<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): November 24, 1998
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NEW CENTURY FINANCIAL CORPORATION
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(Exact Name of Issuer as Specified
in its Charter)
California 000-22633 33-0683629
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(State or Other (Commission File (IRS
Jurisdiction Number) Employer Identification
of Incorporation) Number)
18400 Von Karman, Suite 1000, Irvine, California 92612
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (949) 440-7030
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ITEM 5. OTHER EVENTS
On November 24, 1998, New Century Financial Corporation ("New
Century") consummated a strategic alliance with U.S. Bancorp, a Delaware
corporation ("USB"). As part of this strategic alliance, New Century sold
20,000 shares of its Series 1998A Convertible Preferred Stock (the "Preferred
Stock") to USB for $20 million. The shares of Preferred Stock are convertible
into 2,724,800 shares of Common Stock, par value $0.01 per share, of New
Century. A copy of the press release announcing the consummation of the
strategic alliance is attached hereto as Exhibit 99.1. In addition, a copy of
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the Certificate of Designations for the Preferred Stock, the Preferred Stock
Purchase Agreement, dated as of October 18, 1998, between New Century and USB,
the Registration Rights Agreement, dated as of November 24, 1998, between New
Century and USB, the Flow Purchase Agreement, dated as of November 24, 1998,
between New Century Mortgage Corporation ("NCMC") and U.S. Bank National
Association, ND ("US Bank") and the Service Provider Agreement, dated as of
November 24, 1998, between NCMC and US Bank are attached hereto as Exhibit 4.1,
-----------
Exhibit 10.1, Exhibit 10.2, Exhibit 10.3 and Exhibit 10.4, respectively.
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The summary of certain terms of the strategic alliance contained
herein does not purport to be complete and is qualified in its entirety by
reference to the exhibits filed herewith.
ITEM 7. EXHIBITS.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Exhibit No. Description
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4.1 Certificate of Designations for Series 1998A Convertible Preferred
Stock of New Century Financial Corporation
10.1 Preferred Stock Purchase Agreement, dated as of October 18, 1998,
between New Century Financial Corporation and U.S. Bancorp
10.2 Registration Rights Agreement, dated as of November 24, 1998,
between New Century Financial Corporation and U.S. Bancorp
10.3 Flow Purchase Agreement, dated as of November 24, 1998, between
New Century Mortgage Corporation and U.S. Bank National
Association, ND
10.4 Service Provider Agreement, dated as of November 24, 1998, between
New Century Mortgage Corporation and U.S. Bank National
Association, ND
99.1 Press Release, dated November 25, 1998
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
NEW CENTURY FINANCIAL CORPORATION
December 3, 1998 /s/ Brad A. Morrice
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Brad A. Morrice
President
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EXHIBIT 4.1
NEW CENTURY FINANCIAL CORPORATION
CERTIFICATE OF DESIGNATIONS
FOR
SERIES 1998A CONVERTIBLE PREFERRED STOCK
(Pursuant to Delaware General Corporation Law, Section 151(g))
______________________________________________________________________________
The undersigned, being respectively the Chairman and Chief Executive
Officer and the Secretary of New Century Financial Corporation (the
"Corporation"), a corporation organized and existing under the Delaware General
-----------
Corporation Law, in accordance with the provisions of the Delaware General
Corporation Law, Section 151(g), do hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors on November 19, 1998, in accordance with the Delaware General
Corporation Law, Section 151, duly adopted the following resolution establishing
a series of 20,000 shares of the Corporation's Preferred Stock, to be designated
as its Series 1998A Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "Board of Directors") by the Certificate of
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Incorporation of the Corporation, the Board of Directors hereby establishes a
series of Series 1998A Convertible Preferred Stock, of the Corporation and
hereby states the number of shares, and fixes the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions thereof, of such series of shares
as follows:
SERIES 1998A CONVERTIBLE PREFERRED STOCK
Section 1. Designation; Number of Shares. The shares of such series shall
-----------------------------
be designated as "Series 1998A Convertible Preferred Stock" (the "Convertible
-----------
Preferred Stock"), and the number of shares constituting the Convertible
- ---------------
Preferred Stock shall be 20,000. Such number of shares may be decreased by
resolution of the Board of Directors adopted and filed pursuant to the Delaware
General Corporation Law, Section 151(g), or any successor provision; provided,
that no such decrease shall reduce the number of authorized shares of
Convertible Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, warrants, convertible or exchangeable securities or other
rights to acquire shares of Convertible Preferred Stock.
Section 2. Stated Capital. The amount to be represented in the stated
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capital of the Corporation for each share of Convertible Preferred Stock shall
be $0.01.
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Section 3. Rank. The Convertible Preferred Stock shall rank prior to all
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of the Corporation's Common Stock, par value $.01 per share (the "Common
------
Stock"), now outstanding or hereafter issued, both as to payment of dividends
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and as to distributions of assets upon the liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary.
Section 4. Dividends and Distributions. The holders of shares of
---------------------------
Convertible Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $75.00 per annum per share. Such dividends
shall be fully cumulative, shall accumulate without interest from the date of
original issuance of the Convertible Preferred Stock and shall be payable
quarterly in arrears in cash on each January 31, April 30, July 31 and October
31, commencing January 31, 1999 (provided, that if any such date is a Saturday,
Sunday or legal holiday in the place where such dividend is to be paid, then
such dividend shall be payable without interest on the next day that is not a
Saturday, Sunday or legal holiday) to holders of record as they appear on the
stock books of the Corporation on such record dates as shall be fixed by the
Board of Directors. Such record dates shall be not more than 60 nor less than 10
days preceding the respective dividend payment dates. The amount of dividends
payable per share of Convertible Preferred Stock for each full quarterly
dividend period shall be computed by dividing the annual dividend amount by
four. The amount of dividends payable for the initial dividend period and for
any other period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months. No dividends or other
distributions, other than dividends payable solely in shares of Common Stock or
other capital stock of the Corporation ranking junior as to payment of dividends
to the Convertible Preferred Stock (such Common Stock and other capital stock
being referred to herein collectively as "Junior Dividend Stock"), shall be paid
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or set apart for payment on, and no purchase, redemption or other acquisition
shall be made by the Corporation of, any shares of Junior Dividend Stock unless
and until all accumulated and unpaid dividends on the Convertible Preferred
Stock, including the full dividend for the then-current quarterly dividend
period, shall have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation ranking
senior as to payment of dividends to the Convertible Preferred Stock (such
capital stock being referred to herein as "Senior Dividend Stock") shall be in
---------------------
default, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Convertible Preferred Stock unless and until all
accumulated and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividend for the then-current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any capital
stock of the Corporation ranking, as to payment of dividends, on a parity with
the Convertible Preferred Stock (such capital stock being referred to herein as
"Parity Dividend Stock") for any period unless full cumulative dividends have
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been, or contemporaneously are, paid or declared and set apart for payment on
the Convertible Preferred Stock for all dividend periods terminating on or prior
to the date of payment of such full cumulative dividends. No full dividends
shall be paid or
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declared and set apart for payment on the Convertible Preferred Stock for any
period unless full cumulative dividends have been, or contemporaneously are,
paid or declared and set apart for payment on any Parity Dividend Stock for all
dividend periods terminating on or prior to the date of payment of such full
cumulative dividends. When dividends are not paid in full upon the Convertible
Preferred Stock and any Parity Dividend Stock, all dividends paid or declared
and set apart for payment upon shares of Convertible Preferred Stock and Parity
Dividend Stock shall be paid or declared and set apart for payment pro rata, so
that the amount of dividends paid or declared and set apart for payment per
share on the Convertible Preferred Stock and the Parity Dividend Stock shall in
all cases bear to each other the same ratio that accumulated and unpaid
dividends per share on the shares of Convertible Preferred Stock and Parity
Preferred Stock bear to each other.
Any reference to "distribution" contained in this Section 4 shall not be
deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. Liquidation Preference. In the event of a liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Convertible Preferred Stock shall be entitled to receive out of
the assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount equal to the dividends accumulated and unpaid
thereon to the date of final distribution to such holders, whether or not
declared, without interest, plus a sum equal to $ 1,000 per share, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Stock or any other capital stock of the Corporation ranking junior as to
liquidation rights to the Convertible Preferred Stock (such Common Stock and
other capital stock being referred to herein collectively as "Junior Liquidation
------------------
Stock"); provided, that such rights shall accrue to the holders of Convertible
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Preferred Stock only in the event that the Corporation's payments with respect
to the liquidation preferences of the holders of capital stock of the
Corporation ranking senior as to liquidation rights to the Convertible Preferred
Stock (such capital stock being referred to herein as "Senior Liquidation
------------------
Stock") are fully met. If upon liquidation, dissolution or winding up of the
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Corporation, the assets of the Corporation available for distribution after the
liquidation preferences of any Senior Liquidation Stock are insufficient to pay
the holders of the Convertible Preferred Stock and any other capital stock of
the Corporation which ranks on a panty as to liquidation rights with the
Convertible Preferred Stock, the entire assets of the Corporation then available
for distribution shall be distributed ratably among the holders of the
Convertible Preferred Stock and any other capital stock of the Corporation which
ranks on a panty as to liquidation rights with the Convertible Preferred Stock
in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of
the liquidation preference of the shares of the Convertible Preferred Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities or other property will be
deemed a liquidation, dissolution or winding up of the Corporation for purposes
of this Section 5.
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Section 6. Redemption at Option of the Corporation.
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(a) Subject to Section 6(b), the Corporation may not redeem the
Convertible Preferred Stock prior to November 24, 2002. The Corporation, at its
option, may, on or after November 24, 2002, redeem at any time all, or from time
to time any portion, of the Convertible Preferred Stock on any date set by the
Board of Directors, at $1,000 per share, plus an amount per share in cash equal
to all dividends on the Convertible Preferred Stock accumulated and unpaid on
such share, whether or not declared, to the date fixed for redemption (such sum
being hereinafter referred to as the "Redemption Price").
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(b) The Corporation may, at its option, redeem the Convertible Preferred
Stock concurrently with an Acquisition Event (as defined herein) if each of the
following conditions are met: (i) the Corporation has complied with the
covenants contained in Sections 8.4 and 8.5 of the Preferred Stock Purchase
Agreement (as defined in Section 8) in all material respects; (ii) the Purchaser
(as defined in the Preferred Stock Purchase Agreement) has been notified in
writing of all material terms of the Acquisition Proposal (as defined herein)
that relates to such Acquisition Event; and (iii) either (A) such Purchaser,
within 15 days of the first date on which it had been so notified of such
Acquisition Proposal, failed to make an offer that is similar to, and on terms
no less favorable to the Company and its shareholders than, the Acquisition
Proposal; or (B) prior to the date of a definitive agreement with respect to an
Acquisition Transaction with Purchaser or an affiliate of Purchaser, (x) the
terms of the Acquisition Proposal are improved or a new proposal regarding an
Acquisition Transaction that is financially superior to such original proposal
(a "Superior Proposal") is received by the Company and the Purchaser falls to
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match such improved terms or such Superior Proposal within five business days of
Purchaser's receipt of written notice of all material terms thereof or (y) the
Purchaser withdraws its offer. Any redemption pursuant to this Section 6(b)
shall be at the Redemption Price, and the redemption date for any such
redemption shall not be earlier than, but may be concurrent with, the effective
time of the Acquisition Event. For purposes of this Section 6(b), the following
terms shall have the following meanings: "Acquisition Proposal" shall mean a
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proposal relating to any of the following actions: (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company; or (B) a sale, lease or transfer of a
material amount of assets of the Company, or a reorganization, recapitalization,
dissolution or liquidation of the Company; "Acquisition Transaction" shall mean
-----------------------
any of the actions described in (A) or (B) of the definition of "Acquisition
Proposal"; and "Acquisition Event" shall mean the consummation of an Acquisition
-----------------
Transaction.
(c) The following provisions will apply to any redemption pursuant to
Section 6(a) or 6(b):
(i) In case of the redemption of less than all of the then
outstanding Convertible Preferred Stock, the Corporation shall designate by lot,
or in such other manner as the Board of Directors may determine, the shares to
be redeemed, or shall effect such redemption pro rata. Notwithstanding the
foregoing, the Corporation shall not redeem less than all of the Convertible
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Preferred Stock at any time outstanding until all dividends accumulated and in
arrears upon all Convertible Preferred Stock then outstanding shall have been
paid for all past dividend periods.
(ii) Not more than 60 nor less than 30 days prior to the redemption
date, notice by first class mail, postage prepaid, shall be given to the holders
of record of the Convertible Preferred Stock to be redeemed, addressed to such
shareholders at their last addresses as shown on the stock books of the
Corporation. Each such notice of redemption shall specify the date fixed for
redemption; the redemption price; the place or places of payment; the then-
effective Conversion Rate and Conversion Price (as defined in Section 7); that
the right of holders of Convertible Preferred Stock called for redemption to
exercise their conversion right pursuant to Section 7 shall expire as to such
shares at the close of business on the date fixed for redemption (provided that
there is no default in payment of the Redemption Price); that payment of the
Redemption Price will be made upon presentation and surrender of certificates
representing the shares of Convertible Preferred Stock; that accumulated but
unpaid dividends to the date fixed for redemption will be paid on the date fixed
for redemption; that accumulated but unpaid dividends will not be paid in the
case of a conversion of Convertible Preferred Stock; and that on and after the
redemption date, dividends will cease to accumulate on such shares.
(iii) On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption (other than shares which
have been duly surrendered for conversion at or before the close of business on
the date fixed for redemption) shall surrender the certificate or certificates
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price. If
fewer than all the shares represented by any such surrendered certificate or
certificates are redeemed, a new certificate shall be issued representing the
unredeemed shares. If, on the date fixed for redemption, funds necessary for the
redemption shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends with
respect to the shares so called shall cease to accumulate on and after the date
fixed for redemption, such shares shall no longer be deemed outstanding, the
holders thereof shall cease to be shareholders, and all rights whatsoever with
respect to such shares (except the right of the holders thereof to receive the
Redemption Price without interest upon surrender of their certificates) shall
terminate.
Section 7. Conversion at Option of Holders. Holders of Convertible
-------------------------------
Preferred Stock may, at their option upon surrender of the certificates
therefor, convert any or all of their shares of Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock (and such other securities
and property as they may be entitled to, as hereinafter provided) at any time
after issuance thereof-, provided, that such conversion right shall expire at
the close of business on the date, if any, fixed for the redemption of
Convertible Preferred Stock in any notice of redemption given pursuant to
Section 6 hereof if there is no default in payment of the Redemption Price. Each
share of Convertible Preferred Stock shall be convertible at the office of any
transfer agent for the Convertible Preferred Stock, and at such other office or
offices, if any, as the Board of Directors may designate, into that number of
fully paid and nonassessable shares
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of Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) as shall be equal to the Conversion Rate, determined as hereinafter
provided, in effect at the time of conversion. Shares of Convertible Preferred
Stock may initially be converted into full shares of Common Stock at the rate of
136.24 shares of Common Stock for each share of Convertible Preferred Stock,
subject to adjustment from time to time as provided in Section 8 (such
conversion rate, as so adjusted from time to time, being referred to herein as
the "Conversion Rate"). The "Conversion Price" shall be equal to $1,000 divided
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by the Conversion Rate. Upon conversion, no adjustment or payment shall be made
in respect of accumulated and unpaid dividends on the Convertible Preferred
Stock surrendered for conversion.
The right of holders of Convertible Preferred Stock to convert their shares
shall be exercised by surrendering for such purpose to the Corporation or its
agent, as provided above, certificates representing shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Common Stock or other
securities or property upon conversion of Convertible Preferred Stock in a name
other than that of the holder of the shares of Convertible Preferred Stock being
converted, nor shall the Corporation shall be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
A number of shares of the authorized but unissued Common Stock sufficient
to provide for the conversion of the Convertible Preferred Stock outstanding
upon the basis hereinbefore provided shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion, subject to the
provisions of the next paragraph. If the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Convertible Preferred Stock
shall be convertible as herein provided, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Convertible Preferred Stock on the new basis.
The Corporation shall comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of the Convertible Preferred
Stock and shall use its best efforts to list such shares on each national
securities exchange on which the Common Stock is listed or to have such shares
admitted for quotation on the Nasdaq National Market if the Common Stock is
admitted for quotation thereon.
Upon the surrender of certificates representing shares of Convertible
Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided above, the person converting such shares
shall be deemed to be the holder of record of the Common Stock issuable upon
such conversion, and all rights with respect to the shares surrendered shall
forthwith terminate except the right to receive the Common Stock or other
securities, cash or other assets as herein provided.
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No fractional shares of Common Stock shall be issued upon conversion of
Convertible Preferred Stock but, in lieu of any fraction of a share of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation shall pay in cash an amount equal to the product of (a) the Closing
Price of a share of Common Stock (as defined in the next sentence) on the last
trading day before the conversion date and (b) such fraction of a share. The
"Closing Price" for such day shall be the last reported sale price regular way
or, in case no sale takes place on such day, the average of the closing bid and
asked prices regular way on such day, in either case as reported on the New York
Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted
to trading on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market System, or, if the Common Stock is not admitted for
quotation on the Nasdaq National Market System, the average of the high bid and
low asked prices on such day as recorded by the National Association of
Securities Dealers, Inc. through Nasdaq, or, if the National Association of
Securities Dealers, Inc. through Nasdaq shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose, or, if no such
bid and asked prices can be obtained from any such firm, the fair market value
of one share of the Common Stock on such day as determined in good faith by the
Board of Directors of the Corporation.
Section 8. Adjustments to Conversion Rate. Notwithstanding anything in
------------------------------
this Section 8 to the contrary, no change in the Conversion Rate shall be made
until the cumulative effect of the adjustments called for by this Section 8
since the date of the last change in the Conversion Rate would change the
Conversion Rate by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall be changed to reflect
all adjustments called for by this Section 8 and not previously made. Subject to
the foregoing, the Conversion Rate shall be adjusted from time to time as
follows:
(a) In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly owned subsidiary of the Corporation), or
in case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall, prior to or at the time of such transaction,
make appropriate provision or cause appropriate provision to be made so that
holders of each share of Convertible Preferred Stock then outstanding shall have
the right thereafter to convert such share of Convertible Preferred Stock into
the kind and amount of shares of stock and other securities and property
receivable upon such consolidation, merger, sale, transfer or share exchange by
a holder of the number of shares of Common Stock into which such share of
Convertible Preferred Stock could have been converted immediately prior to the
effective date of such consolidation, merger, sale, transfer or share exchange.
If in connection with any such consolidation,
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merger, sale, transfer or share exchange, each holder of shares of Common Stock
is entitled to elect to receive either securities, cash or other assets upon
completion of such transaction, the Corporation shall provide or cause to be
provided to each holder of Convertible Preferred Stock the right to elect the
securities, cash or other assets into which the Convertible Preferred Stock held
by such holder shall be convertible after completion of any such transaction on
the same terms and subject to the same conditions applicable to holders of the
Common Stock (including, without limitation, notice of the right to elect,
limitations on the period in which such election shall be made and the effect of
failing to exercise the election).
(b) In case the Corporation shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock, (ii) subdivide
its outstanding Common Stock into a greater number of shares, (iii) combine the
shares of its outstanding Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its Common Stock any shares of its capital stock,
then in each such case the Conversion Rate in effect immediately prior thereto
shall be proportionately adjusted so that the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive, to the extent permitted by applicable law, the number and kind of
shares of capital stock of the Corporation which such holder would have owned or
have been entitled to receive after the happening of such event had such
Convertible Preferred Stock been converted immediately prior to the record date
for such event (or if no record date is established in connection with such
event, the effective date for such action). An adjustment pursuant to this
subparagraph (b) shall become effective immediately after the record date in the
case of a stock dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(c) (i) In case the Corporation shall issue Additional Shares of
Common Stock (as defined herein) (including, without limitation, Additional
Shares of Common Stock deemed to be issued pursuant to Section 8(c)(iii))
without consideration or for a consideration per share less than the Current
Market Price (as defined herein) calculated as provided herein as of the date of
and immediately prior to such issue, then in each such case the Conversion Rate
in effect on such issue date shall be adjusted in accordance with the formula:
O + N
C\\1\\ = C x
O + N x P
-----
M
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where
C\\1\\ = the adjusted Conversion Rate.
C = the current Conversion Rate.
O = the number of shares of Common Stock outstanding immediately
prior to such issue.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock immediately
prior to such issue.
For the purpose of such calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be calculated on a fully
diluted basis, as if all shares of Convertible Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible securities had
been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, if so convertible) as of
such date.
(ii) For purposes of this Section 8(c), the following
definitions shall apply: (A) "Options" shall mean rights, options or warrants to
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subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities; (B) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock; (C) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Section 8(c)(iii), deemed to be issued) by
the Corporation after the [issue date of the Convertible Preferred Stock], other
than shares of Common Stock issued or issuable: (1) upon conversion of shares of
the Convertible Preferred Stock; (2) pursuant to a stock grant, option plan or
purchase plan, other employee stock incentive program or agreement approved by
the Board of Directors which was disclosed in Schedule 5.3 of the Preferred
Stock Purchase Agreement (the "Option Pool"); or (3) pursuant to the terms of
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any stock grant, option, warrant, employment agreement or other written
obligation, agreement or commitment to which the Corporation was a party as of
November 24, 1998 and which was disclosed in Schedule 5.3 of the Preferred Stock
Purchase Agreement; (D) "Current Market-Price" shall mean the average of the
--------------------
daily Closing Prices of the Common Stock (as defined in Section 7) on the 30
consecutive business days commencing 45 business days before such issue date, as
applicable; and (E) "Preferred Stock Purchase Agreement" shall mean the
----------------------------------
Preferred Stock Purchase Agreement dated October 18, 1998 between the
Corporation and U.S. Bancorp.
(iii) In the event the Corporation at any time or from time to
time after November 24, 1998 shall issue any Options (other than the issuance of
Options pursuant to the Option Pool) or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or
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Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share of
such Additional Shares of Common Stock would be less than the Current Market
Price calculated as provided herein as of the date of and immediately prior to
such issue, or such record date, as the case may be, and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued no further adjustment in the Conversion Price shall be made upon the
subsequent issue of Convertible Securities or shares of Common Stock upon the
exercise of such Options or conversion or exchange of such Convertible
Securities.
(iv) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price and Conversion Rate computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received
by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the corporation upon
such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange;
and
(B) in the case of Options for Convertible Securities only
the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or
not exercised, plus the consideration deemed to have been received by the
Corporation upon the issue of the Convertible Securities or Convertible
Preferred Stock with respect to which such Options were actually exercised.
(e) All calculations hereunder shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be.
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<PAGE>
(f) In the event that at any time, as a result of an
adjustment made pursuant to subparagraph (a) or (b) above, the holder of any
Convertible Preferred Stock thereafter surrendered for conversion shall become
entitled to receive securities, cash or assets other than Common Stock, the
number or amount of such securities or property so receivable upon conversion
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the Common
Stock contained in subparagraphs (a) through (e) above.
Except as otherwise provided above in this Section 8, no adjustment in the
Conversion Rate shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall send to each transfer agent for the Convertible Preferred
Stock and the Common Stock, and to the principal securities exchange, if any, on
which the Convertible Preferred Stock and the Common Stock is traded, or the
Nasdaq National Market if the Convertible Preferred Stock or Common Stock is
admitted for quotation thereon, a statement signed by the Chairman of the Board,
the President or any Vice President of the Corporation and by its Treasurer or
its Secretary stating the adjusted Conversion Rate determined as provided in
this Section 8; and any adjustment so evidenced, given in good faith, shall be
binding upon all shareholders and upon the Corporation. Whenever the Conversion
Rate is adjusted, the Corporation shall give notice by mail at the time of, and
together with, the next dividend payment to the holders of record of Convertible
Preferred Stock, setting forth the adjustment and the new Conversion Rate and
Conversion Price. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the actions specified
in subparagraphs (a), (b) or (c) of the first paragraph of this Section 8 which
would result in any adjustment in the Conversion Rate, the Corporation shall
cause a notice to be mailed at least 20 days prior to the date on which the
books of the Corporation will close or on which a record will be taken for such
action to the holders of record of the outstanding Convertible Preferred Stock
on the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be.
Failure by the Corporation to give such notice or any defect in such notice
shall not affect the validity of the transaction.
Anything herein to the contrary notwithstanding, no adjustment will be made
to the Conversion Price or Conversion Rate by reason of (i) the issuance of
Common Stock, Options or Convertible Securities to employees, directors,
officers or consultants of the Corporation or any subsidiary of the Corporation
pursuant to the Option Pool or the issuance of Common Stock upon the conversion,
exercise or exchange thereof, (ii) the issuance of Common Stock upon the
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<PAGE>
conversion, exercise or exchange of Options or Convertible Securities issued and
outstanding on November 24, 1998, (iii) the issuance of Common Stock upon the
conversion of the Convertible Preferred Stock, (iv) rights to purchase Common
Stock pursuant to a Corporation plan for reinvestment of dividends or interest,
(v) the issuance of Common Stock upon the exercise, conversion or exchange of
Options or Convertible Securities of the Corporation where the Conversion Price
had previously been adjusted pursuant to this Section 8 upon the initial
issuance of such Options or Convertible Securities. In addition, no adjustment
in the Conversion Price need be made for a change in the par value of the Common
Stock.
Section 9. Convertible Preferred Stock Not Redeemable at Option of
-------------------------------------------------------
Holders or Exchangeable; No Sinking Fund. The Convertible Preferred Stock shall
- ----------------------------------------
not be redeemable upon the request of holders thereof or exchangeable for other
capital stock or indebtedness of the Corporation or other property. The shares
of Convertible Preferred Stock shall not be subject to the operation of a
purchase, retirement or sinking fund.
Section 10. Voting Rights. Except as herein provided or as otherwise
-------------
required by law, holders of Convertible Preferred Stock shall be entitled to the
same voting rights as, and shall vote together as one class with, holders of
Common Stock, with each holder of shares of Convertible Preferred Stock having
such voting rights as are attributable to the number of whole shares of Common
Stock into which such shares of Convertible Preferred Stock are convertible in
accordance with Sections 7 and 8 hereof as of the date of such vote.
In addition to any matters requiring a separate vote of the Convertible
Preferred Stock as a single class under applicable law, the approval of the
holders of a majority of the issued and outstanding shares of Convertible
Preferred Stock, voting as a class, shall be required as set forth in Section 11
hereof with respect to the priority and rights of the Convertible Preferred
Stock hereunder and under the Corporation's Certificate of Incorporation, as
amended.
At each meeting of shareholders at which the holders of shares of
Convertible Preferred Stock shall have the right, voting separately as a single
class, to take any action, the presence in person or by proxy of the holders of
record of at least 50% of the shares of Convertible Preferred Stock outstanding
and entitled to vote on the matter shall be necessary and sufficient to
constitute a quorum. At each such meeting, each holder of shares of Convertible
Preferred Stock shall be entitled to vote for each share of Convertible
Preferred Stock then held. In the absence of a quorum of the holders of shares
of Convertible Preferred Stock, a majority of the holders of such shares present
in person or by proxy shall have the power to adjourn the meeting as to the
actions to be taken by the holders of shares of Convertible Preferred Stock from
time to time and place to place without notice other than announcement at the
meeting until a quorum shall be present.
Section 11. Certain Actions Not to be Taken Without Vote of Holders
-------------------------------------------------------
of Convertible Preferred Stock. Without the consent or affirmative vote of the
- ------------------------------
holders of at least a majority of the outstanding shares of Convertible
Preferred Stock, voting separately as a class, the Corporation shall not
authorize, create or issue any shares of any other class or series of capital
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<PAGE>
stock ranking senior to the Convertible Preferred Stock as to dividends or upon
liquidation. The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of the Convertible Preferred Stock, voting
separately as a class, shall be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation (including any certificate of designations
establishing any class or series of Preferred Stock of the Corporation) if the
amendment, alteration or repeal adversely affects the rights or preferences of
the Convertible Preferred Stock; provided, however, that any increase in the
authorized Preferred Stock of the Corporation or the creation and issuance of
any other capital stock of the Corporation ranking on a parity with or junior to
the Convertible Preferred Stock shall not be deemed to materially affect such
powers, preferences or special rights.
Section 12. Outstanding Shares. For purposes of this Certificate of
------------------
Designations, all shares of Convertible Preferred Stock shall be deemed
outstanding except for (a) shares of Convertible Preferred Stock held of record
or beneficially by the Corporation or any subsidiary of the Corporation; (b)
from the date of surrender of certificates representing Convertible Preferred
Stock for conversion pursuant to Section 7, all shares of Convertible Preferred
Stock which have been converted into Common Stock or other securities or
property pursuant to Section 7; and (c) from the date fixed for redemption
pursuant to Section 6, all shares of Convertible Preferred Stock which have been
called for redemption, provided that funds necessary for such redemption are
available therefor and have been irrevocably deposited or set aside for such
purpose.
Section 13. Status of Convertible Preferred Stock Upon Retirement. Shares
-----------------------------------------------------
of Convertible Preferred Stock which are acquired or redeemed by the Corporation
or converted pursuant to Section 7 shall be retired pursuant to the Delaware
General Corporation Law, Section 243, or any successor provision, and thereupon
shall return to the status of authorized and unissued shares of Preferred Stock
of the Corporation without designation as to series. Upon the acquisition or
redemption by the Corporation or conversion pursuant to Section 7 of all
outstanding shares of Convertible Preferred Stock, all provisions of this
Certificate of Designations shall cease to be of further effect. Upon the
occurrence of such event, the Board of Directors of the Corporation shall have
the power, pursuant to the Delaware General Corporation Law, Section 151(g),
or any successor provision and without shareholder action, to cause this
Certificate of Designations to be eliminated from the Corporation's Certificate
of Incorporation.
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<PAGE>
IN WITNESS WHEREOF, New Century Financial Corporation has caused this
certificate to be signed by Robert K. Cole, its Chairman and Chief Executive
Officer, and attested by Brad A. Morrice, its Secretary, this 19th day of
November, 1998.
NEW CENTURY FINANCIAL CORPORATION
By: /s/ ROBERT K. COLE
---------------------------------------
Chairman and Chief Executive Officer
Attest:
By: /s/ BRAD A. MORRICE
-------------------
Secretary
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<PAGE>
EXHIBIT 10.1
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
NEW CENTURY FINANCIAL CORPORATION
AND
U.S. BANCORP
Dated as of
October 18, 1998
================================================================================
<PAGE>
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT dated as of October 18, 1998, is
made between New Century Financial Corporation, a Delaware corporation (the
"Company"), and U.S. Bancorp, a Delaware corporation (the "Purchaser").
RECITALS
WHEREAS, the Company wishes to sell, and the Purchaser wishes to purchase,
20,000 shares (the "Shares") of the Series 1998A Convertible Preferred Stock
(the "Preferred Stock") of the Company upon the terms and conditions set forth
herein; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and certain shareholders of the Company intend to enter into a
Shareholder Agreement (the "Shareholder Agreement") substantially in the form
attached hereto as Exhibit A; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and the Company intend to enter into an agreement regarding the
acquisition of loans by the Purchaser from the Company (the "Flow Agreement")
reflecting substantially the terms listed on Exhibit B to this Agreement; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and the Company intend to enter into an agreement regarding the
origination of loans (the "Service Provider Agreement") reflecting substantially
the terms listed on Exhibit C to this Agreement; and
WHEREAS, the Company and the Purchaser wish to set forth in this Agreement
certain other terms and conditions for the sale and purchase of the Shares.
AGREEMENT
NOW, THEREFORE, the Purchaser and the Company hereby agree as follows:
1. Authorization of the Shares. The Company has authorized the issuance
---------------------------
and sale of the Shares to the Purchaser. The Preferred Stock will have the
relative rights and preferences set forth in the Certificate of Designations
attached as Exhibit D to this Agreement.
2. Sale of Shares. Subject to the terms and conditions of this Agreement,
--------------
at the Closing the Company agrees to sell to the Purchaser, and the Purchaser
agrees to purchase from the Company, 20,000 Shares at a purchase price of
$1,000 per Share.
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<PAGE>
3. Closing Date; Delivery.
----------------------
3.1 Closing Date. The closing (the "Closing") of the purchase and
------------
sale of Shares pursuant to this Agreement will take place at 9:00 a.m. at the
offices of Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, on a day to be mutually agreed upon by the parties which date shall be no
later than the third Business Day after all of the conditions set forth in
Article 7 shall have been satisfied (or waived in accordance with Section 12.7),
or at such other time and place as the Company and the Purchaser may agree (the
date of the Closing is hereinafter referred to as the "Closing Date").
3.2 Delivery. At the Closing, the Company will deliver to the
--------
Purchaser a certificate registered in the Purchaser's name representing the
Shares purchased by the Purchaser at the Closing, and the Purchaser will pay the
purchase price for the Shares being purchased by wire transfer.
4. Definitions. Unless the context otherwise requires, the terms defined
-----------
in this Section 4 shall have the meanings herein specified for all purposes of
this Agreement. Certain other capitalized terms used herein are defined
elsewhere in this Agreement.
"Additional Employee Issuance" is defined in Section 8.4(c).
"Affiliate" means any person that directly or indirectly controls or is
controlled by, or is under common control with, another specified person.
"Agreement" means this Preferred Stock Purchase Agreement.
"Applicable Percentage" is defined in Section 8.4(d).
"BHCA" is defined in Section 5.2.
"Basket Amount" is defined in Section 12.12.
"Business Day" means any day other than a Saturday or a Sunday or a day
on which commercial banking institutions in the City of New York are authorized
by law to be closed.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Commission" means the Securities and Exchange Commission.
"Committee" is defined in Section 8.3(c).
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<PAGE>
"Common Stock" means the shares of common stock, par value $.01 per
share, of the Company.
"Company Breach" shall mean a material breach by the Company of its
agreements in Section 8.
"Company Plans" means the following stock-related plans of the
Company, as may be amended from time to time in accordance with Section 8.9: (a)
the 1995 Stock Option Plan, as amended, (b) the Employee Stock Purchase Plan,
(c) the Founding Managers' Incentive Compensation Plan and (d) any other stock-
related plan adopted by the Company after the date of this Agreement.
"Conversion Shares" shall mean the shares of Common Stock issuable
upon the conversion of the Shares.
"Convertible Securities" means options, warrants or similar rights and
indebtedness, shares of stock or other securities that are at any time directly
or indirectly convertible into or exercisable or exchangeable for shares of the
Company's capital stock.
"DGCL" is defined in Section 5.14.
"Disclosure Schedules" is defined in Section 5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System or any agency having regulatory responsibility with respect to the
Purchaser under the BHCA.
"Flow Agreement" is defined in the Recitals to this Agreement.
"Form 10-K Report" is defined in Section 5.4(a).
"Form 10-Q Report" is defined in Section 5.4(a).
"HSR Act" is defined in Section 5.2.
"Latest Balance Sheet" is defined in Section 5.4(b).
"Liabilities" is defined in Section 5.6.
"Losses" is defined in Section 12.12.
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<PAGE>
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, liabilities, results of operations or financial condition of
the Company and the Subsidiaries, taken as a whole, or (b) on the ability of the
Company to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement, the Flow Agreement or the
Service Provider Agreement.
"New Securities" is defined in Section 8.4(c).
"OCC" means the Office of the Comptroller of the Currency or any
agency having regulatory responsibility with respect to any national bank
subsidiary of the Purchaser under the National Bank Act.
"Person" means any natural person, corporation, limited liability
company, association, partnership (general or limited), Joint venture,
proprietorship, governmental body, trust, estate, association, custodian,
nominee or any other individual or entity, whether acting in an individual,
fiduciary, representative or other capacity.
"Preferred Stock" is defined in the Recitals to this Agreement.
"Preemptive Rights Issuance" is defined in Section 8.4(b).
"Purchaser Default" shall mean a material breach by Purchaser of its
agreements in Section 10, which breach (a) has occurred at a time when no
Company Default has occurred and is continuing and (b) has not been cured within
30 days of Purchaser's knowledge of such breach.
"Service Provider Agreement" is defined in the Recitals to this
Agreement.
"Related Statements" is defined in Section 5.4(b).
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Shareholder Agreement" is defined in the Recitals to this Agreement.
"Shares" is defined in the Recitals to this Agreement.
"Subscription Notice" is defined in Section 8.4(f).
"Subsidiary" is defined in Section 5. 1.
"Subsidiaries" means the entities identified as subsidiaries on
Schedule 5.5.
"Takeover Laws" is defined in Section 5.14.
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<PAGE>
"Year 2000 Compliant" is defined in Section 5.13.
"Year 2000 Problem" is defined in Section 5.13.
5. Representations and Warranties by the Company. Except as disclosed in
---------------------------------------------
the Disclosure Schedules attached hereto as Exhibit E (the "Disclosure
Schedules"), the Company hereby represents and warrants to the Purchaser that:
5.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power to carry on its business as now
conducted. New Century Mortgage Corporation (the "Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of
California and has the requisite corporate power to carry on its business as now
conducted. The copies of the charter and the bylaws of each of the Company and
the Subsidiary which have been provided to Purchaser prior to the date of this
Agreement are correct and complete and reflect all amendments made thereto
through the date hereof Each of the Company and the Subsidiary is licensed or
qualified to do business in every Jurisdiction in which the nature of its
respective business or its ownership of property requires it to be licensed or
qualified, except where the failure to be so licensed or qualified would not
reasonably be expected to have a Material Adverse Effect.
5.2 Authority Relative to this Agreement; Non-Contravention. The
-------------------------------------------------------
Company has the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and such transactions. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally and to judicial limitations on the enforcement of
the remedy of specific performance and other equitable remedies and except as
the indemnification provisions of the registration rights described in Exhibit F
may be limited by principles of public policy. Except as set forth on Schedule
5.2, neither the Company nor any of the Subsidiaries is subject to, or obligated
under, any provision of (a) its charter or bylaws, (b) any agreement,
arrangement or understanding, (c) any license, franchise or permit or (d)
subject to obtaining the approvals referred to in the next sentence, any law,
regulation, order, judgment or decree, which would be breached or violated, or
in respect of which a right of termination or acceleration or any encumbrance on
any of its assets would be created, by the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby,
other than any such breaches, violations, terminations, accelerations or
encumbrances which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Other than any approvals or filings
required under the Bank Holding Company Act of 1956, as
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<PAGE>
amended from time to time, including any regulations or orders of the Federal
Reserve thereunder (the "BHCA"), or the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and assuming the accuracy of the
representations of Purchaser contained in Section 6, no authorization, consent
or approval of, or filing with, any public body, court or authority is necessary
on the part of the Company or the Subsidiary for the consummation by the Company
of the transactions contemplated by this Agreement.
5.3 Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company as of the date hereof is set forth on Schedule 5.3. All of
the issued and outstanding shares of capital stock of the Subsidiary are owned
by the Company, free and clear of any lien, pledge, security interest,
encumbrance or charge of any kind. The issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable and have not been issued in violation of any preemptive rights.
Except as set forth on Schedule 5.3, there are no options, warrants, conversion
privileges or other rights, agreements, plans, arrangements or commitments
obligating the Company or the Subsidiary to issue, sell, purchase or redeem any
shares of their capital stock or securities or obligations of any kind
convertible into or exchangeable for any shares of their capital stock or of any
of their subsidiaries or affiliates, nor are there any stock appreciation,
phantom or similar rights outstanding based upon the book value or any other
attribute of any of the capital stock of the Company, or the earnings or other
attributes of the Company. The Company has heretofore delivered to Purchaser
true and correct copies of all such agreements, arrangements (including all
stock option and other stock-based plans) or commitments identified on Schedule
5.3.
5.4 Exchange Act Reports; Financial Statements.
------------------------------------------
(a) Prior to the execution of this Agreement, the Company has
delivered or made available to the Purchaser complete and accurate copies of (a)
the Company's Annual Report on Form 10-K for the year ended December 31, 1997,
as amended (the "Form 10-K Report"), as filed under the Exchange Act with the
Commission, (b) all proxy statements and annual reports to shareholders of the
Company used in connection with meetings of its shareholders held since June 25,
1997, and (iii) the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 (the "Form 10-Q Report"), as filed under the Exchange Act
with the Commission. As of their respective dates, such documents (x) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (y)
complied as to form in all material respects with the applicable laws and rules
and regulations of the Commission. Since June 25, 1997, the Company has filed in
a timely manner all reports that it was required to file with the Commission
pursuant to the Exchange Act.
(b) The Company has furnished Purchaser with a copy of the
consolidated balance sheet of the Company as of August 31, 1998 (the "Latest
Balance Sheet") and the related statements of operations for the eight-month
period then ended (the "Related Statements"). The
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<PAGE>
Latest Balance Sheet and the Related Statements have been prepared on a basis
consistent with the financial statements included in the Form 10-K, except for
the absence of notes and normal year end adjustments consistent with past
practice. The Latest Balance Sheet and the Related Statements fairly present
the consolidated financial position of the Company and as of the date thereof
and the consolidated results of operations and, as applicable, changes in
shareholders' equity and cash flows for the period then ended.
5.5 Subsidiary. Except as disclosed on Schedule 5.5, neither the
----------
Company nor the Subsidiary owns any stock, partnership interest, Joint venture
interest or any other security issued by any other corporation, organization or
entity. Other than the Subsidiary and PWF Corporation, the assets and operations
of the entities listed on Schedule 5.5, individually and in the aggregate, are
not material to the Company and the Subsidiary, taken as a whole.
5.6 Absence of Undisclosed Liabilities. All of the obligations or
----------------------------------
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted, including taxes)
("Liabilities") required to be reflected on the "Latest Balance Sheet" in
accordance with generally accepted accounting principles have been so reflected.
To the best knowledge of the Company and the Subsidiary, neither the Company nor
any of the Subsidiaries has any Liabilities except (a) as reflected on the
Latest Balance Sheet, (b) Liabilities which have arisen after the date of the
Latest Balance Sheet in the ordinary course of business, none of which is an
uninsured liability which could reasonably be expected to have a Material
Adverse Effect, (c) Liabilities which have arisen outside of the ordinary course
of business, none of which is an uninsured liability which could reasonably be
expected to have a Material Adverse Effect or (d) as otherwise disclosed on
Schedule 5.6.
5.7 No Material Adverse Changes. Since the date of the Latest Balance
---------------------------
Sheet, there has been no adverse change in, and no event, occurrence or
development in, the business of the Company or any of the Subsidiaries that,
taken together with other events, occurrences and developments with respect to
such business, has had, or would reasonably be expected to have, a Material
Adverse Effect; provided that, for the purposes of this Section 5.7 only,
-------------
general industry trends in the subprime mortgage lending market, including those
set forth on Schedule 5.7, shall not be deemed to be such a change, event,
occurrence or development.
5.8 Tax Matters. Neither the Company nor any of the Subsidiaries is
-----------
delinquent in the payment of any material foreign, federal, state or local tax
or in the payment of any material assessment or governmental charge. The
Company and each of the Subsidiaries has filed all required foreign, federal,
state or local tax returns or appropriate extension requests on a timely basis,
except for such returns or requests which the failure to file would not
reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any of the Subsidiaries has requested any extension of time within which to
file any tax return that has not since been filed. Neither the Company nor any
of the Subsidiaries has received notice of any tax deficiency proposed or
assessed against it or has executed any waiver of any statute of limitations on
the assessment or collection of any tax.
-7-
<PAGE>
5.9 Litigation. There are no actions, suits, proceedings, orders or
----------
investigations pending or, to the best knowledge of the Company and the
Subsidiary, threatened against the Company or any of the Subsidiaries, at law or
in equity, or before or by any federal, state or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Set forth on Schedule 5.9 are all of such pending
actions, suits, proceedings, orders or investigations as of the date of this
Agreement.
5.10 Compliance with Laws; Permits. The Company and each of the
-----------------------------
Subsidiaries has complied in all respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof which affect the business or any owned or leased properties of the
Company or any of the Subsidiaries and to which the Company or any of the
Subsidiaries is subject, except where the failure to do so would not have a
Material Adverse Effect. No claims have been filed by such governments or
agencies against the Company or any of the Subsidiaries alleging failures to
comply with any such law or regulation which claims (a) individually or in the
aggregate, if successful, could reasonably be expected to have a Material
Adverse Effect, and (b) have not been resolved to the satisfaction of such
governments or agencies. The Company and each of the Subsidiaries holds all of
the permits, licenses, certificates and other authorizations of foreign,
federal, state and local governmental agencies required for the conduct of the
business, except where the failure to do so would not reasonably be expected to
have a Material Adverse Effect.
5.11 Shares. The Shares to be sold to the Purchaser at the Closing,
------
when issued and paid for pursuant to the terms of this Agreement, will be duly
and validly authorized, issued and outstanding, fully paid, nonassessable and
free and clear of all pledges, liens, encumbrances and restrictions.
5.12 No Brokers or Finders. No Person has or will have, as a result
---------------------
of any act or omission of the Company, any right, interest or valid claim
against the Company or the Purchaser for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
5.13 Year 2000 Compliance. The Company has (a) initiated a review and
--------------------
assessment of all areas of its business and operations and of each of its
Subsidiaries (including those affected by their respective suppliers, vendors
and customers) that could be adversely affected by the risk that computer
applications used by it or any of the Subsidiaries (or their respective
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999 (the "Year 2000 Problem"), (b) developed a plan and
timetable for addressing the Year 2000 Problem on a timely basis, and (c) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, the Company believes that all computer applications used by it or any
of the Subsidiaries (or their respective suppliers, vendors and customers) are
reasonably expected on a timely basis to be Year 2000 Compliant (as defined
below), except to the extent
-8-
<PAGE>
that a failure to do so could not reasonably be expected to have a Material
Adverse Effect. The costs of all assessment, remediation, testing and
integration related to the Company's plan for becoming Year 2000 Compliant is
not reasonably expected to have a Material Adverse Effect. As used in this
Agreement, the term "Year 2000 Compliant" shall mean the ability of such
computer application to (w) consistently and accurately handle date information
before, during and after January 1, 2000, including but not limited to accepting
date input, providing date output, and performing calculations on dates or
portions of dates; (x) function accurately substantially in accordance with its
specifications and without material interruption before, during and after
January 1, 2000, without any change of operations associated with the advent of
the new century; (y) respond to any two-digit date input in a way that resolves
any ambiguity as to century in a disclosed, defined and predetermined manner;
and (z) store and provide output of date information in ways that are
unambiguous as to century.
5.14 Takeover Laws. The Company has taken all action required to be
-------------
taken by it, if any, in order to exempt the purchase and sale of the Shares and
the granting to Purchaser of Board representation rights, the right of first
refusal and the preemptive right pursuant to Sections 8.3 and 8.4 of this
Agreement from, and such transactions are exempt from, the requirements of any
"moratorium", "control share", "fair price" or other antitakeover laws and
regulations of the States of Delaware and California (collectively, "Takeover
Laws"), including, without limitation, Section 203 of the Delaware General
Corporation Law ("DGCL").
6. Representations and Warranties of the Purchaser. The Purchaser hereby
-----------------------------------------------
represents and warrants to the Company that:
6.1 Investment Representations. The Shares being acquired by the
--------------------------
Purchaser are being purchased for the Purchaser's own account and not with the
view to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act. The Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under the
Securities Act by reason of their contemplated issuance in transactions exempt
from the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof, and that the reliance of the Company upon this
exemption from such registration is predicated in part upon the representations
and warranties of the Purchaser contained herein. The Purchaser is an
"accredited investor" as that term is defined in Regulation D promulgated under
the Securities Act and has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of the investment to be made hereunder by the Purchaser.
6.2 Organization and Qualification. The Purchaser is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite corporate power to carry on its
business as now conducted. The Purchaser is registered as a bank holding company
under the BHCA. The Purchaser is licensed or qualified to do business in every
Jurisdiction in which the nature of its business or its ownership of property
requires it to be licensed or qualified, except where the failure to be so
licensed or qualified would not reasonably be expected to have a material
adverse effect on (a) the business, assets,
-9-
<PAGE>
liabilities, results of operations or financial condition of the Purchaser or
(b) on the ability of the Purchaser to perform its obligations under or with
respect to, or to consummate the transactions contemplated by, this Agreement,
the Flow Agreement or the Service Provider Agreement.
6.3 Authority Relative to this Agreement; Non-Contravention. The
-------------------------------------------------------
Purchaser has the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Purchaser and the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on behalf of the Purchaser and no other corporate proceedings on the part of the
Purchaser are necessary to authorize this Agreement and such transactions. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
a valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the enforcement
of creditors' rights generally and to judicial limitations on the enforcement of
the remedy of specific performance and other equitable remedies and except as
the indemnification provisions of the registration rights described in Exhibit F
may be limited by principles of public policy. The Purchaser is neither subject
to, nor obligated under, any provision of (a) its charter or bylaws, (b) any
agreement, arrangement or understanding, (c) any license, franchise or pen-nit
or (d) subject to obtaining the approvals referred to in the next sentence, any
law, regulation, order, judgment or decree, which would be breached or violated,
or in respect of which a right of termination or acceleration or any encumbrance
on any of its assets would be created, by the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplated hereby,
other than any such breaches, violations, terminations, accelerations or
encumbrances which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on (y) the business, assets,
liabilities, results of operations or financial condition of the Purchaser and
its subsidiaries, taken as a whole, or (z) on the ability of the Purchaser to
perform its obligations under or with respect to, or to consummate the
transactions contemplated by, this Agreement, the Flow Agreement or the Service
Provider Agreement. Other than any approvals or filings required under the
BHCA or the HSR Act, and assuming the accuracy of the representations of the
Company contained in Section 5, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of the
Purchaser for the consummation by the Purchaser of the transactions contemplated
by this Agreement.
6.4 No Brokers or Finders. No Person has or will have, as a result of
---------------------
any act or omission of the Purchaser, any right, interest or valid claim against
the Company or the Purchaser for any commission, fee or other compensation as a
finder or broker, or in any similar capacity, in connection with the
transactions contemplated by this Agreement.
6.5 Restriction on Transfer of Shares.
---------------------------------
(a) The Purchaser acknowledges and agrees that the Shares and the
Conversion Shares are only transferable pursuant to (i) a public offering
registered under the
-10-
<PAGE>
Securities Act, (ii) Rule 144 promulgated by the Commission under the Securities
Act (or any similar rule then in effect) if such rule is available and (iii),
subject to the conditions specified elsewhere in this Section 6.5, any other
legally available means of transfer.
(b) Legend. Each certificate representing Shares shall be endorsed
------
with the following legend:
"The shares represented by this certificate may not be transferred without
(i) an opinion of counsel satisfactory to this corporation that such
transfer may lawfully be made without registration under the Securities Act
of 1933, as amended, and all applicable state securities laws or (ii) such
registration."
Upon the conversion of any Shares, unless the Company receives an opinion of
counsel satisfactory to the Company to the effect that a subsequent transfer of
the Conversion Shares may be made without registration or further restriction or
transfer, or unless such Conversion Shares are being disposed of pursuant to a
registration statement filed under the Securities Act, the same legend shall be
endorsed on each certificate evidencing such Conversion Shares.
(c) Removal of Legend. Any legend endorsed on a certificate
-----------------
evidencing Shares or Conversion Shares pursuant to Section 6.5(b) hereof shall
be removed, and the Company shall issue a certificate without such legend to the
holder of such Shares or Conversion Shares, if such Shares or Conversion Shares
are being disposed of pursuant to a registration statement filed under the
Securities Act or pursuant to Rule 144 or any similar rule then in effect or if
such holder provides the Company with an opinion of counsel satisfactory to the
Company to the effect that a transfer of such Shares or Conversion Shares may be
made without registration. In addition, if the holder of such Shares or
Conversion Shares delivers to the Company an opinion of such counsel to the
effect that no subsequent transfer of such Shares or Conversion Shares will
require registration under the Securities Act, the Company will promptly deliver
new certificates evidencing such Shares or Conversion Shares that do not bear
the legend set forth in Section 6.5(b).
7. Conditions to Closing.
---------------------
7.1 Conditions to Purchaser's Obligation. The Purchaser's obligation
------------------------------------
to purchase and pay for the Shares is subject to the fulfillment prior to or on
the Closing Date of the following conditions, any of which may be waived in
whole or in part by the Purchaser:
(a) Representations and Compliance. The representations and
------------------------------
warranties of the Company in this Agreement shall have been true and correct as
of the date hereof, and such representations and warranties shall be true and
correct as of the Closing Date as if made at and as of the Closing Date; and the
Company shall have performed in all material respects each obligation and
agreement and complied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to the Closing Date.
-11-
<PAGE>
(b) Officers' Certificate of the Company. The Company shall have
------------------------------------
furnished to the Purchaser a certificate of the Chief Executive Officer and the
Chief Financial Officer of the Company, dated as of the Closing Date, in which
such officers shall certify on behalf of the Company that (i) the conditions set
forth in Section 7.1(a) have been fulfilled, and (ii) except as disclosed in
such certificate, Schedule 5.9 is true and correct as of the Closing Date.
(c) Secretary's Certificate. The Company shall have furnished to the
-----------------------
Purchaser (i) copies of the text of the resolutions by which the corporate
action on the part of the Company necessary to approve this Agreement, the Flow
Agreement and the Service Provider Agreement and the transactions contemplated
hereby and thereby were taken, and (ii) a certificate dated as of the Closing
Date executed on behalf of the Company by its corporate secretary or one of its
assistant corporate secretaries certifying to the Purchaser that such copies are
true, correct and complete copies of such resolutions and that such resolutions
were duly adopted and have not been amended or rescinded.
(d) Material Adverse Change. Since the date of this Agreement, there
-----------------------
shall have been no adverse change in, and no event, occurrence or development
in, the business of the Company or the Subsidiary that, taken together with
other events, occurrences and developments with respect to such business, would
have or would reasonably be expected to have a Material Adverse Effect.
(e) Proceedings. All corporate proceedings and actions taken by the
-----------
Company in connection with the transactions contemplated by this Agreement
(including the authorization of the Shares through the filing of the Certificate
of Designations in the State of Delaware) and all certificates, agreements,
instruments and other documents referenced herein or incident to any such
transaction shall be reasonably satisfactory in form and substance to the
Purchaser.
(f) Service Provider Agreement. The Company shall have executed and
--------------------------
delivered to the Purchaser the Service Provider Agreement reflecting
substantially the terms listed on Exhibit C to this Agreement.
(g) Flow Agreement. The Company shall have executed and delivered to
--------------
the Purchaser the Flow Agreement reflecting substantially the terms listed on
Exhibit B to this Agreement.
(h) Registration Rights Agreement. The Company shall have executed
-----------------------------
and delivered to the Purchaser the Registration Rights Agreement substantially
in the form attached hereto as Exhibit F.
(i) Employment Agreements. The Company and each of Robert K. Cole,
---------------------
Brad A. Morrice, Edward F. Gotschall and Steve Holder shall have executed and
delivered to the Purchaser employment/noncompete agreements with terms ending on
December 31, 2002 and otherwise on the same terms as each of their existing
employment/noncompete agreements or on such other terms as may be approved by
the Purchaser prior to or at the Closing. The parties
-12-
<PAGE>
acknowledge and agree that any amendments to such agreements after the Closing
Date shall be subject to the approval of the Compensation Committee of the
Company; provided that the nonsolicit and noncompete provisions of such
agreement shall not be amended without the consent of the Purchaser.
(j) Shareholder Agreement. Each of Robert K. Cole, Brad A. Morrice,
---------------------
Edward F. Gotschall and Steve Holder shall have executed and delivered to the
Purchaser the Shareholder Agreement substantially in the form attached hereto as
Exhibit A.
(k) Absence of Undisclosed Liabilities. As of the Closing Date,
----------------------------------
neither the Company nor any of the Subsidiaries has any Liabilities except (a)
as reflected on the Latest Balance Sheet, (b) Liabilities which have arisen
after the date of the Latest Balance Sheet in the ordinary course of business,
none of which is an uninsured liability which could reasonably be expected to
have a Material Adverse Effect, (c) Liabilities which have arisen outside of the
ordinary course of business, none of which is an uninsured liability which could
reasonably be expected to have a Material Adverse Effect or (d) as otherwise
disclosed on Schedule 5.6.
7.2 Conditions to Obligations of the Company. The obligation of the
----------------------------------------
Company to issue and sell the Shares to the Purchaser is subject to the
fulfillment prior to or on the Closing Date of the following conditions, any of
which may be waived in whole or in part by the Company:
(a) Representations and Compliance. The representations and
------------------------------
warranties of the Purchaser in this Agreement shall have been true and correct
as of the date hereof, and such representations and warranties shall be true and
correct as of the Closing Date as if made at and as of the Closing Date; and the
Purchaser shall have performed in all material respects each obligation and
agreement and complied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to the Closing Date.
(b) Officers' Certificate of the Purchaser. The Purchaser shall have
--------------------------------------
furnished to the Company a certificate of a senior executive officer of the
Purchaser, dated as of the Closing Date, in which such officer shall certify, on
behalf of the Purchaser, that the conditions set forth in Section 7.2(a) have
been fulfilled.
(c) Material Adverse Change. Since the date of this Agreement, there
-----------------------
shall have been no adverse change in, and no event, occurrence or development
in, the business of the Purchaser that, taken together with other events,
occurrences and developments with respect to such business, would have or would
reasonably be expected to have a material adverse effect on the ability of the
Purchaser to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement, the Flow Agreement or the
Service Provider Agreement.
-13-
<PAGE>
(d) Proceedings. All corporate proceedings and actions taken by the
-----------
Purchaser in connection with the transactions contemplated by this Agreement and
all certificates, agreements, instruments and other documents referenced herein
or incident to any such transaction shall be reasonably satisfactory in form and
substance to the Company.
(e) Service Provider Agreement. The Purchaser shall have executed and
--------------------------
delivered to the Company the Service Provider Agreement reflecting substantially
the terms listed on Exhibit C to this Agreement.
(f) Flow Agreement. The Purchaser shall have executed and delivered
--------------
to the Company the Flow Agreement reflecting substantially the terms listed on
Exhibit B to this Agreement.
(g) Registration Rights Agreement. The Purchaser shall have executed
-----------------------------
and delivered to the Company the Registration Rights Agreement substantially in
the form attached hereto as Exhibit F.
(h) Consent and Amendment. The Company shall have received the
---------------------
required consent and amendment to its credit facility set forth on Schedule 5.2.
7.3 Mutual Conditions. The obligation of either of the parties hereto
-----------------
to consummate the transactions contemplated hereby is subject to the fulfillment
prior to or on the Closing Date of the following conditions, any of which may be
waived in whole or in part only by the party against whom enforcement of this
Agreement is sought:
(a) Regulatory Approval. All necessary regulatory or governmental
-------------------
filings, authorizations or approvals required to consummate the transactions
contemplated by this Agreement, the Flow Agreement or the Service Provider
Agreement shall have been duly made or obtained and shall remain in full force
and effect and all statutory waiting periods in respect thereof shall have
expired. None of such approvals shall contain any conditions or restrictions
that will materially restrict or limit the business or activities of the
Purchaser, the Company or the Subsidiary or have a material adverse effect on,
or would be reasonably likely to have a material adverse effect on, the
business, operations or financial condition of the Purchaser and its
subsidiaries, taken as a whole, on the one hand, or the Company and the
Subsidiary, taken as a whole, on the other hand.
(b) No Injunction. No injunction or other order entered by a state or
-------------
federal court of competent jurisdiction shall have been issued and remain in
effect which would impair the consummation of the transactions contemplated
hereby and by the Flow and Service Provider Agreements.
(c) No Prohibitive Change of Law. There shall have been no law,
----------------------------
statute, rule or regulation, domestic or foreign, enacted or promulgated which
would materially impair the consummation of the transactions contemplated hereby
and by the Flow and Service Provider Agreements.
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<PAGE>
(d) Governmental Action. There shall not be any action taken, or any
-------------------
statute, rule, regulation, judgment, order or injunction proposed, enacted,
entered, enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby and by the Flow and Service Provider Agreements by any
federal, state or other court, government or governmental authority or agency,
which would reasonably be expected to result, directly or indirectly, in
restraining or prohibiting the consummation of the transactions contemplated
hereby and thereby or obtaining material damages from the Company or any of the
Subsidiaries, or the Purchaser or any of Purchaser's subsidiaries, in connection
with the transactions contemplated hereby or thereby.
8. Covenants of the Company. The Company covenants and agrees with the
------------------------
Purchaser that:
8.1 Furnishing of Information and Access. The Company will:
------------------------------------
(a) furnish the Purchaser with copies of all registration statements,
proxy materials, reports, financial statements and other documents filed by the
Company with the Commission or with any securities exchange or automated
quotation system, or sent by the Company to its shareholders; and
(b) make available to the Purchaser with reasonable promptness at the
sole expense of the Purchaser such information and data with respect to the
Company and the Subsidiary, and such access to the executive officers and
independent accountants of the Company and the Subsidiary, as the Purchaser may
from time to time reasonably request for the purpose of monitoring the
Purchaser's investment in the Company. Purchaser acknowledges that the
information and data of the Company to which Purchaser may have access from time
to time may constitute material non-public information. Purchaser hereby agrees
that it will refrain from trading in the Company's securities when it has or is
aware of such material non-public information. Purchaser agrees that any
information obtained by the Purchaser pursuant to this Section 8.1(b) which
is, or would reasonably be perceived to be, proprietary to the Company or
otherwise confidential, will not be disclosed to any third parties without the
prior written consent of the Company, will not be used for any purpose other
than monitoring the Purchaser's investment in the Company, and will not be used,
directly or indirectly, against the Company for any competitive purpose.
8.2 Use of Proceeds. The proceeds from the sale of the Shares shall
---------------
be used for working capital and general corporate purposes (other than dividends
and extraordinary disbursements).
8.3 Board Representation.
--------------------
(a) On or prior to, and effective as of, the Closing Date, and within
30 days after June 30, September 30 and December 31 each year, the Company's
Board of Directors shall take all action necessary (i) to expand the Company's
Board of Directors, if necessary, and (ii) to appoint one or more individuals
selected by the Purchaser to serve on the Company's Board of
-15-
<PAGE>
Directors as the Purchaser's representatives such that the proportion of the
Board that is made up of representatives of the Purchaser as of the Closing
Date, or as of the prior June 30, September 30 or December 31, as the case may
be, shall equal the proportion of the Company's outstanding shares of Common
Stock represented by the shares of Common Stock owned by the Purchaser as of
that date (assuming for this purpose the conversion of the Shares and any other
Convertible Securities); provided that, if such proportion would cause one-half
-------------
or less of a director (in addition to one or more whole directors) to be
appointed to the Board as a representative of the Purchaser then such proportion
shall be rounded down to the nearest whole number, and if such proportion would
cause more than one-half of a director (in addition to one or more whole
directors) to be appointed to the Board then such proportion shall be rounded up
to the nearest whole number; provided further that, notwithstanding the
---------------------
foregoing, so long as this Section 8.3 is in effect, the Purchaser shall be
entitled to at least one representative on the Company's Board of Directors. If
more than one individual is to be appointed to the Board of Directors pursuant
to this Section 8.3(a), such individuals shall be distributed as evenly as
possible among the three classes of Directors with the first such individual
being appointed to Class I, the second to Class II and the third to Class III.
(b) Commencing with its 1999 annual meeting of shareholders and in
connection with each annual meeting of shareholders thereafter, the Company
shall take all reasonable action necessary to nominate and support (in the same
manner as it supports the other nominees to its Board at that meeting) one or
more individuals for election to the Board of Directors as representatives of
the Purchaser such that the proportion of the Board that is made up of
representatives of the Purchaser serving on the Company's Board of Directors
after such annual meeting of shareholders (assuming the election of the persons
so nominated) shall, subject to the two provisos in Section 8.3(a), equal the
proportion of the Company's outstanding shares of Common Stock owned by the
Purchaser as of the end of the Company's last fiscal year (assuming for this
purpose the conversion of the Shares and any other Convertible Securities). In
the event that the shareholders of the Company shall fail to elect enough
persons to serve as representatives of the Purchaser on the Company's Board of
Directors to satisfy the proportional requirements of this Section 8.3, the
Board of Directors of the Company shall take any actions necessary to appoint to
the Board a different set of individuals selected by the Purchaser to serve as
its representatives on the Board such that the proportional requirements are
satisfied. Purchaser agrees that it will not select any person to serve as its
representative on the Company's Board of Directors pursuant to this Section 8.3
if (i) such person is not reasonably experienced in business, financial or
mortgage banking matters, (ii) such person has been convicted of, or has pled
nolo contendere to, a felony, (iii) the election of such person would violate
any law, or (iv) any event required to be disclosed pursuant to Item 401(f) of
Regulation S-K under the Exchange Act has occurred with respect to such person.
Purchaser shall use its reasonable efforts to afford the directors of the
Company a reasonable opportunity to meet any individual that Purchaser is
considering selecting as one of its representative on the Company's Board of
Directors.
(c) For so long as the Purchaser has at least one representative on
the Company's Board of Directors, (i) the representative will be entitled to
receive notice of and attend all meetings of the Board of Directors of the
Company, to receive any materials distributed
-16-
<PAGE>
to the directors in their capacity as such and otherwise to be treated the same
as the other directors of the Company, (ii) the Company will give the Purchaser
written notice of each regularly scheduled meeting of any duly constituted
committee of the Board of Directors (a "Committee") as far in advance as such
notice is required to be delivered to the directors (but at least one Business
Day prior to the date of each special meeting of any Committee); (iii) the
Purchaser will be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes and press
releases) given to directors in connection with such Committee meetings at the
same time such materials and other information are given to the directors; (iv)
if the Company proposes to take any action by written consent in lieu of a
meeting of any Committee of its Board of Directors, the Company will give prompt
written notice thereof to the Purchaser prior to the effective date of such
consent describing in reasonable detail the nature and substance of such
consent; (v) the Company shall maintain a provision in its bylaws providing for
the indemnification of its directors to the full extent permitted by the
Delaware General Corporation Law; (vi) the Board of Directors of the Company
shall consist of no fewer than 8 members; and (vii) if the Board of Directors is
to be expanded, then additional representatives of the Purchaser shall be
appointed to the Board as necessary to maintain the then required proportion of
representatives of the Purchaser on the Board; provided, however, that,
-----------------------
notwithstanding clauses (ii), (iii) and (iv) above, the Purchaser shall not be
entitled to the rights thereunder if and to the extent that such Committee
relates to the Company's relationship with the Purchaser or any transaction in
which the Purchaser has an interest other than as a shareholder of the Company.
(d) The Purchaser may, at its sole discretion at any time and from
time to time, elect to waive its right to some or all of the representatives on
the Company's Board to which it is entitled under this Section 8.3, and the
exercise of any such waiver shall not cause the Purchaser's right to such
representatives to terminate.
(e) The Purchaser hereby agrees that, in the event that the proportion
of the Company's outstanding shares of Common Stock owned by the Purchaser as of
any June 30, September 30 or December 31 as described above would indicate that
the Purchaser should have fewer representatives on the Board than it has at that
time, then the Purchaser will cause one or more of its representatives to resign
so that the Purchaser has the number of Board representatives to which it is
entitled under this Section 8.3.
8.4 Right of First Refusal; Preemptive Right.
----------------------------------------
(a) If, after the date hereof, the Company should decide to issue any
New Securities (as defined in subparagraph (c) below) for cash, the Company
shall, in accordance with this Section 8.4, first offer to issue all of such New
Securities to the Purchaser upon substantially the same terms and conditions as
the Company is proposing to issue such New Securities to others. Purchaser's
right to purchase New Securities pursuant to this Section 8.4(a) shall not be
exercisable in connection with any issuance as to which the Purchaser elects to
exercise its right under Section 8.4(b).
-17-
<PAGE>
(b) If, after the date hereof, the Company should decide to issue any
New Securities, the Company shall, in accordance with this Section 8.4, also
concurrently offer to issue to the Purchaser, upon substantially the same terms
and conditions as the Company is proposing to issue such New Securities to
others, a sufficient number of such New Securities so that the Purchaser's
Applicable Percentage (as defined in subparagraph (d) below) will, if such New
Securities are purchased by the Purchaser and such others, remain unchanged
following the proposed issuance of New Securities (any such issuance is referred
to herein as a "Preemptive Rights Issuance"). Purchaser's right to purchase New
Securities pursuant to this Section 8.4(b) shall not be exercisable in
connection with any issuance as to which the Purchaser elects to exercise its
right under Section 8.4(a).
(c) For purposes of this Agreement, "New Securities" means any
additional shares of capital stock of the Company, whether or not currently
authorized, and any Convertible Securities; provided that "New Securities" shall
not include: (a) shares of Common Stock issued upon conversion of the Shares or
to the Purchaser, (b) shares of the Company's capital stock or other securities
issued in connection with the acquisition of any other corporation or business
entity, in whole or in part, directly or indirectly, by the Company, (c) shares
of the Company's capital stock issued in connection with any stock split, stock
divided or recapitalization of the Company, (d) shares of the Company's capital
stock issued upon exercise, conversion or exchange of Convertible Securities
described on Schedule 5.3 hereto or pursuant to any other arrangement or
agreement as of the date hereof described on Schedule 5.3 hereto, including
without limitation shares of the Company's capital stock authorized or available
for issuance under any Company Plan as described on Schedule 5.3, (e) shares of
the Company's capital stock issued upon exercise, conversion or exchange of
Convertible Securities if the issuance of such Convertible Securities permitted
Purchaser to purchase New Securities in accordance with this Section 8.4, (f) up
to 1,000,000 shares of the Company's capital stock or Convertible Securities
issued pursuant to any Additional Employee Issuance (as defined herein), and (g)
shares of the Company's capital stock issued upon exercise, conversion or
exchange of any Convertible Securities which did not constitute "New Securities"
upon their issuance by virtue of subsection (f) above. For purposes of this
Agreement, the terms "Additional Employee Issuance" means any of the following:
(i) any stock-related plan for the benefit of the Company's or its subsidiaries'
employees, officers, directors or consultants adopted by the Company after the
date of this Agreement; (ii) a repricing or a regrant of any Convertible
Securities issued pursuant to any Company Plan; or (iii) an increase in the
number of shares authorized and available for issuance pursuant to any Company
Plan.
(d) For purposes of this Agreement, the Purchaser's "Applicable
Percentage" shall be equal to the number of outstanding shares of Common Stock
held by the Purchaser (assuming for this purpose the conversion of the Shares
and any other Convertible Securities held by the Purchaser, and including only
shares of Common Stock received pursuant to any such conversion and any other
shares acquired by the Purchaser from the Company) divided by the total number
of outstanding shares of Common Stock (assuming for this purpose the conversion
of the Shares and any other Convertible Securities).
-18-
<PAGE>
(e) In the event that the Company is required to make an offer of New
Securities to the Purchaser pursuant to subparagraph (a) or (b) above, it shall
give the Purchaser written notice of such offer, describing the type of New
Securities, the estimated price and the terms upon which the Company proposes
(or is obligated) to issue the same, including for an offer of New Securities
pursuant to subparagraph (b) above, the number of New Securities offered to the
Purchaser for the Purchaser to maintain the Purchaser's Applicable Percentage
(the "Subscription Notice"). The Purchaser shall have ten Business Days from
the date of receipt of any Subscription Notice to subscribe to purchase such New
Securities (and, in the case of subparagraph (a) above, all, but not less than
all of such New Securities) for the price and upon the terms specified in the
Subscription Notice by giving written notice to the Company, which subscription
by Purchaser shall be binding and irrevocable subject only to the making of any
necessary regulatory or governmental filings, the receipt of any necessary
regulatory or governmental authorizations and approvals, and the expiration of
all statutory waiting periods in respect thereof The closing of the sale of the
New Securities to the Purchaser pursuant to subparagraph (a) above shall take
place within the later of (i) ten Business Days after the delivery of such
notice to the Company, or (ii) three Business Days after all necessary
shareholder, regulatory or governmental filings, authorizations or approvals
required to consummate such purchase shall have been duly made or obtained and
all statutory waiting periods in respect thereof shall have expired, provided
--------
that if such closing has not occurred within 90 days after the date of delivery
- ----
of such notice to the Company, the Purchaser's right to purchase such issue of
New Securities pursuant to subparagraph (a) above shall terminate. The closing
of the sale of the New Securities to the Purchaser pursuant to subparagraph (b)
above shall take place within the later of (i) ten Business Days after the
occurrence of the Preemptive Rights Issuance, or (ii) three Business Days after
all necessary shareholder, regulatory or governmental filings, authorizations or
approvals required to consummate such purchase shall have been duly made or
obtained and all statutory waiting periods in respect thereof shall have
expired; provided that the Purchaser shall have no right to purchase New
------------
Securities under subparagraph (b) above unless and until the applicable
Preemptive Rights Issuance has occurred; provided further that if such closing
---------------------
has not occurred within 90 days after the occurrence of the Preemptive Rights
Issuance to the Company, the Purchaser's right to purchase such issue of New
Securities pursuant to subparagraph (b) above shall terminate. The Purchaser and
the Company mutually agree that they will each use all reasonable efforts to
make, and to assist with the making of, any such filing and to obtain, and to
assist with obtaining, any such authorization or approval as promptly as
practicable.
(f) In the event and to the extent that the Purchaser fails to
subscribe for any New Securities offered to it pursuant to subparagraph (a) or
(b) above within ten Business Days after the date of receipt of the Subscription
Notice, the Company shall have 120 days thereafter to sell the New Securities at
a price which is not less than 95% of the price specified in the Subscription
Notice and upon terms otherwise no more favorable to the purchasers thereof than
the terms specified in the Subscription Notice. In the event the Company has not
sold the New Securities within such 120 day period, the Company shall not
thereafter issue any New Securities without first offering such New Securities
to the Purchaser as required by this Section 8.4.
-19-
<PAGE>
(g) The provisions of Section 8.4(a) shall terminate and no longer be
of any effect as of the earlier of (i) 24 months after the Closing Date, or (ii)
the receipt by the Company of gross proceeds totaling $30 million from the sale
of shares of capital stock of the Company or Convertible Securities, other than
pursuant to a Company Plan, after the Closing Date.
(h) In the event that the proposed issuance which gives rise to an
offer pursuant to subparagraph (a) or (b) above is a registered public offering
by the Company, then the parties agree that (i) the Subscription Notice shall be
given upon commencement of preparations for the offering; (ii) for purposes of
an offer pursuant to subparagraph (a) above, the purchase price shall be equal
to the average closing sale price of the Common Stock for the ten trading days
immediately preceding delivery of the Subscription Notice; (iii) for purposes of
an offer pursuant to subparagraph (b) above, the purchase price shall be equal
to the price at which the shares are sold in the public offering, and (iv) if
the Purchaser fails to subscribe for any New Securities offered to it pursuant
to subparagraph (a) or (b) above, then, for the purposes of subparagraph (f)
above, the Company shall have 150 days thereafter to sell the New Securities in
a registered public offering at any price.
8.5 No Negotiations, etc. The Company will not, and will cause the
---------------------
Subsidiary and the Company's and the Subsidiary's respective officers,
directors, employees, agents or affiliates, not to, directly or indirectly,
solicit, authorize, initiate or encourage submission of, any proposal, offer,
tender offer or exchange offer from any person or entity (including any of its
or their officers or employees) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets of, or any material equity interest in, the
Company or the Subsidiary or other similar transaction or business combination
involving the Company or the Subsidiary, or, unless the Company shall have
determined, based on the advice of counsel to the Company, that the Board of
Directors of the Company has a fiduciary duty to do so, (a) participate in any
negotiations in connection with or in furtherance of any of the foregoing or (b)
permit any person other than the Purchaser and its representatives to have any
access to the facilities of, or (c) furnish to any person other than the
Purchaser and its representatives any information with respect to, the Company
or the Subsidiary in connection with or in furtherance of any of the foregoing.
The Company shall promptly notify the Purchaser if any such proposal or offer,
or any inquiry from or contact with any person with respect thereto, is made,
and shall promptly provide the Purchaser with such information regarding such
proposal, offer, inquiry or contact as the Purchaser may request.
Notwithstanding the foregoing, this Section 8.5 shall not be deemed to prohibit
the Company or its officers, directors, employees, agents and affiliates from
initiating, encouraging, negotiating and entering into any acquisition or
purchase of a business or assets using shares of the Company's Common Stock as
consideration for the acquisition or purchase so long as the number of shares of
Common Stock to be issued in the transaction (assuming the exercise or
conversion of any Share Acquisition Rights or Convertible Securities to be
issued in the transaction) does not exceed 20% of the shares of Common Stock
then outstanding.
-20-
<PAGE>
8.6 Undertaking to Cooperate in Sales of Shares. In the event that
-------------------------------------------
the Purchaser determines to reduce its ownership interest in the Company, the
Company will use reasonable efforts to cooperate with and assist the Purchaser
(at Purchaser's expense) in connection with sales of shares of the Company's
capital stock whether through private placements, market transactions pursuant
to Rule 144 or registered offerings pursuant to the Registration Rights
Agreement. For so long as the Purchaser continues to hold any Shares (or shares
of Common Stock acquired upon conversion thereof which do not qualify for sale
pursuant to Rule 144(k)), the Company shall use reasonable efforts to file all
annual, quarterly and other reports required to be filed by the Company under
Section 13 or 15(d) of the Exchange Act and the rules and regulations
thereunder, as amended from time to time. The Company shall cooperate with the
Purchaser (at Purchaser's expense), in such manner as the Purchaser may
reasonably request, so as to enable any such sales to be made in accordance with
applicable laws, rules and regulations, the requirements of the Company's
transfer agent and the reasonable requirements of any broker through which such
sales are proposed to be executed.
8.7 Undertaking to Cooperate in Purchases of Shares. Subject to
-----------------------------------------------
Section 10 hereof and to any confidentiality and other contractual or legal
restrictions applicable to the Company, the Company will, if requested to do so
by the Purchaser, cooperate with and use its best efforts to assist the
Purchaser in identifying existing shareholders of the Company who may be
interested in selling shares of Common Stock, and, once any such potential
seller is identified, will cooperate with the Purchaser (at Purchaser's
Expense), in such manner as the Purchaser may reasonably request, so as to
enable such purchases to be made in accordance with applicable laws rules and
regulations, the requirements of the Company's transfer agent and the reasonable
requirements of any broker through which such purchases are proposed to be
executed.
8.8 Regulatory Compliance.
---------------------
(a) As long as the Shares or the Conversion Shares are owned and
controlled by the Purchaser or by a nonbank subsidiary of the Purchaser, the
Company shall (i) conduct its current activities in conformity with the Federal
Reserve's regulations and orders under the BHCA governing such activities, (ii)
not engage in any new activities (A) that are impermissible for any bank holding
company under the BHCA and (B) until the Purchaser has provided prior notice to
the Federal Reserve, if required, under the BHCA of the Purchaser's intent to
engage in such activities and, if required, obtained the prior approval of the
Federal Reserve under the BHCA to engage in such activities through the Company,
and (iii) be subject to supervision and examination by the Federal Reserve;
provided, however, that the Company need not comply with this Section 8.8(a) in
- -----------------------
the event (i) that the Shares or the Conversion Shares represent less than 5% of
any "class of voting shares" (as such term is defined in the Federal Reserve's
regulations and orders) of the Company or (ii) that the Purchaser ceases to be
regulated as a bank holding company under the BHCA.
(b) Following the assignment and transfer of the Shares or the
Conversion Shares to a national bank subsidiary of the Purchaser and, following
such assignment and transfer, for as long as the Shares or the Conversion Shares
are owned and controlled by a
-21-
<PAGE>
national bank subsidiary of the Purchaser, the Company shall (i) conduct its
current activities in conformity with the OCC's regulations and orders under the
National Bank Act governing such activities, (ii) not engage in any new
activities (A) that are impermissible for any national bank under the National
Bank and (B) until the Purchaser has provided prior notice to the OCC, if
required, under the National Bank Act of the Purchaser's intent to engage in
such activities and, if required, obtained the prior approval of the OCC under
the National Bank Act to engage in such activities through the Company, and
(iii) be subject to supervision and examination by the OCC; provided, however,
that the Purchaser shall not assign or transfer the Shares or the Conversion
Shares to a national bank subsidiary of the Purchaser, unless and until the
Purchaser determines, in its reasonable discretion, that the Company would be
deemed to be an "affiliate" of Purchaser for purposes of Section 23A of the
Federal Reserve Act as a result of Purchaser's ownership of the Shares or the
Conversion Shares or any shares of Common Stock of the Company which Purchaser
may acquire in its discretion in accordance with the terms of this Agreement or
as a result of Purchaser's representation on the Company's Board of Directors or
as otherwise as required by Section 23A of the Federal Reserve Act.
8.9 Restriction on Company Plans. Without the prior written consent
----------------------------
of Purchaser, the Company shall not (i) increase the number of shares available
for issuance under, any of the Company Plans, (ii) adopt any other stock-related
plans not listed on Schedule 5.3 hereto, (iii) grant additional restricted stock
awards other than pursuant to the Founding Managers' Incentive Compensation Plan
or (iv) take any action to reprice or regrant any Convertible Securities issued
pursuant to any Company Plan; provided that, notwithstanding the foregoing, the
-------------
Company may take such actions in connection with an Additional Employee
Issuance, so long as the aggregate number of shares of capital stock which are
issued or issuable pursuant to any Additional Employee Issuance shall not exceed
1,000,000 shares of Common Stock (including no more than 250,000 shares of
Common Stock pursuant to restricted stock awards not made under the Founding
Managers' Incentive Compensation Plan).
8.10 Termination of Certain Covenants. Subject to any earlier
--------------------------------
termination provided for therein, the covenants of the Company in Section 8
(other than Section 8.8) and the proviso in the last sentence of Section 7.1 (i)
will terminate and no longer be of any force or effect on the earliest to occur
of (a) December 31, 2002, (b) the date on which the Purchaser owns less than 5%
of the Company's outstanding shares of Common Stock (assuming for this purpose
the conversion of the Shares and any other Convertible Securities) or (c) a
Purchaser Default. The covenants of the Company in Sections 8.4, 8.5, 8.7 and
8.9 will also terminate (a) upon the closing of an acquisition of the Purchaser
if the Purchaser is acquired in a transaction pursuant to which the acquiror
obtains the right to dictate a substantial majority of the Board of Directors of
Purchaser; or (b) if the Purchaser sells more than 20% of its shares of Common
Stock of the Company during any 90-day period, provided that sales of shares of
-------------
Common Stock for this purpose shall not include any shares sold by the Purchaser
because it was necessary or desirable to do so for regulatory reasons.
-22-
<PAGE>
9. Mutual Covenants.
----------------
9.1 Regulatory Approvals. The Purchaser and the Company will use all
--------------------
reasonable efforts and will cooperate with each other in the preparation and
filing, as soon as practicable, of all notices, applications or other documents
required to obtain the regulatory approvals and consents necessary to satisfy
the condition set forth in Section 7.3(a), and will provide copies of the non-
confidential portions of such applications, filings and related correspondence
to the other party. Prior to filing each application, registration statement or
other document with the applicable regulatory authority, each party will provide
the other party with an opportunity to review and comment on the non-
confidential portions of each such application, registration statement or other
document. Each party will use all reasonable efforts and will cooperate with
the other party in taking any other actions necessary to obtain such regulatory
or other approvals and consents, including participating in any required
hearings or proceedings. Subject to the terms and conditions herein provided,
each party will use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and the Flow and Service Provider
Agreements. Notwithstanding any provision to the contrary contained herein, no
later than five days after the execution of this Agreement (a) the Purchaser and
the Company shall file with the Federal Trade Commission and the Department of
Justice the appropriate documents pursuant to the rules and regulations
promulgated under Title 11 of the HSR Act reporting the sale of the Shares to
the Purchaser, and (b) the Purchaser shall file with the Federal Reserve the
applicable notices, applications and other documents required to obtain the
approval and consent of the Federal Reserve to the sale of the Shares to the
Purchaser.
9.2 Brokers and Finders Fees. Each of the parties hereto will
------------------------
indemnify and hold the other party harmless against any and all liability to any
Person with respect to any commission, fee or other compensation as a finder or
broker, or in any similar capacity, that may be payable or is determined to be
payable in connection with the transactions contemplated by this Agreement by
reason of any act or omission of the indemnifying party.
9.3 Notification of Certain Matters. Each party shall give prompt
-------------------------------
notice to the other parties of (a) the occurrence or failure to occur of any
event or the discovery of any information, which occurrence, failure or
discovery would be likely to cause any representation or warranty on its part
contained in this Agreement to be untrue or inaccurate when made, at the Closing
Date or at any time prior to the Closing Date, and (b) any failure of such party
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder.
9.4 Takeover Laws. No party shall take any action that would cause
-------------
the purchase and sale of the Shares or the granting to Purchaser of Board
representation rights, the right of first refusal and the preemptive right
pursuant to Sections 8.3 and 8.4 of this Agreement to be subject to requirements
imposed by any Takeover Law and each party shall take all necessary steps within
its control to exempt (or ensure the continued exemption of) the
-23-
<PAGE>
transactions listed above, or if necessary challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect,
including, without limitation, Section 203 of the DGCL, or any other Takeover
Laws that purport to apply to this Agreement, or the transactions contemplated
hereby.
9.5 Negotiation. Each party agrees that it will use its best efforts
-----------
and negotiate in good faith to resolve any issues that arise during the drafting
and negotiation of the Flow Agreement and the Service Provider Agreement.
10. Purchaser's Standstill Agreement. Unless such action shall have been
--------------------------------
consented to in writing by the Board of Directors of the Company, Purchaser
agrees that neither it nor any of its affiliates will, either directly or
indirectly, (a) acquire over 50% of the Company's outstanding capital stock; (b)
effect or propose (whether publicly or otherwise) to effect, participate in or
cause (i) any tender or exchange offer or merger or other business combination
involving the Company, (ii) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to the Company or
(iii) any "solicitation" of "proxies" (as such terms are used in proxy rules of
the Commission) or consents to vote any voting securities of the Company, (c)
form, join or in any way participate in a "group" (as defined under the Exchange
Act), or (d) take any action which might force the Company to make a public
announcement regarding any of the types of matters set forth in (a), (b) or (c)
above. The covenant of the Purchaser in this Section 10 will terminate and no
longer be of any force or effect on the earlier of December 31, 2002 and the
date on which the Purchaser and its Affiliates in the aggregate own less than 5%
of the Company's outstanding shares of Common Stock (assuming for this purpose
the conversion of the Shares and any other Convertible Securities).
11. Termination.
-----------
11.1 Methods of Termination. Prior to Closing, this Agreement may be
----------------------
terminated as follows:
(a) by the mutual consent of the parties hereto;
(b) by either the Purchaser or the Company if there has been a
misrepresentation, breach of warranty or breach of covenant on the part of the
other party under this Agreement;
(c) by either the Purchaser or the Company, if any of the conditions
to such party's obligation to consummate the transactions contemplated in this
Agreement shall have become impossible to satisfy;
-24-
<PAGE>
(d) by either the Purchaser or the Company if the Closing shall not
have been consummated by December 31, 1998; provided that, neither the Company
--------
nor the Purchaser will be entitled to terminate this Agreement pursuant to this
Section 12.1(d) if such party's willful breach of this Agreement has prevented
the consummation of the transactions contemplated hereby; or
(e) by the Purchaser if, between the date hereof and the Closing
Date, there shall have been any occurrence that has resulted or could reasonably
be expected to result in a Material Adverse Effect.
11.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 11.1, this Agreement shall become void (other
than Section 12.15 which shall remain in full force and effect) and there shall
be no liability on the part of any party hereto, or their respective
stockholders, officers, or directors.
12. Miscellaneous.
-------------
12.1 Press Releases and Announcements. No party hereto shall issue
--------------------------------
any press release (or make any other public announcement) related to this
Agreement or the transactions contemplated hereby without prior written approval
of the other party hereto, except as may be necessary, in the opinion of counsel
to the party seeking to make disclosure, to comply with any applicable laws,
including securities laws. If any such press release is so required, the party
making such disclosure shall, to the extent practicable, consult with the other
party prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure which is
satisfactory to all of the parties.
12.2 Entire Agreement. This Agreement (including the exhibits,
----------------
schedules and other documents referred to herein), the Flow Agreement, the
Service Provider Agreement and the Registration Rights Agreement contain the
entire understanding between the parties hereto with respect to the subject
matter hereof and thereof and supersede any prior understandings, agreements or
representations, written or oral, relating to the subject matter hereof and
thereof.
12.3. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which will be an original and all of which taken together
shall constitute one and the same agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
12.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law but if any provision of this Agreement is held to be
invalid, illegal or unenforceable under any applicable law or rule, the
validity, legality and enforceability of the other provisions of this Agreement
will not be affected or impaired thereby.
-25-
<PAGE>
12.5 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective heirs, personal
representatives and, to the extent permitted by Section 12.6, successors and
assigns.
12.6 Assignment. This Agreement and the rights and obligations of
----------
the parties hereunder shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party.
12.7 Modification, Amendment, Waiver or Termination. No provision of
----------------------------------------------
this Agreement may be modified, amended, waived or terminated except by an
instrument in writing signed by the parties to this Agreement. No course of
dealing between the parties will modify, amend, waive or terminate any provision
of this Agreement or any rights or obligations of any party under or by reason
of this Agreement.
12.8 Notices. All notices, consents, requests, instructions,
-------
approvals or other communications provided for herein shall be in writing and
delivered by personal delivery, overnight courier, mail or electronic facsimile
addressed to the receiving party at the address set forth herein. All such
communications shall be effective when received.
Notices to the Purchaser: with a copy to:
- ------------------------ --------------
U.S. Bancorp Dorsey & Whitney LLP
601 Second Avenue South 220 South Sixth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq. Attention: Elizabeth C. Hinck, Esq.
Telecopy: (612) 973-4333 Telecopy: (612) 340-8738
Notices to the Company: with a copy to:
- ---------------------- --------------
New Century Financial Corporation O'Melveny & Myers LLP
18400 Von Karman, Suite 1000 610 Newport Center Drive, 17th Floor
Irvine, California 92612 Newport Beach, California 92660
Attention: Brad A. Morrice Attention: Karen K. Dreyfus, Esq.
Telecopy: 949-440-7033 Telecopy: 949-823-6994
Any party may change the address set forth above by notice to each other party
given as provided herein.
12.9 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.10 Governing Law. All matters relating to the interpretation,
-------------
construction, validity and enforcement of this Agreement shall be governed by
the internal laws of the state of Delaware, without giving effect to any choice
of law provisions thereof.
-26-
<PAGE>
12.11 Third-Party Benefit. Nothing in this Agreement, express or
-------------------
implied, is intended to confer upon any other person any rights, remedies,
obligations or liabilities of any nature whatsoever.
12.12 Survival of Representations and Warranties. Notwithstanding
------------------------------------------
any investigation made by either of the par-ties hereto and notwithstanding the
Closing or any actions taken after the execution hereof, the representations and
warranties made in this Agreement shall survive for 18 months after the Closing
Date, except for the representation and warranty in Section 5.11 which shall
survive the Closing indefinitely. Purchaser shall not assert a claim against
the Company for a breach or breaches of the representations and warranties made
in this Agreement unless and until Purchaser has a claim or claims for damages,
liabilities, losses or expenses arising from or relating to such breach or
breaches ("Losses") in excess of $300,000 in the aggregate (the "Basket
Amount"); provided that once Purchaser has a claim or claims for aggregate
Losses in excess of the Basket Amount it shall be entitled to assert a claim
against the Company for the entire amount of Purchaser's aggregate Losses.
12.13 Jurisdiction and Venue. This Agreement may be enforced in any
----------------------
federal court or state court sitting in California, and each party consents to
the jurisdiction and venue of any such court and waives any argument that venue
in such forum is not convenient. If any party commences any action under any
tort or contract theory arising directly or indirectly from the relationship
created by this Agreement in another jurisdiction or venue, the other party to
this Agreement shall have the option of transferring the case to the above-
described venue or jurisdiction or, if such transfer cannot be accomplished, to
have such case dismissed without prejudice.
12.14 Remedies. The parties agree that money damages may not be an
--------
adequate remedy for any breach of the provisions of this Agreement and that any
party may, in its discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and injunctive relief in order ' to
enforce or prevent any violations this Agreement, and any party against whom
such proceeding is brought hereby waives the claim or defense that such party
has an adequate remedy at law and agrees not to raise the defense that the other
party has an adequate remedy at law.
12.15 Expenses. Except as otherwise expressly provided for herein,
--------
each party will pay its own expenses (including attorneys' and accountants'
fees) incurred in connection with the negotiation of this Agreement, the
performance of its respective obligations hereunder and the consummation of the
transactions contemplated by this Agreement (whether consummated or not).
-27-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By: /s/ Robert K. Cole
------------------------------------
Its: Chairman and Chief Executive Officer
U.S. BANCORP
By: /s/ Susan E. Lester
------------------------------------
Its: Executive Vice President and Chief
Financial Officer
-28-
<PAGE>
EXHIBITS
EXHIBIT A......................................... Form of Shareholder Agreement
EXHIBIT B............................................... Terms of Flow Agreement
EXHIBIT C................................... Terms of Service Provider Agreement
EXHIBIT D................................... Form of Certificate of Designations
EXHIBIT E.................................................. Disclosure Schedules
EXHIBIT F................................. Form of Registration Rights Agreement
<PAGE>
EXHIBIT A
---------
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT, dated as of October ____, 1998, between, a
Delaware corporation ("Purchaser"), and _____________________ ("Shareholder").
WHEREAS, Purchaser and New Century Financial Corporation, a Delaware
corporation (the "Company"), are entering into a Preferred Stock Purchase
Agreement, dated the date hereof (the "Purchase Agreement"), which provides for
the purchase of shares of the Company's Series 1998A Convertible Preferred Stock
by the Purchaser;
WHEREAS, Shareholder is the beneficial owner of approximately ______%
of the outstanding common stock, par value $.01 per share, of the Company (the
"Common Stock");
and
WHEREAS, as a condition to the willingness of Purchaser and the
Company to enter into the Purchase Agreement, Shareholder has agreed to certain
restrictions on his ability to sell the shares of Common Stock owned by him as
of the date hereof and any shares acquired by Shareholder after the date hereof
(including any shares acquired pursuant to the exercise of any rights to
purchase or otherwise acquire shares) (the "Shares") as provided in this
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Right of First Refusal.
----------------------
(a) If, after the date hereof, Shareholder should decide to sell,
transfer or otherwise dispose of any or all of the Shares (other than any
Permitted Transfers as defined in Section 3), Shareholder shall first offer
to sell such Shares to the Purchaser upon substantially the same terms and
conditions as Shareholder is proposing to sell such Shares to others.
(b) In the event that Shareholder is required to make an offer of
Shares to the Purchaser pursuant to this Agreement, Shareholder shall give
the Purchaser written notice of such offer, indicating the estimated price
and the general terms upon which Shareholder proposes to sell the Shares
(the "Sale Notice"). The Purchaser shall have ten business days from the
date of receipt of any Sale Notice to subscribe for the purchase of such
Shares for the price and upon the general terms specified in the Sale
Notice by giving written notice to Shareholder. The closing of the sale of
the Shares to the Purchaser shall take place within the later of (i) ten
business days after the delivery of such notice to Shareholder, or (ii)
three business days after all necessary regulatory or governmental filings,
authorizations or approvals, if any, required to consummate such purchase
shall have been duly made or obtained and all statutory waiting
-1- Exhibit A
<PAGE>
periods in respect thereof shall have expired; provided that, if such
-------- ----
closing has not occurred within 90 days after the date of delivery of
Purchaser's notice to the Shareholder, the Shareholder shall have the
right to sell such Shares without regard to the limitations of paragraph
(c) below. The Purchaser agrees that it will use all reasonable efforts to
make any such filing and obtain any such authorization or approval as
promptly as practicable. In the event that making such filing or obtaining
such authorization or approval takes more than 60 days after the delivery
of such notice to Shareholder, the Purchaser will use reasonable efforts
to arrange for a six-month line of credit for the Shareholder.
(c) In the event that the Purchaser fails to subscribe for the
purchase of all of the Shares offered to it pursuant to this Agreement
within ten business days after the date of receipt of a Sale Notice,
Shareholder shall have 120 days thereafter to sell the Shares at a price
which is not less than 95% of the price specified in the Sale Notice and
upon terms otherwise no more favorable to the purchasers thereof than the
terms specified in the Sale Notice. In the event Shareholder has not sold
the Shares within such 120 day period, Shareholder shall not thereafter
sell any Shares without first offering such Shares to the Purchaser as
required by this Agreement.
2. No Preclusive Agreements. The Shareholder shall not enter into any
------------------------
agreement or understanding with any Person (as defined in Section 5), including
any voting, lock-up or option agreement, the effect of which would be
inconsistent with or violate the provisions and agreements contained in Section
5 or would preclude the Purchaser from exercising its rights pursuant to Section
5.
3. Permitted Transfers. "Permitted Transfers" mean (a) any transfer of
-------------------
Shares by gift or otherwise not for value if, at or before the transfer, the
transferee executes an instrument (i) acknowledging that the Shares being
acquired are subject to the provisions of this Agreement, and (ii) agreeing to
be bound by the terms and conditions of this Agreement with respect to the
Shares, (b) any sale of Shares by a pledgee or by Shareholder after a default in
an obligation secured by a bona fide pledge of the Shares by Shareholder as
security for a loan (including a margin loan), (c) any transfer by Shareholder
to Shareholder's spouse in conjunction with any consent decree or other
settlement order relating to Shareholder's pending divorce proceeding and (d)
sales of Shares in accordance with Rule 144 promulgated under the Securities Act
of 1933, or any successor rule ("Rule 144 Sales"), not to exceed in the
aggregate during any 365-day period 0.50% of the shares of Common Stock
outstanding at the beginning of the calendar year of such sale, provided that no
Trigger Date (as defined in Section 5) has occurred within the nine-month period
prior to any such Rule 144 Sale and provided further that prior to each such
Rule 144 Sale (x) Shareholder shall have given Purchaser notice (the " 144 Sale
Notice") in accordance with the special notice provisions of Section 14 hereof
of his intention to sell Shares in accordance with this Section 3(d) (which 144
Sale Notice shall include the number of Shares (the "144 Shares") that
Shareholder intends to sell and Shareholder's offer to sell such 144 Shares to
Purchaser at the price determined pursuant to this Section 3(d)) and (y) prior
to the expiration of the Acceptance Window (as defined in the next sentence),
Purchaser has not communicated (by phone or by facsimile) its agreement to
purchase the 144 Shares from
-2- Exhibit A
<PAGE>
Shareholder. For purposes of this Section 3(d), the Acceptance Window shall end
at 3:30 p.m. Central Time on the day of receipt by Purchaser of the 144 Sale
Notice unless such 144 Sale Notice was received after 2:00 p.m. Central Time on
a business day or was received on a non-business day, in which case the
Acceptance Window would end at 8:30 a.m. Central Time on the next business day
following receipt by Purchaser of the 144 Sale Notice. If Purchaser timely
agrees to purchase the 144 Shares, the purchase shall close by wire transfer of
same day funds within three business days of such agreement to purchase, and the
purchase price per share shall be the most recent sale price on the Nasdaq
market prior to time at which Purchaser communicated its acceptance to
Shareholder.
4. Representations and Warranties of Shareholder. Shareholder
---------------------------------------------
represents and warrants to Purchaser that:
(a) this Agreement has been duly executed and delivered by
Shareholder and constitutes a valid and legally binding obligation of
Shareholder enforceable in accordance with its terms;
(b) Shareholder is not subject to or obligated under any provision
of (i) any contract, (ii) any license, franchise or permit or (iii) any
law, regulation, order, judgment or decree which would be breached or
violated by his execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby;
(c) no authorization, consent or approval of, or any filing with,
any public body or authority is necessary for consummation by him of the
transactions contemplated by this Agreement;
(d) as of the date of this Agreement, the Shares consist of _____
shares of Common Stock (including ______ shares of Common Stock which
represent shares that would be acquired by Shareholder if all of the rights
to purchase or otherwise acquire shares of Common Stock held by Shareholder
on the date hereof were exercised); and
(e) except as set forth on Schedule 1 hereto on the date hereof
Shareholder has, and he will have at the time of any purchase by Purchaser
of the Shares, good and marketable title to the Shares free and clear of
all claims, liens, charges, encumbrances and security interests.
5. Voting Agreement. The Shareholder hereby agrees that, if a Trigger
----------------
Date (as defined herein) occurs on or before December 31, 2002, in connection
with the Acquisition Transaction relating to the Trigger Date, he shall vote (or
cause to be voted) at any meeting of the holders of the Common Stock, however
called, or in connection with any written consent of the holders of the Common
Stock, the Shares held of record by him or with respect to which he has or
shares the power to vote, whether now owned or hereafter acquired, (i) in favor
of approval of a Purchaser Transaction (as defined herein) and any actions
required in furtherance thereof and hereof, and (ii) except as otherwise agreed
to in writing in advance by Purchaser, against (A) any
-3- Exhibit A
<PAGE>
action or agreement that is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, or materially adversely affect a
Purchaser Transaction; (B) any Competing Transaction; (C) any change in a
majority of the persons who constitute the board of directors of the Company; or
(D) any change in the capitalization of the Company or any amendment of the
Company's Certificate of Incorporation or Bylaws. Such Shareholder shall not
enter into any agreement or understanding with any Person (as defined herein)
the effect of which would be inconsistent with or violate the provisions and
agreements contained in this Section 5. Notwithstanding the foregoing, the
Shareholder shall have the right to vote at any meeting of the Board of
Directors of the Company (or by written consent of the directors) in his
capacity as a director of the Company in his sole discretion and to comply with
his fiduciary duties as a director of the Company under applicable law.
For purposes of this Agreement, the following terms shall have the
following respective meanings:
"Acquisition Transaction" shall mean any of the following actions: (A) any
-----------------------
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company; or (B) a sale, lease or transfer of
a material amount of assets of the Company, or a reorganization,
recapitalization, dissolution or liquidation of the Company.
"Competing Transaction" shall mean an Acquisition Transaction involving any
---------------------
Person other than Purchaser or an affiliate of Purchaser.
"Person" shall mean an individual, corporation, partnership, joint venture,
------
association, trust, unincorporated organization or other entity.
"Purchaser Transaction" shall mean an Acquisition Transaction by Purchaser
---------------------
or an affiliate of Purchaser.
"Trigger Date" shall mean the date the Company receives a bonafide proposal
------------
regarding an Acquisition Transaction (a "Proposal"), unless, within 15 days of
the date Purchaser is notified in writing of all material terms of such
Proposal, the Purchaser has failed to make an offer that is similar to, and on
terms no less favorable to the Company and its shareholders than, such Proposal.
Notwithstanding the foregoing, a Trigger Event shall not be deemed to have
occurred if: (i) prior to the date of a definitive agreement with respect to a
Purchaser Transaction, the terms of the Proposal are improved or a new proposal
regarding an Acquisition Transaction that is financially superior to such
original proposal (a "Superior Proposal") is received by the Company and the
Purchaser fails to match such improved terms or such Superior Proposal within
five business days of Purchaser's receipt of written notice of all material
terms thereof; or (ii) the Purchaser withdraws its offer.
6. Irrevocable Proxy. The Shareholder agrees that he will, promptly
-----------------
following any Trigger Date, execute and deliver, or cause to be executed and
delivered, an
-4- Exhibit A
<PAGE>
irrevocable proxy, in form and substance reasonably satisfactory to Purchaser,
appointing Purchaser or any designee of Purchaser as such Shareholder's agent,
attorney and proxy, to vote (or cause to be voted) the Shares held of record by
him or with respect to which he has the power to vote, whether now owned or
hereafter acquired, in the manner provided in Section 5, and to execute and
deliver, or cause to be executed and delivered such additional or further
transfers, assignments, endorsements, consents and other instruments as the
Purchaser may reasonably request for the purpose of effectively carrying out the
transactions contemplated by Section 5 and to vest the power to vote the Shares
as contemplated by Section 5.
7. Term. This Agreement shall terminate on the earlier of December
----
31, 2002 or the date on which all of Purchaser's rights under Section 8.4 of the
Purchase Agreement have terminated; provided that if a Trigger Date has occurred
prior to December 31, 2002, the Shareholder's agreement in Section 5 shall
survive with respect to such Trigger Date.
8. Capacity. The parties hereby agree that Shareholder is executing
--------
this Agreement solely in his individual capacity. Nothing contained in this
Agreement shall limit or otherwise affect Shareholder's conduct or exercise of
his fiduciary duties as a director of the Company.
9. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which will be an original and all of which taken together
shall constitute one and the same agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
10. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law but if any provision of this Agreement is held to be
invalid, illegal or unenforceable under any applicable law or rule, the
validity, legality and enforceability of the other provisions of this Agreement
will not be affected or impaired thereby.
11. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective heirs, personal
representatives and, to the extent permitted by paragraph 12, successors and
assigns.
12. Assignment. This Agreement and the rights and obligations of the
----------
parties hereunder shall not be assignable, in whole or in part, by either party
without the prior written consent of the other party.
13. Modification, Amendment, Waiver or Termination. No provision of
----------------------------------------------
this Agreement may be modified, amended, waived or terminated except by an
instrument in writing signed by the parties to this Agreement. No course of
dealing between the parties will modify, amend, waive or terminate any provision
of this Agreement or any rights or obligations of any party under or by reason
of this Agreement.
-5- Exhibit A
<PAGE>
14. Notices. Except for notices to be given in connection with a
-------
Rule 144 Sale in accordance with Section 3(d) herein, all notices, consents,
requests, instructions, approvals or other communications provided for herein
shall be in writing and delivered by personal delivery, overnight courier, mail,
or electronic facsimile addressed to the receiving party at the address set
forth herein. All such communications shall be effective when received.
Notices to the Purchaser: with a copy to:
- ------------------------ --------------
U.S. Bancorp Dorsey & Whitney LLP
601 Second Avenue South 220 South Sixth Street
Minneapolis, Minnesota 55402 Minneapolis, Minnesota 55402
Attention: Lee R. Mitau, Esq. Attention: Elizabeth C. Hinck, Esq.
Telecopy: (612) 973-4333 Telecopy: (612) 340-8738
Notices to Shareholder: with a copy to:
- ---------------------- --------------
[Name] [Counsel]
[Address] [Address]
Attention:_________________________ Attention:_________________________
Telecopy:__________________________ Telecopy:__________________________
Any party may change the address set forth above by notice to each other party
given as provided herein.
Any Rule 144 Sale Notice required to be given to Purchaser must be given by
a live telephone communication (i.e., not by voice-mail) directly to one of the
following persons or to such other persons as may be designated in writing from
time to time by Purchaser:
________________________________________
________________________________________
________________________________________
________________________________________
15. Governing Law. All matters relating to the interpretation,
-------------
construction, validity and enforcement of this Agreement shall be governed by
the internal laws of the state of Delaware, without giving effect to any choice
of law provisions thereof.
16. Third-Party Benefit. Nothing in this Agreement, express or
-------------------
implied, is intended to confer upon any other person any rights, remedies,
obligations or liabilities of any nature whatsoever.
17. Survival of Representations and Warranties. Notwithstanding any
------------------------------------------
investigation made by either of the parties hereto and notwithstanding the
Closing or any actions
-6- Exhibit A
<PAGE>
taken after the execution hereof, the representations and warranties made in
this Agreement shall survive for the term of this Agreement.
18. Remedies. The parties agree that money damages may not be an
--------
adequate remedy for any breach of the provisions of this Agreement and that any
party may, in its discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and injunctive relief in order to enforce
or prevent any violations this Agreement, and any party against whom such
proceeding is brought hereby waives the claim or defense that such party has an
adequate remedy at law and agrees not to raise the defense that the other party
has an adequate remedy at law.
-7- Exhibit A
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
U.S. BANCORP
By: _______________________________________
Its:
SHAREHOLDER
___________________________________________
-8- Exhibit A
<PAGE>
EXHIBIT D
NEW CENTURY FINANCIAL CORPORATION
CERTIFICATE OF DESIGNATIONS
FOR
SERIES 1998A CONVERTIBLE PREFERRED STOCK
(Pursuant to Delaware General Corporation Law, Section 151(g))
______________________________________________________________________________
The undersigned, being respectively the Chairman and Chief Executive
Officer and the Secretary of New Century Financial Corporation (the
"Corporation"), a corporation organized and existing under the Delaware General
-----------
Corporation Law, in accordance with the provisions of the Delaware General
Corporation Law, Section 151(g), do hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors on November 19, 1998, in accordance with the Delaware General
Corporation Law, Section 151, duly adopted the following resolution establishing
a series of 20,000 shares of the Corporation's Preferred Stock, to be designated
as its Series 1998A Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "Board of Directors") by the Certificate of
------------------
Incorporation of the Corporation, the Board of Directors hereby establishes a
series of Series 1998A Convertible Preferred Stock, of the Corporation and
hereby states the number of shares, and fixes the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions thereof, of such series of shares
as follows:
SERIES 1998A CONVERTIBLE PREFERRED STOCK
Section 1. Designation; Number of Shares. The shares of such series shall
-----------------------------
be designated as "Series 1998A Convertible Preferred Stock" (the "Convertible
-----------
Preferred Stock"), and the number of shares constituting the Convertible
- ---------------
Preferred Stock shall be 20,000. Such number of shares may be decreased by
resolution of the Board of Directors adopted and filed pursuant to the Delaware
General Corporation Law, Section 151(g), or any successor provision; provided,
that no such decrease shall reduce the number of authorized shares of
Convertible Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, warrants, convertible or exchangeable securities or other
rights to acquire shares of Convertible Preferred Stock.
Exhibit D
<PAGE>
Section 2. Stated Capital. The amount to be represented in the stated
--------------
capital of the Corporation for each share of Convertible Preferred Stock shall
be $0.01.
Section 3. Rank. The Convertible Preferred Stock shall rank prior to all
----
of the Corporation's Common Stock, par value $.01 per share (the "Common
------
Stock"), now outstanding or hereafter issued, both as to payment of dividends
- -----
and as to distributions of assets upon the liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary.
Section 4. Dividends and Distributions. The holders of shares of
---------------------------
Convertible Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $75.00 per annum per share. Such dividends
shall be fully cumulative, shall accumulate without interest from the date of
original issuance of the Convertible Preferred Stock and shall be payable
quarterly in arrears in cash on each _________, _________, __________ and
__________, commencing________ (provided, that if any such date is a Saturday,
Sunday or legal holiday in the place where such dividend is to be paid, then
such dividend shall be payable without interest on the next day that is not a
Saturday, Sunday or legal holiday) to holders of record as they appear on the
stock books of the Corporation on such record dates as shall be fixed by the
Board of Directors. Such record dates shall be not more than 60 nor less than 10
days preceding the respective dividend payment dates. The amount of dividends
payable per share of Convertible Preferred Stock for each full quarterly
dividend period shall be computed by dividing the annual dividend amount by
four. The amount of dividends payable for the initial dividend period and for
any other period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months. No dividends or other
distributions, other than dividends payable solely in shares of Common Stock or
other capital stock of the Corporation ranking junior as to payment of dividends
to the Convertible Preferred Stock (such Common Stock and other capital stock
being referred to herein collectively as "Junior Dividend Stock"), shall be paid
---------------------
or set apart for payment on, and no purchase, redemption or other acquisition
shall be made by the Corporation of, any shares of Junior Dividend Stock unless
and until all accumulated and unpaid dividends on the Convertible Preferred
Stock, including the full dividend for the then-current quarterly dividend
period, shall have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation ranking
senior as to payment of dividends to the Convertible Preferred Stock (such
capital stock being referred to herein as "Senior Dividend Stock") shall be in
---------------------
default, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Convertible Preferred Stock unless and until all
accumulated and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividend for the then-current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any capital
stock of the Corporation ranking, as to payment of dividends, on a parity with
the Convertible Preferred Stock (such capital stock being referred to herein as
"Parity Dividend Stock") for any period unless full cumulative dividends have
---------------------
been, or contemporaneously are, paid or declared and set apart for payment on
the Convertible Preferred Stock for all dividend
Exhibit D
-2-
<PAGE>
periods terminating on or prior to the date of payment of such full cumulative
dividends. No full dividends shall be paid or declared and set apart for payment
on the Convertible Preferred Stock for any period unless full cumulative
dividends have been, or contemporaneously are, paid or declared and set apart
for payment on any Parity Dividend Stock for all dividend periods terminating on
or prior to the date of payment of such full cumulative dividends. When
dividends are not paid in full upon the Convertible Preferred Stock and any
Parity Dividend Stock, all dividends paid or declared and set apart for payment
upon shares of Convertible Preferred Stock and Parity Dividend Stock shall be
paid or declared and set apart for payment pro rata, so that the amount of
dividends paid or declared and set apart for payment per share on the
Convertible Preferred Stock and the Parity Dividend Stock shall in all cases
bear to each other the same ratio that accumulated and unpaid dividends per
share on the shares of Convertible Preferred Stock and Parity Preferred Stock
bear to each other.
Any reference to "distribution" contained in this Section 4 shall not be
deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. Liquidation Preference. In the event of a liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Convertible Preferred Stock shall be entitled to receive out of
the assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount equal to the dividends accumulated and unpaid
thereon to the date of final distribution to such holders, whether or not
declared, without interest, plus a sum equal to $ 1,000 per share, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Stock or any other capital stock of the Corporation ranking junior as to
liquidation rights to the Convertible Preferred Stock (such Common Stock and
other capital stock being referred to herein collectively as "Junior Liquidation
------------------
Stock"); provided, that such rights shall accrue to the holders of Convertible
- -----
Preferred Stock only in the event that the Corporation's payments with respect
to the liquidation preferences of the holders of capital stock of the
Corporation ranking senior as to liquidation rights to the Convertible Preferred
Stock (such capital stock being referred to herein as "Senior Liquidation
------------------
Stock") are fully met. If upon liquidation, dissolution or winding up of the
- -----
Corporation, the assets of the Corporation available for distribution after the
liquidation preferences of any Senior Liquidation Stock are insufficient to pay
the holders of the Convertible Preferred Stock and any other capital stock of
the Corporation which ranks on a panty as to liquidation rights with the
Convertible Preferred Stock, the entire assets of the Corporation then available
for distribution shall be distributed ratably among the holders of the
Convertible Preferred Stock and any other capital stock of the Corporation which
ranks on a panty as to liquidation rights with the Convertible Preferred Stock
in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of
the liquidation preference of the shares of the Convertible Preferred Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities or
Exhibit D
-3-
<PAGE>
other property will be deemed a liquidation, dissolution or winding up of the
Corporation for purposes of this Section 5.
Section 6. Redemption at Option of the Corporation.
---------------------------------------
(a) Subject to Section 6(b), the Corporation may not redeem the
Convertible Preferred Stock prior to _______________, 2002 [four years from
issuance date]. The Corporation, at its option, may, on or after _______, 2002,
redeem at any time all, or from time to time any portion, of the Convertible
Preferred Stock on any date set by the Board of Directors, at $1,000 per share,
plus an amount per share in cash equal to all dividends on the Convertible
Preferred Stock accumulated and unpaid on such share, whether or not declared,
to the date fixed for redemption (such sum being hereinafter referred to as the
"Redemption Price").
----------------
(b) The Corporation may, at its option, redeem the Convertible Preferred
Stock concurrently with an Acquisition Event (as defined herein) if each of the
following conditions are met: (i) the Corporation has complied with the
covenants contained in Sections 8.4 and 8.5 of the Preferred Stock Purchase
Agreement (as defined in Section 8) in all material respects; (ii) the Purchaser
(as defined in the Preferred Stock Purchase Agreement) has been notified in
writing of all material terms of the Acquisition Proposal (as defined herein)
that relates to such Acquisition Event; and (iii) either (A) such Purchaser,
within 15 days of the first date on which it had been so notified of such
Acquisition Proposal, failed to make an offer that is similar to, and on terms
no less favorable to the Company and its shareholders than, the Acquisition
Proposal; or (B) prior to the date of a definitive agreement with respect to an
Acquisition Transaction with Purchaser or an affiliate of Purchaser, (x) the
terms of the Acquisition Proposal are improved or a new proposal regarding an
Acquisition Transaction that is financially superior to such original proposal
(a "Superior Proposal") is received by the Company and the Purchaser falls to
-----------------
match such improved terms or such Superior Proposal within five business days of
Purchaser's receipt of written notice of all material terms thereof or (y) the
Purchaser withdraws its offer. Any redemption pursuant to this Section 6(b)
shall be at the Redemption Price, and the redemption date for any such
redemption shall not be earlier than, but may be concurrent with, the effective
time of the Acquisition Event. For purposes of this Section 6(b), the following
terms shall have the following meanings: "Acquisition Proposal" shall mean a
--------------------
proposal relating to any of the following actions: (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company; or (B) a sale, lease or transfer of a
material amount of assets of the Company, or a reorganization, recapitalization,
dissolution or liquidation of the Company; "Acquisition Transaction" shall mean
-----------------------
any of the actions described in (A) or (B) of the definition of "Acquisition
Proposal"; and "Acquisition Event" shall mean the consummation of an Acquisition
-----------------
Transaction.
(c) The following provisions will apply to any redemption pursuant to
Section 6(a) or 6(b):
Exhibit D
-4-
<PAGE>
(i) In case of the redemption of less than all of the then
outstanding Convertible Preferred Stock, the Corporation shall designate by lot,
or in such other manner as the Board of Directors may determine, the shares to
be redeemed, or shall effect such redemption pro rata. Notwithstanding the
foregoing, the Corporation shall not redeem less than all of the Convertible
Preferred Stock at any time outstanding until all dividends accumulated and in
arrears upon all Convertible Preferred Stock then outstanding shall have been
paid for all past dividend periods.
(ii) Not more than 60 nor less than 30 days prior to the redemption
date, notice by first class mail, postage prepaid, shall be given to the holders
of record of the Convertible Preferred Stock to be redeemed, addressed to such
shareholders at their last addresses as shown on the stock books of the
Corporation. Each such notice of redemption shall specify the date fixed for
redemption; the redemption price; the place or places of payment; the then-
effective Conversion Rate and Conversion Price (as defined in Section 7); that
the right of holders of Convertible Preferred Stock called for redemption to
exercise their conversion right pursuant to Section 7 shall expire as to such
shares at the close of business on the date fixed for redemption (provided that
there is no default in payment of the Redemption Price); that payment of the
Redemption Price will be made upon presentation and surrender of certificates
representing the shares of Convertible Preferred Stock; that accumulated but
unpaid dividends to the date fixed for redemption will be paid on the date fixed
for redemption; that accumulated but unpaid dividends will not be paid in the
case of a conversion of Convertible Preferred Stock; and that on and after the
redemption date, dividends will cease to accumulate on such shares.
(iii) On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption (other than shares which
have been duly surrendered for conversion at or before the close of business on
the date fixed for redemption) shall surrender the certificate or certificates
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price. If
fewer than all the shares represented by any such surrendered certificate or
certificates are redeemed, a new certificate shall be issued representing the
unredeemed shares. If, on the date fixed for redemption, funds necessary for the
redemption shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends with
respect to the shares so called shall cease to accumulate on and after the date
fixed for redemption, such shares shall no longer be deemed outstanding, the
holders thereof shall cease to be shareholders, and all rights whatsoever with
respect to such shares (except the right of the holders thereof to receive the
Redemption Price without interest upon surrender of their certificates) shall
terminate.
Section 7. Conversion at Option of Holders. Holders of Convertible
-------------------------------
Preferred Stock may, at their option upon surrender of the certificates
therefor, convert any or all of their shares of Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock (and such other securities
and property as they may be entitled to, as hereinafter provided) at any time
after issuance thereof; provided, that such conversion right shall expire at the
close of business on the date, if any, fixed for the redemption of Convertible
Preferred Stock in any notice of
-5-
<PAGE>
redemption given pursuant to Section 6 hereof if there is no default in payment
of the Redemption Price. Each share of Convertible Preferred Stock shall be
convertible at the office of any transfer agent for the Convertible Preferred
Stock, and at such other office or offices, if any, as the Board of Directors
may designate, into that number of fully paid and nonassessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100th of a share) as
shall be equal to the Conversion Rate, determined as hereinafter provided, in
effect at the time of conversion. Shares of Convertible Preferred Stock may
initially be converted into full shares of Common Stock at the rate of 136.24
shares of Common Stock for each share of Convertible Preferred Stock, subject to
adjustment from time to time as provided in Section 8 (such conversion rate, as
so adjusted from time to time, being referred to herein as the "Conversion
----------
Rate"). The "Conversion Price" shall be equal to $1,000 divided by the
- ---- ----------------
Conversion Rate. Upon conversion, no adjustment or payment shall be made in
respect of accumulated and unpaid dividends on the Convertible Preferred Stock
surrendered for conversion.
The right of holders of Convertible Preferred Stock to convert their shares
shall be exercised by surrendering for such purpose to the Corporation or its
agent, as provided above, certificates representing shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Common Stock or other
securities or property upon conversion of Convertible Preferred Stock in a name
other than that of the holder of the shares of Convertible Preferred Stock being
converted, nor shall the Corporation shall be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
A number of shares of the authorized but unissued Common Stock sufficient
to provide for the conversion of the Convertible Preferred Stock outstanding
upon the basis hereinbefore provided shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion, subject to the
provisions of the next paragraph. If the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Convertible Preferred Stock
shall be convertible as herein provided, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Convertible Preferred Stock on the new basis.
The Corporation shall comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of the Convertible Preferred
Stock and shall use its best efforts to list such shares on each national
securities exchange on which the Common Stock is listed or to have such shares
admitted for quotation on the Nasdaq National Market if the Common Stock is
admitted for quotation thereon.
Upon the surrender of certificates representing shares of Convertible
Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided
Exhibit D
-6-
<PAGE>
above, the person converting such shares shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, and all rights with
respect to the shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets as herein
provided.
No fractional shares of Common Stock shall be issued upon conversion of
Convertible Preferred Stock but, in lieu of any fraction of a share of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation shall pay in cash an amount equal to the product of (a) the Closing
Price of a share of Common Stock (as defined in the next sentence) on the last
trading day before the conversion date and (b) such fraction of a share. The
"Closing Price" for such day shall be the last reported sale price regular way
or, in case no sale takes place on such day, the average of the closing bid and
asked prices regular way on such day, in either case as reported on the New York
Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted
to trading on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market System, or, if the Common Stock is not admitted for
quotation on the Nasdaq National Market System, the average of the high bid and
low asked prices on such day as recorded by the National Association of
Securities Dealers, Inc. through Nasdaq, or, if the National Association of
Securities Dealers, Inc. through Nasdaq shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose, or, if no such
bid and asked prices can be obtained from any such firm, the fair market value
of one share of the Common Stock on such day as determined in good faith by the
Board of Directors of the Corporation.
Section 8. Adjustments to Conversion Rate. Notwithstanding anything in
------------------------------
this Section 8 to the contrary, no change in the Conversion Rate shall be made
until the cumulative effect of the adjustments called for by this Section 8
since the date of the last change in the Conversion Rate would change the
Conversion Rate by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall be changed to reflect
all adjustments called for by this Section 8 and not previously made. Subject to
the foregoing, the Conversion Rate shall be adjusted from time to time as
follows:
(a) In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly owned subsidiary of the Corporation), or
in case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall, prior to or at the time of such transaction,
make appropriate provision or cause appropriate provision to be made so that
holders of each share of Convertible Preferred Stock then outstanding shall have
the right thereafter to convert such share of Convertible Preferred Stock into
the kind and
Exhibit D
-7-
<PAGE>
amount of shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock into which such share of Convertible Preferred
Stock could have been converted immediately prior to the effective date of such
consolidation, merger, sale, transfer or share exchange. If in connection with
any such consolidation, merger, sale, transfer or share exchange, each holder of
shares of Common Stock is entitled to elect to receive either securities, cash
or other assets upon completion of such transaction, the Corporation shall
provide or cause to be provided to each holder of Convertible Preferred Stock
the right to elect the securities, cash or other assets into which the
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made and the effect of failing to exercise the election).
(b) In case the Corporation shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock, (ii) subdivide
its outstanding Common Stock into a greater number of shares, (iii) combine the
shares of its outstanding Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its Common Stock any shares of its capital stock,
then in each such case the Conversion Rate in effect immediately prior thereto
shall be proportionately adjusted so that the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive, to the extent permitted by applicable law, the number and kind of
shares of capital stock of the Corporation which such holder would have owned or
have been entitled to receive after the happening of such event had such
Convertible Preferred Stock been converted immediately prior to the record date
for such event (or if no record date is established in connection with such
event, the effective date for such action). An adjustment pursuant to this
subparagraph (b) shall become effective immediately after the record date in the
case of a stock dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(c) (i) In case the Corporation shall issue Additional Shares of Common
Stock (as defined herein) (including, without limitation, Additional Shares of
Common Stock deemed to be issued pursuant to Section 8(c)(iii)) without
consideration or for a consideration per share less than the Current Market
Price (as defined herein) calculated as provided herein as of the date of and
immediately prior to such issue, then in each such case the Conversion Rate in
effect on such issue date shall be adjusted in accordance with the formula
Exhibit D
-8-
<PAGE>
O + N
C\\1\\ = C x
O + N x P
-----
M
where
C\\1\\ = the adjusted Conversion Rate.
C = the current Conversion Rate.
O = the number of shares of Common Stock outstanding
immediately prior to such issue.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock
immediately prior to such issue.
For the purpose of such calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be calculated on a fully
diluted basis, as if all shares of Convertible Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible securities had
been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, if so convertible) as of
such date.
(ii) For purposes of this Section 8(c), the following definitions
shall apply: (A) "Options" shall mean rights, options or warrants to subscribe
-------
for, purchase or otherwise acquire either Common Stock or Convertible
Securities; (B) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock; (C) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Section 8(c)(iii), deemed to be issued) by
the Corporation after the [issue date of the Convertible Preferred Stock], other
than shares of Common Stock issued or issuable: (1) upon conversion of shares of
the Convertible Preferred Stock; (2) pursuant to a stock grant, option plan or
purchase plan, other employee stock incentive program or agreement approved by
the Board of Directors which was disclosed in Schedule 5.3 of the Preferred
Stock Purchase Agreement (the "Option Pool"); or (3) pursuant to the terms of
-----------
any stock grant, option, warrant, employment agreement or other written
obligation, agreement or commitment to which the Corporation was a party as of
the [issue date of Convertible Preferred Stock] and which was disclosed in
Schedule 5.3 of the Preferred Stock Purchase Agreement; (D) "Current Market-
---------------
Price" shall mean the average of the daily Closing Prices of the Common Stock
- -----
(as defined in Section 7) on the 30 consecutive business days commencing 45
business days before such issue date, as applicable; and (E) "Preferred Stock
---------------
Purchase Agreement" shall mean the Preferred Stock Purchase Agreement dated
- ------------------
October 18, 1998 between the Corporation and U.S. Bancorp.
Exhibit D
-9-
<PAGE>
(iii) In the event the Corporation at any time or from time to
time after [issue date of Convertible Preferred Stock] shall issue any Options
(other than the issuance of Options pursuant to the Option Pool) or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share of such Additional
Shares of Common Stock would be less than the Current Market Price calculated as
provided herein as of the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be issued no further
adjustment in the Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities.
(iv) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price and Conversion Rate computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received
by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the corporation upon
such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange;
and
(B) in the case of Options for Convertible Securities only
the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or
not exercised, plus the consideration deemed to have been received by the
Exhibit D
-10-
<PAGE>
Corporation upon the issue of the Convertible Securities or Convertible
Preferred Stock with respect to which such Options were actually exercised.
(e) All calculations hereunder shall be made to the nearest cent or to the
nearest 1/100 of a share, as the case may be.
(f) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph (a) or (b) above, the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive securities, cash or assets other than Common Stock, the number or amount
of such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (a) through (e) above.
Except as otherwise provided above in this Section 8, no adjustment in the
Conversion Rate shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall send to each transfer agent for the Convertible Preferred
Stock and the Common Stock, and to the principal securities exchange, if any, on
which the Convertible Preferred Stock and the Common Stock is traded, or the
Nasdaq National Market if the Convertible Preferred Stock or Common Stock is
admitted for quotation thereon, a statement signed by the Chairman of the Board,
the President or any Vice President of the Corporation and by its Treasurer or
its Secretary stating the adjusted Conversion Rate determined as provided in
this Section 8; and any adjustment so evidenced, given in good faith, shall be
binding upon all shareholders and upon the Corporation. Whenever the Conversion
Rate is adjusted, the Corporation shall give notice by mail at the time of, and
together with, the next dividend payment to the holders of record of Convertible
Preferred Stock, setting forth the adjustment and the new Conversion Rate and
Conversion Price. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the actions specified
in subparagraphs (a), (b) or (c) of the first paragraph of this Section 8 which
would result in any adjustment in the Conversion Rate, the Corporation shall
cause a notice to be mailed at least 20 days prior to the date on which the
books of the Corporation will close or on which a record will be taken for such
action to the holders of record of the outstanding Convertible Preferred Stock
on the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be.
Failure by the Corporation to give such notice or any defect in such notice
shall not affect the validity of the transaction.
Exhibit D
-11-
<PAGE>
Anything herein to the contrary notwithstanding, no adjustment will be made
to the Conversion Price or Conversion Rate by reason of (i) the issuance of
Common Stock, Options or Convertible Securities to employees, directors,
officers or consultants of the Corporation or any subsidiary of the Corporation
pursuant to the Option Pool or the issuance of Common Stock upon the conversion,
exercise or exchange thereof, (ii) the issuance of Common Stock upon the
conversion, exercise or exchange of Options or Convertible Securities issued and
outstanding on the [issue date of the Convertible Preferred Stock], (iii) the
issuance of Common Stock upon the conversion of the Convertible Preferred Stock,
(iv) rights to purchase Common Stock pursuant to a Corporation plan for
reinvestment of dividends or interest, (v) the issuance of Common Stock upon the
exercise, conversion or exchange of Options or Convertible Securities of the
Corporation where the Conversion Price had previously been adjusted pursuant to
this Section 8 upon the initial issuance of such Options or Convertible
Securities. In addition, no adjustment in the Conversion Price need be made for
a change in the par value of the Common Stock.
Section 9. Convertible Preferred Stock Not Redeemable at Option of
-------------------------------------------------------
Holders or Exchangeable; No Sinking Fund. The Convertible Preferred Stock shall
- ----------------------------------------
not be redeemable upon the request of holders thereof or exchangeable for other
capital stock or indebtedness of the Corporation or other property. The shares
of Convertible Preferred Stock shall not be subject to the operation of a
purchase, retirement or sinking fund.
Section 10. Voting Rights. Except as herein provided or as otherwise
-------------
required by law, holders of Convertible Preferred Stock shall be entitled to the
same voting rights as, and shall vote together as one class with, holders of
Common Stock, with each holder of shares of Convertible Preferred Stock having
such voting rights as are attributable to the number of whole shares of Common
Stock into which such shares of Convertible Preferred Stock are convertible in
accordance with Sections 7 and 8 hereof as of the date of such vote.
In addition to any matters requiring a separate vote of the Convertible
Preferred Stock as a single class under applicable law, the approval of the
holders of a majority of the issued and outstanding shares of Convertible
Preferred Stock, voting as a class, shall be required as set forth in Section 11
hereof with respect to the priority and rights of the Convertible Preferred
Stock hereunder and under the Corporation's Certificate of Incorporation, as
amended.
At each meeting of shareholders at which the holders of shares of
Convertible Preferred Stock shall have the right, voting separately as a single
class, to take any action, the presence in person or by proxy of the holders of
record of at least 50% of the shares of Convertible Preferred Stock outstanding
and entitled to vote on the matter shall be necessary and sufficient to
constitute a quorum. At each such meeting, each holder of shares of Convertible
Preferred Stock shall be entitled to vote for each share of Convertible
Preferred Stock then held. In the absence of a quorum of the holders of shares
of Convertible Preferred Stock, a majority of the holders of such shares present
in person or by proxy shall have the power to adjourn the meeting as to the
actions to be taken by the holders of shares of Convertible Preferred Stock from
time to time and place to place without notice other than announcement at the
meeting until a quorum shall be present.
Exhibit D
-12-
<PAGE>
Section 11. Certain Actions Not to be Taken Without Vote of Holders of
----------------------------------------------------------
Convertible Preferred Stock. Without the consent or affirmative vote of the
- ---------------------------
holders of at least a majority of the outstanding shares of Convertible
Preferred Stock, voting separately as a class, the Corporation shall not
authorize, create or issue any shares of any other class or series of capital
stock ranking senior to the Convertible Preferred Stock as to dividends or upon
liquidation. The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of the Convertible Preferred Stock, voting
separately as a class, shall be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation (including any certificate of designations
establishing any class or series of Preferred Stock of the Corporation) if the
amendment, alteration or repeal adversely affects the rights or preferences of
the Convertible Preferred Stock; provided, however, that any increase in the
authorized Preferred Stock of the Corporation or the creation and issuance of
any other capital stock of the Corporation ranking on a parity with or junior to
the Convertible Preferred Stock shall not be deemed to materially affect such
powers, preferences or special rights.
Section 12. Outstanding Shares. For purposes of this Certificate of
------------------
Designations, all shares of Convertible Preferred Stock shall be deemed
outstanding except for (a) shares of Convertible Preferred Stock held of record
or beneficially by the Corporation or any subsidiary of the Corporation; (b)
from the date of surrender of certificates representing Convertible Preferred
Stock for conversion pursuant to Section 7, all shares of Convertible Preferred
Stock which have been converted into Common Stock or other securities or
property pursuant to Section 7; and (c) from the date fixed for redemption
pursuant to Section 6, all shares of Convertible Preferred Stock which have been
called for redemption, provided that funds necessary for such redemption are
available therefor and have been irrevocably deposited or set aside for such
purpose.
Section 13. Status of Convertible Preferred Stock Upon Retirement. Shares
-----------------------------------------------------
of Convertible Preferred Stock which are acquired or redeemed by the Corporation
or converted pursuant to Section 7 shall be retired pursuant to the Delaware
General Corporation Law, Section 243, or any successor provision, and thereupon
shall return to the status of authorized and unissued shares of Preferred Stock
of the Corporation without designation as to series. Upon the acquisition or
redemption by the Corporation or conversion pursuant to Section 7 of all
outstanding shares of Convertible Preferred Stock, all provisions of this
Certificate of Designations shall cease to be of further effect. Upon the
occurrence of such event, the Board of Directors of the Corporation shall have
the power, pursuant to the Delaware General Corporation Law, Section 151(g), or
any successor provision and without shareholder action, to cause this
Certificate of Designations to be eliminated from the Corporation's Certificate
of Incorporation.
Exhibit D
-13-
<PAGE>
IN WITNESS WHEREOF, New Century Financial Corporation has caused this
certificate to be signed by [name of officer], its [title], and attested by
[name of officer], its [Assistant] Secretary, this ______ day of November, 1998.
NEW CENTURY FINANCIAL CORPORATION
By: ________________________________
Its: ________________________________
Attest:
By: _______________________
Exhibit D
-14-
<PAGE>
EXHIBIT E
SCHEDULE 5.2
NON-CONTRAVENTION
The Third Amended and Restated Credit Agreement by and between New Century
Mortgage Corporation and U.S. Bank, as amended, dated May 29, 1998 (the "Credit
Agreement"), will be breached by the performance of the Agreement and the
consummation of the transactions contemplated thereby. It is a condition to the
Company's obligation to issue and the sell the Shares to the Purchaser that (i)
the consents, notices, authorizations and approvals required under the Credit
Agreement are obtained and (ii) any required amendment to the Credit Agreement
arising out of the transactions contemplated by the Agreement is consummated and
remains in full force and effect.
<PAGE>
SCHEDULE 5.3
CAPITALIZATION
<TABLE>
<CAPTION>
<S> <C> <C>
Authorized Common Stock 45,000,000
Preferred Stock 7,500,000
Issued and
Outstanding (11/10/98) Common Stock 14,468,916
Preferred Stock None
</TABLE>
The outstanding stock of New Century REO Corp. has been pledged to Liquidation
Proceeds, Inc., an affiliate of Salomon Smith Barney as security for a $3
million Secured Promissory Note executed by New Century Mortgage Corporation in
favor of Liquidation Proceeds, Inc.
Stock-Related Rights
- --------------------
1. 1995 Stock Option Plan, as amended.
The number of shares of Common Stock authorized to be granted pursuant to
awards under the Plan is 2,500,000 shares.
As of October 31, 1998, there were approximately 2,041,820 stock options
outstanding under the Plan.
2. Employee Stock Purchase Plan
The ESPP entitles participants to purchase Company stock at a 10% discount
to the Fair Market Value at certain predetermined times. The maximum
aggregate number of shares of Common Stock available under the Plan is
2,000,000 shares.
3. Founding Managers' Incentive Compensation Plan
The Plan permits the Founding Managers to receive some or all of their
incentive compensation in the form of Restricted Stock. The total number of
shares of Common Stock that may be delivered pursuant to Restricted Stock
Award Agreements under the Plan is 250,000.
4. Founding Manager Restricted Stock Awards
<PAGE>
In May 1997, the Founding Managers were each awarded a 92,500 share
Restricted Stock Award outside of the Company's Stock Option Plan. The
shares subject to the award vest in three equal installments on the first
three anniversaries of the grant date.
5. Comerica Warrants
Pursuant to the Stock Purchase Agreement dated as of May 30, 1997 between
New Century Financial Corporation and Comerica Incorporated, Comerica has
been issued the following warrants:
. A Warrant for 100,000 shares of Common Stock granted on May 30, 1997 at
an exercise price of $7.50 per share. The Warrant vests in 3 equal
installments on December 31, 1997, 1998 and 1999. It expires on May 30,
2002.
. A Warrant for 50,000 shares of Common Stock granted on September 15,
1997 at an exercise price of $11.00 per share. The Warrant vests in 3
equal installments on December 31, 1997, 1998 and 1999. It expires on
May 30, 2002.
In addition, Comerica has rights under the Stock Purchase Agreement to
receive additional warrants upon achieving the milestones specified below.
In each case the warrants will (i) have an $11.00 per share exercise price,
(ii) vest in 3 equal installments on December 31, 1997, 1998 and 1999, and
(iii) expire on May 30, 2002.
1. 25,000 shares upon the funding by New Century Mortgage Corporation of
an aggregate of $10.0 million of loans resulting from its First
Service Provider Agreement with Comerica.
2. 25,000 shares upon the execution by Comerica and funding by New
Century Mortgage Corporation of an aggregate of $10.0 million of loans
resulting from the Second Service Provider Agreement.
6. PWF Corporation Rights
The Primewest Funding Merger Agreement provides that a portion of the
earnout payments due to Kirk Redding and Paul Akers will be paid in the form
of New Century Financial Corporation Common Stock. In addition, certain
Stock Appreciation Right Agreements for PWF Corporation key employees
provide for payment partly in the form of New Century Financial Corporation
Common Stock.
The size of the aggregate earnout payments is a function of the adjusted
earnings of PWF in the 1998, 1999 and 2000 fiscal years, as well as the
price-earnings multiple at which New Century Financial Corporation Common
Stock is trading at the time of the calculation.
<PAGE>
Based on our assumptions made at the time of the transaction regarding PWF's
earnings and assuming a price-earnings ratio of 10 for New Century's Common
Stock, we projected that the total dollar value of the Common Stock issued
in connection with the PWF earnout would be approximately $6 million. At
present, because of the depressed price earnings ratio of New Century Common
Stock, this number would be much lower.
7. Special Option Awards to Non-Employee Directors
In July 1997 resigning director Harlan Smith was granted 7,500 options
outside the Company's Stock Option Plan. The exercise price was $11.00 per
share with immediate vesting.
In September 1998, the Compensation Committee of the Board of Directors made
a special Nonqualified Stock Option award to Board Member Fredric Forster of
10,000 options issued outside the 1995 Stock Option Plan. The exercise price
was $10.00 per share with vesting in three equal installments on the first
three anniversaries of the award date.
8. Special Option Awards to Founding Managers Holder and Gotschall
In December 1996, Steve Holder received 80,000 stock options and Ed
Gotschall received 40,000 stock options issued outside of the Company's 1995
Stock Option Plan. The options were at an exercise price of $3.50 and vest
in three equal annual installments on the first three anniversaries of the
grant date.
<PAGE>
SCHEDULE 5.5
SUBSIDIARIES AND OTHER EQUITY INTERESTS
Subsidiaries
- ------------
1. New Century Mortgage Corporation, a California corporation wholly-owned by
New Century Financial Corporation.
2. PWF Corporation, a California corporation wholly-owned by New Century
Financial Corporation.
3. NC Residual Corporation, a Delaware corporation wholly-owned by New Century
Mortgage Corporation.
4. New Century REO Corp., a California corporation wholly-owned by New Century
Mortgage Corporation.
5. NC Capital Corporation, a California corporation wholly-owned by New Century
Mortgage Corporation.
Other Equity Interests
- ----------------------
1. Qualified Financial Services, Inc., a California corporation. New Century
Financial Corporation owns 6.4% of the outstanding Common Stock of
Qualified. In addition, NCFC holds Warrants which when exercised and
combined with NCFC's existing shares would result in NCFC owning 30% of
Qualified.
<PAGE>
SCHEDULE 5.6
LIABILITIES
The following additional liabilities were reflected on the Company's balance
sheet at September 30, 1998:
1. Loan loss reserves - an additional $1.4 million in reserves, bringing
total reserves on the balance sheet to $6.8 million. In addition, the
Company sold loans at a loss during the quarter totaling an additional $3
million, which will be classified as "Provision for Losses".
2. Residual reserves - an additional $6.5 million in reserves, bringing total
reserves to $10.5 million. The Company is considering allocating some of
these reserves to certain residual interests and believes the impairment
is in the range of $2.5 million to $4 million.
3. First Boston - an exit fee of $625,000 will be accrued.
4. Bonuses - $1 million for bonuses will be accrued, in addition to the $100
per loan funded that was accrued throughout the quarter.
The Company also recognized servicing assets for the first time and recorded
servicing rights having a value of $2.7 million, representing 30 basis points on
ARM sales and 35 basis points on fixed sales for the quarter. Its net income
for the quarter ended September 30, 1998 was $8.6 million, or $.57 per share on
a diluted basis.
<PAGE>
SCHEDULE 5.7
ADVERSE INDUSTRY TRENDS AND DEVELOPMENTS
1. Lower Prices in Secondary Mortgage Market - The prices available for sub-
prime mortgages in the whole loan market have decreased materially.
2. Market for Mortgage-Backed Securities - investors in mortgage-backed
securities are requiring higher interest rates and other potential
purchasers have decreased or eliminated purchases.
3. Sources of Investment Bank Funding - many investment banks who have
traditionally been the source of funding for sub-prime mortgage lenders have
tightened credit policies, particularly with respect to residual securities.
4. Tightening of Other Sources of Credit - other sources of funding for sub-
prime mortgage lenders, such as warehouse lenders, have been decreasing the
availability of credit.
<PAGE>
SCHEDULE 5.9
LITIGATION
Employment-Related Claims/Actions
- ---------------------------------
1. Marvin Sills
. Type of Claim - EEOC complaint by rejected applicant alleging violation
of Age Discrimination in Employment Act
. Location - Atlanta Georgia
. Date Filed - July 1998
. Status - New Century's Employment Practices Liability Insurance carrier
has retained counsel in Atlanta who has prepared and filed New Century's
response to the EEOC.
2. Cynthia Dorazio
. Type of Claim - Gender discrimination complaint by female employee filed
with the Pennsylvania Human Relations Commission
. Location - Pittsburgh, Pennsylvania
. Date Filed - September 1997
. Status - New Century's EPLI carrier has retained counsel in Pittsburgh
who has prepared and filed New Century's response to the Human Relations
Commission.
3. James Jackson
. Type of Claim EEOC - complaint for race discrimination filed by employee
. Location Milwaukee, Wisconsin
. Date Filed - February 1998
. Status - New Century's EPLI carrier has retained counsel in Chicago who
has prepared and filed New Century's response to the EEOC.
4. Deborah Holcomb
. Type of Claim - EEOC complaint for race discrimination filed by rejected
applicant.
. Location - Irvine, California
. Date Filed - July 1998
. Status - New Century's EPLI carrier has retained counsel in Southern
California who has prepared and filed New Century's response to the
EEOC.
5. Willie Blair
. Type of Claim - threatened claim of race discrimination by African-
American employee
. Location - Ft. Worth, Texas
. Date Claim Asserted - shortly after his departure in March 1998, Mr.
Blair sent a letter to New Century threatening a lawsuit
. Status - New Century's in-house counsel offered Mr. Blair $10,000 in
order to resolve the matter. Mr. Blair's counsel rejected the offer and
indicated that a much larger offer was warranted. New Century responded
that it would not consider making a higher offer to Mr. Blair. New
Century has heard nothing further from Mr. Blair or its attorney since
the spring of 1998.
<PAGE>
6. Shawna Ballinger
. Type of Claim - claim of gender discrimination by terminated female
employee filed with the Wisconsin Department of Workforce Development,
Equal Rights Division
. Location - Wauwatosa, Wisconsin
. Date Claim Asserted - October 2, 1998, discrimination complaint
filed with State of Wisconsin.
. Status - New Century's EPLI carrier has retained counsel in Wisconsin
who has prepared and filed New Century's response to the Department.
7. Mary Ann Braden
. Type of Claim - employee who was being demoted for performance problems
resigned and sent a letter claiming that she had been constructively
discharged on a discriminatory basis.
. Location - Sewickly, Pennsylvania
. Date Claim Asserted - October 7, 1998, letter faxed to New Century.
. Status - New Century is placing its Employment Practices Liability
Insurer on notice of the potential claim. New Century has received no
further correspondence from Ms. Braden.
8. Theresa Lopez Salazar
. Type of Claim - former employee filed complaint with the DFEH and EEOC
under Title VII of the Civil Rights Act of 1964 alleging discrimination
based on her national origin, Peruvian.
. Location - Irvine, California
. Date Claim Asserted - November 3, 1998
. Status - New Century is investigating the matter and beginning to
prepare a response. New Century is also tendering the matter to its EPLI
carrier.
9. J.B. Greer
. Type of Claim - current employee wrote letter threatening litigation
because of racial discrimination in the Company's Dallas retail office.
. Location - Dallas, Texas
. Date Claim Asserted - November 17, 1998
. Status - Letter received via fax on 11/17/98. New Century is
investigating the matter.
10. George Allen Alberson
. Type of Claim - Vice President terminated for sexual harassment has
retained counsel and has indicated an intent to sue New Century Mortgage
Corporation. The basis of the threatened suit is unclear, but most
likely relates to alleged wrongful termination and/or defamation.
. Location - Irvine, California
. Date Claim Asserted - November 16, 1998
. Status - New Century has put its EPLI carrier on notice of a potential
claim, and is waiting to see whether a Complaint is actually filed.
Judicial Foreclosures and Other Servicing Related Claims and Actions
- --------------------------------------------------------------------
In the ordinary course of its loan servicing business, New Century Mortgage
Corporation becomes involved in a variety of disputes and claims. For example,
the very process of foreclosing on the property securing a borrower's mortgage
is a legal action. The servicing and collections process also tends to give
rise to claims from borrowers who are attempting to avert foreclosure.
<PAGE>
Attached is a list of the active matters and claims from our servicing
department as of a recent date. In the case of the judicial foreclosure
actions, in most instances New Century has tendered the matter to the title
insurer.
Other Litigation and Threatened Claims
--------------------------------------
1. Gallardo v. New Century Mortgage Corporation, et al.
. Loan amount $185,625.
. Claiming wrongful foreclosure, fraud and misrepresentation.
. Demurrer sustained against all counts.
. Amended complaint not expected to be filed.
2. John and Phyllis Savage et al. v. State of California (CalTrans)
. Loan amount $116,450.
. Inverse Condemnation Claim referred to Amresco 8/17/98.
3. Claim of Roush, William and Downs, Janice
. Loan amount $79,000.
. Allegation of forgery of Janice Downs' signature (since deceased).
. Will tender to title.
4. Uhlig, Karl (IRMO Karl Uhlig and Larue Uhlig, inquiry by Court Appointed
Receiver)
. Loan Amount $126,000.
. Allegation of forgery transferring title of secured property out of
trust account.
. Tender to title acknowledged 9/23/98.
5. Claim of Glynn, James M. and Leora J.
. Loan amount $57,000.
. Lien on property by Fishhawk Lake Recreation Club, Inc.
. Association fees in the amount of $3,736 not paid in closing.
. Will tender to title.
6. Claim of Russo, James
. Loan amount $57,000.
. No payments made since March.
. Alleged fraud in transaction.
. Will tender to title.
7. Claim of Holmes, John and Angelina
. Loan amount $35,000.
. Deed of Trust never recorded by title company.
. Will tender to title.
8. Pan American Bank v. New Century Mortgage Corporation, Leona Stevenson, et
al.
. Loan amount $51,000.
. Defense tendered to title 9/8/98.
. Notice of Dismissal expected by 11/25/98.
9. Kenneth Horn v. Edge Mortgage Services
. Loan amount $36,000.
. Question of validity of Borrower's title to Secured Property.
. Settlement expected by 11/31/98.
<PAGE>
10. Payne, David and Lorraine (Stock Lumber Inc. v. Dave's Home Repair
Remodeling Service Inc. et al. Mechanic's Lien Foreclosure)
. Loan amount $112,000.
. Mechanic's Lien.
. Tendered to title.
11. Triangle Funding Inc. v. New Century Mortgage Corporation and Mark Kettner
. Loan amount $460,000.
. Broker alleges interference with fair competition.
. Answer to be filed by 10/19/98.
12. Shawnee Heating and Cooling Inc. v. Hefley, Kerry J. et al.
. Loan amount $272,000.
. Mechanic's lien filed.
. Tendered to title company.
. Settled week of 10/5/98.
13. Buane v. Montenegro, et al.
. Loan amount of $150,000.
. Borrower's husband claims an interest in secured property.
. Tendered to title 4/97.
. Trial scheduled for 10/98.
14. Eyraud (Northern Counties Title Insurance Co. v. Security First Funding)
. Loan amount $250,000.
. Alleged fraud in loan transaction. Settled by title company.
. Third party cross-complaint filed to indemnify escrow company.
. Deposition scheduled for 10/12/98 and 10/19/98 for New Century Mortgage
Corporation's "Most Knowledgeable Persons".
15. Wade v. New Century Mortgage Corporation
. Single Plaintiff lawsuit concerning Yield Spread Premium of $3,150.
16. Claim of Blass, Richard and Mary
. Loan amount $110,250
. Currently in bankruptcy status
. Title issue - Wasatch Loans not taken further action to pursue
enforcement of its senior lien
. Title company monitoring status
17. North Pacific Supply Co., Inc. v Kenneth D. Armstrong, Elvira L. Armstrong,
New Century Mortgage Corporation, Collections Incorporated et al .
. Loan amount $170,040.
. Complaint for Foreclosure of Construction Lien and Breach of Contract.
. Amount in controversy is less than $10,000.
. Will be tendered to title.
18. Delores Connors v. New Century Mortgage Corp., AMRESCO Mortgage Corp.
. Loan amounts $105,000 and $89,000.
. Loan for $89,000 was not paid off by loan for $105,000.
. Satisfaction of mortgage settlement expected by 10/25/98.
<PAGE>
19. George M. Dixon III v. Gregory M. Davidge, et al
. Loan amount $499,000.
. Foreign judgment enforcement taking priority on our lien.
. Tendered to title.
. Title company admitted fault in not finding lien.
20. Claim of Villegas, Emillio
. Loan amount $35,000.
. Rescission issue, Father alleges fraudulent quitclaim
. Loan proceeds not returned to New Century to date.
21. Claim of Williams, Alfred and Dorothy
. Loan amount $68,880.02.
. Elderly borrower with rescission and prepayment issues.
. Rescission in process.
22. Joyce Black Dunn v. New Century Mortgage, ReMax Realty et al.
. Lis Pendens received on property scheduled for foreclosure sale.
. Motion to Expunge Lis Pendens to be heard on 11/25/98.
23. Claim of Strnad, Michael and Susan
. Loan amount of $95,150.
. Property burned down.
. Borrowers disputing manner of payment of insurance proceeds. New
Century is exercising the right under the note to keep the insurance
proceeds.
INACTIVE LITIGATION
24. New Century Mortgage Corporation v. Town and Country
. Appraisal fraud
. Property sold at loss after default
25. Claim of Cofield, Charles and Marilee
. Lis Pendens filed claiming individual recorded Deed of Trust which was
not listed as an exception on New Century Mortgage Corporation's
preliminary report.
. Seller assigned interest of sale to two parties. One party wants to
foreclose, second party reconveyed resulting in 48% of proceeds
. Loan sold to Amresco 8/96
26. Claim of Wallace, Kenneth
. Loan amount $290,500
. Threatened first lien position
. Sold to Ocwen 9/26/97
Regulatory Matters
- ------------------
In September 1998, the Kansas Consumer Credit Office audited New Century
Mortgage Corporation's consumer credit transactions and sent the Company a
letter inquiring about a handful of matters. New Century Mortgage Corporation
responded in October 1998, and has not received any further correspondence
regarding the inquiry.
<PAGE>
In November 1998, New Century Mortgage Corporation received a letter from the
Texas Office of Consumer Credit Commissioner requesting information regarding
its Texas loan originations and litigation. New Century has supplied the
information, and has heard nothing further.
In November 1998, New Century Mortgage Corporation received a letter from the
Consumer Finance Division of the South Carolina Board of Financial Institutions
requesting information on New Century's loan originations in 1998 in South
Carolina. New Century is now preparing its response.
<PAGE>
LEGAL FILES
<TABLE>
<CAPTION> NCM FC OR CLOSED/
NAME PROPERTY ADDRESS ST LOAN # PROC INV# SERVICER BALANCE BK OPEN DEPARTMENT
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AGNONI, PHYLLIS 3261 CHATHAM ST., PA 60039 1 NCM $ 50,980 N/A OPEN COLLECTION
PHILADEPHIA
- ----------------------------------------------------------------------------------------------------------------------------
BAGLIVO, THOMAS 929 CASTLEROCK WAY, GA 65156 208 NCM $104,465 FC OPEN FORECLOSURE
MCDONOUGH
- ----------------------------------------------------------------------------------------------------------------------------
BELL, FREDERICK RT 2 BOX 96, TX 64912 1 NCM $592,169 FC OPEN FORECLOSURE
HOCKLEY
- ----------------------------------------------------------------------------------------------------------------------------
BERNHARD, JANE 2329 WESTLAKE DR. #5, TX 19467 347 ADVANTA $578,624 N/A CLOSED ADVANTA
AUSTIN
- ----------------------------------------------------------------------------------------------------------------------------
BLASS, RICHARD 898 E. PARTAN, UT 59678 CS 102 NCM $110,102 BK OPEN BANKRUPTCY
AND MARY SANDY
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON, JEREMY 1615 E DESMET AVE, WA 117312 FA 105 NCM $ 89,600 BK OPEN FORECLOSURE
SPOKANE
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON, JEREMY 1621 E DESMET AVENUE WA 111564 FA 104 NCM $ 0 N/A OPEN N/A
SPOKANE
- ----------------------------------------------------------------------------------------------------------------------------
BOX, MILDRED 627 35TH ST., CA 46645 WP 1 NCM $ 61,100 FC OPEN FORECLOSURE
RICHMOND
- ----------------------------------------------------------------------------------------------------------------------------
BURGESS, GERTRUDE I. 1601 NE 106TH ST., OR 115994 102 NCM $112,464 N/A OPEN CUSTOMER SERVICE
PORTLAND
- ----------------------------------------------------------------------------------------------------------------------------
CAMPBELL, LEWIS 718 MT HOLLY ST., MD 52351 FA 208 NCM $ 41,538 FC OPEN FORECLOSURE
BALTIMORE
- ----------------------------------------------------------------------------------------------------------------------------
DAVE, BIPIN AND JOY 405 CREST AVE., IL 78394 103 NCM S/R TO N/A CLOSED
BENSENVILLE AMRESCO
- ----------------------------------------------------------------------------------------------------------------------------
DEVRIES, JAMES 1125 HANNAH AVENUE, IL 83315 1 NCM $ 18,112 N/A OPEN COLLECTION
& NANCY FOREST PARK
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NAME LEGAL ISSUE STATUS LAST
REVIEWED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AGNONI, PHYLLIS BROKER TRYING TO SELL BACK TO COASTAL DUE TO PROP COND AT 11/03/98
BUYBACK TIME OF PURCHASE. Per Julie ltr request attorney
to file Complaint for breach of contract
- ----------------------------------------------------------------------------------------------------------------------------
BAGLIVO, THOMAS BORROWER COMPLAINT FROM BORROWER. NC will refi. Offer valid 11/12/98
DISPUTE until 1/11/99
- ----------------------------------------------------------------------------------------------------------------------------
BELL,FREDERICK TITLE PER BRANDEN FILE IS IN FC, HE FAXED COPY OF TITLE 10/28/98
ISSUE TO FC ATTNY FOR REVIEW & INSTRUCTED THEM TO
PROCEED FC WE ARE IN FIRST POSITION/ ALSO SOLD TO
ESB
- ----------------------------------------------------------------------------------------------------------------------------
BERNHARD, JANE TAX LIEN SCHOOL DISTRICT TAX LIEN - TAX SALE OF SECURED 11/02/98
PROPERTY / ANSWER TO COMPLAINT FILED
- ----------------------------------------------------------------------------------------------------------------------------
BLASS, RICHARD TITLE TITLE ISSUE - APPEARS THAT WE ARE IN 2ND POS, THE 11/12/98
AND MARY ISSUE 1ST IS IN FC, SALE DATE WAS PP DUE TO BK, 1ST IS
FILING RELIEF MOTION / JULIE TO TENDER TO TITLE CO/
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON, JEREMY LEGAL DOT WAS RECORDED WITH WRONG LEGAL DESCRIPTION/ FOR 10/08/98
DESCRIPTION LEGAL DEPT. INFO. PURPOSE ONLY - FC HANDLING
DISPUTE.
- ----------------------------------------------------------------------------------------------------------------------------
BOSTON, JEREMY LEGAL SEE LOAN NO. 111564/ FOR LEGAL DEPT. INFO. PURPOSE 10/08/98
DESCRIPTION ONLY- FC HANDLING DISPUTE.
- ----------------------------------------------------------------------------------------------------------------------------
BOX, MILDRED WRONGFULFC WITH PLA ATTY ROBIN WRIGHT IN CONJUNCTION WITH REQ STATUS
JULIE
- ----------------------------------------------------------------------------------------------------------------------------
BURGESS, GERTRUDE I. TITLE POSSIBLE FC SALE SCHEDULED FOR 11/98? BENEFICIAL? 10/14/98
ISSUE ORIG FILE FORWARDED TO JULIE FOR REVIEW.
- ----------------------------------------------------------------------------------------------------------------------------
CAMPBELL, LEWIS TITLE BACK TO FC, DEED RECORDED. 10/16/98
ISSUE
- ----------------------------------------------------------------------------------------------------------------------------
DAVE, BIPIN AND JOY CONDEMNED HOUSE MAY BE CONDEMNED, SERVICING TRANSFERRED TO
AMRESCO / INFO FORWARDED TO AMRESCO FOR RESOLUTION
- ----------------------------------------------------------------------------------------------------------------------------
DEVRIES, JAMES SENIOR LIEN SENIOR LIEN IS FILING FC IN A JUDICIAL PROCEEDINGS
& NANCY STATE
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
NAME PROPERTY ADDRESS ST NCM PROC INV# SERVICER BALANCE
LOAN #
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GOOD, JOHN L. 266 LUXOR ROAD, LATROBE PA 120944 210 NCM $ 81,000
- -------------------------------------------------------------------------------------------------------------------------
GUTIERREZ, WALTER 1737 DEL NORTE DRIVE, ALBUQUERQUE NM 42087 206 NCM $ 93,000
- -------------------------------------------------------------------------------------------------------------------------
HAWTHORNE, RAYMOND C. 2032 KENSINGTON, KANSAS CITY MO 20816 ADVANTA
- -------------------------------------------------------------------------------------------------------------------------
HENDERSON, TROY 13709 DRESSLER RD, GARFIELD HEIGHTS OH 48518 NMC
- -------------------------------------------------------------------------------------------------------------------------
HOLMES, JOHN 9474 CAMINITO CABANA, SAN DIEGO CA 26568 ADVANTA
- -------------------------------------------------------------------------------------------------------------------------
HORN, KENNETH 5619 HAMILTON AVE., JENNINGS MO 92121 102 NCM $ 0
- -------------------------------------------------------------------------------------------------------------------------
JAHNKE, RICHARD 10137 195TH AVE., BRISTON WI 48404 RM 206 NCM $129,202
- -------------------------------------------------------------------------------------------------------------------------
KELLAM, ALICIA 2704 ALTA VISTA AVE., MACON GA 104085 210 NCM $ 0
- -------------------------------------------------------------------------------------------------------------------------
KNOPIK, DAVID J. 5801 1/2 STREET NE, FRIDLEY MN 30849 349 ADVANTA $ 42,478
- -------------------------------------------------------------------------------------------------------------------------
KUGLER, CLARK 7466 WEST CLIFTON AVE LITTLETON CO 37406 ADVANTA $ 0
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
NAME FC OR CLOSED/ DEPARTMENT LEGAL ISSUE STATUS LAST
BK OPEN REVIEWED
- -----------------------------------------------------------------------------------------------------------------------------------
GOOD, JOHN L. N/A OPEN COLLECTION SHORTAGE AT COE NCMC WILL ADD THE SHORTFALL TO 11/04/98
THE LOAN AMOUNT AND THE LAWSUIT
WILL BE DISMISSED / NAT'L RE SVCS
WILL COMPLETE THE NEW LOAN
CLOSING/ GRETA REQ LOAN DOC
------------------
STATUS 10/15/98
---------------
- -----------------------------------------------------------------------------------------------------------------------------------
GUTIERREZ, WALTER N/A OPEN FORECLOSURE BORROWER DISPUTE BORROWER ANSWERED COMPLAINT / 10/28/98
FOR LEGAL DEPT. INFO. PURPOSE
ONLY-FC COUNSEL HANDLING
DISPUTE
- -----------------------------------------------------------------------------------------------------------------------------------
HAWTHORNE, RAYMOND C. OPEN ADVANTA REWRITE PER GRETA HAWTHORNE IS BEING 10/15/98
REWRITTEN BY LEONARD ACOSTA.
GRETA SPOKE W/HIM EARLIER THIS
WEEK & HE WAS FORWARDING THE
DOCS TO BOB B.
- -----------------------------------------------------------------------------------------------------------------------------------
HENDERSON, TROY OPEN FORECLOSURE BORROWER DISPUTE BORROWER ANSWERED COMPLAINT IN 10/15/98
JUDICIAL STATE/ FOR LEGAL DEPT.
INFO. PURPOSE ONLY-FC COUNSEL
HANDLING DISPUTE
- -----------------------------------------------------------------------------------------------------------------------------------
HOLMES, JOHN OPEN ADVANTA TITLE ISSUE PER JULIE / TO THE TITLE CO. FOR REQ STATUS
HANDLING
- -----------------------------------------------------------------------------------------------------------------------------------
HORN, KENNETH N/A OPEN COLLECTION LAWSUIT GUARDIAN OF BWR HAS FILED SUIT 11/02/98
AGAINST NCMC AND SELLER / BWR IS
PROFOUNDLY RETARDED / AWAITING
P/O FROM SELLER / LOAN HAS BEEN
PAID OFF / THEY HAVE NOT ACCEPTED
OFFER FROM JULIE Waiting for Court
to dismiss NC/Comerica from lawsuit
11/5
- -----------------------------------------------------------------------------------------------------------------------------------
JAHNKE, RICHARD FC OPEN FORECLOSURE TITLE ISSUE FILE TRANSFERED TO COUNSEL HIRED
11/04/98 BY LAWYERS TITLE INC.
JAHNKE HOPING TO OBTAIN LOAN TO
PAY OFF BOTH BANK ONE AND NC
- -----------------------------------------------------------------------------------------------------------------------------------
KELLAM, ALICIA N/A OPEN COLLECTION REWRITE PER JULIE / LOAN BEING REWRITTEN / REQ STATUS
SEE LOAN NO. 149039, FUNDED 072898,
P/B $42,750.00
- -----------------------------------------------------------------------------------------------------------------------------------
KNOPIK, DAVID J. FC OPEN ADVANTA RECORDING DEED WAS NOT RECORDED REQ STATUS
- -----------------------------------------------------------------------------------------------------------------------------------
KUGLER, CLARK N/A CLOSED ADVANTA TAXES REIMBURSEMENT CHECK FORWARDED 09/11/98
TO BORROWER/PER MICHELE
FILE IS CLOSED/ WE HAVE NEW RELEASE
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
LEGAL FILES as of 11/19/98
<TABLE>
<CAPTION>
NAME PROPERTY ADDRESS ST NCM PROC INV# SERVICER BALANCE FC OR CLOSED/
Loan # BK OPEN
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MAHONE, RICKEY 3215 HANNAH ST., CA 53639 BB 206 NCM $137,399 FC OPEN
OAKLAND
- ----------------------------------------------------------------------------------------------------------------------------
MARTINEZ, IRENE 906 LARCHWOOD AVE., CA 119798 210 NCM $ 90,935 N/A OPEN
HACIENDA HEIGHTS
- ----------------------------------------------------------------------------------------------------------------------------
MCDONALD, FRED 5902 BALDWIN, MI 128947 N/A N/A N/A N/A OPEN
FLINT
- ----------------------------------------------------------------------------------------------------------------------------
MILLER, JACQUELINE 4915-17 ALDINE, MO 52027 N/A REO / NCM N/A REO CLOSED
ST. LOUIS
- ----------------------------------------------------------------------------------------------------------------------------
MONTENEGRO, VICKI L. 1728 BARDALE AVE., CA 3176 345 ADVANTA $150,000 FC OPEN
SAN PEDRO
- ----------------------------------------------------------------------------------------------------------------------------
MOODY, PATRICIA 1913 S. SHADYDALE AVE., CA 11345 346 ADVANTA $103,255 N/A OPEN
WEST COVINA
- ----------------------------------------------------------------------------------------------------------------------------
MORALES, CINDY A. 1909 14TH STREET, IL 81682 208 NCM $ 67,917 FC OPEN
NORTH CHICAGO
- ----------------------------------------------------------------------------------------------------------------------------
NORMAN, ROBERT L. 1050 15TH AVE #S, FL 49877 FA 207 NCM $ 34,469 FC OPEN
ST. PETERSBURG
- ----------------------------------------------------------------------------------------------------------------------------
PORTER, JOHNNIE 637 W. 98TH ST., CA 105701 1 NCM $ 94,500 N/A OPEN
LOS ANGELES
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NAME DEPARTMENT LEGAL ISSUE STATUS LAST
REVIEWED
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
MAHONE, RICKEY FORECLOSURE PAYMENT DISPUTE BORROWER DISPUTES PYMT AMOUNT - WILL FORWARD FILE 08/17/98
TO JULIE FOR REVIEW
- ---------------------------------------------------------------------------------------------------------------------------------
MARTINEZ, IRENE COLLECTION BORROWER DISPUTE CONCLUSION: BRWR DID NOT TRY TO RESCIND LOAN, BRWR 09/09/98
RESPONSIBLE FOR LOAN, IF BWR CAN RETURN 35K FOR
INVST AND 12K PROCEEDS, WE WILL REWRITE TO LOWER
PYMT/ LTR DATED 09/03/98
- ---------------------------------------------------------------------------------------------------------------------------------
MCDONALD, FRED CUSTOMER RESCISSION DEMANDING BWR TENDER THE SUM OF $36956.13 ON OR 10/14/98
SERVICE BEFORE 10/30/98, OTHERWISE WE WILL COMMENCE
SERVICING THE LOAN AS A FPD IN THE AMOUNT OF
$43,690.00
- ---------------------------------------------------------------------------------------------------------------------------------
MILLER, JACQUELINE REO TITLE ISSUE 1st AMERICAN HAS ISSUED POLICY SHOWING US IN 1ST
POSITION
- ---------------------------------------------------------------------------------------------------------------------------------
MONTENEGRO, VICKI L. ADVANTA TITLE ISSUE LITIGATING TITLE ISSUES / JULIE TENDERED TO TITLE REQ STATUS
COMPANY
- ---------------------------------------------------------------------------------------------------------------------------------
MOODY, PATRICIA ADVANTA FRAUD POSSIBLE FRAUD / JULIE TO TENDER TO TITLE COMPANY REQ STATUS
- ---------------------------------------------------------------------------------------------------------------------------------
MORALES, CINDY A. FORECLOSURE TITLE ISSUE TITLE ISSUE- PRIOR RECORDING AND PRIOR UNRELEASED 11/10/98
LIEN.
- ---------------------------------------------------------------------------------------------------------------------------------
NORMAN, ROBERT L. FORECLOSURE TITLE ISSUE TITLE ISSUE - OWNERSHIP, NCMC'S POSITION, UNPAID REQ STATUS
TAXES, UNSATISFIED PRIOR MORTGAGE - PER LEGAL,
THIS IS THE TITLE INSURER'S PROB
- ---------------------------------------------------------------------------------------------------------------------------------
PORTER, JOHNNIE COLLECTION REWRITE PER JULIE-IF UPB OF LOAN IS NOT FORWARD TO MR. 11/10/98
DOSS (ATTY.) BY NOV. 30, 98, OR IF SHE HAS NOT
REC'D A WRITTEN COMMITMENT FROM MR. DOSS TO MR.
PORTER AND HAS NOT ACCEPTED, JULIE HAS INSTRUCTED
MR. DOSS TO FILE JUDICIAL FC AGAINST MR.PORTER.
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
as of 11/19/98
LEGAL FILES
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NAME PROPERTY ADDRESS ST NCM PROC INV# SERVICER BALANCE FC OR CLOSED /
LOAN # BK OPEN
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ROEMER, PAUL 9 BEECHWOOD DR., OAKLAND CA 115060 104 NCM $459,707 N/A OPEN
- ----------------------------------------------------------------------------------------------------------------------------------
RUPNOW, CURT 12420 N. GRANVILLE RD., MEQUON WI 87723 BB 1 NCM $ 78,675 FC CLOSED
- ----------------------------------------------------------------------------------------------------------------------------------
SADEGHY, FRANK 5200 WINDWARD WAY, EDMOND OK 140193 SK 105 NCM $437,250 FC OPEN
- ----------------------------------------------------------------------------------------------------------------------------------
SIMS, ANDREW & BARBARA 27826 CALLE DE LEON ROMOLAND CA 105555 208 NCM $172,281 N/A OPEN
- ----------------------------------------------------------------------------------------------------------------------------------
SKINNER, ODESSA 2219 N. 57TH ST., EAST ST. LOUIS IL 49440 STACY 207 NCM $ 19,440 FC OPEN
- ----------------------------------------------------------------------------------------------------------------------------------
SMITH, LEON 7090 TALL OAKS DR., PARK CITY UT 103223 CS 102 NCM $532,500 FC OPEN
- ----------------------------------------------------------------------------------------------------------------------------------
SMITH, SHIRLEY 2210 WEST WARREN, CHICAGO IL 11207 346 ADVANTA $ 95,764 N/A OPEN
- ----------------------------------------------------------------------------------------------------------------------------------
SPEARS, WILLIE 9252 MERRIL, CHICAGO IL 114346 DP 105 NCM $131,941 FC OPEN
- ----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
NAME DEPARTMENT LEGAL ISSUE STATUS LAST
REVIEWED
- ----------------------------------------------------------------------------------------------------------------------------------
ROEMER, PAUL COLLECTION PAYMENT ESCROW DISPUTE OVER 1ST PYMT DUE REQ STATUS
DISPUTE DATE / PER MICHELE, 1ST PYMT DUE
DATE IS CORRECT / CONTINUE WITH
COLLECTION
- ----------------------------------------------------------------------------------------------------------------------------------
RUPNOW, CURT FORECLOSURE SENIOR LIEN SENIOR LIEN FILED A COMPLAINT / BPO 11/04/98
CAME BACK CONSIDERABLY LOWER THAN
APPRAISAL, IF ACCURATE, WE WILL NOT
CONTINUE LITIGATING WITH 1ST / WE ARE
WALKING / WILL PURSUE NOTE THRU DYCK O'NEAL
- ----------------------------------------------------------------------------------------------------------------------------------
SADEGHY, FRANK FORECLOSURE
- ----------------------------------------------------------------------------------------------------------------------------------
SIMS, ANDREW & BARBARA COLLECTION PYMT DISPUTE BORROWER DISPUTES PYMT AMOUNT - LOAN IS 11/05/98
BEING REWRITTEN
- ----------------------------------------------------------------------------------------------------------------------------------
SKINNER, ODESSA FORCLOSURE TITLE ISSUE / TAX SALE PROBLEM - BORROWER'S TITLE TO REQ STATUS
TAX SALE SEC PROP HAS BEEN CHALLENGED / NETCO
TITLE HAS ACCEPTED THE TENDER / REQ TO
APPLY $600 TO PB AND BEGIN FC: SEE LTR
DATED 081798
- ----------------------------------------------------------------------------------------------------------------------------------
SMITH, LEON FORECLOSURE TITLE CLAIM E-MAIL DATED 083198; FRAZIER IS AN ATTNY 08/31/98
CLAIMING HE IS IN 1ST POS AND FORECLOSING,
PER FIRST AMER IN UT AN ATTNY'S LIEN CANNOT
ATTACH TO REAL PROP, FIRST AMER WILL DEFEND
NCMC IF FRAZIER SEEKS FC / PER JULIE,
COMMENCE FC ON THE SECURED PROP IMMEDIATELY
- ----------------------------------------------------------------------------------------------------------------------------------
SMITH, SHIRLEY ADVANTA FILE WAS SUBPOENAED BY THE GOVT REQ STATUS
- ----------------------------------------------------------------------------------------------------------------------------------
SPEARS, WILLIE FORECLOSURE TITLE ISSUE DEED WAS NOT RECORDED 11/13/98
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
17
<PAGE>
LEGAL FILES as of 11/19/98
<TABLE>
<CAPTION>
NAME PROPERTY ADDRESS ST NCM PROC INV# SERVICER BALANCE FC OR CLOSED/
LOAN # BK OPEN
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STEELE, SYLVIA 3484 W RAINTREE DR., AZ 99479 1 NCM $ 64,983 N/A OPEN
TUCSON
- ----------------------------------------------------------------------------------------------------------------------------
SWALLOW, PAUL & PATRICIA 631 E FOUNTAIN BLVD, CO 107687 102 NCM $ 60,000 FC OPEN
COLORADO SPRINGS
- ----------------------------------------------------------------------------------------------------------------------------
THOMPSON, SENORA 1064 LINN DRIVE, OH 62891 LIZ 207 NCM $ 27,583 FC OPEN
CLEVELAND
- ----------------------------------------------------------------------------------------------------------------------------
TWEED, LARRY & FRANCES 160 VALENCIA ST, NM 114347 FA 1 NCM $165,000 FC OPEN
LAS VEGAS
- ----------------------------------------------------------------------------------------------------------------------------
TWEED, LARRY & FRANCES 114 DELGADOO ST., NM 114337 FA 1 NCM $ 54,750 FC OPEN
LAS VEGAS
- ----------------------------------------------------------------------------------------------------------------------------
TWEED, LARRY & FRANCES 5407 SULTAN ST., NM 114319 FA 1 NCM $ 61,500 FC OPEN
LAS VEGAS
- ----------------------------------------------------------------------------------------------------------------------------
UHLIG, KARL R. 8421 TRADEWIND CIRCLE, CA 92646 213 NCM $125,944
HUNTINGTON BEACH
- ----------------------------------------------------------------------------------------------------------------------------
VALENTIN, MARY E. 1633 SILVER PTE AVE, NV 51219 1 NCM $121,554 BK CLOSED
LAS VEGAS
- ----------------------------------------------------------------------------------------------------------------------------
WALTON, JAMES 10639 S. INDIANA AVE., IL 113145 N/A N/A N/A N/A OPEN
CHICAGO
- ----------------------------------------------------------------------------------------------------------------------------
WILSON, JOHN 265 OAKWOOD DR., KY 45698 101 NCM PENDING S/R N/A OPEN
CRITTENDEN $0.00
- ----------------------------------------------------------------------------------------------------------------------------
YOMES, DAVID ANTHONY 95-458 MAHULI ST., HI 43467 206 NCM $233,309 FC OPEN
MILILANI TOWN
- ----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
NAME DEPARTMENT LEGAL ISSUE STATUS LAST
REVIEWED
- ----------------------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C> <C>
STEELE, SYLVIA COLLECTION GOV'T F/C GOV'T FC ON PROP, PER JULIE, WILL RECEIVE P/O REQ STATUS
UPON COMPLETION OF THEIR FC, DO NOT UNDERTAKE
ANY FC ACTIVITY ON THIS ACCOUNT
- ----------------------------------------------------------------------------------------------------------------------------
SWALLOW, PAUL & PATRICIA FORECLOSURE BORROWER DISPUTE BORROWER FILED COMPLAINT TO DISPUTE./FOR LEGAL
DEPT. INFO. PURPOSE ONLY-FC COUNSEL HANDLING
DISPUTE
- ----------------------------------------------------------------------------------------------------------------------------
THOMPSON, SENORA FORECLOSURE BORROWER DISPUTE BORROWER IS DENYING OUR CLAIM 10/14/98
- ----------------------------------------------------------------------------------------------------------------------------
TWEED, LARRY & FRANCES FORECLOSURE TITLE ISSUE LEGAL DESCRIPTION ERROR 10/30/98
- ----------------------------------------------------------------------------------------------------------------------------
TWEED, LARRY & FRANCES FORECLOSURE TITLE ISSUE LEGAL DESCRIPTION ERROR 10/30/98
- ----------------------------------------------------------------------------------------------------------------------------
TWEED, LARRY & FRANCES FORECLOSURE TITLE ISSUE LEGAL DESCRIPTION ERROR 10/30/98
- ----------------------------------------------------------------------------------------------------------------------------
UHLIG, KARL R. COLLECTION BORROWER DISPUTE MRS. UHLIG CLAIMING FRAUD & FORGERY AGAINST 11/04/98
HUSBAND. PER JULIE DO NOT PROCEED FORECLOSURE
UNTIL RESOLVED.
- ----------------------------------------------------------------------------------------------------------------------------
VALENTIN, MARY E. BOARDING ISSUE ISSUE OF BOARDING AND AMOUNT DUE
- ----------------------------------------------------------------------------------------------------------------------------
WALTON, JAMES CUSTOMER RESCISSION PER JULIE / LOAN IN THE PROCESS OF RESCISSION REQ STATUS
SERVICE
- ----------------------------------------------------------------------------------------------------------------------------
WILSON, JOHN CUSTOMER TITLE ISSUE PER JULIE / TO THE TITLE CO. FOR HANDLING REQ STATUS
SERVICE
- ----------------------------------------------------------------------------------------------------------------------------
YOMES, DAVID ANTHONY FORECLOSURE RESPA / TILA BORROWER ALLEGES THAT NCMC AND CM VIOLATED 11/13/98
RESPA VIOLATION AND TILA / PER JULIE,
CARLSMITH BALL IS HANDLING. Julie wants to
settle (cost-effective) 3rd position
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[LETTERHEAD OF KANSAS OFFICE OF CONSUMER CREDIT COMMISSIONER]
September 10, 1998
Ms. Valerie Williamson Compliance Officer
New Century Mortgage Corp
18400 Von Karman Ste 1000
Irvine CA 92612
Dear Ms. Williamson:
Effective July 1, 1995, this office began charging an examination fee. This
fee is being charged at the conclusion of the examination of the first licensed
location of each credit organization. Subsequent examinations for additional
licensed locations will not be charged. It is the intention of this office to
examine all licensees regularly on a 12 to 15 month cycle unless otherwise
warranted by either volume of accounts or violation and compliance concerns. If
this office determines examinations are required more than annually, additional
examination charges will be assessed. We encourage licensees to diligently
follow all pertinent laws and regulations to avoid the need for more frequent
examinations.
The examination for New Century Mortgage Corp., license numbers 3503 and
3504, located at their respective addresses was completed in September, 1998.
The $400.00 examination fee for this exam is now due. Please remit fee to:
Consumer Credit Commissioner
Jayhawk Tower, Suite 100 1
700 SW Jackson
Topeka, Kansas 66603-3758
If you have any questions, please contact this office.
Sincerely,
/s/ Robert E. Trigg
--------------------------
Robert E. Trigg
Financial Examiner
RET:lc
<PAGE>
[LETTERHEAD OF KANSAS OFFICE OF CONSUMER CREDIT COMMISSIONER]
September 10, 1998
Ms. Valerie Williamson, Compliance Officer
New Century Mortgage Corporation
18400 Von Karman, Suite 1000
Irvine, California 92612
LICENSE: 3503-3504
RE: Examination Conducted in September, 1998
During the examination of your consumer credit transactions by our examiner, Ms.
Jo Anne Minihan, the following errors were noted:
REFUND DUE ON EXCESS FINANCE CHARGE
<TABLE>
<CAPTION>
Acct No Name Date as of Allowable Rate Credit Account
- ------- ----- ---------- -------------- --------------
<S> <C> <C> <C> <C>
22958 Lytle 10/01/97 9.79% 389.43
</TABLE>
The above first mortgage loan was not made subject to the Kansas Uniform
Consumer Credit Code. Therefore, the best available rate is 1 1/2% above the
Federal Home Loan Mortgage Corporation rate for the month of the application.
(See K.S.A. 16a-207(b)). Credit this account as of the date shown and reduce
- ------------------- ---------------------------------------------------
the rate of charge.
- ------------------
<TABLE>
<CAPTION>
Acct No Name Date as of Credit Account
------- ----- ---------- --------------
<S> <C> <C> <C>
19147 Nunez 07/10/97 650.12
</TABLE>
This second mortgage loan was charged a loan origination fee in excess of 3% of
the amount financed.
It was noted your loans were being charged interest incorrectly. They were
charged using a 30/360-amortization schedule. Consumer loans, by definition or
agreement, must be charged using the actual number of days between payments and
a 365-day year. See K.A.R. 75-6-6. Correct your system accordingly.
<PAGE>
Ms. Valerie Williamson, Compliance Officer
New Century Mortgage Corporation
September 10, 1998
Page 2
REFUNDS DUE ON CLOSING COSTS
<TABLE>
<CAPTION>
Allowed/
Acct No Name Item Charged Invoice Due
- ---------- ------- ------------- ------- ---------- ------
<S> <C> <C> <C> <C> <C>
19147 Nunez Recording Mtg 30.00 12.00 18.00
Flood Cert 24.50 No Cert 24.50
22958 Lytle Appraisal 400.00 No Invoice 400.00
Title Ins 285.00 No Policy 285.00
Recording 50.00 20.00 30.00
21614 Cairns Flood Cert 25.00 No Cert 25.00
Closing Fee 200.00 No Invoice 200.00
41537 Stephan Recording Fee 30.00 12.00 18.00
</TABLE>
No invoices were available on the above accounts and more than a reasonable
amount, as determined by this agency, was charged. Or the amount charged was in
excess of the invoices available. Forward the missing invoices, policies and
certificates or make the appropriate refund.
A fee for flood certification for the life of the loan is not an allowable
closing cost and must be disclosed as a finance charge item. If properly
disclosed, the charge may be treated as a prepaid finance charge in addition to
the loan origination fee.
Upon receipt of this exam letter, contact this agency so there will be no
misunderstanding of the content of this letter and New Century Mortgage Corp's
expected response.
Please advise this agency when the above adjustments have been completed and
provide documentation verifying the corrections within 30 days from the date of
-- ----
this letter. You must respond to ALL of the examiner's findings noted in this
---
letter and provide complete documentation.
Sincerely,
/s/ Robert E. Trigg
- -------------------------
Robert E. Trigg
Financial Examiner
RET:lc
cc: Ms. Jo Anne Minihan, Financial Examiner
<PAGE>
[NEW CENTURY MORTGAGE CORPORATION LETTERHEAD]
October 8, 1998
Robert E. Trigg
Office of Consumer Credit Commissioner
JAYHAWK TOWER
700 S. W. Jackson, Suite 1001
Topeka, Kansas 66603
Re: Examination - September 1998
License Number 3503 - 3504
Dear Mr. Trigg:
In response to your examination report dated September 10, 1998, we have
refunded $700.50 to four borrowers, forwarded funds to credit two borrower
accounts in the amount of $1,039.55, on loans sold servicing released, and made
operational changes as indicated below.
Refund Due on Excess Finance Charge
We forwarded a check in the amount of $389.43 to AMRESCO for credit to the
account of Phillip M. Lytle as of October 1, 1997. We advised AMRESCO of
your instructions to reduce the interest rate on the account as of the same
date. Copies of our letter and check to AMRESCO are enclosed.
We forwarded a check in the amount of $650.12 to CIT Group for credit to the
account of Ricky L. Nunez as of July 10, 1997. Copies of our letter and check to
CIT Group are enclosed.
Interest Charge Amortization
Our loan servicing system is being converted to amortize Kansas loans on an
actual number of days between payments/365 day basis annually.
Additionally, we have taken steps to acquire the appropriate software to
enable our loan origination system to do the same.
Kansas Examination Report 9/98
Response dated 10/8/98
Page 1
<PAGE>
Refunds Due on Closing Costs
We have refunded closing costs in the amounts shown below. Copies of the
letter and check to each borrower are enclosed.
<TABLE>
<CAPTION>
<S> <C>
Phillip M. Lytle $415.00
Donald E. Cairns $225.00
Ricky L. Nunez $ 42.50
James. L. Stephan $ 18.00
</TABLE>
A copy of the invoice dated April 22, 1997 from Pinnacle Appraisal Group to
Advance Mortgage, the originating broker of the Phillip M. Lytle loan, is
enclosed. The actual charge for the appraisal was $300.00. Therefore, we
included $100.00, of the $400.00 charged by Advance Mortgage, in the refund
of closing costs to Mr. Lytle.
New Century Mortgage does include the Life of Loan Flood Certificate fee in
finance charges, however Consumer Security Mortgage, the originating
broker, did not. Therefore, we included the $24.50 fee in the closing cost
refund to Mr. Nunez.
We sincerely hope we have satisfactorily addressed the findings of your office.
Should there be any additional questions, please contact me directly at (949)
224-5760 or through our toll free line (800) 967-7623 extension 5760.
Yours truly,
/s/ Valerie Williamson
- -------------------------
Valerie Williamson
Vice President
Compliance
Enc
cc: Brad Morrice
Pat Flanagan
Shabi Asghar
George Anderson
Nick Minardi
Kansas Examination Report 9/98
Response dated 10/8/98
Page 2
<PAGE>
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
October __, 1998, by and between New Century Financial Corporation, a Delaware
corporation (the "Company"), and U.S. Bancorp, a Delaware corporation (the
"Purchaser").
WHEREAS, the Purchaser has agreed to purchase shares of the Company's 1998A
Convertible Preferred Stock (the "Preferred Stock").
WHEREAS, in connection with such purchase, the Company and the Purchaser
desire to enter into certain arrangements with respect to the registration for
public sale under the Securities Act of 1933, as amended (the "Securities Act"),
of the shares of the Company's Common Stock, $.01 par value per share, issuable
upon conversion of the Preferred Stock.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Definitions.
-----------
1.1 "Affiliate" shall mean any person that directly or indirectly
---------
controls or is controlled by, or is under common control with, another specified
person.
1.2 "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
1.3 "Company" shall mean New Century Financial Corporation, a
-------
Delaware corporation.
1.4 "Common Shares" shall mean the shares of common stock, par value
-------------
$.01 per share, authorized by the Company's Certificate of Incorporation and any
additional shares of common stock which may be authorized in the future by the
Company, and any stock into which such Common Shares may hereafter be changed,
and shall also include capital stock of any other class of the Company which is
not preferred as to dividends or assets over any other class of stock of the
Company and which is not subject to redemption.
1.5 "Founding Managers" shall mean Robert K. Cole, Brad A. Morrice,
-----------------
Steven G. Holder and Edward F. Gotschall.
1.6 "Other Shareholders" shall mean Paul B. Akers and Kirk Redding,
------------------
and their successors in interest, under that certain Merger Agreement, dated as
of December 17, 1997, among the Company, NC Acquisition Corp., PFW Corporation
and the shareholders named therein.
Exhibit F
-1-
<PAGE>
1.7 "Preferred Stock" shall mean the outstanding shares of the Series
1998A Convertible Preferred Stock, par value $.01 per share, of the Company, and
any securities (other than Common Shares) into which such shares may hereafter
be changed.
1.8 "Public Offering" shall mean any offering of Common Shares to the
public, either on behalf of the Company or any of its security holders, pursuant
to an effective registration statement under the Securities Act.
1.9 "Purchaser" shall mean U.S. Bancorp, a Delaware corporation.
1.10 "Registrable Securities" shall mean (a) the Common Shares at any
time issued or subject to issuance upon the conversion of the Preferred Stock
and (b) any additional securities issued with respect to the above-described
securities upon any stock split, stock dividend, recapitalization, or similar
event. Registrable Securities shall cease to be Registrable Securities when (w)
a registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (x) such
securities shall be eligible to be distributed pursuant to Rule 144(k) under the
Securities Act, (y) such securities shall have ceased to be outstanding, or (z)
such securities are transferred in a transaction in which the rights hereunder
are not assigned as permitted by Section 9.
1.11 "Registration Expenses" shall mean the expenses described in
Section 5.
1.12 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.13 "Stock Purchase Agreement" shall mean the Preferred Stock
Purchase Agreement dated October -, 1998 between the Company and the Purchaser.
2. Demand Registration.
-------------------
2.1 Subject to Sections 2.3, 2.4, 2.5 and 2.6, if at any time the
Company shall receive a written request therefor from the record holder or
holders of an aggregate of at least 51% of the Registrable Securities, the
Company shall prepare and file a registration statement under the Securities Act
covering such number of Registrable Securities as are the subject of such
request and shall use its best efforts to cause such registration statement to
become effective. Upon the receipt of a registration request meeting the
requirements of this Section 2.1, the Company shall promptly give written notice
to all other record holders of Registrable Securities that such registration is
to be effected. The Company shall include in such registration statement such
additional Registrable Securities as such other record holders request in
writing within fifteen (15) days after the date of the Company's written notice
to them. If (a) the holders of a majority. of the Registrable Securities for
which registration has been requested pursuant to this Section 2.1 determine for
any reason not to proceed with the registration at any time before the related
registration statement has been declared effective by the Commission, (b) such
registration statement, if theretofore filed with the Commission, is withdrawn
and (c) the holders of the Registrable Securities subject to such registration
statement agree to bear their own
Exhibit F
-2-
<PAGE>
Registration Expenses incurred in connection therewith and to reimburse the
Company for the Registration Expenses incurred by it in such connection or if
such registration statement, if theretofore filed with the Commission, is
withdrawn at the initiative of the Company, then the holders of the Registrable
Securities shall not be deemed to have exercised their demand registration right
pursuant to this Section 2.1.
2.2 At the request of the holders of a majority of the Registrable
Securities to be registered, the method of disposition of all Registrable
Securities included in such registration shall be an underwritten Public
Offering. The managing underwriter of any such Public Offering shall be
selected by the majority of the Registrable Securities, provided that such
managing underwriter is reasonably acceptable to the Company.
2.3 The Company shall be obligated to prepare, file and cause to be
effective not more than two registration statements pursuant to Section 2.1.
2.4 Notwithstanding the foregoing, the Company may delay initiating
the preparation and filing of any registration statement requested pursuant to
Section 2.1 for a period not to exceed one hundred eighty (180) days if, in the
good faith judgment of the Company's Board of Directors, filing the registration
statement would reasonably be expected to have a Material Adverse Effect (as
defined in the Stock Purchase Agreement), which Material Adverse Effect could
reasonably be expected to be avoided by delaying such filing for such period.
2.5 Notwithstanding anything to the contrary contained herein, at any
time within thirty (30) days after receiving a demand for registration pursuant
to Section 2.1, the Company may elect to effect an underwritten primary
registration in lieu of the requested registration. If the Company so elects,
the Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall afford such
holders the rights contained in Article 3 with respect to "piggyback"
registrations. In such event, the demand for registration pursuant to Section
2.1 shall be deemed to have been withdrawn.
2.6 The Company shall not obligated to effect a demand registration
(a) within 180 days after the effective date of a previous demand registration
or a previous registration in which the holders of Registrable Securities were
given piggy-back registration rights pursuant to this Agreement and in which
there was no reduction in the number of Registrable Securities requested to be
included or (b) prior to the first anniversary of this Agreement, provided that
this Section 2.6(b) shall not be applicable if the Purchaser notifies the
Company in writing that Purchaser, in its reasonable judgment, has determined
that it is required to divest all or a portion of the Registrable Securities in
order to satisfy or comply with regulatory requirements applicable to Purchaser.
3 Piggyback Registration.
----------------------
3.1 Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for money of any of its securities
by it or any of its security holders (other than a registration statement on
Form S-8, Form S-4 or other limited purpose form), the
Exhibit F
-3-
<PAGE>
Company will give written notice of its determination to all record holders of
Registrable Securities. Upon the written request of a record holder of any
Registrable Securities given within 15 days after the date of the receipt of any
such notice from the Company, the Company will, except as herein provided, use
its best efforts to cause all Registrable Securities the registration of which
is requested to be included in such registration statement, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Registrable Securities to be so registered; provided, however,
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying in its sole and absolute discretion any registration.
3.2 If any registration pursuant to Section 3.1 is underwritten in
whole or in part, the Company may require that the Registrable Securities
included in the registration be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
If, in the good faith judgment of the managing underwriter of the Public
Offering, marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may exclude some or all of the
Registrable Securities from such registration and underwriting. Any reduction in
the number of securities of the Company included in such registration and
underwriting shall be borne (i) first by the Founding Managers and the Other
Shareholders pro rata based on the number of shares, if any, for which
registration was requested by the Founding Managers and the Other Shareholders,
(ii) second by the Holders of Registrable Securities pro rata based on the
number of shares, if any, for which registration was requested by such Holders,
and (iii) then equally by the other holders of securities of the Company
requested to be included in such registration and underwriting, as a group, pro
rata based on the number of shares for which registration was requested by such
holders. The Registrable Securities which are thus excluded from the
underwritten Public Offering shall be withheld from the market by the holders
thereof for a period which the managing underwriter reasonably determines is
necessary in order to effect the Public Offering.
4. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Article 2 or Article 3 to effect a registration of Registrable
Securities under the Securities Act, the Company will use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended methods of disposition specified by the holders participating
therein. Without limiting the foregoing, the Company in each such case will, as
expeditiously as possible:
4.1 In the case of a demand registration pursuant to Section 2.1,
prepare and file with the Commission the requisite registration statement to
effect such registration (including such audited financial statements as may be
required by the Securities Act or the rules and regulations thereunder) and use
its best efforts to cause such registration statement to become effective;
provided, however, that as far in advance as practical before filing such
registration statement or any amendment thereto, the Company will furnish
counsel for the requesting holders of Registrable Securities with copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such holder shall have the opportunity to object to any
information pertaining solely to such holder that is contained therein and the
Company will make the corrections reasonably requested by such holder with
respect to such information prior to filing such registration statement or
amendment.
Exhibit F
-4-
<PAGE>
4.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities included in such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (a) such time as all of the Registrable Securities included in
such registration statement have been disposed of in accordance with the
intended methods of disposition by the holder or holders thereof as set forth in
such registration statement or (b) 180 days (or, if the filing was on a Form S-3
registration statement, 365 days) after such registration statement becomes
effective; provided, that, in the event the holder of Registrable Securities is
required to discontinue such holder's disposition of Registrable Securities
pursuant to Section 4.11 hereof, such 180-days (or 365 days, if applicable)
shall be extended for such additional period as is equal to the period during
which such holders was required to discontinue such disposition.
4.3 Promptly notify each requesting holder and the underwriter or
underwriters, if any, of:
(a) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been filed
and, with respect to such registration statement or any post-effective amendment
thereto, when the same has become effective;
(b) any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
(c) any notification received by the Company from the Commission
regarding the Commission's initiation of any proceeding with respect to, or of
the issuance by the Commission of, any stop order suspending the effectiveness
of such registration statement; and
(d) the receipt by the Company of any notification with respect to the
suspension of the qualification of any Registrable Securities for sale under the
applicable securities or blue sky laws of any jurisdiction.
4.4 Furnish to each holder of Registrable Securities included in such
registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto, and such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
seller's Registrable Securities, and such other documents, as such holder may
reasonably request to facilitate the disposition of its Registrable Securities.
4.5 Use its best efforts to register or qualify all Registrable
Securities included in such registration statement under the securities or "blue
sky" laws of such states as each holder of Registrable Securities shall
reasonably request within twenty (20) days following the original filing of such
registration statement and to keep such registration or qualification in effect
for so
Exhibit F
-5-
<PAGE>
long as such registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such states of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be required
(a) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section 4.5
be obligated to be so qualified, (b) to consent to general service of process in
any such jurisdiction or (c) to subject itself to taxation in any such
jurisdiction by reason of such registration or qualification.
4.6 Use its best efforts to cause all Registrable Securities included
in such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable each holder
thereof to consummate the disposition of such Registrable Securities.
4.7 Notify each holder whose Registrable Securities are included in
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the Purchaser of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
4.8 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
4.9 Use its best efforts to cause all Registrable Securities included
in such registration statement to be listed, upon official notice of issuance,
on any securities exchange or quotation system on which any of the securities of
the same class as the Registrable Securities are then listed.
4.10 The Company may require each holder whose Registrable Securities
are being registered to, and each such holder, as a condition to including
Registrable Securities in such registration statement, shall, furnish the
Company and the underwriters with such information and affidavits regarding such
holder and the distribution of such Registrable Securities as the Company and
the underwriters may from time to time reasonably request in writing in
connection with such registration statement. At any time during the
effectiveness of any registration statement covering Registrable Securities
offered by a holder, if such holder becomes aware of any change materially
affecting the accuracy of the information contained in such registration
statement or the prospectus (as then amended or supplemented) relating to such
holder, it will immediately notify the Company of such change.
Exhibit F
-6-
<PAGE>
4.11 Upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 4.7, each holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such holder
receives the copies of the supplemented or amended prospectus contemplated by
Section 4.7 and, if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holder's possession of
the prospectus relating to such Registrable Securities.
4.12 As used in this Agreement, the term "best efforts" shall not
mean efforts which require the performing party to do any act that is
unreasonable under the circumstances or to expend any funds other than
reasonable out-of-pocket expenses incurred in satisfying its obligations
hereunder, including but not limited to the fees, expenses and disbursements of
its accountants, counsel and other professionals.
5. Expenses. With respect to any registration requested pursuant to
--------
Article 2 (except as otherwise provided in such Article with respect to a
registration voluntarily terminated at the request of the requesting holders of
Registrable Securities) the Company shall bear all of the expenses
("Registration Expenses") incident to the Company's performance of or compliance
with its obligations under this Agreement in connection with such registration
including, without limitation, all registration, filing, securities exchange
listing and NASD fees, all registration, filing, qualification and other fees
and expenses or complying with state securities or "blue sky" laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and compliance,
premiums and other costs of any policies of insurance against liabilities
arising out of the Public Offering of the Registrable Securities being
registered obtained by the Company (it being understood that the Company shall
have no obligation to obtain such insurance) and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities; but excluding
underwriting discounts and commissions and transfer taxes, if any, in respect of
Registrable Securities and any fees and disbursements of counsel and accountants
to the holders of the Registrable Securities, which discounts, commissions,
transfer taxes, fees and disbursements shall in any registration be payable by
the holders of the Registrable Securities being registered, pro rata in
--- ----
proportion to the number of Registrable Securities being sold by them.
6. Indemnification.
----------------
6.1 The Company will, to the full extent permitted by law, indemnify
and hold harmless each holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Agreement, and its
directors, officers and partners and each other person, if any, who controls
such holder within the meaning of the Securities Act, from and against any and
all losses, claims, damages, expenses or liabilities, Joint or several
(collectively, "Losses") to which such holder or any such director, officer,
partner or controlling person may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in a
registration
Exhibit F
-7-
<PAGE>
statement prepared and filed hereunder, any preliminary, final or summary
prospectus contained therein or any amendment or supplement thereto or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and the Company will reimburse the holder and each such director,
officer, partner and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
against any such Losses (or action or proceeding in respect thereof); provided,
--------
however, that the Company will not be liable in any such case to the extent that
- -------
any such Losses arise out of or are based upon (a) an untrue statement or
alleged untrue statement or omission or alleged omission made in conformity with
written information furnished by such holder specifically for use in the
preparation of the registration statement or (b) such holder's failure to send
or give a copy of the final prospectus to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director, officer,
partner or controlling person of such holder and shall survive the transfer of
such securities by such holder. The Company shall also indemnify each other
person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors, and partners, and each
other person, if any, who controls any such participating person within the
meaning of the Securities Act to the same extent provided above with respect to
holders of Registrable Securities.
6.2 Each holder of Registrable Securities which are included in a
registration pursuant to the provisions of this Agreement will, to the full
extent permitted by law, indemnify and hold harmless the Company, its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act from and against any and all Losses to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such Losses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in a registration statement prepared and filed hereunder, any
preliminary, final or summary prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by such holder
specifically for use in the preparation of such registration statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person of the Company. The holder of Registrable Securities included in a
registration statement shall also indemnify each other person who participates
(including as an underwriter) in the offering or sale of Registrable Securities,
their officers and directors, and partners, and each other person, if any, who
controls any such participating person within the meaning of the Securities Act
to the same extent as provided above with respect to the
Exhibit F
-8-
<PAGE>
Company. In no event shall the liability of any holder under this Section 6.2
exceed the gross proceeds received by such holder from the sale of their
Registrable Securities.
6.3 Promptly after receipt by a party indemnified pursuant to the
provisions of Section 6.1 or Section 6.2 of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 6.1 or Section 6.2,
promptly notify the indemnifying party of the commencement thereof-, but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against any indemnified party,
the indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any action include both the
-------- -------
indemnified party and the indemnifying party and the indemnified party
reasonably concludes that there is a conflict of interest that would prevent
counsel for the indemnifying party from also representing the indemnified party,
the indemnified party shall have the right to select one separate counsel to
participate in the defense of such action on behalf of the indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of Section 6.1 or
Section 6.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof unless (a) the
indemnified party shall have employed counsel in accordance with the proviso of
the preceding sentence, (b) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (c) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. If
the indemnifying party is not entitled to, or elects not to, assume the defense
of a claim, it will not be obligated to pay the fees and expenses of more than
one counsel for the indemnified parties with respect to such claim, unless in
the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel or counsels for the
indemnified parties, but only to the extent necessary to cure such conflict of
interest. No indemnifying party shall consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation without the consent of the
indemnified party. No indemnifying party shall be subject to any liability for
any settlement made without its consent. An indemnified party may at any time
elect to participate in the defense of any claim or proceeding at its own
expense.
7. Underwritten Offerings. If a distribution of Registrable Securities
----------------------
pursuant to a registration statement is to be underwritten, the holders whose
Registrable Securities are to be distributed by such underwriters shall be
parties to such underwriting agreement. No requesting holder may participate in
such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and
Exhibit F
-9-
<PAGE>
executes all questionnaires, powers of attorney, indemnities and other documents
reasonably required under the terms of such underwriting agreement. If any
requesting holder disapproves of the terms of an underwriting, such holder may
elect to withdraw therefrom and from such registration by notice to the Company
and the managing underwriter, and each of the remaining requesting holders shall
be entitled to increase the number of Registrable Securities being registered to
the extent of the Registrable Securities so withdrawn in the proportion which
the number of Registrable Securities being registered by such remaining
requesting holder bears to the total number of Registrable Securities being
registered by all such remaining requesting holders.
8. Stand-Off Agreement. Each holder of Registrable Securities agrees, so
-------------------
long as such holder holds at least 5% of the Company's outstanding voting equity
securities, in connection with a Public Offering, upon request of the Company or
the underwriters managing such Public Offering, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Common Shares of the Company without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time (not exceeding
180 days) from the effective date of the registration statement relating to such
Public Offering as may be requested by the underwriters; provided, however, that
-------- -------
all other persons with registration rights (whether or not pursuant to this
Agreement) and all of the executive officers and directors of the Company who
own stock of the Company must also agree to not less onerous restrictions.
9. Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register the Registrable Securities pursuant to this Agreement may not be
assigned by the Purchaser except (a) to an Affiliate of the Purchaser without
limitation or (b) to a transferee or assignee of Registrable Securities
representing or convertible into 5% or more of the Company's outstanding Common
Shares. In the case of either (a) or (b) the Purchaser shall, within a
reasonable time after such transfer or assignment, furnish to the Company
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned.
Any transferee asserting registration rights hereunder shall be bound by the
applicable provisions of this Agreement.
10. Amendment. The Company shall not amend this Agreement without the
---------
written consent of the holders of more than 50% of the Registrable Securities.
11. Termination. This Agreement, and all of the Company's obligations
-----------
hereunder (other than its obligations pursuant to Article 6, which obligations
shall survive such termination), shall terminate upon the earlier to occur of
(i) the date on which there are no Registrable Securities outstanding and
October __, 2003.
12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law but if any provision of this Agreement is held to be invalid,
illegal or unenforceable under any applicable law or rule, the validity,
legality and enforceability of the other provision of this Agreement will not be
affected or impaired thereby.
Exhibit F
-10-
<PAGE>
13. Notices. All notices, consents, requests, instructions, approvals or
-------
other communications provided for herein shall be in writing and delivered by
personal delivery, overnight courier, mail or electronic facsimile addressed to
the receiving party at the address set forth herein. All such communications
shall be effective when received.
(a) If to any holder of any Registrable Securities addressed to such
holder at its address as shown on the books of the Company, or at such other
address as such holder may specify by written notice to the Company, or
(b) If to the Company at ________________________________________,
Attention: __________; or at such other address as the Company may specify by
written notice to the holders of Registrable Securities hereunder.
14. Counterparts. This Agreement may be executed concurrently in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Facsimile signatures
shall constitute original signatures for all purposes of this Agreement.
15. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties.
16. Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to the conflicts or choice of laws, of the State of
Delaware.
Exhibit F
-11-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By
----------------------------
Its
------------------------
U.S. BANCORP
By
----------------------------
Its
------------------------
Exhibit F
-12-
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
November 24, 1998, by and between New Century Financial Corporation, a Delaware
corporation (the "Company"), and U.S. Bancorp, a Delaware corporation (the
"Purchaser").
WHEREAS, the Purchaser has agreed to purchase shares of the Company's 1998A
Convertible Preferred Stock (the "Preferred Stock").
WHEREAS, in connection with such purchase, the Company and the Purchaser
desire to enter into certain arrangements with respect to the registration for
public sale under the Securities Act of 1933, as amended (the "Securities Act"),
of the shares of the Company's Common Stock, $.01 par value per share, issuable
upon conversion of the Preferred Stock.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Definitions.
-----------
1.1 "Affiliate" shall mean any person that directly or indirectly
---------
controls or is controlled by, or is under common control with, another specified
person.
1.2 "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
1.3 "Company" shall mean New Century Financial Corporation, a
-------
Delaware corporation.
1.4 "Common Shares" shall mean the shares of common stock, par value
-------------
$.01 per share, authorized by the Company's Certificate of Incorporation and any
additional shares of common stock which may be authorized in the future by the
Company, and any stock into which such Common Shares may hereafter be changed,
and shall also include capital stock of any other class of the Company which is
not preferred as to dividends or assets over any other class of stock of the
Company and which is not subject to redemption.
1.5 "Founding Managers" shall mean Robert K. Cole, Brad A. Morrice,
-----------------
Steven G. Holder and Edward F. Gotschall.
1.6 "Other Shareholders" shall mean Paul B. Akers and Kirk Redding,
------------------
and their successors in interest, under that certain Merger Agreement, dated as
of December 17, 1997, among the Company, NC Acquisition Corp., PFW Corporation
and the shareholders named therein.
-1-
<PAGE>
1.7 "Preferred Stock" shall mean the outstanding shares of the Series
---------------
1998A Convertible Preferred Stock, par value $.01 per share, of the Company, and
any securities (other than Common Shares) into which such shares may hereafter
be changed.
1.8 "Public Offering" shall mean any offering of Common Shares to the
---------------
public, either on behalf of the Company or any of its security holders, pursuant
to an effective registration statement under the Securities Act.
1.9 "Purchaser" shall mean U.S. Bancorp, a Delaware corporation.
---------
1.10 "Registrable Securities" shall mean (a) the Common Shares at any
----------------------
time issued or subject to issuance upon the conversion of the Preferred Stock
and (b) any additional securities issued with respect to the above-described
securities upon any stock split, stock dividend, recapitalization, or similar
event. Registrable Securities shall cease to be Registrable Securities when (w)
a registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (x) such
securities shall be eligible to be distributed pursuant to Rule 144(k) under the
Securities Act, (y) such securities shall have ceased to be outstanding, or (z)
such securities are transferred in a transaction in which the rights hereunder
are not assigned as permitted by Section 9.
1.11 "Registration Expenses" shall mean the expenses described in
---------------------
Section 5.
1.12 "Securities Act" shall mean the Securities Act of 1933, as
--------------
amended.
1.13 "Stock Purchase Agreement" shall mean the Preferred Stock
------------------------
Purchase Agreement dated October 18, 1998 between the Company and the Purchaser.
2. Demand Registration.
-------------------
2.1 Subject to Sections 2.3, 2.4, 2.5 and 2.6, if at any time the
Company shall receive a written request therefor from the record holder or
holders of an aggregate of at least 51% of the Registrable Securities, the
Company shall prepare and file a registration statement under the Securities Act
covering such number of Registrable Securities as are the subject of such
request and shall use its best efforts to cause such registration statement to
become effective. Upon the receipt of a registration request meeting the
requirements of this Section 2.1, the Company shall promptly give written notice
to all other record holders of Registrable Securities that such registration is
to be effected. The Company shall include in such registration statement such
additional Registrable Securities as such other record holders request in
writing within fifteen (15) days after the date of the Company's written notice
to them. If (a) the holders of a majority of the Registrable Securities for
which registration has been requested pursuant to this Section 2.1 determine for
any reason not to proceed with the registration at any time before the related
registration statement has been declared effective by the Commission, (b) such
registration statement, if theretofore filed with the Commission, is withdrawn
and (c) the holders of the Registrable Securities subject to such registration
statement agree to bear their own
-2-
<PAGE>
Registration Expenses incurred in connection therewith and to reimburse the
Company for the Registration Expenses incurred by it in such connection or if
such registration statement, if theretofore filed with the Commission, is
withdrawn at the initiative of the Company, then the holders of the Registrable
Securities shall not be deemed to have exercised their demand registration night
pursuant to this Section 2.1.
2.2 At the request of the holders of a majority of the Registrable
Securities to be registered, the method of disposition of all Registrable
Securities included in such registration shall be an underwritten Public
Offering. The managing underwriter of any such Public Offering shall be selected
by the majority of the Registrable Securities, provided that such managing
underwriter is reasonably acceptable to the Company.
2.3 The Company shall be obligated to prepare, file and cause to be
effective not more than two registration statements pursuant to Section 2.1.
2.4 Notwithstanding the foregoing, the Company may delay initiating
the preparation and filing of any registration statement requested pursuant to
Section 2.1 for a period not to exceed one hundred eighty (180) days if, in the
good faith judgment of the Company's Board of Directors, filing the registration
statement would reasonably be expected to have a Material Adverse Effect (as
defined in the Stock Purchase Agreement), which Material Adverse Effect could
reasonably be expected to be avoided by delaying such filing for such period.
2.5 Notwithstanding anything to the contrary contained herein, at any
time within thirty (30) days after receiving a demand for registration pursuant
to Section 2. 1, the Company may elect to effect an underwritten primary
registration in lieu of the requested registration. If the Company so elects,
the Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall afford such
holders the rights contained in Article 3 with respect to "piggyback"
registrations. In such event, the demand for registration pursuant to Section
2.1 shall be deemed to have been withdrawn.
2.6 The Company shall not obligated to effect a demand registration
(a) within 180 days after the effective date of a previous demand registration
or a previous registration in which the holders of Registrable Securities were
given piggy-back registration rights pursuant to this Agreement and in which
there was no reduction in the number of Registrable Securities requested to be
included or (b) prior to the first anniversary of this Agreement, provided that
this shall not be applicable if the Purchaser notifies the Company in writing
that Purchaser, in its reasonable judgment, has determined that it is required
to divest all or a portion of the Registrable Securities in order to satisfy or
comply with regulatory requirements applicable to Purchaser.
3. Piggyback Registration.
----------------------
3.1 Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for money of any of its securities
by it or any of its security holders (other than a registration statement on
Form S-8, Form S-4 or other limited purpose form), the
-3-
<PAGE>
Company will give written notice of its determination to all record holders of
Registrable Securities. Upon the written request of a record holder of any
Registrable Securities given within 15 days after the date of the receipt of any
such notice from the Company, the Company will, except as herein provided, use
its best efforts to cause all Registrable Securities the registration of which
is requested to be included in such registration statement, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Registrable Securities to be so registered; provided, however,
-------- -------
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying in its sole and absolute discretion any registration.
3.2 If any registration pursuant to Section 3.1 is underwritten in
whole or in part, the Company may require that the Registrable Securities
included in the registration be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
If, in the good faith Judgment of the managing underwriter of the Public
Offering, marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may exclude some or all of the
Registrable Securities from such registration and underwriting. Any reduction in
the number of securities of the Company included in such registration and
underwriting shall be home (i) first by the Founding Managers and the Other
Shareholders pro rata based on the number of shares, if any, for which
registration was requested by the Founding Managers and the Other Shareholders,
(ii) second by the Holders of Registrable Securities pro rata based on the
number of shares, if any, for which registration was requested by such Holders,
and (iii) then equally by the other holders of securities of the Company
requested to be included in such registration and underwriting, as a group, pro
rata based on the number of shares for which registration was requested by such
holders. The Registrable Securities which are thus excluded from the
underwritten Public Offering shall be withheld from the market by the holders
thereof for a period which the managing underwriter reasonably determines is
necessary in order to effect the Public Offering.
4. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Article 2 or Article 3 to effect a registration of Registrable
Securities under the Securities Act, the Company will use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended methods of disposition specified by the holders participating
therein. Without limiting the foregoing, the Company in each such case will, as
expeditiously as possible:
4.1 In the case of a demand registration pursuant to Section 2. 1,
prepare and file with the Commission the requisite registration statement to
effect such registration (including such audited financial statements as may be
required by the Securities Act or the rules and regulations thereunder) and use
its best efforts to cause such registration statement to become effective;
provided, however, that as far in advance as practical before filing such
- -------- -------
registration statement or any amendment thereto, the Company will furnish
counsel for the requesting holders of Registrable Securities with copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such holder shall have the opportunity to object to any
information pertaining solely to such holder that is contained therein and the
Company will make the corrections reasonably requested by such holder with
respect to such information prior to filing such registration statement or
amendment.
-4-
<PAGE>
4.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities included in such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (a) such time as all of the Registrable Securities included in
such registration statement have been disposed of in accordance with the
intended methods of disposition by the holder or holders thereof as set forth in
such registration statement or (b) 180 days (or, if the filing was on a Form S-3
registration statement, 365 days) after such registration statement becomes
effective; provided, that, in the event the holder of Registrable Securities is
required to discontinue such holder's disposition of Registrable Securities
pursuant to Section hereof, such 180-days (or 365 days, if applicable) shall be
extended for such additional period as is equal to the period during which such
holders was required to discontinue such disposition.
4.3 Promptly notify each requesting holder and the underwriter or
underwriters, if any, of:
(a) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been filed
and, with respect to such registration statement or any post-effective amendment
thereto, when the same has become effective;
(b) any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
(c) any notification received by the Company from the Commission
regarding the Commission's initiation of any proceeding with respect to, or of
the issuance by the Commission of, any stop order suspending the effectiveness
of such registration statement; and
(d) the receipt by the Company of any notification with respect to
the suspension of the qualification of any Registrable Securities for sale under
the applicable securities or blue sky laws of any jurisdiction.
4.4 Furnish to each holder of Registrable Securities included in such
registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto, and such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
seller's Registrable Securities, and such other documents, as such holder may
reasonably request to facilitate the disposition of its Registrable Securities.
4.5 Use its best efforts to register or qualify all Registrable
Securities included in such registration statement under the securities or "blue
sky" laws of such states as each holder of Registrable Securities shall
reasonably request within twenty (20) days following the original filing of such
registration statement and to keep such registration or qualification in effect
for so
-5-
<PAGE>
long as such registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such states of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be required
(a) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section 4.5
be obligated to be so qualified, (b) to consent to general service of process in
any such jurisdiction or (c) to subject itself to taxation in any such
jurisdiction by reason of such registration or qualification.
4.6 Use its best efforts to cause all Registrable Securities included
in such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable each holder
thereof to consummate the disposition of such Registrable Securities.
4.7 Notify each holder whose Registrable Securities are included in
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the Purchaser of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
4.8 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
4.9 Use its best efforts to cause all Registrable Securities included
in such registration statement to be listed, upon official notice of issuance,
on any securities exchange or quotation system on which any of the securities of
the same class as the Registrable Securities are then listed.
4.10 The Company may require each holder whose Registrable Securities
are being registered to, and each such holder, as a condition to including
Registrable Securities in such registration statement, shall, furnish the
Company and the underwriters with such information and affidavits regarding such
holder and the distribution of such Registrable Securities as the Company and
the underwriters may from time to time reasonably request in writing in
connection with such registration statement. At any time during the
effectiveness of any registration statement covering Registrable Securities
offered by a holder, if such holder becomes aware of any change materially
affecting the accuracy of the information contained in such registration
statement or the prospectus (as then amended or supplemented) relating to such
holder, it will immediately notify the Company of such change.
-6-
<PAGE>
4.11 Upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 4.7, each holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such holder
receives the copies of the supplemented or amended prospectus contemplated by
Section 4.7 and, if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holder's possession of
the prospectus relating to such Registrable Securities.
4.12 As used in this Agreement, the term "best efforts" shall not
mean efforts which require the performing party to do any act that is
unreasonable under the circumstances or to expend any funds other than
reasonable out-of-pocket expenses incurred in satisfying its obligations
hereunder, including but not limited to the fees, expenses and disbursements of
its accountants, counsel and other professionals.
5. Expenses. With respect to any registration requested pursuant to
--------
Article 2 (except as otherwise provided in such Article with respect to a
registration voluntarily terminated at the request of the requesting holders of
Registrable Securities) the Company shall bear all of the expenses
("Registration Expenses") incident to the Company's performance of or compliance
with its obligations under this Agreement in connection with such registration
including, without limitation, all registration, filing, securities exchange
listing and NASD fees, all registration, filing, qualification and other fees
and expenses or complying with state securities or "blue sky" laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and compliance,
premiums and other costs of any policies of insurance against liabilities
arising out of the Public Offering of the Registrable Securities being
registered obtained by the Company (it being understood that the Company shall
have no obligation to obtain such insurance) and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities; but excluding
underwriting discounts and commissions and transfer taxes, if any, in respect of
Registrable Securities and any fees and disbursements of counsel and accountants
to the holders of the Registrable Securities, which discounts, commissions,
transfer taxes, fees and disbursements shall in any registration be payable by
the holders of the Registrable Securities being registered, pro rata in
---------
proportion to the number of Registrable Securities being sold by them.
6. Indemnification.
---------------
6.1 The Company will, to the full extent permitted by law, indemnify
and hold harmless each holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Agreement, and its
directors, officers and partners and each other person, if any, who controls
such holder within the meaning of the Securities Act, from and against any and
all losses, claims, damages, expenses or liabilities, joint or several
(collectively, "Losses") to which such holder or any such director, officer,
partner or controlling person may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in a
registration
-7-
<PAGE>
statement prepared and filed hereunder, any preliminary, final or summary
prospectus contained therein or any amendment or supplement thereto or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and the Company will reimburse the holder and each such director,
officer, partner and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
against any such Losses (or action or proceeding in respect thereof); provided,
--------
however, that the Company will not be liable in any such case to the extent that
- -------
any such Losses arise out of or are based upon (a) an untrue statement or
alleged untrue statement or omission or alleged omission made in conformity with
written information furnished by such holder specifically for use in the
preparation of the registration statement or (b) such holder's failure to send
or give a copy of the final prospectus to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director, officer,
partner or controlling person of such holder and shall survive the transfer of
such securities by such holder. The Company shall also indemnify each other
person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors, and partners, and each
other person, if any, who controls any such participating person within the
meaning of the Securities Act to the same extent provided above with respect to
holders of Registrable Securities.
6.2 Each holder of Registrable Securities which are included in a
registration pursuant to the provisions of this Agreement will, to the full
extent permitted by law, indemnify and hold harmless the Company, its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act from and against any and all Losses to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such Losses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in a registration statement prepared and filed hereunder, any
preliminary, final or summary prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by such holder
specifically for use in the preparation of such registration statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person of the Company. The holder of Registrable Securities included in a
registration statement shall also indemnify each other person who participates
(including as an underwriter) in the offering or sale of Registrable Securities,
their officers and directors, and partners, and each other person, if any, who
controls any such participating person within the meaning of the Securities Act
to the same extent as provided above with respect to the
-8-
<PAGE>
Company. In no event shall the liability of any holder under this Section 6.2
exceed the gross proceeds received by such holder from the sale of their
Registrable Securities.
6.3 Promptly after receipt by a party indemnified pursuant to the
provisions of Section 6.1 or Section 6.2 of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 6.1 or Section 6.2,
promptly notify the indemnifying party of the commencement thereof, but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against any indemnified party,
the indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any action include both the
-------- -------
indemnified party and the indemnifying party and the indemnified party
reasonably concludes that there is a conflict of interest that would prevent
counsel for the indemnifying party from also representing the indemnified party,
the indemnified party shall have the night to select one separate counsel to
participate in the defense of such action on behalf of the indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of Section 6.1 or
Section 6.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof unless (a) the
indemnified party shall have employed counsel in accordance with the proviso of
the preceding sentence, (b) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (c) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. If
the indemnifying party is not entitled to, or elects not to, assume the defense
of a claim, it will not be obligated to pay the fees and expenses of more than
one counsel for the indemnified parties with respect to such claim, unless in
the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel or counsels for the
indemnified parties, but only to the extent necessary to cure such conflict of
interest. No indemnifying party shall consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation without the consent of the
indemnified party. No indemnifying party shall be subject to any liability for
any settlement made without its consent. An indemnified party may at any time
elect to participate in the defense of any claim or proceeding at its own
expense.
7. Underwritten Offerings. If a distribution of Registrable Securities
----------------------
pursuant to a registration statement is to be underwritten, the holders whose
Registrable Securities are to be distributed by such underwriters shall be
parties to such underwriting agreement. No requesting holder may participate in
such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and
-9-
<PAGE>
executes all questionnaires, powers of attorney, indemnities and other documents
reasonably required under the terms of such underwriting agreement. If any
requesting holder disapproves of the terms of an underwriting, such holder may
elect to withdraw therefrom and from such registration by notice to the Company
and the managing underwriter, and each of the remaining requesting holders shall
be entitled to increase the number of Registrable Securities being registered to
the extent of the Registrable Securities so withdrawn in the proportion which
the number of Registrable Securities being registered by such remaining
requesting holder bears to the total number of Registrable Securities being
registered by all such remaining requesting holders.
8. Stand-Off Agreement. Each holder of Registrable Securities agrees, so
-------------------
long as such holder holds at least 5% of the Company's outstanding voting equity
securities, in connection with a Public Offering, upon request of the Company or
the underwriters managing such Public Offering, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Common Shares of the Company without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time (not exceeding
180 days) from the effective date of the registration statement relating to such
Public Offering as may be requested by the underwriters; provided, however, that
-------- -------
all other persons with registration rights (whether or not pursuant to this
Agreement) and all of the executive officers and directors of the Company who
own stock of the Company must also agree to not less onerous restrictions.
9. Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register the Registrable Securities pursuant to this Agreement may not be
assigned by the Purchaser except (a) to an Affiliate of the Purchaser without
limitation or (b) to a transferee or assignee of Registrable Securities
representing or convertible into 5% or more of the Company's outstanding Common
Shares. In the case of either (a) or (b) the Purchaser shall, within a
reasonable time after such transfer or assignment, furnish to the Company
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned.
Any transferee asserting registration rights hereunder shall be bound by the
applicable provisions of this Agreement.
10. Amendment. The Company shall not amend this Agreement without the
---------
written consent of the holders of more than 50% of the Registrable Securities.
11. Termination. This Agreement, and all of the Company's obligations
-----------
hereunder (other than its obligations pursuant to Article 6, which obligations
shall survive such termination), shall terminate upon the earlier to occur of
(i) the date on which there are no Registrable Securities outstanding and (ii)
November 24, 2003.
12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law but if any provision of this Agreement is held to be invalid,
illegal or unenforceable under any applicable law or rule, the validity,
legality and enforceability of the other provision of this Agreement will not be
affected or impaired thereby.
-10-
<PAGE>
13. Notices. All notices, consents, requests, instructions, approvals or
-------
other communications provided for herein shall be in writing and delivered by
personal delivery, overnight courier, mail or electronic facsimile addressed to
the receiving party at the address set forth herein. All such communications
shall be effective when received.
(a) If to any holder of any Registrable Securities addressed to
such holder at its address as shown on the books of the Company, or at such
other address as such holder may specify by written notice to the Company, or
(b) if to the Company, at New Century Financial Corporation, 18400
Von Karman, Suite 1000, Irvine, California 92612, Attention: Brad A. Morrice,
Fax: 949-440-7033; or at such other address as the Company may specify by
written notice to the holders of Registrable Securities hereunder.
14. Counterparts. This Agreement may be executed concurrently in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Facsimile signatures
shall constitute original signatures for all purposes of this Agreement.
15. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties.
16. Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to the conflicts or choice of laws, of the State of
Delaware.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL
CORPORATION
By: /s/ Robert K. Cole
---------------------------------------
Its Chairman and Chief Executive Officer
U.S. BANCORP
By: /s/ Susan E. Lester
---------------------------------------
Its Executive Vice President and Chief
Financial Officer
-11-
<PAGE>
EXHIBIT 10.3
FLOW PURCHASE AGREEMENT
THIS FLOW PURCHASE AGREEMENT (the "Agreement") is entered into as of
November 24, 1998, by and between New Century Mortgage Corporation ("Seller")
and U.S. Bank National Association, ND ("Buyer").
WHEREAS, Seller is in the business of originating, servicing and selling
mortgage loans secured by one-to-four family residences;
WHEREAS, Buyer from time to time desires to purchase whole mortgage loans
("Mortgage Loans") on a servicing-retained basis;
WHEREAS, the parties desire to establish the framework for Buyer to bid on,
and potentially purchase, a significant volume of whole loans from Seller;
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Solicitation of Bid. Each month Seller will present to Buyer for bid a
-------------------
pool of Mortgage Loans with an aggregate principal balance of not less than
$50,000,000 (plus or minus 10%) having the characteristics set forth on Exhibit
A hereto. Seller will provide to Buyer such information regarding the offered
pool of Mortgage Loans as Buyer reasonably requires in order to submit a
purchase bid.
2. Buyer's Offer to Purchase. Within five (5) days of receipt of
-------------------------
information regarding the pool, Buyer will make an offer to purchase on a
servicing-retained basis all or a randomly selected portion of the pool, but
with an aggregate principal balance of not less than $10,000,000. The offer
will be in the form of the Confirmation attached hereto as Exhibit B,
specifying, among other things, the Purchase Price Percentage to be paid by
Buyer. If Seller has not received an offer from Buyer by the sixth (6th) day
after presenting the pool to Buyer, Seller may proceed to offer the pool to
other prospective purchasers.
3. Acceptance or Rejection. Within 7 days of receipt of Buyer's offer, if
-----------------------
any, Seller, in its sole discretion, must either accept or reject the offer. If
Seller accepts the offer, Seller will sign the Confirmation and the parties will
cooperate to consummate the sale by the Closing Date reflected in the
Confirmation. If Seller rejects the offer, then for a period of 30 days
thereafter, Seller will not sell the pool to a third party on terms less
favorable to Seller than those contained in Buyer's offer without once again
offering the pool to Buyer.
4. Terms of the Sale. For Mortgage Loan sale transactions hereunder, the
-----------------
parties will use sale documents in substantially the form of the Mortgage Loan
Purchase
<PAGE>
and Sale Agreement attached hereto as Exhibit C, or such other form as the
parties mutually agree upon.
5. Servicing. Buyer will retain Seller to service all Mortgage Loans
---------
purchased pursuant to this Agreement for a 50 basis point fee plus deboarding
and other customary fees agreed to by the parties as consistent with industry
practice for the type of services to be practiced by Seller. Servicing will be
on an Actual/Actual basis. Seller will be entitled to retain late fees
collected on the Mortgage Loans, and Buyer will be entitled to keep prepayment
penalty fees.
6. Representations and Warranties of Seller. As an inducement to cause
----------------------------------------
Buyer to enter into this Agreement Seller represents and warrants to Buyer that,
as of the date of this Agreement:
(a) Seller a corporation duly organized, validly existing, and in good
standing under the laws of the State of California, is duly qualified and in
good standing to transact business, and possesses all requisite authority,
power, licenses, permits and franchises to execute, deliver and comply with
its obligations under the terms of this Agreement, the execution, delivery and
performance of which have been duly authorized by all necessary corporate
action.
(b) The execution and delivery of this Agreement by Seller in the
manner contemplated herein and the performance and compliance with the terms
hereof by it shall not violate: (i) its articles of incorporation or bylaws,
or (ii) any laws that could have any material adverse effect whatsoever upon
the validity, performance or enforceability of any of the terms of this
Agreement applicable to Seller, and will not constitute a material default (or
an event that, with notice or lapse of time or both, would constitute a
material default) under, or result in the breach of, any material contract,
agreement or other instrument to which Seller is a party.
(c) The execution and delivery of this Agreement by Seller in the
manner contemplated herein and the performance and compliance with the terms
hereof by it do not require the consent or approval of any governmental
authority, or if such consent or approval is required, it has been obtained.
(d) Assuming due authorization, execution and delivery by each other
party hereto, this Agreement and all of 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 applicable bankruptcy, conservatorship or similar debtor relief
laws affecting the enforcement of creditors' rights generally.
(e) There is no action, suit, proceeding or investigation pending or,
to the best of Seller's knowledge, threatened against Seller which, either in
any one instance or in the aggregate, may (i) result in any material adverse
change in business,
2
<PAGE>
operations, financial condition, properties or assets of Seller or in any
material impairment of the right or ability of Seller to carry on it business
substantially as now conducted or to perform under the terms of this Agreement
or (ii) which would draw in question the validity of this Agreement or the
Mortgage Loans.
(f) Seller is not in default with respect to any order or decree of
any court or order, regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or other) or
operations of Buyer or its properties or might have consequences that would
materially and adversely affect its performance hereunder.
7. Representations and Warranties of Buyer. As an inducement to cause
---------------------------------------
Seller to enter into this Agreement Buyer represents and warrants to Seller
that, as of the date of this Agreement:
(a) Buyer is a national bank, duly organized, validly existing, and in
good standing under the laws of the United States and possess all requisite
authority, power, licenses, permits and franchises to execute, deliver and
comply with its obligations under the terms of this Agreement, the execution,
delivery and performance of which have been duly authorized by all necessary
corporate action.
(b) The execution and delivery of this Agreement by Buyer in the
manner contemplated herein and the performance and compliance with the terms
hereof by it shall not violate: (i) its articles of incorporation or bylaws,
or (ii) any laws that could have any material adverse effect whatsoever upon
the validity, performance or enforceability of any of the terms of this
Agreement applicable to Buyer, and will not constitute a material default (or
an event that, with notice or lapse of time or both, would constitute a
material default) under, or result in the breach of, any material contract,
agreement or other instrument to which Buyer is a party.
(c) The execution and delivery of this Agreement by Buyer in the
manner contemplated herein and the performance and compliance with the terms
hereof by it do not require the consent or approval of any governmental
authority, or if such consent or approval is required, it has been obtained.
(d) Assuming due authorization, execution and delivery by each other
party hereto, this Agreement and all of the obligations of Buyer hereunder are
the legal, valid and binding obligations of Buyer, enforceable in accordance
with the terms of this Agreement, except as such enforcement may be limited by
applicable bankruptcy, conservatorship or similar debtor relief laws affecting
the enforcement of creditors' rights generally.
(e) There is no action, suit, proceeding or investigation pending or,
to the best of Buyer's knowledge, threatened against Buyer which, either in
any one
3
<PAGE>
instance or in the aggregate, may (i) result in any material adverse change in
business, operations, financial condition, properties or assets of Buyer or in
any material impairment of the right or ability of Buyer to carry on it
business substantially as now conducted or to perform under the terms of this
Agreement or (ii) which would draw in question the validity of this Agreement
or the Mortgage Loans.
(f) Buyer is not in default with respect to any order or decree of any
court or order, regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that would
materially and adversely affect the condition (financial or other) or
operations of Buyer or its properties or might have consequences that would
materially and adversely affect its performance hereunder.
8. Term and Termination. This Agreement will expire on the earlier of (i)
--------------------
the one year anniversary of the date of this Agreement, or (ii) the day on which
an aggregate of more than $300 million in Mortgage Loans has been sold under
this Agreement. Either party may terminate this Agreement prior to its
expiration upon 90 days' written notice to the other party. This Agreement may
be terminated immediately by the non-defaulting party in the event of the
occurrence of any of the following:
(a) the other party materially defaults in the performance of any of
its duties or obligations hereunder, which default shall not be substantially
cured within 30 days after written notice is given by the non-defaulting party
specifying the default;
(b) an insolvency, bankruptcy or similar proceeding shall have been
commenced, or a decree or order of any appropriate court, agency or
supervisory authority for the appointment of a conservator, receiver or
liquidator shall have been entered against the other party, or the other party
admits in writing that it is unable to pay debts generally as they come due or
makes an assignment for the benefit of creditors.
9. Notices. All demands, notices and communication hereunder shall be in
--------
writing and shall be deemed to have been duly given if mailed, by registered or
certified mail, return receipt requested, or, if by other means, when received
by the other party at the following addresses:
(a) if to Buyer:
U.S. Bank National Association
2751 Shephard Road
St. Paul, MN 55116
Attn: Dave Anton, Vice President
(b) if to Seller:
4
<PAGE>
New Century Mortgage Corporation
18400 Von Karman, Suite 1000
Irvine, CA 92612
Attn: Pat Flanagan, Executive Vice President and COO
or such other addresses as may hereafter be furnished to the other party by like
notice.
10. Amendments, Changes and Modifications. This Agreement may be amended,
-------------------------------------
changed modified or altered only with the written consent of Seller and Buyer by
a written agreement that specifically refers to this Agreement and that is
executed by all parties.
11. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Minnesota, without regard to the
application of conflict of laws rules.
12. 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 hereto shall be valid and enforceable
and have full force and effect as if the invalid or unenforceable part had not
been included.
13. Rights Cumulative; Waivers. 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. Any failure to exercise or any delay in exercising any of
such rights shall not operate as a waiver or variation of that or any other such
right. Any defective or partial exercise of any 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 shall in any way preclude
such party from exercising any such right or constitute a suspension or any
variation of any such right.
14. Counterparts. This Agreement may be executed in any number of
-------------
counterparts, each of which shall constitute one and the same instrument, and
wither party hereto may execute this Agreement by signing any such counterpart.
15. Remedies Not Exclusive. Except as provided otherwise herein, the
-----------------------
rights and remedies of the parties provided in the Agreement are cumulative and
not exclusive and are in addition to any other rights and remedies now and
hereafter provided by law.
16. Integrated Agreement. This Agreement and the documents, instruments
---------------------
and agreements executed and delivered pursuant to this Agreement, constitute the
entire
5
<PAGE>
agreement between the parties with respect to the subject of the transactions
contemplated hereby and supersede all prior letters or agreements with respect
thereto.
17. Assignment of Rights to Third Parties. All of the terms and
-------------------------------------
conditions of this Agreement shall be binding upon and inure to the benefit of
Buyer and Seller and their respective successor and assigns; provided, however,
that neither party shall assign or delegate any of its rights, privileges or
duties arising under this Agreement without prior written consent of the other.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers, all as of the day and year stated
above.
U.S. Bank National Association, ND New Century Mortgage Corporation
By:/s/ David Anton By:
------------------------------- -----------------------------
Name: David Anton Name:
--------------------------- ---------------------------
Title: Vice President Title:
--------------------------- --------------------------
S-1
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective officers, all as of the day and year stated
above.
U.S. Bank National Association, ND New Century Mortgage Corporation
By: By: /s/ Patrick Flanagan
------------------------------- ----------------------------
Name: Name: Patrick Flanagan
----------------------------- ---------------------------
Title: Title: Executive Vice President
---------------------------- --------------------------
S-1
<PAGE>
Exhibit A
Pool Criteria
-------------
1. All Mortgage Loans must conform to the mortgage loan origination standards
established and applied by Seller regarding the eligibility of mortgage
loans for origination and purchase by Seller, including exceptions to the
ordinarily applicable standards if such exceptions were properly approved by
persons with authority to do so under such standards, as they may be amended
or supplemented from time to time.
2. No Mortgage Loan may be:
. To a Borrower who is rated "C minus" under Seller's underwriting
guidelines
. Originated under Seller's "C minus Home Saver" program
3. The proportion of loan types offered by Seller for bid in each month must be
representative of Seller's aggregate production in that month, except that,
if Buyer so requests, they must also conform to the following criteria:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Characteristic A B C
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lien Position 1st only 1st only 1st only
- -------------------------------------------------------------------------------------------------------------------------
Rental, or investor owned Yes Yes Yes
- -------------------------------------------------------------------------------------------------------------------------
Single family, condo, PUDs only Yes Yes Yes
- -------------------------------------------------------------------------------------------------------------------------
Exceptions to Seller's bankruptcy underwriting criteria No No No
- -------------------------------------------------------------------------------------------------------------------------
Average LTV not more than 79% 75% 70%
- -------------------------------------------------------------------------------------------------------------------------
Maximum Rental/Investor Owned 13% 13% 13%
- -------------------------------------------------------------------------------------------------------------------------
Maximum "Jumbo" loans (defined as greater than $300,000 15% 15% 15%
for A, $250,000 for B, and $200,000 for C) based on
number of loans in pool
- -------------------------------------------------------------------------------------------------------------------------
Maximum "Stated Income" 35% 35% 35%
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Credit Grade Maximum Target Minimum
- -------------------------------------------------------------------------------------------------------------------------
A+ 80% 75% 70%
A+ MO
A-
A- MO
- -------------------------------------------------------------------------------------------------------------------------
B 25% 20% 15%
- -------------------------------------------------------------------------------------------------------------------------
C 15% 10% 0%
- -------------------------------------------------------------------------------------------------------------------------
C- or Home Saver None None None
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-1
<PAGE>
Exhibit B
Form of Confirmation
--------------------
CONFIRMATION
This Confirmation is entered into pursuant to that certain Flow Purchase
Agreement dated as of November __, 1998 by and between New Century Mortgage
Corporation, as Seller, and US Bank National Association, ND, as Buyer.
Capitalized terms used herein and not defined herein have the meanings given
them in said Mortgage Loan Purchase Agreement.
Seller and Buyer hereby confirm an agreement to sell and purchase the Mortgage
Loans identified on the attached Mortgage Loan Schedule, upon the following
terms:
Date of this Confirmation: __________________________
Closing Date: __________________________
Purchase Price Percentage: __________%
[or list separately for sub-pools of
different loan types]
Cut-Off Date ________ 1, 199__
Aggregate Principal Balance as of Cut-Off $_________________________
Date:
The Mortgage Loan Schedule is attached hereto.
NEW CENTURY MORTGAGE CORPORATION
By: ___________________________
Its: ____________________
US BANK NATIONAL ASSOCIATION, ND
By: ___________________________
Its: ____________________
B-1
<PAGE>
Exhibit C
Form of Mortgage Loan Purchase and Sale Agreement
-------------------------------------------------
C-1
<PAGE>
================================================================================
MORTGAGE LOAN PURCHASE AND SALE AGREEMENT
By and Between
NEW CENTURY MORTGAGE CORPORATION
Seller,
and
US BANK NATIONAL ASSOCIATION, ND
Buyer
Dated as of ____________, 199_
================================================================================
<PAGE>
MORTGAGE LOAN PURCHASE AND SALE AGREEMENT
TABLE OF CONTENTS
PAGE
----
1. Definitions............................................................. 1
2. Seller's Representations and Warranties................................. 6
(a) Representations and Warranties Regarding Seller..................... 6
(i) Due Incorporation and Good Standing.................... 6
(ii) Corporate Authority and Power.......................... 6
(iii) Authorization, Execution, Delivery; Valid, Binding..... 7
(iv) Governmental Consent................................... 7
(v) Bulk Transfers......................................... 7
(vi) Performance............................................ 7
(vii) Pending Litigation..................................... 7
(viii) Compliance with Laws and Regulations................... 7
(ix) Material Facts......................................... 7
(b) Representations and Warranties Regarding Mortgage Loans............. 7
(i) Information Valid...................................... 8
(ii) Payments Current....................................... 8
(iii) No Outstanding Charges................................. 8
(iv) Original Terms Unmodified.............................. 8
(v) No Defenses............................................ 8
(vi) Hazard Insurance....................................... 9
(vii) Compliance with Applicable Laws........................ 9
(viii) No Satisfaction of Mortgage............................ 9
(ix) Valid Lien............................................. 10
(x) Validity of Mortgage Documents......................... 10
(xi) Full Disbursement of Proceeds.......................... 10
(xii) Ownership.............................................. 10
(xiii) Doing Business......................................... 11
(xiv) Title Insurance........................................ 11
(xv) No Defaults............................................ 11
(xvi) No Mechanics' Liens.................................... 11
(xvii) Location of Improvements; No Encroachments............. 11
(xviii) Payment Terms.......................................... 11
(xix) Customary Provisions................................... 12
(xx) Occupancy of the Mortgaged Property.................... 12
(xxi) No Additional Collateral............................... 12
(xxii) Deeds of Trust......................................... 12
(xxiii) Mortgaged Property Undamaged........................... 12
(xxiv) Leaseholds............................................. 12
(xxv) No Buydowns; No Contingent Features.................... 12
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(xxvi) Compliance with Appraisal Regulations.................. 13
(xxvii) Origination Practices and Servicing.................... 13
(xxviii) No Construction or Trade-In Loans...................... 13
(xxix) Absence of Fraud....................................... 13
(xxx) Condominium or PUD..................................... 13
(xxxi) Pool Criteria.......................................... 13
(c) Exclusivity of Seller's Representations and Warranties.............. 13
3. Buyer's Representations and Warranties.................................. 13
(a) Due Incorporation and Good Standing................................. 13
(b) Corporate Authority and Power....................................... 14
(c) Authorization, Execution, Delivery; Valid, Binding.................. 14
(d) Governmental Consent................................................ 14
(e) Performance......................................................... 14
(f) Pending Litigation.................................................. 14
(g) Compliance with Laws and Regulations................................ 14
(h) Material Facts...................................................... 15
4. Purchase and Sale....................................................... 15
(a) Agreement to Purchase............................................... 15
(b) Confirmations....................................................... 15
5. Examination of Mortgage Files........................................... 15
6 Purchase Price.......................................................... 16
7. Purchase and Settlement................................................. 16
8. Indemnification and Repurchase Obligation............................... 17
(a) Repurchase for Breach of Representation and Warranty
or Document Deficiency............................................. 17
(b) Repurchase for First Payment Default................................ 17
(c) Repurchase Procedure................................................ 17
(d) Indemnification..................................................... 18
(e) Sole and Exclusive Remedies......................................... 18
(f) Reimbursement for Certain Refinancings.............................. 18
(g) Survival of Representations and Warranties.......................... 19
9. Delivery of Loan Documentation.......................................... 19
10. True Sale; Financial Accounting Treatment............................... 19
11. Arbitration............................................................. 20
12. Miscellaneous........................................................... 20
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(a) Construction; Article and Section Headings..................... 20
(b) Counterparts; Execution and Delivery by Facsimile.............. 20
(c) Severability................................................... 20
(d) Notices........................................................ 21
(e) Governing Law.................................................. 21
(f) Offsets........................................................ 21
(g) Prior Agreements............................................... 21
(h) Amendments..................................................... 21
(i) Assignment of Rights under this Agreement...................... 22
Schedule of Exhibits:
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Exhibit A Form of Confirmation
Exhibit B Pool Criteria
Exhibit C Mortgage Notes and Loan Files
Exhibit D Form of Assignment of Mortgage Loans
Exhibit E Seller's Wire Instructions
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MORTGAGE LOAN PURCHASE AND SALE AGREEMENT
THIS MORTGAGE LOAN PURCHASE AND SALE AGREEMENT (the "Agreement") is entered
into as of _____________, 199_, by and between New Century Mortgage Corporation
("Seller") and US Bank National Association, ND ("Buyer").
WHEREAS, Seller desires to sell, and Buyer desires to purchase, certain
whole mortgage loans ("Mortgage Loans") on a servicing-retained basis, subject
to the terms and conditions set forth in the Agreement.
NOW, THEREFORE, the parties hereby agree that for good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
Seller hereby agrees to sell to Buyer and Buyer hereby agrees to purchase from
Seller, on the Closing Dates those Mortgage Loans identified in the Mortgage
Loan Schedules, all in accordance with the terms, covenants and conditions as
herein set forth.
1. Definitions.
Unless the context shall otherwise plainly require, the capitalized terms
used herein shall have meanings given them below and such meanings are equally
applicable to the singular and the plural forms of such terms.
"Adjustable Rate Mortgage Loan" means a Mortgage Loan which, by its terms,
allows for periodic adjustments to the Note Rate according to a specified
procedure.
"Agreement" or "Purchase Agreement" means this Mortgage Loan Purchase and
Sale Agreement and all exhibits, amendments and supplements thereto.
"Appraised Value" means, with respect to any Mortgaged Property, the lesser
of (i) the value thereof as determined by an appraisal made by an Appraiser for
the originator of the Mortgage Loan at the time of origination of the Mortgage
Loan, and (ii) the purchase price paid for the related Mortgaged Property by the
Borrower with the proceeds of the Mortgage Loan; provided, however, in the case
-------- -------
of a Refinanced Mortgage Loan, such value of the Mortgaged Property is
determined solely pursuant to the valuation method set forth in clause (i)
above.
"Assignment of Mortgage" means an assignment of a Mortgage, notice of
transfer, or equivalent instrument sufficient under the laws of the jurisdiction
in which the related Mortgaged Property is located to reflect the sale of the
Mortgage to Buyer.
"Borrower" means any obligor on a Mortgage Note or any Person that has
acquired Mortgaged Property and assumed the obligations of the obligor under the
Mortgage Note and the Mortgage, or a Person that has acquired title to any
Mortgaged Property subject to the lien of the Mortgage.
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"Business Day" means any day other than (a) a Saturday or Sunday, or (b) a
day on which banking institutions in the state in which either Buyer or Seller
has its headquarters are authorized or obligated by law or executive order to be
closed.
"Closing" means the consummation of the purchase and sale of the Mortgage
Loans as contemplated in this Agreement, which shall take place on a Closing
Date.
"Closing Date" means, with respect to a Mortgage Loan or group of Mortgage
Loans, the date specified as such in the related Confirmation, which shall be
the date on which the sale of such Mortgage Loans pursuant to this Agreement
shall be consummated and payment of the Purchase Price therefor shall be made.
"Confirmation" means an agreement substantially in the form set forth as
Exhibit A, executed by Seller and Buyer, establishing the Closing Date and the
- ---------
Purchase Price Percentage with respect to the Mortgage Loan or group of Mortgage
Loans listed on the Mortgage Loan Schedule attached thereto.
"Cut-off Date" means, with respect to a Mortgage Loan, the first day of the
calendar month in which the Closing Date with respect to that Mortgage Loan
occurs.
"Delinquent" means, with respect to a Mortgage Loan, one for which any
Monthly Payment installment is unpaid by the subsequent Due Date.
"Due Date" means, with respect to each Mortgage Loan, the day of each month
on which a Monthly Payment installment is due as stated in the underlying
Mortgage Note.
"Fixed Rate Mortgage Loan" means a Mortgage Loan which, by its terms, calls
for the Note Rate to be constant for the term of the loan.
"Flood Insurance Policy" means a policy of insurance issued in accordance
with the Flood Disaster Protection Act of 1973, as amended from time to time,
or, if repealed or amended, any superseding legislation governing similar
insurance coverage, or any other policy providing similar coverage against loss
sustained by floods that conforms to the flood insurance requirements prescribed
by the Lending Standards.
"Flow Purchase Agreement" means that certain Flow Purchase Agreement dated
as of November __, 1998 between Buyer and Seller.
"Hazard Insurance Policy" means a fire and casualty extended coverage
insurance policy issued by a Qualified Insurer and protecting against loss or
damage from fire and other hazards covered by a standard extended coverage
endorsement and containing such other terms and conditions as are consistent
with the Lending Standards, or any other fire and casualty insurance policy
providing similar coverage and issued by a Qualified Insurer, including all
riders and endorsements thereto.
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"Index" means, with respect to an Adjustable Rate Mortgage Loan, the
interest rate series used as the basis for periodic adjustments to the Note Rate
as specified in the Mortgage Note.
"Insurance Policy" means a Primary Mortgage Insurance Policy, Hazard
Insurance Policy, Flood Insurance Policy, Title Insurance Policy or Title
Certificate, including all riders and endorsements thereto.
"Insurance Proceeds" means any amounts paid upon settlement of claims filed
under an Insurance Policy, and the proceeds of any other insurance policy or
bond providing coverage for a Mortgage Loan or a Mortgaged Property.
"Lender" means the originator of any Mortgage Loan, as lender thereunder,
together with its successors and assigns, as mortgagee thereunder.
"Lending Standards" means the mortgage loan origination standards
established and applied by Seller regarding the eligibility of mortgage loans
for origination and purchase by Seller, including exceptions to the ordinarily
applicable standards if such exceptions were properly approved by persons with
authority to do so under such standards, as they may be amended or supplemented
from time to time.
"Liquidation Proceeds" means all funds received in full repayment of a
Mortgage Loan, whether upon prepayment in full by the Borrower, sale by deed-in-
lieu of foreclosure, the receipt of foreclosure proceeds from a judgment, writ
of attachment or order levied against the Borrower or his assets, the receipt of
Insurance Proceeds, the receipt of proceeds from the purchase of the Mortgage
Loan by Seller or Buyer, or otherwise.
"Loan-to-Value Ratio" or "LTV" means, with respect to a Mortgage Loan, the
ratio, expressed as a percentage, that the principal balance of the Mortgage
Loan as of the date of origination of the loan bears to the lesser of (a) the
Appraised Value of the Mortgaged Property, or (b) if the Mortgage Loan was made
to finance the acquisition of the Mortgaged Property, the purchase price of the
Mortgaged Property.
"Monthly Payment" means the amount of a scheduled installment of principal
and interest due to the holder of a Mortgage Loan in accordance with the terms
of the Mortgage Loan.
"Mortgage" means a mortgage, deed of trust or other instrument given as
security for a Mortgage Note, together with any riders, addenda or amendments
thereto.
"Mortgage Loan" means an individual loan evidenced by a Mortgage Note and
secured by a first priority Mortgage on residential one- to four-family real
property sold to Buyer by Seller pursuant to this Agreement and identified on a
Mortgage Loan Schedule.
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<PAGE>
"Mortgage Loan File" means, with respect to a Mortgage Loan, the documents
required to be delivered by Seller to Buyer or Buyer's designee pursuant to this
Agreement.
"Mortgage Loan Schedule" means a schedule of Mortgage Loans attached to a
Confirmation containing the following information with respect to each Mortgage
Loan, in each case as of the Cut-off Date except as otherwise expressly stated:
(1) the Seller's Mortgage Loan identifying number, (2) the Borrower's name, (3)
the street address of the Mortgaged Property, including the state and zip code
(4) a code indicating whether the Mortgaged Property is owner-occupied (which
shall mean that the Borrower represented at the time of origination that the
Mortgaged Property would be so occupied); (5) a code indicating whether the
Mortgaged Property is a single family residence, a two- to four-family
residence, a condominium unit or a unit in a PUD, (6) the LTV at origination,
(7) the Note Rate in effect immediately following the Cut-Off Date, (8) the
stated maturity date, (9) the amount of the Monthly Payment at origination, (10)
the amount of the Monthly Payment as of the Cut-Off Date, (11) the last payment
date on which a Monthly Payment was actually applied to the unpaid stated
principal balance, (12) the original principal amount, (13) the principal
balance as of the close of business on the Cut-off Date, after deduction of
payments of principal due on or before the Cut-off Date, whether or not
collected, (14) a code indicating the loan purpose, (15) the Note Rate at
origination, (16) a code indicating the document style (i.e., full, limited or
stated); (17) the risk grade, (18) a code indicating whether the Mortgage Loan
is secured by a first priority lien, (19) the Appraised Value of the Mortgaged
Property, (20) the sale price of the Mortgaged Property if the loan was
originated in connection with the purchase of the Mortgaged Property, (21) the
paid to date, (22) a code indicating the type of prepayment charge, and, in the
case of Adjustable Rate Mortgage Loans, (23) the Gross Margin, and (24) the
Index, including the source of such Index. The Mortgage Loan Schedule shall
also contain, with respect to the Mortgage Loans listed therein in the
aggregate, as of the Cut-off Date: (1) the number of Mortgage Loans, (2) the
aggregate outstanding principal balance, (3) the weighted average Note Rate, and
(4) the weighted average maturity.
"Mortgage Note" means the original note, bond or other evidence of
indebtedness executed by a Borrower in evidence of the indebtedness of such
Borrower under a Mortgage Loan, and all riders, addenda and amendments thereto.
"Mortgaged Property" means the real property securing repayment of a
Mortgage Loan.
"Note Rate" means, with respect to a Mortgage Loan, the rate of interest
payable at any time by the Borrower as specified in the Mortgage Note.
"Person" means an individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof.
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<PAGE>
"Pool Criteria" means the loan characteristics and limitations set forth in
the Flow Purchase Agreement and Exhibit B to this Agreement, as such loan
---------
characteristics and limitations may be amended by the parties from time to time.
"PUD" means a planned unit development, which is a parcel of real property
that contains buildings or other improvements owned and maintained by a
homeowner's association, corporation or trust for the benefit of the Persons
that own individual residential units on such parcel where such association,
corporation or trust requires automatic, nonseverable membership by each unit
owner and imposes mandatory assessments on all such owners for maintenance and
other services.
"Purchase Price" has the meaning given it in Section 6.
---------
"Purchase Price Percentage" means, with respect to a Mortgage Loan or group
of Mortgage Loans, the percentage stated in the related Confirmation.
"Purchase Proceeds" means the net proceeds payable to Seller on the Closing
Date to effect the purchase of the Mortgage Loans by Buyer, as specified in this
Agreement.
"Qualified Insurer" means an insurance company or surety or bonding company
that qualifies as an acceptable insurer or obligor under the Lending Standards.
"Remittance Date" has the meaning given it in the Servicing Agreement.
"Servicing Agreement" means the Mortgage Loan Servicing Agreement between
Seller, as "Servicer," and Buyer, as "Owner," dated __________________, 1998,
providing for the servicing of mortgage loans by the Seller in exchange for the
Servicing Compensation, as the same may be amended from time to time.
"Servicing Compensation" means the compensation to which Seller shall be
entitled pursuant to the Servicing Agreement, including the Servicing Fee,
benefits derived from collection and escrow accounts, satisfaction and release
fees, assumption fees, late payment charges and other like fees, as more
specifically provided in the Servicing Agreement.
"Servicing Fee" has the meaning given it in the Servicing Agreement.
"Servicing Rights" means the rights to service the Mortgage Loans and
collect the income thereon according to standard industry practice.
"Tax and Insurance Reserve" means, with respect to a Mortgage Loan, the
amounts constituting ground rents, taxes, assessments, water rates, sewer rents,
municipal charges, mortgage insurance premiums, fire and hazard insurance
premiums, flood insurance premiums, and other payments escrowed by the Borrower
with the Lender pursuant to the terms of the related Mortgage Loan documents.
5
<PAGE>
"Term" means the period beginning on ___________ and ending on __________,
or such earlier date on which Seller shall have offered to Buyer pursuant to the
Flow Purchase Agreement an aggregate of $300,000,000 in outstanding principal
amount of Mortgage Loans, as such time period may be extended and such aggregate
amount may be increased by written agreement of the parties.
"Title Certificate" means an attorney's opinion or certificate of title,
indicating to the holder of the Mortgage Loan that the Mortgage constitutes a
valid first lien on the Mortgaged Property, subject only to such matters as are
permitted under subparagraphs (a) through (f) under the definition of Title
Insurance Policy.
"Title Insurance Policy" means an ALTA or CLTA (extended coverage) lender's
title insurance policy issued by a Qualified Insurer, including all riders or
endorsements thereto, together with such additional endorsements as are required
by the Lending Standards in an amount not less than the original principal
amount of the Mortgage Loan, insuring the holder of the Mortgage Loan and its
successors and assigns that the Mortgage constitutes a valid first lien on the
Mortgaged Property, subject only to (a) liens for real estate taxes and
governmental improvement assessments not delinquent; (b) easements and
restrictions that do not adversely affect the marketability of title to the
Mortgaged Property or prohibit or interfere with the use of the Mortgaged
Property for its intended purpose; (c) a declaration of condominium or other
similar document that evidences the creation of a condominium project (where
applicable); (d) reservations as to oil, gas or mineral rights provided that
such rights do not include the right to remove buildings or other improvements
on or near the surface thereof or otherwise enter the surface for purposes of
removing oil, gas or minerals; (e) agreements for the installation, maintenance
or repair of public utilities provided such agreements do not create or evidence
liens on the Mortgaged Property, authorize or permit any Person to file or
acquire claims or liens against the Mortgaged Property or interfere with the
intended use of the Mortgaged Property; and (f) such other exceptions as are
acceptable under the Lending Standards.
2. Seller's Representations and Warranties.
(a) Representations and Warranties Regarding Seller. Seller represents and
warrants to Buyer and, at all times during the term of this Agreement, shall be
deemed to represent and warrant as follows:
(i) Due Incorporation and Good Standing. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the state of
California. Seller holds all licenses, certificates, franchises, and permits
from all governmental authorities necessary for the conduct of its business and
has received no notice of proceedings relating to the revocation of any such
license, certificate or permit, which singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would materially affect the
conduct of the business, results of operations, net worth or financial condition
of Seller.
(ii) Corporate Authority and Power. Seller has all requisite corporate
power and authority to own its properties and to conduct any and all business
required or
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<PAGE>
contemplated by this Agreement to be conducted by Seller and to perform the
covenants and obligations to be performed thereunder; the execution and delivery
by Seller of this Agreement is within the corporate power of Seller and has been
duly authorized by all necessary corporate action on the part of Seller; and
neither the execution and delivery of this Agreement by Seller, nor the
consummation by Seller of the transactions therein contemplated, nor compliance
with the provisions thereof by Seller, shall (i) conflict with or result in a
breach of, or shall constitute a default under, any of the provisions of the
articles of incorporation or bylaws of Seller or any law, governmental rule or
regulation, or any judgment, decree or order binding on Seller or its
properties, or any of the provisions of any indenture, mortgage, deed of trust,
contract or other instrument to which Seller is a party or by which it is bound
or (ii) result in the creation or imposition of any lien, charge or encumbrance
upon any of its properties pursuant to the terms of any such indenture,
mortgage, deed of trust, contract or other instrument.
(iii) Authorization, Execution, Delivery; Valid, Binding. This
Agreement and all other documents and instruments required or contemplated
thereby to be executed or delivered by Seller under this Agreement, have been
duly authorized, executed and delivered by Seller and constitute legal, valid
and binding agreements enforceable against Seller in accordance with their
terms, subject, as to enforcement of remedies, to applicable bankruptcy,
reorganization, insolvency or other similar laws affecting rights of creditors
of banking institutions from time to time in effect and to general principles of
equity.
(iv) Governmental Consent. No consent, approval, order or
authorization of, or registration, qualification or declaration with, any
governmental authority is required to be obtained by Seller in connection with
the authorization, execution or delivery of this Agreement and exhibits and
documents related thereto, or the performance by Seller of the covenants and
obligations to be performed by it thereunder.
(v) Bulk Transfers. The transfer, assignment and conveyance of
the Mortgage Loans by Seller are not subject to the bulk transfer provisions of
the Uniform Commercial Code or any similar statutory provisions in effect in any
applicable jurisdiction.
(vi) Performance. Seller does not believe, nor does it have any
reason or cause to believe, that it cannot perform each and every covenant
contained in this Agreement.
(vii) Pending Litigation. There is no litigation pending or, to
Seller's knowledge, threatened, which, if determined adversely to Seller, would
adversely affect the sale of the Mortgage Loans, the execution, delivery or
enforceability of this Agreement, or which would have a material adverse effect
on the financial condition of Seller.
(viii) Compliance with Laws and Regulations. Seller has performed
and shall continue to perform its obligations and duties hereunder in accordance
with all applicable laws and regulations, including any Internal Revenue Service
reporting requirements.
(ix) Material Facts. To the best of Seller's knowledge, neither
this Agreement nor any statement, report or other document furnished or to be
furnished by Seller pursuant to
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<PAGE>
this Agreement or in connection with the transactions contemplated hereby, which
relate to Seller's financial condition and business operation, contains any
untrue statement of fact or omits to state a fact necessary to make the
statement therein not misleading.
(b) Representations and Warranties Regarding Mortgage Loans. Seller
further represents and warrants that at and as of each Closing Date, except as
otherwise stated, to the best of Seller's knowledge, the following
representations and warranties shall be accurate and complete in all material
respects as to each Mortgage Loan purchased on that Closing Date.
(i) Information Valid. All information set forth in the Mortgage
Loan Schedule is complete, true and correct.
(ii) Payments Current. All payments required to be made on or
prior to the Cut-off Date under the terms of the related Mortgage Note have been
made. No payment under any Mortgage Loan has been Delinquent for more than 30
days more than once in the 12 months immediately preceding the Closing Date.
(iii) No Outstanding Charges. There is no default in complying with
the terms of the Mortgage which creates a first lien in the Mortgaged Property,
and all taxes, governmental assessments, insurance premiums, water, sewer and
municipal charges, leasehold payments or ground rents which previously became
due and owing have been paid or for any Mortgage Loan for which an escrow of
funds is required by applicable law or is required under the terms of the
Mortgage Loan, such an escrow of funds has been established and the appropriate
amount of monies has been collected. Seller has not advanced funds, or induced,
solicited or knowingly received any advance of funds from a party other than the
Borrower, directly or indirectly, for the payment of any amount required by the
Mortgage Loan, except for interest accruing from the date of the Mortgage Note
or date of disbursement of the Mortgage Loan proceeds, whichever is later, to
the day which precedes by one month the Due Date of the first installment of
principal and interest.
(iv) Original Terms Unmodified. The terms of the Mortgage Note and
the Mortgage have not been impaired, waived, altered or modified in any respect,
except by a written instrument which has been recorded, if necessary, to protect
the interests of Buyer. The substance of any such waiver, alteration or
modification has been approved by the issuer of any related mortgage insurance
policy and the title insurer, to the extent required by the applicable policy,
and its terms are reflected on the Mortgage Loan Schedule. No Borrower has been
released, in whole or in part, except in connection with an assumption agreement
approved by the issuer of any related mortgage insurance policy and the title
insurer, to the extent required by the applicable policy, and which assumption
agreement is part of the Mortgage Loan File and the terms of which are reflected
in the Mortgage Loan Schedule. Any principal advances made to the Borrower prior
to the Cut-Off Date have been consolidated with the outstanding principal amount
secured by the Mortgage, and the Mortgage Loan File reflects the consolidation
of such advances with and into a single loan balance having a single interest
rate and a single set of repayment terms.
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(v) No Defenses. The Mortgage Loan is not subject to any right of
rescission, set-off, counterclaim or defense, including without limitation the
defense of usury, nor shall the operation of any of the terms of the Mortgage
Note or the Mortgage, or the exercise of any right thereunder, render either the
Mortgage Note or the Mortgage unenforceable, in whole or in part, or subject to
any right of rescission, set-off, counterclaim or defense, including without
limitation the defense of usury, and no such right of rescission, set-off,
counterclaim or defense has been asserted with respect thereto.
(vi) Hazard Insurance. Pursuant to the terms of the Mortgage, all
buildings or other improvements upon the Mortgaged Property are insured by a
Qualified Insurer against loss by fire, hazards of extended coverage and such
other hazards as are customary in the area where the Mortgaged Property is
located, in an amount which is at least equal to the lesser of (A) the maximum
insurable value of the improvements securing such Mortgage Loan and (B) the
greater of (x) the outstanding principal balance of the Mortgage Loan and (y) an
amount such that the proceeds thereof shall be sufficient to prevent the
Borrower or the loss payee from becoming a co-insurer. If upon origination of
the Mortgage Loan, the related Mortgaged Property was in an area identified in
the Federal Register by the Federal Emergency Management Agency as having
special flood hazards (and such flood insurance has been made available), a
Flood Insurance Policy meeting the requirements of the current guidelines of the
Federal Insurance Administration is in effect with a Qualified Insurer in an
amount representing coverage equal to the lesser of (A) the minimum amount
required, under the terms of the coverage, to compensate for any damage or loss
on a replacement cost basis (or the unpaid balance of the Mortgage if
replacement cost coverage is not available for the type of building insured) and
(B) the maximum amount of insurance which is available under the National Flood
Insurance Act of 1968, as amended. All individual Insurance policies contain a
standard mortgagee clause naming Seller or a permitted sub-servicer and its
successors and assigns as mortgagee, and all premiums due and payable thereon
have been paid. Each Mortgage obligates the Borrower thereunder to maintain the
Hazard Insurance Policy at the Borrower's cost and expense, and on the
Borrower's failure to do so, authorizes the holder of the Mortgage to obtain and
maintain such insurance at such Borrower's cost and expense, and to seek
reimbursement therefore from the Borrower. Each Hazard Insurance Policy is the
valid and binding obligation of the insurer, is in full force and effect, and
shall be in full force and effect and inure to the benefit of Buyer upon the
consummation of the transactions contemplated by the Agreement. None of Seller,
Borrower or any sub-servicer has engaged in, any act or omission which would
impair the coverage of any such policy, the benefits of the endorsement provided
for herein, or the validity and binding effect of either.
(vii) Compliance with Applicable Laws. Any and all requirements of
any federal, state or local law including, without limitation, usury, truth-in-
lending, real estate settlement procedures, consumer credit protection, equal
credit opportunity or disclosure laws applicable to the Mortgage Loan and its
origination as in effect on the date the Mortgage Loan was originated have been
complied with.
(viii) No Satisfaction of Mortgage. The Mortgage has not been
satisfied, canceled, subordinated or rescinded, in whole or in part, and the
Mortgaged Property has not
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been released from the lien of the Mortgage other than a partial release which
has been approved by the applicable mortgage insurer and which has been effected
so that (A) the priority of the Mortgage is not prejudiced by any claim or
potential claim of a junior lienholder or other person and (B) there has been no
violation of any zoning, subdivision or other law affecting or relating to the
Mortgaged Property. If a partial release has occurred, the value of the
Mortgaged Property has not been materially and adversely affected. No instrument
has been executed that would effect any such release, cancellation,
subordination or rescission except a partial release as referenced herein.
(ix) Valid Lien. The Mortgage is a valid subsisting and
enforceable first lien on the Mortgaged Property, including all buildings on the
Mortgaged Property and all installations and mechanical, electrical, plumbing,
heating and air conditioning systems located in or annexed to such buildings,
and all additions, alterations and replacements made at any time with respect to
the foregoing. The lien of the Mortgage is subject only to (1) the lien of
current real property taxes and assessments not yet due and payable; (2)
covenants, conditions and restrictions, rights of way, easements and other
matters of the public record as of the date of recording acceptable to mortgage
lending institutions generally and specifically referred to in the Title
Insurance Policy delivered to the originator of the Mortgage Loan and referred
to or otherwise considered in the valuation made for the originator of the
Mortgage Loan or which do not adversely affect the Appraised Value of the
Mortgaged Property; and (3) other matters to which like properties are commonly
subject which do not materially interfere with the benefits of the security
intended to be provided by the Mortgage or the use, enjoyment, value or
marketability of the related Mortgaged Property. Any security agreement, chattel
mortgage or equivalent document related to and delivered in connection with the
Mortgage Loan establishes and creates a valid, subsisting and enforceable first
lien and first priority security interest on the property described therein and
Seller has full right to sell and assign the same to Buyer.
(x) Validity of Mortgage Documents. The Mortgage Note and the
related Mortgage are genuine, and each is the legal, valid and binding
obligation of the maker thereof enforceable in accordance with its terms. All
parties to the Mortgage Note and the Mortgage had legal capacity to enter into
the Mortgage Loan and to execute and deliver the Mortgage Note and the Mortgage,
and the Mortgage Note and the Mortgage have been duly and properly executed by
such parties. The Borrower is a natural person who is a party to the Mortgage
Note and the Mortgage either in an individual capacity or as trustee of a family
trust, and if as trustee of a family trust, the trust's obligation is guaranteed
by a natural person in that person's individual capacity.
(xi) Full Disbursement of Proceeds. The proceeds of the Mortgage
Loan have been fully disbursed and there is no requirement for future advances
thereunder and the improvements on the Mortgaged Property have been fully
completed, except that any minor improvements or repairs that do not affect
livability may be incomplete in the case where an escrow account has been
established in accordance with the Lending Standards in an amount sufficient to
guarantee completion of the repairs or improvements. All costs, fees and
expenses incurred in making or closing the Mortgage Loan and the recording of
the Mortgage were paid,
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and the Borrower is not entitled to any refund of any amounts paid or due under
the Mortgage Note or Mortgage.
(xii) Ownership. Immediately prior to the sale of the Mortgage Loan
pursuant to this Agreement, Seller is the sole owner of the Mortgage Loan with
full right to transfer and sell the Mortgage Loan to Buyer free and clear of any
encumbrance, equity, participation interest, lien, pledge, charge, claim or
security interest, and has full right and authority subject to no interest or
participation of, or agreement with, any other party, to sell and assign each
Mortgage Loan pursuant to the Agreement.
(xiii) Doing Business. All parties which have had any interest in
the Mortgage Loan, whether as Lender, assignee, pledgee or otherwise, are (or,
during the period in which they held and disposed of such interest, were) (1) in
compliance with any and all applicable licensing requirements of the laws of the
state wherein the Mortgaged Property is located, and (2) organized under the
laws of such state, or (3) qualified to do business in such state, or (4)
federal savings and loan associations or national banks, or (5) not doing
business in such state.
(xiv) Title Insurance. The Mortgage Loan is covered by an ALTA
Title Insurance Policy with, in the case of an Adjustable Rate Mortgage Loan, an
adjustable rate mortgage endorsement, issued by a Qualified Insurer insuring
Seller, its successors and assigns, as to the first priority lien of the
Mortgage in the original principal amount of the Mortgage Loan, subject only to
the exceptions contained in clauses (1), (2) and (3) of paragraph (ix) of this
Section 2(b). Seller is the sole insured of such Title Insurance Policy, and
- ------------
such Title Insurance Policy is in full force and effect and shall be in full
force and effect upon the consummation of the transactions contemplated by the
Agreement. No claims have been made under such Title Insurance Policy, and no
prior holder of the related Mortgage, including Seller, has done, by act or
omission, anything which would impair the coverage of such Title Insurance
Policy.
(xv) No Defaults. There is no default, breach, violation or event
of acceleration existing under the Mortgage or the related Mortgage Note and no
event which, with the passage of time or with notice and the expiration of any
grace or cure period, would constitute a default, breach, violation or event of
acceleration, and neither Seller nor its predecessors have waived any default,
breach, violation or event of acceleration (other than a payment that is
Delinquent by less than 30 days).
(xvi) No Mechanics' Liens. There are no mechanics' or similar liens
or claims which have been filed for work, labor or materials (and no rights are
outstanding that under the law could give rise to such liens) affecting the
related Mortgaged Property which are or may be liens prior to, or equal or
coordinate with, the lien of the related Mortgage.
(xvii) Location of Improvements; No Encroachments. All improvements
which were considered in determining the Appraised Value of the related
Mortgaged Property lay wholly within the boundaries and building restriction
lines of the Mortgaged Property and no improvements on adjoining properties
encroach upon the Mortgaged Property except for encroachments which are minor in
nature and shall not adversely affect the value of the
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Mortgage Loan or Mortgaged Property. No improvement located on or being part of
the Mortgaged Property is in violation of any applicable zoning law or
regulation.
(xviii) Payment Terms. The Mortgage Note is payable on the first day
of each month in monthly installments of principal and interest, with interest
calculated and payable in arrears. In the case of an Adjustable Rate Mortgage
Loan, the Monthly Payments are adjusted on each adjustment date to an amount
sufficient to amortize the Mortgage Loan fully by the stated maturity date. The
Mortgage Loan does not have a balloon payment feature.
(xix) Customary Provisions. The related Mortgage contains customary
and enforceable provisions such as to render the rights and remedies of the
holder thereof adequate for the realization against the Mortgaged Property of
the benefits of the security provided thereby, including, (A) in the case of a
Mortgage designated as a deed of trust, by trustee's sale, and (B) otherwise by
judicial foreclosure. There is no homestead or other exemption available to a
Borrower which would interfere with the right to sell the Mortgaged Property at
a trustee's sale or the right to foreclose the Mortgage.
(xx) Occupancy of the Mortgaged Property. The Mortgaged Property
is lawfully occupied under applicable law. All inspections, licenses and
certificates required to be made or issued with respect to all occupied portions
of the Mortgaged Property and, with respect to the use and occupancy of the
same, including but not limited to certificates of occupancy and fire
underwriting certificates, have been made or obtained from the appropriate
authorities.
(xxi) No Additional Collateral. The related Mortgage Note is not
and has not been secured by any collateral except the lien of the corresponding
Mortgage and the security interest of any applicable security agreement or
chattel mortgage referred to in paragraph (ix) of this Section 2(b).
------------
(xxii) Deeds of Trust. If the Mortgage constitutes a deed of trust,
a trustee, duly qualified under applicable law to serve as such, has been
properly designated and currently so serves and is named in the Mortgage, and no
fees or expenses are or shall become payable by Buyer to the trustee under the
deed of trust, except in connection with a trustee's sale after default by the
Borrower.
(xxiii) Mortgage Property Undamaged. The Mortgaged Property is not
damaged by waste, fire, earthquake or earth movement, windstorm, flood, tornado
or other casualty so as to affect adversely the value of the Mortgaged Property
as security for the Mortgage Loan or the use for which the premises were
intended, or if damaged, it has been restored and repaired and the value of the
Mortgage Loan has not been adversely affected.
(xxiv) Leaseholds. The Mortgaged Property either (1) is not a
leasehold estate or (2) is a leasehold estate in which the remaining term is at
least ten years beyond the stated maturity of the Mortgage Note.
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(xxv) No Buydowns; No Contingent Features. The Mortgage Loan does
not contain provisions pursuant to which Monthly Payments are paid with funds in
a separate account or by another source other than the Borrower, nor does it
contain other similar provisions constituting "buydown" provisions. The Mortgage
Loan is not a graduated payment loan and does not have a shared appreciation or
other contingent interest feature.
(xxvi) Compliance with Appraisal Regulations. With respect to the
Mortgage Loan, all appraisal reports shall have been ordered, performed and
rendered in accordance with the requirements of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989.
(xxvii) Origination Practices and Servicing. The origination,
servicing and collection practices used with respect to the Mortgage Note and
Mortgage have been in all respects legal, proper, prudent and customary in the
mortgage origination and servicing industry, and in accordance with the terms of
the Mortgage Loan. In the case of an Adjustable Rate Mortgage Loan, the Borrower
has executed a statement acknowledging receipt of all disclosure materials
required by applicable law with respect to the making of adjustable rate
mortgage loans; and in the case of a loan for the purpose of refinancing a prior
loan, the Borrower has received all disclosure materials required by applicable
law with respect to the making of refinancing mortgage loans, and evidence of
such receipt is in the Mortgage Loan File.
(xxviii) No Construction or Trade-In Loans. The Mortgage Loan was not
made in connection with (1) the construction or rehabilitation of the Mortgaged
Property or (2) facilitating the trade-in or exchange of the Mortgaged Property.
(xxix) Absence of Fraud. There was no error, omission,
misrepresentation, fraud or similar occurrence with respect to the Mortgage Loan
on the part of any person, including, without limitation, the Borrower, any
appraiser, builder or developer, or any party involved in the origination of the
Mortgage Loan or in the application of any insurance in relation to the Mortgage
Loan.
(xxx) Condominium or PUD. If the Mortgaged Property is a
condominium unit or a unit in a PUD, the condominium or PUD project meets the
eligibility standards of Fannie Mae for such projects.
(xxxi) Pool Criteria. The Mortgage Loan (either itself or, as
applicable, together with all other Mortgage Loans sold on the same Closing
Date) satisfies the Pool Criteria.
(c) Exclusivity of Seller's Representations and Warranties. It is
expressly agreed and understood that the representations and warranties set
forth above are the sole representations and warranties made by Seller, its
representatives, agents, officers, directors or other employees with respect to
the sale of Mortgage Loans to Buyer hereunder.
3. Buyer's Representations and Warranties
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Buyer represents and warrants to Seller and, at all times during the term
of this Agreement, shall be deemed to represent and warrant as follows:
(a) Due Incorporation and Good Standing. Buyer is a national banking
association duly organized, validly existing and in good standing under the laws
of the United States. Buyer holds all licenses, certificates, franchises, and
permits from all governmental authorities necessary for the conduct of its
business and has received no notice of proceedings relating to the revocation of
any such license, certificate or permit, which singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially
affect the conduct of the business, results of operations, net worth or
financial condition of Buyer.
(b) Corporate Authority and Power. Buyer has all requisite corporate power
and authority to own its properties and to conduct any and all business required
or contemplated by this Agreement to be conducted by Buyer and to perform the
covenants and obligations to be performed thereunder; the execution and delivery
by Buyer of this Agreement is within the corporate power of Buyer and has been
duly authorized by all necessary corporate action on the part of Buyer; and
neither the execution and delivery of this Agreement by Buyer, nor the
consummation by Buyer of the transactions therein contemplated, nor compliance
with the provisions thereof by Buyer, shall (i) conflict with or result in a
breach of, or shall constitute a default under, any of the provisions of the
articles of association or bylaws of Buyer or any law, governmental rule or
regulation, or any judgment, decree or order binding on Buyer or its properties,
or any of the provisions of any indenture, mortgage, deed of trust, contract or
other instrument to which Buyer is a party or by which it is bound or (ii)
result in the creation or imposition of any lien, charge or encumbrance upon any
of its properties pursuant to the terms of any such indenture, mortgage, deed of
trust, contract or other instrument.
(c) Authorization, Execution, Delivery; Valid, Binding. This Agreement and
all other documents and instruments required or contemplated thereby to be
executed or delivered by Buyer under this Agreement, have been duly authorized,
executed and delivered by Buyer and constitute legal, valid and binding
agreements enforceable against Buyer in accordance with their terms, subject, as
to enforcement of remedies, to applicable bankruptcy, reorganization, insolvency
or other similar laws affecting rights of creditors of banking institutions from
time to time in effect and to general principles of equity.
(d) Governmental Consent. No consent, approval, order or authorization of,
or registration, qualification or declaration with, any governmental authority
is required to be obtained by Buyer in connection with the authorization,
execution or delivery of this Agreement and exhibits and documents related
thereto, or the performance by Buyer of the covenants and obligations to be
performed by it thereunder.
(e) Performance. Buyer does not believe, nor does it have any reason or
cause to believe, that it cannot perform each and every covenant contained in
this Agreement.
(f) Pending Litigation. There is no litigation pending or, to Buyer's
knowledge, threatened, which, if determined adversely to Buyer, would adversely
affect the sale of the
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Mortgage Loans, the execution, delivery or enforceability of this Agreement, or
which would have a material adverse effect on the financial condition of Buyer.
(g) Compliance with Laws and Regulations. Buyer has performed and shall
continue to perform its obligations and duties hereunder in accordance with all
applicable laws and regulations, including any Internal Revenue Service
reporting requirements.
(h) Material Facts. To the best of Buyer's knowledge, neither this
Agreement nor any statement, report or other document furnished or to be
furnished by Buyer pursuant to this Agreement or in connection with the
transactions contemplated hereby, which relate to Buyer's financial condition
and business operation, contains any untrue statement of fact or omits to state
a fact necessary to make the statement therein not misleading.
4. Purchase and Sale.
(a) Agreement to Purchase. Seller hereby agrees to sell and Buyer hereby
agrees to purchase, on or before the Closing Date identified in the related
Confirmation, Mortgage Loans having an aggregate principal balance on the
related Cut-off Date in an amount as set forth in the related Confirmation, or
in such other amount as agreed by Buyer and Seller as evidenced by the actual
aggregate principal balance of the Mortgage Loans accepted by Buyer on the
related Closing Date.
(b) Confirmation. With each pool of Mortgage Loans presented by Seller to
Buyer pursuant to the Flow Purchase Agreement, Seller shall provide Buyer with a
listing of the Mortgage Loans to be offered for purchase under this Agreement
("Preliminary Mortgage Schedule"). If Seller accepts Buyer's bid for a
particular pool of Mortgage Loans, Buyer shall purchase such Mortgage Loans
subject to the adjustments specified in the following paragraph. After making
such adjustments, Seller and Buyer shall attach the final Mortgage Loan Schedule
to the related Confirmation.
The Mortgage Loan Schedule shall include the Mortgage Loans identified on
the Preliminary Mortgage Schedule, with the following adjustments: (a)
Mortgage Loans identified by Buyer prior to the Closing Date as not conforming
to the requirements of this Agreement shall be deleted; (b) Seller shall
delete such Mortgage Loans which have been prepaid in full prior to the Closing
Date, or as to which the representations and warranties of Seller cannot be made
as of the Closing Date; and (c) Mortgage Loans acceptable to Buyer may be
substituted for Mortgage Loans deleted pursuant to clauses (a) and (b) of this
paragraph.
5. Examination of Mortgage Files.
Prior to the Closing Date, Seller shall make the Mortgage Files available
to Buyer for examination at Seller's office or such other location or locations
as Seller shall designate, for the purpose of ascertaining the compliance of the
Mortgage Loans with the terms of this Agreement. Such examination may be made by
Buyer, or any agent or designee of Buyer, at any time, whether before or after
the Closing Date. If Buyer makes such examination prior to the Closing
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Date and identifies any Mortgage Loans which do not conform to the terms of this
Agreement, such Mortgage Loans shall be deleted from the Mortgage Loan Schedule,
and may be replaced by substitute Mortgage Loans acceptable to Buyer. The
failure by Buyer to conduct any such examination prior to the Closing Date shall
not affect Buyer's rights to demand repurchase or other relief as provided under
this Agreement.
6. Purchase Price.
The Purchase Price for the Mortgage Loans sold and purchased on a Closing
Date shall be the Purchase Price Percentage reflected on the related
Confirmation multiplied by the aggregate outstanding principal balance as of the
Cut-off Date of the Mortgage Loans listed on the Mortgage Loan Schedule, after
application of scheduled payments of principal due on or before the Cut-off
Date, whether or not collected. In addition, Buyer shall pay to Seller on the
Closing Date accrued interest on the principal amount of the Mortgage Loans at
the weighted average interest rate of the Mortgage Loans net of the Servicing
Fee, from the Cut-off Date to the day prior to the Closing Date, inclusive.
Buyer shall be entitled to all scheduled principal due after the Cut-off
Date, and all payments of interest on the Mortgage Loans net of the Servicing
Fee (minus the portion of any such payment which is allocable to the period
prior to the Cut-off Date). The principal balance of each Mortgage Loan as of
the Cut-off Date is determined after application of the payments of principal
due on or before the Cut-off Date whether or not collected. Therefore,
payments of scheduled principal and interest prepaid and for a due date beyond
the Cut-off Date shall not be applied to the principal balance as of the Cut-off
Date. Such prepaid amounts shall be the property of Buyer, and Seller shall
deposit such amounts in the remittance account established for the benefit of
Buyer for subsequent remittance to Buyer; subject to the following: all
scheduled payments of principal due on or before the Cut-off Date shall belong
to Seller.
7. Purchase and Settlement.
The Closing and settlement for the purchase and sale of the Mortgage Loans
shall take place on the Closing Date. Closing shall, at Seller's option, be
either: by telephone, confirmed by letter or wire as the parties shall agree; or
conducted in person, at such place as the parties shall agree.
The Closing shall be subject to each of the following conditions:
(a) All of the representations and warranties of Buyer and Seller under
this Agreement shall be true and correct as of the Closing Date, or such other
date as is otherwise stated herein, and no event shall have occurred which, with
notice or the passage of time, would constitute a default under this Agreement;
(b) The parties shall have executed and delivered the Servicing Agreement;
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(c) All other documents required to be executed under the terms of this
Agreement shall have been duly executed and delivered by the respective parties;
and
(d) The parties shall have complied with all other terms and conditions of
this Agreement.
Upon satisfaction of the foregoing conditions, on the Closing Date, Buyer
shall pay to Seller the Purchase Price plus accrued interest by wire transfer of
immediately available funds to the account identified in Exhibit E, as
---------
designated by Seller.
8. Indemnification and Repurchase Obligation.
(a) Repurchase for Breach of Representation and Warranty or Document
Deficiency. Seller shall be obligated to repurchase, upon demand from Buyer,
any Mortgage Loan:
(1) as to which any representation or warranty made by Seller to
Buyer pursuant to this Agreement, or any document required to be
submitted by Seller in connection with the purchase of any
Mortgage Loan by Buyer is determined to have been inaccurate or
incomplete to any extent when made (without regard to Seller's
actual or implied knowledge of the untruth of such representation
or warranty), unless Seller presents evidence to the contrary
satisfactory to Buyer; or
(2) for which any document constituting the Mortgage Loan File or
otherwise relating to a Mortgage Loan is deficient, defective,
falsified or fraudulent (which shall include any
misrepresentations made by the Borrower whether or not
verification of the Borrower's statements was a required part of
the loan documentation) or is missing or is lost or destroyed by
Seller or is not timely delivered when so requested by Buyer;
provided, in either case, only if and to the extent that as a result thereof the
- --------
value of the Mortgage Loan is materially affected; and provided, further, that
-------- -------
Buyer shall have made such demand promptly upon becoming aware of the inaccuracy
or incompleteness of the representation and warranty or document, or of the
documentary deficiency, and in any event not later than one year following the
relevant Closing Date. Should Buyer determine, in its good faith judgment, that
any such deficiency can be cured without adversely affecting Buyer's interest in
the Mortgage Loan, Buyer shall allow Seller to cure such deficiency at Seller's
expense provided the deficiency is cured to Buyer's satisfaction within 90 days
following Buyer's notification to Seller.
(b) Repurchase for First Payment Default. Seller shall be obligated to
repurchase, upon demand from Buyer, any Mortgage Loan as to which the Borrower
shall have failed to make the first Monthly Payment by the day that is 90 days
after such first Monthly Payment became due. Seller shall repurchase any such
loan within 90 days following the date on which the Mortgage Loan first became
90 days overdue.
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(c) Repurchase Procedure. The repurchase price for a Mortgage Loan
repurchased pursuant to Section 8(a) or (b) shall be payable by Seller to Buyer
-------------------
in immediately available funds in an amount equal to: (1) the then outstanding
principal balance of such Mortgage Loan; (2) plus accrued and uncollected
interest on the subject Mortgage Loan calculated, based on the Note Rate, up to,
but not including the date of repurchase; (3) less amounts received with respect
to such repurchased Mortgage Loan being held for remittance to Buyer on the
Remittance Date next following the repurchase (which amount shall be remitted to
Buyer on such date). At the time of repurchase, Buyer shall arrange for the
reassignment of such Mortgage Loan to Seller, the delivery to Seller of any
related documents in the possession of Buyer or any third party, and the
assignment to Seller of all Buyer's rights as to such Mortgage Loan under any
applicable Insurance Policy. Seller shall have the option, in lieu of such
repurchase, to substitute another mortgage loan, which mortgage loan (i)
conforms in all respects with the requirements of this Agreement with respect to
the Mortgage Loans sold hereby, (ii) as of the date of substitution has an
outstanding principal amount no greater than the outstanding principal amount of
the Mortgage Loan for which it is being substituted, and (iii) has an interest
rate that is no lower than the interest rate of the Mortgage Loan for which it
is being substituted. If Seller substitutes a Mortgage Loan, it shall pay to
Buyer in the manner described above an amount calculated in the manner set forth
above with respect to the difference, if any, between the outstanding principal
balance of the substituted loan and the outstanding principal balance of the
loan for which it is substituted, both determined as of the date of
substitution.
(d) Indemnification. Seller shall indemnify and hold Buyer harmless
against any and all liabilities, claims, losses, penalties, fines, costs and
expenses including attorneys' fees directly resulting from Seller's gross
negligence or willful misconduct in carrying out its obligations under this
Agreement. The parties understand that some of the representations and
warranties given by Seller herein have been made for the purpose of allocating
the risk of their inaccuracy, and that the remedy for such inaccuracy, if not
cured, shall be the repurchase of the affected Mortgage Loans. Accordingly,
inaccuracy of the representations and warranties shall not be deemed gross
negligence or willful misconduct on the part of Seller for purpose of this
Section 7(d).
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(e) Sole and Exclusive Remedies. Seller's obligations to indemnify Buyer
and to cure, repurchase or substitute for the affected Mortgage Loan shall be
the sole and exclusive remedies of Buyer against Seller with respect to the
failure of the Mortgage Loan to conform to the representations and warranties
contained in Section 2(b).
------------
(f) Reimbursement for Certain Refinancing. If any Borrower prepays a
Mortgage Loan within the first 48 months following the origination of that
Mortgage Loan, and if Seller should be the lender with respect to a new loan to
that Borrower secured by the same Mortgaged Property, then Seller shall
reimburse Buyer for a portion of the premium, if any, paid by Buyer for that
Mortgage Loan, to the extent that such portion exceeds the prepayment charges
collected in connection with the prepayment of the Mortgage Loan. For this
purpose, the "premium" means the amount by which the Purchase Price Percentage
applied in calculating the Purchase
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Price for that Mortgage Loan exceeds 100%, multiplied by the outstanding
principal amount of that Mortgage Loan as of the Cut-Off Date. The portion of
this premium that shall be reimbursed by Seller shall be the unamortized
portion, based upon a seven-year amortization using the "sum of the years
digits" method, starting on the Closing Date.
(g) Survival of Representations and Warranties. The representations and
warranties set forth in Section 2(b) shall survive the sale of the Mortgage
------------
Loans for a period of twelve months, and shall inure to the benefit of Buyer,
its successors and assigns, notwithstanding any restrictive or qualified
endorsement on any Mortgage Note or Assignment of Mortgage or the examination or
failure to examine any Mortgage Loan File, or other documents relating to any
Mortgage Loan, on the part of Buyer.
9. Delivery of Loan Documentation.
(a) Not later than three Business Days following the Closing Date for each
Mortgage Loan, Seller shall deliver to Buyer or Buyer's designee, with respect
to each Mortgage Loan listed on the related Mortgage Loan Schedule, the
documents identified on Exhibit C. Buyer or its designee shall, from and after
----------
the Closing Date, hold all such documents, including the Mortgage Note and the
Mortgage Loan File, as custodian in accordance with the Servicing Agreement.
(b) All documents and instruments relating to each Mortgage Loan will
comply in all respects to the requirements set forth in this Agreement.
(c) At Closing, Seller shall deliver to Buyer in recordable form for each
Mortgage Loan, an individual Assignment of Mortgage substantially in the form
attached hereto as Exhibit D. The individual assignments need not be recorded
---------
unless otherwise required or directed by Buyer. In the event that Buyer elects
to require recordation of the individual assignments, Seller shall reimburse
Buyer and its designee for all reasonable costs and expenses related to such
required recordations.
(d) In the event delivery by Seller to Buyer of any Mortgage Loan File or
other documentation relating to a Mortgage Loan purchased by Buyer does not
conform with the requirements set forth in the Agreement, a breach of Seller's
representation and warranties as specified in Section 2(b) will be deemed to
------------
have occurred and Buyer will pursue rights and remedies provided herein or
otherwise available under applicable law.
10. True Sale; Financial Accounting Treatment.
Buyer and Seller agree with one another that the transactions contemplated
by this Agreement are intended to represent a bona fide true sale of the
Mortgage Loans conveying to Buyer all right, title and interest in and to the
Mortgage Loans, excluding Servicing Rights. Buyer and Seller agree to execute
such documents and take all such action as may be required from time to time to
assure that this transaction is deemed for all purposes, including for
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financial accounting treatment, a true and absolute sale by Seller and purchase
by Buyer of the Mortgage Loans.
11. Arbitration.
Any controversy or claim between or among the parties or their agents,
including but not limited to those arising out of or relating to this Agreement
or any agreements or instruments relating hereto or delivered in connection
herewith and any claim based on or arising from an alleged tort which allegedly
occurred during the course of performance or non-performance under this
Agreement, shall at the request of any party be determined by arbitration. The
arbitration shall be conducted in accordance with the United States Arbitration
Act (Title 9, U.S. Code (S)(S)1 et seq.), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). The arbitrator shall give effect to statutes
of limitation in determining any claim. Any controversy concerning whether an
issue is arbitrable shall be determined by the arbitrators. Judgment upon the
arbitration award may be entered in any court having jurisdiction. The
institution and maintenance of an action for judicial relief or pursuit of a
provisional or ancillary remedy shall not constitute a waiver of the right of
any party, including the plaintiff, to submit the controversy or claim to
arbitration if any other party contests such action for judicial relief.
No provision of this section shall limit the right of any party to this
Agreement 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
exercise of a remedy does not waive the right of either party to resort to
arbitration or reference.
12. Miscellaneous.
(a) Construction; Article and Section Headings. This Agreement shall be
fairly and evenly construed and interpreted as the joint negotiated work product
between two knowledgeable participants in the secondary mortgage market, each
represented by legal counsel. No inference or presumption in favor of one party
or against the other shall arise on account of drafting. The Article and
Section headings are for convenience only and shall not affect the construction
of this Agreement.
(b) Counterparts; Execution and Delivery by Facsimile. For the purposes of
facilitating the execution of this Agreement, as herein provided and for other
purposes, this Agreement may be executed simultaneously in any number of
counterparts, each of which counterparts shall be deemed to be an original, and
all such counterparts shall constitute but one and the same instrument. Any
original counterpart when executed and transmitted by electronic facsimile shall
be deemed duly delivered to the other party upon confirmed receipt thereof by
such other party.
(c) Severability. Any part, provision, representation or warranty of this
Agreement which is prohibited or is held to be void or unenforceable by a court,
governmental body or
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administrative agency or authority shall be ineffective to the extent of such
prohibition or unenforceability without invalidating the remaining provisions
hereof. Any part, provision, representation or warrant of this Agreement which
is prohibited or unenforceable or is held to be void or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. To the extent permitted by applicable law, the parties hereto
waive any prohibitions of law which prohibits or renders void or unenforceable
any provisions hereof.
(d) Notices. All notices, requests, demands and other communications which
are required or permitted to be given under the Agreement shall be in writing
and shall be deemed to have been duly given upon the actual delivery thereof or
upon the expiration of three (3) business days following mailing thereof by
registered or certified mail, return receipt requested, postage prepaid:
If to Seller, to:
New Century Mortgage Corporation
18400 Von Karman
Suite 1000
Irvine, CA 92612
Attention: John Kontoulis, Vice President
If to Buyer, to:
US Bank National Association, ND
____________________
____________________
____________________
Attention: ____________________
or to such other address as Seller or Buyer shall have specified in writing
to the other.
(e) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without giving effect to
conflict-of-law rules.
(f) Offsets. Amounts payable by Buyer to Seller pursuant to this Agreement
may, at Seller's option and in its sole discretion, be offset by Seller against
any payments then or thereafter owed by Seller to Buyer.
(g) Prior Agreements. This Agreement and the exhibits hereto, which are
incorporated herein by this reference, supersede all prior agreements and
understandings relating to the subject matter thereof except as otherwise
provided in the introductory paragraph thereof.
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(h) Amendments. Except as expressly otherwise provided herein, this
Agreement may not be changed, waived, discharged or terminated orally, but only
in writing executed by both Seller and Buyer.
(i) Assignment of Rights under this Agreement. This Agreement and the
parties' respective rights and obligations hereunder may not be sold, assigned
or transferred without the prior written consent of the other party, except that
Seller may assign its obligation to sell all or a portion Mortgage Loans
hereunder to an affiliate of Seller.
IN WITNESS WHEREOF, each of the undersigned parties to the Agreement has
caused the Agreement to be duly executed in its corporate name by one of its
duly authorized officers, all as of the date first above written.
SELLER:
NEW CENTURY MORTGAGE CORPORATION
By:
--------------------------
Its:
-------------------
BUYER:
US BANK NATIONAL ASSOCIATION, ND
By:
--------------------------
Its:
-------------------
22
<PAGE>
Exhibit A
Form of Confirmation
--------------------
CONFIRMATION
This Confirmation is entered into pursuant to that certain Mortgage
Loan Purchase Agreement dated as of _________, 1998 by and between New Century
Mortgage Corporation, as Seller, and US Bank National Association, ND, as Buyer.
Capitalized terms used herein and not defined herein have the meanings given
them in said Mortgage Loan Purchase Agreement.
Seller and Buyer hereby confirm an agreement to sell and purchase the
Mortgage Loans identified on the attached Mortgage Loan Schedule, upon the
following terms:
Date of this Confirmation: __________________________
Closing Date: __________________________
Purchase Price Percentage: __________%
[or list separately for sub-pools of
different loan types]
Cut-Off Date ________ 1, 199__
Aggregate Principal Balance as of Cut-Off $_________________________
Date:
The Mortgage Loan Schedule is attached hereto.
NEW CENTURY MORTGAGE CORPORATION
By:
------------------------------------
Its:
-----------------------------
US BANK NATIONAL ASSOCIATION, ND
By:
------------------------------------
Its:
-----------------------------
A-1
<PAGE>
Exhibit B
Pool Criteria
-------------
1. All Mortgage Loans must conform to the Lending Standards.
2. No Mortgage Loan may be:
. To a Borrower who is rated "C minus" under Seller's underwriting
guidelines
. Originated under Seller's "C minus Home Saver" program
3. The proportion of loan types in each pool must be representative of Seller's
aggregate production in the relevant month, except that, if Buyer so
requests, the pool must also conform to the following criteria:
<TABLE>
<CAPTION>
Characteristic A B C
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Lien Position 1st only 1st only 1st only
- -------------------------------------------------------------------------------------------------------------------------
Rental, or investor owned Yes Yes Yes
- -------------------------------------------------------------------------------------------------------------------------
Single family, condo, PUDs only Yes Yes Yes
- -------------------------------------------------------------------------------------------------------------------------
Exceptions to Seller's bankruptcy underwriting criteria No No No
- -------------------------------------------------------------------------------------------------------------------------
Average LTV not more than 79% 75% 70%
- -------------------------------------------------------------------------------------------------------------------------
Maximum Rental/Investor Owned 13% 13% 13%
- -------------------------------------------------------------------------------------------------------------------------
Maximum "Jumbo" loans (defined as greater than $300,000 15% 15% 15%
for A, $250,000 for B, and $200,000 for C) based on
number of loans in pool
- -------------------------------------------------------------------------------------------------------------------------
Maximum "Stated Income" 35% 35% 35%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Credit Grade Maximum Target Minimum
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
A+ 80% 75% 70%
A+ MO
A-
A- MO
- -------------------------------------------------------------------------------------------------------------------------
B 25% 20% 15%
- -------------------------------------------------------------------------------------------------------------------------
C 15% 10% 0%
- -------------------------------------------------------------------------------------------------------------------------
C- or Home Saver None None None
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-1
<PAGE>
Exhibit C
Mortgage Notes and Loan Files
-----------------------------
1. The original Mortgage Note, together with any required riders or addenda,
assumption or modification agreement, and any surety or guaranty agreements
shall be delivered to Buyer or, as may be directed by Buyer, Servicer as
custodian for Buyer who shall act and hold each Mortgage Note and related
item described above on behalf of Buyer:
Each Mortgage Note shall bear all intervening endorsements and, except as
provided in the Mortgage Loan Purchase Agreement, be endorsed in
substantially the following form:
WITHOUT RECOURSE
PAY TO THE ORDER OF
US BANK NATIONAL ASSOCIATION, ND
NEW CENTURY MORTGAGE CORPORATION
[or insert name of affiliate to which Agreement has
been assigned]
By: ________________________________
________________________________
(typed/printed name and title)
By: ________________________________
________________________________
(typed/printed name and title)
Such endorsement shall be made by an authorized officer.
2. Mortgage Loan File. Each Mortgage Loan File shall contain each item
------------------
required to be included therein as required by the Lending Standards.
Unless otherwise directed by Buyer, each of the items constituting the
Mortgage Loan File shall be retained by Servicer for the purposes of
servicing the Mortgage Loans.
C-1
<PAGE>
Exhibit D
Form of Assignment of Mortgage Loans
------------------------------------
D-1
<PAGE>
:
When Recorded, mail to: :
Attn: :
[company] :
[street] :
[City, State Zip] :
:
Loan #______ Commitment #_________ :
ASSIGNMENT OF DEED OF TRUST
FOR VALUE RECEIVED, NEW CENTURY MORTGAGE CORPORATION [or insert name of
affiliate to which Agreement has been assigned , a California corporation,
("Assignor") does hereby grant, assign and transfer to ______________________,
a ____________________, ("Assignee") all beneficial interest under that certain
Deed of Trust ("Deed of Trust") dated ________________, 19____, executed by
________________________, Trustor, to ______________________, Trustee, and
recorded _____________, 19____, as Instrument No. ________, or Book ________,
Page ________, of Official Records in the Office of the County Recorder of
___________ County, ________, State of __________, affecting the real property
therein described,
TOGETHER with the note(s) therein described or referred to, the money due
and to become due thereon with interest, and all rights accrued and to accrue
under the Deed of Trust; without recourse on, or any warranty or representation
whatsoever by Assignor.
Any notices required or permitted to be given to the Assignee under or in
connection with this Assignment or under or in connection with the Deed of Trust
may be given at the following address:
_________________________________
_________________________________
_________________________________
or such other address or addresses as may be stated in any document or
instrument recorded hereafter referring to this Assignment and identifying the
Deed of Trust so affected.
Dated: _______________ NEW CENTURY MORTGAGE CORPORATION
[or insert name of affiliate to which Agreement has
been assigned]
By: ____________________________
____________________________
By: ____________________________
____________________________
Attach appropriate form of notary acknowledgment.
D-2
<PAGE>
Exhibit E
Seller's Wire Instructions
--------------------------
[To be attached.]
E-1
<PAGE>
EXHIBIT 10.4
SERVICE PROVIDER AGREEMENT
This Service Provider Agreement, dated as of November 24, 1998, is entered
into by and between U.S. Bank National Association, ND ("U.S. Bank") with
offices at 2751 Shepard Road, St. Paul, MN 55116 and New Century Mortgage
Corporation ("New Century") with offices at 18400 Von Karman, Suite 1000,
Irvine, CA 92612.
WHEREAS, U.S. Bank desires to expand the range of home mortgage products
available to its customers who may not qualify for conforming mortgage products;
WHEREAS, U.S. Bank desires assistance in originating, underwriting and
processing certain non-conforming home mortgage loans to be made available to
certain customers and New Century desires to provide origination, underwriting
and processing services to U.S. Bank;
NOW, THEREFORE, in consideration of the premises and mutual agreements set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, U.S. Bank and New Century agree as
follows:
SECTION 1 Availability of Mortgage Loan Products
--------------------------------------
(a) U.S. Bank intends to offer to certain customers of U.S. Bank and its
affiliates ("Customers") a variety of non-conforming first and second lien
single family residential mortgage loans ("Mortgage Loans") in order to permit
Customers to select a Mortgage Loan type best suited to their financial needs.
The types of Mortgage Loans available to Customers pursuant to this Agreement
shall include the full range of mortgage loan products generally available
through New Century.
(b) With respect to those products offered to Customers with the
assistance of New Century, New Century's underwriting criteria and pricing (by
risk category) will be substantially similar to products offered by New Century
to its own customers. U.S. Bank agrees that to the extent it requires or
prohibits certain fees or charges, any corresponding variation in the pricing
offered by New Century to Customers under this Agreement will not be considered
a violation of this paragraph (b).
SECTION 2 New Century Services and Obligations
------------------------------------
(a) With respect to each completed Mortgage Loan application provided to
New Century pursuant to this Agreement, New Century will process and underwrite
the loan applications in accordance with the terms set forth in Exhibit A
attached and incorporated into this Agreement. The parties anticipate that
Exhibit A may be amended from time to time to reflect changes in the actual
services provided by New Century, and the parties agree to cooperate to modify
the terms of Exhibit A as necessary.
(b) In performing the services set forth in Exhibit A, New Century shall
comply with all applicable federal and state mortgage lending laws, rules and
regulations,
1
<PAGE>
that may govern the actions of New Century as agent of U.S. Bank or its
affiliates relating to mortgage lending, including but not limited to the
following:
(i) compliance with record keeping requirements of the Home Mortgage
Disclosure Act;
(ii) the Real Estate Settlement Procedures Act;
(iii) fair lending practices, including but not limited to appropriate
employee training on quality of assistance, second review procedures, and
the application of applicable underwriting guidelines;
(iv) the Fair Housing Act;
(v) the Fair Credit Reporting Act;
(vi) the Flood Disaster Protection Act;
(vii) the Truth in Lending Act;
(viii) the National Housing Act;
(ix) the Servicemen's Readjustment Act;
(x) the Equal Credit Opportunity Act; and
(xi) usury limitations.
To the extent the current and future regulations and applicable guidelines
established by the Office of the Comptroller of the Currency or other regulating
agency may impose different or additional obligations on U.S. Bank as a national
bank, New Century shall comply with such regulations and guidelines if U.S. Bank
provides written instructions as to such regulations and guidelines.
SECTION 3 Compensation for Services
-------------------------
(a) For New Century's services as described in this Agreement, and for the
liability New Century assumes in providing such services, U.S. Bank shall pay
New Century the following amounts: (i) reimbursement of the direct expenses
incurred by New Century in providing such services to the extent such expenses
are equal to or less than 3.5% of the estimated total dollar volume of the
Mortgage Loans originated pursuant to this Agreement (the "Cost Benchmark"), and
(ii) 1% of the principal balance of each Mortgage Loan processed and closed
pursuant to this Agreement (the "Services Fee"). U.S. Bank shall have no
obligation to reimburse New Century for its direct expenses if such expenses are
greater than the Cost Benchmark.
(b) From time to time, but at least once per year, New Century will review
its direct expenses attributable to providing services under this Agreement for
comparison to the Cost Benchmark. If New Century's direct expenses in providing
such services are less than the Cost Benchmark, then U.S. Bank will pay New
Century, in addition to the reimbursement of direct expenses and the Services
Fee, fifty percent (50%) of the difference between the direct expenses actually
incurred and Cost Benchmark.
(c) If the parties amend Exhibit A with respect to the services to be
provided by New Century and/or U.S. Bank, New Century agrees to review and
modify its Cost Benchmark as appropriate.
2
<PAGE>
(d) On the fifth business day following the previous month, U.S. Bank will
deposit in an account designated by New Century via wire transfer the amounts
due under this Section 3), subject to the offsets described in Sections 4 and II
below.
SECTION 4 U.S. Bank Obligations
---------------------
(a) In connection with the origination of Mortgage Loans subject to this
Agreement, US Bank shall assist in the origination and processing of such
Mortgage Loans in accordance with the terms set forth in Exhibit A.
(b) In performing the services set forth in Exhibit A, U.S. Bank shall
comply with all applicable federal and state mortgage lending laws, rules and
regulations, including but not limited to the following:
(i) compliance with record keeping requirements of the Home
Mortgage Disclosure Act;
(ii) the Real Estate Settlement Procedures Act;
(iii) fair lending practices, including but not limited to
appropriate employee training on quality of assistance, second review
procedures, and the application of applicable underwriting guidelines;
(iv) the Fair Housing Act;
(v) the Fair Credit Reporting Act;
(vi) the Flood Disaster Protection Act;
(vii) the Truth in Lending Act;
(viii) the National Housing Act;
(ix) the Servicemen's Readjustment Act;
(x) the Equal Credit Opportunity Act; and
(xi) usury limitations.
(c) During the 90-day period commencing on the effective date of this
Agreement, in addition to the sums payable under Section 3, U.S. Bank will
reimburse New Century for its actual expenses in excess of the Cost Benchmark
associated with providing services under this Agreement, in an amount not to
exceed $200,000. After the expiration of the 90-day period, U.S. Bank will be
entitled to offset the total amount reimbursed in accordance with this paragraph
against the 1% Services Fee due New Century over the following twelve month
period. If, after the twelve month period, the total amount reimbursed has not
been offset against the 1% Services Fee due New Century for that twelve month
period, New Century will be obligated to pay the remaining amount in one lump
sum, payable no later than twenty days after the end of the twelve month period.
Notwithstanding the foregoing, if the Agreement is terminated by either party
prior to the expiration of its initial term, and the total amount reimbursed has
not been offset against the 1% Services Fee at the time of termination, then New
Century will only be obligated to pay U.S. Bank 50% of the remaining amount in
one lump sum, payable no later than twenty days after the Agreement's
termination.
3
<PAGE>
(d) U.S. Bank will lease space, including desks, computers, computers
systems necessary for mortgage origination, telephones and other usual and
customary items used in underwriting and processing mortgage loans, in one or
more of its operating centers to New Century to be used by New Century personnel
dedicated to providing services to U.S. Bank under this Agreement. The fee for
such space and equipment shall be $700.00 per person, per month, payable on the
last day of each month. If New Century fails to pay the agreed upon lease fee on
the first day of the month, then U.S. Bank shall be entitled to offset the
rental fee from the payments due under Section 3 above. The personnel supplied
by New Century will remain employees of New Century, and New Century will retain
responsibility for their salary, benefits, income tax and social security
obligations, workers' compensation insurance, and all other federal, state and
local obligations imposed on an employer with respect to Its employees. Under no
circumstances shall the New Century personnel present in U.S. Bank operating
centers be considered employees of U.S. Bank.
(e) In connection with the selection of all settlement service providers
utilized in processing the Mortgage Loans, including but not limited to
appraisers, credit reporting agencies, flood certification companies, title
companies and private mortgage companies, New Century shall have the sole
discretion in selecting such settlement service providers. Notwithstanding the
foregoing, New Century agrees that it will, upon reasonable request by U.S.
Bank, take all reasonable steps to accommodate U.S. Bank's request to utilize a
specific settlement service provider, subject to regulatory limitations and New
Century's previous consideration and rejection of the specific settlement
service provider.
SECTION 5 Mortgage Loans Outside U.S. Bank Credit Guidelines
--------------------------------------------------
(a) From time to time, a Customer may possess credit characteristics which
are not consistent with the U.S. Bank credit guidelines applicable to Mortgage
Loans subject to this Agreement, but U.S. Bank still wishes to provide
beneficial services to such Customer. With respect to such Customers and the
mortgage loan products available to them (the "Home Saver and C-Loans"), U.S.
Bank agrees to introduce the Customer to New Century for origination,
underwriting, processing, funding and settlement of the Home Saver and C- Loans.
U.S. Bank will provide certain origination services, including but not limited
to taking the application and such other services as required under the Real
Estate Settlement Procedures Act and its interpretations by the Department of
Housing and Urban Development. U.S. Bank shall retain, as reasonable
compensation for its referral services, an origination fee equal to 1.00% of the
principal loan amount, payable by the Customer.
(b) New Century, in its own name and on its own behalf, will fund the Home
Saver and C- Loans, and will own such loans for its own portfolio.
SECTION 6 Servicing
---------
4
<PAGE>
New Century will service the Mortgage Loans subject to this Agreement in
accordance with the Servicing Agreement to be entered into by the parties, the
terms and provisions of which will include a 50 basis point servicing fee,
adjusted according to the division of services to be performed by New Century,
plus deboarding and other customary fees agreed to by the parties as consistent
with industry practice, servicing performed on an Actual/Actual basis, New
Century retaining late fees collected on the Mortgage Loans, and U.S. Bank
retaining prepayment penalty fees.
SECTION 7 Communications
--------------
The parties shall develop appropriate and cost-effective voice, data,
facsimile and e-mail processes and systems to support communication between
them, including loan processing status, underwriting information and Customer
information.
SECTION 8 Reporting
---------
New Century will provide regular and timely reports to U.S. Bank of
pipeline accounts and other activities, the frequency and subject of such
reports to be agreed upon by the parties.
SECTION 9 Use of U.S. Bank Name and Logo
------------------------------
The U.S. Bank name, logo and other registered trade and service marks will
be used in all places legally permissible throughout the loan origination
process under this Agreement, including all origination documents and all
communications with the Customer in accordance with the reasonable policies and
procedures provided by U.S. Bank from time to time. U.S. Bank retains the
exclusive ownership of all such names, logos, and other registered trade and
service marks used in this business relationship.
SECTION 10 Early Defaults on Mortgage Loans
--------------------------------
(a) Within four months after the end of each twelve month term of this
Agreement or an earlier termination of this Agreement, the parties will review
U.S. Bank's First Payment Defaults (as defined below) on loans originated under
the Agreement during such term. To the extent the First Payment Defaults exceed
5% of the aggregate origination volume during such period ("Threshhold
Percentage"), then New Century will reimburse U.S. Bank a sum equal to the total
principal balance of the Mortgage Loans which constitute First Payment Defaults
in excess of the Threshhold Percentage multiplied by the sum of (i) New
Century's direct expense rate (as a percent of originations) in effect at the
end of the applicable term, (ii) the 1.00% Services Fee and (iii) 50% of any
difference between the Cost Benchmark and the actual direct expense rate as of
the end of the applicable term. If New Century's direct expense rate at the end
of the applicable term is different than the expense rate at any point during
the term, then the expense rate used in calculating the amount New Century will
reimburse U.S. Bank under this Section shall be the weighted average of all
expense rates in place during the applicable term.
5
<PAGE>
(b) For purposes of this Section 10, a First Payment Default shall be
deemed to occur if the obligor on any Mortgage Loan fails to make his first
payment due under the Mortgage Loan, and such failure is not cured within 90
days of the first payment due date.
SECTION 11 Solicitation for Refinancing
----------------------------
(a) U.S. Bank retains all rights to re-solicit its Customers and will
permit New Century to assist in any re-solicitations only upon express written
consent and under terms and conditions mutually agreed upon.
(b) Notwithstanding paragraph (a) above, the parties acknowledge that from
time to time a Customer whose Mortgage Loan was originated pursuant to this
Agreement may respond to a New Century advertisement or other communication not
specifically targeted to U.S. Bank Customers or be solicited by an independent
mortgage broker for a loan to be originated through New Century's wholesale
division (a "Non-targeted Refinance"). Any such refinance shall be originated,
processed, underwritten, funded and settled entirely by New Century, entirely
separate from any processes and personnel involved in the provision of services
under this Agreement. New Century will not be obligated to pay any compensation
to U.S. Bank with respect to such Non-targeted Refinances, except that if a
Customer refinances with New Century within the first ninety (90) days after
closing on a Mortgage Loan subject to this Agreement, New Century shall remit to
U.S. Bank all sums paid under Section 3 with respect to that Mortgage Loan
within ten (10) days of the closing of the Non-Targeted Refinance loan.
(c) Notwithstanding paragraph (a) above, the parties recognize that from
time to time New Century may determine that it is advantageous for New Century
and U.S. Bank to re-finance a Mortgage Loan as a defensive measure to prevent a
third party from re-financing the Customer's Mortgage Loan. The parties agree to
consider entering into such a defensive re-finance with the Customer upon terms
and conditions to be agreed upon at the time the opportunity for such a
defensive re-finance arises.
SECTION 12 Representations and Warranties of U.S. Bank
-------------------------------------------
As an inducement to cause New Century to enter into this Agreement to
provide certain origination and processing services for U.S. Bank, U.S. Bank
represents and warrants to New Century that, as of the date of this Agreement:
(a) U.S. Bank is a national bank, duly organized, validly existing, and in
good standing under the laws of the United States and possesses all requisite
authority, power, licenses, permits and franchises to execute, deliver and
comply with its obligations under the terms of this Agreement, the execution,
delivery and performance of which have been duly authorized by all necessary
corporate action.
6
<PAGE>
(b) The execution and delivery of this Agreement by U.S. Bank in the
manner contemplated herein and the performance and compliance with the terms
hereof by it shall not violate: (1) its articles of incorporation or bylaws, or
(ii) any laws that could have any material adverse effect whatsoever upon the
validity, performance or enforceability of any of the terms of this Agreement
applicable to U.S. Bank, and will not constitute a material default (or an event
that, with notice or lapse of time or both, would constitute a material default)
under, or result in the breach of, any material contract, agreement or other
instrument to which U.S. Bank is a party.
(c) The execution and delivery of this Agreement by U.S. Bank in the
manner contemplated herein and the performance and compliance with the terms
hereof by it do not require the consent or approval of any governmental
authority, or if such consent or approval is required, it has been obtained.
(d) Assuming due authorization, execution and delivery by each other party
hereto, this Agreement and all of the obligations of U.S. Bank hereunder are the
legal, valid and binding obligations of U.S. Bank, enforceable in accordance
with the terms of this Agreement, except as such enforcement may be limited by
applicable bankruptcy, conservatorship or similar debtor relief laws affecting
the enforcement of creditors' rights generally.
(e) There is no action, suit, proceeding or investigation pending or, to
the best of U.S. Bank's knowledge, threatened against U.S. Bank which, either in
any one instance or in the aggregate, may (1) result in any material adverse
change in the business, operations, financial condition, properties or assets of
U.S. Bank or in any material impairment of the right or ability of U.S. Bank to
carry on its business substantially as now conducted or to perform under the
terms of this Agreement or (ii) which would draw into question the validity of
this Agreement or the Mortgage Loans.
(f) U.S. Bank is not in default with respect to any order or decree of any
court or order, regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that would materially
and adversely affect the condition (financial or other) or operations of U.S.
Bank or its properties or might have consequences that would materially and
adversely affect its performance hereunder.
7
<PAGE>
SECTION 13 Representations and Warranties of New Century
---------------------------------------------
As an inducement to cause U.S. Bank to enter into this Agreement to
purchase certain origination and processing services from New Century, New
Century represents and warrants to U.S. Bank that, as of the date of this
Agreement:
(a) New Century a corporation duly organized, validly existing, and in
good standing under the laws of the State of California, is duly qualified and
in good standing to transact business, and possesses all requisite authority,
power, licenses, permits and franchises to execute, deliver and comply with its
obligations under the terms of this Agreement, the execution, delivery and
performance of which have been duly authorized by all necessary corporate
action.
(b) The execution and delivery of this Agreement by New Century in the
manner contemplated herein and the performance and compliance with the terms
hereof by it shall not violate: (i) its articles of incorporation or bylaws, or
(ii) any laws that could have any material adverse effect whatsoever upon the
validity, performance or enforceability of any of the terms of this Agreement
applicable to New Century, and will not constitute a material default (or an
event that, with notice or lapse of time or both, would constitute a material
default) under, or result in the breach of, any material contract, agreement or
other instrument to which New Century is a party.
(c) The execution and delivery of this Agreement by New Century in the
manner contemplated herein and the performance and compliance with the terms
hereof by it do not require the consent or approval of any governmental
authority, or if such consent or approval is required, it has been obtained.
(d) Assuming due authorization, execution and delivery by each other party
hereto, this Agreement and all of the obligations of New Century hereunder are
the legal, valid and binding obligations of New Century, enforceable in
accordance with the terms of this Agreement, except as such enforcement may be
limited by applicable bankruptcy, conservatorship or similar debtor relief laws
affecting the enforcement of creditors' rights generally.
(e) There is no action, suit, proceeding or investigation pending or, to
the best of New Century's knowledge, threatened against New Century which,
either in any one instance or in the aggregate, may (i) result in any material
adverse change in the business, operations, financial condition, properties or
assets of New Century or in any material impairment of the right or ability of
New Century to carry on its business substantially as now conducted or to
perform under the terms of this Agreement or (ii) which would draw into question
the validity of this Agreement or the Mortgage Loans.
(f) New Century is not in default with respect to any order or decree of
any court or order, regulation or demand of any federal, state, municipal or
governmental agency, which default might have consequences that would materially
and adversely affect the condition (financial or other) or operations of New
Century or its properties or
8
<PAGE>
might have consequences that would materially and adversely affect its
performance hereunder.
SECTION 14 Term; Termination
-----------------
(a) The term of this Agreement shall be twelve (12) months from the date
hereof. The Agreement shall be automatically renewed at the end of each twelve
(12) month period unless one party provides a written termination notice at
least ninety (90) days prior to the end of the given twelve (12) month period.
(b) The Agreement may be terminated by the non-defaulting party in the
event of the occurrence of any of the following:
(i) the other party materially defaults in the performance of any of
its duties or obligations hereunder, which default shall not be substantially
cured within thirty (30) days after written notice is given by the non-
defaulting party specifying the default;
(ii) an insolvency, bankruptcy or similar proceeding shall have been
commenced, or a decree or order of an appropriate court, agency or supervisory
authority for the appointment of a conservator, receiver or liquidator shall
have been entered against the other party, or the other party admits in writing
that it is unable to pay debts generally as they come due or makes an assignment
for the benefit of creditors; or
(iii) the other party materially breaches any representations or
warranties contained in this Agreement;
(c) Notwithstanding any other provision of this Section, each party may
terminate this Agreement by providing the other party with ninety (90) days
written notice of such termination.
(d) The representations, warranties and covenants made by each party and
the respective obligations to indemnify and hold harmless the other party shall
survive the termination of this Agreement. Unless otherwise specified in the
notice of termination, termination of the Agreement shall have no effect on
Mortgage Loan applications in process at the time of such termination, and such
applications shall be processed to closing or denial in accordance with each
party's obligations set forth in this Agreement.
SECTION 15 Indemnification
---------------
(a) New Century shall indemnify U.S. Bank, its directors, officers,
employees, parent company, subsidiaries, affiliates, agents and assigns and hold
them harmless and defend them against any and all liabilities, losses, damage,
penalties, fines, forfeitures, judgments, fees and expenses U.S. Bank may suffer
as a result of claims, demands, suits, or judgments against it, including
reasonable attorneys fees, an' sing out of or resulting from (i) the inaccuracy
of any representation of New Century contained in this
9
<PAGE>
Agreement or material breach of any obligation, covenant or agreement made or to
be performed by New Century pursuant to this Agreement; (ii) any litigation or
claim arising out of, or resulting from, New Century's failure to observe the
terms and covenants of this Agreement; or (iii) violation by New Century of any
applicable federal, state or local law, regulation or rule.
(b) New Century shall indemnify and hold U.S. Bank harmless from any and
all liability, loss or damage either party may suffer as a result of claims,
demands, suits, penalties, costs or judgments against U.S. Bank, including
reasonable attorneys fees, arising out the presence of New Century personnel in
U.S. Bank operating centers.
(c) U.S. Bank shall indemnify New Century, its directors, officers,
employees, parent company, subsidiaries, affiliates, agents and assigns and hold
them harmless and defend them against any and all liabilities, losses, damage,
penalties, fines, forfeitures, judgments, fees and expenses New Century may
suffer as a result of claims, demands, suits, or judgments against it, including
reasonable attorneys fees, arising out of or resulting from (i) the inaccuracy
of any representation of U.S. Bank contained in this Agreement or material
breach of any obligation, covenant or agreement made or to be performed by U.S.
Bank pursuant to this Agreement; (ii) any litigation or claim arising out of, or
resulting from, U.S. Bank's failure to observe the terms and covenants of this
Agreement; or (iii) violation by U.S. Bank of any applicable federal, state or
local law, regulation or rule.
(d) Notwithstanding paragraphs (a), (b) and (c) above, before either party
shall be entitled to indemnification as provided in this Section 15, the party
claiming indemnification shall give notice to the other party of the claimed
breach, and the other party shall have a reasonable opportunity to cure such
breach, which period of time shall be allowed before any attempt to enforce
rights of indemnification hereunder. In addition, no party shall make a claim
for indemnification under this Section 15 until such party has liabilities,
losses, damages, penalties, fines, forfeitures, judgments, fees and expenses
indemnifiable under this Section 15 in excess of $7,500 with respect to that
claim, and then shall only be entitled to indemnification in an amount in excess
of that amount. [
SECTION 16 Compliance with Year 2000 Requirements
--------------------------------------
(a) Each party warrants that, to the extent material to providing services
under this Agreement, its software, prior to, during and after the calendar year
2000 shall include, at no additional cost to the other party, design and
performance so that neither party shall experience software which terminates
abnormally and/or contains invalid and/or incorrect results from the systems in
operation of the business of each party. Furthermore, each party represents and
warrants that its software will, under normal use and service, record, store,
process and present calendar dates falling on or after January 1, 2000 in
substantially the same manner and with substantially the same functionality,
data integrity and performance as the software records, stores processes and
presents calendar dates on or before December 31, 1999.
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SECTION 17 Confidential Information
------------------------
(a) The term "Confidential Information" as used in this Agreement shall
include all confidential commercial or financial information of each party or
its affiliates, now in existence or hereafter created, including without
limitation, the following:
(i) All customer related information, including, but not limited to,
customer account numbers and account balances;
(ii) All information marked as "confidential" or with similar
designation;
(iii) All information protected by rights embodied in copyrights,
whether registered or unregistered, patents or pending patent
applications, "know how," trade secrets, and any other intellectual
property rights of each party; and
(iv) All proprietary business, financial or technical information of
each party or its affiliates and any of their respective customers or
vendors (including, but not limited to VISA account numbers, customer
lists, customer financial information and software licensed from third
parties or owned by each party or its affiliates).
(b) Notwithstanding the foregoing, the term "Confidential Information"
shall not include any portion of such information which the other party can
establish by clear and convincing evidence to have:
(i) become publicly known without breach of this Agreement; or
(ii) been known by that party without any obligation of
confidentiality, prior to disclosure of such Confidential Information
to such party; or
(iii) been received in good faith by that party from a third-party
source having the right to disclose such information.
(c) Each party may use the Confidential Information only for the purpose
of rendering services under this Agreement. Unless otherwise agreed to in
writing between U.S. Bank and New Century, from and after the date of this
Agreement, both parties shall:
(i) not reproduce, copy, duplicate, divulge or use any Confidential
Information, or allow any Confidential Information to be reproduced,
copies, duplicated, divulged or used, except as expressly permitted
above;
(ii) require that all persons, employees, agents, partners,
consultants, contractors, representatives and any other third parties
(collectively, the "Representatives") who are permitted access to any
Confidential Information to agree to assume all of the same
obligations regarding the protection of the Confidential Information
assumed by each party under this Agreement; and
(iii) keep all Confidential Information in a physically secure place
which will prevent anyone, except the Representatives who are
permitted access to the Confidential Information to satisfy the
purposes of this Agreement, from using or disclosing any Confidential
Information.
(d) In the event that either party or any of its respective
Representatives breach the covenants contained in this Section 17, the breaching
party recognizes that irreparable injury will result to the non-breaching party
or third parties entrusting
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Confidential Information to the non-breaching party, that the non-breaching
party's remedy at law for damages will be inadequate, and that the non-breaching
party will be entitled to an injunction to restrain the continuing breach by the
breaching party and its Representatives, or any other persons or entities acting
for or with that party. In such event, the non-breaching party shall further be
entitled to recover from the breaching party:
(i) actual damages to the non-breaching party or its directors,
officers, employees or agents;
(ii) any costs, losses or damages associated with any claims by third
parties against the non-breaching party;
(iii) reasonable attorneys' and other professionals' fees and all
other costs and expenses incurred in connection with the enforcement
of this Agreement; and
(iv) any other rights and remedies the non-breaching may have at law
or in equity.
(e) In the event that either party is requested or required by any court
or governmental agency or pursuant to any subpoena, request for information,
interrogatories, or similar process, to disclose any Confidential Information
received by it, it will promptly provide the other party with notice of such
request so that the other party may seek an appropriate protective order and/or
waive compliance with the provisions of this Agreement.
SECTION 18 Non-Solicitation
----------------
During the term of this Agreement and for a period of 12 months after its
expiration or termination, New Century and U.S. Bank shall not, without the
prior written consent of the other party, either directly or indirectly, either
alone or in concert with others, solicit the employment of any employee of or
consultant to the other party or any of its affiliates. For the purposes of this
Section, general advertisements or other non-targeted broadly circulated
announcements regarding job openings shall not be considered to be a
"solicitation."
SECTION 19 Implementation
--------------
The parties shall use their best efforts to fully implement the terms and
provisions of this Agreement by August 1, 1999, with manual processes for
implementation to be operational by the end of the first quarter of 1999.
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SECTION 20 Cooperation
-----------
The parties acknowledge that the success of their efforts under this
Agreement depends on the cooperation of each of them. Accordingly, each of the
parties shall use its best efforts and confer in good faith in an attempt to
agree upon any matter hereunder which requires such agreement.
SECTION 21 No Partnership or Joint Venture
-------------------------------
This Agreement is not intended to be, nor shall it be construed to be, the
formation of a partnership or joint venture between the parties.
SECTION 22 Mediation
---------
Any controversy or claim between the parties, including those arising out
of or relating to this Agreement and any claim based on or arising from an
alleged tort, shall, at the request of any party, be submitted to a mediator
mutually agreed upon by the parties. The parties shall make a good faith effort
to resolve the claim or controversy through mediation.
SECTION 23 Notices
-------
All demands, notices and communication hereunder shall be in writing and
shall be deemed to have been duly given if mailed, by registered or certified
mail, return receipt requested, or, if by other means, when received by the
other party at the following addresses:
(a) if to U.S. Bank:
U.S. Bank National Association, ND
2751 Shepard Road
St. Paul, MN 55116
Attn: Dave Anton, Vice President
(b) if to New Century:
New Century Mortgage Corporation
18400 Von Karman, Suite 1000
Irvine, CA 92612
Attn: Paul Rigdon, Executive Vice President
or such other addresses as may hereafter be furnished to the other party by like
notice.
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SECTION 24 Amendments, Changes and Modifications
-------------------------------------
This Agreement may be amended, changed, modified or altered only with the
written consent of U.S. Bank and New Century by a written agreement that
specifically refers to this Agreement and that is executed by all parties.
SECTION 25 Governing Law
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Minnesota, without regard to the application of conflict of
laws rules.
SECTION 26 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 27 Rights Cumulative; Waivers
--------------------------
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. Any failure to
exercise or any delay in exercising any of such rights shall not operate as a
waiver or variation of that or any other such right. Any 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 shall in any way preclude such party from exercising any
such right or constitute a suspension or any variation of any such right.
SECTION 28 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 29 Remedies Not Exclusive
----------------------
Except as provided otherwise herein, the rights and remedies of the parties
provided in the Agreement are cumulative and not exclusive and are in addition
to any other rights and remedies now or hereafter provided by law.
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SECTION 30 Integrated Agreement
--------------------
This Agreement and the documents, instruments and agreements executed and
delivered pursuant to this Agreement, constitute the entire agreement between
the parties with respect to the subject of the transactions contemplated hereby
and supersede all prior letters or agreements with respect thereto.
SECTION 31 Assignment of Rights to Third Parties
-------------------------------------
All of the terms and conditions of this Agreement shall be binding upon and
inure to the benefit of U.S. Bank and New Century and their respective successor
and assigns; provided, however, that neither party shall assign or delegate any
of its rights, privileges or duties arising under this Agreement without the
prior written consent of the other.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to e duly
executed by their respective officers, all as of the day and year stated above.
U.S. Bank National Association, ND New Century Mortgage Corporation
By: /s/ David Anton By:
----------------- ------------------
Name: David Anton Name:_________________
Title: Vice President Title:________________
S-1
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to e duly
executed by their respective officers, all as of the day and year stated above.
U.S. Bank National Association, ND New Century Mortgage Corporation
By: By: /s/ Patrick Flanagan
----------------------- ---------------------
Name:______________________ Name: Patrick Flanagan
Title:_____________________ Title: Executive Vice President
S-1
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EXHIBIT A
As of the date of the Service Provider Agreement, the following
itemization/ flow chart indicates the services New Century shall provide in the
origination of Mortgage Loans subject to the Service Provider Agreement and the
obligations of U.S. Bank with respect to such origination:
New Century
-----------
1. Collect financial information and other related documents that are part of
the application process
2. Provide federal and state disclosures
3. Verify employment, deposits and other loans
4. Obtain appraisals
5. Obtain title reports
6. Verify hazard insurance and flood insurance if necessary
7. Underwrite the loan
8. Prepare loan documents
9. Maintain communication with U.S. Bank Banker and Customer (unless Mortgage
Loan is through the Broker channel, in which case New Century would communicated
only with the Banker)
10. Submit final loan documents to Banker prior to closing
11. Review loan documents received from title company during rescission period
prior to disbursement of funds
12. Update ACAPS with respect to data reportable under HMDA
U.S. Bank
---------
1. Introduce eligible Customers to New Century processors acting on behalf of
and in the name of U.S. Bank.
2. Collect and report HMDA data
3. Communicate with Broker, if any, and Customer
4. Participate in closing (either at branch or title company)
5. Fund loans
<PAGE>
EXHIBIT 99.1
NEWS RELEASE
FOR ADDITIONAL INFORMATION CONTACT:
New Century Financial Corporation Robert K. Cole, Chairman and CEO
18400 Von Karman, Suite 1000 (949) 224-5700
Irvine, CA 92612 Carrie Marrelli, VP, Investor Relations
(949) 224-5745
U.S. Bancorp
601 Second Avenue South Wendy Raway, VP, Public Relations
Minneapolis, MN 55402 (612) 973-2429
NEW CENTURY ANNOUNCES THE COMPLETION OF THE U.S. BANCORP STRATEGIC ALLIANCE
U.S. BANCORP HAS INVESTED $20 MILLION IN NEW CENTURY
IRVINE, Calif., November 25, 1998 -- New Century Financial Corporation (Nasdaq:
NCEN) and U.S. Bancorp (NYSE: USB) announced today that they have completed
their strategic alliance transaction.
The final business terms of the alliance include:
U.S. Bancorp has purchased $20 million in convertible preferred stock of New
Century;
U.S. Bancorp and New Century are developing a strategic relationship to cross-
sell and solicit real estate loans and other financial services through
each other's branch system;
U.S. Bancorp may bid on certain New Century whole loan sales transactions,
with the price and volume subject to agreement by the parties.
"The addition of $20 million to our equity base positions New Century with
additional financial resources to capitalize on the changing industry conditions
within our sector," said Robert K. Cole, Chairman and CEO. "The growth
potential from better serving each partner's customers through the strategic
alliance provides exceptional marketing opportunities for both companies. We
look forward to developing and expanding this valuable strategic partnership
with U.S. Bancorp," Mr. Cole added.
New Century Financial Corporation is a specialty finance company which
originates, purchases, sells, and services sub-prime mortgage loans secured
primarily by first mortgages on single family residences.
With assets of $74 billion on September 30, 1998, U.S. Bancorp is headquartered
in Minneapolis, Minnesota. It serves customers in 17 states through a network of
more than 1,000 branch offices.
Certain statements contained in this press release may be deemed to be forward-
looking statements under federal securities laws, and New Century intends that
such forward-looking statements be subject to the safe-harbor created thereby.
Such statements include i) the growth potential from better serving each
partner's customers through the strategic alliance, and ii) the belief that the
strategic partnership will develop and expand. There are many important factors
that could cause actual events and developments to differ materially from
expected results in the forward-looking statements. Such factors include, but
are not limited to, the ability of the parties to implement plans to cross-sell
and solicit real estate loans and other financial services, New Century's
limited operating history, New Century's ability to sustain and manage its rate
of growth, New Century's ability to access funding sources, and other risks
identified in New Century's filings with the Securities and Exchange Commission.
