EXHIBIT 10.1
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
BETWEEN
NEW CENTURY FINANCIAL CORPORATION
AND
U.S. BANCORP
Dated as of
October 18, 1998
================================================================================
PREFERRED STOCK PURCHASE AGREEMENT
This PREFERRED STOCK PURCHASE AGREEMENT dated as of October 18, 1998, is
made between New Century Financial Corporation, a Delaware corporation (the
"Company"), and U.S. Bancorp, a Delaware corporation (the "Purchaser").
RECITALS
WHEREAS, the Company wishes to sell, and the Purchaser wishes to purchase,
20,000 shares (the "Shares") of the Series 1998A Convertible Preferred Stock
(the "Preferred Stock") of the Company upon the terms and conditions set forth
herein; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and certain shareholders of the Company intend to enter into a
Shareholder Agreement (the "Shareholder Agreement") substantially in the form
attached hereto as Exhibit A; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and the Company intend to enter into an agreement regarding the
acquisition of loans by the Purchaser from the Company (the "Flow Agreement")
reflecting substantially the terms listed on Exhibit B to this Agreement; and
WHEREAS, concurrent with the closing of the sale of the Shares the
Purchaser and the Company intend to enter into an agreement regarding the
origination of loans (the "Service Provider Agreement") reflecting substantially
the terms listed on Exhibit C to this Agreement; and
WHEREAS, the Company and the Purchaser wish to set forth in this Agreement
certain other terms and conditions for the sale and purchase of the Shares.
AGREEMENT
NOW, THEREFORE, the Purchaser and the Company hereby agree as follows:
1. Authorization of the Shares. The Company has authorized the issuance
---------------------------
and sale of the Shares to the Purchaser. The Preferred Stock will have the
relative rights and preferences set forth in the Certificate of Designations
attached as Exhibit D to this Agreement.
2. Sale of Shares. Subject to the terms and conditions of this Agreement,
--------------
at the Closing the Company agrees to sell to the Purchaser, and the Purchaser
agrees to purchase from the Company, 20,000 Shares at a purchase price of
$1,000 per Share.
-1-
3. Closing Date; Delivery.
----------------------
3.1 Closing Date. The closing (the "Closing") of the purchase and
------------
sale of Shares pursuant to this Agreement will take place at 9:00 a.m. at the
offices of Xxxxxx & Xxxxxxx LLP, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx
00000, on a day to be mutually agreed upon by the parties which date shall be no
later than the third Business Day after all of the conditions set forth in
Article 7 shall have been satisfied (or waived in accordance with Section 12.7),
or at such other time and place as the Company and the Purchaser may agree (the
date of the Closing is hereinafter referred to as the "Closing Date").
3.2 Delivery. At the Closing, the Company will deliver to the
--------
Purchaser a certificate registered in the Purchaser's name representing the
Shares purchased by the Purchaser at the Closing, and the Purchaser will pay the
purchase price for the Shares being purchased by wire transfer.
4. Definitions. Unless the context otherwise requires, the terms defined
-----------
in this Section 4 shall have the meanings herein specified for all purposes of
this Agreement. Certain other capitalized terms used herein are defined
elsewhere in this Agreement.
"Additional Employee Issuance" is defined in Section 8.4(c).
"Affiliate" means any person that directly or indirectly controls or is
controlled by, or is under common control with, another specified person.
"Agreement" means this Preferred Stock Purchase Agreement.
"Applicable Percentage" is defined in Section 8.4(d).
"BHCA" is defined in Section 5.2.
"Basket Amount" is defined in Section 12.12.
"Business Day" means any day other than a Saturday or a Sunday or a day
on which commercial banking institutions in the City of New York are authorized
by law to be closed.
"Closing" is defined in Section 3.1.
"Closing Date" is defined in Section 3.1.
"Commission" means the Securities and Exchange Commission.
"Committee" is defined in Section 8.3(c).
-2-
"Common Stock" means the shares of common stock, par value $.01 per
share, of the Company.
"Company Breach" shall mean a material breach by the Company of its
agreements in Section 8.
"Company Plans" means the following stock-related plans of the
Company, as may be amended from time to time in accordance with Section 8.9: (a)
the 1995 Stock Option Plan, as amended, (b) the Employee Stock Purchase Plan,
(c) the Founding Managers' Incentive Compensation Plan and (d) any other stock-
related plan adopted by the Company after the date of this Agreement.
"Conversion Shares" shall mean the shares of Common Stock issuable
upon the conversion of the Shares.
"Convertible Securities" means options, warrants or similar rights and
indebtedness, shares of stock or other securities that are at any time directly
or indirectly convertible into or exercisable or exchangeable for shares of the
Company's capital stock.
"DGCL" is defined in Section 5.14.
"Disclosure Schedules" is defined in Section 5.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
"Federal Reserve" means the Board of Governors of the Federal Reserve
System or any agency having regulatory responsibility with respect to the
Purchaser under the BHCA.
"Flow Agreement" is defined in the Recitals to this Agreement.
"Form 10-K Report" is defined in Section 5.4(a).
"Form 10-Q Report" is defined in Section 5.4(a).
"HSR Act" is defined in Section 5.2.
"Latest Balance Sheet" is defined in Section 5.4(b).
"Liabilities" is defined in Section 5.6.
"Losses" is defined in Section 12.12.
-3-
"Material Adverse Effect" means a material adverse effect on (a) the
business, assets, liabilities, results of operations or financial condition of
the Company and the Subsidiaries, taken as a whole, or (b) on the ability of the
Company to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement, the Flow Agreement or the
Service Provider Agreement.
"New Securities" is defined in Section 8.4(c).
"OCC" means the Office of the Comptroller of the Currency or any
agency having regulatory responsibility with respect to any national bank
subsidiary of the Purchaser under the National Bank Act.
"Person" means any natural person, corporation, limited liability
company, association, partnership (general or limited), Joint venture,
proprietorship, governmental body, trust, estate, association, custodian,
nominee or any other individual or entity, whether acting in an individual,
fiduciary, representative or other capacity.
"Preferred Stock" is defined in the Recitals to this Agreement.
"Preemptive Rights Issuance" is defined in Section 8.4(b).
"Purchaser Default" shall mean a material breach by Purchaser of its
agreements in Section 10, which breach (a) has occurred at a time when no
Company Default has occurred and is continuing and (b) has not been cured within
30 days of Purchaser's knowledge of such breach.
"Service Provider Agreement" is defined in the Recitals to this
Agreement.
"Related Statements" is defined in Section 5.4(b).
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Shareholder Agreement" is defined in the Recitals to this Agreement.
"Shares" is defined in the Recitals to this Agreement.
"Subscription Notice" is defined in Section 8.4(f).
"Subsidiary" is defined in Section 5. 1.
"Subsidiaries" means the entities identified as subsidiaries on
Schedule 5.5.
"Takeover Laws" is defined in Section 5.14.
-4-
"Year 2000 Compliant" is defined in Section 5.13.
"Year 2000 Problem" is defined in Section 5.13.
5. Representations and Warranties by the Company. Except as disclosed in
---------------------------------------------
the Disclosure Schedules attached hereto as Exhibit E (the "Disclosure
Schedules"), the Company hereby represents and warrants to the Purchaser that:
5.1 Organization and Qualification. The Company is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, and has the requisite corporate power to carry on its business as now
conducted. New Century Mortgage Corporation (the "Subsidiary") is a corporation
duly organized, validly existing and in good standing under the laws of
California and has the requisite corporate power to carry on its business as now
conducted. The copies of the charter and the bylaws of each of the Company and
the Subsidiary which have been provided to Purchaser prior to the date of this
Agreement are correct and complete and reflect all amendments made thereto
through the date hereof Each of the Company and the Subsidiary is licensed or
qualified to do business in every Jurisdiction in which the nature of its
respective business or its ownership of property requires it to be licensed or
qualified, except where the failure to be so licensed or qualified would not
reasonably be expected to have a Material Adverse Effect.
5.2 Authority Relative to this Agreement; Non-Contravention. The
-------------------------------------------------------
Company has the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the Board of Directors of the
Company and no other corporate proceedings on the part of the Company are
necessary to authorize this Agreement and such transactions. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable in accordance with its terms,
except as the enforceability hereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or similar laws affecting the enforcement of
creditors' rights generally and to judicial limitations on the enforcement of
the remedy of specific performance and other equitable remedies and except as
the indemnification provisions of the registration rights described in Exhibit F
may be limited by principles of public policy. Except as set forth on Schedule
5.2, neither the Company nor any of the Subsidiaries is subject to, or obligated
under, any provision of (a) its charter or bylaws, (b) any agreement,
arrangement or understanding, (c) any license, franchise or permit or (d)
subject to obtaining the approvals referred to in the next sentence, any law,
regulation, order, judgment or decree, which would be breached or violated, or
in respect of which a right of termination or acceleration or any encumbrance on
any of its assets would be created, by the execution, delivery or performance of
this Agreement or the consummation of the transactions contemplated hereby,
other than any such breaches, violations, terminations, accelerations or
encumbrances which would not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. Other than any approvals or filings
required under the Bank Holding Company Act of 1956, as
-5-
amended from time to time, including any regulations or orders of the Federal
Reserve thereunder (the "BHCA"), or the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), and assuming the accuracy of the
representations of Purchaser contained in Section 6, no authorization, consent
or approval of, or filing with, any public body, court or authority is necessary
on the part of the Company or the Subsidiary for the consummation by the Company
of the transactions contemplated by this Agreement.
5.3 Capitalization. The authorized, issued and outstanding capital
--------------
stock of the Company as of the date hereof is set forth on Schedule 5.3. All of
the issued and outstanding shares of capital stock of the Subsidiary are owned
by the Company, free and clear of any lien, pledge, security interest,
encumbrance or charge of any kind. The issued and outstanding shares of capital
stock of the Company are duly authorized, validly issued, fully paid and
nonassessable and have not been issued in violation of any preemptive rights.
Except as set forth on Schedule 5.3, there are no options, warrants, conversion
privileges or other rights, agreements, plans, arrangements or commitments
obligating the Company or the Subsidiary to issue, sell, purchase or redeem any
shares of their capital stock or securities or obligations of any kind
convertible into or exchangeable for any shares of their capital stock or of any
of their subsidiaries or affiliates, nor are there any stock appreciation,
phantom or similar rights outstanding based upon the book value or any other
attribute of any of the capital stock of the Company, or the earnings or other
attributes of the Company. The Company has heretofore delivered to Purchaser
true and correct copies of all such agreements, arrangements (including all
stock option and other stock-based plans) or commitments identified on Schedule
5.3.
5.4 Exchange Act Reports; Financial Statements.
------------------------------------------
(a) Prior to the execution of this Agreement, the Company has
delivered or made available to the Purchaser complete and accurate copies of (a)
the Company's Annual Report on Form 10-K for the year ended December 31, 1997,
as amended (the "Form 10-K Report"), as filed under the Exchange Act with the
Commission, (b) all proxy statements and annual reports to shareholders of the
Company used in connection with meetings of its shareholders held since June 25,
1997, and (iii) the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 (the "Form 10-Q Report"), as filed under the Exchange Act
with the Commission. As of their respective dates, such documents (x) did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and (y)
complied as to form in all material respects with the applicable laws and rules
and regulations of the Commission. Since June 25, 1997, the Company has filed in
a timely manner all reports that it was required to file with the Commission
pursuant to the Exchange Act.
(b) The Company has furnished Purchaser with a copy of the
consolidated balance sheet of the Company as of August 31, 1998 (the "Latest
Balance Sheet") and the related statements of operations for the eight-month
period then ended (the "Related Statements"). The
-6-
Latest Balance Sheet and the Related Statements have been prepared on a basis
consistent with the financial statements included in the Form 10-K, except for
the absence of notes and normal year end adjustments consistent with past
practice. The Latest Balance Sheet and the Related Statements fairly present
the consolidated financial position of the Company and as of the date thereof
and the consolidated results of operations and, as applicable, changes in
shareholders' equity and cash flows for the period then ended.
5.5 Subsidiary. Except as disclosed on Schedule 5.5, neither the
----------
Company nor the Subsidiary owns any stock, partnership interest, Joint venture
interest or any other security issued by any other corporation, organization or
entity. Other than the Subsidiary and PWF Corporation, the assets and operations
of the entities listed on Schedule 5.5, individually and in the aggregate, are
not material to the Company and the Subsidiary, taken as a whole.
5.6 Absence of Undisclosed Liabilities. All of the obligations or
----------------------------------
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise,
whether due or to become due, and regardless of when asserted, including taxes)
("Liabilities") required to be reflected on the "Latest Balance Sheet" in
accordance with generally accepted accounting principles have been so reflected.
To the best knowledge of the Company and the Subsidiary, neither the Company nor
any of the Subsidiaries has any Liabilities except (a) as reflected on the
Latest Balance Sheet, (b) Liabilities which have arisen after the date of the
Latest Balance Sheet in the ordinary course of business, none of which is an
uninsured liability which could reasonably be expected to have a Material
Adverse Effect, (c) Liabilities which have arisen outside of the ordinary course
of business, none of which is an uninsured liability which could reasonably be
expected to have a Material Adverse Effect or (d) as otherwise disclosed on
Schedule 5.6.
5.7 No Material Adverse Changes. Since the date of the Latest Balance
---------------------------
Sheet, there has been no adverse change in, and no event, occurrence or
development in, the business of the Company or any of the Subsidiaries that,
taken together with other events, occurrences and developments with respect to
such business, has had, or would reasonably be expected to have, a Material
Adverse Effect; provided that, for the purposes of this Section 5.7 only,
-------------
general industry trends in the subprime mortgage lending market, including those
set forth on Schedule 5.7, shall not be deemed to be such a change, event,
occurrence or development.
5.8 Tax Matters. Neither the Company nor any of the Subsidiaries is
-----------
delinquent in the payment of any material foreign, federal, state or local tax
or in the payment of any material assessment or governmental charge. The
Company and each of the Subsidiaries has filed all required foreign, federal,
state or local tax returns or appropriate extension requests on a timely basis,
except for such returns or requests which the failure to file would not
reasonably be expected to have a Material Adverse Effect. Neither the Company
nor any of the Subsidiaries has requested any extension of time within which to
file any tax return that has not since been filed. Neither the Company nor any
of the Subsidiaries has received notice of any tax deficiency proposed or
assessed against it or has executed any waiver of any statute of limitations on
the assessment or collection of any tax.
-7-
5.9 Litigation. There are no actions, suits, proceedings, orders or
----------
investigations pending or, to the best knowledge of the Company and the
Subsidiary, threatened against the Company or any of the Subsidiaries, at law or
in equity, or before or by any federal, state or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect. Set forth on Schedule 5.9 are all of such pending
actions, suits, proceedings, orders or investigations as of the date of this
Agreement.
5.10 Compliance with Laws; Permits. The Company and each of the
-----------------------------
Subsidiaries has complied in all respects with all applicable laws and
regulations of foreign, federal, state and local governments and all agencies
thereof which affect the business or any owned or leased properties of the
Company or any of the Subsidiaries and to which the Company or any of the
Subsidiaries is subject, except where the failure to do so would not have a
Material Adverse Effect. No claims have been filed by such governments or
agencies against the Company or any of the Subsidiaries alleging failures to
comply with any such law or regulation which claims (a) individually or in the
aggregate, if successful, could reasonably be expected to have a Material
Adverse Effect, and (b) have not been resolved to the satisfaction of such
governments or agencies. The Company and each of the Subsidiaries holds all of
the permits, licenses, certificates and other authorizations of foreign,
federal, state and local governmental agencies required for the conduct of the
business, except where the failure to do so would not reasonably be expected to
have a Material Adverse Effect.
5.11 Shares. The Shares to be sold to the Purchaser at the Closing,
------
when issued and paid for pursuant to the terms of this Agreement, will be duly
and validly authorized, issued and outstanding, fully paid, nonassessable and
free and clear of all pledges, liens, encumbrances and restrictions.
5.12 No Brokers or Finders. No Person has or will have, as a result
---------------------
of any act or omission of the Company, any right, interest or valid claim
against the Company or the Purchaser for any commission, fee or other
compensation as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
5.13 Year 2000 Compliance. The Company has (a) initiated a review and
--------------------
assessment of all areas of its business and operations and of each of its
Subsidiaries (including those affected by their respective suppliers, vendors
and customers) that could be adversely affected by the risk that computer
applications used by it or any of the Subsidiaries (or their respective
suppliers, vendors and customers) may be unable to recognize and perform
properly date-sensitive functions involving certain dates prior to and any date
after December 31, 1999 (the "Year 2000 Problem"), (b) developed a plan and
timetable for addressing the Year 2000 Problem on a timely basis, and (c) to
date, implemented that plan in accordance with that timetable. Based on the
foregoing, the Company believes that all computer applications used by it or any
of the Subsidiaries (or their respective suppliers, vendors and customers) are
reasonably expected on a timely basis to be Year 2000 Compliant (as defined
below), except to the extent
-8-
that a failure to do so could not reasonably be expected to have a Material
Adverse Effect. The costs of all assessment, remediation, testing and
integration related to the Company's plan for becoming Year 2000 Compliant is
not reasonably expected to have a Material Adverse Effect. As used in this
Agreement, the term "Year 2000 Compliant" shall mean the ability of such
computer application to (w) consistently and accurately handle date information
before, during and after January 1, 2000, including but not limited to accepting
date input, providing date output, and performing calculations on dates or
portions of dates; (x) function accurately substantially in accordance with its
specifications and without material interruption before, during and after
January 1, 2000, without any change of operations associated with the advent of
the new century; (y) respond to any two-digit date input in a way that resolves
any ambiguity as to century in a disclosed, defined and predetermined manner;
and (z) store and provide output of date information in ways that are
unambiguous as to century.
5.14 Takeover Laws. The Company has taken all action required to be
-------------
taken by it, if any, in order to exempt the purchase and sale of the Shares and
the granting to Purchaser of Board representation rights, the right of first
refusal and the preemptive right pursuant to Sections 8.3 and 8.4 of this
Agreement from, and such transactions are exempt from, the requirements of any
"moratorium", "control share", "fair price" or other antitakeover laws and
regulations of the States of Delaware and California (collectively, "Takeover
Laws"), including, without limitation, Section 203 of the Delaware General
Corporation Law ("DGCL").
6. Representations and Warranties of the Purchaser. The Purchaser hereby
-----------------------------------------------
represents and warrants to the Company that:
6.1 Investment Representations. The Shares being acquired by the
--------------------------
Purchaser are being purchased for the Purchaser's own account and not with the
view to, or for resale in connection with, any distribution or public offering
thereof within the meaning of the Securities Act. The Purchaser understands that
neither the Shares nor the Conversion Shares have been registered under the
Securities Act by reason of their contemplated issuance in transactions exempt
from the registration and prospectus delivery requirements of the Securities Act
pursuant to Section 4(2) thereof, and that the reliance of the Company upon this
exemption from such registration is predicated in part upon the representations
and warranties of the Purchaser contained herein. The Purchaser is an
"accredited investor" as that term is defined in Regulation D promulgated under
the Securities Act and has such knowledge and experience in financial and
business matters that the Purchaser is capable of evaluating the merits and
risks of the investment to be made hereunder by the Purchaser.
6.2 Organization and Qualification. The Purchaser is a corporation
------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has the requisite corporate power to carry on its
business as now conducted. The Purchaser is registered as a bank holding company
under the BHCA. The Purchaser is licensed or qualified to do business in every
Jurisdiction in which the nature of its business or its ownership of property
requires it to be licensed or qualified, except where the failure to be so
licensed or qualified would not reasonably be expected to have a material
adverse effect on (a) the business, assets,
-9-
liabilities, results of operations or financial condition of the Purchaser or
(b) on the ability of the Purchaser to perform its obligations under or with
respect to, or to consummate the transactions contemplated by, this Agreement,
the Flow Agreement or the Service Provider Agreement.
6.3 Authority Relative to this Agreement; Non-Contravention. The
-------------------------------------------------------
Purchaser has the requisite corporate power and authority to enter into this
Agreement, to carry out its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Purchaser and the consummation by the Purchaser of the transactions
contemplated hereby have been duly authorized by all requisite corporate action
on behalf of the Purchaser and no other corporate proceedings on the part of the
Purchaser are necessary to authorize this Agreement and such transactions. This
Agreement has been duly executed and delivered by the Purchaser and constitutes
a valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, except as the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or similar laws affecting the enforcement
of creditors' rights generally and to judicial limitations on the enforcement of
the remedy of specific performance and other equitable remedies and except as
the indemnification provisions of the registration rights described in Exhibit F
may be limited by principles of public policy. The Purchaser is neither subject
to, nor obligated under, any provision of (a) its charter or bylaws, (b) any
agreement, arrangement or understanding, (c) any license, franchise or pen-nit
or (d) subject to obtaining the approvals referred to in the next sentence, any
law, regulation, order, judgment or decree, which would be breached or violated,
or in respect of which a right of termination or acceleration or any encumbrance
on any of its assets would be created, by the execution, delivery or performance
of this Agreement or the consummation of the transactions contemplated hereby,
other than any such breaches, violations, terminations, accelerations or
encumbrances which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on (y) the business, assets,
liabilities, results of operations or financial condition of the Purchaser and
its subsidiaries, taken as a whole, or (z) on the ability of the Purchaser to
perform its obligations under or with respect to, or to consummate the
transactions contemplated by, this Agreement, the Flow Agreement or the Service
Provider Agreement. Other than any approvals or filings required under the
BHCA or the HSR Act, and assuming the accuracy of the representations of the
Company contained in Section 5, no authorization, consent or approval of, or
filing with, any public body, court or authority is necessary on the part of the
Purchaser for the consummation by the Purchaser of the transactions contemplated
by this Agreement.
6.4 No Brokers or Finders. No Person has or will have, as a result of
---------------------
any act or omission of the Purchaser, any right, interest or valid claim against
the Company or the Purchaser for any commission, fee or other compensation as a
finder or broker, or in any similar capacity, in connection with the
transactions contemplated by this Agreement.
6.5 Restriction on Transfer of Shares.
---------------------------------
(a) The Purchaser acknowledges and agrees that the Shares and the
Conversion Shares are only transferable pursuant to (i) a public offering
registered under the
-10-
Securities Act, (ii) Rule 144 promulgated by the Commission under the Securities
Act (or any similar rule then in effect) if such rule is available and (iii),
subject to the conditions specified elsewhere in this Section 6.5, any other
legally available means of transfer.
(b) Legend. Each certificate representing Shares shall be endorsed
------
with the following legend:
"The shares represented by this certificate may not be transferred without
(i) an opinion of counsel satisfactory to this corporation that such
transfer may lawfully be made without registration under the Securities Act
of 1933, as amended, and all applicable state securities laws or (ii) such
registration."
Upon the conversion of any Shares, unless the Company receives an opinion of
counsel satisfactory to the Company to the effect that a subsequent transfer of
the Conversion Shares may be made without registration or further restriction or
transfer, or unless such Conversion Shares are being disposed of pursuant to a
registration statement filed under the Securities Act, the same legend shall be
endorsed on each certificate evidencing such Conversion Shares.
(c) Removal of Legend. Any legend endorsed on a certificate
-----------------
evidencing Shares or Conversion Shares pursuant to Section 6.5(b) hereof shall
be removed, and the Company shall issue a certificate without such legend to the
holder of such Shares or Conversion Shares, if such Shares or Conversion Shares
are being disposed of pursuant to a registration statement filed under the
Securities Act or pursuant to Rule 144 or any similar rule then in effect or if
such holder provides the Company with an opinion of counsel satisfactory to the
Company to the effect that a transfer of such Shares or Conversion Shares may be
made without registration. In addition, if the holder of such Shares or
Conversion Shares delivers to the Company an opinion of such counsel to the
effect that no subsequent transfer of such Shares or Conversion Shares will
require registration under the Securities Act, the Company will promptly deliver
new certificates evidencing such Shares or Conversion Shares that do not bear
the legend set forth in Section 6.5(b).
7. Conditions to Closing.
---------------------
7.1 Conditions to Purchaser's Obligation. The Purchaser's obligation
------------------------------------
to purchase and pay for the Shares is subject to the fulfillment prior to or on
the Closing Date of the following conditions, any of which may be waived in
whole or in part by the Purchaser:
(a) Representations and Compliance. The representations and
------------------------------
warranties of the Company in this Agreement shall have been true and correct as
of the date hereof, and such representations and warranties shall be true and
correct as of the Closing Date as if made at and as of the Closing Date; and the
Company shall have performed in all material respects each obligation and
agreement and complied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to the Closing Date.
-11-
(b) Officers' Certificate of the Company. The Company shall have
------------------------------------
furnished to the Purchaser a certificate of the Chief Executive Officer and the
Chief Financial Officer of the Company, dated as of the Closing Date, in which
such officers shall certify on behalf of the Company that (i) the conditions set
forth in Section 7.1(a) have been fulfilled, and (ii) except as disclosed in
such certificate, Schedule 5.9 is true and correct as of the Closing Date.
(c) Secretary's Certificate. The Company shall have furnished to the
-----------------------
Purchaser (i) copies of the text of the resolutions by which the corporate
action on the part of the Company necessary to approve this Agreement, the Flow
Agreement and the Service Provider Agreement and the transactions contemplated
hereby and thereby were taken, and (ii) a certificate dated as of the Closing
Date executed on behalf of the Company by its corporate secretary or one of its
assistant corporate secretaries certifying to the Purchaser that such copies are
true, correct and complete copies of such resolutions and that such resolutions
were duly adopted and have not been amended or rescinded.
(d) Material Adverse Change. Since the date of this Agreement, there
-----------------------
shall have been no adverse change in, and no event, occurrence or development
in, the business of the Company or the Subsidiary that, taken together with
other events, occurrences and developments with respect to such business, would
have or would reasonably be expected to have a Material Adverse Effect.
(e) Proceedings. All corporate proceedings and actions taken by the
-----------
Company in connection with the transactions contemplated by this Agreement
(including the authorization of the Shares through the filing of the Certificate
of Designations in the State of Delaware) and all certificates, agreements,
instruments and other documents referenced herein or incident to any such
transaction shall be reasonably satisfactory in form and substance to the
Purchaser.
(f) Service Provider Agreement. The Company shall have executed and
--------------------------
delivered to the Purchaser the Service Provider Agreement reflecting
substantially the terms listed on Exhibit C to this Agreement.
(g) Flow Agreement. The Company shall have executed and delivered to
--------------
the Purchaser the Flow Agreement reflecting substantially the terms listed on
Exhibit B to this Agreement.
(h) Registration Rights Agreement. The Company shall have executed
-----------------------------
and delivered to the Purchaser the Registration Rights Agreement substantially
in the form attached hereto as Exhibit F.
(i) Employment Agreements. The Company and each of Xxxxxx X. Xxxx,
---------------------
Xxxx X. Xxxxxxx, Xxxxxx X. Xxxxxxxxx and Xxxxx Xxxxxx shall have executed and
delivered to the Purchaser employment/noncompete agreements with terms ending on
December 31, 2002 and otherwise on the same terms as each of their existing
employment/noncompete agreements or on such other terms as may be approved by
the Purchaser prior to or at the Closing. The parties
-12-
acknowledge and agree that any amendments to such agreements after the Closing
Date shall be subject to the approval of the Compensation Committee of the
Company; provided that the nonsolicit and noncompete provisions of such
agreement shall not be amended without the consent of the Purchaser.
(j) Shareholder Agreement. Each of Xxxxxx X. Xxxx, Xxxx X. Xxxxxxx,
---------------------
Xxxxxx X. Xxxxxxxxx and Xxxxx Xxxxxx shall have executed and delivered to the
Purchaser the Shareholder Agreement substantially in the form attached hereto as
Exhibit A.
(k) Absence of Undisclosed Liabilities. As of the Closing Date,
----------------------------------
neither the Company nor any of the Subsidiaries has any Liabilities except (a)
as reflected on the Latest Balance Sheet, (b) Liabilities which have arisen
after the date of the Latest Balance Sheet in the ordinary course of business,
none of which is an uninsured liability which could reasonably be expected to
have a Material Adverse Effect, (c) Liabilities which have arisen outside of the
ordinary course of business, none of which is an uninsured liability which could
reasonably be expected to have a Material Adverse Effect or (d) as otherwise
disclosed on Schedule 5.6.
7.2 Conditions to Obligations of the Company. The obligation of the
----------------------------------------
Company to issue and sell the Shares to the Purchaser is subject to the
fulfillment prior to or on the Closing Date of the following conditions, any of
which may be waived in whole or in part by the Company:
(a) Representations and Compliance. The representations and
------------------------------
warranties of the Purchaser in this Agreement shall have been true and correct
as of the date hereof, and such representations and warranties shall be true and
correct as of the Closing Date as if made at and as of the Closing Date; and the
Purchaser shall have performed in all material respects each obligation and
agreement and complied in all material respects with each covenant to be
performed and complied with by it hereunder at or prior to the Closing Date.
(b) Officers' Certificate of the Purchaser. The Purchaser shall have
--------------------------------------
furnished to the Company a certificate of a senior executive officer of the
Purchaser, dated as of the Closing Date, in which such officer shall certify, on
behalf of the Purchaser, that the conditions set forth in Section 7.2(a) have
been fulfilled.
(c) Material Adverse Change. Since the date of this Agreement, there
-----------------------
shall have been no adverse change in, and no event, occurrence or development
in, the business of the Purchaser that, taken together with other events,
occurrences and developments with respect to such business, would have or would
reasonably be expected to have a material adverse effect on the ability of the
Purchaser to perform its obligations under or with respect to, or to consummate
the transactions contemplated by, this Agreement, the Flow Agreement or the
Service Provider Agreement.
-13-
(d) Proceedings. All corporate proceedings and actions taken by the
-----------
Purchaser in connection with the transactions contemplated by this Agreement and
all certificates, agreements, instruments and other documents referenced herein
or incident to any such transaction shall be reasonably satisfactory in form and
substance to the Company.
(e) Service Provider Agreement. The Purchaser shall have executed and
--------------------------
delivered to the Company the Service Provider Agreement reflecting substantially
the terms listed on Exhibit C to this Agreement.
(f) Flow Agreement. The Purchaser shall have executed and delivered
--------------
to the Company the Flow Agreement reflecting substantially the terms listed on
Exhibit B to this Agreement.
(g) Registration Rights Agreement. The Purchaser shall have executed
-----------------------------
and delivered to the Company the Registration Rights Agreement substantially in
the form attached hereto as Exhibit F.
(h) Consent and Amendment. The Company shall have received the
---------------------
required consent and amendment to its credit facility set forth on Schedule 5.2.
7.3 Mutual Conditions. The obligation of either of the parties hereto
-----------------
to consummate the transactions contemplated hereby is subject to the fulfillment
prior to or on the Closing Date of the following conditions, any of which may be
waived in whole or in part only by the party against whom enforcement of this
Agreement is sought:
(a) Regulatory Approval. All necessary regulatory or governmental
-------------------
filings, authorizations or approvals required to consummate the transactions
contemplated by this Agreement, the Flow Agreement or the Service Provider
Agreement shall have been duly made or obtained and shall remain in full force
and effect and all statutory waiting periods in respect thereof shall have
expired. None of such approvals shall contain any conditions or restrictions
that will materially restrict or limit the business or activities of the
Purchaser, the Company or the Subsidiary or have a material adverse effect on,
or would be reasonably likely to have a material adverse effect on, the
business, operations or financial condition of the Purchaser and its
subsidiaries, taken as a whole, on the one hand, or the Company and the
Subsidiary, taken as a whole, on the other hand.
(b) No Injunction. No injunction or other order entered by a state or
-------------
federal court of competent jurisdiction shall have been issued and remain in
effect which would impair the consummation of the transactions contemplated
hereby and by the Flow and Service Provider Agreements.
(c) No Prohibitive Change of Law. There shall have been no law,
----------------------------
statute, rule or regulation, domestic or foreign, enacted or promulgated which
would materially impair the consummation of the transactions contemplated hereby
and by the Flow and Service Provider Agreements.
-14-
(d) Governmental Action. There shall not be any action taken, or any
-------------------
statute, rule, regulation, judgment, order or injunction proposed, enacted,
entered, enforced, promulgated, issued or deemed applicable to the transactions
contemplated hereby and by the Flow and Service Provider Agreements by any
federal, state or other court, government or governmental authority or agency,
which would reasonably be expected to result, directly or indirectly, in
restraining or prohibiting the consummation of the transactions contemplated
hereby and thereby or obtaining material damages from the Company or any of the
Subsidiaries, or the Purchaser or any of Purchaser's subsidiaries, in connection
with the transactions contemplated hereby or thereby.
8. Covenants of the Company. The Company covenants and agrees with the
------------------------
Purchaser that:
8.1 Furnishing of Information and Access. The Company will:
------------------------------------
(a) furnish the Purchaser with copies of all registration statements,
proxy materials, reports, financial statements and other documents filed by the
Company with the Commission or with any securities exchange or automated
quotation system, or sent by the Company to its shareholders; and
(b) make available to the Purchaser with reasonable promptness at the
sole expense of the Purchaser such information and data with respect to the
Company and the Subsidiary, and such access to the executive officers and
independent accountants of the Company and the Subsidiary, as the Purchaser may
from time to time reasonably request for the purpose of monitoring the
Purchaser's investment in the Company. Purchaser acknowledges that the
information and data of the Company to which Purchaser may have access from time
to time may constitute material non-public information. Purchaser hereby agrees
that it will refrain from trading in the Company's securities when it has or is
aware of such material non-public information. Purchaser agrees that any
information obtained by the Purchaser pursuant to this Section 8.1(b) which
is, or would reasonably be perceived to be, proprietary to the Company or
otherwise confidential, will not be disclosed to any third parties without the
prior written consent of the Company, will not be used for any purpose other
than monitoring the Purchaser's investment in the Company, and will not be used,
directly or indirectly, against the Company for any competitive purpose.
8.2 Use of Proceeds. The proceeds from the sale of the Shares shall
---------------
be used for working capital and general corporate purposes (other than dividends
and extraordinary disbursements).
8.3 Board Representation.
--------------------
(a) On or prior to, and effective as of, the Closing Date, and within
30 days after June 30, September 30 and December 31 each year, the Company's
Board of Directors shall take all action necessary (i) to expand the Company's
Board of Directors, if necessary, and (ii) to appoint one or more individuals
selected by the Purchaser to serve on the Company's Board of
-15-
Directors as the Purchaser's representatives such that the proportion of the
Board that is made up of representatives of the Purchaser as of the Closing
Date, or as of the prior June 30, September 30 or December 31, as the case may
be, shall equal the proportion of the Company's outstanding shares of Common
Stock represented by the shares of Common Stock owned by the Purchaser as of
that date (assuming for this purpose the conversion of the Shares and any other
Convertible Securities); provided that, if such proportion would cause one-half
-------------
or less of a director (in addition to one or more whole directors) to be
appointed to the Board as a representative of the Purchaser then such proportion
shall be rounded down to the nearest whole number, and if such proportion would
cause more than one-half of a director (in addition to one or more whole
directors) to be appointed to the Board then such proportion shall be rounded up
to the nearest whole number; provided further that, notwithstanding the
---------------------
foregoing, so long as this Section 8.3 is in effect, the Purchaser shall be
entitled to at least one representative on the Company's Board of Directors. If
more than one individual is to be appointed to the Board of Directors pursuant
to this Section 8.3(a), such individuals shall be distributed as evenly as
possible among the three classes of Directors with the first such individual
being appointed to Class I, the second to Class II and the third to Class III.
(b) Commencing with its 1999 annual meeting of shareholders and in
connection with each annual meeting of shareholders thereafter, the Company
shall take all reasonable action necessary to nominate and support (in the same
manner as it supports the other nominees to its Board at that meeting) one or
more individuals for election to the Board of Directors as representatives of
the Purchaser such that the proportion of the Board that is made up of
representatives of the Purchaser serving on the Company's Board of Directors
after such annual meeting of shareholders (assuming the election of the persons
so nominated) shall, subject to the two provisos in Section 8.3(a), equal the
proportion of the Company's outstanding shares of Common Stock owned by the
Purchaser as of the end of the Company's last fiscal year (assuming for this
purpose the conversion of the Shares and any other Convertible Securities). In
the event that the shareholders of the Company shall fail to elect enough
persons to serve as representatives of the Purchaser on the Company's Board of
Directors to satisfy the proportional requirements of this Section 8.3, the
Board of Directors of the Company shall take any actions necessary to appoint to
the Board a different set of individuals selected by the Purchaser to serve as
its representatives on the Board such that the proportional requirements are
satisfied. Purchaser agrees that it will not select any person to serve as its
representative on the Company's Board of Directors pursuant to this Section 8.3
if (i) such person is not reasonably experienced in business, financial or
mortgage banking matters, (ii) such person has been convicted of, or has pled
nolo contendere to, a felony, (iii) the election of such person would violate
any law, or (iv) any event required to be disclosed pursuant to Item 401(f) of
Regulation S-K under the Exchange Act has occurred with respect to such person.
Purchaser shall use its reasonable efforts to afford the directors of the
Company a reasonable opportunity to meet any individual that Purchaser is
considering selecting as one of its representative on the Company's Board of
Directors.
(c) For so long as the Purchaser has at least one representative on
the Company's Board of Directors, (i) the representative will be entitled to
receive notice of and attend all meetings of the Board of Directors of the
Company, to receive any materials distributed
-16-
to the directors in their capacity as such and otherwise to be treated the same
as the other directors of the Company, (ii) the Company will give the Purchaser
written notice of each regularly scheduled meeting of any duly constituted
committee of the Board of Directors (a "Committee") as far in advance as such
notice is required to be delivered to the directors (but at least one Business
Day prior to the date of each special meeting of any Committee); (iii) the
Purchaser will be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes and press
releases) given to directors in connection with such Committee meetings at the
same time such materials and other information are given to the directors; (iv)
if the Company proposes to take any action by written consent in lieu of a
meeting of any Committee of its Board of Directors, the Company will give prompt
written notice thereof to the Purchaser prior to the effective date of such
consent describing in reasonable detail the nature and substance of such
consent; (v) the Company shall maintain a provision in its bylaws providing for
the indemnification of its directors to the full extent permitted by the
Delaware General Corporation Law; (vi) the Board of Directors of the Company
shall consist of no fewer than 8 members; and (vii) if the Board of Directors is
to be expanded, then additional representatives of the Purchaser shall be
appointed to the Board as necessary to maintain the then required proportion of
representatives of the Purchaser on the Board; provided, however, that,
-----------------------
notwithstanding clauses (ii), (iii) and (iv) above, the Purchaser shall not be
entitled to the rights thereunder if and to the extent that such Committee
relates to the Company's relationship with the Purchaser or any transaction in
which the Purchaser has an interest other than as a shareholder of the Company.
(d) The Purchaser may, at its sole discretion at any time and from
time to time, elect to waive its right to some or all of the representatives on
the Company's Board to which it is entitled under this Section 8.3, and the
exercise of any such waiver shall not cause the Purchaser's right to such
representatives to terminate.
(e) The Purchaser hereby agrees that, in the event that the proportion
of the Company's outstanding shares of Common Stock owned by the Purchaser as of
any June 30, September 30 or December 31 as described above would indicate that
the Purchaser should have fewer representatives on the Board than it has at that
time, then the Purchaser will cause one or more of its representatives to resign
so that the Purchaser has the number of Board representatives to which it is
entitled under this Section 8.3.
8.4 Right of First Refusal; Preemptive Right.
----------------------------------------
(a) If, after the date hereof, the Company should decide to issue any
New Securities (as defined in subparagraph (c) below) for cash, the Company
shall, in accordance with this Section 8.4, first offer to issue all of such New
Securities to the Purchaser upon substantially the same terms and conditions as
the Company is proposing to issue such New Securities to others. Purchaser's
right to purchase New Securities pursuant to this Section 8.4(a) shall not be
exercisable in connection with any issuance as to which the Purchaser elects to
exercise its right under Section 8.4(b).
-17-
(b) If, after the date hereof, the Company should decide to issue any
New Securities, the Company shall, in accordance with this Section 8.4, also
concurrently offer to issue to the Purchaser, upon substantially the same terms
and conditions as the Company is proposing to issue such New Securities to
others, a sufficient number of such New Securities so that the Purchaser's
Applicable Percentage (as defined in subparagraph (d) below) will, if such New
Securities are purchased by the Purchaser and such others, remain unchanged
following the proposed issuance of New Securities (any such issuance is referred
to herein as a "Preemptive Rights Issuance"). Purchaser's right to purchase New
Securities pursuant to this Section 8.4(b) shall not be exercisable in
connection with any issuance as to which the Purchaser elects to exercise its
right under Section 8.4(a).
(c) For purposes of this Agreement, "New Securities" means any
additional shares of capital stock of the Company, whether or not currently
authorized, and any Convertible Securities; provided that "New Securities" shall
not include: (a) shares of Common Stock issued upon conversion of the Shares or
to the Purchaser, (b) shares of the Company's capital stock or other securities
issued in connection with the acquisition of any other corporation or business
entity, in whole or in part, directly or indirectly, by the Company, (c) shares
of the Company's capital stock issued in connection with any stock split, stock
divided or recapitalization of the Company, (d) shares of the Company's capital
stock issued upon exercise, conversion or exchange of Convertible Securities
described on Schedule 5.3 hereto or pursuant to any other arrangement or
agreement as of the date hereof described on Schedule 5.3 hereto, including
without limitation shares of the Company's capital stock authorized or available
for issuance under any Company Plan as described on Schedule 5.3, (e) shares of
the Company's capital stock issued upon exercise, conversion or exchange of
Convertible Securities if the issuance of such Convertible Securities permitted
Purchaser to purchase New Securities in accordance with this Section 8.4, (f) up
to 1,000,000 shares of the Company's capital stock or Convertible Securities
issued pursuant to any Additional Employee Issuance (as defined herein), and (g)
shares of the Company's capital stock issued upon exercise, conversion or
exchange of any Convertible Securities which did not constitute "New Securities"
upon their issuance by virtue of subsection (f) above. For purposes of this
Agreement, the terms "Additional Employee Issuance" means any of the following:
(i) any stock-related plan for the benefit of the Company's or its subsidiaries'
employees, officers, directors or consultants adopted by the Company after the
date of this Agreement; (ii) a repricing or a regrant of any Convertible
Securities issued pursuant to any Company Plan; or (iii) an increase in the
number of shares authorized and available for issuance pursuant to any Company
Plan.
(d) For purposes of this Agreement, the Purchaser's "Applicable
Percentage" shall be equal to the number of outstanding shares of Common Stock
held by the Purchaser (assuming for this purpose the conversion of the Shares
and any other Convertible Securities held by the Purchaser, and including only
shares of Common Stock received pursuant to any such conversion and any other
shares acquired by the Purchaser from the Company) divided by the total number
of outstanding shares of Common Stock (assuming for this purpose the conversion
of the Shares and any other Convertible Securities).
-18-
(e) In the event that the Company is required to make an offer of New
Securities to the Purchaser pursuant to subparagraph (a) or (b) above, it shall
give the Purchaser written notice of such offer, describing the type of New
Securities, the estimated price and the terms upon which the Company proposes
(or is obligated) to issue the same, including for an offer of New Securities
pursuant to subparagraph (b) above, the number of New Securities offered to the
Purchaser for the Purchaser to maintain the Purchaser's Applicable Percentage
(the "Subscription Notice"). The Purchaser shall have ten Business Days from
the date of receipt of any Subscription Notice to subscribe to purchase such New
Securities (and, in the case of subparagraph (a) above, all, but not less than
all of such New Securities) for the price and upon the terms specified in the
Subscription Notice by giving written notice to the Company, which subscription
by Purchaser shall be binding and irrevocable subject only to the making of any
necessary regulatory or governmental filings, the receipt of any necessary
regulatory or governmental authorizations and approvals, and the expiration of
all statutory waiting periods in respect thereof The closing of the sale of the
New Securities to the Purchaser pursuant to subparagraph (a) above shall take
place within the later of (i) ten Business Days after the delivery of such
notice to the Company, or (ii) three Business Days after all necessary
shareholder, regulatory or governmental filings, authorizations or approvals
required to consummate such purchase shall have been duly made or obtained and
all statutory waiting periods in respect thereof shall have expired, provided
--------
that if such closing has not occurred within 90 days after the date of delivery
----
of such notice to the Company, the Purchaser's right to purchase such issue of
New Securities pursuant to subparagraph (a) above shall terminate. The closing
of the sale of the New Securities to the Purchaser pursuant to subparagraph (b)
above shall take place within the later of (i) ten Business Days after the
occurrence of the Preemptive Rights Issuance, or (ii) three Business Days after
all necessary shareholder, regulatory or governmental filings, authorizations or
approvals required to consummate such purchase shall have been duly made or
obtained and all statutory waiting periods in respect thereof shall have
expired; provided that the Purchaser shall have no right to purchase New
------------
Securities under subparagraph (b) above unless and until the applicable
Preemptive Rights Issuance has occurred; provided further that if such closing
---------------------
has not occurred within 90 days after the occurrence of the Preemptive Rights
Issuance to the Company, the Purchaser's right to purchase such issue of New
Securities pursuant to subparagraph (b) above shall terminate. The Purchaser and
the Company mutually agree that they will each use all reasonable efforts to
make, and to assist with the making of, any such filing and to obtain, and to
assist with obtaining, any such authorization or approval as promptly as
practicable.
(f) In the event and to the extent that the Purchaser fails to
subscribe for any New Securities offered to it pursuant to subparagraph (a) or
(b) above within ten Business Days after the date of receipt of the Subscription
Notice, the Company shall have 120 days thereafter to sell the New Securities at
a price which is not less than 95% of the price specified in the Subscription
Notice and upon terms otherwise no more favorable to the purchasers thereof than
the terms specified in the Subscription Notice. In the event the Company has not
sold the New Securities within such 120 day period, the Company shall not
thereafter issue any New Securities without first offering such New Securities
to the Purchaser as required by this Section 8.4.
-19-
(g) The provisions of Section 8.4(a) shall terminate and no longer be
of any effect as of the earlier of (i) 24 months after the Closing Date, or (ii)
the receipt by the Company of gross proceeds totaling $30 million from the sale
of shares of capital stock of the Company or Convertible Securities, other than
pursuant to a Company Plan, after the Closing Date.
(h) In the event that the proposed issuance which gives rise to an
offer pursuant to subparagraph (a) or (b) above is a registered public offering
by the Company, then the parties agree that (i) the Subscription Notice shall be
given upon commencement of preparations for the offering; (ii) for purposes of
an offer pursuant to subparagraph (a) above, the purchase price shall be equal
to the average closing sale price of the Common Stock for the ten trading days
immediately preceding delivery of the Subscription Notice; (iii) for purposes of
an offer pursuant to subparagraph (b) above, the purchase price shall be equal
to the price at which the shares are sold in the public offering, and (iv) if
the Purchaser fails to subscribe for any New Securities offered to it pursuant
to subparagraph (a) or (b) above, then, for the purposes of subparagraph (f)
above, the Company shall have 150 days thereafter to sell the New Securities in
a registered public offering at any price.
8.5 No Negotiations, etc. The Company will not, and will cause the
---------------------
Subsidiary and the Company's and the Subsidiary's respective officers,
directors, employees, agents or affiliates, not to, directly or indirectly,
solicit, authorize, initiate or encourage submission of, any proposal, offer,
tender offer or exchange offer from any person or entity (including any of its
or their officers or employees) relating to any liquidation, dissolution,
recapitalization, merger, consolidation or acquisition or purchase of all or a
material portion of the assets of, or any material equity interest in, the
Company or the Subsidiary or other similar transaction or business combination
involving the Company or the Subsidiary, or, unless the Company shall have
determined, based on the advice of counsel to the Company, that the Board of
Directors of the Company has a fiduciary duty to do so, (a) participate in any
negotiations in connection with or in furtherance of any of the foregoing or (b)
permit any person other than the Purchaser and its representatives to have any
access to the facilities of, or (c) furnish to any person other than the
Purchaser and its representatives any information with respect to, the Company
or the Subsidiary in connection with or in furtherance of any of the foregoing.
The Company shall promptly notify the Purchaser if any such proposal or offer,
or any inquiry from or contact with any person with respect thereto, is made,
and shall promptly provide the Purchaser with such information regarding such
proposal, offer, inquiry or contact as the Purchaser may request.
Notwithstanding the foregoing, this Section 8.5 shall not be deemed to prohibit
the Company or its officers, directors, employees, agents and affiliates from
initiating, encouraging, negotiating and entering into any acquisition or
purchase of a business or assets using shares of the Company's Common Stock as
consideration for the acquisition or purchase so long as the number of shares of
Common Stock to be issued in the transaction (assuming the exercise or
conversion of any Share Acquisition Rights or Convertible Securities to be
issued in the transaction) does not exceed 20% of the shares of Common Stock
then outstanding.
-20-
8.6 Undertaking to Cooperate in Sales of Shares. In the event that
-------------------------------------------
the Purchaser determines to reduce its ownership interest in the Company, the
Company will use reasonable efforts to cooperate with and assist the Purchaser
(at Purchaser's expense) in connection with sales of shares of the Company's
capital stock whether through private placements, market transactions pursuant
to Rule 144 or registered offerings pursuant to the Registration Rights
Agreement. For so long as the Purchaser continues to hold any Shares (or shares
of Common Stock acquired upon conversion thereof which do not qualify for sale
pursuant to Rule 144(k)), the Company shall use reasonable efforts to file all
annual, quarterly and other reports required to be filed by the Company under
Section 13 or 15(d) of the Exchange Act and the rules and regulations
thereunder, as amended from time to time. The Company shall cooperate with the
Purchaser (at Purchaser's expense), in such manner as the Purchaser may
reasonably request, so as to enable any such sales to be made in accordance with
applicable laws, rules and regulations, the requirements of the Company's
transfer agent and the reasonable requirements of any broker through which such
sales are proposed to be executed.
8.7 Undertaking to Cooperate in Purchases of Shares. Subject to
-----------------------------------------------
Section 10 hereof and to any confidentiality and other contractual or legal
restrictions applicable to the Company, the Company will, if requested to do so
by the Purchaser, cooperate with and use its best efforts to assist the
Purchaser in identifying existing shareholders of the Company who may be
interested in selling shares of Common Stock, and, once any such potential
seller is identified, will cooperate with the Purchaser (at Purchaser's
Expense), in such manner as the Purchaser may reasonably request, so as to
enable such purchases to be made in accordance with applicable laws rules and
regulations, the requirements of the Company's transfer agent and the reasonable
requirements of any broker through which such purchases are proposed to be
executed.
8.8 Regulatory Compliance.
---------------------
(a) As long as the Shares or the Conversion Shares are owned and
controlled by the Purchaser or by a nonbank subsidiary of the Purchaser, the
Company shall (i) conduct its current activities in conformity with the Federal
Reserve's regulations and orders under the BHCA governing such activities, (ii)
not engage in any new activities (A) that are impermissible for any bank holding
company under the BHCA and (B) until the Purchaser has provided prior notice to
the Federal Reserve, if required, under the BHCA of the Purchaser's intent to
engage in such activities and, if required, obtained the prior approval of the
Federal Reserve under the BHCA to engage in such activities through the Company,
and (iii) be subject to supervision and examination by the Federal Reserve;
provided, however, that the Company need not comply with this Section 8.8(a) in
-----------------------
the event (i) that the Shares or the Conversion Shares represent less than 5% of
any "class of voting shares" (as such term is defined in the Federal Reserve's
regulations and orders) of the Company or (ii) that the Purchaser ceases to be
regulated as a bank holding company under the BHCA.
(b) Following the assignment and transfer of the Shares or the
Conversion Shares to a national bank subsidiary of the Purchaser and, following
such assignment and transfer, for as long as the Shares or the Conversion Shares
are owned and controlled by a
-21-
national bank subsidiary of the Purchaser, the Company shall (i) conduct its
current activities in conformity with the OCC's regulations and orders under the
National Bank Act governing such activities, (ii) not engage in any new
activities (A) that are impermissible for any national bank under the National
Bank and (B) until the Purchaser has provided prior notice to the OCC, if
required, under the National Bank Act of the Purchaser's intent to engage in
such activities and, if required, obtained the prior approval of the OCC under
the National Bank Act to engage in such activities through the Company, and
(iii) be subject to supervision and examination by the OCC; provided, however,
that the Purchaser shall not assign or transfer the Shares or the Conversion
Shares to a national bank subsidiary of the Purchaser, unless and until the
Purchaser determines, in its reasonable discretion, that the Company would be
deemed to be an "affiliate" of Purchaser for purposes of Section 23A of the
Federal Reserve Act as a result of Purchaser's ownership of the Shares or the
Conversion Shares or any shares of Common Stock of the Company which Purchaser
may acquire in its discretion in accordance with the terms of this Agreement or
as a result of Purchaser's representation on the Company's Board of Directors or
as otherwise as required by Section 23A of the Federal Reserve Act.
8.9 Restriction on Company Plans. Without the prior written consent
----------------------------
of Purchaser, the Company shall not (i) increase the number of shares available
for issuance under, any of the Company Plans, (ii) adopt any other stock-related
plans not listed on Schedule 5.3 hereto, (iii) grant additional restricted stock
awards other than pursuant to the Founding Managers' Incentive Compensation Plan
or (iv) take any action to reprice or regrant any Convertible Securities issued
pursuant to any Company Plan; provided that, notwithstanding the foregoing, the
-------------
Company may take such actions in connection with an Additional Employee
Issuance, so long as the aggregate number of shares of capital stock which are
issued or issuable pursuant to any Additional Employee Issuance shall not exceed
1,000,000 shares of Common Stock (including no more than 250,000 shares of
Common Stock pursuant to restricted stock awards not made under the Founding
Managers' Incentive Compensation Plan).
8.10 Termination of Certain Covenants. Subject to any earlier
--------------------------------
termination provided for therein, the covenants of the Company in Section 8
(other than Section 8.8) and the proviso in the last sentence of Section 7.1 (i)
will terminate and no longer be of any force or effect on the earliest to occur
of (a) December 31, 2002, (b) the date on which the Purchaser owns less than 5%
of the Company's outstanding shares of Common Stock (assuming for this purpose
the conversion of the Shares and any other Convertible Securities) or (c) a
Purchaser Default. The covenants of the Company in Sections 8.4, 8.5, 8.7 and
8.9 will also terminate (a) upon the closing of an acquisition of the Purchaser
if the Purchaser is acquired in a transaction pursuant to which the acquiror
obtains the right to dictate a substantial majority of the Board of Directors of
Purchaser; or (b) if the Purchaser sells more than 20% of its shares of Common
Stock of the Company during any 90-day period, provided that sales of shares of
-------------
Common Stock for this purpose shall not include any shares sold by the Purchaser
because it was necessary or desirable to do so for regulatory reasons.
-22-
9. Mutual Covenants.
----------------
9.1 Regulatory Approvals. The Purchaser and the Company will use all
--------------------
reasonable efforts and will cooperate with each other in the preparation and
filing, as soon as practicable, of all notices, applications or other documents
required to obtain the regulatory approvals and consents necessary to satisfy
the condition set forth in Section 7.3(a), and will provide copies of the non-
confidential portions of such applications, filings and related correspondence
to the other party. Prior to filing each application, registration statement or
other document with the applicable regulatory authority, each party will provide
the other party with an opportunity to review and comment on the non-
confidential portions of each such application, registration statement or other
document. Each party will use all reasonable efforts and will cooperate with
the other party in taking any other actions necessary to obtain such regulatory
or other approvals and consents, including participating in any required
hearings or proceedings. Subject to the terms and conditions herein provided,
each party will use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement and the Flow and Service Provider
Agreements. Notwithstanding any provision to the contrary contained herein, no
later than five days after the execution of this Agreement (a) the Purchaser and
the Company shall file with the Federal Trade Commission and the Department of
Justice the appropriate documents pursuant to the rules and regulations
promulgated under Title 11 of the HSR Act reporting the sale of the Shares to
the Purchaser, and (b) the Purchaser shall file with the Federal Reserve the
applicable notices, applications and other documents required to obtain the
approval and consent of the Federal Reserve to the sale of the Shares to the
Purchaser.
9.2 Brokers and Finders Fees. Each of the parties hereto will
------------------------
indemnify and hold the other party harmless against any and all liability to any
Person with respect to any commission, fee or other compensation as a finder or
broker, or in any similar capacity, that may be payable or is determined to be
payable in connection with the transactions contemplated by this Agreement by
reason of any act or omission of the indemnifying party.
9.3 Notification of Certain Matters. Each party shall give prompt
-------------------------------
notice to the other parties of (a) the occurrence or failure to occur of any
event or the discovery of any information, which occurrence, failure or
discovery would be likely to cause any representation or warranty on its part
contained in this Agreement to be untrue or inaccurate when made, at the Closing
Date or at any time prior to the Closing Date, and (b) any failure of such party
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder.
9.4 Takeover Laws. No party shall take any action that would cause
-------------
the purchase and sale of the Shares or the granting to Purchaser of Board
representation rights, the right of first refusal and the preemptive right
pursuant to Sections 8.3 and 8.4 of this Agreement to be subject to requirements
imposed by any Takeover Law and each party shall take all necessary steps within
its control to exempt (or ensure the continued exemption of) the
-23-
transactions listed above, or if necessary challenge the validity or
applicability of, any applicable Takeover Law, as now or hereafter in effect,
including, without limitation, Section 203 of the DGCL, or any other Takeover
Laws that purport to apply to this Agreement, or the transactions contemplated
hereby.
9.5 Negotiation. Each party agrees that it will use its best efforts
-----------
and negotiate in good faith to resolve any issues that arise during the drafting
and negotiation of the Flow Agreement and the Service Provider Agreement.
10. Purchaser's Standstill Agreement. Unless such action shall have been
--------------------------------
consented to in writing by the Board of Directors of the Company, Purchaser
agrees that neither it nor any of its affiliates will, either directly or
indirectly, (a) acquire over 50% of the Company's outstanding capital stock; (b)
effect or propose (whether publicly or otherwise) to effect, participate in or
cause (i) any tender or exchange offer or merger or other business combination
involving the Company, (ii) any recapitalization, restructuring, liquidation,
dissolution or other extraordinary transaction with respect to the Company or
(iii) any "solicitation" of "proxies" (as such terms are used in proxy rules of
the Commission) or consents to vote any voting securities of the Company, (c)
form, join or in any way participate in a "group" (as defined under the Exchange
Act), or (d) take any action which might force the Company to make a public
announcement regarding any of the types of matters set forth in (a), (b) or (c)
above. The covenant of the Purchaser in this Section 10 will terminate and no
longer be of any force or effect on the earlier of December 31, 2002 and the
date on which the Purchaser and its Affiliates in the aggregate own less than 5%
of the Company's outstanding shares of Common Stock (assuming for this purpose
the conversion of the Shares and any other Convertible Securities).
11. Termination.
-----------
11.1 Methods of Termination. Prior to Closing, this Agreement may be
----------------------
terminated as follows:
(a) by the mutual consent of the parties hereto;
(b) by either the Purchaser or the Company if there has been a
misrepresentation, breach of warranty or breach of covenant on the part of the
other party under this Agreement;
(c) by either the Purchaser or the Company, if any of the conditions
to such party's obligation to consummate the transactions contemplated in this
Agreement shall have become impossible to satisfy;
-24-
(d) by either the Purchaser or the Company if the Closing shall not
have been consummated by December 31, 1998; provided that, neither the Company
--------
nor the Purchaser will be entitled to terminate this Agreement pursuant to this
Section 12.1(d) if such party's willful breach of this Agreement has prevented
the consummation of the transactions contemplated hereby; or
(e) by the Purchaser if, between the date hereof and the Closing
Date, there shall have been any occurrence that has resulted or could reasonably
be expected to result in a Material Adverse Effect.
11.2 Effect of Termination. In the event of termination of this
---------------------
Agreement as provided in Section 11.1, this Agreement shall become void (other
than Section 12.15 which shall remain in full force and effect) and there shall
be no liability on the part of any party hereto, or their respective
stockholders, officers, or directors.
12. Miscellaneous.
-------------
12.1 Press Releases and Announcements. No party hereto shall issue
--------------------------------
any press release (or make any other public announcement) related to this
Agreement or the transactions contemplated hereby without prior written approval
of the other party hereto, except as may be necessary, in the opinion of counsel
to the party seeking to make disclosure, to comply with any applicable laws,
including securities laws. If any such press release is so required, the party
making such disclosure shall, to the extent practicable, consult with the other
party prior to making such disclosure, and the parties shall use all reasonable
efforts, acting in good faith, to agree upon a text for such disclosure which is
satisfactory to all of the parties.
12.2 Entire Agreement. This Agreement (including the exhibits,
----------------
schedules and other documents referred to herein), the Flow Agreement, the
Service Provider Agreement and the Registration Rights Agreement contain the
entire understanding between the parties hereto with respect to the subject
matter hereof and thereof and supersede any prior understandings, agreements or
representations, written or oral, relating to the subject matter hereof and
thereof.
12.3. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which will be an original and all of which taken together
shall constitute one and the same agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
12.4 Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law but if any provision of this Agreement is held to be
invalid, illegal or unenforceable under any applicable law or rule, the
validity, legality and enforceability of the other provisions of this Agreement
will not be affected or impaired thereby.
-25-
12.5 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective heirs, personal
representatives and, to the extent permitted by Section 12.6, successors and
assigns.
12.6 Assignment. This Agreement and the rights and obligations of
----------
the parties hereunder shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party.
12.7 Modification, Amendment, Waiver or Termination. No provision of
----------------------------------------------
this Agreement may be modified, amended, waived or terminated except by an
instrument in writing signed by the parties to this Agreement. No course of
dealing between the parties will modify, amend, waive or terminate any provision
of this Agreement or any rights or obligations of any party under or by reason
of this Agreement.
12.8 Notices. All notices, consents, requests, instructions,
-------
approvals or other communications provided for herein shall be in writing and
delivered by personal delivery, overnight courier, mail or electronic facsimile
addressed to the receiving party at the address set forth herein. All such
communications shall be effective when received.
Notices to the Purchaser: with a copy to:
------------------------ --------------
U.S. Bancorp Xxxxxx & Xxxxxxx LLP
000 Xxxxxx Xxxxxx Xxxxx 000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000 Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxx X. Mitau, Esq. Attention: Xxxxxxxxx X. Xxxxx, Esq.
Telecopy: (000) 000-0000 Telecopy: (000) 000-0000
Notices to the Company: with a copy to:
---------------------- --------------
New Century Financial Corporation O'Melveny & Xxxxx LLP
00000 Xxx Xxxxxx, Xxxxx 0000 610 Newport Center Drive, 17th Floor
Irvine, California 92612 Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxx X. Xxxxxxx Attention: Xxxxx X. Xxxxxxx, Esq.
Telecopy: 000-000-0000 Telecopy: 000-000-0000
Any party may change the address set forth above by notice to each other party
given as provided herein.
12.9 Headings. The headings contained in this Agreement are for
--------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
12.10 Governing Law. All matters relating to the interpretation,
-------------
construction, validity and enforcement of this Agreement shall be governed by
the internal laws of the state of Delaware, without giving effect to any choice
of law provisions thereof.
-26-
12.11 Third-Party Benefit. Nothing in this Agreement, express or
-------------------
implied, is intended to confer upon any other person any rights, remedies,
obligations or liabilities of any nature whatsoever.
12.12 Survival of Representations and Warranties. Notwithstanding
------------------------------------------
any investigation made by either of the par-ties hereto and notwithstanding the
Closing or any actions taken after the execution hereof, the representations and
warranties made in this Agreement shall survive for 18 months after the Closing
Date, except for the representation and warranty in Section 5.11 which shall
survive the Closing indefinitely. Purchaser shall not assert a claim against
the Company for a breach or breaches of the representations and warranties made
in this Agreement unless and until Purchaser has a claim or claims for damages,
liabilities, losses or expenses arising from or relating to such breach or
breaches ("Losses") in excess of $300,000 in the aggregate (the "Basket
Amount"); provided that once Purchaser has a claim or claims for aggregate
Losses in excess of the Basket Amount it shall be entitled to assert a claim
against the Company for the entire amount of Purchaser's aggregate Losses.
12.13 Jurisdiction and Venue. This Agreement may be enforced in any
----------------------
federal court or state court sitting in California, and each party consents to
the jurisdiction and venue of any such court and waives any argument that venue
in such forum is not convenient. If any party commences any action under any
tort or contract theory arising directly or indirectly from the relationship
created by this Agreement in another jurisdiction or venue, the other party to
this Agreement shall have the option of transferring the case to the above-
described venue or jurisdiction or, if such transfer cannot be accomplished, to
have such case dismissed without prejudice.
12.14 Remedies. The parties agree that money damages may not be an
--------
adequate remedy for any breach of the provisions of this Agreement and that any
party may, in its discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and injunctive relief in order ' to
enforce or prevent any violations this Agreement, and any party against whom
such proceeding is brought hereby waives the claim or defense that such party
has an adequate remedy at law and agrees not to raise the defense that the other
party has an adequate remedy at law.
12.15 Expenses. Except as otherwise expressly provided for herein,
--------
each party will pay its own expenses (including attorneys' and accountants'
fees) incurred in connection with the negotiation of this Agreement, the
performance of its respective obligations hereunder and the consummation of the
transactions contemplated by this Agreement (whether consummated or not).
-27-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By: /s/ Xxxxxx X. Xxxx
------------------------------------
Its: Chairman and Chief Executive Officer
U.S. BANCORP
By: /s/ Xxxxx X. Xxxxxx
------------------------------------
Its: Executive Vice President and Chief
Financial Officer
-28-
EXHIBITS
EXHIBIT A......................................... Form of Shareholder Agreement
EXHIBIT B............................................... Terms of Flow Agreement
EXHIBIT C................................... Terms of Service Provider Agreement
EXHIBIT D................................... Form of Certificate of Designations
EXHIBIT E.................................................. Disclosure Schedules
EXHIBIT F................................. Form of Registration Rights Agreement
EXHIBIT A
---------
SHAREHOLDER AGREEMENT
SHAREHOLDER AGREEMENT, dated as of October ____, 1998, between, a
Delaware corporation ("Purchaser"), and _____________________ ("Shareholder").
WHEREAS, Purchaser and New Century Financial Corporation, a Delaware
corporation (the "Company"), are entering into a Preferred Stock Purchase
Agreement, dated the date hereof (the "Purchase Agreement"), which provides for
the purchase of shares of the Company's Series 1998A Convertible Preferred Stock
by the Purchaser;
WHEREAS, Shareholder is the beneficial owner of approximately ______%
of the outstanding common stock, par value $.01 per share, of the Company (the
"Common Stock");
and
WHEREAS, as a condition to the willingness of Purchaser and the
Company to enter into the Purchase Agreement, Shareholder has agreed to certain
restrictions on his ability to sell the shares of Common Stock owned by him as
of the date hereof and any shares acquired by Shareholder after the date hereof
(including any shares acquired pursuant to the exercise of any rights to
purchase or otherwise acquire shares) (the "Shares") as provided in this
Agreement.
NOW, THEREFORE, the parties hereby agree as follows:
1. Right of First Refusal.
----------------------
(a) If, after the date hereof, Shareholder should decide to sell,
transfer or otherwise dispose of any or all of the Shares (other than any
Permitted Transfers as defined in Section 3), Shareholder shall first offer
to sell such Shares to the Purchaser upon substantially the same terms and
conditions as Shareholder is proposing to sell such Shares to others.
(b) In the event that Shareholder is required to make an offer of
Shares to the Purchaser pursuant to this Agreement, Shareholder shall give
the Purchaser written notice of such offer, indicating the estimated price
and the general terms upon which Shareholder proposes to sell the Shares
(the "Sale Notice"). The Purchaser shall have ten business days from the
date of receipt of any Sale Notice to subscribe for the purchase of such
Shares for the price and upon the general terms specified in the Sale
Notice by giving written notice to Shareholder. The closing of the sale of
the Shares to the Purchaser shall take place within the later of (i) ten
business days after the delivery of such notice to Shareholder, or (ii)
three business days after all necessary regulatory or governmental filings,
authorizations or approvals, if any, required to consummate such purchase
shall have been duly made or obtained and all statutory waiting
-1- Exhibit A
periods in respect thereof shall have expired; provided that, if such
-------- ----
closing has not occurred within 90 days after the date of delivery of
Purchaser's notice to the Shareholder, the Shareholder shall have the
right to sell such Shares without regard to the limitations of paragraph
(c) below. The Purchaser agrees that it will use all reasonable efforts to
make any such filing and obtain any such authorization or approval as
promptly as practicable. In the event that making such filing or obtaining
such authorization or approval takes more than 60 days after the delivery
of such notice to Shareholder, the Purchaser will use reasonable efforts
to arrange for a six-month line of credit for the Shareholder.
(c) In the event that the Purchaser fails to subscribe for the
purchase of all of the Shares offered to it pursuant to this Agreement
within ten business days after the date of receipt of a Sale Notice,
Shareholder shall have 120 days thereafter to sell the Shares at a price
which is not less than 95% of the price specified in the Sale Notice and
upon terms otherwise no more favorable to the purchasers thereof than the
terms specified in the Sale Notice. In the event Shareholder has not sold
the Shares within such 120 day period, Shareholder shall not thereafter
sell any Shares without first offering such Shares to the Purchaser as
required by this Agreement.
2. No Preclusive Agreements. The Shareholder shall not enter into any
------------------------
agreement or understanding with any Person (as defined in Section 5), including
any voting, lock-up or option agreement, the effect of which would be
inconsistent with or violate the provisions and agreements contained in Section
5 or would preclude the Purchaser from exercising its rights pursuant to Section
5.
3. Permitted Transfers. "Permitted Transfers" mean (a) any transfer of
-------------------
Shares by gift or otherwise not for value if, at or before the transfer, the
transferee executes an instrument (i) acknowledging that the Shares being
acquired are subject to the provisions of this Agreement, and (ii) agreeing to
be bound by the terms and conditions of this Agreement with respect to the
Shares, (b) any sale of Shares by a pledgee or by Shareholder after a default in
an obligation secured by a bona fide pledge of the Shares by Shareholder as
security for a loan (including a margin loan), (c) any transfer by Shareholder
to Shareholder's spouse in conjunction with any consent decree or other
settlement order relating to Shareholder's pending divorce proceeding and (d)
sales of Shares in accordance with Rule 144 promulgated under the Securities Act
of 1933, or any successor rule ("Rule 144 Sales"), not to exceed in the
aggregate during any 365-day period 0.50% of the shares of Common Stock
outstanding at the beginning of the calendar year of such sale, provided that no
Trigger Date (as defined in Section 5) has occurred within the nine-month period
prior to any such Rule 144 Sale and provided further that prior to each such
Rule 144 Sale (x) Shareholder shall have given Purchaser notice (the " 144 Sale
Notice") in accordance with the special notice provisions of Section 14 hereof
of his intention to sell Shares in accordance with this Section 3(d) (which 144
Sale Notice shall include the number of Shares (the "144 Shares") that
Shareholder intends to sell and Shareholder's offer to sell such 144 Shares to
Purchaser at the price determined pursuant to this Section 3(d)) and (y) prior
to the expiration of the Acceptance Window (as defined in the next sentence),
Purchaser has not communicated (by phone or by facsimile) its agreement to
purchase the 144 Shares from
-2- Exhibit A
Shareholder. For purposes of this Section 3(d), the Acceptance Window shall end
at 3:30 p.m. Central Time on the day of receipt by Purchaser of the 144 Sale
Notice unless such 144 Sale Notice was received after 2:00 p.m. Central Time on
a business day or was received on a non-business day, in which case the
Acceptance Window would end at 8:30 a.m. Central Time on the next business day
following receipt by Purchaser of the 144 Sale Notice. If Purchaser timely
agrees to purchase the 144 Shares, the purchase shall close by wire transfer of
same day funds within three business days of such agreement to purchase, and the
purchase price per share shall be the most recent sale price on the Nasdaq
market prior to time at which Purchaser communicated its acceptance to
Shareholder.
4. Representations and Warranties of Shareholder. Shareholder
---------------------------------------------
represents and warrants to Purchaser that:
(a) this Agreement has been duly executed and delivered by
Shareholder and constitutes a valid and legally binding obligation of
Shareholder enforceable in accordance with its terms;
(b) Shareholder is not subject to or obligated under any provision
of (i) any contract, (ii) any license, franchise or permit or (iii) any
law, regulation, order, judgment or decree which would be breached or
violated by his execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby;
(c) no authorization, consent or approval of, or any filing with,
any public body or authority is necessary for consummation by him of the
transactions contemplated by this Agreement;
(d) as of the date of this Agreement, the Shares consist of _____
shares of Common Stock (including ______ shares of Common Stock which
represent shares that would be acquired by Shareholder if all of the rights
to purchase or otherwise acquire shares of Common Stock held by Shareholder
on the date hereof were exercised); and
(e) except as set forth on Schedule 1 hereto on the date hereof
Shareholder has, and he will have at the time of any purchase by Purchaser
of the Shares, good and marketable title to the Shares free and clear of
all claims, liens, charges, encumbrances and security interests.
5. Voting Agreement. The Shareholder hereby agrees that, if a Trigger
----------------
Date (as defined herein) occurs on or before December 31, 2002, in connection
with the Acquisition Transaction relating to the Trigger Date, he shall vote (or
cause to be voted) at any meeting of the holders of the Common Stock, however
called, or in connection with any written consent of the holders of the Common
Stock, the Shares held of record by him or with respect to which he has or
shares the power to vote, whether now owned or hereafter acquired, (i) in favor
of approval of a Purchaser Transaction (as defined herein) and any actions
required in furtherance thereof and hereof, and (ii) except as otherwise agreed
to in writing in advance by Purchaser, against (A) any
-3- Exhibit A
action or agreement that is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, or materially adversely affect a
Purchaser Transaction; (B) any Competing Transaction; (C) any change in a
majority of the persons who constitute the board of directors of the Company; or
(D) any change in the capitalization of the Company or any amendment of the
Company's Certificate of Incorporation or Bylaws. Such Shareholder shall not
enter into any agreement or understanding with any Person (as defined herein)
the effect of which would be inconsistent with or violate the provisions and
agreements contained in this Section 5. Notwithstanding the foregoing, the
Shareholder shall have the right to vote at any meeting of the Board of
Directors of the Company (or by written consent of the directors) in his
capacity as a director of the Company in his sole discretion and to comply with
his fiduciary duties as a director of the Company under applicable law.
For purposes of this Agreement, the following terms shall have the
following respective meanings:
"Acquisition Transaction" shall mean any of the following actions: (A) any
-----------------------
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company; or (B) a sale, lease or transfer of
a material amount of assets of the Company, or a reorganization,
recapitalization, dissolution or liquidation of the Company.
"Competing Transaction" shall mean an Acquisition Transaction involving any
---------------------
Person other than Purchaser or an affiliate of Purchaser.
"Person" shall mean an individual, corporation, partnership, joint venture,
------
association, trust, unincorporated organization or other entity.
"Purchaser Transaction" shall mean an Acquisition Transaction by Purchaser
---------------------
or an affiliate of Purchaser.
"Trigger Date" shall mean the date the Company receives a bonafide proposal
------------
regarding an Acquisition Transaction (a "Proposal"), unless, within 15 days of
the date Purchaser is notified in writing of all material terms of such
Proposal, the Purchaser has failed to make an offer that is similar to, and on
terms no less favorable to the Company and its shareholders than, such Proposal.
Notwithstanding the foregoing, a Trigger Event shall not be deemed to have
occurred if: (i) prior to the date of a definitive agreement with respect to a
Purchaser Transaction, the terms of the Proposal are improved or a new proposal
regarding an Acquisition Transaction that is financially superior to such
original proposal (a "Superior Proposal") is received by the Company and the
Purchaser fails to match such improved terms or such Superior Proposal within
five business days of Purchaser's receipt of written notice of all material
terms thereof; or (ii) the Purchaser withdraws its offer.
6. Irrevocable Proxy. The Shareholder agrees that he will, promptly
-----------------
following any Trigger Date, execute and deliver, or cause to be executed and
delivered, an
-4- Exhibit A
irrevocable proxy, in form and substance reasonably satisfactory to Purchaser,
appointing Purchaser or any designee of Purchaser as such Shareholder's agent,
attorney and proxy, to vote (or cause to be voted) the Shares held of record by
him or with respect to which he has the power to vote, whether now owned or
hereafter acquired, in the manner provided in Section 5, and to execute and
deliver, or cause to be executed and delivered such additional or further
transfers, assignments, endorsements, consents and other instruments as the
Purchaser may reasonably request for the purpose of effectively carrying out the
transactions contemplated by Section 5 and to vest the power to vote the Shares
as contemplated by Section 5.
7. Term. This Agreement shall terminate on the earlier of December
----
31, 2002 or the date on which all of Purchaser's rights under Section 8.4 of the
Purchase Agreement have terminated; provided that if a Trigger Date has occurred
prior to December 31, 2002, the Shareholder's agreement in Section 5 shall
survive with respect to such Trigger Date.
8. Capacity. The parties hereby agree that Shareholder is executing
--------
this Agreement solely in his individual capacity. Nothing contained in this
Agreement shall limit or otherwise affect Shareholder's conduct or exercise of
his fiduciary duties as a director of the Company.
9. Counterparts. This Agreement may be executed in separate
------------
counterparts, each of which will be an original and all of which taken together
shall constitute one and the same agreement, and any party hereto may execute
this Agreement by signing any such counterpart.
10. Severability. Whenever possible, each provision of this
------------
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law but if any provision of this Agreement is held to be
invalid, illegal or unenforceable under any applicable law or rule, the
validity, legality and enforceability of the other provisions of this Agreement
will not be affected or impaired thereby.
11. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties hereto and their respective heirs, personal
representatives and, to the extent permitted by paragraph 12, successors and
assigns.
12. Assignment. This Agreement and the rights and obligations of the
----------
parties hereunder shall not be assignable, in whole or in part, by either party
without the prior written consent of the other party.
13. Modification, Amendment, Waiver or Termination. No provision of
----------------------------------------------
this Agreement may be modified, amended, waived or terminated except by an
instrument in writing signed by the parties to this Agreement. No course of
dealing between the parties will modify, amend, waive or terminate any provision
of this Agreement or any rights or obligations of any party under or by reason
of this Agreement.
-5- Exhibit A
14. Notices. Except for notices to be given in connection with a
-------
Rule 144 Sale in accordance with Section 3(d) herein, all notices, consents,
requests, instructions, approvals or other communications provided for herein
shall be in writing and delivered by personal delivery, overnight courier, mail,
or electronic facsimile addressed to the receiving party at the address set
forth herein. All such communications shall be effective when received.
Notices to the Purchaser: with a copy to:
------------------------ --------------
U.S. Bancorp Xxxxxx & Xxxxxxx LLP
000 Xxxxxx Xxxxxx Xxxxx 000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000 Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxx X. Mitau, Esq. Attention: Xxxxxxxxx X. Xxxxx, Esq.
Telecopy: (000) 000-0000 Telecopy: (000) 000-0000
Notices to Shareholder: with a copy to:
---------------------- --------------
[Name] [Counsel]
[Address] [Address]
Attention:_________________________ Attention:_________________________
Telecopy:__________________________ Telecopy:__________________________
Any party may change the address set forth above by notice to each other party
given as provided herein.
Any Rule 144 Sale Notice required to be given to Purchaser must be given by
a live telephone communication (i.e., not by voice-mail) directly to one of the
following persons or to such other persons as may be designated in writing from
time to time by Purchaser:
________________________________________
________________________________________
________________________________________
________________________________________
15. Governing Law. All matters relating to the interpretation,
-------------
construction, validity and enforcement of this Agreement shall be governed by
the internal laws of the state of Delaware, without giving effect to any choice
of law provisions thereof.
16. Third-Party Benefit. Nothing in this Agreement, express or
-------------------
implied, is intended to confer upon any other person any rights, remedies,
obligations or liabilities of any nature whatsoever.
17. Survival of Representations and Warranties. Notwithstanding any
------------------------------------------
investigation made by either of the parties hereto and notwithstanding the
Closing or any actions
-6- Exhibit A
taken after the execution hereof, the representations and warranties made in
this Agreement shall survive for the term of this Agreement.
18. Remedies. The parties agree that money damages may not be an
--------
adequate remedy for any breach of the provisions of this Agreement and that any
party may, in its discretion, apply to any court of law or equity of competent
jurisdiction for specific performance and injunctive relief in order to enforce
or prevent any violations this Agreement, and any party against whom such
proceeding is brought hereby waives the claim or defense that such party has an
adequate remedy at law and agrees not to raise the defense that the other party
has an adequate remedy at law.
-7- Exhibit A
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
U.S. BANCORP
By: _______________________________________
Its:
SHAREHOLDER
___________________________________________
-8- Exhibit A
EXHIBIT D
NEW CENTURY FINANCIAL CORPORATION
CERTIFICATE OF DESIGNATIONS
FOR
SERIES 1998A CONVERTIBLE PREFERRED STOCK
(Pursuant to Delaware General Corporation Law, Section 151(g))
______________________________________________________________________________
The undersigned, being respectively the Chairman and Chief Executive
Officer and the Secretary of New Century Financial Corporation (the
"Corporation"), a corporation organized and existing under the Delaware General
-----------
Corporation Law, in accordance with the provisions of the Delaware General
Corporation Law, Section 151(g), do hereby certify that:
Pursuant to the authority vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation, the Board of
Directors on November 19, 1998, in accordance with the Delaware General
Corporation Law, Section 151, duly adopted the following resolution establishing
a series of 20,000 shares of the Corporation's Preferred Stock, to be designated
as its Series 1998A Convertible Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the Corporation (the "Board of Directors") by the Certificate of
------------------
Incorporation of the Corporation, the Board of Directors hereby establishes a
series of Series 1998A Convertible Preferred Stock, of the Corporation and
hereby states the number of shares, and fixes the powers, designations,
preferences and relative, participating, optional and other rights, and the
qualifications, limitations and restrictions thereof, of such series of shares
as follows:
SERIES 1998A CONVERTIBLE PREFERRED STOCK
Section 1. Designation; Number of Shares. The shares of such series shall
-----------------------------
be designated as "Series 1998A Convertible Preferred Stock" (the "Convertible
-----------
Preferred Stock"), and the number of shares constituting the Convertible
---------------
Preferred Stock shall be 20,000. Such number of shares may be decreased by
resolution of the Board of Directors adopted and filed pursuant to the Delaware
General Corporation Law, Section 151(g), or any successor provision; provided,
that no such decrease shall reduce the number of authorized shares of
Convertible Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the exercise of
outstanding options, warrants, convertible or exchangeable securities or other
rights to acquire shares of Convertible Preferred Stock.
Exhibit D
Section 2. Stated Capital. The amount to be represented in the stated
--------------
capital of the Corporation for each share of Convertible Preferred Stock shall
be $0.01.
Section 3. Rank. The Convertible Preferred Stock shall rank prior to all
----
of the Corporation's Common Stock, par value $.01 per share (the "Common
------
Stock"), now outstanding or hereafter issued, both as to payment of dividends
-----
and as to distributions of assets upon the liquidation, dissolution or winding
up of the Corporation, whether voluntary or involuntary.
Section 4. Dividends and Distributions. The holders of shares of
---------------------------
Convertible Preferred Stock shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for such
purpose, dividends at the rate of $75.00 per annum per share. Such dividends
shall be fully cumulative, shall accumulate without interest from the date of
original issuance of the Convertible Preferred Stock and shall be payable
quarterly in arrears in cash on each _________, _________, __________ and
__________, commencing________ (provided, that if any such date is a Saturday,
Sunday or legal holiday in the place where such dividend is to be paid, then
such dividend shall be payable without interest on the next day that is not a
Saturday, Sunday or legal holiday) to holders of record as they appear on the
stock books of the Corporation on such record dates as shall be fixed by the
Board of Directors. Such record dates shall be not more than 60 nor less than 10
days preceding the respective dividend payment dates. The amount of dividends
payable per share of Convertible Preferred Stock for each full quarterly
dividend period shall be computed by dividing the annual dividend amount by
four. The amount of dividends payable for the initial dividend period and for
any other period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months. No dividends or other
distributions, other than dividends payable solely in shares of Common Stock or
other capital stock of the Corporation ranking junior as to payment of dividends
to the Convertible Preferred Stock (such Common Stock and other capital stock
being referred to herein collectively as "Junior Dividend Stock"), shall be paid
---------------------
or set apart for payment on, and no purchase, redemption or other acquisition
shall be made by the Corporation of, any shares of Junior Dividend Stock unless
and until all accumulated and unpaid dividends on the Convertible Preferred
Stock, including the full dividend for the then-current quarterly dividend
period, shall have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation ranking
senior as to payment of dividends to the Convertible Preferred Stock (such
capital stock being referred to herein as "Senior Dividend Stock") shall be in
---------------------
default, in whole or in part, no dividend shall be paid or declared and set
apart for payment on the Convertible Preferred Stock unless and until all
accumulated and unpaid dividends with respect to the Senior Dividend Stock,
including the full dividend for the then-current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full
dividends shall be paid or declared and set apart for payment on any capital
stock of the Corporation ranking, as to payment of dividends, on a parity with
the Convertible Preferred Stock (such capital stock being referred to herein as
"Parity Dividend Stock") for any period unless full cumulative dividends have
---------------------
been, or contemporaneously are, paid or declared and set apart for payment on
the Convertible Preferred Stock for all dividend
Exhibit D
-2-
periods terminating on or prior to the date of payment of such full cumulative
dividends. No full dividends shall be paid or declared and set apart for payment
on the Convertible Preferred Stock for any period unless full cumulative
dividends have been, or contemporaneously are, paid or declared and set apart
for payment on any Parity Dividend Stock for all dividend periods terminating on
or prior to the date of payment of such full cumulative dividends. When
dividends are not paid in full upon the Convertible Preferred Stock and any
Parity Dividend Stock, all dividends paid or declared and set apart for payment
upon shares of Convertible Preferred Stock and Parity Dividend Stock shall be
paid or declared and set apart for payment pro rata, so that the amount of
dividends paid or declared and set apart for payment per share on the
Convertible Preferred Stock and the Parity Dividend Stock shall in all cases
bear to each other the same ratio that accumulated and unpaid dividends per
share on the shares of Convertible Preferred Stock and Parity Preferred Stock
bear to each other.
Any reference to "distribution" contained in this Section 4 shall not be
deemed to include any distribution made in connection with a liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
Section 5. Liquidation Preference. In the event of a liquidation,
----------------------
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the holders of Convertible Preferred Stock shall be entitled to receive out of
the assets of the Corporation, whether such assets constitute stated capital or
surplus of any nature, an amount equal to the dividends accumulated and unpaid
thereon to the date of final distribution to such holders, whether or not
declared, without interest, plus a sum equal to $ 1,000 per share, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Stock or any other capital stock of the Corporation ranking junior as to
liquidation rights to the Convertible Preferred Stock (such Common Stock and
other capital stock being referred to herein collectively as "Junior Liquidation
------------------
Stock"); provided, that such rights shall accrue to the holders of Convertible
-----
Preferred Stock only in the event that the Corporation's payments with respect
to the liquidation preferences of the holders of capital stock of the
Corporation ranking senior as to liquidation rights to the Convertible Preferred
Stock (such capital stock being referred to herein as "Senior Liquidation
------------------
Stock") are fully met. If upon liquidation, dissolution or winding up of the
-----
Corporation, the assets of the Corporation available for distribution after the
liquidation preferences of any Senior Liquidation Stock are insufficient to pay
the holders of the Convertible Preferred Stock and any other capital stock of
the Corporation which ranks on a panty as to liquidation rights with the
Convertible Preferred Stock, the entire assets of the Corporation then available
for distribution shall be distributed ratably among the holders of the
Convertible Preferred Stock and any other capital stock of the Corporation which
ranks on a panty as to liquidation rights with the Convertible Preferred Stock
in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of
the liquidation preference of the shares of the Convertible Preferred Stock, the
holders of such shares shall not be entitled to any further participation in any
distribution of assets by the Corporation. Neither a consolidation or merger of
the Corporation with another corporation nor a sale or transfer of all or part
of the Corporation's assets for cash, securities or
Exhibit D
-3-
other property will be deemed a liquidation, dissolution or winding up of the
Corporation for purposes of this Section 5.
Section 6. Redemption at Option of the Corporation.
---------------------------------------
(a) Subject to Section 6(b), the Corporation may not redeem the
Convertible Preferred Stock prior to _______________, 2002 [four years from
issuance date]. The Corporation, at its option, may, on or after _______, 2002,
redeem at any time all, or from time to time any portion, of the Convertible
Preferred Stock on any date set by the Board of Directors, at $1,000 per share,
plus an amount per share in cash equal to all dividends on the Convertible
Preferred Stock accumulated and unpaid on such share, whether or not declared,
to the date fixed for redemption (such sum being hereinafter referred to as the
"Redemption Price").
----------------
(b) The Corporation may, at its option, redeem the Convertible Preferred
Stock concurrently with an Acquisition Event (as defined herein) if each of the
following conditions are met: (i) the Corporation has complied with the
covenants contained in Sections 8.4 and 8.5 of the Preferred Stock Purchase
Agreement (as defined in Section 8) in all material respects; (ii) the Purchaser
(as defined in the Preferred Stock Purchase Agreement) has been notified in
writing of all material terms of the Acquisition Proposal (as defined herein)
that relates to such Acquisition Event; and (iii) either (A) such Purchaser,
within 15 days of the first date on which it had been so notified of such
Acquisition Proposal, failed to make an offer that is similar to, and on terms
no less favorable to the Company and its shareholders than, the Acquisition
Proposal; or (B) prior to the date of a definitive agreement with respect to an
Acquisition Transaction with Purchaser or an affiliate of Purchaser, (x) the
terms of the Acquisition Proposal are improved or a new proposal regarding an
Acquisition Transaction that is financially superior to such original proposal
(a "Superior Proposal") is received by the Company and the Purchaser falls to
-----------------
match such improved terms or such Superior Proposal within five business days of
Purchaser's receipt of written notice of all material terms thereof or (y) the
Purchaser withdraws its offer. Any redemption pursuant to this Section 6(b)
shall be at the Redemption Price, and the redemption date for any such
redemption shall not be earlier than, but may be concurrent with, the effective
time of the Acquisition Event. For purposes of this Section 6(b), the following
terms shall have the following meanings: "Acquisition Proposal" shall mean a
--------------------
proposal relating to any of the following actions: (A) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company; or (B) a sale, lease or transfer of a
material amount of assets of the Company, or a reorganization, recapitalization,
dissolution or liquidation of the Company; "Acquisition Transaction" shall mean
-----------------------
any of the actions described in (A) or (B) of the definition of "Acquisition
Proposal"; and "Acquisition Event" shall mean the consummation of an Acquisition
-----------------
Transaction.
(c) The following provisions will apply to any redemption pursuant to
Section 6(a) or 6(b):
Exhibit D
-4-
(i) In case of the redemption of less than all of the then
outstanding Convertible Preferred Stock, the Corporation shall designate by lot,
or in such other manner as the Board of Directors may determine, the shares to
be redeemed, or shall effect such redemption pro rata. Notwithstanding the
foregoing, the Corporation shall not redeem less than all of the Convertible
Preferred Stock at any time outstanding until all dividends accumulated and in
arrears upon all Convertible Preferred Stock then outstanding shall have been
paid for all past dividend periods.
(ii) Not more than 60 nor less than 30 days prior to the redemption
date, notice by first class mail, postage prepaid, shall be given to the holders
of record of the Convertible Preferred Stock to be redeemed, addressed to such
shareholders at their last addresses as shown on the stock books of the
Corporation. Each such notice of redemption shall specify the date fixed for
redemption; the redemption price; the place or places of payment; the then-
effective Conversion Rate and Conversion Price (as defined in Section 7); that
the right of holders of Convertible Preferred Stock called for redemption to
exercise their conversion right pursuant to Section 7 shall expire as to such
shares at the close of business on the date fixed for redemption (provided that
there is no default in payment of the Redemption Price); that payment of the
Redemption Price will be made upon presentation and surrender of certificates
representing the shares of Convertible Preferred Stock; that accumulated but
unpaid dividends to the date fixed for redemption will be paid on the date fixed
for redemption; that accumulated but unpaid dividends will not be paid in the
case of a conversion of Convertible Preferred Stock; and that on and after the
redemption date, dividends will cease to accumulate on such shares.
(iii) On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption (other than shares which
have been duly surrendered for conversion at or before the close of business on
the date fixed for redemption) shall surrender the certificate or certificates
evidencing such shares to the Corporation at the place designated in such notice
and shall thereupon be entitled to receive payment of the Redemption Price. If
fewer than all the shares represented by any such surrendered certificate or
certificates are redeemed, a new certificate shall be issued representing the
unredeemed shares. If, on the date fixed for redemption, funds necessary for the
redemption shall be available therefor and shall have been irrevocably deposited
or set aside, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends with
respect to the shares so called shall cease to accumulate on and after the date
fixed for redemption, such shares shall no longer be deemed outstanding, the
holders thereof shall cease to be shareholders, and all rights whatsoever with
respect to such shares (except the right of the holders thereof to receive the
Redemption Price without interest upon surrender of their certificates) shall
terminate.
Section 7. Conversion at Option of Holders. Holders of Convertible
-------------------------------
Preferred Stock may, at their option upon surrender of the certificates
therefor, convert any or all of their shares of Convertible Preferred Stock into
fully paid and nonassessable shares of Common Stock (and such other securities
and property as they may be entitled to, as hereinafter provided) at any time
after issuance thereof; provided, that such conversion right shall expire at the
close of business on the date, if any, fixed for the redemption of Convertible
Preferred Stock in any notice of
-5-
redemption given pursuant to Section 6 hereof if there is no default in payment
of the Redemption Price. Each share of Convertible Preferred Stock shall be
convertible at the office of any transfer agent for the Convertible Preferred
Stock, and at such other office or offices, if any, as the Board of Directors
may designate, into that number of fully paid and nonassessable shares of Common
Stock (calculated as to each conversion to the nearest 1/100th of a share) as
shall be equal to the Conversion Rate, determined as hereinafter provided, in
effect at the time of conversion. Shares of Convertible Preferred Stock may
initially be converted into full shares of Common Stock at the rate of 136.24
shares of Common Stock for each share of Convertible Preferred Stock, subject to
adjustment from time to time as provided in Section 8 (such conversion rate, as
so adjusted from time to time, being referred to herein as the "Conversion
----------
Rate"). The "Conversion Price" shall be equal to $1,000 divided by the
---- ----------------
Conversion Rate. Upon conversion, no adjustment or payment shall be made in
respect of accumulated and unpaid dividends on the Convertible Preferred Stock
surrendered for conversion.
The right of holders of Convertible Preferred Stock to convert their shares
shall be exercised by surrendering for such purpose to the Corporation or its
agent, as provided above, certificates representing shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of Common Stock or other
securities or property upon conversion of Convertible Preferred Stock in a name
other than that of the holder of the shares of Convertible Preferred Stock being
converted, nor shall the Corporation shall be required to issue or deliver any
such shares or other securities or property unless and until the person or
persons requesting the issuance thereof shall have paid to the Corporation the
amount of any such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
A number of shares of the authorized but unissued Common Stock sufficient
to provide for the conversion of the Convertible Preferred Stock outstanding
upon the basis hereinbefore provided shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion, subject to the
provisions of the next paragraph. If the Corporation shall issue any securities
or make any change in its capital structure which would change the number of
shares of Common Stock into which each share of the Convertible Preferred Stock
shall be convertible as herein provided, the Corporation shall at the same time
also make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Convertible Preferred Stock on the new basis.
The Corporation shall comply with all securities laws regulating the offer and
delivery of shares of Common Stock upon conversion of the Convertible Preferred
Stock and shall use its best efforts to list such shares on each national
securities exchange on which the Common Stock is listed or to have such shares
admitted for quotation on the Nasdaq National Market if the Common Stock is
admitted for quotation thereon.
Upon the surrender of certificates representing shares of Convertible
Preferred Stock to be converted, duly endorsed or accompanied by proper
instruments of transfer as provided
Exhibit D
-6-
above, the person converting such shares shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion, and all rights with
respect to the shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets as herein
provided.
No fractional shares of Common Stock shall be issued upon conversion of
Convertible Preferred Stock but, in lieu of any fraction of a share of Common
Stock which would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation shall pay in cash an amount equal to the product of (a) the Closing
Price of a share of Common Stock (as defined in the next sentence) on the last
trading day before the conversion date and (b) such fraction of a share. The
"Closing Price" for such day shall be the last reported sale price regular way
or, in case no sale takes place on such day, the average of the closing bid and
asked prices regular way on such day, in either case as reported on the New York
Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted
to trading on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if the Common Stock
is not listed or admitted to trading on any national securities exchange, on the
Nasdaq National Market System, or, if the Common Stock is not admitted for
quotation on the Nasdaq National Market System, the average of the high bid and
low asked prices on such day as recorded by the National Association of
Securities Dealers, Inc. through Nasdaq, or, if the National Association of
Securities Dealers, Inc. through Nasdaq shall not have reported any bid and
asked prices for the Common Stock on such day, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
selected from time to time by the Corporation for such purpose, or, if no such
bid and asked prices can be obtained from any such firm, the fair market value
of one share of the Common Stock on such day as determined in good faith by the
Board of Directors of the Corporation.
Section 8. Adjustments to Conversion Rate. Notwithstanding anything in
------------------------------
this Section 8 to the contrary, no change in the Conversion Rate shall be made
until the cumulative effect of the adjustments called for by this Section 8
since the date of the last change in the Conversion Rate would change the
Conversion Rate by more than 1%. However, once the cumulative effect would
result in such a change, then the Conversion Rate shall be changed to reflect
all adjustments called for by this Section 8 and not previously made. Subject to
the foregoing, the Conversion Rate shall be adjusted from time to time as
follows:
(a) In case of any consolidation or merger of the Corporation with any
other corporation (other than a wholly owned subsidiary of the Corporation), or
in case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall, prior to or at the time of such transaction,
make appropriate provision or cause appropriate provision to be made so that
holders of each share of Convertible Preferred Stock then outstanding shall have
the right thereafter to convert such share of Convertible Preferred Stock into
the kind and
Exhibit D
-7-
amount of shares of stock and other securities and property receivable upon such
consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock into which such share of Convertible Preferred
Stock could have been converted immediately prior to the effective date of such
consolidation, merger, sale, transfer or share exchange. If in connection with
any such consolidation, merger, sale, transfer or share exchange, each holder of
shares of Common Stock is entitled to elect to receive either securities, cash
or other assets upon completion of such transaction, the Corporation shall
provide or cause to be provided to each holder of Convertible Preferred Stock
the right to elect the securities, cash or other assets into which the
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made and the effect of failing to exercise the election).
(b) In case the Corporation shall (i) pay a dividend or make a
distribution on its Common Stock in shares of its capital stock, (ii) subdivide
its outstanding Common Stock into a greater number of shares, (iii) combine the
shares of its outstanding Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its Common Stock any shares of its capital stock,
then in each such case the Conversion Rate in effect immediately prior thereto
shall be proportionately adjusted so that the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall be entitled to
receive, to the extent permitted by applicable law, the number and kind of
shares of capital stock of the Corporation which such holder would have owned or
have been entitled to receive after the happening of such event had such
Convertible Preferred Stock been converted immediately prior to the record date
for such event (or if no record date is established in connection with such
event, the effective date for such action). An adjustment pursuant to this
subparagraph (b) shall become effective immediately after the record date in the
case of a stock dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
reclassification.
(c) (i) In case the Corporation shall issue Additional Shares of Common
Stock (as defined herein) (including, without limitation, Additional Shares of
Common Stock deemed to be issued pursuant to Section 8(c)(iii)) without
consideration or for a consideration per share less than the Current Market
Price (as defined herein) calculated as provided herein as of the date of and
immediately prior to such issue, then in each such case the Conversion Rate in
effect on such issue date shall be adjusted in accordance with the formula
Exhibit D
-8-
O + N
C\\1\\ = C x
O + N x P
-----
M
where
C\\1\\ = the adjusted Conversion Rate.
C = the current Conversion Rate.
O = the number of shares of Common Stock outstanding
immediately prior to such issue.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock
immediately prior to such issue.
For the purpose of such calculation, the number of shares of Common Stock
outstanding immediately prior to such issue shall be calculated on a fully
diluted basis, as if all shares of Convertible Preferred Stock and all
Convertible Securities had been fully converted into shares of Common Stock
immediately prior to such issuance and any outstanding warrants, options or
other rights for the purchase of shares of stock or convertible securities had
been fully exercised immediately prior to such issuance (and the resulting
securities fully converted into shares of Common Stock, if so convertible) as of
such date.
(ii) For purposes of this Section 8(c), the following definitions
shall apply: (A) "Options" shall mean rights, options or warrants to subscribe
-------
for, purchase or otherwise acquire either Common Stock or Convertible
Securities; (B) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares or other securities convertible into or exchangeable for
Common Stock; (C) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued (or, pursuant to Section 8(c)(iii), deemed to be issued) by
the Corporation after the [issue date of the Convertible Preferred Stock], other
than shares of Common Stock issued or issuable: (1) upon conversion of shares of
the Convertible Preferred Stock; (2) pursuant to a stock grant, option plan or
purchase plan, other employee stock incentive program or agreement approved by
the Board of Directors which was disclosed in Schedule 5.3 of the Preferred
Stock Purchase Agreement (the "Option Pool"); or (3) pursuant to the terms of
-----------
any stock grant, option, warrant, employment agreement or other written
obligation, agreement or commitment to which the Corporation was a party as of
the [issue date of Convertible Preferred Stock] and which was disclosed in
Schedule 5.3 of the Preferred Stock Purchase Agreement; (D) "Current Market-
---------------
Price" shall mean the average of the daily Closing Prices of the Common Stock
-----
(as defined in Section 7) on the 30 consecutive business days commencing 45
business days before such issue date, as applicable; and (E) "Preferred Stock
---------------
Purchase Agreement" shall mean the Preferred Stock Purchase Agreement dated
------------------
October 18, 1998 between the Corporation and U.S. Bancorp.
Exhibit D
-9-
(iii) In the event the Corporation at any time or from time to
time after [issue date of Convertible Preferred Stock] shall issue any Options
(other than the issuance of Options pursuant to the Option Pool) or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities, shall be deemed to be
Additional Shares of Common Stock issued as of the time of such issue or, in
case such a record date shall have been fixed, as of the close of business on
such record date, provided that Additional Shares of Common Stock shall not be
deemed to have been issued unless the consideration per share of such Additional
Shares of Common Stock would be less than the Current Market Price calculated as
provided herein as of the date of and immediately prior to such issue, or such
record date, as the case may be, and provided further that in any such case in
which Additional Shares of Common Stock are deemed to be issued no further
adjustment in the Conversion Price shall be made upon the subsequent issue of
Convertible Securities or shares of Common Stock upon the exercise of such
Options or conversion or exchange of such Convertible Securities.
(iv) Upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price and Conversion Rate computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock issued were the
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and
the consideration received therefor was the consideration actually received
by the Corporation for the issue of all such Options, whether or not
exercised, plus the consideration actually received by the corporation upon
such exercise, or for the issue of all such Convertible Securities which
were actually converted or exchanged, plus the additional consideration, if
any, actually received by the Corporation upon such conversion or exchange;
and
(B) in the case of Options for Convertible Securities only
the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of
Common Stock deemed to have been then issued was the consideration actually
received by the Corporation for the issue of all such Options, whether or
not exercised, plus the consideration deemed to have been received by the
Exhibit D
-10-
Corporation upon the issue of the Convertible Securities or Convertible
Preferred Stock with respect to which such Options were actually exercised.
(e) All calculations hereunder shall be made to the nearest cent or to the
nearest 1/100 of a share, as the case may be.
(f) In the event that at any time, as a result of an adjustment made
pursuant to subparagraph (a) or (b) above, the holder of any Convertible
Preferred Stock thereafter surrendered for conversion shall become entitled to
receive securities, cash or assets other than Common Stock, the number or amount
of such securities or property so receivable upon conversion shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in
subparagraphs (a) through (e) above.
Except as otherwise provided above in this Section 8, no adjustment in the
Conversion Rate shall be made in respect of any conversion for share
distributions or dividends theretofore declared and paid or payable on the
Common Stock.
Whenever the Conversion Rate is adjusted as herein provided, the
Corporation shall send to each transfer agent for the Convertible Preferred
Stock and the Common Stock, and to the principal securities exchange, if any, on
which the Convertible Preferred Stock and the Common Stock is traded, or the
Nasdaq National Market if the Convertible Preferred Stock or Common Stock is
admitted for quotation thereon, a statement signed by the Chairman of the Board,
the President or any Vice President of the Corporation and by its Treasurer or
its Secretary stating the adjusted Conversion Rate determined as provided in
this Section 8; and any adjustment so evidenced, given in good faith, shall be
binding upon all shareholders and upon the Corporation. Whenever the Conversion
Rate is adjusted, the Corporation shall give notice by mail at the time of, and
together with, the next dividend payment to the holders of record of Convertible
Preferred Stock, setting forth the adjustment and the new Conversion Rate and
Conversion Price. Notwithstanding the foregoing notice provisions, failure by
the Corporation to give such notice or a defect in such notice shall not affect
the binding nature of such corporate action of the Corporation.
Whenever the Corporation shall propose to take any of the actions specified
in subparagraphs (a), (b) or (c) of the first paragraph of this Section 8 which
would result in any adjustment in the Conversion Rate, the Corporation shall
cause a notice to be mailed at least 20 days prior to the date on which the
books of the Corporation will close or on which a record will be taken for such
action to the holders of record of the outstanding Convertible Preferred Stock
on the date of such notice. Such notice shall specify the action proposed to be
taken by the Corporation and the date as of which holders of record of the
Common Stock shall participate in any such actions or be entitled to exchange
their Common Stock for securities or other property, as the case may be.
Failure by the Corporation to give such notice or any defect in such notice
shall not affect the validity of the transaction.
Exhibit D
-11-
Anything herein to the contrary notwithstanding, no adjustment will be made
to the Conversion Price or Conversion Rate by reason of (i) the issuance of
Common Stock, Options or Convertible Securities to employees, directors,
officers or consultants of the Corporation or any subsidiary of the Corporation
pursuant to the Option Pool or the issuance of Common Stock upon the conversion,
exercise or exchange thereof, (ii) the issuance of Common Stock upon the
conversion, exercise or exchange of Options or Convertible Securities issued and
outstanding on the [issue date of the Convertible Preferred Stock], (iii) the
issuance of Common Stock upon the conversion of the Convertible Preferred Stock,
(iv) rights to purchase Common Stock pursuant to a Corporation plan for
reinvestment of dividends or interest, (v) the issuance of Common Stock upon the
exercise, conversion or exchange of Options or Convertible Securities of the
Corporation where the Conversion Price had previously been adjusted pursuant to
this Section 8 upon the initial issuance of such Options or Convertible
Securities. In addition, no adjustment in the Conversion Price need be made for
a change in the par value of the Common Stock.
Section 9. Convertible Preferred Stock Not Redeemable at Option of
-------------------------------------------------------
Holders or Exchangeable; No Sinking Fund. The Convertible Preferred Stock shall
----------------------------------------
not be redeemable upon the request of holders thereof or exchangeable for other
capital stock or indebtedness of the Corporation or other property. The shares
of Convertible Preferred Stock shall not be subject to the operation of a
purchase, retirement or sinking fund.
Section 10. Voting Rights. Except as herein provided or as otherwise
-------------
required by law, holders of Convertible Preferred Stock shall be entitled to the
same voting rights as, and shall vote together as one class with, holders of
Common Stock, with each holder of shares of Convertible Preferred Stock having
such voting rights as are attributable to the number of whole shares of Common
Stock into which such shares of Convertible Preferred Stock are convertible in
accordance with Sections 7 and 8 hereof as of the date of such vote.
In addition to any matters requiring a separate vote of the Convertible
Preferred Stock as a single class under applicable law, the approval of the
holders of a majority of the issued and outstanding shares of Convertible
Preferred Stock, voting as a class, shall be required as set forth in Section 11
hereof with respect to the priority and rights of the Convertible Preferred
Stock hereunder and under the Corporation's Certificate of Incorporation, as
amended.
At each meeting of shareholders at which the holders of shares of
Convertible Preferred Stock shall have the right, voting separately as a single
class, to take any action, the presence in person or by proxy of the holders of
record of at least 50% of the shares of Convertible Preferred Stock outstanding
and entitled to vote on the matter shall be necessary and sufficient to
constitute a quorum. At each such meeting, each holder of shares of Convertible
Preferred Stock shall be entitled to vote for each share of Convertible
Preferred Stock then held. In the absence of a quorum of the holders of shares
of Convertible Preferred Stock, a majority of the holders of such shares present
in person or by proxy shall have the power to adjourn the meeting as to the
actions to be taken by the holders of shares of Convertible Preferred Stock from
time to time and place to place without notice other than announcement at the
meeting until a quorum shall be present.
Exhibit D
-12-
Section 11. Certain Actions Not to be Taken Without Vote of Holders of
----------------------------------------------------------
Convertible Preferred Stock. Without the consent or affirmative vote of the
---------------------------
holders of at least a majority of the outstanding shares of Convertible
Preferred Stock, voting separately as a class, the Corporation shall not
authorize, create or issue any shares of any other class or series of capital
stock ranking senior to the Convertible Preferred Stock as to dividends or upon
liquidation. The affirmative vote or consent of the holders of at least a
majority of the outstanding shares of the Convertible Preferred Stock, voting
separately as a class, shall be required for any amendment, alteration or
repeal, whether by merger or consolidation or otherwise, of the Corporation's
Certificate of Incorporation (including any certificate of designations
establishing any class or series of Preferred Stock of the Corporation) if the
amendment, alteration or repeal adversely affects the rights or preferences of
the Convertible Preferred Stock; provided, however, that any increase in the
authorized Preferred Stock of the Corporation or the creation and issuance of
any other capital stock of the Corporation ranking on a parity with or junior to
the Convertible Preferred Stock shall not be deemed to materially affect such
powers, preferences or special rights.
Section 12. Outstanding Shares. For purposes of this Certificate of
------------------
Designations, all shares of Convertible Preferred Stock shall be deemed
outstanding except for (a) shares of Convertible Preferred Stock held of record
or beneficially by the Corporation or any subsidiary of the Corporation; (b)
from the date of surrender of certificates representing Convertible Preferred
Stock for conversion pursuant to Section 7, all shares of Convertible Preferred
Stock which have been converted into Common Stock or other securities or
property pursuant to Section 7; and (c) from the date fixed for redemption
pursuant to Section 6, all shares of Convertible Preferred Stock which have been
called for redemption, provided that funds necessary for such redemption are
available therefor and have been irrevocably deposited or set aside for such
purpose.
Section 13. Status of Convertible Preferred Stock Upon Retirement. Shares
-----------------------------------------------------
of Convertible Preferred Stock which are acquired or redeemed by the Corporation
or converted pursuant to Section 7 shall be retired pursuant to the Delaware
General Corporation Law, Section 243, or any successor provision, and thereupon
shall return to the status of authorized and unissued shares of Preferred Stock
of the Corporation without designation as to series. Upon the acquisition or
redemption by the Corporation or conversion pursuant to Section 7 of all
outstanding shares of Convertible Preferred Stock, all provisions of this
Certificate of Designations shall cease to be of further effect. Upon the
occurrence of such event, the Board of Directors of the Corporation shall have
the power, pursuant to the Delaware General Corporation Law, Section 151(g), or
any successor provision and without shareholder action, to cause this
Certificate of Designations to be eliminated from the Corporation's Certificate
of Incorporation.
Exhibit D
-13-
IN WITNESS WHEREOF, New Century Financial Corporation has caused this
certificate to be signed by [name of officer], its [title], and attested by
[name of officer], its [Assistant] Secretary, this ______ day of November, 1998.
NEW CENTURY FINANCIAL CORPORATION
By: ________________________________
Its: ________________________________
Attest:
By: _______________________
Exhibit D
-14-
EXHIBIT E
SCHEDULE 5.2
NON-CONTRAVENTION
The Third Amended and Restated Credit Agreement by and between New Century
Mortgage Corporation and U.S. Bank, as amended, dated May 29, 1998 (the "Credit
Agreement"), will be breached by the performance of the Agreement and the
consummation of the transactions contemplated thereby. It is a condition to the
Company's obligation to issue and the sell the Shares to the Purchaser that (i)
the consents, notices, authorizations and approvals required under the Credit
Agreement are obtained and (ii) any required amendment to the Credit Agreement
arising out of the transactions contemplated by the Agreement is consummated and
remains in full force and effect.
SCHEDULE 5.3
CAPITALIZATION
Authorized Common Stock 45,000,000
Preferred Stock 7,500,000
Issued and
Outstanding (11/10/98) Common Stock 14,468,916
Preferred Stock None
The outstanding stock of New Century REO Corp. has been pledged to Liquidation
Proceeds, Inc., an affiliate of Xxxxxxx Xxxxx Xxxxxx as security for a $3
million Secured Promissory Note executed by New Century Mortgage Corporation in
favor of Liquidation Proceeds, Inc.
Stock-Related Rights
--------------------
1. 1995 Stock Option Plan, as amended.
The number of shares of Common Stock authorized to be granted pursuant to
awards under the Plan is 2,500,000 shares.
As of October 31, 1998, there were approximately 2,041,820 stock options
outstanding under the Plan.
2. Employee Stock Purchase Plan
The ESPP entitles participants to purchase Company stock at a 10% discount
to the Fair Market Value at certain predetermined times. The maximum
aggregate number of shares of Common Stock available under the Plan is
2,000,000 shares.
3. Founding Managers' Incentive Compensation Plan
The Plan permits the Founding Managers to receive some or all of their
incentive compensation in the form of Restricted Stock. The total number of
shares of Common Stock that may be delivered pursuant to Restricted Stock
Award Agreements under the Plan is 250,000.
4. Founding Manager Restricted Stock Awards
In May 1997, the Founding Managers were each awarded a 92,500 share
Restricted Stock Award outside of the Company's Stock Option Plan. The
shares subject to the award vest in three equal installments on the first
three anniversaries of the grant date.
5. Comerica Warrants
Pursuant to the Stock Purchase Agreement dated as of May 30, 1997 between
New Century Financial Corporation and Comerica Incorporated, Comerica has
been issued the following warrants:
. A Warrant for 100,000 shares of Common Stock granted on May 30, 1997 at
an exercise price of $7.50 per share. The Warrant vests in 3 equal
installments on December 31, 1997, 1998 and 1999. It expires on May 30,
2002.
. A Warrant for 50,000 shares of Common Stock granted on September 15,
1997 at an exercise price of $11.00 per share. The Warrant vests in 3
equal installments on December 31, 1997, 1998 and 1999. It expires on
May 30, 2002.
In addition, Comerica has rights under the Stock Purchase Agreement to
receive additional warrants upon achieving the milestones specified below.
In each case the warrants will (i) have an $11.00 per share exercise price,
(ii) vest in 3 equal installments on December 31, 1997, 1998 and 1999, and
(iii) expire on May 30, 2002.
1. 25,000 shares upon the funding by New Century Mortgage Corporation of
an aggregate of $10.0 million of loans resulting from its First
Service Provider Agreement with Comerica.
2. 25,000 shares upon the execution by Comerica and funding by New
Century Mortgage Corporation of an aggregate of $10.0 million of loans
resulting from the Second Service Provider Agreement.
6. PWF Corporation Rights
The Primewest Funding Merger Agreement provides that a portion of the
earnout payments due to Xxxx Xxxxxxx and Xxxx Xxxxx will be paid in the form
of New Century Financial Corporation Common Stock. In addition, certain
Stock Appreciation Right Agreements for PWF Corporation key employees
provide for payment partly in the form of New Century Financial Corporation
Common Stock.
The size of the aggregate earnout payments is a function of the adjusted
earnings of PWF in the 1998, 1999 and 2000 fiscal years, as well as the
price-earnings multiple at which New Century Financial Corporation Common
Stock is trading at the time of the calculation.
Based on our assumptions made at the time of the transaction regarding PWF's
earnings and assuming a price-earnings ratio of 10 for New Century's Common
Stock, we projected that the total dollar value of the Common Stock issued
in connection with the PWF earnout would be approximately $6 million. At
present, because of the depressed price earnings ratio of New Century Common
Stock, this number would be much lower.
7. Special Option Awards to Non-Employee Directors
In July 1997 resigning director Xxxxxx Xxxxx was granted 7,500 options
outside the Company's Stock Option Plan. The exercise price was $11.00 per
share with immediate vesting.
In September 1998, the Compensation Committee of the Board of Directors made
a special Nonqualified Stock Option award to Board Member Xxxxxxx Xxxxxxx of
10,000 options issued outside the 1995 Stock Option Plan. The exercise price
was $10.00 per share with vesting in three equal installments on the first
three anniversaries of the award date.
8. Special Option Awards to Founding Managers Holder and Xxxxxxxxx
In December 1996, Xxxxx Xxxxxx received 80,000 stock options and Xx
Xxxxxxxxx received 40,000 stock options issued outside of the Company's 1995
Stock Option Plan. The options were at an exercise price of $3.50 and vest
in three equal annual installments on the first three anniversaries of the
grant date.
SCHEDULE 5.5
SUBSIDIARIES AND OTHER EQUITY INTERESTS
Subsidiaries
------------
1. New Century Mortgage Corporation, a California corporation wholly-owned by
New Century Financial Corporation.
2. PWF Corporation, a California corporation wholly-owned by New Century
Financial Corporation.
3. NC Residual Corporation, a Delaware corporation wholly-owned by New Century
Mortgage Corporation.
4. New Century REO Corp., a California corporation wholly-owned by New Century
Mortgage Corporation.
5. NC Capital Corporation, a California corporation wholly-owned by New Century
Mortgage Corporation.
Other Equity Interests
----------------------
1. Qualified Financial Services, Inc., a California corporation. New Century
Financial Corporation owns 6.4% of the outstanding Common Stock of
Qualified. In addition, NCFC holds Warrants which when exercised and
combined with NCFC's existing shares would result in NCFC owning 30% of
Qualified.
SCHEDULE 5.6
LIABILITIES
The following additional liabilities were reflected on the Company's balance
sheet at September 30, 1998:
1. Loan loss reserves - an additional $1.4 million in reserves, bringing
total reserves on the balance sheet to $6.8 million. In addition, the
Company sold loans at a loss during the quarter totaling an additional $3
million, which will be classified as "Provision for Losses".
2. Residual reserves - an additional $6.5 million in reserves, bringing total
reserves to $10.5 million. The Company is considering allocating some of
these reserves to certain residual interests and believes the impairment
is in the range of $2.5 million to $4 million.
3. First Boston - an exit fee of $625,000 will be accrued.
4. Bonuses - $1 million for bonuses will be accrued, in addition to the $100
per loan funded that was accrued throughout the quarter.
The Company also recognized servicing assets for the first time and recorded
servicing rights having a value of $2.7 million, representing 30 basis points on
ARM sales and 35 basis points on fixed sales for the quarter. Its net income
for the quarter ended September 30, 1998 was $8.6 million, or $.57 per share on
a diluted basis.
SCHEDULE 5.7
ADVERSE INDUSTRY TRENDS AND DEVELOPMENTS
1. Lower Prices in Secondary Mortgage Market - The prices available for sub-
prime mortgages in the whole loan market have decreased materially.
2. Market for Mortgage-Backed Securities - investors in mortgage-backed
securities are requiring higher interest rates and other potential
purchasers have decreased or eliminated purchases.
3. Sources of Investment Bank Funding - many investment banks who have
traditionally been the source of funding for sub-prime mortgage lenders have
tightened credit policies, particularly with respect to residual securities.
4. Tightening of Other Sources of Credit - other sources of funding for sub-
prime mortgage lenders, such as warehouse lenders, have been decreasing the
availability of credit.
SCHEDULE 5.9
LITIGATION
Employment-Related Claims/Actions
---------------------------------
1. Xxxxxx Xxxxx
. Type of Claim - EEOC complaint by rejected applicant alleging violation
of Age Discrimination in Employment Act
. Location - Atlanta Georgia
. Date Filed - July 1998
. Status - New Century's Employment Practices Liability Insurance carrier
has retained counsel in Atlanta who has prepared and filed New Century's
response to the EEOC.
2. Xxxxxxx Xxxxxxx
. Type of Claim - Gender discrimination complaint by female employee filed
with the Pennsylvania Human Relations Commission
. Location - Pittsburgh, Pennsylvania
. Date Filed - September 1997
. Status - New Century's EPLI carrier has retained counsel in Pittsburgh
who has prepared and filed New Century's response to the Human Relations
Commission.
3. Xxxxx Xxxxxxx
. Type of Claim EEOC - complaint for race discrimination filed by employee
. Location Milwaukee, Wisconsin
. Date Filed - February 1998
. Status - New Century's EPLI carrier has retained counsel in Chicago who
has prepared and filed New Century's response to the EEOC.
4. Xxxxxxx Xxxxxxx
. Type of Claim - EEOC complaint for race discrimination filed by rejected
applicant.
. Location - Irvine, California
. Date Filed - July 1998
. Status - New Century's EPLI carrier has retained counsel in Southern
California who has prepared and filed New Century's response to the
EEOC.
5. Xxxxxx Xxxxx
. Type of Claim - threatened claim of race discrimination by African-
American employee
. Location - Ft. Worth, Texas
. Date Claim Asserted - shortly after his departure in March 1998, Xx.
Xxxxx sent a letter to New Century threatening a lawsuit
. Status - New Century's in-house counsel offered Xx. Xxxxx $10,000 in
order to resolve the matter. Xx. Xxxxx'x counsel rejected the offer and
indicated that a much larger offer was warranted. New Century responded
that it would not consider making a higher offer to Xx. Xxxxx. New
Century has heard nothing further from Xx. Xxxxx or its attorney since
the spring of 1998.
6. Xxxxxx Xxxxxxxxx
. Type of Claim - claim of gender discrimination by terminated female
employee filed with the Wisconsin Department of Workforce Development,
Equal Rights Division
. Location - Wauwatosa, Wisconsin
. Date Claim Asserted - October 2, 1998, discrimination complaint
filed with State of Wisconsin.
. Status - New Century's EPLI carrier has retained counsel in Wisconsin
who has prepared and filed New Century's response to the Department.
7. Xxxx Xxx Xxxxxx
. Type of Claim - employee who was being demoted for performance problems
resigned and sent a letter claiming that she had been constructively
discharged on a discriminatory basis.
. Location - Sewickly, Pennsylvania
. Date Claim Asserted - October 7, 1998, letter faxed to New Century.
. Status - New Century is placing its Employment Practices Liability
Insurer on notice of the potential claim. New Century has received no
further correspondence from Xx. Xxxxxx.
8. Xxxxxxx Xxxxx Xxxxxxx
. Type of Claim - former employee filed complaint with the DFEH and EEOC
under Title VII of the Civil Rights Act of 1964 alleging discrimination
based on her national origin, Peruvian.
. Location - Irvine, California
. Date Claim Asserted - November 3, 1998
. Status - New Century is investigating the matter and beginning to
prepare a response. New Century is also tendering the matter to its EPLI
carrier.
9. X.X. Xxxxx
. Type of Claim - current employee wrote letter threatening litigation
because of racial discrimination in the Company's Dallas retail office.
. Location - Dallas, Texas
. Date Claim Asserted - November 17, 1998
. Status - Letter received via fax on 11/17/98. New Century is
investigating the matter.
10. Xxxxxx Xxxxx Xxxxxxxx
. Type of Claim - Vice President terminated for sexual harassment has
retained counsel and has indicated an intent to xxx New Century Mortgage
Corporation. The basis of the threatened suit is unclear, but most
likely relates to alleged wrongful termination and/or defamation.
. Location - Irvine, California
. Date Claim Asserted - November 16, 1998
. Status - New Century has put its EPLI carrier on notice of a potential
claim, and is waiting to see whether a Complaint is actually filed.
Judicial Foreclosures and Other Servicing Related Claims and Actions
--------------------------------------------------------------------
In the ordinary course of its loan servicing business, New Century Mortgage
Corporation becomes involved in a variety of disputes and claims. For example,
the very process of foreclosing on the property securing a borrower's mortgage
is a legal action. The servicing and collections process also tends to give
rise to claims from borrowers who are attempting to avert foreclosure.
Attached is a list of the active matters and claims from our servicing
department as of a recent date. In the case of the judicial foreclosure
actions, in most instances New Century has tendered the matter to the title
insurer.
Other Litigation and Threatened Claims
--------------------------------------
1. Gallardo v. New Century Mortgage Corporation, et al.
. Loan amount $185,625.
. Claiming wrongful foreclosure, fraud and misrepresentation.
. Demurrer sustained against all counts.
. Amended complaint not expected to be filed.
2. Xxxx and Xxxxxxx Xxxxxx et al. v. State of California (CalTrans)
. Loan amount $116,450.
. Inverse Condemnation Claim referred to Amresco 8/17/98.
3. Claim of Xxxxx, Xxxxxxx and Xxxxx, Xxxxxx
. Loan amount $79,000.
. Allegation of forgery of Xxxxxx Xxxxx' signature (since deceased).
. Will tender to title.
4. Xxxxx, Xxxx (IRMO Xxxx Xxxxx and Xxxxx Xxxxx, inquiry by Court Appointed
Receiver)
. Loan Amount $126,000.
. Allegation of forgery transferring title of secured property out of
trust account.
. Tender to title acknowledged 9/23/98.
5. Claim of Xxxxx, Xxxxx X. and Xxxxx X.
. Loan amount $57,000.
. Lien on property by Fishhawk Lake Recreation Club, Inc.
. Association fees in the amount of $3,736 not paid in closing.
. Will tender to title.
6. Claim of Xxxxx, Xxxxx
. Loan amount $57,000.
. No payments made since March.
. Alleged fraud in transaction.
. Will tender to title.
7. Claim of Xxxxxx, Xxxx and Xxxxxxxx
. Loan amount $35,000.
. Deed of Trust never recorded by title company.
. Will tender to title.
8. Pan American Bank v. New Century Mortgage Corporation, Xxxxx Xxxxxxxxx, et
al.
. Loan amount $51,000.
. Defense tendered to title 9/8/98.
. Notice of Dismissal expected by 11/25/98.
9. Xxxxxxx Xxxx v. Edge Mortgage Services
. Loan amount $36,000.
. Question of validity of Borrower's title to Secured Property.
. Settlement expected by 11/31/98.
10. Xxxxx, Xxxxx and Xxxxxxxx (Stock Lumber Inc. v. Dave's Home Repair
Remodeling Service Inc. et al. Mechanic's Lien Foreclosure)
. Loan amount $112,000.
. Mechanic's Lien.
. Tendered to title.
11. Triangle Funding Inc. v. New Century Mortgage Corporation and Xxxx Xxxxxxx
. Loan amount $460,000.
. Broker alleges interference with fair competition.
. Answer to be filed by 10/19/98.
12. Shawnee Heating and Cooling Inc. x. Xxxxxx, Xxxxx X. et al.
. Loan amount $272,000.
. Mechanic's lien filed.
. Tendered to title company.
. Settled week of 10/5/98.
13. Xxxxx x. Xxxxxxxxxx, et al.
. Loan amount of $150,000.
. Borrower's husband claims an interest in secured property.
. Tendered to title 4/97.
. Trial scheduled for 10/98.
14. Xxxxxx (Northern Counties Title Insurance Co. v. Security First Funding)
. Loan amount $250,000.
. Alleged fraud in loan transaction. Settled by title company.
. Third party cross-complaint filed to indemnify escrow company.
. Deposition scheduled for 10/12/98 and 10/19/98 for New Century Mortgage
Corporation's "Most Knowledgeable Persons".
15. Xxxx x. New Century Mortgage Corporation
. Single Plaintiff lawsuit concerning Yield Spread Premium of $3,150.
16. Claim of Xxxxx, Xxxxxxx and Xxxx
. Loan amount $110,250
. Currently in bankruptcy status
. Title issue - Wasatch Loans not taken further action to pursue
enforcement of its senior lien
. Title company monitoring status
17. North Pacific Supply Co., Inc. v Xxxxxxx X. Xxxxxxxxx, Xxxxxx X. Xxxxxxxxx,
New Century Mortgage Corporation, Collections Incorporated et al .
. Loan amount $170,040.
. Complaint for Foreclosure of Construction Lien and Breach of Contract.
. Amount in controversy is less than $10,000.
. Will be tendered to title.
18. Xxxxxxx Xxxxxxx v. New Century Mortgage Corp., AMRESCO Mortgage Corp.
. Loan amounts $105,000 and $89,000.
. Loan for $89,000 was not paid off by loan for $105,000.
. Satisfaction of mortgage settlement expected by 10/25/98.
19. Xxxxxx X. Xxxxx III v. Xxxxxxx X. Xxxxxxx, et al
. Loan amount $499,000.
. Foreign judgment enforcement taking priority on our lien.
. Tendered to title.
. Title company admitted fault in not finding lien.
20. Claim of Xxxxxxxx, Xxxxxxx
. Loan amount $35,000.
. Rescission issue, Father alleges fraudulent quitclaim
. Loan proceeds not returned to New Century to date.
21. Claim of Xxxxxxxx, Xxxxxx and Xxxxxxx
. Loan amount $68,880.02.
. Elderly borrower with rescission and prepayment issues.
. Rescission in process.
22. Xxxxx Xxxxx Xxxx v. New Century Mortgage, ReMax Realty et al.
. Lis Pendens received on property scheduled for foreclosure sale.
. Motion to Expunge Lis Pendens to be heard on 11/25/98.
23. Claim of Xxxxxx, Xxxxxxx and Xxxxx
. Loan amount of $95,150.
. Property burned down.
. Borrowers disputing manner of payment of insurance proceeds. New
Century is exercising the right under the note to keep the insurance
proceeds.
INACTIVE LITIGATION
24. New Century Mortgage Corporation v. Town and Country
. Appraisal fraud
. Property sold at loss after default
25. Claim of Xxxxxxx, Xxxxxxx and Xxxxxxx
. Lis Pendens filed claiming individual recorded Deed of Trust which was
not listed as an exception on New Century Mortgage Corporation's
preliminary report.
. Seller assigned interest of sale to two parties. One party wants to
foreclose, second party reconveyed resulting in 48% of proceeds
. Loan sold to Amresco 8/96
26. Claim of Xxxxxxx, Xxxxxxx
. Loan amount $290,500
. Threatened first lien position
. Sold to Ocwen 9/26/97
Regulatory Matters
------------------
In September 1998, the Kansas Consumer Credit Office audited New Century
Mortgage Corporation's consumer credit transactions and sent the Company a
letter inquiring about a handful of matters. New Century Mortgage Corporation
responded in October 1998, and has not received any further correspondence
regarding the inquiry.
In November 1998, New Century Mortgage Corporation received a letter from the
Texas Office of Consumer Credit Commissioner requesting information regarding
its Texas loan originations and litigation. New Century has supplied the
information, and has heard nothing further.
In November 1998, New Century Mortgage Corporation received a letter from the
Consumer Finance Division of the South Carolina Board of Financial Institutions
requesting information on New Century's loan originations in 1998 in South
Carolina. New Century is now preparing its response.
LEGAL FILES
NCM FC OR CLOSED/
NAME PROPERTY ADDRESS ST LOAN # PROC INV# SERVICER BALANCE BK OPEN DEPARTMENT
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXXX 0000 XXXXXXX XX., XX 00000 1 NCM $ 50,980 N/A OPEN COLLECTION
PHILADEPHIA
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXXX 000 XXXXXXXXXX XXX, XX 00000 208 NCM $104,465 FC OPEN FORECLOSURE
MCDONOUGH
----------------------------------------------------------------------------------------------------------------------------
XXXX, XXXXXXXXX XX 0 XXX 00, XX 00000 1 NCM $592,169 FC OPEN FORECLOSURE
HOCKLEY
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXX 0000 XXXXXXXX XX. #0, XX 00000 347 ADVANTA $578,624 N/A CLOSED ADVANTA
AUSTIN
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXXXX 000 X. XXXXXX, XX 00000 CS 102 NCM $110,102 BK OPEN BANKRUPTCY
AND XXXX XXXXX
----------------------------------------------------------------------------------------------------------------------------
BOSTON, XXXXXX 0000 X XXXXXX XXX, XX 000000 FA 105 NCM $ 89,600 BK OPEN FORECLOSURE
SPOKANE
----------------------------------------------------------------------------------------------------------------------------
BOSTON, XXXXXX 0000 X XXXXXX XXXXXX XX 000000 FA 104 NCM $ 0 N/A OPEN N/A
SPOKANE
----------------------------------------------------------------------------------------------------------------------------
BOX, XXXXXXX 000 00XX XX., XX 00000 WP 1 NCM $ 61,100 FC OPEN FORECLOSURE
RICHMOND
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXXXXX X. 0000 XX 000XX XX., XX 000000 102 NCM $112,464 N/A OPEN CUSTOMER SERVICE
PORTLAND
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXXX 000 XX XXXXX XX., XX 00000 FA 208 NCM $ 41,538 FC OPEN FORECLOSURE
BALTIMORE
----------------------------------------------------------------------------------------------------------------------------
XXXX, XXXXX AND XXX 000 XXXXX XXX., XX 00000 103 NCM S/R TO N/A CLOSED
BENSENVILLE AMRESCO
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXX 0000 XXXXXX XXXXXX, XX 00000 1 NCM $ 18,112 N/A OPEN COLLECTION
& XXXXX FOREST PARK
----------------------------------------------------------------------------------------------------------------------------
NAME LEGAL ISSUE STATUS LAST
REVIEWED
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXXX BROKER TRYING TO SELL BACK TO COASTAL DUE TO PROP COND AT 11/03/98
BUYBACK TIME OF PURCHASE. Per Xxxxx ltr request attorney
to file Complaint for breach of contract
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXXX BORROWER COMPLAINT FROM BORROWER. NC will refi. Offer valid 11/12/98
DISPUTE until 1/11/99
----------------------------------------------------------------------------------------------------------------------------
XXXX,XXXXXXXXX TITLE PER XXXXXXX FILE IS IN FC, HE FAXED COPY OF TITLE 10/28/98
ISSUE TO FC ATTNY FOR REVIEW & INSTRUCTED THEM TO
PROCEED FC WE ARE IN FIRST POSITION/ ALSO SOLD TO
ESB
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXX TAX LIEN SCHOOL DISTRICT TAX LIEN - TAX SALE OF SECURED 11/02/98
PROPERTY / ANSWER TO COMPLAINT FILED
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXXXX TITLE TITLE ISSUE - APPEARS THAT WE ARE IN 2ND POS, THE 11/12/98
AND XXXX ISSUE 1ST IS IN FC, SALE DATE WAS PP DUE TO BK, 1ST IS
FILING RELIEF MOTION / XXXXX TO TENDER TO TITLE CO/
----------------------------------------------------------------------------------------------------------------------------
BOSTON, XXXXXX LEGAL DOT WAS RECORDED WITH WRONG LEGAL DESCRIPTION/ FOR 10/08/98
DESCRIPTION LEGAL DEPT. INFO. PURPOSE ONLY - FC HANDLING
DISPUTE.
----------------------------------------------------------------------------------------------------------------------------
BOSTON, XXXXXX LEGAL SEE LOAN NO. 111564/ FOR LEGAL DEPT. INFO. PURPOSE 10/08/98
DESCRIPTION ONLY- FC HANDLING DISPUTE.
----------------------------------------------------------------------------------------------------------------------------
BOX, XXXXXXX WRONGFULFC WITH PLA ATTY XXXXX XXXXXX IN CONJUNCTION WITH REQ STATUS
XXXXX
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXXXXX X. TITLE POSSIBLE FC SALE SCHEDULED FOR 11/98? BENEFICIAL? 10/14/98
ISSUE ORIG FILE FORWARDED TO XXXXX FOR REVIEW.
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXXX TITLE BACK TO FC, DEED RECORDED. 10/16/98
ISSUE
----------------------------------------------------------------------------------------------------------------------------
XXXX, XXXXX AND XXX CONDEMNED HOUSE MAY BE CONDEMNED, SERVICING TRANSFERRED TO
AMRESCO / INFO FORWARDED TO AMRESCO FOR RESOLUTION
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXX SENIOR LIEN SENIOR LIEN IS FILING FC IN A JUDICIAL PROCEEDINGS
& XXXXX STATE
---------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
NAME PROPERTY ADDRESS ST NCM PROC INV# SERVICER BALANCE
LOAN #
-------------------------------------------------------------------------------------------------------------------------
GOOD, XXXX X. 000 XXXXX XXXX, XXXXXXX XX 000000 210 NCM $ 81,000
-------------------------------------------------------------------------------------------------------------------------
XXXXXXXXX, XXXXXX 0000 XXX XXXXX XXXXX, XXXXXXXXXXX XX 00000 206 NCM $ 93,000
-------------------------------------------------------------------------------------------------------------------------
XXXXXXXXX, XXXXXXX X. 0000 XXXXXXXXXX, XXXXXX XXXX XX 00000 ADVANTA
-------------------------------------------------------------------------------------------------------------------------
XXXXXXXXX, XXXX 00000 XXXXXXXX XX, XXXXXXXX XXXXXXX XX 00000 NMC
-------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXX 0000 XXXXXXXX XXXXXX, XXX XXXXX XX 00000 ADVANTA
-------------------------------------------------------------------------------------------------------------------------
XXXX, XXXXXXX 0000 XXXXXXXX XXX., XXXXXXXX XX 00000 102 NCM $ 0
-------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXXX 00000 000XX XXX., XXXXXXX XX 00000 RM 206 NCM $129,202
-------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX 0000 XXXX XXXXX XXX., XXXXX XX 000000 210 NCM $ 0
-------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXX X. 0000 0/0 XXXXXX XX, XXXXXXX XX 00000 349 ADVANTA $ 42,478
-------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXX 0000 XXXX XXXXXXX XXX XXXXXXXXX XX 00000 ADVANTA $ 0
-------------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------------------
NAME FC OR CLOSED/ DEPARTMENT LEGAL ISSUE STATUS LAST
BK OPEN REVIEWED
-----------------------------------------------------------------------------------------------------------------------------------
GOOD, XXXX X. N/A OPEN COLLECTION SHORTAGE AT XXX NCMC WILL ADD THE SHORTFALL TO 11/04/98
THE LOAN AMOUNT AND THE LAWSUIT
WILL BE DISMISSED / NAT'L RE SVCS
WILL COMPLETE THE NEW LOAN
CLOSING/ XXXXX REQ LOAN DOC
------------------
STATUS 10/15/98
---------------
-----------------------------------------------------------------------------------------------------------------------------------
XXXXXXXXX, XXXXXX N/A OPEN FORECLOSURE BORROWER DISPUTE BORROWER ANSWERED COMPLAINT / 10/28/98
FOR LEGAL DEPT. INFO. PURPOSE
ONLY-FC COUNSEL HANDLING
DISPUTE
-----------------------------------------------------------------------------------------------------------------------------------
XXXXXXXXX, XXXXXXX X. OPEN ADVANTA REWRITE PER XXXXX XXXXXXXXX IS BEING 10/15/98
REWRITTEN BY XXXXXXX XXXXXX.
XXXXX SPOKE W/HIM EARLIER THIS
WEEK & HE WAS FORWARDING THE
DOCS TO XXX X.
-----------------------------------------------------------------------------------------------------------------------------------
XXXXXXXXX, XXXX OPEN FORECLOSURE BORROWER DISPUTE BORROWER ANSWERED COMPLAINT IN 10/15/98
JUDICIAL STATE/ FOR LEGAL DEPT.
INFO. PURPOSE ONLY-FC COUNSEL
HANDLING DISPUTE
-----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXX OPEN ADVANTA TITLE ISSUE PER XXXXX / TO THE TITLE CO. FOR REQ STATUS
HANDLING
-----------------------------------------------------------------------------------------------------------------------------------
XXXX, XXXXXXX N/A OPEN COLLECTION LAWSUIT GUARDIAN OF BWR HAS FILED SUIT 11/02/98
AGAINST NCMC AND SELLER / BWR IS
PROFOUNDLY RETARDED / AWAITING
P/O FROM SELLER / LOAN HAS BEEN
PAID OFF / THEY HAVE NOT ACCEPTED
OFFER FROM XXXXX Waiting for Court
to dismiss NC/Comerica from lawsuit
11/5
-----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXXX FC OPEN FORECLOSURE TITLE ISSUE FILE TRANSFERED TO COUNSEL HIRED
11/04/98 BY LAWYERS TITLE INC.
XXXXXX HOPING TO OBTAIN LOAN TO
PAY OFF BOTH BANK ONE AND NC
-----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX N/A OPEN COLLECTION REWRITE PER XXXXX / LOAN BEING REWRITTEN / REQ STATUS
SEE LOAN NO. 149039, FUNDED 072898,
P/B $42,750.00
-----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXX X. FC OPEN ADVANTA RECORDING DEED WAS NOT RECORDED REQ STATUS
-----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXX N/A CLOSED ADVANTA TAXES REIMBURSEMENT CHECK FORWARDED 09/11/98
TO BORROWER/PER XXXXXXX
FILE IS CLOSED/ WE HAVE NEW RELEASE
-----------------------------------------------------------------------------------------------------------------------------------
LEGAL FILES as of 11/19/98
NAME PROPERTY ADDRESS ST NCM PROC INV# SERVICER BALANCE FC OR CLOSED/
Loan # BK OPEN
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX 0000 XXXXXX XX., XX 00000 BB 206 NCM $137,399 FC OPEN
OAKLAND
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXXX 000 XXXXXXXXX XXX., XX 000000 210 NCM $ 90,935 N/A OPEN
HACIENDA HEIGHTS
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXX 5902 XXXXXXX, XX 000000 N/A N/A N/A N/A OPEN
FLINT
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXXXXXX 4915-17 XXXXXX, XX 00000 N/A REO / NCM N/A REO CLOSED
ST. LOUIS
----------------------------------------------------------------------------------------------------------------------------
MONTENEGRO, XXXXX X. 0000 XXXXXXX XXX., XX 3176 345 ADVANTA $150,000 FC OPEN
SAN XXXXX
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXXXXX 0000 X. XXXXXXXXX XXX., XX 00000 346 ADVANTA $103,255 N/A OPEN
WEST COVINA
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXX X. 0000 00XX XXXXXX, XX 00000 208 NCM $ 67,917 FC OPEN
NORTH CHICAGO
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX X. 0000 00XX XXX #X, XX 00000 FA 207 NCM $ 34,469 FC OPEN
ST. PETERSBURG
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXXX 000 X. 00XX XX., XX 000000 1 NCM $ 94,500 N/A OPEN
LOS ANGELES
----------------------------------------------------------------------------------------------------------------------------
NAME DEPARTMENT LEGAL ISSUE STATUS LAST
REVIEWED
---------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX FORECLOSURE PAYMENT DISPUTE BORROWER DISPUTES PYMT AMOUNT - WILL FORWARD FILE 08/17/98
TO XXXXX FOR REVIEW
---------------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXXX COLLECTION BORROWER DISPUTE CONCLUSION: BRWR DID NOT TRY TO RESCIND LOAN, BRWR 09/09/98
RESPONSIBLE FOR LOAN, IF BWR CAN RETURN 35K FOR
INVST AND 12K PROCEEDS, WE WILL REWRITE TO LOWER
PYMT/ LTR DATED 09/03/98
---------------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXX CUSTOMER RESCISSION DEMANDING BWR TENDER THE SUM OF $36956.13 ON OR 10/14/98
SERVICE BEFORE 10/30/98, OTHERWISE WE WILL COMMENCE
SERVICING THE LOAN AS A FPD IN THE AMOUNT OF
$43,690.00
---------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXXXXXX REO TITLE ISSUE 1st AMERICAN HAS ISSUED POLICY SHOWING US IN 1ST
POSITION
---------------------------------------------------------------------------------------------------------------------------------
MONTENEGRO, XXXXX X. ADVANTA TITLE ISSUE LITIGATING TITLE ISSUES / XXXXX TENDERED TO TITLE REQ STATUS
COMPANY
---------------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXXXXX ADVANTA FRAUD POSSIBLE FRAUD / XXXXX TO TENDER TO TITLE COMPANY REQ STATUS
---------------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXX X. FORECLOSURE TITLE ISSUE TITLE ISSUE- PRIOR RECORDING AND PRIOR UNRELEASED 11/10/98
LIEN.
---------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX X. FORECLOSURE TITLE ISSUE TITLE ISSUE - OWNERSHIP, NCMC'S POSITION, UNPAID REQ STATUS
TAXES, UNSATISFIED PRIOR MORTGAGE - PER LEGAL,
THIS IS THE TITLE INSURER'S PROB
---------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXXX COLLECTION REWRITE PER XXXXX-IF UPB OF LOAN IS NOT FORWARD TO MR. 11/10/98
XXXX (ATTY.) BY NOV. 30, 98, OR IF SHE HAS NOT
REC'D A WRITTEN COMMITMENT FROM XX. XXXX TO XX.
XXXXXX AND HAS NOT ACCEPTED, XXXXX HAS INSTRUCTED
XX. XXXX TO FILE JUDICIAL FC AGAINST XX.XXXXXX.
----------------------------------------------------------------------------------------------------------------------------------
as of 11/19/98
LEGAL FILES
----------------------------------------------------------------------------------------------------------------------------------
NAME PROPERTY ADDRESS ST NCM PROC INV# SERVICER BALANCE FC OR CLOSED /
LOAN # BK OPEN
----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXX 0 XXXXXXXXX XX., XXXXXXX XX 000000 104 NCM $459,707 N/A OPEN
----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXX 00000 X. XXXXXXXXX XX., XXXXXX XX 00000 BB 1 NCM $ 78,675 FC CLOSED
----------------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXX 0000 XXXXXXXX XXX, XXXXXX XX 000000 SK 105 NCM $437,250 FC OPEN
----------------------------------------------------------------------------------------------------------------------------------
XXXX, XXXXXX & XXXXXXX 00000 XXXXX XX XXXX XXXXXXXX XX 000000 208 NCM $172,281 N/A OPEN
----------------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXXX 0000 X. 00XX XX., XXXX XX. XXXXX XX 00000 XXXXX 207 NCM $ 19,440 FC OPEN
----------------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXX 0000 XXXX XXXX XX., XXXX XXXX XX 000000 CS 102 NCM $532,500 FC OPEN
----------------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXXXX 0000 XXXX XXXXXX, XXXXXXX XX 00000 346 ADVANTA $ 95,764 N/A OPEN
----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX 0000 XXXXXX, XXXXXXX XX 000000 DP 105 NCM $131,941 FC OPEN
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
NAME DEPARTMENT LEGAL ISSUE STATUS LAST
REVIEWED
----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXX COLLECTION PAYMENT ESCROW DISPUTE OVER 1ST PYMT DUE REQ STATUS
DISPUTE DATE / PER XXXXXXX, 1ST PYMT DUE
DATE IS CORRECT / CONTINUE WITH
COLLECTION
----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXX FORECLOSURE SENIOR LIEN SENIOR LIEN FILED A COMPLAINT / BPO 11/04/98
CAME BACK CONSIDERABLY LOWER THAN
APPRAISAL, IF ACCURATE, WE WILL NOT
CONTINUE LITIGATING WITH 1ST / WE ARE
WALKING / WILL PURSUE NOTE THRU DYCK X'XXXX
----------------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXX FORECLOSURE
----------------------------------------------------------------------------------------------------------------------------------
XXXX, XXXXXX & XXXXXXX COLLECTION PYMT DISPUTE BORROWER DISPUTES PYMT AMOUNT - LOAN IS 11/05/98
BEING REWRITTEN
----------------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXXXX FORCLOSURE TITLE ISSUE / TAX SALE PROBLEM - BORROWER'S TITLE TO REQ STATUS
TAX SALE SEC PROP HAS BEEN CHALLENGED / NETCO
TITLE HAS ACCEPTED THE TENDER / REQ TO
APPLY $600 TO PB AND BEGIN FC: SEE LTR
DATED 081798
----------------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXX FORECLOSURE TITLE CLAIM E-MAIL DATED 083198; XXXXXXX IS AN ATTNY 08/31/98
CLAIMING HE IS IN 1ST POS AND FORECLOSING,
PER FIRST AMER IN UT AN ATTNY'S LIEN CANNOT
ATTACH TO REAL PROP, FIRST AMER WILL DEFEND
NCMC IF XXXXXXX SEEKS FC / PER XXXXX,
COMMENCE FC ON THE SECURED PROP IMMEDIATELY
----------------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXXXX ADVANTA FILE WAS SUBPOENAED BY THE GOVT REQ STATUS
----------------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX FORECLOSURE TITLE ISSUE DEED WAS NOT RECORDED 11/13/98
----------------------------------------------------------------------------------------------------------------------------------
17
LEGAL FILES as of 11/19/98
NAME PROPERTY ADDRESS ST NCM PROC INV# SERVICER BALANCE FC OR CLOSED/
LOAN # BK OPEN
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX 0000 X XXXXXXXX XX., XX 00000 1 NCM $ 64,983 N/A OPEN
TUCSON
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXX & XXXXXXXX 000 X XXXXXXXX XXXX, XX 000000 102 NCM $ 60,000 FC OPEN
COLORADO SPRINGS
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, SENORA 0000 XXXX XXXXX, XX 00000 LIZ 207 NCM $ 27,583 FC OPEN
CLEVELAND
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXX & XXXXXXX 000 XXXXXXXX XX, XX 000000 FA 1 NCM $165,000 FC OPEN
LAS VEGAS
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXX & XXXXXXX 000 XXXXXXXX XX., XX 000000 FA 1 NCM $ 54,750 FC OPEN
LAS VEGAS
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXX & XXXXXXX 0000 XXXXXX XX., XX 000000 FA 1 NCM $ 61,500 FC OPEN
LAS VEGAS
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXX X. 0000 XXXXXXXXX XXXXXX, XX 00000 213 NCM $125,944
HUNTINGTON BEACH
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXX X. 0000 XXXXXX XXX XXX, XX 00000 1 NCM $121,554 BK CLOSED
LAS VEGAS
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXX 00000 X. XXXXXXX XXX., XX 000000 N/A N/A N/A N/A OPEN
CHICAGO
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXX 000 XXXXXXX XX., XX 00000 101 NCM PENDING S/R N/A OPEN
XXXXXXXXXX $0.00
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXX XXXXXXX 00-000 XXXXXX XX., XX 00000 206 NCM $233,309 FC OPEN
MILILANI TOWN
----------------------------------------------------------------------------------------------------------------------------
NAME DEPARTMENT LEGAL ISSUE STATUS LAST
REVIEWED
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXXX COLLECTION GOV'T F/C GOV'T FC ON PROP, PER XXXXX, WILL RECEIVE P/O REQ STATUS
UPON COMPLETION OF THEIR FC, DO NOT UNDERTAKE
ANY FC ACTIVITY ON THIS ACCOUNT
----------------------------------------------------------------------------------------------------------------------------
XXXXXXX, XXXX & XXXXXXXX FORECLOSURE BORROWER DISPUTE BORROWER FILED COMPLAINT TO DISPUTE./FOR LEGAL
DEPT. INFO. PURPOSE ONLY-FC COUNSEL HANDLING
DISPUTE
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, SENORA FORECLOSURE BORROWER DISPUTE BORROWER IS DENYING OUR CLAIM 10/14/98
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXX & XXXXXXX FORECLOSURE TITLE ISSUE LEGAL DESCRIPTION ERROR 10/30/98
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXX & XXXXXXX FORECLOSURE TITLE ISSUE LEGAL DESCRIPTION ERROR 10/30/98
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXX & XXXXXXX FORECLOSURE TITLE ISSUE LEGAL DESCRIPTION ERROR 10/30/98
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXX X. COLLECTION BORROWER DISPUTE XXX. XXXXX CLAIMING FRAUD & FORGERY AGAINST 11/04/98
HUSBAND. PER XXXXX DO NOT PROCEED FORECLOSURE
UNTIL RESOLVED.
----------------------------------------------------------------------------------------------------------------------------
XXXXXXXX, XXXX X. BOARDING ISSUE ISSUE OF BOARDING AND AMOUNT DUE
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXXX CUSTOMER RESCISSION PER XXXXX / LOAN IN THE PROCESS OF RESCISSION REQ STATUS
SERVICE
----------------------------------------------------------------------------------------------------------------------------
XXXXXX, XXXX CUSTOMER TITLE ISSUE PER XXXXX / TO THE TITLE CO. FOR HANDLING REQ STATUS
SERVICE
----------------------------------------------------------------------------------------------------------------------------
XXXXX, XXXXX XXXXXXX FORECLOSURE RESPA / TILA BORROWER ALLEGES THAT NCMC AND CM VIOLATED 11/13/98
RESPA VIOLATION AND TILA / PER XXXXX,
CARLSMITH BALL IS HANDLING. Xxxxx wants to
settle (cost-effective) 3rd position
----------------------------------------------------------------------------------------------------------------------------
[LETTERHEAD OF KANSAS OFFICE OF CONSUMER CREDIT COMMISSIONER]
September 10, 1998
Xx. Xxxxxxx Xxxxxxxxxx Compliance Officer
New Century Mortgage Corp
00000 Xxx Xxxxxx Xxx 0000
Xxxxxx XX 00000
Dear Xx. Xxxxxxxxxx:
Effective July 1, 1995, this office began charging an examination fee. This
fee is being charged at the conclusion of the examination of the first licensed
location of each credit organization. Subsequent examinations for additional
licensed locations will not be charged. It is the intention of this office to
examine all licensees regularly on a 12 to 15 month cycle unless otherwise
warranted by either volume of accounts or violation and compliance concerns. If
this office determines examinations are required more than annually, additional
examination charges will be assessed. We encourage licensees to diligently
follow all pertinent laws and regulations to avoid the need for more frequent
examinations.
The examination for New Century Mortgage Corp., license numbers 3503 and
3504, located at their respective addresses was completed in September, 1998.
The $400.00 examination fee for this exam is now due. Please remit fee to:
Consumer Credit Commissioner
Jayhawk Tower, Suite 100 1
000 XX Xxxxxxx
Xxxxxx, Xxxxxx 00000-0000
If you have any questions, please contact this office.
Sincerely,
/s/ Xxxxxx X. Xxxxx
--------------------------
Xxxxxx X. Xxxxx
Financial Examiner
RET:lc
[LETTERHEAD OF KANSAS OFFICE OF CONSUMER CREDIT COMMISSIONER]
September 10, 1998
Xx. Xxxxxxx Xxxxxxxxxx, Compliance Officer
New Century Mortgage Corporation
00000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxxxxxx 00000
LICENSE: 3503-3504
RE: Examination Conducted in September, 1998
During the examination of your consumer credit transactions by our examiner, Xx.
Xx Xxxx Xxxxxxx, the following errors were noted:
REFUND DUE ON EXCESS FINANCE CHARGE
Acct No Name Date as of Allowable Rate Credit Account
------- ----- ---------- -------------- --------------
22958 Xxxxx 10/01/97 9.79% 389.43
The above first mortgage loan was not made subject to the Kansas Uniform
Consumer Credit Code. Therefore, the best available rate is 1 1/2% above the
Federal Home Loan Mortgage Corporation rate for the month of the application.
(See K.S.A. 16a-207(b)). Credit this account as of the date shown and reduce
------------------- ---------------------------------------------------
the rate of charge.
------------------
Acct No Name Date as of Credit Account
------- ----- ---------- --------------
19147 Xxxxx 07/10/97 650.12
This second mortgage loan was charged a loan origination fee in excess of 3% of
the amount financed.
It was noted your loans were being charged interest incorrectly. They were
charged using a 30/360-amortization schedule. Consumer loans, by definition or
agreement, must be charged using the actual number of days between payments and
a 365-day year. See K.A.R. 75-6-6. Correct your system accordingly.
Xx. Xxxxxxx Xxxxxxxxxx, Compliance Officer
New Century Mortgage Corporation
September 10, 1998
Page 2
REFUNDS DUE ON CLOSING COSTS
Allowed/
Acct No Name Item Charged Invoice Due
---------- ------- ------------- ------- ---------- ------
19147 Xxxxx Recording Mtg 30.00 12.00 18.00
Flood Cert 24.50 No Cert 24.50
22958 Xxxxx Appraisal 400.00 No Invoice 400.00
Title Ins 285.00 No Policy 285.00
Recording 50.00 20.00 30.00
21614 Cairns Flood Cert 25.00 No Cert 25.00
Closing Fee 200.00 No Invoice 200.00
41537 Xxxxxxx Recording Fee 30.00 12.00 18.00
No invoices were available on the above accounts and more than a reasonable
amount, as determined by this agency, was charged. Or the amount charged was in
excess of the invoices available. Forward the missing invoices, policies and
certificates or make the appropriate refund.
A fee for flood certification for the life of the loan is not an allowable
closing cost and must be disclosed as a finance charge item. If properly
disclosed, the charge may be treated as a prepaid finance charge in addition to
the loan origination fee.
Upon receipt of this exam letter, contact this agency so there will be no
misunderstanding of the content of this letter and New Century Mortgage Corp's
expected response.
Please advise this agency when the above adjustments have been completed and
provide documentation verifying the corrections within 30 days from the date of
-- ----
this letter. You must respond to ALL of the examiner's findings noted in this
---
letter and provide complete documentation.
Sincerely,
/s/ Xxxxxx X. Xxxxx
-------------------------
Xxxxxx X. Xxxxx
Financial Examiner
RET:lc
cc: Xx. Xx Xxxx Xxxxxxx, Financial Examiner
[NEW CENTURY MORTGAGE CORPORATION LETTERHEAD]
October 8, 1998
Xxxxxx X. Xxxxx
Office of Consumer Credit Commissioner
JAYHAWK TOWER
000 X. X. Xxxxxxx, Xxxxx 0000
Xxxxxx, Xxxxxx 00000
Re: Examination - September 1998
License Number 3503 - 3504
Dear Xx. Xxxxx:
In response to your examination report dated September 10, 1998, we have
refunded $700.50 to four borrowers, forwarded funds to credit two borrower
accounts in the amount of $1,039.55, on loans sold servicing released, and made
operational changes as indicated below.
Refund Due on Excess Finance Charge
We forwarded a check in the amount of $389.43 to AMRESCO for credit to the
account of Xxxxxxx X. Xxxxx as of October 1, 1997. We advised AMRESCO of
your instructions to reduce the interest rate on the account as of the same
date. Copies of our letter and check to AMRESCO are enclosed.
We forwarded a check in the amount of $650.12 to CIT Group for credit to the
account of Xxxxx X. Xxxxx as of July 10, 1997. Copies of our letter and check to
CIT Group are enclosed.
Interest Charge Amortization
Our loan servicing system is being converted to amortize Kansas loans on an
actual number of days between payments/365 day basis annually.
Additionally, we have taken steps to acquire the appropriate software to
enable our loan origination system to do the same.
Kansas Examination Report 9/98
Response dated 10/8/98
Page 1
Refunds Due on Closing Costs
We have refunded closing costs in the amounts shown below. Copies of the
letter and check to each borrower are enclosed.
Xxxxxxx X. Xxxxx $415.00
Xxxxxx X. Xxxxxx $225.00
Xxxxx X. Xxxxx $ 42.50
Xxxxx. X. Xxxxxxx $ 18.00
A copy of the invoice dated April 22, 1997 from Pinnacle Appraisal Group to
Advance Mortgage, the originating broker of the Xxxxxxx X. Xxxxx loan, is
enclosed. The actual charge for the appraisal was $300.00. Therefore, we
included $100.00, of the $400.00 charged by Advance Mortgage, in the refund
of closing costs to Xx. Xxxxx.
New Century Mortgage does include the Life of Loan Flood Certificate fee in
finance charges, however Consumer Security Mortgage, the originating
broker, did not. Therefore, we included the $24.50 fee in the closing cost
refund to Xx. Xxxxx.
We sincerely hope we have satisfactorily addressed the findings of your office.
Should there be any additional questions, please contact me directly at (949)
224-5760 or through our toll free line (000) 000-0000 extension 5760.
Yours truly,
/s/ Xxxxxxx Xxxxxxxxxx
-------------------------
Xxxxxxx Xxxxxxxxxx
Vice President
Compliance
Enc
cc: Xxxx Xxxxxxx
Xxx Xxxxxxxx
Xxxxx Xxxxxx
Xxxxxx Xxxxxxxx
Xxxx Xxxxxxx
Kansas Examination Report 9/98
Response dated 10/8/98
Page 2
EXHIBIT F
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as of
October __, 1998, by and between New Century Financial Corporation, a Delaware
corporation (the "Company"), and U.S. Bancorp, a Delaware corporation (the
"Purchaser").
WHEREAS, the Purchaser has agreed to purchase shares of the Company's 1998A
Convertible Preferred Stock (the "Preferred Stock").
WHEREAS, in connection with such purchase, the Company and the Purchaser
desire to enter into certain arrangements with respect to the registration for
public sale under the Securities Act of 1933, as amended (the "Securities Act"),
of the shares of the Company's Common Stock, $.01 par value per share, issuable
upon conversion of the Preferred Stock.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Purchaser
hereby agree as follows:
1. Definitions.
-----------
1.1 "Affiliate" shall mean any person that directly or indirectly
---------
controls or is controlled by, or is under common control with, another specified
person.
1.2 "Commission" shall mean the Securities and Exchange Commission or
----------
any other federal agency at the time administering the Securities Act.
1.3 "Company" shall mean New Century Financial Corporation, a
-------
Delaware corporation.
1.4 "Common Shares" shall mean the shares of common stock, par value
-------------
$.01 per share, authorized by the Company's Certificate of Incorporation and any
additional shares of common stock which may be authorized in the future by the
Company, and any stock into which such Common Shares may hereafter be changed,
and shall also include capital stock of any other class of the Company which is
not preferred as to dividends or assets over any other class of stock of the
Company and which is not subject to redemption.
1.5 "Founding Managers" shall mean Xxxxxx X. Xxxx, Xxxx X. Xxxxxxx,
-----------------
Xxxxxx X. Xxxxxx and Xxxxxx X. Xxxxxxxxx.
1.6 "Other Shareholders" shall mean Xxxx X. Xxxxx and Xxxx Xxxxxxx,
------------------
and their successors in interest, under that certain Merger Agreement, dated as
of December 17, 1997, among the Company, NC Acquisition Corp., PFW Corporation
and the shareholders named therein.
Exhibit F
-1-
1.7 "Preferred Stock" shall mean the outstanding shares of the Series
1998A Convertible Preferred Stock, par value $.01 per share, of the Company, and
any securities (other than Common Shares) into which such shares may hereafter
be changed.
1.8 "Public Offering" shall mean any offering of Common Shares to the
public, either on behalf of the Company or any of its security holders, pursuant
to an effective registration statement under the Securities Act.
1.9 "Purchaser" shall mean U.S. Bancorp, a Delaware corporation.
1.10 "Registrable Securities" shall mean (a) the Common Shares at any
time issued or subject to issuance upon the conversion of the Preferred Stock
and (b) any additional securities issued with respect to the above-described
securities upon any stock split, stock dividend, recapitalization, or similar
event. Registrable Securities shall cease to be Registrable Securities when (w)
a registration statement with respect to the sale of such securities shall have
been declared effective under the Securities Act and such securities shall have
been disposed of in accordance with such registration statement, (x) such
securities shall be eligible to be distributed pursuant to Rule 144(k) under the
Securities Act, (y) such securities shall have ceased to be outstanding, or (z)
such securities are transferred in a transaction in which the rights hereunder
are not assigned as permitted by Section 9.
1.11 "Registration Expenses" shall mean the expenses described in
Section 5.
1.12 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.13 "Stock Purchase Agreement" shall mean the Preferred Stock
Purchase Agreement dated October -, 1998 between the Company and the Purchaser.
2. Demand Registration.
-------------------
2.1 Subject to Sections 2.3, 2.4, 2.5 and 2.6, if at any time the
Company shall receive a written request therefor from the record holder or
holders of an aggregate of at least 51% of the Registrable Securities, the
Company shall prepare and file a registration statement under the Securities Act
covering such number of Registrable Securities as are the subject of such
request and shall use its best efforts to cause such registration statement to
become effective. Upon the receipt of a registration request meeting the
requirements of this Section 2.1, the Company shall promptly give written notice
to all other record holders of Registrable Securities that such registration is
to be effected. The Company shall include in such registration statement such
additional Registrable Securities as such other record holders request in
writing within fifteen (15) days after the date of the Company's written notice
to them. If (a) the holders of a majority. of the Registrable Securities for
which registration has been requested pursuant to this Section 2.1 determine for
any reason not to proceed with the registration at any time before the related
registration statement has been declared effective by the Commission, (b) such
registration statement, if theretofore filed with the Commission, is withdrawn
and (c) the holders of the Registrable Securities subject to such registration
statement agree to bear their own
Exhibit F
-2-
Registration Expenses incurred in connection therewith and to reimburse the
Company for the Registration Expenses incurred by it in such connection or if
such registration statement, if theretofore filed with the Commission, is
withdrawn at the initiative of the Company, then the holders of the Registrable
Securities shall not be deemed to have exercised their demand registration right
pursuant to this Section 2.1.
2.2 At the request of the holders of a majority of the Registrable
Securities to be registered, the method of disposition of all Registrable
Securities included in such registration shall be an underwritten Public
Offering. The managing underwriter of any such Public Offering shall be
selected by the majority of the Registrable Securities, provided that such
managing underwriter is reasonably acceptable to the Company.
2.3 The Company shall be obligated to prepare, file and cause to be
effective not more than two registration statements pursuant to Section 2.1.
2.4 Notwithstanding the foregoing, the Company may delay initiating
the preparation and filing of any registration statement requested pursuant to
Section 2.1 for a period not to exceed one hundred eighty (180) days if, in the
good faith judgment of the Company's Board of Directors, filing the registration
statement would reasonably be expected to have a Material Adverse Effect (as
defined in the Stock Purchase Agreement), which Material Adverse Effect could
reasonably be expected to be avoided by delaying such filing for such period.
2.5 Notwithstanding anything to the contrary contained herein, at any
time within thirty (30) days after receiving a demand for registration pursuant
to Section 2.1, the Company may elect to effect an underwritten primary
registration in lieu of the requested registration. If the Company so elects,
the Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and shall afford such
holders the rights contained in Article 3 with respect to "piggyback"
registrations. In such event, the demand for registration pursuant to Section
2.1 shall be deemed to have been withdrawn.
2.6 The Company shall not obligated to effect a demand registration
(a) within 180 days after the effective date of a previous demand registration
or a previous registration in which the holders of Registrable Securities were
given piggy-back registration rights pursuant to this Agreement and in which
there was no reduction in the number of Registrable Securities requested to be
included or (b) prior to the first anniversary of this Agreement, provided that
this Section 2.6(b) shall not be applicable if the Purchaser notifies the
Company in writing that Purchaser, in its reasonable judgment, has determined
that it is required to divest all or a portion of the Registrable Securities in
order to satisfy or comply with regulatory requirements applicable to Purchaser.
3 Piggyback Registration.
----------------------
3.1 Each time the Company shall determine to proceed with the actual
preparation and filing of a registration statement under the Securities Act in
connection with the proposed offer and sale for money of any of its securities
by it or any of its security holders (other than a registration statement on
Form X-0, Xxxx X-0 or other limited purpose form), the
Exhibit F
-3-
Company will give written notice of its determination to all record holders of
Registrable Securities. Upon the written request of a record holder of any
Registrable Securities given within 15 days after the date of the receipt of any
such notice from the Company, the Company will, except as herein provided, use
its best efforts to cause all Registrable Securities the registration of which
is requested to be included in such registration statement, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Registrable Securities to be so registered; provided, however,
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying in its sole and absolute discretion any registration.
3.2 If any registration pursuant to Section 3.1 is underwritten in
whole or in part, the Company may require that the Registrable Securities
included in the registration be included in the underwriting on the same terms
and conditions as the securities otherwise being sold through the underwriters.
If, in the good faith judgment of the managing underwriter of the Public
Offering, marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may exclude some or all of the
Registrable Securities from such registration and underwriting. Any reduction in
the number of securities of the Company included in such registration and
underwriting shall be borne (i) first by the Founding Managers and the Other
Shareholders pro rata based on the number of shares, if any, for which
registration was requested by the Founding Managers and the Other Shareholders,
(ii) second by the Holders of Registrable Securities pro rata based on the
number of shares, if any, for which registration was requested by such Holders,
and (iii) then equally by the other holders of securities of the Company
requested to be included in such registration and underwriting, as a group, pro
rata based on the number of shares for which registration was requested by such
holders. The Registrable Securities which are thus excluded from the
underwritten Public Offering shall be withheld from the market by the holders
thereof for a period which the managing underwriter reasonably determines is
necessary in order to effect the Public Offering.
4. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of Article 2 or Article 3 to effect a registration of Registrable
Securities under the Securities Act, the Company will use its best efforts to
effect the registration and sale of such Registrable Securities in accordance
with the intended methods of disposition specified by the holders participating
therein. Without limiting the foregoing, the Company in each such case will, as
expeditiously as possible:
4.1 In the case of a demand registration pursuant to Section 2.1,
prepare and file with the Commission the requisite registration statement to
effect such registration (including such audited financial statements as may be
required by the Securities Act or the rules and regulations thereunder) and use
its best efforts to cause such registration statement to become effective;
provided, however, that as far in advance as practical before filing such
registration statement or any amendment thereto, the Company will furnish
counsel for the requesting holders of Registrable Securities with copies of
reasonably complete drafts of all such documents proposed to be filed (including
exhibits), and any such holder shall have the opportunity to object to any
information pertaining solely to such holder that is contained therein and the
Company will make the corrections reasonably requested by such holder with
respect to such information prior to filing such registration statement or
amendment.
Exhibit F
-4-
4.2 Prepare and file with the Commission such amendments and
supplements to such registration statement and any prospectus used in connection
therewith as may be necessary to maintain the effectiveness of such registration
statement and to comply with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities included in such registration
statement, in accordance with the intended methods of disposition thereof, until
the earlier of (a) such time as all of the Registrable Securities included in
such registration statement have been disposed of in accordance with the
intended methods of disposition by the holder or holders thereof as set forth in
such registration statement or (b) 180 days (or, if the filing was on a Form S-3
registration statement, 365 days) after such registration statement becomes
effective; provided, that, in the event the holder of Registrable Securities is
required to discontinue such holder's disposition of Registrable Securities
pursuant to Section 4.11 hereof, such 180-days (or 365 days, if applicable)
shall be extended for such additional period as is equal to the period during
which such holders was required to discontinue such disposition.
4.3 Promptly notify each requesting holder and the underwriter or
underwriters, if any, of:
(a) when such registration statement or any prospectus used in
connection therewith, or any amendment or supplement thereto, has been filed
and, with respect to such registration statement or any post-effective amendment
thereto, when the same has become effective;
(b) any written request by the Commission for amendments or
supplements to such registration statement or prospectus;
(c) any notification received by the Company from the Commission
regarding the Commission's initiation of any proceeding with respect to, or of
the issuance by the Commission of, any stop order suspending the effectiveness
of such registration statement; and
(d) the receipt by the Company of any notification with respect to the
suspension of the qualification of any Registrable Securities for sale under the
applicable securities or blue sky laws of any jurisdiction.
4.4 Furnish to each holder of Registrable Securities included in such
registration statement such number of conformed copies of such registration
statement and of each amendment and supplement thereto, and such number of
copies of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 promulgated under the Securities Act relating to such
seller's Registrable Securities, and such other documents, as such holder may
reasonably request to facilitate the disposition of its Registrable Securities.
4.5 Use its best efforts to register or qualify all Registrable
Securities included in such registration statement under the securities or "blue
sky" laws of such states as each holder of Registrable Securities shall
reasonably request within twenty (20) days following the original filing of such
registration statement and to keep such registration or qualification in effect
for so
Exhibit F
-5-
long as such registration statement remains in effect, and take any other action
which may be reasonably necessary or advisable to enable such holder to
consummate the disposition in such states of the Registrable Securities owned by
such holder, except that the Company shall not for any such purpose be required
(a) to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it would not but for the requirements of this Section 4.5
be obligated to be so qualified, (b) to consent to general service of process in
any such jurisdiction or (c) to subject itself to taxation in any such
jurisdiction by reason of such registration or qualification.
4.6 Use its best efforts to cause all Registrable Securities included
in such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable each holder
thereof to consummate the disposition of such Registrable Securities.
4.7 Notify each holder whose Registrable Securities are included in
such registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event
as a result of which any prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, and at the request of any such holder promptly prepare and
furnish to such holder a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the Purchaser of such Registrable Securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
4.8 Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission.
4.9 Use its best efforts to cause all Registrable Securities included
in such registration statement to be listed, upon official notice of issuance,
on any securities exchange or quotation system on which any of the securities of
the same class as the Registrable Securities are then listed.
4.10 The Company may require each holder whose Registrable Securities
are being registered to, and each such holder, as a condition to including
Registrable Securities in such registration statement, shall, furnish the
Company and the underwriters with such information and affidavits regarding such
holder and the distribution of such Registrable Securities as the Company and
the underwriters may from time to time reasonably request in writing in
connection with such registration statement. At any time during the
effectiveness of any registration statement covering Registrable Securities
offered by a holder, if such holder becomes aware of any change materially
affecting the accuracy of the information contained in such registration
statement or the prospectus (as then amended or supplemented) relating to such
holder, it will immediately notify the Company of such change.
Exhibit F
-6-
4.11 Upon receipt of any notice from the Company of the happening of
any event of the kind described in Section 4.7, each holder will forthwith
discontinue such holder's disposition of Registrable Securities pursuant to the
registration statement relating to such Registrable Securities until such holder
receives the copies of the supplemented or amended prospectus contemplated by
Section 4.7 and, if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holder's possession of
the prospectus relating to such Registrable Securities.
4.12 As used in this Agreement, the term "best efforts" shall not
mean efforts which require the performing party to do any act that is
unreasonable under the circumstances or to expend any funds other than
reasonable out-of-pocket expenses incurred in satisfying its obligations
hereunder, including but not limited to the fees, expenses and disbursements of
its accountants, counsel and other professionals.
5. Expenses. With respect to any registration requested pursuant to
--------
Article 2 (except as otherwise provided in such Article with respect to a
registration voluntarily terminated at the request of the requesting holders of
Registrable Securities) the Company shall bear all of the expenses
("Registration Expenses") incident to the Company's performance of or compliance
with its obligations under this Agreement in connection with such registration
including, without limitation, all registration, filing, securities exchange
listing and NASD fees, all registration, filing, qualification and other fees
and expenses or complying with state securities or "blue sky" laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and compliance,
premiums and other costs of any policies of insurance against liabilities
arising out of the Public Offering of the Registrable Securities being
registered obtained by the Company (it being understood that the Company shall
have no obligation to obtain such insurance) and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities; but excluding
underwriting discounts and commissions and transfer taxes, if any, in respect of
Registrable Securities and any fees and disbursements of counsel and accountants
to the holders of the Registrable Securities, which discounts, commissions,
transfer taxes, fees and disbursements shall in any registration be payable by
the holders of the Registrable Securities being registered, pro rata in
--- ----
proportion to the number of Registrable Securities being sold by them.
6. Indemnification.
----------------
6.1 The Company will, to the full extent permitted by law, indemnify
and hold harmless each holder of Registrable Securities which are included in a
registration statement pursuant to the provisions of this Agreement, and its
directors, officers and partners and each other person, if any, who controls
such holder within the meaning of the Securities Act, from and against any and
all losses, claims, damages, expenses or liabilities, Joint or several
(collectively, "Losses") to which such holder or any such director, officer,
partner or controlling person may become subject under the Securities Act or
otherwise, insofar as such Losses (or actions or proceedings, whether commenced
or threatened, in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in a
registration
Exhibit F
-7-
statement prepared and filed hereunder, any preliminary, final or summary
prospectus contained therein or any amendment or supplement thereto or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus, in the light of the circumstances under which they were made) not
misleading, and the Company will reimburse the holder and each such director,
officer, partner and controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
against any such Losses (or action or proceeding in respect thereof); provided,
--------
however, that the Company will not be liable in any such case to the extent that
-------
any such Losses arise out of or are based upon (a) an untrue statement or
alleged untrue statement or omission or alleged omission made in conformity with
written information furnished by such holder specifically for use in the
preparation of the registration statement or (b) such holder's failure to send
or give a copy of the final prospectus to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director, officer,
partner or controlling person of such holder and shall survive the transfer of
such securities by such holder. The Company shall also indemnify each other
person who participates (including as an underwriter) in the offering or sale of
Registrable Securities, their officers and directors, and partners, and each
other person, if any, who controls any such participating person within the
meaning of the Securities Act to the same extent provided above with respect to
holders of Registrable Securities.
6.2 Each holder of Registrable Securities which are included in a
registration pursuant to the provisions of this Agreement will, to the full
extent permitted by law, indemnify and hold harmless the Company, its officers,
directors and each other person, if any, who controls the Company within the
meaning of the Securities Act from and against any and all Losses to which the
Company or any such officer, director or controlling person may become subject
under the Securities Act or otherwise, insofar as such Losses (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any untrue or alleged untrue statement of any material fact
contained in a registration statement prepared and filed hereunder, any
preliminary, final or summary prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in the
light of the circumstances under which they were made) not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was so made in reliance
upon and in strict conformity with written information furnished by such holder
specifically for use in the preparation of such registration statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
person of the Company. The holder of Registrable Securities included in a
registration statement shall also indemnify each other person who participates
(including as an underwriter) in the offering or sale of Registrable Securities,
their officers and directors, and partners, and each other person, if any, who
controls any such participating person within the meaning of the Securities Act
to the same extent as provided above with respect to the
Exhibit F
-8-
Company. In no event shall the liability of any holder under this Section 6.2
exceed the gross proceeds received by such holder from the sale of their
Registrable Securities.
6.3 Promptly after receipt by a party indemnified pursuant to the
provisions of Section 6.1 or Section 6.2 of notice of the commencement of any
action involving the subject matter of the foregoing indemnity provisions, such
indemnified party will, if a claim thereof is to be made against the
indemnifying party pursuant to the provisions of Section 6.1 or Section 6.2,
promptly notify the indemnifying party of the commencement thereof-, but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party except to
the extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against any indemnified party,
the indemnifying party shall have the right to participate in, and, to the
extent that it may wish, jointly with any other indemnifying party, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that if the defendants in any action include both the
-------- -------
indemnified party and the indemnifying party and the indemnified party
reasonably concludes that there is a conflict of interest that would prevent
counsel for the indemnifying party from also representing the indemnified party,
the indemnified party shall have the right to select one separate counsel to
participate in the defense of such action on behalf of the indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof, the indemnifying party will not
be liable to such indemnified party pursuant to the provisions of Section 6.1 or
Section 6.2 for any legal or other expense subsequently incurred by such
indemnified party in connection with the defense thereof unless (a) the
indemnified party shall have employed counsel in accordance with the proviso of
the preceding sentence, (b) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (c) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying party. If
the indemnifying party is not entitled to, or elects not to, assume the defense
of a claim, it will not be obligated to pay the fees and expenses of more than
one counsel for the indemnified parties with respect to such claim, unless in
the reasonable judgment of any indemnified party a conflict of interest may
exist between such indemnified party and any other indemnified parties with
respect to such claim, in which event the indemnifying party shall be obligated
to pay the fees and expenses of additional counsel or counsels for the
indemnified parties, but only to the extent necessary to cure such conflict of
interest. No indemnifying party shall consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability in respect to such claim or litigation without the consent of the
indemnified party. No indemnifying party shall be subject to any liability for
any settlement made without its consent. An indemnified party may at any time
elect to participate in the defense of any claim or proceeding at its own
expense.
7. Underwritten Offerings. If a distribution of Registrable Securities
----------------------
pursuant to a registration statement is to be underwritten, the holders whose
Registrable Securities are to be distributed by such underwriters shall be
parties to such underwriting agreement. No requesting holder may participate in
such underwritten offering unless such holder agrees to sell its Registrable
Securities on the basis provided in such underwriting agreement and completes
and
Exhibit F
-9-
executes all questionnaires, powers of attorney, indemnities and other documents
reasonably required under the terms of such underwriting agreement. If any
requesting holder disapproves of the terms of an underwriting, such holder may
elect to withdraw therefrom and from such registration by notice to the Company
and the managing underwriter, and each of the remaining requesting holders shall
be entitled to increase the number of Registrable Securities being registered to
the extent of the Registrable Securities so withdrawn in the proportion which
the number of Registrable Securities being registered by such remaining
requesting holder bears to the total number of Registrable Securities being
registered by all such remaining requesting holders.
8. Stand-Off Agreement. Each holder of Registrable Securities agrees, so
-------------------
long as such holder holds at least 5% of the Company's outstanding voting equity
securities, in connection with a Public Offering, upon request of the Company or
the underwriters managing such Public Offering, not to sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise dispose of any
Common Shares of the Company without the prior written consent of the Company or
such underwriters, as the case may be, for such period of time (not exceeding
180 days) from the effective date of the registration statement relating to such
Public Offering as may be requested by the underwriters; provided, however, that
-------- -------
all other persons with registration rights (whether or not pursuant to this
Agreement) and all of the executive officers and directors of the Company who
own stock of the Company must also agree to not less onerous restrictions.
9. Assignment of Registration Rights. The rights to cause the Company to
---------------------------------
register the Registrable Securities pursuant to this Agreement may not be
assigned by the Purchaser except (a) to an Affiliate of the Purchaser without
limitation or (b) to a transferee or assignee of Registrable Securities
representing or convertible into 5% or more of the Company's outstanding Common
Shares. In the case of either (a) or (b) the Purchaser shall, within a
reasonable time after such transfer or assignment, furnish to the Company
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned.
Any transferee asserting registration rights hereunder shall be bound by the
applicable provisions of this Agreement.
10. Amendment. The Company shall not amend this Agreement without the
---------
written consent of the holders of more than 50% of the Registrable Securities.
11. Termination. This Agreement, and all of the Company's obligations
-----------
hereunder (other than its obligations pursuant to Article 6, which obligations
shall survive such termination), shall terminate upon the earlier to occur of
(i) the date on which there are no Registrable Securities outstanding and
October __, 2003.
12. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such a manner as to be effective and valid under
applicable law but if any provision of this Agreement is held to be invalid,
illegal or unenforceable under any applicable law or rule, the validity,
legality and enforceability of the other provision of this Agreement will not be
affected or impaired thereby.
Exhibit F
-10-
13. Notices. All notices, consents, requests, instructions, approvals or
-------
other communications provided for herein shall be in writing and delivered by
personal delivery, overnight courier, mail or electronic facsimile addressed to
the receiving party at the address set forth herein. All such communications
shall be effective when received.
(a) If to any holder of any Registrable Securities addressed to such
holder at its address as shown on the books of the Company, or at such other
address as such holder may specify by written notice to the Company, or
(b) If to the Company at ________________________________________,
Attention: __________; or at such other address as the Company may specify by
written notice to the holders of Registrable Securities hereunder.
14. Counterparts. This Agreement may be executed concurrently in two or
------------
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Facsimile signatures
shall constitute original signatures for all purposes of this Agreement.
15. Successors and Assigns. Except as otherwise provided herein, this
----------------------
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties.
16. Governing Law. This Agreement shall be governed by, interpreted
-------------
under, and construed and enforced in accordance with the internal laws, and not
the laws pertaining to the conflicts or choice of laws, of the State of
Delaware.
Exhibit F
-11-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their proper and duly authorized representatives as of
the day and year first above written.
NEW CENTURY FINANCIAL CORPORATION
By
----------------------------
Its
------------------------
U.S. BANCORP
By
----------------------------
Its
------------------------
Exhibit F
-12-
