<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
------------------
OR
{_} TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number 000-22633
---------
NEW CENTURY FINANCIAL CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 33-0683629
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
18400 VON KARMAN, SUITE 1000, IRVINE, CALIFORNIA 92612
----------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (949) 440-7030
--------------
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO __________________
---------
As of October 31, 1999, 14,664,597 shares of common stock of New Century
Financial Corporation were outstanding.
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C> <C>
Item 1. Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 29
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 2. Changes in Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 4. Submission of Matters to a Vote of
Security Holders 30
Item 5. Other Information 30
Item 6. Exhibits and Reports on Form 8-K 30
SIGNATURES 31
EXHIBIT INDEX 32
</TABLE>
2
<PAGE>
Certain information included in this Form 10-Q may include "forward-looking"
statements under federal securities laws, and the Company intends that such
forward-looking statements be subject to the safe-harbor created thereby. Such
statements include the anticipated mix of whole loan sales and securitizations
for the remainder of 1999, the expectations regarding the condition of the whole
loan and securitization markets in the third and fourth quarters, the
assumptions used by the Company to value its residual interests from
securitizations and excess cash flow private placements, the expectations
regarding the effects of interest rate increases in the company's business, the
belief that the Company's current liquidity, credit facilities and capital
resources will be sufficient to fund its operations for the foreseeable future,
the expectation that the proceeds from the U.S. Bancorp investment will give the
Company greater flexibility to pursue a more economically advantageous secondary
marketing strategy, the expectation that the Company will devote significant
financial and human resources to expand its Internet business, the expectations
regarding the timing and extent of the Company's Year 2000-readiness and the
costs of implementing its Y2K Plan and the belief that any liability with
respect to its legal actions, individually or in the aggregate, will not have a
material adverse effect on the Company. There are many important factors that
could cause the Company's actual results to differ materially from expected
results in the forward-looking statements. Such factors include, but are not
limited to, the Company's ability to access funding and capital sources during a
period of tight liquidity in the Company's industry, the Company's limited
operating history, the Company's ability to sustain and manage its rate of
growth, the impact of competition in the subprime mortgage banking industry, the
potential for legislative or regulatory changes affecting the Company's
business, and other risks identified in the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and its other filings with the Securities
and Exchange Commission.
3
<PAGE>
Item 1. Financial Statements
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands)
September 30, December 31,
1999 1998
--------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents.............................................................. $ 8,384 $ 30,875
Loans receivable held for sale, net (notes 2 and 5).................................... 373,733 356,975
Residual interests in securitizations (note 3)......................................... 306,836 205,395
Mortgage servicing assets (note 4)..................................................... 19,818 8,665
Accrued interest receivable............................................................ 3,311 1,536
Office property and equipment.......................................................... 2,642 3,644
Prepaid expenses and other assets...................................................... 18,743 17,637
--------------------------------------
TOTAL ASSETS........................................................................... $ 733,467 $ 624,727
======================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Warehouse and aggregation lines of credit (note 5)..................................... $ 356,042 $ 345,843
Residual financing..................................................................... 146,903 122,298
Notes payable.......................................................................... 2,638 3,985
Income taxes payable................................................................... 6,434 1,690
Accounts payable and accrued liabilities............................................... 27,306 16,056
Deferred income taxes.................................................................. 27,740 20,242
--------------------------------------
Total liabilities.............................................................. 567,063 510,114
Stockholders' equity:
Preferred stock, $.01 par value. Authorized 7,500,000 shares;
40,000 shares issued and outstanding............................................... - -
Common stock, $.01 par value. Authorized 45,000,000 shares;
issued and outstanding 14,644,944 shares at September 30, 1999
and 14,473,566 shares at December 31, 1998......................................... 146 145
Additional paid-in capital............................................................. 85,320 65,241
Retained earnings, restricted.......................................................... 81,189 49,953
--------------------------------------
166,655 115,339
Deferred compensation costs............................................................ (251) (726)
--------------------------------------
Total stockholders' equity..................................................... 166,404 114,613
--------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 733,467 $ 624,727
======================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
4
<PAGE>
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Earnings
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Gain on sale of loans................................. $ 94,890 $ 82,657 $ 35,275 $ 30,557
Interest income....................................... 44,988 34,531 16,014 11,152
Servicing income...................................... 33,327 15,068 11,747 6,593
------------------------------------------------------------------
Total revenues...................................... 173,205 132,256 63,036 48,302
------------------------------------------------------------------
Expenses:
Personnel............................................. 38,757 34,021 13,964 12,949
Interest.............................................. 36,992 29,275 13,640 9,685
General and administrative............................ 27,522 20,869 9,591 7,710
Advertising and promotion............................. 8,593 6,662 3,466 2,368
Servicing............................................. 2,435 1,341 1,131 30
Professional services................................. 3,392 1,314 956 626
------------------------------------------------------------------
Total expenses...................................... 117,691 93,482 42,748 33,368
------------------------------------------------------------------
Earnings before income taxes............................ 55,514 38,774 20,288 14,934
Income taxes............................................ 22,895 16,441 8,360 6,326
------------------------------------------------------------------
Net earnings............................................ $ 32,619 $ 22,333 $ 11,928 $ 8,608
==================================================================
Basic earnings per share................................ $ 2.27 $ 1.58 $ 0.82 $ 0.61
==================================================================
Diluted earnings per share.............................. $ 1.77 $ 1.48 $ 0.62 $ 0.57
==================================================================
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
5
<PAGE>
New Century Financial Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
(In thousands)
Nine Months Ended September 30,
1999 1998
-------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings....................................................... $ 32,619 $ 22,333
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization.................................... 4,333 3,413
Deferred income taxes............................................ 7,498 7,500
NIR gains........................................................ (126,425) (101,655)
Servicing gains.................................................. (12,940) (2,693)
Initial deposits to over-collateralization accounts.............. (60,742) (23,175)
Deposits to over-collateralization accounts...................... (21,333) (18,731)
Release of cash from over-collateralization accounts............. 18,372 16,808
Net proceeds from NIMS transaction............................... 76,098 53,819
Amortization (accretion) of NIRs/I/O's........................... 4,615 8,854
General valuation provision for NIRs............................. 13,000 7,500
Provision for losses............................................. 5,787 10,096
Loans originated or acquired for sale............................ (3,011,864) (2,392,162)
Loan sales, net.................................................. 2,988,492 2,287,516
Principal payments on loans receivable held for sale............. 4,397 30,392
Net change in other assets and liabilities....................... 4,062 (5,469)
Increase in warehouse and aggregation lines of
credit......................................................... 10,199 83,806
-------------------------------
Net cash used in operating activities............................. (63,832) (11,848)
-------------------------------
Cash flows from investing activities:
Purchase of office property and equipment........................ (508) (2,585)
Purchase of interest-only (I/O) certificates..................... - (5,756)
Acquisition of Primewest......................................... - (1,500)
-------------------------------
Net cash used in investing activities.............................. (508) (9,841)
Cash flows from financing activities:
Net proceeds from (repayments of) notes payable.................. (1,347) 609
Net proceeds from residual financing............................. 24,605 31,565
Payment of dividends on convertible preferred stock.............. (1,383) -
Net proceeds from issuance of stock/purchase of treasury stock... 19,974 56
-------------------------------
Net cash provided by financing activities.......................... 41,849 32,230
-------------------------------
Net increase (decrease) in cash and cash equivalents............... (22,491) 10,541
Cash and cash equivalents, beginning of period..................... 30,875 12,701
-------------------------------
Cash and cash equivalents, end of period........................... $ 8,384 $ 23,242
===============================
Supplemental cash flow disclosure:
Interest paid.................................................... $ 36,857 $ 29,069
Income taxes paid................................................ $ 10,653 $ 9,071
Supplemental non-cash financing activity:
Stock issued in connection with acquisition of Primewest......... $ - $ 2,000
Restricted stock issued.......................................... $ - $ 173
</TABLE>
See accompanying notes to unaudited condensed consolidated financial statements.
6
s
<PAGE>
NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 1999 and 1998
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ended December 31, 1999.
Recent Accounting Developments - In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133 (SFAS No. 133), "Accounting for
Derivative Securities and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments imbedded in other contracts (collectively referred to as
derivatives) and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. If certain conditions are
met, a derivative may be specifically designated as (i) a hedge of the exposure
to changes in the fair value of a recognized asset or liability or an
unrecognized firm commitment, (ii) a hedge of the exposure to variable cash
flows of a forecasted transaction, or (iii) a hedge of the foreign currency
exposure of a net investment in a foreign operation, an unrecognized firm
commitment, an available for sale security, or a foreign currency-denominated
forecasted transaction.
Under SFAS No. 133, an entity that elects to apply hedge accounting is required
to establish at the inception of the hedge the method it will use for assessing
the effectiveness of the hedging derivative and the measurement approach for
determining the ineffective aspect of the hedge. Those methods must be
consistent with the entity's approach to managing risk. Management is in the
process of assessing the impact of implementing SFAS No. 133, which was to be
effective for all fiscal quarters of fiscal years beginning after June 15, 1999.
The FASB subsequently issued SFAS No. 137, delaying implementation of SFAS No.
133 for one year.
Residual interests in securitizations - Residual interests in securitizations
(Residuals) are recorded as a result of the sale of loans through
securitizations and the sale of residual interests in securitizations through
what are sometimes referred to as net interest margin securities (NIMS).
7
<PAGE>
The loan securitizations are generally structured as follows: First, the Company
sells a portfolio of mortgage loans to a special purpose entity (SPE) which has
been established for the limited purpose of buying and reselling mortgage loans.
The SPE then transfers the same mortgage loans to a Real Estate Mortgage
Investment Conduit or Owners Trust (the REMIC or Trust), and the Trust in turn
issues interest-bearing asset-backed securities (the Certificates) generally in
an amount equal to the aggregate principal balance of the mortgage loans. The
Certificates are typically sold at face value and without recourse except that
representations and warranties customary to the mortgage banking industry are
provided by the Company to the Trust. One or more investors purchase these
Certificates for cash. The Trust uses the cash proceeds to pay the Company the
cash portion of the purchase price for the mortgage loans. The Trust also issues
a certificate representing a residual interest in the payments on the
securitized loans. In addition, the Company may provide a credit enhancement for
the benefit of the investors in the form of additional collateral (over-
collateralization account or OC Account) held by the Trust. The OC Account is
required by the servicing agreement to be maintained at certain levels.
At the closing of each securitization, the Company removes from its consolidated
balance sheet the mortgage loans held for sale and adds to its consolidated
balance sheet (i) the cash received, (ii) the estimated fair value of the
interest in the mortgage loans retained from the securitizations (Residuals),
which consist of (a) the OC Account and (b) the net interest receivable (NIR)
and (iii) the estimated fair value of the servicing asset. The NIR represents
the discounted estimated cash flows to be received by the Company in the future.
The excess of the cash received and the assets retained by the Company over the
carrying value of the loans sold, less transaction costs, equals the net gain on
sale of mortgage loans recorded by the Company.
The NIMS are generally structured as follows. First, the Company sells or
contributes the Residuals to an SPE which has been established for the limited
purpose of receiving and selling asset-backed residual interests in
securitization certificates. Next, the SPE transfers the Residuals to an owner
trust (the Trust) and the Trust in turn issues interest-bearing asset-backed
securities (the bonds and certificates). The Company sells these Residuals
without recourse except that normal representations and warranties are provided
by the Company to the Trust. One or more investors purchase the bonds and
certificates and the proceeds from the sale of the bonds and certificates, along
with a residual interest certificate that is subordinate to the bonds and
certificates, represent the consideration to the Company for the sale of the
Residuals.
At the closing of each NIMS, the Company removes from its consolidated balance
sheet the carrying value of the Residuals sold and adds to its consolidated
balance sheet (i) the cash received, and (ii) the estimated fair value of the
portion of the Residuals retained, which consists of the net interest receivable
(NIR) and the OC account. The excess of the cash received and assets retained
over the carrying value of the Residuals sold, less transaction costs, equals
the net gain or loss on the sale of Residuals recorded by the Company.
The Company allocates its basis in the mortgage loans and residual interests
between the portion of the mortgage loans and residual interests sold through
the Certificates and the
8
<PAGE>
portion retained (the Residuals and servicing assets) based on the relative fair
values of those portions on the date of sale. The Company may recognize gains or
losses attributable to the changes in the fair value of the Residuals, which are
recorded at estimated fair value and accounted for as "held-for-trading"
securities. The Company is not aware of an active market for the purchase or
sale of Residuals and, accordingly, the Company determines the estimated fair
value of the Residuals by discounting the expected cash flows released from the
OC Account (the cash out method) using a discount rate commensurate with the
risks involved. The Company has utilized an effective discount rate of
approximately 12% on the estimated cash flows released from the OC Account to
value the Residuals through securitization and approximately 14% on the
estimated cash flows released from the Trust to value Residuals through NIMS
transactions.
The Company receives periodic servicing fees for the servicing and collection of
the mortgage loans as master servicer of the securitized loans. In addition,
the Company is entitled to the cash flows from the Residuals that represent
collections on the mortgage loans in excess of the amounts required to pay the
Certificate principal and interest, the servicing fees and certain other fees
such as trustee and custodial fees. At the end of each collection period, the
aggregate cash collections from the mortgage loans are allocated first to the
base servicing fees and certain other fees such as trustee and custodial fees
for the period, then to the Certificateholders for interest at the pass-through
rate on the Certificates plus principal as defined in the servicing agreements.
If the amount of cash required for the above allocations exceeds the amount
collected during the collection period, the shortfall is drawn from the OC
Account. If the cash collected during the period exceeds the amount necessary
for the above allocations, and there is no shortfall in the related OC Account,
the excess is released to the Company. If the OC Account balance is not at the
required credit enhancement level, the excess cash collected is retained in the
OC Account until the specified level is achieved. The cash and collateral in
the OC Account is restricted from use by the Company. Pursuant to certain
servicing agreements, cash held in the OC Accounts may be used to make
accelerated principal paydowns on the Certificates to create additional excess
collateral in the OC Account which is held by the Trusts on behalf of the
Company as the Residual holder. The specified credit enhancement levels are
defined in the servicing agreements as the OC Account balance expressed
generally as a percentage of the current collateral principal balance.
The Annual Percentage Rate (APR) on the mortgage loans is relatively high in
comparison to the pass-through rate on the Certificates. Accordingly, the
Residuals described above are a significant asset of the Company. In
determining the value of the Residuals, the Company must estimate the future
rates of prepayments, prepayment penalties to be received by the Company,
delinquencies, defaults and default loss severity as they affect the amount and
timing of the estimated cash flows. The Company uses an annual default rate
estimate of 0.60% to 1.50% for adjustable rate first trust deeds, 0.38% to 0.75%
for fixed rate first trust deeds and 0.75% to 1.25% for second trust deeds. The
Company's default rate estimates result in cumulative loss estimates as a
percentage of the original principal balance of the mortgage loans of 2.17% to
2.79% for adjustable rate first trust deeds, 1.56% to 2.83% for fixed rate first
trust deeds and 3.66% for second trust deeds. These estimates are based on
current pool performance, historical loss data for
9
<PAGE>
comparable loans and the specific characteristics of the loans originated by the
Company. The Company estimates prepayments by evaluating historical prepayment
performance of comparable mortgage loans and the impact of trends in the
industry. The Company has used a prepayment curve to estimate the prepayment
characteristics of the mortgage loans. The rate of increase, duration, severity
and decrease of the curve depends on the age and nature of the mortgage loans,
primarily whether the mortgage loans are fixed or adjustable and the interest
rate adjustment characteristics of the mortgage loans (6 month, 1 year, 2 year,
3 year or 5 year adjustment periods). The Company's prepayment curve and default
estimates have resulted in weighted average lives of between 2.21 to 3.00 years
for its adjustable mortgage loans and 3.74 to 3.94 years for its fixed rate
mortgage loans.
Due to the uncertainty associated with estimating future cash flows caused by
the lack of historical performance data on the mortgage loans and the absence of
an active market for the purchase and sale of Residuals, the Company established
a general valuation allowance of $3.0 million for the Residuals during the year
ended December 31, 1997, added $7.5 million to the allowance during 1998, and
added $13.0 million to the allowance in the first nine months of 1999. The
general valuation allowance is based on the Company's periodic evaluation of the
Residuals, which takes into consideration trends in actual cash flow
performance, industry and economic developments, as well as other relevant
factors. During the nine months ended September 30, 1999, the Company allocated
$13.0 million of its allowance to write down the carrying value of its May 1998
Net Interest Margin Security.
2. Loans Receivable Held for Sale
A summary of loans receivable held for sale, at the lower of cost or market at
September 30, 1999 and December 31, 1998 follows (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -----------
<S> <C> <C>
Mortgage loans receivable.......................... $372,883 $355,875
Net deferred origination costs..................... 850 1,100
-------- --------
$373,733 $356,975
======== ========
</TABLE>
3. Residual Interests in Securitizations
Residual interests in securitizations consist of the following components at
September 30, 1999 and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- -----------
<S> <C> <C>
Over-collateralization amount.................................. $153,495 $ 89,792
Net interest receivable (NIR).................................. 163,841 126,103
317,336 215,895
-------- --------
General valuation allowance.................................... (10,500) (10,500)
-------- --------
$ 306,836 $205,395
========= ========
</TABLE>
10
<PAGE>
The following table summarizes activity in the NIR amounts for the nine months
ended September 30, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, beginning of period................... $126,103 $ 79,036
Sale of NIR through NIMS....................... (71,156) (53,819)
NIR gains...................................... 126,425 101,655
Write-down of NIR.............................. (13,000) ---
NIR accretion (amortization)................... (4,531) (8,854)
-------- --------
Balance, end of period......................... $163,841 $118,018
======== ========
</TABLE>
The following table summarizes activity in the OC accounts for the nine months
ended September 30, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, beginning of period................... $ 89,792 $ 21,224
Initial deposits to OC accounts................ 60,742 23,175
Additional deposits to OC accounts............. 21,333 18,731
Release of cash from OC accounts............... (18,372) (16,808)
-------- --------
Balance, end of period......................... $153,495 $ 46,322
======== ========
</TABLE>
The following table summarizes activity in the allowance for NIR losses for the
nine months ended September 30, 1999 and 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, beginning of period................... $ 10,500 $ 3,000
Provision for NIR losses....................... 13,000 7,500
Charge-offs of NIR............................. (13,000) ---
-------- -------
Balance, end of period......................... $ 10,500 $10,500
======== =======
</TABLE>
4. Mortgage Servicing Assets
Mortgage servicing assets represent the carrying value of the Company's
servicing portfolio. The following table summarizes activity in mortgage
servicing assets for the nine months ended September 30, 1999 and 1998 (dollars
in thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, beginning of period................... $ 8,665 $ ---
Additions...................................... 12,940 2,693
Amortization................................... (1,787) ---
-------- -------
Balance, end of period......................... $ 19,818 $ 2,693
======== =======
</TABLE>
The table below summarizes activity in the Company's mortgage loan servicing
portfolio for the nine months ended September 30, 1999 and 1998 (dollars in
millions):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Balance, beginning of period................... $ 3,786 $ 1,323
Loans funded................................... 3,008 2,388
Payoffs/servicing released sales............... (1,391) (644
-------- -------
Balance, end of period......................... $ 5,403 $ 3,067
======== =======
</TABLE>
11
<PAGE>
5. Warehouse and Aggregation Lines of Credit
Warehouse and aggregation lines of credit consist of the following at September
30, 1999 and December 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
A $290 million line of credit expiring in May 2000
secured by loans receivable held for sale, bearing
interest based on one month LIBOR (5.40% at
September 30, 1999)................................... $225,636 $191,931
A $603 million master repurchase agreement bearing
interest based on one month LIBOR (5.40% at
September 30, 1999), secured by loans receivable held
for sale. The agreement may be terminated
by the lender giving 28 days written notice........... 96,586 153,912
A $300 million loan and security agreement bearing
interest based on one month LIBOR (5.40% at
September 30, 1999), secured by loans receivable held
for sale, expiring in June 2000....................... --- ---
A $300 million loan and security agreement bearing
interest based on one month LIBOR (5.40% at
September 30, 1999), secured by loans receivable held
for sale. This facility renews automatically for
successive 12-month periods starting in August
2000, but is uncommitted.............................. 33,820 ---
-------- --------
$356,042 $345,843
======== ========
</TABLE>
The warehouse and aggregation line of credit agreements contain certain
restrictive financial and other covenants which require the Company to, among
other things, restrict dividends, maintain certain net worth and liquidity
levels, remain below specified debt-to-net-worth ratios and comply with
regulatory and investor requirements. At September 30, 1999, the Company was in
compliance with these financial and other covenants.
12
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
New Century Financial Corporation (the Company) is a specialty finance company
engaged in the business of originating, purchasing, selling and servicing sub-
prime mortgage loans secured primarily by first mortgages on single family
residences. The Company originates and purchases loans through its Wholesale
and Retail Divisions and through its Primewest subsidiary. The Company's
borrowers generally have substantial equity in the property securing the loan,
but have impaired or limited credit profiles or higher debt-to-income ratios
than traditional mortgage lenders allow. The Company's borrowers also include
individuals who, due to self-employment or other circumstances, have difficulty
verifying their income, as well as individuals who prefer the prompt and
personalized service provided by the Company.
Loan Originations and Purchases
As of September 30, 1999, the Company's Wholesale Division was operating through
five regional operating centers and 66 additional sales offices located in 35
states. The number of account executives in the Wholesale Division decreased
slightly to 184 at September 30, 1999, compared to 188 at September 30, 1998.
The Wholesale Division funded $2.1 billion in loans during the nine months ended
September 30, 1999.
As of September 30, 1999, the Company's Retail Division was operating through 80
sales offices located in 29 states. The Retail Division funded $757.1 million in
loans during the nine months ended September 30, 1999. The Company's Primewest
subsidiary closed $113.1 million in loans during the nine months ended September
30, 1999. The number of loan officers in the Retail Division and Primewest
decreased to 344 at September 30, 1999, from 405 at September 30, 1998.
Loan Sales and Securitizations
Loan Sale Strategy. The Company's loan sale strategy includes both
securitizations and whole loan sales in order to advance the Company's goal of
enhancing profits while managing cash flows. Loan sales through securitizations
permit the Company to enhance operating profits and to benefit from future cash
flows generated by the residual interests retained by the Company. Whole loan
sale transactions enable the Company to generate current cash flow, protect
against the potential volatility of the securitization market and reduce the
risks inherent in retaining residual interests in securitizations.
The Company's primary source of revenue is the recognition of gains from the
sale of its loans through whole loan sales and securitizations. In a whole loan
sale, the Company recognizes and receives a cash gain upon sale. In a
securitization, the Company recognizes a gain on sale at the time the loans are
sold, but receives corresponding cash flows, represented by the over-
collateralization amount (OC) and the Net Interest Receivable (NIR) (combined,
the Residuals), over the actual life of the loans. As a result of timing
differences in receiving cash from whole loan sales versus securitizations, the
relative percentage of whole loan sales to securitizations will affect the
Company's operating cash flow. For the quarter ended September 30, 1999, $1.0
billion, or 84.7%, of the Company's loan sales were in the form of
securitizations. Based on current liquidity and profit projections and current
market conditions, the Company anticipates
13
<PAGE>
the percentage of securitizations versus whole loan sales to remain high for the
remainder of 1999.
The Company has, to date, elected to fund the required OC at the closing of most
of its securitizations. The over-collateralization requirement ranges from two
to five percent of the initial securitization bond debt principal balance or
four to nine percent of the remaining principal balance after thirty to thirty-
six months of principal amortization. When funding all of the OC Account up
front, the Company begins to receive cash flow from the Residual immediately.
In those cases where only a portion of the OC Account is funded up front, the
Company will begin to receive cash flow from the Residual more quickly than in
cases where no initial funding is undertaken. Cash flows from the Residuals are
subject to certain delinquency or credit loss tests, as defined by the rating
agencies or the bond insurance companies. Over time, the Company will also
receive the OC, subject to the performance of the mortgage loans in each
securitization.
In connection with the origination and purchase of loans, the Company may either
receive or pay origination fees. These fees, referred to as "points" or
"premiums" in the mortgage industry, are dependent on the source of loan
production. Typically, they correspond to the amount of further processing
required for a loan to be funded and are determined as a percentage of the loan
amount. The points received from the origination of loans and the premiums paid
to originate and acquire loans are included in the gain recognized from the sale
of loans in the income statement when the loans are sold.
The following table sets forth loan sales for the periods indicated (dollars in
thousands):
<TABLE>
<CAPTION>
For the Nine Months For the Three Months
Ended September 30, Ended September 30,
-------------------------------------------------
1999 1998 1999 1998
-------------------------------------------------
<S> <C> <C> <C> <C>
Securitizations......................... $2,187,470 $1,276,483 $1,046,836 $596,472
Whole loan sales........................ 862,334 1,011,033 189,705 248,200
-------------------------------------------------
Subtotal................................ 3,049,804 2,287,516 1,236,541 844,672
-------------------------------------------------
Less: Loans acquired to securitize(1).. (61,312) -- (61,312) --
-------------------------------------------------
Net loan sales.......................... $2,988,492 $2,287,516 $1,175,229 $844,672
=================================================
(1) Loans acquired to securitize represent loans acquired by the Company from
its whole loan investors. These loans are acquired by the Company at
current market prices for such loans.
</TABLE>
Condition of Secondary Market. For the past year, whole loan prices have
remained at levels significantly lower than the prices received by the Company
in earlier periods. The Company believes that there are indications that these
lower prices will persist through the fourth quarter of 1999. In addition, more
buyers in the whole loan market are confining their purchases to loans having
very specific attributes. Unlike 1997 and early 1998, the Company has found it
to be more difficult to identify buyers willing to purchase a pool of loans
representing a cross section of the Company's entire loan production.
Consequently, in the second quarter, the Company's whole loan sales were
characterized by smaller pools of more narrow characteristics sold to a larger
number of buyers. In the third quarter, the Company elected to securitize a
larger percentage of its production than in previous quarters, in response to
these market conditions.
14
<PAGE>
The securitization market weakened somewhat in the third quarter; however, the
Company was able to recognize moderate gains on securitized loans. The Company
believes that there are indications, however, that the securitization market may
remain weak in the fourth quarter, partly due to general uncertainty in the
financial markets relating to the Year 2000.
One other significant third quarter development that may affect the Company's
secondary marketing strategy was the increase in interest rates. Over the
course of the third quarter a general trend of increasing interest rates has
resulted in a modest reduction in the expected gain on sale for loans currently
held for sale, particularly the Company's fixed-rate loans. The rate increases
could affect both the expected whole loan value of the loans, as well as the
gain on sale recognized in securitization transactions as investors in the
Company's mortgage-backed securities demand higher yields in line with competing
financial instruments.
The Company has responded to the interest rate increases through corresponding
increases in the rates offered to its borrowers. However, there is a lag of time
for the rate increases to be reflected in the Company's inventory of loans held
for sale. Accordingly, the Company believes that the gain on sale for the
Company's loans in the fourth quarter may be negatively affected by the lower-
than-average spread between the Company's weighted average coupon and investor
yield requirements.
The Company believes that the continuing lower whole loan prices, rising
interest rates and the shift of the whole loan market to narrower pool criteria
will continue to affect the Company's secondary marketing strategy, cash flow
and profitability. Based on current liquidity and profit projections and current
market conditions, the Company expects that in the remainder of 1999, less than
40% of its loan sales will be in the form of whole loan sales.
In order to address some of these fourth-quarter secondary market uncertainties,
the Company has entered into a forward transaction for the securitization of
approximately $640 million in the Company's adjustable-rate production.
The transaction's closing is subject to the Company's ability to deliver loans
with the required characteristics and to provide a minimum specified
subordination level for the AAA securities.
Results of Operations
15
<PAGE>
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
The Company originated and purchased $3.0 billion in loans for the nine months
ended September 30, 1999, compared to $2.4 billion for the nine months ended
September 30, 1998. Loans originated and purchased through the Company's
Wholesale Division were $2.1 billion, or 71.1%, of total originations and
purchases for the nine months ended September 30, 1999. Loans originated
through the Company's Retail Division were $757.1 million, or 25.2%, of total
originations and purchases for the nine month period. Loans originated through
the Company's Primewest subsidiary were $113.1 million, or 3.7%, of total
originations and purchases for the nine months ended September 30, 1999. For
the same period in 1998, Wholesale, Retail and Primewest originations and
purchases totaled $1.7 billion, or 70.8%, $631.1 million, or 26.4% and $65.2
million, or 2.8%, respectively, of total originations and purchases.
Total revenues for the nine months ended September 30, 1999 increased to $173.2
million, from $132.3 million for the nine months ended September 30, 1998. This
increase was due primarily to the increase in loan originations and purchases
and sales in 1999, as well as the increase in servicing revenues due to the
increase in the mortgage loan servicing portfolio. Gain on sale of loans
increased to $94.9 million for the nine months ended September 30, 1999, from
$82.7 million for the nine months ended September 30, 1998, due to the increase
in loan sales in 1999, partially offset by the decrease in whole loan prices and
securitization gains recorded in 1999.
16
<PAGE>
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
---- ----
<S> <C> <C>
Gain from whole loan sale transactions $ 27,051 $ 47,297
Non-cash gain from securitizations 126,425 101,655
Non-cash gain from servicing asset 12,940 2,693
Cash loss from securitizations/NIMS (3,575) --
Securitization expenses (10,519) (7,974)
Accrued interest (12,417) (6,390)
Provision for losses (5,787) (10,096)
General valuation provision for NIR (13,000) (7,500)
Non-refundable loan fees 40,167 35,170
Premiums paid (16,614) (24,274)
Origination costs (47,600) (43,750)
Hedging losses (2,181) (4,174)
-------- --------
Gain on sale of loans $ 94,890 $ 82,657
======== ========
</TABLE>
Whole loan sales decreased to $862.3 million for the nine months ended September
30, 1999, from $1.0 billion for the corresponding period in 1998. This decrease
is the result of a change in the mix of whole loan sales versus securitizations.
Loans sold through whole loan sales decreased to 28.3% of total loan sales in
the nine months ended September 30, 1999, compared to 44.2% for the
corresponding period in 1998.
Interest income increased to $45.0 million for the nine months ended September
30, 1999, from $34.5 million for the same period in 1998, primarily due to
increased interest income from loans held for sale. Interest income is earned on
loans held in inventory for sale. Such interest income accrues during periods
when loans are accumulated for future sales, and increases as loan originations
and purchases increase. The increase in interest income for the nine months
ended September 30, 1999 is the result of a higher average inventory of loans
held for sale compared to the corresponding period in 1998, primarily as a
result of increased loan originations and purchases.
Servicing income increased to $33.3 million for the nine months ended September
30, 1999, from $15.1 million for the nine months ended September 30, 1998. This
increase resulted from the increase in securitizations, pursuant to which the
Company retains ownership of the servicing rights. Servicing income reflects
servicing fees received on loans sold or securitized by the Company, net of
amortization of mortgage servicing assets, as well as income recognized on
residual cash flows from securitizations. As of September 30, 1999, the Company
had securitized over $5.5 billion in loans and retained the servicing rights.
As of September 30, 1998, the Company had securitized $2.4 billion in loans.
Total expenses increased to $117.7 million for the nine months ended September
30, 1999, from $93.5 million for the nine months ended September 30, 1998.
Interest expense increased due to the higher level of loan inventory and
corresponding warehouse
17
<PAGE>
and aggregation borrowings. All other expense components increased from 1998 to
1999 due primarily to (1) higher loan origination volume in the nine months
ended September 30, 1999 compared to the same period in 1998; and (2) the
addition of five sales offices from September 30, 1998 to September 30, 1999.
Three Months Ended September 30, 1999 Compared to Three Months Ended September
30, 1998
The Company originated and purchased $1.2 billion in loans for the three months
ended September 30, 1999, compared to $914.3 million for the three months ended
September 30, 1998. Loans originated and purchased through the Company's
Wholesale Division were $823.6 million, or 71.1%, of total originations and
purchases for the three months ended September 30, 1999. Loans originated
through the Company's Retail Division were $292.1 million, or 25.2%, of total
originations and purchases for the three month period. Loans originated through
the Company's Primewest subsidiary were $41.8 million, or 3.7%, of total
originations and purchases for the three months ended September 30, 1999. For
the same period in 1998, Wholesale, Retail and Primewest originations and
purchases totaled $672.3 million, or 73.5%, $210.6 million, or 23.0% and $31.4
million, or 3.5%, respectively, of total originations and purchases.
Total revenues for the three months ended September 30, 1999 increased to $63.0
million, from $48.3 million for the three months ended September 30, 1998. This
increase was due primarily to the increase in loan originations and purchases
and sales in 1999, as well as the increase in servicing revenues due to the
increase in the mortgage loan servicing portfolio. Gain on sale of loans
increased to $35.3 million for the three months ended September 30, 1999, from
$30.6 million for the three months ended September 30, 1998, due to the increase
in loan sales in 1999.
18
<PAGE>
The components of the gain on sale of loans are illustrated in the following
table (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
--------- --------
<S> <C> <C>
Gain from whole loan sale transactions $ 3,790 $ 11,026
Non-cash gain from securitizations 51,292 49,888
Non-cash gain from servicing asset 5,478 2,693
Cash gain from securitizations 127 --
Securitization expenses (4,089) (3,406)
Accrued interest (5,564) (3,497)
Provision for losses (2,199) (4,650)
General valuation provision for NIR ---- (6,500)
Non-refundable loan fees 14,900 11,975
Premiums paid (7,627) (8,446)
Origination costs (18,900) (16,000)
Hedging losses (1,933) (2,526)
-------- --------
Gain on sale of loans $ 35,275 $ 30,557
======== ========
</TABLE>
Whole loan sales decreased to $189.7 million for the three months ended
September 30, 1999, from $248.2 million for the corresponding period in 1998.
This decrease is the result of a change in the mix of whole loan sales versus
securitizations. Loans sold through whole loan sales decreased to 15.3% of
total loan sales in the three months ended September 30, 1999, compared to 29.4%
for the corresponding period in 1998.
Interest income increased to $16.0 million for the three months ended September
30, 1999, from $11.2 million for the same period in 1998, primarily due to
increased interest income from loans held for sale. Interest income is earned
on loans held in inventory for sale. Such interest income accrues during
periods when loans are accumulated for future sales, and increases as loan
originations and purchases increase.
Servicing income increased to $11.7 million for the three months ended September
30, 1999, from $6.6 million for the three months ended September 30, 1998. This
increase resulted from the increase in securitizations, pursuant to which the
Company retains ownership of the servicing rights. Servicing income reflects
servicing fees received on loans sold or securitized by the Company, as well as
income recognized on residual cash flows from securitizations. As of September
30, 1999, the Company had securitized over $5.5 billion in loans and retained
the servicing rights. As of September 30, 1998, the Company had securitized
$2.4 billion in loans.
Total expenses increased to $42.7 million for the three months ended September
30, 1999, from $33.4 million for the three months ended September 30, 1998.
Interest expense increased due to the higher level of loan inventory and
corresponding warehouse and aggregation borrowings. All other expense
components increased from 1998 to 1999 due primarily to (1) higher loan
origination volume in the quarter ended September 30, 1999 compared to the same
period in 1998; and (2) the addition of five sales offices from September 30,
1998 to September 30, 1999.
19
<PAGE>
One tool that management uses to measure the Company's cost-effectiveness in
originating loans is the "all-in acquisition cost" per loan. The Company
calculates this figure as the sum of fees paid to wholesale brokers and
correspondents, direct loan origination costs and corporate overhead costs, net
of points and fees received from borrowers, all divided by total production
volume. The all-in acquisition cost for the three months ended September 30,
1999 was 2.88%, down from 3.69% for the same period in 1998. The decrease was
due to decreases in operating expenses as a percent of production volume, as
economies of scale were realized and new branch offices matured.
Residual Securities
The carrying value of the Company's residual securities at September 30, 1999
and December 31, 1998 is summarized below (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Carrying value of securities $317,336 $215,895
Less: general valuation allowance for NIR (10,500) (10,500)
-------- --------
Net book value $306,836 $205,395
======== ========
</TABLE>
In establishing the net book value of the residual securities, management
reviews on a quarterly basis the underlying assumptions used to value each
residual security. The specific values set forth above were established and
tested by (i) changing prepayment speed assumptions and loss assumptions for
each security to reflect actual experience and future expectations, and (ii)
performing sensitivity analyses on the assumptions to assess the potential
impact of a higher prepayment and lower loss scenario, and the potential impact
of a lower prepayment and higher loss scenario.
To date, the Company's overall cash flows on its residual interests are higher
than the Company projected. However, based on historic prepayment activity,
particularly in the 6-month and 2/28 ARM products, the Company believes that
future cash flows may fall short of original projections. Based on the quarterly
evaluation of residual interests, the Company recorded a $4.0 million write-down
in the first quarter of 1999 and an additional $9.0 million in the second
quarter of 1999. The quarterly evaluation performed at the end of the third
quarter of 1999 resulted in no additional valuation adjustments.
Liquidity and Capital Resources
Financing Sources. The Company requires access to short-term warehouse and
aggregation credit facilities in order to fund loan originations and purchases
pending the securitization and sale of such loans. In May 1999, the Company
renewed its $300.0 million warehouse line of credit led by U.S. Bank National
Association, with an expiration date in May 2000 and an interest rate equal to
the one month LIBOR plus 1.25%. During the third quarter, the facility was
decreased to $290.0 million. At September 30, 1999, the balance outstanding
under the warehouse line of credit was $225.6 million.
20
<PAGE>
Borrowings under the warehouse line are secured by first and second mortgages
funded through the facility. Within seven days of funding, the Company is
required to deposit the mortgage note and file with U.S. Bank to be held as
collateral. If the file is incomplete, U.S. Bank ceases to count the loan as
valid collateral in calculating the Company's available borrowing capacity. As a
consequence, the Company is essentially forced to use its own cash to carry the
loan until the file defect can be cured and the loan can be resubmitted under
the warehouse line. As of September 30, 1999, the Company's "zero-collateral"
balance was not material, and did not affect the Company's liquidity.
As of September 30, 1999, the Company also had a $600.0 million aggregation
facility with Salomon Smith Barney (Salomon), which is subject to renewal by
Salomon on a monthly basis and bears interest at a rate generally equal to the
one month LIBOR plus 1.25%. At September 30, 1999, the balance outstanding under
the aggregation facility was $94.2 million. As of September 30, 1999, the
Company also had a $3.0 million line of credit with Salomon secured by a special
purpose subsidiary of the Company established to hold residential properties
owned by the Company from time to time. This facility bears interest at a rate
equal to the one month LIBOR plus 2.50%. The balance outstanding at September
30, 1999 was $2.4 million.
During the second quarter of 1999, the Company negotiated a second aggregation
and residual financing facility with Greenwich Capital Markets (Greenwich). The
aggregation facility totals $300.0 million, and bears interest at a rate equal
to the one-month LIBOR plus 1.25%. The facility is structured as a loan and
security agreement and consists of a $200 million committed portion and a $100
million uncommitted portion. From December 1, 1999 through January 10, 2000 the
committed portion is reduced to $50 million and the uncommitted portion
increases to $250 million. The facility expires in June 2000. Although the
Company utilized the facility during the third quarter, the balance outstanding
as of September 30, 1999 was zero.
In July 1999, the Company negotiated a third aggregation and residual financing
facility with Paine Webber Real Estate Securities, Inc. (Paine Webber). The $300
million facility is structured as a loan and security agreement and bears
interest at a rate based on the one month LIBOR. The entire amount is
uncommitted. The Paine Webber facility also includes a "wet funding" feature
that will permit the Company to use the facility to fund its loan originations
and purchases. The facility renews after one year, unless terminated by the
Company. As of September 30, 1999, the balance outstanding under this facility
was $33.8 million.
The Company utilizes the U.S. Bank warehouse line to finance the actual funding
of its loan originations and purchases. After loans are funded by the Company
using the warehouse line and all loan documentation is complete, the loans are
generally transferred to the Salomon, Greenwich or Paine Webber aggregation
facilities. The aggregation facilities are paid down with the proceeds of loan
sales and securitizations.
The Company has residual financing arrangements with Salomon, Greenwich and
Paine Webber, whereby the respective lender provides financing of the Company's
residual interests in securitizations as well as its residual interest from NIM
transactions. The amount of residual financing provided upon each securitization
is determined pursuant to
21
<PAGE>
formulas set forth in the respective agreements and is generally subject to
repayment as a result of changes in the market value of the residual interests
or the formula used by the lead underwriter to determine the market value of the
residual interest (which the lead underwriter may adjust in its sole
discretion). The Greenwich residual financing facility has an aggregate limit of
$30 million. The Paine Webber facility is uncommitted, and is built into the
overall $300 million limit for that facility. The Salomon facility is structured
as a repurchase arrangement, and does not have a specified limit. The facilities
bear interest at a rate based on the one month LIBOR. At September 30, 1999, the
balance outstanding under these facilities was $146.9 million.
The Company's business requires substantial cash to support its operating
activities and growth plans. As a result, the Company is dependent on the U.S.
Bank warehouse facility, the aggregation lines and the residual financing
facilities in order to finance its continued operations. If Salomon, U.S. Bank,
Greenwich or Paine Webber decided not to renew its credit facility with the
Company, the loss of borrowing capacity could have a material adverse impact on
the Company's results of operations, business and financial condition unless the
Company found a suitable alternative source. Similarly, if Salomon, Greenwich or
Paine Webber decided to reduce the assumed market value of the Company's
residual interests, the resulting margin call could have a material adverse
impact on the Company's results of operations, business and financial condition.
Industry Liquidity Environment. Although the Company was able to renew its
warehouse credit agreement and establish new aggregation credit facilities in
the second and third quarters, the financing environment for sub-prime mortgage
lenders in general remains unfavorable by historical standards. In recent
quarters, several of the Company's competitors have had warehouse or aggregation
facilities withdrawn or substantially curtailed. In addition, as whole loan
prices have fallen, lenders have gradually reduced the levels at which they will
lend against mortgage loans and residual interests. This reduction in advance
rates has had a negative effect on the Company's cash flow. If the lower advance
rates persist, the Company believes it may affect the Company's secondary
marketing strategy, and may have a material adverse effect on the Company's
results of operations, business and financial condition.
Strategy. The Company has employed a variety of strategies to deal with the more
difficult financing environment and to permit the Company to pursue its desired
secondary marketing strategy. In order to reduce its reliance on single sources
of aggregation, warehouse and residual financing, the Company established the
Greenwich and Paine Webber facilities. In addition, the Company has devoted
significant efforts to reducing its origination costs. The "all-in acquisition
cost" per loan - defined as the sum of fees paid to wholesale brokers and
correspondents, direct loan origination costs, including commissions and
corporate overhead costs, net of points and fees received from borrowers, all
divided by total production volume - declined by 81 basis points from the third
quarter of 1998 to the third quarter of 1999.
Finally, the Company has raised an additional $40 million of cash in 1999 from
the sale of its securities to U.S. Bancorp. On July 26, 1999, the Company raised
$20 million through the sale of shares of preferred stock to U.S. Bancorp. On
October 15, 1999 the Company
22
<PAGE>
raised an additional $20 million from U.S. Bancorp in the form of subordinated
debt.
There can be no assurance that the Company will be able to raise additional
capital in future quarters, that the Company will be able to further reduce its
"all-in acquisition cost" or that the Company's lenders will not further reduce
their advance rates under the Company's credit facilities. The cash impact of
advance rate reductions or the Company's inability to raise additional capital
could have a material adverse effect on the Company's results of operations,
business and financial condition.
Cash Flow. For the nine months ended September 30, 1999, the Company's
operations used approximately $63.8 million in cash, which is primarily
attributable to its securitization strategy. The Company records a residual
interest in securitization and recognizes a gain on sale when it effects a
securitization, but only receives the cash representing such gain over the life
of the loans securitized. In order to support its loan origination, purchase and
securitization programs, the Company is required to make significant cash
investments that include the funding of: (i) fees paid to brokers and
correspondents in connection with generating loans through wholesale lending
activities; (ii) fees and expenses incurred in connection with the
securitization and sale of loans including over-collateralization requirements
for securitization; (iii) commissions paid to sales employees to originate
loans; (iv) any difference between the amount funded per loan and the amount
advanced under the current warehouse facility; (v) principal and interest
payments on residual financing secured by the NIM residual bonds, for which the
Company does not expect to receive cash flows during 1999; and (vi) income tax
payments arising from the recognition of gain on sale of loans. The Company also
requires cash to fund ongoing operating and administrative expenses, including
capital expenditures and debt service. The Company's sources of operating cash
flow include: (i) the premium advance component of the aggregation facilities;
(ii) premiums obtained in whole loan sales; (iii) mortgage origination income
and fees; (iv) interest income on loans held for sale; (v) excess cash flow from
securitization trusts; and (vi) servicing income.
The Company has a discretionary, non-revolving $5.0 million line of credit with
an affiliate of U.S. Bank secured by the Company's furniture and equipment.
Advances under this facility are made periodically at the discretion of the
lender, and bear interest at a fixed rate established at the time of each
advance for a term of three years. As of September 30, 1999, the balance
outstanding under this facility was $2.6 million, and the weighted-average
interest rate was 8.7%.
The Company has various non-revolving operating lease agreements totaling $20.5
million at September 30, 1999, for purposes of financing office property and
equipment. Advances under these facilities are made periodically and a financing
rate is established at the time of each advance. As of September 30, 1999, the
Company had $1.6 million available under these facilities.
Subject to the various uncertainties described above, the Company anticipates
that its current liquidity, credit facilities and capital resources will be
sufficient to fund its operations for the foreseeable future.
23
<PAGE>
U.S. Bancorp Investment and Strategic Alliance
On July 26, 1999, U.S. Bancorp purchased 20,000 shares of the Company's Series
1999A Convertible Preferred Stock for an aggregate purchase price of $20
million. Each share of the Preferred Stock is convertible into 46.80 shares of
the Company's Common Stock that, upon conversion, will represent approximately
5.1% of the Company's total outstanding Common Stock. The Preferred Stock is
also entitled to a liquidation preference as well as a dividend payable
quarterly at a rate of 7.0% per year.
With the completion of this investment, U.S. Bancorp has increased its equity
position in the Company to approximately 23.2%, assuming conversion of both the
Series 1999A and 1998A Convertible Preferred Stock.
On October 15, 1999, U.S. Bancorp invested an additional $20.0 million in the
form of subordinated debt. The subordinated debt was structured as a component
of the Company's warehouse credit facility. The subordinated debt bears interest
at a rate of 12.0% per annum and matures in May 2000.
The Company believes that the proceeds from the U.S. Bancorp investments will
give the Company greater flexibility to pursue a more economically advantageous
secondary marketing strategy of securitizing a greater portion of its loan
production in the fourth quarter. There can be no assurance that U.S. Bancorp or
any other investor will make subsequent cash investments to allow the Company to
continue to pursue its optimal growth strategy. The Company's inability to raise
additional cash in subsequent quarters could have a material adverse impact on
the Company's results of operations, financial condition and business prospects.
Internet and Technology Initiatives
During the second quarter, the Company purchased the assets of 1800Anyloan,
which consisted primarily of the Internet domain names 1800anyloan.com and
anyloan.com and the toll free number 800anyloan. Additionally, the Company
purchased a 10% equity interest in DeNovoNet, Inc., a highly-specialized
technology company that develops and manages Internet solutions with the
objective to become the premier Internet business-to-business financial service
technology application provider.
Both transactions were part of the Company's ongoing expansion of its Internet
origination capabilities. In early August 1999, the Company commenced operation
of its anyloan.com web site. The Company expects to devote significant financial
and human resources in coming quarters to expand its Internet business. The
Company believes that these investments may result in an overall increase in the
Company's all-in acquisition cost for loans in coming quarters. There can be no
assurance that the Company's Internet business will contribute significantly to
revenues or that it will be profitable.
Other Developments Affecting the Industry
The Company is closely monitoring a number of recent developments that could
affect the Company's industry. First, the Company believes that increases in
interest rates could reduce demand for
24
<PAGE>
mortgages, particularly from borrowers seeking to refinance their homes.
Historically, non-prime mortgage originations have been less sensitive to
interest rate increases than conforming mortgages. However, the Company has
noted a modest decrease in its originations for the month of October 1999 as
compared to the months of August and September 1999, which the Company believes
may be due to the increase in interest rates. There can be no assurance that the
rising interest rate environment will not have a material adverse effect on the
Company's results of operations, business and financial condition.
Second, Fannie Mae and Freddie Mac have recently announced pilot programs to
begin purchasing mortgages originated to borrowers who would not qualify under
their conforming mortgage standards. The programs may encourage conforming
mortgage originators to begin originating some non-prime loans. To date, the
Company has not been affected by these efforts. However, if the Fannie Mae and
Freddie Mac programs expand significantly, the Company believes they could
result in increased competition for non-prime originators such as the Company.
Third, in recent months the non-prime mortgage industry has been criticized for
engaging in so-called "predatory" lending practices. Federal and state
regulators have initiated several high-profile enforcement actions against
brokers and lenders who have engaged in such conduct. Community activists have
also mounted some public relations campaigns against such abusive practices.
These practices have led some states to consider passing more stringent laws
regarding loan origination transactions. The Company does not condone unethical
lending practices, and does not oppose legitimate efforts to stop these
practices when they occur. However, the Company is concerned that some of the
legislation being considered by states would impose overly broad restrictions on
legitimate lending activities. If states begin adopting the sorts of legislation
currently being proposed, it could have a material adverse effect on the
Company's results of operations, business and financial condition.
Finally, in recent quarters, large, diversified financial corporations have
purchased several of the Company's competitors. As a result, some of these
competitors may have access to capital at a cost lower than the Company's cost
of capital under its warehouse, aggregation and residual financing facilities.
If, for a sustained period of time, the Company's cost of capital is higher than
the cost of capital of its competitors, it could have a material adverse effect
on the Company's results of operations, business and financial condition.
More detailed information regarding these and other risks faced by the Company
is available in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998 and its other filings with the Securities and Exchange
Commission.
Year 2000
The Year 2000 Issue
The Year 2000 issue is the result of computer hardware and software being
designed with the year field being set for two digits instead of four digits.
Computer programs and systems with this problem will be unable to properly
distinguish between the year 2000 and the year 1900. As a result the programs
could fail or yield incorrect results.
The Company's business, as well of those of its principal vendors, is dependent
on the ability of a variety of software and hardware systems to function. Less
visible, but also important, are the many non-information technology (Non-IT)
systems which have computer chips embedded in them. Failure of one or more of
these IT and Non-IT systems of the Company or an important vendor could disrupt
the Company's operations
25
<PAGE>
and cause a material adverse impact on the Company's business, results of
operations and financial condition.
The Company's Year 2000 Strategy
The Company is in the final stages of implementing its plan (the "Y2K Plan" or
the "Plan") to prepare for the Year 2000 issue. The Plan consists of (i)
evaluating the Company's exposure to Year 2000 problems, (ii) having its major
systems certified and tested as Year 2000 ready, (iii) obtaining certifications
and/or responses to detailed questionnaires from its major vendors regarding
their Year 2000 readiness, and (iv) establishing contingency plans. Except for
minor remediation efforts to be completed in November 1999, the Company had
substantially completed implementation of the Plan as of September 30, 1999.
Progress Report
In order to spearhead implementation of the Year 2000 effort, in 1998 the
Company established a Year 2000 Task Group (the "Group"). The Group divided the
Plan implementation process into four categories: 1) Hardware, 2) Non-
Information Technology (e.g., telephone systems, pagers, etc.), 3) Software, and
4) Outside Vendors.
Hardware - The Company's most important hardware systems are its several dozen
- --------
servers located at the Company's headquarters and regional operating centers.
The Group has contacted the manufacturers of those systems, and has obtained
certification of Year 2000 readiness. Because the Company was not formed until
late 1995 and did not commence lending operations until February 1996, most of
these systems are relatively new and were manufactured to be Year 2000 ready.
In addition, in March 1999, the Group commenced testing of each of the hardware
systems to confirm that they are able to function properly in a Year 2000
simulation. The Group completed the testing in the second quarter, and concluded
that the systems were Year 2000 ready.
Non-Information Technology - The Group also contacted the vendors of its
- --------------------------
principal Non-IT systems in order to obtain certificates of Year 2000 readiness.
The Company's material Non-IT systems include its telephone, paging, voicemail
and telemarketing systems. Because most of these systems were purchased after
1995, the majority of these systems were designed and manufactured to be Year
2000 ready. The Company has received certifications of Year 2000 readiness with
respect to all of its material Non-IT systems. All remediation was complete as
of October 31, 1999.
Software - The Group also evaluated all material software applications for Year
- --------
2000 readiness. The Company's material software applications include its loan
origination, accounting and servicing software, as well as the general word
processing and spreadsheet programs used by the majority of the Company's
employees. Because
26
<PAGE>
most of the Company's material software applications were purchased in the last
three years, most of this software was designed to be Year 2000 ready.
The Company has completed testing its material software systems for their
performance with respect to critical Year 2000 dates. Based on this testing, the
Company made some minor programming changes to a small number of programs in
order to bring them into Year 2000-readiness. The Group concluded that the
Company did not need to replace or materially upgrade any of the software
tested.
The Group is planning to complete additional testing of the software for
readiness with respect to a number of dates that fall after the Year 2001. This
second phase of testing is scheduled to be completed by end of the second
quarter in 2000.
Outside Vendors - The Group has identified its outside vendor relationships as a
- ---------------
significant area of uncertainty with respect to Year 2000 readiness. The Company
is dependent on many vendors, both for the origination of loans and for their
subsequent sale or securitization. If one or more of the Company's principal
vendors experiences significant business disruption as a result of the Year 2000
issue, it could have a material adverse effect on the Company's business,
results of operations and financial condition.
For example, if the Company's warehouse line of credit is not functioning
properly, the Company may be unable to fund loans. Similarly, if other major
origination-related vendors such as credit reporting agencies, title companies,
appraisers and county recorders are not operating, the Company's ability to
originate loans could be significantly impaired.
In order to mitigate the risks related to outside vendors, the Group developed a
questionnaire that was distributed in the third quarter of 1999 to the Company's
principal vendors. In addition, the Group has received from some of these
vendors, or retrieved from their web sites, information regarding their Year
2000 testing and readiness. To date, no major vendor issues have been
identified.
Contingency Planning
The Group has formulated and tested contingency plans in the event that any
material system or vendor will not be Year 2000 ready in a timely manner.
Outside Consultant Review
In order to obtain feedback on the status of Year 2000 efforts to date, the
Group retained an outside consulting firm to perform a Year 2000 risk analysis
in July 1999. The outside consulting firm reviewed the Company's Y2K Plan and
risk management approach, and has provided a confidential report to management.
This report includes recommendations and suggestions to enhance the Company's
readiness effort, and management is responding to these items.
Upon completion of the initial risk analysis, the Company continued to retain
the outside consulting firm for continuous review and refinement of the process.
27
<PAGE>
Costs
The Company has budgeted up to $1,000,000 for implementation of the Plan to
cover the costs of evaluating systems, upgrading or replacing non-compliant
systems and hiring an outside Year 2000 consultant. The Group did not exceed
original cost estimates. To date, expenditures for Year 2000 readiness have been
approximately $750,000.
Risks
Outside Vendors. At present, the Company perceives that one of its most
significant Year 2000 risks relates to its dependence on outside vendors. Even
if the Company can satisfy itself that the principal IT and Non-IT systems of
its main vendors are Year 2000 ready, those vendors in turn rely on a myriad of
suppliers to operate their businesses. It is conceivable that Year 2000-related
failures far removed from the Company could trigger a chain event that could
materially harm the Company's business.
Financial Market Effects. Another significant risk posed by the Year 2000 issue
is its potential disruption of financial markets. If Year 2000 disrupts
financial markets and financial institutions, it could have a material adverse
effect on the Company's operations and financial condition. For example, the
financial institutions that purchase whole loans or mortgage-backed securities
may curtail their purchases or insist on higher returns. Similarly, the
Company's lenders may seek to reduce their financing commitments to the Company.
Finally, if consumer confidence is impaired, the Company's loan originations
might decline.
The Company is already seeing Year 2000 affect the timing and terms of possible
fourth quarter secondary marketing transactions. Whole loan sales and
securitizations may need to be completed earlier in the fourth quarter as a
result of market uncertainty regarding Year 2000. There are also initial
indications that fourth quarter secondary marketing pricing terms might be worse
for the Company and its competitors than in prior quarters as a result of Year
2000 uncertainty. In order to mitigate some of the uncertainty posed by Year
2000 concerns in the financial markets, the Company has entered into a forward
commitment for the securitization of approximately $640 million in loans in
December 1999. The transaction's closing is subject to the Company's delivery of
loans having the specified characteristics and other customary conditions.
In short, while the Company is committed to attempt to prevent Year 2000-related
harms, there can be no assurance that Year 2000 problems will not have a
material adverse effect on the Company's business, results of operations or
financial condition.
28
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 1999, the Company had $306.8 million in residual interests
in securitizations and $19.8 million in mortgage servicing assets which subject
the Company to market risk. These assets are carried at fair value on the
Company's balance sheet. The Company determines the fair value of these assets
using significant assumptions (See "Notes to Consolidated Financial Statements -
Basis of Presentation"). In future periods, if cash flows are greater than
projected, the value of the assets will increase. Alternatively, if cash flows
are less than projected, the value of the assets will decrease. The Company also
has loans receivable held for sale and outstanding borrowings which subject the
Company to market risk. Loans receivable held for sale are generally sold, and
the related borrowings repaid, within three months.
29
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company occasionally becomes involved in litigation arising in
the normal course of business. Management believes that any liability
with respect to such legal actions, individually or in the aggregate,
will not have a material adverse effect on the Company.
Item 2. Change in Securities and Use of Proceeds
On July 26, 1999, the Company issued 20,000 shares of Series 1999A
Convertible Preferred Stock to U.S. Bancorp for an aggregate cash
consideration of $20,000,000. The sale and issuance of the shares
were exempt from the registration requirements of the Securities Act
by virtue of Section 4(2) of the Securities Act and Regulation D
thereunder. Each share of Preferred Stock is convertible at any time
at the election of U.S. Bancorp into 46.80 shares of the Company's
Common Stock.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
None.
Item 6.(a) Exhibits required by Item 601 of Regulation S-K
See "Exhibit Index."
(b) Reports on Form 8-K
None.
30
<PAGE>
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
DATE: November 12, 1999 By: /s/ BRAD A. MORRICE
--------------------------------------
Brad A. Morrice
President
DATE: November 12, 1999 By: /s/ EDWARD F. GOTSCHALL
--------------------------------------
Edward F. Gotschall
Chief Financial Officer
(Principal Financial and Accounting Officer)
31
<PAGE>
EXHIBIT INDEX
Exhibit Description of
Number Exhibit
- ------ --------------
* 3.1 First Amended and Restated Certificate of Incorporation
of the Company
**3.2 Certificate of Designation for Series 1998A Convertible
Preferred Stock
***3.3 Certificate of Designation for Series 1999A Convertible Preferred
Stock
*3.4 First Amended and Restated Bylaws of the Company
*4.1 Specimen Stock Certificate
****4.2 Specimen Series 1998A Convertible Preferred Stock Certificate
***4.3 Specimen Series 1999A Convertible Preferred Stock Certificate
10.1 First Amendment to Fourth Amended and Restated Credit Agreement
between the Company and U.S. Bank National Association, dated August
31, 1999
10.2 Second Amendment to Fourth Amended and Restated Credit Agreement
between the Company and U.S. Bank National Association dated, October
15, 1999
10.3 Amendment to Master Loan and Security Agreement dated as of July 20,
1999 by and among New Century Mortgage Corporation, NC Capital
Corporation and Paine Webber Real Estate Securities Inc., dated as of
September 30, 1999
10.4 Letter Agreement by and between NC Capital Corporation, New Century
Mortgage Corporation and Salomon Brothers Realty Corp., dated
September 1, 1999
10.5 Amendment Number One to Master Loan and Security Agreement dated as of
June 23, 1999 by and between NC Capital Corporation and Greenwich
Capital Financial Products, Inc., dated as of October 23, 1999
10.6 Industrial Lease, dated October 11, 1999, between the Company and The
Irvine Company.
11.1 Statement re Computation of Per Share Earnings
32
<PAGE>
27.1 Financial Data Schedule
* Incorporated by reference from the Company's Form S-1 Registration
Statement (No. 333-25483) as filed with the SEC on June 23, 1997.
** Incorporated by reference from the Company's Form 8-K as filed with the
SEC on December 8, 1998.
*** Incorporated by reference from the Company's Quarterly Report on Form
10-Q as filed with the SEC on August 16, 1999.
**** Incorporated by reference from the Company's Annual Report on Form 10-K
for the year ended December 31, 1998 as filed with the SEC.
33
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO
------------------
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
AND SERVICING SECURITY AGREEMENT
--------------------------------
THIS FIRST AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT AND
SERVICING SECURITY AGREEMENT (the "Amendment") dated as of August 31, 1999 by
and among NEW CENTURY MORTGAGE CORPORATION, a California corporation (the
"Company"), the lenders party to the Credit Agreement referred to below
(collectively, the "Lenders" and individually, a "Lender") and U.S. BANK
NATIONAL ASSOCIATION, a national banking association, in its capacity as agent
for the Lenders (in such capacity, together with any successor agents appointed
thereunder, the "Agent").
WITNESSETH THAT:
WHEREAS, the Company, the Lenders and the Agent are parties to a Fourth
Amended and Restated Credit Agreement dated as of May 26, 1999 (the "Credit
Agreement"), pursuant to which the Lenders provide the Company with a revolving
mortgage warehousing credit facility;
WHEREAS, the Company and the Agent are parties to a Servicing Security
Agreement dated as of May 29, 1998 (the "Servicing Security Agreement"); and
WHEREAS, the Company and the Lenders have agreed to amend the Credit
Agreement and Servicing Security Agreement upon the terms and conditions herein
set forth;
NOW, THEREFORE, for value received, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Lenders agree as follows:
1. Certain Defined Terms. Each capitalized term used herein without
---------------------
being defined herein that is defined in the Credit Agreement shall have the
meaning given to it therein.
2. Amendments to Credit Agreement. The Credit Agreement is hereby
------------------------------
amended as follows:
(a) Section 4.09(f) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(f) Liens incurred in connection with gestation repurchase
agreements or similar arrangements, including, without
limitation,
<PAGE>
(i) arrangements under which NCFC or its Subsidiaries are
required to repurchase Mortgage-backed Securities or Mortgage
Loans from any Lender or other counterparty reasonably
satisfactory to the Agent, or (ii) credit facilities structured
as loan and security agreements; provided, that (x) such
gestation repurchase agreements or similar arrangements are not
used to fund wet Mortgage Loans, and (y) such gestation
repurchase agreements or similar arrangements are entered into in
the ordinary course of business in contemplation of the
subsequent non-recourse sale of such Mortgage-backed Securities
or Mortgage Loans;
(b) Section 4.09 is further amended by deleting "and" at the end of
subsection (h) thereof, deleting the period at the end of subsection (i)
thereof and inserting "; and" therefor, and inserting at the end thereof a
new subsection (j) to read as follows:
(j) a pledge of the stock of NC Residual II Corporation to
Financial Securities Assurance Corporation.
(c) Section 4.11(c) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(c) Guarantees by NCFC of the Company's and NCCC's obligations
relating to (i) Indebtedness permitted by Sections 4.08(d) and
(g), or (ii) the Strategic Alliance Agreement described in
Section 4.10(j); and
(d) Section 4.13 of the Credit Agreement is hereby amended in its
entirety to read as follows:
4.13 Restricted Payments. The Company and NCFC will not
-------------------
make any Restricted Payments, other than (a) dividends paid by
NCFC on its 1998A Convertible Preferred Stock and its 1999A
Convertible Preferred Stock in an aggregate amount not to exceed
$3,000,000 per annum, (b) dividends paid by the Company to NCFC
to enable NCFC to pay such dividends in an amount not to exceed
$3,000,000 per annum, and (c) repurchases by NCFC of shares of
its common stock pursuant to the Stock Repurchase Program, in
each case provided that, both before and after giving effect to
such dividend payments or repurchases, the Borrower and NCFC are
in compliance with the covenants set forth in Section 4 of
-2-
<PAGE>
this Agreement and no Event of Default or Unmatured Event of
Default has occurred and is continuing.
(e) Exhibit E to the Credit Agreement is hereby amended in its
entirety to read as set forth on Exhibit E hereto.
(f) Schedule 1.01(b) to the Credit Agreement is hereby amended in its
entirety to read as set forth on Schedule 1.01(b) hereto.
3. Amendments to the Servicing Security Agreement. The Servicing
----------------------------------------------
Security Agreement is hereby amended as follows:
(a) The definitions of "Servicing Contracts" and "Servicing Rights"
are hereby amended in their entireties to read as follows:
"Servicing Contracts" shall mean any and all contracts or
-------------------
agreements purchased by the Company or entered into by the
Company for its own account (and not as nominee or subservicer),
whether now existing or hereafter purchased or entered into,
pursuant to which the Company services Mortgage Loans or Mortgage
Loan pools for others (other than NCCC).
"Servicing Rights" shall mean any and all rights of the Company
----------------
held for its own account (and not as nominee or subservicer),
whether pursuant to a Servicing Contract or otherwise, to service
Mortgage Loans or Mortgage Loan pools for others (other than
NCCC), including, without limitation, (i) all rights to collect
payments due and enforce the rights of the mortgagee under any
Mortgage Loans, (ii) all rights to receive compensation and
termination fees under any Servicing Contract and (iii) all
rights to receive the proceeds from any sale or other transfer of
the Company's interest in any Servicing Contract.
(b) Section 2(d) of the Servicing Security Agreement is hereby
amended in its entirety to read as follows:
(d) all books, correspondence, credit files, records, invoices,
bills of lading, and other documents, including, without
limitation, all tapes, cards, computer runs, and other papers and
documents in the possession or control of the Company or any
computer bureau from time to time acting for the Company, but
specifically excluding books, correspondence, credit files,
records, invoices,
-3-
<PAGE>
bills of lading, and other documents relating to Mortgage Loans
pledge to third parties to secure Indebtedness permitted by
Section 4.08(g) of the Credit Agreement;
4. Conditions to Effectiveness of this Amendment. This Amendment shall
---------------------------------------------
become effective when the Agent shall have received at least thirteen (13)
counterparts of this Amendment, duly executed by the Company and the Required
Lenders, provided the following conditions are satisfied:
(a) Before and after giving effect to this Amendment, the
representations and warranties of the Company in Section 3 of the Credit
Agreement, Section 5 of the Pledge and Security Agreement and Section 4 of
the Servicing Security Agreement, of NCFC in Section 15 of the Guaranty,
and of NCCC in Section 15 of the NCCC Guaranty shall be true and correct as
though made on the date hereof, except for changes that are permitted by
the terms of the Credit Agreement.
(b) Before and after giving effect to this Amendment, no Event of
Default and no Unmatured Event of Default shall have occurred and be
continuing.
(c) No material adverse change in the business, assets, financial
condition or prospects of the Company or NCFC shall have occurred since May
26, 1999.
(d) The Agent shall have received the following, each duly executed or
certified, as the case may be, and dated as of the date of delivery
thereof:
(i) copy of resolutions of the Board of Directors of the
Company, certified by its respective Secretary or Assistant
Secretary, authorizing or ratifying the execution, delivery and
performance of this Amendment;
(ii) a certified copy of any amendment or restatement of the
Articles of Incorporation or the By-laws of the Company made or
entered following the date of the most recent certified copies
thereof furnished to the Lenders;
(iii) certified copies of all documents evidencing any necessary
corporate action, consent or governmental or regulatory approval
(if any) with respect to this Amendment;
-4-
<PAGE>
(iv) a Reaffirmation of NCFC Guaranty duly executed by NCFC;
(v) a Reaffirmation of NCCC Guaranty duly executed by NCCC; and
(vi) such other documents, instruments, opinions and approvals
as the Agent may reasonably request.
(e) The Agent shall have received the amendment fee required by
Section 8.16 of the Credit Agreement.
5. Acknowledgments. The Company and each Lender acknowledge that, as
---------------
amended hereby, the Credit Agreement remains in full force and effect with
respect to the Company and the Lenders, and that each reference to the Credit
Agreement in the Loan Documents shall refer to the Credit Agreement as amended
hereby. The Company confirms and acknowledges that it will continue to comply
with the covenants set out in the Credit Agreement and the other Loan Documents,
as amended hereby, and that its representations and warranties set out in the
Credit Agreement and the other Loan Documents, as amended hereby, are true and
correct as of the date of this Amendment. The Company represents and warrants
that (i) the execution, delivery and performance of this Amendment is within its
corporate powers and has been duly authorized by all necessary corporate action;
(ii) this Amendment has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (subject to limitations as to
enforceability which might result from bankruptcy, insolvency, or other similar
laws affecting creditors' rights generally and general principles of equity) and
(iii) no Events of Default or Unmatured Events of Default exist.
6. General.
-------
(a) The Company agrees to reimburse the Agent upon demand for all
reasonable expenses (including reasonable attorneys fees and legal
expenses) incurred by the Agent in the preparation, negotiation and
execution of this Amendment and any other document required to be furnished
herewith, and to pay and save the Lenders harmless from all liability for
any stamp or other taxes which may be payable with respect to the execution
or delivery of this Amendment, which obligations of the Company shall
survive any termination of the Credit Agreement.
(b) This Amendment may be executed in as many counterparts as may be
deemed necessary or convenient, and by the different parties hereto on
-5-
<PAGE>
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
(c) Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
(d) This Amendment shall be governed by, and construed in accordance
with, the internal law, and not the law of conflicts, of the State of
Minnesota, but giving effect to federal laws applicable to national banks.
(e) This Amendment shall be binding upon the Company, the Lenders, the
Agent and their respective successors and assigns, and shall inure to the
benefit of the Company, the Lenders, the Agent and the successors and
assigns of the Lenders and the Agent.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
NEW CENTURY MORTGAGE
CORPORATION
By /s/ Brad A. Morrice
-------------------------------------------
Its Chairman, CEO
---------------------------------------
U.S. BANK NATIONAL ASSOCIATION,
By /s/ Edwin D. Jenkens
-----------------------------------------
Its Senior Vice President
--------------------------------------
GUARANTY FEDERAL BANK, FSB
By /s/ W. James Meintjes
------------------------------------------
Its Vice President
---------------------------------------
[Signature Page for First Amendment to
Fourth Amended and Restated Credit Agreement]
<PAGE>
BANK UNITED
By /s/ Michele Perrin
------------------------------------
Its VP. Mtg. Banker Finance
--------------------------------
RESIDENTIAL FUNDING CORPORATION
By /s/ ^^ILLEGIBLE SIGNATURE^^
------------------------------------
Its Director
--------------------------------
BANK ONE, TEXAS, N.A.
By /s/ Gregory T. Martin
------------------------------------
Its Assistant Vice President
--------------------------------
[Signature Page for First Amendment to
Fourth Amended and Restated Credit Agreement]
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By /s/ Robin Courtney
------------------------------------
Its Investment Banking Officer
--------------------------------
[Signature Page for First Amendment to
Fourth Amended and Restated Credit Agreement]
<PAGE>
REAFFIRMATION OF NCFC GUARANTY
THE UNDERSIGNED, NEW CENTURY FINANCIAL CORPORATION, HEREBY (1) AGREES
THAT EACH REFERENCE TO THE CREDIT AGREEMENT, OR WORDS OF SIMILAR IMPORT,
CONTAINED IN THE THIRD AMENDED AND RESTATED GUARANTY DATED AS OF MAY 29, 1998
(THE "GUARANTY") BY THE UNDERSIGNED TO THE LENDERS AND THE AGENT, SHALL BE A
REFERENCE TO THE CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (2)
CONFIRMS THAT THE GUARANTY SHALL REMAIN IN FULL FORCE AND EFFECT AFTER GIVING
EFFECT TO THE FOREGOING AMENDMENT, AND (3) CONFIRMS AND ACKNOWLEDGES THAT ITS
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 15 OF THE GUARANTY ARE TRUE
AND CORRECT AS OF THE DATE OF THE FOREGOING AMENDMENT.
NEW CENTURY FINANCIAL CORPORATION
By /s/ Brad A. Morrice
----------------------------------------------
Its Vice Chairman and President
-------------------------------------------
<PAGE>
REAFFIRMATION OF NCCC GUARANTY
THE UNDERSIGNED, NC CAPITAL CORPORATION, HEREBY (1) AGREES THAT EACH
REFERENCE TO THE CREDIT AGREEMENT, OR WORDS OF SIMILAR IMPORT, CONTAINED IN THE
THIRD AMENDED AND RESTATED GUARANTY DATED AS OF DECEMBER 11, 1998 (THE
"GUARANTY") BY THE UNDERSIGNED TO THE LENDERS AND THE AGENT, SHALL BE A
REFERENCE TO THE CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (2)
CONFIRMS THAT THE GUARANTY SHALL REMAIN IN FULL FORCE AND EFFECT AFTER GIVING
EFFECT TO THE FOREGOING AMENDMENT, AND (3) CONFIRMS AND ACKNOWLEDGES THAT ITS
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 15 OF THE GUARANTY ARE TRUE
AND CORRECT AS OF THE DATE OF THE FOREGOING AMENDMENT.
NC CAPITAL CORPORATION
By /s/ Brad A. Morrice
-------------------------------------------
Its Chairman & CEO
---------------------------------------
<PAGE>
EXHIBIT 10.2
SECOND AMENDMENT TO
--------------------
FOURTH AMENDED AND RESTATED CREDIT AGREEMENT
--------------------------------------------
AND PLEDGE AND SECURITY AGREEMENT
---------------------------------
THIS SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT AND
PLEDGE AND SECURITY AGREEMENT (the "Amendment") dated as of October 14, 1999 by
---
and among NEW CENTURY MORTGAGE CORPORATION, a California corporation (the
"Company"), the lenders party to the Credit Agreement referred to below
(collectively, the "Lenders" and individually, a "Lender") and U.S. BANK
NATIONAL ASSOCIATION, a national banking association, in its capacity as agent
for the Lenders (in such capacity, together with any successor agents appointed
thereunder, the "Agent").
WITNESSETH THAT:
WHEREAS, the Company, the Lenders and the Agent are parties to a Fourth
Amended and Restated Credit Agreement dated as of May 26, 1999 and a First
Amendment to Fourth Amended and Restated Credit Agreement (as amended, the
"Credit Agreement"), pursuant to which the Lenders provide the Company with a
revolving mortgage warehousing credit facility; and
WHEREAS, the Company and the Agent are parties to a Pledge and Security
Agreement dated as of May 29, 1998; and
WHEREAS, the Company and the Lenders have agreed to amend the Credit
Agreement and Pledge and Security Agreement upon the terms and conditions herein
set forth;
NOW, THEREFORE, for value received, the receipt and sufficiency of which
are hereby acknowledged, the Company and the Lenders agree as follows:
1. Certain Defined Terms. Each capitalized term used herein without
---------------------
being defined herein that is defined in the Credit Agreement shall have the
meaning given to it therein.
2. Amendments to Credit Agreement. The Credit Agreement is hereby
------------------------------
amended as follows:
(a) Section 1.01 of the Credit Agreement is hereby amended to add the
following definition thereto in the appropriate alphabetical order:
<PAGE>
"Subordinated Debt": Any Indebtedness of the Borrower, now
-----------------
existing or hereafter created, incurred or arising, which is
subordinated in right of payment to the payment of the
Obligations in a manner and to an extent that the Required
Lenders have approved in writing prior to the creation of such
Indebtedness.
(b) Section 1.01 is further amended by deleting the definition of
Total Liabilities in its entirety and inserting the following
therefor:
"Total Liabilities": at any time of determination, the amount, on
-----------------
a consolidated basis, of the liabilities of the Company or NCFC,
as applicable, and its respective Subsidiaries, determined in
accordance with GAAP, minus Subordinated Debt.
(c) Section 4.08(h) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(h) Subordinated Debt;
(d) Section 4.09(a) of the Credit Agreement is hereby amended in its
entirety to read as follows:
(a) the security interests granted to the Agent for the benefit
of the Lenders, FBS Business Finance Corp. (with respect to
obligations described in Section 4.08(c)) and USBNA (with respect
to obligations described in Section 4.08(h)) under the Loan
Documents;
3. Amendments to Pledge and Security Agreement. The Pledge and Security
-------------------------------------------
Agreement is hereby amended as follows:
(a) Clauses Fourth and Fifth of Section 17 of the Pledge and Security
Agreement are hereby amended in their entireties as follows:
Fourth: to the payment in full of the Lease Obligations, as
provided in the Lease Agreements, or otherwise as the Lessor may
determine;
Fifth: to the payment of the Subordinated Debt;
2
<PAGE>
4. Conditions to Effectiveness of this Amendment. This Amendment shall
---------------------------------------------
become effective when the Agent shall have received at least thirteen (13)
counterparts of this Amendment, duly executed by the Company and the Required
Lenders, provided the following conditions are satisfied:
(a) Before and after giving effect to this Amendment, the
representations and warranties of the Company in Section 3 of the Credit
Agreement, Section 5 of the Pledge and Security Agreement and Section 4 of
the Servicing Security Agreement, of NCFC in Section 15 of the Guaranty,
and of NCCC in Section 15 of the NCCC Guaranty shall be true and correct as
though made on the date hereof, except for changes that are permitted by
the terms of the Credit Agreement.
(b) Before and after giving effect to this Amendment, no Event of
Default and no Unmatured Event of Default shall have occurred and be
continuing.
(c) No material adverse change in the business, assets, financial
condition or prospects of the Company or NCFC shall have occurred since May
26, 1999.
(d) The Agent shall have received the following, each duly executed or
certified, as the case may be, and dated as of the date of delivery
thereof:
(i) copy of resolutions of the Board of Directors of the
Company, certified by its respective Secretary or Assistant
Secretary, authorizing or ratifying the execution, delivery and
performance of this Amendment;
(ii) a certified copy of any amendment or restatement of the
Articles of Incorporation or the By-laws of the Company made or
entered following the date of the most recent certified copies
thereof furnished to the Lenders;
(iii) certified copies of all documents evidencing any necessary
corporate action, consent or governmental or regulatory approval
(if any) with respect to this Amendment;
(iv) a Reaffirmation of NCFC Guaranty duly executed by NCFC;
3
<PAGE>
(v) a Reaffirmation of NCCC Guaranty duly executed by NCCC; and
(vi) such other documents, instruments, opinions and approvals
as the Agent may reasonably request.
(e) The Agent shall have received the amendment fee required by
Section 8.16 of the Credit Agreement.
5. Acknowledgments. The Company and each Lender acknowledge that, as
---------------
amended hereby, the Credit Agreement remains in full force and effect with
respect to the Company and the Lenders, and that each reference to the Credit
Agreement in the Loan Documents shall refer to the Credit Agreement as amended
hereby. The Company confirms and acknowledges that it will continue to comply
with the covenants set out in the Credit Agreement and the other Loan Documents,
as amended hereby, and that its representations and warranties set out in the
Credit Agreement and the other Loan Documents, as amended hereby, are true and
correct as of the date of this Amendment. The Company represents and warrants
that (i) the execution, delivery and performance of this Amendment is within its
corporate powers and has been duly authorized by all necessary corporate action;
(ii) this Amendment has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms (subject to limitations as to
enforceability which might result from bankruptcy, insolvency, or other similar
laws affecting creditors' rights generally and general principles of equity) and
(iii) no Events of Default or Unmatured Events of Default exist.
6. General.
-------
(a) The Company agrees to reimburse the Agent upon demand for all
reasonable expenses (including reasonable attorneys fees and legal
expenses) incurred by the Agent in the preparation, negotiation and
execution of this Amendment and any other document required to be furnished
herewith, and to pay and save the Lenders harmless from all liability for
any stamp or other taxes which may be payable with respect to the execution
or delivery of this Amendment, which obligations of the Company shall
survive any termination of the Credit Agreement.
(b) This Amendment may be executed in as many counterparts as may be
deemed necessary or convenient, and by the different parties hereto on
4
<PAGE>
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
(c) Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining portions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
(d) This Amendment shall be governed by, and construed in accordance
with, the internal law, and not the law of conflicts, of the State of
Minnesota, but giving effect to federal laws applicable to national banks.
(e) This Amendment shall be binding upon the Company, the Lenders, the
Agent and their respective successors and assigns, and shall inure to the
benefit of the Company, the Lenders, the Agent and the successors and
assigns of the Lenders and the Agent.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
NEW CENTURY MORTGAGE CORPORATION
By /s/ Patrick Flanagan
---------------------------------
Its Executive Vice President
---------------------------------
U.S. BANK NATIONAL ASSOCIATION,
By
---------------------------------
Its
---------------------------------
GUARANTY FEDERAL BANK, FSB
By
--------------------------------
Its
--------------------------------
[Signature Page for Second Amendment to
Fourth Amended and Restated Credit Agreement]
6
<PAGE>
BANK UNITED
By
----------------------------------
Its
----------------------------------
RESIDENTIAL FUNDING CORPORATION
By
-----------------------------------
Its
-----------------------------------
BANK ONE, TEXAS, N.A.
By
-----------------------------------
Its
-----------------------------------
UNION BANK OF CALIFORNIA
By
-----------------------------------
Its
-----------------------------------
[Signature Page for Second Amendment to
Fourth Amended and Restated Credit Agreement]
7
<PAGE>
REAFFIRMATION OF NCFC GUARANTY
THE UNDERSIGNED, NEW CENTURY FINANCIAL CORPORATION, HEREBY (1) AGREES
THAT EACH REFERENCE TO THE CREDIT AGREEMENT, OR WORDS OF SIMILAR IMPORT,
CONTAINED IN THE THIRD AMENDED AND RESTATED GUARANTY DATED AS OF MAY 29, 1998
(THE "GUARANTY") BY THE UNDERSIGNED TO THE LENDERS AND THE AGENT, SHALL BE A
REFERENCE TO THE CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (2)
CONFIRMS THAT THE GUARANTY SHALL REMAIN IN FULL FORCE AND EFFECT AFTER GIVING
EFFECT TO THE FOREGOING AMENDMENT, AND (3) CONFIRMS AND ACKNOWLEDGES THAT ITS
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 15 OF THE GUARANTY ARE TRUE
AND CORRECT AS OF THE DATE OF THE FOREGOING AMENDMENT.
NEW CENTURY FINANCIAL CORPORATION
By /s/ Robert K. Cole
-----------------------------------
Its CEO
-----------------------------------
8
<PAGE>
REAFFIRMATION OF NCCC GUARANTY
THE UNDERSIGNED, NC CAPITAL CORPORATION, HEREBY (1) AGREES THAT EACH
REFERENCE TO THE CREDIT AGREEMENT, OR WORDS OF SIMILAR IMPORT, CONTAINED IN THE
THIRD AMENDED AND RESTATED GUARANTY DATED AS OF DECEMBER 11, 1998 (THE
"GUARANTY") BY THE UNDERSIGNED TO THE LENDERS AND THE AGENT, SHALL BE A
REFERENCE TO THE CREDIT AGREEMENT AS AMENDED BY THE FOREGOING AMENDMENT, (2)
CONFIRMS THAT THE GUARANTY SHALL REMAIN IN FULL FORCE AND EFFECT AFTER GIVING
EFFECT TO THE FOREGOING AMENDMENT, AND (3) CONFIRMS AND ACKNOWLEDGES THAT ITS
REPRESENTATIONS AND WARRANTIES SET FORTH IN SECTION 15 OF THE GUARANTY ARE TRUE
AND CORRECT AS OF THE DATE OF THE FOREGOING AMENDMENT.
NC CAPITAL CORPORATION
By /s/ John Kontoulis
-----------------------------------
Its Senior Vice President
-----------------------------------
9
<PAGE>
EXHIBIT 10.3
AMENDMENT
AMENDMENT, dated as of September 30, 1999 (this "Amendment"), to
---------
the Master Loan and Security Agreement, dated as of July 20, 1999 (as amended,
supplemented or otherwise modified prior to the date hereof, the "Loan Agree-
-----------
ment"), among NEW CENTURY MORTGAGE CORPORATION, a California corporation
- ----
("New Century"), NC CAPITAL CORPORATION, a California corporation ("NCCC" and,
----------- ----
together with New Century, the "Borrowers") and PAINE WEBBER REAL ESTATE
---------
SECURITIES INC., a Delaware corporation (the "Lender").
------
RECITALS
The Borrowers have requested the Lender to increase the Maximum
Credit under the Loan Agreement, from $300 million to $400 million. The Lender
is willing to agree to such a request on condition that the Borrowers execute
this Amendment.
NOW, THEREFORE, in consideration of the Lender agreeing to
increase the Maximum Credit and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Borrowers and the
Lender hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
-------------
defined in the Loan Agreement are used herein as therein defined.
2. Amendments.
----------
a. Section 1 of the Loan Agreement is hereby amended by
adding the following definitions:
""Fatal Exception" shall heave the meaning assigned thereto in
---------------
the Custodial Agreement."
""Fatal Exception Report" shall mean the schedule of Mortgage
----------------------
Loan and exception report prepared by the Custodian pursuant to the Custodial
Agreement including each Mortgage Loan with a Fatal Exception."
b. Section 5.02 of the Loan Agreement is hereby amended
by inserting a new subsection (1) as follows:
"(1) the Lender shall have received from the Custodian the
Fatal Exception Report, if any, in respect of Mortgage Loans which are not
eligible to be pledged hereunder on such Business Day which have Fatal
Exception;"
c. Schedule 1, Part I to the Loan Agreement is hereby
amended by inserting a new subsection (uu) as follows:
<PAGE>
"(uu) Fatal Exception. No Mortgage Loan has a Fatal Exception."
---------------
3. Effectiveness. This Amendment shall become effective upon
-------------
execution by the Borrowers and the Lender.
4. Representations and Warranties. To induce the Lender to enter
------------------------------
into this Amendment, each of the Borrowers hereby represents and warrants to the
Lender that, after giving effect to the amendments provided for herein, the
representations and warranties contained in the Loan Documents and the other
documents relating thereto will be true and correct in all material respects as
if made on and as of the date hereof and that no Default or Event of Default
will have occurred and be continuing.
5. No Other Amendments. Except as expressly amended hereby, the
-------------------
Loan Documents shall remain in full force and effect in accordance with their
respective terms, without any waiver, amendment or modification of any provision
thereof.
6. Counterparts. This Amendment may be executed by one or more of
------------
the parties hereto on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
7. Expenses. The Borrowers agree to pay and reimburse the Lender
--------
for all of the out-of-pocket costs and expenses incurred by the Lender in
connection with the preparation, execution and delivery of this Amendment,
including, without limitation, the fees and disbursements of Cadwalader,
Wickersham & Taft, counsel to the Lender.
8. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY, AND
--------------
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
[SIGNATURE PAGES FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
BORROWERS
NEW CENTURY MORTGAGE
CORPORATION
By: ^illegible signature^
----------------------------
Name:
Title:
NC CAPITAL CORPORATION
By: ^illegible signature^
----------------------------
Name:
Title:
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By:
----------------------------
Name:
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered as of the day and year first above written.
BORROWERS
NEW CENTURY MORTGAGE
CORPORATION
By:
------------------------------
Name:
Title:
NC CAPITAL CORPORATION
By:
------------------------------
Name:
Title:
LENDER
PAINE WEBBER REAL ESTATE
SECURITIES INC.
By: /s/ ROBERT CARPENTER
-----------------------------
Name: Robert Carpenter
Title: First Vice President
<PAGE>
Address For Notices:
PAINE WEBBER REAL ESTATE
SECURITIES INC.
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK, 10019
<PAGE>
EXHIBIT 10.4
SALOMON BROTHERS REALTY CORP.
390 Greenwich Street, 4th Floor
New York, New York 10013
September 1, 1999
NC Capital Corporation
18400 Von Karman, Suite 1000
Irvine, California 92612
Attention: Mr. Patrick Flanagan
President
New Century Mortgage Corporation
18400 Von Karman, Suite 1000
Irvine, California 92612
Attention: Mr. Brad Morrice
Chief Executive Officer
Ladies and Gentlemen:
This letter agreement (the "Letter Agreement") confirms the
understanding and agreements among NC Capital Corporation ("NCCC"), New Century
Mortgage Corporation ("New Century"), Salomon Brothers Realty Corp. ("SBRC") and
Salomon Smith Barney Inc. ("Salomon Smith Barney"), under the terms set forth
herein, regarding (i) NCCC's agreement to securitize certain adjustable rate,
one-to-four family, first lien mortgages (the "Mortgage Loans") either (a) using
the Salomon Brothers Mortgage Securities VII Inc. ("SBMSVII") shelf registration
or (b) pursuant to a shelf registration filing of NCCC or its affiliate in
connection with pass-through transfers with respect to which Salomon Smith
Barney or one of its affiliates is the sole underwriter and (ii) SBRC's
agreement to provide an aggregation line to NCCC in connection with certain
mortgage loans that are originated by New Century. Notwithstanding the
foregoing, NCCC may also securitize any fixed rate, one-to-four family, first or
second lien mortgage loans that are subject to the Letter Agreement, dated
December 11, 1998, among NCCC, New Century, SBRC and Salomon Smith Barney.
1. Mortgage Loans.
--------------
(a) In General. NCCC hereby agrees to securitize Mortgage
----------
Loans with an unpaid principal balance, as of the date of securitization, of not
less than $750,000,000 between September 1, 1999 and March 31, 2000 securitized
through a program of securitizations (the "Securitizations") of AAA and Aaa-
rated mortgage-backed securities (the "Securities") either (i) using the SBMSVII
shelf registration or (ii) pursuant to a shelf registration filing of NCCC or
its affiliate in connection with pass-through transfers with respect to which
Salomon Smith Barney or one of its affiliates is the sole underwriter.
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 2.
(b) Servicing of the Mortgage Loans. The purchase by SBRC of a
-------------------------------
Mortgage Loan pursuant to the Aggregation Line (as defined in Section 3(a))
shall include the purchase of the related servicing rights for such Mortgage
Loan. Unless otherwise agreed to between SBRC and NCCC, SBRC hereby covenants
and agrees to hire New Century to service; and New Century hereby covenants and
agrees to service the Mortgage Loans for a term beginning on the related
Settlement Date and ending on the related repurchase date as provided for in the
Purchase and Sale Agreement (as defined in Section 3(a)); provided that if a
Termination Event (as defined in Section 5(b)) has occurred, New Century shall
immediately be terminated as servicer. In connection with its servicing duties,
New Century can service the Mortgage Loans itself or through such other sub-
servicer which SBRC has accepted in writing, as the sub-servicer (the "Sub-
Servicer") provided that, SBRC shall have the right to perform due diligence on
any entity appointed as servicer or sub-servicer of the Mortgage Loans and may
require New Century to select another servicer or sub-servicer to the extent
that SBRC is not satisfied with the results of such due diligence. The Mortgage
Loans shall be serviced in accordance with the servicing provisions specified in
the Pooling and Servicing Agreement, Series 1999-NC3 dated as of June 1, 1999
among Firstar Bank Milwaukee, N.A., U.S. Bank National Association, SBMSVII and
New Century. New Century or the Sub-Servicer shall remit payments of principal
and interest to SBRC on a date prior to the 25th day of each month beginning
with the month after the Settlement Date (as defined in Section 3(a)) to permit
remittances to certificateholders on the 25th day of each month in connection
with a securitization, shall enforce "due-on-sale" provisions to the extent
permitted by law, shall administer all escrow/impound deposits, shall pay
compensating interest on principal prepayments in any month up to the amount of
its servicing compensation in such month and shall make all servicing advances
on any Mortgage Loan (including advances of delinquent principal and interest
payments). New Century or the Sub-Servicer shall be required to make advances in
respect of delinquent payments of principal and interest on the Mortgage Loans
through foreclosure and in connection with any properties acquired by the
related trustee in any securitization transaction through liquidation of such
properties, subject to New Century's or the Sub-Servicer's determination
regarding recoverability. The Mortgage Loans shall be serviced for a servicing
fee equal to 0.50% per annum payable monthly on the then-outstanding principal
balance of each Mortgage Loan (the "Servicing Fee"). Any fee payable to the Sub-
Servicer shall be paid by New Century without any right of reimbursement by
SBRC. Any Sub-Servicer shall execute a letter agreement recognizing SBRC's
interest in the Mortgage Loans in the form of Exhibit A. Notwithstanding the
foregoing, in the event NCCC fails to repurchase a Mortgage Loan on the related
repurchase date or if a Termination Event occurs, New Century and any related
Sub-Servicer will no longer be servicer with respect to such Mortgage Loan or
Mortgage Loans, unless the term of servicing is extended by SBRC in its sole
discretion. In such event, SBRC shall have the right to transfer such servicing
to another servicer without payment of any fee to New Century. New Century will
cooperate in good faith to effect such servicing transfer and shall pay all
costs associated with such servicing transfer.
(c) Conditions Precedent to Mortgage Loan Purchases. SBRC's
-----------------------------------------------
obligation to purchase any Mortgage Loans and related servicing rights which it
accepts for its Aggregation Line shall be subject to each of the following
conditions:
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 3.
(i) there shall have been delivered to SBRC a Trust Receipt issued
by U.S. Bank National Association ("U.S. Bank") with a mortgage
loan schedule attached thereto and an exception report which is
acceptable to SBRC in its sole discretion;
(ii) SBRC shall have had an opportunity to perform a due diligence
review of each Mortgage Loan and shall have arranged for
reappraisals of value with respect to each Mortgage Loan if
desired by SBRC;
(iii) NCCC shall have provided to SBRC such other documents which are
then required to have been delivered under the Purchase and Sale
Agreement or which are reasonably requested by SBRC, which other
documents may include UCC financing statements, a favorable
opinion or opinions of counsel with respect to matters which are
reasonably requested by SBRC, and/or an officer's or secretary's
certificate; and
(iv) there shall have been delivered to SBRC a limited guaranty of
New Century, in the form of Exhibit B hereto, by which New
Century guarantees the obligations of NCCC under this Letter
Agreement and the Purchase and Sale Agreement.
2. Securitizations.
---------------
(a) In General. As noted above, NCCC shall meet its commitment to SBRC
----------
with respect to not less than $750,000,000 in Mortgage Loans between September
1, 1999 and March 31, 2000 by using a shelf registration statement of SBMSVII or
NCCC (or its affiliate) pursuant to transactions in which Salomon Smith Barney
or an affiliate of Salomon Smith Barney shall act as the sole underwriter. NCCC
and SBRC agree, however, that any securitizations scheduled to close in August
1999 shall not be counted toward the $750,000,000 commitment. Additionally,
sales of whole Mortgage Loans by New Century and/or NCCC to SBRC shall not be
counted toward the $750,000,000 commitment. NCCC will pay to Salomon Smith
Barney promptly upon the closing of each Securitization an underwriting discount
equal to the product of (i) the applicable Underwriting Fee Percentage (as
defined herein) multiplied by (ii) the aggregate unpaid principal balance of the
Mortgage Loans subject to such Securitization (the "Underwriting Fee"). The
"Underwriting Fee Percentage" with respect to each Securitization shall be
three-eighths of one percent (0.375%) [1]. In addition, if on March 31, 2000,
NCCC has not paid to Salomon Smith Barney a cumulative Underwriting Fee of at
least $2,812,500, NCCC shall pay to Salomon Smith Barney on the last business
day of such period an amount equal to (i) $2,812,500 less (ii) the cumulative
Underwriting Fee.
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 4.
In addition to those fees described above, in the event Salomon Smith
Barney sells on behalf of NCCC a CE Bond (as defined below), Salomon Smith
Barney shall receive a fee equal to 1.0% of the proceeds of the CE Bond, and, if
Salomon Smith Barney sells on behalf of NCCC an Excess Cash Flow Class D Bond,
Salomon Smith Barney shall receive a fee equal to 1.0% of the stated principal
balance of such bond; provided however, that in the event that the CE Bond is
liquidated by Salomon Smith Barney as the result of an event of default, Salomon
Smith Barney shall not receive such fee. In connection with the creation of the
Excess Cash Flow D Bond, the related equity certificates (the "Equity
Certificates") created by such securitization (the "ECF Securitization") will be
delivered to NCCC on the related closing date.
(b) Expenses. NCCC shall pay all reasonable costs and expenses
--------
arising from the preparation for and execution of the Securitizations, including
but not limited to, the fees and disbursements of legal counsel (including
investor's counsel in any private placement, if retained), rating agency fees
(including those fees associated with the annual monitoring of previously closed
Securitizations), credit enhancement fees, SEC registration fees (or equivalent
ratable fees of a SBRC affiliate in lieu thereof if such affiliate's shelf
registration is utilized), auditors' fees, due diligence expenses (other than
Salomon Smith Barney's), costs of preparing and printing any offering documents
and trustee fees, etc. Salomon Smith Barney shall be responsible for the fees
and disbursements of its own legal counsel and any due diligence expenses
incurred by Salomon Smith Barney. It is understood and agreed that NCCC may
require that the parties incurring or charging such costs and expenses agree in
advance that they are payable or reimbursable by NCCC only to a specified
reasonable extent or cap.
(c) Information. NCCC and New Century will furnish Salomon Smith
-----------
Barney with all financial and other information concerning NCCC and New Century
as Salomon Smith Barney deems reasonably appropriate in connection with the
performance of the services contemplated by this letter, including (without
limitation) "Monthly Cash Flow Projections and Sensitivity Analyses", and will
provide Salomon Smith Barney with reasonable access during normal business hours
to NCCC's and New Century's officers, directors, employees, accountants, and
other representatives. NCCC and New Century acknowledge and confirm that Salomon
Smith Barney (i) will rely on such information in the performance of the
services contemplated by this letter without independently investigating or
verifying any of it, (ii) assumes no responsibility for the accuracy or
completeness of such information and (iii) will not disclose such information to
any third party without the prior written consent of NCCC or New Century, as
applicable.
(d) Offering Documents. In connection with each Securitization, NCCC
------------------
will be solely responsible (and New Century will be responsible to the extent of
any servicer information) for the contents of any private placement memorandum,
prospectus supplement or other offering document used in connection with the
placement of the Securities (as such documents may be amended or supplemented
and including any information incorporated therein by reference, the "Offering
Document") and any and all other written communications provided by, or
authorized to be provided on behalf of, NCCC to any actual or prospective
purchaser of the Securities except to the extent such contents of the Offering
Document are provided by Salomon Smith Barney in writing
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 5.
expressly for use in the Offering Document and provided that any statistical,
tabular or similar information, including computer runs, initially prepared by
or on behalf of Salomon Smith Barney (but as to which Salomon Smith Barney is
not taking responsibility in the Offering Document) shall have been verified by
NCCC's independent public accountants. NCCC shall represent and warrant (and New
Century shall represent and warrant to the extent of any servicer information)
that the Offering Document and such other written communications will not, as of
the date of the offer or sale of the Securities or the closing date of any such
sale, contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Such representation and warranty will not cover information
provided in writing by Salomon Smith Barney for use specifically in such
Offering Document. NCCC shall authorize Salomon Smith Barney to provide the
Offering Document to prospective purchasers of the Securities. If at any time
prior to the completion of the offer and sale of the Securities an event occurs
as a result of which the Offering Document (as then supplemented or amended)
would include any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, NCCC or New Century,
as applicable, will promptly notify Salomon Smith Barney of such event and
Salomon Smith Barney will suspend solicitations of prospective purchasers of the
Securities until such time as NCCC or New Century, as applicable, shall prepare
(and NCCC or New Century, as applicable, agrees that, if it shall have notified
Salomon Smith Barney to suspend solicitations after orders have been accepted
from prospective purchasers, it will promptly prepare) a supplement or amendment
to the Offering Document which corrects such statement or omission.
(e) Indemnification. New Century and NCCC agree, jointly and
---------------
severally, to indemnify and hold harmless (i) Salomon Smith Barney, (ii) SBMSVII
and (iii) each person who controls either Salomon Smith Barney or SBMSVII within
the meaning of either the Securities Act of 1933, as amended (the "Act") or the
Securities Exchange Act of 1934, as amended (the "Exchange Act") ((i) through
(iii) collectively, the "Indemnified Party") against any and all losses, claims,
damages or liabilities, joint or several, suffered or incurred which arise out
of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in the Offering Document or in any revision or amendment
thereof or supplement thereof or arise out of or are based upon the omission or
alleged omission to state in the Offering Document or in any revision or
amendment thereof or supplement thereto a material fact required to be stated
therein or the omission or alleged omission to state a material fact in any
Offering Document or in any revision or amendment thereof or supplement thereto
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and agrees to reimburse each such
Indemnified Party for any legal or other expenses reasonably incurred by it or
him in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however that NCCC and New Century shall not be
liable to any Indemnified Party to the extent that any misstatement or alleged
misstatement or omission or alleged omission was made in reliance upon and in
conformity with the information provided in writing to NCCC or New Century by
Salomon Smith Barney specifically for inclusion in the Offering Document. This
indemnity agreement will be in addition to any liability which NCCC and New
Century may otherwise have.
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 6.
In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 2(e) is
due in accordance with its terms but is for any reason held by a court to be
unavailable on grounds of policy or otherwise, the parties entitled to
indemnification thereunder shall be entitled to contribution for the aggregate
losses, claims, damages and liabilities (including legal and other expenses
reasonably incurred in connection with investigating or defending same) to which
it or they may be subject, except that no person guilty of fraudulent
misrepresentation shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. In determining the amount of
contribution to which the respective parties are entitled, consideration shall
be given to the relative benefits and also the relative fault of the party in
connection with the statements or omissions that resulted in losses, the
parties' relative knowledge and access to information concerning the matter with
respect to which the claim was asserted, the opportunity to correct and/or
prevent the breach, and any other equitable considerations appropriate under the
circumstances. For purposes of this Section 2(e), each person who controls
either Salomon Smith Barney or SBMSVII within the meaning of either the Act or
the Exchange Act shall have the same rights to contribution as Salomon Smith
Barney or SBMSVII, respectively. Any party entitled to contribution will,
promptly after receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for contribution may
be made against NCCC and/or New Century under this Section 2(e), notify NCCC
and/or New Century, but the omission to so notify NCCC and/or New Century shall
not relieve NCCC and/or New Century from any other obligation it may have
hereunder or otherwise than under this Section 2(e).
(f) All financial data and other documentation prepared by Salomon
Smith Barney in connection with the transactions contemplated hereby (including,
without limitation, any computer models, cash flow analyses, and any
documentation prepared by counsel for Salomon Smith Barney) shall be proprietary
to Salomon Smith Barney. Except as otherwise required by law, none of NCCC, New
Century, any of their affiliates, nor any person acting on behalf of any of them
(including, without limitation, counsel and the independent accountants to NCCC
and New Century) shall disseminate, distribute, or otherwise make available such
data or documentation without Salomon Smith Barney's prior written consent
(other than NCCC or New Century making such data available to any NCCC or New
Century affiliate, its counsel or its independent accountants, in each case on a
need-to-know basis).
This Section 2 shall survive the termination of this Letter Agreement.
3. Aggregation Line.
----------------
(a) In General. In addition to the rights provided to Salomon Smith
----------
Barney and SBRC pursuant to Sections 1 and 2 of this Letter Agreement, SBRC
shall make available to NCCC an aggregation line (the "Aggregation Line")
pursuant to which SBRC shall simultaneously purchase from, and sign a forward
commitment to resell to, NCCC Mortgage Loans and the related servicing rights
that are deemed acceptable for such Aggregation Line as set forth below. The
Aggregation Line shall be more fully documented pursuant to the Mortgage Loan
Purchase and Sale Agreement (the "Purchase and Sale Agreement") to be entered
into among NCCC, New Century and SBRC,
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 7.
which shall be substantially similar in form to the Mortgage Loan Purchase and
Sale Agreement dated December 11, 1998 between New Century and SBRC but shall
provide for servicing provisions similar to those set forth in Section 1(b) of
this Letter Agreement. Under the Purchase and Sale Agreement, NCCC will make
standard secondary market corporate representations and warranties as of the
date such Purchase and Sale Agreement is executed and as of any settlement date
for the purchase and sale of any Mortgage Loans pursuant to such Purchase and
Sale Agreement (each such date, a "Settlement Date") and NCCC shall make
standard secondary market representations and warranties with respect to each
Mortgage Loan as of the Settlement Date on which such Mortgage Loan is sold to
SBRC. In the event that NCCC satisfies its obligations under the terms of this
Letter Agreement, the Aggregation Line shall terminate on the last day of the
calendar quarter in which NCCC satisfies its obligations to SBRC pursuant to
Section 1(a) of this Letter Agreement.
The "Purchase Price" with respect to each Mortgage Loan and related
servicing rights which conforms to the Underwriting Standards of New Century
which were most recently reviewed and approved by SBRC and which is not a
Problem Mortgage Loan (as defined in Section 3(b)) or a Non-Standard Mortgage
Loan (as defined in Section 3(c)) (a "Standard Mortgage Loan") shall be equal to
102.25% of the unpaid principal balance of such Standard Mortgage Loan. The
"Purchase Price" for each Non-Standard Mortgage Loan and related servicing
rights shall be equal to the amount determined in accordance with the provisions
of Section 3(c)(iii) of this Letter Agreement. The "Purchase Price" for each
Problem Mortgage Loan and related servicing rights shall be equal to the amount
determined in accordance with the provisions of Section 3(b)(iii) of this Letter
Agreement. Notwithstanding the foregoing, the "Purchase Price" for each Mortgage
Loan will be reduced by the amount of any Collateral Value Deficiency paid by
NCCC with respect to such Mortgage Loan.
The repurchase price shall reflect the agreed upon return to SBRC for
providing the Aggregation Line (the "Aggregation Cost"). With respect to any
Standard Mortgage Loan, the Aggregation Cost shall equal One Month LIBOR (as
defined herein) plus 1.25%. With respect to any Problem Mortgage Loan or Non-
Standard Mortgage Loan, or in the event that NCCC sells any Mortgage Loan which
is subject to the Aggregation Line to a party other than SBRC, the Aggregation
Cost shall equal One Month LIBOR plus 2.00%. In the event that a Mortgage Loan
is sold to a party other than SBRC, the Mortgage Loan shall be subject to the
foregoing increased rate from the day such Mortgage Loan became subject to the
Aggregation Line until the date of the sale to such third party. A copy of the
letter with the terms to the sale to such third party shall be delivered to
SBRC. NCCC shall retain principal and interest on any Mortgage Loans subject to
the Aggregation Line.
"One Month LIBOR" means as of the related Settlement Date, the 30 day
London Interbank Offered Rate as of 11:00 a.m. (London time) on such date, as
indicated on page number 3750 of the Telerate Service. If One Month LIBOR cannot
be so determined, then One Month LIBOR shall mean the rate determined by SBRC in
its sole discretion.
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 8.
The Aggregation Line, inclusive of any Problem Mortgage Loans, Non-
Standard Mortgage Loans and Mortgage Loans described in Sections 3(c)(ii) and
4(b), at any one time shall be limited to $750 million in amount of Mortgage
----
Loans and shall have a term of one month. The maximum amount of Problem Mortgage
Loans and Non-Standard Mortgage Loans in the Aggregation Line shall not exceed
$120 million at any one time.
NCCC shall have the right to add Mortgage Loans to the Aggregation
Line up to four times each month. Standard Loans may be removed from the
Aggregation Line twice a month (one of which shall be on the roll date). Problem
Mortgage Loans and Non-Standard Mortgage Loans may be removed from the
Aggregation Line with one week prior written notice by NCCC to SBRC.
SBRC shall provide not less than twenty eight days' prior notice to
NCCC and U.S. Bank (or such other warehouse lender as directed by NCCC) in the
event that SBRC elects to not renew the Aggregation Line for any month.
(b) Problem Mortgage Loans. A "Problem Mortgage Loan" is defined as
----------------------
any Mortgage Loan (w) which is in SBRC's sole discretion of insufficient quality
to be financed as a Standard Mortgage Loan or a Non-Standard Mortgage Loan or
purchased, provided, however, that if SBRC agrees, it can finance any Mortgage
Loan rejected from a securitization or whole loan purchase as a Non-Standard
Mortgage Loan, (x) which is missing documentation or other information and such
problem is not cured by NCCC in sixty days, (y) which is delinquent at the time
of financing by SBRC, which becomes delinquent during such financing by SBRC or
(z) was more than thirty days but less than sixty days delinquent on more than
one occasion in the prior twelve months and is now current. Problem Mortgage
Loans shall be subject to the following qualifications with respect to the
Aggregation Line:
(i) the maximum Aggregation Line with respect to Problem
Mortgage Loans shall equal $50,000,000 as of any trade date
on which there was formal notification of a trade by a
confirmation letter or trade ticket;
(ii) if a Mortgage Loan is a Problem Mortgage Loan based on
clause (w) or clause (x) above, then the "Purchase Price"
shall be equal to (A) for the first ninety-day period after
purchase, 90% of the unpaid principal balance of the
Problem Mortgage Loan as of the date of purchase and (B)
thereafter, 90% of the unpaid principal balance of the
Problem Mortgage Loan, minus an additional 10% of the
unpaid principal balance of such Problem Mortgage Loan for
each additional month after the initial ninety-day period;
(iii) if a Mortgage Loan is a Problem Mortgage Loan based on
clause (y) above, then the "Purchase Price" shall be equal
to (A) 90% of the unpaid principal balance of the Problem
Mortgage Loan as of the date
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 9.
of purchase if such Mortgage Loan is delinquent one, two or
three payments, (B) 90% of the unpaid principal balance of
the Problem Mortgage Loan, minus an additional 10% of the
unpaid principal balance of such Problem Mortgage Loan for
each of the fourth, fifth and sixth delinquent payments and
(C) 65% of the Broker Price Opinion obtained by SBRC, at
the expense of NCCC, regarding the real property subject to
the Mortgage Loan if such Mortgage Loan is delinquent more
than six payments; and
(iv) if a Mortgage Loan is a Problem Loan based on clause (z)
above, then the "Purchase Price" shall be equal to (A) 95%
of the unpaid principal balance of the Problem Mortgage
Loan as of the date of purchase if such Mortgage Loan has
been more than thirty days delinquent but less than sixty
days delinquent on two occasions in the prior twelve
months; (B) 90% of the unpaid principal balance of the
Problem Mortgage Loan as of the date of purchase if such
Mortgage Loan has been sixty days delinquent on one
occasion in the prior twelve months and (C) 85% of the
unpaid principal balance of the Problem Mortgage Loan, if
such Mortgage Loan does not meet the requirements set forth
in (A) or (B) above.
With respect to any Mortgage Loan that is a Problem Mortgage Loan based on
clause (x) or clause (y) above, in the event that SBRC determines in its sole
discretion that such Problem Mortgage Loan has ceased to be a Problem Mortgage
Loan, such Mortgage Loan shall be treated as a Standard Mortgage Loan or a Non-
Standard Mortgage Loan, as the case may be, as of the first day of the month
following such determination.
(c) Non-Standard Mortgage Loans. A "Non-Standard Mortgage Loan" is
---------------------------
defined as any Mortgage Loan (x) with an unpaid principal balance in excess of
$1,000,000; or (y) that has a loan-to-value ratio in excess of 85.00% (up to a
maximum of 95.00%); provided, however, at its option, SBRC may deem a Mortgage
Loan with an unpaid principal balance of no more than $1,500,000 to be a [3]
Standard Mortgage Loan. In addition, if (i) Mortgage Loans with a loan-to-value
ratio greater than 80% (but not more than 85%) have an aggregate unpaid
- -----
principal balance in excess of $120 million and (ii) Mortgage Loans with unpaid
principal balances greater than $500,000 and less than or equal to $1,500,000
have an aggregate unpaid principal balance in excess of $42 million, such excess
amounts shall be deemed "Non-Standard Mortgage Loans". No Mortgage Loan shall be
subject to the terms of the Aggregation Line if: (i) the unpaid principal
balance of such Mortgage Loan exceeds $1,500,000 or (ii) such Mortgage Loan has
a loan-to-value ratio greater than 95%. Non-Standard Mortgage Loans shall be
subject to the following qualifications with respect to the Aggregation Line:
(i) the maximum Aggregation Line with respect to Non-Standard
Mortgage Loans shall equal $100,000,000 (of which no more
than
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 10.
$30,000,000 shall have unpaid principal balances greater
than $1,000,000 (including any Problem Loans with unpaid
principal balances greater than $500,000) and no more than
$50,000,000 shall be Mortgage Loans with a loan-to-value
ratio in excess of 85.00% (up to a maximum of 95.00%)), as
of any trade date on which there was formal notification of
a trade by a confirmation letter or trade ticket; and
(ii) with respect to the Mortgage Loans, the Purchase Price for
the first sixty days shall be the market value of such
Mortgage Loans as determined by SBRC acting in good faith,
and thereafter, the Purchase Price shall decrease by 10% of
such market value and by an additional 10% thereof for each
succeeding month.
(d) Mark-to-Market. If with respect to any Standard Mortgage Loan,
--------------
any Non-Standard Mortgage Loan or any Problem Mortgage Loan, SBRC at any time
determines, in its sole discretion, that there exists a Collateral Value
Deficiency (as defined below) and SBRC notifies NCCC in writing of such
Collateral Value Deficiency, NCCC shall, no later than one (1) Business Day
after receipt of such notice, pay to SBRC an amount equal to such Collateral
Value Deficiency, such that after giving effect to such payment, the Collateral
Value Deficiency is reduced to zero. With respect to any Mortgage Loan, a
"Collateral Value Deficiency" shall mean any time the excess, if any, of (a) the
outstanding Purchase Price of such Mortgage Loan as defined in Section 3(a)
hereof over (b) the Market Value of such Mortgage Loan. "Market Value" shall
mean, as of any date in respect of any Standard Mortgage Loan, any Non-Standard
Mortgage Loan or any Problem Mortgage Loan, the value of such Mortgage Loan as
determined by SBRC in its sole discretion. SBRC shall have the right to mark-to-
market any Mortgage Loan on a daily basis.
(e) Mortgage Loan Schedule. No Mortgage Loan shall be included in the
----------------------
Aggregation Line unless NCCC shall have delivered to SBRC at least 72 hours
prior to such inclusion, a magnetic tape, in a format acceptable to SBRC,
consisting of the loan characteristics agreed upon by SBRC and NCCC with respect
to each Mortgage Loan.
(f) Marketing of Mortgage Loans. SBRC may (subject to NCCC's consent
---------------------------
unless a Termination Event has occurred) market the Problem Mortgage Loans and
Non-Standard Mortgage Loans on NCCC's behalf for a purchase price acceptable to
NCCC and shall provide NCCC with a copy of a trade ticket or letter of intent
with respect to any commitment to sell such Mortgage Loans. NCCC must advise
SBRC within sixty days after inclusion of each Mortgage Loan in the Aggregation
Line of the course of action it intends to take with respect to such Mortgage
Loan (i.e., securitization, whole loan sale, etc.).
(g) Hedging. NCCC will have the option to establish one or more
-------
securities or commodities accounts at Salomon Smith Barney and to enter into
transactions in such accounts (and
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 11.
only in such accounts) that are intended to hedge the interest rate risk on
Mortgage Loans included in the Aggregation Line.
4. (a) Financing of CE Bonds and Equity Certificates. SBRC or an
---------------------------------------------
affiliate shall provide a financing facility for the CE bonds (the "CE Bonds")
created by any NCCC securitizations on which Salomon Smith Barney has acted as
the sole underwriter pursuant to this Letter Agreement. Such facility shall
provide for financing at a rate equal to 75% of the present value of the CE
Bonds, as determined by SBRC. The CE Bonds shall be financed by SBRC or an
affiliate at a financing fee equal to One Month LIBOR plus 1.50% and will be
subject to standard provisions of the PSA global master repurchase agreement.
SBRC or an affiliate shall provide a financing facility for the Equity
Certificates created by any ECF Securitization on which Salomon Smith Barney has
acted as the sole underwriter. Such facility shall provide for financing by SBRC
or its affiliate at a financing fee equal to One Month LIBOR plus 2.50% and will
be subject to standard provisions of the PSA global master repurchase agreement.
(b) Financing of Trigger Buybacks. SBRC shall purchase under the
-----------------------------
Aggregation Line mortgage loans which are repurchased by New Century and sold or
contributed to NCCC based upon trigger buybacks in effect pursuant to the
pooling and servicing agreements for SBMSVII 1997-NC1, 1997-NC2, 1997-NC3, 1998-
NC5 and New Century Home Equity Loan Trust Series 1997-NC5. The maximum
aggregate outstanding Purchase Price will be $10,000,000. Such mortgage loans
will be deemed Problem Mortgage Loans in the Aggregation Line and will be
financed by SBRC in the same manner as Problem Mortgage Loans financed pursuant
to Section 3(b)(iii) above based on the degree of delinquency.
(c) Financing of REO Properties. In the event there is a foreclosure
---------------------------
sale for any Problem Mortgage Loan, simultaneously with the occurrence of such
foreclosure, NCCC will repurchase such Mortgage Loan from SBRC on such date and
title of the REO Property to be taken in the name of New Century R.E.O. Corp.
Liquidation Proceeds, Inc. ("LPI"), SBRC's affiliate, will provide financing for
such REO Property pursuant to the letter agreement, dated November 18, 1998,
between New Century and LPI, the loan and security agreement, dated November 18,
1998, between the New Century and LPI, the related Secured Promissory Note,
dated November 18, 1998 by New Century to LPI and the REO Subsidiary Pledge
Agreement, dated as of November 18, 1998, made by New Century, in favor of LPI
(collectively, the "REO Financing Facility").
5. Termination.
-----------
(a) NCCC shall have the right to terminate its obligations hereunder
upon (i) any material default by SBRC of its obligations under this Letter
Agreement which is not cured within 30 days following written notice of such
default to SBRC by NCCC or (ii) the payment by NCCC to SBRC of a termination fee
equal to 0.25% times the unfulfilled volume commitment hereunder.
(b) SBRC shall have the right to terminate this Letter Agreement upon
the occurrence of any of the following events (each, a "Termination Event"):
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 12.
(i) the judgment by SBRC in good faith that a material adverse
change has occurred with respect to the business,
properties, assets or condition (financial or otherwise) of
NCCC;
(ii) SBRC shall reasonably request, specifying the reasons for
such request, information, and/or written responses to such
requests, regarding the financial well-being of NCCC and
such information and/or responses shall not have been
provided within three business days of such request;
(iii) Either (A) a change in control of NCCC shall have occurred
without the consent of SBRC, other than in connection with
and as a result of the issuance and sale by NCCC of
registered, publicly offered common stock; or (B) SBRC
determines in its sole discretion that any material adverse
change has occurred in the management of NCCC;
(iv) There is (A) a material breach by NCCC of any
representation and warranty contained in the Purchase and
Sale Agreement, other than a representation or warranty
relating to particular Mortgage Loans, and SBRC has reason
to believe in good faith either that such breach is not
curable within 30 days or that such breach may not have
been cured in all material respects at the expiration of 30
days following discovery thereof by NCCC or (B) a failure
by NCCC to make any payment payable by it under the
Purchase and Sale Agreement or (C) any other failure by
NCCC to observe and perform in any material respect its
material covenants, agreements and obligations with SBRC,
including without limitation those contained in the
Purchase and Sale Agreement, and SBRC has reason to believe
in good faith that such failure may not have been cured in
all material respects at the expiration of 30 days
following discovery thereof by NCCC;
(v) There shall have occurred any outbreak or material
escalation of hostilities, declaration by the United States
of a national emergency or war or other calamity or crisis,
the effect of which on the financial markets is such as to
make it, in the judgment of SBRC, impracticable to continue
the commitment; or
(vi) NCCC fails to provide written notification to SBRC of any
material change in its loan origination, acquisition or
appraisal guidelines or practices, or NCCC, without the
prior consent of SBRC (which shall not be unreasonably
withheld), amends in any material respect its loan
origination, acquisition or appraisal guidelines or
practices; or
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 13.
(vii) NCCC's default in the payment of the amount of any
Collateral Value Deficiency for more than one (1) Business
Day after receipt of written notice of such Collateral
Value Deficiency as provided in Section 3(e) hereof;
provided, that SBRC shall have the right to dispose of any collateral held by
SBRC pursuant to this Letter Agreement. In connection with a Termination Event
under this Paragraph 5, SBRC shall have the right to transfer servicing as
provided in Section 1(b).
(c) Subject to the provisions of Paragraph 3 of this Letter Agreement,
this Letter Agreement shall terminate upon the earlier of (i) satisfaction of
the $750,000,000 commitment and (ii) March 31, 2000; provided that the CE "repo"
and equity certificate "repo" facility provided for in Section 4(a) and the REO
Financing Facility provided for in Section 4(c) shall continue under its terms;
provided, further, that SBRC may, in its sole discretion, extend the terms of
this Letter Agreement until such time that NCCC has been able to fulfill its
commitment without payment of a termination fee.
Notwithstanding any other provision of this Section 5, any grace or
notice period provided herein in respect of a notice to be given or action to be
taken by SBRC may be shortened or eliminated by SBRC if, in its sole good faith
discretion, it is unreasonable to do so under the circumstances, taking into
consideration, among other things, the volatility of the market for the Mortgage
Loans or other Securities involved, the extent and nature of any Termination
Event (or events which with the giving of such notice and passage of time would
constitute Termination Events) and the risks inherent in deferring the exercise
of remedies for the otherwise applicable grace or notice period.
6. General Provisions.
------------------
(a) Salomon Smith Barney's Discretion. It is understood that Salomon
---------------------------------
Smith Barney shall have absolute discretion in determining whether to accept or
reject any proposed offer or proposal to securitize any Mortgage Loan.
Notwithstanding the foregoing, however, subject to NCCC's representations,
warranties and covenants as set forth herein and in any related agreements, all
Standard Mortgage Loans, Non-Standard Mortgage Loans and Problem Mortgage Loans
originated by New Century in accordance with the underwriting standards of New
Century which were most recently approved by SBRC shall be eligible for
financing under the Aggregation Line in accordance with the terms hereof. It is
further understood that SBRC shall have absolute discretion in determining
whether any Mortgage Loan is a Standard Mortgage Loan, Non-Standard Mortgage
Loan or Problem Mortgage Loan and SBRC shall have the right to approve or
disapprove any Mortgage Loan with an unpaid principal balance in excess of
$1,000,000 (for which such Mortgage Loans, NCCC shall have obtained two
appraisals).
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 14.
(b) Governing Law. This Letter Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York (without regard
to its conflicts of laws principles).
(c) Amendment or Waiver. This Letter Agreement may not be amended or
-------------------
modified except in writing signed by each of the parties hereto.
(d) Counterparts. This Letter Agreement may be executed
------------
simultaneously in any number of counterparts. Each counterpart shall be deemed
to be an original, and all such counterparts shall constitute one and the same
instrument.
(e) Severability Clause. Any part, provision, representation or
-------------------
warranty of this Letter Agreement which is prohibited or which is held to be
void or unenforceable shall be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any part,
provision, representation or warranty of this Letter Agreement which is
prohibited or unenforceable or is held to be void or unenforceable in any
jurisdiction shall be ineffective, as to such jurisdiction, to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof. To the extent permitted by applicable law, the parties hereto
waive any provision of law which prohibits or renders void or unenforceable any
provision hereof. If the invalidity of any part, provision, representation or
warranty of this Letter Agreement shall deprive any party of the economic
benefit intended to be conferred by this Letter Agreement, the parties shall
negotiate, in good-faith, to develop a structure the economic effect of which is
nearly as possible the same as the economic effect of this Letter Agreement
without regard to such invalidity.
(f) No Partnership. Nothing herein contained shall be deemed or
--------------
construed to create a co-partnership or joint venture between the parties
hereto.
(g) Further Agreements. NCCC and SBRC each agree to execute and
------------------
deliver to the other such reasonable and appropriate additional documents,
instruments or agreements as may be necessary or appropriate to effectuate the
purposes of this Letter Agreement.
(h) Termination. Other than those sections intended to survive in the
-----------
letter agreement dated December 11, 1998 among New Century, NCCC, Salomon Smith
Barney and SBRC (including those sections related to indemnification), such
letter agreement is hereby terminated.
(i) Expenses. In addition to those expenses set forth in Section 2(a)
--------
above, NCCC shall pay subject to prenegotiated caps, all costs and expenses
related to any amendment of this Letter Agreement.
<PAGE>
Please confirm that the foregoing is in accordance with your
understanding by signing this letter of agreement and two enclosed copies and
returning to us the enclosed copies. The letter signed by you shall constitute a
binding agreement between us as of the date first above written.
Yours sincerely,
SALOMON BROTHERS REALTY CORP.
By: /s/ Matthew R. Bollo
----------------------------
Name:
Title: Authorized Agent
SALOMON SMITH BARNEY INC.
By: /s/ Matthew R. Bollo
----------------------------
Name:
Title: Vice President
ACCEPTED AND AGREED TO
AS OF THE DATE FIRST ABOVE WRITTEN:
NEW CENTURY MORTGAGE CORPORATION
By: /s/ Brad A. Morrice
-----------------------------
Name:
Title: CEO
NC CAPITAL CORPORATION
By: /s/ John Kontoulis
-----------------------------
Name:
Title: Senior Vice President
<PAGE>
EXHIBIT A
FORM OF RECOGNITION LETTER
Salomon Brothers Realty Corp.
390 Greenwich Street
4th Floor
New York, NY 10013
Attention: Mr. Matthew Bollo
Facsimile No. (212) 723-8604
Re: [Name and Date of] Servicing Agreement ("Agreement") between
[Name of Sub-Servicer] and New Century Mortgage Corporation
Ladies and Gentlemen:
The undersigned, _______________ ("Sub-Servicer"), having an address at
_________________, _________ Attention: _______________, has been informed by
New Century Mortgage Corporation ("New Century") that NC Capital Corporation
("NCCC") from time to time enters into transactions with you ("SBRC") in which
SBRC purchases mortgage loans (including the related servicing rights) serviced
by Sub-Servicer for New Century pursuant to the captioned Agreement, and NCCC
agrees to repurchase such mortgage loans (and related servicing rights) on
specified future dates (the agreement that provides for such purchases and
repurchases, the "Purchase and Sale Agreement"). New Century has requested that
Sub-Servicer provide this letter agreement to SBRC in order to, and Sub-Servicer
hereby agrees to, acknowledge that SBRC owns the servicing rights and, upon a
written notice to Sub-Servicer from SBRC that NCCC failed to repurchase a
Mortgage Loan on the related repurchase date or if NCCC defaults under the
Purchase and Sale Agreement and upon written notice to Sub-Servicer from U.S.
Bank National Association ("Custodian") that Custodian holds specified mortgage
loans (the "Salomon Loans") for SBRC, that Sub-Servicer will no longer be sub-
servicer with respect to the Salomon Loans, unless the term of sub-servicing is
extended by SBRC in its sole discretion. NCCC and New Century hereby agree to
indemnify Sub-Servicer for any loss, liability, damage, judgment, cost or
expense in any way related to the exercise of such termination by SBRC with
respect to the Salomon Loans. Any fee payable to the Sub-Servicer shall be paid
by New Century without any right of reimbursement by SBRC.
<PAGE>
NC Capital Corporation
New Century Mortgage Corporation
September 1, 1999 Page 2.
Yours sincerely,
SALOMON BROTHERS REALTY CORP.
By:____________________________
Name:
Title:
NC CAPITAL CORPORATION
By:____________________________
Name:
Title:
NEW CENTURY MORTGAGE CORPORATION
By:____________________________
Name:
Title:
[SUB-SERVICER]
By:____________________________
Name:
Title:
<PAGE>
EXHIBIT B
FORM OF LIMITED GUARANTY
<PAGE>
EXHIBIT 10.5
AMENDMENT NUMBER ONE
to the
Master Loan and Security Agreement
dated as of June 23, 1999
by and between
NC CAPITAL CORPORATION,
and
GREENWICH CAPITAL FINANCIAL PRODUCTS, INC.
This AMENDMENT is made this 23 day of October, 1999, by and between NC
CAPITAL CORPORATION, having an address at 18400 Von Karman, Suite 1000, Irvine,
California 92612 (the "Borrower") and GREENWICH CAPITAL FINANCIAL PRODUCTS,
INC., having an address at 600 Steamboat Road, Greenwich, Connecticut 06830 (the
"Lender"), to the Master Loan and Security Agreement, dated as of June 23, 1999,
by and between the Borrower and the Lender (the "Agreement"). Capitalized terms
used but not otherwise defined herein shall have the meanings assigned to such
terms in the Agreement.
Subparagraph (iii) of the definition of Collateral Value in Section 1 of
the Agreement is hereby deleted in its entirety and replaced with the following:
"(iii) the aggregate Collateral Value of Mortgage Loans that are
Second Lien Mortgage Loans may not at any one time exceed 10%
of the aggregate amount of Advances made to the Borrower
hereunder;"
This amendment shall be construed in accordance with the laws of the State
of New York and the obligations, rights, and remedies of the parties hereunder
shall be determined in accordance with such laws without regard to conflict of
laws doctrine applied in such state.
This amendment may be executed in any number of counterparts, each of which
shall constitute an original and all of which, taken together, shall constitute
one instrument.
Except as amended above, the Agreement shall continue in full force and
effect in accordance with its terms.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Lender have caused this
amendment to be executed and delivered by their duly authorized officers as of
the day and year first above written.
NC CAPITAL CORPORATION
(Borrower)
By: /s/ JOHN KONTOULIS
Name: John Kontoulis
Title: Senior Vice President
GREENWICH CAPITAL
FINANCIAL PRODUCTS, INC.
(Lender)
By: /s/ ANTHONY PALMISANO
Name: Anthony Palmisano
Title: Vice President
<PAGE>
Exhibit 10.6
INDUSTRIAL LEASE
(Multi-Tenant; Net)
BETWEEN
THE IRVINE COMPANY
AND
NEW CENTURY FINANCIAL CORPORATION
<PAGE>
INDEX TO LEASE
ARTICLE I. BASIC LEASE PROVISIONS
ARTICLE II. PREMISES
Section 2.1 Leased Premises
Section 2.2 Acceptance of Premises
Section 2.3 Building Name and Address
Section 2.4 Right of First Refusal
Section 2.5 Landlord's Responsibilities
ARTICLE III. TERM
Section 3.1 General
Section 3.2 Delay in Possession
Section 3.3 Right to Extend this Lease
ARTICLE IV RENT AND OPERATING EXPENSES
Section 4.1 Basic Rent
Section 4.2 Operating Expenses
Section 4.3 Security Deposit
ARTICLE V. USES
Section 5.1 Use
Section 5.2 Signs
Section 5.3 Hazardous Materials
ARTICLE VI. COMMON AREAS; SERVICES
Section 6.1 Utilities and Services
Section 6.2 Operation and Maintenance of Common Areas
Section 6.3 Use of Common Areas
Section 6.4 Parking
Section 6.5 Changes and Additions by Landlord
ARTICLE VII. MAINTAINING THE PREMISES
Section 7.1 Tenant's Maintenance and Repair
Section 7.2 Landlord's Maintenance and Repair
Section 7.3 Alterations
Section 7.4 Mechanic's Liens
Section 7.5 Entry and Inspection
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
ARTICLE IX. ASSIGNMENT AND SUBLETTING
Section 9.1 Rights of Parties
Section 9.2 Effect of Transfer
Section 9.3 Sublease Requirements
Section 9.4 Certain Transfers
ARTICLE X. INSURANCE AND INDEMNITY
Section 10.1 Tenant's Insurance
Section 10.2 Landlord's Insurance
Section 10.3 Tenant's Indemnity
Section 10.4 Landlord's Non-liability
Section 10.5 Waiver of Subrogation
ARTICLE XI. DAMAGE OR DESTRUCTION
Section 11.1 Restoration
Section 11.2 Lease Governs
ARTICLE XII. EMINENT DOMAIN
Section 12.1 Total or Partial Taking
Section 12.2 Temporary Taking
Section 12.3 Taking of Parking Area
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
Section 13.1 Subordination
Section 13.2 Estoppel Certificate
Section 13.3 Financials
(i)
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ARTICLE XIV. DEFAULTS AND REMEDIES
Section 14.1 Tenant's Defaults
Section 14.2 Landlord's Remedies
Section 14.3 Late Payments
Section 14.4 Right of Landlord to Perform
Section 14.5 Default by Landlord
Section 14.6 Expenses and Legal Fees
Section 14.7 Waiver of Jury Trial
Section 14.8 Satisfaction of Judgment
ARTICLE XV. END OF TERM
Section 15.1 Holding Over
Section 15.2 Merger on Termination
Section 15.3 Surrender of Premises; Removal of Property
ARTICLE XVI. PAYMENTS AND NOTICES
ARTICLE XVII. RULES AND REGULATIONS
ARTICLE XVIII. BROKER'S COMMISSION
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
ARTICLE XX. INTERPRETATION
Section 20.1 Gender and Number
Section 20.2 Headings
Section 20.3 Joint and Several Liability
Section 20.4 Successors
Section 20.5 Time of Essence
Section 20.6 Controlling Law
Section 20.7 Severability
Section 20.8 Waiver and Cumulative Remedies
Section 20.9 Inability to Perform
Section 20.10 Entire Agreement
Section 20.11 Quiet Enjoyment
Section 20.12 Survival
ARTICLE XXI. EXECUTION AND RECORDING
Section 21.1 Counterparts
Section 21.2 Corporate and Partnership Authority
Section 21.3 Execution of Lease; No Option or Offer
Section 21.4 Recording
Section 21.5 Amendments
Section 21.6 Executed Copy
Section 21.7 Attachments
ARTICLE XXII MISCELLANEOUS
Section 22.1 Non-disclosure of Lease Terms
Section 22.2 Guaranty
Section 22.3 Changes Requested by Lender
Section 22.4 Mortgagee Protection
Section 22.5 Covenants and Conditions
Section 22.6 Security Measures
Section 22.7 Jams Arbitration
Section 22.8 Communications Equipment
EXHIBITS
Exhibit A Description of Premises
Exhibit A-1 Description of Premises
Exhibit A-2 Right of First Refusal Space
Exhibit A-3 Right of First Refusal Space
Exhibit B Environmental Questionnaire
Exhibit C Landlord's Disclosures
Exhibit D Insurance Requirements
Exhibit E Rules and Regulations
Exhibit F License Agreement
Exhibit X Work Letter
Exhibit Y Project Site Plan
Exhibit Y-1 No Reserved Parking Areas
(ii)
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INDUSTRIAL LEASE
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(Multi-Tenant; Net)
THIS LEASE is made as of the _______ day of _______________, 19___, by and
between THE IRVINE COMPANY, hereafter called "Landlord," and NEW CENTURY
FINANCIAL CORPORATION, a Delaware corporation, hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions" shall mean and
refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining Articles of this Lease.
1. Premises: The Premises (more particularly described in Section 2.1)
consists of space located in two (2) separate buildings, commonly known as:
"Building 1" - 340 Commerce, Irvine, California
"Building 2" - 350 Commerce, Suite 200, Irvine, California
2. Project Description (if applicable): Irvine Technology I & II
3. Use of Premises: General office.
4. Estimated Commencement Date: January 10, 2000
5. Lease Term: Sixty (60) months, plus such additional days as may be
required to cause this Lease to terminate on the final day of the calendar
month.
6. Basic Rent: One Hundred Seven Thousand Six Hundred Fifty Dollars
($107,650.00) per month, based on $1.60 per rentable square foot.
Basic Rent is subject to adjustment as follows:
Commencing twelve (12) months following the Commencement Date, the Basic
Rent shall be One Hundred Eleven Thousand Fourteen Dollars ($111,014.00)
per month, based on $1.65 per rentable square foot.
Commencing twenty-four (24) months following the Commencement Date, the
Basic Rent shall be One Hundred Fourteen Thousand Three Hundred Seventy-
Eight Dollars ($114,378.00) per month, based on $1.70 per rentable square
foot.
Commencing thirty-six (36) months following the Commencement Date, the
Basic Rent shall be One Hundred Seventeen Thousand Seven Hundred Forty-Two
Dollars ($117,742.00) per month, based on $1.75 per rentable square foot.
Commencing forty-eight (48) months following the Commencement Date, the
Basic Rent shall be One Hundred Twenty-One Thousand One Hundred Six Dollars
($121,106.00) per month, based on $1.80 per rentable square foot.
7. Guarantor(s): None
8. Floor Area of Premises: Approximately 67,281 rentable square feet, broken
down as follows:
340 Commerce Premises - 53,360 rentable square feet
350 Commerce Premises - 13,921 rentable square feet
9. Security Deposit: $133,217.00
10. Broker(s): Lee & Associates
11. Additional Insureds: Insignia\ESG of California, Inc.
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12. Address for Payments and Notices:
LANDLORD TENANT
INSIGNIA\ESG OF CALIFORNIA, INC. NEW CENTURY FINANCIAL CORPORATION
1 Ada, Suite 270 18400 Von Karman, Suite 1000
Irvine, CA 92618 Irvine, CA 92612
Attention: William J. Dodge
with a copy of notices to:
IRVINE INDUSTRIAL COMPANY
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President, Industrial Operations
13. Tenant's Liability Insurance Requirement: $2,000,000.00
14. Vehicle Parking Spaces: Two Hundred Seventy-Two (272)
15. Plan Approval Date: October 15, 1999
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ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant leases
from Landlord: (i) the premises shown on EXHIBIT A attached hereto (the "340
----------
Commerce Premises"), and (ii) the premises shown on EXHIBIT A-1 attached hereto
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(the "350 Commerce Premises"). Collectively, the 340 Commerce Premises and the
350 Commerce Premises are herein referred to as the "Premises". The Premises
contain approximately the "Rentable Square Feet" as set forth in Item 8 of the
Basic Lease Provisions. The 340 Commerce Premises are located within a building
identified in Item 1 of the Basic Lease Provisions as 340 Commerce ("Building
1"); and the 350 Commerce Premises are located within a building identified in
Item 1 of the Basic Lease Provisions as 350 Commerce ("Building 2").
Collectively, Building 1 and Building 2 are herein referred to as the
"Buildings"), and individually as a "Building". Building 1 and Building 2 are a
portion of the project shown on EXHIBIT Y (the "Project"). Tenant understands
---------
that the floor area set forth in Item 8 of the Basic Lease Provisions may
include, at Landlord's option, a factor approximating the total square footage
of any common lobby or internal common features of the Buildings times the ratio
of the actual square footage of the Premises to the total square footage of the
Buildings. If, upon completion of the space plans for the Premises, Landlord's
architect or space planner determines that the rentable square footage of the
Premises differs from that set forth in the Basic Lease Provisions, then
Landlord shall so notify Tenant and the Basic Rent (as shown in Item 6 of the
Basic Lease Provisions) shall be promptly adjusted in proportion to the change
in square footage. Within fifteen (15) days following Landlord's request, the
parties shall memorialize the adjustments by executing an amendment to this
Lease prepared by Landlord, provided that the failure or refusal by either party
to execute the amendment shall not affect its validity. Tenant shall have access
to the Premises twenty-four (24) hours per day, seven days per week.
SECTION 2.2. ACCEPTANCE OF PREMISES. Except as specifically set forth in this
Lease, Tenant acknowledges that neither Landlord nor any representative of
Landlord has made any representation or warranty with respect to the Premises or
the Buildings or the suitability or fitness of either for any purpose,
including, without limitation, any representations or warranties regarding
zoning or other land use matters, and that neither Landlord nor any
representative of Landlord has made any representations or warranties regarding
(i) what other tenants or uses may be permitted or intended in the Buildings and
the Project, or (ii) any exclusivity of use by Tenant with respect to its
permitted use of the Premises as set forth in Item 3 of the Basic Lease
Provisions. Tenant further acknowledges that neither Landlord nor any
representative of Landlord has agreed to undertake any alterations or additions
or construct any improvements to the Premises except as expressly provided in
this Lease. The taking of possession or use of the Premises by Tenant for any
purpose other than construction shall conclusively establish that the Premises
and the Buildings were in satisfactory condition and in conformity with the
provisions of this Lease in all respects, except for: (i) those matters which
Tenant shall have brought to Landlord's attention on a written punch list and
(ii) Landlord's obligations under Section 2.5 hereof. The list shall be limited
to any items required to be accomplished by Landlord under the Work Letter
attached as Exhibit X, and shall be delivered to Landlord within sixty (60) days
---------
after the term ("Term") of this Lease commences as provided in Article III
below. Nothing contained in this Section shall affect the commencement of the
Term or the obligation of Tenant to pay rent. Landlord shall diligently
complete all punch list items of which it is notified as provided above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any name
selected by Landlord from time to time for the Buildings and/or the Project as
any part of Tenant's corporate or trade name. Landlord shall have the right to
change the name, address, number or designation of the Buildings or Project
without liability to Tenant; provided, however, if the address of either of the
Buildings and/or the Project is changed by Landlord, Landlord agrees to provide
Tenant with no less than ninety (90) days prior written notice and to reimburse
Tenant for all expenses reasonably incurred by Tenant in conjunction with such
address change (including, without limitation, the cost of changing Tenant's
stationery and of notifying Tenant's clients and customers of Tenant's new
address), not to exceed Five Thousand Dollars ($5,000.00) in the aggregate.
SECTION 2.4. RIGHT OF FIRST REFUSAL. Provided Tenant is not then in default
hereunder, Landlord hereby grants Tenant a one-time right of first refusal
("First Refusal Right") to lease: (a) the space on the first floor in Building 2
comprising approximately 12,518 rentable square feet and the space on the second
floor of Building 2 comprising approximately 12,759 rentable square feet all as
shown on EXHIBIT A-2 attached hereto, and (b) the space located at 330 Commerce
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comprising approximately 53,360 rentable square feet as shown on EXHIBIT A-3
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(collectively, "First Refusal Space") in accordance with and subject to the
provisions of this Section 2.4 At any time following receipt by Landlord of a
bona fide letter of intent proposal or other written proposal setting forth
terms upon which Landlord is willing to lease all or a portion of the First
Refusal Space, Landlord shall give Tenant written notice of the term rent,
operating expenses and tenant improvement allowance, if any (the "Economic
Terms") upon which Landlord has tentatively agreed with such third party to
lease the First Refusal Space. It is understood that should Landlord have
tentatively agreed to lease other space in addition to the First Refusal Space
as part of a single transaction, then Landlord's notice shall so provide and all
such space shall collectively be subject to the following provisions. Within
five (5) business days after receipt of Landlord's notice, Tenant must give
Landlord written notice pursuant to which Tenant shall elect to (i) lease all,
but not less than all, of the First Refusal Space specified in Landlord's notice
(the "Designated First Refusal Space") upon such Economic Terms and the same
non-Economic Terms as set forth in this Lease (except as otherwise hereinafter
provided); or (ii) decline to lease the Designated First Refusal Space on such
Economic and non-Economic Terms. In the event that Tenant does not so respond
in writing to Landlord's notice within said period, Tenant shall be deemed to
have elected clause (ii) above. Should Tenant decline, or be deemed to have
declined, to lease the Designated First Refusal Space as provided in the
foregoing,
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Landlord shall be free thereafter to lease the Designated First Refusal Space
plus or minus ten percent (10%) thereof to any third party within the one
hundred twenty (120) days following the notice of Economic Terms upon material
terms which are substantially the same as the Economic Terms. In the event
Landlord does not enter into a lease for the Designated First Right Space plus
or minus ten percent (10%) thereof within such one hundred twenty (120) day
period upon material terms which are substantially the same as the Economic
Terms, then prior to leasing such Designated First Right Space to any third
party, Landlord shall repeat the procedure of offering such space to Tenant in
accordance with the provisions of this Section. Once Landlord has offered any
such First Refusal Space to Tenant and then enters into a lease for such
Designated First Refusal Space plus or minus ten percent (10%) thereof, within
the following one hundred twenty (120) days, Tenant's rights under this Section
with respect to the space so leased shall terminate. Should Tenant timely elect
to lease the Designated First Refusal Space, Landlord shall promptly prepare and
deliver to Tenant an amendment to this Lease consistent with the foregoing, and
Tenant shall execute and return same to Landlord within ten (10) business days.
Tenant's failure to timely return the amendment shall entitle Landlord to
specifically enforce Tenant's commitment to lease the Designated First Refusal
Space, to lease such space to a third party, and/or to pursue any other
available legal remedy. If Tenant fails to comply with any of the provisions of
this paragraph, Tenant's First Refusal Right herein granted shall be thereupon
extinguished. Any attempt to assign or transfer any right of interest created by
this Section other than in connection with a transfer not requiring Landlord's
consent pursuant to Section 9.4 hereof shall be void from its inception.
SECTION 2.5. LANDLORD'S RESPONSIBILITIES.
(a) Landlord shall correct, repair or replace, at Landlord's sole cost and
expense and not as a Project Cost, any non-compliance of the Building(s) or the
Premises (other than the Tenant Improvements) and the Common Areas with all
applicable building permits and codes in effect as of the Commencement Date,
including, without limitation, the provisions of Title III of the Americans With
Disabilities Act ("ADA") in effect as of the Commencement Date. Landlord shall
correct, repair or replace any non-compliance of the Building or the Premises
(other than the Tenant Improvements) and the Common Areas with any laws enacted
or effective after the Commencement Date including, without limitation,
revisions or amendments to the ADA provided that the amortized cost of such
repairs or replacements (amortized over the useful life thereof using a market
cost of funds reasonably determined by Landlord) shall be included as Project
Costs payable by Tenant. All other ADA compliance issues which pertain to the
Premises, including, without limitation, those arising as a result of
construction by Tenant of any alterations or other improvements in the Premises
(and any resulting ADA compliance requirements in the Common Areas), the Tenant
Improvements and those that arise particularly as a result of the operation of
Tenant's business and employment practices in the Premises, shall be the
responsibility of Tenant at its sole cost and expense. The repairs, corrections
or replacements required of Landlord or of Tenant under the foregoing provisions
of this Section shall be made promptly following notice of non-compliance from
any applicable governmental agency. Tenant shall promptly forward any such
notice that Tenant receives to Landlord.
(b) Landlord agrees to repair, at its sole cost and expense and not as an
Operating Expense latent defects which arise in the structural components of the
roof and Building, including floor/ceiling slabs, columns, beams, walls and the
foundations and footings of the Building during the initial Lease Term. If a
non-compliance with the foregoing warranty exists, Landlord shall, promptly
after receipt of the written notice from Tenant setting forth the nature and
extent of such non-compliance, rectify same at Landlord's sole cost and expense.
(c) If Tenant is required to make repairs to any component of the Premises
or any of its systems for which Landlord may have obtained a warranty, Landlord
shall, upon request by Tenant, use its good faith efforts to pursue its rights
under any such warranties for the benefit of Tenant. Landlord shall be under no
obligation to incur any expense in connection with asserting rights under such
warranties or guaranties against either the contractor or the manufacturer, but
shall use reasonable good faith efforts to enforce such warranties and
guaranties for Tenant's benefit.
ARTICLE III. TERM
SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5 of the
Basic Lease Provisions. Subject to the provisions of Section 3.2 below, the Term
shall commence ("Commencement Date") on the earlier of (a) the date upon which
all relevant governmental authorities have approved the Tenant Improvements in
accordance with applicable building codes, as evidenced by written approval
thereof in accordance with the building permits issued for the Tenant
Improvements or issuance of a temporary or final certificate of occupancy for
the Premises and Tenant is provided with access to the entire Premises, or (b)
the date Tenant commences use of the Premises for the conduct of business
operations. Within fifteen (15) days after possession of the Premises is
tendered to Tenant, the parties shall memorialize on a form provided by Landlord
the actual Commencement Date and the expiration date ("Expiration Date") of this
Lease. Tenant's failure to execute that form shall not affect the validity of
Landlord's determination of those dates.
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason whatsoever,
cannot deliver possession of the Premises to Tenant on or before the Estimated
Commencement Date, this Lease shall not be void or voidable nor shall Landlord
be liable to Tenant for any resulting loss or damage. However, Tenant shall not
be liable for any rent and the Commencement Date shall not occur until Landlord
delivers possession of the Premises and the
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Premises are in fact available for Tenant's occupancy with any Tenant
Improvements that have been approved as per Section 3.1(a) above, except that if
Landlord's failure to so deliver possession on the Estimated Commencement Date
is attributable to any action or inaction by Tenant (including, without
limitation, any Tenant Delay described in the Work Letter attached to this
Lease), then the Commencement Date shall not be advanced to the date on which
possession of the Premises is tendered to Tenant, and Landlord shall be entitled
to full performance by Tenant (including the payment of rent) from the date
Landlord would have been able to deliver the Premises to Tenant but for Tenant's
delay(s). If for any reason other than "Tenant Delays" (as defined in the Work
Letter) or other matters beyond Landlord's reasonable control, the Commencement
Date has not occurred by the date that is ninety (90) days following the
Estimated Commencement Date, then Tenant may, by written notice to Landlord
given at any time thereafter but prior to the actual occurrence of the
Commencement Date, elect to terminate this Lease. Notwithstanding the foregoing,
if at any time during the construction period, Landlord reasonably believes that
the Commencement Date will not occur on or before ninety (90) days following the
Estimated Commencement Date, Landlord shall notify Tenant in writing of such
fact and of a new outside date on or before which the Commencement Date will
occur, and Tenant must elect within ten (10) days of receipt of such notice to
either terminate this Lease or waive its right to terminate this Lease provided
the Commencement Date occurs on or prior to the new outside date established by
Landlord in such notice to Tenant. Tenant's failure to elect to terminate this
Lease within such ten (10) day period shall be deemed Tenant's waiver of its
right to terminate this Lease as provided in this paragraph as to the previous
outside date, but not as to the new outside date established by said notice.
SECTION 3.3. RIGHT TO EXTEND THIS LEASE.
(a) Provided that Tenant is not in default under any provision of this
Lease beyond the applicable cure period, either at the time of exercise of the
extension right granted herein or at the time of the commencement of such
extension, and provided further that Tenant is occupying the entire Premises and
has not assigned or sublet any of its interest in this Lease (other than in a
transaction not requiring Landlord's consent pursuant to Section 9.4 hereof),
Tenant may extend the Term of this Lease for one (1) period of sixty (60)
months. Tenant shall exercise its right to extend the Term by and only by
delivering to Landlord, not less than nine (9) months or more than twelve (12)
months prior to the expiration date of the Term, Tenant's irrevocable written
notice of its commitment to extend (the "Commitment Notice"). The Basic Rent
payable under the Lease during any extension of the Term shall be determined as
provided in the following provisions.
If Landlord and Tenant have not by then been able to agree upon the
Basic Rent for the extension of the Term, then within one hundred twenty (120)
and ninety (90) days prior to the expiration date of the Term, Landlord shall
notify Tenant in writing of the Basic Rent that would reflect the prevailing
market rental rate for a 60-month renewal of comparable space in the Project,
including any subsequent phases of Irvine Technology Center (together with any
increases thereof during the extension period) as of the commencement of the
extension period ("Landlord's Determination"). Should Tenant disagree with the
Landlord's Determination, then Tenant shall, not later than twenty (20) days
thereafter, notify Landlord in writing of Tenant's determination of those rental
terms ("Tenant's Determination"). Within ten (10) days following delivery of
the Tenant's Determination, the parties shall attempt to agree on an appraiser
to determine the fair market rental. If the parties are unable to agree in that
time, then each party shall designate an appraiser within ten (10) days
thereafter. Should either party fail to so designate an appraiser within that
time, then the appraiser designated by the other party shall determine the fair
market rental. Should each of the parties timely designate an appraiser, then
the two appraisers so designated shall appoint a third appraiser who shall,
acting alone, determine the fair market rental for the Premises. Any appraiser
designated hereunder shall have an MAI certification with not less than five (5)
years experience in the valuation of commercial industrial buildings in Orange
County, California.
Within thirty (30) days following the selection of the appraiser and
such appraiser's receipt of the Landlord's Determination and the Tenant's
Determination, the appraiser shall determine whether the rental rate determined
by Landlord or by Tenant more accurately reflects the fair market rental rate
for the 60-month renewal of the Lease for the Premises, as reasonably
extrapolated to the commencement of the extension period. Accordingly, either
the Landlord's Determination or the Tenant's Determination shall be selected by
the appraiser as the fair market rental rate for the extension period. In
making such determination, the appraiser shall consider rental comparables for
the Project, including any subsequent phases of Irvine Technology Center
(provided that if there are an insufficient number of comparables within the
Project, the appraiser shall consider rental comparables for similarly improved
space within the vicinity of the Project with appropriate adjustment for
location and quality of project), but the appraiser shall not attribute any
factor for brokerage commissions in making its determination of the fair market
rental rate, but shall consider then current market tenant improvement
allowances for lease renewals of comparable term and size. At any time before
the decision of the appraiser is rendered, either party may, by written notice
to the other party, accept the rental terms submitted by the other party, in
which event such terms shall be deemed adopted as the agreed fair market rental.
The fees of the appraiser(s) shall be borne entirely by the party whose
determination of the fair market rental rate was not accepted by the appraiser.
(b) Notwithstanding the foregoing, at any time during the period between
fifteen (15) and twelve (12) months prior to expiration of the Term (but prior
to the delivery of a Commitment Notice), Tenant may request from Landlord a
rental quote upon which Landlord is willing to lease the Premises for the
extension term to Tenant (an "Extension Term Rental Offer"). Tenant shall have
the right for a period of ten (10) business days after receipt of the Extension
Term Rental Offer to accept that offer by written notice to Landlord which
notice would constitute Tenant's exercise of its right to extend the Term upon
the terms and conditions of this Lease but at the rental rate set forth in
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the Extension Term Rental Offer. If Tenant elects to deliver a Commitment Notice
prior to requesting an Extension Term Rental Offer, fails to request an
Extension Term Rental Offer or fails to accept the Extension Term Rental Offer
within ten (10) business days after receipt thereof, Tenant shall have no
further rights under this subparagraph and provisions of subparagraph (a) of
this Section shall govern the determination of fair market rental for the
extension Term if Tenant elects to extend the Term in accordance with the
provisions of this Section.
(c) In the event Tenant elects to extend this Lease pursuant to either
subparagraph (a) or (b), within twenty (20) days after the determination of the
rent applicable to such extension, Landlord shall prepare an appropriate
amendment to this Lease for the extension period, and Tenant shall execute and
return same to Landlord within twenty (20) days. Should the fair market rental
not be established by the commencement of the extension period, then Tenant
shall continue paying rent at the rate in effect during the last month of the
initial Term, and a lump sum adjustment shall be made promptly upon the
determination of such new rental.
If Tenant fails to timely comply with any of the provisions of this
Section, Tenant's right to extend the Term shall be extinguished and the Lease
shall automatically terminate as of the expiration date of the Term, without any
extension and without any liability to Landlord. Any attempt to assign or
transfer any right or interest created by this Section shall be void from its
inception other than in connection with a transaction not requiring Landlord's
consent pursuant to Section 9.4 hereof. Tenant shall have no other right to
extend the Term beyond the single sixty (60) month extension period created by
this paragraph. Unless agreed to in a writing signed by Landlord and Tenant,
any extension of the Term, whether created by an amendment to this Lease or by a
holdover of the Premises by Tenant, or otherwise, shall be deemed a part of, and
not in addition to, any duly exercised extension period permitted by this
Section.
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant shall
pay to Landlord without deduction or offset, Basic Rent for the Premises in the
total amount shown (including subsequent adjustments, if any) in Item 6 of the
Basic Lease Provisions. Any rental adjustment shown in Item 6 shall be deemed
to occur on the specified monthly anniversary of the Commencement Date, whether
or not that date occurs at the end of a calendar month. The rent shall be due
and payable in advance commencing on the Commencement Date (as prorated for any
partial month) and continuing thereafter on the first day of each successive
calendar month of the Term. No demand, notice or invoice shall be required for
the payment of Basic Rent. An installment of rent in the amount of one (1) full
month's Basic Rent at the initial rate specified in Item 6 of the Basic Lease
Provisions shall be delivered to Landlord concurrently with Tenant's execution
of this Lease and shall be applied against the Basic Rent first due hereunder.
SECTION 4.2. OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as additional rent, Tenant's Share of
"Operating Expenses", as defined below, incurred by Landlord in the operation of
the Buildings and Project. The term "Tenant's Share" means that portion of an
Operating Expense determined by multiplying the cost of such item by a fraction,
the numerator of which is the floor area of the Premises and the denominator of
which is the total square footage of the floor area, as of the date on which the
computation is made, to be charged with such Operating Expense as equitably
allocated by Landlord.
(b) Commencing prior to the start of the first full "Expense Recovery
Period" (as defined below) of the Lease, and prior to the start of each full or
partial Expense Recovery Period thereafter, Landlord shall give Tenant a written
estimate of the amount of Tenant's Share of Operating Expenses for the Expense
Recovery Period. Tenant shall pay the estimated amounts to Landlord in equal
monthly installments, in advance, with Basic Rent. If Landlord has not
furnished its written estimate for any Expense Recovery Period by the time set
forth above, Tenant shall continue to pay cost reimbursements at the rates
established for the prior Expense Recovery Period, if any; provided that when
the new estimate is delivered to Tenant, Tenant shall, at the next monthly
payment date, pay any accrued cost reimbursements based upon the new estimate.
For purposes hereof, "Expense Recovery Period" shall mean every twelve month
period during the Term (or portion thereof for the first and last lease years)
commencing July 1 and ending June 30.
(c) Within one hundred twenty (120) days after the end of each Expense
Recovery Period, Landlord shall furnish to Tenant a statement showing in
reasonable detail the actual or prorated Operating Expenses incurred by Landlord
during the period, and the parties shall within thirty (30) days thereafter make
any payment or allowance necessary to adjust Tenant's estimated payments, if
any, to the actual Tenant's Share as shown by the annual statement. Any delay or
failure by Landlord in delivering any statement hereunder shall not constitute a
waiver of Landlord's right to require Tenant to pay Tenant's Share of Operating
Expenses pursuant hereto. Any amount due Tenant shall be credited against
installments next coming due under this Section 4.2, and any deficiency shall be
paid by Tenant together with the next installment. If Tenant has not made
estimated payments during the Expense Recovery Period, any amount owing by
Tenant pursuant to subsection (a) above shall be paid to Landlord in accordance
with Article XVI. Should Tenant fail to object in writing to Landlord's
determination of actual Operating Expenses within one hundred eighty (180) days
following delivery of Landlord's expense statement, Landlord's determination of
actual Operating Expenses for the applicable Expense Recovery Period shall be
conclusive and binding on the parties and any future claims to the contrary
shall be barred.
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(d) Even though the Lease has terminated and the Tenant has vacated the
Premises, when the final determination is made of Tenant's Share of Operating
Expenses for the Expense Recovery Period in which the Lease terminates, Tenant
shall upon notice pay the entire increase due over the estimated expenses paid.
Conversely, any overpayment made in the event expenses decrease shall be rebated
by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one or more of
the Operating Expenses are increased to a rate(s) or amount(s) in excess of the
rate(s) or amount(s) used in calculating the estimated expenses for the year,
then the estimate of Tenant's Share of Operating Expenses shall be increased for
the month in which such rate(s) or amount(s) becomes effective and for all
succeeding months by an amount equal to Tenant's Share of the increase.
Landlord shall give Tenant written notice of the amount or estimated amount of
the increase, the month in which the increase will become effective, Tenant's
Share thereof and the month for which the payments are due. Tenant shall pay
the increase to Landlord as a part of Tenant's monthly payments of estimated
expenses as provided in paragraph (b) above, commencing with the month in which
effective.
(f) The term "Operating Expenses" shall mean and include all "Project
Costs" (as hereafter defined) and "Property Taxes" (as hereafter defined).
(g) The term "Project Costs" shall include all expenses of operation and
maintenance of the Buildings and the Project, together with all appurtenant
Common Areas (as defined in Section 6.2), and shall include the following
charges by way of illustration but not limitation: water and sewer charges;
insurance premiums or reasonable premium equivalents should Landlord elect to
self-insure any risk that Landlord is authorized to insure hereunder; license,
permit, and inspection fees; heat; light; power; janitorial services to any
interior Common Areas; air conditioning; supplies; materials; equipment; tools;
the cost of any environmental, insurance, tax or other consultant utilized by
Landlord in connection with the Buildings and/or Project; establishment of
reasonable reserves for replacements and/or repair of the Buildings and/or
Common Area improvements, equipment and supplies; costs incurred in connection
with compliance of any laws or changes in laws applicable to the Buildings or
the Project (except for changes in laws that pertain particularly to Tenant's
use of the Premises and/or to the interior of the Premises only which shall be
the sole responsibility of Tenant at its cost) as provided in Section 2.5; the
cost of any capital repairs or replacements (other than tenant improvements for
specific tenants) to the extent of the amortized amount thereof over the useful
life of such capital investments calculated at a market cost of funds, all as
determined by Landlord, for each such year of useful life during the Term; costs
associated with the procurement and maintenance of an air conditioning, heating
and ventilation service agreement, and procurement and maintenance of an
intrabuilding network cable service agreement for any intrabuilding network
cable telecommunications lines within the Project, and any other installation,
maintenance, repair and replacement costs associated with such lines; labor;
reasonably allocated wages and salaries, fringe benefits, and payroll taxes for
administrative and other personnel directly applicable to the Buildings and/or
Project, including both Landlord's personnel and outside personnel; any expense
incurred pursuant to Sections 6.1, 6.2, 6.4, 7.2, and 10.2; and a reasonable
overhead/management fee for the professional operation of the Project. It is
understood that Project Costs shall include competitive charges for direct
services provided by any subsidiary or division of Landlord.
(h) The term "Property Taxes" as used herein shall include the following:
(i) all real estate taxes, as such property taxes may be reassessed from time to
time; and (ii) other taxes, charges and assessments which are levied with
respect to this Lease or to the Buildings and/or the Project, and any
improvements, fixtures and equipment and other property of Landlord located in
the Buildings and/or the Project, except that general net income and franchise
taxes imposed against Landlord shall be excluded; and (iii) all assessments and
fees for public improvements, services, and facilities and impacts thereon,
including, without limitation, arising out of any Community Facilities
Districts, "Mello Roos" districts, similar assessment districts, and any traffic
impact mitigation assessments or fees; (iv) any tax, surcharge or assessment
which shall be levied in addition to or in lieu of real estate or personal
property taxes, other than taxes covered by Article VIII; and (v) costs and
expenses incurred in contesting the amount or validity of any Property Tax by
appropriate proceedings.
(i) Notwithstanding the provisions of this Section 4.2 to the contrary,
Operating Expenses shall not include any of the following:
(1) Commissions, attorneys' fees, costs, disbursements and other
expenses incurred by Landlord or its agents in connection with negotiations for
leases with tenants, other occupants or prospective tenants or other occupants
of the Project, and similar costs incurred in connection with disputes with
and/or enforcement of any lease with tenants, other occupants, or prospective
tenants or other occupants of the Project;
(2) "Tenant allowances", "tenant concessions", work letter payments,
and other costs or expenses (including permit, license and inspection fees)
incurred in completing, fixturing, furnishing, renovating or otherwise
improving, decorating or redecorating space for tenants or other occupants of
the Project, or vacant, leasable space in the Project, including space
planning/interior design fees for same;
(3) Depreciation and other "non-cash" expense items;
(4) Except as specifically authorized in this Lease, costs of a
capital nature, including, but not limited to, capital additions, capital
improvements, capital alterations, capital replacements, capital equipment and
capital tools, and/or capital redesign;
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(5) Services, items and benefits for which Tenant or any other tenant
or occupant of the Project specifically reimburses Landlord or for which Tenant
or any other tenant or occupant of the Project pays third persons;
(6) Costs or expenses (including fines, penalties and legal fees)
incurred due to the violation by Landlord of this Lease or of the leases of
other tenants in the Project, that would not have been incurred but for such
violation.
(7) Penalties for late payment of any Operating Expenses by Landlord,
including, without limitation, with respect to Property Taxes, equipment leases,
etc.;
(8) Payments in respect of overhead and/or profit to any subsidiary
or affiliate of Landlord, as a result of a non-competitive selection process for
services (other than the management fee) on or to the Project, or for goods,
supplies or other materials, to the extent that the costs of such services,
goods, supplies or materials exceed the costs that would have been paid if the
services, goods, supplies or materials had been provided by parties unaffiliated
with Landlord, of similar skill, competence and experience, on a competitive
basis;
(9) Payments of principal, finance charges or interest on debt or
amortization on any deed of trust or other debt encumbering the Project, and
rental payments (or increases in same) under any ground or underlying lease or
leases encumbering the Project (except to the extent the same may be made to pay
or reimburse, or may be measured by Property Taxes);
(10) Except for a management fee which is reasonable and commercially
competitive for similar projects in the area, costs of Landlord's general
overhead and general administrative expenses (individual, partnership or
corporate, as the case may be) and wages, salaries and other compensation and
benefits (as well as adjustments thereto) for all employees and personnel of
Landlord above the level of manager for the Project, which costs would not be
chargeable to Operating Expenses in accordance with generally accepted
accounting principles, consistently applied;
(11) Rentals and other related expenses, if any, incurred in leasing
air conditioning systems or other equipment ordinarily considered to be of a
capital nature, except equipment which is used in providing janitorial services
and which is not affixed to the Project and equipment which is leased on a
temporary basis in emergency situations;
(12) Advertising and promotional expenses;
(13) Costs or expenses for the acquisition of sculpture, paintings or
other works of art, but not the reasonable expenses of maintaining, repairing
and insuring same;
(14) Costs for which Landlord is compensated through or reimbursed by
insurance;
(15) Contributions to political or charitable organizations;
(16) Costs incurred in removing the property of former tenants and/or
other occupants of the Project;
(17) The costs of any "tap fees" or one-time lump sum sewer, water or
other utility connection fees for the Project; and
(18) "In house" legal and/or accounting fees.
(19) Any costs for the fulfillment of obligations which are
specifically allocated to Landlord pursuant to the provisions of this Lease;
(20) Except as set forth in Section 5.3 hereof, any costs related to
remediation, cleanup, removal, disposal, neutralization or other treatment of
Hazardous Materials.
(21) Costs recovered by Landlord to the extent such cost recovery
allows Landlord to recover from tenants of the Building or Project more than
100% of Operating Expenses on account of any Expense Recovery Period.
SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of this
Lease, Tenant shall deposit with Landlord the sum, if any, stated in Item 9 of
the Basic Lease Provisions, to be held by Landlord as security for the full and
faithful performance of Tenant's obligations under this Lease (the "Security
Deposit"). Subject to the last sentence of this Section, the Security Deposit
shall be understood and agreed to be the property of Landlord upon Landlord's
receipt thereof, and may be utilized by Landlord in its discretion towards the
payment of all prepaid expenses by Landlord for which Tenant would be required
to reimburse Landlord under this Lease, including, without limitation, brokerage
commissions and Tenant Improvement costs. Upon any default by Tenant after
expiration of the applicable cure period, including specifically Tenant's
failure to pay rent or to abide by its obligations under Sections 7.1 and 15.3
below, whether or not Landlord is informed of or has knowledge of the default,
the Security Deposit shall be deemed to be automatically and immediately
applied, without waiver of any rights Landlord may have under this Lease or at
law or in equity as a result of the default, as a setoff for full or partial
compensation for that default. If any portion of the Security Deposit is
applied after a default by Tenant, Tenant shall within fifteen (15) days after
written
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demand by Landlord deposit cash with Landlord in an amount sufficient to restore
the Security Deposit to its original amount. Landlord shall not be required to
keep this Security Deposit separate from its general funds, and Tenant shall not
be entitled to interest on the Security Deposit. If Tenant fully performs its
obligations under this Lease, the Security Deposit shall be returned to Tenant
(or, at Landlord's option, to the last assignee of Tenant's interest in this
Lease) after the expiration of the Term, provided that Landlord may retain the
Security Deposit to the extent and until such time as all amounts due from
Tenant in accordance with this Lease have been determined and paid in full. The
obligation of Landlord to return the unapplied balance of the Security Deposit
to Tenant in accordance with the terms of this Lease shall be personal to
Landlord and shall survive as an obligation of Landlord notwithstanding any
transfer of Landlord's interest in this Lease unless and until such time as
Landlord has complied with the provisions of Section 1950.7 of the California
Civil Code or any successor statute thereto.
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes stated
in Item 3 of the Basic Lease Provisions, all in accordance with applicable laws
and restrictions (subject to the provisions of Section 2.5) and pursuant to
approvals to be obtained by Tenant from all relevant and required governmental
agencies and authorities. The parties agree that any contrary use shall be
deemed to cause material and irreparable harm to Landlord and shall entitle
Landlord to injunctive relief in addition to any other available remedy.
Tenant, at its expense, shall procure, maintain and make available for
Landlord's inspection throughout the Term, all governmental approvals, licenses
and permits required for the proper and lawful conduct of Tenant's permitted use
of the Premises. Tenant shall not do or permit anything to be done in or about
the Premises which will in any way unreasonably interfere with the rights of
other occupants of the Buildings or the Project, or use or allow the Premises to
be used for any unlawful purpose, nor shall Tenant permit any nuisance or commit
any waste in the Premises or the Project. Tenant shall not perform any work or
conduct any business whatsoever in the Project other than inside the Premises.
Tenant shall not do or permit to be done anything which will invalidate or
increase the cost of any insurance policy(ies) covering the Buildings, the
Project and/or their contents (unless Tenant pays any such increase in cost),
and shall comply with all applicable insurance underwriters rules and the
requirements of the Pacific Fire Rating Bureau or any other organization
performing a similar function. Tenant shall comply at its expense with all
present and future laws, ordinances, restrictions, regulations, orders, rules
and requirements of all governmental authorities that pertain to Tenant or its
use of the Premises, including, without limitation, all federal and state
occupational health and safety requirements, whether or not Tenant's compliance
will necessitate expenditures or interfere with its use and enjoyment of the
Premises. Tenant shall comply at its expense with all present and future
covenants, conditions, easements or restrictions now or hereafter affecting or
encumbering the Buildings and/or Project, and any reasonable amendments or
modifications thereto, including, without limitation, the payment by Tenant of
any periodic or special dues or assessments charged against the Premises or
Tenant which may be allocated to the Premises or Tenant in accordance with the
provisions thereof. Tenant shall promptly upon demand reimburse Landlord for
any additional insurance premium charged by reason of Tenant's failure to comply
with the provisions of this Section, and shall indemnify Landlord from any
liability and/or expense resulting from Tenant's noncompliance.
SECTION 5.2. SIGNS. Provided Tenant continues to occupy the entire Premises,
Tenant shall have the exclusive right to two (2) exterior Building top signs on
Building 1, and the nonexclusive right to one (1) exterior eye-brow sign on
Building 2. In the event that Tenant, at any time during the Term, shall lease
and occupy fifty percent (50%) or more of the floor area of Building 2, Tenant
shall have the right to install one (1) non-exclusive building top sign in lieu
of and not in addition to the exterior eye brow sign on Building 2, provided
building top signage space is then available on Building 2. Except as provided
in the foregoing or as otherwise approved in writing by Landlord, in its sole
discretion, Tenant shall have no right to maintain identification signs in any
location in, on or about the Premises, the Buildings or the Project and shall
not place or erect any signs, displays or other advertising materials that are
visible from the exterior of the Buildings. The text of Tenant's signs may
include one or more of the following names or any combination thereof, provided
such entity is in fact conducting its business within the Premises:
AnyLoan.com; 1800 AnyLoan.com; New Century; Prime West Funding; Western Capital
Mortgage; New Century Mortgage; New Century Mortgage Corporation. The size,
design, graphics, material, style, color and other physical aspects of any
permitted sign shall be subject to Landlord's written approval prior to
installation (which approval may be withheld in Landlord's discretion), all
covenants, conditions or restrictions encumbering the Premises, Landlord's
signage program for the Project, as in effect from time to time and approved by
the City in which the Premises are located ("Signage Criteria"), and any
applicable municipal or other governmental permits and approvals. Tenant
acknowledges having received and reviewed a copy of the current Signage Criteria
for the Project. Tenant shall be responsible for the cost of any permitted
sign, including the fabrication, installation, maintenance and removal thereof.
If Tenant fails to maintain its sign, or if Tenant fails to remove same upon
termination of this Lease and repair any damage caused by such removal, Landlord
may do so at Tenant's expense.
SECTION 5.3. HAZARDOUS MATERIALS.
(a) For purposes of this Lease, the term "Hazardous Materials" includes
(i) any "hazardous materials" as defined in Section 25501(n) of the California
Health and Safety Code, (ii) any other substance or matter which results in
liability to any person or entity from exposure to such substance or matter
under any statutory or common law theory, and (iii) any substance or matter
which is in excess of permitted levels set forth in any federal, California or
local law or regulation pertaining to any hazardous or toxic substance, material
or waste.
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(b) Tenant shall not cause or knowingly permit any Hazardous Materials to
be brought upon, stored, used, generated, released or disposed of on, under,
from or about the Premises (including, without limitation, the soil and
groundwater thereunder) without the prior written consent of Landlord.
Notwithstanding the foregoing, Tenant shall have the right, without obtaining
prior written consent of Landlord, to utilize within the Premises standard
office products that may contain Hazardous Materials (such as photocopy toner,
"White Out", and the like), provided however, that (i) Tenant shall maintain
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such products in their original retail packaging, shall follow all instructions
on such packaging with respect to the storage, use and disposal of such
products, and shall otherwise comply with all applicable laws with respect to
such products, and (ii) all of the other terms and provisions of this Section
5.3 shall apply with respect to Tenant's storage, use and disposal of all such
products. Landlord may, in its sole discretion, place such conditions as
Landlord deems appropriate with respect to any such Hazardous Materials, and may
further require that Tenant demonstrate that any such Hazardous Materials are
necessary or useful to Tenant's business and will be generated, stored, used and
disposed of in a manner that complies with all applicable laws and regulations
pertaining thereto and with good business practices. Tenant understands that
Landlord may utilize an environmental consultant to assist in determining
conditions of approval in connection with the storage, generation, release,
disposal or use of Hazardous Materials by Tenant on or about the Premises,
and/or to conduct periodic inspections of the storage, generation, use, release
and/or disposal of such Hazardous Materials by Tenant on and from the Premises,
and Tenant agrees that any reasonable costs incurred by Landlord in connection
therewith shall be reimbursed by Tenant to Landlord as additional rent hereunder
upon demand if Tenant is in violation of its obligations under this Section.
(c) Prior to the execution of this Lease, Tenant shall complete, execute
and deliver to Landlord an Environmental Questionnaire and Disclosure Statement
(the "Environmental Questionnaire") in the form of Exhibit B attached hereto.
---------
The completed Environmental Questionnaire shall be deemed incorporated into this
Lease for all purposes, and Landlord shall be entitled to rely fully on the
information contained therein. On each anniversary of the Commencement Date
until the expiration or sooner termination of this Lease, Tenant shall disclose
to Landlord in writing the names and amounts of all Hazardous Materials which
were stored, generated, used, released and/or disposed of on, under or about the
Premises for the twelve-month period prior thereto, and which Tenant desires to
store, generate, use, release and/or dispose of on, under or about the Premises
for the succeeding twelve-month period. In addition, to the extent Tenant is
permitted to utilize Hazardous Materials upon the Premises, Tenant shall
promptly provide Landlord with complete and legible copies of all the following
environmental documents relating thereto: reports filed pursuant to any self-
reporting requirements; permit applications, permits, monitoring reports,
workplace exposure and community exposure warnings or notices and all other
reports, disclosures, plans or documents (even those which may be characterized
as confidential) relating to water discharges, air pollution, waste generation
or disposal, and underground storage tanks for Hazardous Materials; orders,
reports, notices, listings and correspondence (even those which may be
considered confidential) of or concerning the release, investigation of,
compliance, cleanup, remedial and corrective actions, and abatement of Hazardous
Materials; and all complaints, pleadings and other legal documents filed by or
against Tenant related to Tenant's use, handling, storage, release and/or
disposal of Hazardous Materials.
(d) Landlord and its agents shall have the right, but not the obligation,
to inspect, sample and/or monitor the Premises and/or the soil or groundwater
thereunder at any time to determine whether Tenant is complying with the terms
of this Section 5.3, and in connection therewith Tenant shall provide Landlord
with full access to all relevant facilities, records and personnel after
reasonable prior notice under the circumstances except in the event of an
emergency when no advance notice shall be required. If Tenant is not in
compliance with any of the provisions of this Section 5.3, or in the event of a
release of any Hazardous Material on, under or about the Premises caused or
knowingly permitted by Tenant, its agents, employees, contractors, licensees or
invitees, Landlord and its agents shall have the right, but not the obligation,
without limitation upon any of Landlord's other rights and remedies under this
Lease, to immediately enter upon the Premises without notice and to discharge
Tenant's obligations under this Section 5.3 at Tenant's expense, including,
without limitation, the taking of emergency or long-term remedial action.
Landlord and its agents shall endeavor to minimize interference with Tenant's
business in connection therewith, but shall not be liable for any such
interference. In addition, Landlord, at Tenant's expense, shall have the right,
but not the obligation, to join and participate in any legal proceedings or
actions initiated in connection with any claims arising out of the storage,
generation, use, release and/or disposal by Tenant or its agents, employees,
contractors, licensees or invitees of Hazardous Materials on, under, from or
about the Premises.
(e) If the presence of any Hazardous Materials on, under, from or about
the Premises or the Project caused or knowingly permitted by Tenant or its
agents, employees, contractors, licensees or invitees results in (i) injury to
any person, (ii) injury to or any contamination of the Premises or the Project,
or (iii) injury to or contamination of any real or personal property wherever
situated, Tenant, at its expense, shall promptly take all actions necessary to
return the Premises and the Project and any other affected real or personal
property owned by Landlord to the condition existing prior to the introduction
of such Hazardous Materials and to remedy or repair any such injury or
contamination, including without limitation, any cleanup, remediation, removal,
disposal, neutralization or other treatment of any such Hazardous Materials.
Notwithstanding the foregoing, Tenant shall not, without Landlord's prior
written consent, take any remedial action in response to the presence of any
Hazardous Materials on, under or about the Premises or the Project or any other
affected real or personal property owned by Landlord or enter into any similar
agreement, consent, decree or other compromise with any governmental agency with
respect to any Hazardous Materials claims; provided however, Landlord's prior
written consent shall not be necessary in the event that the presence of
Hazardous Materials on, under or about the Premises or the Project or any other
affected real or personal property owned by Landlord (i) imposes an immediate
threat to the health, safety or welfare of any individual or (ii) is of such a
nature that an immediate remedial response is necessary and it is not possible
to obtain Landlord's consent before taking such action.
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To the fullest extent permitted by law, Tenant shall indemnify, hold harmless,
protect and defend (with attorneys acceptable to Landlord) Landlord and any
successors to all or any portion of Landlord's interest in the Premises and the
Project and any other real or personal property owned by Landlord from and
against any and all liabilities, losses, damages, diminution in value,
judgments, fines, demands, claims, recoveries, deficiencies, costs and expenses
(including, without limitation, attorneys' fees, court costs and other
professional expenses), whether foreseeable or unforeseeable, arising directly
or indirectly out of the use, generation, storage, treatment, release, on- or
off-site disposal or transportation of Hazardous Materials on, into, from, under
or about the Premises, the Buildings and the Project and any other real or
personal property owned by Landlord caused or knowingly permitted by Tenant, its
agents, employees, contractors, licensees or invitees, specifically including,
without limitation, the cost of any required or necessary repair, restoration,
cleanup or detoxification of the Premises, the Buildings and the Project and any
other real or personal property owned by Landlord, and the preparation of any
closure or other required plans, whether or not such action is required or
necessary during the Term or after the expiration of this Lease. If Landlord at
any time discovers that Tenant or its agents, employees, contractors, licensees
or invitees may have caused or knowingly permitted the release of a Hazardous
Material on, under, from or about the Premises or the Project or any other real
or personal property owned by Landlord, Tenant shall, at Landlord's request,
immediately prepare and submit to Landlord a comprehensive plan, subject to
Landlord's approval, specifying the actions to be taken by Tenant to return the
Premises or the Project or any other real or personal property owned by Landlord
to the condition existing prior to the introduction of such Hazardous Materials.
Upon Landlord's approval of such cleanup plan, Tenant shall, at its expense, and
without limitation of any rights and remedies of Landlord under this Lease or at
law or in equity, immediately implement such plan and proceed to cleanup such
Hazardous Materials in accordance with all applicable laws and as required by
such plan and this Lease. The provisions of this subsection (e) shall expressly
survive the expiration or sooner termination of this Lease.
(f) Landlord hereby discloses to Tenant, and Tenant hereby acknowledges,
certain facts relating to Hazardous Materials at the Project known by Landlord
to exist as of the date of this Lease, as more particularly described in Exhibit
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C attached hereto. Tenant shall have no liability or responsibility with
- -
respect to the Hazardous Materials facts described in Exhibit C, nor with
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respect to any Hazardous Materials which Tenant proves were not caused or
knowingly permitted by Tenant, its agents, employees, contractors, licensees or
invitees. Notwithstanding the preceding two sentences, Tenant agrees to notify
its agents, employees, contractors, licensees, and invitees of any exposure or
potential exposure to Hazardous Materials at the Premises that Landlord brings
to Tenant's attention.
ARTICLE VI. COMMON AREAS; SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for and
shall pay promptly, directly to the appropriate supplier, all charges for water,
gas, electricity, sewer, heat, light, power, telephone, refuse pickup,
janitorial service, interior landscape maintenance and all other utilities,
materials and services furnished directly to Tenant or the Premises or used by
Tenant in, on or about the Premises during the Term, together with any taxes
thereon. If any utilities or services are not separately metered or assessed to
Tenant, Landlord shall make a reasonable determination of Tenant's proportionate
share of the cost of such utilities and services and Tenant shall pay such
amount to Landlord, as an item of additional rent, within fifteen (15) days
after receipt of Landlord's statement or invoice therefor. Alternatively,
Landlord may elect to include such cost in the definition of Building Costs in
which event Tenant shall pay Tenant's proportionate share of such costs in the
manner set forth in Section 4.2. Landlord shall not be liable for damages or
otherwise for any failure or interruption of any utility or other service
furnished to the Premises, and no such failure or interruption shall be deemed
an eviction or entitle Tenant to terminate this Lease or withhold or abate any
rent due hereunder. Landlord shall at all reasonable times have free access to
all electrical and mechanical installations of Landlord. Notwithstanding the
foregoing, if as a result of the actions of Landlord, its agents, contractors or
employees or the inactions of Landlord if Landlord is required to act under this
Lease, for more than three (3) consecutive business days following written
notice to Landlord there is no HVAC service or electricity service to all or a
portion of the Premises, or such an interruption of other essential utilities
and building services, such as fire protection or water, so that all or a
portion of the Premises cannot be used by Tenant, then Tenant's obligation to
pay Basic Rent and Operating Expenses (or an equitable portion of such Basic
Rent and Operating Expenses to the extent that less than all of the Premises are
affected) shall thereafter be abated until the Premises are again useable by
Tenant; provided, however, that if Landlord is diligently pursuing the repair of
such utilities or services and Landlord provides substitute services reasonably
suitable for Tenant's purposes, as for example, bringing in portable air-
conditioning equipment, then there shall not be an abatement of Basic Rent or
Operating Expenses. Any disputes concerning the foregoing shall be resolved by
JAMS arbitration pursuant to Section 22.7 of this Lease. The foregoing
provisions shall not apply in case of damage to, or destruction of, the
Premises, which shall be governed by the provisions of Article XI of the Lease.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the Term,
Landlord shall operate, maintain and repair all Common Areas within the
Buildings and the Project. The term "Common Areas" shall mean all areas within
the exterior boundaries of the Buildings and other buildings in the Project
which are not held for exclusive use by persons entitled to occupy space, and
all other appurtenant areas and improvements provided by Landlord for the common
use of Landlord and tenants and their respective employees and invitees,
including, without limitation, parking areas and structures, driveways,
sidewalks, landscaped and planted areas, hallways and interior stairwells not
located within the premises of any tenant, common electrical rooms and roof
access entries, common entrances and lobbies, elevators, and restrooms not
located within the premises of any tenant.
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Building hours shall be Monday through Friday 7:00 a.m. to 6:00 p.m., and
Saturday 9:00 a.m. to 1:00 p.m., President's Day, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day, Christmas Day, New Year's Day and Sundays
excluded. Landlord may install access control systems as it deems advisable for
the Building. The reasonable cost of maintaining and repairing any such access
control systems (but not the cost of installation of, or any "capital" cost of
replacing, said systems) shall be included in Project Costs under Section 4.2.
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the Premises
shall include the use of the Common Areas in common with Landlord and with all
others for whose convenience and use the Common Areas may be provided by
Landlord, subject, however, to compliance with all reasonable and non-
discriminatory rules and regulations as are prescribed from time to time by
Landlord. Landlord shall operate and maintain the Common Areas in compliance
with applicable law, consistent with the operation of comparable projects in the
area in which the Project is located and otherwise in the manner Landlord may
determine to be appropriate. All costs incurred by Landlord for the maintenance
and operation of the Common Areas shall be included in Project Costs unless any
particular cost incurred can be charged to a specific tenant of the Project.
Landlord shall at all times during the Term have exclusive control of the Common
Areas, and may restrain any use or occupancy, except as authorized by Landlord's
rules and regulations. Tenant shall keep the Common Areas clear of any
obstruction or unauthorized use related to Tenant's operations. Landlord may
temporarily close any portion of the Common Areas for repairs, remodeling and/or
alterations, to prevent a public dedication or the accrual of prescriptive
rights, or for any other reason deemed sufficient by Landlord, without liability
to Landlord; provided, however, that Landlord shall use commercially reasonable
efforts to avoid unreasonable interference with Tenant's access to or use of the
Premises in connection with such activities.
SECTION 6.4. PARKING. Tenant shall be entitled to the number of vehicle
parking spaces set forth in Item 14 of the Basic Lease Provisions, which spaces
shall be unreserved and unassigned, on those portions of the Common Areas
designated by Landlord for parking. Tenant shall not use more parking spaces
than such number. All parking spaces shall be used only for parking by vehicles
no larger than full size passenger automobiles or pickup trucks. Tenant shall
not permit or allow any vehicles that belong to or are controlled by Tenant or
Tenant's employees, suppliers, shippers, customers or invitees to be loaded,
unloaded or parked in areas other than those designated by Landlord for such
activities. If Tenant permits or allows any of the prohibited activities
described above, then Landlord shall have the right, without notice, in addition
to such other rights and remedies that Landlord may have, to remove or tow away
the vehicle involved and charge the costs to Tenant. Parking within the Common
Areas shall be limited to striped parking stalls, and no parking shall be
permitted in any driveways, access ways or in any area which would prohibit or
impede the free flow of traffic within the Common Areas. There shall be no
overnight parking of any vehicles of any kind for periods longer than 48 hours
unless otherwise authorized by Landlord, and vehicles which have been abandoned
or parked in violation of the terms hereof may be towed away at the owner's
expense. Nothing contained in this Lease shall be deemed to create liability
upon Landlord for any damage to motor vehicles of visitors or employees, for any
loss of property from within those motor vehicles, or for any injury to Tenant,
its visitors or employees, unless ultimately determined to be caused by the sole
active negligence or willful misconduct of Landlord. Landlord shall have the
right to establish, and from time to time amend, and to enforce against all
users all reasonable and non-discriminatory rules and regulations (including
the designation of areas for employee parking) that Landlord may deem necessary
and advisable for the proper and efficient operation and maintenance of parking
within the Common Areas. Landlord shall have the right to construct, maintain
and operate lighting facilities within the parking areas; to change the area,
level, location and arrangement of the parking areas and improvements therein;
to restrict parking by tenants, their officers, agents and employees to employee
parking areas; to enforce parking charges (by operation of meters or otherwise);
and to do and perform such other acts in and to the parking areas and
improvements therein as, in the use of good business judgment, Landlord shall
determine to be advisable; provided, however, that Landlord shall use
commercially reasonable efforts to avoid unreasonable interference with Tenant's
access to or use of the Premises in connection with such activities. Any person
using the parking area shall observe all directional signs and arrows and any
posted speed limits. In no event shall Tenant interfere with the use and
enjoyment of the parking area by other tenants of the Buildings or their
employees or invitees. Parking areas shall be used only for parking vehicles.
Washing, waxing, cleaning or servicing of vehicles, or the storage of vehicles
for 24-hour periods, is prohibited unless otherwise authorized by Landlord.
Tenant shall be liable for any damage to the parking areas caused by Tenant or
Tenant's employees, suppliers, shippers, customers or invitees, including,
without limitation, damage from excess oil leakage. Tenant shall have no right
to install any fixtures, equipment or personal property in the parking areas.
Landlord agrees that it shall not grant reserved parking in the areas designated
on Exhibit Y-1 during the initial Term of this Lease.
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During the initial 60-month Term of this Lease, within fifteen (15)
business days following the written request of Tenant, Landlord shall propose
the location and economic terms for Tenant to license additional vehicle parking
spaces in addition to the vehicle spaces set forth in Item 14 of the Basic Lease
Provisions. The location of said additional spaces shall be subject to
availability in Landlord's sole and absolute discretion, and the terms for the
license of such additional parking shall include a monthly use parking charge
and repair and maintenance charges, and may include site preparation and/or
demolition charges. The license of such additional parking shall be extended to
Tenant on a month-to-month basis, shall be non-exclusive and unassigned unless
otherwise designated by Landlord, and shall be otherwise subject to the terms
and conditions of Section 6.4 above. If Tenant accepts Landlord's proposal for
the license of such additional parking within ten (10) days following receipt of
said proposal from Landlord, Landlord shall prepare a license agreement, in form
reasonably acceptable to Tenant for execution by Landlord and Tenant, confirming
the license of said additional spaces at the location and on the terms proposed
to and accepted by Tenant.
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SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the right
to make alterations or additions to the Buildings or the Project, or to the
attendant fixtures, equipment and Common Areas. Landlord may at any time
relocate or remove any of the various buildings, parking areas, and other Common
Areas, and may add buildings and areas to the Project from time to time. No
change shall entitle Tenant to any abatement of rent or other claim against
Landlord, provided that the change does not deprive Tenant of reasonable access
to or use of the Premises or the parking areas.
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole expense
shall make all repairs necessary to keep the Premises in the condition as
existed on the Commencement Date (or on any later date that the improvements may
have been installed), excepting ordinary wear and tear, and, subject to the
provisions of Article XI, damage from casualty, including, without limitation,
all glass, windows, doors, door closures, hardware, fixtures, fire extinguisher
equipment and other equipment. Any damage or deterioration of the Premises
shall not be deemed ordinary wear and tear if the same could have been prevented
by good maintenance practices by Tenant. As part of its maintenance obligations
hereunder, Tenant shall, at Landlord's request, provide Landlord with copies of
all maintenance schedules, reports and notices prepared by, for or on behalf of
Tenant. All repairs shall be at least equal in quality to the original work,
shall be made only by a licensed contractor approved in writing in advance by
Landlord (which approval shall not be unreasonably withheld) and shall be made
only at the time or times approved by Landlord. Any contractor utilized by
Tenant shall be subject to Landlord's standard requirements for contractors, as
modified from time to time. Landlord may impose reasonable restrictions and
requirements with respect to repairs, as provided in Section 7.3, and the
provisions of Section 7.4 shall apply to all repairs. Alternatively, Landlord
may elect to make any such repair on behalf of Tenant and at Tenant's expense,
and Tenant shall promptly reimburse Landlord for all costs incurred upon
submission of an invoice.
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1 and
Article XI, Landlord shall provide service, maintenance and repair with respect
to the structural components of the Buildings and the roof, foundations, and
footings of the Buildings, all landscaping, walkways, parking areas, Common
Areas, exterior lighting, the air conditioning, ventilating or heating equipment
and the electrical, mechanical and plumbing systems, servicing the Premises, and
the exterior surfaces of the exterior walls of the Buildings, except that Tenant
at its expense shall make all repairs which Landlord deems reasonably necessary
as a result of the negligence of Tenant, its agents, employees, invitees,
subtenants or contractors. Landlord shall have the right to employ or designate
any reputable person or firm, including any employee or agent of Landlord or any
of Landlord's affiliates or divisions, to perform any service, repair or
maintenance function. Landlord need not make any other improvements or repairs
except as specifically required by law, subject to the provisions of Section
2.5, or as required under this Lease, and nothing contained in this Section
shall limit Landlord's right to reimbursement from Tenant for maintenance,
repair costs and replacement costs as provided elsewhere in this Lease. Tenant
understands that it shall not make repairs at Landlord's expense or by rental
offset. Tenant further understands that Landlord shall not be required to make
any repairs to the roof, foundations, footings, structural, electrical or
mechanical systems unless and until Tenant has notified Landlord in writing of
the need for such repair and Landlord shall have a reasonable period of time
thereafter to commence and complete said repair, if warranted. All costs of any
maintenance and repairs on the part of Landlord provided hereunder shall be
considered part of Project Costs.
SECTION 7.3. ALTERATIONS. Tenant shall make no alterations, additions or
improvements to the Premises without the prior written consent of Landlord,
which consent may be given or withheld in Landlord's sole discretion.
Notwithstanding the foregoing, Landlord shall not unreasonably withhold its
consent to any alterations, additions or improvements to the Premises which cost
less than One Dollar ($1.00) per square foot of the improved portions of the
Premises (excluding warehouse square footage) and do not (i) affect the exterior
of the Buildings or outside areas (or be visible from adjoining sites), or (ii)
affect or penetrate any of the structural portions of the Buildings, including,
but not limited to, the roof, or (iii) require any change to the basic floor
plan of the Premises, any change to any structural or mechanical systems of the
Premises, or any governmental permit as a prerequisite to the construction
thereof, or (iv) interfere in any manner with the proper functioning of or
Landlord's access to any mechanical, electrical, plumbing or HVAC systems,
facilities or equipment located in or serving the Buildings, or (v) diminish the
value of the Premises. In addition, Tenant shall gave the right to make
alterations, additions or improvements to the Premises, without having to obtain
Landlord's consent which: (x) do not fall within the conditions identified in
subparagraphs (i) through (v) above; and (y) cost less than Fifty Cents ($.50)
per rentable square foot of the Premises determined annually (but without
carryover or compounding); provided that Tenant shall give Landlord written
notice of such changes which notice shall include a reasonably detailed
description thereof. Landlord may impose, as a condition to its consent, any
requirements that Landlord in its discretion may deem reasonable or desirable,
including, but not limited to, a requirement that all work be covered by a lien
and completion bond satisfactory to Landlord and requirements as to the manner,
time, and contractor for performance of the work. Tenant shall obtain all
required permits for the work and shall perform the work in compliance with all
applicable laws, regulations and ordinances, all covenants, conditions and
restrictions affecting the Project, and the Rules and Regulations (hereafter
defined). Tenant understands and agrees that Landlord shall be entitled to a
supervision fee in the amount of five percent (5%) of the cost of any work which
requires a government permit. If any governmental entity requires, as a
condition to any proposed alterations, additions or improvements to the Premises
by Tenant, that improvements be made to the Common Areas, and if Landlord
consents to such improvements to the Common Areas,
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then Tenant shall, at Tenant's sole expense, make such required improvements to
the Common Areas in such manner, utilizing such materials, and with such
contractors (including, if required by Landlord, Landlord's contractors) as
Landlord may require in its sole discretion. Under no circumstances shall Tenant
make any improvement which incorporates any Hazardous Materials, including,
without limitation, asbestos-containing construction materials into the
Premises. Any request for Landlord's consent shall be made in writing and shall
contain architectural plans describing the work in detail reasonably
satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all
alterations, additions or improvements affixed to the Premises (excluding
moveable trade fixtures and furniture) shall become the property of Landlord and
shall be surrendered with the Premises at the end of the Term. Landlord shall
have the right to require Tenant to remove: (a) any of the components of the
initial Tenant Improvements, but only if Landlord notifies Tenant that such
removal will be required at the time of Landlord's approval of the Preliminary
Plan, and (b) any subsequent alterations, additions or improvements whether or
not Landlord's consent was required unless Landlord's written consent was
obtained and at the time of providing its consent, Landlord notified Tenant in
writing that Tenant would not have to remove such items upon the expiration or
earlier termination of the Lease Term. When reviewing any plans for alterations,
additions or improvements submitted for its approval, Landlord shall notify
Tenant in writing whether Landlord shall require Tenant to remove any or all of
such improvements upon expiration or earlier termination of this Lease. Tenant
shall have the right upon expiration or earlier termination of this Lease to
remove any and all phone systems, furniture, fixtures and other personal
property at Tenant's sole cost and expense provided that Tenant shall repair any
damage caused by such removal. Except as otherwise provided in this Lease or in
any Exhibit to this Lease, should Landlord make any alteration or improvement to
the Premises for Tenant, Landlord shall be entitled to prompt reimbursement from
Tenant for all costs incurred.
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free from any
liens arising out of any work performed, materials furnished, or obligations
incurred by or for Tenant. Upon request by Landlord, Tenant shall promptly
cause any such lien to be released by posting a bond in accordance with
California Civil Code Section 3143 or any successor statute. In the event that
Tenant shall not, within thirty (30) days following the imposition of any lien,
cause the lien to be released of record by payment or posting of a proper bond,
Landlord shall have, in addition to all other available remedies, the right to
cause the lien to be released by any means it deems proper, including payment of
or defense against the claim giving rise to the lien. All expenses so incurred
by Landlord, including Landlord's attorneys' fees, and any consequential or
other damages incurred by Landlord arising out of such lien, shall be reimbursed
by Tenant promptly following Landlord's demand, together with interest from the
date of payment by Landlord at the maximum rate permitted by law until paid.
Tenant shall give Landlord no less than ten (10) business days prior notice in
writing before commencing construction of any kind on the Premises so that
Landlord may post and maintain notices of non-responsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable times,
upon written or oral notice (except in emergencies, when no notice shall be
required) have the right to enter the Premises to inspect them, to supply
services in accordance with this Lease, to protect the interests of Landlord in
the Premises, and to submit the Premises to prospective or actual purchasers or
encumbrance holders (or, during the last one hundred and eighty (180) days of
the Term or when an uncured Tenant default exists, to prospective tenants), all
without being deemed to have caused an eviction of Tenant and without abatement
of rent except as provided elsewhere in this Lease. Landlord shall exercise its
rights under this Section reasonably and so as to minimize interference with
Tenant's business operations within the Premises. Landlord shall have the right,
if desired, to retain a key which unlocks all of the doors in the Premises,
excluding Tenant's vaults and safes, and Landlord shall have the right to use
any and all means which Landlord may deem proper to open the doors in an
emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord, in accordance with the terms of this Section,
shall not under any circumstances be deemed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or any eviction of Tenant from the
Premises.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay prior to delinquency, all taxes and
assessments levied against all personal property of Tenant located in the
Premises, against all improvements to the Premises made by Landlord or Tenant
which are above Landlord's Project standard in quality and/or quantity for
comparable space within the Project determined by reference to the amount of
Landlord's Contribution to the Tenant Improvements completed pursuant to the
Work Letter ("Above Standard Improvements"), and against any alterations,
additions or like improvements made to the Premises by or on behalf of Tenant.
When possible Tenant shall cause its personal property, any Above Standard
Improvements and alterations to be assessed and billed separately from the real
property of which the Premises form a part. If any taxes on Tenant's personal
property, Above Standard Improvements and/or alterations are levied against
Landlord or Landlord's property and if Landlord pays the same, or if the
assessed value of Landlord's property is increased by the inclusion of a value
placed upon the personal property, Above Standard Improvements and/or
alterations of Tenant and if Landlord pays the taxes based upon the increased
assessment, Tenant shall pay to Landlord the taxes so levied against Landlord or
the proportion of the taxes resulting from the increase in the assessment. In
calculating what portion of any tax bill which is assessed against Landlord
separately, or Landlord and Tenant jointly, is attributable to Tenant's Above
Standard Improvements, alterations and personal property, Landlord's reasonable
determination shall be conclusive.
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ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Except as specifically authorized by Section 9.4 hereof, Tenant
will not, either voluntarily or by operation of law, assign, sublet, encumber,
or otherwise transfer all or any part of Tenant's interest in this lease, or
permit the Premises to be occupied by anyone other than Tenant, without
Landlord's prior written consent, which consent shall not unreasonably be
withheld in accordance with the provisions of Section 9.1(b). Except as
specifically authorized by Section 9.4 hereof, no assignment (whether voluntary,
involuntary or by operation of law) and no subletting shall be valid or
effective without Landlord's prior written consent and, at Landlord's election,
any such assignment or subletting or attempted assignment or subletting shall
constitute a material default of this Lease. Landlord shall not be deemed to
have given its consent to any assignment or subletting by any other course of
action, including its acceptance of any name for listing in the Building
directory. To the extent not prohibited by provisions of the Bankruptcy Code, 11
U.S.C. Section 101 et seq., (the "Bankruptcy Code"), including Section
-- ---
365(f)(1), Tenant on behalf of itself and its creditors, administrators and
assigns waives the applicability of Section 365(e) of the Bankruptcy Code unless
the proposed assignee of the Trustee for the estate of the bankrupt meets
Landlord's standard for consent as set forth in Section 9.1(b) of this Lease. If
this Lease is assigned to any person or entity pursuant to the provisions of the
Bankruptcy Code, any and all monies or other considerations to be delivered in
connection with the assignment shall be delivered to Landlord, shall be and
remain the exclusive property of Landlord and shall not constitute property of
Tenant or of the estate of Tenant within the meaning of the Bankruptcy Code. Any
person or entity to which this Lease is assigned pursuant to the provisions of
the Bankruptcy Code shall be deemed to have assumed all of the obligations
arising under this Lease on and after the date of the assignment, and shall upon
demand execute and deliver to Landlord an instrument confirming that assumption.
(b) If Tenant desires to transfer an interest in this Lease other
than pursuant to Section 9.4 hereof, it shall first notify Landlord of its
desire and shall submit in writing to Landlord: (i) the name and address of the
proposed transferee; (ii) the nature of any proposed subtenant's or assignee's
business to be carried on in the Premises; (iii) the terms and provisions of any
proposed sublease or assignment, including a copy of the proposed assignment or
sublease form; (iv) a completed Environmental Questionnaire from the proposed
assignee or subtenant; and (v) any other information reasonably requested by
Landlord and reasonably related to the transfer. Except as provided in
Subsection (c) of this Section, Landlord shall not unreasonably withhold its
consent, provided: (1) the use of the Premises will be consistent with the
provisions of this Lease and with Landlord's commitment to other tenants of the
Building and Project; (2) the proposed assignee or subtenant has not been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Materials contaminating a property
arising out of the proposed assignee's or subtenant's actions or use of the
property in question and is not subject to any enforcement order issued by any
governmental authority in connection with the use, disposal or storage of a
Hazardous Material and such proposed transferee is requesting Landlord's consent
to use Hazardous Materials at the Premises; (3) at Landlord's election,
insurance requirements shall be brought into conformity with Landlord's then
current leasing practice as contemplated by Exhibit D; (4) any proposed
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subtenant or assignee demonstrates that it is financially responsible by
submission to Landlord of all reasonable information as Landlord may request
concerning the proposed subtenant or assignee, including, but not limited to, a
balance sheet of the proposed subtenant or assignee as of a date within ninety
(90) days of the request for Landlord's consent, statements of income or profit
and loss of the proposed subtenant or assignee for the two-year period preceding
the request for Landlord's consent, and/or a certification signed by the
proposed subtenant or assignee that it has not been evicted or been in arrears
in rent at any other leased premises for the 3-year period preceding the request
for Landlord's consent; (5) any proposed subtenant or assignee demonstrates to
Landlord's reasonable satisfaction a record of successful experience in
business; (6) the proposed assignee or subtenant is not an existing tenant of
the Buildings or Project or a prospect with whom Landlord is negotiating in
writing to become a tenant at the Buildings or Project; and (7) the proposed
transfer will not impose additional burdens or adverse tax effects on Landlord
unless Tenant assumes the obligation to pay the cost thereof. If Tenant has any
exterior sign rights under this Lease, such rights are personal to Tenant and
may not be assigned or transferred other than a transferee pursuant to Section
9.4 hereof (but the signs of any such transferees shall be subject to Landlord's
review in accordance with Section 5.2 hereof) to any assignee of this Lease or
subtenant of the Premises without Landlord's prior written consent, which may be
withheld in Landlord's sole and absolute discretion.
If Landlord consents to the proposed transfer, Tenant may within
ninety (90) days after the date of the consent effect the transfer upon the
terms described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set forth
in this Section. Landlord shall approve or disapprove any requested transfer
within fifteen (15) business days following receipt of Tenant's written request,
the information set forth above, and the fee set forth below.
(c) Notwithstanding the provisions of Subsection (b) above, in lieu
of consenting to a proposed assignment or subletting, Landlord may elect to
terminate this Lease as to the portion of the Premises proposed to be subleased
or assigned with a proportionate abatement in the rent payable under this Lease,
effective on the date that the proposed sublease or assignment would have become
effective. Landlord may thereafter, at its option, assign or re-let any space so
recaptured to any third party, including, without limitation, the proposed
transferee of Tenant.
(d) Tenant agrees that fifty percent (50%) of any amounts paid by the
assignee or subtenant attributable to this Lease, however described, in excess
of (i) the Basic Rent payable by Tenant hereunder, or in the case of a
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sublease of a portion of the Premises, in excess of the Basic Rent reasonably
allocable to such portion, plus (ii) Tenant's direct out-of-pocket costs which
Tenant certifies to Landlord have been paid to provide occupancy related
services to such assignee or subtenant of a nature commonly provided by
landlords of similar space, shall be the property of Landlord and such amounts
shall be payable directly to Landlord by the assignee or subtenant or, at
Landlord's option, by Tenant. At Landlord's request, a written agreement shall
be entered into by and among Tenant, Landlord and the proposed assignee or
subtenant confirming the requirements of this subsection.
(e) Tenant shall pay to Landlord a fee of Five Hundred Dollars
($500.00) if and when any transfer hereunder is requested by Tenant. Such fee is
hereby acknowledged as a reasonable amount to reimburse Landlord for its costs
of review and evaluation of a proposed assignee/sublessee, and Landlord shall
not be obligated to commence such review and evaluation unless and until such
fee is paid.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even with
the consent of Landlord, shall relieve Tenant of its obligation to pay rent and
to perform all its other obligations under this Lease. Moreover, Tenant shall
indemnify and hold Landlord harmless, as provided in Section 10.3, for any act
or omission by an assignee or subtenant. Each assignee, other than Landlord,
shall be deemed to assume all obligations of Tenant under this Lease and shall
be liable jointly and severally with Tenant for the payment of all rent, and for
the due performance of all of Tenant's obligations, under this Lease arising
from and after the date of any such transfer. No transfer shall be binding on
Landlord unless any document memorializing the transfer is delivered to Landlord
and both the assignee/subtenant and Tenant deliver to Landlord an executed
consent to transfer instrument prepared by Landlord and consistent with the
requirements of this Article. The acceptance by Landlord of any payment due
under this Lease from any other person shall not be deemed to be a waiver by
Landlord of any provision of this Lease or to be a consent to any transfer.
Consent by Landlord to one or more transfers shall not operate as a waiver or
estoppel to the future enforcement by Landlord of its rights under this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and conditions
shall apply to any subletting by Tenant of all or any part of the Premises and
shall be deemed included in each sublease:
(a) Each and every provision contained in this Lease (other than with
respect to the payment of rent hereunder) is incorporated by reference into and
made a part of such sublease, with "Landlord" hereunder meaning the sublandlord
therein and "Tenant" hereunder meaning the subtenant therein.
(b) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the Premises,
and Landlord may collect such rent and income and apply same toward Tenant's
obligations under this Lease; provided, however, that until a default occurs in
the performance of Tenant's obligations under this Lease which continues beyond
the applicable cure period, Tenant shall have the right to receive and collect
the sublease rentals. Landlord shall not, by reason of this assignment or the
collection of sublease rentals, be deemed liable to the subtenant for the
performance of any of Tenant's obligations under the sublease. Tenant hereby
irrevocably authorizes and directs any subtenant, upon receipt of a written
notice from Landlord stating that an uncured default exists in the performance
of Tenant's obligations under this Lease, to pay to Landlord all sums then and
thereafter due under the sublease. Tenant agrees that the subtenant may rely on
that notice without any duty of further inquiry and notwithstanding any notice
or claim by Tenant to the contrary. Tenant shall have no right or claim against
the subtenant or Landlord for any rentals so paid to Landlord.
(c) In the event of the termination of this Lease, Landlord may, at
its sole option, take over Tenant's entire interest in any sublease and, upon
notice from Landlord, the subtenant shall attorn to Landlord. In no event,
however, shall Landlord be liable for any previous act or omission by Tenant
under the sublease or for the return of any advance rental payments or deposits
under the sublease that have not been actually delivered to Landlord, nor shall
Landlord be bound by any sublease modification executed without Landlord's
consent or for any advance rental payment by the subtenant in excess of one
month's rent. The general provisions of this Lease, including, without
limitation, those pertaining to insurance and indemnification, shall be deemed
incorporated by reference into the sublease despite the termination of this
Lease.
SECTION 9.4. CERTAIN TRANSFERS. The sale of all or substantially all of
Tenant's assets (other than bulk sales in the ordinary course of business) or,
if Tenant is a privately held corporation, an unincorporated association, or a
partnership, the transfer, assignment or hypothecation of any stock or interest
in such corporation, association, or partnership in the aggregate of fifty
percent (50%) shall be deemed an assignment within the meaning and provisions of
this Article. Notwithstanding anything to the contrary contained in this Lease,
Tenant shall have the right, without obtaining Landlord's consent, (a) to assign
this Lease or sublet all or any part of the Premises to a parent, subsidiary or
affiliate of Tenant; (b) to assign this Lease or sublet all or any part of the
Premises to any entity which controls, is controlled by or under common control
with Tenant; (c) to assign this Lease or sublet all or any part of the Premises
to an entity into which Tenant is merged or by which it has been acquired; or
(d) to assign or sublet all or a portion of this Lease to an entity which
acquires all or substantially all of Tenant's business (all of the foregoing,
for purposes of this Lease, being defined as a "Affiliate") so long as (i) the
net worth of the successor entity after such merger, assignment or transfer is
equal to or greater than the net worth of Tenant immediately prior to the date
of such merger, assignment or transfer; (ii) Tenant shall provide to Landlord,
prior to (or as soon as legally permissible if disclosure of any such
transaction is restricted by securities or other law) such merger, assignment or
transfer, written notice thereof and such assignment documentation and other
information as Landlord may reasonably request in connection therewith, and
(iii) all of the terms and requirements of Section 9.2 and 9.3 (with respect to
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subleases) shall apply to such sublease, assignment, merger or transfer. For
purposes of this Section, the term "control" shall mean an equity or ownership
interest of fifty percent (50%) or more or the ability whether by ownership of
shares or other equity interest, by agreement or otherwise, to elect a majority
of the directors in the case of a corporation, or if not a corporation, to make
management decisions on behalf of the entity.
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and expense,
shall provide and maintain in effect the insurance described in Exhibit D.
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Evidence of that insurance must be delivered to Landlord prior to the
Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. Landlord may, at its election, provide
any or all of the following types of insurance, with or without deductible and
in amounts and coverages as may be determined by Landlord in its discretion:
"all risk" property insurance, subject to standard exclusions, covering the
Buildings or Project, and such other risks as Landlord or its mortgagees may
from time to time deem appropriate, including Tenant Improvements made by
Landlord, and commercial general liability coverage. Landlord shall not be
required to carry insurance of any kind on Tenant's property, including
leasehold improvements, trade fixtures, furnishings, equipment, plate glass,
signs and all other items of personal property, and shall not be obligated to
repair or replace that property should damage occur. Tenant shall not be
required to carry insurance of any kind on Landlord's property subject to its
obligation to pay as an Operating Expense, Tenant's Share of insurance carried
by Landlord as provided in this Lease. All proceeds of insurance maintained by
Landlord upon the Buildings and Project shall be the property of Landlord,
whether or not Landlord is obligated to or elects to make any repairs. At
Landlord's option, Landlord may self-insure all or any portion of the risks for
which Landlord elects to provide insurance hereunder.
SECTION 10.3. JOINT INDEMNITY.
(a) To the fullest extent permitted by law and subject to the
provisions of Section 10.5, Tenant shall defend, indemnify, protect, save and
hold harmless Landlord, its agents, and any and all affiliates of Landlord,
including, without limitation, any corporations or other entities controlling,
controlled by or under common control with Landlord, from and against any and
all claims, liabilities, costs or expenses arising either before or after the
Commencement Date from Tenant's use or occupancy of the Premises, or from the
conduct of its business, or from any activity, work, or thing done, permitted or
suffered by Tenant or its agents, employees, invitees or licensees in or about
the Premises, or from any negligence or willful misconduct of Tenant or its
agents, employees, visitors, patrons, guests, invitees or licensees. In cases of
alleged negligence asserted by third parties against Landlord which arise out
of, are occasioned by, or in any way attributable to Tenant's, its agents,
employees, contractors, licensees or invitees use and occupancy of the Premises,
or from the conduct of its business or from any activity, work or thing done,
permitted or suffered by Tenant or its agents, employees, invitees or licensees
on Tenant's part to be performed under this Lease, or from any negligence or
willful misconduct of Tenant, its agents, employees, licensees or invitees,
Tenant shall accept any tender of defense for Landlord and shall,
notwithstanding any allegation of negligence or willful misconduct on the part
of the Landlord, defend Landlord and protect and hold Landlord harmless and pay
all costs, expenses and attorneys' fees incurred in connection with such
litigation, provided that Tenant shall not be liable for any such injury or
damage, and Landlord shall reimburse Tenant for the reasonable attorney's fees
and costs for the attorney representing both parties, all to the extent and in
the proportion that such injury or damage is ultimately determined by a court of
competent jurisdiction (or in connection with any negotiated settlement agreed
to by Landlord) to be attributable to the negligence or willful misconduct of
Landlord. If the attorney retained by Tenant or its insurer to defend Landlord
and Tenant reasonably determines he or she is legally or ethically precluded
from representing both Landlord and Tenant, Tenant shall at Tenant's sole cost
and expense, retain a separate attorney reasonably selected by Landlord to
represent Landlord in any such suit; provided, however, that to the extent and
in the proportion that the injury or damage which is the subject of the suit is
ultimately determined by a court of competent jurisdiction (or in connection
with any negotiated settlement agreed to by Landlord) to be attributable to the
negligence or willful misconduct of Landlord or a default by Landlord of its
obligations under this Lease, Landlord shall reimburse Tenant for the reasonable
legal fees and costs of the separate attorney retained by Tenant. The provisions
of this Subsection 10.3(a) shall expressly survive the expiration or sooner
termination of this Lease.
(b) To the fullest extent permitted by law, but subject to the
express limitations on liability contained in this Lease (including, without
limitation, the provisions of Sections 10.4 and 10.5 of this Lease), Landlord
shall defend, indemnify, protect, save and hold harmless Tenant, its agents and
any and all affiliates of Tenant, including, without limitation, any
corporations, or other entities controlling, controlled by or under common
control with Tenant, from and against any and all claims, liabilities, costs or
expenses arising either before or after the Commencement Date from any
negligence or willful misconduct in the operation, maintenance or repair of the
Common Areas, the Project and/or the Building by Landlord or its employees or
authorized agents or a default by Landlord of its obligations under this Lease.
In cases of alleged negligence asserted by third parties against Tenant which
arise out of, are occasioned by, or in any way attributable to the maintenance
or repair of the Common Areas, the Project or the Building by Landlord or its
authorized agents or employees, Landlord shall accept any tender of defense for
Tenant and shall, notwithstanding any allegation of negligence or willful
misconduct on the part of Tenant, defend Tenant and protect and hold Tenant
harmless and pay all cost, expense and attorneys' fees incurred in connection
with such litigation, provided that Landlord shall not be liable for any such
injury or damage, and Tenant shall reimburse Landlord for the
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reasonable attorney's fees and costs for the attorney representing both parties,
all to the extent and in the proportion that such injury or damage is ultimately
determined by a court of competent jurisdiction (or in connection with any
negotiated settlement agreed to by Tenant) to be attributable to the negligence
or willful misconduct of Tenant. If the attorney retained by Landlord or its
insurer to defend Landlord and Tenant reasonably determines he or she is legally
or ethically precluded from representing both Landlord and Tenant Landlord shall
at Landlord's sole cost and expense, retain a separate attorney reasonably
selected by Tenant to represent Tenant in any such suit; provided, however, that
to the extent and the proportion that the injury or damage which is the subject
of the suit is ultimately determined by a court of competent jurisdiction (or in
connection with any negotiated settlement agreed to by Tenant) to be
attributable to the negligence or willful misconduct or Tenant, Tenant shall
reimburse Landlord for the reasonable legal fees and costs of the separate
attorney retained by Landlord. The provisions of this Subsection 10.3(b) shall
expressly survive the expiration or sooner termination of this Lease.
SECTION 10.4. LANDLORD'S NON-LIABILITY. Subject to the express indemnity
obligations of Section 10.3 (b) of this Lease, Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all claims
against Landlord for loss of or damage to any property, or any injury to any
person, or any other loss, cost, damage, injury or liability whatsoever
resulting from fire, explosion, falling plaster, steam, gas, electricity, water
or rain which may leak or flow from or into any part of the Building or from the
breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Project. Notwithstanding any provision
of this Lease to the contrary, and regardless of the negligence or willful
misconduct of Landlord or its employees, or authorized agents or a default by
Landlord of its obligations under this Lease, Landlord shall in no event be
liable to Tenant, its employees, agents or invitees and Tenant hereby waives all
claims against Landlord, for loss or interruption of Tenant's business or income
(including, without limitation, any consequential damages and lost profit or
opportunity costs), or for any loss, cost, damage, injury or liability resulting
from Acts of God (except with respect to restoration obligations pursuant to
Article XI below), acts of civil disobedience or insurrection, acts or omissions
(criminal or otherwise) of any third parties, including, without limitation, any
other tenants within the Project or their agents, employees, contractors, guests
or invitees. It is understood that any such condition may require the temporary
evacuation or closure of all or a portion of the Building. Except as provided in
this Lease, there shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business (including,
without limitation, consequential damages and lost profit or opportunity costs)
arising from the making of any repairs, alterations or improvements to any
portion of the Building, including repairs to the Premises, nor shall any
related activity by Landlord constitute an actual or constructive eviction;
provided, however, that in making repairs, alterations or improvements, Landlord
shall interfere as little as reasonably practicable with the conduct of Tenant's
business in the Premises. Neither Landlord nor its agents shall be liable for
interference with light or other similar intangible interests. Tenant shall
immediately notify Landlord in case of fire or accident in the Premises, the
Building or the Project and of defects in any improvements or equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party to
the extent only that such loss or damage is insurable against under an "all
risk" property insurance policy; provided however, that the foregoing waiver
shall not apply to the extent of Tenant's obligation to pay Tenant's Share of
deductibles under policies maintained by Landlord as contemplated by this Lease.
By this waiver it is the intent of the parties that except as set forth in the
immediately preceding sentence, neither Landlord nor Tenant shall be liable to
the other party or any insurance company (by way of subrogation or otherwise)
insuring the other party for any loss or damage insurable under an "all-risk"
property insurance policy, even though such loss or damage might be occasioned
by the negligence of such party, its agents, employees, contractors, guests or
invitees.
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If either of the Buildings of which the Premises are a part is
damaged, Landlord shall repair that damage as soon as reasonably possible, at
its expense, unless: (i) Landlord reasonably determines that the cost of repair
is not covered by Landlord's fire and extended coverage insurance plus such
additional amounts Tenant elects, at its option, to contribute, excluding
however the deductible (for which Tenant shall be responsible for Tenant's
Share); (ii) Landlord reasonably determines that the Premises cannot, with
reasonable diligence, be fully repaired by Landlord (or cannot be safely
repaired because of the presence of hazardous factors, including, without
limitation, Hazardous Materials, earthquake faults, and other similar dangers)
within two hundred seventy (270) days after the date of the damage; (iii) an
event of default by Tenant has occurred and is continuing at the time of such
damage; or (iv) the damage occurs during the final twelve (12) months of the
Term unless Tenant then has the right to extend the Term of this Lease and does
so in accordance with the provisions of Section 3.3 hereof. Should Landlord
elect not to repair the damage for one of the preceding reasons, Landlord shall
so notify Tenant in writing within forty-five (45) days after the damage occurs
and this Lease shall terminate as of the date of that notice as to the Building
which was damaged; provided, however that if the remaining Premises after such
termination is less than an entire Building, Tenant shall have the right to
cause the Lease to be terminated as to the remainder of the Premises by giving
Landlord written notice within thirty (30) days after receipt of Landlord's
notice.
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(b) Unless Landlord elects to terminate this Lease in accordance with
subsection (a) above, this Lease shall continue in effect for the remainder of
the Term; provided that so long as Tenant is not in default under this Lease
after expiration of the applicable cure period, (i) if the damage is so
extensive that Landlord reasonably determines that the Premises cannot, with
reasonable diligence, be repaired by Landlord (or cannot be safely repaired
because of the presence of hazardous factors, earthquake faults, and other
similar dangers) so as to allow Tenant's substantial use and enjoyment of the
Premises within two hundred seventy (270) days after the date of damage, or (ii)
the damage occurs during the final twelve (12) months of the Lease Term, then
Tenant may elect to terminate this Lease by written notice to Landlord within
the thirty days after receipt of Landlord's notice pursuant to subsection (a) as
to the Building which was damaged. In the event Tenant elects not to terminate
the Lease and the repairs are commenced but not completed within two hundred
seventy (270) days after the date of the damage, (the "Restoration Window"),
Tenant may by written notice to Landlord, terminate this Lease within fifteen
(15) days after the end of the Restoration Window. Notwithstanding the
foregoing, if at any time during the repair period, Landlord reasonably believes
that the restoration will not be completed prior to the end of the Restoration
Window, Landlord shall notify Tenant in writing of such fact and of a new
outside date on or before which the Premises shall be restored, and Tenant must
elect within ten (10) business days of receipt of such notice to either
terminate this Lease or waive its right to terminate this Lease provided the
Premises is restored on or prior to the new outside date established by Landlord
in such notice to Tenant. Tenant's failure to elect to terminate this Lease
within such ten (10) business day period shall be deemed Tenant's waiver of its
right to terminate this Lease as provided in this paragraph as to the previous
outside date, but not as to the new outside date established by said notice.
(c) Commencing on the date of any damage to the Buildings, and ending
on the sooner of the date the damage is repaired and the Premises is tendered to
Tenant in the same condition as required on the Commencement Date or the date
this Lease is terminated, the rental to be paid under this Lease shall be abated
in the same proportion that the floor area of the Premises that is rendered
unusable by the damage from time to time bears to the total floor area of the
Premises, but only to the extent that the business interruption insurance
required to be carried by Tenant as described in Exhibit D was then in force.
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(d) In addition, the provisions of this Section shall not be deemed
to require Landlord to repair any improvements or fixtures that Tenant is
obligated to repair or insure pursuant to any other provision of this Lease.
(e) Tenant shall cooperate with Landlord in removing Tenant's
personal property and any debris from the Premises to facilitate all inspections
of the Premises and the making of any repairs. Notwithstanding anything to the
contrary contained in this Lease, if Landlord in good faith believes there is a
risk of injury to persons or damage to property from entry into the Buildings or
Premises following any damage or destruction thereto, Landlord may restrict
entry into the Buildings or the Premises by Tenant, its employees, agents and
contractors in a non-discriminatory manner, without being deemed to have
violated Tenant's rights of quiet enjoyment to, or made an unlawful detainer of,
or evicted Tenant from, the Premises, but subject to the applicability of the
rental abatement provisions. Upon request, Landlord shall consult with Tenant to
determine if there are safe methods of entry into the Buildings or the Premises
solely in order to allow Tenant to retrieve files, data in computers, and
necessary inventory, subject however to all indemnities and waivers of liability
from Tenant to Landlord contained in this Lease and any additional indemnities
and waivers of liability which Landlord may require.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including, without limitation, Section 11.1, shall govern any damage or
destruction and shall accordingly supersede any contrary statute or rule of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of the
Premises or access required for the use of the Premises is taken by any lawful
authority by exercise of the right of eminent domain, or sold to prevent a
taking, either Tenant or Landlord may terminate this Lease effective as of the
date possession is required to be surrendered to the authority. In the event
title to a portion of the Buildings or Project, other than the Premises, is
taken or sold in lieu of taking, and if such taking will materially and
adversely affect Tenant's use of the Premises, either party may terminate this
Lease, by written notice to the other party, effective on the date of vesting of
title. In the event neither party has elected to terminate this Lease as
provided above, then Landlord shall promptly, after receipt of a sufficient
condemnation award, proceed to restore the Premises to substantially their
condition prior to the taking, and a proportionate allowance shall be made to
Tenant for the rent corresponding to the time during which, and to the part of
the Premises of which, Tenant is deprived on account of the taking and
restoration. In the event of a taking, Landlord shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest of
Tenant; provided that nothing in this Section shall be deemed to give Landlord
any interest in, or prevent Tenant from seeking any award against the taking
authority for, the taking of personal property and fixtures belonging to Tenant
or for relocation or business interruption expenses recoverable from the taking
authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises shall
terminate this Lease or give Tenant any right to abatement of rent, and any
award specifically attributable to a temporary taking of the
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Premises shall belong entirely to Tenant. A temporary taking shall be deemed to
be a taking of the use or occupancy of the Premises for a period of not to
exceed ninety (90) days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a taking
of the parking area such that Landlord can no longer provide reasonable and
sufficient parking to comply with this Lease, Landlord, after reasonable prior
notice to Tenant, may substitute reasonably equivalent parking in a location
reasonably close to the Buildings; provided that if Landlord fails to make that
substitution prior to or substantially concurrently with the taking and if the
taking materially impairs Tenant's use and enjoyment of the Premises, Tenant
may, at its option, terminate this Lease by written notice to Landlord. If this
Lease is not so terminated by Tenant, there shall be no abatement of rent and
this Lease shall continue in effect.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease shall
be either superior or subordinate to all ground or underlying leases, mortgages
and deeds of trust, if any, which may hereafter affect the Buildings, and to all
renewals, modifications, consolidations, replacements and extensions thereof;
provided, that so long as Tenant is not in default under this Lease beyond any
applicable cure period, this Lease shall not be terminated or Tenant's quiet
enjoyment of the Premises disturbed in the event of termination of any such
ground or underlying lease, or the foreclosure of any such mortgage or deed of
trust, to which Tenant has subordinated this Lease pursuant to this Section. In
the event of a termination or foreclosure, Tenant shall become a tenant of and
attorn to the successor-in-interest to Landlord upon the same terms and
conditions as are contained in this Lease, and shall execute any reasonable
instrument reasonably required by Landlord's successor for that purpose. Tenant
shall also, within fifteen (15) days after request of Landlord, execute and
deliver all reasonable instruments as may be required from time to time to
subordinate the rights of Tenant under this Lease to any ground or underlying
lease or to the lien of any mortgage or deed of trust (provided that such
instruments include commercially reasonable non-disturbance and attornment
provisions set forth above), or, if requested by Landlord, to subordinate, in
whole or in part, any ground or underlying lease or the lien of any mortgage or
deed of trust to this Lease.
SECTION 13.2. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time upon not less than fifteen (15)
business days prior written notice from Landlord, execute, acknowledge and
deliver to Landlord, in any form that Landlord may reasonably require, a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of the modification and
certifying that this Lease, as modified, is in full force and effect) and the
dates to which the rental, additional rent and other charges have been paid in
advance, if any, and (ii) acknowledging that, to Tenant's knowledge, there are
no uncured defaults on the part of Landlord, or specifying each default if any
are claimed, and (iii) setting forth all further information that Landlord may
reasonably require. Tenant's statement may be relied upon by any prospective
purchaser or encumbrancer of all or any portion of the Buildings or Project.
(b) Notwithstanding any other rights and remedies of Landlord,
Tenant's failure to deliver any estoppel statement within the provided time
shall be conclusive upon Tenant that (i) this Lease is in full force and effect,
without modification except as may be represented by Landlord, (ii) there are no
uncured defaults in Landlord's performance, and (iii) not more than one month's
rental has been paid in advance.
(c) Landlord shall, at any time upon not less than fifteen (15)
business days' prior written notice from Tenant, execute, acknowledge and
deliver to Tenant, in any form that Tenant may reasonably require, a statement
in writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of the modification and certifying
that this Lease, as modified, is in full force and effect) and the dates to
which the rental, additional rent and other charges have been paid in advance,
if any, and (ii) acknowledging that, to Landlord's knowledge, there are no
uncured defaults on the part of Tenant, or specifying each default if any are
claimed, and (iii) setting forth all further information that Tenant may
reasonably require. Landlord's statement may be relied upon by any prospective
subtenant or assignee.
SECTION 13.3. FINANCIALS.
(a) Tenant shall deliver to Landlord, prior to the execution of this
Lease and thereafter at any time upon Landlord's request, but not more often
than once during any calendar year, a copy of Tenant's current audited financial
statements, included in its most recent filing with the Securities and Exchange
Commission (the "Statements").
(b) Tenant acknowledges that Landlord is relying on the Statements
previously delivered in its determination to enter into this Lease, and Tenant
represents to Landlord, which representation shall be deemed made on the date of
this Lease, that no material adverse change in the financial condition of
Tenant, as reflected in the Statements, has occurred since the date Tenant
delivered the Statements to Landlord. The Statements are represented and
warranted by Tenant to be correct and to accurately and fully reflect Tenant's
true financial condition as of the date of submission of such Statements to
Landlord.
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ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event of default
set forth in this Lease, the occurrence of any one or more of the following
events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or additional
rent required to be made by Tenant, as and when due, where the failure continues
for a period of five (5) days after written notice from Landlord to Tenant;
provided, however, that any such notice shall be in lieu of, and not in addition
to, any notice required under California Code of Civil Procedure Section 1161
and 1161(a) as amended. For purposes of these default and remedies provisions,
the term "additional rent" shall be deemed to include all amounts of any type
whatsoever other than Basic Rent to be paid by Tenant pursuant to the terms of
this Lease.
(b) Except as specifically set forth in Article IX, assignment,
sublease, encumbrance or other transfer of the Lease by Tenant, either
voluntarily or by operation of law, whether by judgment, execution, transfer by
intestacy or testacy, or other means, without the prior written consent of
Landlord.
(c) The discovery by Landlord that any Statement provided by Tenant,
or by any affiliate, successor or guarantor of Tenant, was materially and
adversely false.
(d) The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII within five (5) business days
after written notice from Landlord.
(e) The failure or inability by Tenant to observe or perform any of
the express or implied covenants or provisions of this Lease to be observed or
performed by Tenant, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Landlord to Tenant or such shorter period as is specified in
any other provision of this Lease; provided, however, that any such notice shall
be in lieu of, and not in addition to, any notice required under California Code
of Civil Procedure Section 1161 and 1161(a) as amended. However, if the nature
of the failure is such that more than thirty (30) days are reasonably required
for its cure, then Tenant shall not be deemed to be in default if Tenant
commences the cure within thirty (30) days, and thereafter diligently pursues
the cure to completion.
(f) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to have
Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Tenant,
the same is dismissed within thirty (30) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, if possession is
not restored to Tenant within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where the seizure is not
discharged within thirty (30) days; or (v) Tenant's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Landlord shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's insolvency.
In the event that any provision of this subsection is contrary to applicable
law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, or in the event of the
abandonment of the Premises by Tenant, then in addition to any other remedies
available to Landlord, Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall terminate and
Tenant shall immediately surrender possession of the Premises to Landlord. Such
termination shall not affect any accrued obligations of Tenant under this Lease.
Upon termination and subject to applicable law, Landlord shall have the right to
reenter the Premises and remove all persons and property. Landlord shall also be
entitled to recover from Tenant:
(1) The worth at the time of award of the unpaid rent and
additional rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by which
the unpaid rent and additional rent which would have been earned after
termination until the time of award exceeds the amount of such loss that Tenant
proves could have been reasonably avoided;
(3) The worth at the time of award of the amount by which
the unpaid rent and additional rent for the balance of the Term after the time
of award exceeds the amount of such loss that Tenant proves could be reasonably
avoided;
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(4) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result from Tenant's default, including, but not limited to, the cost
of recovering possession of the Premises, refurbishment of the Premises,
marketing costs, commissions and other expenses of reletting, including
necessary repair, the unamortized portion of any tenant improvements and
brokerage commissions funded by Landlord in connection with this Lease,
reasonable attorneys' fees, and any other reasonable costs; and
(5) At Landlord's election, all other amounts in addition
to or in lieu of the foregoing as may be permitted by law. The term "rent" as
used in this Lease shall be deemed to mean the Basic Rent and all other sums
required to be paid by Tenant to Landlord pursuant to the terms of this Lease.
Any sum, other than Basic Rent, shall be computed on the basis of the average
monthly amount accruing during the twenty-four (24) month period immediately
prior to default, except that if it becomes necessary to compute such rental
before the twenty-four (24) month period has occurred, then the computation
shall be on the basis of the average monthly amount during the shorter period.
As used in subparagraphs (1) and (2) above, the "worth at the time of award"
shall be computed by allowing interest at the rate of ten percent (10%) per
annum. As used in subparagraph (3) above, the "worth at the time of award" shall
be computed by discounting the amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent (1%).
(ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce all
of its rights and remedies under this Lease, including the right to collect all
rent as it becomes due. Efforts by the Landlord to maintain, preserve or relet
the Premises, or the appointment of a receiver to protect the Landlord's
interests under this Lease, shall not constitute a termination of the Tenant's
right to possession of the Premises. In the event that Landlord elects to avail
itself of the remedy provided by this subsection (ii), Landlord shall not
unreasonably withhold its consent to an assignment or subletting of the Premises
subject to the reasonable standards for Landlord's consent as are contained in
this Lease.
(b) Except as required by applicable law, Landlord shall be under no
obligation to observe or perform any covenant of this Lease on its part to be
observed or performed which accrues after the date of any default by Tenant
unless and until the default is cured by Tenant, it being understood and agreed
that the performance by Landlord of its obligations under this Lease are
expressly conditioned upon Tenant's full and timely performance of its
obligations under this Lease. The various rights and remedies reserved to
Landlord in this Lease or otherwise shall be cumulative and, except as otherwise
provided by California law, Landlord may pursue any or all of its rights and
remedies at the same time.
(c) No delay or omission of Landlord to exercise any right or remedy
shall be construed as a waiver of the right or remedy or of any default by
Tenant. The acceptance by Landlord of rent shall not be a (i) waiver of any
preceding breach or default by Tenant of any provision of this Lease, other than
the failure of Tenant to pay the particular rent accepted, regardless of
Landlord's knowledge of the preceding breach or default at the time of
acceptance of rent, or (ii) a waiver of Landlord's right to exercise any remedy
available to Landlord by virtue of the breach or default. The acceptance of any
payment from a debtor in possession, a trustee, a receiver or any other person
acting on behalf of Tenant or Tenant's estate shall not waive or cure a default
under Section 14.1. No payment by Tenant or receipt by Landlord of a lesser
amount than the rent required by this Lease shall be deemed to be other than a
partial payment on account of the earliest due stipulated rent, nor shall any
endorsement or statement on any check or letter be deemed an accord and
satisfaction and Landlord shall accept the check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other remedy
available to it. No act or thing done by Landlord or Landlord's agents during
the Term shall be deemed an acceptance of a surrender of the Premises, and no
agreement to accept a surrender shall be valid unless in writing and signed by
Landlord. No employee of Landlord or of Landlord's agents shall have any power
to accept the keys to the Premises prior to the termination of this Lease, and
the delivery of the keys to any employee shall not operate as a termination of
the Lease or a surrender of the Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not received by Landlord
within five (5) days of the date when due shall bear interest at the maximum
rate permitted by law from the date due until fully paid. The payment of
interest shall not cure any default by Tenant under this Lease. In addition,
Tenant acknowledges that the late payment by Tenant to Landlord of rent will
cause Landlord to incur costs not contemplated by this Lease, the exact amount
of which will be extremely difficult and impracticable to ascertain. Those costs
may include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Landlord by the terms of any
ground lease, mortgage or trust deed covering the Premises. Accordingly, if any
rent due from Tenant shall not be received by Landlord or Landlord's designee
within ten (10) days after the date due, then Tenant shall pay to Landlord, in
addition to the interest provided above, a late charge in a sum equal to the
greater of five percent (5%) of the amount overdue for each delinquent payment;
provided, however, that such late charge shall be waived by Landlord for the
first three (3) late payments only during the Term of this Lease of Base Rent
and/or Operating Expenses. Acceptance of a late charge by Landlord shall not
constitute a waiver of Tenant's default with respect to the overdue amount, nor
shall it prevent Landlord from exercising any of its other rights and remedies.
(b) Following each second consecutive installment of rent that is not
paid within five (5) business days following notice of nonpayment from Landlord,
Landlord shall have the option (i) to require that beginning with the
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first payment of rent next due, rent shall no longer be paid in monthly
installments but shall be payable quarterly three (3) months in advance and/or
(ii) to require that Tenant increase the amount, if any, of the Security Deposit
by one hundred percent (100%). Should Tenant deliver to Landlord, at any time
during the Term, two (2) or more insufficient checks, the Landlord may require
that all monies then and thereafter due from Tenant be paid to Landlord by
cashier's check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and agreements
to be performed by Tenant under this Lease shall be performed at Tenant's sole
cost and expense and without any abatement of rent or right of set-off. If
Tenant fails to pay any sum of money, other than rent, or fails to perform any
other act on its part to be performed under this Lease, and the failure
continues beyond any applicable grace period set forth in Section 14.1, then in
addition to any other available remedies, Landlord may, at its election make the
payment or perform the other act on Tenant's part. Landlord's election to make
the payment or perform the act on Tenant's part shall not give rise to any
responsibility of Landlord to continue making the same or similar payments or
performing the same or similar acts. Tenant shall, promptly upon demand by
Landlord, reimburse Landlord for all sums paid by Landlord and all necessary
incidental costs, together with interest at the maximum rate permitted by law
from the date of the payment by Landlord. Landlord shall have the same rights
and remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed to be in
default in the performance of any obligation under this Lease unless and until
it has failed to perform the obligation within a reasonable time not to exceed
thirty (30) days after written notice by Tenant to Landlord specifying in
reasonable detail the nature and extent of the failure; provided, however, that
if the nature of Landlord's obligation is such that more than thirty (30) days
are required for its performance, then Landlord shall not be deemed to be in
default if it commences performance within the thirty (30) day period and
thereafter diligently pursues the cure to completion.
SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any event of default by Tenant under this Lease or
holding over of possession by Tenant after the expiration or earlier termination
of this Lease, including, without limitation, all costs, expenses and actual
accountants, appraisers, attorneys and other professional fees, and any
collection agency or other collection charges, shall be due and payable by
Tenant to Landlord on demand, and shall bear interest at the rate of ten percent
(10%) per annum. Should either Landlord or Tenant bring any action in connection
with this Lease, the prevailing party shall be entitled to recover as a part of
the action its reasonable attorneys' fees, and all other costs. The prevailing
party for the purpose of this paragraph shall be determined by the trier of the
facts.
SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH ACKNOWLEDGES
THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS CHOICE WITH RESPECT
TO ITS RIGHTS TO TRIAL BY JURY, AND EACH PARTY DOES HEREBY EXPRESSLY AND
KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY HERETO AGAINST THE OTHER
(AND/OR AGAINST ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, OR SUBSIDIARY OR
AFFILIATED ENTITIES) ON ANY MATTERS WHATSOEVER ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS LEASE, TENANT'S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY
CLAIM OF INJURY OR DAMAGE.
SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of Landlord do not
constitute the personal obligations of the individual partners, trustees,
directors, officers or shareholders of Landlord or its constituent partners.
Should Tenant recover a money judgment against Landlord, such judgment shall be
satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Landlord in
the Project and out of the rent or other income from such property receivable by
Landlord or out of consideration received by Landlord from the sale or other
disposition of all or any part of Landlord's right, title or interest in the
Project and no action for any deficiency may be sought or obtained by Tenant.
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant after the
expiration shall not constitute a renewal or extension of this Lease, or give
Tenant any rights under this Lease, except when in writing signed by both
parties. If Tenant holds over for any period after the expiration (or earlier
termination) of the Term without the prior written consent of Landlord, such
possession shall constitute a tenancy at sufferance only; such holding over with
the prior written consent of Landlord shall constitute a month-to-month tenancy
commencing on the first (1st) day following the termination of this Lease. In
either of such events, possession shall be subject to all of the terms of this
Lease, except that the monthly Basic Rent for the initial two (2) months of
holdover shall be one hundred fifty percent (150%) of the Basic Rent for the
month immediately preceding the date of termination, and the monthly Basic Rent
for the third (3rd) and each successive month of holdover shall be the greater
of: (i) two hundred percent (200%) of the Basic Rent for the month immediately
preceding the date of termination; or (ii) the then current Basic Rent for
comparable space in the Building or Project, as the case may be. If Tenant
fails to surrender the Premises upon the expiration of this Lease despite demand
to do so by Landlord, Tenant shall indemnify and hold Landlord harmless from all
loss or liability, including
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without limitation, any claims made by any succeeding tenant relating to such
failure to surrender. Acceptance by Landlord of rent after the termination shall
not constitute a consent to a holdover or result in a renewal of this Lease. The
foregoing provisions of this Section are in addition to and do not affect
Landlord's right of re-entry or any other rights of Landlord under this Lease or
at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender of
this Lease by Tenant, or a mutual termination of this Lease, shall terminate any
or all existing subleases unless Landlord, at its option, elects in writing to
treat the surrender or termination as an assignment to it of any or all
subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall quit
and surrender possession of the Premises to Landlord in as good order, condition
and repair as when received or as hereafter may be improved by Landlord or
Tenant, reasonable wear and tear and repairs which are Landlord's obligation
excepted, and shall, without expense to Landlord, remove or cause to be removed
from the Premises all personal property and debris, except for any items that
Landlord may by written authorization allow to remain. Tenant shall repair all
damage to the Premises resulting from the removal, which repair shall include
the patching and filling of holes and repair of structural damage, provided that
Landlord may instead elect to repair any structural damage at Tenant's expense.
If Tenant shall fail to comply with the provisions of this Section, Landlord may
effect the removal and/or make any repairs, and the cost to Landlord shall be
additional rent payable by Tenant upon demand. If Tenant fails to remove
Tenant's personal property from the Premises upon the expiration of the Term,
Landlord may remove, store, dispose of and/or retain such personal property, at
Landlord's option, in accordance with then applicable laws, all at the expense
of Tenant. If requested by Landlord, Tenant shall execute, acknowledge and
deliver to Landlord an instrument in writing releasing and quitclaiming to
Landlord all right, title and interest of Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without deduction or
offset (except as specifically set forth herein), in lawful money of the United
States to Landlord at its address set forth in Item 12 of the Basic Lease
Provisions, or at any other place as Landlord may designate in writing. Unless
this Lease expressly provides otherwise, as for example in the payment of rent
pursuant to Section 4.1, all payments shall be due and payable within fifteen
(15) days after demand. All payments requiring proration shall be prorated on
the basis of a thirty (30) day month and a three hundred sixty (360) day year.
Any notice, election, demand, consent, approval or other communication to be
given or other document to be delivered by either party to the other may be
delivered in person or by courier or overnight delivery service to the other
party, or may be deposited in the United States mail, duly registered or
certified, postage prepaid, return receipt requested, and addressed to the other
party at the address set forth in Item 12 of the Basic Lease Provisions; or may
be delivered by telecopy, provided that receipt thereof is telephonically
confirmed. Either party may, by written notice to the other, served in the
manner provided in this Article, designate a different address. If any notice or
other document is sent by mail, it shall be deemed received on the date of
delivery as shown on the receipt or the date of refusal if such delivery was not
accepted. If more than one person or entity is named as Tenant under this Lease,
service of any notice upon any one of them shall be deemed as service upon all
of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules and
Regulations, attached as Exhibit E, and any reasonable and nondiscriminatory
---------
amendments, modifications and/or additions as may be adopted and published by
written notice to tenants by Landlord for the safety, care, security, good
order, or cleanliness of the Premises, Buildings, Project and Common Areas.
Landlord shall not be liable to Tenant for any violation of the Rules and
Regulations or the breach of any covenant or condition in any lease by any other
tenant or such tenant's agents, employees, contractors, guests or invitees. One
or more waivers by Landlord of any breach of the Rules and Regulations by Tenant
or by any other tenant(s) shall not be a waiver of any subsequent breach of that
rule or any other. Tenant's failure to keep and observe the Rules and
Regulations shall constitute a default under this Lease. In the case of any
conflict between the Rules and Regulations and this Lease, this Lease shall be
controlling.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic Lease
Provisions, and agree that Landlord shall be responsible for the payment of
brokerage commissions to those broker(s) unless otherwise provided in this
Lease. Tenant warrants that it has had no dealings with any other real estate
broker or agent in connection with the negotiation of this Lease, and Tenant
agrees to indemnify and hold Landlord harmless from any cost, expense or
liability (including reasonable attorneys' fees) for any compensation,
commissions or charges claimed by any other real estate broker or agent employed
or claiming to represent or to have been employed by Tenant in connection with
the negotiation of this Lease. The foregoing
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agreement shall survive the termination of this Lease. If Tenant fails to take
possession of the Premises or if this Lease otherwise terminates prior to the
Expiration Date as the result of failure of performance by Tenant, Landlord
shall be entitled to recover from Tenant the unamortized portion of any
brokerage commission funded by Landlord in addition to any other damages to
which Landlord may be entitled.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises, the
transferor shall be automatically relieved of all obligations on the part of
Landlord accruing under this Lease from and after the date of the transfer,
provided that such obligations are assumed in writing by the transferee and any
funds held by the transferor in which Tenant has an interest shall be turned
over, subject to that interest, to the transferee and Tenant is notified of the
transfer as required by law. No holder of a mortgage and/or deed of trust to
which this Lease is or may be subordinate, and no landlord under a so-called
sale-leaseback, shall be responsible in connection with the Security Deposit,
unless the mortgagee or holder of the deed of trust or the landlord actually
receives the Security Deposit. It is intended that the covenants and obligations
contained in this Lease on the part of Landlord shall, subject to the foregoing,
be binding on Landlord, its successors and assigns, only during and in respect
to their respective successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this Lease
requires, the words "Landlord" and "Tenant" shall include the plural as well as
the singular, and words used in neuter, masculine or feminine genders shall
include the others.
SECTION 20.2. HEADINGS. The captions and headings of the articles and
sections of this Lease are for convenience only, are not a part of this Lease
and shall have no effect upon its construction or interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint and
several and the act of or notice from, or notice or refund to, or the signature
of, any one or more of them shall be binding on all of them with respect to the
tenancy of this Lease, including, but not limited to, any renewal, extension,
termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights and
liabilities given to or imposed upon Landlord and Tenant shall extend to and
bind their respective heirs, executors, administrators, successors and assigns.
Nothing contained in this Section is intended, or shall be construed, to grant
to any person other than Landlord and Tenant and their successors and assigns
any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with respect to the
performance of every provision of this Lease.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by and
interpreted in accordance with the laws of the State of California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease, the
deletion of which would not adversely affect the receipt of any material benefit
by either party or the deletion of which is consented to by the party adversely
affected, shall be held invalid or unenforceable to any extent, the remainder of
this Lease shall not be affected and each term and provision of this Lease shall
be valid and enforceable to the fullest extent permitted by law.
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition contained in
this Lease shall not be a waiver of any subsequent breach of the same or any
other term, covenant or condition. Consent to any act by one of the parties
shall not be deemed to render unnecessary the obtaining of that party's consent
to any subsequent act. No breach by Tenant of this Lease shall be deemed to have
been waived by Landlord unless the waiver is in a writing signed by Landlord.
The rights and remedies of Landlord under this Lease shall be cumulative and in
addition to any and all other rights and remedies which Landlord may have.
SECTION 20.9. INABILITY TO PERFORM. In the event that either party shall
be delayed or hindered in or prevented from the performance of any work or in
performing any act required under this Lease by reason of any cause beyond the
reasonable control of that party, then the performance of the work or the doing
of the act shall be excused for the period of the delay and the time for
performance shall be extended for a period equivalent to the period of the
delay. The provisions of this Section shall not operate to excuse Tenant from
the prompt payment of rent or excuse either party from the timely performance of
any other obligation under this Lease within such party's reasonable control.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between the
parties concerning the Premises, the Buildings, and the Project,
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and all preliminary negotiations, oral agreements, understandings and/or
practices, except those contained in this Lease, are superseded and of no
further effect. Tenant waives its rights to rely on any representations or
promises made by Landlord or others which are not contained in this Lease. No
verbal agreement or implied covenant shall be held to modify the provisions of
this Lease, any statute, law, or custom to the contrary notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of all
the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without hindrance
or interruption by Landlord or any other person claiming by or through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner termination of
this Lease, including, without limitation, any warranty or indemnity hereunder,
shall so survive and continue to be binding upon and inure to the benefit of the
respective parties and their successors and assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one or more
counterparts, each of which shall constitute an original and all of which shall
be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf of
the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation or
partnership, and that this Lease is binding upon the corporation or partnership
in accordance with its terms. Tenant shall, at Landlord's request, deliver a
certified copy of its board of directors' resolution or partnership agreement or
certificate authorizing or evidencing the execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The submission of
this Lease to Tenant shall be for examination purposes only, and shall not
constitute an offer to or option for Tenant to lease the Premises. Execution of
this Lease by Tenant and its return to Landlord shall not be binding upon
Landlord, notwithstanding any time interval, until Landlord has in fact executed
and delivered this Lease to Tenant, it being intended that this Lease shall only
become effective upon execution by Landlord and delivery of a fully executed
counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease without the
prior written consent of Landlord. Tenant, upon the request of Landlord, shall
execute and acknowledge a "short form" memorandum of this Lease for recording
purposes.
SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease shall
be effective unless in writing signed by authorized signatories of Tenant and
Landlord, or by their respective successors in interest. No actions, policies,
oral or informal arrangements, business dealings or other course of conduct by
or between the parties shall be deemed to modify this Lease in any respect.
SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or similar
reproduction of this Lease shall be deemed an original for all purposes.
SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and addenda
attached to this Lease are hereby incorporated into and made a part of this
Lease.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NON-DISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute proprietary
information of Landlord. Disclosure of the terms could adversely affect the
ability of Landlord to negotiate other leases and impair Landlord's relationship
with other tenants. Accordingly, Tenant agrees that it, and its partners,
officers, directors, employees and attorneys, shall not intentionally and
voluntarily disclose the terms and conditions of this Lease to any other tenant
or apparent prospective tenant of the Buildings or Project, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease and their respective attorneys, accountants and consultants or as may
be required by law.
SECTION 22.2. GUARANTY. As a condition to the execution of this Lease by
Landlord, the obligations, covenants and performance of the Tenant as herein
provided shall be guaranteed in writing by the Guarantor(s) listed in Item 7 of
the Basic Lease Provisions, if any, on a form of guaranty provided by Landlord.
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SECTION 22.3. CHANGES REQUESTED BY LENDER. If, in connection with
obtaining financing for the Project, the lender shall request reasonable
modifications in this Lease as a condition to the financing, Tenant will not
unreasonably withhold or delay its consent, provided that the modifications do
not materially increase the obligations or materially decrease the rights of
Tenant or materially and adversely affect the leasehold interest created by this
Lease.
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on the part
of Landlord which would otherwise entitle Tenant to be relieved of its
obligations hereunder or to terminate this Lease shall result in such a release
or termination unless (a) Tenant has given notice by registered or certified
mail to any beneficiary of a deed of trust or mortgage covering the Buildings
whose address has been furnished to Tenant and (b) such beneficiary is afforded
a reasonable opportunity to cure the default by Landlord (which in no event
shall be less than sixty (60) days), including, if necessary to effect the cure,
time to obtain possession of the Buildings by power of sale or judicial
foreclosure provided that such foreclosure remedy is diligently pursued. Tenant
agrees that each beneficiary of a deed of trust or mortgage covering the
Buildings is an express third party beneficiary hereof, Tenant shall have no
right or claim for the collection of any deposit from such beneficiary or from
any purchaser at a foreclosure sale unless such beneficiary or purchaser shall
have actually received and not refunded the deposit, and Tenant shall comply
with any written directions by any beneficiary to pay rent due hereunder
directly to such beneficiary without determining whether an event of default
exists under such beneficiary's deed of trust.
SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though the
words specifically expressing or imparting covenants and conditions were used in
each separate provision.
SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that Landlord
shall have no obligation whatsoever to provide guard service or other security
measures for the benefit of the Premises or the Project. Tenant assumes all
responsibility for the protection of Tenant, its agents, invitees and property
from acts of third parties. Nothing herein contained shall prevent Landlord, at
its sole option, from providing security protection for the Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Project Costs.
SECTION 22.7. JAMS ARBITRATION.
(a) All claims or disputes between Landlord and Tenant arising out
of, or relating to the Lease which either party is expressly authorized by a
provision hereof to submit to arbitration, shall be decided by the
JAMS/ENDISPUTE, or its successor, in Orange, California ("JAMS"), unless the
parties mutually agree otherwise. Within ten (10) business days following
submission to JAMS, JAMS shall designate three arbitrators and each party may,
within five (5) business days thereafter, veto one of the three persons so
designated. If two different designated arbitrators have been vetoed, the third
arbitrator shall hear and decide the matter. Any arbitration pursuant to this
Section shall be decided within thirty (30) days of submission of JAMS. The
decision of the arbitrator shall be final and binding on the parties. All costs
associated with arbitration shall be awarded to the prevailing party as
determined by the arbitrator.
(b) Notice of the demand for arbitration by either party to the Lease
shall be filed in writing with the other party to the Lease and with JAMS and
shall be made within a reasonable time after the dispute has arisen. The award
rendered by the arbitrators shall be final, and judgment may be entered upon it
in accordance with applicable law in any court having jurisdiction thereof.
Except by written consent of the person or entity sought to be joined, no
arbitration arising out of or relating to the Lease shall include, by
consolidation, joinder or in any other manner, any person or entity not a party
to the Lease under which such arbitration is filed if (1) such person or entity
is substantially involved in a common question of fact or law, (2) the presence
of such person or entity is required if complete relief is to be accorded in the
arbitration, or (3) the interest or responsibility of such person or entity in
the matter is not insubstantial.
(c) The agreement herein among the parties to the Lease and any other
written agreement to arbitrate referred to herein shall be specifically
enforceable under prevailing law.
[Signatures on next page]
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SECTION 22.8. COMMUNICATIONS EQUIPMENT. At any time upon the execution by
Tenant of Landlord's standard License Agreement (a copy of which is attached
hereto as Exhibit F), Tenant shall have the right at its sole cost and expense,
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during the Term of this Lease, to install, maintain and operate communications
equipment on the roof of the Building(s) which comprise the Premises. The
operation and maintenance of any such equipment shall be subject to the terms of
said License Agreement.
LANDLORD: TENANT:
THE IRVINE COMPANY NEW CENTURY FINANCIAL CORPORATION,
a Delaware corporation
By: /s/ Richard G. Sim By: /s/ Edward F. Gotschall
---------------------------- ------------------------------
Richard G. Sim Name: Edward F. Gotschall
Executive Vice President -------------------------
Title: C.F.O
-------------------------
By: /s/ Robert E. Williams By: /s/ Stergios Theologides
---------------------------- ------------------------------
Robert E. Williams, Jr. President Name: Stergios Theologides
Irvine Industrial Company, -------------------------
a division of The Irvine Company Title: Vice President
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[FLOOR PLAN OF - FIRST FLOOR 340 COMMERCE PREMISES]
EXHIBIT A
<PAGE>
[FLOOR PLAN - SECOND FLOOR 340 COMMERCE PREMISES]
EXHIBIT A-1
<PAGE>
[FLOOR PLAN - FIRST FLOOR 350 COMMERCE]
EXHIBIT A-2
<PAGE>
[FLOOR PLAN - FIRST FLOOR 330 COMMERCE]
EXHIBIT A-3
<PAGE>
EXHIBIT B
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IRVINE INDUSTRIAL COMPANY
HAZARDOUS MATERIALS SURVEY FORM
The purpose of this form is to obtain information regarding the use of
hazardous substances on Irvine Industrial Company property. Prospective tenants
and contractors should answer the questions in light of their proposed
operations on the premises. Existing tenants and contractors should answer the
questions as they relate to ongoing operations on the premises and should update
any information previously submitted.
If additional space is needed to answer the questions, you may attach
separate sheets of paper to this form. When completed, the form should be sent
to the following address:
Insignia/ESG of California, Inc.
1 Ada, Suite 270
Irvine, CA 92618
Your cooperation in this matter is appreciated. If you have any questions,
please do not hesitate to call [insert name of Property Manager] at [insert
phone number] for assistance.
1. GENERAL INFORMATION
-------------------
Name of Responding Company:_________________________________________________
Check all that apply: Tenant ( ) Contractor ( ) Prospective ( ) Existing ( )
Mailing Address:____________________________________________________________
Contact Person & Title:_____________________________________________________
Telephone Number: (_____) _______________
Address of Leased Premises:_________________________________________________
Length of Lease or Contract Term:___________________________________________
Describe the proposed operations to take place on the property, including
principal products manufactured or services to be conducted. Existing
tenants and contractors should describe any proposed changes to ongoing
operations.
____________________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
2. STORAGE OF HAZARDOUS MATERIALS
------------------------------
2.1 Will any hazardous materials be used or stored on-site?
Wastes Yes ( ) No ( )
Chemical Products Yes ( ) No ( )
Biological Hazards/ Yes ( ) No ( )
Infectious Wastes Yes ( ) No ( )
Radioactive Materials Yes ( ) No ( )
2.2 List any hazardous materials to be used or stored, the quantities that
will be on-site at any given time, and the location and method of
storage (e.g., bottles in storage closet on the premises).
Location and Method
-------------------
Hazardous Materials of Storage Quantity
------------------- ----------- --------
___________________ ________________ ________
___________________ ________________ ________
___________________ ________________ ________
___________________ ________________ ________
___________________ ________________ ________
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2.3 Is any underground storage of hazardous substances proposed or
currently conducted on the premises? Yes ( ) No ( )
If yes, describe the materials to be stored, and the size and
construction of the tank. Attach copies of any permits obtained for
the underground storage of such substances.
___________________________________________________________________________
___________________________________________________________________________
3. SPILLS
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3.1 During the past year, have any spills occurred on the premises?
Yes ( ) No ( )
If so, please describe the spill and attach the results of any testing
conducted to determine the extent of such spills.
3.2 Were any agencies notified in connection with such spills?
Yes ( ) No ( )
If so, attach copies of any spill reports or other correspondence with
regulatory agencies.
3.3 Were any clean-up actions undertaken in connection with the spills?
Yes ( ) No ( )
If so, briefly describe the actions taken. Attach copies of any
clearance letters obtained from any regulatory agencies involved and
the results of any final soil or groundwater sampling done upon
completion of the clean-up work.
4. WASTE MANAGEMENT
----------------
4.1 List the waste, if any, generated or to be generated at the premises,
whether it is as hazardous waste, biological or radioactive hazard,
its hazard class and the quantity generated on a monthly basis.
Waste Hazard Class Quantity/Month
_____________ _________________ _________________
_____________ _________________ _________________
_____________ _________________ _________________
_____________ _________________ _________________
4.2 Describe the method(s) of disposal for each waste. Indicate where and
how often disposal will take place.___________________________________
______________________________________________________________________
______________________________________________________________________
4.3 Is any treatment or processing of hazardous, infectious or radioactive
wastes currently conducted or proposed to be conducted at the
premises? Yes ( ) No ( )
If yes, please describe any existing or proposed treatment
methods.______________________________________________________________
______________________________________________________________________
______________________________________________________________________
4.4 Attach copies of any hazardous waste permits or licenses issued to
your company with respect to its operations on the premises.
5. WASTEWATER TREATMENT/DISCHARGE
------------------------------
5.1 Do you discharge industrial wastewater to:
___ storm drain? ___ sewer?
___ surface water? ___ no industrial discharge
5.2 Is your industrial wastewater treated before discharge? Yes ( ) No ( )
If yes, describe the type of treatment conducted.
5.3 Attach copies of any wastewater discharge permits issued to your
company with respect to its operations on the premises.
6. AIR DISCHARGES
--------------
6.1 Do you have any air filtration systems or stacks that discharge into
the air? Yes ( ) No ( )
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6.2 Do you operate any equipment that require air emissions permits?
Yes ( ) No ( )
6.3 Attach copies of any air discharge permits pertaining to these
operations.
7. HAZARDOUS MATERIALS DISCLOSURES
-------------------------------
7.1 Does your company handle an aggregate of at least 500 pounds, 55
gallons or 200 cubic feet of hazardous material at any given time? If
so, state law requires that you prepare a hazardous materials
management plan. Yes ( ) No ( )
7.2 Has your company prepared a hazardous materials management plan
('business plan') pursuant to state and Orange County Fire Department
requirements? Yes ( ) No ( )
If so, attach a copy of the business plan.
7.3 Are any of the chemicals used in your operations regulated under
Proposition 65? Yes ( ) No ( )
If so, describe the actions taken, or proposed actions to be taken, to
comply with Proposition 65 requirements.
7.4 Is your company subject to OSHA Hazard Communication Standard
Requirements?
Yes ( ) No ( )
If so, describe the procedures followed to comply with these
requirements.
8. ENFORCEMENT ACTIONS, COMPLAINTS
-------------------------------
8.1 Has your company ever been subject to any agency enforcement actions,
administrative orders, or consent decrees? Yes ( ) No ( )
If so, describe the actions and any continuing compliance obligations
imposed as a result of these actions.
8.2 Has your company ever received requests for information, notice or
demand letters, or any other inquiries regarding its operations?
Yes ( ) No ( )
8.3 Have there ever been, or are there now pending, any lawsuits against
your company regarding any environmental or health and safety
concerns? Yes ( ) No ( )
8.4 Has an environmental audit ever been conducted at your company's
current facility? Yes ( ) No ( )
If so, discuss the results of the audit.
8.5 Have there been any problems or complaints from neighbors at your
company's current facility? Yes ( ) No ( )
________________________________________
________________________________________
By:_____________________________________
Its:_____________________________
Date:____________________________
By:_____________________________________
Its:_____________________________
Date:____________________________
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EXHIBIT C
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LANDLORD'S DISCLOSURES
SPECTRUM
The capitalized terms used and not otherwise defined in this Exhibit shall
have the same definitions as set forth in the Lease. The provisions of this
Exhibit shall supersede any inconsistent or conflicting provisions of the Lease.
1. Landlord has been informed that the El Toro Marine Corps Air Station
(MCAS) has been listed as a Federal Superfund site as a result of chemical
releases occurring over many years of occupancy. Various chemicals including jet
fuel, motor oil and solvents have been discharged in several areas throughout
the MCAS site. A regional study conducted by the Orange County Water District
has estimated that groundwaters beneath more than 2,900 acres have been impacted
by Trichloroethlene (TCE), an industrial solvent. There is a potential that this
substance may have migrated into the ground water underlying the Premises. The
U.S. Environmental Protection Agency, the Santa Ana Region Quality Control
Board, and the Orange County Health Care Agency are overseeing the
investigation/cleanup of this contamination. To the Landlord's current actual
knowledge, the ground water in this area is used for irrigation purposes only,
and there is no practical impediment to the use or occupancy of the Premises due
to the El Toro discharges.
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EXHIBIT D
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TENANT'S INSURANCE
The following standards for Tenant's insurance shall be in effect at the
Premises. Landlord reserves the right to adopt reasonable nondiscriminatory
modifications and additions to those standards. Tenant agrees to obtain and
present evidence to Landlord that it has fully complied with the insurance
requirements.
1. Tenant shall, at its sole cost and expense, commencing on the date
Tenant is given access to the Premises for any purpose and during the entire
Term, procure, pay for and keep in full force and effect: (i) commercial general
liability insurance with respect to the Premises and the operations of or on
behalf of Tenant in, on or about the Premises, including but not limited to
personal injury, owned and nonowned automobile, blanket contractual, independent
contractors, broad form property damage (with an exception to any pollution
exclusion with respect to damage arising out of heat, smoke or fumes from a
hostile fire), fire and water legal liability, products liability (if a product
is sold from the Premises), liquor law liability (if alcoholic beverages are
sold, served or consumed within the Premises), and severability of interest,
which policy(ies) shall be written on an "occurrence" basis and for not less
than the amount set forth in Item 13 of the Basic Lease Provisions, with a
combined single limit (with a $50,000 minimum limit on fire legal liability) per
occurrence for bodily injury, death, and property damage liability, or the
current limit of liability carried by Tenant, whichever is greater, and subject
to such increases in amounts as Landlord may reasonably determine from time to
time; (ii) workers' compensation insurance coverage as required by law, together
with employers' liability insurance; (iii) with respect to improvements,
alterations, and the like required or permitted to be made by Tenant under this
Lease, builder's all-risk insurance, in an amount equal to the replacement cost
of the work; (iv) insurance against fire, vandalism, malicious mischief and such
other additional perils as may be included in a standard "all risk" form in
general use in Orange County, California, insuring Tenant's alterations,
improvements, trade fixtures, furnishings, equipment and items of personal
property of Tenant located in the Premises, in an amount equal to not less than
ninety percent (90%) of their actual replacement cost (with replacement cost
endorsement); and (v) business interruption insurance in amounts satisfactory to
cover one (1) year of loss. In no event shall the limits of any policy be
considered as limiting the liability of Tenant under this Lease.
2. In the event Landlord consents to Tenant's use, generation or storage
of Hazardous Materials on, under or about the Premises pursuant to Section 5.3
of this Lease, Landlord shall have the continuing right to require Tenant, at
Tenant's sole cost and expense (provided the same is available for purchase upon
commercially reasonable terms), to purchase insurance specified and approved by
Landlord, with coverage not less than Five Million Dollars ($5,000,000.00),
insuring (i) any Hazardous Materials shall be removed from the Premises, (ii)
the Premises shall be restored to a clean, healthy, safe and sanitary condition,
and (iii) any liability of Tenant, Landlord and Landlord's officers, directors,
shareholders, agents, employees and representatives, arising from such Hazardous
Materials.
3. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D containing a deductible exceeding Ten Thousand Dollars
---------
($10,000.00) per occurrence must be approved in writing by Landlord prior to the
issuance of such policy. Tenant shall be solely responsible for the payment of
all deductibles under insurance policies carried by Tenant.
4. All policies of insurance required to be carried by Tenant pursuant to
this Exhibit D shall be written by responsible insurance companies authorized to
---------
do business in the State of California and with a Best's rating of not less than
"A- X" subject to final acceptance and approval by Landlord. Any insurance
required of Tenant may be furnished by Tenant under any blanket policy carried
by it or under a separate policy, so long as (i) the Premises are specifically
covered (by rider, endorsement or otherwise), (ii) the limits of the policy are
applicable on a "per location" basis to the Premises and provide for restoration
of the aggregate limits, and (iii) the policy otherwise complies with the
provisions of this Exhibit D. A true and exact copy of each paid up policy
---------
evidencing the insurance (appropriately authenticated by the insurer) or a
certificate of insurance, certifying that the policy has been issued, provides
the coverage required by this Exhibit D and contains the required provisions,
---------
shall be delivered to Landlord prior to the date Tenant is given the right of
possession of the Premises. Proper evidence of the renewal of any insurance
coverage shall also be delivered to Landlord not less than thirty (30) days
prior to the expiration of the coverage.
5. Each policy evidencing insurance required to be carried by Tenant
pursuant to this Exhibit D shall contain the following provisions and/or clauses
---------
satisfactory to Landlord: (i) a provision that the policy and the coverage
provided shall be primary and that any coverage carried by Landlord shall be
noncontributory with respect to any policies carried by Tenant except as to
workers' compensation insurance; (ii) a provision including Landlord, the
Additional Insureds identified in Item 11 of the Basic Lease Provisions, and any
other parties in interest designated by Landlord as an additional insured,
except as to workers' compensation insurance; (iii)with respect to the all-risk,
business interruption and workers' compensation insurance, a waiver by the
insurer of any right to subrogation against Landlord, its agents, employees,
contractors and representatives which arises or might arise by reason of any
payment under the policy or by reason of any act or omission of Landlord, its
agents, employees, contractors or representatives; and (iv) a provision that the
insurer will not cancel or change the coverage provided by the policy without
first giving Landlord thirty (30) days prior written notice.
6. In the event that Tenant fails to procure, maintain and/or pay for, at
the times and for the durations specified in this Exhibit D, any insurance
---------
required by this Exhibit D, or fails to carry insurance required by any
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governmental authority, Landlord may, after written notice to Tenant, at its
election procure that insurance and pay the premiums, in which event Tenant
shall repay Landlord all sums paid by Landlord, together with interest at the
maximum rate permitted by law and any related costs or expenses incurred by
Landlord, within ten (10) days following Landlord's written demand to Tenant.
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EXHIBIT E
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RULES AND REGULATIONS
This Exhibit sets forth the rules and regulations governing Tenant's
use of the Premises leased to Tenant pursuant to the terms, covenants and
conditions of the Lease to which this Exhibit is attached and therein made part
thereof. In the event of any conflict or inconsistency between this Exhibit and
the Lease, the Lease shall control.
1. Tenant shall not place anything or allow anything to be placed
near the glass of any window, door, partition or wall which may appear unsightly
from outside the Premises.
2. The walls, walkways, sidewalks, entrance passages, courts and
vestibules shall not be obstructed or used for any purpose other than ingress
and egress of pedestrian travel to and from the Premises, and shall not be used
for loitering, or to display, store or place any merchandise, equipment or
devices, or for any other purpose. The walkways, entrance passageways, courts,
vestibules and roof are not for the use of the general public and Landlord shall
in all cases retain the right to control and prevent access thereto by all
persons whose presence in the reasonable judgment of the Landlord shall be
prejudicial to the safety, character, reputation and interests of the Building
and its tenants, provided that nothing herein contained shall be construed to
prevent such access to persons with whom Tenant normally deals in the ordinary
course of Tenant's business unless such persons are engaged in illegal
activities. No tenant or employee or invitee of any tenant shall be permitted
upon the roof of the Building.
3. No awnings or other projection shall be attached to the outside
walls of the Building. No security bars or gates, curtains, blinds, shades or
screens shall be attached to or hung in, or used in connection with, any window
or door of the Premises without the prior written consent of Landlord. Neither
the interior nor exterior of any windows shall be coated or otherwise
sunscreened without the express written consent of Landlord.
4. Except for usual and customary mounting or hanging of pictures,
signs, white boards or other items of decoration, Tenant shall not mark, nail,
paint, drill into, or in any way deface any part of the Premises or the
Building. Tenant shall not lay linoleum, tile, carpet or other similar floor
covering so that the same shall be affixed to the floor of the Premises in any
manner except as approved by Landlord in writing. The expense of repairing any
damage to wall surfaces or removal of any wall or floor covering shall be borne
by Tenant.
5. The toilet rooms, urinals, wash bowls and other plumbing
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
therein. The expense of any breakage, stoppage or damage resulting from the
violation of this rule shall be borne by the tenant who, or whose employees or
invitees, caused it.
6. Landlord shall direct electricians as to the manner and location
of any future telephone wiring. No boring or cutting for wires will be allowed
without the prior consent of Landlord. The locations of the telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
prior written approval of Landlord.
7. The Premises shall not be used for manufacturing or for the
storage of merchandise except as such storage may be incidental to the permitted
use of the Premises. No exterior storage shall be allowed at any time without
the prior written approval of Landlord. The Premises shall not be used for
cooking or washing clothes without the prior written consent of Landlord, or for
lodging or sleeping or for any immoral or illegal. The foregoing provisions are
not intended and shall not be construed to prevent the use of microwave ovens,
vending machines, coffee makers and other food preparation appliances as are
commonly used in office facilities provided all are used in accordance with the
terms of the Lease and applicable law.
8. Tenant shall not make, or permit to be made from within the
Premises, any unseemly or disturbing noises or disturb or interfere with
occupants of this or neighboring buildings or premises or those having business
with them, whether by the use of any musical instrument, radio, phonograph,
noise, or otherwise. Tenant shall not use, keep or permit to be used, or kept,
any foul or obnoxious gas or substance in the Premises or permit or suffer the
Premises to be used or occupied in any manner offensive or objectionable to
Landlord or other occupants of this or neighboring buildings or premises by
reason of any odors, fumes or gases.
9. No animals shall be permitted at any time within the Premises
except service animals being used by disabled persons.
10. Tenant shall not use the name of the Building or the Project in
connection with or in promoting or advertising the business of Tenant, except as
Tenant's address, without the written consent of Landlord. Landlord shall have
the right to prohibit any advertising by any Tenant which, in Landlord's
reasonable opinion, tends to impair the reputation of the Project or its
desirability for its intended uses, and upon written notice from Landlord any
Tenant shall refrain from or discontinue such advertising.
11. Canvassing, soliciting, peddling, parading, picketing,
demonstrating or otherwise engaging in any conduct that unreasonably impairs the
value or use of the Premises or the Project are prohibited and each Tenant shall
cooperate to prevent the same.
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12. No equipment of any type shall be placed on the Premises which in
Landlord's opinion exceeds the load limits of the floor or otherwise threatens
the soundness of the structure or improvements of the Building.
13. No air conditioning unit or other similar apparatus shall be
installed or used by any Tenant without the prior written consent of Landlord.
14. No aerial antenna shall be erected on the roof or exterior walls
of the Premises, or on the grounds, without in each instance, the prior written
consent of Landlord. Any aerial or antenna so installed without such written
consent shall be subject to removal by Landlord at any time without prior notice
at the expense of the Tenant, and Tenant shall upon Landlord's demand pay a
removal fee to Landlord of not less than $200.00.
15. The entire Premises, including vestibules, entrances, doors,
fixtures, windows and plate glass, shall at all times be maintained in a safe,
neat and clean condition by Tenant. All trash, refuse and waste materials shall
be regularly removed from the Premises by Tenant and placed in the containers at
the locations designated by Landlord for refuse collection. All cardboard boxes
must be "broken down" prior to being placed in the trash container. All
styrofoam chips must be bagged or otherwise contained prior to placement in the
trash container, so as not to constitute a nuisance. Pallets may not be disposed
of in the trash container or enclosures. The burning of trash, refuse or waste
materials is prohibited.
16. Tenant shall use at Tenant's cost a pest extermination contractor
as reasonably necessary to keep the Premises free from infestation.
17. All keys for the Premises shall be provided to Tenant by Landlord
and Tenant shall return to Landlord any of such keys so provided upon the
termination of the Lease. Tenant shall not change locks or install other locks
on doors of the Premises, without the prior written consent of Landlord. In the
event of loss of any keys furnished by Landlord for Tenant, Tenant shall pay to
Landlord the costs thereof.
18. No person shall enter or remain within the Project while
intoxicated or under the influence of liquor or drugs. Landlord shall have the
right to exclude or expel from the Project any person who, in the absolute
discretion of Landlord, is under the influence of liquor or drugs.
Landlord reserves the right to amend or supplement the foregoing Rules
and Regulations and to adopt and promulgate additional reasonable and
nondiscriminatory rules and regulations applicable to the Premises. Notice of
such rules and regulations and amendments and supplements thereto, if any, shall
be given to the Tenant.
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EXHIBIT F
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LICENSE AGREEMENT
THIS LICENSE AGREEMENT ("License") made this _____ day of _______________,
199__, by and between The Irvine Company, a Delaware corporation ("Licensor"),
and _______________ ("Licensee").
RECITALS
--------
Licensor is the owner of certain real property, located at ________________
______________________________, Irvine, California (the "Building"). Licensor
and Licensee have entered into a lease (the "Lease") for space in the Building
more particularly described as ______________________________. The parties
desire to provide for the use by Licensee of a portion of the roof of the
Building as provided below.
TERMS AND CONDITIONS
--------------------
1. Licensed Area: For valuable consideration, receipt of which is hereby
-------------
acknowledged and the covenants and conditions to be observed and performed by
Licensee, Licensor hereby grants to Licensee a license and permission to enter
upon the areas shown on Exhibit A of this License (the "License Area") to
---------
install, operate and maintain one satellite dish ("Dish") on the roof of the
Building in the location designated by Licensor together with required cabling,
wires and conduits as may be required (the Dish and related conduits and cabling
are referred to as the "Equipment") in order to serve Tenant in connection with
its business activities conducted in Premises. Licensor reserves the right upon
reasonable notice to Licensee to require either (a) the relocation of all
Equipment installed by Licensee pursuant to this License; or (b) the removal of
any or all of such Equipment should Licensor determine that its presence may
result in damage to the Building and that Licensee has not made satisfactory
arrangements to protect Licensor therefrom.
2. Term: The term of this License shall be coterminous with the Lease.
----
3. Use: Licensee shall use the License Areas only for the installation,
---
operation and maintenance of Equipment the height, appearance, installation and
maintenance procedures for which have been approved in writing by Licensor.
Licensee may have access to the License Area during normal business hours and at
other times by providing Licensor with reasonable prior notice and by
reimbursing Licensor for any expenses incurred by Licensor in connection
therewith.
4. Rental. Licensee shall pay no license fee or additional rent for the
------
use and occupancy of the License Area during the initial Term of the Lease.
5. Licensee's Operations: During the term of this License, the Licensed
---------------------
Area and all Equipment placed and maintained thereon shall be used by the
Licensee for the use specified and for no other use or purpose. Licensee shall
not use or permit any other person to use the License Area, or any part thereof,
for any improper or offensive use or to constitute a nuisance and Licensee shall
at all times conform to and cause all persons using any part of the License Area
to comply with all applicable laws, rules and regulations and covenants,
conditions and restrictions from time to time applicable thereto and to all
operations thereon.
Licensee shall require its employees, when using the License Area, to
stay within the immediate confines thereof. In addition, in the event a cable
television system or other communication system is operating in the area,
Licensee shall at all times during the term of the License conduct its
operations so as to ensure that such systems shall not be subjected to harmful
interference as a result of such operations by Licensee. Upon notification from
Licensor of any such interference, Licensee agrees to immediately take the
necessary steps to correct such situation, and Licensee's failure to do so shall
be deemed a default under the terms of this License.
During the term of this License, Licensee shall comply with any
standards promulgated by applicable governmental authorities or otherwise
reasonably established by Licensor regarding the generation of electromagnetic
fields. Should Licensor determine in good faith at any time that the Dish poses
a health or safety hazard to occupants of the Building, Licensor may require
Licensee to remove the Dish or make other arrangements reasonably satisfactory
to Licensor. Any claim or liability resulting from the use of the Dish shall be
subject to the indemnification obligations set forth in the Paragraph below
entitled "Licensor's Nonliability."
6. Removal: Upon the expiration or earlier termination of this License,
-------
Licensee shall remove the Dish and the other Equipment installed by it and shall
restore the License Area to their original condition.
EXHIBIT F
To Lease
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7. Licensor's Nonliability: Licensor shall not be liable for any loss,
-----------------------
damage or injury of any kind whatsoever to the property of Licensee or the
property or person, including death, of any of Licensee's employees, agents or
invitees or of any other person whomsoever caused by any use of the License Area
or occasioned by the failure on the part of Licensee to maintain said License
Area in safe condition, or by any act or omission of Licensee or of any of
Licensee's employees, agents or invitees, or arising from any other cause
whatsoever; and Licensee, as a material part of the consideration of this
License, hereby waives on its behalf all claims and demands against Licensor for
any such loss, damage or injury suffered by Licensee, and hereby agrees to
indemnify, defend and save Licensor free and harmless from liability for any
such loss, damage or injury of third persons, and from all costs, expenses and
charges arising therefrom or in connection therewith, including reasonable
attorneys' fees. In addition, Licensee agrees to reimburse Licensor for the
cost of repairing any damage to the Building caused by the exercise of
Licensee's rights hereunder.
8. Liens: Licensee shall not permit to be enforced against the License
-----
Area any mechanics', materialmen's, contractors' or other liens arising from, or
any claims for damage growing out of, any work of installation, repair or
alteration as herein authorized or otherwise arising (except from the actions of
Licensor) and Licensee shall pay or cause to be paid all of said liens and
claims before any action is brought to enforce the same against Licensor or the
License Area; and Licensee agrees to indemnify and hold Licensor and the License
Area free and harmless from all liability for any and all such liens and claims
and all costs and expenses in connection therewith.
9. Taxes: During the term of this License, Licensor shall pay all taxes
-----
attributable to any Equipment installed in the License Area by or at the request
of Licensee.
10. Assignment: This License shall not be assignable in whole or in part,
----------
and any attempted assignment thereof, without the consent of Licensor, shall
immediately terminate this License.
11. Insurance/Indemnity: The insurance and indemnity provisions of the
-------------------
Lease shall govern Licensee's use of the License Area. In the event the
exercise of Licensee's rights hereunder result in any increase in Licensor's
insurance rates on the Building, Licensee shall promptly following demand
reimburse Licensor for such additional expenses incurred by Licensor.
12. Remedies: Should Licensee default in the performance of or breach any
--------
covenant or condition on Licensee's part to be kept and performed under the
Lease or this License, then in any such event Licensor may, at its option,
without prejudice to any other right or remedy it may have, terminate this
License hereunder by giving Licensee written notice of such termination, and
upon such termination all rights of Licensee shall cease and end.
13. Covenants and Conditions: This License and each and all of the
------------------------
covenants and conditions hereof shall inure to the benefit of and shall bind the
successors in interest of Licensor and subject to the restrictions set forth in
the above Paragraph entitled "Assignment," the successors and assigns of
Licensee.
14. Notices: Any notices or other communications between the parties shall
-------
be sent in the same manner and to the same persons or entities as set forth in
the Lease.
The parties hereto have executed this License as of the date first above
written.
LICENSOR: LICENSEE:
__________________________________ _____________________________________
__________________________________ _____________________________________
By: ______________________________ By: _________________________________
Name: ______________________ Name: _________________________
Title: _____________________ Title: _____________________
By: ______________________________ By: _________________________________
Name: ______________________ Name: _________________________
Title: _____________________ Title: ________________________
EXHIBIT F
To Lease
2
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EXHIBIT X
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INDUSTRIAL WORK LETTER
DOLLAR ALLOWANCE
The Tenant Improvement work (herein "Tenant Improvements") shall consist of any
work, including work in place as of the date hereof, required to complete the
Premises pursuant to the approved Working Drawings and Specifications (as
hereinafter defined). All of the Tenant Improvement work shall be performed by
a contractor selected by Landlord in accordance with the procedures and
requirements set forth below. Landlord shall obtain bids from at least three (3)
contractors one of which may be JLC Construction subject to Landlord's
approval after receipt of sufficient background information. When requesting
bids, Landlord shall request bid alternates for shortened construction
schedules. Landlord shall consult with Tenant regarding its selection of
contractor but the final determination shall be up to Landlord. When analyzing
bid alternates, Landlord agrees to allow Tenant to apply up to Fifty Cents
($.50) per useable square foot of Landlord's Contribution to expedite
construction. Any cost to expedite construction in excess of that amount shall
be at Tenant's sole cost and expense. Landlord shall select the lowest qualified
bidder taking into consideration not only the price of the work to be performed
but also the time for completion. In the event Landlord selects other than the
lowest bidder, it shall do so based on commercially reasonable factors which it
shall demonstrate to Tenant.
I. ARCHITECTURAL AND CONSTRUCTION PROCEDURES.
-----------------------------------------
A. Tenant and Landlord have approved, or shall approve within the time period
set forth below, both (i) a detailed space plan for the Premises, prepared
by Landlord's architect, which includes interior partitions, ceilings,
interior finishes, interior doors, suite entrance, floor coverings, window
coverings, lighting, electrical and telephone outlets, plumbing
connections, heavy floor loads and other special requirements ("Preliminary
Plan"), and (ii) an estimate, prepared by Landlord's contractor, of the
cost for which Landlord will complete or cause to be completed the Tenant
Improvements ("Preliminary Cost Estimate"). Tenant shall approve or
disapprove each of the Preliminary Plan and the Preliminary Cost Estimate
by signing copies of the appropriate instrument and delivering same to
Landlord within five (5) days of its receipt by Tenant. If Tenant
disapproves any matter, Tenant shall specify in detail the reasons for
disapproval and Landlord shall attempt to modify the Preliminary Plan and
the Preliminary Cost Estimate to incorporate Tenant's suggested revisions
in a mutually satisfactory manner. In no event, however, shall Tenant have
the right to make additions to the Preliminary Plan as part of its approval
thereof which would increase the improvements to be paid for by "Landlord's
Contribution" (as hereinafter defined), it being understood and agreed that
the Preliminary Plan submitted by Landlord's architect is intended to
include all improvements desired by Tenant using Landlord's "Standards" (as
hereinafter defined), whether or not the full amount of Landlord's
Contribution would be required to complete construction of the improvements
as shown in the Preliminary Plan. Notwithstanding the foregoing, Landlord
agrees that Tenant shall have the right to make modifications, additions or
Changes to an approved Preliminary Plan or Working Drawings and
Specifications, to incorporate additional Standards, and to use up to Fifty
Cents ($.50) per rentable square foot of Landlord's Contribution to pay the
cost of any such modifications, additions or Changes. In all events, Tenant
shall approve in all respects a Preliminary Plan and Preliminary Cost
Estimate not later than the date set forth in Item 15 of the Basic Lease
Provisions ("Plan Approval Date"), it being understood that Tenant's
failure to do so shall constitute a "Tenant Delay" for purposes of this
Lease.
B. On or before the Plan Approval Date, Tenant shall provide in writing to
Landlord or Landlord's architect all specifications and information
requested by Landlord for the preparation of final construction documents
and costing, including without limitation Tenant's final selection of wall
and floor finishes, complete specifications and locations (including load
and HVAC requirements) of Tenant's equipment, and details of all "Non-
Standard Improvements" (as defined below) to be installed in the Premises
(collectively, "Programming Information"). Tenant's failure to provide the
Programming Information by the Plan Approval Date shall constitute a Tenant
Delay for purposes of this Lease. Tenant understands that final
construction documents for the Tenant Improvements shall be predicated on
the Programming Information, and accordingly that such information must be
accurate and complete.
C. Except as specified in the Preliminary Plan or otherwise authorized by
Landlord, the Tenant Improvements shall incorporate Landlord's building
standard materials and specifications ("Standards"). No deviations from
the Standards shall be permitted, provided that Landlord may, in its sole
and absolute discretion, authorize in writing one or more of such
deviations if requested by Tenant, in which event any excess cost of such
deviations shall be part of "Tenant's Contribution" (as hereinafter
defined) and Tenant shall be solely responsible for the cost of replacing
same with the applicable Standard item(s) upon the expiration or
termination of this Lease. Landlord shall in no event be required to
approve any deviations from the Standards ("Non-Standard Improvements") if
Landlord determines that such improvement (i) is of a lesser quality than
the corresponding Standard, (ii) fails to conform to applicable
governmental requirements, (iii) requires building services beyond the
level normally provided to other tenants, (iv) would delay construction
1
<PAGE>
of the Tenant Improvements beyond the Estimated Commencement Date and
Tenant declines to accept such delay in writing as a Tenant Delay, or (v)
would have an adverse aesthetic impact from the exterior of the Premises.
D. Upon Tenant's approval of the Preliminary Plan and Preliminary Cost
Estimate and delivery of the complete Programming Information, Landlord's
architect and engineers shall prepare and deliver to Tenant working
drawings and specifications ("Working Drawings and Specifications"), and
Landlord's contractor shall prepare a final construction cost estimate
("Final Cost Estimate") for the Tenant Improvements in conformity with the
Working Drawings and Specifications. The Final Cost Estimate shall be
delivered to Tenant for its approval only if such Estimate exceeds both the
approved Preliminary Cost Estimate and the amount of the Landlord's
---
Contribution. Tenant shall have five (5) days from the receipt thereof to
approve or disapprove the Working Drawings and Specifications and (if
delivered to Tenant) the Final Cost Estimate. Tenant shall not unreasonably
withhold or delay its approval, and any disapproval or requested
modification shall be limited to items not contained in the approved
Preliminary Plan or Preliminary Cost Estimate. Should Tenant disapprove the
Working Drawings and Specifications and the Final Cost Estimate, such
disapproval shall be accompanied by a detailed list of revisions. Any
revision requested by Tenant and accepted by Landlord shall be incorporated
into a revised set of Working Drawings and Specifications and Final Cost
Estimate, and Tenant shall approve same in writing within five (5) days of
receipt without further revision. Tenant's failure to comply in a timely
manner with any of the requirements of this paragraph shall constitute a
Tenant Delay. Without limiting the rights of Landlord for Tenant Delays as
set forth herein, in the event Tenant has not approved both the Working
Drawings and Specifications and the Final Cost Estimate within sixty (60)
days following the date of this Lease, then Landlord may, at its option,
elect to terminate this Lease by written notice to Tenant. In the event
Landlord elects to effect such a termination, Tenant shall, within ten (10)
days following demand by Landlord, pay to Landlord any costs incurred by
Landlord in connection with the preparation or review of plans,
construction estimates, price quotations, drawings or specifications under
this Work Letter and for all costs incurred in the preparation and
execution of this Lease, including any leasing commissions.
E. In the event that Tenant requests in writing a revision in the approved
Working Drawings and Specifications ("Change"), Landlord shall advise
Tenant by written change order as soon as is practical of any increase in
the Completion Cost and/or any Tenant Delay such Change would cause.
Tenant shall approve or disapprove such change order in writing within two
(2) days following its receipt from Landlord. Tenant's approval of such
Change shall be accompanied by Tenant's payment of any increase in the
Completion Cost in excess of Landlord's Contribution resulting from such
Change. Landlord shall have the right to decline Tenant's request for a
Change for any of the reasons set forth in Article II.C above for
Landlord's disapproval of a Non-Standard Improvement. It is understood
that Landlord shall have no obligation to interrupt or modify the Tenant
Improvement work pending Tenant's approval of a change order.
F. Notwithstanding any provision in the Lease to the contrary, if Tenant fails
to comply with any of the time periods specified in this Work Letter, fails
otherwise to approve or reasonably disapprove any submittal within five (5)
days, fails to approve in writing both the Preliminary Plan and Preliminary
Cost Estimate for the Tenant Improvements by the Plan Approval Date, fails
to provide all of the Programming Information requested by Landlord by the
Plan Approval Date, fails to approve in writing the Working Drawings and
Specifications or the Final Cost Estimate within the time provided herein,
requests any Changes, furnishes inaccurate or erroneous specifications or
other information, or otherwise delays in any manner the completion of the
Tenant Improvements (including without limitation by specifying materials
that are not readily available) or the issuance of an occupancy certificate
(any of the foregoing being referred to in this Lease as a "Tenant Delay"),
then Tenant shall bear any resulting additional construction cost or other
expenses, and the Commencement Date of this Lease shall be deemed to have
occurred for all purposes, including Tenant's obligation to pay rent, as of
the date Landlord reasonably determines that it would have been able to
deliver the Premises to Tenant but for the collective Tenant Delays. In no
event, however, shall such date be earlier than the Estimated Commencement
Date set forth in the Basic Lease Provisions. Notwithstanding the
foregoing, no Tenant Delay shall be deemed to have occurred unless and
until Landlord has given Tenant written notice of the act or omission which
constitutes the basis for such Tenant Delay and such act or omission is not
cured within one (1) complete business day after Tenant's receipt of such
notice. Should Landlord determine that the Commencement Date should be
advanced in accordance with the foregoing, it shall so notify Tenant in
writing. Landlord's determination shall be conclusive unless Tenant
notifies Landlord in writing, within fifteen (15) days thereafter, of
Tenant's election to contest same by arbitration with JAMS in Orange
County, California. Pending the outcome of such arbitration proceedings,
Tenant shall make timely payment of all rent due under this Lease based
upon the Commencement Date set forth in the aforesaid notice from Landlord.
G. Landlord shall permit Tenant and its agents to enter the Premises prior to
the Commencement Date of the Lease in order that Tenant may perform any
work to be performed by Tenant hereunder through its own contractors,
subject to Landlord's prior written approval, and in a manner and upon
terms and conditions and at times satisfactory to Landlord's
representative. The foregoing license to enter the Premises prior to the
Commencement Date is, however, conditioned upon Tenant's contractors and
their subcontractors and employees working in harmony and not interfering
with the work being performed by Landlord. If at any time
2
<PAGE>
that entry shall cause disharmony or interfere with the work being
performed by Landlord, this license may be withdrawn by Landlord upon
twenty-four (24) hours written notice to Tenant. That license is further
conditioned upon the compliance by Tenant's contractors with all
requirements imposed by Landlord on third party contractors, including
without limitation the maintenance by Tenant and its contractors and
subcontractors of workers' compensation and public liability and property
damage insurance in amounts and with companies and on forms satisfactory to
Landlord, with certificates of such insurance being furnished to Landlord
prior to proceeding with any such entry. The entry shall be deemed to be
under all of the provisions of the Lease except as to the covenants to pay
rent. Landlord shall not be liable in any way for any injury, loss or
damage which may occur to any such work being performed by Tenant, the same
being solely at Tenant's risk. In no event shall the failure of Tenant's
contractors to complete any work in the Premises extend the Commencement
Date of this Lease beyond the date that Landlord has completed its Tenant
Improvement work and tendered the Premises to Tenant.
H. Tenant hereby designates William Dodge, Telephone No. (949) 224-5714, as
its representative, agent and attorney-in-fact for the purpose of receiving
notices, approving submittals and issuing requests for Changes, and
Landlord shall be entitled to rely upon authorizations and directives of
such person(s) as if given directly by Tenant. Tenant may amend the
designation of its construction representative(s) at any time upon delivery
of written notice to Landlord.
II. COST OF TENANT IMPROVEMENTS
---------------------------
A. Landlord shall complete, or cause to be completed, the Tenant Improvements,
at the construction cost shown in the Final Cost Estimate (subject to the
provisions of this Work Letter), in accordance with final Working Drawings
and Specifications approved by both Landlord and Tenant. Landlord shall
pay towards the final construction costs ("Completion Cost") as incurred a
maximum of One Million Five Hundred Thirty Two Thousand Five Hundred
Dollars ($1,532,500.00) ("Landlord's Contribution"), based on $25.00 per
usable square foot of the Premises, and Tenant shall be fully responsible
for the remainder ("Tenant's Contribution"). Landlord's Contribution shall
only be used for construction and installation of Standards incorporated
into a Preliminary Plan approved by Landlord and for other costs outlined
below. Tenant shall have no right to receive any credit, refund or
allowance of any kind for any unused portion of the Landlord's Contribution
nor shall Tenant be allowed to make revisions to an approved Preliminary
Plan, Working Drawings and Specifications or request a Change in an effort
to apply any unused portion of Landlord's Contribution.
B. The Completion Cost shall include all costs of Landlord in completing the
Tenant Improvements in accordance with the approved Working Drawings and
Specifications, including but not limited to the following: (i) payments
made to architects, engineers, contractors, subcontractors and other third
party consultants in the performance of the work, (ii) salaries and fringe
benefits of persons, if any, in the direct employ of Landlord performing
any part of the construction work, (iii) permit fees and other sums paid to
governmental agencies, and (iv) costs of all materials incorporated into
the work or used in connection with the work. The Completion Cost shall
also include an administrative/ supervision fee to be paid to Landlord or
to Landlord's management agent in the amount of five percent (5%) of all
such costs.
C. Prior to start of construction of the Tenant Improvements, Tenant shall pay
to Landlord in full the amount of the Tenant's Contribution set forth in
the Final Cost Estimate. If the actual Completion Cost of the Tenant
Improvements is less than the Final Cost Estimate, any portion of the
Tenant's Contribution paid by Tenant but not expended towards the
Completion Cost shall be refunded to Tenant in the form of a check payable
to Tenant. If the actual Completion Cost is greater than the Final Cost
Estimate because of modifications or extras not reflected on the approved
Working Drawings and Specifications which are requested by Tenant, or
because of Tenant Delays, then Tenant shall be responsible for all such
additional costs. The balance of any sums not otherwise paid by Tenant
shall be due and payable on or before the Commencement Date of this Lease.
If Tenant defaults in the payment of any sums due under this Work Letter,
Landlord shall (in addition to all other remedies) have the same rights as
in the case of Tenant's failure to pay rent under the Lease.
3
<PAGE>
[IRVINE TECHNOLOGY CENTER]
[OVERALL SITE PLAN]
EXHIBIT Y
<PAGE>
[IRVINE TECHNOGHY CENTER]
[INDUSTRIAL PARK]
EXHIBIT Y-1
<PAGE>
Exhibit 11.1
------------
New Century Financial Corporation
Statement Re Computation of Per Share Earnings
<TABLE>
<CAPTION>
Nine Months Ended September 30, Three Months Ended September 30,
----------------------------------------------------------------------
1999 1998 1999 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Basic:
Net earnings $ 32,619,000 $ 22,333,000 $ 11,928,000 $ 8,608,000
======================================================================
Weighted average common shares outstanding 14,372,548 14,151,766 14,483,011 14,176,478
----------------------------------------------------------------------
Earnings per share $ 2.27 $ 1.58 $ 0.82 $ 0.61
======================================================================
Diluted:
Net earnings $ 32,619,000 $ 22,333,000 $ 11,928,000 $ 8,608,000
======================================================================
Weighted average number of common and common
equivalent shares outstanding:
Weighted average common shares outstanding 14,372,548 14,151,766 14,483,011 14,176,478
Dilutive effect of convertible preferred stock,
stock options and warrants, after application(1) 4,030,049 920,166 4,683,089 866,134
----------------------------------------------------------------------
18,402,596 15,071,932 19,166,099 15,042,612
======================================================================
Earnings per share $ 1.77 $ 1.48 $ 0.62 $ 0.57
======================================================================
</TABLE>
(1) Stock options of 229,600 and 160,500, respectively, are excluded from
dilutive shares for the nine months and three months ended September 30,
1999 because their effect is anti-dilutive. Stock options of 948,150 and
938,150, respectively, for the nine months and three months ended September
30, 1998 are excluded.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF NEW CENTURY FINANCIAL CORPORATION AND SUBSIDIARIES FOR
THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,384,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 373,733,000
<CURRENT-ASSETS> 0
<PP&E> 6,349,000
<DEPRECIATION> 3,707,000
<TOTAL-ASSETS> 733,467,000
<CURRENT-LIABILITIES> 27,306,000
<BONDS> 505,583,000
0
0
<COMMON> 146,000
<OTHER-SE> 166,258,000
<TOTAL-LIABILITY-AND-EQUITY> 733,467,000
<SALES> 94,890,000
<TOTAL-REVENUES> 173,205,000
<CGS> 0
<TOTAL-COSTS> 80,699,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,992,000
<INCOME-PRETAX> 55,514,000
<INCOME-TAX> 22,895,000
<INCOME-CONTINUING> 32,619,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,619,000
<EPS-BASIC> 2.27
<EPS-DILUTED> 1.77
</TABLE>
