business Day, beginning on January 5, 1994 the fifth day of the month immediately following the first full month after the Closing Date. "Due Diligence Contractor" means KPMG Peat Marwick. "Due Diligence Cut-Off Date" means October 12 1993. "Due Diligence Deposit" means the amount paid by Purchaser to Seller pursuant to the Offering Memorandum for the opportunity to review the Investor Due Diligence Packages, and from which Seller will deduct for its own account all charges incurred by Purchaser in connection with its review of the Investor Due Diligence Packages. "Due Diligence Materials" with respect to any Asset means the contents, as of the Due Diligence Cut-Off Date, of the Investor Due Diligence Package and of the Investor File for such Asset, which either have been provided to Purchaser or its agents or made available to the Purchaser or its agents at the office of Seller in Los Angeles, California or such other location in Los Angeles, California identified by Seller to Purchaser, as the same may have been amended, modified, supplemented, added to or updated at any time on or before the Due Diligence Cut-Off Date. "Due Diligence Period" means the aggregate of the Pre-Offer Due Diligence Period and the Post-Offer Due Diligence Period. "Due Diligence Representation and Warranty" means any representation and warranty under Section 7.2 hereof. "Earnest Money Deposit" means the aggregate of the Initial Deposit and the Additional Deposit, along with any monies remaining from Purchaser's Due Diligence Deposit, as more fully described in Section 3.1 hereof. "Financed Percentage" shall mean seventy-five percent (75.0%), i.e., one hundred percent (100%) minus the Downpayment Percentage. 7 13 "Financed Portion" shall mean the Initial Purchase Price minus the Downpayment;provided, however, that if the Initial Purchase Price is adjusted pursuant to Sections 5.4 and 5.5 hereof, the "Financed Portion" shall mean the Adjusted Purchase Price minus the Downpayment with respect to such Mortgage Loan, as such may be correspondingly adjusted. "Financed Portion of the Repurchase Price" with respect to a Deleted Asset means an amount equal to seventy-five percent (75.0%) of the Adjusted Purchase Price of the Deleted Asset (subject to any reduction pursuant to Article X hereof), less Prepayments, if any. "Hazardous Substances" means: (i) those substances included within the definitions of any one or more of the terms "hazardous substances", "hazardous materials", and "toxic substances", in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq., 9657), the Resource, Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.), and the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et seq.), and in the regulations promulgated pursuant to said laws; (ii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302, and amendments thereto); (iii) such other substances, materials and wastes as are or become regulated under applicable local, state or federal laws, or which are classified as hazardous or toxic under federal, state or local laws or regulations; and (iv) any materials, wastes or substances that are (a) petroleum; (b) friable asbestos; (c) polychlorinated biphenyl; (d) designated as a "Hazardous Substance" pursuant to Section 311 of the Clean Water Act (33 U.S.C. Section 1321) or designated as "toxic pollutants" subject to Section 307 of the Clean Water Act (33 U.S.C. Section 1317); (e) flammable explosives; or (f) radioactive materials. "Initial Deposit" means an amount greater than or equal to two percent (2.0%) of the aggregate Initial Purchase Price for all Assets for which Purchaser submits an offer to purchase, which sum has been delivered by Purchaser to Seller in immediately available funds concurrently with such submission. "Initial Purchase Price" has the meaning given to that term in Section 2.2 hereof. "Interim Mortgage" means the mortgage, deed of trust or other security instrument creating a lien upon a parcel of Real Property that secures the related Interim Mortgage Note, which shall be in substantially the form attached hereto as Exhibit L. "Interim Mortgage Loan" means a mortgage loan which shall be secured by a lien upon a parcel of Real Property that is a subject of the Sales Contract. The Seller, as the current owner of the Real Property securing an Interim Mortgage Loan, shall be the initial borrower/mortgagor and the Purchaser shall be the named payee/mortgagee on the Interim Mortgage Loan. "Interim Mortgage Note" means any note evidencing the Seller's obligation under an Interim Mortgage Loan listed on the Mortgage Loan and Real Property Schedule, which note shall be 8 14 dated as of the Cut-Off Date, shall be in a principal amount equal to the Initial Purchase Price of the related Real Property and shall be on the form attached hereto as Exhibit M. "Investor Due Diligence Package" with respect to any Asset means the contents, as of the Due Diligence Cut-Off Date, of the "Investor Due Diligence Package" as described in the Offering Memorandum, compiled by Seller's Due Diligence Contractor for such Asset and provided to Purchaser or its agents, including, but not limited to, a Portfolio Summary Spreadsheet, as such has been updated through October 12, 1993, accountant's letter, portfolio stratification, Asset Valuation Package, excerpts from appraisals, copies of certain loan documentation and updated title reports prepared by the original insurer, or one of like caliber licensed to do business in the jurisdiction in which the Mortgaged Property or the Real Property is situated, and, if available, operating statements, rent rolls and environmental reports, as all of the above may be amended, modified, supplemented, added to or updated at any time on or before the Due Diligence Cut-Off Date, to the extent such amendments, supplements, modifications, additions or updates have been provided or described in writing to Purchaser or its agents on or before the Due Diligence Cut-Off Date. "Investor File" with respect to any Asset means the file(s) compiled by Seller's Due Diligence Contractor for such Asset, as described in the Offering Memorandum, and made available for inspection by potential purchasers or their agents at Seller's office or such other location as specified by Seller to such potential purchasers, and comprised of those portions of the Asset File for such Asset including, but not limited to, copies of the related Asset Documents, title policy, appraisal, operating statement and rent roll, if available, which formed the basis of the Asset Valuation Package for such Asset, as the same may be amended, modified, supplemented, added to or updated at any time on or before the Due Diligence Cut-Off Date, to the extent such amendments, supplements, modifications, additions or updates have been provided or described in writing to Purchaser or its agents on or before the Due Diligence Cut-Off Date. Unless otherwise expressly provided therein, the reports of third parties, including, without limitation, appraisals, environmental assessments, operating or other information provided by Mortgagors, their accountants, agents, or Affiliates, or engineering reports, have been prepared for use solely by Seller and, in certain cases, its Due Diligence Contractor and financial advisors. Such reports are included in each Investor File for informational purposes only and should not be relied upon for their accuracy or completeness. Purchaser shall have no right to rely upon the conclusions or other data set forth in such reports and shall have no recourse against Seller or its advisors, counsel or agents, including the preparers of such reports, in the event of any errors therein or omissions therefrom. "Land Parcel" means any of the Mortgaged Property relating to those Mortgage Loans, or the parcels of Real Property relating to those Interim Mortgage Loans, listed on the Mortgage Loan and Real Property Schedule attached hereto and identified under the heading of "Property Type" as Land-Lots or Land. "Liquidation Proceeds" with respect to an Asset shall mean the following received by or on behalf of or for the account of Purchaser as holder of such Mortgage Loan or the collateral therefor or as owner of such Real Property during the month immediately preceding the calendar 9 15 month in which a Due Date occurs (or with respect to the calculation of the Repurchase Price, during any time after the Cut-Off Date): (a) all proceeds of liquidation, Refinancing (as defined in the Loan and Security Agreement), sale or compromise, and payments from whatever source received during the immediately preceding calendar month in respect of the disposition or Refinancing of any Mortgage Loan, or any of the collateral securing such Mortgage Loan, or any Real Property, including, but not limited to, any full or partial prepayment of principal, proceeds of any Mortgage Loan by any third party lender secured by any Mortgaged Property or any Real Property or any portion thereof, reimbursements, and payments received after ownership of such collateral is acquired by or for the benefit of Purchaser, Seller or both, whether through foreclosure, deed in lieu of foreclosure, or otherwise; (b) all recoveries during the immediately preceding calendar month from Mortgagors of advances made by Purchaser for the purpose of preserving the value of the Mortgage Loans and Mortgaged Property to the extent such amounts were paid as Permitted Liquidation Expenses; (c) all insurance proceeds or condemnation proceeds received during the immediately preceding calendar month in respect of Mortgaged Properties or Real Property, other than insurance proceeds applied or to be applied to the restoration or repair of Mortgaged Property or Real Property; and (d) all other amounts received in respect of the sale, Refinancing, liquidation, compromise or other disposition of the Assets, including, but not limited to, loan or brokerage fees charged by Purchaser or any Affiliate Purchaser for Refinancing or selling any Asset and reimbursements to Purchaser or any Affiliate Purchaser for expenses other than amounts permitted to be paid by Purchaser as Permitted Liquidation Expenses. Notwithstanding the foregoing, for the initial Due Date, amounts constituting "Liquidation Proceeds" under the Loan and Security Agreement will relate to amounts collected during the period from and after the Cut-off Date and received by or for the account of Purchaser or a Qualified Affiliate. "Loan" means the loan made pursuant to the Loan and Security Agreement and evidenced by the Promissory Note. "Loan and Security Agreement" means, in connection with Seller's financing of the sale transaction contemplated herein, the Loan and Security Agreement made by and between Purchaser as borrower thereunder and Seller as lender thereunder, or any of their respective Affiliates, and dated as of the Closing Date, as such may be amended, supplemented, restated or otherwise modified. "Maximum Offer Percentage" means the number, expressed as a percentage to four decimal places, designated by Seller with respect to any Asset as the maximum percentage of the Initial 10 16 Purchase Price that a potential purchaser may ascribe to such Asset in its offer under the Offering Memorandum. "Mortgage" means, with respect to a Mortgage Loan, a mortgage, deed of trust or other security instrument creating a lien upon real property (or a leasehold interest in Mortgaged Property, in the case of any leasehold Mortgage Loan) and any other property described therein that secures a Mortgage Note, together with any assignment, reinstatement, extension, endorsement or modification of any thereof. "Mortgage Assignments" means the document to be delivered to Purchaser on the Closing Date, in accordance with Section 9.2(a) hereof and in the form attached hereto as Exhibit C. "Mortgaged Property" means the land, improvements, personal property and other collateral securing a Mortgage Note under a Mortgage or Security Agreement. "Mortgage Loan" means each of the commercial mortgage loans, other than any Interim Mortgage Loan, evidenced by a Mortgage Note and secured by a Mortgage (which may be a blanket Mortgage) or Mortgages described on the Mortgage Loan and Real Property Schedule, together with any related Mortgaged Property or Mortgaged Properties acquired by or for the benefit of the mortgagee or beneficiary thereunder whether through foreclosure, deed in lieu of foreclosure or otherwise. "Mortgage Loan and Real Property Schedule" means the schedule identifying the Mortgage Loans and Real Property to be sold, transferred and conveyed hereunder and which is attached hereto as Exhibit A, as such Mortgage Loan and Real Property Schedule may be amended or modified from time to time in accordance with the terms of this Agreement, including, but not limited to, the result of a deletion of any Mortgage Loan hereunder that is a Defective Asset. The Mortgage Loan and Real Property Schedule shall set forth the following information concerning each Mortgage Loan and Real Property, as the case may be: (a) address of the Mortgaged Property or Real Property; (b) type of Mortgaged Property or Real Property and popular name, if any; (c) number of units in the Mortgaged Property or Real Property; (d) approximate square footage of the Mortgaged Property or Real Property; and (e) the Initial Purchase Price specifying the component parts thereof, including the Offer Percentage and any adjustments to the Initial Purchase Price pursuant to Sections 5.4, 5.5 and, as of the Closing Date, 8.1(d). The Mortgage Loan and Real Property Schedule shall be revised and substituted from time to time to reflect any such adjustments. 11 17 The Mortgage Loan and Real Property Schedule shall also set forth the following additional information concerning each Mortgage Loan: (a) name of Mortgagor; (b) the original principal balance; (c) the date the Mortgage Loan was made; (d) unpaid principal balance as of close of business on September 30, 1993; (e) last payment due date on or preceding October 1, 1993, in respect to which a payment of interest was made; (f) pool number, Control Number and Seller's loan number; (g) the Current Fully Extended Maturity Date; (h) current mortgage interest accrual and pay rates; (i) as of September 30, 1993, the amount of (i) any deferred interest (the cumulative excess of interest on the Mortgage Loan at the interest accrual rate over the interest on the Mortgage Loan at the interest pay rate), and (ii) any current accrued and unpaid interest in default (excluding deferred interest); and (j) priority of Mortgage lien (first or second). "Mortgage Note" means, with respect to a Mortgage Loan, a promissory note or notes, or other evidence of indebtedness with respect to such Mortgage Loan, secured by a Mortgage or Mortgages, together with any assignment, reinstatement, extension, endorsement or modification of any thereof. "Mortgagor" means the obligor under a Mortgage Note and Mortgage. "Natural Condition" means, with respect to a Mortgage Loan or Real Property, as the case may be, only the following physical conditions existing on or affecting a parcel of Mortgaged Property or Real Property which is also a Land Parcel, that are naturally occurring in nature and are not caused by or the result of human activities: Wetlands (which are defined by reference to Executive Order 11990, Protection of Wetlands, or the Emergency Wetlands Resources Act of 1986), habitation by Endangered Species (which are defined as those species which are listed by the U. S. Government as threatened or endangered plants and animals), Critical Habitat (as defined by the Endangered Species Act), Undeveloped Floodplains (meaning primarily undeveloped areas which are Floodplains, as defined by reference to Executive Order 11988, Floodplain Management, and include only the 100-year or "Base" Floodplains), Wild and Scenic Rivers (meaning those rivers which are designated as Wild and Scenic Rivers under the Wild and 12 18 Scenic Rivers Act), Wilderness Areas (meaning those areas designated as Wilderness Areas under the Wilderness Act), Undeveloped Coastal Dunes and Beaches (meaning those areas within coastal areas that fall within the scope of the Coastal Zone Management Act and are primarily undeveloped), Undeveloped Sole Source Aquifers (meaning primarily undeveloped areas within the boundaries of aquifers designated by the U. S. Environmental Protection Agency under the Safe Water Drinking Act as being Sole Source Aquifers), Natural Landmarks (meaning those natural landmarks listed on the National Registry of Natural Landmarks as published by the Natural Parks Service), Undeveloped Fifty Acre Resource Lands (meaning undeveloped areas of more than fifty (50) acres in size, and adjacent to, or contiguous with any lands managed by a governmental agency primarily for wildlife, refuge, sanctuary, open space, recreational, historical, cultural or natural resource conservation purposes, and have natural, cultural, recreational or scientific values of special significance), and Coastal Barrier Units (meaning those areas displaying undeveloped attributes and designated as "Units" of the Coastal Barrier Resources System under the Coastal Barrier Improvement Act of 1990). "Net Cash Flow" with respect to the calculation of the Repurchase Price for a Deleted Asset and with respect to payments due on each Due Date under an Interim Mortgage Note shall mean Cash Flow with respect to such Deleted Asset or Interim Mortgage Note less the following amounts: (a) Ordinary and customary expenses attributable to and necessary for the prudent management of the Deleted Asset; (b) Advances by Purchaser pursuant to Section 5.2 of the Loan and Security Agreement (including amounts paid by Purchaser as reimbursements of Outstanding Lender Advances, as such term is defined in the Loan and Security Agreement, and as may be required under the Promissory Note) to the extent paid with respect to the Deleted Asset and recoverable from Cash Flow attributable to the Deleted Asset with respect to which such advances were made; and (c) Permitted Expenses, including but not limited to, amounts deposited into the Estimated Accrual Account established under the Sales Contract and Interim Mortgage with respect to the related Real Property, but not less than zero. "Net Liquidation Proceeds" with respect to an Asset shall mean Liquidation Proceeds, less (a) Permitted Liquidation Expenses for such Asset and (b) advances by Purchaser pursuant to Section 5.2 of the Loan and Security Agreement with respect to such Asset that have not been recovered and for which Purchaser has not otherwise been reimbursed. "Offer Date" means October 20, 1993, the date on which offers were due under the Offering Memorandum. 13 19 "Offering Memorandum" means the Confidential Memorandum provided by Seller to potential purchasers relating to the purchase of the Assets, along with additional written supplements thereto, if any, from Seller to Purchaser. "Offer Percentage" means the number, expressed as a percentage to four decimal places, obtained by dividing the Initial Purchase Price with respect to an Asset by the Valuation of such Asset, in each case as shown on the "Offer Statement and Summary Sheet" and/or "Statement of Initial Purchase Price" delivered with respect to such Asset pursuant to the Offering Memorandum, which number shall in no event exceed the Maximum Offer Percentage. "Payment in Full" means a payment in full or prepayment in full of any Mortgage Loan prior to the Closing Date, which represent all amounts of principal either then required to be paid under such Mortgage Loan or which are paid under any offer of compromise or settlement which had been made by Seller to any Mortgagor prior to the Due Diligence Cut-Off Date and which was disclosed by Seller to Purchaser in writing prior to the Due Diligence Cut-Off Date. "Permitted Expenses" means ordinary and customary expenses attributable and necessary for the prudent ownership, servicing or management of a Deleted Asset or Interim Mortgage Loan. Notwithstanding the foregoing, Permitted Expenses shall in no event include: (a) Capital Expenditures; (b) the principal or interest paid in connection with any loan other than the Loan, whether secured or unsecured, except as expressly approved by Seller; (c) the payment of any expense more than one month prior to the due date thereof; (d) the cost of the Valuation of the Mortgage Loans, Mortgaged Properties, Real Property and other Collateral (as defined in the Loan and Security Agreement); and (e) the amount of any penalties, assessments, fees or other charges levied against Purchaser as the lender under a Mortgage Loan as the result of its failure to service such Mortgage Loan or manage the related Mortgaged Property in accordance with applicable federal or state laws, rules or regulations or any defect in Purchaser's calculation of amounts due thereunder. "Permitted Foreclosure Costs" means those ordinary and customary costs associated with the acquisition of Mortgaged Property by the mortgagee or beneficiary under any Mortgage, whether by foreclosure, deed in lieu of foreclosure or otherwise. "Permitted Insurance Expenses" means amounts paid by Purchaser or any Qualified Affiliate, or monthly payments into an escrow account maintained for such purpose in an amount not to exceed one-twelfth (1/12th) of the annual premium, for premiums for hazard and flood insurance on a Mortgaged Property, having commercially reasonable terms, exclusions and deductible amounts, provided that insurance premiums on Mortgaged Property shall be "Permitted Insurance 14 20 Expenses" only if the Mortgagor has failed to pay such premiums upon notice of its failure to pay and as a result thereof, the failure of Purchaser or any Qualified Affiliate to pay such premiums would render the Mortgaged Property uninsured. "Permitted Leasing Commissions" shall mean leasing commissions paid by Purchaser or any Qualified Affiliate with respect to the leasing of all or any part of the premises of any Real Property to Persons who are not Related Parties of Purchaser or to Related Parties of Purchaser in accordance with arrangements approved in advance by Seller in writing. "Permitted Legal Expenses" means the reasonable legal fees and disbursements, not to exceed $50,000, paid by Purchaser to an attorney exclusively for contesting a claim by the maker or obligor of a Mortgage Loan that the underlying Mortgage Note or Mortgage is not enforceable as represented in Section 7.1(d)(iv) of the Asset Sale Agreement, provided that (i) the attorney representing Purchaser is approved, in writing, by the Seller, and (ii) the Seller has approved, in advance and in writing, Purchaser's expenditure of fees and disbursements in connection with the contest of the claim. "Permitted Liquidation Expenses" means the following expenses paid by or on behalf of Purchaser, Affiliate Purchaser or a Qualified Affiliate to Persons who are (a) generally in the business of providing goods and services of the type provided and (b) not Related Parties (as defined in the Loan and Security Agreement) (unless Lender has given express written approval prior to the provision of the goods or services), provided in any event that such expenses are reasonable for the types of goods and services provided in the geographic area in which such goods or services are provided and are not deducted as Permitted Expenses: (a) in the case of a sale of a Mortgaged Property, a Real Property or a Subparcel thereof, ordinary and customary expenses of the transaction, including reasonable legal, accounting and other professional fees and brokerage commissions customarily paid by sellers of commercial properties of the type sold in the geographic area in which the Mortgaged Property, Real Property or Subparcel is located; (b) ninety percent (90%) of Permitted Capital Expenses, as such term is defined in the Loan and Security Agreement; (c) ninety percent (90%) of unamortized Permitted Tenant Improvement Expenses (as used herein, "unamortized" means the number that results from dividing (i) that portion of the aggregate rent due under such lease for the lease term remaining, by (ii) the aggregate rent due under any lease from the inception of such lease through the expiration thereof); (d) one hundred percent (100%) of Permitted Insurance Expenses; (e) one hundred percent (100%) of Permitted Real Estate Tax Expenses; (f) ninety percent (90%) of unamortized Permitted Leasing Commissions; plus (as used herein, "unamortized" means the number that results from dividing (i) that portion of the aggregate 15 21 rent due under such lease for the lease term remaining, by (ii) the aggregate rent due under any lease from the inception of such lease through the expiration thereof); and (g) ninety percent (90%) of Permitted Foreclosure Costs, but only to the extent satisfactory evidence of payment is received by Seller. "Permitted Real Estate Tax Expenses" shall mean real estate taxes approved in advance of payment by Seller in writing paid by Purchaser or any Qualified Affiliate with respect to any Real Property or, if not paid by the Mortgagor thereunder, a Mortgaged Property. "Permitted Tenant Improvement Expense" means any expense incurred by Purchaser to provide physical improvement to a tenant's space. Any Permitted Tenant Improvement Expense shall be certified by a certificate of an officer of Purchaser stating that the related physical improvements and rents are at market levels. "Person" means an individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Portfolio Summary Spreadsheet" means the Lotus 1-2-3-based spreadsheet entitled "Portfolio Summary Spreadsheet" and dated October 12, 1993. "Post-Offer Due Diligence Period" means that period commencing with the date hereof and ending, with respect to any Asset, ninety (90) days thereafter, unless sooner terminated by delivery by Purchaser of an Acceptance Certificate. "Pre-Offer Due Diligence Period" means that period commencing with the date on which the Investor Due Diligence Package is made available to Purchaser and ending on the Offer Date. "Prepayment" means, with respect to any Mortgage Loan that is a Deleted Asset, the amount of any payments of principal of such Mortgage Loan that has been applied to the outstanding principal balance of the Promissory Note. "Promissory Note" means that certain promissory note dated as of the Closing Date by Purchaser as borrower in favor of Seller as lender, in substantially the form attached as Exhibit A to the Loan and Security Agreement issued pursuant to Section 2.1 of the Loan and Security Agreement. The term "Promissory Note" shall include such replacement Promissory Note and all additional replacements, extensions, amendments, endorsements, allonges and other modifications of the Promissory Note and all substitutions therefor in accordance with the Loan and Security Agreement. "Purchaser" has the meaning set forth in the caption of this Agreement and shall include its successors and assigns. 16 22 "Purchaser's Cure Estimate" has the meaning given to that term in Section 5.4(b) hereof. "Qualified Affiliate" means an Affiliate of Purchaser which is a separate single purpose corporation or limited partnership formed for the sole purpose of owning, managing and disposing of one or more parcels of Real Property. Purchaser shall cause a separate Qualified Affiliate or Qualified Affiliates to take title to the Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule on the one hand, and another Qualified Affiliate or Qualified Affiliates to take title to any one or more parcels of the remaining Real Property not designated "industrial" on the Mortgage Loan and Real Property Schedule on the other. Except as otherwise approved in writing by Seller and except as otherwise permitted under the Loan and Security Agreement, each Qualified Affiliate shall be an Affiliate of Purchaser that is a corporation or partnership wholly-owned, directly or indirectly, by all of the stockholders or partners of Purchaser or by individuals or entities that own, directly or indirectly, all of the stock or partnership interests in Purchaser, all to the same extent and in the same proportion as the ownership interest of such stockholders, partners, individuals or entities of Purchaser. "Real Property" means a parcel or parcels of land or a leasehold estate, including all improvements, fixtures, easements and other appurtenances owned by Seller and described on the Mortgage Loan and Real Property Schedule, which, at the time of Closing, will either be sold in fee or, at Purchaser's option, be encumbered by an Interim Mortgage Loan. "Real Property Sales Contract" means, with respect to the Real Property, the purchase and sale contract by and between Seller and Purchaser or, if Seller financing is to be utilized or otherwise at Purchaser's option, Affiliate Purchaser, to be executed concurrently herewith, substantially in the form attached hereto as Exhibit J, modified as necessary to reflect an all cash sale transaction. "Repurchase Date" means the date on which any Defective Asset is repurchased pursuant to this Agreement. "Repurchase Price" with respect to a Defective Asset means the Cash Portion of the Repurchase Price plus the Financed Portion of the Repurchase Price. "Revalued Asset" means each of the Assets that has been revalued in accordance with Section 5.5(b) hereof, due to the discovery of a Structural Defect or Natural Condition in the related Mortgaged Property or Real Property, as the case may be, and that Seller has not subsequently elected to repurchase pursuant to Section 5.5(a)(i) hereof. "Sales Contract" means the Real Property Sales Contract. "Security Agreement" means any security agreement creating a lien upon personal property described therein which secures a Mortgage Note. "Seller" means City National Bank, a national banking association. 17 23 "Seller-Approved Contractor" means an engineering or contracting firm qualified to make such determination as may be required under Section 5.5 hereof, and which is selected by Purchaser and identified to Seller in writing at the time Purchaser is notified that it has submitted a successful offer and which shall not have been reasonably disapproved by Seller within five (5) Business Days thereafter. "Stated Interest Rate" means the interest due on the Loan under the Promissory Note. "Structural Defect" has the meaning given to that term in Section 5.5 hereof. "Supplemental Certificate of Defective Asset" shall have the meaning ascribed thereto in Section 5.4(b) hereof. "Surviving Representation Expiration Date" means, (i) with respect to each Mortgage Loan to which a Surviving Representation and Warranty applies, that date which is the earlier to occur of (a) one year after the Current Fully Extended Maturity Date of such Mortgage Loan, unless written notice of a Claim is alleged by the Mortgagor within such one year period, in which event, the Surviving Representation Expiration Date, as it relates to such Claim only, shall be extended until the condition giving rise to such Claim is finally resolved or such Claim becomes a Defect, or (b) the date on which such Mortgage Loan is compromised, renegotiated or restructured, or the related Mortgaged Property is acquired by Purchaser by foreclosure, deed in lieu of foreclosure or otherwise, provided that, in the event Purchaser acquires such Mortgaged Property by means of a trustee's sale in a non-judicial foreclosure, the Surviving Representation Expiration Date for the representation made by Seller under Section 7.1(d)(ix) hereof shall be the date that is one (1) year after the Current Fully Extended Maturity Date of such Mortgage Loan and, (ii) with respect to each Asset that is Real Property to which a Surviving Representation and Warranty applies, one year after the date on which title to such Real Property passes to Purchaser, Affiliate Purchaser, or a Qualified Affiliate, as the case may be. "Surviving Representation and Warranty" means any representation and warranty under Section 7.1 hereof. "Valuation" means (i) with respect to any Revalued Asset, a value assigned to such Revalued Asset determined in accordance with this Agreement by the Valuation Agent according to the method set forth in Exhibit G attached hereto and evidenced by a Valuation Report prepared pursuant to such Exhibit G and delivered to Seller, and (ii) with respect to any other Asset, the "Valuation" of such Asset as set forth in the Mortgage Loan and Real Property Schedule. "Valuation Agent" means KPMG Peat Marwick or another nationally recognized expert in the Valuation of Mortgage Loans and Real Property, as chosen by Purchaser, subject to the reasonable approval of Seller. 18 24 ARTICLE II PURCHASE AND SALE OF THE ASSETS Section 2.1 PURCHASE AND SALE. Subject to the terms and provisions set forth in this Agreement, on the Closing Date, Purchaser shall purchase the Mortgage Loans (other than any Mortgage Loan with respect to which Seller has received Payment in Full prior to the Closing Date, in which case Purchaser shall receive a credit against the Initial Purchase Price in the amount of such Payment in Full) and the Real Property from Seller and Seller shall sell, transfer, assign and convey to Purchaser such Mortgage Loans, together with all related Asset Documents to the extent assignable and the servicing of such Mortgage Loans, and the Real Property, together with all related Asset Documents to the extent assignable. Section 2.2 INITIAL PURCHASE PRICE OF ASSETS. The purchase price of each Asset at the time of the Closing shall be as set forth with respect to such Asset on the Mortgage Loan and Real Property Schedule (the "Initial Purchase Price"), subject to adjustment in accordance with Section 2.3 hereof. The Initial Purchase Price for each Asset shall be paid by Purchaser to Seller on the Closing Date as follows: (a) Seller shall credit to Purchaser the Deposit toward the aggregate Initial Purchase Price for all Assets purchased; and (b) Purchaser shall remit to Seller in immediately available funds, an amount equal to (i) the aggregate Initial Purchase Price [plus applicable interest on the Financed Portion from the Cut-Off Date through the last day of the month in which the Closing occurs], less (ii) the sum of (A) the amount credited pursuant to Section 2.2(a) hereof, (B) other amounts, if any, then required to be credited to the Purchaser pursuant to Section 8.1(d) hereof[, and (C) the principal amount of the Promissory Note]; and (c) For each Mortgage Loan for which no payment default exists as of the Cut-Off Date, Purchaser shall remit to Seller in immediately available funds an amount equal to interest currently due and unpaid thereon (excluding any deferred interest and contingent interest) from and including the immediately preceding payment date with respect to such Mortgage Loan to but not including the Cut-Off Date. Section 2.3 MODIFICATIONS TO MORTGAGE LOAN AND REAL PROPERTY SCHEDULE. Purchaser and Seller shall amend the Mortgage Loan and Real Property Schedule to adjust the Initial Purchase Price as required to reflect any adjustment pursuant to Section 5.4 or 5.5 hereof. 19 25 Section 2.4 FINANCING OF MORTGAGE LOANS AND REAL PROPERTY; SALE OF REAL PROPERTY. Seller financing of the purchase by Purchaser of the Assets will be available subject to the terms and conditions set forth in a Loan and Security Agreement in substantially the form attached hereto as Exhibit K. The sale of the Real Property shall be effected, at Purchaser's option (i) concurrently herewith through the execution and delivery by Seller and Purchaser of the Sales Contract, or (ii) through a three- stage process commencing with (a) the concurrent execution and delivery by Seller and Affiliate Purchaser of the Sales Contract, (b) the delivery by Seller to Purchaser of an Interim Mortgage on the Closing Date, and (c) the subsequent reconveyance of the Interim Mortgage to Seller, along with the originally executed Interim Mortgage Note marked "Paid", concurrently with the conveyance of the Real Property to one or more Qualified Affiliates not later than the last day of the Due Diligence Period pursuant to the terms of the Sales Contract, all as further described in the Offering Memorandum. ARTICLE III DEPOSIT Section 3.1 DEPOSIT. Upon execution hereof, Seller shall acknowledge that it has received from Purchaser an amount equal to $141,440.00, not less than four percent (4.0%) of the Initial Purchase Price, which amount is comprised of the Initial Deposit, the Additional Deposit and any monies remaining from Purchaser's Due Diligence Deposit (the "Earnest Money Deposit"). The Earnest Money Deposit shall be deposited by Seller in an interest-bearing account at Seller's Beverly Hills branch (the "Deposit Account"). The Earnest Money Deposit, together with any interest earned thereon from the Offer Date to the Closing Date, shall hereinafter be referred to as the "Deposit". Section 3.2 DISTRIBUTION OF DEPOSIT. The Deposit shall be held by the Seller until (a) Closing occurs under this Agreement, in which event the Deposit shall be applied on account of the Initial Purchase Price, in accordance with Section 2.2(a) herein, or (b) this Agreement has been terminated, in which event the Deposit will be paid to Purchaser or retained by Seller in accordance with Section 11.1 or Section 11.2 hereof, as the case may be. ARTICLE IV CLOSING Section 4.1 CLOSING. The Closing shall be held on the Closing Date, at 10:00 a.m., at such place as is selected by Seller. The time of the Closing may be changed as the parties may mutually agree upon on or before the Closing Date. 20 26 Section 4.2 TRANSFER AND RECORDATION TAXES. At or prior to Closing, all transfer, filing and recording fees and taxes, costs and expenses, and any state or county documentary taxes, if any, with respect to the filing or recording of any conveyance document or instrument contemplated hereby shall be paid by Seller. Purchaser, Affiliate Purchaser or Qualified Affiliate shall pay, when due and payable, all transfer, filing and recording fees and taxes, and costs and expenses, if any, with respect to the filing or recording of any documents or instruments relating to the financing of any Parcel of Real Property and the cost of recording corrective instruments, pursuant hereto or to the Sales Contract, except for those related to any Interim Mortgage or deed to any Real Property, which Seller shall pay. Except as otherwise expressly provided herein, whether or not the transactions contemplated hereunder are completed, Purchaser shall pay all of its Closing and due diligence expenses and its expenses in negotiating and carrying out its obligations under this Asset Sale Agreement, including the costs of its counsel, all of the costs of title or other insurance which is not presently in force or otherwise provided, or other due diligence Purchaser may desire to undertake and all of the expenses of Purchaser relating to this Agreement. Section 4.3 ESCROW ACCOUNTS. At Closing, all escrows held and account records reflecting amounts held in escrow by or on behalf of Seller for taxes, governmental assessments and insurance, deposits, security deposits, replacement reserves or other funds relating to the Assets and then held by or on behalf of Seller, including any accounts described in Section 8.1(d) hereof, shall be assigned, transferred and paid over to the Purchaser. All such funds transferred to and held by Purchaser shall be applied by Purchaser for their designated purposes for the designated Mortgaged Property, in accordance with the applicable Mortgage, or Real Property, as the case may be. Section 4.4 LIMITATIONS ON LIABILITY. The parties hereto acknowledge, confirm and agree that Purchaser shall have no claims and Seller shall have no liability, whatever, as a result of or otherwise in connection with any notice of default not being filed or being filed or any actions or failure to act in connection with any default, bankruptcy, request for modification or otherwise under any Mortgage Loan, except to the extent that such may be deemed a violation of Seller's obligations under Section 8.1(f) hereof; nor shall any of same be deemed a Defect or otherwise trigger any requirement to repurchase any Mortgage Loan, unless any such action or inaction shall constitute a breach by Seller of any representation or warranty set forth in Article VII hereof. ARTICLE V DUE DILIGENCE PERIOD Section 5.1 DUE DILIGENCE PERIOD. Seller and Purchaser acknowledge that while Purchaser has had time to conduct some due diligence, this Agreement is being executed and delivered prior to the Closing Date and prior to Purchaser having as much time as Purchaser might desire to conduct a due diligence review of the Assets, including the underlying Mortgaged Properties. Seller and Purchaser agree, therefore, that Purchaser may conduct additional due diligence in respect of the Assets, including the Mortgaged 21 27 Properties, until the termination of the Due Diligence Period, solely for the purpose of confirming Seller's Due Diligence Representations and Warranties. Prior to the Closing Date, however, Purchaser shall not contact the Mortgagors or any guarantor of any Mortgage Loan or any junior or senior lienors or any tenants of any Mortgaged Property or Real Property, as the case may be, or any officer, employee or agent of any thereof except upon the prior consent of Seller. Purchaser agrees that it will perform its due diligence review in good faith during the Due Diligence Period. Section 5.2 DUE DILIGENCE REVIEW OF ASSETS. During the Pre-Offer Due Diligence Period through the Due Diligence Cut-Off Date for each Asset listed on the Mortgage Loan and Real Property Schedule, Seller or Seller's Due Diligence Contractor has provided Purchaser with the related Investor Due Diligence Package and Seller has provided Purchaser access, during normal business hours upon reasonable prior request, to the related Investor File. Purchaser shall conduct, at its own expense, such additional analysis and investigation of the Mortgage Loans, the Mortgaged Properties and the Real Property as it deems necessary and appropriate. Under no circumstances will any amounts expended by Purchaser for due diligence be reimbursed or credited to or against the Initial Purchase Price. Section 5.3 SELLER'S COOPERATION. Seller agrees to cooperate with Purchaser during remainder of the Due Diligence Period and shall provide Purchaser access to Seller's Asset Files and any such non-privileged data or other materials that are reasonably related to Purchaser's evaluation of the Asset it is reviewing and are obtainable by Seller on a reasonable basis, provided that Seller shall not be obligated to incur any material cost or expense (unless, with respect to any cost or expense, a Person satisfactory to Seller in its sole discretion agrees to promptly reimburse or indemnify Seller in a manner acceptable to Seller, in Seller's sole discretion, for such cost or expense) or any liability as a result of such cooperation; provided that the foregoing limitation shall not reduce or limit Seller's representations and warranties under this Agreement. Section 5.4 ACCEPTANCE OF ASSETS AND REMEDIES FOR DEFECTS. Purchaser shall have the right either to accept an Asset as described in subsection (a) below or, in the event of a Defect in an Asset, to notify Seller in writing of such Defect as set forth in subsection (b) below. (a) ASSET ACCEPTANCE. After completion of its due diligence review of any Asset, Purchaser may finally accept such Asset for purchase hereunder prior to the termination of the Due Diligence Period by delivering to the Seller a certificate ("Acceptance Certificate") in the form attached hereto as Exhibit B identifying each Asset being accepted. Once an Asset is accepted hereunder, Purchaser's rights to require Seller to repurchase such Asset or to cure a Defect in such Asset shall terminate, except in the event of a breach of a Surviving Representation and Warranty. Purchaser's failure to deliver a Certificate of Defective Asset with respect to any Asset by the last day of the Due Diligence Period shall be 22 28 deemed to be an acceptance of such Asset, subject to Purchaser's rights to require Seller to make an election to cure the Defect in, reduce the Initial Purchase Price of, or repurchase, such Asset on account of any Defect arising from a Surviving Representation and Warranty in accordance with Section 5.4(b)(ii), Section 5.4(c) and Article X hereof. (b) PURCHASER'S CLAIM OF BREACH OF REPRESENTATION AND WARRANTY. In order to claim a Defect resulting from a breach of a representation and warranty with respect to an Asset, Purchaser shall execute and deliver to Seller a completed Certificate of Defective Asset no later than (i) the last day of the Due Diligence Period with respect to all Due Diligence Representations and Warranties under Section 7.2 hereof and with respect to a Defect relating to any Surviving Representation and Warranty of which Purchaser is then aware, or (ii) the earlier of (x) thirty (30) days following the discovery by Purchaser or (y) the Surviving Representation Expiration Date with respect to a Defect relating to a Surviving Representation and Warranty of which Purchaser was not aware on or before the last day of the Due Diligence Period. The completed Certificate of Defective Asset shall set forth (A) the identity of the Asset, (B) the exact nature of the claimed Defect and the manner in which the claimed Defect has a material adverse effect on the value of the related Asset, (C) the section or subsection of this Agreement under which such Defect is claimed, and (D) detailed evidence of the existence of the Defect, including, but not limited to, the identity of, and any copy of any materials provided by, any third party that performed any analysis or provided any cure estimate or any other information with respect to such claimed Defect. Within fifteen (15) days after delivery of any Certificate of Defective Asset, Purchaser shall execute and deliver to Seller an additional Certificate of Defective Asset (the "Supplemental Certificate of Defective Asset"), in substantially the form as Exhibit E hereto, indicating (X) whether, in Purchaser's reasonable judgment, the Defect is curable or is not susceptible to cure, (Y) if Purchaser reasonably judges the Defect to be curable, Purchaser's detailed description of the proposed cure and reasonable detailed estimate of the cost to repair or otherwise cure such Defect ("Purchaser's Cure Estimate") together with a copy of any supporting information prepared by any third party expert, and (Z) the amount by which Purchaser would have reduced the Initial Purchase Price with respect to such Asset had Purchaser been aware of such Defect on the Offer Date (the "Reduction to the Initial Purchase Price"). (c) REMEDIES FOR BREACHES OF REPRESENTATIONS AND WARRANTIES. In the event a Defective Asset exists and Purchaser has fulfilled the conditions to the claim of Defect as set forth in Section 5.4(b) above, Seller shall have the options specified in Section 5.4(d) below. Failure of Purchaser to provide the proper Certificate of Defective Asset to Seller for each Asset by no later than the time provided in Section 5.4(b) above for a Defective Asset shall for all purposes terminate and extinguish any rights of Purchaser to require Seller to make an election to cure the Defect in, reduce the Initial Purchase Price of, or repurchase, such Asset; provided, however, that Purchaser shall have a reasonable opportunity to supplement a Certificate of Defective Asset if Seller reasonably determines that such certificate was not properly completed. If Purchaser, upon purchase of the related Asset, has title insurance that provides coverage with respect to any condition that might otherwise constitute a Defect, Purchaser shall seek recourse with respect to such condition under such title insurance policy and such condition shall not be considered a Defect. In order to preserve its rights under this Section 5.4 with respect 23 29 to any such condition during the period in which Purchaser is pursuing its obligations hereunder to seek recourse against such title policy, Purchaser may submit a Certificate of Defective Asset in accordance with Section 5.4(b) with respect to any such Asset for which Purchaser reasonably believes it had title insurance at the time of purchase of such Asset, and, if coverage thereunder is subsequently determined not to have existed through no fault of Purchaser, whether by its action or inaction, the sixty (60) day time period under Section 5.4(d) for Seller to make its elections thereunder shall commence as of the date of such determination. (d) PROCEDURE FOR SELLER'S ELECTION OF REMEDY WITH RESPECT TO A CERTIFICATE OF DEFECTIVE ASSET. In the event Purchaser delivers a Certificate of Defective Asset as provided in Section 5.4(b) above, Seller shall, no later than sixty (60) days after receipt of such Certificate, notify Purchaser in writing that (i) Seller disputes (x) the existence of such Defect or (y) the reasonableness of Purchaser's Cure Estimate or (z), if Purchaser has stated that it believes such Defect is not curable, such statement, and in any of such cases, the basis for any such position, including, if appropriate and then available without undue delay or expense, evidence that no Defect exists or that such Defect is susceptible to cure (which denial shall not be dispositive as to the existence or absence of a Defect, whether with respect to the susceptibility of such Defect to cure or the reasonableness of Purchaser's Cure Estimate); or (ii) Seller intends to attempt to cure such Defect within the Cure Period; or (iii) Seller has elected, at its option, to reduce the Initial Purchase Price with respect to such Asset by either the amount specified by Purchaser as Purchaser's Cure Estimate or the Reduction to the Initial Purchase Price, respectively, as set forth in Section 5.4(b), which amount shall be rebated to Purchaser not later than thirty (30) days after delivery of Seller's notice to Purchaser of such election; or (iv) Seller has elected to repurchase the Asset from Purchaser at the Repurchase Price; or (v) with respect to Real Property to which Purchaser or a Qualified Affiliate, as the case may be, has not yet taken title, Seller has elected to pay all sums due under any Interim Mortgage Loan relating to such Real Property then existing and terminate the Sales Contract with respect thereto. If Seller fails to make the required election within said sixty (60) day period, Purchaser shall send a second demand to Seller, which shall state that should Seller fail to timely respond within five (5) Business Days as to its election, Seller shall be deemed to have agreed to repurchase the Asset. In the event Seller then shall fail to timely respond to such second demand, Seller shall be required to repurchase the Asset at the Repurchase Price. Failure to so send such second demand to Seller shall not diminish Purchaser's rights hereunder except that the period within which Seller must make an election hereunder shall be extended until five (5) days from the date such second demand is actually delivered to Seller. At least thirty (30) days, but no more than forty (40) days prior to the end of the Cure Period, if Purchaser had previously received notification from Seller (i) that Seller intended to attempt to cure the Defective Asset and Purchaser has not received notification from Seller (or is not otherwise aware) that the Defect has been cured or (ii) that Seller expects that the Defect in the Asset will be cured by the end of the Cure Period, Purchaser shall send a Deletion Certificate, in substantially the form attached hereto as Exhibit F, to Seller stating that such Defective Asset will be subject to repurchase at the Repurchase Price if such Defect has not been cured within the Cure Period. Failure to so send such Deletion Certificate to Seller shall not diminish Purchaser's rights hereunder except that the Cure Period shall be extended until thirty (30) days from the date such Deletion Certificate is actually delivered to Seller. 24 30 Section 5.5 PROCEDURE IN RESPECT OF A STRUCTURAL DEFECT OR NATURAL CONDITION. In response to a Certificate of Defective Asset with respect to a Structural Defect (as such term is defined below) or Natural Condition, all as provided in Section 5.5(a)(i) below, if Seller elects to repair or otherwise cure such Structural Defect or incur additional engineering or entitlement costs with respect to a Natural Condition, Seller shall be obligated to pay for such repairs or other costs only to the extent that the cost thereof exceeds (i) any amount to repair or cure identified in the Asset Valuation Package or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date (the "Disclosed Remedial Cost Estimate") plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000). A Structural Defect or Natural Condition shall not give rise to any obligations of Seller hereunder without Purchaser's delivery to Seller during the Due Diligence Period of sufficient specific information as to the nature of the Structural Defect or Natural Condition, the estimated cost to cure the Structural Defect or Natural Condition, the effect of the Structural Defect or Natural Condition upon the use of the Mortgaged Property and other information relevant under the circumstances for Seller to make its election based upon the information submitted as part of the Certificate of Defective Asset in respect of a Mortgage Loan. (a)(i) Purchaser shall be entitled to deliver a Certificate of Defective Asset with respect to a Structural Defect or Natural Condition in the event that during the Due Diligence Period Purchaser discovers the existence of either one or more defects in the improvements, fixtures (other than carpet and floor coverings) or mechanical systems (including, but not limited to, electrical, plumbing, elevator and heating, ventilation and air conditioning) comprising a Mortgaged Property or Real Property ("Structural Defect") or one or more Natural Conditions that, in either case, existed prior to the Closing Date and either (A)(i) was not disclosed in the Due Diligence Materials or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date, (ii) was not actually known to Purchaser prior to the Offer Date (and Purchaser shall be deemed to have known about such Structural Defect or Natural Condition if same is apparent from a physical inspection of the Mortgaged Property or Real Property, as the case may be, by a person who is not an expert on such Natural Conditions or Structural Defects), and (iii) (X) with respect to a Structural Defect, would require the investment of not less than the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) to repair or otherwise cure, or (Y) with respect to a Natural Condition, would be the sole cause of an increase in the cost to develop the portion of the Mortgaged Property or Real Property, as the case may be, intended to be developed (for the use indicated in the Due Diligence Report or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date) of not less than the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), or would require the investment of not less than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) to be expended to remove or negate the effects of same (in compliance with all applicable laws, rules and regulations), as determined by a Seller- Approved Contractor, or (B)(i) was disclosed in the Due Diligence Materials for the related Asset, and (ii)(X) with respect to a Structural Defect, would require the investment of not less than (a) the Disclosed Remedial 25 31 Cost Estimate plus (b) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) net of any amount thereof recoverable from third parties to be expended to repair or otherwise cure same, as determined by a Seller-Approved Contractor, or (Y) with respect to a Natural Condition, would be the sole cause of an increase in the cost to develop the portion of the Mortgaged Property or Real Property, as the case may be, intended to be developed (for the use indicated in the Due Diligence Materials, or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date) of not less than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) or would require the investment of not less than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) to be expended to remove or negate the effects of same (in compliance with all applicable laws, rules and regulations), all as determined by a Seller-Approved Contractor. Seller shall, in response to its receipt of a Certificate of Defective Asset from Purchaser with respect to a Structural Defect or Natural Condition, at Seller's sole option, elect within thirty (30) days after receipt of such Certificate of Defective Asset either to (W) with respect to a Structural Defect, repair or otherwise cure such Structural Defect, or, with respect to a Natural Condition, remove or negate the effects of such Natural Condition; provided, however, that even if Seller elects to repair or otherwise cure such Structural Defect or remove or negate the effects of such Natural Condition, Seller shall be obligated to pay for the cost thereof only to the extent that same exceeds (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), or (X) repurchase the Asset at the Repurchase Price as provided in Section 10.2 hereof, or (Y) with respect to Real Property to which Purchaser, Affiliate Purchaser or a Qualified Affiliate, as the case may be, has not yet taken title, pay all sums due under any Interim Mortgage Loan relating to such Real Property then existing and terminate the Sales Contract with respect thereto, or (Z) permit Purchaser to revalue the Asset as described hereunder. Seller's obligation to make such election shall be conditioned upon Purchaser's delivery to Seller of sufficient specific information as to the nature of the Structural Defect or Natural Condition, the estimated cost to cure the Structural Defect or, with respect to a Natural Condition, the cost to remove or negate the effects of same, the effect of the Structural Defect or Natural Condition upon the use or development of the Mortgaged Property or Real Property, as the case may be, and other information relevant under the circumstances for Seller to determine whether there is a Structural Defect or Natural Condition and to make the elections and other determinations required hereunder, along with the aggregate of (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), with respect to such Structural Defect or Natural Condition, which amount may be held in escrow, until such time as Seller has made its election whether to cure, repurchase or revalue the Defective Asset, for use by Seller in its efforts to cure or negate the effect of such Structural Defect or Natural Condition. 26 32 (ii) If Seller elects to permit Purchaser to revalue the Asset in accordance with Section 5.5(a)(i) hereof, Purchaser shall retain a Valuation Agent to revalue such Asset as of the Closing Date. (iii) If Seller elects to permit Purchaser to revalue the Asset in accordance with Section 5.5(a)(i) hereof, the Asset shall be revalued in accordance with the valuation process described in Paragraph (b) below. At least thirty (30) days, but no more than forty (40) days, prior to the end of the Cure Period, if Purchaser had previously received notification from Seller (i) that Seller intended to attempt to cure the Defective Asset and Purchaser has not received notification from Seller (or is not otherwise aware) that the Defect has been cured or (ii) that Seller expects that the Defect in the Asset will be cured by the end of the Cure Period, Purchaser shall send a deletion certificate, in substantially the form attached hereto as Exhibit F ("Deletion Certificate"), to Seller stating that such Defective Asset will be subject to repurchase at the Repurchase Price if such Defect has not been cured within the Cure Period. Failure to so send such Deletion Certificate to Seller shall not diminish Purchaser's rights hereunder except that the Cure Period shall be extended until thirty (30) days from the date such Deletion Certificate is actually delivered to Seller. (b) Any revaluation of the Assets under this Section 5.5 shall be effected through a valuation process for each Asset as follows: (i) Purchaser shall promptly appoint the Valuation Agent to determine the Valuation of each Revalued Asset ("Valuation" herein) and shall notify Seller of its selection. The Valuation Agent shall render a report (the "Valuation Report") as to the Valuation of the Revalued Asset addressed to Seller and Purchaser within ninety (90) days of appointment. (ii) In the event that the designated Valuation Agent is not eligible or capable of providing a Valuation in accordance with this Section 5.5, Seller shall designate a new Valuation Agent. (iii) With regard to any Valuation Report rendered under this Section 5.5(b), except as provided in Section 5.5(c) below, the fees and other costs of the Valuation Agent shall be borne one-half by Purchaser and one-half by Seller. (iv) Purchaser shall instruct the Valuation Agent appointed hereunder that in making its determination of the Valuation of any Asset as of the Closing Date, the Valuation Agent shall follow the instructions specified on Exhibit G attached hereto, taking into account the assumptions (and only such assumptions, except to the extent that the Valuation Agent finds it reasonably necessary to modify one or more assumptions and then only upon the prior written consent of Purchaser and Seller) set forth in this Section 5.5(b) hereof. 27 33 (v) Upon determination of the Valuation in accordance with the foregoing, the Valuation Agent shall execute a valuation certificate in substantially the form attached hereto as Exhibit H (the "Valuation Certificate") indicating the Valuation. The product of the Valuation multiplied by the Offer Percentage shall be inserted as the Adjusted Purchase Price for each Revalued Asset on the Mortgage Loan and Real Property Schedule in accordance with Section 2.3 hereof and shall be used to calculate the Adjusted Purchase Price. For all Assets which are not Revalued Assets, the Adjusted Purchase Price shall be the Initial Purchase Price. (vi) With respect to any Interim Mortgage Loan, the Valuation Agent, pursuant to the valuation process outlined in this Section 5.5, will be instructed to value the underlying Mortgaged Property. The value determined to be the value of the underlying Mortgaged Property shall be deemed the Valuation for purposes of calculating the Adjusted Purchase Price. (vii) In the event of the adjustment between the Initial Purchase Price and the Adjusted Purchase Price (the amount of such adjustment herein, a "Shortfall"), Seller and Purchaser shall take all necessary action to amend the Asset Documents, Loan and Security Agreement and related documents to reflect the Shortfall; and an amount equal to twenty-five percent (25.0%) of the aggregate amount of any such Shortfall plus interest on the Shortfall from the Cut-Off Date to the Revaluation Adjustment Date, as such term is defined in the Loan and Security Agreement, at the Applicable Rate shall be refunded to Purchaser within ten (10) Business Days after the determination of same has been made and the balance of the aggregate amount of the Shortfall shall be held by Seller to be applied toward the next principal payment to be made by Purchaser in connection with Seller's financing of the sale transaction contemplated hereby. (viii) The Valuation Agent shall be instructed to use all assumptions used in determining the Valuation of the Asset, as reflected in the Due Diligence Materials, or with respect to any Asset or parcel of Mortgaged Property for which Seller's Valuation was not contained in the Due Diligence Materials, which assumptions are (i) reasonable as of July 1, 1993 and (ii) consistent with the assumptions used in those Valuations performed by Seller which were contained in the Due Diligence Materials, and shall be applied in following the instructions described in Exhibit G, unless the calculations pursuant to a particular instruction would have yielded a different result if the Valuation Agent that determined the value as reflected in the Due Diligence Materials had considered the Structural Defect or Natural Condition in performing such calculations. (ix) If a calculation pursuant to a particular instruction in Exhibit G would yield a different result if the Valuation Agent modified the assumptions used in performing the required calculation (1) to reflect the cost to (X) repair or otherwise cure the Structural Defect or (Y) remove or otherwise negate the effect of a Natural Condition (but only to the extent (with respect to both (X) and (Y) above) that the cost thereof exceeds (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, 28 34 or Fifty Thousand Dollars ($50,000), net of any amount thereof recoverable from third parties), that would cause the value of the Asset to be reduced by more than (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), for, with respect to a Structural Defect, the repair or cure of such Structural Defect or, with respect to a Natural Condition, the removal or negation of the effects of such Natural Condition and, in both cases, net of any amount thereof recoverable from third parties (such as tenants, insurers, contractors or bondsmen) or other participants, or (2) in the alternative, to reflect the permanent reduction (X) with respect to a Structural Defect, in net rental income that would cause the value of the Asset to be reduced by more than (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), for the repair or cure of such Defect that would result if such repair or other cure were not performed, or (Y) with respect to a Natural Condition, in the value of the Asset to be reduced by more than (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), for the cost to remove or negate the effects of the Natural Condition, if the Natural Condition was not removed or its effects not negated, then in both the situation of a Structural Defect or a Natural Condition, the Valuation Agent shall be instructed to modify the assumptions or calculations at issue as described in clause (1) or (2) using the modification method that would yield the lesser adjustment in the Valuation of the Asset. No other assumption or calculation shall be modified by the Valuation Agent unless Seller and Purchaser grant their prior written consent. (x) The assumed cost to repair or otherwise cure the Structural Defect or to remove or negate the effect of the Natural Condition applied under the method described in clause (1) of Section 5.5(a)(iii)(B) above, shall be provided by an engineering firm reasonably acceptable to Seller and qualified to make such a determination and shall be based upon reasonable estimates as to cost for goods and services necessary to (X) with respect to a Structural Defect, cure the Structural Defect so as to render the defective structure serviceable for the uses for which the improvements or fixtures were designed or (Y) with respect to a Natural Condition, render the Mortgaged Property or Real Property, as the case may be (or portion thereof), in a condition suitable for development (for the use indicated in the Due Diligence Materials or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date). (xi) Improvements, fixtures or mechanical systems shall not be deemed to have a Structural Defect (1) solely by reason of the failure of the improvements, fixtures or mechanical systems to have a design or function satisfactory for a new or unintended use or purpose, (2) solely by reason of the wear and tear associated with the operation of such improvements, fixture or mechanical system, unless the wear and tear is in excess of that which could reasonably be expected based on a limited sight inspection and the inspection report contained in the Investor Due Diligence Package, (3) solely by reason of deferred 29 35 maintenance, (4) solely by reason of having outlived its useful life or its functional utility, (5) solely by reason of the requirements of any law, rule, regulation or code relating to such improvements, fixtures or mechanical systems which were promulgated, amended, supplemented or otherwise passed or modified after the earlier of the date of (i) construction of the improvements on the Mortgaged Property or Real Property, (ii) the issuance of the certificate of occupancy with respect to such Mortgaged Property or Real Property or (iii) the origination of the related Mortgage Loan, including, but not limited to, the Americans With Disabilities Act of 1990 (as set forth in Chapter 126 of Title 42 of the United States Code), or (6) solely by reason of any combination of the foregoing. (xii) A Natural Condition shall not be deemed to be the sole cause of an increase in the cost to develop Mortgaged Property or Real Property, as the case may be, to the extent any other reason exists independent of such Natural Condition which prohibits, restricts or increases the cost to develop the Mortgaged Property or Real Property, as the case may be (other than the existence of laws, rules or regulations which prohibit or impose obligations in connection with the development of land on which a Natural Condition exists). (c) Seller shall have the right to elect, within sixty (60) days of receipt of the Valuation Certificate, at its sole option, to repurchase the Asset for the Repurchase Price within ninety (90) days after receipt of the Valuation Certificate in lieu of making an adjustment in the Initial Purchase Price of any Asset under this Section 5.5. In the event Seller repurchases any such Asset, Seller shall reimburse Purchaser for its reasonable out-of-pocket costs incurred in employing the Valuation Agent to render the Valuation Certificate. If Seller elects to repurchase an Asset pursuant to this Section 5.5(c), such Asset shall be treated as a Deleted Asset and shall not be deemed to be or be treated as a Revalued Asset. (d) Notwithstanding anything contained herein to the contrary, Purchaser shall only be entitled to deliver a Certificate of Defective Asset (i) with respect to an Asset having a Structural Defect if the cost to repair such Structural Defect would require the investment of more than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of (x) Fifty Thousand Dollars ($50,000), or (y) two percent (2.0%) of the Initial Purchase Price for the applicable Asset (net of any amounts recoverable from third parties), or (ii) with respect to an Asset on which a Natural Condition exists, such Natural Condition would be the sole cause of an increase in the cost to develop the portion of the Mortgaged Property or Real Property, as the case may be, intended to be developed (for the use indicated in the Due Diligence Materials or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date) of more than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of (x) Fifty Thousand Dollars ($50,000) or (y) two percent (2.0%) of the Initial Purchase Price for the applicable Asset (net of any amounts recoverable from third parties) to be expended to remove or negate the effects of such Natural Condition, in both the case of a Structural Defect and a Natural Condition, as determined by a Seller-Approved Contractor (and such Asset shall not be deemed a Defective Asset or to have a Defect unless the conditions for delivering a Certificate of Defective Asset are satisfied with respect thereto.) 30 36 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER Section 6.1 PURCHASER'S REPRESENTATIONS. Each of the following representations and warranties by Purchaser is true and correct as of the date of delivery of this Agreement and shall be true and correct on the Closing Date: (a) AUTHORITY; BINDING ON PURCHASER; ENFORCEABILITY. Purchaser is a limited partnership and is duly formed, validly existing and in good standing under the laws of Delaware. Purchaser has taken all necessary action to authorize the execution, delivery and performance of this Agreement, has the power and authority to execute, deliver and perform this Agreement, and all related documents and all the transactions contemplated hereby, including, but not limited to the authority to purchase and acquire the Assets and servicing thereof in accordance with this Agreement, has duly authorized, executed and delivered this Agreement and, assuming due authorization, execution and delivery by each other party hereto, this Agreement and all the obligations of Purchaser hereunder are the legal, valid and binding obligations of Purchaser, enforceable in accordance with the terms of this Agreement, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of this Agreement and the performance of its obligations hereunder by Purchaser will not conflict with any provision of any law or regulation to which Purchaser is subject; or conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of any organizational document of Purchaser or any agreement or instrument to which Purchaser is a party or by which it is bound, or any order or decree applicable to Purchaser; or result in the creation or imposition of any lien on any of its assets or property which would materially and adversely affect the ability of Purchaser to carry out the terms of this Agreement. Purchaser will obtain any consent, approval, authorization or order of any court or governmental agency or body required for the execution, delivery and performance by Purchaser of this Agreement. (c) DECISION TO PURCHASE. Purchaser is a sophisticated investor and its offer and decision to purchase the Assets are based upon its own independent expert evaluations of the Offering Memorandum, the Due Diligence Materials, the Asset Documents and other materials deemed relevant by Purchaser and its agents. Purchaser has not relied in entering into this Agreement upon any oral or written information from Seller or any of its employees, Affiliates, agents or representatives, other than the Offering Memorandum, the Due Diligence Materials, the Asset Documents and the representations and warranties of Seller contained herein. Purchaser further acknowledges that no employee or representative of Seller has been authorized to make, and that Purchaser has not relied upon, any statements or representations other than those specifically contained in this Agreement. 31 37 (d) COMPLIANCE WITH REQUIREMENTS OF OFFERING MEMORANDUM. Purchaser (i) complied fully and on a timely basis with all requirements set forth in the Offering Memorandum with respect to its successful offer to purchase Assets described in such Offering Memorandum, which compliance included, but was not limited to, the taking of all actions required to be taken pursuant to the Offering Memorandum on a timely basis and the refraining from taking any actions prohibited pursuant to the Offering Memorandum and (ii) complied fully and on a timely basis with all terms and conditions of the Confidentiality Agreement executed by Purchaser in order to qualify as a prospective purchaser under the Offering Memorandum, which compliance included, but was not limited to, the taking of all actions required to be taken pursuant to the Confidentiality Agreement on a timely basis and the refraining from taking any actions prohibited pursuant to the Confidentiality Agreement. Without limiting the foregoing, neither Purchaser nor any of its Affiliates or agents has communicated with any Mortgagor or guarantor with respect to any Asset, or any other party to the transaction contemplated herein, including any junior or senior lienors on or tenants of the Mortgaged Property or the Real Property, other than a property manager of the Real Property, if any, or any of their respective officers, employees or agents, without the prior written consent of Seller. (e) INCUMBENCY CERTIFICATE. Purchaser has delivered to Seller an incumbency certificate identifying the officers of Purchaser authorized to execute this Agreement and all certificates or other communications which have been or may be delivered hereunder, together with a specimen signature of each such officer. (f) INSOLVENCY OF PURCHASER. Purchaser is not insolvent or bankrupt and there is no pending or threatened insolvency or bankruptcy proceeding of any kind affecting Purchaser or any of its assets, properties or business. (g) VALUATION ASSUMPTIONS. Purchaser acknowledges that the Valuations set forth in the Mortgage Loan and Real Property Schedule were developed within the context of a portfolio sale by Seller's Valuation Agent for the sole purpose of allocating the Initial Purchase Price among the individual Assets in order to provide a method of determining the Repurchase Price or Adjusted Purchase Price in the event any Asset is repurchased or revalued. There are certain standard assumptions as to the timing and amounts of future cash flows, applicable capitalization and discount rates, timing of foreclosures and bankruptcies and other factors that might be different if the Assets had not been valued in the context of this portfolio sale. Purchaser agrees that the use of the Valuations for any purpose other than their intended use as described herein and the disclosure of such Valuations to third parties without Seller's prior consent is strictly prohibited. (h) OBLIGATIONS ASSUMED. At the Closing, Purchaser shall purchase and assume, without recourse or warranty, except as specifically set forth herein, all of Seller's right, title and interest in and to, and obligations in respect of, the Mortgage Loans, and Purchaser covenants and agrees that, with respect to such purchase and assumption, it will perform each and every obligation of Seller to be performed from and after the Closing Date, as set forth in such documents, including, but not limited to, those obligations under outstanding letters of credit and in respect of undisbursed funds, if any, under Mortgage Notes, to the extent and only to the extent that such 32 38 letters of credit, undisbursed funds and other obligations were fully disclosed to Purchaser in writing prior to the Closing. (i) OPINION OF PURCHASER'S COUNSEL. Purchaser shall deliver on the Closing Date an opinion of counsel for Purchaser (who may be an employee of Purchaser) opining as to the power, authority and legal right of Purchaser to execute and deliver the Loan and Security Agreement and all associated documents entered into by and between Purchaser and Seller or any of their respective Affiliates, and to perform and observe the terms and conditions of such instruments, and as to all other things that Seller reasonably may request in connection therewith, all in form and substance satisfactory to Seller. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SELLER Section 7.1 SURVIVING REPRESENTATIONS AND WARRANTIES OF SELLER. Each of the following representations and warranties of Seller is true and correct as of the date of delivery of this Agreement and shall be true and correct in all material respects on the Closing Date: (a) AUTHORITY; BINDING ON SELLER; ENFORCEABILITY. Seller has taken all necessary action to authorize its execution, delivery and performance of this Agreement, has the power and authority to execute, deliver and perform this Agreement and all the transactions contemplated hereby, including but not limited to the authority to sell, assign and transfer the Assets in accordance with this Agreement, has duly authorized, executed and delivered this Agreement and, assuming due authorization, execution and delivery by each other party hereto, this Agreement and all the obligations of Seller hereunder are the legal, valid and binding obligations of Seller, enforceable in accordance with the terms of this Agreement, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of this Agreement and the performance of its obligations hereunder by Seller will not conflict with any provision of any law or regulation to which Seller is subject or conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of any agreement or instrument to which Seller is a party or by which it is bound or any order or decree applicable to Seller or result in the creation or imposition of any lien on any of its assets or property, in each case in any manner which would adversely affect the ability of Seller to carry out the terms of this Agreement; and Seller has obtained any consent, approval, authorization or order of any court or governmental agency or body required for the execution, delivery and performance by Seller of this Agreement. (c) LEGAL ACTION AGAINST SELLER. There is no action, suit or proceeding pending against Seller in any court or by or before any other governmental agency or instrumentality which 33 39 would adversely affect the ability of Seller to carry out the transactions contemplated by this Agreement, except as disclosed with respect to any particular Asset in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (d) REPRESENTATIONS AND WARRANTIES REGARDING THE ASSETS. Subject to the provisions of Section 7.4 hereof, Seller hereby represents and warrants that, as to each Mortgage Loan, and the Real Property where indicated, the following representations and warranties are true and correct in all respects as of the date of delivery of this Agreement, or as otherwise specified, and shall be true and correct in all respects as of the Closing Date: (i) NO DEFENSE BY MAKER. Except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date, Seller has neither taken an action nor failed to take an action which would give the Mortgagor a valid defense to the payment in full of the Mortgage Loan that arises from applicable local, state or federal laws, regulations and other requirements pertaining to usury or any other requirements of any federal, state or local law relating to the origination of such Mortgage Loan, including, but not limited to, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws. (ii) NO COUNTERCLAIMS. Except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date, such Mortgage Loan is not subject to any right of rescission, set-off, abatement, diminution, counterclaim or defense that adversely affects the ability of Seller or its assigns to enforce the provisions of the Mortgage Note or the Mortgage or realize against the Mortgaged Property subject to such Mortgage, and no such claims have been asserted as of the date hereof with respect to the Mortgage Loan, and if so asserted, have either been withdrawn or released. (iii) AMOUNT OF LOAN. The outstanding principal amount of the Mortgage Loan as of the Due Diligence Cut-Off Date was not less than such amount as set forth in the Mortgage Loan and Real Property Schedule and the current interest rate, current required monthly payment, and the Current Fully Extended Maturity Date of the Mortgage Loan are as set forth in the Mortgage Loan and Real Property Schedule. (iv) ENFORCEABILITY. The Mortgage Note and the related Mortgage are each the legal, valid and binding obligation of the maker or obligor thereof, and contain customary and enforceable provisions that, in the event of a breach of a provision thereof, will enable the holder to bring an action or proceeding to foreclose the lien of the Mortgage in accordance with California law, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or law). (v) SELLER'S OWNERSHIP AND RIGHT TO SELL. Seller is the sole owner and holder of the Mortgage Loan and the Real Property and has the right to sell the Mortgage Loan and the Real Property free and clear of any valid claims of third parties. 34 40 (vi) NO MODIFICATION. Seller has not modified the related Mortgage or Mortgage Note (in the form contained in the Investor File), or satisfied, cancelled or subordinated such Mortgage or Mortgage Note in whole or in part or released all or any portion of the Mortgaged Property from the lien of the Mortgage, or executed any instrument of release, cancellation or satisfaction, except by written instrument as disclosed in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (vii) DISBURSEMENT OF LOAN PROCEEDS. The Mortgagor does not have the right to disbursement of additional loan proceeds or future advances with respect to the Mortgage Loan except as such right is disclosed in the Portfolio Summary Spreadsheet contained in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (viii) CROSS-COLLATERALIZATION. The Mortgage Loan is not cross collateralized with any other mortgage loan except as such cross collateralization is disclosed in the Portfolio Summary Spreadsheet contained in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (ix) TRUSTEE'S SALE SET-ASIDE. Seller has taken no action that would give the Mortgagor a valid claim to set aside a non-judicial foreclosure of the related Mortgage. (e) INCUMBENCY CERTIFICATE. Seller has delivered to Purchaser an incumbency certificate identifying the officers of Seller authorized to execute this Agreement and all certificates or other communications which have been or may be delivered hereunder, together with a specimen signature of each such officer. Section 7.2 DUE DILIGENCE REPRESENTATIONS AND WARRANTIES OF SELLER. Subject to the provisions of Section 7.4 hereof, Seller hereby represents and warrants that, as to each Mortgage Loan or Real Property, as indicated below, the following representations and warranties are true and correct in all material respects as of the date of delivery of this Agreement, or as otherwise specified, and shall be true and correct in all material respects as of the Closing Date: (a) DUE DILIGENCE MATERIALS. As of the Due Diligence Cut-Off Date, the Asset Data Sheet, Portfolio Summary Spreadsheet and document inventory, all of which are contained in the Investor Due Diligence Package, reflect accurately in all respects the information set forth in the Asset File with respect to such Asset, provided that such Due Diligence Materials purport only to reflect information as it appears on the face of the documents and other papers in such Asset File and does not purport to verify the accuracy of the facts recited in such documents and other papers. 35 41 (b) VALIDITY OF COLLATERAL DOCUMENTS. Each Security Agreement related to each Mortgage Loan and referenced in the Due Diligence Materials creates a valid security interest in the property described therein. (c) ASSET DOCUMENTS. The copies of the grant deed in respect of the Real Property, and the Mortgage Note and Mortgage and any documents modifying the terms of the Mortgage Note and Mortgage included in the Due Diligence Materials are true and correct copies of the documents they purport to be and have not been superseded, amended, modified, cancelled or otherwise changed in any respect except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (d) CONDEMNATION. To the Best of Seller's Knowledge (as hereafter defined), there is no pending or threatened condemnation proceeding or similar proceeding affecting the Mortgaged Property or the Real Property, as the case may be, or any part thereof which could have an adverse effect upon the use of that Mortgaged Property or the Real Property for its intended purposes, except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. As used herein, "to the Best of Seller's Knowledge" means, as to any Asset, knowledge as to which Seller has received written notice or which is the actual present knowledge of the current officers of Seller who are primarily responsible for such Asset, as the case may be, without any independent investigation or inquiry whatsoever, and expressly excluding any knowledge of any other former officer of Seller. (e) LITIGATION. To the Best of Seller's Knowledge as of the Due Diligence Cut-Off Date, there is no litigation, proceeding or governmental investigation pending, or any order, injunction or decree outstanding, existing or relating to any Asset or the related Mortgaged Property which could have an adverse effect upon such Asset, except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (f) COMPLIANCE WITH LAWS. To the Best of Seller's Knowledge and except as disclosed in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date, (i) no currently applicable zoning, building, or other federal, state or municipal law, ordinance, regulation, or any restrictive covenant is currently violated by the current maintenance, operation, occupancy, or use of any of the Mortgaged Property or the Real Property, as the case may be, in its present manner such that the violation would adversely affect the current operation, occupancy or other use of the Mortgaged Property or the Real Property and (ii) all licenses, permits, inspections, authorizations, certifications and approvals required by all governmental authorities having jurisdiction over the current operation of the Mortgaged Property and the Real Property have been performed or issued and paid for and are in full force and effect. (g) TITLE INSURANCE. A valid and enforceable ALTA or CLTA policy of title insurance or CLTA owner's binder, as the case may be, or any other form customarily approved by institutional investors in the jurisdiction in which the Mortgaged Property or Real Property is located has been issued by and is the binding obligation of a title insurer qualified to do business 36 42 in the jurisdiction where the Mortgaged Property or Real Property is located and, with respect to the Mortgaged Property, in an amount not less than the principal amount of the Mortgage Note secured by such Mortgaged Property at origination and, with respect to the Real Property, in an amount not less than the current appraised value of such Real Property or the amount of the original Mortgage Note that had been secured by such Real Property, whichever is less, and such policy is presently in full force and effect and all premiums with respect thereto have been paid in full. With respect to each Mortgage Loan, each such title insurance policy insures Seller and its successors and assigns that the Mortgage securing such Mortgage Loan is a valid first lien on the Mortgaged Property (or that such Mortgage has the lien priority noted on the Mortgage Loan and Real Property Schedule) and is otherwise free and clear of encumbrances, liens and exceptions having priority over the lien of the Mortgage, subject only to those exceptions set forth in the Due Diligence Materials, and such exceptions are customarily acceptable to institutional lenders in the jurisdiction in which the Mortgaged Property is located. Seller has not, by its action or inaction, adversely affected any of its rights under any such title insurance policy or the priority of any such Mortgage as insured by such title insurance policy. With respect to each Interim Mortgage Loan, Purchaser can obtain during the Due Diligence Period, upon the payment of the applicable premium, a valid and enforceable policy of title insurance, from a title insurer qualified to do busines in the jurisdiction where the Real Property is located, in an amount not less than the Initial Purchase Price for such Asset. Such policy of title insurance shall insure Purchaser and its assigns that such Interim Mortgage is a valid and enforceable first or, with respect to those Assets specifically identified in the Due Diligence Materials as being subject to an existing first lien, second lien on the Real Property described therein and such Real Property is otherwise free and clear of encumbrances, liens, and exceptions having priority over the lien of such Interim Mortgage, subject only to those exceptions set forth in the Due Diligence Materials. No title exceptions contained in any such policy of title insurance adversely interfere with the current use of the related Mortgaged Property or Real Property, except as otherwise disclosed in the Due Diligence Materials or to Purchaser in writing on or before the Due Diligence Cut-Off Date. (h) REAL ESTATE TAXES. As of the Due Diligence Cut-Off Date, there were no unpaid real property taxes due and payable against the related Mortgaged Property or Real Property except as disclosed in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. For the purpose of this representation and warranty (and otherwise as used in this Agreement with respect to whether real property taxes are "due and payable"), real estate taxes shall not be deemed to be due and payable until the Business Day immediately preceding the date on which such taxes would become delinquent. (i) FLOOD INSURANCE. If, upon origination of the Mortgage Loan or the original obligation secured by the Real Property, the Mortgaged Property or the Real Property was in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards (and the flood insurance described below has been made available), a flood insurance policy covering improved Mortgaged Property and Real Property only and meeting the requirements of the current guidelines of the Federal Insurance Administrator is in effect with a generally acceptable insurance carrier, in an amount representing coverage not less than the least of (A) the unpaid principal balance of the Mortgage Loan, (B) the full insurable value of the 37 43 Mortgaged Property or the Real Property, as the case may be, or (C) the maximum amount of insurance which was available under the Flood Disaster Protection Act of 1973. (j) HAZARD INSURANCE. The Mortgage Loan obligates the Mortgagor thereunder to maintain a hazard insurance policy with a standard mortgagee clause at the Mortgagor's cost and expense and there is maintained such a policy, in an amount not less than the lesser of (x) ninety percent (90%) of the full replacement cost of the Mortgaged Property or (y) the current balance of such Mortgage Loan, irrespective of whether evidence of such policy is available for review in the Investor Due Diligence Package. No notice of claims therefor or lapse in coverage has been received by Seller with respect to any Mortgaged Property, except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (k) ENVIRONMENTAL MATTERS. Either a Phase I or a Phase II environmental inspection report was, to the extent such is available, provided to Purchaser with regard to the Mortgaged Property or the Real Property, as the case may be, prior to the Due Diligence Cut-Off Date. No material amount of Hazardous Substances affects any Asset in excess of the quantities disclosed in the environmental inspection report for such Asset delivered to Purchaser, if any. For purposes of this Section 7.2(k) only, "material" shall mean any amount of Hazardous Substances in violation of law or equal to or in excess of actionable amounts set forth in any applicable or relevant environmental regulation, requirement, guideline, policy or standard promulgated by any local, state or federal governmental entity, or the presence of friable asbestos with respect to any Asset, in excess of the amounts commonly used by like property owners in compliance with such environmental laws to maintain, landscape and operate their properties, and that cannot be remediated for a cost equal to or less than the greater of (i) two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or (ii) Twenty-Five Thousand Dollars ($25,000) plus any remediation amount identified in such environmental inspection report. Without limiting any other provision of this Agreement, Seller is not and shall not be responsible or liable in any manner whatsoever for any information or condition disclosed or failed to be disclosed by any environmental inspection report delivered hereunder. For purposes hereof, the Summary of Site Assessment and Site Remediation Activities dated December 1992 delivered to Purchaser in respect of Asset No. 30 shall be deemed to be a Phase II environmental inspection report hereunder. (l) OUTSTANDING CONTRACTS. In respect of all Real Property to be conveyed to Purchaser or a Qualified Affiliate, as the case may be, at the end of the Due Diligence Period, there will be no leases or management, service, supply, security, maintenance or similar contracts with respect to such Real Property other than (i) leases that were in place as of the Due Diligence Cut-Off Date and are reflected in the Due Diligence Materials or, if executed after the Due Diligence Cut-Off Date, were made with the express consent of Purchaser or pursuant to Purchaser's written guidelines delivered to Seller, and (ii) those contracts that may be terminated upon no more than thirty (30) days' notice or that have been approved by Purchaser or Affiliate Purchaser in writing. (m) OBLIGATIONS RESPECTING LEASES. To the Best of Seller's Knowledge in respect of Real Property only and to the extent not previously disclosed to Purchaser in writing, Seller has received no notice of any breach of any lease; there are no brokerage commissions payable with 38 44 respect to any lease; and there are no contracts running with the land that are not terminable upon thirty (30) days' notice. (n) LEASEHOLD LOANS. Except as disclosed on the Mortgage Loan and Real Property Schedule, there are no ground leases affecting the Mortgaged Property or any part thereof. To the Best of Seller's Knowledge with respect to each leasehold loan described on the Mortgage Loan and Real Property Schedule, except as otherwise disclosed in the Due Diligence Materials: (i) the ground lease described in the related Mortgage is valid and enforceable, is in full force and effect, and is binding upon the parties thereto and their respective successors and assigns, in accordance with the terms of such ground lease; provided, however, with respect to Asset No. 21, in the event that Purchaser fails to obtain a waiver or consent from the ground lessor with regard to the assignment of the Mortgage to Purchaser (notwithstanding the diligent efforts of Purchaser to obtain such waiver or consent), such failure shall be deemed a Defect. (ii) each such ground lease has not been modified, amended or extended; (iii) the Mortgagor, as the lessee under each such ground lease, has performed all obligations under the ground lease to be performed by the ground tenant; (iv) neither the ground lessor nor Mortgagor, as lessee under any such ground lease, is in default under such ground lease; (v) each such ground lease (or memorandum thereof) has been recorded in the land records in the jurisdiction in which the Mortgaged Property is located purporting to create the leasehold estate prior the recordation of the Mortgage related to such Mortgaged Property; and (vi) each such ground lease contains leasehold mortgage loan provisions customarily required by institutional lenders in the jurisdiction in which the Mortgaged Property is located. Section 7.3 TERMINATION OF REPRESENTATIONS AND WARRANTIES. Each of the Surviving Representations and Warranties in Section 7.1 hereof shall survive the Closing and shall terminate on the Surviving Representation Expiration Date. Each of the Due Diligence Representations and Warranties in Section 7.2 hereof shall terminate upon the termination of the Due Diligence Period, as such may terminate by the earlier to occur of the expiration of time (without prior delivery of a Certificate of Defective Asset) or the delivery to Seller of an Acceptance Certificate with respect to any Asset as provided in Section 5.4(a) hereof; except, however, in the event Purchaser is unable to gain access to any Mortgaged Property in order to perform its environmental due diligence, the Due Diligence Period for the representation and warranty made by Seller in Section 7.2(k) shall survive for a period of ninety (90) days beyond 39 45 the date on which Purchaser first becomes able to gain such access. The Surviving Representations and Warranties shall survive termination of any Due Diligence Period and the Closing, except as described above, subject to Purchaser's obligation to deliver a Certificate of Defective Asset with respect to a Defect arising from a Surviving Representation and Warranty within the period provided in Section 5.4(b) hereof. Section 7.4 SCOPE OF INVESTIGATION AND OTHER DUE DILIGENCE. Seller has made certain representations and warranties with respect to the Assets in Sections 7.1 and 7.2. Seller's investigation and other due diligence with respect to the Assets has been limited. Seller has not verified whether the representations and warranties are true and correct. Seller and Purchaser understand that if Seller's representations and warranties are breached, that the Purchaser is limited to the exercise of its rights and the remedies expressly set forth herein. In no event shall a breach of a representation and warranty in this Article VII be used as evidence of or deemed to constitute bad faith, misconduct or fraud even in the event that it is shown that Seller, any Affiliate thereof or any of their respective directors, employees, officers or agents knew or should have known of the existence of information which was inconsistent with any of the representations and warranties provided in this Article VII. Section 7.5 ASSERTION OF CLAIMS. In the event and at such time as a Claim is brought by a Mortgagor in respect of any of the Assets, the adverse resolution of which would constitute a breach of any representation or warranty made by Seller in this Article VII, Seller, at its option, may (i) participate (at its sole cost and expense) with Purchaser in the defense of such Claim and in the negotiation of any reasonable settlement or compromise thereof, or (ii) repurchase, at the Repurchase Price, the Asset subject to such Claim, or (iii) both.Notwithstanding the foregoing, Seller's right to elect to repurchase an Asset under this Section 7.5 shall be terminated and any such election so made shall be null and void, in the event that Purchaser delivers to Seller in writing an absolute waiver of such breach and of any right Purchaser may have under this Agreement to deliver a Certificate of Defective Asset with respect to such Asset (each, a "Release Notice") and upon Seller's receipt of such Release Notice, Seller shall be relieved of all obligation to repurchase or provide any of the other remedies for a Defective Asset provided under this Agreement with respect to such Asset. If a Release Notice has not been delivered and Seller and Purchaser disagree over the terms of one or more settlement proposals with respect to such Claim, Seller may notify Purchaser that Seller intends to repurchase the Asset subject to such Claim, in which event, if Seller reasonably determines and so notifies Purchaser that such settlement or compromise must be entered into prior to the repurchase of such Asset (e.g., if such settlement or compromise offer would expire and Purchaser and Seller could not effect a repurchase prior to such expiration), and Purchaser immediately thereafter fails to send a Release Notice, Purchaser shall enter into such settlement or compromise for the benefit of Seller (provided Seller advances any funds required in connection with such settlement) as Seller shall direct.The Repurchase Price shall not be affected by such settlement or compromise and Seller shall indemnify, defend, and hold Purchaser harmless from and against any liability or losses relating to such settlement or compromise. In the event Purchaser delivers a Release Notice with respect to such Asset, and Purchaser obtains a release of any and all claims against Seller arising 40 46 out of such Claim, Purchaser shall have the right to settle such Claim and Seller's right to participate in such setttlement shall terminate. Nothing in this Section 7.5 shall affect Seller's right to defend itself in respect of any Claim that may be brought against Seller. ARTICLE VIII CERTAIN COVENANTS OF SELLER Section 8.1 SELLER COVENANTS. Seller covenants and agrees with Purchaser as follows, it being understood and agreed that each of the following covenants and agreements, with the exception of the covenants set forth in Sections 8.1(a), (b), (c), (d), (e) and (g) which shall survive the Closing, shall terminate upon the Closing Date: (a) ACCESS TO RECORDS. From and after the date of its execution of this Agreement, Seller shall make available to Purchaser or cause to be made available to Purchaser for its inspection, copying and reproduction, all non-confidential books and records of the type included in the Asset File that are maintained by, through or for Seller and are related to the Assets. (b) NOTICE TO MORTGAGORS. At the request of Purchaser, Seller shall cooperate with Purchaser in notifying on and after the Closing Date each maker or obligor, or its successors or assigns, under a Mortgage Loan of the assignment thereof from Seller to Purchaser. Such notification shall be made by letter prepared by Purchaser in substantially the form attached hereto as Exhibit I or as mutually agreed by Seller and Purchaser. (c) NOTICE TO TENANTS. With respect to any tenant then sending its rent directly to Seller, at the request of Purchaser, Seller shall cooperate with Purchaser, after the Closing Date as to the Mortgage Loans and any Real Property conveyed on the Closing Date, and on and after each Real Property Closing Date, as such term is defined in the Sales Contract as to any Real Property not conveyed on the Closing Date, in notifying each tenant with respect to any Mortgaged Property, or any Real Property, of the assignment of the Real Property or the Mortgage Loan secured by such Mortgaged Property, as the case may be, from Seller to Purchaser. Such notification shall be by letter prepared by Purchaser in a form mutually agreed by Seller and Purchaser. (d) CERTAIN PAYMENTS. (i) At the Closing, Purchaser shall receive credit (the "Section 8.1(d) Credit"), in the amount, and applied in the manner, determined by this subsection 8.1(d). The amount of the Section 8.1(d) Credit shall be equal to the sum of the following three amounts (the "Creditable Amounts"): (A) Any of the following amounts which are actually received by Seller after the Due Diligence Cut-Off Date and on or before the Closing Date -- any principal payments or 41 47 prepayments, including Payment in Full, on a Mortgage Loan of any kind or character, including proceeds from any compromises and settlements. (B) Any of the following amounts which are actually received by Seller after the Due Diligence Cut-Off Date and on or before the Closing Date -- any net proceeds of the sale of any Mortgage Loan or the sale or condemnation of any Mortgaged Property or Real Property, or hazard insurance proceeds not applied to restore the Mortgaged Property or Real Property or payable to a prior lienor. (C) Any of the following amounts which are actually received by Seller on or before the Closing Date, regardless of when they are or have been received by Seller -- the interest component of regular scheduled payments, and prepayments of interest, on the Mortgage Loans, to the extent such payments and prepayments are attributable to periods commencing on or after the Cut-Off Date. (ii) The amount of the Section 8.1(d) Credit shall be applied as follows: (A) If the Loan and Security Agreement has not been executed, the entire Section 8.1(d) Credit shall be applied against the cash due from Purchaser at the Closing. (B) If the Loan and Security Agreement has been executed, the following two adjustments shall be made: (1) Purchaser shall be deemed to have made a prepayment on account of the Promissory Note in an amount equal to the amount that would be required to be paid under the Loan and Security Agreement if Purchaser, rather than Seller, had received the Creditable Amounts on the day after the Closing (the "Section 8.1 Deemed Prepayment"). (2) Purchaser shall receive a credit against the Cash Portion of the Purchase Price equal to the excess, if any, of the amount of the Section 8.1(d) Credit over the amount of the Section 8.1 Deemed Prepayment. (iii) With respect to amounts held by a bankruptcy court, bankruptcy trustee, bankruptcy debtor-in-possession, receiver in foreclosure or similar third party, or similar account or pursuant to a cash collateral order or any other account maintained for the benefit of any Asset, and any amounts actually or constructively received by Seller or Purchaser: (i) if the existence of same was disclosed in the Due Diligence Materials, Seller's interest in same shall be assigned to Purchaser along with all of the other Assets and Asset Documents to be assigned hereunder or, if received by Seller it shall be paid or credited to Purchaser promptly after receipt thereof, or (ii) if the existence of same was not disclosed in the Due Diligence Materials, Seller's interest in same shall be assigned to Purchaser along with all of the other Assets and Asset Documents to be assigned hereunder and Purchaser shall pay to Seller at the Closing or as soon thereafter as the amount held as of the Cut-Off Date is known, the value of said amount determined by Seller in the manner provided in Exhibit G hereto, utilizing the same assumptions utilized in the Due Diligence Materials (i.e., assuming said amount is received on the projected recovery date and is 42 48 discounted from that date to the Cut-Off Date). The amount payable to Seller pursuant to (ii) above shall not exceed the sum Seller could retain if said sum was received immediately prior to the Closing Date. (iv) [text deleted in original] (v) Any and all payments received by Seller after the Closing Date that would have been included in the Creditable Amounts if received by Seller on or before the Closing Date shall be applied in accordance with the terms of the Loan and Security Agreement. (e) INSURANCE. At the request of Purchaser, Seller shall cooperate with Purchaser in the preparation and mailing by Purchaser to each hazard and casualty insurer, and to the writing agent for each flood hazard insurer, for the Assets a request for an endorsement of its policy of insurance effective on the Closing Date showing Purchaser as the mortgagee or insured named therein, as the case may be, together with instructions that such endorsement be forwarded directly to Purchaser, at the address herein specified for notices. (f) SERVICING. With respect to the Mortgage Loans from the date hereof until the Closing Date, Seller shall service and administer the Mortgage Loans in the manner in which it was servicing such Mortgage Loans immediately prior to the date hereof. Without the prior written consent of the Purchaser, Seller shall not, except as required by law or as a prudent lender, or by the terms of the Asset Documents relating to such Mortgage Loans, or pursuant to previously negotiated settlement or similar contracts entered into or pending as of the Offer Date and disclosed to Purchaser in writing on or before the Offer Date, (i) release any collateral or any party from any liability on or with respect to the Mortgage Loans, (ii) compromise or settle any claims of any kind or character with respect to the Mortgage Loans, (iii) initiate, complete or otherwise take any action with respect to a foreclosure on any of the Mortgaged Property, except to the extent in Seller's reasonable judgment such actions are required pursuant to actions taken prior to the Offer Date, (iv) sell or encumber, or contract to sell or encumber, the Mortgage Loans, or any portion thereof or any interest therein, or (v) agree to any amendments or modifications to any such Mortgage Loan. Seller as servicer, however, may notify Purchaser in the event that an action under (i), (ii), (iii), (iv), or (v) above should be taken in order to enhance or protect the value of the Mortgage Loans. In such event, Seller shall be absolved of any responsibility it may have to take such action unless written consent to such action has been promptly received by Seller. Upon request of Purchaser, Seller shall disclose to Purchaser the status of any Mortgage Loan foreclosure in progress and any actions taken in connection therewith as of the Offer Date. 43 49 [SECTION 8.1(d)(iv)] (iv) All amounts of delinquent or current interest received by Purchaser after the Closing Date on account of a Mortgage Loan with respect to which a payment default exists as of the Cut-Off Date (that is, there are delinquent amounts due under the Mortgage Loan) shall be applied by Purchaser first against delinquent or current interest due on account of such Mortgage Loan after the Cut-Off Date (in any order determined by Purchaser), and then on account of any delinquent interest due under such Mortgage Loan as of the Cut-Off Date. Amounts received by Purchaser and applied on account of delinquent interest due under a Mortgage Loan as of the Cut-Off Date shall be remitted by Purchaser to Seller promptly after receipt by Purchaser. Seller agrees that Purchaser shall have no obligation to treat any payments received by Purchaser as pre-Cut-Off Date interest, except to the extent agreed to by Purchaser and Mortgagor or as required by applicable law. 43A 50 (g) COOPERATION. From and after the Closing Date, Seller shall in general cooperate with Purchaser, and Purchaser shall cooperate with Seller, in connection with any litigation or other matter involving the Assets, but Seller shall not be required to institute any lawsuit or (unless a Person satisfactory to Seller in Seller's sole discretion agrees to promptly reimburse Seller or shall indemnify Seller in a manner satisfactory to Seller in Seller's sole discretion with respect to any such expense) to expend any material sums of money in connection with such cooperation. On and after the Closing Date, Seller shall promptly deliver, forward and remit to Purchaser any and all bills, invoices, insurance policies, letters, documents and other correspondence or communications of a non-confidential nature relating to the Assets which are received by Seller. (h) ENDORSEMENT OF MORTGAGE NOTE. It is hereby understood and agreed that an endorsement by Seller of a Mortgage Note "without recourse" and "without any representation or warranty, express or implied," whether such endorsement is made on or after the Closing Date, is not intended to diminish, alter or negate in any way Seller's representations, warranties or obligations set forth in this Agreement, including but not limited to, the representations and warranties set forth in Article VII of this Agreement, or constitute a waiver by Purchaser of, or a limitation or modification on, any of the rights or remedies under this Agreement. To the extent Purchaser, following the earlier to occur of the date on which an Asset is accepted by Purchaser or the expiration of the Due Diligence Period with respect to a Mortgage Loan, provides evidence reasonably satisfactory to Seller that the use of an allonge to assign such Mortgage Note, and not an endorsement directly on the Mortgage Note, has adversely affected the marketability of such Mortgage Note or that an endorsement is required under applicable law, Purchaser may request in writing that Seller endorse the Mortgage Note and in connection therewith, Purchaser shall prepare such endorsement (which shall be identical in all respects to the allonge delivered at Closing), deliver the original Morgage Note to Seller and pay all reasonable costs and expenses of Seller in connection therewith (including, without limitation, reasonable attorneys' fees and disbursements). Upon satisfaction of the foregoing conditions, Seller shall sign an endorsement of the Mortgage Note as aforementioned. ARTICLE IX CONDITIONS PRECEDENT TO CLOSING The respective obligations of Purchaser and Seller to complete the purchase and sale of the Assets pursuant to this Agreement are subject to the fulfillment on or prior to the Closing Date of each of the following additional conditions to be fulfilled by the other, unless the same is specifically waived in writing by the party for whose benefit the same is to be fulfilled. Provided that all conditions to Closing have been satisfied, Purchaser shall be obligated to purchase the Assets at the Closing for the Initial Purchase Price irrespective of the fact that Seller or Purchaser may have knowledge that one or more breaches of Seller's representations and warranties hereunder may exist. Purchaser's purchase of the Assets as to which such breaches or conditions are discovered prior to the Closing shall not operate as a waiver of Purchaser's rights under Section 5.4 or 5.5 hereof. 44 51 Section 9.1 MUTUAL OBLIGATIONS. (a) PERFORMANCE OF COVENANTS. Seller and Purchaser each shall have performed all of its covenants and agreements contained herein which are required to be performed by it on or prior to the Closing Date. (b) REPRESENTATIONS AND WARRANTIES. All of the respective representations and warranties of Seller in Sections 7.1(a), (b), and (c) hereof and of Purchaser in Section 6.1 hereof shall be true in all material respects at and as if made on the Closing Date. (c) GOVERNMENTAL APPROVALS. All requisite federal, state and local governmental and regulatory approvals relating to the transactions contemplated hereby, if any, shall have been obtained. (d) CORPORATE APPROVALS. Seller and Purchaser shall each provide the other with certified copies of corporate resolutions approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, together with customary certificates of incumbency and certificates of good standing, as the others or its counsel may reasonably require. Section 9.2 SELLER'S DOCUMENTS. Seller agrees to execute, deliver and/or provide to Purchaser the following items, to be delivered at the Closing at the office of Seller or at such other location as Seller may designate: (a) For each Mortgage Loan, to be delivered at Closing at the offices of Seller or such other location(s) as Seller determines, the original Mortgage Note duly endorsed by means of an allonge by Seller to Purchaser, without recourse (except as otherwise provided in this Agreement); the Mortgage; and an assignment of such Mortgage in the form attached hereto as Exhibit C with such modifications as shall be customary and appropriate under local laws for recording in the land records in the jurisdiction in which the related Mortgage Property is located (the "Mortgage Assignment"), transferring and conveying Seller's rights thereunder, as well as its rights, title and interest in the Asset Documents of which such Mortgage Note and Mortgage are a part; (b) For each Asset, to be delivered at the Closing at the offices of Seller or such other locations(s) as Seller determines, the additional Asset Documents and all account histories, payment records and other documents comprising the Asset File for each Asset, including, but not limited to, assignments in blank of Seller's rights under any letter of credit, certificates of deposit or other escrows or deposits and instructions to insurers, financial institutions or others to the extent necessary to provide Purchaser with the right to enforce such Asset Documents. Any fees or charges incurred by Seller in transporting the additional Asset Documents from the location designated by Seller or in taking other steps at Purchaser's request under this Section 9.2(b) shall be paid by Purchaser; 45 52 (c) Such other assignments, instruments of transfer, and other documents held by Seller as Purchaser may reasonably require and prepare in order to complete the transactions specifically contemplated hereunder including, but not limited to, the assignment of any UCC-1 financing statement for the Mortgage Loans which currently exists for the benefit of Seller; (d) A certificate of Seller reaffirming, subject to the provisions and limitations of Section 7.4, all representations and warranties of Seller under Section 7.1, as of the Closing Date; provided, however, that recourse thereunder shall be limited as set forth in this Agreement; (e) Corporate resolutions, certificates of incumbency and certificates of good standing with respect to Seller as may be required by Purchaser or its counsel pursuant to Section 9.1(d); (f) For each Mortgage Loan, to be delivered at Closing at the offices of Seller or such other location(s) as Seller determines, an assignment of additional collateral for each Mortgage Loan, prepared by Purchaser, in the form of Exhibit C-1 (the "Additional Collateral Assignment"), transferring and conveying to Purchaser Seller's rights thereunder and a Notice to Mortgagor in the form of Exhibit I, prepared by Purchaser; (g) For each Interim Mortgage Loan, an executed Interim Mortgage Note and Interim Mortgage in substantially the forms attached hereto as Exhibit L and Exhibit M (each dated as of the Cut-Off Date); and (h) The Loan and Security Agreement substantially in the form attached hereto as Exhibit K. Section 9.3 PURCHASER'S CLOSING ITEMS. Purchaser agrees to execute, deliver and/or provide to Seller the following at Closing: (a) The portion of the Initial Purchase Price, and other amounts required under Sections 2.2(b) and (c) hereof, due to be paid by Purchaser to Seller on the Closing Date; (b) A certificate of Purchaser reaffirming all representations and warranties of Purchaser under Section 6.1 as of the Closing Date; and (c) Corporate resolutions, certificates of incumbency and certificates of good standing with respect to Purchaser as may be required by Seller or its counsel pursuant to Section 9.1(d)[; and]. (d) The Loan and Security Agreement substantially in the form attached hereto as Exhibit K and a promissory note in an amount equal to the Financed Portion and all other instruments required under the Loan and Security Agreement; and (e) An opinion of Purchaser's counsel as described in Section 6.1(i) hereof. 46 53 ARTICLE X REPURCHASE BY SELLER Section 10.1 MANDATORY REPURCHASE. Seller shall be required to repurchase, for the Repurchase Price with respect thereto, any Defective Asset that Seller either (i) has elected to repurchase under Section 5.4 or 5.5 hereof, or (ii) is required to repurchase as a result of its failure to cure the Defect under Section 5.4 or 5.5 hereof within the time periods prescribed therefor, and subject to the following terms and conditions: (a) If Seller has elected to repurchase any Asset, the Repurchase Date for a Defective Asset shall be specified in such election and shall be a date occurring on or before the date thirty (30) days following the date of Seller's election to repurchase such Asset. If Seller is deemed to have elected to repurchase any Asset, the Repurchase Date thereof shall be ninety (90) days after Seller's receipt of a timely Certificate of Defective Asset for any Defective Asset If Seller has elected to cure a Defect and such cure has not been effected, the Repurchase Date for such Defective Asset shall be thirty (30) days after the expiration of the Cure Period for such Defective Asset. In any of the above cases, if such ninetieth (90th) day or thirtieth (30th) is not a Business Day, the Repurchase Date shall be the first Business Day thereafter. (b) On the Repurchase Date, Purchaser shall convey, or cause Affiliate Purchaser or a Qualified Affiliate, as the case may be, to convey to Seller all right, title and interest in and to the Defective Asset pursuant to a note endorsement by allonge and a mortgage assignment with respect to a Mortgage Loan, or grant deed (or other appropriate form of deed) with respect to Real Property, as the case may be, and other appropriate documents, and shall make all deliveries and take any other actions on substantially the same terms and conditions under which Seller had conveyed such Asset to Purchaser at the Closing, except to the extent of the Defect giving rise to the subject repurchase and except as otherwise provided in Section 10.2 hereof. If Purchaser or any Affiliate of Purchaser owns the Mortgaged Property at the Repurchase Date, whether through foreclosure, deed in lieu of foreclosure or otherwise, Purchaser shall convey or cause its Affiliate to convey to Seller all right, title and interest in and to such Mortgaged Property, pursuant to a grant deed (or other appropriate form of deed), and other appropriate documents, and shall make all deliveries and take all other actions on substantially the same terms and conditions under which Seller had conveyed the related Mortgage Loan to Purchaser under the Mortgage Assignment, modified in a manner reasonably acceptable to Seller to reflect the fact that Mortgaged Property is being conveyed instead of a Mortgage Loan, and provided that the Mortgaged Property shall be so reconveyed in substantially the same condition it was in when Seller conveyed the related Mortgage Loan to Purchaser pursuant thereto; provided, however, that if the Defective Asset is required to be repurchased and Seller has conveyed to a Qualified Affiliate Real Property, Qualified Affiliate shall be obligated to reconvey or cause to be reconveyed, such Defective Real Property to Seller substantially in the same condition under which Seller had conveyed such Real Property to Qualified Affiliate pursuant hereto. 47 54 (c) For purposes of this Agreement, conveying such Mortgaged Property or Real Property, as the case may be, in substantially the same condition shall mean that (i) the physical condition of such property shall be the same (normal wear and tear excepted), other than in respect of a fully insured casualty loss, in which event the insurance proceeds shall be assigned to Seller, (ii) the condition of title to any such Asset and all related collateral shall be the same as conveyed, except for any changes thereto such as ownership, which customarily can be expected to occur as a result of exercising remedies under the related Mortgage Loan, (iii) the collateral for such Asset is the same, except to the extent that any of such collateral (including escrows and deposits) was expended for its intended purposes or otherwise in a prudent manner for the related property, in accordance with customary servicing standards of prudent institutional servicers of similar types of Mortgage Loans or Mortgaged Properties, and (iv) there are no Claims of any parties against Seller that were the result of actions of Purchaser or any agents, successors or assigns thereof, other than those as to which Seller shall have received a written indemnification in form and substance acceptable to Seller from a party whose financial condition is satisfactory to Seller for purposes of the indemnification. Purchaser acknowledges and agrees that Purchaser shall indemnify and hold harmless Seller and its Affiliates from and against any Claim directly or indirectly arising out of or attributable to the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal, or presence of a Hazardous Substance on, under, or about any Mortgaged Property or Real Property that is to be repurchased hereunder while Purchaser owned, operated, managed or controlled such Mortgaged Property or Real Property, except to the extent that such Claim arises from Seller's breach of the representation made in Section 7.2(k) hereof. Section 10.2 REPURCHASE PRICE. The repurchase of any Asset by Seller pursuant to Sections 5.4, 5.5 and 10.1 hereof shall be at the Repurchase Price for such Asset. If a Defective Asset has any defect that did not exist when such Asset was conveyed to Purchaser, Seller may offset against the Repurchase Price the amount, determined in Seller's reasonable judgment, necessary to accurately and reasonably compensate Seller for the loss of value resulting from the defect. In particular, Seller may reduce the amount of the Repurchase Price by the reduction in the value of a Defective Asset attributable to any (i) failure of Purchaser to service a Mortgage Loan in accordance with applicable law and prudent mortgage loan servicing standards for similar commercial Mortgage Loans or Mortgaged Property, as the case may be, or (ii) failure to reconvey the Mortgaged Property or Real Property, as the case may be, to Seller in a condition that is in substantially the same condition on the date of conveyance determined as provided in Section 10.1(b) hereof (except as may have been approved by Seller in writing), (iii) failure of Purchaser to reconvey the Defective Asset to Seller without any encumbrances other than those encumbrances in existence on the Closing Date, or (iv) any other defect that did not exist when such Asset was conveyed to Purchaser, whether or not attributable to the action or inaction or fault of Purchaser. Notwithstanding the foregoing, the reduction in the Repurchase Price shall not be subject to any such offset if the reduction in the value of the Defective Asset was (x) the direct result of actions taken by Purchaser in good faith as the result of non-negligent judgments made by it in the servicing and enforcement of a Mortgage Loan, and the disposition of the Mortgage Loan and the underlying Mortgaged Property, if any, or the disposition of the Real Property, as the 48 55 case may be, provided that Purchaser observes prudent commercial mortgage loan servicing standards for similar Mortgage Loans or Mortgaged Property, as the case may be, or (y) with respect to subparagraphs (ii), (iii) and (iv) hereof, such reduction in value did not result from any action or inaction of Purchaser, whether direct or indirect, during any period in which such Asset was held by Purchaser, except that nothing in this paragraph shall limit the rights of Seller under Section 10.1 hereof. ARTICLE XI DEFAULT Section 11.1 PURCHASER'S DEFAULT. In the event Purchaser shall default in its obligations to purchase any Asset or breach a representation or warranty or covenant hereunder, or otherwise fail to perform its obligations under this Agreement prior to the Closing hereunder, the Deposit shall be retained by Seller (after notice and lapse of time as described below), and Seller may avail itself of any rights and remedies it may have at law or in equity, or under this Agreement with respect to any such Purchaser default or breach of representations or warranties. Upon written notification to Purchaser that Seller has declared a default hereunder, and specifying the grounds for such declaration (the "Default Notice"), Purchaser shall have five (5) calendar days after receipt of the Default Notice to notify Seller, in writing, that Purchaser disputes that a default exists, and state the grounds for such dispute by Purchaser. If Purchaser does not notify Seller that a dispute exists within such five (5) calendar day period, Seller shall be unconditionally entitled to retain the Deposit. If Purchaser sends notice of a dispute to Seller within the appropriate time period, Seller shall continue to hold such funds as the Deposit in accordance with the resolution of the dispute. The successful party or parties shall be reimbursed for all expenses, including reasonable attorneys' fees incurred in connection with any successful action brought under this Section 11.1. Section 11.2 SELLER'S DEFAULT. In the event Seller shall default in its obligations hereunder, then, if prior to Closing, the Deposit shall be returned to Purchaser by Seller (after notice and lapse of time as described below) and Purchaser shall not be entitled to monetary damages, except for direct out- of-pocket expenses proved by Purchaser to have been expended by delivering to Seller documentary evidence thereof satisfactory to Seller, but may avail itself of its equitable rights. Upon written notification to Seller that Purchaser has declared a default of Seller hereunder and specifying the grounds for such declaration (the "Purchaser Default Notice"), Seller shall have five (5) calendar days after receipt of the Purchaser Default Notice to notify Purchaser in writing that Seller disputes that a default exists and state the grounds for such dispute by Seller. If Seller does not notify Purchaser that a dispute exists within such five (5) calendar day period, Seller shall turn over all amounts held by it hereunder to Purchaser. If Seller sends notice of a dispute to Purchaser within the appropriate time period, Seller shall continue to hold such funds as the Deposit in accordance with this Agreement until such time as the dispute has been resolved. The Deposit shall then be disbursed in accordance with the resolution of the dispute. The successful party or parties shall be 49 56 reimbursed for all expenses, including reasonable attorneys' fees, incurred in connection with any successful action brought under this Section 11.2. If such Seller default occurs subsequent to Closing, Purchaser may avail itself of any rights that Purchaser may have at law or in equity or under this Agreement, provided, however, that Purchaser's sole remedy for any Defect in the Assets is to require Seller to elect a remedy for the Assets in accordance with Section 5.4 or 5.5 hereof. Purchaser shall be reimbursed for all expenses, including reasonable attorneys' fees, incurred in connection with any successful action brought under this Section 11.2. Purchaser shall have no right to consequential damages from Seller. With respect to a default by Seller which, with regard to this Agreement, does not have a material adverse impact on Purchaser, Purchaser shall have no remedy. In no event shall Purchaser have the right to offset amounts due to Seller under any contract or agreement with Purchaser or any Affiliate of Purchaser or to offset amounts due to Seller against any damages on account of default by Seller hereunder. ARTICLE XII SUBSEQUENT DOCUMENTATION At any time, and from time to time hereafter, upon the reasonable request of Purchaser, and without payment of further consideration to Seller, other than reimbursement for Seller's out-of-pocket expenses, Seller will do, execute, acknowledge and deliver, and will cause to be done, executed, acknowledged and delivered, all such further assignments, transfers, conveyances, confirmations of powers of attorney issued at Closing and assurances as may be required in order to better assign, transfer, grant, convey, assure and confirm to Purchaser, or to collect and reduce to possession, the Assets as provided for herein. ARTICLE XIII NOTICE OF MORTGAGOR CLAIMS OR LITIGATION Purchaser shall promptly notify Seller of any Claim, threatened Claim, or litigation filed by a Mortgagor against Seller which arises from or relates to the Mortgage Loans purchased hereunder. ARTICLE XIV FILES AND RECORDS After the transfer of documents or files to Purchaser pursuant to the terms of this Agreement, Purchaser agrees that Seller at its expense, shall have the continuing right to use, inspect, and make extracts from or copies of any such documents or records, upon reasonable prior notice to Purchaser. Purchaser further agrees to allow Seller at its expense, the temporary possession, custody and use of original documents for any lawful purpose and upon reasonable terms and conditions and upon reasonable prior notice to Purchaser, and Seller shall indemnify Purchaser for any material costs resulting from the loss or misuse of any such documents while in Seller's possession. Before destruction or disposition of any documents or files transferred 50 57 hereunder, Purchaser shall attempt to give reasonable notice to Seller and to allow Seller, at its expense, to recover the same from Purchaser. ARTICLE XV SALE OF REAL PROPERTY In the event that prior to the Closing Date hereunder Seller forecloses upon a Mortgage Loan or otherwise acquires title to the Mortgaged Property, subject, however, to Section 8.1(f) hereof, Seller and Purchaser agree to amend this Agreement and the Mortgage Loan and Real Property Schedule as appropriate to provide for the sale and transfer of such Mortgaged Property by Seller to Purchaser[ or, if Seller financing is utilized to effect the sale hereunder or otherwise at Purchaser's option, an Affiliate Purchaser or a Qualified Affiliate] in lieu of the related Mortgage Loan. ARTICLE XVI NOTICES Unless otherwise provided for herein, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered, if sent by registered or certified mail (return receipt requested), (b) when delivered, if delivered personally, (c) when transmitted, if sent by facsimile if a confirmation of transmission is produced by the sending machine (and a copy of each facsimile promptly shall be sent by ordinary mail) or (d) on the following Business Day, if sent by overnight mail or overnight courier, in each case to the parties at the following addresses or facsimile numbers (or at such other addresses or facsimile numbers as shall be specified by like notice): (a) If to Seller, at: City National Bank Risk Management 606 S. Olive Street, 9th Floor Los Angeles, CA 90014 Attention: Jeffery Puchalski, Executive Vice President Fax: (213) 629-3677 with a copy to: City National Bank Legal Department 9701 Wilshire Blvd., Ninth Floor Beverly Hills, CA 90212-2050 Attention: Office of the General Counsel Fax: (310) 273-5859 51 58 (b) If to Purchaser, at: WHC-THREE Investors, L.P. c/o WHC-THREE Investors, Inc. 85 Broad Street, 19th Floor New York, NY 10004 Attention: Neil Hasson Richard Georgi Fax: (212) 902-3000 with a copy to: Arent Fox Kintner Plotkin & Kahn 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 Attention: Mark M. Katz, Esq. Fax: (202) 857-6395 The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication within any corporation or firm to the persons designated to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. ARTICLE XVII MISCELLANEOUS PROVISIONS Section 17.1 SEVERABILITY. Each part of this Agreement is intended to be severable. If any term, covenant, condition or provision hereof is unlawful, invalid, or unenforceable for any reason whatsoever, and such illegality, invalidity, or unenforceability does not affect the remaining parts of this Agreement, then all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the invalid or unenforceable part had not been included. Section 17.2 RIGHTS CUMULATIVE; WAIVERS. Except as otherwise expressly provided herein, the rights of each of the parties under this Agreement are cumulative and may be exercised as often as any party considers appropriate. The rights of each of the parties hereunder shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing. Failure to exercise or any delay in exercising any of such rights also shall not operate as a waiver or variation of that or any other such right. Defective or partial exercise of any of such rights shall not preclude any other or further exercise of that or any other such right. No act or course of conduct or negotiation on the part of any party 52 59 shall in any way preclude such party from exercising any such right or constitute a suspension or any variation of any such right. Section 17.3 HEADINGS. The headings contained in this Agreement are inserted for convenience only and shall not affect the meaning or interpretations of this Agreement or any provision hereof. Section 17.4 CONSTRUCTION. Unless the context otherwise requires, singular nouns and pronouns, when used herein, shall be deemed to include the plural of such noun or pronoun and pronouns of one gender shall be deemed to include the equivalent pronoun of the other gender. Section 17.5 ASSIGNMENT. This Agreement and the terms, covenants, conditions, provisions, obligations, undertakings, rights and benefits hereof, including the Addenda, Exhibits and Schedules hereof, shall be binding upon, and shall inure to the benefit of, the undersigned parties and their respective heirs, executors, administrators, representatives, successors, and assigns. In no event may Purchaser assign its rights or obligations hereunder without the prior written consent of Seller, except to a lender as collateral for the financing or refinancing of the acquisition of the Assets as provided herein, an Affiliate of Purchaser or a Qualified Affiliate, or as otherwise may be contemplated herein. Notwithstanding the foregoing sentence, at or prior to Closing, Purchaser shall have the right to assign this Agreement and the Sales Contract to a partnership or other entity (the "Permitted Assignee") in which not less than fifty percent (50%) of the interests are owned or controlled, directly or indirectly, by the stockholders or partners of Purchaser, or by individuals or entities that own, directly or indirectly, all of the stock or partnership interests in Purchaser. From and after the date this Agreement is assigned to and assumed by the Permitted Assignee, the Permitted Assignee (and not Purchaser) shall be the Purchaser for all purposes of this Agreement and the Sales Contract, and Seller agrees that Purchaser shall have no obligations or liabilities under this Agreement or the Sales Contract and after such date except to the extent of its ownership interest in the Permitted Assignee, Seller agrees that it will look solely to the Permitted Assignee (rather than to Purchaser) for the performance of all obligations of Purchaser under this Agreement and the Sales Contract except to the extent of Purchaser's ownership interest in the Permitted Assignee. In the event Purchaser assigns this Agreement and the Sales Contract to the Permitted Assignee, any default by the Permitted Assignee under either document prior to and including the Closing that remains uncured shall be deemed a default by Purchaser under all other asset sale and real property sale agreements between Purchaser and Seller. Section 17.6 PRIOR UNDERSTANDINGS; INTEGRATED AGREEMENTS. This Agreement supersedes any and all prior discussions and agreements between Seller and Purchaser with respect to the purchase of the Assets and other matters continued herein, and this 53 60 Agreement contains the sole, final and complete expression and understanding between Seller and Purchaser with respect to the transactions contemplated herein, except for those documents executed and delivered by Purchaser prior to the execution hereof titled Due Diligence Deposit and Review Agreement and the Confidentiality Agreement. This Agreement shall not be altered or modified except by a subsequent writing, signed by Purchaser and Seller. Section 17.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall constitute one and the same instrument, and either party hereto may execute this Agreement by signing any such counterpart. Section 17.8 SURVIVAL. Each and every Surviving Representation and Warranty made by Seller, each representation and warranty made herein by Purchaser and each covenant made herein by Purchaser or Seller shall survive the Closing and shall not merge into any document executed as part of Closing, but instead shall be independently enforceable except to the extent expressly limited in this Agreement. Section 17.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Section 17.10 NO THIRD PARTY BENEFICIARIES. No person, firm or other entity other than the parties hereto (and their successors and assigns) shall have any rights or claims under this Agreement. No brokerage commission shall be payable to any party in connection with the sale of the Assets except such sales commissions as Seller may previously have agreed in writing to pay certain third parties, which will be payable by Seller. Section 17.11 ARBITRATION. Any controversy or claim between Purchaser and Seller arising out of or relating to this Agreement or any actions or conduct of either in connection therewith (including, but not limited to, any claim based on or arising from an alleged tort) shall at the request of Purchaser or Seller be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Agreement, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitrator(s) shall resolve all claims and defenses or other matters in dispute in accordance with applicable law, including, but not limited to, all statutes of limitation. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction. No provision of this 54 61 Agreement shall limit the right of either Purchaser or Seller to exercise self-help remedies such as setoff, or obtaining provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The institution and maintenance of any action for judicial relief or pursuit of provisional or ancillary remedies shall not constitute a waiver of the right of either Purchaser or Seller to submit the controversy or claim to arbitration if the other party contests such action for judicial relief. NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHT TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION" PROVISIONS. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. THE UNDERSIGNED HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION TO NEUTRAL ARBITRATION. /s/ DTH /s/ JP - --------------------------- --------------------------- PURCHASER'S INITIALS SELLER'S INITIALS Section 17.12 SELLER FINANCING. Seller and Purchaser have not reached final agreement over the terms and conditions of the Seller financing which Seller has offered to Purchaser in connection with this transaction. Accordingly, Seller and Purchaser acknowledge that the Loan and Security Agreement attached as Exhibit K does not represent the final agreement of the parties. In the event Seller and Purchaser do not reach agreement over the terms of such financing (for any reason) on or before November 8, 1993, (i) this Agreement and the Sales Contract shall remain in full force and effect on the basis of an "all cash" transaction, (ii) neither party shall be deemed to be in default as a result of the failure to reach agreement over the terms of the Loan and Security Agreement and the Seller financing, (iii) all references in this Agreement and the Sales Contract to the Loan and Security Agreement and all provisions relating to a Seller financed sale shall be deemed deleted, (iv) the Initial Purchase Price shall automatically reduce to the amount Purchaser submitted on the Offer Date as its "all cash" Initial Purchase Price, and (v) Seller and Purchaser shall promptly enter into an amendment to this Agreement, the Sales Contract, and all supporting documents as necessary, including a revised Mortgage Loan and Real Property Schedule, to reflect such modifications and conforming changes to reflect the terms and conditions of an all cash transaction. 55 62 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the first day of November, 1993. "Purchaser" WHC-THREE INVESTORS, L.P., a Delaware limited partnership By: WHC-THREE INVESTORS, INC., a Delaware corporation, general partner By: /s/ David T. Hamamoto -------------------------- Its: Vice President -------------------------- "Seller" CITY NATIONAL BANK, a national banking association By: /s/ Jeffery Puchalski ------------------------------- Its: Executive Vice President ------------------------------- 56 63 EXHIBIT "A" Page 1 POOL 1 11/05/93 mtrp056.wk3
CITY NATIONAL BANK MORTGAGE LOAN AND REAL PROPERTY SCHEDULE
Asset Pool Loan # No. Asset Name No. Borrowers Name Street Address City - ----- ---- -------------- ------ -------------- ---------------------- --------- 56.00 1 453 Barrington 118 NAP 453 Barrington Avenue Brentwood - ----- ---- -------------- ------ -------------- ---------------------- --------- Total
64 CITY NATIONAL BANK EXHIBIT "A" PAGE 2 Mortgage Loan and Real Property Schedule 11/05/93 Asset Pool Property # No. Asset Name County State Zip Code Type - ---- ---- -------------- ----------- ----- -------- ------------ 56.00 1 453 Barrington Los Angeles CA 90049 Condominiums - ---- ---- -------------- ----------- ----- -------- ------------ Original Loan Accrued and Uncollected Amount Loan Balance Deferred Late Owed Lien Balance (as of 9/30/93) Interest Charges (as of 9/30/93) Position ------- --------------- ----------- ----------- --------------- -------- NAP 5,330,725 NAP NAP 5,330,725 REO ------- --------------- ----------- ----------- --------------- -------- Total $0 $5,330,725 $0 $0 $5,330,725 ------- --------------- ----------- ----------- --------------- --------
65 EXHIBIT "A" CITY NATIONAL BANK PAGE 3 MORTGAGE LOAN AND REAL PROPERTY SCHEDULE 11/05/93
Superior Original Interest Last Current Approximate Asset Pool Lien Note Maturity Paid To Transaction Accrual Saleable/ # No. Asset Name Balance Date Date Date Date Rate Rentable SF - ----- ---- --------------- -------- -------- --------- -------- ----------- -------- ------------ 56.00 1 453 Barrington 0 REO REO NAP NAP REO 32,523 - ----- ----- -------------- -------- -------- --------- -------- ----------- -------- ------------ TOTAL $0 32,523 - ----- -------- ------------
Approx. Land No. of Seller's Acreage Units DIV ------- ------ ---------- 0.00 18 $4,051,513 ------ ------ ---------- 0.00 18 $4,051,513 ------ ------ ----------
66 EXHIBIT "A" Page 4 11/05/93 CITY NATIONAL BANK MORTGAGE LOAN AND REAL PROPERTY SCHEDULE
Initial Adjusted Asset Pool Purchase Offer Purchase # No. Asset Name Price (IPP) Percentage Price (APP) Comments - ----- ---- ----------- ------------ ---------- ------------- ---------- 56.00 1 453 Barrington 3,536,000.00 87.2760% 3,536,000.00 - ----- ---- ----------- ------------ ---------- ------------- ---------- Total 3,536,000.00 87.2760% 3,536,000.00 - ----- ---- ----------- ------------ ---------- ------------- ----------
67 Exhibit B to Asset Sale Agreement FORM OF ASSET ACCEPTANCE CERTIFICATE ____________________________________________________, the Purchaser under that certain Asset Sale Agreement (the "Agreement"), by and among CITY NATIONAL BANK, a national banking association, as Seller, ______________________________________________________ ____________________________________________________________, as Escrow Agent, and ___________________________________________________________________ as Purchaser, dated as of ___________________, 1993, hereby certifies that it finally, irrevocably and unconditionally accepts the Asset, identified as [specify pool number and name of Asset], in accordance with Section 5.4(a) of the Agreement. Dated the _______ day of _______________________, 1993. PURCHASER: ________________________________________ [Corporation/Partnership] By:____________________________________ Its:___________________________________ 68 Recording Requested By And When Recorded Mail To: _______________________________ _______________________________ _______________________________ __________________, CA ________ Attn: _________________________ _________________________ - ----------------- Space Above This Line for Recorder's Use ----------------- FORM OF MORTGAGE ASSIGNMENT ASSIGNMENT OF MORTGAGE LOAN FROM SELLER TO PURCHASER CITY NATIONAL BANK, a national banking association ("Assignor"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby absolutely sells, transfers, assigns, delivers, sets-over and conveys to___________________________________________________, a [corporation/partnership] ("Assignee"), without recourse: The mortgage or deed of trust loan or loans identified on Attachment A hereto (the "Mortgage Loan"), including the promissory note(s) evidencing any and all liens and security interests securing the payment of the Mortgage Loan and all documents and instruments evidencing, securing or relating to the Mortgage Loan, including, but not limited to, the beneficial interest or mortgagee's interest under the mortgage(s) or deed(s) of trust, and any other documents recorded in the real property or chattel records of the jurisdiction in which the real property or personal property securing such Mortgage Loan is located (to which records reference is made for all purposes) as such documents are more particularly described and referenced onAttachment B hereto. This Assignment of Mortgage shall be governed by the laws of the State of California. TO HAVE AND TO HOLD the Mortgage Loan, together with all and singular the rights and privileges thereunto in any wise belonging unto Assignee, its successors and assigns, forever. Dated: __________________, 1993 CITY NATIONAL BANK, a national banking association By: ________________________ Its: ________________________ Exhibit C to Asset Sale Agreement 69 Exhibit C to Asset Sale Agreement STATE OF ) ) SS. COUNTY OF ) On ____________________, 19___ before me _________________________________ Date Name, Title of Officer, e.g., "Jane Doe, Notary Public" personally appeared ____________________________________________________________ Name(s) of Signer(s) / / personally known to me -OR- / / proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. [SEAL] ___________________________________________ NOTARY PUBLIC 70 Exhibit C to Asset Sale Agreement ATTACHMENT A TO MORTGAGE ASSIGNMENT DESCRIPTION OF MORTGAGE LOAN Name of Borrower: Principal Amount of Note: Current Fully Extended Maturity Date: Control No.: Type of Collateral: 71 Exhibit C to Asset Sale Agreement ATTACHMENT B TO MORTGAGE ASSIGNMENT DESCRIPTION OF SECURITY DOCUMENTS 72 EXHIBIT C-1 TO THE ASSET SALE AGREEMENT Asset No. __________ ASSIGNMENT OF ADDITIONAL COLLATERAL CITY NATIONAL BANK, a national banking association ("Assignor"), for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, hereby absolutely sells, transfers, assigns, endorses, delivers, sets-over and conveys to WHC-THREE INVESTORS, L.P., a Delaware limited partnership ("Assignee"), without representation, warranty or recourse, the following: (a) the mortgage note (the "Mortgage Note") identified on Exhibit A attached hereto, together with any and all amendments, supplements, restatements and modifications thereto (collectively, the "Mortgage Loan"); (b) all documents, agreements and instruments evidencing, securing or relating to the Mortgage Loan, including, without limitation, pledge agreements, guarantees, security agreements, financing statements, indemnity agreements, loan agreements, assignments of management agreements and assignment of stock or partnership units ("Collateral Loan Documents"), which includes, but is not limited to, the Collateral Loan Documents identified on Exhibit B attached hereto; (c) all property and other interests securing or relating to the Mortgage Loan, and all proceeds thereof, including without limitation, all rights, titles, interests, claims, escrows, accounts, letters of credit, title insurance policies, casualty insurance policies (except to the extent of any blanket policies carried by Assignor), flood hazard insurance policies, performance bonds, demands, certificates of deposit, causes of action, proofs of claim and judgments, claims and actions against guarantors 73 and any other collateral arising out of and/or executed and/or delivered in or to or with respect to the Mortgage Loan (the "Additional Collateral"), which includes, but is not limited to, the Additional Collateral identified on Exhibit B attached hereto; and (d) any other documents, agreements, instruments or property and all proceeds thereof, relating to the Mortgage Loan or any other agreements or instruments evidencing or securing such Mortgage Loan and held by Assignor or a third party on behalf of Assignor (the "Other Collateral Loan Documents"). This Assignment shall not be recorded. TO HAVE AND TO HOLD the Mortgage Loan, the Mortgage Note, the Collateral Loan Documents, the Additional Collateral and the Other Collateral Loan Documents, together with all and singular the rights and privileges thereunto in any way belonging unto Assignee, its successors and assigns, forever. Assignor does hereby confirm and ratify the sale, transfer, assignment, delivery, setting over and conveyance of the Mortgage Loan, the Mortgage Note, the Collateral Loan Documents, the Additional Collateral and the Other Collateral Loan Documents to Assignee. Dated as of November 17, 1993. ASSIGNOR: CITY NATIONAL BANK, a national banking association By: ________________________________ Name: ________________________ Title: ________________________ 74 EXHIBIT A TO ASSIGNMENT OF ADDITIONAL COLLATERAL 75 EXHIBIT B [IDENTIFIES UNRECORDED ADDITIONAL COLLATERAL] 76 Exhibit D to Asset Sale Agreement FORM OF CERTIFICATE OF DEFECTIVE ASSETS Pursuant to Section 5.4(b) of that certain Asset Sale Agreement (the "Agreement") by and among CITY NATIONAL BANK, a national banking association as Seller, ____________________________________________________, as Escrow Agent and _____________________________________________________________, as Purchaser, the undersigned hereby certifies to Seller that the Mortgage Loan identified below is a Defective Mortgage Loan, as that term is defined in the Agreement. The Mortgage Loan has a Defect since it breaches the representation and warranty more particularly described as follows, or has a Structural Defect more particularly described as follows and the effect of the claimed Defect(s) on the value of the Mortgage Loan is materially adverse as indicated below [attach additional pages as necessary]: A. Identity of Mortgage Loan ________________________________________________ [Specify pool number and name of Mortgage Loan.] B. Detailed description of condition giving rise to, or nature of, the claimed Defect or Structural Defect and state why any claimed Defect has a material adverse effect on the value of the related Mortgage Loan. C. Identify section and subsections of the Agreement under which the Defect or Structural Defect is claimed. D. Provided detailed evidence of the existence of the Defect including, but not limited to, the identity of, and a copy of any materials provided by, any third party which performed any analysis or provided any cure estimate or any other information with respect to such claimed Defect. Dated: _______________________, 1993. PURCHASER: ______________________________________ By:___________________________________ Its:__________________________________ 77 Exhibit E to Asset Sale Agreement FORM OF SUPPLEMENTAL CERTIFICATE OF DEFECTIVE ASSETS Pursuant to Section 5.4(b) of that certain Asset Sale Agreement (the "Agreement") by and among CITY NATIONAL BANK, a national banking association as Seller, ______________________________________________________________________ ____________________________________, as Escrow Agent and ____________________ ____________________________________, as Purchaser, the undersigned hereby certifies to Seller that the Mortgage Loan identified below is a Defective Mortgage Loan, as that term is defined in the Agreement. The Mortgage Loan has a Defect since it breaches the representation and warranty more particularly described as follows, or has a Structural Defect more particularly described as follows and the effect of the claimed Defect(s) on the value of the Mortgage Loan is materially adverse as indicated below [attach additional pages as necessary]: A. State whether in Purchaser's reasonable judgment the Defect is curable or non-curable. B. If, in Purchaser's reasonable judgment, the Defect is curable, provide a detailed description of the proposed cure and reasonable detailed estimated itemized cost of repair or other cure ("Purchaser's Cure Estimate") and attach supporting information prepared by third party expert. C. If this certificate is delivered no later than the last day of the Due Diligence Period, state the dollar amount, or percentage of Initial Purchase Price, by which Purchaser would have reduced the Initial Purchase Price with respect to such Mortgage Loan, had Purchaser been aware of such Defect on the Offer Date. Dated: ___________________, 199__ PURCHASER: _______________________________________ By:____________________________________ Its:___________________________________ 78 Exhibit F to Asset Sale Agreement FORM OF DELETION CERTIFICATE Pursuant to Section 5.4(d) of that certain Asset Sale Agreement (the "Asset Sale Agreement") by and between ________________________________________ ______________________________________________________, as Purchaser, and CITY NATIONAL BANK, a national banking association, as Seller, the undersigned hereby certifies to Seller as follows: 1. On ____________________________, 199___, Purchaser delivered to Seller a Certificate of Defective Mortgage Loan with regard to the Mortgage Loan identified as Control No. ____________ on the Mortgage Loan and Real Property Schedule attached as Exhibit D to the Asset Sale Agreement. 2. Seller has not cured the Defect in such Mortgage Loan. 3. Such Mortgage Loan will be subject to repurchase at the Repurchase Price as provided in Section 10.2 of the Asset Sale Agreement if such Defect has not been cured within the Cure Period. 4. All capitalized terms used herein and not defined shall have the meaning assigned to them in the Asset Sale Agreement. Dated the ____________ day of ___________________________, 199___. PURCHASER: ________________________________________ [Corporation/Partnership] By:____________________________________ Its:____________________________________ 79 Exhibit G to Asset Sale Agreement CITY NATIONAL BANK COMMERCIAL MORTGAGE LOAN AND REAL PROPERTY SALE VALUATION METHODOLOGY I. DUE DILIGENCE PROCESS Asset information was extracted from loan files. The asset information was recorded on Data Sheets which provided a history of the loan transaction and the current status of the loan or real estate owned (REO). Utilizing the information recorded on the data sheets, the property inspections and the market analyses, underwriting and valuation took place. The methodology and procedures presented are not intended to and do not comply with generally accepted accounting and auditing procedures and, therefore, no opinion was expressed in that regard. Likewise, the methodology and procedures do not meet the Uniform Standards of Professional Appraisal Practice for preparation of a market value appraisal as defined by the Appraisal Standards Board of the Appraisal Foundation and should not be relied on to replace or augment appraisal information. II. VALUATION METHODOLOGY The RTC Valuation Methodology for Portfolio Sales of Commercial Mortgages and Real Estate Owned, otherwise known as "Appendix H," was utilized as the primary standard for arriving at the various factors applied to each asset in underwriting and valuation. These standards were modified where the Financial Advisor, market conditions or the Due Diligence Contractor determined that reasons existed for changing any one or more of the following factors. Otherwise the following standards were utilized in arriving at the stated Derived Investment Value (DIV) also known as "Valuation" in the Offering Memorandum. III. UNDERWRITING AND VALUATION ASSUMPTIONS FOR ALL ASSETS Discount rates were established for each type of property and the methodology used in valuation of the asset. The discount rates assumed for each property type and valuation methodology are as follows: VALUATION METHODOLOGY
IMMEDIATE PERFORMING PROPERTY TYPE DEFAULT FUTURE DEFAULT REO LOANS ------------- --------- -------------- --- ---------- Multifamily 14% 13.5% 12% 500(1)
____________________ (1) Basis points over Treasuries of comparable maturities. 1 80 Exhibit G to Asset Sale Agreement
IMMEDIATE PERFORMING PROPERTY TYPE DEFAULT FUTURE DEFAULT REO LOANS ------------- --------- -------------- --- ---------- Commercial 16% 15.5% 14% 600 Entitled Land 20% 19% 17% NAP Raw Land 22% 21% 18% NAP
The above discount rates were adjusted up or down 200 basis points based on whether there were 2nd Lien or Wrap Notes. Adjustments were made as available information justified making such adjustments. In the cases where a different discount rate was used, the justification was documented in the underwriting and valuation summaries. IV. PERFORMING LOANS VALUATION METHODOLOGY 4.1 Loans were valued in accordance with Seller guidelines as the lesser of the following: 4.1.1 Face amount of the loan balance as of 08/03/93; or 4.1.2 Present value of the cash flows of the loan assuming the discount rates noted in Section III. 4.2 To calculate expected cash flows for the loans, the following assumptions were used: 4.2.1 interest rates at current stated interest rate, or at stated interest rates at time of maturity; 4.2.2 principal payments assumed to be made as scheduled, including balloon payments; 4.2.3 adjustable rate loans assumed a constant interest rate environment; and 4.2.4 extension options assumed loan was extended at contractual terms. V. CASH FLOW METHODOLOGY For all property types, the methodology for valuing real estate owned (REO) and for real estate collateralizing permanent mortgage loans was a discounted cash flow concept. DIVs were calculated based upon the discounted value of the estimated future net cash flows. The valuation period was assumed to begin July 1, 1993. Estimated revenue and expenses were projected based 2 81 Exhibit G to Asset Sale Agreement upon analysis of existing property operations as well as limited research into the competitive market. DIVs on land were generated by utilizing comparable land sales within the market area and to the extent practical a land residual analysis was prepared. 5.1 Revenue 5.1.1 Rental rates were based on a comparison of historical actual, street rents at the subject property and street rents at comparable properties. Street rents were obtained from the inspections of each property. Office and retail rents for occupied space were based on actual rents so long as actuals were in line with market rents. Rents for vacant space were based on current market rents. Rental rates were effective rents adjusted for free rent and other concessions that may be amortized over the term of the lease. Rental rates were assumed to increase no more than four percent (4.0%) per year. Lease renewals were projected at fifty percent (50%) on commercial and retail properties unless otherwise justified. 5.1.2 Stabilization was defined as occupancy at which similar properties within the subject market were able to maintain. Non-stabilized property occupancy was projected at market levels within the submarket. Any vacancies existing after the date of stabilization were assumed to be permanent. 5.1.3 Other income was based upon historical revenues where available. When not available, industry standards were used. 5.2 Operating Expenses 5.2.1 In all cases, the following expenses were utilized in estimating operating expenses for each property. They were: a. property taxes; b. insurance; c. general and administrative; d. utilities; e. repairs and maintenance; f. property management; g. ground rents, if applicable; 3 82 Exhibit G to Asset Sale Agreement h. miscellaneous/all other; and i. reserves. Where available, actual property data were used in estimating operating expenses. When actual data were not available, IREM, and/or area surveys and other reliable sources were used. Operating expenses were assumed to increase at four percent (4.0%) per annum. 5.2.2 Property tax information was based on current assessed value, however minimum annual increases were projected at two percent (2.0%). 5.2.3 Property management fees were projected as five percent (5.0%) of effective gross income with a minimum acceptable of three percent (3.0%) of gross potential income. There were other factors that influenced the valuation process depending on type of property. In general the condition of the property had an impact on valuation. Deferred maintenance and required capital expenditures had an impact on total operating expenses and net cash flow. 5.3 Upon recovery of the property, a 12-month marketing period was assumed in order to sell the property: 5.4 Terminal capitalization rates varied by property type, location and special market circumstances. The assumed capitalization rates used for each property type within the portfolio were as follows: Multifamily . . . . . . . . . . . . . . . . . . 9/0% Retail . . . . . . . . . . . . . . . . . . . . 10.5% Office . . . . . . . . . . . . . . . . . . . . 11.0% Industrial . . . . . . . . . . . . . . . . . . 11.0%
The capitalization rates above were adjusted upwards or downwards if market conditions warranted. Selling and closing costs were projected at six percent (6.0)% for all properties. 5.5 Land The DIV for Land was valued utilizing primarily sales comparable information and, to the extent practical, a land residual analysis was prepared. Where specific information was available to support lot sales, that information was utilized in the overall value. 4 83 Exhibit G to Asset Sale Agreement 5.5.1 Revenue No revenue other than sales proceeds was assumed. No land within the portfolio had significant income streams from which to compute cash flow information. 5.5.2 Expenses Annual operating expenses were estimated based upon historical information when available. Operating expenses considered in the valuation were: a. property taxes; b. insurance (an estimate of $25 per acre was used with a minimum of $250 per year and maximum of $3,000 per year unless more accurate information was available); and c. ground maintenance and security (a minimum amount of $10,000 per year was used unless more accurate information was available). All operating expenses were assumed to increase a minimum of [four] percent (4.0%) per year. In no event were property taxes increased less than [two] percent (2.0%). 5.6 Estimated Net Sales Proceeds Capitalized NOI and appraisal information, comparable sales, and to the extent practical, a land residual analysis, to establish the current value of the property. Where appraisal information was considered inadequate, recent sales comparables were used. VI. NON-PERFORMING LOAN VALUATION METHODOLOGY Mortgage loans that have matured and are currently not paying or are anticipated to default during the term of the loan or at maturity were valued at the lesser of: 6.1 Face amount of the loan; or 6.2 Present Value of the Estimated Future Cash Flows of the loan (Future Default), assuming the discount rates in Section III; or 6.3 Present Value of the Cash Flows from the underlying collateral adjusted for timing and cost of foreclosure (Immediate Default). 5 84 Exhibit G to Asset Sale Agreement Loan cash flows under item 6.2 were equal to contractual loan payments through default, payments received during bankruptcy/foreclosure proceedings, and property cash flows through sale. VII. DEFAULT ASSUMPTIONS 7.1 Default Date It was assumed that default would occur when the property could no longer support the required payment or the loan matured and the terminal value did not support the payoff of the loan. This could be caused by economic changes, changes in payment requirements, interest rates or maturities. 7.2 Timing of Foreclosure and Bankruptcy On the Default Date, the holder of the note was assumed to initiate foreclosure proceedings and exercise all rights and remedies available. The borrower is likely to exercise certain defense tactics, including bankruptcy, designed to delay the lender's ability to recover the collateral. Even though most of the assets are owned by single purpose, limited debt entities, borrowers have had increasing success in stalling the resolution of these cases through several techniques. The most common technique is the filing of an inadequate plan of reorganization. It was assumed that bankruptcy is filed in all foreclosure cases and that the holder of the note is successful in recovering the property. Foreclosure timing varies based on state laws and whether legal action may be pursued through judicial or non-judicial proceedings. It has been assumed that foreclosure and bankruptcy proceedings will take, on average, 15 months as California is a non-judicial foreclosure state. This period is adjusted to reflect those cases where the recovery period may be less than the average, such as the case of negotiated Deed in Liens and lengthen the case of multiple assets. 7.3 Cash Flow During Foreclosure/Bankruptcy During the default period and the bankruptcy proceedings, the borrower may have the ability to retain the cash flow from the property rather than remit it to the holder of the note. The note holder can defend rights to the property cash flow by either appointing a receiver or obtaining a Cash Collateral Order (CCO). It has been assumed that, in either case, this defense will take, on average, ninety (90) days from the bankruptcy filing date. The level of Property Cash Flow during the receiver/CCO period will be reduced by one of two things. First, if a receiver has been appointed, the receiver will collect all of the cash flow, but will charge a fee for his services. Second, if a receiver is not appointed it will be assumed that the borrower will have adequate control to reduce cash flow by overstating 6 85 Exhibit G to Asset Sale Agreement expenses or understating rents. In either case it was assumed that only eighty-five percent (85%) of cash flow was turned over to the court. It is further assumed that the court collects the cash flow during foreclosure/bankruptcy and the lender receives the cash flow at termination of the proceedings. 7.4 Legal Expenses Legal expenses incurred in bankruptcy and foreclosure were assumed to be the greater of [five] percent (5.0%) of collateral value with a minimum of or [$50,000.00] with a cap of [$300,000.00]. Legal expenses were adjusted for multiple entity borrowers and some very large balance loans. 7.5 Guarantees It was assumed that no collections would be made or guaranteed. 7.6 Recovery On the Recovery Date, the holder of the note was assumed to have received all funds accumulated in accordance with CCO. Legal fees, delinquent real estate taxes, senior debts and deferred maintenance had the effect of reducing the amount of recovery. 7 86 Exhibit H to Asset Sale Agreement FORM OF VALUATION CERTIFICATE Pursuant to Section 5.4 of that certain Asset Sale Agreement (the "Agreement"), by and between ______________________________________________ ("Purchaser"), ________________________________ ("Purchaser"), and CITY NATIONAL BANK, a national banking association ("Seller"), the undersigned firm, appointed pursuant to Section 5.5(b)(i) of the Purchase Agreement ("Valuation Agent"), hereby represents that (i) it prepared estimated cash flows and present value calculations regarding the [Mortgage Loan/Real Property] listed as Control Number _____ on the Mortgage Loan and Real Property Schedule attached to the Agreement as Exhibit A thereto (the "Valuation"); (ii) the Valuation Reports thereon are attached hereto and reference is made to them for their content; and (iii) the procedures by which the Valuation was prepared, the estimates and the assumptions, including any provided or prescribed by Seller, upon which the Valuation was prepared, and the limitations attending any use of the Valuation, are described in the Valuation Report, and in Exhibit G to the Agreement, copies of which are attached to this Valuation Certificate, and reference is made to the Valuation Report and Exhibit G for their content. The undersigned firm hereby represents that copies of this Valuation Certificate and attachments hereto have been delivered to Purchaser as of the date hereof. The undersigned Purchaser hereby represents that it has received such copies of this Valuation Certificate and attachments hereto as of the date hereof and that Purchaser is familiar with their contents. Dated the ________ day of _______________________, 1993. PURCHASER VALUATION AGENT By: ___________________________ By:_________________________________ Its: ___________________________ Its:_________________________________ 87 Exhibit I to Asset Sale Agreement FORM OF NOTICE TO MORTGAGORS _________________________, 199___ [Name and Address of Mortgagor] Subject: City National Bank Property Name: Loan No.: Original Loan Amount: $________________ Note Dated: Gentlemen: The above mortgage loan ("Loan") has been sold and conveyed to ______________________________________________________________________________ ("Purchaser") by CITY NATIONAL BANK, a national banking association. Purchaser has designated [A LOCKBOX] [A DEPOSITORY ACCOUNT] for the collection of interest, principal, escrows and other charges under the Loan. In order to receive credit for payments under the Loan, all payments should be made in accordance with the directions set forth in this letter. You are hereby irrevocably and unconditionally authorized and directed that each payment of interest, principal, escrows or any other charge by you under the Loan is to be made in the form of a check made payable to the order of: ______________________________________________________________________________ ______________________________________________________________________________ and delivered to the following address: ______________________________________________________________________________ ______________________________________________________________________________ Payments that are not made in accordance with this authorization and direction will not be credited to payment of such interest, principal, escrows or other charges under the Loan until otherwise properly directed. Please contact Purchaser at the address and phone number given below if you have any questions or comments on this matter: [Corporation/Partnership]: ______________________________________________________________________________ 1 88 Exhibit I to Asset Sale Agreement ______________________________________________________________________________ ______________________________________________________________________________ Telephone: _________________________ Attention: _________________________ Thank you for your cooperation. CITY NATIONAL BANK, a national banking association By: ____________________________ Its: ___________________________ 2 89 Exhibit J to Asset Sale Agreement REAL PROPERTY SALES CONTRACT THIS REAL PROPERTY SALES CONTRACT (the "Contract") is made and entered into as of the first day of November, 1993, by and between (i) WHC-THREE Investors, L.P., a Delaware limited partnership having an office at c/o WHC-THREE Investors, Inc., 85 Broad Street, 19th Floor, New York, New York 10004 ("Affiliate Purchaser"); and (ii) CITY NATIONAL BANK, a national banking association ("Seller"). Capitalized terms not otherwise defined herein shall have as their meaning the definition ascribed to such terms in the Asset Sale Agreement of even date herewith (the "Asset Sale Agreement"). W I T N E S S E T H: WHEREAS, Seller is the owner (i) in fee simple of certain parcels of commercial land, including all improvements, fixtures, easements and other appurtenances and (ii) leasehold estates, if any, each of which will, as of the Closing Date, be encumbered by Interim Mortgage Loans (each a "Parcel of Real Property" and collectively, the "Real Property"), as further described in Exhibit "A" attached hereto and incorporated herein by reference; and WHEREAS, Seller, and Affiliate Purchaser (the "Purchaser"), have on the date hereof entered into the Asset Sale Agreement, whereby Purchaser agreed to purchase certain Mortgage Loans and to cause Affiliate Purchaser to purchase certain Real Property from Seller pursuant to the terms and conditions set forth in the Asset Sale Agreement and Purchaser and Seller have agreed to enter into a Loan and Security Agreement (the "Loan and Security Agreement") for the financing of the sale of the aforementioned Mortgage Loans and Real Property; and WHEREAS, Seller has agreed to sell the Real Property to Affiliate Purchaser and Affiliate Purchaser has agreed to purchase said Real Property from Seller, at the price and upon the terms and conditions hereinafter set forth; and WHEREAS, Affiliate Purchaser has agreed that Seller will continue to own and manage the Real Property prior to the Real Property Closing Date, but shall amend the existing management contracts with the managing agents for the Real Property to reflect Seller's and Affiliate Purchaser's agreement regarding the management of the Real Property from said date until the dates Affiliate Purchaser or its assignee takes title to each Parcel of Real Property as more particularly described herein; NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1 90 Exhibit J to Asset Sale Agreement 1. PURCHASE AND SALE OF REAL PROPERTY. 1.1 On the Real Property Closing Date (as defined in Section 3 hereof) for each Parcel of Real Property, and subject to the terms and conditions set forth in this Contract and the Asset Sale Agreement, Seller agrees to sell, assign, transfer and deliver to Affiliate Purchaser or a Qualified Affiliate, and Affiliate Purchaser, on behalf of itself and the Qualified Affiliate, agrees to purchase, acquire and accept such Parcel or Parcels of the Real Property from Seller. 1.2 In addition to the Real Property, this sale includes all of Seller's (herein, "Owner") right, title and interest in and to the following: 1.2.1 All easements, covenants and other rights appurtenant to said Real Property, and all right, title and interest, if any, in and to any land lying in the bed of any street, road, avenue or alley, open or closed, in front of or adjoining said Real Property and to the center line thereof; 1.2.2 All furniture, fixtures, equipment and other personal property (except items owned by tenants) which are now, or may hereafter prior to the Real Property Closing Date be placed in or attached to the Real Property; 1.2.3 To the extent same may be transferred under applicable law without consent (unless obtained by Purchaser), all licenses, permits and authorizations presently issued in connection with the operation of all or any part of the Real Property or necessary to operate the Real Property as it is presently being operated; 1.2.4 To the extent same may be assigned without consent (unless obtained by Purchaser), all warranties, if any, issued to the Owner by any manufacturers and contractors in connection with construction or installation of equipment included as part of the Real Property; 1.2.5 To the extent assignable and same are to be assigned hereunder (at the election of Affiliate Purchaser) to Affiliate Purchaser or a Qualified Affiliate at the Real Property Closing Date for each Parcel of Real Property, all service, supply and maintenance contracts (if any) held by the Owner with respect to the Real Property and its mechanical equipment, elevators and other elements; 1.2.6 To the extent assignable without consent (unless obtained by Purchaser) all trade names and general intangibles relating solely to the Real Property; 1.2.7 To the extent assignable, all leases of all or any part of the Real Property; and 2 91 Exhibit J to Asset Sale Agreement 1.2.8 All other rights, privileges and appurtenances to which Affiliate Purchaser may be entitled under the Contract or the Asset Sale Agreement, including but not limited to tenant security deposits to the extent held by Owner, utility capacity, utility reservation deposits and refunds in connection therewith; and 1.2.9 Hazard insurance and condemnation proceeds received by Owner and payable to Purchaser pursuant to Section 8.1(d) of the Asset Sale Agreement with respect to the Real Property and not applied to amounts due on the Mortgage Loan or to the repair of the Real Property. 2. PURCHASE PRICE. The purchase price of each Parcel of Real Property shall be the Initial Purchase Price consisting of the sum of One Hundred Dollars U.S. ($100.00) cash plus taking title thereto in satisfaction of the debt owing on the respective Interim Mortgage (as hereinafter defined) (collectively, the "Purchase Price"), subject to adjustment as set forth below, and shall be paid as follows: 2.1 The Initial Purchase Price, One Hundred Dollars ($100.00), shall be paid, in cash or by bank wire transfer for each Parcel of Real Property, payable on the Real Property Closing Date as such term is defined below. 2.2 One or more Qualified Affiliates shall take title to the Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule, as such term is defined in the Asset Sale Agreement, which, as of the date hereof, shall be subject to one or more Interim Mortgage Notes, as such term is defined in the Asset Sale Agreement, and Interim Mortgages, as such term is defined in the Asset Sale Agreement, in favor of Purchaser, and another Qualified Affiliate or Qualified Affiliates shall take title to the remaining Real Property not designated "industrial" on the Mortgage Loan and Real Property Schedule, which, as of the date hereof, shall be subject to one or more Interim Mortgage Notes and Interim Mortgages, each of which Interim Mortgage Loans is in the principal amount shown on Exhibit C hereto, with interest thereon payable at the Applicable Rate, as such principal may be adjusted to reflect the Adjusted Purchase Price of each Parcel of Real Property, and payable monthly. Concurrently with the transfer of title to a Qualified Affiliate with respect to each Parcel of Real Property, the Interim Mortgage Note shall be marked Paid in Full and, along with the Interim Mortgage, reconveyed to Seller. 3. REAL PROPERTY CLOSING DATE. 3.1 The closing of the purchase and sale for each Parcel of Real Property (each, a "Real Property Closing Date") shall occur no later than the last day of the month in which the following date occurs: the earlier of (i) ten (10) calendar days after the termination of the Due Diligence Period for the related Interim Mortgage Loan unless a Certificate of Defective Asset under the Asset Sale Agreement has been delivered to Seller prior to the 3 92 Exhibit J to Asset Sale Agreement expiration of the Due Diligence Period, in which event the Real Property Closing Date for such Parcel of Real Property shall be extended until the Defect listed in such Certificate of Defective Asset is cured; or (ii) thirty (30) days after the date Seller receives an Acceptance Certificate for the Interim Mortgage Loan secured by or related to the Real Property. On each Real Property Closing Date, Seller shall deliver to the Qualified Affiliate a deed in substantially the form attached to the Asset Sale Agreement as Exhibit N. The conveyance under such deed shall be made subject to a lien in favor of Seller in an amount equal to seventy-five percent (75%) of the Adjusted Purchase Price of the related Real Property, evidenced by a mortgage in the form of Exhibit M to the Loan and Security Agreement. Affiliate Purchaser or its assignee Qualified Affiliate shall have the option to purchase any Parcel of Real Property prior to the aforementioned date upon ten (10) days' prior written notice, provided however, that Seller shall not be required to close the sale of Real Properties more than once per month. Each such closing (collectively, the "Real Property Closing") shall be held at the offices of Seller's counsel, or at such other place that Seller and Affiliate Purchaser or any Qualified Affiliate that will take title to the Real Property, as the case may be, may agree. 3.2 The following items of expense shall be adjusted as of midnight of the day immediately preceding the Real Property Closing Date for each Parcel of Real Property: 3.2.1 Real estate taxes with respect to each Parcel of Real Property. If the rate or amount of such taxes shall not be fixed prior to the Real Property Closing Date, the adjustment thereof at each Real Property Closing Date shall be upon the basis of the rate for the preceding fiscal year applied to the latest assessed valuation (or other basis of valuation) and the same shall be further adjusted when the rate and valuation for the current fiscal year is fixed. Affiliate Purchaser or any Qualified Affiliate that will take title to the Real Property shall receive a credit for the amount of all unpaid assessments (whether special or general) that have been levied or are payable with respect to any Parcel of Real Property prior to the Real Property Closing Date with respect to such Parcel of Real Property and that have not been deposited into the Estimated Accrual Account under Section 3.3 below; 3.2.2 Water and sewer service charges, and charges for all other public utilities (if any); 3.2.3 Rents, provided, however, that (A) Purchaser, Affiliate Purchaser or any Qualified Affiliate that will take title to the Real Property shall receive a credit for any rents paid to Seller by tenants of each Parcel of Real Property for rent applicable to the period from each Real Property Closing Date and thereafter, and (B) in the event that prior to each Real Property Closing Date, Seller is unable to collect all rents due and owing for any period after the Due Diligence Cut-Off Date and prior to the Closing Date, Purchaser, Affiliate Purchaser or the Qualified Affiliate shall use its best efforts (but shall not be obligated to institute or prosecute any litigation) to collect such amounts from tenants and pay the same to Seller. Any such payments relating to any period after the Closing Date and prior to such Real Property Closing Date shall be paid to Seller for the benefit of Purchaser as amounts due under the related 4 93 Exhibit J to Asset Sale Agreement Interim Mortgage. Any rent collected by Purchaser, Affiliate Purchaser or the Qualified Affiliate from a tenant who owes delinquent rent as of each Real Property Closing Date will first be credited to rent accruing on and after each Real Property Closing Date and due as of the date of its collection until such rents are fully current and further provided that nothing contained herein shall preclude Seller from using efforts to collect such delinquent amounts from tenants. Purchaser, Affiliate Purchaser or the Qualified Affiliate shall also receive a credit for the amount of all tenant security, pet and/or other deposits actually held by Seller with respect to each Parcel of Real Property (or same shall actually be transferred); 3.2.4 Hazard insurance premiums on any insurance policies that are transferred to Purchaser, Affiliate Purchaser or the Qualified Affiliate; and 3.2.5 Gas, oil and all other private utilities. The adjustments described in this subparagraph shall be paid on each Real Property Closing Date in cash or by certified or cashier's check. If the amount of any of the adjustments described in this subparagraph cannot be determined on each Real Property Closing Date, the adjustment therefor shall be made within thirty (30) days after each such Real Property Closing Date by certified or cashier's check. In making the adjustments required by this subparagraph, Seller shall be entitled to a credit for all amounts prepaid as of each Real Property Closing Date and any period after each Real Property Closing Date, and Seller shall be charged with any unpaid charges for the period prior to each Real Property Closing Date. 3.3 In the event an Interim Mortgage is utilized, the Seller covenants and agrees (i) to pay, for the purpose of establishing an escrow account to be held by Seller for the benefit of Purchaser, Affiliate Purchaser or a Qualified Affiliate (the "Estimated Accrual Account") (which account shall not bear interest), an initial amount equal to the Proration Amount, as such term is hereafter defined; and (ii) thereafter to continue to pay into the Estimated Accrual Account monthly to the extent available from Cash Flow, on each and every monthly payment date, one-twelfth (1/12th) of the estimated annual real estate taxes, assessments and hazard insurance premiums on the Real Property, as Permitted Expenses. The amount of such real estate taxes, assessments and hazard insurance premiums, when unknown, shall be reasonably estimated by Seller. Such deposits shall be used by Seller or, if such real estate taxes, assessments and hazard insurance premiums are payable after the Real Property Closing Date,such Estimated Accrual Account shall be assigned to Purchaser and used by Purchaser, Affiliate Purchaser or Qualified Affiliate to pay such real estate taxes, assessments, and hazard insurance premiums when due. The enforceability of the covenants relating to the Seller's payment of real estate taxes, assessments and hazard insurance premiums herein otherwise provided shall not be affected except insofar as those obligations have been met by compliance with this Section 3.3. As used herein, "Proration Amount" means that amount of real estate taxes, assessments and hazard insurance premiums which would be payable by Seller if the Real Property were transferred to Purchaser, Affiliate Purchaser or a Qualified Affiliate on the Closing Date. 5 94 Exhibit J to Asset Sale Agreement 3.4 Affiliate Purchaser or Qualified Affiliate shall pay, when due and payable, all transfer, filing and recording fees and taxes, and costs and expenses, if any, with respect to the filing or recording of any documents or instruments relating to the financing of any Parcel of Real Property and the cost of recording corrective instruments, pursuant hereto or to the Asset Sale Agreement, except for those related to any Interim Mortgage or deed to any Real Property, which Seller shall pay. Except as otherwise expressly provided herein, whether or not the transactions contemplated hereunder are completed, Affiliate Purchaser or Qualified Affiliate shall pay all of its closing and due diligence expenses and its expenses in negotiating and carrying out its obligations under this Sales Contract, including the costs of its counsel, all of the costs of title or other insurance which is not presently in force or otherwise provided by Seller or other due diligence Affiliate Purchaser or Qualified Affiliate may desire to undertake and all of the expenses of Affiliate Purchaser or Qualified Affiliate relating to this Contract. 3.5 To the extent set forth in Paragraph 1 (and in the case of 3.5.1, 3.5.4 and 3.5.5, in a form reasonably acceptable to the parties to this Contract)the following documents shall be delivered to each Affiliate Purchaser or Qualified Affiliate on each Real Property Closing Date for the Parcel of Real Property being purchased: 3.5.1 A duly executed and acknowledged assignment of all landlord's interest in tenant leases affecting the Parcel of Real Property; 3.5.2 A current rent roll for the Parcel of Real Property (to be used for proration purposes only and to the extent available); 3.5.3 Such utility bills, tax statements, water, sewer and other service bills, and insurance bills as are available for purposes of determining amounts set forth in Section 3.2 hereof and to the extent available; 3.5.4 A general assignment of all assignable (w) existing warranties of the Real Property, (x) contracts and agreements affecting the Real Property, (y) trade names relating solely to the Parcel of Real Property and (z) any and all other intangible property included in this sale pursuant to Paragraph 1; and 3.5.5 A bill of sale covering all personal property for the Parcel of Real Property, together with such other documents as are appropriate to convey, transfer or assign any interest that the Seller may have to the other items described in Section 1.2 hereof. 3.6 Affiliate Purchaser or any Qualified Affiliate shall have its counsel deliver to Seller the following legal opinions as of the Real Property Closing Date for each Parcel of Real Property: 6 95 Exhibit J to Asset Sale Agreement 3.6.1 Affiliate Purchaser or, if Affiliate Purchaser has assigned its rights hereunder to a Qualified Affiliate, such Qualified Affiliate, is duly formed and validly existing and in good standing under the laws of the State of its incorporation or formation; 3.6.2 (A) Affiliate Purchaser or, if Affiliate Purchaser has assigned its rights hereunder to a Qualified Affiliate, such Qualified Affiliate, as the assignee of the Affiliate Purchaser, has full and absolute power and authority to assume, as the case may be, this Contract and Affiliate Purchaser's obligations hereunder and to enter into the Assignment and Assumption of Sales Contract substantially in the form attached hereto as Exhibit B and to perform its obligations thereunder, and (B) the Asset Sale Agreement, the Assignment and Assumption of Sales Contract, if applicable, the above referenced documents and any other ancillary documents delivered pursuant hereto will constitute binding and enforceable obligations of the Qualified Affiliate or Affiliate Purchaser, as the case may be, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting enforcement of creditor's rights generally and by general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity); 3.6.3 If Affiliate Purchaser has assigned its rights hereunder to a Qualified Affiliate, the Qualified Affiliate has been duly authorized by all requisite action to assume the Sales Contract, and Affiliate Purchaser's obligations hereunder, and to execute the Assignment and Assumption of Sales Contract and any other documents that such Qualified Affiliate is required to execute pursuant to the Asset Sale Agreement and the Loan and Security Agreement; 3.6.4 Affiliate Purchaser and, if Affiliate Purchaser has assigned its rights hereunder to a Qualified Affiliate, such Qualified Affiliate, have all the requisite governmental approvals of any kind, including without limitation, licenses, permits and authorizations, if any, required to manage the Real Property and perform the obligations under this Contract, the Interim Mortgage and any amendments thereto; and 3.6.5 The Qualified Affiliate is qualified to transact business in the State of California and all jurisdictions in which its ownership of real property or its conduct of business requires such authorization. 3.6.6 The Qualified Affiliate is a "Qualified Affiliate" as that term is defined herein and in the Asset Sale Agreement and has satisfied all conditions in the Asset Sale Agreement to its qualification as a Qualified Affiliate. Such legal opinion may rely on certificates of executive officers or other officers in possession of the official records of the entities in question. Instead of delivering a legal opinion as to the foregoing, Affiliate Purchaser or the Qualified Affiliate may deliver other evidence reasonably satisfactory to Seller. 7 96 Exhibit J to Asset Sale Agreement 4. ADDITIONAL OBLIGATIONS OF SELLER. 4.1 Since Section 6 hereof conditions the obligations of Affiliate Purchaser to acquire the Real Property hereunder only upon satisfaction by Seller of its representations and warranties under Sections 7.1 and 7.2 of the Asset Sale Agreement (or acceptance of the related Mortgage Loan by an affiliate of Affiliate Purchaser thereunder), which representations and warranties include items related to the condition of title to each Parcel of Real Property, other than as specifically provided herein, there are no further obligations of Seller or conditions precedent to each Real Property Closing under this Agreement. 4.2 At each Real Property Closing, Seller shall execute and deliver to Affiliate Purchaser or Qualified Affiliate a deed, in the form attached as Exhibit N to the Asset Sale Agreement (and with respect to any leasehold estate, the appropriate transfer documentation, without representation or warranty), in recordable form, which conveys indefeasible title to the Parcel of Real Property in fee simple, good and marketable, of record and in fact (but subject to those exceptions, conditions and facts permitted by the Asset Sale Agreement or agreed to by Qualified Affiliate or Affiliate Purchaser) and insurable by a nationally recognized title insurance company. With respect to any such leasehold estate, Affiliate Purchaser or Qualified Affiliate shall assume, in writing, all of the obligations of Seller under the lease arising and incurred on and after such Real Property Closing Date. 4.3 For each Parcel of Real Property, from the date of execution of this Contract until the earlier to occur of either the Real Property Closing Date or the date, if any, on which Seller is no longer obligated to sell such Parcel of the Real Property hereunder, Seller covenants and agrees as follows: 4.3.1 Seller shall not cause or permit, without the prior written consent of Affiliate Purchaser or Qualified Affiliate or as expressly permitted by the management agreement relating to the management of the specified Parcel of Real Property, as such may have been amended to reflect Seller's and Affiliate Purchaser's agreement regarding the management of such Real Property, any of the following (except with respect to default by tenants, casualty or condemnation or restoration associated therewith or required to protect or preserve the Parcel of Real Property and improvements thereon): (a) Any changes, amendments or waivers of any lease that would result in a material adverse effect to Affiliate Purchaser or a Qualified Affiliate including (x) a material reduction in payments under a lease covering all or any portion of any Parcel of Real Property, (y) any additional material obligation to be imposed on the landlord thereunder (other than in the ordinary course of business), or (z) an extension of (or option to extend) the term of such lease beyond six months from the Closing Date under the Asset Sale Agreement; (b) the execution of any new lease of any portion of the Parcel of Real Property that is not, in the reasonable judgment of the Seller, commercially 8 97 Exhibit J to Asset Sale Agreement reasonable or would have a term (including any options to extend) extending such lease beyond six months from the Closing Date under the Asset Sale Agreement; and (c) the conveyance, contracting to convey, assigning, pledging or other encumbering of the Parcel of Real Property or any of the future rents or other charges payable under any leases covering all or any portion of the Parcel of the Real Property. 4.3.2 Seller hereby authorizes Affiliate Purchaser, its assignee Qualified Affiliate and their respective representatives to appear and contest any ad valorem tax valuations or assessments with respect to the Parcel of Real Property so long as such is done at the sole cost and expense of Affiliate Purchaser or its assignee Qualified Affiliate. 4.4 For each Parcel of the Real Property from the date of execution of this Contract until the Real Property Closing Date, Seller covenants and agrees to operate, manage and maintain such Real Property in conformity with customary prudent industry management standards of owners of similar real properties who act in a prudent manner. 5. ASSIGNMENT TO QUALIFIED AFFILIATE. 5.1 Affiliate Purchaser shall, except as otherwise agreed by Seller, in writing, prior to any Real Property Closing Date, assign its rights, interests, duties and obligations under this Contract with respect to the Real Property to not less than two Qualified Affiliates (one or more Qualified Affiliates shall take title to all of the Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule, and one or more other Qualified Affiliates shall take title to the remaining Real Property not designated "industrial" on the Mortgage Loan and Real Property Schedule), which shall assume, in writing, such duties and obligations. The assignment and assumption of the rights, interests, duties and obligations under this Contract with respect to each Parcel or Parcels of Real Property to a Qualified Affiliate shall be substantially in the form attached hereto as Exhibit B. 5.2 In the event that Seller is providing financing under the Loan and Security Agreement, Seller shall require that one or more Qualified Affiliates will acquire one or more Parcels of Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule, and one or more other Qualified Affiliates that do not hold any Real Property designated "industrial" on such schedule acquire one or more of the remaining parcels of Real Property. 6. CONDITION TO OBLIGATION TO PURCHASE OR SELL. 6.1 Condition to Purchaser's Obligation to Purchase. Seller and Purchaser each shall have performed all of its covenants and agreements required to be performed by it under the Asset Sale Agreement prior to the Closing Date. Neither Purchaser, Affiliate Purchaser nor any Qualified Affiliate shall be obligated to acquire any Parcel of Real Property hereunder in the event that Purchaser has properly and timely delivered to Seller a Certificate of Defective Asset prior to the expiration of the Due Diligence Period for the related Asset declaring 9 98 Exhibit J to Asset Sale Agreement that the related Asset is a Defective Asset under the Asset Sale Agreement and Seller has not (i) cured such Defect within the period provided under the Asset Sale Agreement, or (ii) established that no Defect exists, or (iii) repurchased the related Asset pursuant to Section 10.1 of the Asset Sale Agreement, or (iv) reduced the Initial Purchase Price with respect to such Asset by either the amount specified by Purchaser as Purchaser's Cure Estimate or the Reduction to the Initial Purchase Price, or (v) deleted the Interim Mortgage securing such Parcel of Real Property pursuant to the Asset Sale Agreement. 6.2 Condition to Seller's Obligation to Sell. Seller's obligation to sell any Parcel of Real Property under this Contract shall terminate if the related Asset has been deleted from the Mortgage Loan and Real Property Schedule in accordance with Section 10.1 of the Asset Sale Agreement and, upon such deletion, neither Seller nor Affiliate Purchaser or any Qualified Affiliate shall have any further obligations under this Contract with respect to such Parcel of Real Property. Seller's obligation to sell any Parcel of Real Property shall be suspended during any period in which Purchaser shall be in default under the Asset Sale Agreement. Seller's liability with regard to such termination of Seller's obligations to sell a particular Parcel of Real Property under this Contract shall be limited to its repurchase obligations and the remedies for breach of that obligation under the Asset Sale Agreement. 7. REPRESENTATIONS AND WARRANTIES OF AFFILIATE PURCHASER. Affiliate Purchaser represents and warrants to Seller that the representations and warranties stated in Section 6.1 of the Asset Sale Agreement are true and correct as of the date of this Contract and shall be true and correct on each Real Property Closing Date, each as though made by Affiliate Purchaser. 8. DISCLAIMER OF WARRANTIES. Affiliate Purchaser acknowledges on its own behalf and on behalf of any assignee Qualified Affiliate that, except for the representations and warranties included in the Asset Sale Agreement, neither Seller nor any attorney, agent, employee or representative of Seller has made any representation or warranty whatsoever, express or implied, regarding the subject matter of this sale, or any part thereof, including, without limiting the generality of the foregoing, representations or warranties as to the physical nature or condition of the premises or the personal property for each Parcel of Real Property transferred hereunder, or their fitness or suitability for any use, except as expressly set forth in the Asset Sale Agreement or this Contract, and that Affiliate Purchaser, in executing, delivering and performing this Contract, does not rely upon any statement made or information given, directly or indirectly, verbally or in writing, to any individual, firm or corporation other than as provided in the representations and warranties in Sections 7.1 and 7.2 of the Asset Sale Agreement. Possession of the Real Property shall be delivered in "as is" condition as of each Real Property Closing Date, subject only to the provisions of Sections 9 and 10 hereof. 10 99 Exhibit J to Asset Sale Agreement 9. RISK OF LOSS. Seller shall bear the risk of loss of each Parcel of Real Property during the period from the date hereof until the Closing Date under the Asset Sale Agreement (also referred to in this Section 9 as the "Closing"). In the event of damage to any Parcel of Real Property by fire or other casualty, act of God or any other event prior to the Closing, Seller shall be deemed to have satisfied its obligations to convey the Real Property hereunder in accordance herewith if (a) Seller shall repair or pay for the cost of repair or restoration of the Real Property caused by such casualty damage, (b) if the insurance proceeds in respect of such damage are received prior to the Closing Date under the Asset Sale Agreement, Seller shall pay or credit the amount of the insurance proceeds, as well as any unpaid claims or rights in connection with such casualty, together with any uninsured amount, against the Adjusted Purchase Price of the Assets under the Asset Sale Agreement as provided therein, (c) if the insurance proceeds described in subparagraph (b) above are received after the Closing Date under the Asset Sale Agreement and on or before the applicable Real Property Closing Date, Seller shall assign such insurance proceeds to Affiliate Purchaser or its assignee Qualified Affiliate at the Real Property Closing and pay or credit to Purchaser any uninsured amount, or (d) if such insurance proceeds are not received by Seller on or before the applicable Real Property Closing Date, Seller shall assign its right to receive such insurance proceeds to Affiliate Purchaser or its assignee Qualified Affiliate at such Real Property Closing and pay or credit to Purchaser any uninsured amount. The insurance proceeds described in the preceding sentence shall include, but not be limited to, any proceeds (a) payable as of the date hereof or (b) paid prior to the date hereof and shall be limited to the proceeds not expended for the repair of such damage or to protect and preserve the damaged property. Prior to the Real Property Closing Date, Affiliate Purchaser or its assignee Qualified Affiliate shall have the right to participate in the negotiations and settlement of any casualty-related claim and any decision regarding the reconstruction or renovation of any improvement on the Real Property. Seller shall have the option to terminate this Contract with respect to any Real Property and to delete the related Mortgage Loan under the Asset Sale Agreement in the event of an uninsured loss or a loss valued at more than thirty percent (30%) of the Adjusted Purchase Price of the related Interim Mortgage Loan under the Asset Sale Agreement. Notwithstanding the foregoing, however, Affiliate Purchaser shall have the right, at its option, to rescind and revoke any such termination by Seller by delivering written notice to Seller, within thirty (30) days after Affiliate Purchaser's receipt of such termination notice, provided that Affiliate Purchaser agrees to take the Real Property in "as is" condition and to relieve Seller of any obligation to pay for the costs of any repair or restoration of the Real Property or any other damages related to or arising as the result of or with respect to such loss or to assign any insurance proceeds received by Seller with respect to such Real Property. Purchaser shall bear the risk of loss of the Real Property after the Closing. 11 100 Exhibit J to Asset Sale Agreement 10. CONDEMNATION. Seller agrees to give Affiliate Purchaser written notice of any action or proceeding instituted or pending, in eminent domain or for condemnation affecting any material part of any Parcel of Real Property, promptly after Seller's receipt thereof. If, prior to the Real Property Closing Date for such Parcel of Real Property, all or any part of such Parcel of Real Property is taken by condemnation or eminent domain proceeding or other transfer in lieu thereof, this Contract shall remain in full force and effect, and Seller will pay to Affiliate Purchaser or its assignee Qualified Affiliate at the Real Property Closing for such Parcel of Real Property an amount equal to the net proceeds received by Seller from such condemnation. However, if by the Real Property Closing Date for any such Parcel of Real Property, Seller has not received the condemnation proceeds, then the parties shall consummate this transaction on the Real Property Closing Date for such Parcel of Real Property and Seller will at such Real Property Closing assign to Affiliate Purchaser or its assignee Qualified Affiliate all rights of Seller to the condemnation award and to all other rights or claims arising out of or in connection with any such eminent domain or condemnation action or proceeding. Notwithstanding the foregoing, nothing contained in this Section 10 shall impair Purchaser's and/or Affiliate Purchaser's exercise of their rights in the event of a breach of Section 7.2(d) of the Asset Sale Agreement. 11. DEFAULT BY AFFILIATE PURCHASER. In the event Affiliate Purchaser or its assignee Qualified Affiliate shall default in its obligations to purchase any Parcel of Real Property hereunder or otherwise breaches this Contract, then: (i) such default or breach shall constitute an Event of Default under the terms and conditions of the Asset Sale Agreement, and (ii) for any default or breach hereunder occurring up to and including the Closing Date under the Asset Sale Agreement, Seller shall be limited to the remedies set forth in Section 11.1 of the Asset Sale Agreement, and for any default or breach hereunder occurring after the Closing Date under the Asset Sale Agreement, Seller may avail itself of any legal or equitable rights (including, without limitation, the right of specific performance and/or money damages) which Seller may have at law or in equity or under this Contract and under the Asset Sale Agreement. Seller shall be reimbursed by Affiliate Purchaser or its assignee Qualified Affiliate for all expenses, including reasonable attorneys' fees, incurred in connection with any action brought under this Section 11 with respect to any default or breach hereunder occurring after the Closing Date under the Asset Sale Agreement. 12. DEFAULT BY SELLER. In the event Seller shall default in its obligations hereunder, then, if prior to Closing under the Asset Sale Agreement, the Deposit shall be returned to Purchaser and neither Purchaser, Affiliate Purchaser nor its assignee Qualified Affiliate shall be entitled to monetary damages, except for direct out-of-pocket expenses proved by Purchaser to have been expended by delivering to Seller documentary evidence thereof satisfactory to Seller, but may seek any equitable rights that may be available. If such default occurs after the Closing under the Asset Sale Agreement, Purchaser, Affiliate Purchaser or its assignee Qualified Affiliate may seek any legal or equitable 12 101 Exhibit J to Asset Sale Agreement rights (including, without limitation, the right of specific performance and to monetary damages) that may be available at law or in equity or under this Contract or the Asset Sale Agreement, subject to the limitations set forth in Section 11.2 of the Asset Sale Agreement. Purchaser, Affiliate Purchaser or its assignee Qualified Affiliate, as the case may be, shall be reimbursed for all expenses, including reasonable attorneys' fees, incurred in connection with any successful action brought under this Section 12. 13. BROKER. Each party hereto represents to the other that it has not dealt with any broker or other party entitled to receive a commission or finder's fee in connection with the execution of this Contract or the conveyance of the Real Property. Each party hereto each covenants and agrees to indemnify, defend and hold the other harmless from and against any and all loss, cost, damage and expense (including attorneys' fees and charges) suffered or incurred by Seller, in any capacity, in connection with a breach of the foregoing representation. 14. WAIVER OF CONDITIONS. Each party hereto reserves the right to waive any of the terms or conditions of this Contract which are for the benefit of such party and to consummate the transaction contemplated hereby in accordance with the terms and conditions of this Contract which have not been so waived. Any such waiver must be in writing signed by the party so waiving any of such terms or conditions. 15. ASSIGNMENT. Except as specifically provided in Paragraph 5 above or in the Asset Sale Agreement, neither Affiliate Purchaser nor its assignee Qualified Affiliate shall have the right to assign its rights, interests, duties and obligations in and to this Contract or with respect to any Parcel of Real Property to any party other than a Qualified Affiliate without the prior written consent of the Seller. 16. NOTICES. Unless otherwise provided for herein, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered, if sent by registered or certified mail (return receipt requested), (b) when delivered, if delivered personally, (c) when transmitted, if sent by facsimile if a confirmation of transmission is produced by the sending machine (and a copy of each facsimile promptly thereafter sent by ordinary mail), or (d) on the following Business Day, if sent by overnight mail or overnight courier, in each case to the parties at the following addresses or facsimile numbers (or at such other addresses or facsimile numbers as shall be specified by like notice): 13 102 Exhibit J to Asset Sale Agreement (a) If to Seller: City National Bank Executive Management 606 S. Olive Street, Suite 900 Los Angeles, CA 90014 Attention: Jeffery Puchalski, Executive Vice President Fax: (213) 629-3677 with a copy to: City National Bank Legal Department 9701 Wilshire Boulevard, 9th Floor Beverly Hills, CA 90212-2050 Attention: Office of the General Counsel Fax: (310) 273-5859 (b) If to Purchaser, at WHC-THREE Investors, L.P. c/o WHC-THREE Investors, Inc. 85 Broad Street, 19th Floor New York, NY 10004 Attention: Neil Hasson Fax: (212) 902-3000 with a copy to: Arent Fox Kintner Plotkin & Kahn 1050 Connecticut Ave., N.W. Washington, D.C. 20036-5339 Attention: Mark M. Katz, Esq. Fax: (202) 857-6395 The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication within any corporation or firm to the persons designated to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 14 103 Exhibit J to Asset Sale Agreement 17. ENTIRE AGREEMENT. This Contract is part of several agreements entered into by and among Seller, Purchaser and Affiliate Purchaser. This Contract shall be construed in accordance with the agreements set forth in the Asset Sale Agreement, the Loan and Security Agreement and such other documents as are deemed necessary by the parties. 18. PARTIAL INVALIDITY. If any terms, covenants or conditions of this Contract shall be held invalid or unenforceable, the remainder of this Contract shall nevertheless survive and be binding upon the parties hereto. 19. GOVERNING LAW; ARBITRATION. 19.1 GOVERNING LAW. This contract shall be governed by, and construed and interpreted in accordance with the laws of the State of California. 19.1 ARBITRATION. Any controversy or claim between Affiliate Purchaser and, upon the assumption hereof by Qualified Affiliate, Qualified Affiliate and Seller arising out of or relating to this Contract or any actions or conduct of either in connection therewith (including, but not limited to, any claim based on or arising from an alleged tort) shall at the request of Affiliate Purchaser or Qualified Affiliate, as the case may be, or Seller be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Contract, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitrator(s) shall resolve all claims and defenses or other matters in dispute in accordance with applicable law, including, but not limited to, all statutes of limitation. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction. No provision of this Contract shall limit the right of either Affiliate Purchaser or Qualified Affiliate, as the case may be, or Seller to exercise self-help remedies such as setoff, or obtaining provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The institution and maintenance of any action for judicial relief or pursuit of provisional or ancillary remedies shall not constitute a waiver of the right of either Affiliate Purchaser or Qualified Affiliate, as the case may be, or Seller to submit the controversy or claim to arbitration if the other party contests such action for judicial relief. NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED 15 104 Exhibit J to Asset Sale Agreement IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHT TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION" PROVISIONS. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. THE UNDERSIGNED HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION TO NEUTRAL ARBITRATION. ______________________________ ______________________________ AFFILIATE PURCHASER'S INITIALS SELLER'S INITIALS 20. SURVIVAL. Unless provided herein to the contrary, the provisions of this Contract and the representations and warranties herein shall survive the conveyance of title and payment of the Purchase Price and shall not be merged therein. 21. RIGHT OF INSPECTION. During such time as the Interim Mortgage remains outstanding, Seller shall have the right to inspect the Real Property. Affiliate Purchaser and any Qualified Affiliate shall have the right to inspect each Parcel of Real Property prior to the Real Property Closing Date for each Parcel of Real Property. 16 105 Exhibit J to Asset Sale Agreement IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AFFILIATE PURCHASER: WHC-THREE INVESTORS, L.P., a Delaware limited partnership By: WHC-THREE INVESTORS, INC., a Delaware corporation, general partner By: ________________________________ Its: _______________________________ SELLER: CITY NATIONAL BANK, a national banking association, By: ________________________________ Its: _______________________________ 17 106 Exhibit J to Asset Sale Agreement INDEX OF EXHIBITS Exhibit A - Description of Real Property Exhibit B - Form of Assignment to and Assumption by Qualified Affiliate Exhibit C - Schedule of Interim Mortgage Loans 18 107 Exhibit J to Asset Sale Agreement EXHIBIT A TO SALES CONTRACT 19 108 EXHIBIT A Legal Description - Asset No. 56 PARCEL 1: LOT 1 OF TRACT NO. 46505, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 1178 PAGES 9 THROUGH 10 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT UNITS 101 THROUGH 104 INCLUSIVE, 201 THROUGH 204 INCLUSIVE, 301 THROUGH 305 INCLUSIVE, 401 THROUGH 405 INCLUSIVE AND UNIT 1 AS SHOWN AND DEFINED ON THE CONDOMINIUM PLAN RECORDED APRIL 9, 1992 AS INSTRUMENT NO. 92-625972. PARCEL 2: UNITS 101 THROUGH 104 INCLUSIVE, 201 THROUGH 204 INCLUSIVE, 301 THROUGH 305 INCLUSIVE, 401 THROUGH 405 INCLUSIVE AND UNIT NO. 1 AS SHOWN AND DEFINED ON THE CONDOMINIUM PLAN ABOVE MENTIONED. PARCEL 3: AN EXCLUSIVE, PERPETUAL, APPURTENANT EASEMENT FOR THE CONSTRUCTION, ENJOYMENT, USE, MAINTENANCE, REPAIR, IMPROVEMENT AND REPLACEMENT OF THAT CERTAIN GARDEN WALL AND SUBTERRANEAN PARKING LOT WALL AND RELATED IMPROVEMENTS LOCATED WITHIN, BELOW THE SURFACE, FOR ALL ADDITIONAL USES THAT ARE REASONABLY NECESSARY OR INCIDENTAL THERETO, OVER THE FOLLOWING DESCRIBED PROPERTY: THAT PORTION OF LOT 21 OF TRACT NO. 10199, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 176 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE MOST NORTHERLY CORNER OF LOT 1 OF TRACT NO. 46505, AS PER MAP RECORDED IN BOOK 1178 PAGES 9 AND 10, IN THE OFFICE OF THE COUNTY RECORDER, AND BEING ALSO THE NORTHWEST CORNER OF LOT 1 OF TRACT 34730, AS PER MAP RECORDED IN BOOK 938 PAGES 86 AND 87, IN OFFICE OF SAID COUNTY; SAID POINT OF COMMENCEMENT BEING ON THE MOST NORTHERLY LINE OF SAID TRACT NO. 46505; THENCE ALONG SAID NORTHERLY LINE SOUTH 72 DEGREES 53 MINUTES 33 SECONDS WEST 28.30 FEET TO THE TRUE POINT OF BEGINNING OF THIS DESCRIPTION; THENCE ALONG SAID MOST NORTHERLY LINE SOUTH 72 DEGREES 53 MINUTES 33 SECONDS WEST 149.90 FEET; THENCE NORTH 17 DEGREES 06 MINUTES 27 SECONDS WEST 1.80 FEET; THENCE NORTH 73 DEGREES 34 MINUTES 50 SECONDS EAST 149.91 FEET TO THE TRUE POINT OF BEGINNING, AS CONVEYED BY DEED RECORDED SEPTEMBER 20, 1993 AS INSTRUMENT NO. 93- 1830430. 109 Exhibit J to Asset Sale Agreement EXHIBIT B TO SALES CONTRACT FORM OF ASSIGNMENT TO AND ASSUMPTION BY QUALIFIED AFFILIATE OF REAL PROPERTY SALES CONTRACT FOR VALUE RECEIVED, as of the ____ day of ________________________, 1994, the undersigned, ___________________________________, a _______________________________________________ corporation (the "Assignor"), hereby assigns, transfers, sets over, grants and conveys unto ______________________________________________, a _________________________ [corporation/partnership], its successors and assigns (the "Assignee") all of its right, title, privilege and interest in and to that certain Real Property Sales Contract dated _____________________________, 1993 between the Assignor and City National Bank. In consideration of this Assignment, Assignee shall pay to Assignor the sum of $_____________________. Assignee hereby accepts this Assignment and assumes all of the obligations of Assignor under the aforementioned Sales Contract from and after the date hereof. This Assignment shall be binding upon and shall inure to the benefit of Assignor and Assignee and their respective successors and assigns. The Assignee hereby accepts the foregoing Assignment, and agrees to perform each and every duty and obligation of the Assignor incurred as of the date hereof and hereafter relating to the subject matter of this Assignment, as fully and completely as though the Assignee was the party named as the Assignor in the instruments hereby assigned. IN WITNESS WHEREOF, and intending to be legally bound, the undersigned has executed this Assignment under seal as of the day and year first hereinabove written. WITNESS/ATTEST: ASSIGNOR: _____________________________________ [Corporation/Partnership] ______________________________ By: _________________________________ [corporate seal] Its: ________________________________ (Signatures continued on next page) 20 110 Exhibit J to Asset Sale Agreement (Signatures continued from previous page) WITNESS/ATTEST: ASSIGNEE: _____________________________________ [Corporation/Partnership] __________________________________ By: _________________________________ [corporate seal] Its: ________________________________ 21 111 Exhibit J to Asset Sale Agreement EXHIBIT C TO REAL PROPERTY SALES CONTRACT Schedule of Interim Mortgage Loans 22 112 CITY NATIONAL BANK SCHEDULE OF INTERIM MORTGAGE LOANS EXHIBIT C POOL 1
Interim Asset Pool Mortgage # No. Asset Name Street Address City County State Zip Code Amount - ----- ---- ---------- -------------- ---- ------ ----- -------- -------- 56.00 1 453 Barrington 453 Barrington Avenue Brentwood Los Angeles CA 90049 3,536,000.00 ------------ TOTAL 3,536,000.00 ============
113 Exhibit L to Asset Sale Agreement Form of INTERIM MORTGAGE (Exhibit L continued on next page) 114 Recording Requested By And When | Recorded Mail To: | | | | Attn: | | | - ----------------------------------------------------------------------------- Space Above this Line for Recorder's Use Form of INTERIM MORTGAGE DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT This Deed of Trust, Assignment of Rents and Security Agreement (the "Mortgage") is made this ___ day of 1993, between CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION, herein called TRUSTOR, whose address is 606 S. Olive Street, 20th Floor, Los Angeles, CA, CHICAGO TITLE INSURANCE COMPANY, a California corporation, herein called TRUSTEE, and _________, California ______________, herein called BENEFICIARY. Unless otherwise defined herein, each capitalized term used in this Mortgage shall have the same meaning ascribed thereto in the Loan and Security Agreement or the Interim Mortgage Note, both of even date herewith. Trustor IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS to TRUSTEE IN TRUST, WITH POWER OF SALE, that property in __________________________ County, California, described in Exhibit A attached hereto and made a part hereof (the "Land"): TOGETHER with all right, title and interest of Trustor, including any after-acquired title or reversion, in and to any strips and/or gores and/or the beds of the ways, streets, avenues, and alleys adjoining the Land; and TOGETHER with all and singular the tenements, hereditaments, easements, appurtenances, mineral rights, air, development and zoning rights, working interests, passage, water rights, water courses, riparian rights, utility commitments and/or reservations, permits, other rights, liberties and privileges thereof or in any way now or hereafter appertaining to the Land, including any homestead or other claim at law or in equity, as well as any after-acquired title, franchise or license and reversion and reversions and remainder and remainders thereof; and TOGETHER with all buildings and improvements of every kind and description now or hereafter erected or placed thereon (collectively, the "Improvements"), and all materials now or hereafter owned by Trustor intended for construction, reconstruction, alterations and repairs of the Improvements now or hereafter erected thereon, all of which materials shall be deemed to be included within the Property hereby conveyed immediately upon the delivery thereof to the Land, and all fixtures and articles of personal property now or hereafter owned by the Trustor and attached to or contained in and used in connection with the Land or the Improvements, including, but not limited to, the Equipment (as defined in Section 6.2 below); and all spare parts, renewals, or replacements thereof or articles in substitution therefor, whether or not the same are or shall Exhibit L to the Asset Sale Agreement 1 115 be attached to said building or buildings in any manner; and all proceeds thereof; it being mutually agreed that all the aforesaid property owned by Trustor and placed by it on the Land shall so far as permitted by law, be deemed to be fixtures and affixed to the realty and encumbered by this Mortgage; and TOGETHER with all judgments, insurance proceeds, awards of damages and settlements hereafter made as a result or in lieu of any taking, permanent or temporary, of the Land and the Improvements or any part thereof under the power of eminent domain, or by deed in lieu thereof, or for any damage, whether caused by such taking or otherwise, to the Land and the Improvements or any part thereof, and all insurance policies and insurance proceeds pertaining to the Land and the Improvements, as hereinafter defined, and all awards and payments that shall become payable with respect to any damage to the Land and the Improvements or any part thereof; and TOGETHER with any and all other, further or additional right, title, or interest in or to any of the foregoing described collateral, which may at any time hereafter be acquired by Trustor (or any entity in any way related to Trustor). The aggregate of the Land, the Improvements, the Equipment and all of the other rights and interests described above is hereinafter collectively referred to as the "Property." In addition to the foregoing, Trustor hereby absolutely and unconditionally assigns to Beneficiary, as a present assignment and not as an assignment for security purposes, all leases of the Land and/or the Improvements, or any parts thereof, now or hereafter entered into and all right, title and interests of Trustor thereunder, and all of the rents, issues and profits of the Land and/or the Improvements, as more fully provided in Section 6.1 below. This Mortgage is made for the purpose of securing: 1. Performance of each agreement of Trustor herein contained, and repayment of any funds advanced by Beneficiary or Trustee or which Beneficiary or Trustee become obligated to advance under this Mortgage. 2. Payment of the indebtedness evidenced by one Interim Mortgage Note of even date herewith, and any extension or renewal thereof, in the principal sum of $________________________ executed by Trustor in favor of Beneficiary or order. 3. Payment of such further sums as the then record owner of the Property hereafter may borrow from Beneficiary, when evidenced by a promissory note or notes reciting it is so secured. TO PROTECT THE SECURITY OF THIS MORTGAGE, TRUSTOR COVENANTS TO AND AGREES WITH BENEFICIARY AS FOLLOWS: 4. Trustor shall, with respect to the Property: 4.1 Keep the Property in good condition and repair; 4.2 Not remove or demolish any building or other structure; Exhibit L to the 2 Asset Sale Agreement 116 4.3 Complete or restore promptly and in good and workmanlike manner any building or other structure which may be constructed, damaged or destroyed and pay when due all claims for labor performed and materials furnished therefor; 4.4 Comply with all laws affecting the Property or requiring any alterations or improvements to be made thereon; 4.5 Not commit, suffer or permit waste; 4.6 Not commit, suffer or permit any act upon the Property in violation of law, including but not limited to all Federal, state and local statutes, ordinances or regulations relating to hazardous or toxic waste; 4.7 Cultivate, irrigate, fertilize, fumigate, prune and do all other acts which from the character or use of the Property may be reasonably necessary to maintain its value, the specific enumerations herein not excluding the general; 4.8 Provide, maintain and deliver to Beneficiary such evidence of insurance coverage as is satisfactory to and with loss payable to Beneficiary. 4.9 Appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; and pay all costs and expenses, including cost of evidence of title and attorneys' fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Mortgage. 4.10 Pay at least ten (10) days before delinquency all taxes and assessments affecting the Property, including assessments on appurtenant water stock; 4.11 Pay when due, all encumbrances, charges and liens which appear to be prior or superior to the lien created by this Mortgage, together with any interest, costs or other sums secured thereby; 4.12 Cure within the time specified in any lease or sublease, or immediately if not specified, any defaults or breaches thereof and do all acts necessary to insure that any such lease or sublease remain in full force and effect; 4.13 With respect to any property described above which is less than a fee-simple estate, including but not limited to a leasehold estate: 4.13.1 Trustor shall cure within the time specified in the above-described lease, or other agreement, or immediately if not specified therein, any default or breaches thereof and to do all acts necessary to insure the above-described lease or other agreement remains in full force and effect; 4.13.2 Trustor shall not voluntarily terminate, surrender or subordinate any leasehold or other estate encumbered hereby and any attempt by Trustor to do so shall be wholly void and without any force and effect. 5. Trustor covenants and agrees that to effectuate the terms and conditions of this Mortgage: 5.1 Trustor shall, upon reasonable notice by Beneficiary, during normal business hours or at such other time if reasonably required, permit Beneficiary, and any of its agents or employees to inspect the Property and copy such records of Trustor that pertain to the Property, whether or not located at the Property. 5.2 Should Trustor fail to make any payment or to do any act as herein provided, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereof, may: make or do the same in Exhibit L to the 3 Asset Sale Agreement 117 such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary or Trustee being authorized to enter upon the Property for such purposes; appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; pay, purchase, contest or compromise any encumbrance, charge or lien which in the judgment of either appears to be prior or superior hereto; and, in exercising any such powers, pay necessary expenses, employ counsel and pay his reasonable fees. Trustor shall pay immediately and without demand all sums so expended by Beneficiary or Trustee, with interest from date of expenditure at the amount set forth in the obligation secured hereby, or if the obligation secured hereby does not specify a rate of interest, at a rate of interest equal to the Trustor's Prime Rate as it may exists from time to time plus three percent (3.0%) but in no event less than ten percent (10.0%) per annum. 5.3 Trustor agrees to indemnify and hold Beneficiary, and any of its successors in interest, harmless from any waste or violations of law, including but not limited to all Federal, state and local statutes, ordinances or regulations relating to hazardous or toxic wastes. 5.4 Any award of damages in connection with any condemnation for public use of or injury to the Property is hereby assigned and shall be paid to Beneficiary who shall apply said moneys in reduction of the principal amount of the indebtedness secured to the extent necessary to render its security unimpaired. If the obligation secured hereby includes obligations to reimburse the Beneficiary for moneys the Beneficiary is committed to advance to Trustor or third persons in the future, said award of damages shall be held as collateral for such reimbursement obligation in lieu of the property which is condemned. In the event of a partial taking in condemnation, the proceeds shall be apportioned in accord with the provisions of California Code of Civil Procedure Section 1265.225, as it is in effect at the time of the award. An action for inverse condemnation shall be deemed an action for condemnation under this paragraph. 5.5 Insurance proceeds shall be held, in trust, by Beneficiary and applied to the reasonable costs of repair and restoration of the Property if such proceeds, together with funds supplied by Trustor, are sufficient to restore the Property in such a manner that the Beneficiary's security interest hereunder remains unimpaired. If the insurance proceeds, together with funds supplied by Trustor, are not sufficient to restore the Property in such a manner that the Beneficiary's security interest hereunder remains unimpaired, said proceeds, at the option of Beneficiary, may be applied to the obligation secured hereby or to restoration of the Property. If Trustor disagrees with Beneficiary's disposition of insurance proceeds hereunder, Trustor agrees to submit the matter to binding arbitration before a three-member panel (or one-member panel if the insurance proceeds are less than $200,000) of the American Arbitration Association pursuant to the rules and regulations of the American Arbitration Association. The arbitrators shall also apportion the costs of arbitration, including attorneys' fees, to the extent each party has prevailed. 5.6 Trustor covenants and agrees (i) to pay, for the purpose of establishing an escrow account (the "Estimated Accrual Account") to be held by Trustor for the benefit of Beneficiary (which account shall not bear interest), an initial amount equal to the Proration Amount, as such term is defined below, and (ii) thereafter to continue to pay into the Estimated Accrual Account monthly to the extent available from Cash Flow, on each and every monthly payment date, One-Twelfth (1/12th) of the estimated annual real estate taxes, assessments and hazard insurance premiums on the Property, as Permitted Expenses. The amount of such real estate taxes, assessments and hazard insurance premiums, when unknown, shall be reasonably estimated by Trustor). Such deposits shall be used by Trustor or, if title to the Real Property has been then transferred, Beneficiary to pay such real estate taxes, assessments, and hazard insurance Exhibit L to the 4 Asset Sale Agreement 118 premiums when due. The enforceability of the covenants relating to Trustor's payment of real estate taxes, assessments and hazard insurance premiums herein otherwise provided shall not be affected except insofar as those obligations have been met by compliance with this Section 5.6. As used herein, "Proration Amount" means that amount of real estate taxes, assessments and hazard insurance premiums which would be payable by Beneficiary as Seller if the Real Property were transferred to Beneficiary as Purchaser on the Closing Date. 6. Trustor hereby assigns to Beneficiary the following additional rights and interests: 6.1 All leases, whether written or oral, and all other agreements for use or occupancy of any portions of the Land and/or the Improvements, together with any and all extensions and renewals thereof and any and all further leases, lettings or agreements (including, but not limited to, subleases thereof and tenancies following attornment) upon or covering use of occupancy of all or any part of the Land and/or the Improvements, together with any and all guarantees of any lessee's performance under any of said leases or other agreements; and the immediate and continuing right, power and authority, during the continuance of these Trusts, to collect the rents, issues and profits of the Property, reserving unto Trustor the right, prior to any default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, to collect and retain such rents, issues and profits as they become due and payable. Upon any such default, Beneficiary may at any time without notice, either in person, by agent, or by a receiver to be appointed by a court, and without regard to the adequacy of any security for the indebtedness hereby secured, enter upon and take possession of the Property or any part thereof, in its own name sue for or otherwise collect such rents, issues and profits, including those past due and unpaid, and apply the same, less costs and expenses of operation and collection, including reasonable attorneys' fees, upon any indebtedness secured hereby, and in such order as Beneficiary may determine. The entering upon and taking possession of the Land and the Improvements, the collection of such rents, issues and profits and the application thereof as aforesaid, shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. The absolute assignment of leases, rents, issues and profits contained in this Section 6.1 constitutes an absolute, unconditional and present transfer of Trustor's interest in existing and future leases, rents, issues and profits with respect to the Property described in this Mortgage effective upon the execution and delivery of this Mortgage and such assignment is not intended to be, and shall not be construed to be, a conditional assignment or an assignment for security purposes only; and 6.2 A security interest under the applicable Uniform Commercial Code in and to the following Property (hereinafter referred to as the "Collateral"), as additional security for the payment and performance of the obligations secured by this Mortgage: 6.2.1 All of the personal property of any kind whatsoever (excluding all such Property which is owned by occupancy tenants of the Trustor and installed for the purposes of their tenancy if such occupancy tenant has the right to remove the same at or before the expiration of the term of the applicable lease), including, but not limited to, all materials, machinery, apparatus, equipment, furnishings, furniture, fixtures and all other goods, chattels and articles of personal Property including, without limitation, all building materials and supplies, all construction equipment, all medical equipment and supplies, furniture, rugs and carpets, linens and bedding materials, televisions, radios and other sound equipment, kitchen fixtures, utensils, and all cooking and serving equipment, furnaces, boilers, oil burners, refrigeration, air conditioning and sprinkler systems, awnings, screens, window shades, draperies, motors, dynamos, incinerators, plants Exhibit L to the 5 Asset Sale Agreement 119 and shrubbery, and all other equipment, machinery, appliances, fittings and fixtures, whether personal Property, inventory or fixtures, whether now owned or hereafter from time to time acquired by the Trustor, together with all substitutions, replacements, additions, attachments, accessories, accretions, their component parts thereto or thereof, all other items of like Property (collectively, the "Equipment"). 6.2.2 All accounts and contract rights covering or relating to any or all thereof, including any proceeds and products thereof, whether now in existence or hereafter arising, and relating to, situated or located on, or used or usable in connection with, the construction, maintenance or operation of the Property and all receipts, earnings, revenues, rents, issues, profits, avails and other income due to or received by Trustor from the operation, ownership or leasing of the improvements or any part thereof and all rights to receive the same, whether in the form of accounts receivable or otherwise. 6.2.3 All judgments, insurance proceeds, awards of damages and settlements hereafter made as a result or in lieu of any taking, permanent or temporary, of the Property or any part thereof under the power of eminent domain, or by deed in lieu thereof, or for any damage, whether caused by such taking or otherwise, to the Property or any part thereof, and all insurance policies and insurance proceeds pertaining to the Property and all awards and payments that shall become payable with respect to any damage to the Property or any part thereof. 6.2.4 All construction contracts, purchase orders, subcontracts, architectural and engineering contracts, the Approved Plans and Specifications, all building permits, any bonds in favor of Trustor, and all other contracts, agreements, permits, authorizations, or guarantees of work, material or performance in any way relating to the construction of the Improvements, now existing or arising at any time hereafter during the term of the Loan, including all amendments, modifications, replacements and/or additions to any of the foregoing. 6.2.5 Any and all other, further, or additional right, title, or interest in or to any of the foregoing described collateral, which may at any time hereafter be accrued by the Trustor (or any entity in any way related to Trustor or any of its partners), to secure payment of the Note, as well as to secure the performance by the Trustor of its obligations under this Mortgage. 6.3 Incident thereto, Trustor agrees with Beneficiary as follows: 6.3.1 Trustor warrants and represents that: 6.3.2 At its option, Beneficiary may, but shall not be required to, discharge taxes, liens or security interests or other encumbrances at any time levied or placed on the Collateral; may, but shall not be required to, pay for insurance on the Collateral; and may, but shall not be required to, pay for the maintenance and preservation of the Collateral. Trustor agrees to reimburse Beneficiary on demand for any payment made, or any expense incurred, by Beneficiary pursuant to the foregoing authorization together with interest thereon at the rate set forth in the Note, from the date incurred until reimbursed by Trustor. Until default, Trustor may have possession of the Collateral and use it at all times as personal Property and for business purposes, and in a lawful manner not inconsistent with the provisions hereof and not inconsistent with any policy of insurance thereon. 6.3.3 Upon any Event of Default and at any time thereafter, Beneficiary may exercise, in addition to but not in replacement of any remedy set forth in Section 11 below, all of the rights and remedies of a Secured Party under the Uniform Commercial Code of the state in which the Collateral is located or otherwise as provided by law, including, without limitation, the Exhibit L to the 6 Asset Sale Agreement 120 right to sell all or any part of the Collateral at public or private sale. In any case where Beneficiary determines to give notice of any sales or other dispositions of Collateral, the mailing of notice to Trustor at least ten (10) days before any sale or other disposition, conclusively shall be deemed reasonable notice thereof. Expenses of retaking, holding, preparing for sale, selling or the like shall include Beneficiary's attorneys' fees and legal expenses and are secured hereby as part of said obligations. If the proceeds realized from disposition of the Collateral shall fail to satisfy Trustor's obligations (including the expenses mentioned above) Trustor shall immediately pay any deficiency balance to Beneficiary. 6.3.4 In the event Beneficiary elects to dispose of the Collateral by public sale, it shall advertise for sale under this Mortgage, by notice of such sale published in some newspaper published in the jurisdiction where the Collateral is located for such number of times as is required by all applicable laws and rules of the jurisdiction in which the Collateral is located, giving notice of the time, place and terms of such sale. Beneficiary may, at its option, sell the Collateral as a whole or in parcels and such sale may be held at the courthouse door in the jurisdiction where the Collateral is located, at the place where the Collateral is located, or at any other commercially reasonable place, all at the option of Beneficiary, but in no event shall it be necessary that the Collateral be present at the sale. 6.3.5 Upon the occurrence of an Event of Default, Beneficiary may enter upon the Property to take possession of the Property and the Collateral, or at its option may require Trustor to assemble the Collateral at any place designated by Beneficiary reasonably convenient to the parties. If necessary to obtain the possession provided for above, Beneficiary may invoke any and all available legal remedies to dispossess Trustor, including without limitation, one or more actions for forcible entry and detainer, trespass to try title, restitution and appointment of a receiver. 6.3.6 Trustor will do all acts requested by the Beneficiary, including but not limited to the execution and filing of all instruments (such as security agreements, financing statements, and continuation statements) necessary to establish, maintain and continue perfected the security interests of Beneficiary in the Collateral, will promptly on demand pay all costs of any searches deemed necessary by Beneficiary to establish and determine the validity and the priority of the security interest of Beneficiary, and also all other claims and charges which in the opinion of Beneficiary might prejudice, imperil or otherwise affect the Collateral or Beneficiary's security interest therein. 6.3.7 No waiver by Beneficiary of any default shall operate as a waiver of any other default or of the same default on a future occasion. All rights of Beneficiary hereunder shall inure to the benefit of its successors and assigns; and all obligations of Trustor shall bind its successors and assigns. 6.3.8 No delay or failure on the part of Beneficiary in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Beneficiary of any right or remedy shall operate as a waiver thereof, or the exercise of any other right or remedy. 6.3.9 Trustor further specifically agrees that, in any exercise of the rights of Beneficiary under this or any other instrument, any combination or all of the Property, rights or security given to secure Trustor's indebtedness to Beneficiary may be offered for sale for one total price, and the proceeds of any such sale accounted for in one account without distinction between Exhibit L to the 7 Asset Sale Agreement 121 the items of security or without assigning to them any proportion of such proceeds, Trustor hereby waiving the application of any doctrine of marshalling. 7. Trustor or any other person legally entitled thereto agrees to pay $60.00 for any statement provided for by law in effect at the date hereof regarding the obligation secured hereby. 7.3.1.1 Trustor is the lawful owner of such Collateral and is, or when it acquires same it will be, in possession of the same free and clear from any lien, security interest or encumbrance; no Financing Statement or other notice of lien agreement or lien is on file or record at any public office which relates to any of the Collateral or which could through general language relate thereto; Trustor has good right to pledge, sell, consign, assign, transfer and create a security interest in the same; and Trustor at its cost and expense will protect and defend the security interest created herein and the Collateral against all adverse claims that any of the Collateral has ceased to be personal Property; 7.3.1.2 The Collateral shall continue to be free from all pledges, liens, encumbrances and security interests or other claims in favor of others; and the Trustor shall warrant, and, at the Beneficiary's request, defend the same from all claims and demands of all persons; 7.3.1.3 The Collateral will only be used by Trustor in the construction, maintenance and operation of the Property, and will not be held for sale, lease or transfer to others, or otherwise disposed of by the Trustor without the written consent of the Beneficiary, except as may be specifically permitted herein; 7.3.1.4 The tangible Collateral will be located at the Property, and the Collateral will not be removed therefrom without the prior written consent of the Beneficiary unless Collateral is immediately replaced with similar items owned by the Trustor and which are of equal or greater value; and 7.3.1.5 Trustor will, at its own cost and expense, keep the Collateral in as good and substantial order, repair and condition as the same is in at this date, or as the same is when acquired, reasonable wear and tear alone excepted, making replacements when and as necessary, and, in this connection, Beneficiary hereby gives its written consent to the removal by Trustor of the same, or any part thereof, from the Property if such removal is necessary so to do in connection with Trustor's fulfilling of its obligations under this subsection 6.3.1.5, and if the priority of its security interest therein will not be materially jeopardized. 7.0.1 Trustor agrees that Beneficiary, or its agents, may enter upon the Property at any time, and from time to time, for the purpose of inspecting the Collateral, and any and all records pertaining thereto. Trustor agrees to notify Beneficiary promptly of any change in its mailing address or principal place of business, in order that a prompt refiling of any outstanding notices may be made, if necessary. Trustor also is to advise Beneficiary, within thirty (30) days, of any new facts which, under applicable provisions of law, would affect the priority of the security interest granted to Beneficiary by this instrument. 8. Beneficiary, or any successor in ownership of any indebtedness secured hereby, may from time to time, by instrument in writing, substitute a successor or successors to any Trustee named herein or acting hereunder, which instrument, executed by Beneficiary and duly acknowledged and recorded in the office of the recorder of the county or counties where the Property is situated, shall be conclusive proof of proper substitution of such successor Trustee or Trustees, who shall, without conveyance from Trustee predecessor, succeed to all its title, estate, rights, powers and duties. Said Exhibit L to the 8 Asset Sale Agreement 122 instrument must contain the name of the original Trustor, Trustee and Beneficiary hereunder, the book and page where this Mortgage is recorded and the name and address of the new Trustee. 9. At any time or from time to time, without liability therefor and without notice, upon written request of Beneficiary and presentation of this Mortgage and the evidence of the obligation secured hereby for endorsement, and without affecting the personal liability of any person for payment of the indebtedness secured hereby, Trustee may: reconvey any part of the Property; consent to the making of any map or plat thereof; join in granting any easement thereon; or join in any extension agreement or any agreement subordinating the lien or charge hereof. 10. Upon written request of Beneficiary stating that all sums secured hereby have been paid, if applicable, Beneficiary's statement that no further commitment exists to make future advances or extend credit, and upon surrender of this Mortgage and the evidence of the obligation secured hereby to Trustee for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the Property then held hereunder. Upon written request of Beneficiary, if less than all sums secured hereby have been paid, Trustee shall reconvey, without warranty, the portion of the Property then held hereunder specified by Beneficiary. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." Five (5) years after issuance of such full reconveyance, Trustee may destroy the evidence of indebtedness and this Mortgage (unless directed in such request to retain them). 11. Upon default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, the following provisions shall apply: 11.1 Beneficiary may declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for sale and of written notice of default and of election to cause to be sold the Property, which notice Trustee shall cause to be filed for record. Beneficiary also shall deposit with Trustee this Mortgage, the evidence of the obligation secured hereby and all documents evidencing expenditures secured hereby. 11.2 To the extent the obligation secured hereby arises from a commitment of Beneficiary to make future advances either to Trustor or a third party or extend credit subsequent to the recordation of a notice of default hereunder, the sums secured hereby shall also include the amount of such commitment to make future advances or extend credit, and subject to acceleration as provided in the previous paragraph. The Trustee shall pay such amount at such time as it pays all other sums secured hereby and the Beneficiary shall hold same as additional collateral for the obligation secured hereby, at such interest as is available to Beneficiary's customers in an insured deposit account with no restrictions on withdrawal. 11.3 After the lapse of such time as may then be required by law following the recordation of said notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Trustor, shall sell the Property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder for cash in lawful money of the United States, payable at the time of sale. Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter may postpone sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the Property so sold, but without any covenant or warranty, Exhibit L to the 9 Asset Sale Agreement 123 express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee or Beneficiary may purchase at such sale. 11.4 If the Property consists of more than one lot or parcel, the lots or parcels may be sold separately, together or in any combination, at the sole discretion of Beneficiary. Trustor waives the right to direct the order in which the Property may be sold when it consists of more than one lot or parcel. The order of sale of the Property when it consists of more than one lot or parcel shall be at the sole discretion of the Beneficiary. 11.5 After deducting all costs, fees and expenses of Trustee and of this Trust, including cost of evidence of title in connection with sale, Trustee shall apply the proceeds of sale to payment of: all sums expended under the terms hereof, not then repaid, with accrued interest at the amount allowed by law in effect at the date hereof; all other sums then secured hereby; and the remainder, if any, to the person or persons legally entitled thereto. 12. This Mortgage applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns. The term "Beneficiary" shall mean the owner and holder, including pledgees, of the evidence of the obligation secured hereby, whether or not named as Beneficiary herein. In this Mortgage, whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. By accepting payment of any sum secured hereby after its due date, Beneficiary does not waive its right either to require prompt payment when due of all other sums so secured or to declare default for failure so to pay. 13. That Trustee accepts this Trust when this Mortgage, duly executed and acknowledged, is made a public record as provided by law. Trustee is not obligated to notify any party hereto of pending sale under any other Mortgage or of any action or proceeding in which Trustor, Beneficiary or Trustee shall be a party unless brought by Trustee. 14. SHOULD TRUSTOR OR ITS SUCCESSOR IN INTEREST WITHOUT THE PRIOR WRITTEN CONSENT OF BENEFICIARY, SELL, TRANSFER, MORTGAGE, PLEDGE, HYPOTHECATE, ASSIGN OR ENCUMBER ITS INTEREST IN THE PROPERTY (OR ANY PART THEREOF), WHETHER VOLUNTARILY OR INVOLUNTARILY, THEN BENEFICIARY MAY AT ITS ELECTION DECLARE ALL SUMS SECURED HEREBY IMMEDIATELY DUE AND PAYABLE. THIS PROVISION SHALL APPLY TO EACH AND EVERY SALE, TRANSFER, MORTGAGE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR ENCUMBRANCE REGARDLESS WHETHER OR NOT BENEFICIARY HAS CONSENTED TO, OR WAIVED, ITS RIGHT HEREUNDER, WHETHER BY ACTION OR NON-ACTION, IN CONNECTION WITH ANY PREVIOUS SALE, TRANSFER, MORTGAGE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR ENCUMBRANCE, WHETHER ONE OR MORE. 15. ANYTHING CONTAINED IN ANY PROVISION OF THIS MORTGAGE OR THE INTERIM MORTGAGE NOTE SECURED HEREBY TO THE CONTRARY NOTWITHSTANDING, IF ANY FORECLOSURE PROCEEDING IS BROUGHT UNDER THE PROVISIONS OF THIS MORTGAGE OR IF ANY OTHER ACTION IS BROUGHT TO ENFORCE THE PROVISIONS OF THIS MORTGAGE OR THE INTERIM MORTGAGE NOTE SECURED HEREBY, BENEFICIARY SHALL NOT BE ENTITLED TO TAKE ANY Exhibit L to the 10 Asset Sale Agreement 124 ACTION TO PROCURE ANY MONEY JUDGMENT IN PERSONAM OR ANY DEFICIENCY DECREE AGAINST TRUSTOR EXCEPT TO THE EXTENT OF TRUSTOR'S INTEREST IN THE PROPERTY OR THE COLLATERAL; PROVIDED, HOWEVER, THAT NOTHING IN THE PROVISIONS OF THIS MORTGAGE SHALL BE DEEMED TO LIMIT OR IMPAIR THE ENFORCEMENT AGAINST THE PROPERTY OR THE COLLATERAL OR ANY OTHER COLLATERAL WHICH MAY FROM TIME TO TIME TO BE GIVEN TO BENEFICIARY, OR HELD BY TRUSTOR IN TRUST ON BEHALF OF BENEFICIARY, AS SECURITY FOR THE PERFORMANCE OF TRUSTOR'S OBLIGATIONS HEREUNDER OR UNDER THE PROVISIONS OF THE INTERIM MORTGAGE NOTE SECURED HEREBY OR ANY OTHER INSTRUMENT EXECUTED IN CONNECTION HEREWITH, OR TO LIMIT OR IMPAIR THE RIGHTS AND REMEDIES OF BENEFICIARY THEREUNDER OR UNDER ANY OF THE PROVISIONS THEREOF; AND PROVIDED FURTHER, THAT TRUSTOR SHALL REMAIN LIABLE TO ACCOUNT FOR THE USE OF THE NET PROPERTY PROCEEDS RECEIVED BY TRUSTOR AND NOT APPLIED ON A CURRENT BASIS AS RECEIVED BY TRUSTOR IN ACCORDANCE WITH THE PROVISIONS OF THIS MORTGAGE AND THE INTERIM MORTGAGE NOTE SECURED HEREBY. 16. The undersigned Trustor requests that a copy of any Notice of Default and of any Notice of Sale hereunder be mailed to him at his address hereinbefore set forth. Signature of Trustor CITY NATIONAL BANK, a national banking association By: _______________________________________ Its: _____________________________________ Exhibit L to the 11 Asset Sale Agreement 125 Exhibit M to Asset Sale Agreement Form of INTERIM MORTGAGE NOTE $____________________ November ____, 1993 (Initial Loan Amount) FOR VALUE RECEIVED, the undersigned, CITY NATIONAL BANK, a national banking association ("Grantor"), promises to pay to the order of ____________ __________________________________________________, offices located at __________________ __________________________, County of ________________, State of __________________ ("Grantee"), the principal sum of _______________________________________________________ DOLLARS U.S. ($________________)*, together with interest thereon from the date hereof on any outstanding balance of principal plus any amounts added to the principal amount hereof, until paid, including interest at the rate or rates hereinafter set forth. This note ("Note") is secured by a deed of trust of even date herewith between Grantor and Grantee ("Interim Mortgage"). Capitalized terms not defined herein or in the Interim Mortgage or in Exhibit A hereto shall have the meanings set forth in the Asset Sale Agreement. Interest on the outstanding principal balance of this Note shall accrue at a per annum rate equal to the ask yield published in the Wall Street Journal under Treasury Bonds, Notes & Bills as of the Business Day immediately prior to the Closing Date corresponding to the 6-7/8 Treasury Notes due in February 1994, ("Applicable Rate"), based upon a 360-day year for the actual number of days elapsed. The Applicable Rate shall be paid from Net Cash Flow, which amount shall be payable on the first day of each month, or, if such first day is not a Business Day, then on the following Business Day ("Due Date"); provided, however, that in the event Net Cash Flow for the calendar month immediately preceding the Due Date is insufficient to pay in full the accrued interest on any Due Date, such accrued and unpaid interest shall thereafter accrue interest at the Applicable Rate and be paid in accordance herewith. The amount due hereunder on each Due Date shall be equal to the sum of (i) Net Property Proceeds plus (ii) Late Charges and Outstanding Lender Advances, together with accrued interest thereon at a rate equal to two percent (2.0%) per annum in excess of the Applicable Rate then in effect under this Note, but in no event in excess of the maximum permissible interest rate under applicable law (the "Default Rate"). All payments received hereon shall be applied first, to Late Charges and Outstanding Lender Advances, together with accrued interest thereon at the Default Rate; second, to interest at the Default Rate on any delinquent amounts due and payable hereunder; third, to the payment of delinquent amounts; fourth, to Interest at the Applicable Rate on the outstanding principal balance hereof that accrued during the immediately preceding month, plus accrued and unpaid Interest at the Applicable Rate on amounts that accrued and were not paid (due to an insufficiency in Net Property Proceeds and not to any delinquency) for periods 1 126 Exhibit M to Asset Sale Agreement prior to the month immediately preceding the Due Date; and fifth, to reduce the outstanding principal balance. Principal, Late Charges, accrued interest, repayment of Outstanding Lender Advances and any other sums secured by the Interim Mortgage shall be due and payable in all events on __________________, 1994, subject to extension for up to ________ months, if Purchaser under the Asset Sale Agreement has delivered a Certificate of Defective Asset to Seller thereunder, and Seller has elected to cure or revalue the Defective Asset (the "Maturity Date"). All payments due hereunder shall be remitted to Grantee in lawful currency of the United States of America in federal or other funds currently due and immediately available with all charges prepaid, as follows: [Insert Account Information] or, upon prior written notice by Grantee, to such other accounts or designees as Grantee shall from time to time request. In the event that any payment or part of any payment due hereunder is not made on the date the same as due, the full amount outstanding hereunder shall bear interest at the Default Rate until such amount is paid, subject to the right to accrue unpaid Interest to the extent that Net Property Proceeds for the month immediately preceding any Due Date are not sufficient to pay such Interest. In the event that any payment or part of any payment due hereunder is not made within five (5) days after the date when the same is due, Grantor shall pay to Grantee a late charge equal to five percent (5%) of the late payment ("Late Charge"), which Late Charge shall bear interest at the Default Rate if not paid when due [subject to the right to accrue unpaid Interest to the extent that Net Property Proceeds for the month immediately preceding any Due Date are not sufficient to pay such Interest]. This charge shall be in addition to any other sums due hereunder and any other rights or remedies the holder of this Note may have. Grantor shall have the right to prepay the principal balance of this Note in whole upon receipt of a Certificate of Defective Asset at any time during the term of this Note without penalty or premium upon the remittance to Grantee of all amounts due hereunder, and upon the satisfaction by Borrower of all obligations required for the release of the Mortgage Loan evidenced hereby from the lien of the Loan and Security Agreement. [This language will be added to the related Interim Mortgage.] Grantee acknowledges that in the making of the Interim Mortgage Loan evidenced hereby and secured by the Interim Mortgage, Grantee is relying to a material extent upon the creditworthiness and business expertise of the Grantor. Therefore, in order to protect Grantee, Grantor agrees that if Grantor sells, conveys, transfers, disposes of or leases (except as to those leases of space in improvements which do not provide for an option to purchase) the Property or any portion thereof, either voluntarily, involuntarily, or otherwise or enters into an agreement so 2 127 Exhibit M to Asset Sale Agreement to do without the prior written consent of Grantee, Grantor shall, not less than thirty (30) days prior to any such event, notify Grantee in writing of the occurrence of such event, and Grantee, whether or not it receives such notice, upon the occurrence of any one or more of such events, shall have the right to declare the then current outstanding principal of this Note immediately due and payable, together with all accrued interest and unpaid interest and other amounts due hereunder, which shall be applied, after being applied to payment of all other sums secured hereby then due and payable in such order as Grantee may determine, to the reduction of the outstanding principal balance of this Note. The foregoing right to accelerate the indebtedness may be exercised at any time in Grantee's sole discretion after the occurrence of any event described above and the acceptance of one or more installments from any person thereafter shall not constitute a waiver of Grantee's right. Notwithstanding the foregoing, after the execution hereof, Grantor shall convey the Property to a Qualified Affiliate as the purchaser thereof in accordance with the terms of the Interim Mortgage and the Sales Contract and Grantor's obligations hereunder shall be satisfied in full. Then and in such event, Grantor shall be relieved of any and all liability whatsoever hereunder. Subject to the terms of the Interim Mortgage and the Sales Contract, Grantor shall have such one-time right to transfer the Property to a Qualified Affiliate, provided that Grantor is not in default hereunder or under the Interim Mortgage. This Note is secured by the Interim Mortgage. All of the terms, covenants, provisions, conditions, stipulations, promises and agreements contained in the Interim Mortgage to be kept, observed and performed by Grantor therein are hereby made a part of this Note and are incorporated herein by this reference to the same extent, and with the same force and effect, as if they were fully set forth herein, and Grantor promises and agrees to keep, observe and perform them, or cause them to be kept, observed and performed, strictly in accordance with the terms and provisions thereof. Grantor hereby expressly agrees that (i) if default be made in the payment of any installment of accrued interest, or principal, or in the payment of Late Charges or the repayment of Outstanding Lender Advances due under this Note and such default shall continue uncorrected; or (ii) if default be made in the performance of or compliance with the terms, covenants and conditions of this Note, the Interim Mortgage securing this Note, the Loan and Security Agreement, the Promissory Note as defined in the Loan and Security Agreement, or any other instrument or collateral related thereto and such default shall continue uncorrected beyond any applicable grace or cure period then, and in any or all such events, the entire outstanding principal balance and accrued interest, and all other sums evidenced by this Note and secured by the Interim Mortgage, shall at once be and become due and payable at the option of the holder of this Note without further notice or demand. The failure of Grantee to exercise the option for acceleration of maturity of this Note or of foreclosure during any default or to exercise any other option granted to it hereunder, or under the Interim Mortgage, in any one or more instances, or the acceptance by Grantee of partial payments or partial performance, shall not constitute a waiver of any such default, but such options 3 128 Exhibit M to Asset Sale Agreement shall remain continuously in force during the pendency of the default. Time is of the essence hereof, and any failure to declare a default hereunder or to accelerate this Note or to impose Late Charges or interest at the Default Rate, notwithstanding that one or more payments due hereunder have not been remitted on a timely basis, shall not constitute a waiver of Grantee's right to declare such a default or to impose Late Charges and interest at the Default Rate. It is expressly stipulated and agreed to be the intent of Grantor and the holder of this Note at all times to comply with the applicable usury and other applicable law of the State of California. If the laws of the State of California or of the United States of America are revised, repealed or judicially interpreted so as to render usurious any amount called for under this Note or any document securing payment of this Note, including, but not limited to, the Interim Mortgage, or contracted for, charged or received with respect to the Interim Mortgage Loan evidenced by this Note, or if exercise by the holder of this Note of the option herein contained to accelerate the maturity of this Note or if any prepayment by Grantor results in Grantor's having paid any interest in excess of that permitted by law, then it is Grantor's and the holder's express intent that all excess amounts theretofore collected by the holder of this Note be credited to the principal balance of this Note in inverse order of maturity of the installments of principal (or, if this Note has been paid in full, refunded to Grantor), and the provisions of this Note and all documents securing the payment of this Note, including, but not limited to, the Interim Mortgage, shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of execution of any new document, so as to comply with applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note and under such other documents securing payment of this Note, or which are interpreted for the purpose of determining whether such rate would exceed the maximum lawful contract rate, shall be made, to the extent permitted by the law of the State of California, by amortizing, prorating, allocating and spreading during the period of the full stated term of the Interim Mortgage Loan evidenced by this Note, all interest at any time contracted for, charged or received from Grantor or otherwise by the holder of this Note. In the event it shall become necessary to employ counsel to collect this obligation or to protect the security herefor, Grantor agrees to pay reasonable attorneys' fees, whether suit be brought or not, and all other costs and expenses actually and reasonable incurred by the holder of this Note in connection with collection, the protection of the security for the debt evidenced hereby or the enforcement of each and every covenant and agreement by the Grantor, or of any remedies herein given to secure this Note, or any instrument collateralized or related thereto or the enforcement of any guaranty. The undersigned and any endorsers, guarantors or sureties jointly and severally waive presentment, protest and demand, notice of protest, notice of intent to accelerate, notice of acceleration, demand and dishonor, and nonpayment of this Note and any and all lack of diligence or delays in the collection or enforcement hereunder may be extended from time to time without notice to any party and without in any way affecting the liability of the undersigned or any 4 129 Exhibit M to Asset Sale Agreement endorsers, guarantor or surety hereof. This Note shall be binding on Grantor and Grantor's successors and assigns. Grantor hereby represents and warrants that it is a business or commercial entity and that the Interim Mortgage Loan evidenced hereby was made and transacted solely for the purpose of carrying on or acquiring a business or commercial investment. THE VALIDITY AND CONSTRUCTION OF THIS NOTE AND ALL MATTERS PERTAINING HERETO ARE TO BE DETERMINED ACCORDING TO THE LAW OF THE STATE OF CALIFORNIA. In the event any provision of this Note (or any part of any provision) is held by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note, but this Note shall be construed as if such invalid, illegal or unenforceable provision (or part thereof) had not been contained in this Note, but only to the extent it is invalid, illegal or unenforceable. This Note may not be changed orally, but only by an agreement in writing signed by the parties against whom enforcement of any waiver, change, modification or discharge is sought. Anything contained in any provision of this Note or the Interim Mortgage to the contrary notwithstanding, if any foreclosure proceeding is brought under the provisions of the Interim Mortgage or if any other action is brought under the provisions of the Interim Mortgage or if any other action is brought to enforce provisions of the Interim Mortgage or those of this Note, the holder hereof shall not be entitled to take any action to procure any money judgment in personam or any deficiency decree against the Grantor except to the extent of its interest in the Property or Collateral (as such term is defined in the Interim Mortgage); provided, however, that nothing in the provision of this Note shall be deemed to limit or impair the enforcement against the Property or Collateral covered by the Interim Mortgage or any other collateral which may from time to time be given to Grantee, or held by Grantor in trust on behalf of Grantee; as security for the performance of the Grantor's obligations hereunder or under the provisions of this Note and the Interim Mortgage or any other instrument executed in connection therewith, or to limit or impair the rights and remedies of Grantee thereunder or under any of the provisions thereof; and provided further, that the Grantor shall remain liable to account for the use of the Property Proceeds received by Grantor and not applied on a current basis as received by Grantor in accordance with the provisions of this Note and the Interim Mortgage. * * * * * * 5 130 Exhibit M to Asset Sale Agreement IN WITNESS WHEREOF, Grantor has caused this Note to be executed by ___________________________, its _______________________, and its corporate seal to be affixed hereto, and does hereby deliver this instrument as its act and deed effective on the date first above written. CITY NATIONAL BANK, a national banking association By: ________________________________ Its: _______________________________ 6 131 Exhibit N to Asset Sale Agreement Form of GRANT DEED [Exhibit N omitted from original] EX-10.19 6 ASSET SALE AGREEMENT (POOLS 2 THROUGH 6) 1 EXHIBIT 10.19 Asset Sale Agreement (Pools 2 Through 6) by and between City National Bank as Seller and WHC-THREE Investors, L.P., as Purchaser, dated November 1, 1993 2 EXHIBIT 10.19 POOLS 2 THROUGH 6 ASSET SALE AGREEMENT BY AND BETWEEN CITY NATIONAL BANK AS SELLER AND WHC-THREE INVESTORS, L.P. AS PURCHASER DATED AS OF: NOVEMBER 1, 1993 3 TABLE OF CONTENTS
PAGE NO. ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE II PURCHASE AND SALE OF THE ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.1 PURCHASE AND SALE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.2 INITIAL PURCHASE PRICE OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.3 MODIFICATIONS TO MORTGAGE LOAN AND REAL PROPERTY SCHEDULE . . . . . . . . . . . . . . . . 19 Section 2.4 FINANCING OF MORTGAGE LOANS AND REAL PROPERTY; SALE OF REAL PROPERTY . . . . . . . . . . 20 ARTICLE III DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 3.1 DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 3.2 DISTRIBUTION OF DEPOSIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE IV CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.1 CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 4.2 TRANSFER AND RECORDATION TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.3 ESCROW ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 4.4 LIMITATIONS ON LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE V DUE DILIGENCE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.1 DUE DILIGENCE PERIOD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Section 5.2 DUE DILIGENCE REVIEW OF ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.3 SELLER'S COOPERATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.4 ACCEPTANCE OF ASSETS AND REMEDIES FOR DEFECTS . . . . . . . . . . . . . . . . . . . . . . 22 Section 5.5 PROCEDURE IN RESPECT OF A STRUCTURAL DEFECT OR NATURAL CONDITION . . . . . . . . . . . . 25 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Section 6.1 PURCHASER'S REPRESENTATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 7.1 SURVIVING REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . . . 33 Section 7.2 DUE DILIGENCE REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . . . . . 35 Section 7.3 TERMINATION OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . 39 Section 7.4 SCOPE OF INVESTIGATION AND OTHER DUE DILIGENCE . . . . . . . . . . . . . . . . . . . . . 40 Section 7.5 ASSERTION OF CLAIMS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
i 4 ARTICLE VIII CERTAIN COVENANTS OF SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Section 8.1 SELLER COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 ARTICLE IX CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Section 9.1 MUTUAL OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 9.2 SELLER'S DOCUMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Section 9.3 PURCHASER'S CLOSING ITEMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 ARTICLE X REPURCHASE BY SELLER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 10.1 MANDATORY REPURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 10.2 REPURCHASE PRICE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE XI DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 11.1 PURCHASER'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 11.2 SELLER'S DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 ARTICLE XII SUBSEQUENT DOCUMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE XIII NOTICE OF MORTGAGOR CLAIMS OR LITIGATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE XIV FILES AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE XV SALE OF REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE XVI NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE XVII MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 17.1 SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 17.2 RIGHTS CUMULATIVE; WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 Section 17.3 HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.4 CONSTRUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.5 ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.6 PRIOR UNDERSTANDINGS; INTEGRATED AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.7 COUNTERPARTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.8 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 17.9 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 17.10 NO THIRD PARTY BENEFICIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 17.11 ARBITRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 17.12 SELLER FINANCING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ii 5 TABLE OF EXHIBITS < A. [ ] Mortgage Loan and Real Property Schedule B. [ ] Asset Acceptance Certificate C. [ ] Form of Assignment of Mortgage Loan C-1. [ ] Assignment of Additional Collateral D. [ ] Certificate of Defective Assets E. [ ] Supplemental Certificate of Defective Assets F. [ ] Deletion Certificate G. [ ] Valuation Methodology H. [ ] Valuation Certificate I. [ ] Notice to Mortgagors J. [ ] Real Property Sales Contract K. [ ] Loan and Security Agreement L. [ ] Interim Mortgage M. [ ] Interim Mortgage Note N. [ ] Grant Deed
iii 6 ASSET SALE AGREEMENT This Asset Sale Agreement ("Agreement") is entered into as of the first day of November, 1993, by and between CITY NATIONAL BANK, a national banking association ("Seller") and WHC- THREE INVESTORS, L.P., a Delaware limited partnership ("Purchaser"). W I T N E S S E T H: WHEREAS, Seller owns certain Assets as defined in this Agreement; and WHEREAS, Purchaser is a sophisticated and experienced purchaser of mortgage loans and real property with access to expert technical and legal advice with respect thereto; and WHEREAS, Seller desires to sell the Assets listed on the Mortgage Loan and Real Property Schedule, attached hereto at Exhibit A, all in accordance with the terms and conditions set forth herein; and WHEREAS, Purchaser desires to purchase the Assets; NOW THEREFORE, in consideration of the mutual promises herein set forth and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Seller and Purchaser agree as follows: ARTICLE I DEFINITIONS For purposes of this Agreement, the following terms shall have the meanings indicated below: "Acceptance Certificate" has the meaning given that term in Section 5.4(a) hereof. "Additional Collateral Assignment" means the document to be delivered to Purchaser on the Closing Date, in accordance with Section 9.2(f) hereof and in the form attached hereto as Exhibit C-1. "Additional Deposit" means an amount equal to two percent (2.0%) of the aggregate Initial Purchase Price, which sum is to be delivered by Purchaser to Seller in immediately available funds concurrently with the execution hereof. "Adjusted Purchase Price" means, with respect to an Asset, either (i) the Initial Purchase Price, if no adjustment is required hereunder, or (ii) the Initial Purchase Price as adjusted by any adjustment required pursuant to Section 5.4 or Section 5.5 hereof, provided, however, in no event shall the Adjusted Purchase Price exceed the Initial Purchase Price. 1 7 "Adjustment Date" shall mean the date ten (10) calendar days after the later of (x) the day on which the last Due Diligence Period with respect to any Asset terminates, or (y) if Purchaser has delivered to Seller a Certificate of Defective Asset during the Due Diligence Period, the last day for Seller to repurchase such Defective Asset under Section 10.1(a) hereof. With respect to the representations and warranties made by Seller in Section 7.1(d) hereof, the Adjustment Date shall in no event be later than the Surviving Representation Expiration Date, except to the extent that a Certificate of Defective Asset has been given in respect of a particular Asset, in which case the Adjustment Date shall be ten (10) days after the last day of the Cure Period available in connection with the respective Defect. In any of the above events, if such day is not a Business Day, the Adjustment Date shall be the next Business Day thereafter. "Affiliate" means, with respect to any Person (herein the "Person Specified"), any other Person that (i) directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with the Person Specified, (ii) is a director or officer of the Person Specified or any Person covered by clause (i) above, (iii) is a partner, beneficiary of a trust or owner of any stock or other evidence of beneficial ownership of the Person Specified or any Person covered by clause (i) above, or (iv) is related by blood (including grandparents of the Person Specified and of his or her spouse and all lineal descendants of such grandparents), marriage or close business association to the Person Specified or any Person covered by clause (i) above, or to the spouse of any of the foregoing Persons. For purposes of this definition, the term "control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting stock, by contract or otherwise. "Affiliate Purchaser" means Purchaser or a wholly-owned Affiliate of the Purchaser, which, simultaneously with the execution of this Agreement, will execute a Sales Contract with Seller covering all of the Real Property and, prior to the Closing of the sale of any Real Property under the Sales Contract, shall assign the right to purchase one or more parcels of the Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule to one or more Qualified Affiliates on the one hand, and any one or more of the remaining parcels of Real Property not designated "industrial" on the Mortgage Loan and Real Property Schedule to one or more other Qualified Affiliates on the other, for closing in accordance with the terms of the Sales Contract. "Agreement" means this Asset Sale Agreement, including all addenda, exhibits and schedules hereto, as the same may be amended, supplemented, restated or modified. "Applicable Rate" means a per annum rate of interest equal to the ask yield published as of the Business Day immediately prior to the Closing Date in the Wall Street Journal under Treasury Bonds, Notes & Bills corresponding to the 6-7/8 Treasury Notes due in February 1994, based upon a 360-day year for the actual number of days elapsed. "Asset Data Sheet" means the document labeled "Asset Data Sheet" and bearing the same pool number and Mortgage Loan number or Real Property number as those of the corresponding Mortgage Loan or Real Property listed in the Mortgage Loan and Real Property Schedule, which Asset Data Sheet appears as part of the Due Diligence Materials, as such Asset Data Sheet has 2 8 been amended, supplemented, corrected or otherwise modified on or before the Due Diligence Cut-Off Date to the extent same has been provided to Purchaser or described in writing to Purchaser and made available on or prior to the Due Diligence Cut-Off Date. "Asset Documents" means, with respect to each Mortgage Loan or Real Property, as the case may be, all documents, agreements or instruments relating to such Mortgage Loan or Real Property, including, but not limited to, the Mortgage Note or Mortgage Notes secured by a Mortgage or Mortgages and each and every collateral document or account or security instrument or agreement securing or relating to such documents and the transactions evidenced thereby, including, but not limited to, any Security Agreement, assignment of rents, pledge agreement, guarantee, indemnification agreement, assignment of stock or partnership units, title insurance policy, other insurance and other document, agreement or instrument under which legal rights or obligations are created or exist, if any, provided to Seller or its predecessor in interest to evidence or secure such Mortgage Loan and held by Seller, whether or not identified by Seller in the Due Diligence Materials, together with any assignment, reinstatement, extension, endorsement or modification of any thereof and, with respect to Real Property, evidence of Seller's ownership of same, whether by foreclosure, deed in lieu of foreclosure, or otherwise. "Asset File" with respect to any Asset means the set of files in the possession of Seller relating to such Asset from which the Investor File is derived and which Seller will deliver to Purchaser at the Closing, excluding those documents reasonably determined by Seller to be of a privileged or confidential nature, or that Seller reasonably and in good faith believes not to be relevant to the analysis by Purchaser of the Assets, such as memoranda, notes, analyses, summaries and correspondence by, between or among officers, directors, employees or agents of Seller. "Asset Proceeds" with respect to an Asset shall mean the sum of Cash Flow plus Liquidation Proceeds. "Assets" means the Mortgage Loans and Real Property offered for sale under this Agreement. "Asset Valuation Package" means the materials forming a part of the Due Diligence Materials, which disclose the facts and assumptions used in arriving at the Valuation of an Asset, and which materials were also included in the package of materials distributed to Purchaser on or prior to the Due Diligence Cut-Off Date, as the same has been amended, supplemented, corrected or otherwise modified on or before the Due Diligence Cut-Off Date based upon information provided to Purchaser or described in writing to Purchaser and made available on request on or before the Due Diligence Cut-Off Date, and includes with respect to each Asset an executive summary, property description, Asset Data Sheet, property inspection report, valuation summary, underwriting analysis, and any Disclosed Remedial Cost Estimate, all as more particularly described in the Offering Memorandum. "Business Day" means any day other than a Saturday, Sunday or day on which banks in Los Angeles, California are authorized or obligated by law or local proclamation to be closed. 3 9 "Capital Expenditure" means an expenditure the full amount of which would qualify as a "capital" item under the Internal Revenue Code of 1986, as amended, as in effect on the date of the expenditure (i.e., any expense the total cost of which may not be included as a deduction from gross income in the year it is spent in accordance with the Internal Revenue Code of 1986, as amended, in effect on the date of the expenditure or is treated as a capitalized item under Generally Accepted Accounting Principles (as defined in the Loan and Security Agreement), including, but not limited to, engineering, legal, architectural and development expenses). "Cash Flow" with respect to any particular Asset (and any particular Due Date with respect to any Interim Mortgage Note) means the sum of all income, revenues, fees, proceeds, reimbursements and payments from whatever source received by or on behalf of Purchaser as holder of such Mortgage Loan or the collateral therefor or as owner of any Real Property during the month immediately preceding the calendar month in which a Due Date occurs (or with respect to the calculation of the Repurchase Price, during any time after the Cut-Off Date), including, without limitation, any principal payments, interest, penalties, late charges and participations as well as any rents, leases, revenues, fees, proceeds, reimbursements and payments received after ownership of such collateral is acquired by or for the benefit of Purchaser, Seller or both, whether through foreclosure, deed in lieu of foreclosure, or otherwise, but not including the following: (a) any amounts constituting Liquidation Proceeds; and (b) interest actually paid on sums on deposit from time to time in the Cash Collateral Account under the Loan and Security Agreement and any other accounts or instruments in which Asset Proceeds are held. Notwithstanding the foregoing, for the initial Due Date under any Interim Mortgage Note, amounts constituting "Cash Flow" thereunder will relate to amounts collected during the period from and after the Cut-Off Date and received by or for the account of Purchaser or a Qualified Affiliate. "Cash Portion of the Repurchase Price" with respect to a Deleted Asset means an amount equal to the aggregate of: (a) (i) the sum of the Downpayment Percentage multiplied by the Adjusted Purchase Price of the Deleted Asset (subject to any reduction pursuant to Article X hereof), plus interest thereon at the Applicable Rate from the Cut-Off Date to the Repurchase Date, plus Prepayments (to the extent not included below), plus (ii) the sum of interest (A) at the Stated Interest Rate on the Financed Portion of the Repurchase Price, from the Cut-Off Date to the Repurchase Date, (B) at the Stated Interest Rate on Prepayments from the Cut-Off Date to the first day of the month following the month of such Prepayments and (C) at the Applicable Rate on Prepayments from the first day of the month following the month of such Prepayments to the Repurchase Date, minus 4 10 (iii) the sum of (A) Net Cash Flow allocable to such Deleted Asset plus Net Liquidation Proceeds relating to such Deleted Asset with respect to all periods from and after the Cut-Off Date (plus interest thereon at the Applicable Rate from the first day of the month following receipt of such Net Cash Flow or Net Liquidation Proceeds, as applicable, to the Repurchase Date) received by or accrued for the account of Purchaser or any Qualified Affiliate with respect to such Deleted Asset during such period, plus (B) the amount of any payments due and unpaid under the Promissory Note and the Loan and Security Agreement on the Repurchase Date, plus (C) to the extent not included above, all sums paid or credited to Purchaser with respect to the Deleted Asset pursuant to Section 8.1(d) hereof on the Closing Date or as part of the adjustments on the Closing Date with interest thereon at the Applicable Rate from the Cut-Off Date to the Repurchase Date; plus (b) the sum of the following amounts actually expended by Purchaser or any Qualified Affiliate with respect to such Deleted Asset and not recovered from Net Cash Flow or Net Liquidation Proceeds of the underlying Mortgaged Property or Real Property, as the case may be, or otherwise; (i) one hundred percent (100%) of Permitted Real Estate Tax Expenses; plus (ii) one hundred percent (100%) of Permitted Insurance Expenses,; plus (iii) one hundred percent (100%) of Permitted Leasing Commissions; plus (iv) one hundred percent (100%) of unamortized Permitted Tenant Improvement Expenses (as used herein, "unamortized" means the number that results from dividing (i) that portion of the aggregate rent due under such lease for the lease term remaining, by (ii) the aggregate rent due under any lease from the inception of such lease through the expiration thereof); plus (v) to the extent not previously reimbursed, recovered or otherwise included within the definition of Repurchase Price, Permitted Legal Expenses, but only to the extent satisfactory evidence of payment is received by Seller; plus (vi) with respect to Surviving Representations and Warranties only, one hundred percent (100%) of Capital Expenditures that have been approved by Seller under the Loan and Security Agreement or, if not so approved or if Seller-financing was not utilized in the Asset sale contemplated hereby, that portion of Capital Expenditures that, in Seller's reasonable discretion, meet the criteria set forth in the Loan and Security Agreement. "Certificate of Defective Asset" means a fully and properly completed and executed Certificate of Purchaser in the form attached hereto as Exhibit D delivered to Seller in accordance with Section 5.4 or 5.5 hereof. "Claim" means any claim, demand or action of any kind brought in a legal proceeding. 5 11 "Closing" means the purchase and sale of the Assets following the payment of the Initial Purchase Price and the fulfillment or waiver of certain conditions precedent to Closing specified in Article IX hereof. "Closing Date" means the date of Closing, which shall be November 18, 1993, or any date mutually agreed upon in writing by Purchaser and Seller, but in no event later than November 30, 1993. "Control Number" means the number (however designated) that identifies each Mortgage Loan and parcel of Real Property on the Mortgage Loan and Real Property Schedule. "Cure Period" means, with respect to a Defect in a Defective Asset, the period ending on the date one hundred and fifty (150) days after Seller's receipt from Purchaser of a Certificate of Defective Asset under Section 5.4 or 5.5 with respect to such Defect or such later date as may be agreed to in writing by Purchaser and Seller. "Current Fully Extended Maturity Date" means, with respect to a Mortgage Loan, the maturity date, as such may have been extended or as such extension may be available under the terms thereof as of the Closing Date as set forth on the Mortgage Loan and Real Property Schedule. For purposes of the surviving representations and warranties set forth in Section 7.1 hereof, if the Current Fully Extended Maturity Date occurs prior to the Closing Date, the Closing Date shall be deemed the Current Fully Extended Maturity Date. "Cut-Off Date" means close of business on the day immediately preceding the Closing Date, which shall be the date through which interest on each Mortgage Loan and rents on each Real Property shall accrue for the benefit of Seller. "Default Notice" has the meaning given to that term in Section 11.1 hereof. "Defect" means, with respect to Section 5.4 hereof, a breach of a representation and warranty under Section 7.1 or 7.2 hereof or, with respect to Section 5.5 hereof, a Structural Defect or Natural Condition that has a material adverse effect on the value of the related Asset. "Defective Asset" means an Asset as to which a Defect exists and as to which Purchaser has timely delivered a Certificate of Defective Asset pursuant to Section 5.4 or 5.5 hereof. "Deleted Asset" means any Asset that is repurchased by Seller pursuant to Article X hereof. "Deposit" means the aggregate of any moneys remaining from Purchaser's Due Diligence Deposit, plus the Initial Deposit and the Additional Deposit, all with interest thereon until the Cut-Off Date. "Disclosed Remedial Cost Estimate" has the meaning ascribed thereto in Section 5.5 hereof. 6 12 "Downpayment" shall mean (i) with respect to all of the Mortgage Loans and Real Property purchased by Purchaser hereunder, the aggregate amount of Eighteen Million Two Hundred Fifty-Two Thousand Three Hundred Nine Dollars ($18,252,309), i.e., the "Equity Investment" of Purchaser on Purchaser's Statement of Offered Purchase Price delivered pursuant to the Offering Memorandum that was accepted by Seller, and (ii) with respect to any individual Mortgage Loan or Real Property, the Downpayment Percentage multiplied by the Initial Purchase Price of such Mortgage Loan or Real Property. "Downpayment Percentage" shall mean twenty-five percent (25.0%), i.e., the Downpayment Percentage for all Assets as specified in the Statement of Offered Purchase Price. "Due Date" means the fifth day of each month or, if such fifth day is not a Business Day, the following Business Day, beginning on January 5, 1994 the fifth day of the month immediately following the first full month after the Closing Date. "Due Diligence Contractor" means KPMG Peat Marwick. "Due Diligence Cut-Off Date" means October 12 1993. "Due Diligence Deposit" means the amount paid by Purchaser to Seller pursuant to the Offering Memorandum for the opportunity to review the Investor Due Diligence Packages, and from which Seller will deduct for its own account all charges incurred by Purchaser in connection with its review of the Investor Due Diligence Packages. "Due Diligence Materials" with respect to any Asset means the contents, as of the Due Diligence Cut-Off Date, of the Investor Due Diligence Package and of the Investor File for such Asset, which either have been provided to Purchaser or its agents or made available to the Purchaser or its agents at the office of Seller in Los Angeles, California or such other location in Los Angeles, California identified by Seller to Purchaser, as the same may have been amended, modified, supplemented, added to or updated at any time on or before the Due Diligence Cut-Off Date. "Due Diligence Period" means the aggregate of the Pre-Offer Due Diligence Period and the Post-Offer Due Diligence Period. "Due Diligence Representation and Warranty" means any representation and warranty under Section 7.2 hereof. "Earnest Money Deposit" means the aggregate of the Initial Deposit and the Additional Deposit, along with any monies remaining from Purchaser's Due Diligence Deposit, as more fully described in Section 3.1 hereof. "Financed Percentage" shall mean seventy-five percent (75.0%), i.e., one hundred percent (100%) minus the Downpayment Percentage. 7 13 "Financed Portion" shall mean the Initial Purchase Price minus the Downpayment; provided, however, that if the Initial Purchase Price is adjusted pursuant to Sections 5.4 and 5.5 hereof, the "Financed Portion" shall mean the Adjusted Purchase Price minus the Downpayment with respect to such Mortgage Loan, as such may be correspondingly adjusted. "Financed Portion of the Repurchase Price" with respect to a Deleted Asset means an amount equal to seventy-five percent (75.0%) of the Adjusted Purchase Price of the Deleted Asset (subject to any reduction pursuant to Article X hereof), less Prepayments, if any. "Hazardous Substances" means: (i) those substances included within the definitions of any one or more of the terms "hazardous substances", "hazardous materials", and "toxic substances", in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. Section 9601 et seq., 9657), the Resource, Conservation and Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.), and the Hazardous Materials Transportation Act, as amended (49 U.S.C. Section 1801 et seq.), and in the regulations promulgated pursuant to said laws; (ii) those substances listed in the United States Department of Transportation Table (49 CFR 172.101 and amendments thereto) or by the Environmental Protection Agency (or any successor agency) as hazardous substances (40 CFR Part 302, and amendments thereto); (iii) such other substances, materials and wastes as are or become regulated under applicable local, state or federal laws, or which are classified as hazardous or toxic under federal, state or local laws or regulations; and (iv) any materials, wastes or substances that are (a) petroleum; (b) friable asbestos; (c) polychlorinated biphenyl; (d) designated as a "Hazardous Substance" pursuant to Section 311 of the Clean Water Act (33 U.S.C. Section 1321) or designated as "toxic pollutants" subject to Section 307 of the Clean Water Act (33 U.S.C. Section 1317); (e) flammable explosives; or (f) radioactive materials. "Initial Deposit" means an amount greater than or equal to two percent (2.0%) of the aggregate Initial Purchase Price for all Assets for which Purchaser submits an offer to purchase, which sum has been delivered by Purchaser to Seller in immediately available funds concurrently with such submission. "Initial Purchase Price" has the meaning given to that term in Section 2.2 hereof. "Interim Mortgage" means the mortgage, deed of trust or other security instrument creating a lien upon a parcel of Real Property that secures the related Interim Mortgage Note, which shall be in substantially the form attached hereto as Exhibit L. "Interim Mortgage Loan" means a mortgage loan which shall be secured by a lien upon a parcel of Real Property that is a subject of the Sales Contract. The Seller, as the current owner of the Real Property securing an Interim Mortgage Loan, shall be the initial borrower/mortgagor and the Purchaser shall be the named payee/mortgagee on the Interim Mortgage Loan. "Interim Mortgage Note" means any note evidencing the Seller's obligation under an Interim Mortgage Loan listed on the Mortgage Loan and Real Property Schedule, which note shall be 8 14 dated as of the Cut-Off Date, shall be in a principal amount equal to the Initial Purchase Price of the related Real Property and shall be on the form attached hereto as Exhibit M. "Investor Due Diligence Package" with respect to any Asset means the contents, as of the Due Diligence Cut-Off Date, of the "Investor Due Diligence Package" as described in the Offering Memorandum, compiled by Seller's Due Diligence Contractor for such Asset and provided to Purchaser or its agents, including, but not limited to, a Portfolio Summary Spreadsheet, as such has been updated through October 12, 1993, accountant's letter, portfolio stratification, Asset Valuation Package, excerpts from appraisals, copies of certain loan documentation and updated title reports prepared by the original insurer, or one of like caliber licensed to do business in the jurisdiction in which the Mortgaged Property or the Real Property is situated, and, if available, operating statements, rent rolls and environmental reports, as all of the above may be amended, modified, supplemented, added to or updated at any time on or before the Due Diligence Cut-Off Date, to the extent such amendments, supplements, modifications, additions or updates have been provided or described in writing to Purchaser or its agents on or before the Due Diligence Cut-Off Date. "Investor File" with respect to any Asset means the file(s) compiled by Seller's Due Diligence Contractor for such Asset, as described in the Offering Memorandum, and made available for inspection by potential purchasers or their agents at Seller's office or such other location as specified by Seller to such potential purchasers, and comprised of those portions of the Asset File for such Asset including, but not limited to, copies of the related Asset Documents, title policy, appraisal, operating statement and rent roll, if available, which formed the basis of the Asset Valuation Package for such Asset, as the same may be amended, modified, supplemented, added to or updated at any time on or before the Due Diligence Cut-Off Date, to the extent such amendments, supplements, modifications, additions or updates have been provided or described in writing to Purchaser or its agents on or before the Due Diligence Cut-Off Date. Unless otherwise expressly provided therein, the reports of third parties, including, without limitation, appraisals, environmental assessments, operating or other information provided by Mortgagors, their accountants, agents, or Affiliates, or engineering reports, have been prepared for use solely by Seller and, in certain cases, its Due Diligence Contractor and financial advisors. Such reports are included in each Investor File for informational purposes only and should not be relied upon for their accuracy or completeness. Purchaser shall have no right to rely upon the conclusions or other data set forth in such reports and shall have no recourse against Seller or its advisors, counsel or agents, including the preparers of such reports, in the event of any errors therein or omissions therefrom. "Land Parcel" means any of the Mortgaged Property relating to those Mortgage Loans, or the parcels of Real Property relating to those Interim Mortgage Loans, listed on the Mortgage Loan and Real Property Schedule attached hereto and identified under the heading of "Property Type" as Land-Lots or Land. "Liquidation Proceeds" with respect to an Asset shall mean the following received by or on behalf of or for the account of Purchaser as holder of such Mortgage Loan or the collateral therefor or as owner of such Real Property during the month immediately preceding the calendar 9 15 month in which a Due Date occurs (or with respect to the calculation of the Repurchase Price, during any time after the Cut-Off Date): (a) all proceeds of liquidation, Refinancing (as defined in the Loan and Security Agreement), sale or compromise, and payments from whatever source received during the immediately preceding calendar month in respect of the disposition or Refinancing of any Mortgage Loan, or any of the collateral securing such Mortgage Loan, or any Real Property, including, but not limited to, any full or partial prepayment of principal, proceeds of any Mortgage Loan by any third party lender secured by any Mortgaged Property or any Real Property or any portion thereof, reimbursements, and payments received after ownership of such collateral is acquired by or for the benefit of Purchaser, Seller or both, whether through foreclosure, deed in lieu of foreclosure, or otherwise; (b) all recoveries during the immediately preceding calendar month from Mortgagors of advances made by Purchaser for the purpose of preserving the value of the Mortgage Loans and Mortgaged Property to the extent such amounts were paid as Permitted Liquidation Expenses; (c) all insurance proceeds or condemnation proceeds received during the immediately preceding calendar month in respect of Mortgaged Properties or Real Property, other than insurance proceeds applied or to be applied to the restoration or repair of Mortgaged Property or Real Property; and (d) all other amounts received in respect of the sale, Refinancing, liquidation, compromise or other disposition of the Assets, including, but not limited to, loan or brokerage fees charged by Purchaser or any Affiliate Purchaser for Refinancing or selling any Asset and reimbursements to Purchaser or any Affiliate Purchaser for expenses other than amounts permitted to be paid by Purchaser as Permitted Liquidation Expenses. Notwithstanding the foregoing, for the initial Due Date, amounts constituting "Liquidation Proceeds" under the Loan and Security Agreement will relate to amounts collected during the period from and after the Cut-off Date and received by or for the account of Purchaser or a Qualified Affiliate. "Loan" means the loan made pursuant to the Loan and Security Agreement and evidenced by the Promissory Note. "Loan and Security Agreement" means, in connection with Seller's financing of the sale transaction contemplated herein, the Loan and Security Agreement made by and between Purchaser as borrower thereunder and Seller as lender thereunder, or any of their respective Affiliates, and dated as of the Closing Date, as such may be amended, supplemented, restated or otherwise modified. "Maximum Offer Percentage" means the number, expressed as a percentage to four decimal places, designated by Seller with respect to any Asset as the maximum percentage of the Initial 10 16 Purchase Price that a potential purchaser may ascribe to such Asset in its offer under the Offering Memorandum. "Mortgage" means, with respect to a Mortgage Loan, a mortgage, deed of trust or other security instrument creating a lien upon real property (or a leasehold interest in Mortgaged Property, in the case of any leasehold Mortgage Loan) and any other property described therein that secures a Mortgage Note, together with any assignment, reinstatement, extension, endorsement or modification of any thereof. "Mortgage Assignments" means the document to be delivered to Purchaser on the Closing Date, in accordance with Section 9.2(a) hereof and in the form attached hereto as Exhibit C. "Mortgaged Property" means the land, improvements, personal property and other collateral securing a Mortgage Note under a Mortgage or Security Agreement. "Mortgage Loan" means each of the commercial mortgage loans, other than any Interim Mortgage Loan, evidenced by a Mortgage Note and secured by a Mortgage (which may be a blanket Mortgage) or Mortgages described on the Mortgage Loan and Real Property Schedule, together with any related Mortgaged Property or Mortgaged Properties acquired by or for the benefit of the mortgagee or beneficiary thereunder whether through foreclosure, deed in lieu of foreclosure or otherwise. "Mortgage Loan and Real Property Schedule" means the schedule identifying the Mortgage Loans and Real Property to be sold, transferred and conveyed hereunder and which is attached hereto as Exhibit A, as such Mortgage Loan and Real Property Schedule may be amended or modified from time to time in accordance with the terms of this Agreement, including, but not limited to, the result of a deletion of any Mortgage Loan hereunder that is a Defective Asset. The Mortgage Loan and Real Property Schedule shall set forth the following information concerning each Mortgage Loan and Real Property, as the case may be: (a) address of the Mortgaged Property or Real Property; (b) type of Mortgaged Property or Real Property and popular name, if any; (c) number of units in the Mortgaged Property or Real Property; (d) approximate square footage of the Mortgaged Property or Real Property; and (e) the Initial Purchase Price specifying the component parts thereof, including the Offer Percentage and any adjustments to the Initial Purchase Price pursuant to Sections 5.4, 5.5 and, as of the Closing Date, 8.1(d). The Mortgage Loan and Real Property Schedule shall be revised and substituted from time to time to reflect any such adjustments. 11 17 The Mortgage Loan and Real Property Schedule shall also set forth the following additional information concerning each Mortgage Loan: (a) name of Mortgagor; (b) the original principal balance; (c) the date the Mortgage Loan was made; (d) unpaid principal balance as of close of business on September 30, 1993; (e) last payment due date on or preceding October 1, 1993, in respect to which a payment of interest was made; (f) pool number, Control Number and Seller's loan number; (g) the Current Fully Extended Maturity Date; (h) current mortgage interest accrual and pay rates; (i) as of September 30, 1993, the amount of (i) any deferred interest (the cumulative excess of interest on the Mortgage Loan at the interest accrual rate over the interest on the Mortgage Loan at the interest pay rate), and (ii) any current accrued and unpaid interest in default (excluding deferred interest); and (j) priority of Mortgage lien (first or second). "Mortgage Note" means, with respect to a Mortgage Loan, a promissory note or notes, or other evidence of indebtedness with respect to such Mortgage Loan, secured by a Mortgage or Mortgages, together with any assignment, reinstatement, extension, endorsement or modification of any thereof. "Mortgagor" means the obligor under a Mortgage Note and Mortgage. "Natural Condition" means, with respect to a Mortgage Loan or Real Property, as the case may be, only the following physical conditions existing on or affecting a parcel of Mortgaged Property or Real Property which is also a Land Parcel, that are naturally occurring in nature and are not caused by or the result of human activities: Wetlands (which are defined by reference to Executive Order 11990, Protection of Wetlands, or the Emergency Wetlands Resources Act of 1986), habitation by Endangered Species (which are defined as those species which are listed by the U. S. Government as threatened or endangered plants and animals), Critical Habitat (as defined by the Endangered Species Act), Undeveloped Floodplains (meaning primarily undeveloped areas which are Floodplains, as defined by reference to Executive Order 11988, Floodplain Management, and include only the 100-year or "Base" Floodplains), Wild and Scenic Rivers (meaning those rivers which are designated as Wild and Scenic Rivers under the Wild and 12 18 Scenic Rivers Act), Wilderness Areas (meaning those areas designated as Wilderness Areas under the Wilderness Act), Undeveloped Coastal Dunes and Beaches (meaning those areas within coastal areas that fall within the scope of the Coastal Zone Management Act and are primarily undeveloped), Undeveloped Sole Source Aquifers (meaning primarily undeveloped areas within the boundaries of aquifers designated by the U. S. Environmental Protection Agency under the Safe Water Drinking Act as being Sole Source Aquifers), Natural Landmarks (meaning those natural landmarks listed on the National Registry of Natural Landmarks as published by the Natural Parks Service), Undeveloped Fifty Acre Resource Lands (meaning undeveloped areas of more than fifty (50) acres in size, and adjacent to, or contiguous with any lands managed by a governmental agency primarily for wildlife, refuge, sanctuary, open space, recreational, historical, cultural or natural resource conservation purposes, and have natural, cultural, recreational or scientific values of special significance), and Coastal Barrier Units (meaning those areas displaying undeveloped attributes and designated as "Units" of the Coastal Barrier Resources System under the Coastal Barrier Improvement Act of 1990). "Net Cash Flow" with respect to the calculation of the Repurchase Price for a Deleted Asset and with respect to payments due on each Due Date under an Interim Mortgage Note shall mean Cash Flow with respect to such Deleted Asset or Interim Mortgage Note less the following amounts: (a) Ordinary and customary expenses attributable to and necessary for the prudent management of the Deleted Asset; (b) Advances by Purchaser pursuant to Section 5.2 of the Loan and Security Agreement (including amounts paid by Purchaser as reimbursements of Outstanding Lender Advances, as such term is defined in the Loan and Security Agreement, and as may be required under the Promissory Note) to the extent paid with respect to the Deleted Asset and recoverable from Cash Flow attributable to the Deleted Asset with respect to which such advances were made; and (c) Permitted Expenses, including but not limited to, amounts deposited into the Estimated Accrual Account established under the Sales Contract and Interim Mortgage with respect to the related Real Property, but not less than zero. "Net Liquidation Proceeds" with respect to an Asset shall mean Liquidation Proceeds, less (a) Permitted Liquidation Expenses for such Asset and (b) advances by Purchaser pursuant to Section 5.2 of the Loan and Security Agreement with respect to such Asset that have not been recovered and for which Purchaser has not otherwise been reimbursed. "Offer Date" means October 20, 1993, the date on which offers were due under the Offering Memorandum. 13 19 "Offering Memorandum" means the Confidential Memorandum provided by Seller to potential purchasers relating to the purchase of the Assets, along with additional written supplements thereto, if any, from Seller to Purchaser. "Offer Percentage" means the number, expressed as a percentage to four decimal places, obtained by dividing the Initial Purchase Price with respect to an Asset by the Valuation of such Asset, in each case as shown on the "Offer Statement and Summary Sheet" and/or "Statement of Initial Purchase Price" delivered with respect to such Asset pursuant to the Offering Memorandum, which number shall in no event exceed the Maximum Offer Percentage. "Payment in Full" means a payment in full or prepayment in full of any Mortgage Loan prior to the Closing Date, which represent all amounts of principal either then required to be paid under such Mortgage Loan or which are paid under any offer of compromise or settlement which had been made by Seller to any Mortgagor prior to the Due Diligence Cut-Off Date and which was disclosed by Seller to Purchaser in writing prior to the Due Diligence Cut-Off Date. "Permitted Expenses" means ordinary and customary expenses attributable and necessary for the prudent ownership, servicing or management of a Deleted Asset or Interim Mortgage Loan. Notwithstanding the foregoing, Permitted Expenses shall in no event include: (a) Capital Expenditures; (b) the principal or interest paid in connection with any loan other than the Loan, whether secured or unsecured, except as expressly approved by Seller; (c) the payment of any expense more than one month prior to the due date thereof; (d) the cost of the Valuation of the Mortgage Loans, Mortgaged Properties, Real Property and other Collateral (as defined in the Loan and Security Agreement); and (e) the amount of any penalties, assessments, fees or other charges levied against Purchaser as the lender under a Mortgage Loan as the result of its failure to service such Mortgage Loan or manage the related Mortgaged Property in accordance with applicable federal or state laws, rules or regulations or any defect in Purchaser's calculation of amounts due thereunder. "Permitted Foreclosure Costs" means those ordinary and customary costs associated with the acquisition of Mortgaged Property by the mortgagee or beneficiary under any Mortgage, whether by foreclosure, deed in lieu of foreclosure or otherwise. "Permitted Insurance Expenses" means amounts paid by Purchaser or any Qualified Affiliate, or monthly payments into an escrow account maintained for such purpose in an amount not to exceed one-twelfth (1/12th) of the annual premium, for premiums for hazard and flood insurance on a Mortgaged Property, having commercially reasonable terms, exclusions and deductible amounts, provided that insurance premiums on Mortgaged Property shall be "Permitted Insurance 14 20 Expenses" only if the Mortgagor has failed to pay such premiums upon notice of its failure to pay and as a result thereof, the failure of Purchaser or any Qualified Affiliate to pay such premiums would render the Mortgaged Property uninsured. "Permitted Leasing Commissions" shall mean leasing commissions paid by Purchaser or any Qualified Affiliate with respect to the leasing of all or any part of the premises of any Real Property to Persons who are not Related Parties of Purchaser or to Related Parties of Purchaser in accordance with arrangements approved in advance by Seller in writing. "Permitted Legal Expenses" means the reasonable legal fees and disbursements, not to exceed $50,000, paid by Purchaser to an attorney exclusively for contesting a claim by the maker or obligor of a Mortgage Loan that the underlying Mortgage Note or Mortgage is not enforceable as represented in Section 7.1(d)(iv) of the Asset Sale Agreement, provided that (i) the attorney representing Purchaser is approved, in writing, by the Seller, and (ii) the Seller has approved, in advance and in writing, Purchaser's expenditure of fees and disbursements in connection with the contest of the claim. "Permitted Liquidation Expenses" means the following expenses paid by or on behalf of Purchaser, Affiliate Purchaser or a Qualified Affiliate to Persons who are (a) generally in the business of providing goods and services of the type provided and (b) not Related Parties (as defined in the Loan and Security Agreement) (unless Lender has given express written approval prior to the provision of the goods or services), provided in any event that such expenses are reasonable for the types of goods and services provided in the geographic area in which such goods or services are provided and are not deducted as Permitted Expenses: (a) in the case of a sale of a Mortgaged Property, a Real Property or a Subparcel thereof, ordinary and customary expenses of the transaction, including reasonable legal, accounting and other professional fees and brokerage commissions customarily paid by sellers of commercial properties of the type sold in the geographic area in which the Mortgaged Property, Real Property or Subparcel is located; (b) ninety percent (90%) of Permitted Capital Expenses, as such term is defined in the Loan and Security Agreement; (c) ninety percent (90%) of unamortized Permitted Tenant Improvement Expenses (as used herein, "unamortized" means the number that results from dividing (i) that portion of the aggregate rent due under such lease for the lease term remaining, by (ii) the aggregate rent due under any lease from the inception of such lease through the expiration thereof); (d) one hundred percent (100%) of Permitted Insurance Expenses; (e) one hundred percent (100%) of Permitted Real Estate Tax Expenses; (f) ninety percent (90%) of unamortized Permitted Leasing Commissions; plus (as used herein, "unamortized" means the number that results from dividing (i) that portion of the aggregate 15 21 rent due under such lease for the lease term remaining, by (ii) the aggregate rent due under any lease from the inception of such lease through the expiration thereof); and (g) ninety percent (90%) of Permitted Foreclosure Costs, but only to the extent satisfactory evidence of payment is received by Seller. "Permitted Real Estate Tax Expenses" shall mean real estate taxes approved in advance of payment by Seller in writing paid by Purchaser or any Qualified Affiliate with respect to any Real Property or, if not paid by the Mortgagor thereunder, a Mortgaged Property. "Permitted Tenant Improvement Expense" means any expense incurred by Purchaser to provide physical improvement to a tenant's space. Any Permitted Tenant Improvement Expense shall be certified by a certificate of an officer of Purchaser stating that the related physical improvements and rents are at market levels. "Person" means an individual, corporation, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Portfolio Summary Spreadsheet" means the Lotus 1-2-3-based spreadsheet entitled "Portfolio Summary Spreadsheet" and dated October 12, 1993. "Post-Offer Due Diligence Period" means that period commencing with the date hereof and ending, with respect to any Asset, ninety (90) days thereafter, unless sooner terminated by delivery by Purchaser of an Acceptance Certificate. "Pre-Offer Due Diligence Period" means that period commencing with the date on which the Investor Due Diligence Package is made available to Purchaser and ending on the Offer Date. "Prepayment" means, with respect to any Mortgage Loan that is a Deleted Asset, the amount of any payments of principal of such Mortgage Loan that has been applied to the outstanding principal balance of the Promissory Note. "Promissory Note" means that certain promissory note dated as of the Closing Date by Purchaser as borrower in favor of Seller as lender, in substantially the form attached as Exhibit A to the Loan and Security Agreement issued pursuant to Section 2.1 of the Loan and Security Agreement. The term "Promissory Note" shall include such replacement Promissory Note and all additional replacements, extensions, amendments, endorsements, allonges and other modifications of the Promissory Note and all substitutions therefor in accordance with the Loan and Security Agreement. "Purchaser" has the meaning set forth in the caption of this Agreement and shall include its successors and assigns. "Purchaser's Cure Estimate" has the meaning given to that term in Section 5.4(b) hereof. 16 22 "Qualified Affiliate" means an Affiliate of Purchaser which is a separate single purpose corporation or limited partnership formed for the sole purpose of owning, managing and disposing of one or more parcels of Real Property. Purchaser shall cause a separate Qualified Affiliate or Qualified Affiliates to take title to the Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule on the one hand, and another Qualified Affiliate or Qualified Affiliates to take title to any one or more parcels of the remaining Real Property not designated "industrial" on the Mortgage Loan and Real Property Schedule on the other. Except as otherwise approved in writing by Seller and except as otherwise permitted under the Loan and Security Agreement, each Qualified Affiliate shall be an Affiliate of Purchaser that is a corporation or partnership wholly-owned, directly or indirectly, by all of the stockholders or partners of Purchaser or by individuals or entities that own, directly or indirectly, all of the stock or partnership interests in Purchaser, all to the same extent and in the same proportion as the ownership interest of such stockholders, partners, individuals or entities of Purchaser. "Real Property" means a parcel or parcels of land or a leasehold estate, including all improvements, fixtures, easements and other appurtenances owned by Seller and described on the Mortgage Loan and Real Property Schedule, which, at the time of Closing, will either be sold in fee or, at Purchaser's option, be encumbered by an Interim Mortgage Loan. "Real Property Sales Contract" means, with respect to the Real Property, the purchase and sale contract by and between Seller and Purchaser or, if Seller financing is to be utilized or otherwise at Purchaser's option, Affiliate Purchaser, to be executed concurrently herewith, substantially in the form attached hereto as Exhibit J, modified as necessary to reflect an all cash sale transaction. "Repurchase Date" means the date on which any Defective Asset is repurchased pursuant to this Agreement. "Repurchase Price" with respect to a Defective Asset means the Cash Portion of the Repurchase Price plus the Financed Portion of the Repurchase Price. "Revalued Asset" means each of the Assets that has been revalued in accordance with Section 5.5(b) hereof, due to the discovery of a Structural Defect or Natural Condition in the related Mortgaged Property or Real Property, as the case may be, and that Seller has not subsequently elected to repurchase pursuant to Section 5.5(a)(i) hereof. "Sales Contract" means the Real Property Sales Contract. "Security Agreement" means any security agreement creating a lien upon personal property described therein which secures a Mortgage Note. "Seller" means City National Bank, a national banking association. "Seller-Approved Contractor" means an engineering or contracting firm qualified to make such determination as may be required under Section 5.5 hereof, and which is selected by 17 23 Purchaser and identified to Seller in writing at the time Purchaser is notified that it has submitted a successful offer and which shall not have been reasonably disapproved by Seller within five (5) Business Days thereafter. "Stated Interest Rate" means the interest due on the Loan under the Promissory Note. "Structural Defect" has the meaning given to that term in Section 5.5 hereof. "Supplemental Certificate of Defective Asset" shall have the meaning ascribed thereto in Section 5.4(b) hereof. "Surviving Representation Expiration Date" means, (i) with respect to each Mortgage Loan to which a Surviving Representation and Warranty applies, that date which is the earlier to occur of (a) one year after the Current Fully Extended Maturity Date of such Mortgage Loan, unless written notice of a Claim is alleged by the Mortgagor within such one year period, in which event, the Surviving Representation Expiration Date, as it relates to such Claim only, shall be extended until the condition giving rise to such Claim is finally resolved or such Claim becomes a Defect, or (b) the date on which such Mortgage Loan is compromised, renegotiated or restructured, or the related Mortgaged Property is acquired by Purchaser by foreclosure, deed in lieu of foreclosure or otherwise, provided that, in the event Purchaser acquires such Mortgaged Property by means of a trustee's sale in a non-judicial foreclosure, the Surviving Representation Expiration Date for the representation made by Seller under Section 7.1(d)(ix) hereof shall be the date that is one (1) year after the Current Fully Extended Maturity Date of such Mortgage Loan and, (ii) with respect to each Asset that is Real Property to which a Surviving Representation and Warranty applies, one year after the date on which title to such Real Property passes to Purchaser, Affiliate Purchaser, or a Qualified Affiliate, as the case may be. "Surviving Representation and Warranty" means any representation and warranty under Section 7.1 hereof. "Valuation" means (i) with respect to any Revalued Asset, a value assigned to such Revalued Asset determined in accordance with this Agreement by the Valuation Agent according to the method set forth in Exhibit G attached hereto and evidenced by a Valuation Report prepared pursuant to such Exhibit G and delivered to Seller, and (ii) with respect to any other Asset, the "Valuation" of such Asset as set forth in the Mortgage Loan and Real Property Schedule. "Valuation Agent" means KPMG Peat Marwick or another nationally recognized expert in the Valuation of Mortgage Loans and Real Property, as chosen by Purchaser, subject to the reasonable approval of Seller. 18 24 ARTICLE II PURCHASE AND SALE OF THE ASSETS Section 2.1 PURCHASE AND SALE. Subject to the terms and provisions set forth in this Agreement, on the Closing Date, Purchaser shall purchase the Mortgage Loans (other than any Mortgage Loan with respect to which Seller has received Payment in Full prior to the Closing Date, in which case Purchaser shall receive a credit against the Initial Purchase Price in the amount of such Payment in Full) and the Real Property from Seller and Seller shall sell, transfer, assign and convey to Purchaser such Mortgage Loans, together with all related Asset Documents to the extent assignable and the servicing of such Mortgage Loans, and the Real Property, together with all related Asset Documents to the extent assignable. Section 2.2 INITIAL PURCHASE PRICE OF ASSETS. The purchase price of each Asset at the time of the Closing shall be as set forth with respect to such Asset on the Mortgage Loan and Real Property Schedule (the "Initial Purchase Price"), subject to adjustment in accordance with Section 2.3 hereof. The Initial Purchase Price for each Asset shall be paid by Purchaser to Seller on the Closing Date as follows: (a) Seller shall credit to Purchaser the Deposit toward the aggregate Initial Purchase Price for all Assets purchased; and (b) Purchaser shall remit to Seller in immediately available funds, an amount equal to (i) the aggregate Initial Purchase Price [plus applicable interest on the Financed Portion from the Cut-Off Date through the last day of the month in which the Closing occurs], less (ii) the sum of (A) the amount credited pursuant to Section 2.2(a) hereof, (B) other amounts, if any, then required to be credited to the Purchaser pursuant to Section 8.1(d) hereof[, and (C) the principal amount of the Promissory Note]; and (c) For each Mortgage Loan for which no payment default exists as of the Cut-Off Date, Purchaser shall remit to Seller in immediately available funds an amount equal to interest currently due and unpaid thereon (excluding any deferred interest and contingent interest) from and including the immediately preceding payment date with respect to such Mortgage Loan to but not including the Cut-Off Date. Section 2.3 MODIFICATIONS TO MORTGAGE LOAN AND REAL PROPERTY SCHEDULE. Purchaser and Seller shall amend the Mortgage Loan and Real Property Schedule to adjust the Initial Purchase Price as required to reflect any adjustment pursuant to Section 5.4 or 5.5 hereof. 19 25 Section 2.4 FINANCING OF MORTGAGE LOANS AND REAL PROPERTY; SALE OF REAL PROPERTY. Seller financing of the purchase by Purchaser of the Assets will be available subject to the terms and conditions set forth in a Loan and Security Agreement in substantially the form attached hereto as Exhibit K. The sale of the Real Property shall be effected, at Purchaser's option (i) concurrently herewith through the execution and delivery by Seller and Purchaser of the Sales Contract, or (ii) through a three- stage process commencing with (a) the concurrent execution and delivery by Seller and Affiliate Purchaser of the Sales Contract, (b) the delivery by Seller to Purchaser of an Interim Mortgage on the Closing Date, and (c) the subsequent reconveyance of the Interim Mortgage to Seller, along with the originally executed Interim Mortgage Note marked "Paid", concurrently with the conveyance of the Real Property to one or more Qualified Affiliates not later than the last day of the Due Diligence Period pursuant to the terms of the Sales Contract, all as further described in the Offering Memorandum. ARTICLE III DEPOSIT Section 3.1 DEPOSIT. Upon execution hereof, Seller shall acknowledge that it has received from Purchaser an amount equal to $2,920,369.00, not less than four percent (4.0%) of the Initial Purchase Price, which amount is comprised of the Initial Deposit, the Additional Deposit and any monies remaining from Purchaser's Due Diligence Deposit (the "Earnest Money Deposit"). The Earnest Money Deposit shall be deposited by Seller in an interest-bearing account at Seller's Beverly Hills branch (the "Deposit Account"). The Earnest Money Deposit, together with any interest earned thereon from the Offer Date to the Closing Date, shall hereinafter be referred to as the "Deposit". Section 3.2 DISTRIBUTION OF DEPOSIT. The Deposit shall be held by the Seller until (a) Closing occurs under this Agreement, in which event the Deposit shall be applied on account of the Initial Purchase Price, in accordance with Section 2.2(a) herein, or (b) this Agreement has been terminated, in which event the Deposit will be paid to Purchaser or retained by Seller in accordance with Section 11.1 or Section 11.2 hereof, as the case may be. ARTICLE IV CLOSING Section 4.1 CLOSING. The Closing shall be held on the Closing Date, at 10:00 a.m., at such place as is selected by Seller. The time of the Closing may be changed as the parties may mutually agree upon on or before the Closing Date. 20 26 Section 4.2 TRANSFER AND RECORDATION TAXES. At or prior to Closing, all transfer, filing and recording fees and taxes, costs and expenses, and any state or county documentary taxes, if any, with respect to the filing or recording of any conveyance document or instrument contemplated hereby shall be paid by Seller. Purchaser, Affiliate Purchaser or Qualified Affiliate shall pay, when due and payable, all transfer, filing and recording fees and taxes, and costs and expenses, if any, with respect to the filing or recording of any documents or instruments relating to the financing of any Parcel of Real Property and the cost of recording corrective instruments, pursuant hereto or to the Sales Contract, except for those related to any Interim Mortgage or deed to any Real Property, which Seller shall pay. Except as otherwise expressly provided herein, whether or not the transactions contemplated hereunder are completed, Purchaser shall pay all of its Closing and due diligence expenses and its expenses in negotiating and carrying out its obligations under this Asset Sale Agreement, including the costs of its counsel, all of the costs of title or other insurance which is not presently in force or otherwise provided, or other due diligence Purchaser may desire to undertakeand all of the expenses of Purchaser relating to this Agreement. Section 4.3 ESCROW ACCOUNTS. At Closing, all escrows held and account records reflecting amounts held in escrow by or on behalf of Seller for taxes, governmental assessments and insurance, deposits, security deposits, replacement reserves or other funds relating to the Assets and then held by or on behalf of Seller, including any accounts described in Section 8.1(d) hereof, shall be assigned, transferred and paid over to the Purchaser. All such funds transferred to and held by Purchaser shall be applied by Purchaser for their designated purposes for the designated Mortgaged Property, in accordance with the applicable Mortgage, or Real Property, as the case may be. Section 4.4 LIMITATIONS ON LIABILITY. The parties hereto acknowledge, confirm and agree that Purchaser shall have no claims and Seller shall have no liability, whatever, as a result of or otherwise in connection with any notice of default not being filed or being filed or any actions or failure to act in connection with any default, bankruptcy, request for modification or otherwise under any Mortgage Loan, except to the extent that such may be deemed a violation of Seller's obligations under Section 8.1(f) hereof; nor shall any of same be deemed a Defect or otherwise trigger any requirement to repurchase any Mortgage Loan, unless any such action or inaction shall constitute a breach by Seller of any representation or warranty set forth in Article VII hereof. ARTICLE V DUE DILIGENCE PERIOD Section 5.1 DUE DILIGENCE PERIOD. Seller and Purchaser acknowledge that while Purchaser has had time to conduct some due diligence, this Agreement is being executed and delivered prior to the Closing Date and prior to Purchaser having as much time as Purchaser might desire to conduct a due diligence review of the Assets, including the underlying Mortgaged Properties. Seller and Purchaser agree, therefore, that Purchaser may conduct additional due diligence in respect of the Assets, including the Mortgaged 21 27 Properties, until the termination of the Due Diligence Period, solely for the purpose of confirming Seller's Due Diligence Representations and Warranties. Prior to the Closing Date, however, Purchaser shall not contact the Mortgagors or any guarantor of any Mortgage Loan or any junior or senior lienors or any tenants of any Mortgaged Property or Real Property, as the case may be, or any officer, employee or agent of any thereof except upon the prior consent of Seller. Purchaser agrees that it will perform its due diligence review in good faith during the Due Diligence Period. Section 5.2 DUE DILIGENCE REVIEW OF ASSETS. During the Pre-Offer Due Diligence Period through the Due Diligence Cut-Off Date for each Asset listed on the Mortgage Loan and Real Property Schedule, Seller or Seller's Due Diligence Contractor has provided Purchaser with the related Investor Due Diligence Package and Seller has provided Purchaser access, during normal business hours upon reasonable prior request, to the related Investor File. Purchaser shall conduct, at its own expense, such additional analysis and investigation of the Mortgage Loans, the Mortgaged Properties and the Real Property as it deems necessary and appropriate. Under no circumstances will any amounts expended by Purchaser for due diligence be reimbursed or credited to or against the Initial Purchase Price. Section 5.3 SELLER'S COOPERATION. Seller agrees to cooperate with Purchaser during remainder of the Due Diligence Period and shall provide Purchaser access to Seller's Asset Files and any such non-privileged data or other materials that are reasonably related to Purchaser's evaluation of the Asset it is reviewing and are obtainable by Seller on a reasonable basis, provided that Seller shall not be obligated to incur any material cost or expense (unless, with respect to any cost or expense, a Person satisfactory to Seller in its sole discretion agrees to promptly reimburse or indemnify Seller in a manner acceptable to Seller, in Seller's sole discretion, for such cost or expense) or any liability as a result of such cooperation; provided that the foregoing limitation shall not reduce or limit Seller's representations and warranties under this Agreement. Section 5.4 ACCEPTANCE OF ASSETS AND REMEDIES FOR DEFECTS. Purchaser shall have the right either to accept an Asset as described in subsection (a) below or, in the event of a Defect in an Asset, to notify Seller in writing of such Defect as set forth in subsection (b) below. (a) ASSET ACCEPTANCE. After completion of its due diligence review of any Asset, Purchaser may finally accept such Asset for purchase hereunder prior to the termination of the Due Diligence Period by delivering to the Seller a certificate ("Acceptance Certificate") in the form attached hereto as Exhibit B identifying each Asset being accepted. Once an Asset is accepted hereunder, Purchaser's rights to require Seller to repurchase such Asset or to cure a Defect in such Asset shall terminate, except in the event of a breach of a Surviving Representation and Warranty. Purchaser's failure to deliver a Certificate of Defective Asset with respect to any Asset by the last day of the Due Diligence Period shall be 22 28 deemed to be an acceptance of such Asset, subject to Purchaser's rights to require Seller to make an election to cure the Defect in, reduce the Initial Purchase Price of, or repurchase, such Asset on account of any Defect arising from a Surviving Representation and Warranty in accordance with Section 5.4(b)(ii), Section 5.4(c) and Article X hereof. (b) PURCHASER'S CLAIM OF BREACH OF REPRESENTATION AND WARRANTY. In order to claim a Defect resulting from a breach of a representation and warranty with respect to an Asset, Purchaser shall execute and deliver to Seller a completed Certificate of Defective Asset no later than (i) the last day of the Due Diligence Period with respect to all Due Diligence Representations and Warranties under Section 7.2 hereof and with respect to a Defect relating to any Surviving Representation and Warranty of which Purchaser is then aware, or (ii) the earlier of (x) thirty (30) days following the discovery by Purchaser or (y) the Surviving Representation Expiration Date with respect to a Defect relating to a Surviving Representation and Warranty of which Purchaser was not aware on or before the last day of the Due Diligence Period. The completed Certificate of Defective Asset shall set forth (A) the identity of the Asset, (B) the exact nature of the claimed Defect and the manner in which the claimed Defect has a material adverse effect on the value of the related Asset, (C) the section or subsection of this Agreement under which such Defect is claimed, and (D) detailed evidence of the existence of the Defect, including, but not limited to, the identity of, and any copy of any materials provided by, any third party that performed any analysis or provided any cure estimate or any other information with respect to such claimed Defect. Within fifteen (15) days after delivery of any Certificate of Defective Asset, Purchaser shall execute and deliver to Seller an additional Certificate of Defective Asset (the "Supplemental Certificate of Defective Asset"), in substantially the form as Exhibit E hereto, indicating (X) whether, in Purchaser's reasonable judgment, the Defect is curable or is not susceptible to cure, (Y) if Purchaser reasonably judges the Defect to be curable, Purchaser's detailed description of the proposed cure and reasonable detailed estimate of the cost to repair or otherwise cure such Defect ("Purchaser's Cure Estimate") together with a copy of any supporting information prepared by any third party expert, and (Z) the amount by which Purchaser would have reduced the Initial Purchase Price with respect to such Asset had Purchaser been aware of such Defect on the Offer Date (the "Reduction to the Initial Purchase Price"). (c) REMEDIES FOR BREACHES OF REPRESENTATIONS AND WARRANTIES. In the event a Defective Asset exists and Purchaser has fulfilled the conditions to the claim of Defect as set forth in Section 5.4(b) above, Seller shall have the options specified in Section 5.4(d) below. Failure of Purchaser to provide the proper Certificate of Defective Asset to Seller for each Asset by no later than the time provided in Section 5.4(b) above for a Defective Asset shall for all purposes terminate and extinguish any rights of Purchaser to require Seller to make an election to cure the Defect in, reduce the Initial Purchase Price of, or repurchase, such Asset; provided, however, that Purchaser shall have a reasonable opportunity to supplement a Certificate of Defective Asset if Seller reasonably determines that such certificate was not properly completed. If Purchaser, upon purchase of the related Asset, has title insurance that provides coverage with respect to any condition that might otherwise constitute a Defect, Purchaser shall seek recourse with respect to such condition under such title insurance policy and such condition shall not be considered a Defect. In order to preserve its rights under this Section 5.4 with respect 23 29 to any such condition during the period in which Purchaser is pursuing its obligations hereunder to seek recourse against such title policy, Purchaser may submit a Certificate of Defective Asset in accordance with Section 5.4(b) with respect to any such Asset for which Purchaser reasonably believes it had title insurance at the time of purchase of such Asset, and, if coverage thereunder is subsequently determined not to have existed through no fault of Purchaser, whether by its action or inaction, the sixty (60) day time period under Section 5.4(d) for Seller to make its elections thereunder shall commence as of the date of such determination. (d) PROCEDURE FOR SELLER'S ELECTION OF REMEDY WITH RESPECT TO A CERTIFICATE OF DEFECTIVE ASSET. In the event Purchaser delivers a Certificate of Defective Asset as provided in Section 5.4(b) above, Seller shall, no later than sixty (60) days after receipt of such Certificate, notify Purchaser in writing that (i) Seller disputes (x) the existence of such Defect or (y) the reasonableness of Purchaser's Cure Estimate or (z), if Purchaser has stated that it believes such Defect is not curable, such statement, and in any of such cases, the basis for any such position, including, if appropriate and then available without undue delay or expense, evidence that no Defect exists or that such Defect is susceptible to cure (which denial shall not be dispositive as to the existence or absence of a Defect, whether with respect to the susceptibility of such Defect to cure or the reasonableness of Purchaser's Cure Estimate); or (ii) Seller intends to attempt to cure such Defect within the Cure Period; or (iii) Seller has elected, at its option, to reduce the Initial Purchase Price with respect to such Asset by either the amount specified by Purchaser as Purchaser's Cure Estimate or the Reduction to the Initial Purchase Price, respectively, as set forth in Section 5.4(b), which amount shall be rebated to Purchaser not later than thirty (30) days after delivery of Seller's notice to Purchaser of such election; or (iv) Seller has elected to repurchase the Asset from Purchaser at the Repurchase Price; or (v) with respect to Real Property to which Purchaser or a Qualified Affiliate, as the case may be, has not yet taken title, Seller has elected to pay all sums due under any Interim Mortgage Loan relating to such Real Property then existing and terminate the Sales Contract with respect thereto. If Seller fails to make the required election within said sixty (60) day period, Purchaser shall send a second demand to Seller, which shall state that should Seller fail to timely respond within five (5) Business Days as to its election, Seller shall be deemed to have agreed to repurchase the Asset. In the event Seller then shall fail to timely respond to such second demand, Seller shall be required to repurchase the Asset at the Repurchase Price. Failure to so send such second demand to Seller shall not diminish Purchaser's rights hereunder except that the period within which Seller must make an election hereunder shall be extended until five (5) days from the date such second demand is actually delivered to Seller. At least thirty (30) days, but no more than forty (40) days prior to the end of the Cure Period, if Purchaser had previously received notification from Seller (i) that Seller intended to attempt to cure the Defective Asset and Purchaser has not received notification from Seller (or is not otherwise aware) that the Defect has been cured or (ii) that Seller expects that the Defect in the Asset will be cured by the end of the Cure Period, Purchaser shall send a Deletion Certificate, in substantially the form attached hereto as Exhibit F, to Seller stating that such Defective Asset will be subject to repurchase at the Repurchase Price if such Defect has not been cured within the Cure Period. Failure to so send such Deletion Certificate to Seller shall not diminish Purchaser's rights hereunder except that the Cure Period shall be extended until thirty (30) days from the date such Deletion Certificate is actually delivered to Seller. 24 30 Section 5.5 PROCEDURE IN RESPECT OF A STRUCTURAL DEFECT OR NATURAL CONDITION. In response to a Certificate of Defective Asset with respect to a Structural Defect (as such term is defined below) or Natural Condition, all as provided in Section 5.5(a)(i) below, if Seller elects to repair or otherwise cure such Structural Defect or incur additional engineering or entitlement costs with respect to a Natural Condition, Seller shall be obligated to pay for such repairs or other costs only to the extent that the cost thereof exceeds (i) any amount to repair or cure identified in the Asset Valuation Package or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date (the "Disclosed Remedial Cost Estimate") plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000). A Structural Defect or Natural Condition shall not give rise to any obligations of Seller hereunder without Purchaser's delivery to Seller during the Due Diligence Period of sufficient specific information as to the nature of the Structural Defect or Natural Condition, the estimated cost to cure the Structural Defect or Natural Condition, the effect of the Structural Defect or Natural Condition upon the use of the Mortgaged Property and other information relevant under the circumstances for Seller to make its election based upon the information submitted as part of the Certificate of Defective Asset in respect of a Mortgage Loan. (a)(i) Purchaser shall be entitled to deliver a Certificate of Defective Asset with respect to a Structural Defect or Natural Condition in the event that during the Due Diligence Period Purchaser discovers the existence of either one or more defects in the improvements, fixtures (other than carpet and floor coverings) or mechanical systems (including, but not limited to, electrical, plumbing, elevator and heating, ventilation and air conditioning) comprising a Mortgaged Property or Real Property ("Structural Defect") or one or more Natural Conditions that, in either case, existed prior to the Closing Date and either (A)(i) was not disclosed in the Due Diligence Materials or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date, (ii) was not actually known to Purchaser prior to the Offer Date (and Purchaser shall be deemed to have known about such Structural Defect or Natural Condition if same is apparent from a physical inspection of the Mortgaged Property or Real Property, as the case may be, by a person who is not an expert on such Natural Conditions or Structural Defects), and (iii) (X) with respect to a Structural Defect, would require the investment of not less than the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) to repair or otherwise cure, or (Y) with respect to a Natural Condition, would be the sole cause of an increase in the cost to develop the portion of the Mortgaged Property or Real Property, as the case may be, intended to be developed (for the use indicated in the Due Diligence Report or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date) of not less than the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), or would require the investment of not less than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) to be expended to remove or negate the effects of same (in compliance with all applicable laws, rules and regulations), as determined by a Seller- Approved Contractor, or (B)(i) was disclosed in the Due Diligence Materials for the related Asset, and (ii)(X) with respect to a Structural Defect, would require the investment of not less than (a) the Disclosed Remedial 25 31 Cost Estimate plus (b) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) net of any amount thereof recoverable from third parties to be expended to repair or otherwise cure same, as determined by a Seller-Approved Contractor, or (Y) with respect to a Natural Condition, would be the sole cause of an increase in the cost to develop the portion of the Mortgaged Property or Real Property, as the case may be, intended to be developed (for the use indicated in the Due Diligence Materials, or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date) of not less than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) or would require the investment of not less than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000) to be expended to remove or negate the effects of same (in compliance with all applicable laws, rules and regulations), all as determined by a Seller-Approved Contractor. Seller shall, in response to its receipt of a Certificate of Defective Asset from Purchaser with respect to a Structural Defect or Natural Condition, at Seller's sole option, elect within thirty (30) days after receipt of such Certificate of Defective Asset either to (W) with respect to a Structural Defect, repair or otherwise cure such Structural Defect, or, with respect to a Natural Condition, remove or negate the effects of such Natural Condition; provided, however, that even if Seller elects to repair or otherwise cure such Structural Defect or remove or negate the effects of such Natural Condition, Seller shall be obligated to pay for the cost thereof only to the extent that same exceeds (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), or (X) repurchase the Asset at the Repurchase Price as provided in Section 10.2 hereof, or (Y) with respect to Real Property to which Purchaser, Affiliate Purchaser or a Qualified Affiliate, as the case may be, has not yet taken title, pay all sums due under any Interim Mortgage Loan relating to such Real Property then existing and terminate the Sales Contract with respect thereto, or (Z) permit Purchaser to revalue the Asset as described hereunder. Seller's obligation to make such election shall be conditioned upon Purchaser's delivery to Seller of sufficient specific information as to the nature of the Structural Defect or Natural Condition, the estimated cost to cure the Structural Defect or, with respect to a Natural Condition, the cost to remove or negate the effects of same, the effect of the Structural Defect or Natural Condition upon the use or development of the Mortgaged Property or Real Property, as the case may be, and other information relevant under the circumstances for Seller to determine whether there is a Structural Defect or Natural Condition and to make the elections and other determinations required hereunder, along with the aggregate of (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), with respect to such Structural Defect or Natural Condition, which amount may be held in escrow, until such time as Seller has made its election whether to cure, repurchase or revalue the Defective Asset, for use by Seller in its efforts to cure or negate the effect of such Structural Defect or Natural Condition. 26 32 (ii) If Seller elects to permit Purchaser to revalue the Asset in accordance with Section 5.5(a)(i) hereof, Purchaser shall retain a Valuation Agent to revalue such Asset as of the Closing Date. (iii) If Seller elects to permit Purchaser to revalue the Asset in accordance with Section 5.5(a)(i) hereof, the Asset shall be revalued in accordance with the valuation process described in Paragraph (b) below. At least thirty (30) days, but no more than forty (40) days, prior to the end of the Cure Period, if Purchaser had previously received notification from Seller (i) that Seller intended to attempt to cure the Defective Asset and Purchaser has not received notification from Seller (or is not otherwise aware) that the Defect has been cured or (ii) that Seller expects that the Defect in the Asset will be cured by the end of the Cure Period, Purchaser shall send a deletion certificate, in substantially the form attached hereto as Exhibit F ("Deletion Certificate"), to Seller stating that such Defective Asset will be subject to repurchase at the Repurchase Price if such Defect has not been cured within the Cure Period. Failure to so send such Deletion Certificate to Seller shall not diminish Purchaser's rights hereunder except that the Cure Period shall be extended until thirty (30) days from the date such Deletion Certificate is actually delivered to Seller. (b) Any revaluation of the Assets under this Section 5.5 shall be effected through a valuation process for each Asset as follows: (i) Purchaser shall promptly appoint the Valuation Agent to determine the Valuation of each Revalued Asset ("Valuation" herein) and shall notify Seller of its selection. The Valuation Agent shall render a report (the "Valuation Report") as to the Valuation of the Revalued Asset addressed to Seller and Purchaser within ninety (90) days of appointment. (ii) In the event that the designated Valuation Agent is not eligible or capable of providing a Valuation in accordance with this Section 5.5, Seller shall designate a new Valuation Agent. (iii) With regard to any Valuation Report rendered under this Section 5.5(b), except as provided in Section 5.5(c) below, the fees and other costs of the Valuation Agent shall be borne one-half by Purchaser and one-half by Seller. (iv) Purchaser shall instruct the Valuation Agent appointed hereunder that in making its determination of the Valuation of any Asset as of the Closing Date, the Valuation Agent shall follow the instructions specified on Exhibit G attached hereto, taking into account the assumptions (and only such assumptions, except to the extent that the Valuation Agent finds it reasonably necessary to modify one or more assumptions and then only upon the prior written consent of Purchaser and Seller) set forth in this Section 5.5(b) hereof. 27 33 (v) Upon determination of the Valuation in accordance with the foregoing, the Valuation Agent shall execute a valuation certificate in substantially the form attached hereto as Exhibit H (the "Valuation Certificate") indicating the Valuation. The product of the Valuation multiplied by the Offer Percentage shall be inserted as the Adjusted Purchase Price for each Revalued Asset on the Mortgage Loan and Real Property Schedule in accordance with Section 2.3 hereof and shall be used to calculate the Adjusted Purchase Price. For all Assets which are not Revalued Assets, the Adjusted Purchase Price shall be the Initial Purchase Price. (vi) With respect to any Interim Mortgage Loan, the Valuation Agent, pursuant to the valuation process outlined in this Section 5.5, will be instructed to value the underlying Mortgaged Property. The value determined to be the value of the underlying Mortgaged Property shall be deemed the Valuation for purposes of calculating the Adjusted Purchase Price. (vii) In the event of the adjustment between the Initial Purchase Price and the Adjusted Purchase Price (the amount of such adjustment herein, a "Shortfall"), Seller and Purchaser shall take all necessary action to amend the Asset Documents, Loan and Security Agreement and related documents to reflect the Shortfall; and an amount equal to twenty-five percent (25.0%) of the aggregate amount of any such Shortfall plus interest on the Shortfall from the Cut-Off Date to the Revaluation Adjustment Date, as such term is defined in the Loan and Security Agreement, at the Applicable Rate shall be refunded to Purchaser within ten (10) Business Days after the determination of same has been made and the balance of the aggregate amount of the Shortfall shall be held by Seller to be applied toward the next principal payment to be made by Purchaser in connection with Seller's financing of the sale transaction contemplated hereby. (viii) The Valuation Agent shall be instructed to use all assumptions used in determining the Valuation of the Asset, as reflected in the Due Diligence Materials, or with respect to any Asset or parcel of Mortgaged Property for which Seller's Valuation was not contained in the Due Diligence Materials, which assumptions are (i) reasonable as of July 1, 1993 and (ii) consistent with the assumptions used in those Valuations performed by Seller which were contained in the Due Diligence Materials, and shall be applied in following the instructions described in Exhibit G, unless the calculations pursuant to a particular instruction would have yielded a different result if the Valuation Agent that determined the value as reflected in the Due Diligence Materials had considered the Structural Defect or Natural Condition in performing such calculations. (ix) If a calculation pursuant to a particular instruction in Exhibit G would yield a different result if the Valuation Agent modified the assumptions used in performing the required calculation (1) to reflect the cost to (X) repair or otherwise cure the Structural Defect or (Y) remove or otherwise negate the effect of a Natural Condition (but only to the extent (with respect to both (X) and (Y) above) that the cost thereof exceeds (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, 28 34 or Fifty Thousand Dollars ($50,000), net of any amount thereof recoverable from third parties), that would cause the value of the Asset to be reduced by more than (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), for, with respect to a Structural Defect, the repair or cure of such Structural Defect or, with respect to a Natural Condition, the removal or negation of the effects of such Natural Condition and, in both cases, net of any amount thereof recoverable from third parties (such as tenants, insurers, contractors or bondsmen) or other participants, or (2) in the alternative, to reflect the permanent reduction (X) with respect to a Structural Defect, in net rental income that would cause the value of the Asset to be reduced by more than (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), for the repair or cure of such Defect that would result if such repair or other cure were not performed, or (Y) with respect to a Natural Condition, in the value of the Asset to be reduced by more than (i) the Disclosed Remedial Cost Estimate plus (ii) the greater of two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or Fifty Thousand Dollars ($50,000), for the cost to remove or negate the effects of the Natural Condition, if the Natural Condition was not removed or its effects not negated, then in both the situation of a Structural Defect or a Natural Condition, the Valuation Agent shall be instructed to modify the assumptions or calculations at issue as described in clause (1) or (2) using the modification method that would yield the lesser adjustment in the Valuation of the Asset. No other assumption or calculation shall be modified by the Valuation Agent unless Seller and Purchaser grant their prior written consent. (x) The assumed cost to repair or otherwise cure the Structural Defect or to remove or negate the effect of the Natural Condition applied under the method described in clause (1) of Section 5.5(a)(iii)(B) above, shall be provided by an engineering firm reasonably acceptable to Seller and qualified to make such a determination and shall be based upon reasonable estimates as to cost for goods and services necessary to (X) with respect to a Structural Defect, cure the Structural Defect so as to render the defective structure serviceable for the uses for which the improvements or fixtures were designed or (Y) with respect to a Natural Condition, render the Mortgaged Property or Real Property, as the case may be (or portion thereof), in a condition suitable for development (for the use indicated in the Due Diligence Materials or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date). (xi) Improvements, fixtures or mechanical systems shall not be deemed to have a Structural Defect (1) solely by reason of the failure of the improvements, fixtures or mechanical systems to have a design or function satisfactory for a new or unintended use or purpose, (2) solely by reason of the wear and tear associated with the operation of such improvements, fixture or mechanical system, unless the wear and tear is in excess of that which could reasonably be expected based on a limited sight inspection and the inspection report contained in the Investor Due Diligence Package, (3) solely by reason of deferred 29 35 maintenance, (4) solely by reason of having outlived its useful life or its functional utility, (5) solely by reason of the requirements of any law, rule, regulation or code relating to such improvements, fixtures or mechanical systems which were promulgated, amended, supplemented or otherwise passed or modified after the earlier of the date of (i) construction of the improvements on the Mortgaged Property or Real Property, (ii) the issuance of the certificate of occupancy with respect to such Mortgaged Property or Real Property or (iii) the origination of the related Mortgage Loan, including, but not limited to, the Americans With Disabilities Act of 1990 (as set forth in Chapter 126 of Title 42 of the United States Code), or (6) solely by reason of any combination of the foregoing. (xii) A Natural Condition shall not be deemed to be the sole cause of an increase in the cost to develop Mortgaged Property or Real Property, as the case may be, to the extent any other reason exists independent of such Natural Condition which prohibits, restricts or increases the cost to develop the Mortgaged Property or Real Property, as the case may be (other than the existence of laws, rules or regulations which prohibit or impose obligations in connection with the development of land on which a Natural Condition exists). (c) Seller shall have the right to elect, within sixty (60) days of receipt of the Valuation Certificate, at its sole option, to repurchase the Asset for the Repurchase Price within ninety (90) days after receipt of the Valuation Certificate in lieu of making an adjustment in the Initial Purchase Price of any Asset under this Section 5.5. In the event Seller repurchases any such Asset, Seller shall reimburse Purchaser for its reasonable out-of-pocket costs incurred in employing the Valuation Agent to render the Valuation Certificate. If Seller elects to repurchase an Asset pursuant to this Section 5.5(c), such Asset shall be treated as a Deleted Asset and shall not be deemed to be or be treated as a Revalued Asset. (d) Notwithstanding anything contained herein to the contrary, Purchaser shall only be entitled to deliver a Certificate of Defective Asset (i) with respect to an Asset having a Structural Defect if the cost to repair such Structural Defect would require the investment of more than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of (x) Fifty Thousand Dollars ($50,000), or (y) two percent (2.0%) of the Initial Purchase Price for the applicable Asset (net of any amounts recoverable from third parties), or (ii) with respect to an Asset on which a Natural Condition exists, such Natural Condition would be the sole cause of an increase in the cost to develop the portion of the Mortgaged Property or Real Property, as the case may be, intended to be developed (for the use indicated in the Due Diligence Materials or otherwise provided in writing to Purchaser on or before the Due Diligence Cut-Off Date) of more than (a) the Disclosed Remedial Cost Estimate plus (b) the greater of (x) Fifty Thousand Dollars ($50,000) or (y) two percent (2.0%) of the Initial Purchase Price for the applicable Asset (net of any amounts recoverable from third parties) to be expended to remove or negate the effects of such Natural Condition, in both the case of a Structural Defect and a Natural Condition, as determined by a Seller-Approved Contractor (and such Asset shall not be deemed a Defective Asset or to have a Defect unless the conditions for delivering a Certificate of Defective Asset are satisfied with respect thereto.) 30 36 ARTICLE VI REPRESENTATIONS AND WARRANTIES OF PURCHASER Section 6.1 PURCHASER'S REPRESENTATIONS. Each of the following representations and warranties by Purchaser is true and correct as of the date of delivery of this Agreement and shall be true and correct on the Closing Date: (a) AUTHORITY; BINDING ON PURCHASER; ENFORCEABILITY. Purchaser is a limited partnership and is duly formed, validly existing and in good standing under the laws of Delaware. Purchaser has taken all necessary action to authorize the execution, delivery and performance of this Agreement, has the power and authority to execute, deliver and perform this Agreement, and all related documents and all the transactions contemplated hereby, including, but not limited to the authority to purchase and acquire the Assets and servicing thereof in accordance with this Agreement, has duly authorized, executed and delivered this Agreement and, assuming due authorization, execution and delivery by each other party hereto, this Agreement and all the obligations of Purchaser hereunder are the legal, valid and binding obligations of Purchaser, enforceable in accordance with the terms of this Agreement, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of this Agreement and the performance of its obligations hereunder by Purchaser will not conflict with any provision of any law or regulation to which Purchaser is subject; or conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of any organizational document of Purchaser or any agreement or instrument to which Purchaser is a party or by which it is bound, or any order or decree applicable to Purchaser; or result in the creation or imposition of any lien on any of its assets or property which would materially and adversely affect the ability of Purchaser to carry out the terms of this Agreement. Purchaser will obtain any consent, approval, authorization or order of any court or governmental agency or body required for the execution, delivery and performance by Purchaser of this Agreement. (c) DECISION TO PURCHASE. Purchaser is a sophisticated investor and its offer and decision to purchase the Assets are based upon its own independent expert evaluations of the Offering Memorandum, the Due Diligence Materials, the Asset Documents and other materials deemed relevant by Purchaser and its agents. Purchaser has not relied in entering into this Agreement upon any oral or written information from Seller or any of its employees, Affiliates, agents or representatives, other than the Offering Memorandum, the Due Diligence Materials, the Asset Documents and the representations and warranties of Seller contained herein. Purchaser further acknowledges that no employee or representative of Seller has been authorized to make, and that Purchaser has not relied upon, any statements or representations other than those specifically contained in this Agreement. 31 37 (d) COMPLIANCE WITH REQUIREMENTS OF OFFERING MEMORANDUM. Purchaser (i) complied fully and on a timely basis with all requirements set forth in the Offering Memorandum with respect to its successful offer to purchase Assets described in such Offering Memorandum, which compliance included, but was not limited to, the taking of all actions required to be taken pursuant to the Offering Memorandum on a timely basis and the refraining from taking any actions prohibited pursuant to the Offering Memorandum and (ii) complied fully and on a timely basis with all terms and conditions of the Confidentiality Agreement executed by Purchaser in order to qualify as a prospective purchaser under the Offering Memorandum, which compliance included, but was not limited to, the taking of all actions required to be taken pursuant to the Confidentiality Agreement on a timely basis and the refraining from taking any actions prohibited pursuant to the Confidentiality Agreement. Without limiting the foregoing, neither Purchaser nor any of its Affiliates or agents has communicated with any Mortgagor or guarantor with respect to any Asset, or any other party to the transaction contemplated herein, including any junior or senior lienors on or tenants of the Mortgaged Property or the Real Property, other than a property manager of the Real Property, if any, or any of their respective officers, employees or agents, without the prior written consent of Seller. (e) INCUMBENCY CERTIFICATE. Purchaser has delivered to Seller an incumbency certificate identifying the officers of Purchaser authorized to execute this Agreement and all certificates or other communications which have been or may be delivered hereunder, together with a specimen signature of each such officer. (f) INSOLVENCY OF PURCHASER. Purchaser is not insolvent or bankrupt and there is no pending or threatened insolvency or bankruptcy proceeding of any kind affecting Purchaser or any of its assets, properties or business. (g) VALUATION ASSUMPTIONS. Purchaser acknowledges that the Valuations set forth in the Mortgage Loan and Real Property Schedule were developed within the context of a portfolio sale by Seller's Valuation Agent for the sole purpose of allocating the Initial Purchase Price among the individual Assets in order to provide a method of determining the Repurchase Price or Adjusted Purchase Price in the event any Asset is repurchased or revalued. There are certain standard assumptions as to the timing and amounts of future cash flows, applicable capitalization and discount rates, timing of foreclosures and bankruptcies and other factors that might be different if the Assets had not been valued in the context of this portfolio sale. Purchaser agrees that the use of the Valuations for any purpose other than their intended use as described herein and the disclosure of such Valuations to third parties without Seller's prior consent is strictly prohibited. (h) OBLIGATIONS ASSUMED. At the Closing, Purchaser shall purchase and assume, without recourse or warranty, except as specifically set forth herein, all of Seller's right, title and interest in and to, and obligations in respect of, the Mortgage Loans, and Purchaser covenants and agrees that, with respect to such purchase and assumption, it will perform each and every obligation of Seller to be performed from and after the Closing Date, as set forth in such documents, including, but not limited to, those obligations under outstanding letters of credit and in respect of undisbursed funds, if any, under Mortgage Notes, to the extent and only to the extent that such 32 38 letters of credit, undisbursed funds and other obligations were fully disclosed to Purchaser in writing prior to the Closing. (i) OPINION OF PURCHASER'S COUNSEL. Purchaser shall deliver on the Closing Date an opinion of counsel for Purchaser (who may be an employee of Purchaser) opining as to the power, authority and legal right of Purchaser to execute and deliver the Loan and Security Agreement and all associated documents entered into by and between Purchaser and Seller or any of their respective Affiliates, and to perform and observe the terms and conditions of such instruments, and as to all other things that Seller reasonably may request in connection therewith, all in form and substance satisfactory to Seller. ARTICLE VII REPRESENTATIONS AND WARRANTIES OF SELLER Section 7.1 SURVIVING REPRESENTATIONS AND WARRANTIES OF SELLER. Each of the following representations and warranties of Seller is true and correct as of the date of delivery of this Agreement and shall be true and correct in all material respects on the Closing Date: (a) AUTHORITY; BINDING ON SELLER; ENFORCEABILITY. Seller has taken all necessary action to authorize its execution, delivery and performance of this Agreement, has the power and authority to execute, deliver and perform this Agreement and all the transactions contemplated hereby, including but not limited to the authority to sell, assign and transfer the Assets in accordance with this Agreement, has duly authorized, executed and delivered this Agreement and, assuming due authorization, execution and delivery by each other party hereto, this Agreement and all the obligations of Seller hereunder are the legal, valid and binding obligations of Seller, enforceable in accordance with the terms of this Agreement, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). (b) CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of this Agreement and the performance of its obligations hereunder by Seller will not conflict with any provision of any law or regulation to which Seller is subject or conflict with or result in a breach of or constitute a default under any of the terms, conditions or provisions of any agreement or instrument to which Seller is a party or by which it is bound or any order or decree applicable to Seller or result in the creation or imposition of any lien on any of its assets or property, in each case in any manner which would adversely affect the ability of Seller to carry out the terms of this Agreement; and Seller has obtained any consent, approval, authorization or order of any court or governmental agency or body required for the execution, delivery and performance by Seller of this Agreement. (c) LEGAL ACTION AGAINST SELLER. There is no action, suit or proceeding pending against Seller in any court or by or before any other governmental agency or instrumentality which 33 39 would adversely affect the ability of Seller to carry out the transactions contemplated by this Agreement, except as disclosed with respect to any particular Asset in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (d) REPRESENTATIONS AND WARRANTIES REGARDING THE ASSETS. Subject to the provisions of Section 7.4 hereof, Seller hereby represents and warrants that, as to each Mortgage Loan, and the Real Property where indicated, the following representations and warranties are true and correct in all respects as of the date of delivery of this Agreement, or as otherwise specified, and shall be true and correct in all respects as of the Closing Date: (i) NO DEFENSE BY MAKER. Except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date, Seller has neither taken an action nor failed to take an action which would give the Mortgagor a valid defense to the payment in full of the Mortgage Loan that arises from applicable local, state or federal laws, regulations and other requirements pertaining to usury or any other requirements of any federal, state or local law relating to the origination of such Mortgage Loan, including, but not limited to, truth-in-lending, real estate settlement procedures, consumer credit protection, equal credit opportunity or disclosure laws. (ii) NO COUNTERCLAIMS. Except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date, such Mortgage Loan is not subject to any right of rescission, set-off, abatement, diminution, counterclaim or defense that adversely affects the ability of Seller or its assigns to enforce the provisions of the Mortgage Note or the Mortgage or realize against the Mortgaged Property subject to such Mortgage, and no such claims have been asserted as of the date hereof with respect to the Mortgage Loan, and if so asserted, have either been withdrawn or released. (iii) AMOUNT OF LOAN. The outstanding principal amount of the Mortgage Loan as of the Due Diligence Cut-Off Date was not less than such amount as set forth in the Mortgage Loan and Real Property Schedule and the current interest rate, current required monthly payment, and the Current Fully Extended Maturity Date of the Mortgage Loan are as set forth in the Mortgage Loan and Real Property Schedule. (iv) ENFORCEABILITY. The Mortgage Note and the related Mortgage are each the legal, valid and binding obligation of the maker or obligor thereof, and contain customary and enforceable provisions that, in the event of a breach of a provision thereof, will enable the holder to bring an action or proceeding to foreclose the lien of the Mortgage in accordance with California law, except as such enforcement may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and by general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or law). (v) SELLER'S OWNERSHIP AND RIGHT TO SELL. Seller is the sole owner and holder of the Mortgage Loan and the Real Property and has the right to sell the Mortgage Loan and the Real Property free and clear of any valid claims of third parties. 34 40 (vi) NO MODIFICATION. Seller has not modified the related Mortgage or Mortgage Note (in the form contained in the Investor File), or satisfied, cancelled or subordinated such Mortgage or Mortgage Note in whole or in part or released all or any portion of the Mortgaged Property from the lien of the Mortgage, or executed any instrument of release, cancellation or satisfaction, except by written instrument as disclosed in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (vii) DISBURSEMENT OF LOAN PROCEEDS. The Mortgagor does not have the right to disbursement of additional loan proceeds or future advances with respect to the Mortgage Loan except as such right is disclosed in the Portfolio Summary Spreadsheet contained in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (viii) CROSS-COLLATERALIZATION. The Mortgage Loan is not cross collateralized with any other mortgage loan except as such cross collateralization is disclosed in the Portfolio Summary Spreadsheet contained in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (ix) TRUSTEE'S SALE SET-ASIDE. Seller has taken no action that would give the Mortgagor a valid claim to set aside a non-judicial foreclosure of the related Mortgage. (e) INCUMBENCY CERTIFICATE. Seller has delivered to Purchaser an incumbency certificate identifying the officers of Seller authorized to execute this Agreement and all certificates or other communications which have been or may be delivered hereunder, together with a specimen signature of each such officer. Section 7.2 DUE DILIGENCE REPRESENTATIONS AND WARRANTIES OF SELLER. Subject to the provisions of Section 7.4 hereof, Seller hereby represents and warrants that, as to each Mortgage Loan or Real Property, as indicated below, the following representations and warranties are true and correct in all material respects as of the date of delivery of this Agreement, or as otherwise specified, and shall be true and correct in all material respects as of the Closing Date: (a) DUE DILIGENCE MATERIALS. As of the Due Diligence Cut-Off Date, the Asset Data Sheet, Portfolio Summary Spreadsheet and document inventory, all of which are contained in the Investor Due Diligence Package, reflect accurately in all respects the information set forth in the Asset File with respect to such Asset, provided that such Due Diligence Materials purport only to reflect information as it appears on the face of the documents and other papers in such Asset File and does not purport to verify the accuracy of the facts recited in such documents and other papers. 35 41 (b) VALIDITY OF COLLATERAL DOCUMENTS. Each Security Agreement related to each Mortgage Loan and referenced in the Due Diligence Materials creates a valid security interest in the property described therein. (c) ASSET DOCUMENTS. The copies of the grant deed in respect of the Real Property, and the Mortgage Note and Mortgage and any documents modifying the terms of the Mortgage Note and Mortgage included in the Due Diligence Materials are true and correct copies of the documents they purport to be and have not been superseded, amended, modified, cancelled or otherwise changed in any respect except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (d) CONDEMNATION. To the Best of Seller's Knowledge (as hereafter defined), there is no pending or threatened condemnation proceeding or similar proceeding affecting the Mortgaged Property or the Real Property, as the case may be, or any part thereof which could have an adverse effect upon the use of that Mortgaged Property or the Real Property for its intended purposes, except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. As used herein, "to the Best of Seller's Knowledge" means, as to any Asset, knowledge as to which Seller has received written notice or which is the actual present knowledge of the current officers of Seller who are primarily responsible for such Asset, as the case may be, without any independent investigation or inquiry whatsoever, and expressly excluding any knowledge of any other former officer of Seller. (e) LITIGATION. To the Best of Seller's Knowledge as of the Due Diligence Cut-Off Date, there is no litigation, proceeding or governmental investigation pending, or any order, injunction or decree outstanding, existing or relating to any Asset or the related Mortgaged Property which could have an adverse effect upon such Asset, except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (f) COMPLIANCE WITH LAWS. To the Best of Seller's Knowledge and except as disclosed in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date, (i) no currently applicable zoning, building, or other federal, state or municipal law, ordinance, regulation, or any restrictive covenant is currently violated by the current maintenance, operation, occupancy, or use of any of the Mortgaged Property or the Real Property, as the case may be, in its present manner such that the violation would adversely affect the current operation, occupancy or other use of the Mortgaged Property or the Real Property and (ii) all licenses, permits, inspections, authorizations, certifications and approvals required by all governmental authorities having jurisdiction over the current operation of the Mortgaged Property and the Real Property have been performed or issued and paid for and are in full force and effect. (g) TITLE INSURANCE. A valid and enforceable ALTA or CLTA policy of title insurance or CLTA owner's binder, as the case may be, or any other form customarily approved by institutional investors in the jurisdiction in which the Mortgaged Property or Real Property is located has been issued by and is the binding obligation of a title insurer qualified to do business 36 42 in the jurisdiction where the Mortgaged Property or Real Property is located and, with respect to the Mortgaged Property, in an amount not less than the principal amount of the Mortgage Note secured by such Mortgaged Property at origination and, with respect to the Real Property, in an amount not less than the current appraised value of such Real Property or the amount of the original Mortgage Note that had been secured by such Real Property, whichever is less, and such policy is presently in full force and effect and all premiums with respect thereto have been paid in full. With respect to each Mortgage Loan, each such title insurance policy insures Seller and its successors and assigns that the Mortgage securing such Mortgage Loan is a valid first lien on the Mortgaged Property (or that such Mortgage has the lien priority noted on the Mortgage Loan and Real Property Schedule) and is otherwise free and clear of encumbrances, liens and exceptions having priority over the lien of the Mortgage, subject only to those exceptions set forth in the Due Diligence Materials, and such exceptions are customarily acceptable to institutional lenders in the jurisdiction in which the Mortgaged Property is located. Seller has not, by its action or inaction, adversely affected any of its rights under any such title insurance policy or the priority of any such Mortgage as insured by such title insurance policy. With respect to each Interim Mortgage Loan, Purchaser can obtain during the Due Diligence Period, upon the payment of the applicable premium, a valid and enforceable policy of title insurance, from a title insurer qualified to do busines in the jurisdiction where the Real Property is located, in an amount not less than the Initial Purchase Price for such Asset. Such policy of title insurance shall insure Purchaser and its assigns that such Interim Mortgage is a valid and enforceable first or, with respect to those Assets specifically identified in the Due Diligence Materials as being subject to an existing first lien, second lien on the Real Property described therein and such Real Property is otherwise free and clear of encumbrances, liens, and exceptions having priority over the lien of such Interim Mortgage, subject only to those exceptions set forth in the Due Diligence Materials. No title exceptions contained in any such policy of title insurance adversely interfere with the current use of the related Mortgaged Property or Real Property, except as otherwise disclosed in the Due Diligence Materials or to Purchaser in writing on or before the Due Diligence Cut-Off Date. (h) REAL ESTATE TAXES. As of the Due Diligence Cut-Off Date, there were no unpaid real property taxes due and payable against the related Mortgaged Property or Real Property except as disclosed in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. For the purpose of this representation and warranty (and otherwise as used in this Agreement with respect to whether real property taxes are "due and payable"), real estate taxes shall not be deemed to be due and payable until the Business Day immediately preceding the date on which such taxes would become delinquent. (i) FLOOD INSURANCE. If, upon origination of the Mortgage Loan or the original obligation secured by the Real Property, the Mortgaged Property or the Real Property was in an area identified in the Federal Register by the Federal Emergency Management Agency as having special flood hazards (and the flood insurance described below has been made available), a flood insurance policy covering improved Mortgaged Property and Real Property only and meeting the requirements of the current guidelines of the Federal Insurance Administrator is in effect with a generally acceptable insurance carrier, in an amount representing coverage not less than the least of (A) the unpaid principal balance of the Mortgage Loan, (B) the full insurable value of the 37 43 Mortgaged Property or the Real Property, as the case may be, or (C) the maximum amount of insurance which was available under the Flood Disaster Protection Act of 1973. (j) HAZARD INSURANCE. The Mortgage Loan obligates the Mortgagor thereunder to maintain a hazard insurance policy with a standard mortgagee clause at the Mortgagor's cost and expense and there is maintained such a policy, in an amount not less than the lesser of (x) ninety percent (90%) of the full replacement cost of the Mortgaged Property or (y) the current balance of such Mortgage Loan, irrespective of whether evidence of such policy is available for review in the Investor Due Diligence Package. No notice of claims therefor or lapse in coverage has been received by Seller with respect to any Mortgaged Property, except as set forth in the Due Diligence Materials or otherwise disclosed to Purchaser in writing on or before the Due Diligence Cut-Off Date. (k) ENVIRONMENTAL MATTERS. Either a Phase I or a Phase II environmental inspection report was, to the extent such is available, provided to Purchaser with regard to the Mortgaged Property or the Real Property, as the case may be, prior to the Due Diligence Cut-Off Date. No material amount of Hazardous Substances affects any Asset in excess of the quantities disclosed in the environmental inspection report for such Asset delivered to Purchaser, if any. For purposes of this Section 7.2(k) only, "material" shall mean any amount of Hazardous Substances in violation of law or equal to or in excess of actionable amounts set forth in any applicable or relevant environmental regulation, requirement, guideline, policy or standard promulgated by any local, state or federal governmental entity, or the presence of friable asbestos with respect to any Asset, in excess of the amounts commonly used by like property owners in compliance with such environmental laws to maintain, landscape and operate their properties, and that cannot be remediated for a cost equal to or less than the greater of (i) two percent (2.0%) of the Initial Purchase Price of the Asset, as shown on the Mortgage Loan and Real Property Schedule, or (ii) Twenty-Five Thousand Dollars ($25,000) plus any remediation amount identified in such environmental inspection report. Without limiting any other provision of this Agreement, Seller is not and shall not be responsible or liable in any manner whatsoever for any information or condition disclosed or failed to be disclosed by any environmental inspection report delivered hereunder. For purposes hereof, the Summary of Site Assessment and Site Remediation Activities dated December 1992 delivered to Purchaser in respect of Asset No. 30 shall be deemed to be a Phase II environmental inspection report hereunder. (l) OUTSTANDING CONTRACTS. In respect of all Real Property to be conveyed to Purchaser or a Qualified Affiliate, as the case may be, at the end of the Due Diligence Period, there will be no leases or management, service, supply, security, maintenance or similar contracts with respect to such Real Property other than (i) leases that were in place as of the Due Diligence Cut-Off Date and are reflected in the Due Diligence Materials or, if executed after the Due Diligence Cut-Off Date, were made with the express consent of Purchaser or pursuant to Purchaser's written guidelines delivered to Seller, and (ii) those contracts that may be terminated upon no more than thirty (30) days' notice or that have been approved by Purchaser or Affiliate Purchaser in writing. (m) OBLIGATIONS RESPECTING LEASES. To the Best of Seller's Knowledge in respect of Real Property only and to the extent not previously disclosed to Purchaser in writing, Seller has received no notice of any breach of any lease; there are no brokerage commissions payable with 38 44 respect to any lease; and there are no contracts running with the land that are not terminable upon thirty (30) days' notice. (n) LEASEHOLD LOANS. Except as disclosed on the Mortgage Loan and Real Property Schedule, there are no ground leases affecting the Mortgaged Property or any part thereof. To the Best of Seller's Knowledge with respect to each leasehold loan described on the Mortgage Loan and Real Property Schedule, except as otherwise disclosed in the Due Diligence Materials: (i) the ground lease described in the related Mortgage is valid and enforceable, is in full force and effect, and is binding upon the parties thereto and their respective successors and assigns, in accordance with the terms of such ground lease; provided, however, with respect to Asset No. 21, in the event that Purchaser fails to obtain a waiver or consent from the ground lessor with regard to the assignment of the Mortgage to Purchaser (notwithstanding the diligent efforts of Purchaser to obtain such waiver or consent), such failure shall be deemed a Defect. (ii) each such ground lease has not been modified, amended or extended; (iii) the Mortgagor, as the lessee under each such ground lease, has performed all obligations under the ground lease to be performed by the ground tenant; (iv) neither the ground lessor nor Mortgagor, as lessee under any such ground lease, is in default under such ground lease; (v) each such ground lease (or memorandum thereof) has been recorded in the land records in the jurisdiction in which the Mortgaged Property is located purporting to create the leasehold estate prior the recordation of the Mortgage related to such Mortgaged Property; and (vi) each such ground lease contains leasehold mortgage loan provisions customarily required by institutional lenders in the jurisdiction in which the Mortgaged Property is located. Section 7.3 TERMINATION OF REPRESENTATIONS AND WARRANTIES. Each of the Surviving Representations and Warranties in Section 7.1 hereof shall survive the Closing and shall terminate on the Surviving Representation Expiration Date. Each of the Due Diligence Representations and Warranties in Section 7.2 hereof shall terminate upon the termination of the Due Diligence Period, as such may terminate by the earlier to occur of the expiration of time (without prior delivery of a Certificate of Defective Asset) or the delivery to Seller of an Acceptance Certificate with respect to any Asset as provided in Section 5.4(a) hereof; except, however, in the event Purchaser is unable to gain access to any Mortgaged Property in order to perform its environmental due diligence, the Due Diligence Period for the representation and warranty made by Seller in Section 7.2(k) shall survive for a period of ninety (90) days beyond 39 45 the date on which Purchaser first becomes able to gain such access. The Surviving Representations and Warranties shall survive termination of any Due Diligence Period and the Closing, except as described above, subject to Purchaser's obligation to deliver a Certificate of Defective Asset with respect to a Defect arising from a Surviving Representation and Warranty within the period provided in Section 5.4(b) hereof. Section 7.4 SCOPE OF INVESTIGATION AND OTHER DUE DILIGENCE. Seller has made certain representations and warranties with respect to the Assets in Sections 7.1 and 7.2. Seller's investigation and other due diligence with respect to the Assets has been limited. Seller has not verified whether the representations and warranties are true and correct. Seller and Purchaser understand that if Seller's representations and warranties are breached, that the Purchaser is limited to the exercise of its rights and the remedies expressly set forth herein. In no event shall a breach of a representation and warranty in this Article VII be used as evidence of or deemed to constitute bad faith, misconduct or fraud even in the event that it is shown that Seller, any Affiliate thereof or any of their respective directors, employees, officers or agents knew or should have known of the existence of information which was inconsistent with any of the representations and warranties provided in this Article VII. Section 7.5 ASSERTION OF CLAIMS. In the event and at such time as a Claim is brought by a Mortgagor in respect of any of the Assets, the adverse resolution of which would constitute a breach of any representation or warranty made by Seller in this Article VII, Seller, at its option, may (i) participate (at its sole cost and expense) with Purchaser in the defense of such Claim and in the negotiation of any reasonable settlement or compromise thereof, or (ii) repurchase, at the Repurchase Price, the Asset subject to such Claim, or (iii) both.Notwithstanding the foregoing, Seller's right to elect to repurchase an Asset under this Section 7.5 shall be terminated and any such election so made shall be null and void, in the event that Purchaser delivers to Seller in writing an absolute waiver of such breach and of any right Purchaser may have under this Agreement to deliver a Certificate of Defective Asset with respect to such Asset (each, a "Release Notice") and upon Seller's receipt of such Release Notice, Seller shall be relieved of all obligation to repurchase or provide any of the other remedies for a Defective Asset provided under this Agreement with respect to such Asset. If a Release Notice has not been delivered and Seller and Purchaser disagree over the terms of one or more settlement proposals with respect to such Claim, Seller may notify Purchaser that Seller intends to repurchase the Asset subject to such Claim, in which event, if Seller reasonably determines and so notifies Purchaser that such settlement or compromise must be entered into prior to the repurchase of such Asset (e.g., if such settlement or compromise offer would expire and Purchaser and Seller could not effect a repurchase prior to such expiration), and Purchaser immediately thereafter fails to send a Release Notice, Purchaser shall enter into such settlement or compromise for the benefit of Seller (provided Seller advances any funds required in connection with such settlement) as Seller shall direct.The Repurchase Price shall not be affected by such settlement or compromise and Seller shall indemnify, defend, and hold Purchaser harmless from and against any liability or losses relating to such settlement or compromise. In the event Purchaser delivers a Release Notice with respect to such Asset, and Purchaser obtains a release of any and all claims against Seller arising 40 46 out of such Claim, Purchaser shall have the right to settle such Claim and Seller's right to participate in such setttlement shall terminate. Nothing in this Section 7.5 shall affect Seller's right to defend itself in respect of any Claim that may be brought against Seller. ARTICLE VIII CERTAIN COVENANTS OF SELLER Section 8.1 SELLER COVENANTS. Seller covenants and agrees with Purchaser as follows, it being understood and agreed that each of the following covenants and agreements, with the exception of the covenants set forth in Sections 8.1(a), (b), (c), (d), (e) and (g) which shall survive the Closing, shall terminate upon the Closing Date: (a) ACCESS TO RECORDS. From and after the date of its execution of this Agreement, Seller shall make available to Purchaser or cause to be made available to Purchaser for its inspection, copying and reproduction, all non-confidential books and records of the type included in the Asset File that are maintained by, through or for Seller and are related to the Assets. (b) NOTICE TO MORTGAGORS. At the request of Purchaser, Seller shall cooperate with Purchaser in notifying on and after the Closing Date each maker or obligor, or its successors or assigns, under a Mortgage Loan of the assignment thereof from Seller to Purchaser. Such notification shall be made by letter prepared by Purchaser in substantially the form attached hereto as Exhibit I or as mutually agreed by Seller and Purchaser. (c) NOTICE TO TENANTS. With respect to any tenant then sending its rent directly to Seller, at the request of Purchaser, Seller shall cooperate with Purchaser, after the Closing Date as to the Mortgage Loans and any Real Property conveyed on the Closing Date, and on and after each Real Property Closing Date, as such term is defined in the Sales Contract as to any Real Property not conveyed on the Closing Date, in notifying each tenant with respect to any Mortgaged Property, or any Real Property, of the assignment of the Real Property or the Mortgage Loan secured by such Mortgaged Property, as the case may be, from Seller to Purchaser. Such notification shall be by letter prepared by Purchaser in a form mutually agreed by Seller and Purchaser. (d) CERTAIN PAYMENTS. (i) At the Closing, Purchaser shall receive credit (the "Section 8.1(d) Credit"), in the amount, and applied in the manner, determined by this subsection 8.1(d). The amount of the Section 8.1(d) Credit shall be equal to the sum of the following three amounts (the "Creditable Amounts"): (A) Any of the following amounts which are actually received by Seller after the Due Diligence Cut-Off Date and on or before the Closing Date -- any principal payments or prepayments, including Payment in Full, on a Mortgage Loan of any kind or character, including 41 47 proceeds from any compromises and settlements. (B) Any of the following amounts which are actually received by Seller after the Due Diligence Cut-Off Date and on or before the Closing Date -- any net proceeds of the sale of any Mortgage Loan or the sale or condemnation of any Mortgaged Property or Real Property, or hazard insurance proceeds not applied to restore the Mortgaged Property or Real Property or payable to a prior lienor. (C) Any of the following amounts which are actually received by Seller on or before the Closing Date, regardless of when they are or have been received by Seller -- the interest component of regular scheduled payments, and prepayments of interest, on the Mortgage Loans, to the extent such payments and prepayments are attributable to periods commencing on or after the Cut-Off Date. (ii) The amount of the Section 8.1(d) Credit shall be applied as follows: (A) If the Loan and Security Agreement has not been executed, the entire Section 8.1(d) Credit shall be applied against the cash due from Purchaser at the Closing. (B) If the Loan and Security Agreement has been executed, the following two adjustments shall be made: (1) Purchaser shall be deemed to have made a prepayment on account of the Promissory Note in an amount equal to the amount that would be required to be paid under the Loan and Security Agreement if Purchaser, rather than Seller, had received the Creditable Amounts on the day after the Closing (the "Section 8.1 Deemed Prepayment"). (2) Purchaser shall receive a credit against the Cash Portion of the Purchase Price equal to the excess, if any, of the amount of the Section 8.1(d) Credit over the amount of the Section 8.1 Deemed Prepayment. (iii) With respect to amounts held by a bankruptcy court, bankruptcy trustee, bankruptcy debtor-in-possession, receiver in foreclosure or similar third party, or similar account or pursuant to a cash collateral order or any other account maintained for the benefit of any Asset, and any amounts actually or constructively received by Seller or Purchaser: (i) if the existence of same was disclosed in the Due Diligence Materials, Seller's interest in same shall be assigned to Purchaser along with all of the other Assets and Asset Documents to be assigned hereunder or, if received by Seller it shall be paid or credited to Purchaser promptly after receipt thereof, or (ii) if the existence of same was not disclosed in the Due Diligence Materials, Seller's interest in same shall be assigned to Purchaser along with all of the other Assets and Asset Documents to be assigned hereunder and Purchaser shall pay to Seller at the Closing or as soon thereafter as the amount held as of the Cut-Off Date is known, the value of said amount determined by Seller in the manner provided in Exhibit G hereto, utilizing the same assumptions utilized in the Due Diligence Materials (i.e., assuming said amount is received on the projected recovery date and is discounted from that date to the Cut-Off Date). The amount payable to Seller pursuant to (ii) 42 48 above shall not exceed the sum Seller could retain if said sum was received immediately prior to the Closing Date. (iv) [Text deleted in original] (v) Any and all payments received by Seller after the Closing Date that would have been included in the Creditable Amounts if received by Seller on or before the Closing Date shall be applied in accordance with the terms of the Loan and Security Agreement. (e) INSURANCE. At the request of Purchaser, Seller shall cooperate with Purchaser in the preparation and mailing by Purchaser to each hazard and casualty insurer, and to the writing agent for each flood hazard insurer, for the Assets a request for an endorsement of its policy of insurance effective on the Closing Date showing Purchaser as the mortgagee or insured named therein, as the case may be, together with instructions that such endorsement be forwarded directly to Purchaser, at the address herein specified for notices. (f) SERVICING. With respect to the Mortgage Loans from the date hereof until the Closing Date, Seller shall service and administer the Mortgage Loans in the manner in which it was servicing such Mortgage Loans immediately prior to the date hereof. Without the prior written consent of the Purchaser, Seller shall not, except as required by law or as a prudent lender, or by the terms of the Asset Documents relating to such Mortgage Loans, or pursuant to previously negotiated settlement or similar contracts entered into or pending as of the Offer Date and disclosed to Purchaser in writing on or before the Offer Date, (i) release any collateral or any party from any liability on or with respect to the Mortgage Loans, (ii) compromise or settle any claims of any kind or character with respect to the Mortgage Loans, (iii) initiate, complete or otherwise take any action with respect to a foreclosure on any of the Mortgaged Property, except to the extent in Seller's reasonable judgment such actions are required pursuant to actions taken prior to the Offer Date, (iv) sell or encumber, or contract to sell or encumber, the Mortgage Loans, or any portion thereof or any interest therein, or (v) agree to any amendments or modifications to any such Mortgage Loan. Seller as servicer, however, may notify Purchaser in the event that an action under (i), (ii), (iii), (iv), or (v) above should be taken in order to enhance or protect the value of the Mortgage Loans. In such event, Seller shall be absolved of any responsibility it may have to take such action unless written consent to such action has been promptly received by Seller. Upon request of Purchaser, Seller shall disclose to Purchaser the status of any Mortgage Loan foreclosure in progress and any actions taken in connection therewith as of the Offer Date. 43 49 [SECTION 8.1(d)(iv)] (iv) All amounts of delinquent or current interest received by Purchaser after the Closing Date on account of a Mortgage Loan with respect to which a payment default exists as of the Cut-Off Date (that is, there are delinquent amounts due under the Mortgage Loan) shall be applied by Purchaser first against delinquent or current interest due on account of such Mortgage Loan after the Cut-Off Date (in any order determined by Purchaser), and then on account of any delinquent interest due under such Mortgage Loan as of the Cut-Off Date. Amounts received by Purchaser and applied on account of delinquent interest due under a Mortgage Loan as of the Cut-Off Date shall be remitted by Purchaser to Seller promptly after receipt by Purchaser. Seller agrees that Purchaser shall have no obligation to treat any payments received by Purchaser as pre-Cut-Off Date interest, except to the extent agreed to by Purchaser and Mortgagor or as required by applicable law. 43A 50 (g) COOPERATION. From and after the Closing Date, Seller shall in general cooperate with Purchaser, and Purchaser shall cooperate with Seller, in connection with any litigation or other matter involving the Assets, but Seller shall not be required to institute any lawsuit or (unless a Person satisfactory to Seller in Seller's sole discretion agrees to promptly reimburse Seller or shall indemnify Seller in a manner satisfactory to Seller in Seller's sole discretion with respect to any such expense) to expend any material sums of money in connection with such cooperation. On and after the Closing Date, Seller shall promptly deliver, forward and remit to Purchaser any and all bills, invoices, insurance policies, letters, documents and other correspondence or communications of a non-confidential nature relating to the Assets which are received by Seller. (h) ENDORSEMENT OF MORTGAGE NOTE. It is hereby understood and agreed that an endorsement by Seller of a Mortgage Note "without recourse" and "without any representation or warranty, express or implied," whether such endorsement is made on or after the Closing Date, is not intended to diminish, alter or negate in any way Seller's representations, warranties or obligations set forth in this Agreement, including but not limited to, the representations and warranties set forth in Article VII of this Agreement, or constitute a waiver by Purchaser of, or a limitation or modification on, any of the rights or remedies under this Agreement. To the extent Purchaser, following the earlier to occur of the date on which an Asset is accepted by Purchaser or the expiration of the Due Diligence Period with respect to a Mortgage Loan, provides evidence reasonably satisfactory to Seller that the use of an allonge to assign such Mortgage Note, and not an endorsement directly on the Mortgage Note, has adversely affected the marketability of such Mortgage Note or that an endorsement is required under applicable law, Purchaser may request in writing that Seller endorse the Mortgage Note and in connection therewith, Purchaser shall prepare such endorsement (which shall be identical in all respects to the allonge delivered at Closing), deliver the original Morgage Note to Seller and pay all reasonable costs and expenses of Seller in connection therewith (including, without limitation, reasonable attorneys' fees and disbursements). Upon satisfaction of the foregoing conditions, Seller shall sign an endorsement of the Mortgage Note as aforementioned. ARTICLE IX CONDITIONS PRECEDENT TO CLOSING The respective obligations of Purchaser and Seller to complete the purchase and sale of the Assets pursuant to this Agreement are subject to the fulfillment on or prior to the Closing Date of each of the following additional conditions to be fulfilled by the other, unless the same is specifically waived in writing by the party for whose benefit the same is to be fulfilled. Provided that all conditions to Closing have been satisfied, Purchaser shall be obligated to purchase the Assets at the Closing for the Initial Purchase Price irrespective of the fact that Seller or Purchaser may have knowledge that one or more breaches of Seller's representations and warranties hereunder may exist. Purchaser's purchase of the Assets as to which such breaches or conditions are discovered prior to the Closing shall not operate as a waiver of Purchaser's rights under Section 5.4 or 5.5 hereof. 44 51 Section 9.1 MUTUAL OBLIGATIONS. (a) PERFORMANCE OF COVENANTS. Seller and Purchaser each shall have performed all of its covenants and agreements contained herein which are required to be performed by it on or prior to the Closing Date. (b) REPRESENTATIONS AND WARRANTIES. All of the respective representations and warranties of Seller in Sections 7.1(a), (b), and (c) hereof and of Purchaser in Section 6.1 hereof shall be true in all material respects at and as if made on the Closing Date. (c) GOVERNMENTAL APPROVALS. All requisite federal, state and local governmental and regulatory approvals relating to the transactions contemplated hereby, if any, shall have been obtained. (d) CORPORATE APPROVALS. Seller and Purchaser shall each provide the other with certified copies of corporate resolutions approving the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby, together with customary certificates of incumbency and certificates of good standing, as the others or its counsel may reasonably require. Section 9.2 SELLER'S DOCUMENTS. Seller agrees to execute, deliver and/or provide to Purchaser the following items, to be delivered at the Closing at the office of Seller or at such other location as Seller may designate: (a) For each Mortgage Loan, to be delivered at Closing at the offices of Seller or such other location(s) as Seller determines, the original Mortgage Note duly endorsed by means of an allonge by Seller to Purchaser, without recourse (except as otherwise provided in this Agreement); the Mortgage; and an assignment of such Mortgage in the form attached hereto as Exhibit C with such modifications as shall be customary and appropriate under local laws for recording in the land records in the jurisdiction in which the related Mortgage Property is located (the "Mortgage Assignment"), transferring and conveying Seller's rights thereunder, as well as its rights, title and interest in the Asset Documents of which such Mortgage Note and Mortgage are a part; (b) For each Asset, to be delivered at the Closing at the offices of Seller or such other locations(s) as Seller determines, the additional Asset Documents and all account histories, payment records and other documents comprising the Asset File for each Asset, including, but not limited to, assignments in blank of Seller's rights under any letter of credit, certificates of deposit or other escrows or deposits and instructions to insurers, financial institutions or others to the extent necessary to provide Purchaser with the right to enforce such Asset Documents. Any fees or charges incurred by Seller in transporting the additional Asset Documents from the location designated by Seller or in taking other steps at Purchaser's request under this Section 9.2(b) shall be paid by Purchaser; 45 52 (c) Such other assignments, instruments of transfer, and other documents held by Seller as Purchaser may reasonably require and prepare in order to complete the transactions specifically contemplated hereunder including, but not limited to, the assignment of any UCC-1 financing statement for the Mortgage Loans which currently exists for the benefit of Seller; (d) A certificate of Seller reaffirming, subject to the provisions and limitations of Section 7.4, all representations and warranties of Seller under Section 7.1, as of the Closing Date; provided, however, that recourse thereunder shall be limited as set forth in this Agreement; (e) Corporate resolutions, certificates of incumbency and certificates of good standing with respect to Seller as may be required by Purchaser or its counsel pursuant to Section 9.1(d); (f) For each Mortgage Loan, to be delivered at Closing at the offices of Seller or such other location(s) as Seller determines, an assignment of additional collateral for each Mortgage Loan, prepared by Purchaser, in the form of Exhibit C-1 (the "Additional Collateral Assignment"), transferring and conveying to Purchaser Seller's rights thereunder and a Notice to Mortgagor in the form of Exhibit I, prepared by Purchaser; (g) For each Interim Mortgage Loan, an executed Interim Mortgage Note and Interim Mortgage in substantially the forms attached hereto as Exhibit L and Exhibit M (each dated as of the Cut-Off Date); and (h) The Loan and Security Agreement substantially in the form attached hereto as Exhibit K. Section 9.3 PURCHASER'S CLOSING ITEMS. Purchaser agrees to execute, deliver and/or provide to Seller the following at Closing: (a) The portion of the Initial Purchase Price, and other amounts required under Sections 2.2(b) and (c) hereof, due to be paid by Purchaser to Seller on the Closing Date; (b) A certificate of Purchaser reaffirming all representations and warranties of Purchaser under Section 6.1 as of the Closing Date; and (c) Corporate resolutions, certificates of incumbency and certificates of good standing with respect to Purchaser as may be required by Seller or its counsel pursuant to Section 9.1(d)[; and]. (d) The Loan and Security Agreement substantially in the form attached hereto as Exhibit K and a promissory note in an amount equal to the Financed Portion and all other instruments required under the Loan and Security Agreement; and (e) An opinion of Purchaser's counsel as described in Section 6.1(i) hereof. 46 53 ARTICLE X REPURCHASE BY SELLER Section 10.1 MANDATORY REPURCHASE. Seller shall be required to repurchase, for the Repurchase Price with respect thereto, any Defective Asset that Seller either (i) has elected to repurchase under Section 5.4 or 5.5 hereof, or (ii) is required to repurchase as a result of its failure to cure the Defect under Section 5.4 or 5.5 hereof within the time periods prescribed therefor, and subject to the following terms and conditions: (a) If Seller has elected to repurchase any Asset, the Repurchase Date for a Defective Asset shall be specified in such election and shall be a date occurring on or before the date thirty (30) days following the date of Seller's election to repurchase such Asset. If Seller is deemed to have elected to repurchase any Asset, the Repurchase Date thereof shall be ninety (90) days after Seller's receipt of a timely Certificate of Defective Asset for any Defective Asset If Seller has elected to cure a Defect and such cure has not been effected, the Repurchase Date for such Defective Asset shall be thirty (30) days after the expiration of the Cure Period for such Defective Asset. In any of the above cases, if such ninetieth (90th) day or thirtieth (30th) is not a Business Day, the Repurchase Date shall be the first Business Day thereafter. (b) On the Repurchase Date, Purchaser shall convey, or cause Affiliate Purchaser or a Qualified Affiliate, as the case may be, to convey to Seller all right, title and interest in and to the Defective Asset pursuant to a note endorsement by allonge and a mortgage assignment with respect to a Mortgage Loan, or grant deed (or other appropriate form of deed) with respect to Real Property, as the case may be, and other appropriate documents, and shall make all deliveries and take any other actions on substantially the same terms and conditions under which Seller had conveyed such Asset to Purchaser at the Closing, except to the extent of the Defect giving rise to the subject repurchase and except as otherwise provided in Section 10.2 hereof. If Purchaser or any Affiliate of Purchaser owns the Mortgaged Property at the Repurchase Date, whether through foreclosure, deed in lieu of foreclosure or otherwise, Purchaser shall convey or cause its Affiliate to convey to Seller all right, title and interest in and to such Mortgaged Property, pursuant to a grant deed (or other appropriate form of deed), and other appropriate documents, and shall make all deliveries and take all other actions on substantially the same terms and conditions under which Seller had conveyed the related Mortgage Loan to Purchaser under the Mortgage Assignment, modified in a manner reasonably acceptable to Seller to reflect the fact that Mortgaged Property is being conveyed instead of a Mortgage Loan, and provided that the Mortgaged Property shall be so reconveyed in substantially the same condition it was in when Seller conveyed the related Mortgage Loan to Purchaser pursuant thereto; provided, however, that if the Defective Asset is required to be repurchased and Seller has conveyed to a Qualified Affiliate Real Property, Qualified Affiliate shall be obligated to reconvey or cause to be reconveyed, such Defective Real Property to Seller substantially in the same condition under which Seller had conveyed such Real Property to Qualified Affiliate pursuant hereto. 47 54 (c) For purposes of this Agreement, conveying such Mortgaged Property or Real Property, as the case may be, in substantially the same condition shall mean that (i) the physical condition of such property shall be the same (normal wear and tear excepted), other than in respect of a fully insured casualty loss, in which event the insurance proceeds shall be assigned to Seller, (ii) the condition of title to any such Asset and all related collateral shall be the same as conveyed, except for any changes thereto such as ownership, which customarily can be expected to occur as a result of exercising remedies under the related Mortgage Loan, (iii) the collateral for such Asset is the same, except to the extent that any of such collateral (including escrows and deposits) was expended for its intended purposes or otherwise in a prudent manner for the related property, in accordance with customary servicing standards of prudent institutional servicers of similar types of Mortgage Loans or Mortgaged Properties, and (iv) there are no Claims of any parties against Seller that were the result of actions of Purchaser or any agents, successors or assigns thereof, other than those as to which Seller shall have received a written indemnification in form and substance acceptable to Seller from a party whose financial condition is satisfactory to Seller for purposes of the indemnification. Purchaser acknowledges and agrees that Purchaser shall indemnify and hold harmless Seller and its Affiliates from and against any Claim directly or indirectly arising out of or attributable to the use, generation, manufacture, production, storage, release, threatened release, discharge, disposal, or presence of a Hazardous Substance on, under, or about any Mortgaged Property or Real Property that is to be repurchased hereunder while Purchaser owned, operated, managed or controlled such Mortgaged Property or Real Property, except to the extent that such Claim arises from Seller's breach of the representation made in Section 7.2(k) hereof. Section 10.2 REPURCHASE PRICE. The repurchase of any Asset by Seller pursuant to Sections 5.4, 5.5 and 10.1 hereof shall be at the Repurchase Price for such Asset. If a Defective Asset has any defect that did not exist when such Asset was conveyed to Purchaser, Seller may offset against the Repurchase Price the amount, determined in Seller's reasonable judgment, necessary to accurately and reasonably compensate Seller for the loss of value resulting from the defect. In particular, Seller may reduce the amount of the Repurchase Price by the reduction in the value of a Defective Asset attributable to any (i) failure of Purchaser to service a Mortgage Loan in accordance with applicable law and prudent mortgage loan servicing standards for similar commercial Mortgage Loans or Mortgaged Property, as the case may be, or (ii) failure to reconvey the Mortgaged Property or Real Property, as the case may be, to Seller in a condition that is in substantially the same condition on the date of conveyance determined as provided in Section 10.1(b) hereof (except as may have been approved by Seller in writing), (iii) failure of Purchaser to reconvey the Defective Asset to Seller without any encumbrances other than those encumbrances in existence on the Closing Date, or (iv) any other defect that did not exist when such Asset was conveyed to Purchaser, whether or not attributable to the action or inaction or fault of Purchaser. Notwithstanding the foregoing, the reduction in the Repurchase Price shall not be subject to any such offset if the reduction in the value of the Defective Asset was (x) the direct result of actions taken by Purchaser in good faith as the result of non-negligent judgments made by it in the servicing and enforcement of a Mortgage Loan, and the disposition of the Mortgage Loan and the underlying Mortgaged Property, if any, or the disposition of the Real Property, as the 48 55 case may be, provided that Purchaser observes prudent commercial mortgage loan servicing standards for similar Mortgage Loans or Mortgaged Property, as the case may be, or (y) with respect to subparagraphs (ii), (iii) and (iv) hereof, such reduction in value did not result from any action or inaction of Purchaser, whether direct or indirect, during any period in which such Asset was held by Purchaser, except that nothing in this paragraph shall limit the rights of Seller under Section 10.1 hereof. ARTICLE XI DEFAULT Section 11.1 PURCHASER'S DEFAULT. In the event Purchaser shall default in its obligations to purchase any Asset or breach a representation or warranty or covenant hereunder, or otherwise fail to perform its obligations under this Agreement prior to the Closing hereunder, the Deposit shall be retained by Seller (after notice and lapse of time as described below), and Seller may avail itself of any rights and remedies it may have at law or in equity, or under this Agreement with respect to any such Purchaser default or breach of representations or warranties. Upon written notification to Purchaser that Seller has declared a default hereunder, and specifying the grounds for such declaration (the "Default Notice"), Purchaser shall have five (5) calendar days after receipt of the Default Notice to notify Seller, in writing, that Purchaser disputes that a default exists, and state the grounds for such dispute by Purchaser. If Purchaser does not notify Seller that a dispute exists within such five (5) calendar day period, Seller shall be unconditionally entitled to retain the Deposit. If Purchaser sends notice of a dispute to Seller within the appropriate time period, Seller shall continue to hold such funds as the Deposit in accordance with the resolution of the dispute. The successful party or parties shall be reimbursed for all expenses, including reasonable attorneys' fees incurred in connection with any successful action brought under this Section 11.1. Section 11.2 SELLER'S DEFAULT. In the event Seller shall default in its obligations hereunder, then, if prior to Closing, the Deposit shall be returned to Purchaser by Seller (after notice and lapse of time as described below) and Purchaser shall not be entitled to monetary damages, except for direct out- of-pocket expenses proved by Purchaser to have been expended by delivering to Seller documentary evidence thereof satisfactory to Seller, but may avail itself of its equitable rights. Upon written notification to Seller that Purchaser has declared a default of Seller hereunder and specifying the grounds for such declaration (the "Purchaser Default Notice"), Seller shall have five (5) calendar days after receipt of the Purchaser Default Notice to notify Purchaser in writing that Seller disputes that a default exists and state the grounds for such dispute by Seller. If Seller does not notify Purchaser that a dispute exists within such five (5) calendar day period, Seller shall turn over all amounts held by it hereunder to Purchaser. If Seller sends notice of a dispute to Purchaser within the appropriate time period, Seller shall continue to hold such funds as the Deposit in accordance with this Agreement until such time as the dispute has been resolved. The Deposit shall then be disbursed in accordance with the resolution of the dispute. The successful party or parties shall be 49 56 reimbursed for all expenses, including reasonable attorneys' fees, incurred in connection with any successful action brought under this Section 11.2. If such Seller default occurs subsequent to Closing, Purchaser may avail itself of any rights that Purchaser may have at law or in equity or under this Agreement, provided, however, that Purchaser's sole remedy for any Defect in the Assets is to require Seller to elect a remedy for the Assets in accordance with Section 5.4 or 5.5 hereof. Purchaser shall be reimbursed for all expenses, including reasonable attorneys' fees, incurred in connection with any successful action brought under this Section 11.2. Purchaser shall have no right to consequential damages from Seller. With respect to a default by Seller which, with regard to this Agreement, does not have a material adverse impact on Purchaser, Purchaser shall have no remedy. In no event shall Purchaser have the right to offset amounts due to Seller under any contract or agreement with Purchaser or any Affiliate of Purchaser or to offset amounts due to Seller against any damages on account of default by Seller hereunder. ARTICLE XII SUBSEQUENT DOCUMENTATION At any time, and from time to time hereafter, upon the reasonable request of Purchaser, and without payment of further consideration to Seller, other than reimbursement for Seller's out-of-pocket expenses, Seller will do, execute, acknowledge and deliver, and will cause to be done, executed, acknowledged and delivered, all such further assignments, transfers, conveyances, confirmations of powers of attorney issued at Closing and assurances as may be required in order to better assign, transfer, grant, convey, assure and confirm to Purchaser, or to collect and reduce to possession, the Assets as provided for herein. ARTICLE XIII NOTICE OF MORTGAGOR CLAIMS OR LITIGATION Purchaser shall promptly notify Seller of any Claim, threatened Claim, or litigation filed by a Mortgagor against Seller which arises from or relates to the Mortgage Loans purchased hereunder. ARTICLE XIV FILES AND RECORDS After the transfer of documents or files to Purchaser pursuant to the terms of this Agreement, Purchaser agrees that Seller at its expense, shall have the continuing right to use, inspect, and make extracts from or copies of any such documents or records, upon reasonable prior notice to Purchaser. Purchaser further agrees to allow Seller at its expense, the temporary possession, custody and use of original documents for any lawful purpose and upon reasonable terms and conditions and upon reasonable prior notice to Purchaser, and Seller shall indemnify Purchaser for any material costs resulting from the loss or misuse of any such documents while in Seller's possession. Before destruction or disposition of any documents or files transferred 50 57 hereunder, Purchaser shall attempt to give reasonable notice to Seller and to allow Seller, at its expense, to recover the same from Purchaser. ARTICLE XV SALE OF REAL PROPERTY In the event that prior to the Closing Date hereunder Seller forecloses upon a Mortgage Loan or otherwise acquires title to the Mortgaged Property, subject, however, to Section 8.1(f) hereof, Seller and Purchaser agree to amend this Agreement and the Mortgage Loan and Real Property Schedule as appropriate to provide for the sale and transfer of such Mortgaged Property by Seller to Purchaser[ or, if Seller financing is utilized to effect the sale hereunder or otherwise at Purchaser's option, an Affiliate Purchaser or a Qualified Affiliate] in lieu of the related Mortgage Loan. ARTICLE XVI NOTICES Unless otherwise provided for herein, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered, if sent by registered or certified mail (return receipt requested), (b) when delivered, if delivered personally, (c) when transmitted, if sent by facsimile if a confirmation of transmission is produced by the sending machine (and a copy of each facsimile promptly shall be sent by ordinary mail) or (d) on the following Business Day, if sent by overnight mail or overnight courier, in each case to the parties at the following addresses or facsimile numbers (or at such other addresses or facsimile numbers as shall be specified by like notice): (a) If to Seller, at: City National Bank Risk Management 606 S. Olive Street, 9th Floor Los Angeles, CA 90014 Attention: Jeffery Puchalski, Executive Vice President Fax: (213) 629-3677 with a copy to: City National Bank Legal Department 9701 Wilshire Blvd., Ninth Floor Beverly Hills, CA 90212-2050 Attention: Office of the General Counsel Fax: (310) 273-5859 51 58 (b) If to Purchaser, at: WHC-THREE Investors, L.P. c/o WHC-THREE Investors, Inc. 85 Broad Street, 19th Floor New York, NY 10004 Attention: Neil Hasson Richard Georgi Fax: (212) 902-3000 with a copy to: Arent Fox Kintner Plotkin & Kahn 1050 Connecticut Avenue, N.W. Washington, D.C. 20036 Attention: Mark M. Katz, Esq. Fax: (202) 857-6395 The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication within any corporation or firm to the persons designated to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. ARTICLE XVII MISCELLANEOUS PROVISIONS Section 17.1 SEVERABILITY. Each part of this Agreement is intended to be severable. If any term, covenant, condition or provision hereof is unlawful, invalid, or unenforceable for any reason whatsoever, and such illegality, invalidity, or unenforceability does not affect the remaining parts of this Agreement, then all such remaining parts hereof shall be valid and enforceable and have full force and effect as if the invalid or unenforceable part had not been included. Section 17.2 RIGHTS CUMULATIVE; WAIVERS. Except as otherwise expressly provided herein, the rights of each of the parties under this Agreement are cumulative and may be exercised as often as any party considers appropriate. The rights of each of the parties hereunder shall not be capable of being waived or varied otherwise than by an express waiver or variation in writing. Failure to exercise or any delay in exercising any of such rights also shall not operate as a waiver or variation of that or any other such right. Defective or partial exercise of any of such rights shall not preclude any other or further exercise of that or any other such right. No act or course of conduct or negotiation on the part of any party 52 59 shall in any way preclude such party from exercising any such right or constitute a suspension or any variation of any such right. Section 17.3 HEADINGS. The headings contained in this Agreement are inserted for convenience only and shall not affect the meaning or interpretations of this Agreement or any provision hereof. Section 17.4 CONSTRUCTION. Unless the context otherwise requires, singular nouns and pronouns, when used herein, shall be deemed to include the plural of such noun or pronoun and pronouns of one gender shall be deemed to include the equivalent pronoun of the other gender. Section 17.5 ASSIGNMENT. This Agreement and the terms, covenants, conditions, provisions, obligations, undertakings, rights and benefits hereof, including the Addenda, Exhibits and Schedules hereof, shall be binding upon, and shall inure to the benefit of, the undersigned parties and their respective heirs, executors, administrators, representatives, successors, and assigns. In no event may Purchaser assign its rights or obligations hereunder without the prior written consent of Seller, except to a lender as collateral for the financing or refinancing of the acquisition of the Assets as provided herein, an Affiliate of Purchaser or a Qualified Affiliate, or as otherwise may be contemplated herein. [INSERT 17.5] Section 17.6 PRIOR UNDERSTANDINGS; INTEGRATED AGREEMENTS. This Agreement supersedes any and all prior discussions and agreements between Seller and Purchaser with respect to the purchase of the Assets and other matters continued herein, and this Agreement contains the sole, final and complete expression and understanding between Seller and Purchaser with respect to the transactions contemplated herein, except for those documents executed and delivered by Purchaser prior to the execution hereof titled Due Diligence Deposit and Review Agreement and the Confidentiality Agreement. This Agreement shall not be altered or modified except by a subsequent writing, signed by Purchaser and Seller. Section 17.7 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall constitute one and the same instrument, and either party hereto may execute this Agreement by signing any such counterpart. Section 17.8 SURVIVAL. Each and every Surviving Representation and Warranty made by Seller, each representation and warranty made herein by Purchaser and each covenant made herein by Purchaser or Seller 53 60 [INSERT TO SECTION 17.5] In the event Purchaser assigns those certain Asset Sale Agreement and Sales Contract executed concurrently herewith in respect of the Pool 1 sale (herein, the "Pool 1 Agreement" and the "Pool 1 Sales Contract," respectively) to the Permitted Assignee, as such term is defined in Section 17.5 of the Pool 1 Agreement, any default by the Permitted Assignee under the Pool 1 Agreement or Pool 1 Sales Contract prior to and on the Closing that remains uncured shall be deemed a default by Purchaser hereunder and under the Sales Contract. 53A 61 shall survive the Closing and shall not merge into any document executed as part of Closing, but instead shall be independently enforceable except to the extent expressly limited in this Agreement. Section 17.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. Section 17.10 NO THIRD PARTY BENEFICIARIES. No person, firm or other entity other than the parties hereto (and their successors and assigns) shall have any rights or claims under this Agreement. No brokerage commission shall be payable to any party in connection with the sale of the Assets except such sales commissions as Seller may previously have agreed in writing to pay certain third parties, which will be payable by Seller. Section 17.11 ARBITRATION. Any controversy or claim between Purchaser and Seller arising out of or relating to this Agreement or any actions or conduct of either in connection therewith (including, but not limited to, any claim based on or arising from an alleged tort) shall at the request of Purchaser or Seller be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Agreement, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitrator(s) shall resolve all claims and defenses or other matters in dispute in accordance with applicable law, including, but not limited to, all statutes of limitation. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction. No provision of this Agreement shall limit the right of either Purchaser or Seller to exercise self-help remedies such as setoff, or obtaining provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The institution and maintenance of any action for judicial relief or pursuit of provisional or ancillary remedies shall not constitute a waiver of the right of either Purchaser or Seller to submit the controversy or claim to arbitration if the other party contests such action for judicial relief. NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHT TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION" PROVISIONS. IF YOU REFUSE TO 54 62 SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. THE UNDERSIGNED HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION TO NEUTRAL ARBITRATION. /s/ DTH /s/ JP -------------------- --------------------- PURCHASER'S INITIALS SELLER'S INITIALS Section 17.12 SELLER FINANCING. Seller and Purchaser have not reached final agreement over the terms and conditions of the Seller financing which Seller has offered to Purchaser in connection with this transaction. Accordingly, Seller and Purchaser acknowledge that the Loan and Security Agreement attached as Exhibit K does not represent the final agreement of the parties. In the event Seller and Purchaser do not reach agreement over the terms of such financing (for any reason) on or before November 8, 1993, (i) this Agreement and the Sales Contract shall remain in full force and effect on the basis of an "all cash" transaction, (ii) neither party shall be deemed to be in default as a result of the failure to reach agreement over the terms of the Loan and Security Agreement and the Seller financing, (iii) all references in this Agreement and the Sales Contract to the Loan and Security Agreement and all provisions relating to a Seller financed sale shall be deemed deleted, (iv) the Initial Purchase Price shall automatically reduce to the amount Purchaser submitted on the Offer Date as its "all cash" Initial Purchase Price, and (v) Seller and Purchaser shall promptly enter into an amendment to this Agreement, the Sales Contract, and all supporting documents as necessary, including a revised Mortgage Loan and Real Property Schedule, to reflect such modifications and conforming changes to reflect the terms and conditions of an all cash transaction. * * * * * * 55 63 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the first day of November, 1993. "Purchaser" WHC-THREE INVESTORS, L.P., a Delaware limited partnership By: WHC-THREE INVESTORS, INC., a Delaware corporation, general partner By: /s/ David T. Hamamoto ------------------------- Its: Vice President ------------------------- "Seller" CITY NATIONAL BANK, a national banking association By: /s/ Jeffery Puchalski --------------------------- Its: Executive Vice President --------------------------- 56 64
EXHIBIT "A" ALL ASSETS, POOLS 2-6 mlrp2-6.wk3 Page 1 11/05/93 CITY NATIONAL BANK MORTGAGE LOAN AND REAL PROPERTY SCHEDULE Asset Pool Loan # No. Asset Name No. Borrowers Name Street Address City - ---- -- --------------------- ----- ------------------- -------------------------- -------------- 14.00 2 Brookside Apt. 25341 Emil and Jenny Fish 9151 Topanga Canyon Blvd. Chatsworth 33.00 2 Villa Del Sol Apts 35542 NAP 10025 De Soto Ave Chatsworth 48.00 2 Landes & Lancaster 23390, Landes & Lancaster 45465 25th Street East Lancaster 40390 Estate, Ltd. - ---- -- --------------------- ----- ------------------- -------------------------- -------------- 4.00 3 Bernstein/Michrowski 64641 Bernstein/Michrowski 7405 E. Slauson Avenue City of Commerce 4.01 3 Bernstein/Michrowski 64392 Bernstein/Michrowski 7355 E. Slauson Avenue City of Commerce 8.00 3 Centinela Studios 64838 Centinela Studios, L.P. 3401 Exposition Blvd. Santa Monica 18.00 3 West Bernardo 25207, Frankris Corporation 16160 West Benardo Drive Rancho Bernardo Corporate Center 40207, 40208 22.00 3 Santa Fe Industrial 105 NAP 2209 So. Santa Fe Avenue Los Angeles 24.00 3 Ohai 64293, Ohai, Reynolds and 13404 Monta Vista Chino 40293 Dorothy 30.00 3 San Fernando Industrial 36260 NAP 1501 1st Street San Fernando 40.00 3 Sorrento Creek 64944 Ed and Ellen Wong 10350 & 10360 Sorrento San Diego Business Center Valley Road 40.01 3 Roselle Property 64944 Ed and Ellen Wong 10635 - 37 - 39 Roselle Street San Diego 40.02 3 Sorrento Creek Land 64944 Ed and Ellen Wong 10353 Sorrento Valley Road San Diego 40.03 3 Scientific Land on 64944 Ed and Ellen Wong North side of Towne San Diego Towne Center Dr. Centre Drive 42.00 3 12565 Strathern Street 64877 NAP 12565 Strathern Street North Hollywood 46.00 3 Anderson Trust 64768 Anderson Family Trust 2800 Anderson Avenue Palmdale 47.00 3 Anderson Trust 64769 Anderson Family Trust Westline of 30th East, Palmdale North of Avenue Q - ---- -- --------------------- ----- ------------------- -------------------------- -------------- 1.00 4 Jefferson Industrial 64684 NAP SEC Jefferson Ave and Murrieta Fig Street 9.00 4 Malibu Highlands 120 NAP Thrift Road, Birdella Road Malibu and Latigo Canyon Road 11.00 4 Lakewood and 114 NAP 13526 Lakewood Blvd. and Bellflower Rosecrans 9026 Rosecrans Ave. 12.00 4 Palmdale Industrial 64909 NAP SWC Avenue P & Palmdale Development 12th Street East 15.00 4 Foley Family Trust 25252 Foley Family Trust Palomar Street and Wildomar Harwood Lane 15.01 4 Foley and Foley 25253 Foley Family Trust Palomar Street and Wildomar Harwood Lane 31.00 4 Sepulveda Center 64760 Sepulveda Center 1856, 1864, 1872 West Los Angeles Partners, Ltd. Partners, Ltd. S. Sepulveda Blvd. 32.00 4 The Plaza 64561 NAP S/S of Via Princessa btwn Santa Clarita Sierra Hwy. & Antelope Valley Fwy. 32.01 4 The Arbors 64561 NAP S/S of Via Princessa btwn Santa Clarita Sierra Hwy. & Antelope Valley Fwy. 32.02 4 The Courtyard 64561 NAP North line of Via Princessa, Santa Clarita West of Jason Road 34.00 4 40th St. & Ave. "R" 31058 NAP Avenue R & 40th St. East Palmdale 34.01 4 The Crossroads 35543 NAP Via Princessa and Santa Clarita Sierra Highway 35.00 4 The Marketplace 64600 NAP SW corner of Sierra Highway Santa Clarita and Via Princessa 36.00 4 Shir Chadash 35977 Shir Chadash - Victory Blvd. East of Woodland Hills Congregation Winnetka Avenue - ---- -- --------------------- ----- ------------------- -------------------------- -------------- 20.00 5 Lamb, Ray and Dianne 25188 Ray and Dianne Lamb 947 East Thousand Oaks Blvd. Thousand Oaks 25.00 5 Ortega 25312 Carlos and Eva Ortega 501 S. Atlantic Blvd. East Los Angeles 33.01 5 Casa Balboa Center 35542 NAP 16810 Ventura Blvd. Encino 37.00 5 Fairfax Plaza 23630 NAP 301 South Fairfax Los Angeles 44.00 5 Robertson Office Plaza 64866 Jack Slomovic 1030 S. Robertson Blvd. Beverly Hills 45.00 5 Robertson Office Plaza 64867 Jack Slomovic 1030 S. Robertson Blvd. Beverly Hills - ---- -- --------------------- ----- ------------------- -------------------------- -------------- 5.00 6 Bolsa-Magnolia, Ltd. 25200 Bolsa-Magnolia, Ltd. 9039 Bolsa Avenue Westminster 7.00 6 California Oaks, Center 25269 California Oaks 40515-40605 California Murrieta Center, J.V. Oaks Road 21.00 6 Liberty Square, Ltd. 25383 Liberty Square, Ltd. 9852-9938 Bolsa Ave. Westminster 28.00 6 Plaza Las Glorias 25409 Plaza Las Glorias, L.P. SWC Mount Vernon Ave and Colton Olive Street 38.00 6 Village Faire Shopping 64803 TIO, Ltd./TIL Ltd. 2978 Carlsbad Blvd. Carlsbad Center - ---- -- --------------------- ----- ------------------- -------------------------- -------------- Total - ---- -- --------------------- ----- ------------------- -------------------------- --------------
65 EXHIBIT "A" CITY NATIONAL BANK PAGE 2 Mortgage Loan and Real Property Schedule 11/05/93
Original Loan Asset Pool Property Loan Balance # No. Asset Name County State Zip Code Type Balance (as of 9/30/93) - ----- ---- ---------- ------ ----- -------- -------- -------- --------------- 14.00 2 Brookside Apt. Los Angeles CA 91311 Multi-Family 5,600,000 5,592,923 33.00 2 Villa Del Sol Apts. Los Angeles CA 91311 Multi-Family NAP 4,608,419 48.00 2 Landes & Lancaster Los Angeles CA NAV Mobile Home Pk 5,000,000 4,910,617 - ----- - ----------------------------- ----------- -- ----- -------------- ------------ ------------ 4.00 3 Bernstein/Michrowski Los Angeles CA 90040 Industrial $626,500 639,702 4.01 3 Bernstein/Michrowski Los Angeles CA 90040 Industrial 2,000,000 1,781,474 8.00 3 Centinela Studios Los Angeles CA 90404 Industrial 3,200,000 3,200,000 18.00 3 West Bernardo Corporate Center San Diego CA 92128 Industrial/R&D 4,071,000 4,062,905 22.00 3 Santa Fe Industrial Los Angeles CA 90058 Industrial NAP 2,390,258 24.00 3 Ohai San Bern. CA 91710 Industrial 3,400,000 3,412,783 30.00 3 San Fernando Industrial Los Angeles CA 91341 Industrial NAP 8,868,901 40.00 3 Sorrento Creek Business Center San Diego CA 92121 Industrial/R&D 4,227,900 4,202,687 40.01 3 Roselle Property San Diego CA 92121 Industrial/R&D NAP NAP 40.02 3 Sorrento Creek Land San Diego CA 92121 Land NAP NAP 40.03 3 Scientific Land on Towne Center Dr. San Diego CA 92121 Land NAP NAP 42.00 3 12565 Strathern Street Los Angeles CA 90021 Industrial NAP 2,109,227 46.00 3 Anderson Trust Los Angeles CA 93550 Industrial 1,900,000 1,860,556 47.00 3 Anderson Trust Los Angeles CA 93550 Land 500,000 271,565 - ----- - ----------------------------- ----------- -- ----- -------------- ------------ ------------ 1.00 4 Jefferson Industrial Riverside CA 92562 Land NAP $1,700,000 9.00 4 Malibu Highlands Los Angeles CA 90265 Land NAP 2,280,692 11.00 4 Lakewood and Rosecrans Los Angeles CA 90706 Land NAP 540,000 12.00 4 Palmdale Industrial Development Los Angeles CA NAV Land NAP 869,278 15.00 4 Foley Family Trust Riverside CA 92362 Land/SFD Homes 7,811,250 3,173,428 15.01 4 Foley and Foley Riverside CA 92362 Developed Lots 2,492,750 2,476,861 31.00 4 Sepulveda Center Partners, Ltd. Los Angeles CA 90025 Land 1,250,000 1,250,000 32.00 4 The Plaza Los Angeles CA NAV Land NAP 1,201,189 32.01 4 The Arbors Los Angeles CA NAV Land NAP 642,636 32.02 4 The Courtyard Los Angeles CA NAV Land NAP 372,369 34.00 4 40th St. & Ave. "R" Los Angeles CA 93550 Land NAP 2,215,167 34.01 4 The Crossroads Los Angeles CA 93550 Land NAP 2,810,018 35.00 4 The Marketplace Los Angeles CA NAV Land NAP 4,839,113 36.00 4 Shir Chadash Los Angeles CA 91364 Land 3,075,000 3,117,922 - ----- - ----------------------------- ----------- -- ----- -------------- ------------ ------------ 20.00 5 Lamb, Ray and Dianne Ventura CA 91360 Office 1,150,000 938,196 25.00 5 Ortega Los Angeles CA 90022 Office 1,120,000 1,023,368 33.01 5 Casa Balboa Center Los Angeles CA NAV Office NAP 1,914,657 37.00 5 Fairfax Plaza Los Angeles CA 90036 Office 9,400,000 7,717,084 44.00 5 Robertson Office Plaza Los Angeles CA 90035 Office 1,450,000 1,434,113 45.00 5 Robertson Office Plaza Los Angeles CA 90035 Office 1,450,000 1,426,968 - ----- - ----------------------------- ----------- -- ----- -------------- ------------ ------------ 5.00 6 Bolsa - Magnolia, Ltd. Orange CA 92683 Retail 4,200,000 4,200,000 7.00 6 California Oaks Centers Riverside CA 92562 Retail 14,800,000 13,322,993 21.00 6 Liberty Square, Ltd. Orange CA 92683 Retail 4,550,000 4,545,002 28.00 6 Plaza Las Glorias San Bernard CA 92324 Retail 8,250,000 8,305,000 38.00 6 Village Faire Shopping Center San Diego CA 92008 Retail 12,316,405 12,445,982 - ----- - ----------------------------- ----------- -- ----- -------------- ------------ ------------ TOTAL $103,840,805 $132,674,053 - ----- ------------ ------------
Accrued and Uncollected Amount Deferred Late Owed Lien Interest Charges (as of 9/30/93) Position ----------- ----------- --------------- -------- 748,691 0 6,341,614 1st NAP NAP 4,608,419 REO 30,691 0 4,941,308 1st -------------------------------------------------------------- $8,268 $4,831 652,801 1st 36,995 15,294 1,833,763 1st 20,000 0 3,220,000 1st 381,910 0 4,444,815 1st NAP NAP 2,390,258 REO 846,329 0 4,259,142 1st NAP NAP 8,868,901 REO 25,922 1,607 4,230,216 1st NAP NAP See 40.00 2nd NAP NAP See 40.00 1st NAP NAP See 40.00 1st NAP NAP 2,109,227 REO 11,631 0 1,872,187 1st 1,813 0 273,378 1st -------------------------------------------------------------- NAP NAP $1,700,000 REO NAP NAP 2,280,692 REO NAP NAP 540,000 REO NAP NAP 869,278 REO 813,744 11,215 3,998,387 1st 581,377 7,880 3,066,118 1st 161,453 1,581 1,413,034 1st NAP NAP 1,201,189 REO NAP NAP 642,636 REO NAP NAP 372,369 REO NAP NAP 2,215,167 REO NAP NAP 2,810,018 REO NAP NAP 4,839,113 REO 485,523 0 3,603,445 1st -------------------------------------------------------------- 304,365 5,081 1,247,642 1st 6,778 971 1,031,117 1st NAP NAP 1,914,657 REO 1,197,563 69,318 8,983,965 REO 107,142 6,443 1,547,698 1st 13,975 890 1,441,833 1st -------------------------------------------------------------- 240,109 32,908 4,473,017 1st 3,327,532 6,578 16,657,103 1st 92,675 7,624 4,645,301 1st 443,014 2,984 8,750,998 REO 427,904 0 12,873,886 1st ----------- -------- ------------ -------- $10,315,404 $175,205 $143,164,692 ----------- -------- ------------
66 EXHIBIT "A" Page 3 11/05/93 CITY NATIONAL BANK Mortgage Loan and Real Property Schedule
Last Approx. Approx. Superior Original Interest Trans- Current Saleable/ Land Asset Pool Lien Note Maturity Paid to action Accrual Rentable Acre- No. of Seller's # No. Asset Name Balance Date Date Date Date Rate SF age Units DIV - ----- ---- ------------------- ---------- --------- ---------- --------- --------- --------- ---------- ------ ----- ---------- 14.00 2 Brookside Apt. 0 5/10/90 12/31/94 12/24/91 09/15/93 7.25% 81,984 0.00 80 $3,665,441 33.00 2 Villa Del Sol Apts. 2,415,000 REO REO NAP NAP REO 71,112 0.00 104 $1,896,057 48.00 2 Landes & Lancaster 0 2/14/86 11/01/95 09/01/93 09/01/93 7.50% 1,256,320 0.00 302 $4,506,114 - ------------------------------------------------------------------------------------------------------------------------------------ 4.00 3 Bernstein/Michrowski 0 8/16/89 09/01/94 07/30/93 09/16/93 7.50% 18,320 0.00 NAP $319,728 4.01 3 Bernstein/Michrowski 0 3/21/88 09/01/94 07/22/93 09/16/93 7.50% 96,800 0.00 NAP $1,081,557 8.00 3 Centinela Studios 0 9/27/90 10/01/91 09/01/93 09/14/93 7.50% 50,570 0.00 NAP $2,152,089 18.00 3 West Bernardo Corporate Center 0 4/19/89 01/04/94 09/01/93 09/14/93 7.50% 62,707 0.00 NAP $2,304,448 22.00 3 Santa Fe Industrial 0 REO REO NAP NAP REO 57,500 0.00 NAP $1,247,017 24.00 3 Ohai 0 10/5/87 08/01/90 03/14/91 09/22/93 9.50% 152,625 0.00 NAP $3,424,783 30.00 3 San Fernando Industrial 0 REO REO NAP NAP REO 50,760 0.00 NAP $1,492,572 40.00 3 Sorrento Creek Business Center 0 4/1/93 04/01/96 09/01/93 09/15/93 7.50% 49,058 0.00 NAP $2,499,877 40.01 3 Roselle Property 1,000,000 See 40.00 See 40.00 See 40.00 See 40.00 See 40.00 51,537 0.00 NAP N/A 40.02 3 Sorrento Creek Land 0 See 40.00 See 40.00 See 40.00 See 40.00 See 40.00 85,813 2.28 NAP N/A 40.03 3 Scientific Land on Towne Center Dr. 0 See 40.00 See 40.00 See 40.00 See 40.00 See 40.00 1,469,714 33.74 NAP N/A 42.00 3 12565 Strathern Street 0 REO REO NAP NAP REO 31,610 0.00 NAP $1,180,247 46.00 3 Anderson Trust 0 8/22/90 09/01/95 09/01/93 09/10/93 7.50% 55,290 0.00 NAP $1,436,108 47.00 3 Anderson Trust 0 8/22/90 12/31/93 09/01/93 09/14/93 8.00% 148,104 1.70 NAP $117,273 - ------------------------------------------------------------------------------------------------------------------------------------ 1.00 4 Jefferson Industrial 0 REO REO NAP NAP REO 1,125,590 25.84 NAP $619,435 9.00 4 Malibu Highlands REO REO NAP NAP REO 650,786 14.94 NAP $907,664 11.00 4 Lakewood and Rosecrans 0 REO REO NAP NAP REO 43,410 1.00 NAP $305,189 12.00 4 Palmdale Industrial Development 0 REO REO NAP NAP REO 412,078 9.61 NAP $107,507 15.00 4 Foley Family Trust 0 8/16/89 01/31/93 05/07/91 12/02/92 7.50% 172,062 3.95 NAP $2,064,103 15.01 4 Foley and Foley 8/16/89 01/31/93 01/01/91 07/01/92 7.50% 424,710 9.75 NAP $1,312,790 31.00 4 Sepulveda Center Partners, Ltd. 0 5/10/90 07/01/92 06/17/92 09/10/93 10.00% 16,356 0.38 NAP $353,815 32.00 4 The Plaza 0 REO REO NAP NAP REO 222,592 12.70 NAP $1,133,049 32.01 4 The Arbors 0 REO REO NAP NAP REO 106,722 6.70 NAP $589,975 32.02 4 The Courtyard 0 REO REO NAP NAP REO 48,351 1.10 NAP $286,940 34.00 4 40th St. & Ave "R" 0 REO REO NAP NAP REO 1,131,689 27.20 NAP $638,774 34.01 4 The Crossroads 0 REO REO NAP NAP REO 125,888 3.84 NAP $671,325 35.00 4 The Marketplace 0 REO REO NAP NAP REO 439,956 10.10 NAP $2,030,063 36.00 4 Shir Chadash 0 10/31/89 04/01/91 09/01/91 08/21/92 7.00% 741,826 17.57 NAP $823,767 - ------------------------------------------------------------------------------------------------------------------------------------ 20.00 5 Lamb, Ray and Dianne 0 2/27/89 06/01/92 12/14/90 10/14/92 9.50% 8,556 0.00 NAP $585,729 25.00 5 Ortega 10/16/89 10/15/93 09/01/93 09/03/93 8.00% 10,763 0.00 NAP $597,438 33.01 5 Casa Balboa Center 0 REO REO NAP NAP REO 8,571 0.00 NAP $1,768,274 37.00 5 Fairfax Plaza 0 REO REO NAP NAP REO 64,665 0.00 NAP $4,033,933 44.00 5 Robertson Office Plaza 0 1/25/91 03/01/96 10/07/92 11/05/92 7.50% 11,983 0.00 NAP $422,773 45.00 5 Robertson Office Plaza 0 1/25/91 03/01/96 09/01/93 09/23/93 11.75% 11,983 0.00 NAP $673,540 - ------------------------------------------------------------------------------------------------------------------------------------ 5.00 6 Bolsa-Magnolia, Ltd. 0 3/10/89 10/01/92 01/17/93 09/14/93 8.00% 34,911 0.00 NAP $2,416,017 7.00 6 California Oaks Center 0 11/20/89 03/01/91 03/22/91 09/24/91 8.00% 126,136 0.00 NAP $7,610,425 21.00 6 Liberty Square, Ltd. 0 6/22/90 08/01/92 09/23/93 06/28/93 7.75% 48,860 0.00 NAP $1,472,515 28.00 6 Plaza Las Glorias 0 REO REO NAP NAP REO 142,347 0.00 NAP $5,178,142 38.00 6 Village Faire Shopping Center 0 7/10/90 05/01/95 04/07/93 09/14/93 7.00% 81,121 0.00 NAP $5,262,033 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL $3,415,000 10,001,737 182.39 486 $69,188,526 - ----- ---------- ---------- ------ --- -----------
67 EXHIBIT "A" CITY NATIONAL BANK Page 4 Mortgage Loan and Real Property Schedule 11/05/93
- ------------------------------------------------------------------------------------------------------------------------------------ Initial Adjusted Asset Pool Purchase Offer Purchase COMMENTS # No. Asset Name Price (IPP) Percentage Price (APP) - ------------------------------------------------------------------------------------------------------------------------------------ 14.00 2 Brookside Apt. 4,040,896.08 110.2431% 4,040,896.08 33.00 2 Villa Del Sol Apts. 2,175,824.56 114.7552% 2,175,824.56 48.00 2 Landes & Lancaster 4,474,526.16 99.2990% 4,474,526.16 - ------------------------------------------------------------------------------------------------------------------------------------ 4.00 3 Bernstein/Michrowski 328,806.40 102.8394% 328,806.40 CNB is currently in negotiations with the borrower to extend the maturity date to 9/1/96. 4.01 3 Bernstein/Michrowski 1,174,216.16 108.5672% 1,174,216.16 CNB is currently in negotiations with the borrower to extend the maturity date to 9/1/96. 8.00 3 Centinela Studios 2,376,476.96 110.4265% 2,376,476.96 18.00 3 West Bernardo Corporate Center 3,396,537.04 147.3905% 3,396,537.04 The Paid to and Last Transaction Dates are for Loan #25207. 22.00 3 Santa Fe Industrial 975,451.36 78.2228% 975,451.36 24.00 3 Ohai 2,920,383.44 85.2721% 2,920,383.44 The Paid to and Last Transaction Dates are for Loan #64293. 30.00 3 San Fernando Industrial 1,699,631.44 113.8727% 1,699,631.44 40.00 3 Sorrento Creek Business Center 3,301,979.20 132.0857% 3,301,979.20 40.01 3 Roselle Property NAP NAP NAP 40.02 3 Sorrento Creek Land NAP NAP NAP 40.03 3 Scientific Land on Towne Center Dr. NAP NAP NAP 42.00 3 12565 Strathern Street 896,858.56 75.9891% 896,858.56 46.00 3 Anderson Trust 1,515,665.84 105.5398% 1,515,665.84 47.00 3 Anderson Trust 96,223.92 82.0512% 96,223.92 - ------------------------------------------------------------------------------------------------------------------------------------ 1.00 4 Jefferson Industrial 292,653.92 47.2453% 292,653.92 9.00 4 Malibu Highlands 455,520.00 50.1860% 455,520.00 11.00 4 Lakewood and Rosecrans 146,411.20 47.9739% 146,411.20 12.00 4 Palmdale Industrial Development 88,210.72 82.0511% 88,210.72 15.00 4 Foley Family Trust 1,925,310.40 93.2759% 1,925,310.40 15.01 4 Foley and Foley 584,480.00 44.5220% 584,480.00 31.00 4 Sepulveda Center Partners, Ltd. 362,892.40 102.5656% 362,892.40 32.00 4 The Plaza 1,157,478.40 102.1561% 1,157,478.40 32.01 4 The Arbors 554,954.40 94.0641% 554,954.40 32.02 4 The Courtyard 251,425.20 87.6229% 251,425.20 34.00 4 40th St. & Ave "R" 120,640.00 18.8862% 120,640.00 34.01 4 The Crossroads 785,200.00 116.9627% 785,200.00 35.00 4 The Marketplace 2,245,360.00 110.6054% 2,245,360.00 36.00 4 Shir Chadash 308,880.00 37.4960% 308,880.00 - ------------------------------------------------------------------------------------------------------------------------------------ 20.00 5 Lamb, Ray and Dianne 632,385.52 107.9655% 632,385.52 25.00 5 Ortega 620,933.04 103.9326% 620,933.04 33.01 5 Casa Balboa Center 1,865,758.96 105.5130% 1,865,758.96 37.00 5 Fairfax Plaza 3,853,583.76 95.5292% 3,853,583.76 44.00 5 Robertson Office Plaza 530,223.20 125.4156% 530,223.20 45.00 5 Robertson Office Plaza 950,485.12 141.1178% 950,485.12 - ------------------------------------------------------------------------------------------------------------------------------------ 5.00 6 Bolsa - Magnolia, Ltd. 3,269,359.60 135.3202% 3,269,359.60 7.00 6 California Oaks Center 8,116,444.96 106.6490% 8,116,444.96 CNB is currently in negotiations with the borrower to extend the maturity date to 5/1/96. 21.00 6 Liberty Square, Ltd. 2,214,447.04 150.3854% 2,214,447.04 28.00 6 Plaza Las Glorias 4,719,116.48 91.1353% 4,719,116.48 38.00 6 Village Faire Shopping Center 7,583,606.16 144.1193% 7,583,606.16 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL 73,009,237.60 105.5222% 73,009,237.60 ============= ======== ============= - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------
68 Exhibit B to Asset Sale Agreement FORM OF ASSET ACCEPTANCE CERTIFICATE ____________________________________________________, the Purchaser under that certain Asset Sale Agreement (the "Agreement"), by and among CITY NATIONAL BANK, a national banking association, as Seller, ______________________________________________________ ____________________________________________________________, as Escrow Agent, and ___________________________________________________________________ as Purchaser, dated as of ___________________, 1993, hereby certifies that it finally, irrevocably and unconditionally accepts the Asset, identified as [specify pool number and name of Asset], in accordance with Section 5.4(a) of the Agreement. Dated the _______ day of _______________________, 1993. PURCHASER: ____________________________________ [Corporation/Partnership] By: _______________________________ Its: _______________________________ 69 Recording Requested By And When | Recorded Mail To: | _______________________________ | _______________________________ | __________________, CA ________ | Attn: _________________________ | _________________________ | | - ------------------------------------------------------------------------------- Space Above This Line for Recorder's Use FORM OF MORTGAGE ASSIGNMENT ASSIGNMENT OF MORTGAGE LOAN FROM SELLER TO PURCHASER CITY NATIONAL BANK, a national banking association ("Assignor"), for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, hereby absolutely sells, transfers, assigns, delivers, sets-over and conveys to _________________________________________________, a [corporation/partnership] ("Assignee"), without recourse: The mortgage or deed of trust loan or loans identified onAttachment A hereto (the "Mortgage Loan"), including the promissory note(s) evidencing any and all liens and security interests securing the payment of the Mortgage Loan and all documents and instruments evidencing, securing or relating to the Mortgage Loan, including, but not limited to, the beneficial interest or mortgagee's interest under the mortgage(s) or deed(s) of trust, and any other documents recorded in the real property or chattel records of the jurisdiction in which the real property or personal property securing such Mortgage Loan is located (to which records reference is made for all purposes) as such documents are more particularly described and referenced onAttachment B hereto. This Assignment of Mortgage shall be governed by the laws of the State of California. TO HAVE AND TO HOLD the Mortgage Loan, together with all and singular the rights and privileges thereunto in any wise belonging unto Assignee, its successors and assigns, forever. Dated: __________________, 1993 CITY NATIONAL BANK, a national banking association By: ___________________________ Its: ___________________________ Exhibit C to Asset Sale Agreement 70 Exhibit C to Asset Sale Agreement STATE OF ) ) SS. COUNTY OF ) On ___________________________, 19___ before me _______________________________ Date Name, Title of Officer, e.g., "Jane Doe, Notary Public" personally appeared __________________________________________________________ Name(s) of Signer(s) // personally known to me -OR- // proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/ they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. [SEAL] _____________________________________ NOTARY PUBLIC 71 Exhibit C to Asset Sale Agreement ATTACHMENT A TO MORTGAGE ASSIGNMENT DESCRIPTION OF MORTGAGE LOAN Name of Borrower: Principal Amount of Note: Current Fully Extended Maturity Date: Control No.: Type of Collateral: 72 Exhibit C to Asset Sale Agreement ATTACHMENT B TO MORTGAGE ASSIGNMENT DESCRIPTION OF SECURITY DOCUMENTS 73 EXHIBIT C-1 TO THE ASSET SALE AGREEMENT Asset No.__________ ASSIGNMENT OF ADDITIONAL COLLATERAL CITY NATIONAL BANK, a national banking association ("Assignor"), for good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, hereby absolutely sells, transfers, assigns, endorses, delivers, sets-over and conveys to WHC-THREE INVESTORS, L.P., a Delaware limited partnership ("Assignee"), without representation, warranty or recourse, the following: (a) the mortgage note (the "Mortgage Note") identified on Exhibit A attached hereto, together with any and all amendments, supplements, restatements, and modifications thereto (collectively, the "Mortgage Loan"); (b) all documents, agreements and instruments evidencing, securing or relating to the Mortgage Loan, including, without limitation, pledge agreements, guarantees, security agreements, financing statements, indemnity agreements, loan agreements, assignments of management agreements and assignment of stock or partnership units ("Collateral Loan Documents"), which includes, but is not limited to, the Collateral Loan Documents identified on Exhibit B attached hereto; (c) all property and other interests securing or relating to the Mortgage Loan, and all proceeds thereof, including without limitation, all rights, titles, interests, claims, escrows, accounts, letters of credit, title insurance policies (except to the extent of any blanket policies carried by Assignor), flood hazard insurance policies, performance bonds, demands, certificates of deposit, causes of action, proofs of claim and judgments, claims and actions against guarantors 74 and any other collateral arising out of and/or executed and/or delivered in or to or with respect to the Mortgage Loan (the "Additional Collateral"), which includes, but is not limited to, the Additional Collateral identified on Exhibit B attached hereto; and (d) any other documents, agreements, instruments or property and all proceeds thereof, relating to the Mortgage Loan or any other agreements or instruments evidencing or securing such Mortgage Loan and held by Assignor or a third party on behalf of Assignor (the "Other Collateral Loan Documents"). This assignment shall not be recorded. TO HAVE AND TO HOLD the Mortgage Loan, the Mortgage Note, the Collateral Loan Documents, the Additional Collateral and the Other Collateral Loan Documents, together with all and singular the rights and privileges thereunto in any way belonging unto Assignee, its successors and assigns, forever. Assignor does hereby confirm and ratify the sale, transfer, assignment, delivery, setting over and conveyance of the Mortgage Loan, the Mortgage Note, the Collateral Loan Documents, the Additional Collateral and the Other Collateral Loan Documents to Assignee. Dated as of November 17, 1993. ASSIGNOR: CITY NATIONAL BANK, a national banking association By: ________________________________ Name: __________________________ Title: _________________________ 2 75 EXHIBIT A TO ASSIGNMENT OF ADDITIONAL COLLATERAL 3 76 EXHIBIT B [IDENTIFIES UNRECORDED ADDITIONAL COLLATERAL] 4 77 Exhibit D to Asset Sale Agreement FORM OF CERTIFICATE OF DEFECTIVE ASSETS Pursuant to Section 5.4(b) of that certain Asset Sale Agreement (the "Agreement") by and among CITY NATIONAL BANK, a national banking association as Seller, ____________________________________________________, as Escrow Agent and _____________________________________________________________, as Purchaser, the undersigned hereby certifies to Seller that the Mortgage Loan identified below is a Defective Mortgage Loan, as that term is defined in the Agreement. The Mortgage Loan has a Defect since it breaches the representation and warranty more particularly described as follows, or has a Structural Defect more particularly described as follows and the effect of the claimed Defect(s) on the value of the Mortgage Loan is materially adverse as indicated below [attach additional pages as necessary]: A. Identity of Mortgage Loan ________________________________ [Specify pool number and name of Mortgage Loan.] B. Detailed description of condition giving rise to, or nature of, the claimed Defect or Structural Defect and state why any claimed Defect has a material adverse effect on the value of the related Mortgage Loan. C. Identify section and subsections of the Agreement under which the Defect or Structural Defect is claimed. D. Provided detailed evidence of the existence of the Defect including, but not limited to, the identity of, and a copy of any materials provided by, any third party which performed any analysis or provided any cure estimate or any other information with respect to such claimed Defect. Dated: _______________________, 1993. PURCHASER: _______________________________ By: ___________________________ Its: __________________________ 78 Exhibit E to Asset Sale Agreement FORM OF SUPPLEMENTAL CERTIFICATE OF DEFECTIVE ASSETS Pursuant to Section 5.4(b) of that certain Asset Sale Agreement (the "Agreement") by and among CITY NATIONAL BANK, a national banking association as Seller, ____________________ ____________________________________, as Escrow Agent and ____________________________ ____________________________________, as Purchaser, the undersigned hereby certifies to Seller that the Mortgage Loan identified below is a Defective Mortgage Loan, as that term is defined in the Agreement. The Mortgage Loan has a Defect since it breaches the representation and warranty more particularly described as follows, or has a Structural Defect more particularly described as follows and the effect of the claimed Defect(s) on the value of the Mortgage Loan is materially adverse as indicated below [attach additional pages as necessary]: A. State whether in Purchaser's reasonable judgment the Defect is curable or non-curable. B. If, in Purchaser's reasonable judgment, the Defect is curable, provide a detailed description of the proposed cure and reasonable detailed estimated itemized cost of repair or other cure ("Purchaser's Cure Estimate") and attach supporting information prepared by third party expert. C. If this certificate is delivered no later than the last day of the Due Diligence Period, state the dollar amount, or percentage of Initial Purchase Price, by which Purchaser would have reduced the Initial Purchase Price with respect to such Mortgage Loan, had Purchaser been aware of such Defect on the Offer Date. Dated: ___________________, 199__ PURCHASER: _____________________________ By:__________________________ Its:__________________________ 79 Exhibit F to Asset Sale Agreement FORM OF DELETION CERTIFICATE Pursuant to Section 5.4(d) of that certain Asset Sale Agreement (the "Asset Sale Agreement") by and between ______________________________________, as Purchaser, and CITY NATIONAL BANK, a national banking association, as Seller, the undersigned hereby certifies to Seller as follows: 1. On ____________________________, 199___, Purchaser delivered to Seller a Certificate of Defective Mortgage Loan with regard to the Mortgage Loan identified as Control No. ____________ on the Mortgage Loan and Real Property Schedule attached as Exhibit D to the Asset Sale Agreement. 2. Seller has not cured the Defect in such Mortgage Loan. 3. Such Mortgage Loan will be subject to repurchase at the Repurchase Price as provided in Section 10.2 of the Asset Sale Agreement if such Defect has not been cured within the Cure Period. 4. All capitalized terms used herein and not defined shall have the meaning assigned to them in the Asset Sale Agreement. Dated the _________________ day of ___________________________, 199___. PURCHASER: __________________________________ [Corporation/Partnership] By:_______________________________ Its:_______________________________ 80 Exhibit G to Asset Sale Agreement CITY NATIONAL BANK COMMERCIAL MORTGAGE LOAN AND REAL PROPERTY SALE VALUATION METHODOLOGY I. DUE DILIGENCE PROCESS Asset information was extracted from loan files. The asset information was recorded on Data Sheets which provided a history of the loan transaction and the current status of the loan or real estate owned (REO). Utilizing the information recorded on the data sheets, the property inspections and the market analyses, underwriting and valuation took place. The methodology and procedures presented are not intended to and do not comply with generally accepted accounting and auditing procedures and, therefore, no opinion was expressed in that regard. Likewise, the methodology and procedures do not meet the Uniform Standards of Professional Appraisal Practice for preparation of a market value appraisal as defined by the Appraisal Standards Board of the Appraisal Foundation and should not be relied on to replace or augment appraisal information. II. VALUATION METHODOLOGY The RTC Valuation Methodology for Portfolio Sales of Commercial Mortgages and Real Estate Owned, otherwise known as "Appendix H," was utilized as the primary standard for arriving at the various factors applied to each asset in underwriting and valuation. These standards were modified where the Financial Advisor, market conditions or the Due Diligence Contractor determined that reasons existed for changing any one or more of the following factors. Otherwise the following standards were utilized in arriving at the stated Derived Investment Value (DIV) also known as "Valuation" in the Offering Memorandum. III. UNDERWRITING AND VALUATION ASSUMPTIONS FOR ALL ASSETS Discount rates were established for each type of property and the methodology used in valuation of the asset. The discount rates assumed for each property type and valuation methodology are as follows: VALUATION METHODOLOGY
PROPERTY TYPE IMMEDIATE FUTURE DEFAULT REO PERFORMING DEFAULT LOANS Multifamily 14% 13.5% 12% 500(1)
___________________ (1) Basis points over Treasuries of comparable maturities. 81 Exhibit G to Asset Sale Agreement
PROPERTY TYPE IMMEDIATE FUTURE DEFAULT REO PERFORMING DEFAULT LOANS Commercial 16% 15.5% 14% 600 Entitled Land 20% 19% 17% NAP Raw Land 22% 21% 18% NAP
The above discount rates were adjusted up or down 200 basis points based on whether there were 2nd Lien or Wrap Notes. Adjustments were made as available information justified making such adjustments. In the cases where a different discount rate was used, the justification was documented in the underwriting and valuation summaries. IV. PERFORMING LOANS VALUATION METHODOLOGY 4.1 Loans were valued in accordance with Seller guidelines as the lesser of the following: 4.1.1 Face amount of the loan balance as of 08/03/93; or 4.1.2 Present value of the cash flows of the loan assuming the discount rates noted in Section III. 4.2 To calculate expected cash flows for the loans, the following assumptions were used: 4.2.1 interest rates at current stated interest rate, or at stated interest rates at time of maturity; 4.2.2 principal payments assumed to be made as scheduled, including balloon payments; 4.2.3 adjustable rate loans assumed a constant interest rate environment; and 4.2.4 extension options assumed loan was extended at contractual terms. V. CASH FLOW METHODOLOGY For all property types, the methodology for valuing real estate owned (REO) and for real estate collateralizing permanent mortgage loans was a discounted cash flow concept. DIVs were calculated based upon the discounted value of the estimated future net cash flows. The valuation period was assumed to begin July 1, 1993. Estimated revenue and expenses were projected based 2 82 Exhibit G to Asset Sale Agreement upon analysis of existing property operations as well as limited research into the competitive market. DIVs on land were generated by utilizing comparable land sales within the market area and to the extent practical a land residual analysis was prepared. 5.1 Revenue 5.1.1 Rental rates were based on a comparison of historical actual, street rents at the subject property and street rents at comparable properties. Street rents were obtained from the inspections of each property. Office and retail rents for occupied space were based on actual rents so long as actuals were in line with market rents. Rents for vacant space were based on current market rents. Rental rates were effective rents adjusted for free rent and other concessions that may be amortized over the term of the lease. Rental rates were assumed to increase no more than four percent (4.0%) per year. Lease renewals were projected at fifty percent (50%) on commercial and retail properties unless otherwise justified. 5.1.2 Stabilization was defined as occupancy at which similar properties within the subject market were able to maintain. Non-stabilized property occupancy was projected at market levels within the submarket. Any vacancies existing after the date of stabilization were assumed to be permanent. 5.1.3 Other income was based upon historical revenues where available. When not available, industry standards were used. 5.2 Operating Expenses 5.2.1 In all cases, the following expenses were utilized in estimating operating expenses for each property. They were: a. property taxes; b. insurance; c. general and administrative; d. utilities; e. repairs and maintenance; f. property management; g. ground rents, if applicable; 3 83 Exhibit G to Asset Sale Agreement h. miscellaneous/all other; and i. reserves. Where available, actual property data were used in estimating operating expenses. When actual data were not available, IREM, and/or area surveys and other reliable sources were used. Operating expenses were assumed to increase at four percent (4.0%) per annum. 5.2.2 Property tax information was based on current assessed value, however minimum annual increases were projected at two percent (2.0%). 5.2.3 Property management fees were projected as five percent (5.0%) of effective gross income with a minimum acceptable of three percent (3.0%) of gross potential income. There were other factors that influenced the valuation process depending on type of property. In general the condition of the property had an impact on valuation. Deferred maintenance and required capital expenditures had an impact on total operating expenses and net cash flow. 5.3 Upon recovery of the property, a 12-month marketing period was assumed in order to sell the property: 5.4 Terminal capitalization rates varied by property type, location and special market circumstances. The assumed capitalization rates used for each property type within the portfolio were as follows: Multifamily . . . . . . . . . . . . . . . 9.0% Retail . . . . . . . . . . . . . . . . . . 10.5% Office . . . . . . . . . . . . . . . . . . 11.0% Industrial . . . . . . . . . . . . . . . . 11.0%
The capitalization rates above were adjusted upwards or downwards if market conditions warranted. Selling and closing costs were projected at six percent (6.0)% for all properties. 5.5 Land The DIV for Land was valued utilizing primarily sales comparable information and, to the extent practical, a land residual analysis was prepared. Where specific information was available to support lot sales, that information was utilized in the overall value. 4 84 Exhibit G to Asset Sale Agreement 5.5.1 Revenue No revenue other than sales proceeds was assumed. No land within the portfolio had significant income streams from which to compute cash flow information. 5.5.2 Expenses Annual operating expenses were estimated based upon historical information when available. Operating expenses considered in the valuation were: a. property taxes; b. insurance (an estimate of $25 per acre was used with a minimum of $250 per year and maximum of $3,000 per year unless more accurate information was available); and c. ground maintenance and security (a minimum amount of $10,000 per year was used unless more accurate information was available). All operating expenses were assumed to increase a minimum of [four] percent (4.0%) per year. In no event were property taxes increased less than [two] percent (2.0%). 5.6 Estimated Net Sales Proceeds Capitalized NOI and appraisal information, comparable sales, and to the extent practical, a land residual analysis, to establish the current value of the property. Where appraisal information was considered inadequate, recent sales comparables were used. VI. NON-PERFORMING LOAN VALUATION METHODOLOGY Mortgage loans that have matured and are currently not paying or are anticipated to default during the term of the loan or at maturity were valued at the lesser of: 6.1 Face amount of the loan; or 6.2 Present Value of the Estimated Future Cash Flows of the loan (Future Default), assuming the discount rates in Section III; or 6.3 Present Value of the Cash Flows from the underlying collateral adjusted for timing and cost of foreclosure (Immediate Default). /// /// /// 5 85 Exhibit G to Asset Sale Agreement Loan cash flows under item 6.2 were equal to contractual loan payments through default, payments received during bankruptcy/foreclosure proceedings, and property cash flows through sale. VII. DEFAULT ASSUMPTIONS 7.1 Default Date It was assumed that default would occur when the property could no longer support the required payment or the loan matured and the terminal value did not support the payoff of the loan. This could be caused by economic changes, changes in payment requirements, interest rates or maturities. 7.2 Timing of Foreclosure and Bankruptcy On the Default Date, the holder of the note was assumed to initiate foreclosure proceedings and exercise all rights and remedies available. The borrower is likely to exercise certain defense tactics, including bankruptcy, designed to delay the lender's ability to recover the collateral. Even though most of the assets are owned by single purpose, limited debt entities, borrowers have had increasing success in stalling the resolution of these cases through several techniques. The most common technique is the filing of an inadequate plan of reorganization. It was assumed that bankruptcy is filed in all foreclosure cases and that the holder of the note is successful in recovering the property. Foreclosure timing varies based on state laws and whether legal action may be pursued through judicial or non-judicial proceedings. It has been assumed that foreclosure and bankruptcy proceedings will take, on average, 15 months as California is a non-judicial foreclosure state. This period is adjusted to reflect those cases where the recovery period may be less than the average, such as the case of negotiated Deed in Liens and lengthen the case of multiple assets. 7.3 Cash Flow During Foreclosure/Bankruptcy During the default period and the bankruptcy proceedings, the borrower may have the ability to retain the cash flow from the property rather than remit it to the holder of the note. The note holder can defend rights to the property cash flow by either appointing a receiver or obtaining a Cash Collateral Order (CCO). It has been assumed that, in either case, this defense will take, on average, ninety (90) days from the bankruptcy filing date. The level of Property Cash Flow during the receiver/CCO period will be reduced by one of two things. First, if a receiver has been appointed, the receiver will collect all of the cash flow, but will charge a fee for his services. Second, if a receiver is not appointed it will be assumed that the borrower will have adequate control to reduce cash flow by overstating 6 86 Exhibit G to Asset Sale Agreement expenses or understating rents. In either case it was assumed that only eighty-five percent (85%) of cash flow was turned over to the court. It is further assumed that the court collects the cash flow during foreclosure/bankruptcy and the lender receives the cash flow at termination of the proceedings. 7.4 Legal Expenses Legal expenses incurred in bankruptcy and foreclosure were assumed to be the greater of [five] percent (5.0%) of collateral value with a minimum of or [$50,000.00] with a cap of [$300,000.00]. Legal expenses were adjusted for multiple entity borrowers and some very large balance loans. 7.5 Guarantees It was assumed that no collections would be made or guaranteed. 7.6 Recovery On the Recovery Date, the holder of the note was assumed to have received all funds accumulated in accordance with CCO. Legal fees, delinquent real estate taxes, senior debts and deferred maintenance had the effect of reducing the amount of recovery. 7 87 Exhibit H to Asset Sale Agreement Form of VALUATION CERTIFICATE Pursuant to Section 5.4 of that certain Asset Sale Agreement (the "Agreement"), by and between _________________________________________________ ("Purchaser"), _______________________________ ("Purchaser"), and City National Bank, a national banking association ("Seller"), the undersigned firm, appointed pursuant to Section 5.5(b)(i) of the Purchase Agreement ("Valuation Agent"), hereby represents that (i) it prepared estimated cash flows and present value calculations regarding the [Mortgage Loan/Real Property] listed as Control Number ______ on the Mortgage Loan and Real Property Schedule attached to the Agreement as Exhibit A thereto (the ""Valuation"); (ii) the Valuation Reports thereon are attached hereto and reference is made to them for their content; and (iii) the procedures by which the Valuation was prepared, the estimates and the assumptions, including any provided or prescribed by Seller, upon which the Valuation was prepared, and the limitations attending any use of the Valuation, are described in the Valuation Report, and in Exhibit G to the Agreement, copies of which are attached to this Valuation Certificate, and reference is made to the Valuation Report and Exhibit G for their content. The undersigned firm hereby represents that copies of this Valuation Certificate and attachments hereto have been delivered to Purchaser as of the date hereof. The undersigned Purchaser hereby represents that it has received such copies of this Valuation Certificate and attachments hereto as of the date hereof and that Purchaser is familiar with their contents. Dated the ________ day of ____________________, 1993. PURCHASER VALUATION AGENT By: __________________________ By: __________________________ Its: __________________________ Its: __________________________ 88 Exhibit I to Asset Sale Agreement FORM OF NOTICE TO MORTGAGORS _________________________, 199___ [Name and Address of Mortgagor] Subject: City National Bank Property Name: Loan No.: Original Loan Amount: $________________ Note Dated: Gentlemen: The above mortgage loan ("Loan") has been sold and conveyed to ______________________________________________________________________________ ("Purchaser") by CITY NATIONAL BANK, a national banking association. Purchaser has designated [A LOCKBOX] [A DEPOSITORY ACCOUNT] for the collection of interest, principal, escrows and other charges under the Loan. In order to receive credit for payments under the Loan, all payments should be made in accordance with the directions set forth in this letter. You are hereby irrevocably and unconditionally authorized and directed that each payment of interest, principal, escrows or any other charge by you under the Loan is to be made in the form of a check made payable to the order of: _____________________________________________________________________ and delivered to the following address: _____________________________________________________________________ Payments that are not made in accordance with this authorization and direction will not be credited to payment of such interest, principal, escrows or other charges under the Loan until otherwise properly directed. Please contact Purchaser at the address and phone number given below if you have any questions or comments on this matter: [Corporation/Partnership]: _____________________________________________________________________ 89 Exhibit I to Asset Sale Agreement Telephone: _________________________ Attention: _________________________ Thank you for your cooperation. CITY NATIONAL BANK, a national banking association By: ________________________________ Its: ________________________________ 2 90 Exhibit J to Asset Sale Agreement REAL PROPERTY SALES CONTRACT THIS REAL PROPERTY SALES CONTRACT (the "Contract") is made and entered into as of the first day of November, 1993, by and between (i) WHC-THREE Investors, L.P., a Delaware limited partnership having an office at c/o WHC-THREE Investors, Inc., 85 Broad Street, 19th Floor, New York, New York 10004 ("Affiliate Purchaser"); and (ii) CITY NATIONAL BANK, a national banking association, including any subsidiary thereof holding title to any Real Property under this Contract ("Seller"). Capitalized terms not otherwise defined herein shall have as their meaning the definition ascribed to such terms in the Asset Sale Agreement of even date herewith (the "Asset Sale Agreement"). W I T N E S S E T H: WHEREAS, Seller is the owner (i) in fee simple of certain parcels of commercial land, including all improvements, fixtures, easements and other appurtenances and (ii) leasehold estates, if any, each of which will, as of the Closing Date, be encumbered by Interim Mortgage Loans (each a "Parcel of Real Property" and collectively, the "Real Property"), as further described in Exhibits A-1 through A-17 attached hereto and incorporated herein by reference; and WHEREAS, Seller, and Affiliate Purchaser (the "Purchaser"), have on the date hereof entered into the Asset Sale Agreement, whereby Purchaser agreed to purchase certain Mortgage Loans and to cause Affiliate Purchaser to purchase certain Real Property from Seller pursuant to the terms and conditions set forth in the Asset Sale Agreement and Purchaser and Seller have agreed to enter into a Loan and Security Agreement (the "Loan and Security Agreement") for the financing of the sale of the aforementioned Mortgage Loans and Real Property; and WHEREAS, Seller has agreed to sell the Real Property to Affiliate Purchaser and Affiliate Purchaser has agreed to purchase said Real Property from Seller, at the price and upon the terms and conditions hereinafter set forth; and WHEREAS, Affiliate Purchaser has agreed that Seller will continue to own and manage the Real Property prior to the Real Property Closing Date, but shall amend the existing management contracts with the managing agents for the Real Property to reflect Seller's and Affiliate Purchaser's agreement regarding the management of the Real Property from said date until the dates Affiliate Purchaser or its assignee takes title to each Parcel of Real Property as more particularly described herein; NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and of other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1 91 Exhibit J to Asset Sale Agreement 1. PURCHASE AND SALE OF REAL PROPERTY. 1.1 On the Real Property Closing Date (as defined in Section 3 hereof) for each Parcel of Real Property, and subject to the terms and conditions set forth in this Contract and the Asset Sale Agreement, Seller agrees to sell, assign, transfer and deliver to Affiliate Purchaser or a Qualified Affiliate, and Affiliate Purchaser, on behalf of itself and the Qualified Affiliate, agrees to purchase, acquire and accept such Parcel or Parcels of the Real Property from Seller. 1.2 In addition to the Real Property, this sale includes all of Seller's (herein, "Owner") right, title and interest in and to the following: 1.2.1 All easements, covenants and other rights appurtenant to said Real Property, and all right, title and interest, if any, in and to any land lying in the bed of any street, road, avenue or alley, open or closed, in front of or adjoining said Real Property and to the center line thereof; 1.2.2 All furniture, fixtures, equipment and other personal property (except items owned by tenants) which are now, or may hereafter prior to the Real Property Closing Date be placed in or attached to the Real Property; 1.2.3 To the extent same may be transferred under applicable law without consent (unless obtained by Purchaser), all licenses, permits and authorizations presently issued in connection with the operation of all or any part of the Real Property or necessary to operate the Real Property as it is presently being operated; 1.2.4 To the extent same may be assigned without consent (unless obtained by Purchaser), all warranties, if any, issued to the Owner by any manufacturers and contractors in connection with construction or installation of equipment included as part of the Real Property; 1.2.5 To the extent assignable and same are to be assigned hereunder (at the election of Affiliate Purchaser) to Affiliate Purchaser or a Qualified Affiliate at the Real Property Closing Date for each Parcel of Real Property, all service, supply and maintenance contracts (if any) held by the Owner with respect to the Real Property and its mechanical equipment, elevators and other elements; 1.2.6 To the extent assignable without consent (unless obtained by Purchaser) all trade names and general intangibles relating solely to the Real Property; 1.2.7 To the extent assignable, all leases of all or any part of the Real Property; and 1.2.8 All other rights, privileges and appurtenances to which Affiliate Purchaser may be entitled under the Contract or the Asset Sale Agreement, including but 2 92 Exhibit J to Asset Sale Agreement not limited to tenant security deposits to the extent held by Owner, utility capacity, utility reservation deposits and refunds in connection therewith; and 1.2.9 Hazard insurance and condemnation proceeds received by Owner and payable to Purchaser pursuant to Section 8.1(d) of the Asset Sale Agreement with respect to the Real Property and not applied to amounts due on the Mortgage Loan or to the repair of the Real Property. 2. PURCHASE PRICE. The purchase price of each Parcel of Real Property shall be the Initial Purchase Price consisting of the sum of One Hundred Dollars U.S. ($100.00) cash plus taking title thereto in satisfaction of the debt owing on the respective Interim Mortgage (as hereinafter defined) (collectively, the "Purchase Price"), subject to adjustment as set forth below, and shall be paid as follows: 2.1 The Initial Purchase Price, One Hundred Dollars ($100.00), shall be paid, in cash or by bank wire transfer for each Parcel of Real Property, payable on the Real Property Closing Date as such term is defined below. 2.2 One or more Qualified Affiliates shall take title to the Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule, as such term is defined in the Asset Sale Agreement, which, as of the date hereof, shall be subject to one or more Interim Mortgage Notes, as such term is defined in the Asset Sale Agreement, and Interim Mortgages, as such term is defined in the Asset Sale Agreement, in favor of Purchaser, and another Qualified Affiliate or Qualified Affiliates shall take title to the remaining Real Property not designated "industrial" on the Mortgage Loan and Real Property Schedule, which, as of the date hereof, shall be subject to one or more Interim Mortgage Notes and Interim Mortgages, each of which Interim Mortgage Loans is in the principal amount shown on Exhibit C hereto, with interest thereon payable at the Applicable Rate, as such principal may be adjusted to reflect the Adjusted Purchase Price of each Parcel of Real Property, and payable monthly. Concurrently with the transfer of title to a Qualified Affiliate with respect to each Parcel of Real Property, the Interim Mortgage Note shall be marked Paid in Full and, along with the Interim Mortgage, reconveyed to Seller. 3. REAL PROPERTY CLOSING DATE. 3.1 The closing of the purchase and sale for each Parcel of Real Property (each, a "Real Property Closing Date") shall occur no later than the last day of the month in which the following date occurs: the earlier of (i) ten (10) calendar days after the termination of the Due Diligence Period for the related Interim Mortgage Loan unless a Certificate of Defective Asset under the Asset Sale Agreement has been delivered to Seller prior to the expiration of the Due Diligence Period, in which event the Real Property Closing Date for such Parcel of Real Property shall be extended until the Defect listed in such Certificate of Defective 3 93 Exhibit J to Asset Sale Agreement Asset is cured; or (ii) thirty (30) days after the date Seller receives an Acceptance Certificate for the Interim Mortgage Loan secured by or related to the Real Property. On each Real Property Closing Date, Seller shall deliver to the Qualified Affiliate a deed in substantially the form attached to the Asset Sale Agreement as Exhibit N. The conveyance under such deed shall be made subject to a lien in favor of Seller in an amount equal to seventy-five percent (75%) of the Adjusted Purchase Price of the related Real Property, evidenced by a mortgage in the form of Exhibit M to the Loan and Security Agreement. Affiliate Purchaser or its assignee Qualified Affiliate shall have the option to purchase any Parcel of Real Property prior to the aforementioned date upon ten (10) days' prior written notice, provided however, that Seller shall not be required to close the sale of Real Properties more than once per month. Each such closing (collectively, the "Real Property Closing") shall be held at the offices of Seller's counsel, or at such other place that Seller and Affiliate Purchaser or any Qualified Affiliate that will take title to the Real Property, as the case may be, may agree. 3.2 The following items of expense shall be adjusted as of midnight of the day immediately preceding the Real Property Closing Date for each Parcel of Real Property: 3.2.1 Real estate taxes with respect to each Parcel of Real Property. If the rate or amount of such taxes shall not be fixed prior to the Real Property Closing Date, the adjustment thereof at each Real Property Closing Date shall be upon the basis of the rate for the preceding fiscal year applied to the latest assessed valuation (or other basis of valuation) and the same shall be further adjusted when the rate and valuation for the current fiscal year is fixed. Affiliate Purchaser or any Qualified Affiliate that will take title to the Real Property shall receive a credit for the amount of all unpaid assessments (whether special or general) that have been levied or are payable with respect to any Parcel of Real Property prior to the Real Property Closing Date with respect to such Parcel of Real Property and that have not been deposited into the Estimated Accrual Account under Section 3.3 below; 3.2.2 Water and sewer service charges, and charges for all other public utilities (if any); 3.2.3 Rents, provided, however, that (A) Purchaser, Affiliate Purchaser or any Qualified Affiliate that will take title to the Real Property shall receive a credit for any rents paid to Seller by tenants of each Parcel of Real Property for rent applicable to the period from each Real Property Closing Date and thereafter, and (B) in the event that prior to each Real Property Closing Date, Seller is unable to collect all rents due and owing for any period after the Due Diligence Cut-Off Date and prior to the Closing Date, Purchaser, Affiliate Purchaser or the Qualified Affiliate shall use its best efforts (but shall not be obligated to institute or prosecute any litigation) to collect such amounts from tenants and pay the same to Seller. Any such payments relating to any period after the Closing Date and prior to such Real Property Closing Date shall be paid to Seller for the benefit of Purchaser as amounts due under the related Interim Mortgage. Any rent collected by Purchaser, Affiliate Purchaser or the Qualified Affiliate from a tenant who owes delinquent rent as of each Real Property Closing Date will first be 4 94 Exhibit J to Asset Sale Agreement credited to rent accruing on and after each Real Property Closing Date and due as of the date of its collection until such rents are fully current and further provided that nothing contained herein shall preclude Seller from using efforts to collect such delinquent amounts from tenants. Purchaser, Affiliate Purchaser or the Qualified Affiliate shall also receive a credit for the amount of all tenant security, pet and/or other deposits actually held by Seller with respect to each Parcel of Real Property (or same shall actually be transferred); 3.2.4 Hazard insurance premiums on any insurance policies that are transferred to Purchaser, Affiliate Purchaser or the Qualified Affiliate; and 3.2.5 Gas, oil and all other private utilities. The adjustments described in this subparagraph shall be paid on each Real Property Closing Date in cash or by certified or cashier's check. If the amount of any of the adjustments described in this subparagraph cannot be determined on each Real Property Closing Date, the adjustment therefor shall be made within thirty (30) days after each such Real Property Closing Date by certified or cashier's check. In making the adjustments required by this subparagraph, Seller shall be entitled to a credit for all amounts prepaid as of each Real Property Closing Date and any period after each Real Property Closing Date, and Seller shall be charged with any unpaid charges for the period prior to each Real Property Closing Date. 3.3 In the event an Interim Mortgage is utilized, the Seller covenants and agrees (i) to pay, for the purpose of establishing an escrow account to be held by Seller for the benefit of Purchaser, Affiliate Purchaser or a Qualified Affiliate (the "Estimated Accrual Account") (which account shall not bear interest), an initial amount equal to the Proration Amount, as such term is hereafter defined; and (ii) thereafter to continue to pay into the Estimated Accrual Account monthly to the extent available from Cash Flow, on each and every monthly payment date, one-twelfth (1/12th) of the estimated annual real estate taxes, assessments and hazard insurance premiums on the Real Property, as Permitted Expenses. The amount of such real estate taxes, assessments and hazard insurance premiums, when unknown, shall be reasonably estimated by Seller. Such deposits shall be used by Seller or, if such real estate taxes, assessments and hazard insurance premiums are payable after the Real Property Closing Date,such Estimated Accrual Account shall be assigned to Purchaser and used by Purchaser, Affiliate Purchaser or Qualified Affiliate to pay such real estate taxes, assessments, and hazard insurance premiums when due. The enforceability of the covenants relating to the Seller's payment of real estate taxes, assessments and hazard insurance premiums herein otherwise provided shall not be affected except insofar as those obligations have been met by compliance with this Section 3.3. As used herein, "Proration Amount" means that amount of real estate taxes, assessments and hazard insurance premiums which would be payable by Seller if the Real Property were transferred to Purchaser, Affiliate Purchaser or a Qualified Affiliate on the Closing Date. 3.4 Affiliate Purchaser or Qualified Affiliate shall pay, when due and payable, all transfer, filing and recording fees and taxes, and costs and expenses, if any, with respect to the filing or recording of any documents or instruments relating to the financing of any Parcel 5 95 Exhibit J to Asset Sale Agreement of Real Property and the cost of recording corrective instruments, pursuant hereto or to the Asset Sale Agreement, except for those related to any Interim Mortgage or deed to any Real Property, which Seller shall pay. Except as otherwise expressly provided herein, whether or not the transactions contemplated hereunder are completed, Affiliate Purchaser or Qualified Affiliate shall pay all of its closing and due diligence expenses and its expenses in negotiating and carrying out its obligations under this Sales Contract, including the costs of its counsel, all of the costs of title or other insurance which is not presently in force or otherwise provided by Seller or other due diligence Affiliate Purchaser or Qualified Affiliate may desire to undertake and all of the expenses of Affiliate Purchaser or Qualified Affiliate relating to this Contract. 3.5 To the extent set forth in Paragraph 1 (and in the case of 3.5.1, 3.5.4 and 3.5.5, in a form reasonably acceptable to the parties to this Contract)the following documents shall be delivered to each Affiliate Purchaser or Qualified Affiliate on each Real Property Closing Date for the Parcel of Real Property being purchased: 3.5.1 A duly executed and acknowledged assignment of all landlord's interest in tenant leases affecting the Parcel of Real Property; 3.5.2 A current rent roll for the Parcel of Real Property (to be used for proration purposes only and to the extent available); 3.5.3 Such utility bills, tax statements, water, sewer and other service bills, and insurance bills as are available for purposes of determining amounts set forth in Section 3.2 hereof and to the extent available; 3.5.4 A general assignment of all assignable (w) existing warranties of the Real Property, (x) contracts and agreements affecting the Real Property, (y) trade names relating solely to the Parcel of Real Property and (z) any and all other intangible property included in this sale pursuant to Paragraph 1; and 3.5.5 A bill of sale covering all personal property for the Parcel of Real Property, together with such other documents as are appropriate to convey, transfer or assign any interest that the Seller may have to the other items described in Section 1.2 hereof. 3.6 Affiliate Purchaser or any Qualified Affiliate shall have its counsel deliver to Seller the following legal opinions as of the Real Property Closing Date for each Parcel of Real Property: 3.6.1 Affiliate Purchaser or, if Affiliate Purchaser has assigned its rights hereunder to a Qualified Affiliate, such Qualified Affiliate, is duly formed and validly existing and in good standing under the laws of the State of its incorporation or formation; 6 96 Exhibit J to Asset Sale Agreement 3.6.2 (A) Affiliate Purchaser or, if Affiliate Purchaser has assigned its rights hereunder to a Qualified Affiliate, such Qualified Affiliate, as the assignee of the Affiliate Purchaser, has full and absolute power and authority to assume, as the case may be, this Contract and Affiliate Purchaser's obligations hereunder and to enter into the Assignment and Assumption of Sales Contract substantially in the form attached hereto as Exhibit B and to perform its obligations thereunder, and (B) the Asset Sale Agreement, the Assignment and Assumption of Sales Contract, if applicable, the above referenced documents and any other ancillary documents delivered pursuant hereto will constitute binding and enforceable obligations of the Qualified Affiliate or Affiliate Purchaser, as the case may be, except as enforcement may be limited by bankruptcy, insolvency, reorganization or similar laws affecting enforcement of creditor's rights generally and by general principles of equity (regardless of whether enforceability is considered in a proceeding at law or in equity); 3.6.3 If Affiliate Purchaser has assigned its rights hereunder to a Qualified Affiliate, the Qualified Affiliate has been duly authorized by all requisite action to assume the Sales Contract, and Affiliate Purchaser's obligations hereunder, and to execute the Assignment and Assumption of Sales Contract and any other documents that such Qualified Affiliate is required to execute pursuant to the Asset Sale Agreement and the Loan and Security Agreement; 3.6.4 Affiliate Purchaser and, if Affiliate Purchaser has assigned its rights hereunder to a Qualified Affiliate, such Qualified Affiliate, have all the requisite governmental approvals of any kind, including without limitation, licenses, permits and authorizations, if any, required to manage the Real Property and perform the obligations under this Contract, the Interim Mortgage and any amendments thereto; and 3.6.5 The Qualified Affiliate is qualified to transact business in the State of California and all jurisdictions in which its ownership of real property or its conduct of business requires such authorization. 3.6.6 The Qualified Affiliate is a "Qualified Affiliate" as that term is defined herein and in the Asset Sale Agreement and has satisfied all conditions in the Asset Sale Agreement to its qualification as a Qualified Affiliate. Such legal opinion may rely on certificates of executive officers or other officers in possession of the official records of the entities in question. Instead of delivering a legal opinion as to the foregoing, Affiliate Purchaser or the Qualified Affiliate may deliver other evidence reasonably satisfactory to Seller. 4. ADDITIONAL OBLIGATIONS OF SELLER. 4.1 Since Section 6 hereof conditions the obligations of Affiliate Purchaser to acquire the Real Property hereunder only upon satisfaction by Seller of its representations and warranties under Sections 7.1 and 7.2 of the Asset Sale Agreement (or acceptance of the related Mortgage Loan by an affiliate of Affiliate Purchaser thereunder), which representations and warranties include items related to the condition of title to each Parcel of Real 7 97 Exhibit J to Asset Sale Agreement Property, other than as specifically provided herein, there are no further obligations of Seller or conditions precedent to each Real Property Closing under this Agreement. 4.2 At each Real Property Closing, Seller shall execute and deliver to Affiliate Purchaser or Qualified Affiliate a deed, in the form attached as Exhibit N to the Asset Sale Agreement (and with respect to any leasehold estate, the appropriate transfer documentation, without representation or warranty), in recordable form, which conveys indefeasible title to the Parcel of Real Property in fee simple, good and marketable, of record and in fact (but subject to those exceptions, conditions and facts permitted by the Asset Sale Agreement or agreed to by Qualified Affiliate or Affiliate Purchaser) and insurable by a nationally recognized title insurance company. With respect to any such leasehold estate, Affiliate Purchaser or Qualified Affiliate shall assume, in writing, all of the obligations of Seller under the lease arising and incurred on and after such Real Property Closing Date. 4.3 For each Parcel of Real Property, from the date of execution of this Contract until the earlier to occur of either the Real Property Closing Date or the date, if any, on which Seller is no longer obligated to sell such Parcel of the Real Property hereunder, Seller covenants and agrees as follows: 4.3.1 Seller shall not cause or permit, without the prior written consent of Affiliate Purchaser or Qualified Affiliate or as expressly permitted by the management agreement relating to the management of the specified Parcel of Real Property, as such may have been amended to reflect Seller's and Affiliate Purchaser's agreement regarding the management of such Real Property, any of the following (except with respect to default by tenants, casualty or condemnation or restoration associated therewith or required to protect or preserve the Parcel of Real Property and improvements thereon): (a) Any changes, amendments or waivers of any lease that would result in a material adverse effect to Affiliate Purchaser or a Qualified Affiliate including (x) a material reduction in payments under a lease covering all or any portion of any Parcel of Real Property, (y) any additional material obligation to be imposed on the landlord thereunder (other than in the ordinary course of business), or (z) an extension of (or option to extend) the term of such lease beyond six months from the Closing Date under the Asset Sale Agreement; (b) the execution of any new lease of any portion of the Parcel of Real Property that is not, in the reasonable judgment of the Seller, commercially reasonable or would have a term (including any options to extend) extending such lease beyond six months from the Closing Date under the Asset Sale Agreement; and (c) the conveyance, contracting to convey, assigning, pledging or other encumbering of the Parcel of Real Property or any of the future rents or other charges payable under any leases covering all or any portion of the Parcel of the Real Property. 8 98 Exhibit J to Asset Sale Agreement 4.3.2 Seller hereby authorizes Affiliate Purchaser, its assignee Qualified Affiliate and their respective representatives to appear and contest any ad valorem tax valuations or assessments with respect to the Parcel of Real Property so long as such is done at the sole cost and expense of Affiliate Purchaser or its assignee Qualified Affiliate. 4.4 For each Parcel of the Real Property from the date of execution of this Contract until the Real Property Closing Date, Seller covenants and agrees to operate, manage and maintain such Real Property in conformity with customary prudent industry management standards of owners of similar real properties who act in a prudent manner. 5. ASSIGNMENT TO QUALIFIED AFFILIATE. 5.1 Affiliate Purchaser shall, except as otherwise agreed by Seller, in writing, prior to any Real Property Closing Date, assign its rights, interests, duties and obligations under this Contract with respect to the Real Property to not less than two Qualified Affiliates (one or more Qualified Affiliates shall take title to all of the Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule, and one or more other Qualified Affiliates shall take title to the remaining Real Property not designated "industrial" on the Mortgage Loan and Real Property Schedule), which shall assume, in writing, such duties and obligations. The assignment and assumption of the rights, interests, duties and obligations under this Contract with respect to each Parcel or Parcels of Real Property to a Qualified Affiliate shall be substantially in the form attached hereto as Exhibit B. 5.2 In the event that Seller is providing financing under the Loan and Security Agreement, Seller shall require that one or more Qualified Affiliates will acquire one or more Parcels of Real Property designated "industrial" on the Mortgage Loan and Real Property Schedule, and one or more other Qualified Affiliates that do not hold any Real Property designated "industrial" on such schedule acquire one or more of the remaining parcels of Real Property. 6. CONDITION TO OBLIGATION TO PURCHASE OR SELL. 6.1 Condition to Purchaser's Obligation to Purchase. Seller and Purchaser each shall have performed all of its covenants and agreements required to be performed by it under the Asset Sale Agreement prior to the Closing Date. Neither Purchaser, Affiliate Purchaser nor any Qualified Affiliate shall be obligated to acquire any Parcel of Real Property hereunder in the event that Purchaser has properly and timely delivered to Seller a Certificate of Defective Asset prior to the expiration of the Due Diligence Period for the related Asset declaring that the related Asset is a Defective Asset under the Asset Sale Agreement and Seller has not (i) cured such Defect within the period provided under the Asset Sale Agreement, or (ii) established that no Defect exists, or (iii) repurchased the related Asset pursuant to Section 10.1 of the Asset Sale Agreement, or (iv) reduced the Initial Purchase Price with respect to such Asset by either the amount specified by Purchaser as Purchaser's Cure Estimate or the Reduction to the Initial Purchase Price, or (v) deleted the Interim Mortgage securing such Parcel of Real Property pursuant to the Asset Sale Agreement. 9 99 Exhibit J to Asset Sale Agreement 6.2 Condition to Seller's Obligation to Sell. Seller's obligation to sell any Parcel of Real Property under this Contract shall terminate if the related Asset has been deleted from the Mortgage Loan and Real Property Schedule in accordance with Section 10.1 of the Asset Sale Agreement and, upon such deletion, neither Seller nor Affiliate Purchaser or any Qualified Affiliate shall have any further obligations under this Contract with respect to such Parcel of Real Property. Seller's obligation to sell any Parcel of Real Property shall be suspended during any period in which Purchaser shall be in default under the Asset Sale Agreement. Seller's liability with regard to such termination of Seller's obligations to sell a particular Parcel of Real Property under this Contract shall be limited to its repurchase obligations and the remedies for breach of that obligation under the Asset Sale Agreement. 7. REPRESENTATIONS AND WARRANTIES OF AFFILIATE PURCHASER. Affiliate Purchaser represents and warrants to Seller that the representations and warranties stated in Section 6.1 of the Asset Sale Agreement are true and correct as of the date of this Contract and shall be true and correct on each Real Property Closing Date, each as though made by Affiliate Purchaser. 8. DISCLAIMER OF WARRANTIES. Affiliate Purchaser acknowledges on its own behalf and on behalf of any assignee Qualified Affiliate that, except for the representations and warranties included in the Asset Sale Agreement, neither Seller nor any attorney, agent, employee or representative of Seller has made any representation or warranty whatsoever, express or implied, regarding the subject matter of this sale, or any part thereof, including, without limiting the generality of the foregoing, representations or warranties as to the physical nature or condition of the premises or the personal property for each Parcel of Real Property transferred hereunder, or their fitness or suitability for any use, except as expressly set forth in the Asset Sale Agreement or this Contract, and that Affiliate Purchaser, in executing, delivering and performing this Contract, does not rely upon any statement made or information given, directly or indirectly, verbally or in writing, to any individual, firm or corporation other than as provided in the representations and warranties in Sections 7.1 and 7.2 of the Asset Sale Agreement. Possession of the Real Property shall be delivered in "as is" condition as of each Real Property Closing Date, subject only to the provisions of Sections 9 and 10 hereof. 9. RISK OF LOSS. Seller shall bear the risk of loss of each Parcel of Real Property during the period from the date hereof until the Closing Date under the Asset Sale Agreement (also referred to in this Section 9 as the "Closing"). In the event of damage to any Parcel of Real Property by fire or other casualty, act of God or any other event prior to the Closing, Seller shall be deemed to have satisfied its obligations to convey the Real Property hereunder in accordance herewith if (a) Seller shall repair or pay for the cost of repair or restoration of the Real Property caused by such casualty damage, (b) if the insurance proceeds in respect of such damage are received prior to the Closing Date under the Asset Sale Agreement, Seller shall pay or credit the amount of the insurance 10 100 Exhibit J to Asset Sale Agreement proceeds, as well as any unpaid claims or rights in connection with such casualty, together with any uninsured amount, against the Adjusted Purchase Price of the Assets under the Asset Sale Agreement as provided therein, (c) if the insurance proceeds described in subparagraph (b) above are received after the Closing Date under the Asset Sale Agreement and on or before the applicable Real Property Closing Date, Seller shall assign such insurance proceeds to Affiliate Purchaser or its assignee Qualified Affiliate at the Real Property Closing and pay or credit to Purchaser any uninsured amount, or (d) if such insurance proceeds are not received by Seller on or before the applicable Real Property Closing Date, Seller shall assign its right to receive such insurance proceeds to Affiliate Purchaser or its assignee Qualified Affiliate at such Real Property Closing and pay or credit to Purchaser any uninsured amount. The insurance proceeds described in the preceding sentence shall include, but not be limited to, any proceeds (a) payable as of the date hereof or (b) paid prior to the date hereof and shall be limited to the proceeds not expended for the repair of such damage or to protect and preserve the damaged property. Prior to the Real Property Closing Date, Affiliate Purchaser or its assignee Qualified Affiliate shall have the right to participate in the negotiations and settlement of any casualty-related claim and any decision regarding the reconstruction or renovation of any improvement on the Real Property. Seller shall have the option to terminate this Contract with respect to any Real Property and to delete the related Mortgage Loan under the Asset Sale Agreement in the event of an uninsured loss or a loss valued at more than thirty percent (30%) of the Adjusted Purchase Price of the related Interim Mortgage Loan under the Asset Sale Agreement. Notwithstanding the foregoing, however, Affiliate Purchaser shall have the right, at its option, to rescind and revoke any such termination by Seller by delivering written notice to Seller, within thirty (30) days after Affiliate Purchaser's receipt of such termination notice, provided that Affiliate Purchaser agrees to take the Real Property in "as is" condition and to relieve Seller of any obligation to pay for the costs of any repair or restoration of the Real Property or any other damages related to or arising as the result of or with respect to such loss or to assign any insurance proceeds received by Seller with respect to such Real Property. Purchaser shall bear the risk of loss of the Real Property after the Closing. 10. CONDEMNATION. Seller agrees to give Affiliate Purchaser written notice of any action or proceeding instituted or pending, in eminent domain or for condemnation affecting any material part of any Parcel of Real Property, promptly after Seller's receipt thereof. If, prior to the Real Property Closing Date for such Parcel of Real Property, all or any part of such Parcel of Real Property is taken by condemnation or eminent domain proceeding or other transfer in lieu thereof, this Contract shall remain in full force and effect, and Seller will pay to Affiliate Purchaser or its assignee Qualified Affiliate at the Real Property Closing for such Parcel of Real Property an amount equal to the net proceeds received by Seller from such condemnation. However, if by the Real Property Closing Date for any such Parcel of Real Property, Seller has not received the condemnation proceeds, then the parties shall consummate this transaction on the Real Property Closing Date for such Parcel of Real Property and Seller will at such Real Property Closing assign 11 101 Exhibit J to Asset Sale Agreement to Affiliate Purchaser or its assignee Qualified Affiliate all rights of Seller to the condemnation award and to all other rights or claims arising out of or in connection with any such eminent domain or condemnation action or proceeding. Notwithstanding the foregoing, nothing contained in this Section 10 shall impair Purchaser's and/or Affiliate Purchaser's exercise of their rights in the event of a breach of Section 7.2(d) of the Asset Sale Agreement. 11. DEFAULT BY AFFILIATE PURCHASER. In the event Affiliate Purchaser or its assignee Qualified Affiliate shall default in its obligations to purchase any Parcel of Real Property hereunder or otherwise breaches this Contract, then: (i) such default or breach shall constitute an Event of Default under the terms and conditions of the Asset Sale Agreement, and (ii) for any default or breach hereunder occurring up to and including the Closing Date under the Asset Sale Agreement, Seller shall be limited to the remedies set forth in Section 11.1 of the Asset Sale Agreement, and for any default or breach hereunder occurring after the Closing Date under the Asset Sale Agreement, Seller may avail itself of any legal or equitable rights (including, without limitation, the right of specific performance and/or money damages) which Seller may have at law or in equity or under this Contract and under the Asset Sale Agreement. Seller shall be reimbursed by Affiliate Purchaser or its assignee Qualified Affiliate for all expenses, including reasonable attorneys' fees, incurred in connection with any action brought under this Section 11 with respect to any default or breach hereunder occurring after the Closing Date under the Asset Sale Agreement. 12. DEFAULT BY SELLER. In the event Seller shall default in its obligations hereunder, then, if prior to Closing under the Asset Sale Agreement, the Deposit shall be returned to Purchaser and neither Purchaser, Affiliate Purchaser nor its assignee Qualified Affiliate shall be entitled to monetary damages, except for direct out-of-pocket expenses proved by Purchaser to have been expended by delivering to Seller documentary evidence thereof satisfactory to Seller, but may seek any equitable rights that may be available. If such default occurs after the Closing under the Asset Sale Agreement, Purchaser, Affiliate Purchaser or its assignee Qualified Affiliate may seek any legal or equitable rights (including, without limitation, the right of specific performance and to monetary damages) that may be available at law or in equity or under this Contract or the Asset Sale Agreement, subject to the limitations set forth in Section 11.2 of the Asset Sale Agreement. Purchaser, Affiliate Purchaser or its assignee Qualified Affiliate, as the case may be, shall be reimbursed for all expenses, including reasonable attorneys' fees, incurred in connection with any successful action brought under this Section 12. 13. BROKER. Each party hereto represents to the other that it has not dealt with any broker or other party entitled to receive a commission or finder's fee in connection with the execution of this Contract or the conveyance of the Real Property. Each party hereto each covenants and agrees to indemnify, defend and hold the other harmless from and against any and all loss, cost, damage 12 102 Exhibit J to Asset Sale Agreement and expense (including attorneys' fees and charges) suffered or incurred by Seller, in any capacity, in connection with a breach of the foregoing representation. 14. WAIVER OF CONDITIONS. Each party hereto reserves the right to waive any of the terms or conditions of this Contract which are for the benefit of such party and to consummate the transaction contemplated hereby in accordance with the terms and conditions of this Contract which have not been so waived. Any such waiver must be in writing signed by the party so waiving any of such terms or conditions. 15. ASSIGNMENT. Except as specifically provided in Paragraph 5 above or in the Asset Sale Agreement, neither Affiliate Purchaser nor its assignee Qualified Affiliate shall have the right to assign its rights, interests, duties and obligations in and to this Contract or with respect to any Parcel of Real Property to any party other than a Qualified Affiliate without the prior written consent of the Seller. 16. NOTICES. Unless otherwise provided for herein, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given (a) when delivered, if sent by registered or certified mail (return receipt requested), (b) when delivered, if delivered personally, (c) when transmitted, if sent by facsimile if a confirmation of transmission is produced by the sending machine (and a copy of each facsimile promptly thereafter sent by ordinary mail), or (d) on the following Business Day, if sent by overnight mail or overnight courier, in each case to the parties at the following addresses or facsimile numbers (or at such other addresses or facsimile numbers as shall be specified by like notice): (a) If to Seller: City National Bank Executive Management 606 S. Olive Street, Suite 900 Los Angeles, CA 90014 Attention: Jeffery Puchalski, Executive Vice President Fax: (213) 629-3677 with a copy to: 13 103 Exhibit J to Asset Sale Agreement City National Bank Legal Department 9701 Wilshire Boulevard, 9th Floor Beverly Hills, CA 90212-2050 Attention: Office of the General Counsel Fax: (310) 273-5859 (b) If to Purchaser, at WHC-THREE Investors, L.P. c/o WHC-THREE Investors, Inc. 85 Broad Street, 19th Floor New York, NY 10004 Attention: Neil Hasson Fax: (212) 902-3000 with a copy to: Arent Fox Kintner Plotkin & Kahn 1050 Connecticut Ave., N.W. Washington, D.C. 20036-5339 Attention: Mark M. Katz, Esq. Fax: (202) 857-6395 The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication within any corporation or firm to the persons designated to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 17. ENTIRE AGREEMENT. This Contract is part of several agreements entered into by and among Seller, Purchaser and Affiliate Purchaser. This Contract shall be construed in accordance with the agreements set forth in the Asset Sale Agreement, the Loan and Security Agreement and such other documents as are deemed necessary by the parties. 18. PARTIAL INVALIDITY. If any terms, covenants or conditions of this Contract shall be held invalid or unenforceable, the remainder of this Contract shall nevertheless survive and be binding upon the parties hereto. 14 104 Exhibit J to Asset Sale Agreement 19. GOVERNING LAW; ARBITRATION. 19.1 GOVERNING LAW. This contract shall be governed by, and construed and interpreted in accordance with the laws of the State of California. 19.1 ARBITRATION. Any controversy or claim between Affiliate Purchaser and, upon the assumption hereof by Qualified Affiliate, Qualified Affiliate and Seller arising out of or relating to this Contract or any actions or conduct of either in connection therewith (including, but not limited to, any claim based on or arising from an alleged tort) shall at the request of Affiliate Purchaser or Qualified Affiliate, as the case may be, or Seller be determined by arbitration. The arbitration shall be conducted in accordance with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law provision in this Contract, and under the Commercial Rules of the American Arbitration Association ("AAA"). The arbitrator(s) shall resolve all claims and defenses or other matters in dispute in accordance with applicable law, including, but not limited to, all statutes of limitation. Any controversy concerning whether an issue is arbitrable shall be determined by the arbitrator(s). Judgment upon the arbitration award may be entered in any court having jurisdiction. No provision of this Contract shall limit the right of either Affiliate Purchaser or Qualified Affiliate, as the case may be, or Seller to exercise self-help remedies such as setoff, or obtaining provisional or ancillary remedies from a court of competent jurisdiction before, after, or during the pendency of any arbitration or other proceeding. The institution and maintenance of any action for judicial relief or pursuit of provisional or ancillary remedies shall not constitute a waiver of the right of either Affiliate Purchaser or Qualified Affiliate, as the case may be, or Seller to submit the controversy or claim to arbitration if the other party contests such action for judicial relief. NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION OF THIS AGREEMENT DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHT TO DISCOVERY AND APPEAL, UNLESS SUCH RIGHTS ARE SPECIFICALLY INCLUDED IN THE "ARBITRATION" PROVISIONS. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE CALIFORNIA CODE OF CIVIL PROCEDURE. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY. THE UNDERSIGNED HAVE READ 15 105 Exhibit J to Asset Sale Agreement AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE "ARBITRATION" PROVISION TO NEUTRAL ARBITRATION. _______________________________ ________________________________ AFFILIATE PURCHASER'S INITIALS SELLER'S INITIALS 20. SURVIVAL. Unless provided herein to the contrary, the provisions of this Contract and the representations and warranties herein shall survive the conveyance of title and payment of the Purchase Price and shall not be merged therein. 21. RIGHT OF INSPECTION. During such time as the Interim Mortgage remains outstanding, Seller shall have the right to inspect the Real Property. Affiliate Purchaser and any Qualified Affiliate shall have the right to inspect each Parcel of Real Property prior to the Real Property Closing Date for each Parcel of Real Property. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. AFFILIATE PURCHASER: WHC-THREE INVESTORS, L.P., a Delaware limited partnership By: WHC-THREE INVESTORS, INC., a Delaware corporation. general partner By: ______________________ Its: _____________________ SELLER: CITY NATIONAL BANK, a national banking association, By: ____________________________ Its: ____________________________ 16 106 Exhibit J to Asset Sale Agreement INDEX OF EXHIBITS Exhibits A1 - A17 - Descriptions of each Parcel of Real Property Exhibit B - Form of Assignment to and Assumption by Qualified Affiliate Exhibit C - Schedule of Interim Mortgage Loans 17 107 Exhibit J to Asset Sale Agreement EXHIBITS A-1 - A-17 TO SALES CONTRACT 108 EXHIBIT A-1 LEGAL DESCRIPTION - ASSET NO. 1 The land referred to is situated in the State of California, County of Riverside, unincorporated area, and is described as follows: Portion of Lot 85 of the Murietta Portion of the Temecula Rancho, as shown by Map recorded in Book 8, Page 359 of Maps, San Diego County Records, which lies Northeast of the center line of Jefferson Avenue as now located. Excepting therefrom that portion conveyed to the County of Riverside by Deed recorded in Book 406, Page 285 of Deeds, Riverside County Records. Excepting therefrom all mineral and oil rights as reserved unto Benjamin Wylie Tarwater and Clara I. Tarwater by document recorded March 31, 1980 as Instrument No. 60442, Official Records. 109 ASSET NO 9.00 EXHIBIT A-2 LEGAL DESCRIPTION PARCEL 1: LOTS 1 TO 7, 10 TO 15 AND 34 TO 51 INCLUSIVE, OF TRACT NO. 10595, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 161 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 2: LOT 16 AND THE EAST 1/2 OF LOT 17, OF TRACT NO. 10595, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 161 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 3: LOTS 17 AND 18 OF TRACT NO. 10595, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 161 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM, THE EAST 1/2 OF SAID LOT 17. PARCEL 4: THE SOUTHERLY 220.00 FEET OF LOTS 28 AND 29, OF TRACT NO. 10595, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 161 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM, THE EASTERLY 3.0 FEET OF SAID LOT 29. PARCEL 5: LOTS 28, 29 AND THE WESTERLY 7.00 FEET OF LOT 30, OF TRACT NO. 10595, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 161 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM, THE SOUTHERLY 220.00 FEET OF SAID LOT 28. ALSO EXCEPTING THEREFROM, THE SOUTHERLY 220.00 FEET OF THE WESTERLY 47.00 FEET OF SAID LOT 29. PARCEL 6: LOTS 30, 31 AND THE WESTERLY 33.00 FEET OF LOT 32, OF TRACT NO. 10595, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 161 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM, THE SOUTHERLY 200.00 FEET OF SAID LOTS 31 AND 32. 110 ALSO EXCEPTING THEREFROM, THE SOUTHERLY 200.00 FEET OF THE EASTERLY 33.00 FEET OF SAID LOT 30. ALSO EXCEPTING THEREFROM, THE WESTERLY 7.00 FEET OF SAID LOT 30. PARCEL 7: THE SOUTHERLY 200.00 FEET OF LOTS 30, 31 AND 32, OF TRACT NO. 10595, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 161 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM, THE WESTERLY 17.00 FEET OF SAID LOT 30. ALSO EXCEPTING THEREFROM, THE EASTERLY 33.00 FEET OF SAID LOT 32. PARCEL 8: LOT 33 AND THE EASTERLY 33.00 FEET OF LOT 32, OF TRACT NO. 10595, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 161 PAGES 15 AND 16 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 9: LOTS 1 TO 4, 17, 18, 22, 23, 30, 31, 32, 33, 34 OF TRACT NO. 10596, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 163 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 10: LOT 19 AND THE NORTHEASTERLY 1/2 OF LOT 20, OF TRACT NO. 10596, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 163 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 11: LOTS 20 TO 21 OF TRACT NO. 10596, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 163 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM, THE NORTHEASTERLY 1/2 OF SAID LOT 20. PARCEL 12: LOT 35 AND THE SOUTHEASTERLY 1/2 OF LOT 36, OF TRACT NO. 10596, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 163 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID 111 COUNTY. PARCEL 13: LOTS 36 AND 37 OF TRACT NO. 10596, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 163 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM, THE SOUTHEASTERLY 1/2 OF SAID LOT 36. PARCEL 14: LOT 1 OF TRACT NO. 10544, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 157 PAGES 5 AND 6 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 15: LOTS 8 TO 12 INCLUSIVE, AND LOTS 15 AND 16 OF TRACT NO. 10343, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 151 PAGES 45 AND 47 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THAT PORTION OF SAID LOT 1 WITHIN THE LINES OF TRACT 10595, AS PER MAP RECORDED IN BOOK 161 PAGE 15 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. ALSO EXCEPT THAT PORTION OF SAID LOT 1 WITHIN THE LINES OF TRACT 10596, AS PER MAP RECORDED IN BOOK 163 PAGE 27 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. 112 EXHIBIT A-3 LEGAL DESCRIPTION - ASSET NO. 11 PARCEL 1: THAT PORTION OF THE NORTHEAST HALF OF THE NORTHEAST 5 ACRES OF THE SOUTHWEST HALF OF LOT 19 BIXBY'S SUBDIVISION OF A PORTION OF THE RANCHO LOS CERRITOS, IN THE CITY OF BELLFLOWER, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 2 PAGES 234 AND 235 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. BEGINNING AT THE MOST EASTERLY CORNER OF SAID LOT 19; THENCE ALONG THE SOUTHEASTERLY LINE OF SAID LOT 19, SOUTH 29 DEGREES 23 MINUTES 50 SECONDS WEST 590.85 FEET; THENCE SOUTH 89 DEGREES 44 MINUTES 35 SECONDS WEST 235.47 FEET TO A LINE THAT IS PARALLEL WITH AND DISTANT NORTH 89 DEGREES 44 MINUTES 35 SECONDS EAST 300 FEET FROM THE EASTERLY LINE OF LAKEWOOD BOULEVARD, 100 FEET WIDE, AS DESCRIBED IN DEED TO THE STATE OF CALIFORNIA, RECORDED IN BOOK 14810 PAGE 321, OFFICIAL RECORDS OF SAID COUNTY; THENCE ALONG SAID PARALLEL LINE NORTH 1 DEGREE 5 MINUTES 15 SECONDS WEST 200.00 FEET TO THE TRUE POINT OF BEGINNING; THENCE NORTH 1 DEGREE 5 MINUTES 15 SECONDS WEST 75.00 FEET; THENCE SOUTH 89 DEGREES 44 MINUTES 35 SECONDS WEST 300 FEET TO THE EASTERLY LINE OF SAID LAKEWOOD BOULEVARD; THENCE ALONG SAID BOULEVARD SOUTH 1 DEGREE 5 MINUTES 15 SECONDS EAST 75 FEET TO A LINE THAT BEARS NORTH 89 DEGREES 44 MINUTES 35 SECONDS EAST AND THAT PASSES THROUGH THE TRUE POINT OF BEGINNING; THENCE NORTH 89 DEGREES 44 MINUTES 35 SECONDS EAST 300 FEET TO THE TRUE POINT OF BEGINNING. PARCEL 2: THAT PORTION OF LOT 19 OF J. BIXBY'S SUBDIVISION OF PART OF THE RANCHO LOS CERRITOS, IN THE CITY OF BELLFLOWER, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 2 PAGES 234 AND 235 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT THE NORTHEAST CORNER OF SAID LOT; THENCE ALONG THE SOUTHEASTERLY LINE OF SAID LOT, SOUTH 29 DEGREES 23 MINUTES 50 SECONDS WEST 590.85 FEET; THENCE SOUTH 89 DEGREES 44 MINUTES 35 SECONDS WEST TO A POINT WHICH IS NORTH 89 DEGREES 44 MINUTES 35 SECONDS EAST 300 FEET FROM THE EASTERLY LINE OF LAKEWOOD BOULEVARD, 100 FEET WIDE, AS DESCRIBED IN DEED TO THE STATE OF CALIFORNIA, RECORDED IN BOOK 14810 PAGE 321, OFFICIAL RECORDS OF SAID COUNTY. SAID LAST MENTIONED POINT BEING THE TRUE POINT OF BEGINNING; THENCE PARALLEL WITH SAID BOULEVARD, NORTH 1 DEGREE 5 MINUTES 15 SECONDS WEST 200 FEET; THENCE SOUTH 89 DEGREES 44 MINUTES 35 SECONDS WEST 150 FEET TO A POINT OF SAID LAST MENTIONED POINT BEING NORTH 89 DEGREES 44 MINUTES 35 SECONDS EAST 150 FEET FROM THE EASTERLY LINE OF LAKEWOOD BOULEVARD, 100 FEET WIDE; THENCE PARALLEL WITH SAID BOULEVARD, SOUTH 1 DEGREE 05 MINUTES 15 SECONDS EAST 200 FEET TO A LINE BEARING SOUTH 89 DEGREES 44 MINUTES 35 SECONDS WEST FROM THE TRUE POINT OF BEGINNING; THENCE NORTH 89 DEGREES 44 MINUTES 35 SECONDS EAST 150 FEET TO THE TRUE POINT OF BEGINNING. 113 EXHIBIT A-4 LEGAL DESCRIPTION - ASSET NO. 12 LOT 65 OF TRACT NO. 5110, IN THE CITY OF PALMDALE, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 117 PAGES 28 AND 29 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. TOGETHER WITH THAT PORTION OF 12TH STREET EAST (FORMERLY ALDER AVENUE) 20 FEET WIDE, IN THE COUNTY OF LOS ANGELES, AS SHOWN ON AND DEDICATED BY MAP OF TRACT NO. 5110, FILED IN BOOK 117 PAGES 28 AND 29 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, WHICH EXTENDS FROM THE EASTERLY PROLONGATION OF THE SOUTHERLY LINE OF LOT 65 OF SAID TRACT, NORTHERLY TO A LINE PARALLEL WITH AND 20 FEET SOUTHERLY, MEASURED AT RIGHT ANGLES, FROM THE STRAIGHT LINE IN THE NORTHERLY BOUNDARY OF LOT 65 OF SAID TRACT. 114 EXHIBIT A-5 LEGAL DESCRIPTION - ASSET NO. 22 PARCEL 1: LOTS 7 AND 8 OF TRACT NO. 43939, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 1076 PAGES 93 AND 94 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 2: AN EASEMENT FOR PARKING OF AUTOMOTIVE AND COMMERCIAL VEHICLES IN AND TO THAT PORTION OF THE EASTERLY 15 FEET (MEASURED AT RIGHT ANGLES TO THE EAST LINE) OF LOT 6 OF TRACT NO. 43939, IN THE CITY OF LOS ANGELES, AS PER MAP RECORDED IN BOOK 1076 PAGES 93 AND 94 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, BOUNDED ON THE SOUTH BY THE FOLLOWING DESCRIBED LINE: BEGINNING AT THE MOST SOUTHEASTERLY CORNER OF SAID LOT 6 OF TRACT NO. 43939; THENCE ALONG THE EASTERLY LINE OF SAID LOT 6 NORTH 00 DEGREES 46 MINUTES 30 SECONDS WEST 167.39 FEET TO THE TRUE POINT OF BEGINNING; THENCE AT THE RIGHT ANGLES TO SAID EASTERLY LINE SOUTH 89 DEGREES 13 MINUTES 30 SECONDS WEST 15 FEET. BOUNDED ON THE NORTH BY A 15 FOOT LINE PERPENDICULAR TO SAID EASTERLY LINE OF SAID LOT 6 AND DISTANT THEREON NORTH 00 DEGREES 46 MINUTES 30 SECONDS WEST 242.39 FEET FROM THE MOST SOUTHEASTERLY CORNER OF SAID LOT. PARCEL 3: AN EASEMENT FOR PARKING OF AUTOMOTIVE AND COMMERCIAL VEHICLES IN AND TO A 16 FOOT BY 97.50 FOOT STRIP OF LAND BEING THAT PORTION OF LOT 6 OF TRACT NO. 43939, IN THE CITY OF LOS ANGELES, AS PER MAP RECORDED IN BOOK 1076, PAGES 93 AND 94 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT THE MOST SOUTHEASTERLY CORNER OF SAID LOT 6 OF TRACT NO. 43939; THENCE ALONG THE EASTERLY LINE OF SAID LOT 6, NORTH 00 DEGREES 46 MINUTES 30 SECONDS WEST 166.89 FEET TO A POINT; THENCE AT RIGHT ANGLES TO SAID EASTERLY LINE SOUTH 89 DEGREES 13 MINUTES 30 SECONDS WEST 41.00 FEET TO THE TRUE POINT OF BEGINNING; THENCE CONTINUING ALONG SAID LAST MENTIONED COURSE, SOUTH 89 DEGREES 13 MINUTES 30 SECONDS WEST 16 FEET TO A POINT; THENCE NORTH 00 DEGREES 46 MINUTES 30 SECONDS WEST 97.50 FEET; THENCE NORTH 89 DEGREES 13 MINUTES 30 SECONDS EAST 16 FEET; THENCE SOUTH 00 DEGREES 46 MINUTES 30 SECONDS EAST 97.50 FEET TO THE TRUE POINT OF BEGINNING. 115 EXHIBIT A-6 LEGAL DESCRIPTION - ASSET NO. 28.00 PARCEL NO. 1: THAT PORTION OF BLOCK 20 OF THE LANDS OF COLTON LAND AND WATER COMPANY SUBDIVISION, IN THE CITY OF COLTON, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 1 OF MAPS, PAGE 40, RECORDS OF SAID COUNTY, DESCRIBED AS PARCEL NO. 1, IN THE CERTIFICATE OF COMPLIANCE, RECORDED JANUARY 15, 1991, INSTRUMENT NO. 91-017037, OFFICIAL RECORDS, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF THE SOUTH LINE OF OLIVE STREET (PEPPER STREET) WITH THE WEST LINE OF MOUNT VERNON AVE., AS SAID INTERSECTION IS SHOWN ON LICENSED LAND SURVEYOR'S MAP, RECORDED IN BOOK 82 OF RECORDS OF SURVEY, PAGE 16, RECORDS OF SAID COUNTY; THENCE SOUTH ALONG SAID WEST LINE OF MOUNT VERNON AVENUE, 15.00 FEET; THENCE SOUTH 89 DEG. 58'25" WEST, PARALLEL TO THE SOUTH LINE OF SAID OLIVE STREET, 15.00 FEET TO A POINT IN A LINE THAT IS 15.00 FEET WEST OF AND PARALLEL TO THE WEST LINE OF SAID MOUNT VERNON AVENUE, SAID POINT BEING THE TRUE POINT OF BEGINNING; THEN SOUTH ALONG SAID PARALLEL LINE, 97.00 FEET; THENCE SOUTH 89 DEG. 58'25" WEST, PARALLEL TO THE SOUTH LINE OF SAID OLIVE STREET, 125.00 FEET; THENCE NORTH, PARALLEL TO THE WEST LINE OF SAID MOUNT VERNON AVENUE, 20.00 FEET; THENCE SOUTH 89 DEG. 58'25" WEST, PARALLEL TO THE SOUTH LINE OF SAID OLIVE STREET, 162.00 FEET; THENCE NORTH PARALLEL TO THE WEST LINE OF SAID MOUNT VERNON AVENUE, 77.00 FEET TO A POINT IN A LINE THAT IS 15.00 FEET SOUTH OF AND PARALLEL TO THE SOUTH LINE OF SAID OLIVE STREET; THENCE NORTH 89 DEG. 58'25" EAST ALONG SAID PARALLEL LINE, 287.00 FEET TO THE POINT OF BEGINNING. PARCEL NO. 2: THAT PORTION OF BLOCK 20 OF LANDS OF THE COLTON LAND AND WATER COMPANY SUBDIVISION, IN THE CITY OF COLTON, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 1 OF MAPS, PAGE 40, RECORDS OF SAID COUNTY, DESCRIBED AS PARCEL NO. 2, IN THE CERTIFICATE OF COMPLIANCE RECORDED JANUARY 15, 1991, INSTRUMENT NO. 91-017038, OFFICIAL RECORDS, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF THE SOUTH LINE OF OLIVE STREET (PEPPER STREET) WITH THE WEST LINE OF MOUNT VERNON AVENUE, AS SAID INTERSECTION IS SHOWN ON LICENSED LAND SURVEYOR'S MAP RECORDED IN BOOK 82 OF RECORDS OF SURVEY, PAGE 16, RECORDS OF SAID COUNTY; THENCE SOUTH ALONG SAID WEST LINE OF MOUNT VERNON AVENUE, 183.00 FEET; THENCE WEST, 15.00 FEET TO A POINT IN A LINE THAT IS PARALLEL TO AND 15.00 FEET WEST OF SAID WEST LINE OF MOUNT VERNON AVENUE, SAID POINT IS THE TRUE POINT OF BEGINNING; -1- 116 THENCE SOUTH ALONG SAID PARALLEL LINE, 105.00 FEET; THENCE WEST, 67.00 FEET; THENCE NORTH, PARALLEL TO SAID WEST LINE OF MOUNT VERNON AVENUE, 105.00 FEET; THENCE EAST, 67.00 FEET TO THE POINT OF BEGINNING. PARCEL NO. 3: THAT PORTION OF BLOCK 20 OF THE LANDS OF THE COLTON LAND AND WATER COMPANY SUBDIVISION, IN THE CITY OF COLTON, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 1 OF MAPS, PAGE 40, RECORDS OF SAID COUNTY, DESCRIBED AS PARCEL NO. 3, IN THE CERTIFICATE OF COMPLIANCE RECORDED JANUARY 15, 1991, INSTRUMENT NO. 91-017039, OFFICIAL RECORDS, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF THE SOUTH LINE OF OLIVE STREET (PEPPER STREET) WITH THE WEST LINE OF MOUNT VERNON AVE., AS SAID INTERSECTION IS SHOWN ON LICENSED LAND SURVEYOR'S MAP, RECORDED IN BOOK 82 OF RECORDS OF SURVEY, PAGE 16, RECORDS OF SAID COUNTY; THENCE SOUTH ALONG SAID WEST LINE OF MOUNT VERNON AVENUE, 630.61 FEET; THENCE WEST, 15.00 FEET TO A POINT IN A LINE THAT IS PARALLEL TO AND 15.00 FEET WEST OF SAID WEST LINE OF MOUNT VERNON AVENUE, SAID POINT IS THE TRUE POINT OF BEGINNING; THENCE CONTINUING WEST, 67.00 FEET; THENCE NORTH PARALLEL TO SAID WEST LINE OF MOUNT VERNON AVENUE, 105.00 FEET; THENCE EAST, 67.00 FEET TO A POINT IN SAID PARALLEL LINE; THENCE SOUTH ALONG SAID PARALLEL LINE, 105.00 FEET TO THE POINT OF BEGINNING. PARCEL NO. 4: PORTION OF BLOCK 20 OF LANDS OF THE COLTON LAND AND WATER COMPANY SUBDIVISION, IN THE CITY OF COLTON, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 1 OF MAPS, PAGE 40, RECORDS OF SAID COUNTY, DESCRIBED AS PARCEL NO. 4, IN THE CERTIFICATE OF COMPLIANCE RECORDED JANUARY 15, 1991, INSTRUMENT NO. 91-017040, OFFICIAL RECORDS, AND MORE PARTICULARLY DESCRIBED AS FOLLOWS: COMMENCING AT THE INTERSECTION OF THE SOUTH LINE OF OLIVE STREET (PEPPER STREET) WITH THE WEST LINE OF MOUNT VERNON AVENUE, AS SAID INTERSECTION IS SHOWN ON LICENSED LAND SURVEYOR'S MAP RECORDED IN BOOK 82 OF RECORDS OF SURVEY, PAGE 16, RECORDS OF SAID COUNTY; THENCE SOUTH ALONG SAID WEST LINE OF MOUNT VERNON AVENUE, 819.61 FEET; THENCE WEST, 15.00 FEET TO THE POINT OF BEGINNING; THENCE CONTINUING WEST, 42.25 FEET; THENCE NORTH, PARALLEL TO SAID WEST LINE OF MOUNT VERNON AVENUE, 26.00 FEET; THENCE WEST, 63.30 FEET; THENCE SOUTH, 14.68 FEET; THENCE WEST, 38.20 FEET; THENCE SOUTH, 4.00 FEET; THENCE WEST, 9.00 FEET; THENCE NORTH, 4.00 FEET; THENCE WEST, 24.00 FEET; THENCE SOUTH, 87.50 FEET; THENCE SOUTH 81 DEG. 01'39" WEST, 99.18 FEET; THENCE -2- 117 NORTH 4 DEG. 07'29" WEST, 35.50 FEET; THENCE SOUTH 89 DEG. 57'54" WEST, 77.48 FEET; THENCE NORTH, 58.50 FEET; THENCE WEST, 100.56 FEET TO A POINT IN A LINE THAT IS PARALLEL TO AND 20.00 FEET EAST OF THE EAST LINE OF TRACT NO. 3803, RECORDED IN BOOK 50 OF MAPS, PAGES 98 AND 99, RECORDS OF SAID COUNTY; THENCE NORTH ALONG SAID PARALLEL LINE, 235.30 FEET; THENCE WEST, 112.31 FEET; THENCE NORTH, 80.67 FEET; THENCE WEST, 30.00 FEET; THENCE NORTH 136.00 FEET; THENCE EAST, 20.00 FEET; THENCE NORTH, 199.67 FEET; THENCE WEST, 10.00 FEET; THENCE NORTH, 150.48 FEET TO A POINT IN A LINE THAT IS PARALLEL TO AND 15.00 FEET SOUTH OF SAID SOUTH LINE OF OLIVE STREET; THENCE NORTH 89 DEG. 58'25" EAST, ALONG SAID PARALLEL LINE, 178.00 FEET; THENCE SOUTH, 549.20 FEET; THENCE EAST, 33.00 FEET; THENCE SOUTH, 87.21 FEET; THENCE SOUTH 45 DEG. 00'00" EAST, 43.84 FEET; THENCE EAST, 185.63 FEET; THENCE SOUTH, 12.00 FEET; THENCE EAST, 160.00 FEET TO A POINT THAT BEARS NORTH, 125.00 FEET FROM THE POINT OF BEGINNING; THENCE SOUTH, 125.00 FEET TO THE POINT OF BEGINNING. PARCEL NO. 5: A NON-EXCLUSIVE EASEMENT FOR ACCESS, INGRESS AND EGRESS AND VEHICULAR PASSAGE AND PARKING ON A FIRST-COME, FIRST-SERVED BASIS FREE OF CHARGE, AND AN EASEMENT FOR (I) THE INSTALLATION, REPAIR, MAINTENANCE, OPERATION, DEMOLITION, CONSTRUCTION, REMODELING, REPLACEMENT, RECONSTRUCTION, RELOCATION AND REARRANGEMENT OF EXISTING AND FUTURE IMPROVEMENTS, LANDSCAPING, UTILITIES AND RELATED FACILITIES; (II) SERVICE AND VEHICLE UNLOADING AND LOADING AREAS; (III) GARBAGE CONTAINER STORAGE AREAS; (IV) TEMPORARY PARKING OR STANDING OF VEHICLES AND STORAGE OF MATERIALS USED IN CONJUNCTION WITH THE EXERCISE OF THE ACTIVITIES IN CLAUSES (I) THROUGH (III) ABOVE AND CLAUSE (VI) BELOW (V) ENCROACHMENTS OF FOOTINGS, FOUNDATIONS AND OVERHANGS FROM THE ADJACENT PROPERTY, AND (VI) THE INSTALLATION AND MAINTENANCE OF A MONUMENT SIGN TO BE LOCATED ON THE PROPERTY ALONG MOUNT VERNON AVENUE, UPON, OVER, ACROSS, UNDER AND THROUGH THE FOLLOWING DESCRIBED PROPERTY: THAT PORTION OF BLOCK 20 OF THE LANDS OF COLTON LAND AND WATER COMPANY SUBDIVISION, IN THE CITY OF COLTON, COUNTY OF SAN BERNARDINO, STATE OF CALIFORNIA, AS PER PLAT RECORDED IN BOOK 1 OF MAPS, PAGE 40, RECORDS OF SAID COUNTY, TOGETHER WITH A PORTION OF TWELFTH STREET, VACATED BY RESOLUTION NO. 1986 OF THAT CITY OF COLTON, RECORDED IN BOOK 4850, PAGE 183, OFFICIAL RECORDS, DESCRIBED AS PARCEL NO. 5, IN THE CERTIFICATE OF COMPLIANCE RECORDED JANUARY 15, 1991, INSTRUMENT NO. 91-017041, OFFICIAL RECORDS AND MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE SOUTH LINE OF OLIVE STREET (PEPPER STREET) WITH THE WEST LINE OF MOUNT VERNON AVENUE AS SAID INTERSECTION IS SHOWN ON LICENSED LAND SURVEYOR'S MAP, RECORDED -3- 118 IN BOOK 82 OF RECORDS OF SURVEY, PAGE 16, RECORDS OF SAID COUNTY; THENCE SOUTH ALONG SAID WEST LINE OF MOUNT VERNON AVENUE, 854.61 FEET TO A POINT 427.12 FEET NORTH OF THE INTERSECTION OF THE SOUTH LINE OF SAID BLOCK 20, EXTENDED EASTERLY AND SAID WEST LINE OF MOUNT VERNON AVENUE; THENCE SOUTH 89 DEG. 57'54" WEST, PARALLEL TO SAID SOUTH LINE OF BLOCK 20, 150.05 FEET; THENCE SOUTH PARALLEL TO SAID WEST LINE OF MOUNT VERNON AVENUE, 106.13 FEET TO A POINT 320.99 FEET NORTH OF SAID SOUTH LINE OF BLOCK 20; THENCE SOUTH 89 DEG. 57'54" WEST, PARALLEL TO SAID SOUTH LINE OF BLOCK 20, 340.26 FEET TO A POINT IN THE EAST LINE OF TRACT NO. 3803, RECORDED IN BOOK 50 OF MAPS, PAGES 98 AND 99, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; THENCE NORTH ALONG SAID EAST LINE OF TRACT NO. 3803, 342.43 FEET TO THE NORTHEAST CORNER OF SAID TRACT NO. 3803; THENCE SOUTH 89 DEG. 58'00" WEST ALONG THE NORTH LINE OF SAID TRACT NO. 3803, 120.00 FEET TO THE NORTHWEST CORNER OF LOT 31 OF SAID TRACT NO. 3803, SAID CORNER BEING THE BEGINNING OF A CURVE CONCAVE WESTERLY AND HAVING A RADIUS OF 230.00 FEET; THENCE NORTHWESTERLY ALONG SAID CURVE, FROM A BACK TANGENT THAT BEARS NORTH 00 DEG. 00'15" WEST, THROUGH A CENTRAL ANGLE OF 16. DEG. 09'57", A DISTANCE OF 64.89 FEET TO THE BEGINNING OF A REVERSE CURVE CONCAVE EASTERLY AND HAVING A RADIUS OF 170.00 FEET; THENCE NORTHERLY ALONG SAID CURVE THROUGH A CENTRAL ANGLE OF 1 DEG. 40'38", A DISTANCE OF 4.98 FEET TO A POINT, SAID POINT BEARS NORTH, 68.84 FEET FROM THE SOUTH LINE OF THE NORTH 1/2 OF SAID BLOCK 20, 41.63 FEET TO A POINT IN THE EAST LINE OF THE WEST 660.0 FEET OF THE NORTH 1/2 OF SAID BLOCK 20; THENCE NORTH 0 DEG. 04'05" EAST ALONG THE EAST LINE OF THE WEST 660.00 FEET TO THE NORTH 1/2 OF SAID BLOCK 20, 549.56 FEET TO A POINT IN THE SOUTH LINE OF SAID OLIVE STREET (PEPPER STREET); THENCE NORTH 89 DEG. 58'25" EAST ALONG SAID SOUTH LINE OF OLIVE STREET, 661.71 FEET TO THE POINT OF BEGINNING. EXCEPTING THEREFROM THAT PORTION LYING WITHIN PARCELS 1, 2, 3 AND 4 DESCRIBED ABOVE. -4- 119 EXHIBIT A-7 LEGAL DESCRIPTION - ASSET NO. 30.00 PARCEL 1: LOT 1 AND THE SOUTHEAST 30 FEET OF LOT 2 OF TRACT NO. 8112, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 102 PAGES 34 AND 35 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 2: LOTS 2, 3 AND 4 OF TRACT NO. 8112, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 102 PAGES 34 AND 35 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM THE SOUTHEAST 30.00 FEET OF SAID LOT 2. PARCEL 3: LOT 7 OF TRACT NO. 8112, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 102 PAGES 34 AND 35 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 4: THE SOUTHWESTERLY 100.00 FEET OF THE NORTHWESTERLY HALF OF LOT 3, TRACT NO. 2891, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 29 PAGE 17 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 5: THE SOUTHEASTERLY HALF OF LOT 3 AND THE NORTHWESTERLY HALF OF LOT 2 OF TRACT NO. 2891, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 29 PAGE 17 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM THE NORTHEASTERLY 146.00 FEET OF SAID LAND. ALSO EXCEPT THEREFROM THE INTEREST CONVEYED IN THE SOUTHWESTERLY 20 FEET OF THE NORTHEASTERLY 166 FEET OF SAID LOTS IN FEE SIMPLE TO BE USED FOR PUBLIC ALLEY PURPOSES, TO THE CITY OF SAN FERNANDO, BY DEED RECORDED JANUARY 29, 1962 IN BOOK D-1494 PAGE 859, OFFICIAL RECORDS. PARCEL 6: THE SOUTHWESTERLY 77.00 FEET MEASURED ALONG THE SOUTHEASTERLY AND NORTHWESTERLY LINES OF THE SOUTHEAST ONE-HALF OF LOT 2 OF TRACT NO. 2891, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 29 PAGE 17 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 7: -1- 120 THAT PART OF LOT 1 OF TRACT NO. 2891, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 29 PAGE 17 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT IN THE SOUTHEASTERLY LINE OF SAID LOT 1, DISTANT THEREON SOUTH 48 DEGREES 26 MINUTES WEST 260 FEET FROM THE MOST EASTERLY CORNER THEREOF; THENCE SOUTH 48 DEGREES 26 MINUTES WEST ALONG THE SOUTHEASTERLY LINE OF SAID LOT 1, 56.06 FEET TO THE MOST SOUTHERLY CORNER OF SAID LOT; THENCE NORTH 41 DEGREES 30 SECONDS WEST ALONG THE SOUTHWESTERLY LINE OF SAID LOT, 126 FEET TO THE MOST WESTERLY CORNER OF SAID LOT; THENCE NORTH 48 DEGREES 26 MINUTES EAST ALONG THE NORTHWESTERLY LINE OF SAID LOT, 56.06 FEET, MORE OR LESS, TO THE MOST WESTERLY CORNER OF LAND CONVEYED IN DEED TO E.F. KIDDER, ET UX., RECORDED IN BOOK 7678 PAGE 100, OFFICIAL RECORDS; THENCE SOUTH 41 DEGREES 30 MINUTES EAST 126 FEET TO THE POINT OF BEGINNING. PARCEL 8: THE NORTHEASTERLY 20.06 FEET OF THE SOUTHWESTERLY 170.06 FEET OF THE SOUTHEASTERLY HALF OF LOT 3 AND THE NORTHEASTERLY 20.06 FEET OF THE SOUTHWESTERLY 170.06 FEET OF THE NORTHWESTERLY HALF OF LOT 2 OF TRACT NO. 2891, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 29 PAGE 17 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 9: THOSE PORTIONS OF LOTS 3, 4 AND 5 OF TRACT NO. 2891, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 29 PAGE 17 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLLOWS: BEGINNING AT A POINT IN THE SOUTHWESTERLY LINE OF SAID LOT 5, DISTANT SOUTH 41 DEGREES 30 MINUTES EAST 30.00 FEET FROM THE MOST WESTERLY CORNER OF SAID LOT 5; THENCE ALONG THE SOUTHWESTERLY LINES OF SAID LOTS 5 AND 4, SOUTH 41 DEGREES 30 MINUTES EAST 222 FEET TO THE MOST WESTERLY CORNER OF SAID LOT 3; THENCE ALONG THE NORTHWESTERLY LINE OF SAID LOT 3, NORTH 48 DEGREES 26 MINUTES EAST 100.00 FEET; THENCE PARALLEL WITH THE SOUTHWESTERLY LINE OF SAID LOT 3, SOUTH 41 DEGREES 30 MINUTES EAST 63.00 FEET TO THE SOUTHEASTERLY LINE OF THE NORTHWEST HALF OF SAID LOT 3; THENCE PARALLEL WITH SAID NORTHWESTERLY LINE OF LOT 3, NORTH 48 DEGREES 26 MINUTES EAST 23.00 FEET; THENCE PARALLEL WITH THE SOUTHWESTERLY LINE OF SAID LOT 3, AND ITS NORTHWESTERLY PROLONGATION, NORTH 41 DEGREES 30 MINUTES WEST 93.00 FEET; THENCE NORTH 56 DEGREES 04 MINUTES 09 SECONDS WEST 59.39 FEET TO A LINE THAT IS PARALLEL WITH AND DISTANT 208.00 FEET SOUTHWESTERLY FROM THE NORTHEASTERLY LINES OF SAID LOTS 4 AND 5, DISTANT ALONG SAID PARALLEL LINE, SOUTH 41 DEGREES 30 MINUTES EAST 164.50 FEET FROM THE NORTHWESTERLY LINE OF SAID LOT 5; THENCE ALONG SAID PARALLEL LINE, NORTH 41 DEGREES 30 MINUTES WEST 134.50 FEET TO THE SOUTHEASTERLY LINE OF THE NORTHWESTERLY 30.00 FEET TO THE SOUTHEASTERLY LINE OF THE NORTHWESTERLY 30.00 FEET OF SAID LOT 5; THENCE ALONG SAID SOUTHEASTERLY LINE, SOUTH 48 DEGREES 26 MINUTES WEST 108.06 FEET TO THE POINT OF BEGINNING. PARCEL 10: -2- 121 LOTS 7 AND 8 OF THE PAXTON'S SUBDIVISION OF BLOCK "I" OF MACLAY'S ADDITION TO THE TOWN OF SAN FERNANDO, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 17 PAGE 93 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 11: LOTS 9, 10 AND 11 OF PAXTON'S SUBDIVISION OF BLOCK "I" OF MACLAY'S ADDITION TO THE TOWN OF SAN FERNANDO, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 17 PAGE 93 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 12: THOSE PORTIONS OF LOTS 3 AND 4 OF TRACT NO. 2891, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 29 PAGE 17 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE NORTHEASTERLY LINE OF SAID LOT 4, WITH THE SOUTHEASTERLY LINE OF THE NORTHWESTERLY 36.00 FEET THEREOF; THENCE SOUTH 41 DEGREES 30 MINUTES 00 SECONDS EAST ALONG THE NORTHEASTERLY LINE OF SAID LOTS 4 AND 3, TO THE SOUTHEASTERLY LINE OF THE NORTHWESTERLY HALF OF SAID LOT 3; THENCE SOUTH 48 DEGREES 26 MINUTES 00 SECONDS WEST ALONG SAID SOUTHEASTERLY LINE, 193.06 FEET TO THE MOST EASTERLY CORNER OF THE LAND DESCRIBED IN THE DEED TO JAB PROPERTIES, INC., RECORDED ON NOVEMBER 23, 1965 IN BOOK D-3123 PAGE 704, OFFICIAL RECORDS, AS INSTRUMENT NO. 1119 OF SAID COUNTY; THENCE ALONG THE NORTHEASTERLY BOUNDARY LINES OF SAID LAST MENTIONED DEED, AS FOLLOWS: NORTH 41 DEGREES 30 MINUTES WEST 93.00 FEET, NORTH 56 DEGREES 04 MINUTES 09 SECONDS WEST 59.39 FEET AND NORTH 41 DEGREES 30 MINUTES WEST TO THE SOUTHEASTERLY LINE OF SAID NORTHWESTERLY 36.00 FEET OF SAID LOT 4; THENCE NORTH 48 DEGREES 26 MINUTES 00 SECONDS EAST ALONG SAID SOUTHEASTERLY LINE TO THE POINT OF BEGINNING. EXCEPT THEREFROM THOSE PORTIONS OF LOTS 3 AND 4 OF TRACT NO. 2891, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 29 PAGE 17 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, DESCRIBED AS FOLLOWS: BEGINNING AT THE INTERSECTION OF THE NORTHEASTERLY LINE OF SAID LOT 4, WITH THE SOUTHEASTERLY LINE OF THE NORTHWESTERLY 36.00 FEET THEREOF; THENCE SOUTH 41 DEGREES 30 MINUTES 00 SECONDS EAST 152.94 FEET ALONG THE NORTHEASTERLY LINE OF SAID LOTS 4 AND 3, TO THE SOUTHEASTERLY LINE OF THE NORTHWESTERLY HALF OF SAID LOT 3; THENCE SOUTH 48 DEGREES 26 MINUTES 00 SECONDS WEST ALONG SAID SOUTHEASTERLY LINE, 109.00 FEET; THENCE PARALLEL WITH SAID NORTHEASTERLY LINE, NORTH 41 DEGREES 30 MINUTES 00 SECONDS WEST 152.94 FEET TO THE SOUTHEASTERLY LINE OF SAID NORTHWESTERLY 36.00 FEET OF SAID LOT 4; THENCE NORTH 48 DEGREES 26 MINUTES 00 SECONDS, 109.00 FEET EAST ALONG SAID SOUTHEASTERLY LINE TO THE POINT OF BEGINNING. PARCEL 13: -3- 122 LOT 29 TO 34 INCLUSIVE OF PAXTON'S SUBDIVISION OF BLOCK "I" OF MACLAY'S ADDITION TO THE TOWN OF SAN FERNANDO, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 17 PAGE 93 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 14: LOT 43 AND 44 OF PAXTON'S SUBDIVISION OF BLOCK "I" OF MACLAY'S ADDITION TO THE TOWN OF SAN FERNANDO, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 17 PAGE 93 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 15: LOTS 45 AND 46 OF PAXTON'S SUBDIVISION OF BLOCK "I" OF MACLAY'S ADDITION TO THE TOWN OF SAN FERNANDO, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 17 PAGE 93 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 16: LOTS 47 AND 48 OF PAXTON'S SUBDIVISION OF BLOCK "I" OF MACLAY'S ADDITION TO THE TOWN OF SAN FERNANDO, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 17 PAGE 93 OF MISCELLANEOUS RECORDS OF SAID COUNTY. PARCEL 17: LOTS 14, 15 AND 16 IN BLOCK "K" OF MACLAY'S ADDITION TO THE TOWN OF SAN FERNANDO, IN THE CITY OF SAN FERNANDO, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 17 PAGES 11 AND 12 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. -4- 123 EXHIBIT A-8 LEGAL DESCRIPTION - ASSET NO. 32.00 AND 32.01 PARCEL 4 IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 17271 FILED IN BOOK 194 PAGES 69 TO 73 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN THE LAND DESCRIBED IN DEED RECORDED AUGUST 26, 1941, AS INSTRUMENT NO. 1360 IN BOOK 18714 PAGE 141, OFFICIAL RECORDS, 40 PERCENT IN AND TO ALL OIL, GAS, GASOLINE OR OTHER HYDROCARBON SUBSTANCES IN, UNDER OR UPON SAID LAND OR ANY PART THEREOF, TOGETHER WITH THE RIGHT OF INGRESS OR EGRESS FOR THE PURPOSE OF REMOVING ANY OF SAID OIL, GAS, GASOLINE OR OTHER HYDROCARBON SUBSTANCES AND FOR THE PURPOSE OF DRILLING AN OIL OR GAS WELL UPON SAID LAND AS RESERVED BY REMI F. NADEAU, HIS HEIRS, ASSIGNS AND SUCCESSORS IN INTEREST, IN DEED ABOVE-MENTIONED FROM REMI E. NADEAU AND MARGUERITE M. NADEAU, HIS WIFE, TO REMI NADEAU, A SINGLE MAN. ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN THE LAND DESCRIBED IN THE PATENT RECORDED MARCH 23, 1931, AS INSTRUMENT NO. 1071 IN BOOK 10676 PAGE 327, OFFICIAL RECORDS, AN UNDIVIDED ONE-SIXTEENTH OF ALL COAL, OIL AND OTHER MINERAL DEPOSITS IN SAID LAND, AS RESERVED BY UNITED STATES OF AMERICA, IN THE ABOVE-MENTIONED PATENT. 124 EXHIBIT A-9 LEGAL DESCRIPTION - ASSET NO. 32.02 LOT 1 OF TRACT NO. 50484, IN THE CITY OF SANTA CLARITA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 1180, PAGES 19 TO 25 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, AND AS AMENDED BY A CERTIFICATE OF CORRECTION RECORDED JUNE 7, 1993 AS INSTRUMENT NO. 93-1076717, OFFICIAL RECORDS. 125 Legal Description Asset #33.00 EXHIBIT A-10 LOT 1 OF TRACT NO. 27195, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 895 PAGES 88 AND 89 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT UNITS 1 TO 104 INCLUSIVE AS SHOWN AND DEFINED ON THE CONDOMINIUM PLAN RECORDED AUGUST 11, 1980 AS INSTRUMENT NO. 80-764908, OFFICIAL RECORDS. PARCEL 2: UNITS 1 TO 104 INCLUSIVE AS SHOWN AND DEFINED ON THE CONDOMINIUM PLAN ABOVE MENTIONED. 126 Legal Description Asset #33.01 EXHIBIT A-11 LOT 2 OF TRACT NO. 34766, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 920 PAGES 31 THROUGH 34 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. 127 EXHIBIT A-12 LEGAL DESCRIPTION - ASSET NO. 34.00 PARCEL 1: THE NORTHEAST QUARTER OF LOT 16 OF SECTION 29, TOWNSHIP 6 NORTH, RANGE 11 WEST, SAN BERNARDINO MERIDIAN, IN THE CITY OF PALMDALE, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP OF A PORTION OF PALMDALE COLONY LAND RECORDED IN BOOK 11 PAGES 11 AND 12 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 2: THE NORTHWEST QUARTER OF LOT 16 OF SECTION 29, TOWNSHIP 6 NORTH, RANGE 11 WEST, SAN BERNARDINO MERIDIAN, IN THE CITY OF PALMDALE, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP OF A PORTION OF PALMDALE COLONY LAND RECORDED IN BOOK 11 PAGES 11 AND 12 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 3: THE SOUTHWEST QUARTER OF LOT 16 OF SECTION 29, TOWNSHIP 6 NORTH, RANGE 11 WEST, SAN BERNARDINO MERIDIAN, IN THE CITY OF PALMDALE, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP OF A PORTION OF PALMDALE COLONY LAND RECORDED IN BOOK 11 PAGES 11 AND 12 OF MISCELLANEOUS RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. 128 EXHIBIT A-13 LEGAL DESCRIPTION - ASSET NO. 34.01 PARCEL A: PARCEL 3 IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS SHOWN ON PARCEL MAP NO. 17271 FILED IN BOOK 194 PAGES 69 TO 73 INCLUSIVE OF PARCEL MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM LOTS 1 AND 2 OF TRACT NO. 50484, IN THE CITY OF SANTA CLARITA, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 1180, PAGES 19 TO 25 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, AND AS AMENDED BY A CERTIFICATE OF CORRECTION RECORDED JUNE 7, 1993 AS INSTRUMENT NO. 93-1076717, OFFICIAL RECORDS. ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN THE LAND DESCRIBED IN DEED RECORDED AUGUST 26, 1941, AS INSTRUMENT NO. 1360 IN BOOK 18714 PAGE 141, OFFICIAL RECORDS, 40 PERCENT IN AND TO ALL OIL, GAS, GASOLINE OR OTHER HYDROCARBON SUBSTANCES IN, UNDER OR UPON SAID LAND OR ANY PART THEREOF, TOGETHER WITH THE RIGHT OF INGRESS AND EGRESS FOR THE PURPOSE OF REMOVING ANY OF SAID OIL, GAS, GASOLINE OR OTHER HYDROCARBON SUBSTANCES AND FOR THE PURPOSE OF DRILLING AN OIL OR GAS WELL UPON SAID LAND AS RESERVED BY REMI F. NADEAU, HIS HEIRS, ASSIGNS AND SUCCESSORS IN INTEREST, IN DEED ABOVE MENTIONED FROM REMI E. NADEAU AND MARGUERITE M. NADEAU, HIS WIFE, TO REMI NADEAU, A SINGLE MAN. ALSO EXCEPT FROM THAT PORTION OF SAID LAND LYING WITHIN THE LAND DESCRIBED IN THE PATENT RECORDED MARCH 23, 1931, AS INSTRUMENT NO. 1071 IN BOOK 10676 PAGE 327, OFFICIAL RECORDS, AN UNDIVIDED ONE-SIXTEENTH OF ALL COAL, OIL AND OTHER MINERAL DEPOSITS IN SAID LAND, AS RESERVED BY UNITED STATES OF AMERICA IN THE ABOVE-MENTIONED PATENT. -1- 129 PARCEL B: THAT PORTION OF THE WEST HALF OF THE NORTHWEST QUARTER OF SECTION 28, TOWNSHIP 4 NORTH, RANGE 15 WEST, SAN BERNARDINO MERIDIAN, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, ACCORDING TO THE OFFICIAL PLAT THEREOF, BOUNDED ON THE NORTHEAST BY THE SOUTHWESTERLY LINE OF THE LAND DESCRIBED IN THE DEED TO THE STATE OF CALIFORNIA, RECORDED MARCH 20, 1967 AS INSTRUMENT NO. 365 IN BOOK D-3587 PAGE 935, OFFICIAL RECORDS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, BOUNDED ON THE EAST BY THE EASTERLY LINE OF THE WEST HALF OF THE NORTHWEST QUARTER OF SAID SECTION 28; BOUNDED ON THE SOUTHWEST AND WEST BY THE NORTHEASTERLY AND EASTERLY LINES OF THE LAND DESCRIBED AS PART A AND PART C IN THE DEED TO THE COUNTY OF LOS ANGELES, RECORDED SEPTEMBER 4, 1970 AS INSTRUMENT NO. 3720 IN BOOK D-4824 PAGE 816 OFFICIAL RECORDS, OF SAID COUNTY AND BOUNDED NORTHWESTERLY BY THE SOUTHEASTERLY LINE OF THE LAND DESCRIBED AS PARCEL 31-7 IN THE DEED TO THE COUNTY OF LOS ANGELES, RECORDED SEPTEMBER 5, 1967 AS INSTRUMENT NO. 2143 IN BOOK D-3757 PAGE 566 OFFICIAL RECORDS OF SAID COUNTY. EXCEPT AN UNDIVIDED ONE-HALF INTEREST IN AND TO THE OIL AND MINERAL RIGHTS, AS RESERVED IN THE DEED FROM EDWARD SMALL, A MARRIED MAN, AND ELSIE SMALL, HIS WIFE, RECORDED FEBRUARY 25, 1953 AS INSTRUMENT NO. 1999 IN BOOK 41050 PAGE 328, OFFICIAL RECORDS. ALSO EXCEPT THEREFROM ALL RIGHTS TO MINERALS, OIL, GAS, TARS, HYDROCARBON SUBSTANCES OF EVERY KIND, GEOTHERMAL STEAM, NATURALLY HEATED WATERS, THERMAL ENERGY AND GAS AND ALL OTHER MINERALS OF EVERY KIND OR CHARACTER, IN, OR UNDER SAID PROPERTY, TOGETHER WITH THE RIGHT TO DRILL OR MINE FOR THE SAME WITHOUT, HOWEVER, THE RIGHT TO DRILL OR MINE THROUGH THE SURFACE OR UPPER FIVE HUNDRED FEET (500') OF THE SUB-SURFACE OF SAID PROPERTY AS RESERVED BY THE NEWHALL LAND AND FARMING COMPANY (A CALIFORNIA LIMITED PARTNERSHIP), A LIMITED PARTNERSHIP IN DEED RECORDED FEBRUARY 27, 1990 AS INSTRUMENT NO. 90-311581, OFFICIAL RECORDS. -2- 130 Legal Description Asset #35.00 EXHIBIT A-14 (CANYON PARK PRINCESSA) LOT 12 OF TRACT NO. 44328, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 1129 PAGES 81 TO 86 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT AN UNDIVIDED ONE-HALF INTEREST IN AND TO THE OIL AND MINERAL RIGHTS, AS RESERVED IN THE DEED FROM EDWARD SMALL, A MARRIED MAN, AND ELSIE SMALL, HIS WIFE, RECORDED FEBRUARY 26, 1953, AS INSTRUMENT NO. 1999 IN BOOK 41050 PAGE 328, OFFICIAL RECORDS. ALSO EXCEPT ALL RIGHT, TITLE AND INTEREST IN ALL OF THE SUBSURFACE OIL, GAS, CASINGHEAD GAS AND OTHER SOLID, LIQUID OR GASEOUS HYDROCARBONS AND OTHER SUBSURFACE MINERALS AS QUITCLAIMED TO NEWHALL RESOURCES, A CALIFORNIA LIMITED PARTNERSHIP BY DOCUMENT ENTITLED "MINERAL DEED" RECORDED MARCH 31, 1983 AS INSTRUMENT NO. 83-352390 OFFICIAL RECORDS. ALL OF THE SURFACE AND THE SUBSURFACE TO A DEPTH OF 500 FEET FROM THE SURFACE AND INGRESS AND EGRESS TOGETHER WITH ALL DRILL THRU RIGHTS HAVE BEEN QUITCLAIMED BY DEED DATED MARCH 27, 1986 EXECUTED BY NEWHALL RESOURCES, A CALIFORNIA LIMITED PARTNERSHIP, RECORDED APRIL 2, 1986 AS INSTRUMENT NO. 86-405315 OFFICIAL RECORDS AND RE-RECORDED APRIL 24, 1986 AS INSTRUMENT NO. 86-502563 OFFICIAL RECORDS. 131 EXHIBIT A-15 LEGAL DESCRIPTION - ASSET NO. 37 PARCEL 1: LOTS 22 AND 23 IN BLOCK 44 OF TRACT NO. 7555, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 88 PAGES 79 TO 84 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. PARCEL 2: THAT PORTION OF LOT 24, IN BLOCK 44 OF TRACT NO. 7555, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 88 PAGES 79 TO 84 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, LYING NORTH OF A LINE DRAWN FROM A POINT IN THE EAST LINE OF SAID LOT DISTANT SOUTHERLY THEREON 20 FEET FROM THE NORTHEASTERLY CORNER OF SAID LOT TO A POINT IN THE WESTERLY LINE OF SAID LOT TO A POINT IN THE WESTERLY LINE OF SAID LOT DISTANT SOUTHERLY THEREON 18.47 FEET FROM THE NORTHWEST CORNER OF SAID LOT. PARCEL 3: LOTS 24, 25 AND 26 IN BLOCK 44 OF TRACT NO. 7555, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 88 PAGES 79 TO 84 INCLUSIVE OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THAT PORTION OF SAID LOT 24 LYING NORTH OF A LINE DRAWN FROM A POINT IN THE EAST LINE OF SAID LOT DISTANT SOUTHERLY THEREON 20 FEET FROM THE NORTHEASTERLY CORNER OF SAID LOT TO A POINT IN THE WESTERLY LINE OF SAID LOT, DISTANT SOUTHERLY THEREON 18.47 FEET FROM THE NORTHWEST CORNER OF SAID LOT. EXCEPTING AND RESERVING HEREFROM ALL OIL, GAS, WATER, MINERAL AND GEOTHERMAL RIGHTS BELOW A DEPTH OF 500 FEET UNDER THE SURFACE THEREOF, AND ALL INCOME THEREFROM, WITHOUT THE RIGHT OF SURFACE ENTRY, AS RESERVED BY AL R. BROOKS AND HARRIET D. BROOKS, HUSBAND AND WIFE AS COMMUNITY PROPERTY, IN DEED RECORDED ON JULY 3, 1979 AS INSTRUMENT NO. 79-727280, OFFICIAL RECORDS. 132 Asset No. 42.00 EXHIBIT "A"-16 THAT PORTION OF LOT 13 OF TRACT NO. 1212, IN THE CITY OF LOS ANGELES, IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 18 PAGES 126 AND 127 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, AS ACQUIRED BY THE STATE OF CALIFORNIA BY DEED 430 RECORDED IN BOOK 49662 PAGE 107 OF OFFICIAL RECORDS IN SAID OFFICE, TOGETHER WITH THAT PORTION OF LOT 12 OF SAID TRACT ACQUIRED BY THE STATE OF CALIFORNIA BY PARCEL 1 OF DEED 434 RECORDED IN BOOK 48728 PAGE 256 OF SAID OFFICIAL RECORDS, AND THAT PORTION OF SAID LOT 13 ACQUIRED BY THE STATE OF CALIFORNIA BY DEED 436 RECORDED IN BOOK 43618 PAGE 90 SAID OFFICIAL RECORDS, ALL LYING EASTERLY OF THE FOLLOWING DESCRIBED LINE: BEGINNING AT THE INTERSECTION OF THE SOUTHERLY LINE OF THE NORTHERLY 186.03 FEET TO SAID LOT 13 WITH THE EASTERLY LINE OF PARCEL 9A OF THE LAND ACQUIRED BY THE STATE OF CALIFORNIA BY FINAL ORDER OF CONDEMNATION FILED IN SUPERIOR COURT CASE NO. 819813, IN AND FOR SAID COUNTY, A CERTIFIED COPY OF SAID FINAL ORDER BEING RECORDED IN BOOK D4485 PAGE 216 OF SAID OFFICIAL RECORDS; THENCE NORTHERLY IN A DIRECT LINE TO THE SOUTHEASTERLY TERMINUS OF THE COURSE DESCRIBED AS HAVING A BEARING AND DISTANCE OF SOUTH 11 DEGREES 23 MINUTES 23 SECONDS EAST, 57.95 FEET IN PARCEL 108 OF FINAL ORDER OF CONDEMNATION, SUPERIOR COURT CASE NO. 819813, RECORDED IN BOOK D3733 PAGE 228 OF SAID OFFICIAL RECORDS. SAID LAND IS ALSO KNOWN BY THE LOS ANGELES COUNTY TAX ASSESSOR AS 12565 STRATHERN ST., NORTH HOLLYWOOD CA. 133 Asset #44.00 Exhibit A-17 DESCRIPTION: THE LAND REFERRED TO HEREIN IS SITUATED IN THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AND IS DESCRIBED AS FOLLOWS: PARCEL NO. 1: LOTS 11 AND 12 OF TRACT NO. 7170, AS PER MAP RECORDED IN BOOK 76 PAGE 12 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPTING THEREFROM ALL OIL, GAS AND HYDROCARBON SUBSTANCES BENEATH A DEPTH OF 500 FEET BELOW THE SURFACE OF SAID LOTS 11 AND 12, BUT WITHOUT THE RIGHTS OF SURFACE ENTRY, AS RESERVED BY EMANUEL O. BACHMANN AND ALICE SUTER BACHMANN, HUSBAND AND WIFE, RECORDED MAY 27, 1983 AS INSTRUMENT NO. 83-598224, OFFICIAL RECORDS. THE INTEREST OF EMANUEL O. BACHMANN AND ALICE SUTER BACHMANN WAS CONVEYED TO ALICE S. BACHMANN, JOHN G. BACHMANN AND PAUL DENNIS BACHMANN, AS TRUSTEES OF THE ALICE S. BACHMANN TRUST DATED APRIL 15, 1985 BY DEED RECORDED JULY 16, 1986 AS INSTRUMENT NO. 86-895015, OFFICIAL RECORDS, AND BY OTHER DEEDS OF RECORD. PARCEL NO. 2: A PATIO EASEMENT AS GRANTED IN THAT CERTAIN PATIO AREA EASEMENT AGREEMENT DATED AS OF OCTOBER 13, 1993, RECORDED NOVEMBER 18, 1993 AS INSTRUMENT NO 93-2274585, OFFICIAL RECORDS AND MORE PARTICULARLY DESCRIBED AS FOLLOWS: THOSE PORTIONS OF LOTS 10 AND 11 OF TRACT NO 7170 IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, PER MAP FILED IN BOOK 76 PAGE 12 OF MAPS, RECORDS OF SAID COUNTY, LYING WITHIN THE FOLLOWING DESCRIBED BOUNDARIES. BEGINNING AT A POINT IN THE SOUTHERLY LINE OF LOT 10 OF SAID TRACT DISTANT THEREON SOUTH 89# 52' 05" WEST 40.05 FEET FROM THE SOUTHEAST CORNER OF SAID LOT 10; THENCE 21.0.1 LEAVING SAID SOUTHERLY LINE NORTH 00# 07' 55" WEST 19.75 FEET; THENCE 21.0.2 SOUTH 89# 52' 05" WEST 30.33 FEET; THENCE 21.0.3 SOUTH 00# 07' 55" EAST 39.50 FEET; THENCE 21.0.4 NORTH 89# 52' 05" EAST 30.33 FEET; THENCE 21.0.5 NORTH 00# 07' 55" WEST 19.75 FEET TO THE POINT OF BEGINNING. IN THE CASE OF A DISCREPANCY BETWEEN THE LEGAL DESCRIPTION AND THE PATIO LOCATION, THE BOUNDARY OF SAID EASEMENT SHALL BE THE LIMITS OF THE PATIO WHERE IT EXISTS. 134 Exhibit J to Asset Sale Agreement EXHIBIT B TO SALES CONTRACT FORM OF ASSIGNMENT TO AND ASSUMPTION BY QUALIFIED AFFILIATE OF REAL PROPERTY SALES CONTRACT FOR VALUE RECEIVED, as of the ____ day of ________________________, 1994, the undersigned, _____________________________________________________________________, a _______________________________________________ corporation (the "Assignor"), hereby assigns, transfers, sets over, grants and conveys unto ______________________________________________, a _________________________ [corporation/partnership], its successors and assigns (the "Assignee") all of its right, title, privilege and interest in and to that certain Real Property Sales Contract dated _____________________________, 1993 between the Assignor and City National Bank. In consideration of this Assignment, Assignee shall pay to Assignor the sum of $_____________________. Assignee hereby accepts this Assignment and assumes all of the obligations of Assignor under the aforementioned Sales Contract from and after the date hereof. This Assignment shall be binding upon and shall inure to the benefit of Assignor and Assignee and their respective successors and assigns. The Assignee hereby accepts the foregoing Assignment, and agrees to perform each and every duty and obligation of the Assignor incurred as of the date hereof and hereafter relating to the subject matter of this Assignment, as fully and completely as though the Assignee was the party named as the Assignor in the instruments hereby assigned. IN WITNESS WHEREOF, and intending to be legally bound, the undersigned has executed this Assignment under seal as of the day and year first hereinabove written. WITNESS/ATTEST: ASSIGNOR: ____________________________ [Corporation/Partnership] ____________________________ By: ________________________ [corporate seal] Its: _______________________ (Signatures continued on next page) 19 135 Exhibit J to Asset Sale Agreement (Signatures continued from previous page) WITNESS/ATTEST: ASSIGNEE: ____________________________ [Corporation/Partnership] ____________________________ By: ________________________ [corporate seal] Its: _______________________ 20 136 Exhibit J to Asset Sale Agreement EXHIBIT C TO REAL PROPERTY SALES CONTRACT Schedule of Interim Mortgage Loans 21 137 CITY NATIONAL BANK EXHIBIT C SCHEDULE OF INTERIM MORTGAGE LOANS POOLS 2-6 Page 1 11/17/93
Interim Asset Pool Zip Mortgage # No. Asset Name Street Address City County State Code Amount - ----- ---- -------------------- ----------------------- --------------- ----------- ----- ----- ------------- 33.00 2 Villa Del Sol Apts. 10025 De Soto Ave Chatsworth Los Angeles CA 91311 2,175,824.56 - ----- ---- -------------------- ----------------------- --------------- ----------- ----- ----- ------------- 22.00 3 Santa Fe Industrial 2209 So. Santa Fe Los Angeles Los Angeles CA 90058 975,451.36 Avenue 30.00 3 San Fernando 1501 1st Street San Fernando Los Angeles CA 91341 1,699,631.44 Industrial 42.00 3 12565 Strathern 12565 Strathern Street North Hollywood Los Angeles CA 90021 896,858.56 Street - ----- ---- -------------------- ----------------------- --------------- ----------- ----- ----- ------------- 1.00 4 Jefferson Industrial SEC Jefferson Ave and Murrieta Riverside CA 92562 292,653,92 Flg Street 9.00 4 Malibu Highlands Thrift Road, Birdella Malibu Los Angeles CA 90265 455,520.00 and Latigo Canyon Road 11.00 4 Lakewood and 13526 Lakewood Blvd Bellflower Los Angeles CA 90706 146,411.20 Rosecrans and 9025 Rosecrans Ave. 12.00 4 Palmdale Industrial SWC Avenue P & 12th Palmdale Los Angeles CA NAV 88,210.72 Development Street East 32.00 4 The Plaza S/S of Via Princessa Santa Clarita Los Angeles CA NAV 1,157,478.40 btwn Sierra Hwy. & Antelope Valley Fwy 32.01 4 The Arbors S/S of Via Princessa Santa Clarita Los Angeles CA NAV 554,954.40 btwn Sierra Hwy. & Antelope Valley Fwy 32.02 4 The Courtyard North line of Via Santa Clarita Los Angeles CA NAV 251,425.20 Princessa, West of Jason Road 34.00 4 40th St. & Ave "R" Avenue R & 40th St East Palmdale Los Angeles CA 93550 120,640.00 34.01 4 The Crossroads Via Princessa and Sierra Santa Clarita Los Angeles CA 93550 785,200.00 Highway 35.00 4 The Marketplace SW corner of Sierra Santa Clarita Los Angeles CA NAV 2,245,360.00 Highway and Via Princessa - ----- ---- -------------------- ------------------------ ---------------- ----------- ----- ----- ------------- 33.01 5 Casa Balboa Center 16810 Ventura Blvd. Encino Los Angeles CA NAV 1,865,758.96 37.00 5 Fairfax Plaza 301 South Fairfax Los Angeles Los Angeles CA 90036 3,853,583.76 44.00 5 Robertson Office 1030 S. Robertson Blvd. Beverly Hills Los Angeles CA 90035 530,223.20 Plaza 28.00 6 Plaza Las Glorias SWC Mount Vernon Ave and Colton San Bernard CA 92324 4,719,116.48 Olive Street ------------- TOTAL 22,814,302.16 =============
22 138 Exhibit L to Asset Sale Agreement Form of INTERIM MORTGAGE (Exhibit L continued on next page) 139 Recording Requested By And When | Recorded Mail To: | | | | Attn: | | - -------------------------------------------------------------------------------- Space Above this Line for Recorder's Use Form of INTERIM MORTGAGE DEED OF TRUST, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT This Deed of Trust, Assignment of Rents and Security Agreement (the "Mortgage") is made this ___ day of 1993, between CITY NATIONAL BANK, A NATIONAL BANKING ASSOCIATION, herein called TRUSTOR, whose address is 606 S. Olive Street, 20th Floor, Los Angeles, CA, CHICAGO TITLE INSURANCE COMPANY, a California corporation, herein called TRUSTEE, and ____________________________, California ______________, herein called BENEFICIARY. Unless otherwise defined herein, each capitalized term used in this Mortgage shall have the same meaning ascribed thereto in the Loan and Security Agreement or the Interim Mortgage Note, both of even date herewith. Trustor IRREVOCABLY GRANTS, TRANSFERS AND ASSIGNS to TRUSTEE IN TRUST, WITH POWER OF SALE, that property in __________________________ County, California, described in Exhibit A attached hereto and made a part hereof (the "Land"): TOGETHER with all right, title and interest of Trustor, including any after-acquired title or reversion, in and to any strips and/or gores and/or the beds of the ways, streets, avenues, and alleys adjoining the Land; and TOGETHER with all and singular the tenements, hereditaments, easements, appurtenances, mineral rights, air, development and zoning rights, working interests, passage, water rights, water courses, riparian rights, utility commitments and/or reservations, permits, other rights, liberties and privileges thereof or in any way now or hereafter appertaining to the Land, including any homestead or other claim at law or in equity, as well as any after-acquired title, franchise or license and reversion and reversions and remainder and remainders thereof; and TOGETHER with all buildings and improvements of every kind and description now or hereafter erected or placed thereon (collectively, the "Improvements"), and all materials now or hereafter owned by Trustor intended for construction, reconstruction, alterations and repairs of the Improvements now or hereafter erected thereon, all of which materials shall be deemed to be included within the Property hereby conveyed immediately upon the delivery thereof to the Land, and all fixtures and articles of personal property now or hereafter owned by the Trustor and attached to or contained in and used in connection with the Land or the Improvements, including, but not limited to, the Equipment (as defined in Section 6.2 below); and all spare parts, renewals, or replacements thereof or articles in substitution therefor, whether or not the same are or shall 1 Exhibit L to the Asset Sale Agreement Form of INTERIM MORTGAGE 140 be attached to said building or buildings in any manner; and all proceeds thereof; it being mutually agreed that all the aforesaid property owned by Trustor and placed by it on the Land shall so far as permitted by law, be deemed to be fixtures and affixed to the realty and encumbered by this Mortgage; and TOGETHER with all judgments, insurance proceeds, awards of damages and settlements hereafter made as a result or in lieu of any taking, permanent or temporary, of the Land and the Improvements or any part thereof under the power of eminent domain, or by deed in lieu thereof, or for any damage, whether caused by such taking or otherwise, to the Land and the Improvements or any part thereof, and all insurance policies and insurance proceeds pertaining to the Land and the Improvements, as hereinafter defined, and all awards and payments that shall become payable with respect to any damage to the Land and the Improvements or any part thereof; and TOGETHER with any and all other, further or additional right, title, or interest in or to any of the foregoing described collateral, which may at any time hereafter be acquired by Trustor (or any entity in any way related to Trustor). The aggregate of the Land, the Improvements, the Equipment and all of the other rights and interests described above is hereinafter collectively referred to as the "Property." In addition to the foregoing, Trustor hereby absolutely and unconditionally assigns to Beneficiary, as a present assignment and not as an assignment for security purposes, all leases of the Land and/or the Improvements, or any parts thereof, now or hereafter entered into and all right, title and interests of Trustor thereunder, and all of the rents, issues and profits of the Land and/or the Improvements, as more fully provided in Section 6.1 below. This Mortgage is made for the purpose of securing: 1. Performance of each agreement of Trustor herein contained, and repayment of any funds advanced by Beneficiary or Trustee or which Beneficiary or Trustee become obligated to advance under this Mortgage. 2. Payment of the indebtedness evidenced by one Interim Mortgage Note of even date herewith, and any extension or renewal thereof, in the principal sum of $________________________ executed by Trustor in favor of Beneficiary or order. 3. Payment of such further sums as the then record owner of the Property hereafter may borrow from Beneficiary, when evidenced by a promissory note or notes reciting it is so secured. TO PROTECT THE SECURITY OF THIS MORTGAGE, TRUSTOR COVENANTS TO AND AGREES WITH BENEFICIARY AS FOLLOWS: 4. Trustor shall, with respect to the Property: 4.1 Keep the Property in good condition and repair; 4.2 Not remove or demolish any building or other structure; 2 Exhibit L to the Sale Agreement 141 4.3 Complete or restore promptly and in good and workmanlike manner any building or other structure which may be constructed, damaged or destroyed and pay when due all claims for labor performed and materials furnished therefor; 4.4 Comply with all laws affecting the Property or requiring any alterations or improvements to be made thereon; 4.5 Not commit, suffer or permit waste; 4.6 Not commit, suffer or permit any act upon the Property in violation of law, including but not limited to all Federal, state and local statutes, ordinances or regulations relating to hazardous or toxic waste; 4.7 Cultivate, irrigate, fertilize, fumigate, prune and do all other acts which from the character or use of the Property may be reasonably necessary to maintain its value, the specific enumerations herein not excluding the general; 4.8 Provide, maintain and deliver to Beneficiary such evidence of insurance coverage as is satisfactory to and with loss payable to Beneficiary. 4.9 Appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; and pay all costs and expenses, including cost of evidence of title and attorneys' fees in a reasonable sum, in any such action or proceeding in which Beneficiary or Trustee may appear, and in any suit brought by Beneficiary to foreclose this Mortgage. 4.10 Pay at least ten (10) days before delinquency all taxes and assessments affecting the Property, including assessments on appurtenant water stock; 4.11 Pay when due, all encumbrances, charges and liens which appear to be prior or superior to the lien created by this Mortgage, together with any interest, costs or other sums secured thereby; 4.12 Cure within the time specified in any lease or sublease, or immediately if not specified, any defaults or breaches thereof and do all acts necessary to insure that any such lease or sublease remain in full force and effect; 4.13 With respect to any property described above which is less than a fee-simple estate, including but not limited to a leasehold estate: 4.13.1 Trustor shall cure within the time specified in the above-described lease, or other agreement, or immediately if not specified therein, any default or breaches thereof and to do all acts necessary to insure the above-described lease or other agreement remains in full force and effect; 4.13.2 Trustor shall not voluntarily terminate, surrender or subordinate any leasehold or other estate encumbered hereby and any attempt by Trustor to do so shall be wholly void and without any force and effect. 5. Trustor covenants and agrees that to effectuate the terms and conditions of this Mortgage: 5.1 Trustor shall, upon reasonable notice by Beneficiary, during normal business hours or at such other time if reasonably required, permit Beneficiary, and any of its agents or employees to inspect the Property and copy such records of Trustor that pertain to the Property, whether or not located at the Property. 5.2 Should Trustor fail to make any payment or to do any act as herein provided, then Beneficiary or Trustee, but without obligation so to do and without notice to or demand upon Trustor and without releasing Trustor from any obligation hereof, may: make or do the same in 3 Exhibit L to the Asset Sale Agreement 142 such manner and to such extent as either may deem necessary to protect the security hereof, Beneficiary or Trustee being authorized to enter upon the Property for such purposes; appear in and defend any action or proceeding purporting to affect the security hereof or the rights or powers of Beneficiary or Trustee; pay, purchase, contest or compromise any encumbrance, charge or lien which in the judgment of either appears to be prior or superior hereto; and, in exercising any such powers, pay necessary expenses, employ counsel and pay his reasonable fees. Trustor shall pay immediately and without demand all sums so expended by Beneficiary or Trustee, with interest from date of expenditure at the amount set forth in the obligation secured hereby, or if the obligation secured hereby does not specify a rate of interest, at a rate of interest equal to the Trustor's Prime Rate as it may exists from time to time plus three percent (3.0%) but in no event less than ten percent (10.0%) per annum. 5.3 Trustor agrees to indemnify and hold Beneficiary, and any of its successors in interest, harmless from any waste or violations of law, including but not limited to all Federal, state and local statutes, ordinances or regulations relating to hazardous or toxic wastes. 5.4 Any award of damages in connection with any condemnation for public use of or injury to the Property is hereby assigned and shall be paid to Beneficiary who shall apply said moneys in reduction of the principal amount of the indebtedness secured to the extent necessary to render its security unimpaired. If the obligation secured hereby includes obligations to reimburse the Beneficiary for moneys the Beneficiary is committed to advance to Trustor or third persons in the future, said award of damages shall be held as collateral for such reimbursement obligation in lieu of the property which is condemned. In the event of a partial taking in condemnation, the proceeds shall be apportioned in accord with the provisions of California Code of Civil Procedure Section 1265.225, as it is in effect at the time of the award. An action for inverse condemnation shall be deemed an action for condemnation under this paragraph. 5.5 Insurance proceeds shall be held, in trust, by Beneficiary and applied to the reasonable costs of repair and restoration of the Property if such proceeds, together with funds supplied by Trustor, are sufficient to restore the Property in such a manner that the Beneficiary's security interest hereunder remains unimpaired. If the insurance proceeds, together with funds supplied by Trustor, are not sufficient to restore the Property in such a manner that the Beneficiary's security interest hereunder remains unimpaired, said proceeds, at the option of Beneficiary, may be applied to the obligation secured hereby or to restoration of the Property. If Trustor disagrees with Beneficiary's disposition of insurance proceeds hereunder, Trustor agrees to submit the matter to binding arbitration before a three-member panel (or one-member panel if the insurance proceeds are less than $200,000) of the American Arbitration Association pursuant to the rules and regulations of the American Arbitration Association. The arbitrators shall also apportion the costs of arbitration, including attorneys' fees, to the extent each party has prevailed. 5.6 Trustor covenants and agrees (i) to pay, for the purpose of establishing an escrow account (the "Estimated Accrual Account") to be held by Trustor for the benefit of Beneficiary (which account shall not bear interest), an initial amount equal to the Proration Amount, as such term is defined below, and (ii) thereafter to continue to pay into the Estimated Accrual Account monthly to the extent available from Cash Flow, on each and every monthly payment date, One-Twelfth (1/12th) of the estimated annual real estate taxes, assessments and hazard insurance premiums on the Property, as Permitted Expenses. The amount of such real estate taxes, assessments and hazard insurance premiums, when unknown, shall be reasonably estimated by Trustor). Such deposits shall be used by Trustor or, if title to the Real Property has been then transferred, Beneficiary to pay such real estate taxes, assessments, and hazard insurance 4 Exhibit L to the Asset Sale Agreement 143 premiums when due. The enforceability of the covenants relating to Trustor's payment of real estate taxes, assessments and hazard insurance premiums herein otherwise provided shall not be affected except insofar as those obligations have been met by compliance with this Section 5.6. As used herein, "Proration Amount" means that amount of real estate taxes, assessments and hazard insurance premiums which would be payable by Beneficiary as Seller if the Real Property were transferred to Beneficiary as Purchaser on the Closing Date. 6. Trustor hereby assigns to Beneficiary the following additional rights and interests: 6.1 All leases, whether written or oral, and all other agreements for use or occupancy of any portions of the Land and/or the Improvements, together with any and all extensions and renewals thereof and any and all further leases, lettings or agreements (including, but not limited to, subleases thereof and tenancies following attornment) upon or covering use of occupancy of all or any part of the Land and/or the Improvements, together with any and all guarantees of any lessee's performance under any of said leases or other agreements; and the immediate and continuing right, power and authority, during the continuance of these Trusts, to collect the rents, issues and profits of the Property, reserving unto Trustor the right, prior to any default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, to collect and retain such rents, issues and profits as they become due and payable. Upon any such default, Beneficiary may at any time without notice, either in person, by agent, or by a receiver to be appointed by a court, and without regard to the adequacy of any security for the indebtedness hereby secured, enter upon and take possession of the Property or any part thereof, in its own name sue for or otherwise collect such rents, issues and profits, including those past due and unpaid, and apply the same, less costs and expenses of operation and collection, including reasonable attorneys' fees, upon any indebtedness secured hereby, and in such order as Beneficiary may determine. The entering upon and taking possession of the Land and the Improvements, the collection of such rents, issues and profits and the application thereof as aforesaid, shall not cure or waive any default or notice of default hereunder or invalidate any act done pursuant to such notice. The absolute assignment of leases, rents, issues and profits contained in this Section 6.1 constitutes an absolute, unconditional and present transfer of Trustor's interest in existing and future leases, rents, issues and profits with respect to the Property described in this Mortgage effective upon the execution and delivery of this Mortgage and such assignment is not intended to be, and shall not be construed to be, a conditional assignment or an assignment for security purposes only; and 6.2 A security interest under the applicable Uniform Commercial Code in and to the following Property (hereinafter referred to as the "Collateral"), as additional security for the payment and performance of the obligations secured by this Mortgage: 6.2.1 All of the personal property of any kind whatsoever (excluding all such Property which is owned by occupancy tenants of the Trustor and installed for the purposes of their tenancy if such occupancy tenant has the right to remove the same at or before the expiration of the term of the applicable lease), including, but not limited to, all materials, machinery, apparatus, equipment, furnishings, furniture, fixtures and all other goods, chattels and articles of personal Property including, without limitation, all building materials and supplies, all construction equipment, all medical equipment and supplies, furniture, rugs and carpets, linens and bedding materials, televisions, radios and other sound equipment, kitchen fixtures, utensils, and all cooking and serving equipment, furnaces, boilers, oil burners, refrigeration, air conditioning and sprinkler systems, awnings, screens, window shades, draperies, motors, dynamos, incinerators, plants 5 Exhibit L to the Asset Sale Agreement 144 and shrubbery, and all other equipment, machinery, appliances, fittings and fixtures, whether personal Property, inventory or fixtures, whether now owned or hereafter from time to time acquired by the Trustor, together with all substitutions, replacements, additions, attachments, accessories, accretions, their component parts thereto or thereof, all other items of like Property (collectively, the "Equipment"). 6.2.2 All accounts and contract rights covering or relating to any or all thereof, including any proceeds and products thereof, whether now in existence or hereafter arising, and relating to, situated or located on, or used or usable in connection with, the construction, maintenance or operation of the Property and all receipts, earnings, revenues, rents, issues, profits, avails and other income due to or received by Trustor from the operation, ownership or leasing of the improvements or any part thereof and all rights to receive the same, whether in the form of accounts receivable or otherwise. 6.2.3 All judgments, insurance proceeds, awards of damages and settlements hereafter made as a result or in lieu of any taking, permanent or temporary, of the Property or any part thereof under the power of eminent domain, or by deed in lieu thereof, or for any damage, whether caused by such taking or otherwise, to the Property or any part thereof, and all insurance policies and insurance proceeds pertaining to the Property and all awards and payments that shall become payable with respect to any damage to the Property or any part thereof. 6.2.4 All construction contracts, purchase orders, subcontracts, architectural and engineering contracts, the Approved Plans and Specifications, all building permits, any bonds in favor of Trustor, and all other contracts, agreements, permits, authorizations, or guarantees of work, material or performance in any way relating to the construction of the Improvements, now existing or arising at any time hereafter during the term of the Loan, including all amendments, modifications, replacements and/or additions to any of the foregoing. 6.2.5 Any and all other, further, or additional right, title, or interest in or to any of the foregoing described collateral, which may at any time hereafter be accrued by the Trustor (or any entity in any way related to Trustor or any of its partners), to secure payment of the Note, as well as to secure the performance by the Trustor of its obligations under this Mortgage. 6.3 Incident thereto, Trustor agrees with Beneficiary as follows: 6.3.1 Trustor warrants and represents that: 6.3.2 At its option, Beneficiary may, but shall not be required to, discharge taxes, liens or security interests or other encumbrances at any time levied or placed on the Collateral; may, but shall not be required to, pay for insurance on the Collateral; and may, but shall not be required to, pay for the maintenance and preservation of the Collateral. Trustor agrees to reimburse Beneficiary on demand for any payment made, or any expense incurred, by Beneficiary pursuant to the foregoing authorization together with interest thereon at the rate set forth in the Note, from the date incurred until reimbursed by Trustor. Until default, Trustor may have possession of the Collateral and use it at all times as personal Property and for business purposes, and in a lawful manner not inconsistent with the provisions hereof and not inconsistent with any policy of insurance thereon. 6.3.3 Upon any Event of Default and at any time thereafter, Beneficiary may exercise, in addition to but not in replacement of any remedy set forth in Section 11 below, all of the rights and remedies of a Secured Party under the Uniform Commercial Code of the state in which the Collateral is located or otherwise as provided by law, including, without limitation, the 6 Exhibit L to the Asset Sale Agreement 145 right to sell all or any part of the Collateral at public or private sale. In any case where Beneficiary determines to give notice of any sales or other dispositions of Collateral, the mailing of notice to Trustor at least ten (10) days before any sale or other disposition, conclusively shall be deemed reasonable notice thereof. Expenses of retaking, holding, preparing for sale, selling or the like shall include Beneficiary's attorneys' fees and legal expenses and are secured hereby as part of said obligations. If the proceeds realized from disposition of the Collateral shall fail to satisfy Trustor's obligations (including the expenses mentioned above) Trustor shall immediately pay any deficiency balance to Beneficiary. 6.3.4 In the event Beneficiary elects to dispose of the Collateral by public sale, it shall advertise for sale under this Mortgage, by notice of such sale published in some newspaper published in the jurisdiction where the Collateral is located for such number of times as is required by all applicable laws and rules of the jurisdiction in which the Collateral is located, giving notice of the time, place and terms of such sale. Beneficiary may, at its option, sell the Collateral as a whole or in parcels and such sale may be held at the courthouse door in the jurisdiction where the Collateral is located, at the place where the Collateral is located, or at any other commercially reasonable place, all at the option of Beneficiary, but in no event shall it be necessary that the Collateral be present at the sale. 6.3.5 Upon the occurrence of an Event of Default, Beneficiary may enter upon the Property to take possession of the Property and the Collateral, or at its option may require Trustor to assemble the Collateral at any place designated by Beneficiary reasonably convenient to the parties. If necessary to obtain the possession provided for above, Beneficiary may invoke any and all available legal remedies to dispossess Trustor, including without limitation, one or more actions for forcible entry and detainer, trespass to try title, restitution and appointment of a receiver. 6.3.6 Trustor will do all acts requested by the Beneficiary, including but not limited to the execution and filing of all instruments (such as security agreements, financing statements, and continuation statements) necessary to establish, maintain and continue perfected the security interests of Beneficiary in the Collateral, will promptly on demand pay all costs of any searches deemed necessary by Beneficiary to establish and determine the validity and the priority of the security interest of Beneficiary, and also all other claims and charges which in the opinion of Beneficiary might prejudice, imperil or otherwise affect the Collateral or Beneficiary's security interest therein. 6.3.7 No waiver by Beneficiary of any default shall operate as a waiver of any other default or of the same default on a future occasion. All rights of Beneficiary hereunder shall inure to the benefit of its successors and assigns; and all obligations of Trustor shall bind its successors and assigns. 6.3.8 No delay or failure on the part of Beneficiary in the exercise of any right or remedy shall operate as a waiver thereof, and no single or partial exercise by Beneficiary of any right or remedy shall operate as a waiver thereof, or the exercise of any other right or remedy. 6.3.9 Trustor further specifically agrees that, in any exercise of the rights of Beneficiary under this or any other instrument, any combination or all of the Property, rights or security given to secure Trustor's indebtedness to Beneficiary may be offered for sale for one total price, and the proceeds of any such sale accounted for in one account without distinction between 7 Exhibit L to the Asset Sale Agreement 146 the items of security or without assigning to them any proportion of such proceeds, Trustor hereby waiving the application of any doctrine of marshalling. 7. Trustor or any other person legally entitled thereto agrees to pay $60.00 for any statement provided for by law in effect at the date hereof regarding the obligation secured hereby. 7.3.1.1 Trustor is the lawful owner of such Collateral and is, or when it acquires same it will be, in possession of the same free and clear from any lien, security interest or encumbrance; no Financing Statement or other notice of lien agreement or lien is on file or record at any public office which relates to any of the Collateral or which could through general language relate thereto; Trustor has good right to pledge, sell, consign, assign, transfer and create a security interest in the same; and Trustor at its cost and expense will protect and defend the security interest created herein and the Collateral against all adverse claims that any of the Collateral has ceased to be personal Property; 7.3.1.2 The Collateral shall continue to be free from all pledges, liens, encumbrances and security interests or other claims in favor of others; and the Trustor shall warrant, and, at the Beneficiary's request, defend the same from all claims and demands of all persons; 7.3.1.3 The Collateral will only be used by Trustor in the construction, maintenance and operation of the Property, and will not be held for sale, lease or transfer to others, or otherwise disposed of by the Trustor without the written consent of the Beneficiary, except as may be specifically permitted herein; 7.3.1.4 The tangible Collateral will be located at the Property, and the Collateral will not be removed therefrom without the prior written consent of the Beneficiary unless Collateral is immediately replaced with similar items owned by the Trustor and which are of equal or greater value; and 7.3.1.5 Trustor will, at its own cost and expense, keep the Collateral in as good and substantial order, repair and condition as the same is in at this date, or as the same is when acquired, reasonable wear and tear alone excepted, making replacements when and as necessary, and, in this connection, Beneficiary hereby gives its written consent to the removal by Trustor of the same, or any part thereof, from the Property if such removal is necessary so to do in connection with Trustor's fulfilling of its obligations under this subsection 6.3.1.5, and if the priority of its security interest therein will not be materially jeopardized. 7.0.1 Trustor agrees that Beneficiary, or its agents, may enter upon the Property at any time, and from time to time, for the purpose of inspecting the Collateral, and any and all records pertaining thereto. Trustor agrees to notify Beneficiary promptly of any change in its mailing address or principal place of business, in order that a prompt refiling of any outstanding notices may be made, if necessary. Trustor also is to advise Beneficiary, within thirty (30) days, of any new facts which, under applicable provisions of law, would affect the priority of the security interest granted to Beneficiary by this instrument. 8. Beneficiary, or any successor in ownership of any indebtedness secured hereby, may from time to time, by instrument in writing, substitute a successor or successors to any Trustee named herein or acting hereunder, which instrument, executed by Beneficiary and duly acknowledged and recorded in the office of the recorder of the county or counties where the Property is situated, shall be conclusive proof of proper substitution of such successor Trustee or Trustees, who shall, without conveyance from Trustee predecessor, succeed to all its title, estate, rights, powers and duties. Said 8 Exhibit L to the Asset Sale Agreement 147 instrument must contain the name of the original Trustor, Trustee and Beneficiary hereunder, the book and page where this Mortgage is recorded and the name and address of the new Trustee. 9. At any time or from time to time, without liability therefor and without notice, upon written request of Beneficiary and presentation of this Mortgage and the evidence of the obligation secured hereby for endorsement, and without affecting the personal liability of any person for payment of the indebtedness secured hereby, Trustee may: reconvey any part of the Property; consent to the making of any map or plat thereof; join in granting any easement thereon; or join in any extension agreement or any agreement subordinating the lien or charge hereof. 10. Upon written request of Beneficiary stating that all sums secured hereby have been paid, if applicable, Beneficiary's statement that no further commitment exists to make future advances or extend credit, and upon surrender of this Mortgage and the evidence of the obligation secured hereby to Trustee for cancellation and retention and upon payment of its fees, Trustee shall reconvey, without warranty, the Property then held hereunder. Upon written request of Beneficiary, if less than all sums secured hereby have been paid, Trustee shall reconvey, without warranty, the portion of the Property then held hereunder specified by Beneficiary. The recitals in such reconveyance of any matters or facts shall be conclusive proof of the truthfulness thereof. The grantee in such reconveyance may be described as "the person or persons legally entitled thereto." Five (5) years after issuance of such full reconveyance, Trustee may destroy the evidence of indebtedness and this Mortgage (unless directed in such request to retain them). 11. Upon default by Trustor in payment of any indebtedness secured hereby or in performance of any agreement hereunder, the following provisions shall apply: 11.1 Beneficiary may declare all sums secured hereby immediately due and payable by delivery to Trustee of written declaration of default and demand for sale and of written notice of default and of election to cause to be sold the Property, which notice Trustee shall cause to be filed for record. Beneficiary also shall deposit with Trustee this Mortgage, the evidence of the obligation secured hereby and all documents evidencing expenditures secured hereby. 11.2 To the extent the obligation secured hereby arises from a commitment of Beneficiary to make future advances either to Trustor or a third party or extend credit subsequent to the recordation of a notice of default hereunder, the sums secured hereby shall also include the amount of such commitment to make future advances or extend credit, and subject to acceleration as provided in the previous paragraph. The Trustee shall pay such amount at such time as it pays all other sums secured hereby and the Beneficiary shall hold same as additional collateral for the obligation secured hereby, at such interest as is available to Beneficiary's customers in an insured deposit account with no restrictions on withdrawal. 11.3 After the lapse of such time as may then be required by law following the recordation of said notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Trustor, shall sell the Property at the time and place fixed by it in said notice of sale, either as a whole or in separate parcels, and in such order as it may determine, at public auction to the highest bidder for cash in lawful money of the United States, payable at the time of sale. Trustee may postpone sale of all or any portion of the Property by public announcement at such time and place of sale, and from time to time thereafter may postpone sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver to such purchaser its deed conveying the Property so sold, but without any covenant or warranty, 9 Exhibit L to the Asset Sale Agreement 148 express or implied. The recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including Trustor, Trustee or Beneficiary may purchase at such sale. 11.4 If the Property consists of more than one lot or parcel, the lots or parcels may be sold separately, together or in any combination, at the sole discretion of Beneficiary. Trustor waives the right to direct the order in which the Property may be sold when it consists of more than one lot or parcel. The order of sale of the Property when it consists of more than one lot or parcel shall be at the sole discretion of the Beneficiary. 11.5 After deducting all costs, fees and expenses of Trustee and of this Trust, including cost of evidence of title in connection with sale, Trustee shall apply the proceeds of sale to payment of: all sums expended under the terms hereof, not then repaid, with accrued interest at the amount allowed by law in effect at the date hereof; all other sums then secured hereby; and the remainder, if any, to the person or persons legally entitled thereto. 12. This Mortgage applies to, inures to the benefit of, and binds all parties hereto, their heirs, legatees, devisees, administrators, executors, successors and assigns. The term "Beneficiary" shall mean the owner and holder, including pledgees, of the evidence of the obligation secured hereby, whether or not named as Beneficiary herein. In this Mortgage, whenever the context so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural. By accepting payment of any sum secured hereby after its due date, Beneficiary does not waive its right either to require prompt payment when due of all other sums so secured or to declare default for failure so to pay. 13. That Trustee accepts this Trust when this Mortgage, duly executed and acknowledged, is made a public record as provided by law. Trustee is not obligated to notify any party hereto of pending sale under any other Mortgage or of any action or proceeding in which Trustor, Beneficiary or Trustee shall be a party unless brought by Trustee. 14. SHOULD TRUSTOR OR ITS SUCCESSOR IN INTEREST WITHOUT THE PRIOR WRITTEN CONSENT OF BENEFICIARY, SELL, TRANSFER, MORTGAGE, PLEDGE, HYPOTHECATE, ASSIGN OR ENCUMBER ITS INTEREST IN THE PROPERTY (OR ANY PART THEREOF), WHETHER VOLUNTARILY OR INVOLUNTARILY, THEN BENEFICIARY MAY AT ITS ELECTION DECLARE ALL SUMS SECURED HEREBY IMMEDIATELY DUE AND PAYABLE. THIS PROVISION SHALL APPLY TO EACH AND EVERY SALE, TRANSFER, MORTGAGE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR ENCUMBRANCE REGARDLESS WHETHER OR NOT BENEFICIARY HAS CONSENTED TO, OR WAIVED, ITS RIGHT HEREUNDER, WHETHER BY ACTION OR NON-ACTION, IN CONNECTION WITH ANY PREVIOUS SALE, TRANSFER, MORTGAGE, PLEDGE, HYPOTHECATION, ASSIGNMENT OR ENCUMBRANCE, WHETHER ONE OR MORE. 15. ANYTHING CONTAINED IN ANY PROVISION OF THIS MORTGAGE OR THE INTERIM MORTGAGE NOTE SECURED HEREBY TO THE CONTRARY NOTWITHSTANDING, IF ANY FORECLOSURE PROCEEDING IS BROUGHT UNDER THE PROVISIONS OF THIS MORTGAGE OR IF ANY OTHER ACTION IS BROUGHT TO ENFORCE THE PROVISIONS OF THIS MORTGAGE OR THE INTERIM MORTGAGE NOTE SECURED HEREBY, BENEFICIARY SHALL NOT BE ENTITLED TO TAKE ANY 10 Exhibit L to the Asset Sale Agreement 149 ACTION TO PROCURE ANY MONEY JUDGMENT IN PERSONAM OR ANY DEFICIENCY DECREE AGAINST TRUSTOR EXCEPT TO THE EXTENT OF TRUSTOR'S INTEREST IN THE PROPERTY OR THE COLLATERAL; PROVIDED, HOWEVER, THAT NOTHING IN THE PROVISIONS OF THIS MORTGAGE SHALL BE DEEMED TO LIMIT OR IMPAIR THE ENFORCEMENT AGAINST THE PROPERTY OR THE COLLATERAL OR ANY OTHER COLLATERAL WHICH MAY FROM TIME TO TIME TO BE GIVEN TO BENEFICIARY, OR HELD BY TRUSTOR IN TRUST ON BEHALF OF BENEFICIARY, AS SECURITY FOR THE PERFORMANCE OF TRUSTOR'S OBLIGATIONS HEREUNDER OR UNDER THE PROVISIONS OF THE INTERIM MORTGAGE NOTE SECURED HEREBY OR ANY OTHER INSTRUMENT EXECUTED IN CONNECTION HEREWITH, OR TO LIMIT OR IMPAIR THE RIGHTS AND REMEDIES OF BENEFICIARY THEREUNDER OR UNDER ANY OF THE PROVISIONS THEREOF; AND PROVIDED FURTHER, THAT TRUSTOR SHALL REMAIN LIABLE TO ACCOUNT FOR THE USE OF THE NET PROPERTY PROCEEDS RECEIVED BY TRUSTOR AND NOT APPLIED ON A CURRENT BASIS AS RECEIVED BY TRUSTOR IN ACCORDANCE WITH THE PROVISIONS OF THIS MORTGAGE AND THE INTERIM MORTGAGE NOTE SECURED HEREBY. 16. The undersigned Trustor requests that a copy of any Notice of Default and of any Notice of Sale hereunder be mailed to him at his address hereinbefore set forth. Signature of Trustor CITY NATIONAL BANK, a national banking association By: _______________________________________ Its: _____________________________________ 11 Exhibit L to the Asset Sale Agreement 150 Exhibit M to Asset Sale Agreement Form of INTERIM MORTGAGE NOTE $____________________ November ____, 1993 (Initial Loan Amount) FOR VALUE RECEIVED, the undersigned, CITY NATIONAL BANK, a national banking association ("Grantor"), promises to pay to the order of ___________________________________ __________________________________________________, offices located at _____________________________________________, County of ________________, State of __________________ ("Grantee"), the principal sum of _______________________________________________________ DOLLARS U.S. ($________________)*, together with interest thereon from the date hereof on any outstanding balance of principal plus any amounts added to the principal amount hereof, until paid, including interest at the rate or rates hereinafter set forth. This note ("Note") is secured by a deed of trust of even date herewith between Grantor and Grantee ("Interim Mortgage"). Capitalized terms not defined herein or in the Interim Mortgage or in Exhibit A hereto shall have the meanings set forth in the Asset Sale Agreement. Interest on the outstanding principal balance of this Note shall accrue at a per annum rate equal to the ask yield published in the Wall Street Journal under Treasury Bonds, Notes & Bills as of the Business Day immediately prior to the Closing Date corresponding to the 6-7/8 Treasury Notes due in February 1994, ("Applicable Rate"), based upon a 360-day year for the actual number of days elapsed. The Applicable Rate shall be paid from Net Cash Flow, which amount shall be payable on the first day of each month, or, if such first day is not a Business Day, then on the following Business Day ("Due Date"); provided, however, that in the event Net Cash Flow for the calendar month immediately preceding the Due Date is insufficient to pay in full the accrued interest on any Due Date, such accrued and unpaid interest shall thereafter accrue interest at the Applicable Rate and be paid in accordance herewith. The amount due hereunder on each Due Date shall be equal to the sum of (i) Net Property Proceeds plus (ii) Late Charges and Outstanding Lender Advances, together with accrued interest thereon at a rate equal to two percent (2.0%) per annum in excess of the Applicable Rate then in effect under this Note, but in no event in excess of the maximum permissible interest rate under applicable law (the "Default Rate"). All payments received hereon shall be applied first, to Late Charges and Outstanding Lender Advances, together with accrued interest thereon at the Default Rate; second, to interest at the Default Rate on any delinquent amounts due and payable hereunder; third, to the payment of delinquent amounts; fourth, to Interest at the Applicable Rate on the outstanding principal balance hereof that accrued during the immediately preceding month, plus accrued and unpaid Interest at the Applicable Rate on amounts that accrued and were not paid (due to an insufficiency in Net Property Proceeds and not to any delinquency) for periods 1 151 Exhibit M to Asset Sale Agreement prior to the month immediately preceding the Due Date; and fifth, to reduce the outstanding principal balance. Principal, Late Charges, accrued interest, repayment of Outstanding Lender Advances and any other sums secured by the Interim Mortgage shall be due and payable in all events on ______________________, 1994, subject to extension for up to ________ months, if Purchaser under the Asset Sale Agreement has delivered a Certificate of Defective Asset to Seller thereunder, and Seller has elected to cure or revalue the Defective Asset (the "Maturity Date"). All payments due hereunder shall be remitted to Grantee in lawful currency of the United States of America in federal or other funds currently due and immediately available with all charges prepaid, as follows: [Insert Account Information] or, upon prior written notice by Grantee, to such other accounts or designees as Grantee shall from time to time request. In the event that any payment or part of any payment due hereunder is not made on the date the same as due, the full amount outstanding hereunder shall bear interest at the Default Rate until such amount is paid, subject to the right to accrue unpaid Interest to the extent that Net Property Proceeds for the month immediately preceding any Due Date are not sufficient to pay such Interest. In the event that any payment or part of any payment due hereunder is not made within five (5) days after the date when the same is due, Grantor shall pay to Grantee a late charge equal to five percent (5%) of the late payment ("Late Charge"), which Late Charge shall bear interest at the Default Rate if not paid when due [subject to the right to accrue unpaid Interest to the extent that Net Property Proceeds for the month immediately preceding any Due Date are not sufficient to pay such Interest]. This charge shall be in addition to any other sums due hereunder and any other rights or remedies the holder of this Note may have. Grantor shall have the right to prepay the principal balance of this Note in whole upon receipt of a Certificate of Defective Asset at any time during the term of this Note without penalty or premium upon the remittance to Grantee of all amounts due hereunder, and upon the satisfaction by Borrower of all obligations required for the release of the Mortgage Loan evidenced hereby from the lien of the Loan and Security Agreement. [This language will be added to the related Interim Mortgage.] Grantee acknowledges that in the making of the Interim Mortgage Loan evidenced hereby and secured by the Interim Mortgage, Grantee is relying to a material extent upon the creditworthiness and business expertise of the Grantor. Therefore, in order to protect Grantee, Grantor agrees that if Grantor sells, conveys, transfers, disposes of or leases (except as to those leases of space in improvements which do not provide for an option to purchase) the Property or any portion thereof, either voluntarily, involuntarily, or otherwise or enters into an agreement so 2 152 Exhibit M to Asset Sale Agreement to do without the prior written consent of Grantee, Grantor shall, not less than thirty (30) days prior to any such event, notify Grantee in writing of the occurrence of such event, and Grantee, whether or not it receives such notice, upon the occurrence of any one or more of such events, shall have the right to declare the then current outstanding principal of this Note immediately due and payable, together with all accrued interest and unpaid interest and other amounts due hereunder, which shall be applied, after being applied to payment of all other sums secured hereby then due and payable in such order as Grantee may determine, to the reduction of the outstanding principal balance of this Note. The foregoing right to accelerate the indebtedness may be exercised at any time in Grantee's sole discretion after the occurrence of any event described above and the acceptance of one or more installments from any person thereafter shall not constitute a waiver of Grantee's right. Notwithstanding the foregoing, after the execution hereof, Grantor shall convey the Property to a Qualified Affiliate as the purchaser thereof in accordance with the terms of the Interim Mortgage and the Sales Contract and Grantor's obligations hereunder shall be satisfied in full. Then and in such event, Grantor shall be relieved of any and all liability whatsoever hereunder. Subject to the terms of the Interim Mortgage and the Sales Contract, Grantor shall have such one-time right to transfer the Property to a Qualified Affiliate, provided that Grantor is not in default hereunder or under the Interim Mortgage. This Note is secured by the Interim Mortgage. All of the terms, covenants, provisions, conditions, stipulations, promises and agreements contained in the Interim Mortgage to be kept, observed and performed by Grantor therein are hereby made a part of this Note and are incorporated herein by this reference to the same extent, and with the same force and effect, as if they were fully set forth herein, and Grantor promises and agrees to keep, observe and perform them, or cause them to be kept, observed and performed, strictly in accordance with the terms and provisions thereof. Grantor hereby expressly agrees that (i) if default be made in the payment of any installment of accrued interest, or principal, or in the payment of Late Charges or the repayment of Outstanding Lender Advances due under this Note and such default shall continue uncorrected; or (ii) if default be made in the performance of or compliance with the terms, covenants and conditions of this Note, the Interim Mortgage securing this Note, the Loan and Security Agreement, the Promissory Note as defined in the Loan and Security Agreement, or any other instrument or collateral related thereto and such default shall continue uncorrected beyond any applicable grace or cure period then, and in any or all such events, the entire outstanding principal balance and accrued interest, and all other sums evidenced by this Note and secured by the Interim Mortgage, shall at once be and become due and payable at the option of the holder of this Note without further notice or demand. The failure of Grantee to exercise the option for acceleration of maturity of this Note or of foreclosure during any default or to exercise any other option granted to it hereunder, or under the Interim Mortgage, in any one or more instances, or the acceptance by Grantee of partial payments or partial performance, shall not constitute a waiver of any such default, but such options 3 153 Exhibit M to Asset Sale Agreement shall remain continuously in force during the pendency of the default. Time is of the essence hereof, and any failure to declare a default hereunder or to accelerate this Note or to impose Late Charges or interest at the Default Rate, notwithstanding that one or more payments due hereunder have not been remitted on a timely basis, shall not constitute a waiver of Grantee's right to declare such a default or to impose Late Charges and interest at the Default Rate. It is expressly stipulated and agreed to be the intent of Grantor and the holder of this Note at all times to comply with the applicable usury and other applicable law of the State of California. If the laws of the State of California or of the United States of America are revised, repealed or judicially interpreted so as to render usurious any amount called for under this Note or any document securing payment of this Note, including, but not limited to, the Interim Mortgage, or contracted for, charged or received with respect to the Interim Mortgage Loan evidenced by this Note, or if exercise by the holder of this Note of the option herein contained to accelerate the maturity of this Note or if any prepayment by Grantor results in Grantor's having paid any interest in excess of that permitted by law, then it is Grantor's and the holder's express intent that all excess amounts theretofore collected by the holder of this Note be credited to the principal balance of this Note in inverse order of maturity of the installments of principal (or, if this Note has been paid in full, refunded to Grantor), and the provisions of this Note and all documents securing the payment of this Note, including, but not limited to, the Interim Mortgage, shall immediately be deemed reformed and the amounts thereafter collectible hereunder and thereunder reduced, without the necessity of execution of any new document, so as to comply with applicable law, but so as to permit the recovery of the fullest amount otherwise called for hereunder and thereunder. It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note and under such other documents securing payment of this Note, or which are interpreted for the purpose of determining whether such rate would exceed the maximum lawful contract rate, shall be made, to the extent permitted by the law of the State of California, by amortizing, prorating, allocating and spreading during the period of the full stated term of the Interim Mortgage Loan evidenced by this Note, all interest at any time contracted for, charged or received from Grantor or otherwise by the holder of this Note. In the event it shall become necessary to employ counsel to collect this obligation or to protect the security herefor, Grantor agrees to pay reasonable attorneys' fees, whether suit be brought or not, and all other costs and expenses actually and reasonable incurred by the holder of this Note in connection with collection, the protection of the security for the debt evidenced hereby or the enforcement of each and every covenant and agreement by the Grantor, or of any remedies herein given to secure this Note, or any instrument collateralized or related thereto or the enforcement of any guaranty. The undersigned and any endorsers, guarantors or sureties jointly and severally waive presentment, protest and demand, notice of protest, notice of intent to accelerate, notice of acceleration, demand and dishonor, and nonpayment of this Note and any and all lack of diligence or delays in the collection or enforcement hereunder may be extended from time to time without notice to any party and without in any way affecting the liability of the undersigned or any 4 154 Exhibit M to Asset Sale Agreement endorsers, guarantor or surety hereof. This Note shall be binding on Grantor and Grantor's successors and assigns. Grantor hereby represents and warrants that it is a business or commercial entity and that the Interim Mortgage Loan evidenced hereby was made and transacted solely for the purpose of carrying on or acquiring a business or commercial investment. THE VALIDITY AND CONSTRUCTION OF THIS NOTE AND ALL MATTERS PERTAINING HERETO ARE TO BE DETERMINED ACCORDING TO THE LAW OF THE STATE OF CALIFORNIA. In the event any provision of this Note (or any part of any provision) is held by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision (or remaining part of the affected provision) of this Note, but this Note shall be construed as if such invalid, illegal or unenforceable provision (or part thereof) had not been contained in this Note, but only to the extent it is invalid, illegal or unenforceable. This Note may not be changed orally, but only by an agreement in writing signed by the parties against whom enforcement of any waiver, change, modification or discharge is sought. Anything contained in any provision of this Note or the Interim Mortgage to the contrary notwithstanding, if any foreclosure proceeding is brought under the provisions of the Interim Mortgage or if any other action is brought under the provisions of the Interim Mortgage or if any other action is brought to enforce provisions of the Interim Mortgage or those of this Note, the holder hereof shall not be entitled to take any action to procure any money judgment in personam or any deficiency decree against the Grantor except to the extent of its interest in the Property or Collateral (as such term is defined in the Interim Mortgage); provided, however, that nothing in the provision of this Note shall be deemed to limit or impair the enforcement against the Property or Collateral covered by the Interim Mortgage or any other collateral which may from time to time be given to Grantee, or held by Grantor in trust on behalf of Grantee; as security for the performance of the Grantor's obligations hereunder or under the provisions of this Note and the Interim Mortgage or any other instrument executed in connection therewith, or to limit or impair the rights and remedies of Grantee thereunder or under any of the provisions thereof; and provided further, that the Grantor shall remain liable to account for the use of the Property Proceeds received by Grantor and not applied on a current basis as received by Grantor in accordance with the provisions of this Note and the Interim Mortgage. * * * * * * 5 155 Exhibit M to Asset Sale Agreement IN WITNESS WHEREOF, Grantor has caused this Note to be executed by _________ ________________, its _______________________, and its corporate seal to be affixed hereto, and does hereby deliver this instrument as its act and deed effective on the date first above written. CITY NATIONAL BANK, a national banking association By: _________________________________ Its: _________________________________ 6 156 Exhibit N to Asset Sale Agreement Form of GRANT DEED [Exhibit omitted from original] EX-10.20 7 AGREE.FOR SEPARATION FROM EMPLOYMENT ALEX L. KYMAN 1 EXHIBIT 10.20 Agreement for Separation from Employment and Release by and between Alexander L. Kyman and City National Bank, dated November 3, 1993 2 EXHIBIT 10.20 AGREEMENT FOR SEPARATION FROM EMPLOYMENT AND RELEASE This Agreement for Separation of Employment and Release ("Agreement") is made and entered into between ALEXANDER L. KYMAN ("Kyman") and CITY NATIONAL BANK, a national banking association ("CNB"), with reference to the following: A. Kyman was hired by CNB on February 28, 1966; B. Kyman has suffered permanent disabilities not arising out of or relating to the course and scope of Kyman's employment with CNB; C. Both Kyman and CNB now wish, by the terms of this Agreement, to forever and finally resolve all of their respective rights and obligations relating to Kyman's employment relationship with CNB and separation therefrom, except respecting the parties' rights and obligations under and arising out of this Agreement. Based on the foregoing, Kyman and CNB knowingly and voluntarily agree as follows: 1. Kyman's last day of work and last day on the payroll at CNB will be December 31, 1993. Kyman's separation from employment will be effective December 31, 1993. Because of Kyman's disabilities, he will not be required to report to work or to perform any services prior to December 31, 1993, except as set forth in Paragraph 9.3 below. 2. Until December 31, 1993, CNB will pay Kyman at a rate based on his net salary from CNB (the gross amount of which is $300,000.00 per year) on CNB's regular semi-monthly pay period dates (and after deducting required taxes, other required governmental withholdings, and any other deductions authorized by Kyman) by deposit to his present CNB checking account and with pay advice thereof mailed to his residence address as reflected in his CNB personnel file. 3. Provided Kyman does not revoke this Agreement in the manner set forth in Paragraph 24 below, on January 3, 1994, or such later date as Kyman may elect, CNB will deposit to Kyman's CNB checking account the amount of $165,000.00 and will mail an advice thereof to his residence address as reflected in his CNB personnel file. Said payment is made in full, complete and final settlement of Kyman's claims for alleged personal injury, pain, suffering and emotional injury and stress arising out of Kyman's employment with CNB or the termination thereof, or arising out of any matter occurring on or before the date Kyman executes this Agreement, except as to the parties' rights and obligations arising out of this Agreement. Kyman understands that the amount paid under this Paragraph need not be reported on an Internal Revenue Service Form 1099 inasmuch as it represents the settlement of a tort claim, and therefore CNB agrees not to file a Form 1099 reporting its payment to Kyman under this Paragraph. Kyman agrees and warrants that if any governmental entity finds any or all of this settlement payment to 1 3 represent taxable earnings, Kyman will be responsible for the payment of any income taxes, interest, fines, penalties or any other payment or liability owed thereon, and to the extent CNB may be held responsible for any such payment, Kyman agrees to indemnify and hold CNB harmless for such payment or liability. 4. Kyman will continue to be eligible for all CNB employee insurance benefits through December 31, 1993. Because Kyman is under age 65, he may be eligible for continued group health insurance coverage under the Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") after December 31, 1993, at his own expense. Kyman will be paid for all his unused vacation (less required taxes and other governmental withholdings) in the payment due him on December 31, 1993, referenced in Paragraph 2 above. 5. Kyman understands that all the payments and benefits set forth in Paragraphs 2, 3 and 4, above, except payment for his accrued, unused vacation, are not required by any of CNB's policies or procedures. 6. Any costs or expenses of Kyman which would normally be reimbursed by CNB (including, but not limited to, club membership, business development expenses, mileage, meals, etc.) will only be paid by CNB if incurred on or before December 31, 1993, and to the extent they satisfy CNB reimbursement requirements. Any such costs or expenses incurred after that date by Kyman are the sole responsibility of and are fully assumed by Kyman. 7. Kyman's rights and status as a participant under the CNB Profit Sharing Plan will continue through December 31, 1993. Kyman acknowledges his rights and status under that Plan and his entitlement, if any, to benefits under it will be determined in accordance with its terms except as otherwise specifically provided in this Agreement, including those respecting exercise rights upon termination of employment, which date, for purposes thereof and consistent with the intent of this Agreement, is December 31, 1993. 8. All CNC incentive and non-statutory stock options awarded to Kyman through December 31, 1993, will be fully vested effective December 31, 1993, and the period within which Kyman may exercise such options is extended to the earlier of the date each option expires by its own terms (excluding any terms accelerating the expiration date thereof), or December 31, 1998, all subject to execution of a written amendment to Kyman's written stock option agreements. Kyman understands that as a result of the exercise periods of these options being extended beyond their original terms, the options will no longer be treated as incentive stock options for federal income tax purposes effective three years after December 31, 1993. This change will result in significant differences in the tax treatment of these options, as more fully discussed in Kyman's Participant's Guide to City National Corporation 1983 and 1985 Stock Option Plans. Except as otherwise specifically provided in this Agreement, all Kyman's rights and benefits respecting his stock options are determined in accordance with the terms of the Plans. 9. Kyman, as stated below, will do or not do the following: 9.1 Kyman has had access to, learned of or obtained customer lists, financial information, pricing information, trade secrets, trade knowledge, know-how, unprinted or printed data, confidential information or other related tangible or intangible property ("Trade 2 4 Secrets") belonging to, used or developed by or for the benefit of, within the possession or control of, or concerning CNB and/or any current or former customers or shareholders. All such Trade Secrets must be kept strictly confidential by Kyman and he will never use, divulge, disclose, or communicate them, either directly or indirectly, in any way to any other person or entity except as compelled by law or with the prior written permission of CNB's Chief Executive Officer or President; 9.2 Kyman acknowledges and agrees that in the event of any breach by him of the promises or obligations set forth in Paragraph 9.1 above, CNB would suffer great and irreparable harm, injury, and damage, would encounter extreme difficulty in attempting to prove the actual amount of damages suffered by it as a result of such breach, and would therefore not be reasonably or adequately compensated in damages in any action at law. Kyman therefore agrees that in addition to any other remedy CNB may have at law, in equity, by statute, or otherwise, in the event of any breach by him of any of his promises or obligations set forth in Paragraph 9.1, CNB will be entitled to seek and receive temporary, preliminary and permanent injunctive and other equitable relief from any court of competent jurisdiction to enforce those promises or obligations, or otherwise to prevent the violation of any of the terms or provisions of Paragraph 9.1, without the necessity of proving the amount of any actual damage to CNB resulting therefrom. However, nothing in this paragraph is intended as a waiver by CNB of any other rights it may have against Kyman at law, in equity, by statute, or otherwise, arising out of, in connection with or resulting from any breach by Kyman of this Agreement; 9.3 After December 31, 1993, Kyman will not be required to perform any services for CNB except as may be reasonably necessary to cooperate and assist at CNB's expense in an orderly transition and the investigation and handling (including, but not limited to, providing information or testifying) of any actual or threatened court action, arbitration or administrative proceeding relating to any matter involving Kyman or any of his duties or responsibilities during his employment with CNB; 9.4 Kyman will immediately return to CNB all files, records, documents, plans, drawings, specifications, equipment (other than the car telephone in Kyman's automobile, which will become the property of Kyman), pictures, videotapes, keys and similar items which are the property of or relate to CNB and/or any current or former customers or shareholders in his possession or control; 9.5 Kyman will not assist in any litigation against CNB relating to any act or omission occurring prior to the date Kyman executes this Agreement, except as compelled by law, or in his own defense if Kyman is named as a defendant in such litigation; and 9.6 Kyman will not directly or indirectly offer or encourage CNB's officers or employees to seek employment elsewhere unless given prior permission in writing by CNB's Chief Executive Officer or President, provided, however, that nothing contained herein will prohibit Kyman from giving references if requested. 10. This Agreement, its contents, and the parties' discussions pertaining to it are confidential. Neither party will communicate in any manner (written, oral, or otherwise) with respect thereto, except (1) by Kyman to his spouse, family members, attorneys, and tax advisors, 3 5 if any, who must be informed of and bound by this confidentiality provision; or (2) as compelled by law. Also, neither party will ever make any disparaging statements or remarks about the other. 11. By signing this Agreement, Kyman and his heirs, executors, administrators, successors and assigns, if any, hereby absolutely and forever release and discharge CNB and its parent, subsidiaries, affiliates, related and correspondent entities and any of its or their current or former directors, officers, employees, representatives, administrators, agents and attorneys, and any successors-in-interest and assigns (collectively "CNB Parties") from any and all claims, demands, losses, actions, causes of action, suits, liabilities, obligations, controversies, damages, compensation, costs, expenses, attorneys' fees, or the like, of every kind, nature or character, whether known or unknown, suspected or unsuspected, direct or indirect, derivative or otherwise, which Kyman now holds or owns or at any time heretofore held or owned, or may at any time in the future hold or own, based on, arising out of or in connection with any matter relating to Kyman's employment with CNB, the termination of that employment, or any basis therefor, or any other matter occurring or arising on or before the date Kyman executes this Agreement, except as provided in this Agreement (collectively "Claims"). Claims released under this Agreement include but are not limited to: (i) Claims for injuries to Kyman arising out of or relating to the course and scope of his employment with CNB; (ii) Claims for alleged violations of any contracts, express or implied, or any covenants of good faith and fair dealing, express or implied; (iii) Claims of any legal restrictions on CNB's right to discipline or terminate employees, any "constructive discharge" or "wrongful discharge," or any tort; (iv) Claims for defamation, invasion of privacy, emotional and/or personal injury or distress or the like; (v) Claims for sick leave, vacation, compensated time off, workers' compensation, separation pay or severance; or (vi) Claims for violation of any local, state, federal or other governmental statute, regulation or ordinance, as amended, including, without limitation: (1) Title VII of the Civil Rights Act of 1964 (race, color, religion, sex (including pregnancy), and national origin discrimination); (2) 42 U.S.C. Section 1981 (discrimination in the making and enforcement of contracts); (3) the Age Discrimination in Employment Act (42 U.S.C. Sections 621-634); (4) the Federal and California Equal Pay Acts (29 U.S.C. Section 206(d)(1) and California Labor Code Sections 3200, et seq.); (5) the California Fair Employment and Housing Act (California Govt. Code Section 12940 et seq.) (discrimination, including race, color, national origin, ancestry, physical handicap, medical condition, marital status, sex (including pregnancy), or age); (6) Executive Order 11246 (race, color, religion, sex (including pregnancy), and national origin discrimination); (7) Executive Order 11141 (age discrimination); (8) the Rehabilitation Act of 1973 (29 U.S.C. Sections 503 and 504); (9) the Older Workers Benefit Protection Act amendments to the Age Discrimination in Employment Act (29 U.S.C. Sections 621 et seq.); (10) the Civil Rights Act of 1991; (11) the Workers' Compensation Act (California Labor Code Section 1197.5, et seq.); (12) the Americans with Disabilities Act; and (13) the Employee Retirement Income Security Act of 1974 ("ERISA"). This Agreement, however, does not include a release of (a) Kyman's right, if any, to pension, retiree health, or similar benefits under any standard retirement program of CNB, or rights or claims Kyman may have under the Age Discrimination in Employment Act which arise after the date he executes this Agreement; (b) any of Kyman's rights with respect to his long term disability insurance coverage and benefits; or (c) any right Kyman may have to participate in any recovery in any class action solely as a class member, provided Kyman has not served as a named plaintiff or representative of the class or otherwise assisted in such litigation in violation of Paragraph 9.5 above. 12. By signing this Agreement, CNB and its successors and assigns, if any, hereby absolutely and forever release and discharge Kyman from any and all claims, demands, losses, 4 6 actions, causes of action, suits, liabilities, obligations, controversies, damages, compensation, costs, expenses, attorneys' fees, or the like, of every kind, nature or character, whether known or unknown, suspected or unsuspected, direct or indirect, derivative or otherwise, which CNB now holds or owns or at any time heretofore held or owned, or may at any time in the future hold or own, based on, arising out of or in connection with any matter relating to Kyman's employment with CNB, the termination of that employment, or any basis therefor, or any other matter occurring or arising on or before the date CNB executes this Agreement, except as provided in this Agreement. 13. Each party intends and agrees that this Agreement will be effective as a full, final and general release of and from all matters covered herein. In furtherance thereof, each party acknowledges that such party is familiar with, and that such party's attorney of record, if any, has advised him or it of, California Civil Code Section 1542, which provides as follows: A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of execution of the release, which if known by him must have materially affected his settlement with the debtor. Each party expressly waives and releases any right or benefit which that party has or may in the future have under California Civil Code Section 1542 to the fullest extent that he or it may do so lawfully. Further, each party acknowledges that he or it may hereafter discover facts different from or in addition to those facts now known to such party or believed by such party to be true with respect to any or all of the matters covered by this Agreement, and agrees that this Agreement will nevertheless be binding and remain in full and complete force and effect. 14. Kyman represents that he has not filed any complaint(s), charge(s), claim(s), or application(s) against any CNB Party with any local, state or federal agency or court. Kyman represents and agrees that he will never file any such complaint, charge, claim or application against CNB at any time hereafter based upon any matter relating to his employment with CNB or his separation therefrom, or based upon any matter arising on or before the date Kyman executes this Agreement, except respecting his rights set forth in this Agreement. Kyman further represents and agrees that if any agency or court assumes jurisdiction of any such complaint, charge, claim or application against CNB on behalf of Kyman, he will request such agency or court to withdraw from and/or to dismiss the matter with prejudice; and if withdrawal or dismissal cannot be or is not effected, Kyman agrees that CNB will be entitled to a credit from Kyman in an amount equivalent to all payments and benefits to him by CNB under Paragraphs 3 and 4 of this Agreement, for any amount Kyman receives as a result of any such complaint, charge, claim or application. 15. Nothing contained in this Agreement is to be construed as an admission of liability or wrongdoing of any kind by any party hereto, and all such liability or wrongdoing is expressly denied. 16. Kyman acknowledges that if this Agreement becomes effective, his employment with CNB will end voluntarily, irrevocably and forever on December 31, 1993, and will not be resumed at any time in the future. 5 7 17. Kyman acknowledges that before signing this Agreement, he has been encouraged by CNB to consult, and in fact has consulted, with an attorney about this Agreement's terms. 18. Kyman agrees to pay his own attorneys' fees and costs, if any, arising out of or in connection with this Agreement or its subject matter. The parties agree that if a court of competent jurisdiction determines that either of them has breached any provision of this Agreement, he or they will pay all costs, damages, expenses and reasonable attorneys' fees, including those of in-house counsel, incurred by the other in enforcing the Agreement against the breaching party's claims. 19. Any alteration or modification to this Agreement must be in writing and signed by each party to it or its duly authorized representative. In the event a court of competent jurisdiction or a governmental agency determines, upon the request or petition of Kyman, that any provision of this Agreement, or application of it, is void, invalid, unenforceable, or contrary to law for any reason, its remaining provisions will, at CNB's option, continue to be binding and fully enforceable; in such a case, if CNB elects not to enforce the remainder of this Agreement, Kyman agrees to return, in full or in part, as determined by CNB, any and all payments received in exchange for agreeing to this Agreement. 20. Each party to this Agreement represents and warrants that he or it has not assigned, transferred and/or granted to any other person any claim or portion thereof against any other party to this Agreement. 21. This Agreement will be binding upon the heirs, executors, administrators, successors and assigns of the parties hereto, provided, however, that Kyman will not be entitled to encumber, create a lien upon, assign or transfer any payments due under this Agreement. 22. This Agreement will be construed and enforced in accordance with the laws of California to the extent such laws are not preempted by applicable federal law. 23. This Agreement will not impair or alter Kyman's rights, if any, to indemnification or payment of defense costs or expenses from CNB as provided by CNB's Articles of Association and/or applicable law or from CNC pursuant to that certain written agreement between it and Kyman, dated April 21, 1987, a true and correct copy of which is attached hereto and incorporated herein by this reference as Exhibit "1". 24. Kyman understands that he was given a period of at least 21 consecutive calendar days to review and consider this Agreement before signing it. Kyman further understands he may revoke this Agreement within 7 days after signing it. Revocation is effective upon written notice thereof being received by Marjorie Luttenbacher, Executive Vice President and Manager of CNB's Human Resources Division, 120 South Spalding Drive, Suite 300, Beverly Hills, California 90212, no later than the close of business on the 7th day after Kyman signs this Agreement. If Kyman revokes this Agreement, it will not be effective or enforceable, and Kyman will not receive, or will be required to immediately and fully reimburse CNB for, any payments or benefits to him pursuant to this Agreement. If Kyman does not revoke the Agreement, it will become effective on the 8th day after he signs it. 6 8 THE UNDERSIGNED PARTIES, AND EACH OF THEM, ACKNOWLEDGE THAT THEY HAVE CAREFULLY READ THIS AGREEMENT FOR SEPARATION OF EMPLOYMENT AND RELEASE IN ITS ENTIRETY, HAVE HAD THE OPPORTUNITY TO DISCUSS THE CONTENTS OF THE AGREEMENT WITH THEIR RESPECTIVE ATTORNEYS, IF ANY, AND, AS A RESULT, FULLY UNDERSTAND THE TERMS AND CONSEQUENCES OF THE AGREEMENT. BASED ON THEIR KNOWLEDGE AND UNDERSTANDING OF THE AGREEMENT, THE PARTIES REPRESENT AND WARRANT THAT THEY FREELY AND VOLUNTARILY ENTER INTO IT ON THE DATE SET FORTH BELOW. Dated: November 3, 1993 /s/ Alexander L. Kyman ----------------------------------- ALEXANDER L. KYMAN CITY NATIONAL BANK, a national banking association By: /s/ Bram Goldsmith ------------------------------ BRAM GOLDSMITH Chairman of the Board and Chief Executive Officer APPROVED AS TO FORM AND CONTENT: OFFICE OF THE GENERAL COUNSEL By: /s/ Steven L. Strange ------------------------------ STEVEN L. STRANGE Senior Counsel Attorney for CITY NATIONAL BANK 7 9 INDEMNIFICATION AGREEMENT This Indemnification Agreement is made and entered into this 21st day of April, 1987, between City National Corporation, a Delaware corporation (the "Company") and ALEXANDER L. KYMAN (the "Indemnitee"), an officer and/or member of the Board of Directors of the Company. RECITALS -------- A. The Indemnitee is an officer and/or member of the Board of Directors of the Company. B. The Board of Directors of the Company has determined that highly competent persons will be difficult to retain as officers and/or directors of the Company unless such persons are adequately protected against liabilities incurred in performances of their services as officers and/or directors of the Company. C. It is, therefore, in the best interests of the Company to attract and retain such officers and/or directors by providing adequate protection against such liabilities by means of Indemnification Agreements with individual officers and/or directors, such as the Indemnitee. AGREEMENT --------- NOW, THEREFORE, in consideration of the promises and covenants contained herein and as an inducement to the Indemnitee to continue to serve as an officer and/or director of the Company, the Company and the Indemnitee do hereby agree as follows: 1. Indemnity of Director/Officer. The Company agrees to indemnify and hold harmless the Indemnitee to the fullest extent permissible under its Certificate of Incorporation, Bylaws and applicable law, as the same exists or may be amended from time to time. Provided, however, that no amendments to the Certificate of Incorporation or Bylaws subsequent to the date hereof shall eliminate or lessen the availability or scope of indemnification herein. In addition, the Indemnitee's indemnification rights shall include but not be limited to the rights contained in the following Paragraphs except to the extent expressly prohibited by applicable law. 2. Indemnification in Third-Party Actions. The Company shall indemnify and hold harmless the Indemnitee from and against all expenses (including attorneys' fees), liability, judgments, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with any present or future threatened, pending or completed action, suit or proceeding, or appeal thereof, whether civil, criminal, administrative or investigative (other than an action by or in the EXHIBIT 1 -1- 10 right of the Company) if the indemnitee is a party or threatens to be made a party to such action, suit or proceeding by reason of the fact that Indemnitee is or was a director, member of any committee of the board, officer, employee or agent of the Company, or of any subsidiary of the Company, or is or was serving at the request of the Company as a director, member of any committee of the board, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; provided, however, that the Indemnitee shall be entitled to such indemnification only if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. 3. Indemnification in Proceedings by or in the Name of the Company. The Company shall indemnify and hold harmless the Indemnitee from and against expenses (including attorneys' fees), judgments and amounts paid in settlement actually and reasonably incurred by Indemnitee in connection with the defense or settlement of any present or future threatened, pending or completed action or suit, or appeal thereof, by or in the right of the Company to procure a judgment in its favor if the Indemnitee is a party or threatened to be a party to such action or suit by reason of the fact that Indemnitee is or was a director, member of any committee of the board, officer, employee or agent of the Company, or of any subsidiary of the Company, or is or was serving at the request of the Company as a director, member of any committee of the board, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; provided, however, that the Indemnitee shall be entitled to such indemnification only if Indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable in the performance of his or her duty to the Company if and to the extent that the court in which such action or suit was brought shall determine that the Indemnitee is not entitled to such indemnification. 4. Liability Insurance. The Company will undertake reasonable efforts to maintain policies of Directors and Officers Liability Insurance in reasonable amounts from established and reputable insurers. The Company shall not be liable under this Indemnification Agreement for any amount of any claim for which the Indemnitee has been paid, or is legally entitled to payment, under such insurance policies or under any other valid insurance policies maintained in the future by the Company for Indemnitee's benefit. Any such policies maintained by the Company will expire under expiration terms as therein set forth. The Company is uncertain whether such policies will be renewed or if not renewed can be replaced with policies of similar coverage at reasonable cost. The Company shall not be required to maintain the policies presently in effect or to replace such policies if, in the judgment of the Board of Directors of the Company, the cost of such policies is not reasonable in relation to the coverage provided. If the Company so decides not to maintain the current policies or replace them with policies of similar coverage, the Company agrees to indemnify and hold harmless the Indemnitee to the extent of coverage which would have been -2- 11 provided by such policies to the fullest extent permissible under applicable law, in addition to any other indemnification provided by this Agreement. 5. Advances of Expenses. Expenses incurred by the Indemnitee in connection with any action, suit, proceeding or appeal thereof, described in Paragraphs 2 and 3 above, shall be paid by the Company in advance of the final disposition of such action, suit or proceeding within twenty (20) days of receipt of an undertaking by the Indemnitee to repay such amount if it is ultimately determined by the Board of Directors, independent counsel, the shareholders or a court, as provided in Paragraph 8 of this Indemnification Agreement, that Indemnitee is not entitled to be indemnified by the Company or not entitled to full indemnification by the Company. 6. Indemnification Hereunder Not Exclusive. Indemnification and advancement of expenses set forth in this Indemnification Agreement shall not be exclusive of other rights the Indemnitee may have under applicable law, other agreements between the Company and the Indemnitee, the Certificate of Incorporation or Bylaws of the Company, by vote of disinterested directors of the Company or by vote of the shareholders of the Company. 7. Continuation of Indemnity. The indemnification and advancement of expenses provided by, or granted pursuant to this Indemnification Agreement shall continue after the Indemnitee has ceased to be an officer and/or director of the Company and shall inure to the benefit of the heirs, executors and administrators of the Indemnitee. 8. Indemnification Procedure; Determination of Right to Indemnification. Upon written request by the Indemnitee for indemnification under Paragraphs 2 and 3 above, the Indemnitee's entitlement to such indemnification shall be made by (1) the Board of Directors of the Company by a majority vote of a quorum consisting of directors who were not parties to the action, suit, settlement or proceeding, or (2) if such quorum is not obtainable, by independent counsel, in a written opinion, or (3) by the shareholders of the Company. Determination of entitlement to indemnification shall be made within sixty (60) days of receipt by the Company of a written request for indemnification by the Indemnitee. The Indemnitee's request shall be accompanied by documentation reasonably available to the Indemnitee relating to the Indemnitee's entitlement to be indemnified. All reasonable expenses (including attorney's fees) relating to the Indemnitee's request for indemnification under the Indemnification Agreement shall be paid by the Company regardless of the outcome of the determination as to the Indemnitee's entitlement to indemnification. If such determination is unfavorable to the Indemnitee or if the Indemnitee has made no request for indemnification under or no determination is otherwise made, the Indemnitee may, within two (2) years after such determination, or, if no determination has been made, within two (2) years after the Indemnitee has incurred the expense or otherwise made a payment for which the Indemnitee seeks indemnification, petition the Court of Chancery of the State of Delaware or any other of competent jurisdiction to determine whether the Indemnitee is entitled to indemnification hereunder the terms of this Indemnification Agreement. The Indemnitee shall not be prejudiced in such judicial proceeding by a prior determination that the Indemni- -3- 12 tee is not entitled to indemnification. The Company shall be precluded from asserting in such court that it is not bound by the provisions of the Indemnification Agreement. The Company shall pay all expenses (including attorneys' fees) actually and reasonably incurred by the Indemnitee in connection with such judicial determination. 9. No Presumption. If any action, suit or proceeding described in Paragraphs 2 and 3 above shall be terminated by judgment, order, settlement or conviction or upon a plea of nolo contendere or its equivalent, no presumption shall be created that the Indemnitee did not act in good faith and in a manner which such Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, that the Indemnitee had reasonable cause to believe that his or her conduct was unlawful. 10. Limitations on Indemnification. Notwithstanding any other provision of the Indemnification Agreement, the Company shall not be liable to indemnify the Indemnitee in connection with any claim against Indemnitee: 10.1 for which the Indemnitee is indemnified by the Company other than under this Indemnification Agreement; 10.2 if a court of competent jurisdiction has rendered a final decision that indemnification relating to the claim would be unlawful; 10.3 if, pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of any state or federal statutory law, the claim is for an accounting of profits made from the purchase and sale by the Indemnitee of securities of the Company; 10.4 if a final decision by a court of competent jurisdiction shall adjudge the Indemnitee's conduct to have been knowingly fraudulent or deliberately dishonest and to be material to the claim adjudicated by the court; or 10.5 if the claim was based upon the Indemnitee's deriving an unlawful personal benefit and a court of competent jurisdiction adjudges that such benefit was unlawful in a final decision. 11. Savings Clause. if any provision of this Indemnification Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions (including portions of any paragraph of this Indemnification Agreement containing an invalid, illegal or unenforceable provision) shall not be impaired thereby. To the extent practicable, any invalid, illegal or unenforceable provision of this Indemnification Agreement shall be deemed modified as necessary to comply with all applicable laws. -4- 13 12. Counterparts. This Indemnification Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 13. Interpretation; Governing Law. Headings are for convenience only and shall not be used in construing meaning. This Indemnification Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware. 14. Notices. All notices or other communication hereunder shall be in writing and shall be deemed to be effective and to have been duly given if delivered by certified mail, postage prepaid, return receipt requested to the respective parties, as follows: "Company" City National Corporation 400 North Roxbury Drive Beverly Hills, CA 90210 Attn: General Counsel "Indemnitee" ALEXANDER L. KYMAN ALSO SEND 4411 WESTCHESTER DRIVE COPIES TO DAVID KYMAN WOODLAND HILLS, CA 91364 C/O BUCHALTER, NEMER, FIELDS, __________________________________ CHRYSTIE & YOUNGER. or to such other address as a party may have furnished to the other in writing in accordance with this paragraph, except that notice of change of address shall only be effective upon receipt. 15. Successors and Assigns. This Indemnification Agreement shall be binding upon the Company and its successors and assigns and shall inure to the benefit of the Indemnitee and his or heirs, executors and administrators. 16. Amendment, Waiver. No amendment of this Indemnification Agreement shall be binding unless executed in writing by both parties hereto. No waiver of any provision of this Indemnification Agreement shall constitute a waiver of any other provision hereof. ***** -5- 14 17. Notification of Claims. The Indemnitee shall promptly notify the Company in writing upon being served with any summons, citation, subpoena, indictment, complaint, information or other document relating to any matter concerning which the Indemnitee may be entitled to indemnification hereunder. IN WITNESS WHEREOF, the parties hereto have caused this Indemnification Agreement to be duly executed and signed as of the date first above written. "Company" City National Corporation, a Delaware corporation By: /s/ James P. Del Guercio ----------------------------- Its: VICE PRESIDENT ----------------------------- "Indemnitee" /s/ Alexander L. Kyman ----------------------------------- ALEXANDER L. KYMAN -6- EX-10.20.1 8 LETTER FROM CNB TO ALEXANDER L. KYMAN 1 EXHIBIT 10.20.1 Letter from City National Bank to Alexander L. Kyman, dated November 3, 1993 2 EXHIBIT 10.20.1 [CITY NATIONAL BANK LOGO] November 3, 1993 Mr. Alexander L. Kyman 4411 Westchester Drive Woodland Hills, CA 91364 Re: AGREEMENT FOR SEPARATION FROM EMPLOYMENT AND RELEASE Dear Mr. Kyman: When countersigned by you in the space provided below, this letter will confirm the agreement between City National Bank ("CNB") and you with respect to the matters set forth below. CNB and you are parties to an Agreement (the "Country Club Agreement") dated August 31, 1967, whereby you are obligated to reimburse CNB for the cash sale value of your membership in the El Caballero Country Club (the "Club") in the event of your leaving the employment of CNB or your retirement. CNB and you have also entered into an Agreement for Separation From Employment and Release (the "Separation Agreement") pursuant to which your employment with CNB will be terminated effective December 31, 1993. CNB hereby agrees that the Country Club Agreement will be terminated effective December 31, 1993, and that you will not be required to make any reimbursement or other payment to CNB thereunder. Notwithstanding anything to the contrary in the Separation Agreement, including without limitation Paragraph 9.1 thereof, CNB acknowledges that you have worked in the banking industry for your entire career and have developed extensive knowledge and experience in all aspects of the banking industry, and nothing in the Separation Agreement prohibits or in any way will impair you from consulting or otherwise working in any aspect of such industry. CNB acknowledges that you have informed CNB of your intent to act as a financial consultant subsequent to the termination of your employment with CNB, and CNB hereby consents to your communication with clients and prospective clients who may be customers of CNB with respect to your consulting practice. In addition, CNB acknowledges that from time to time, you may be consulted by customers of CNB, prospects or others regarding their banking arrangements, during the course of which you may become privy to further information concerning CNB, including pricing and terms offered to CNB customers, which subsequently acquired information will not be deemed to constitute a Trade Secret (as defined in the Separation Agreement) unless such information is confidential and acquired from an employee, officer or agent of CNB. You will use your best efforts to refer all inquiries regarding new banking business to CNB, provided that if CNB fails or refuses to accept any such new business, nothing in the Separation Agreement will prohibit you from in good faith referring such new business to other financial institutions. 3 Mr. Alexander L. Kyman November 3, 1993 Page 2 This letter and the Separation Agreement contain and express the entire and final agreement of the parties with respect to the matters covered herein and therein, and supersede all negotiations, prior discussions and preliminary agreements. No promises or representations, express or implied, concerning this letter or the Separation Agreement have been made by either party to the other, other than those contained herein and in the Separation Agreement. Very truly yours, CITY NATIONAL BANK, a national banking association By: /s/ Bram Goldsmith ------------------------------ Its: Chairman/CEO ------------------------------ AGREED AND ACCEPTED: /s/ Alexander L. Kyman - ------------------------------ ALEXANDER L. KYMAN EX-13 9 PAGES 7 THROUGH 53 OF ANNUAL REPORT 1 EXHIBIT 13 Pages 7 through 53 of Annual Report to Security Holders for the year ended December 31, 1993 2 EXHIBIT 13 FINANCIAL REVIEW SELECTED FINANCIAL INFORMATION
AS OF OR FOR THE YEAR ENDED DECEMBER 31 -------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS STATEMENT OF OPERATIONS DATA Interest income.............................. $ 169,792 $ 233,049 $ 360,834 $ 425,538 $ 408,711 Interest expense............................. 41,996 84,433 180,319 228,935 220,342 Provision for credit losses.................. 30,000 114,500 118,000 43,000 15,146 Noninterest income........................... 45,810 45,365 43,332 38,524 39,327 Gains and losses on securities transactions............................... -- 1,629 -- 45 65 Noninterest expense (other than ORE and consolidation charge)...................... 129,226 152,887 148,302 134,577 124,351 Consolidation charge......................... 12,000 -- -- -- -- ORE expense.................................. 25,674 20,825 2,548 -- 65 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations before taxes............................... (23,294) (92,602) (45,003) 57,595 88,199 Income taxes (benefit)....................... (9,260) (32,450) (22,387) 18,800 32,130 ---------- ---------- ---------- ---------- ---------- Income (loss) from continuing operations..... (14,034) (60,152) (22,616) 38,795 56,069 Income from discontinued operations.......... 7,128 804 1,396 5,202 4,149 ---------- ---------- ---------- ---------- ---------- Net income (loss)............................ $ (6,906) $ (59,348) $ (21,220) $ 43,997 $ 60,218 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- PER SHARE DATA Income (loss) per share from continuing operations................................. $ (.35) $ (1.87) $ (.70) $ 1.19 $ 1.73 Net income (loss) per share.................. (.17) (1.84) (.66) 1.35 1.86 Cash dividends declared...................... -- -- .320 .640 .576 Book value per share......................... 6.62 7.07 8.91 9.89 9.12 Shares used to compute income (loss) per share...................................... 39,580,069 32,239,714 32,214,230 32,500,543 32,425,828 BALANCE SHEET DATA -- AT PERIOD END Assets....................................... $3,100,626 $3,514,102 $4,571,262 $4,962,826 $4,769,368 Loans........................................ 1,620,556 2,075,202 2,615,201 3,057,735 2,738,095 Investment securities........................ 902,481 413,645 731,196 622,318 555,003 Interest-earning assets...................... 2,830,451 3,013,188 3,993,881 4,554,412 4,232,117 Deposits..................................... 2,526,767 2,911,276 3,664,219 4,102,098 3,911,608 Shareholders' equity......................... 298,074 227,944 287,064 317,688 288,036 BALANCE SHEET DATA -- AVERAGE BALANCES Assets....................................... $2,944,461 $3,918,949 $4,605,075 $4,602,373 $4,217,763 Loans........................................ 1,737,401 2,315,285 2,852,311 2,875,154 2,527,224 Investment securities........................ 501,644 547,493 665,071 597,677 513,523 Interest-earning assets...................... 2,597,902 3,462,548 4,164,090 4,103,452 3,744,695 Deposits..................................... 2,380,106 3,133,109 3,706,621 3,726,727 3,416,472 Shareholders' equity......................... 260,649 259,629 318,776 312,348 266,890 ASSET QUALITY Nonaccrual loans............................. $ 71,056 $ 160,299 $ 152,555 $ 68,408 $ 15,810 ORE.......................................... 5,559 94,065 64,510 2,130 -- ---------- ---------- ---------- ---------- ---------- Total nonaccrual loans and ORE............... $ 76,615 $ 254,364 $ 217,065 $ 70,538 $ 15,810 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Assets held for accelerated disposition...... $ 17,450 $ -- $ -- $ -- $ -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- PERFORMANCE RATIOS Return on average assets..................... (.23)% (1.51)% (.46)% .96% 1.43% Return on average shareholders' equity....... (2.65) (22.84) (6.65) 14.09 22.56 Net interest spread.......................... 4.19 3.61 3.33 3.59 3.69 Net interest margin.......................... 4.97 4.41 4.48 4.95 5.22 Average shareholders' equity to average assets..................................... 8.85 6.62 6.92 6.79 6.33 ASSET QUALITY RATIOS Nonaccrual loans to total loans.............. 4.38% 7.72% 5.83% 2.24% .58% Nonaccrual loans and ORE to total loans and ORE........................................ 4.71 11.73 8.10 2.31 .58 Allowance for credit losses to total loans... 6.82 6.56 4.81 1.97 1.34 Allowance for credit losses to nonaccrual loans...................................... 155.51 84.90 82.44 87.83 231.59 Net charge offs to average loans............. 3.12 4.50 1.83 .68 .28
7 3 OVERVIEW City National Corporation (the "Corporation") is the holding company for City National Bank (the "Bank"). Because the Bank comprises substantially all of the business of the Corporation, references to the "Company" in this Annual Report reflect the consolidated activities of the Corporation and the Bank. The Company recorded a consolidated net loss of $6.9 million, or $.17 per share, in 1993. The net loss was largely due to the provision for credit losses of $30.0 million, Other Real Estate (ORE) expenses of $25.7 million and a consolidation charge of $12.0 million. The Company's 1993 loss of $6.9 million compares with a loss of $59.3 million, or $1.84 per share, in 1992. The smaller loss in 1993 was primarily the result of an $84.5 million decrease in the provision for credit losses, a $23.7 million decrease in noninterest expense before the consolidation charge and ORE expense, and a $7.1 million aftertax gain from the sale of the Bank's data processing division in 1993. These factors were partially offset by a $20.8 million decrease in net interest income due to lower interest-earning assets, a $4.8 million increase in ORE expense and the $12.0 million consolidation charge. The return on average assets was a negative .23% and the return on average shareholders' equity was a negative 2.65% in 1993, compared with a negative 1.51% and a negative 22.84%, respectively, in 1992. Average assets declined from $3,918.9 million in 1992 to $2,944.5 million in 1993, a decrease of $974.4 million, or 24.9%, largely due to the decrease in average loans and federal funds sold, and securities purchased under resale agreements. Total average loans decreased $577.9 million or 25.0% between 1992 and 1993 due to decreased loan demand because of the recession, the Bank's continuing efforts to achieve a more diversified risk profile in its loan portfolio and the sale of $73.7 million of equity lines of credit (ELC) loans in April 1993. Average core deposits (checking, savings and money market accounts, and time certificates of deposit of less than $100,000) declined from $2,617.3 million in 1992 to $2,176.9 million in 1993, a decrease of $440.4 million, or 16.8%. Average time deposits of $100,000 or more decreased by $312.6 million, or 60.6%, between 1992 and 1993. Nonaccrual loans totaled $71.1 million at December 31, 1993, or 4.38% of related credits, down from $160.3 million, or 7.72%, a year earlier. ORE totaled $5.6 million at year end, down from $94.1 million a year earlier, primarily due to the sale of certain ORE as part of the accelerated asset disposition program discussed below. The allowance for credit losses at December 31, 1993 was $110.5 million, or 6.82% of loans outstanding at year end, up from 6.56% a year earlier. Net charge offs totaled $54.1 million in 1993, or 3.12% of average loans, down from $104.2 million, or 4.50% of average loans, in 1992. Total shareholders' equity averaged $260.6 million in 1993, up slightly from $259.6 million in the prior year. In June 1993, the Corporation completed an offering and sale of 12.7 million shares of common stock (the Offering) at a price of $6.375 per share. The gross proceeds of the Offering were $81.1 million before expenses of issuance of $4.6 million. Upon completion of the Offering, the Corporation contributed $65 million in capital to the Bank to comply with the $65 million capital-raising requirement in the Bank's agreement (the Agreement) with the Office of the Comptroller of the Currency (OCC). In March 1993, the Bank adopted an accelerated asset disposition program (the Disposition Program) to aggressively dispose of ORE and certain problem loans with an aggregate book value before the Disposition Program of $119.5 million. The Bank signed a definitive agreement, as of November 1, 1993, to sell the remaining assets in the Disposition Program, which were reduced by sales and pay downs of individual Disposition Program assets during the second and third quarters, to WHC-THREE Investors, L.P., a limited partnership. The transaction, which was 75% financed by the Bank, resulted in a pretax gain of $12.8 million in the fourth quarter of 1993, and is expected to result in an additional pretax gain of approximately $3.5 million in the first part of 1994, when the final phase of the sale closes. 8 4 In November 1993, the Bank announced a consolidation plan to improve efficiency and operational productivity in its branch network. The streamlining will reduce the Bank's total number of branches from 22 to 16, while designating four of the remaining locations as regional commercial lending centers. In addition to providing a full array of regular banking services, the centers will also house teams of lenders specializing in serving midsize businesses, as well as the Bank's larger, more complex relationships. The Bank anticipates completing the closures by early 1994. To cover the costs associated with this action, the Bank recorded a consolidation charge of $12.0 million in the fourth quarter of 1993. Completion of ongoing branch restructuring, including the closures announced in November 1993, is expected to result in an expense savings of approximately $8.0 million per year, before the effect of inflation and other factors. However, this will be partially offset by decreased income resulting from reductions in loans and deposits caused by the consolidation. Ongoing weakness in the Southern California economy, particularly the value of Southern California real estate, continued to affect the Company's financial performance during 1993. This was manifested, among other ways, in the continued lack of loan demand, resulting in the ongoing decline in the size of the loan portfolio, and the continued high but declining level of nonaccrual loans and problem assets. Management does not anticipate a meaningful economic recovery in Southern California in 1994 and therefore expects that economic conditions will continue to adversely affect the Bank's loan portfolio and the Company's financial performance. However, based on its review of the loan portfolio, management anticipates that net charge offs and provisions for credit losses for 1994 will decrease from the 1993 levels, unless there is significant additional deterioration of economic conditions. On January 21, 1994, the OCC lifted the Agreement that had been in effect since November 18, 1992. The Agreement had required the Bank, among other things, to raise $65 million of new Tier 1 capital (a category consisting principally of common shareholders' equity) so as to maintain Tier 1 capital of at least 10% of risk-weighted assets and at least 7% of adjusted average total assets. This requirement was satisfied in June 1993 when the Corporation contributed $65 million to the Bank as Tier 1 capital, out of the proceeds of the Offering. In February 1994, the Federal Reserve Bank of San Francisco notified the Corporation that the Memorandum of Understanding (MOU), which it had entered into with the Corporation in February 1993, was also terminated. The Corporation ceased paying a dividend in August 1991. Dividend payments are expected to resume, based on achieved earnings, and when the Board of Directors determines that such payments are consistent with the long-term objectives of the Company. On January 17, 1994 and during the days thereafter, Los Angeles was struck by a series of strong earthquakes. The Bank is currently accumulating data on the collateral securing its loans in the effected area. Based on the information currently available, the Bank does not believe earthquake related losses, including those related to its facilities, will be material to the Bank's financial position. 9 5 OPERATIONS SUMMARY
INCREASE INCREASE (DECREASE) (DECREASE) -------------- ---------------- 1993 AMOUNT % 1992 AMOUNT % 1991 1990 1989 -------- -------- --- -------- --------- ---- -------- -------- -------- DOLLARS IN THOUSANDS Interest income(1)..................... $171,134 $(66,149) (28) $237,283 $(129,760) (35) $367,043 $432,074 $415,934 Interest expense....................... 41,996 (42,437) (50) 84,433 (95,886) (53) 180,319 228,935 220,342 -------- -------- --- -------- --------- ---- -------- -------- -------- Net interest income.................... 129,138 (23,712) (16) 152,850 (33,874) (18) 186,724 203,139 195,592 Less provision for credit losses....... 30,000 (84,500) (74) 114,500 (3,500) (3) 118,000 43,000 15,146 Noninterest income..................... 45,810 (1,184) (3) 46,994 3,662 8 43,332 38,569 39,392 Less noninterest expense: Staff expense........................ 69,783 (13,780) (16) 83,563 352 -- 83,211 78,629 72,735 Other expense........................ 59,443 (9,881) (14) 69,324 4,233 7 65,091 55,948 51,616 Consolidation charge................. 12,000 12,000 100 -- -- -- -- -- -- ORE expense.......................... 25,674 4,849 23 20,825 18,277 717 2,548 -- 65 -------- -------- --- -------- --------- ---- -------- -------- -------- Total.......................... 166,900 (6,812) (4) 173,712 22,862 15 150,850 134,577 124,416 -------- -------- --- -------- --------- ---- -------- -------- -------- Income (loss) before income taxes...... (21,952) 66,416 75 (88,368) (49,574) (128) (38,794) 64,131 95,422 Income tax provision (benefit)......... (9,260) (23,190) (71) (32,450) 10,063 45 (22,387) 18,800 32,130 Less adjustments(1).................... 1,342 2,892 68 4,234 1,975 32 6,209 6,536 7,223 -------- -------- --- -------- --------- ---- -------- -------- -------- Income (loss) from continuing operations........................... (14,034) 46,118 77 (60,152) (37,536) (166) (22,616) 38,795 56,069 Income from discontinued operations.... 7,128 6,324 787 804 (592) (42) 1,396 5,202 4,149 -------- -------- --- -------- --------- ---- -------- -------- -------- Net income (loss)...................... $ (6,906) $ 52,442 88 $(59,348) $ (38,128) (180) $(21,220) $ 43,997 $ 60,218 -------- -------- --- -------- --------- ---- -------- -------- -------- -------- -------- --- -------- --------- ---- -------- -------- -------- Earnings (loss) per share.............. $ (.17) $ 1.67 91 $ (1.84) $ (1.18) (179) $ (.66) $ 1.35 $ 1.86 -------- -------- --- -------- --------- ---- -------- -------- -------- -------- -------- --- -------- --------- ---- -------- -------- --------
- --------------- (1) Includes amounts to convert nontaxable income to a fully taxable equivalent basis. RATIOS TO AVERAGE ASSETS
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Net interest income(1)....................................... 4.39% 3.90% 4.05% 4.41% 4.64% Noninterest income........................................... 1.56 1.20 .94 .84 .93 Less provision for credit losses............................. 1.02 2.92 2.56 .93 .36 Less noninterest expense: Staff expense.............................................. 2.37 2.13 1.81 1.71 1.72 Other expense.............................................. 2.02 1.77 1.41 1.22 1.23 Consolidation charge....................................... .41 -- -- -- -- ORE expense................................................ .87 .53 .06 -- -- ---- ---- ---- ---- ---- Total.............................................. 5.67 4.43 3.28 2.93 2.95 ---- ---- ---- ---- ---- Income (loss) before income taxes(1)......................... (.74) (2.25) (.85) 1.39 2.26 ---- ---- ---- ---- ---- Income (loss) from continuing operations..................... (.47) (1.53) (.49) .84 1.33 Income from discontinued operations.......................... .24 .02 .03 .12 .10 ---- ---- ---- ---- ---- Net income (loss)............................................ (.23) (1.51) (.46) .96 1.43 ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
- --------------- (1) Fully taxable equivalent basis. 10 6 NET INTEREST INCOME 1993 COMPARED WITH 1992 Taxable equivalent net interest income totaled $129.1 million in 1993, down $23.7 million, or 15.5%, from 1992. The decrease from 1992 to 1993 was due to a $864.6 million, or 25.0%, decrease in average interest-earning assets. Although net interest income declined, the net interest margin improved from 4.41% in 1992 to 4.97% in 1993, because of the greater proportional decrease in low-yielding interest-earning assets, primarily federal funds sold and securities purchased under resale agreements, and decreases in time deposits of $100,000 and over, which are among the most expensive categories of funds for the Bank. Average loans declined from $2,315.3 million in 1992 to $1,737.4 million in 1993, a decrease of $577.9 million, or 25.0%. The majority of this decrease reflects lower average commercial loans outstanding, down $313.1 million, or 23.8%. This decline resulted from decreased loan demand because of the recession in Southern California, the Bank's efforts to achieve a more diversified risk profile in its loan portfolio and gross loan charge offs during 1992 and 1993 of $202.7 million. Average construction loans decreased $148.7 million, or 67.7%, primarily because of the transfer of certain construction loans to the real estate mortgage category after completion of construction and because the Bank curtailed new construction loan commitments beginning in late 1990. Average real estate mortgage loans decreased $102.4 million, or 14.3%, partially due to the sale of $73.7 million of ELC loans in April 1993. The Bank is committed to its efforts to improve credit quality and reduce its exposure to the commercial real estate sector, which will limit the growth, if any, in the loan portfolio in 1994. Loan balances are also likely to be negatively affected by the continued impact of the recession. Average taxable securities increased $37.6 million, or 8.1%, between 1992 and 1993, as a result of investment of the Bank's excess liquidity in the second half of 1993 in government and agency securities. Average nontaxable securities decreased $69.3 million, or 79.8%, between 1992 and 1993, due to maturities and the sale of $32.4 million of municipal securities in December 1992. Average federal funds sold and securities purchased under resale agreements decreased $246.5 million, or 44.5%, between 1992 and 1993. Average federal funds purchased and securities sold under repurchase agreements declined $223.4 million, or 45.7%, between 1992 and 1993. The Bank has reduced its federal funds arbitrage activity due to the low profit margin from this business and its impact on the Bank's Tier 1 leverage ratio. Average noninterest-bearing deposits declined from $1,029.8 million in 1992 to $914.6 million in 1993, a decrease of $115.2 million, or 11.2%, while average interest-bearing core deposits declined from $1,587.5 million in 1992 to $1,262.3 million in 1993, a decrease of $325.2 million, or 20.5%. Average time deposits of $100,000 or more decreased $312.6 million, or 60.6%, between 1992 and 1993. The Bank's interest-and noninterest-bearing deposits decreased as a result of the continued weak economy, the uncertainty caused by the Bank's losses and the Agreement, and the low interest rates paid on interest-bearing deposits compared with other available investment alternatives. Although some additional loss of deposits is expected to result from the Bank's closure of six offices in 1994, it is not anticipated to have a significant effect on the Bank's overall deposit levels. 11 7 Net Interest Income Summary The following table presents the components of net interest income for the five years ended December 31, 1993.
1993 1992 ------------------------------------ ------------------------------------ INTEREST AVERAGE INTEREST AVERAGE AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST BALANCE EXPENSE RATE BALANCE EXPENSE RATE ---------- -------- -------- ---------- -------- -------- DOLLARS IN THOUSANDS -- FULLY TAXABLE EQUIVALENT BASIS(1) ASSETS Earning assets(2) Loans: Commercial loans......................... $1,001,965 $ 74,413 7.50% $1,315,112 $ 95,088 7.34% Real estate -- construction.............. 70,783 5,023 7.10 219,456 15,761 7.18 Real estate -- mortgage.................. 612,393 46,480 7.59 714,753 57,497 8.04 Installment loans........................ 52,260 5,234 10.02 65,964 6,836 10.36 ---------- -------- -------- ---------- -------- -------- Total loans(3)........................... 1,737,401 131,150 7.59 2,315,285 175,182 7.62 ---------- -------- -------- ---------- -------- -------- Interest-bearing deposits in other banks... 835 30 3.59 2,637 67 2.54 State and municipal securities............. 17,575 1,123 9.24 86,863 5,562 9.63 Other securities........................... 499,484 26,973 5.40 461,871 31,068 6.73 Federal funds sold and securities purchased under resale agreements.................. 307,078 9,357 3.05 553,540 19,592 3.54 Trading account securities................. 35,529 1,159 3.54 42,352 1,578 3.92 ---------- -------- -------- ---------- -------- -------- Total interest-earning assets............ 2,597,902 169,792 6.59 3,462,548 233,049 6.85 ---------- -------- -------- ---------- -------- -------- Allowance for credit losses................ (129,873) (141,537) Cash and due from banks.................... 272,610 368,297 Other nonearning assets.................... 203,822 229,641 ---------- -------- -------- ---------- -------- -------- Total assets............................. $2,944,461 $3,918,949 ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Noninterest-bearing deposits................. $ 914,642 -- -- $1,029,758 -- -- Interest-bearing deposits: Interest checking accounts................. 283,871 3,379 1.19 328,555 6,175 1.88 Money market accounts...................... 767,121 17,858 2.33 1,023,280 31,386 3.07 Savings deposits........................... 103,161 2,255 2.19 106,608 3,135 2.94 Time deposits -- under $100,000............ 108,135 4,063 3.76 129,105 6,106 4.73 Time deposits -- $100,000 and over......... 203,176 6,419 3.16 515,803 20,888 4.05 ---------- -------- -------- ---------- -------- -------- Total interest-bearing deposits.......... 1,465,464 33,974 2.32 2,103,351 67,690 3.22 ---------- -------- -------- ---------- -------- -------- Total deposits........................... 2,380,106 3,133,109 Federal funds purchased and securities sold under repurchase agreements.............. 265,082 7,499 2.83 488,520 16,220 3.32 Other borrowings........................... 16,147 523 3.24 14,279 523 3.66 ---------- -------- -------- ---------- -------- -------- Total interest-bearing liabilities..... 1,746,693 41,996 2.40 2,606,150 84,433 3.24 ---------- -------- -------- ---------- -------- -------- Other liabilities............................ 22,477 23,412 Shareholders' equity......................... 260,649 259,629 ---------- -------- -------- ---------- -------- -------- Total liabilities and shareholders' equity................................. $2,944,461 $3,918,949 ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- Net interest income/spread................... 127,796 4.19 148,616 3.61 ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- Fully taxable equivalent net interest income..................................... $129,138 $152,850 ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- ---------- -------- -------- Net interest margin(4)....................... 4.97% 4.41%
- --------------- (1) The average rate data in this table are presented on a taxable equivalent basis based on adjusting interest income exempt from federal income taxes, or income taxed at a rate less than the statutory tax rates, using the federal income tax rates in effect during the years presented. 12 8
1991 1990 1989 - ----------------------------------- ----------------------------------- ----------------------------------- INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- $1,618,442 $150,814 9.44% $1,623,120 $176,305 10.98% $1,485,903 $172,485 11.78% 396,934 39,255 9.89 425,722 53,094 12.47 332,232 44,975 13.54 761,675 74,884 9.83 746,851 85,926 11.51 628,543 75,649 12.04 75,260 8,675 11.53 79,461 9,514 11.97 80,546 9,621 11.94 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 2,852,311 273,628 9.66 2,875,154 324,839 11.37 2,527,224 302,730 12.07 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 3,534 297 8.40 12,176 1,009 8.29 20,311 1,857 9.14 127,540 8,367 9.76 127,993 8,350 9.70 141,961 9,217 9.80 537,531 41,410 7.70 469,684 40,000 8.52 371,562 31,793 8.56 578,622 33,450 5.78 556,487 46,468 8.35 634,122 58,826 9.28 64,552 3,682 5.85 61,958 4,872 8.00 49,515 4,288 8.87 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 4,164,090 360,834 8.81 4,103,452 425,538 10.53 3,744,695 408,711 11.11 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- (74,240) (38,320) (33,564) 374,353 416,587 387,827 140,872 120,654 118,805 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- $4,605,075 $4,602,373 $4,217,763 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- $ 961,072 -- -- $ 943,038 -- -- $ 926,093 -- -- 301,338 11,018 3.66 285,729 10,791 3.78 270,782 10,283 3.80 986,438 48,394 4.91 917,080 53,035 5.78 867,358 50,899 5.87 86,606 3,810 4.40 87,459 3,811 4.36 95,532 4,210 4.41 150,544 8,981 5.97 139,727 11,242 8.05 105,040 8,106 7.72 1,220,623 78,698 6.45 1,353,694 110,171 8.14 1,151,667 104,602 9.08 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 2,745,549 150,901 5.50 2,783,689 189,050 6.79 2,490,379 178,100 7.15 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 3,706,621 3,726,727 3,416,472 531,590 28,550 5.37 499,178 38,628 7.74 463,518 40,729 8.79 14,561 868 5.96 14,265 1,257 8.81 14,106 1,513 10.73 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 3,291,700 180,319 5.48 3,297,132 228,935 6.94 2,968,003 220,342 7.42 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 33,527 49,855 56,777 318,776 312,348 266,890 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- $4,605,075 $4,602,373 $4,217,763 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 180,515 3.33 196,603 3.59 188,369 3.69 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- $186,724 $203,139 $195,592 - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- - ---------- -------- ------- ---------- -------- ------- ---------- -------- ------- 4.48% 4.95% 5.22%
- --------------- (2) Includes average nonaccrual loans of $106,119, $159,420, $136,096, $31,726 and $16,287 for 1993, 1992, 1991, 1990 and 1989, respectively. (3) Loan income includes loan fees of $5,304, $5,427, $7,287, $9,487 and $7,578 for 1993, 1992, 1991, 1990 and 1989, respectively. (4) Fully taxable net interest income divided by interest-earning assets. 13 9 1992 Compared With 1991 Fully taxable equivalent net interest income decreased $33.9 million, or 18.1%, from 1991 to 1992. The decline in volume of interest-earning assets accounted for $23.1 million of the decrease. The balance of the decrease resulted from the lower interest income earned on the Company's net interest-earning assets due to the decline in interest rates from 1991 to 1992. As a result, the net interest margin declined to 4.41% in 1992 from 4.48% in 1991. Average loans declined from $2,852.3 million in 1991 to $2,315.3 million in 1992, a decrease of $537.0 million, or 18.8%, between 1991 and 1992 due to decreases of $303.3 million, or 18.7%, in commercial loans, $177.5 million, or 44.7%, in construction loans and $46.9 million, or 6.2%, in real estate mortgage loans. These decreases resulted from reduced loan demand caused by the recession and because the Bank curtailed new construction commitments beginning in late 1990. Average taxable and nontaxable securities decreased $75.7 million, or 14.1%, and $40.7 million, or 31.9%, respectively, between 1991 and 1992. Average federal funds sold and securities purchased under resale agreements decreased $25.1 million, or 4.3%, between 1991 and 1992. Average noninterest-bearing deposits increased $68.7 million, or 7.1%. Average interest-bearing core deposits increased $62.6 million, or 4.1%, while average time deposits of $100,000 and over decreased $704.8 million, or 57.7%. Due to the decline in the Bank's assets in 1992 compared with 1991 and because of the increase in core deposits, the Bank was able to reduce its dependence on time deposits of $100,000 and over. Change in Net Interest Income The following table sets forth a summary of the changes in interest earned and paid resulting from changes in volume and rate. Average balances in all categories in each reported period were used in the volume computations. Average yields and rates in each reported period were used in rate computations.
1993 VS. 1992 1992 VS. 1991 ------------------------------- ------------------------------- INCREASE (DECREASE) INCREASE (DECREASE) DUE TO(2): DUE TO(2): -------------------- NET -------------------- NET VOLUME(1) RATE(1) DECREASE VOLUME(1) RATE(1) DECREASE --------- -------- -------- --------- -------- -------- DOLLARS IN THOUSANDS -- FULLY TAXABLE EQUIVALENT BASIS Interest earned on: Interest-bearing deposits in other banks........................... $ (58) $ 21 $ (37) $ (61) $ (169) $ (230) Loans............................. (43,943) (695) (44,638) (46,725) (52,408) (99,133) Taxable securities................ 2,390 (6,485) (4,095) (5,458) (4,884) (10,342) Nontaxable securities............. (6,416) (327) (6,743) (3,917) (164) (4,081) Trading account securities........ (250) (151) (401) (1,080) (1,036) (2,116) Federal funds sold and securities purchased under resale agreements...................... (7,808) (2,427) (10,235) (1,394) (12,464) (13,858) --------- -------- -------- --------- -------- -------- Total interest-earning assets..................... (56,085) (10,064) (66,149) (58,635) (71,125) (129,760) --------- -------- -------- --------- -------- -------- Interest paid on: Interest checking................. (756) (2,040) (2,796) 922 (5,765) (4,843) Money market deposits............. (6,892) (6,636) (13,528) 1,748 (18,756) (17,008) Savings deposits.................. (99) (781) (880) 761 (1,436) (675) Other time deposits............... (11,980) (4,532) (16,512) (36,778) (23,907) (60,685) Short-term borrowings............. (6,571) (2,150) (8,721) (2,170) (10,505) (12,675) --------- -------- -------- --------- -------- -------- Total interest-bearing liabilities................ (26,298) (16,139) (42,437) (35,517) (60,369) (95,886) --------- -------- -------- --------- -------- -------- $(29,787) $ 6,075 $(23,712) $(23,118) $(10,756) $(33,874) ========= ======== ======== ======== ======== ========
- --------------- (1) The changes in interest due to both rate and volume have been allocated to the change due to volume and rate in proportion to the relationship of the absolute dollar amounts of the change in each. (2) The changes in interest income in this table are presented on a fully taxable equivalent basis. Interest income exempt from federal income taxes, or income taxed at a rate less than the statutory tax rates, has been adjusted to a fully taxable equivalent basis using the federal income tax rates in effect during the years presented. 14 10 PROVISION FOR CREDIT LOSSES The provision for credit losses charged to operations reflects management's judgment of the adequacy of the allowance for credit losses and is determined through periodic analysis of the loan portfolio. This analysis includes a detailed review of the classification and categorization of problem and potential problem loans and loans to be charged off; an assessment of the overall quality and collectibility of the portfolio; and consideration of the loan loss experience, trends in problem loans and concentrations of credit risk, as well as current and expected future economic conditions (particularly in Southern California). The Bank has an internal risk analysis and review staff that reports to the Audit and Examining Committee of the Board of Directors and continuously reviews loan quality. Such reviews also assist management in establishing the level of the allowance for credit losses. For 1993, the provision for credit losses totaled $30.0 million, down from $114.5 million in 1992 and $118.0 million in 1991. During the second half of 1991, the Bank recorded large credit loss provisions as it became clear that the impact of the recession and the softening of the local real estate market on the Bank's loan portfolio would be more prolonged and severe than initially expected. In 1992, net charge offs totaled $104.2 million, or 4.50% of related average credits, up from $52.3 million, or 1.83%, in 1991. Because of the increased level of charge offs and the continued migration of loans to nonaccrual or loss status due to the continuing difficult economic situation in Southern California, including further declines in real estate values, the provision for credit losses remained high in 1992, particularly in the first half of the year. In 1993, net charge offs totaled $54.1 million, or 3.12% of related average credits, compared with $104.2 million, or 4.50% of related average credits, in 1992. Nonaccrual loans decreased from $160.3 million at December 31, 1992 to $71.1 million at December 31, 1993, due in part to the decrease in the second half of 1993 in the inflow of loans into nonaccrual status. As a result, the provision for credit losses decreased to $30.0 million in 1993. Based on management's review of the loan portfolio, net charge offs and provisions for credit losses for 1994 are expected to decrease from 1993 levels, even though no meaningful economic recovery is expected in Southern California. However, no assurance can be given that the Bank will not, in any particular period, sustain credit losses that are sizable in relation to the amount provided, or that subsequent evaluations of the loan portfolio by management or the regulators, in light of the factors then prevailing, including economic conditions and further declines in property values, will not require significant increases in the allowance for credit losses. NONINTEREST INCOME Noninterest income from continuing operations totaled $45.8 million, down $1.2 million from 1992, which was up $3.7 million from 1991. A breakdown of noninterest income by category is reflected on page 16. Service charges on deposit accounts increased $1.0 million, or 9.4%, compared with a 14.0% increase in 1992. Growth in both 1993 and 1992 was due to higher amounts collected from deposit customers for account analysis deficits. Customer trading account income in 1993 decreased $.1 million, or 1.6%, compared with a 25.5% increase the preceding year. The decrease from 1992 to 1993 was due primarily to lower volumes and reduced spreads on trading account transactions with customers, due to the decline in the level of interest rates. The increase from 1991 to 1992 was due to increased volume. Trust fees remained relatively unchanged during the last three years. All other income categories, which include foreign exchange, letter of credit fees, escrow and proof of deposit fees, in addition to other miscellaneous income, decreased during the last three years due to lower volumes. The Bank sold its merchant draft business to NOVA Information Systems as of January 1, 1993, for a pretax gain of $1.9 million. Merchant credit card fees were $4.5 million in 1992 and $4.1 million in 1991. The Bank's sale of $73.7 million in ELC loans, in April 1993, generated a pretax gain of $4.5 million. 15 11 In December 1992, in conjunction with tax planning strategies, the Bank sold $32.4 million of municipal securities for a gain of $1.6 million. There were no investment securities gains or losses in 1993 or 1991. In December 1992, the Bank entered into an agreement to sell its data processing business, City National Information Systems (CNIS), to Systematics, Inc. for $12.0 million. A pretax gain of $10.8 million was recognized at closing, June 1, 1993. All income and expense related to CNIS have been removed from continuing operations and are now included in the Consolidated Statement of Operations under the caption "Income from discontinued operations." Prior periods have been restated to conform for reporting for a discontinued operation. Analysis of Changes in Noninterest Income
INCREASE INCREASE (DECREASE) (DECREASE) -------------- ------------- 1993 AMOUNT % 1992 AMOUNT % 1991 ----- ------ ----- ----- ------ ---- ----- DOLLARS IN MILLIONS Service charges on deposit accounts................... $11.6 $ 1.0 9.4 $10.6 $ 1.3 14.0 $ 9.3 Trust fees............................................ 7.4 (.1) (1.3) 7.5 .4 5.6 7.1 Customer trading account income....................... 6.3 (.1) (1.6) 6.4 1.3 25.5 5.1 Credit card merchant fees............................. -- (4.5) NM 4.5 .4 9.8 4.1 Gain on sale of selected ELC loans.................... 4.5 4.5 NM -- -- NM -- Gain on sale of merchant draft business............... 1.9 1.9 NM -- -- NM -- Net gain on securities available for sale............. -- (1.6) NM 1.6 1.6 NM -- Other income.......................................... 14.1 (2.3) (14.0) 16.4 (1.3) (7.3) 17.7 ----- ------ ----- ----- ------ ---- ----- Total............................................. $45.8 $(1.2) (2.6) $47.0 $ 3.7 8.5 $43.3 ----- ------ ----- ----- ------ ---- ----- ----- ------ ----- ----- ------ ---- -----
NONINTEREST EXPENSE Noninterest expense totaled $166.9 million in 1993, down $6.8 million, or 3.9%, from 1992, which compares with an increase of 15.1% from 1991 to 1992. This decrease was substantially the result of expense reduction measures implemented by the Company. Staff expense decreased 16.5% in 1993, compared with a .5% increase in 1992. On a full-time equivalent basis, staff levels have declined from approximately 2,000 at December 31, 1991 to 1,350 at year-end 1993. The decrease includes approximately 100 employees of the discontinued CNIS operation. Staff levels are expected to continue to decline in 1994 but at a reduced rate due to the closure of branches and continued cost reduction measures. The expense categories other than staff, ORE and the consolidation charge, decreased $9.9 million, or 14.3%, between 1992 and 1993. These expenses increased $4.1 million, or 6.3%, between 1991 and 1992. The decrease between 1992 and 1993 resulted from the Bank's efforts to reduce expenses, writedowns of $2.3 million in 1992 resulting from updated valuations of in-substance foreclosures of non-real estate assets and a $2.8 million decrease in merchant credit card processing expense due to the sale of the business. The increase from 1991 to 1992 was due to higher severance and litigation expenses in 1992 and the $2.3 million writedown discussed above. As a result of writedowns, including those resulting from the Disposition Program, net costs of ORE totaled $25.7 million in 1993, up from $20.8 million in 1992 and $2.5 million in 1991. Net ORE expense for 1993 included a $12.8 million gain recorded in the fourth quarter upon the sale of a portion of the assets in the Disposition Program. Based on the Bank's current ORE portfolio and workout strategies, management anticipates that ORE expense in 1994 will decrease from 1993 levels. Due to declines in total deposits, the increases in FDIC insurance assessment rates, that became effective in July 1, 1992 and January 1, 1993 did not result in an increase in FDIC insurance assessment expense. 16 12 In November 1993, the Bank announced a consolidation plan to improve efficiency and operational productivity in its branch network. The streamlining will reduce the Bank's total number of branches from 22 to 16, while designating four of the remaining locations as regional commercial lending centers. The Bank anticipates completing the closures by early 1994. To cover the costs associated with this action, the Bank recorded a consolidation charge of $12.0 million in the fourth quarter of 1993 comprised of $7.5 million for disposition of lease commitments, $1.5 million for disposition of fixed assets, and $3.0 million for severance costs and other expenses directly related to the consolidation. Completion of ongoing branch restructuring, including the closures announced in November 1993, is expected to result in an expense savings of approximately $8.0 million per year, before the effect of inflation and other factors. However, this will be partially offset by decreased income resulting from reductions in loans and deposits caused by the consolidation. Analysis of Changes in Noninterest Expense
INCREASE INCREASE (DECREASE) (DECREASE) -------------- -------------- 1993 AMOUNT % 1992 AMOUNT % 1991 ------ ------ ----- ------ ------ ----- ------ DOLLARS IN MILLIONS Staff expense................................. $ 69.8 $(13.8) (16.5) $ 83.6 $ .4 .5 $ 83.2 ------ ------ ----- ------ ------ ----- ------ All other: Net occupancy of premises................... 11.8 .3 2.6 11.5 .2 1.8 11.3 Data processing............................. 7.8 (.2) (2.5) 8.0 .1 1.3 7.9 Professional................................ 7.3 (1.1) (13.1) 8.4 .5 6.3 7.9 FDIC insurance.............................. 7.2 (.3) (4.0) 7.5 (.4) (5.1) 7.9 Office supplies............................. 5.0 (1.0) (16.7) 6.0 (.1) (1.6) 6.1 Depreciation................................ 4.5 (.2) (4.3) 4.7 (.2) (4.1) 4.9 Promotion................................... 1.9 (1.1) (36.7) 3.0 (.6) (16.7) 3.6 Equipment................................... 2.0 (.3) (13.0) 2.3 (.4) (14.8) 2.7 Other....................................... 11.9 (6.0) (33.5) 17.9 5.0 38.8 12.9 ------ ------ ----- ------ ------ ----- ------ All other................................... 59.4 (9.9) (14.3) 69.3 4.1 6.3 65.2 ------ ------ ----- ------ ------ ----- ------ Consolidation charge.......................... 12.0 12.0 100.0 -- -- -- -- ORE expense................................... 25.7 4.9 23.6 20.8 18.3 NM 2.5 ------ ------ ----- ------ ------ ----- ------ Total................................ $166.9 $(6.8) (3.9) $173.7 $22.8 15.1 $150.9 ------ ------ ----- ------ ------ ----- ------ ------ ------ ----- ------ ------ ----- ------
INCOME TAXES The 1993 effective tax benefit rate was 39.8%, up from 35.0% last year. The effective rates differed from the applicable statutory federal tax rate due to various factors, including state taxes, tax exempt income and higher income tax rates in carry back years. No California tax benefit was reflected for the book losses for 1991, 1992 or 1993. If the Company should experience additional California book losses in future years, no California benefit can be recognized unless it is more likely than not that the benefit of such losses can be realized. The federal tax benefits of $9.3 million, $32.5 million and $22.4 million for 1993, 1992 and 1991, respectively, were recorded based on the Company's ability to carry back the loss on both a book income and tax return basis to prior years, as well as the availability of reversing taxable temporary differences and projected taxable income for 1994 to justify the realization of reversing deductible temporary differences. The Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes," effective January 1, 1993. The cumulative effect of adopting this statement did not have a material impact on the financial position or results of operations of the Company. 17 13 BALANCE SHEET ANALYSIS SOURCES AND USES OF FUNDS The discussion in this section focuses on changes between December average balances in 1993 and 1992 as depicted on the following table. Management believes that a comparison of December averages gives a clearer picture of changes in the balance sheet during the year than a comparison of annual averages, which may conceal trends during the year, or year-end balances, which may be distorted by significant end-of-year fluctuations. The Company manages its balance sheet to meet the needs of its business strategy, which it adapts to the changing economic environment and business and competitive conditions in the financial services market. Understanding changes in the balance sheet requires an examination of changes in the size and composition of the Company's earning assets and sources of funds. Based on December averages, assets decreased 8.0% in 1993, compared with a 25.9% decrease in 1992. Net loans decreased at a 23.8% rate in 1993, compared with a 22.9% decrease in 1992. Commercial loans decreased 23.2% and 20.1% in 1993 and 1992, respectively, reflecting reduced loan demand because of the recession and the Bank's efforts to achieve a more diversified risk profile in its loan portfolio. Real estate loans decreased 23.3% in 1993, and 21.1% in 1992, reflecting transfers to ORE, pay downs, charge offs and because the Bank curtailed new real estate loan commitments beginning in late 1990. Securities increased 77.0% in 1993, compared with a 42.2% decrease in 1992. The increase in 1993 resulted from the lack of loan demand and the investment of the proceeds of the Offering, while the decrease in 1992 was caused by the decline in deposits and the Company's need for liquidity. The Company's primary sources for funding earning assets are core deposits, certificates of deposits and short-term purchased funds. Core deposits decreased 6.4% in 1993, compared with a decrease of 11.0% in 1992. During 1993, certificates of deposit of $100,000 and over were reduced by 41.2% from 1992, compared with a reduction of 62.6% from 1991 to 1992. Due to the decrease in loan volume, the Bank has reduced its funding from these more expensive funds. Federal funds purchased and securities sold under repurchase agreements decreased 29.0% in 1993 and 45.8% in 1992 as the Bank reduced its arbitrage activities. The Company expects stabilization of deposits to continue and does not expect the branch consolidation program to result in significant declines in deposit levels. 18 14 SOURCES AND USES OF FUNDS TRENDS
INCREASE INCREASE DECEMBER (DECREASE) DECEMBER (DECREASE) DECEMBER 1993 ------------- 1992 ----------------- 1991 AVERAGE AMOUNT % AVERAGE AMOUNT % AVERAGE --------- ------- --- -------- --------- ----- -------- DOLLARS IN MILLIONS USES OF FUNDS Earning Assets: Interest-bearing deposits in other banks................... $ .6 $(17.1) (97) $ 17.7 $ 17.7 -- $ -- Securities................................................. 786.6 342.3 77 444.3 (324.8) (42) 769.1 Trading account securities................................. 52.7 17.6 50 35.1 (40.8) (54) 75.9 Federal funds sold and securities purchased under resale 331.5 59.1 22 272.4 (280.1) 51) 552.5 agreements............................................... Loans: Commercial loans......................................... 903.0 (273.2) (23) 1,176.2 (296.3) (20) 1,472.5 Real estate loans........................................ 644.3 (195.9) (23) 840.2 (224.3) (21) 1,064.5 Installment loans........................................ 45.6 (15.9) (26) 61.5 (10.4) (14) 71.9 --------- ------- --- -------- --------- ----- -------- Total loans.............................................. 1,592.9 (485.0) (23) 2,077.9 (531.0) (20) 2,608.9 Less allowance for credit losses........................... 117.7 (23.8) (17) 141.5 44.9 46 96.6 --------- ------- --- -------- --------- ----- -------- Net loans................................................ 1,475.2 (461.2) (24) 1,936.4 (575.9) (23) 2,512.3 --------- ------- --- -------- --------- ----- -------- Total earning assets(1).................................. 2,764.3 (83.1) (3) 2,847.4 (1,159.0) (29) 4,006.4 Cash and due from banks.................................... 271.3 (110.1) (29) 381.4 (29.7) (7) 411.1 Other nonearning assets.................................... 148.9 (99.0) (40) 247.9 67.7 38 180.2 --------- ------- --- -------- --------- ----- -------- Total assets............................................. $3,066.8 $(268.4) (8) $3,335.2 $(1,165.9) (26) $4,501.1 --------- ------- --- -------- --------- ----- -------- --------- ------- --- -------- --------- ----- -------- SOURCES OF FUNDS Core deposits: Demand deposits............................................ $1,000.4 $(82.2) (8) $1,082.6 $ (4.7) -- $1,087.3 Interest checking deposits................................. 302.2 .1 -- 302.1 (29.9) (9) 332.0 Money market accounts...................................... 787.8 (68.2) (8) 856.0 (233.9) (21) 1,089.9 Savings deposits........................................... 104.6 9.3 10 95.3 (.3) -- 95.6 Time deposits -- under $100,000............................ 99.2 (16.8) (14) 116.0 (35.2) (23) 151.2 --------- ------- --- -------- --------- ----- -------- Total core deposits...................................... 2,294.2 (157.8) (6) 2,452.0 (304.0) (11) 2,756.0 Short-term purchased funds: Time deposits -- $100,000 and over......................... 172.0 (120.3) (41) 292.3 (489.7) (63) 782.0 Federal funds purchased and securities sold under 231.3 (94.5) (29) 325.8 (275.2) (46) 601.0 repurchase agreements.................................... Other short-term funds borrowed............................ 10.7 (3.9) (27) 14.6 .1 -- 14.5 Mortgages payable.......................................... 26.3 26.3 NM -- -- -- -- --------- ------- --- -------- --------- ----- -------- Total short-term purchased funds......................... 440.3 (192.4) (30) 632.7 (764.8) (55) 1,397.5 Other liabilities............................................ 34.8 11.5 49 23.3 (9.9) (30) 33.2 Shareholders' equity......................................... 297.5 70.3 31 227.2 (87.2) (28) 314.4 --------- ------- --- -------- --------- ----- -------- Total liabilities and shareholders' equity................. $3,066.8 $(268.4) (8) $3,335.2 $(1,165.9) (26) $4,501.1 --------- ------- --- -------- --------- ----- -------- --------- ------- --- -------- --------- ----- --------
- ------------------ (1) Before deduction of allowance for credit losses. 19 15 CAPITAL At December 31, 1993, the Company's and the Bank's Tier 1 capital, which is comprised of common shareholders' equity, amounted to $298.1 million and $279.8 million, respectively. At December 31, 1992, the Company's and the Bank's Tier 1 capital amounted to $227.9 million and $221.9 million, respectively. At December 31, 1993, the Company had a Tier 1 risk-based capital ratio of 15.75% and a Tier 1 leverage ratio of 9.95%. On November 18, 1992, the Bank entered into the Agreement, which required the Bank to generate a minimum of $65 million in Tier 1 capital by June 30, 1993, so as to maintain Tier 1 capital of at least 10% of risk-weighted assets, and Tier 1 capital of at least 7% of adjusted total assets. In June 1993, the Corporation, after completing the Offering, contributed $65 million to the Bank as Tier 1 capital. At December 31, 1993, the Bank's Tier 1 capital was 14.78% of risk-weighted assets and 9.38% of adjusted total assets, which exceeded the capital levels required under the Agreement. Early in 1994, both the Agreement and the MOU were lifted. The following table presents the capital ratios for the Company and the Bank at December 31, 1993, 1992 and 1991.
AS OF DECEMBER 31 ------------------------- 1993 1992 1991 ----- ----- ----- CITY NATIONAL CORPORATION (CONSOLIDATED) Tier 1 leverage................................................... 9.95% 6.49% 6.46% Tier 1 risk-based capital......................................... 15.75 9.17 9.21 Total risk-based capital.......................................... 17.06 10.47 10.49 CITY NATIONAL BANK Tier 1 leverage................................................... 9.38% 6.32% 6.34% Tier 1 risk-based capital......................................... 14.78 8.90 9.00 Total risk-based capital.......................................... 16.09 10.20 10.28
On December 23, 1992, the Federal Financial Institutions Examinations Council issued a statement that federally supervised banks and thrift institutions should follow the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," for regulatory reporting purposes, and recommended that the federal banking and thrift regulatory agencies amend their capital standards to limit deferred tax assets that could be used to meet capital requirements. On March 29, 1993, the OCC issued a temporary guideline, pending adoption of a final rule, that would limit the amount of deferred tax assets that could be included in a bank's regulatory capital to the lesser of the amount expected to be realized within one year, based on the bank's projections of future taxable income, or 10% of Tier 1 capital. However, there generally would be no limit on deferred tax assets that could be realized from taxes paid in prior carry-back years and from future reversals of existing taxable temporary differences. Based on the Company's ability to carry back and recover taxes paid in prior years, and the expected level of reversing taxable temporary differences as well as projected income for 1994 but not beyond, management believes that the recorded deferred tax asset balance of $18.1 million is fully includable in regulatory capital at December 31, 1993. The Corporation ceased paying dividends in the third quarter of 1991. It is expected that dividend payments will resume, based on achieved earnings, and when the Board of Directors determines that they are consistent with the long-term objectives of the Company. 20 16 LIQUIDITY A fundamental aspect of the asset/liability management strategy of a financial institution is adequate liquidity -- the ability to meet the requirements of customers for loans and deposit withdrawals in the most timely and economical manner. For most financial institutions, the most manageable sources of liquidity are comprised of liabilities, especially core deposits. Average core deposits increased to 83.9% of total funding in December 1993 compared with 79.5% in December 1992. Although the Bank experienced a substantial decline in core deposits in the first half of 1993, particularly during the first two months, deposit levels stabilized thereafter, and average core deposits in December 1993 were 6.4% below those in December 1992. Liquidity is also provided by assets such as federal funds sold, securities purchased under resale agreements and trading account securities that may be immediately converted to cash at minimal cost. The aggregate of these assets averaged $384.2 million in December 1993, up $76.7 million, or 24.9%, from the prior year. Liquidity may also be provided by maturing investment securities. At December 31, 1993, investment securities maturing within one year amounted to $386.9 million, or 42.9% of the investment portfolio. See page 24 for a table on maturity distribution of investment securities at December 31, 1993. Maturing loans also provide liquidity, and $1,019.2 million of the Bank's loans are scheduled to mature in 1994. See page 26 for a table on maturity distribution of loans at December 31, 1993. INTEREST RATE SENSITIVITY MANAGEMENT Interest sensitivity is related to liquidity because both are affected by the interrelationships of maturing assets and liabilities. Interest rate sensitivity management, however, is concerned with the timing and magnitude of repricing assets compared with liabilities. It is the objective of interest rate sensitivity management to control the risks associated with interest rate movement. The interest rate sensitivity gap is defined as the difference between interest-earning assets and interest-bearing liabilities maturing or repricing within a given time period. A gap is considered positive when the amount of interest rate-sensitive assets exceeds the amount of interest rate-sensitive liabilities. A gap is considered negative when the amount of interest rate-sensitive liabilities exceeds interest rate-sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. The following table shows that the Company's positive interest rate sensitivity gap increased from $847.1 million at December 31, 1992 to $1,076.9 million at December 31, 1993. The Company's increased positive interest rate sensitivity gap resulted from the decline in certificates of deposit and the increased proportion of funding from noninterest-bearing deposits. The Company's increased asset sensitive position in this period of low interest rates had a negative effect on net interest income in 1993. While the interest rate sensitivity gap is a useful measure and contributes toward effective asset and liability management, it is difficult to predict the net interest margin solely on that measure. 21 17 At December 31, 1993 and 1992, the Company's distribution of rate-sensitive assets and rate-sensitive liabilities was as follows:
MATURING OR REPRICING IN ------------------------------------------------------------- AFTER 3 AFTER 1 YEAR 3 MONTHS MONTHS BUT BUT WITHIN AFTER OR LESS WITHIN 1 YEAR 5 YEARS 5 YEARS TOTAL -------- ------------- ------------ -------- -------- DOLLARS IN MILLIONS DECEMBER 31, 1993 Rate-sensitive assets: Interest-bearing deposits in other banks............... $ .6 $ -- $ -- $ -- $ .6 Loans.................................................. 1,308.4 82.8 140.4 17.9 1,549.5 Taxable investment securities.......................... 259.8 123.4 328.7 184.1 896.0 Securities available for sale.......................... -- -- -- 2.0 2.0 Nontaxable investment securities....................... 1.1 2.5 2.8 .1 6.5 Trading account securities............................. 39.8 -- -- -- 39.8 Federal funds sold and securities purchased under resale agreements.................................... 265.0 -- -- -- 265.0 -------- ------------- ------------ -------- -------- Total rate-sensitive assets........................ 1,874.7 208.7 471.9 204.1 2,759.4 -------- ------------- ------------ -------- -------- Rate-sensitive liabilities:(1) Interest checking deposits............................. 324.0 -- -- -- 324.0 Money market accounts.................................. 742.4 -- -- -- 742.4 Savings deposits....................................... 107.2 -- -- -- 107.2 Time deposits.......................................... 153.1 73.6 37.0 1.4 265.1 Federal funds purchased and securities sold under repurchase agreements................................ 202.5 -- -- -- 202.5 Other short-term borrowings............................ 15.0 -- -- -- 15.0 Mortgages payable...................................... 26.3 -- -- -- 26.3 -------- ------------- ------------ -------- -------- Total rate-sensitive liabilities................... 1,570.5 73.6 37.0 1.4 1,682.5 -------- ------------- ------------ -------- -------- Interest rate sensitivity gap............................ $ 304.2 $ 135.1 $434.9 $ 202.7 $1,076.9 -------- ------------- ------------ -------- -------- -------- ------------- ------------ -------- -------- Cumulative interest rate sensitivity gap................. $ 304.2 $ 439.3 $874.2 $1,076.9 -------- ------------- ------------ -------- -------- -------- ------------- ------------ -------- -------- Cumulative ratio of rate-sensitive assets to rate-sensitive liabilities............................. 119% 127% 152% 164% 164% -------- ------------- ------------ -------- -------- -------- ------------- ------------ -------- --------
22 18
MATURING OR REPRICING IN ------------------------------------------------------------ AFTER 3 AFTER 1 YEAR 3 MONTHS MONTHS BUT BUT WITHIN AFTER OR LESS WITHIN 1 YEAR 5 YEARS 5 YEARS TOTAL -------- ------------- ------------ ------- -------- DOLLARS IN MILLIONS DECEMBER 31, 1992 Rate-sensitive assets: Interest-bearing deposits in other banks................. $ 15.0 $ -- $ -- $ -- $ 15.0 Loans.................................................... 1,680.3 78.8 130.3 25.5 1,914.9 Taxable investment securities............................ 62.7 140.7 177.2 33.0 413.6 Securities available for sale............................ 2.7 17.1 9.8 .7 30.3 Trading account securities............................... 10.2 -- -- -- 10.2 Federal funds sold and securities purchased under resale agreements............................................. 468.9 -- -- -- 468.9 -------- ------------- ------------ ------- -------- Total rate-sensitive assets....................... 2,239.8 236.6 317.3 59.2 2,852.9 -------- ------------- ------------ ------- -------- Rate-sensitive liabilities:(1) Interest checking deposits............................... 349.8 -- -- -- 349.8 Money market accounts.................................... 825.8 -- -- -- 825.8 Savings deposits......................................... 95.7 -- -- -- 95.7 Time deposits............................................ 247.4 91.7 41.3 -- 380.4 Federal funds purchased and securities sold under repurchase agreements.................................. 339.1 -- -- -- 339.1 Other short-term borrowings.............................. 15.0 -- -- -- 15.0 -------- ------------- ------------ ------- -------- Total rate-sensitive liabilities.................. 1,872.8 91.7 41.3 -- 2,005.8 -------- ------------- ------------ ------- -------- Interest rate sensitivity gap.............................. $ 367.0 $ 144.9 $276.0 $ 59.2 $ 847.1 -------- ------------- ------------ ------- -------- -------- ------------- ------------ ------- -------- Cumulative interest rate sensitivity gap................... $ 367.0 $ 511.9 $787.9 $ 847.1 -------- ------------- ------------ ------- -------- -------- ------------- ------------ ------- -------- Cumulative ratio of rate-sensitive assets to rate-sensitive liabilities.............................................. 120% 126% 139% 142% 142% -------- ------------- ------------ ------- -------- -------- ------------- ------------ ------- --------
- --------------- (1) Customer deposits which are subject to immediate withdrawal are presented as repricing within 3 months or less. The distribution of other time deposits is based on scheduled maturities. 23 19 SECURITIES The carrying amounts of investment securities at the dates indicated are summarized as follows:
DECEMBER 31, --------------------- CATEGORY OF INVESTMENT 1993 1992 ------------------------------------------------------- -------- -------- DOLLARS IN THOUSANDS U.S. government and federal agency obligations......... $880,180 $403,973 State and political subdivisions....................... 6,475 -- Other securities....................................... 15,826 9,672 -------- -------- Total........................................ $902,481 $413,645 -------- -------- -------- --------
The following table shows the maturities of investment securities at December 31, 1993.
OVER 1 YEAR OVER 5 YEARS ONE YEAR OR LESS THRU 5 YEARS THRU 10 YEARS OVER 10 YEARS TOTAL CATEGORY OF ------------------- ------------------- ------------------ ------------------- ------------------- INVESTMENT AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) AMOUNT YIELD(1) - ------------- -------- -------- -------- -------- ------- -------- -------- -------- -------- -------- DOLLARS IN THOUSANDS U.S. government and federal agency obligations...$380,042 4.13% $322,449 4.51% $ 9,989 4.37% $167,700 5.74% $880,180 4.58% State and political subdivisions... 3,624 8.69 2,751 9.10 100 9.72 6,475 8.88 Other securities... 3,207 4.72 6,287 5.08 500 7.00 5,832 5.88 15,826 5.36 -------- --- -------- --- ------- --- -------- --- -------- --- Total.... $386,873 4.18% $331,487 4.56% $10,589 4.54% $173,532 5.75% $902,481 4.63% -------- --- -------- --- ------- --- -------- --- -------- --- -------- --- -------- --- ------- --- -------- --- -------- ---
- --------------- (1) Fully taxable equivalent. Investment securities at year end were up $488.8 million, or 118.2%, from 1992. U.S. government and federal agency obligations increased $476.2 million, or 117.9%, due to the investment of the Company's excess liquidity in the second half of 1993 in these securities. State and municipal securities totaled $6.5 million at December 31, 1993 compared with $30.3 million at December 31, 1992, when these securities were categorized as securities available for sale. Due to the Company's improved liquidity and profitability, the remaining balance of state and municipal securities was transferred back to the investment portfolio during the third quarter of 1993. Other securities increased $6.2 million, or 63.6%, due primarily to purchases of bonds during 1993. The average maturity of total investment securities was 3.5 years at December 31, 1993 compared to 2.8 years at the end of 1992. The increase in the average maturity of the portfolio was largely due to purchases of mortgage-backed agency securities during the year. At December 31, 1993, 1992 and 1991, the Company did not have investments in securities issued by any one nonfederal issuer that exceeded 10% of its shareholders' equity. 24 20 At December 31, 1993, securities available for sale consisted of $2.0 million of 7.5% convertible preferred stock. At December 31, 1992 securities available for sale consisted of state and municipal obligations with a carrying value of $20.4 million in the one year or less maturity category, $9.8 million in the over one through five years maturity category, and $.1 million in the over five years through ten years category. The weighted average yields on these securities, computed on a fully taxable equivalent basis, were 9.94% in the one year or less maturity category, 8.79% in the over one through five years maturity category, and 9.72% in the over five through ten years maturity category. The Company adopted SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," as of December 31, 1993. The impact on shareholders' equity or the results of operations was not material. LOAN PORTFOLIO The amounts of loans outstanding at the indicated year ends are shown in the following table according to the type of loan. The Company's lending activities are predominantly in Southern California. The Bank has no agricultural or foreign loans. Loans by Type
DECEMBER 31, -------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- DOLLARS IN THOUSANDS Commercial(1)........................ $ 939,719 $1,177,948 $1,485,766 $1,746,152 $1,573,419 Real estate loans -- construction.... 11,699 105,467 322,121 450,271 396,897 Real estate loans -- mortgage(2)..... 623,653 731,234 735,606 784,051 688,817 Installment loans.................... 45,485 60,553 71,708 77,261 78,962 ---------- ---------- ---------- ---------- ---------- Total loans, gross......... $1,620,556 $2,075,202 $2,615,201 $3,057,735 $2,738,095 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
- --------------- (1) Commercial included unsecured loans to real estate developers and customers involved in real estate investments and commercial loans where real estate partially secures the borrowing. (2) Equity lines of credit totaling $157,913 designated as held for sale at December 31, 1992, were included in real estate loans -- mortgage. Gross loans at December 31, 1993 were $1,620.6 million, down 21.9%, or $454.6 million, from the previous year end. The decrease in loans resulted from a decline in loan demand because of the recession and the Bank's efforts to achieve a more conservative and diversified risk profile in its loan portfolio. Commercial loans continue to constitute the major portion of the Bank's lending activity, 58.0% and 56.8% at 1993 and 1992 year ends, respectively. Real estate construction loans decreased $93.8 million, or 88.9%, between year ends because of the transfer of certain construction loans to the real estate mortgage category after completion of construction and because the Bank curtailed new construction lending beginning in late 1990. Real estate mortgage loans decreased $107.6 million, or 14.7%, primarily due to the sale of $73.7 million of ELC loans in April 1993. At December 31, 1993, 85.7% of commercial loans, 81.7% of real estate loans and 13.1% of installment loans outstanding were floating interest rate loans. Floating rate loans comprised 82.1% of the total loan portfolio at December 31, 1993. Total loans at December 31, 1993 were comprised of 62.9% due in one year or less, 33.1% due in over one through five years and 4.0% due after 5 years. 25 21 Loan Maturities
DECEMBER 31, 1993 --------------------------------------------------------------------- REAL ESTATE-- REAL ESTATE-- COMMERCIAL CONSTRUCTION MORTGAGE INSTALLMENT TOTAL ---------- ------------- ------------- ----------- ---------- DOLLARS IN THOUSANDS Aggregate maturities of loan balances due: In one year or less Interest rates -- floating........ $657,047 $ 6,217 $ 223,658 $ 5,485 $ 892,407 Interest rates -- fixed........... 97,233 1,361 16,551 11,641 126,786 After one year but within five years Interest rates -- floating........ 132,800 4,121 256,460 338 393,719 Interest rates -- fixed........... 35,022 -- 91,148 16,283 142,453 After five years Interest rates -- floating........ 15,166 -- 28,470 143 43,779 Interest rates -- fixed........... 2,451 -- 7,366 11,595 21,412 ---------- ------------- ------------- ----------- ---------- Total..................... $939,719 $11,699 $ 623,653 $45,485 $1,620,556 ---------- ------------- ------------- ----------- ---------- ---------- ------------- ------------- ----------- ----------
The loan maturities shown in the table above are based on contractual maturities. As is customary in the banking industry, loans that meet sound underwriting criteria can be renewed by mutual agreement between the Bank and the borrower. In addition, the Bank has preapproved up to four renewal options of two to five years for loans comprising approximately 15% of real estate mortgage loans. These renewal options provided for interest at specified spreads over applicable two-, three-or five-year U.S. Treasury securities, fixed for the term of the renewal. Renewal options are cancelled if the borrower is in default under the terms of the loan agreement. Because the Bank is unable to estimate the extent to which its borrowers will exercise their preapproved renewal options, the table is based on contractual maturities excluding renewal options. Credit Risk Management The Company assesses and manages credit risk on an ongoing basis through diversification, lending limits, credit review and approval policies and internal monitoring. As part of the control process, an independent credit review function regularly examines the Company's loan portfolio. In addition to this internal credit process, the Company's loan portfolio is subject to examination by external regulators in the normal course of business. Credit quality will be influenced by underlying trends in the economic and business cycle. The Company seeks to manage and control its risk through diversification of the portfolio by type of loan, industry concentration and type of borrower. The Company has taken, and continues to take, steps intended to address the Bank's lending policies and procedures, improve the internal loan approval, review and classification processes and increase the accountability of lending personnel at all levels. Real Estate Lending The Company engages in real estate lending in the form of construction loans and permanent loans secured by deeds of trust. Management believes that the Southern California real estate market is currently undergoing the most difficult real estate cycle since the end of World War II, and, accordingly, this portfolio continues to be monitored closely. At year-end 1993, real estate loans totaled $635.4 million, or 39.2% of total loans, compared with 40.3% and 40.4% at year-end 1992 and 1991. Real estate loans decreased 20.9% from 1991 to 1992 and 24.1% from 1992 to 1993. In addition to real estate outstandings, the Company had open but unused commitments, excluding those under ELC loans to lend against real estate at December 31, 1993, of $7.5 million, down from $15.9 million at December 31, 1992. Such commitments, a portion of which typically expires unused, reflected diversification by project type comparable with that of related outstandings. 26 22 On January 17, 1994 and during the days thereafter, Los Angeles, California was struck by a series of strong earthquakes. The Bank is currently in the process of accumulating data on the collateral securing its loans in the affected areas. Based on the information currently available, the Bank does not believe earthquake related losses, including those related to its facilities, will be material to the Bank's financial condition. REAL ESTATE CONSTRUCTION LOANS BY TYPE
DECEMBER 31 --------------------- 1993 1992 -------- -------- DOLLARS IN THOUSANDS Condo/apartment........................................ $ -- $ 19,517 Shopping centers....................................... -- 30,690 1 -- 4 family (includes land).......................... 594 12,900 Office building........................................ 7,282 24,129 Industrial............................................. -- 7,140 Other.................................................. 3,823 11,091 -------- -------- $ 11,699 $105,467 -------- -------- -------- --------
REAL ESTATE MORTGAGE LOANS BY TYPE
DECEMBER 31 --------------------- 1993 1992 -------- -------- DOLLARS IN THOUSANDS Equity lines of credit................................. $ 47,279 $157,913 Industrial............................................. 123,594 152,439 Office building........................................ 110,183 112,486 Shopping centers....................................... 68,236 66,307 Other 1 -- 4 family.................................... 37,347 55,945 Condo/apartment........................................ 54,040 49,885 Land, nonresidential................................... 32,885 36,870 Other.................................................. 150,089 99,389 -------- -------- $623,653 $731,234 -------- -------- -------- --------
The Bank's exposure to real estate construction loans has declined significantly. During 1994, the Bank plans to re-enter the construction loan market on a limited basis. The decrease in real estate mortgage loans between 1992 and 1993 was primarily due to the $110.6 million decrease in ELC loans, which resulted from sale of $73.7 million of ELC loans in April 1993 in addition to pay downs and refinancings. Included in the Other category are loans totaling $56.0 million that resulted from the financing of the sale of the assets in the Disposition Program. Management believes that these loans do not pose risks significantly greater than the Bank's existing real estate mortgage loan portfolio. Nonaccrual real estate loans totaled $48.0 million, or 7.56% of related loans outstanding, at December 31, 1993, down from $96.3 million, or 11.5% of related loans outstanding at December 31, 1992, and from $82.0 million, or 7.8%, at December 31, 1991. The decrease in nonaccrual real estate loans at December 31, 1993 compared with the two prior year ends is due to the sale of nonperforming loans as part of the Disposition Program and the decrease in the amount of loans placed on nonaccrual status in 1993. Real estate net credit losses in 1993 totaled $25.5 million, or 3.74% of related average outstandings, and represented 47.2% of total 1993 net credit losses. Real estate net credit losses in 1992 totaled $20.4 million, or 2.18% of related average outstandings. 27 23 RISK ELEMENTS Nonaccrual, Past Due and Restructured Loans The following table presents information concerning nonaccrual loans, ORE, accruing loans that are contractually past due 90 days or more as to interest or principal payments and still accruing, and restructured loans:
DECEMBER 31 ------------------------------------------------- 1993 1992 1991 1990 1989 ------- -------- -------- ------- ------- DOLLARS IN THOUSANDS Nonaccrual loans: Real estate construction....................... $ -- $ 21,219 $ 51,455 $ -- $ -- Real estate mortgage........................... 48,016 75,128 30,522 22,639 578 Commercial..................................... 23,040 63,592 69,799 45,451 11,290 Installment.................................... -- 360 779 318 3,942 ------- -------- -------- ------- ------- Total..................................... 71,056 160,299 152,555 68,408 15,810 ORE............................................ 5,559 94,065 64,510 2,130 -- ------- -------- -------- ------- ------- Total nonaccrual loans and ORE................. $76,615 $254,364 $217,065 $70,538 $15,810 ------- -------- -------- ------- ------- ------- -------- -------- ------- ------- Total nonaccrual loans as a percentage of total 4.38% 7.72% 5.83% 2.24% .58% loans........................................ Total nonaccrual loans and ORE as a percentage 4.71 11.73 8.10 2.31 .58 of total loans and ORE....................... Allowance for credit losses to nonaccrual 155.51 84.90 82.44 87.83 231.59 loans........................................ Assets held for accelerated disposition........ $17,450 $ -- $ -- $ -- $ -- ------- -------- -------- ------- ------- ------- -------- -------- ------- ------- In-substance foreclosures -- intangible $ 4,740 $ 7,362 $ 8,734 $ -- $ -- assets....................................... ------- -------- -------- ------- ------- ------- -------- -------- ------- ------- Loans past due 90 days or more on accrual status: Real estate.................................... $17,412 $ 25,458 $ 42,956 $17,079 $17,241 Commercial..................................... 11,382 1,464 26,492 16,798 21,790 Installment.................................... 155 36 3,587 491 3,099 ------- -------- -------- ------- ------- Total..................................... $28,949 $ 26,958 $ 73,035 $34,368 $42,130 ------- -------- -------- ------- ------- ------- -------- -------- ------- ------- Restructured loans: On accrual status.............................. $ 958 $ 1,144 $ -- $ -- $ 691 On nonaccrual status........................... -- -- -- 8,210 7,555 ------- -------- -------- ------- ------- Total..................................... $ 958 $ 1,144 $ -- $ 8,210 $ 8,246 ------- -------- -------- ------- ------- ------- -------- -------- ------- -------
28 24 The table below summarizes the approximate changes in nonaccrual loans for the years ended December 31, 1993 and 1992.
YEAR ENDED DECEMBER 31 --------------------- 1993 1992 -------- -------- DOLLARS IN THOUSANDS Balance, beginning of year............................. $160,299 $152,555 Loans placed on nonaccrual............................. 105,695 262,273 Charge offs............................................ (66,834) (96,603) Loans returned to accrual status....................... (43,052) (43,181) Repayments (including interest applied to principal)... (56,462) (52,978) Transfers to ORE....................................... (13,892) (60,735) Transfers to assets held for accelerated disposition, net.................................................. (14,698) -- Transfers to in-substance foreclosures -- intangible assets............................................... -- (1,032) -------- -------- Balance, end of year................................... $ 71,056 $160,299 -------- -------- -------- --------
The additional interest income that would have been recorded from nonaccrual loans if the loans had not been on nonaccrual status was $8.5 million, $12.6 million and $12.3 million for the years ended December 31, 1993, 1992 and 1991, respectively. Interest payments received on nonaccrual loans are applied to principal unless there is no doubt as to ultimate full repayment of principal, in which case, the interest payment is recognized as interest income. Interest income includes $3.9 million, $3.2 million and $5.1 million for the years ended December 31, 1993, 1992, and 1991, respectively, from collection of interest related to nonaccrual loans. Interest income not recognized on nonaccrual loans reduced the net interest margin by 33, 36, and 30 basis points for the years ended December 31, 1993, 1992, and 1991, respectively. It is the Bank's policy that a loan will be placed on nonaccrual status if either principal or interest payments are past due in excess of 90 days unless the loan is both well secured and in process of collection, or if full collection of interest or principal becomes uncertain, regardless of the time period involved. At December 31, 1993, in addition to loans disclosed above as past due, nonaccrual or restructured, management also identified $40.0 million of loans about which it had serious doubts as to the ability of the borrowers to comply with the present loan payment terms in the future. This amount was determined based on analysis of information known to management about the borrower's financial condition and current and expected economic conditions. Unfunded loan commitments pertaining to these potential problem loans total $1.5 million. If economic conditions change, adversely or otherwise, or if additional facts on borrowers' financial condition come to light, then the amount of such potential problem loans may change, possibly significantly. Estimated potential losses from these potential problem loans have been provided for in determining the allowance for credit losses. At December 31, 1993, the allowance for credit losses was 6.82% of gross loans, compared with 6.56% at December 31, 1992. The allowance at December 31, 1993 was equal to 155.51% of total nonaccrual loans, as compared with 84.90% at December 31, 1992. 29 25 The following table summarizes average loans outstanding at year end and changes in the allowance for credit losses for the five-year period 1989 to 1993.
YEAR ENDED DECEMBER 31 ---------------------------------------------------------------------- 1993 1992 1991 1990 1989 ---------- ---------- ---------- ---------- ---------- DOLLARS IN THOUSANDS Average amount of loans outstanding................ $1,737,401 $2,315,285 $2,852,311 $2,875,154 $2,527,224 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance of allowance for credit losses, beginning of year....................... $ 136,095 $ 125,766 $ 60,083 $ 36,615 $ 28,522 ---------- ---------- ---------- ---------- ---------- Loans charged off: Commercial loans........... 56,012 97,751 47,600 21,707 10,020 Real estate loans -- construction............ 3,183 11,321 6,219 1,000 -- Real estate loans -- mortgage....... 23,149 9,209 3,212 -- -- Installment loans.......... 621 1,460 779 668 1,993 ---------- ---------- ---------- ---------- ---------- Total loans charged off................... 82,965 119,741 57,810 23,375 12,013 ---------- ---------- ---------- ---------- ---------- Recoveries of loans previously charged off: Commercial loans........... 27,842 15,243 5,242 3,727 2,346 Real estate loans -- construction............ 20 167 20 -- -- Real estate loans -- mortgage....... 767 6 98 -- 1,300 Installment loans.......... 215 154 133 116 1,314 ---------- ---------- ---------- ---------- ---------- Total recoveries........ 28,844 15,570 5,493 3,843 4,960 ---------- ---------- ---------- ---------- ---------- Net loans charged off........ 54,121 104,171 52,317 19,532 7,053 Additions to allowance charged to operating expense.................... 30,000 114,500 118,000 43,000 15,146 Other(1)..................... (1,475) -- -- -- -- ---------- ---------- ---------- ---------- ---------- Balance, end of year......... $ 110,499 $ 136,095 $ 125,766 $ 60,083 $ 36,615 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Ratio of net charge offs to average loans.............. 3.12% 4.50% 1.83% .68% .28%
- --------------- (1) Allowance for credit losses allocated to $73.7 million of ELC loans sold in April 1993. The following table reflects management's allocation of the allowance for credit losses by loan category and the ratio of loans in each category to total loans at December 31 for each of the last five years.
ALLOWANCE AMOUNT PERCENT OF LOANS TO TOTAL LOANS -------------------------------------------------- -------------------------------- 1993 1992 1991 1990 1989 1993 1992 1991 1990 1989 -------- -------- -------- ------- ------- ---- ---- ---- ---- ---- DOLLARS IN THOUSANDS Commercial............................. $ 53,110 $ 72,029 $ 77,780 $45,933 $33,060 58% 57% 57% 57% 57% Real estate -- construction............ 1,410 10,500 24,926 8,000 804 1 5 12 15 15 Real estate -- mortgage................ 55,120 52,323 21,560 4,700 1,307 38 35 28 26 25 Installment............................ 859 1,243 1,500 1,450 1,444 3 3 3 2 3 -------- -------- -------- ------- ------- ---- ---- ---- ---- ---- Total.............................. $110,499 $136,095 $125,766 $60,083 $36,615 100% 100% 100% 100% 100% -------- -------- -------- ------- ------- ---- ---- ---- ---- ---- -------- -------- -------- ------- ------- ---- ---- ---- ---- ----
The allowance allocated to the loan categories shown above is based on previous loan loss experience, management's evaluation of the current loan portfolio, and anticipated economic conditions. While amounts are allocated to specific loans and to portfolio segments, the allowance is general in nature and is available for the portfolio in its entirety. 30 26 In May 1993, the Financial Accounting Standards Board (FASB) issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 114 is effective January 1, 1995; earlier implementation is encouraged. A loan is considered impaired when it is probable that a creditor will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan is determined to be impaired, SFAS No. 114 requires that the impairment be measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate, except that as a practical expedient, the impairment may be measured by using the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. If the measurement of the impaired loan is less than the recorded amount of the loan, an impairment will be recognized by creating a valuation allowance with a corresponding charge to the provision for credit losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for credit losses. The change in estimated present value of the expected future cash flows is to be reported in future periods either entirely as an adjustment to the provision for credit losses or by separately increasing interest income for the amount of the present value change attributable to the passage of time. For impaired loans that are measured by using an observable market price or the fair value of collateral, the change, if any, in market price or fair value is to be reported in future periods as an adjustment of the valuation allowance and, correspondingly, the provision for credit losses. The Company has not yet determined when it will implement SFAS No. 114, but believes that adoption of SFAS No. 114 will not have a material impact on its results of operations or shareholders' equity. Other Real Estate The Company's ORE totaled $5.6 million at year end 1993, down from $94.1 million a year ago, and $64.5 million at December 31, 1991. The decrease in ORE resulted from the transfer of $91.1 million of ORE during 1993 to the Disposition Program. The Company's policy is to record these properties at the estimated fair value, net of selling expenses, at the time they are transferred into ORE, thereby tying future gains or losses from sale or potential additional writedowns to underlying changes in the market. The fair value of the ORE is based on a current appraisal. As a result of writedowns, including the $36.5 million taken upon adoption of the Disposition Program in March 1993, net costs of other real estate totaled $25.7 million in 1993, up from $20.8 million in 1992 and $2.5 million in 1991. Net ORE expense for 1993 included a $12.8 million gain recorded in the fourth quarter upon the sale of a portion of the assets in the Disposition Program. ORE BY TYPE
DECEMBER 31 -------------------- 1993 1992 ------ ------- DOLLARS IN THOUSANDS Shopping centers........................................ $ -- $24,835 Industrial.............................................. -- 17,545 1 -- 4 family........................................... 1,938 15,662 Land (excluding 1 -- 4 family).......................... 3,200 14,941 Apartments.............................................. -- 8,553 Office buildings........................................ -- 5,962 Other................................................... 421 6,567 ------ ------- Total................................................. $5,559 $94,065 ------ ------- ------ -------
31 27 The following table summarizes the changes in ORE balances:
YEAR ENDED DECEMBER 31 --------------------- 1993 1992 ------- ------- DOLLARS IN THOUSANDS Balance, beginning of year............................................. $94,065 $64,510 Additions.............................................................. 17,298 72,813 Sales.................................................................. (5,639) (16,037) Writedowns............................................................. (40,283) (18,388) Payments and other reductions.......................................... (5,496) (8,833) Transfers to assets held for accelerated disposition, net.............. (54,386) -- ------- ------- Balance, end of year................................................... $ 5,559 $94,065 ------- ------- ------- -------
Assets Held for Accelerated Disposition In March 1993, the Bank adopted an accelerated asset disposition program to aggressively dispose of ORE and certain problem loans with an aggregate book value before the Disposition Program of $119.5 million. The Bank signed a definitive agreement to sell, as of November 1, 1993, all six asset pools in its Accelerated Asset Disposition Program to WHC-THREE Investors, L.P. ("WHC-THREE"), a limited partnership. The sale of the loans contained in the Disposition Program for $48.3 million closed concurrently with the signing of the definitive agreement and a gain of $12.8 million was recognized at that time, net of disposition expenses and reserves. The sale of the Disposition Program ORE, which is carried at $17.5 million at December 31, 1993, is expected to close in the first part of 1994 at which time a pretax gain of approximately $3.5 million is expected to be recognized. From November 17, 1993 until closing, WHC-THREE has provided interim mortgages totaling $26.3 million which will be cancelled in exchange for title to the ORE properties at the closing of the sale of these properties. The Bank provided loans totaling $56.0 million (75% financing) for this sale at terms comparable with other real estate loans in its portfolio. The terms of the notes require annual pay downs and payment of the remaining principal in five years, in addition to payments when individual real estate assets securing the loans are sold or refinanced. DEPOSITS Maturity distribution of time deposits of $100,000 or more at December 31, 1993 is as follows:
PUBLIC TIME CERTIFICATES DEPOSITS OF DEPOSITS TOTAL -------- ------------- --------- DOLLARS IN THOUSANDS Under 3 months.............................................. $1,400 $ 113,565 $ 114,965 3 to 6 months............................................... -- 24,338 24,338 6 to 12 months.............................................. 120 15,026 15,146 Over 12 months.............................................. -- 13,984 13,984 -------- ------------- --------- Total.................................................. $1,520 $ 166,913 $ 168,433 -------- ------------- --------- -------- ------------- ---------
Deposits At December 31, 1993 and 1992, the aggregate amount of deposits by foreign depositors in domestic offices totaled approximately $27.0 million and $33.0 million, respectively, the majority of which was interest bearing. The Bank had no brokered deposits at December 31, 1993 or 1992. 32 28 SHORT-TERM BORROWINGS The following table summarizes short-term borrowings and weighted average rates.
1993 1992 1991 --------------------------------- -------------------------------- -------------------------------- BALANCE AT AVERAGE AVERAGE BALANCE AT AVERAGE AVERAGE BALANCE AT AVERAGE AVERAGE YEAR END BALANCE RATE YEAR END BALANCE RATE YEAR END BALANCE RATE ----------- -------- -------- ----------- -------- ------- ----------- -------- ------- DOLLARS IN THOUSANDS Federal funds purchased and securities sold under repurchase agreements............ $ 202,459 $265,082 2.83% $ 339,149 $488,520 3.32% $ 579,326 $531,590 5.37% Other short-term borrowings............ 15,000 14,000 3.17 15,000 14,279 3.66 15,000 14,561 5.96
The maximum amount of federal funds purchased and securities sold with agreements to repurchase at any month end was $422,964, $622,308 and $679,862 in 1993, 1992 and 1991. The maximum amount of other short-term borrowings at any month end was $15,000 during the three years ended December 31, 1993, 1992 and 1991. MARKET DATA ON SHARES OF COMMON STOCK Principal Market: NYSE Stock Symbol: CYN
1993 1992 -------------- -------------- TRADING PRICES TRADING PRICES -------------- -------------- First quarter................................. Hi 11 1/8 Hi 15 1/8 Lo 6 5/8 Lo 11 1/2 Second quarter................................ Hi 10 1/2 Hi 13 1/4 Lo 6 5/8 Lo 10 7/8 Third quarter................................. Hi 8 3/4 Hi 12 Lo 6 5/8 Lo 6 3/8 Fourth quarter................................ Hi 8 3/8 Hi 8 3/8 Lo 7 1/8 Lo 4 3/4
Market prices based on the sales prices during quarter as reported in The Wall Street Journal. The number of shareholders of record as of December 31, 1993 was 2,629. No dividends were declared in 1993 or 1992. FORM 10-K For shareholders and others interested in information beyond that shown in this report, the Company's Annual Report on Form 10-K for 1993, required to be filed with the Securities and Exchange Commission, may be obtained without charge by writing to: Heng Chen, Senior Vice President Finance Division, City National Bank 400 North Roxbury Drive, Beverly Hills, CA 90210. 33 29 QUARTERLY OPERATING RESULTS
QUARTER ENDED ------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL -------- -------- ------------ ------------ --------- DOLLARS IN THOUSANDS 1993 Interest income From loans.................................... $ 36,118 $ 32,489 $ 30,528 $ 32,015 $ 131,150 From investments.............................. 8,451 8,211 10,072 11,908 38,642 -------- -------- ------------ ------------ --------- 44,569 40,700 40,600 43,923 169,792 Interest expense................................ (12,122) (10,320) (9,965) (9,589) (41,996) -------- -------- ------------ ------------ --------- Net interest income............................. 32,447 30,380 30,635 34,334 127,796 Provision for credit losses..................... (11,500) (7,500) (5,500) (5,500) (30,000) -------- -------- ------------ ------------ --------- Net interest income after provision for credit losses........................................ 20,947 22,880 25,135 28,834 97,796 Noninterest income.............................. 11,679 14,559 10,307 9,265 45,810 Noninterest expense............................. (72,763) (32,134) (30,430) (31,573) (166,900) -------- -------- ------------ ------------ --------- Income (loss) before taxes from continuing operations.................................... (40,137) 5,305 5,012 6,526 (23,294) Income taxes (benefit).......................... (14,283) 1,543 1,537 1,943 (9,260) -------- -------- ------------ ------------ --------- Income (loss) from continuing operations........ (25,854) 3,762 3,475 4,583 (14,034) Income from discontinued operations............. -- 7,128 -- -- 7,128 -------- -------- ------------ ------------ --------- Net income (loss)............................... $(25,854) $ 10,890 $ 3,475 $ 4,583 $ (6,906) -------- -------- ------------ ------------ --------- -------- -------- ------------ ------------ --------- Income (loss) per share from continuing operations.................................... $ (.80) $ .11 $ .08 $ .10 $ (.35) -------- -------- ------------ ------------ --------- -------- -------- ------------ ------------ --------- Net income (loss) per share(1).................. $ (.80) $ .30 $ .08 $ .10 $ (.17) -------- -------- ------------ ------------ --------- -------- -------- ------------ ------------ ---------
- --------------- (1) Because of the higher number of shares outstanding due to the Offering, the net loss per share for 1993 does not equal the sum of the net income (loss) per share for each of the quarters.
QUARTER ENDED ------------------------------------------------- MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 TOTAL -------- -------- ------------ ------------ --------- DOLLARS IN THOUSANDS 1992 Interest income From loans.................................... $ 49,579 $ 45,513 $ 41,446 $ 38,644 $ 175,182 From investments.............................. 16,512 16,045 14,428 10,882 57,867 -------- -------- ------------ ------------ --------- 66,091 61,558 55,874 49,526 233,049 Interest expense................................ (26,219) (23,476) (19,913) (14,825) (84,433) -------- -------- ------------ ------------ --------- Net interest income............................. 39,872 38,082 35,961 34,701 148,616 Provision for credit losses..................... (4,500) (95,000) (7,500) (7,500) (114,500) -------- -------- ------------ ------------ --------- Net interest income after provision for credit losses........................................ 35,372 (56,918) 28,461 27,201 34,116 Noninterest income.............................. 10,954 11,493 11,370 13,177 46,994 Noninterest expense............................. (39,795) (49,568) (44,226) (40,123) (173,712) -------- -------- ------------ ------------ --------- Income (loss) before taxes from continuing operations.................................... 6,531 (94,993) (4,395) 255 (92,602) Income taxes (benefit).......................... 2,014 (32,146) (1,824) (494) (32,450) -------- -------- ------------ ------------ --------- Income (loss) from continuing operations........ 4,517 (62,847) (2,571) 749 (60,152) Income from discontinued operations............. 189 235 241 139 804 -------- -------- ------------ ------------ --------- Net income (loss)............................... $ 4,706 $(62,612) $ (2,330) $ 888 $ (59,348) -------- -------- ------------ ------------ --------- -------- -------- ------------ ------------ --------- Income (loss) per share from continuing operations.................................... $ .14 $ (1.95) $ (.08) $ .02 $ (1.87) -------- -------- ------------ ------------ --------- -------- -------- ------------ ------------ --------- Net income (loss) per share..................... $ .14 $ (1.94) $ (.07) $ .03 $ (1.84) -------- -------- ------------ ------------ --------- -------- -------- ------------ ------------ ---------
34 30 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the preparation of the Company's consolidated financial statements and related information appearing in this annual report. Management believes that the consolidated financial statements fairly reflect the form and substance of transactions, and that the financial statements reasonably present the Company's financial position and results of operations in conformity with generally accepted accounting principles. Management also has included in the Company's financial statements amounts that are based on estimates and judgments that it believes are reasonable under the circumstances. The independent auditors audit the Company's consolidated financial statements in accordance with generally accepted auditing standards and provide an objective, independent review of the fairness of reported operating results and financial position. The Board of Directors of the Corporation has an Audit Committee composed solely of three nonmanagement Directors. The Committee meets periodically with financial management, the internal auditors and the independent auditors to review accounting, control, auditing and financial reporting matters. Bram Goldsmith Frank P. Pekny Chairman of the Board and Executive Vice President and Chief Executive Officer Chief Financial Officer INDEPENDENT AUDITORS' REPORT KPMG Peat Marwick To the Board of Directors and Shareholders of City National Corporation: We have audited the accompanying consolidated balance sheet of City National Corporation and subsidiaries as of December 31, 1993, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of City National Corporation and subsidiaries for the year ended December 31, 1992 and for each of the years in the two-year period ended December 31, 1992, were audited by other auditors whose report dated January 13, 1993 expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurances about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1993 consolidated financial statements referred to above present fairly, in all material respects, the financial position of City National Corporation and subsidiaries at December 31, 1993 and the results of their operations and their cash flows for the year ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Notes 1 and 3, the Company changed its method of accounting for investments as of December 31, 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As discussed in Notes 1 and 9, the Company changed its method of accounting for income taxes as of January 1, 1993 to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." KPMG PEAT MARWICK Los Angeles, California January 21, 1994 35 31 CONSOLIDATED BALANCE SHEET
DECEMBER 31 ------------------------- 1993 1992 ---------- ---------- DOLLARS IN THOUSANDS ASSETS Cash and due from banks............................................. $ 234,504 $ 390,967 Interest-bearing deposits in other banks............................ 649 14,956 Federal funds sold and securities purchased under resale agreements........................................................ 265,000 468,850 Investment securities (market value $902,738 in 1993 and $420,367 in 1992)............................................................. 902,481 413,645 Securities available for sale (market value $2,000 in 1993 and $30,662 in 1992).................................................. 2,000 30,277 Trading account securities.......................................... 39,765 10,258 Loans............................................................... 1,620,556 2,075,202 Less allowance for credit losses.................................... (110,499) (136,095) ---------- ---------- Net loans......................................................... 1,510,057 1,939,107 Leveraged leases.................................................... 13,852 14,365 Premises and equipment, net......................................... 20,359 23,519 Customers' acceptance liability..................................... 5,150 7,020 Other real estate................................................... 5,559 94,065 Deferred tax asset.................................................. 18,050 37,120 Assets held for accelerated disposition............................. 17,450 -- Other assets........................................................ 65,750 69,953 ---------- ---------- Total assets...................................................... $3,100,626 $3,514,102 ---------- ---------- ---------- ---------- LIABILITIES Demand deposits..................................................... $1,088,026 $1,259,590 Interest checking deposits.......................................... 324,034 349,803 Money market deposits............................................... 742,381 825,824 Savings deposits.................................................... 107,221 95,705 Time deposits -- under $100,000..................................... 96,672 119,082 Time deposits -- $100,000 and over.................................. 168,433 261,272 ---------- ---------- Total deposits.................................................... 2,526,767 2,911,276 ---------- ---------- Federal funds purchased and securities sold under repurchase agreements........................................................ 202,459 339,149 Other short-term borrowings......................................... 15,000 15,000 Mortgages payable................................................... 26,319 -- Other liabilities................................................... 26,857 13,713 Acceptances outstanding............................................. 5,150 7,020 ---------- ---------- Total liabilities................................................. 2,802,552 3,286,158 ---------- ---------- COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Preferred Stock, authorized -- 5,000,000 shares in 1993, none outstanding....................................................... -- Common Stock, par value $1.00, authorized -- 75,000,000 shares in 1993 and 50,000,000 shares in 1992................................ Outstanding -- 45,027,417 shares in 1993 and 32,239,714 shares in 1992.............................................................. 45,027 32,240 Additional paid in capital.......................................... 262,471 198,222 Accumulated deficit................................................. (9,424) (2,518) ---------- ---------- Total shareholders' equity........................................ 298,074 227,944 ---------- ---------- Total liabilities and shareholders' equity........................ $3,100,626 $3,514,102 ---------- ---------- ---------- ----------
See accompanying Notes to Consolidated Financial Statements. 36 32 CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED ------------------------------------ 1993 1992 1991 ---------- ---------- ---------- DOLLARS IN THOUSANDS INTEREST INCOME Interest and fees on loans......................................... $ 131,150 $ 175,182 $ 273,628 Interest on interest-bearing deposits in other banks............... 30 67 297 Interest on federal funds sold and securities purchased under resale agreements................................................ 9,357 19,592 33,450 Interest on investment securities: U.S. treasury and federal agency securities...................... 26,190 30,127 38,982 Municipal securities............................................. 122 5,488 8,367 Other securities................................................. 783 941 2,428 Interest on securities available for sale.......................... 1,001 74 -- Interest on trading account........................................ 1,159 1,578 3,682 ---------- ---------- ---------- Total.......................................................... 169,792 233,049 360,834 ---------- ---------- ---------- INTEREST EXPENSE Interest on deposits............................................... 33,974 67,690 150,901 Interest on federal funds purchased and securities sold under repurchase agreements............................................ 7,499 16,220 28,550 Interest on other short-term borrowings............................ 523 523 868 ---------- ---------- ---------- Total.......................................................... 41,996 84,433 180,319 ---------- ---------- ---------- Net interest income................................................ 127,796 148,616 180,515 Provision for credit losses........................................ 30,000 114,500 118,000 ---------- ---------- ---------- Net interest income after provision for credit losses.............. 97,796 34,116 62,515 ---------- ---------- ---------- NONINTEREST INCOME Service charges on deposit accounts................................ 11,570 10,618 9,305 Trust fees......................................................... 7,390 7,480 7,087 Customer trading account income.................................... 6,288 6,439 5,141 Credit card merchant fees.......................................... -- 4,537 4,142 Gain on sale of selected ELC loans................................. 4,460 -- -- Gain on sale of merchant draft business............................ 1,941 -- -- Net gain on securities available for sale.......................... -- 1,629 -- All other income................................................... 14,161 16,291 17,657 ---------- ---------- ---------- Total.......................................................... 45,810 46,994 43,332 ---------- ---------- ---------- NONINTEREST EXPENSE Salaries and other employee benefits............................... 69,783 83,563 83,211 Net occupancy of premises.......................................... 11,828 11,546 11,286 Data processing.................................................... 7,757 8,007 7,857 Professional....................................................... 7,348 8,437 7,921 FDIC insurance..................................................... 7,202 7,504 7,867 Office supplies.................................................... 4,994 5,951 6,122 Depreciation....................................................... 4,516 4,725 4,883 Equipment.......................................................... 1,996 2,283 2,674 Promotion.......................................................... 1,900 3,012 3,598 Other operating.................................................... 11,902 17,859 12,883 Consolidation charge............................................... 12,000 -- -- ORE................................................................ 25,674 20,825 2,548 ---------- ---------- ---------- Total.......................................................... 166,900 173,712 150,850 ---------- ---------- ---------- Loss from continuing operations before taxes....................... (23,294) (92,602) (45,003) Income taxes (benefit)............................................. (9,260) (32,450) (22,387) ---------- ---------- ---------- Loss from continuing operations.................................... (14,034) (60,152) (22,616) Income from discontinued operations................................ 7,128 804 1,396 ---------- ---------- ---------- Net loss........................................................... $ (6,906) $ (59,348) (21,220) ---------- ---------- ---------- ---------- ---------- ---------- Loss per share from continuing operations............................ $ (.35) $ (1.87) $ (.70) ---------- ---------- ---------- ---------- ---------- ---------- Loss per share..................................................... $ (.17) $ (1.84) $ (.66) ---------- ---------- ---------- ---------- ---------- ---------- Shares used to compute loss per share.............................. 39,580,069 32,239,714 32,214,230 ---------- ---------- ---------- ---------- ---------- ----------
See accompanying Notes to Consolidated Financial Statements. 37 33 CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED --------------------------------------- 1993 1992 1991 --------- ---------- ---------- DOLLARS IN THOUSANDS CASH FLOWS FROM OPERATING ACTIVITIES Net loss....................................................... $ (6,906) $ (59,348) $ (21,220) Adjustments to net loss: Provision for credit losses.................................. 30,000 114,500 118,000 Writedown on ORE............................................. 40,283 18,388 1,531 (Gain)/loss on sales of ORE and disposition program.......... (15,568) (365) 352 Depreciation................................................. 4,516 4,725 4,883 Net (increase) decrease in trading account securities........ (29,507) 102,029 (579) Net (increase) decrease in deferred tax benefits............. 19,070 (3,972) (31,380) Increase (decrease) in accrued liabilities, net.............. 11,879 2,734 58 Other, net................................................... (5,287) (17,170) (6,612) --------- ---------- ---------- Net cash provided by operating activities.................... 48,480 161,521 65,033 --------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Net decrease in short-term investments......................... 14,307 15,044 20,001 Securities sold................................................ -- 34,615 4,395 Maturities of investment securities............................ 230,357 522,641 424,872 Maturities of securities available for sale.................... 18,928 -- -- Purchase of investment securities.............................. (711,798) (271,608) (533,986) Loan originations and principal collections, net............... 354,191 363,017 322,043 Proceeds from sales of ORE and disposition program assets...... 41,639 16,402 3,928 Proceeds from sales of loans................................... 76,684 -- -- Other, net..................................................... 9,450 11,647 (3,327) --------- ---------- ---------- Net cash provided by (used in) investing activities..... 33,758 691,758 237,926 --------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in federal funds purchased and securities sold under repurchase agreements.................. (136,690) (240,177) 91,057 Net decrease in deposits....................................... (384,509) (752,943) (437,879) Proceeds from issuance of stock................................ 76,989 -- -- Cash dividends paid............................................ -- -- (15,434) Other, net..................................................... 1,659 (1,963) (1,142) --------- ---------- ---------- Net cash provided by (used in) financing activities..... (442,551) (995,083) (363,398) --------- ---------- ---------- Net increase (decrease) in cash and cash equivalents........... (360,313) (141,804) (60,439) Cash and cash equivalents at beginning of year................. 859,817 1,001,621 1,062,060 --------- ---------- ---------- Cash and cash equivalents at end of year................ $ 499,504 $ 859,817 $1,001,621 --------- ---------- ---------- --------- ---------- ---------- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid (received) during the year for: Interest..................................................... $ 42,771 $ 88,700 $ 184,400 Income taxes................................................. (30,018) (6,909) 20,000 Noncash investing activities: Transfer from loans to foreclosed assets..................... 28,590 72,813 68,191 Transfers from (to) investment securities to/from securities available for sale......................................... (8,201) 30,277 -- Loan to facilitate sale of disposition program assets........ 55,955 -- -- Noncash financing activities: Proceeds from mortgages payable................................ 26,319 -- -- --------- ---------- ---------- --------- ---------- ----------
See accompanying Notes to Consolidated Financial Statements. 38 34 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
ADDITIONAL TOTAL SHARES COMMON PAID IN ACCUMULATED SHAREHOLDERS' OUTSTANDING STOCK CAPITAL DEFICIT EQUITY ----------- ------- ---------- ----------- ------------- DOLLARS IN THOUSANDS Balances, December 31, 1990.............. 32,125,565 $32,126 $ 197,218 $ 88,344 $ 317,688 Net loss................................. -- -- -- (21,220) (21,220) Stock options exercised.................. 88,665 88 637 -- 725 Tax benefit from stock options........... -- -- 165 -- 165 Cash dividends -- $.32 per share......... --......... -- -- (10,294) (10,294) ----------- ------- ---------- ----------- ------------- Balances, December 31, 1991.............. 32,214,230 32,214 198,020 56,830 287,064 Net loss................................. -- -- -- (59,348) (59,348) Stock options exercised.................. 25,484 26 164 -- 190 Tax benefit from stock options........... -- -- 38 -- 38 ----------- ------- ---------- ----------- ------------- Balances, December 31, 1992.............. 32,239,714 32,240 198,222 (2,518) 227,944 Net loss................................. -- -- -- (6,906) (6,906) Stock options exercised.................. 70,892 71 417 -- 488 Proceeds from rights offering............ 12,716,811 12,716 63,785 -- 76,501 Tax benefit from stock options........... -- -- 47 -- 47 ----------- ------- ---------- ----------- ------------- Balances, December 31, 1993.............. 45,027,417 $45,027 $ 262,471 $ (9,424) $ 298,074 ----------- ------- ---------- ----------- ------------- ----------- ------- ---------- ----------- -------------
See accompanying Notes to Consolidated Financial Statements. 39 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of City National Corporation (the Corporation) and of City National Bank (the Bank) and its subsidiaries conform to generally accepted accounting principles and to prevailing practices within the banking industry. Basis of Presentation The consolidated financial statements of the Company include the accounts of the Corporation, the Bank (100% owned), and its wholly owned subsidiaries after elimination of all material intercompany transactions. The Bank also has, through its subsidiaries, a 32% interest in a real estate partnership. The Bank's equity in the net income and capital of this partnership is included in the consolidated financial statements. Certain prior years' data have been reclassified to conform to current year presentation. Securities Effective December 31, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires classification of securities as investment securities, available-for-sale securities or trading account securities. The Company had previously classified securities as investment securities (recorded at amortized cost), available-for-sale securities (recorded at the lower of cost or market) or trading account securities (recorded at market). Securities held for investment are classified as investment securities. Because the Company has the ability and management has the intent to hold investment securities until maturity, investment securities are stated at cost adjusted for amortization of premiums and accretion of discounts. Trading account securities are stated at market value. Investments not classified as trading securities nor as investment securities are classified as available-for-sale securities and recorded at fair value. Unrealized holding gains or losses for available-for-sale securities are excluded from earnings and reported as a net amount, after taxes, in a separate component of shareholders' equity until realized. Customer trading account income consists of fees, commissions and markups on securities transactions with customers. Loans Loans are generally carried at amounts advanced less principal payments collected and unamortized nonrefundable fees. Interest income is accrued as earned. Loans held for sale are recorded at the lower of cost or market value. Loans are placed on nonaccrual status when a loan becomes 90 days past due as to interest or principal unless the loan is both well secured and in process of collection. Loans are also placed on nonaccrual status when the full collection of interest or principal becomes uncertain. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is reversed. Thereafter, interest collected on the loan is accounted for on the cash or cost recovery method until it qualifies for return to accrual status. Generally, a loan may be returned to accrual status when all delinquent principal and interest is brought current in accordance with the terms of the loan agreement and certain performance criteria have been met. Allowance for Credit Losses The provision for credit losses charged to operations reflects management's judgment of the adequacy of the allowance for credit losses and is determined through periodic analytical reviews of the loan portfolio, consideration of the Bank's loan loss experience, trends in problem loans, concentrations of credit risk, current and expected future economic conditions as well as the results of the Company's ongoing examination process and that of its regulators. Leveraged Leases Income from leveraged leases is recognized over the terms of the leases based upon the unrecovered equity investment. 40 36 Bank Premises and Equipment Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed generally on a straight-line basis over the estimated useful life of each type of asset. Gains and losses on dispositions are reflected in current operations. Maintenance and repairs are charged to operating expenses. Other Real Estate (ORE) Other real estate is comprised of real estate acquired in satisfaction of loans and in-substance foreclosures. In-substance foreclosures are properties in which a borrower with little or no equity in the collateral effectively abandons control of the property or has no economic interest to continue involvement in the property. The borrower's ability to rebuild equity, based on current financial conditions, is considered doubtful. Property acquired by foreclosure or deed in lieu of foreclosure and properties classified as in-substance foreclosures are transferred to ORE and are recorded at fair value, less estimated costs to sell, at the date of transfer of the property constructively or actually received. The fair value of the ORE property is based upon a current appraisal. Losses that result from the ongoing periodic valuation of these properties are charged against ORE expense in the period in which they are identified. Expenses for holding costs are charged to operations as incurred. Income Taxes The Company has adopted SFAS No. 109, "Accounting for Income Taxes," which mandates the asset and liability method of accounting for deferred taxes effective January 1, 1993. The Company had previously accounted for deferred taxes under the deferral method required by Accounting Principles Board (APB) Opinion 11. Pursuant to the deferral method, which was applied in 1992 and prior years, deferred income taxes were recognized for income and expense items that were reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferral method, deferred taxes were not adjusted for subsequent changes in tax rates. Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing differences between financial reporting and tax reporting basis of assets and liabilities, as well as for operating losses and tax credit carry forwards, using enacted tax laws and rates. Deferred tax assets will be reduced through a valuation allowance whenever it becomes more likely than not that all, or some portion, will not be realized. Deferred income taxes (benefit) represents the net change in the deferred tax asset or liability balance during the year. This amount, together with income taxes currently payable or refundable in the current year, represents the total income taxes (benefit) for the year. Income Per Share Income per share is computed on the basis of the average number of common shares outstanding during each period plus the common stock equivalents that would arise from exercise of common stock options in periods when there is a dilutive effect. Other The Corporation and its subsidiaries are on the accrual basis of accounting for income and expenses. In accordance with the usual practice of banks, assets and liabilities of individual trust, agency and fiduciary funds have not been included in the accounts. Statement of Cash Flows For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, federal funds sold and securities purchased under resale agreements. Generally, federal funds are purchased and sold for one day periods. Discontinued Operations In December 1992, the Bank entered into an agreement with Systematics, Inc. to sell its data processing business, City National Information Services (CNIS). Accordingly, all income and expenses related to CNIS have been removed from continuing operations and are now included in the Consolidated Statement of Operations under the caption "Income from discontinued operations." Prior periods have been restated. Except where noted, footnote disclosures relate solely to continuing operations. 41 37 NOTE 2 -- INVESTMENT SECURITIES The following is a summary of data for the major categories of investment securities:
GROSS GROSS CARRYING UNREALIZED UNREALIZED MARKET DECEMBER 31 VALUE GAINS LOSSES VALUE -------- ---------- ---------- -------- DOLLARS IN THOUSANDS 1993 U.S. Government and federal agency securities......... $880,180 $ 2,883 $ 2,807 $880,256 State and municipal securities........................ 6,475 182 -- 6,657 Other securities...................................... 15,826 4 5 15,825 -------- ---------- ---------- -------- Total....................................... $902,481 $ 3,069 $ 2,812 $902,738 -------- ---------- ---------- -------- -------- ---------- ---------- -------- 1992 U.S. Government and federal agency securities......... $403,973 $ 6,722 $ -- $410,695 Other securities...................................... 9,672 -- -- 9,672 -------- ---------- ---------- -------- Total....................................... $413,645 $ 6,722 $ -- $420,367 -------- ---------- ---------- -------- -------- ---------- ---------- --------
There were no sales of investment securities in 1993. Investment securities gains (losses) amounted to $1.6 million and none during 1992 and 1991, respectively. The carrying values and estimated market values of investment securities at December 31, 1993, by contractual maturity, are shown below:
CARRYING VALUE MARKET VALUE -------------- ------------ DOLLARS IN THOUSANDS Due in one year or less.............................. $386,873 $388,263 Due after one year through five years................ 331,487 331,233 Due after five years through ten years............... 10,589 10,600 Due after ten years.................................. 167,700 166,810 Federal Reserve Bank and other securities............ 5,832 5,832 -------------- ------------ Total...................................... $902,481 $902,738 -------------- ------------ -------------- ------------
Securities totaling $249.4 million at December 31, 1993 were pledged to secure trust funds, public deposits and for other purposes required or permitted by law. NOTE 3 -- SECURITIES AVAILABLE FOR SALE The Company adopted SFAS No. 115 as of December 31, 1993. The impact on shareholders' equity or the results of operations was not material. Prior years' financial statements have not been restated to apply the provisions of SFAS No. 115. At December 31, 1993, securities available for sale consisted of convertible preferred stock with a carrying value, which approximates market value, of $2.0 million. At December 31, 1992, securities available for sale consisted of state and municipal securities with a carrying value and an estimated market value of $20.4 million and $20.6 million, respectively, in the one year or less maturity category, $9.8 million and $9.9 million, respectively, in the over one through five years maturity category and $.1 million and $.1 million, respectively, in the over five years through ten years category. 42 38 NOTE 4 -- LOANS AND ALLOWANCE FOR CREDIT LOSSES The following is a summary of the major categories of loans:
DECEMBER 31 -------------------------- 1993 1992 ----------- ----------- DOLLARS IN THOUSANDS Commercial.......................................................... $ 939,719 $ 1,177,948 Real estate -- construction......................................... 11,699 105,467 Real estate -- mortgage............................................. 623,653 573,321 Equity lines of credit, held for sale............................... -- 157,913 Installment......................................................... 45,485 60,553 ----------- ----------- Total loans............................................... $ 1,620,556 $ 2,075,202 ----------- ----------- ----------- -----------
Equity lines of credit are carried as loans held for sale at December 31, 1992. In the second quarter of 1993, the Bank sold $73.7 million of ELC loans and reclassified the remaining balance to real estate mortgage loans due to the Bank's improved liquidity. At December 31, 1993, ELC loans totaled $47.3 million. The Company has a significant amount of credit exposure to the commercial real estate industry, particularly in Southern California. In the normal course of business, the Bank has loans to officers and directors as well as loans to companies and individuals affiliated with or guaranteed by officers and directors of the Corporation and the Bank. These loans were made in the ordinary course of business at rates and terms no more favorable than those offered to other customers with a similar credit standing. The aggregate dollar amounts of these loans were $17.5 million and $40.1 million (excluding $8.5 million in loans to a director who resigned in 1992), at December 31, 1993 and 1992, respectively. During 1993, advances and repayments totaled $1.0 million and $8.4 million, respectively. In addition, a $15.2 million loan is no longer reported as a loan to a director, as a result of the director's resignation in October 1993. Interest income recognized on these loans amounted to $2.3 million, $3.5 million and $8.1 million during 1993, 1992 and 1991, respectively. At December 31, 1993, none of these loans were on nonaccrual status. Based on analysis of information presently known to management about the loans to officers and directors and their affiliates, management believes all such borrowers have the ability to comply with the present loan repayment terms. Loans past due 90 days or more and still accruing interest totaled $28.9 million, $27.0 million and $73.0 million at December 31, 1993, 1992 and 1991, respectively. Restructured loans totaled $1.0 million, $1.1 million and none at December 31, 1993, 1992 and 1991, respectively. In-substance foreclosures of intangible assets totaling $4.7 million and $7.4 million at December 31, 1993 and 1992, respectively, are included in Other Assets in the Consolidated Balance Sheet. 43 39 The following is a summary of activity in the allowance for credit losses:
1993 1992 1991 -------- -------- -------- DOLLARS IN THOUSANDS Balance, January 1......................................... $136,095 $125,766 $ 60,083 Provision charged to expense............................... 30,000 114,500 118,000 Charge offs................................................ (82,965) (119,741) (57,810) Recoveries................................................. 28,844 15,570 5,493 -------- -------- -------- Net credit losses.......................................... (54,121) (104,171) (52,317) Other(1)................................................... (1,475) -- -- -------- -------- -------- Balance, December 31....................................... $110,499 $136,095 $125,766 -------- -------- -------- -------- -------- --------
- ------------------ (1) Allowance for credit losses allocated to $73.7 million of ELC loans sold in April 1993. The following is a summary of nonperforming loans and related interest forgone:
DECEMBER 31 ---------------------------------- 1993 1992 1991 -------- -------- -------- DOLLARS IN THOUSANDS Nonaccrual loans........................................... $ 71,056 160,299 $152,555 -------- -------- -------- -------- -------- -------- Contractual interest due................................... $ 12,356 15,841 $ 17,375 -------- -------- -------- Interest recognized........................................ 3,871 3,208 5,073 -------- -------- -------- Net interest forgone....................................... $ 8,485 $ 12,633 $ 12,302 -------- -------- -------- -------- -------- --------
The following is a summary of forgone interest on nonaccrual loans at December 31, assuming such loans were on nonaccrual status throughout the year. The forgone interest based on loans outstanding at year end does not include interest forgone on loans on nonaccrual status that were either charged off prior to year end or transferred to ORE prior to year end.
DECEMBER 31 ---------------------------------- 1993 1992 1991 -------- -------- -------- DOLLARS IN THOUSANDS Contractual interest due................................... $ 7,975 $ 16,944 $ 17,980 Interest recognized........................................ 2,632 9,536 8,977 -------- -------- -------- Net interest forgone....................................... $ 5,343 $ 7,408 9,003 -------- -------- -------- -------- -------- --------
NOTE 5 -- ASSETS HELD FOR ACCELERATED DISPOSITION In March 1993, the Bank adopted an accelerated asset disposition program (the Disposition Program) to aggressively dispose of ORE and certain problem loans with an aggregate book value before the Disposition Program of $119.5 million. The Bank signed a definitive agreement, as of November 1, 1993, to sell all six asset pools in the Disposition Program to WHC-THREE Investors, L.P. ("WHC-THREE"), a limited partnership. The sale of the loans contained in the Disposition Program for $48.3 million closed concurrently with the signing of the definitive agreement and a gain of $12.8 million was recognized at that time net of disposition expenses and reserves. This gain is included in other real estate expense in the Consolidated Statement of Operations. The sale of the Disposition Program ORE, which is carried at $17.5 million at December 31, 1993, is expected to close in the first part of 1994 at which time a pretax gain of approximately $3.5 mil- 44 40 lion is expected to be recognized. From November 17, 1993 until closing, WHC-THREE has provided interim mortgages totaling $26.3 million which will be cancelled in exchange for title to the ORE properties at the closing of the sale of these properties. These interim mortgages are included in Mortgages Payable in the Consolidated Balance Sheet. The Bank provided $56.0 million (75% financing) for this sale at terms comparable to other real estate loans in its portfolio. The terms of the notes require annual pay downs and payment of the remaining principal in five years, in addition to payments when individual real estate assets securing the loans are sold or refinanced. NOTE 6 -- NET INVESTMENT IN LEVERAGED LEASES The following is a summary of the net investment in leveraged leases:
1993 1992 ------- ------- DOLLARS IN THOUSANDS Net rental receivables................................................. $ 9,100 $ 9,633 Estimated residual values (ranging from 5% to 20% of original asset cost)................................................................ 6,660 6,660 Deferred expenses...................................................... 175 296 Less: deferred income.................................................. (2,083) (2,224) ------- ------- Investment in leveraged leases......................................... 13,852 14,365 Less: deferred taxes arising from leveraged leases..................... (7,799) (12,713) ------- ------- Net investment in leveraged leases..................................... $ 6,053 $ 1,652 ------- ------- ------- -------
The Bank is the lessor of transportation and other equipment under leveraged lease agreements expiring in various years extending to the year 2006. The equity investment represents between 27% and 38% of the purchase price; the remaining amount was furnished by third-party financing in the form of nonrecourse long-term debt and is secured by the property. For federal income tax purposes, the Bank, as an equity participant, is entitled to allowable investment tax credits, deductions for depreciation of asset cost, and related debt service costs, based on its share of the investment. On January 14, 1994, the Bank closed the sale of its interest in two leveraged leases with a carrying value of $3.2 million at December 31, 1993. The gain on the sale of $1.3 million will be recognized in the first quarter of 1994. NOTE 7 -- PREMISES AND EQUIPMENT The following is a summary of data for the major categories of premises and equipment:
ACCUMULATED DEPRECIATION AND CARRYING COST AMORTIZATION VALUE ------- ---------------- -------- DOLLARS IN THOUSANDS DECEMBER 31, 1993 Premises, including land of $2,490....................... $34,313 $ 20,715 $13,598 Furniture, fixtures and equipment........................ 31,730 24,969 6,761 ------- -------- ------- Total.......................................... $66,043 $ 45,684 $20,359 ------- -------- ------- ------- -------- ------- DECEMBER 31, 1992 Premises, including land of $2,490....................... $33,662 $ 19,003 $14,659 Furniture, fixtures and equipment........................ 31,623 22,763 8,860 ------- -------- ------- Total.......................................... $65,285 $ 41,766 $23,519 ------- -------- ------- ------- -------- -------
45 41 Depreciation and amortization expense was $4.5 million in 1993, $4.7 million in 1992 and $4.9 million in 1991. Net rental payments on operating leases included in net occupancy of premises in the Consolidated Statement of Operations were $8.9 million in 1993, $8.4 million in 1992 and $8.7 million in 1991. The future net minimum rental commitments were as follows at December 31, 1993:
NET MINIMUM RENTAL COMMITMENTS ------------------------------- DOLLARS IN THOUSANDS 1994...................................... $ 6,442 1995...................................... 4,783 1996...................................... 4,608 1997...................................... 3,759 1998...................................... 3,077 1999-2003................................. 9,245 2004-2008................................. 1,512 After 2008................................ 1,379 ------- Total........................... $34,805 ------- -------
A majority of the leases provide for the payment of taxes, maintenance, insurance and certain other expenses applicable to the leased premises. Many of the leases contain extension provisions and escalation clauses. Future net minimum rental commitments at December 31, 1993 exclude lease commitments that the Company intends to settle. The estimated costs of settlement have been accrued as part of the consolidation charge for the branch consolidation plan. The Bank paid $.9 million, $.5 million and $.5 million during 1993, 1992 and 1991, respectively, for rent and operating expense pass throughs to a real estate partnership in which the Bank owns a 32% interest, and Mr. Bram Goldsmith, Chairman and Chief Executive Officer, indirectly owns a 14% interest. NOTE 8 -- CONSOLIDATION CHARGE In November 1993, the Bank announced a consolidation plan to improve efficiency and operational productivity in its branch network. Six branches will be closed and the number of lending locations reduced. To cover the costs associated with this action, the Bank recorded a consolidation charge of $12.0 million in the fourth quarter of 1993, comprised of $7.5 million for disposition of lease commitments, $1.5 million for disposition of fixed assets and $3.0 million for severance costs and other expenses directly related to the consolidation. At December 31, 1993, the balance in the consolidation reserve totaled $12.0 million and is included in Other Liabilities in the Consolidated Balance Sheet. NOTE 9 -- INCOME TAXES The Company adopted SFAS No. 109, effective January 1, 1993. Adopting this Statement did not have a material impact on the financial position or results of operations of the Company. Under SFAS No. 109, deferred tax assets will be reduced through a valuation allowance whenever it becomes more likely than not that all, or some portion, will not be realized. The Company established valuation reserves of $17.1 million, primarily against deferred state income tax benefits, upon adoption of SFAS No. 109 as of January 1, 1993. The Company had previously accounted for deferred taxes under the deferred method required by APB Opinion 11. Under APB Opinion 11, deferred taxes were recognized for income and expense items that were reported in different years for financial statement purposes and income tax purposes using the tax rate 46 42 applicable for the year of the calculation. Under the deferral method, deferred taxes were not adjusted for subsequent changes in tax rates. Income tax (benefit) in the Consolidated Statement of Operations includes the following amounts:
CURRENT DEFERRED TOTAL -------- -------- -------- DOLLARS IN THOUSANDS 1993 Federal.................................................... $(25,250) $ 15,990 $ (9,260) State...................................................... -- -- -- -------- -------- -------- Total............................................ $(25,250) $ 15,990 $ (9,260) -------- -------- -------- -------- -------- -------- 1992 Federal.................................................... $(28,478) $ (3,972) $(32,450) State...................................................... -- -- -- -------- -------- -------- Total............................................ $(28,478) $ (3,972) $(32,450) -------- -------- -------- -------- -------- -------- 1991 Federal.................................................... $ 5,968 $(30,700) $(24,732) State...................................................... 3,025 (680) 2,345 -------- -------- -------- Total............................................ $ 8,993 $(31,380) $(22,387) -------- -------- -------- -------- -------- --------
The tax effects of temporary differences that give rise to significant portions of deferred tax assets and deferred tax liabilities at December 31, 1993 are presented below:
1993 -------------------- DOLLARS IN THOUSANDS Deferred tax assets: Allowance for credit losses...................... $ 29,925 Accrued expenses................................. 5,340 State income taxes............................... 15,020 ORE writedowns................................... 898 Other............................................ 485 -------- Total gross deferred tax assets........ 51,668 Valuation allowance.............................. (18,426) -------- 33,242 -------- Deferred tax liabilities: Leveraged leases................................. 7,799 Installment sales................................ 6,437 Depreciation..................................... 221 Loan fees........................................ 320 Other............................................ 415 -------- Total gross deferred tax liabilities... 15,192 -------- Net deferred tax assets.......................... $ 18,050 -------- --------
It is more likely than not that the reversing deductible temporary differences, net of the recorded valuation allowance, at December 31, 1993 will be realized by the availability of reversing taxable temporary differences, recovery of taxes paid in applicable carryback years, and projected taxable income for 1994. 47 43 The following is a listing of the elements of deferred tax benefits for 1992 and 1991:
1992 1991 ------- -------- DOLLARS IN THOUSANDS Lower credit loss deduction for tax return purposes..................... $(4,413) $(34,784) Higher income for tax return purposes from leveraged leases............. (880) (2,219) Higher state tax deduction for tax return purposes...................... 1,263 1,833 Lower depreciation for tax return purposes.............................. (106) 70 Lower loss from ORE for tax return purposes............................. (1,306) -- Higher income from investments for return purposes...................... (2,136) -- Unrealized net operating losses......................................... 4,754 3,066 All other -- net........................................................ (1,148) 654 ------- -------- Total......................................................... $(3,972) $(31,380) ------- -------- ------- --------
Income tax benefit resulted in effective tax rates that differ from the statutory federal income tax rate for the following reasons:
% OF PRETAX LOSS 1993 1992 1991 ------ ------ ------ Statutory benefit................................................ (35.0)% (34.0)% (34.0)% Net state income tax............................................. -- -- 3.4 Tax exempt income................................................ (3.5) (2.7) (8.4) Realized net operating loss carry back........................... (1.1) -- (9.3) All other -- net................................................. (.2) 1.7 (1.4) ----- ----- ----- Effective tax benefit............................................ (39.8) (35.0) (49.7) ----- ----- ----- ----- ----- -----
At December 31, 1993, the Company had an income tax refund receivable (included in other assets) of $24.5 million resulting from carry back of the 1993 federal income tax loss to prior years. The Company had California net operating loss carry forwards of $40.1 million on a tax-return basis, of which $29.8 million will expire in 1997 and $10.3 million will expire in 1998. NOTE 10 -- RETIREMENT PLAN The Company has a profit sharing retirement plan covering all employees with at least one year of continuous service. Contributions are made on an annual basis into a trust fund and are allocated to the participants based on their salaries and length of service. The contribution requirement is based on a percentage of annual operating income before security gains or losses. Due to the Company's losses, no contributions were made for 1993, 1992 or 1991. Effective January 1, 1992, the Company amended the profit sharing retirement plan to include an IRS Section 401(k) feature. Employees may contribute up to 10% of their pretax salary, but not more than the maximum allowed under IRS regulations. The Bank matches 10% of the first four percent of covered compensation contributed using forfeitures. For 1993 and 1992, the Bank's matching contribution was $122,000 and $123,000, respectively. The Company does not provide for any post-retirement employee benefits beyond the profit sharing retirement plan. 48 44 NOTE 11 -- STOCK OPTION PLANS Under the 1985 Stock Option Plan, 5,614,530 shares of the Corporation's common stock were reserved for grant of stock options. The Corporation's 1983 Stock Option Plan has expired but options granted thereunder remain outstanding. The grants will be at prices at least equal to the market price of the Corporation's stock on the effective date of the grant. In each succeeding year following the date of grant, 25% of the options become exercisable. After ten years from grant, all unexercised options will expire. The Corporation on January 31, 1990 (in connection with a five year Employment Agreement), granted to Mr. Bram Goldsmith, Chairman of the Board and Chief Executive Officer, a nonqualified stock option for 400,000 shares of the Corporation's common stock at the market price at the date of the grant, $21.25, together with tax offset bonus rights. Such options are exercisable 25% per year beginning at the end of the first year of such employment contract. In November 1993, the stock option was adjusted to 436,080 shares at an exercise price of $19.50 per share to reflect the effect of the Corporation's rights offering in May 1993. The tax offset bonus rights entitle Mr. Goldsmith to receive an amount in cash equal to 11.1% of the excess of the fair market value of each share on the date of exercise over the option price per share multiplied by the number of shares exercised. The following is a summary of the transactions under the Stock Option Plans described above:
1993 1992 ----------------------- ----------------------- NUMBER(1) NUMBER(1) OF OF SHARES OPTION PRICE SHARES OPTION PRICE ------ ------------ ------ ------------ Options outstanding, January 1............ 3,936 $5.50--23.75 4,042 $6.51--23.75 Granted................................... 1,587 6.31-- 6.99 193 5.50--13.13 Exercised................................. (71) 5.50-- 9.13 (25) 6.61--11.90 Cancelled................................. (564) 6.88--23.75 (274) 7.44--11.63 ----- ------------ ----- ------------ Options outstanding, December 31.......... 4,888 $5.05--21.79 3,936 $5.50--23.75 ----- ------------ ----- ------------ ----- ------------ ----- ------------
- --------------- (1) In thousands At December 31, 1993, nonqualified and incentive stock options covering 843,433 and 2,008,848 shares, respectively, of the Corporation's common stock were exercisable under the Plans. At December 31, 1993, 805,189 shares were available for future grants. In November 1993, as provided under the Stock Option Plans, the exercise prices of options awarded before June 1993 and the number of shares under option were adjusted by approximately 8% and 9%, respectively, to reflect the effect of the Corporation's rights offering in May 1993. The Corporation also grants annually to each director stock options with a value of $3,000 at an exercise price of $1 per share. Such options fully vest six months after grant. During 1993 and 1992, 3,267 and 2,580 shares, respectively, were granted to directors. NOTE 12 -- AVAILABILITY OF FUNDS FROM SUBSIDIARIES; RESTRICTIONS ON CASH BALANCES; CAPITAL Historically, the majority of the funds for the payment of dividends by the Corporation have been obtained from its subsidiary, City National Bank. Under federal banking law, dividends declared by national banks in any calendar year may not, without the approval of the OCC, exceed net profits (as defined), for that year combined with its retained net profits for the preceding two calendar years. Federal banking law also prohibits the Corporation from borrowing from its bank subsidiaries on less than a fully secured basis. Federal Reserve Board regulations require that the Bank maintain certain minimum reserve balances. Cash balances maintained to meet reserve requirements are not available for use by the Bank or the Corporation. During 1993 and 1992, reserve balances averaged approximately $49.9 million and $60.3 million, respectively. 49 45 The minimum Tier 1 and total capital ratios are 4.00% and 8.00%, respectively. The minimum leverage ratio capital requirement is from 3.00% to 5.00% depending on an institution's composite rating by its primary regulator. The capital ratios for the Company and the Bank were in excess of all these minimum capital requirements as of December 31, 1993. NOTE 13 -- AGREEMENT WITH OCC On November 18, 1992, the Bank entered into a written agreement with the Office of the Comptroller of the Currency (OCC). Among the requirements in the agreement was a requirement that the Bank raise $65 million in new Tier 1 capital so as to maintain Tier 1 capital of at least 10% of risk-weighted assets and Tier 1 capital of at least 7% of adjusted average total assets. The Agreement also required the Bank to develop a three-year capital plan and a three-year business plan and continue to improve its policies and procedures in the lending and credit administration areas. Each of these requirements was successfully met prior to December 31, 1993. As a result, on January 21, 1994, the OCC lifted the Agreement. NOTE 14 -- COMMITMENTS AND CONTINGENCIES In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit, letters of credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount reflected in the Consolidated Balance Sheet. Exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit, letters of credit and financial guarantees written, is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company had outstanding loan commitments aggregating $681.4 million and $863.8 million at December 31, 1993 and 1992, respectively. In addition, the Company had $94.1 million and $120.6 million outstanding in bankers acceptances and letters of credit, of which $58.2 million and $80.2 million related to standby letters of credit at December 31, 1993 and 1992, respectively. Substantially all of the Company's loan commitments are on a variable rate basis and are comprised of real estate and commercial loan commitments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since a portion of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The Corporation and its subsidiaries are defendants in various pending lawsuits claiming substantial amounts. Based upon present knowledge, management and in-house counsel are of the opinion that the final outcome of such lawsuits will not have a material adverse effect upon the financial position of the Company or the future results of its operations. NOTE 15 -- DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Due from Banks and Federal Funds Sold For those short-term instruments, the carrying amount is a reasonable estimate of fair value. 50 46 Securities and Trading Account For securities held as investments or available for sale, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. For trading account securities, fair values are based on quoted market prices or dealer quotes. Loans For certain homogeneous categories of loans, such as some residential mortgages, and other consumer loans, fair value is estimated using dealer quotes, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. In establishing the credit risk component of the fair value calculations for loans, the Company concluded that the allowance for credit losses represented a reasonable estimate of the credit risk component of the fair value of loans at December 31, 1993 and 1992. Deposits The fair value of demand and interest checking deposits, savings deposits, and certain money market accounts is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Other Short-term Borrowings For short-term borrowings, the carrying amount is a reasonable estimate of fair value. Mortgages Payable The fair value of mortgages payable approximates the carrying value as the mortgages mature in the first quarter of 1994. Commitments to Extend Credit, Standby Letters of Credit, and Financial Guarantees Written The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present credit worthiness of the counterparties. The Company does not make fixed-rate loan commitments. The fair value of guarantees and letters of credit is based on fees currently charged for similar agreements, or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The estimated fair values of the Company's financial instruments are as follows:
DECEMBER 31, 1993 DECEMBER 31, 1992 ----------------------- ------------------------- CARRYING CARRYING AMOUNT FAIR VALUE AMOUNT FAIR VALUE --------- ----------- ----------- ----------- DOLLARS IN THOUSANDS Financial assets: Cash and due from banks....................... $235,153 $ 235,153 $ 405,923 $ 405,923 Federal funds sold and securities purchased under resale agreements..................... 265,000 265,000 468,850 468,850 Investment securities......................... 902,481 902,738 413,645 420,367 Securities available for sale................. 2,000 2,000 30,277 30,662 Trading account assets........................ 39,765 39,765 10,258 10,258 Loans, net of allowance for credit losses..... 1,510,057 1,511,398 1,939,107 1,942,545 Financial liabilities: Deposits...................................... 2,526,767 2,528,895 2,911,276 2,912,549 Federal funds purchased and securities sold under repurchase agreements................. 202,459 202,459 339,149 339,149 Other short-term borrowings................... 15,000 15,000 15,000 15,000 Mortgages payable............................. 26,319 26,319 -- -- Commitments to extend credit.................. (3,850) (3,850) (1,303) (1,303)
51 47 NOTE 16 -- DISCONTINUED OPERATIONS in December 1992, the Bank entered into an agreement to sell its data processing business, City National Information Services (CNIS), to Systematics, Inc. for $12.0 million. The closing of the sale occurred on June 1, 1993. A pretax gain of $10.8 million, which is net of certain software licensing payments and programming expenses shared with Systematics, Inc., was recognized at closing. The Company has reclassified the prior years' operations of CNIS and presented them as "Income from discontinued operations" on the Consolidated Statement of Operations. Included in other assets at December 31, 1993 was a receivable of $8.8 million for a portion of the purchase price which was paid on January 4, 1994. Selected financial data for the discontinued operation are summarized below:
1993 1992 1991 ------- ------- ------- DOLLARS IN THOUSANDS Revenues...................................................... $ -- $36,547 $39,344 Gain from sale of CNIS........................................ 10,800 -- -- Expenses...................................................... -- 35,303 37,021 ------- ------- ------- Income before income taxes.................................... 10,800 1,244 2,323 Income taxes.................................................. 3,672 440 927 ------- ------- ------- Income from discontinued operations........................... $ 7,128 $ 804 $ 1,396 ------- ------- ------- ------- ------- -------
Billings to the Bank by CNIS amounted to $6.8 million, $7.0 million and $6.9 million for 1993, 1992 and 1991, respectively, and are included in Data Processing expenses. Under the Bank's 1991 contract with Systematics, the minimum annual purchases for data processing services were $5.4 million per year. This obligation will continue until December 31, 2000 and will increase annually at 80% of the increase in the Consumer Price Index. NOTE 17 -- PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS Condensed Balance Sheet
DECEMBER 31, --------------------- 1993 1992 -------- -------- DOLLARS IN THOUSANDS Assets: Cash................................................................. $ 57 $ 15 Short-term investments............................................... 5,500 3,289 Investments at equity................................................ -- 399 Other investments.................................................... 12,443 2,000 Other assets......................................................... 373 217 Deferred tax benefits................................................ -- 93 Investment in City National Bank..................................... 279,785 221,941 -------- -------- Total assets................................................. $298,158 $227,954 -------- -------- -------- -------- Liabilities: Other liabilities.................................................... $ 84 $ 10 Total shareholders' equity........................................... 298,074 227,944 -------- -------- Total liabilities and shareholders' equity................... $298,158 $227,954 -------- -------- -------- --------
52 48 Condensed Statement of Operations:
1993 1992 1991 -------- -------- -------- DOLLARS IN THOUSANDS Income: Dividends from Bank............................................ $ -- $ -- $ 4,950 Interest and dividend income................................... 634 238 417 -------- -------- -------- Total income......................................... 634 238 5,367 Expenses....................................................... 269 255 201 -------- -------- -------- Income before income taxes (benefit) and equity in undistributed loss of Bank................................... 365 (17) 5,166 Income taxes (benefit)......................................... 115 (40) 2 -------- -------- -------- Income before equity in undistributed loss of Bank............. 250 23 5,164 Equity in loss of Bank......................................... (7,156) (59,371) (26,384) -------- -------- -------- Net loss....................................................... $ (6,906) $(59,348) $(21,220) -------- -------- -------- -------- -------- --------
Condensed Statement of Cash Flows
1993 1992 1991 -------- -------- -------- DOLLARS IN THOUSANDS Operating Activities: Net loss....................................................... $ (6,906) $(59,348) $(21,220) Adjustments to net loss: Equity in undistributed loss of Bank......................... 7,156 59,371 26,384 Decrease in dividend receivable from Bank.................... -- -- 5,400 Other, net................................................... 11 (82) 98 -------- -------- -------- Net cash provided by (used in) operating activities....... 261 (59) 10,662 -------- -------- -------- Investing Activities: Capital contributed to Bank.................................... (65,000) -- -- Net decrease (increase) in short-term investments.............. (2,211) (2,379) 2,886 Sale (purchase) of other investments........................... (10,443) 2,200 1,000 Other, net..................................................... 399 -- -- -------- -------- -------- Net cash provided by (used in) investing activities.......... (77,255) (179) 3,886 -------- -------- -------- Financing Activities: Cash dividends paid............................................ -- -- (15,434) Sale of common stock (net of expenses)......................... 76,501 -- -- Stock options exercised........................................ 488 190 725 Other, net..................................................... 47 37 165 -------- -------- -------- Net cash provided by (used in) financing activities.......... 77,036 227 (14,544) -------- -------- -------- Net increase (decrease) in cash and cash equivalents........... 42 (11) 4 Cash and cash equivalents at beginning of year................. 15 26 22 -------- -------- -------- Cash and cash equivalents at end of year....................... $ 57 $ 15 $ 26 -------- -------- -------- -------- -------- --------
NOTE 18 -- SUBSEQUENT EVENT (UNAUDITED) On January 17, 1994 and during the days thereafter, Los Angeles, California was struck by a series of strong earthquakes. The Bank is currently accumulating data on the collateral securing its loans in the effected areas. Based on information currently available, the Bank does not believe earthquake related losses, including those related to its facilities, will be material to the Bank's financial condition. 53 EX-13.1 10 REPORT OF PRICE WATERHOUSE, DATED 01/13/93 1 EXHIBIT 13.1 Report of Price Waterhouse, dated January 13, 1993 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of City National Corporation In our opinion, the consolidated balance sheet and the related consolidated statements of operations, of changes in shareholders' equity and of cash flows as of and for each of the two years in the period ended December 31, 1992 (appearing on pages 36 through 39 of the City National Corporation 1993 Annual Report to Shareholders which has been incorporated by reference in this Form 10-K Annual Report) present fairly, in all material respects, the financial position, results of operations and cash flows of City National Corporation and its subsidiaries as of and for each of the two years in the period ended December 31, 1992, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. We have not audited the consolidated financial statements of City National Corporation for any period subsequent to December 31, 1992. PRICE WATERHOUSE Los Angeles, California January 13, 1993 EX-21 11 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Subsidiaries of the Registrant 2 Parent and Subsidiaries CITY NATIONAL CORPORATION CITY NATIONAL BANK CITY NATIONAL CITINATIONAL CITY NATIONAL FINANCIAL SERVICES, BANCORPORATION MORTGAGE INC. COMPANY [Graphic chart above showing City National Bank as wholly-owned subsidiary of City National Corporation, and City National Financial Services, Inc., Citinational Bancorporation and City National Mortgage Company as wholly-owned subsidiaries of City National Bank] City National Corporation is a corporation organized under the laws of the State of Delaware. City National Bank is a national banking association organized under the laws of the United States of America. Each of the other above-named subsidiaries is a corporation organized under the laws of the State of California. Registrant owns 100% of the outstanding capital stock of City National Bank ("Bank"). The Bank owns 100% of the outstanding common stock of Citinational Bancorporation, City National Mortgage Company and City National Financial Services. The consolidated financial statements in the Registrant's Annual Report to Shareholders include Registrant, Bank, City National Financial Services, Inc., Citinational Bancorporation and City National Mortgage Company. EX-23.1 12 CONSENT OF KPMG PEAT MARWICK 1 EXHIBIT 23.1 Consent of KPMG Peat Marwick 2 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS The Board of Directors City National Corporation: We consent to incorporation by reference in the registration statements (Nos. 33-32543, 33-38029 and 33-60668) on Form S-8 of City National Corporation of our report dated January 21, 1994, relating to the consolidated balance sheet of City National Corporation and subsidiaries (the Company) as of December 31, 1993, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the year then ended, which report appears in the December 31, 1993 Annual Report on Form 10-K of City National Corporation. Our report on the consolidated financial statements of the Company dated January 21, 1994, contains an explanatory paragraph which states that, as discussed in Notes 1 and 3, the Company changed its method of accounting for investments as of December 31, 1993, to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As discussed in Notes 1 and 9, the Company changed its method of accounting for income taxes as of January 1, 1993, to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Los Angeles, California KPMG Peat Marwick March 30, 1994 EX-23.2 13 CONSENT OF PRICE WATERHOUSE 1 EXHIBIT 23.2 Consent of Price Waterhouse 2 Exhibit 23.2 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-8 (Nos. 33- 32543, 33-38029 and 33-60668) of City National Corporation of our report dated January 13, 1993 appearing as Exhibit 13.1 to this Annual Report on Form 10-K. PRICE WATERHOUSE Los Angeles, California March 30, 1994 -----END PRIVACY-ENHANCED MESSAGE-----