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<SEC-DOCUMENT>0000085974-00-000013.txt : 20000328
<SEC-HEADER>0000085974-00-000013.hdr.sgml : 20000328
ACCESSION NUMBER: 0000085974-00-000013
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 9
CONFORMED PERIOD OF REPORT: 19991231
FILED AS OF DATE: 20000327
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: RYLAND GROUP INC
CENTRAL INDEX KEY: 0000085974
STANDARD INDUSTRIAL CLASSIFICATION: OPERATIVE BUILDERS [1531]
IRS NUMBER: 520849948
STATE OF INCORPORATION: MD
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT:
SEC FILE NUMBER: 001-08029
FILM NUMBER: 579235
BUSINESS ADDRESS:
STREET 1: 11000 BROKEN LAND PARKWAY
CITY: COLUMBIA
STATE: MD
ZIP: 21044
BUSINESS PHONE: 4107157000
FORMER COMPANY:
FORMER CONFORMED NAME: RYAN JAMES P CO
DATE OF NAME CHANGE: 19720414
</SEC-HEADER>
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<TYPE>10-K
<SEQUENCE>1
<DESCRIPTION>FORM 10-K AND EXHIBITS
<TEXT>
<HTML>
<HEAD>
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Form 10K
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<PRE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
------------------------
/X/ Annual Report Pursuant to Section 13 or 15 (d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1999
/ / Transition Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934 [No Fee Required]
Commission File Number 1-8029
THE RYLAND GROUP, INC.
(Exact name of registrant as specified in its charter)
Maryland 52-0849948
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
21800 Burbank Boulevard, Suite 300
Woodland Hills, California 91367
(Address of principal executive offices)
Registrant's telephone number, including area code: (818) 598-4400
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, (Par Value $1.00) New York Stock Exchange
Common Share Purchase Rights New York Stock Exchange
Securities Registered Pursuant to
Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes / X / No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /
The aggregate market value of the Common Stock of The Ryland Group, Inc., held
by non-affiliates of the registrant (13,530,302 shares) as of February 17, 2000,
was $230,860,779. The number of shares of common stock of The Ryland Group,
Inc., outstanding on February 17, 2000 was 13,555,560.
<PAGE> 1
DOCUMENTS INCORPORATED BY REFERENCE
Name of Document Location in Report
- ---------------- ------------------
Proxy Statement for 2000 Annual Meeting of Stockholders Parts I, III
Annual Report to Shareholders for the year ended
December 31, 1999 Parts II, IV
Form 8-K filed September 12, 1989 Part IV
Form 10-K for the year ended December 31, 1989 Part IV
Form 10-K for the year ended December 31, 1990 Part IV
Form 10-Q for the quarter ended June 30, 1992 Part IV
Registration Statement on Form S-3, Registration 33-48071 Part IV
Form 10-Q for the quarter ended June 30, 1994 Part IV
Form 8-K filed October 24, 1996 Part IV
Registration Statement on Form S-3, Registration 333-03791 Part IV
Form 8-K filed July 2, 1996 Part IV
Form 10-K for the year-ended December 31, 1996 Part IV
Form 10-K for the year-ended December 31, 1997 Part IV
Form 10-Q for the quarter-ended September 30, 1999 Part IV
Form 10-Q for the quarter-ended June 30, 1999 Part IV
<PAGE> 2
THE RYLAND GROUP, INC.
FORM 10-K
INDEX
Item No.
PART I
Item 1. Business......................................................4
Item 2. Properties....................................................9
Item 3. Legal Proceedings.............................................9
Item 4. Submission of Matters to a Vote of Security Holders...........9
PART II
Item 5. Market for the Company's Common Stock and Related
Stockholder Matters............. ............................11
Item 6. Selected Financial Data......................................11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk...11
Item 8. Financial Statements and Supplementary Data..................11
Item 9. Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure.....................................11
PART III
Item 10. Directors and Executive Officers of the Registrant...........12
Item 11. Executive Compensation.......................................12
Item 12. Security Ownership of Certain Beneficial Owners
and Management...............................................12
Item 13. Certain Relationships and Related Transactions...............12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K..................................................13
SIGNATURES .............................................................17
INDEX OF EXHIBITS..........................................................18
3
<PAGE> 3
PART I
Item 1. Business
With headquarters in Southern California, The Ryland Group, Inc. ("Ryland") is
one of the nation's largest homebuilders and mortgage-finance company. Founded
in 1967, the Company has built more than 170,000 homes during its 32-year
history. Ryland Mortgage Company, founded in 1978, has provided
mortgage-financing and related services for more than 150,000 homebuyers.
Today, Ryland homes are available in 260 communities in 21 markets across the
country. The Company's home prices range from $90,000 to more than $500,000. The
current average price of a Ryland home is $190,000.
The Company's operations span the significant aspects of the home-buying process
- - from the design, construction and sale of single-family homes to
mortgage-financing, title insurance, settlement and escrow services and
homeowners insurance.
As used herein, the term "Company" refers to The Ryland Group, Inc. and its
subsidiaries, unless the context indicates otherwise.
Homebuilding
- ------------
Markets Ryland markets and builds homes that are constructed on-site in three
- -------
regions which include 21 of the nation's strongest housing markets. The three
regions are the North, South and West. As of December 31, 1999, the Company
operated in the following metropolitan markets:
Region Major Markets Served
------ --------------------
North: Baltimore, Washington, D.C./Northern Virginia, Chicago,
Cincinnati, Indianapolis, Minneapolis
South: Atlanta, Charlotte, Greenville, Orlando, West Florida,
Austin, San Antonio, Dallas, Houston
West: Denver, Phoenix, San Diego, Los Angeles, Bay Area, Sacramento
Ryland markets detached and attached single family homes generally targeted to
the entry-level, and first-time and second-time move-up buyers, as well as
active adults seeking retirement housing. The Company markets through a diverse
product line tailored to local styles and preferences in each of its geographic
markets. The product line offered in a particular community is determined in
conjunction with the land acquisition process, and is dependent upon a number of
factors, including consumer preferences, competitive product offerings and the
cost of building lots in a community.
The Company developed 400 new home designs in 1999 - bringing to more than 1,200
the number of new floor plans the Company has introduced since 1993. The Company
generally outsources architectural services to a network of architects to
increase creativity and to ensure that its home designs are consistent with
local market preferences.
4
<PAGE> 4
The Company's operations in each of its homebuilding markets may differ based on
a number of market-specific factors. These factors include regional economic
conditions and job growth; land availability and the local land development
process; consumer tastes; competition from other builders of new homes; and home
resale activity. The Company considers each of these factors when entering into
new markets or determining the extent of its operations and capital allocation
in existing markets.
Land Acquisition and Development As of December 31, 1999, the Company operated
in 260 communities in 21 markets across the country. The Company's objective is
to control a portfolio of building lots sufficient to meet anticipated
homebuilding requirements for a period of two to three years. The land
acquisition process is controlled through a corporate land approval committee to
help ensure that transactions meet the Company's standards for financial
performance and risk. In the ordinary course of its homebuilding business, the
Company utilizes both direct acquisition and option contracts to control
building lots for use in the sale and construction of homes. The Company's
direct land acquisition activities include the bulk purchase of finished
building lots from land developers and the purchase of undeveloped, entitled
land from third parties. The Company generally does not purchase unentitled or
unzoned land.
Although control of lot inventory through the use of option contracts minimizes
the Company's investment, such a strategy is not viable in certain markets due
to the absence of third party land developers. In other markets, competitive
conditions may prevent the Company from controlling quality building lots solely
through the use of option contracts. In such situations, the Company may acquire
undeveloped, entitled land and/or finished lots on a bulk basis. The Company
utilizes the selective development of land to gain access to prime locations,
increase margins and position the Company as a leader in the community through
its influence over the community's character, layout and amenities.
As of December 31, 1999, the Company had deposits and letters of credit
outstanding of $43.2 million in connection with option and land purchase
contracts having a total purchase price of $624.5 million. These options and
commitments expire at various dates through 2002.
Materials Costs Substantially all materials used in the construction of homes
are available from a number of sources, but may fluctuate in price due to
various factors. To increase purchasing efficiencies, the Company standardizes
certain building materials and products in its homes and may acquire such
products through national supply contracts. The Company has on occasion
experienced shortages of certain materials. If shortages were to occur in the
future, such shortages could result in longer construction times and higher cost
than those experienced in the past.
Production Management and Subcontractors Substantially all on-site construction
is performed for a fixed price by independent subcontractors selected on a
competitive bid basis. The Company generally requires a minimum of three
competitive bids for each phase of construction. Construction activities are
supervised by the Company's production supervisors who schedule and coordinate
subcontractor work, monitor quality and ensure compliance with local zoning and
building codes. The Company has an integrated financial and homebuilding
management information system which assists in scheduling production and
controlling costs. Through this system, the Company monitors the construction
status and job costs incurred for each home for each phase of construction. The
system provides for detailed budgeting and allows the Company to monitor and
control actual costs versus construction bids for each subcontractor. The
Company has, on occasion, experienced shortages of skilled labor in certain
markets. If shortages were to occur in the future, such shortages could result
in longer construction times and higher costs than those experienced in the
past.
5
<PAGE> 5
Marketing and Customer Service The Company generally markets it's homes to
entry-level, first-time and second-time move-up buyers, and active adults
seeking retirement housing, through targeted product offerings in each of the
communities in which it operates. The Company's marketing strategy is determined
during the land acquisition and feasibility stage of a community's development.
Employees and independent real estate brokers sell the Company's homes,
generally by showing furnished model homes. The Company reports a new order when
a customer's sales contract is approved, and records revenue from a sale at
closing. The Company normally starts construction of homes when a customer has
selected a lot and floor plan and has received preliminary mortgage approval.
However, construction of homes may begin prior to a sale to satisfy market
demand for completed homes and to facilitate construction scheduling.
The Company provides each homeowner with a comprehensive one-year warranty at
the time of sale and a ten-year warranty covering loss related to structural
defects. The Company believes its warranty program meets or exceeds terms
customarily offered in the homebuilding industry.
Financial Services
- ------------------
The Ryland Mortgage Company provides mortgage-related products and services for
retail customers and conducts investment activities. In recent years, the
Company has repositioned the Ryland Mortgage Company to align its operations
with the homebuilding divisions by:
o leveraging the relationship with the Company's homebuilding segment to
increase its capture rate for its homebuyer's loans;
o focusing on retail mortgage loan originations and improving the
efficiency of these activities through cost reduction initiatives and
improved profitability per loan;
o divesting non-core assets and lines of business, including the sale of
loan servicing rights; and
o creating value for Ryland homebuyers through innovative and
competitive mortgage programs and related services.
Retail Operations
Loan Origination In 1999, Ryland Mortgage Company's mortgage origination
operations consisted primarily of the Company's homebuilder loans, which were
originated in connection with the sale of the Company's homes. During 1999,
mortgage operations originated 7,106 loans totaling approximately $1.1 billion
of which 88 percent were for purchases of homes built by the Company and 12
percent were for purchases of homes built by others, purchases of existing
homes, or for the refinancing of existing mortgage loans. In an effort to
increased its focus on the Company's homebuilders loan production, Ryland
Mortgage Company made the strategic decision to reduce its third-party
originations business by exiting certain markets in the first quarter of 1999.
The Company has increased its focus by deploying loan officers directly to the
homebuilding communities and by utilizing traffic and prospect information
generated by the homebuilding sales and marketing staff. The Ryland Mortgage
Company capture rate of Ryland's homebuying customers was 68 percent in 1999.
6
<PAGE> 6
The Company arranges various types of mortgage financing including conventional,
Federal Housing Administration (FHA), and Veterans Administration (VA) mortgages
with various fixed- and adjustable-rate features. Federal Home Loan Mortgage
Corporation (FHLMC), Federal National Mortgage Association (FNMA), and
Government National Mortgage Association (GNMA) approve the Company's mortgage
operations.
Loan Servicing The repositioning of Ryland Mortgage Company in recent years led
to the sale of the majority of its loan servicing portfolio in the first quarter
of 1998 and the remaining portfolio during 1999. As a result, the Company no
longer services loans.
Title and Escrow Services Cornerstone Title Company, a wholly owned subsidiary,
provides title services primarily to the Company's homebuyers. As of December
31, 1999, Cornerstone Title had offices in Colorado, Florida, Illinois,
Maryland, Ohio, Texas and Virginia. The Company also operates an escrow company
in California, which performs escrow and loan closing functions primarily on
homes built by the Company. During 1999, Cornerstone Title captured 91percent of
the title and escrow business related to settlement of the Company's homes in
the markets in which they operate.
Investment Operations
Ryland Mortgage Company's investment operations hold certain assets, primarily
mortgage-backed securities and notes receivable, which were obtained as a result
of the exercise of redemption rights on various mortgage-backed bonds previously
owned by the Company's limited-purpose subsidiaries. The Company earns a net
interest spread on the investment portfolio and may periodically realize gains
from the sale of mortgage-backed securities from the portfolio.
Real Estate and Economic Conditions
- -----------------------------------
The Company is significantly affected by the cyclical nature of the homebuilding
industry. The industry is sensitive to fluctuations in economic activity,
interest rates and levels of consumer confidence. The effects of these
fluctuations differ among the various geographic markets in which the Company
operates. Higher interest rates may affect the ability of buyers to qualify for
mortgage financing and decrease demand for new homes. As a result, rising
interest rates generally will decrease the Company's home sales and mortgage
originations. The Company's business is also affected by local economic
conditions, such as employment rates and housing demand in the markets in which
it builds homes. Some of the markets in which the Company operates have at times
experienced a significant decline in housing demand.
Inventory risk can be substantial for homebuilders. The market value of land,
building lots and housing inventories fluctuates significantly as a result of
changing market and economic conditions. In addition, inventory-carrying costs
can be significant and can result in losses in poorly performing projects or
markets. The Company must continuously seek and make acquisitions of land for
expansion into new markets as well as for replacement and expansion of land
inventory within its current markets. The Company employs various measures
including the land approval process, and continued review by senior management
designed to manage inventory risks. The Company can not assure that these
measures will avoid or eliminate inventory risk.
7
<PAGE> 7
Competition
- -----------
The residential housing industry is highly competitive, and the Company competes
in each of its markets with a large number of national, regional and local
homebuilding companies. Some of these companies are larger than the Company and
have greater financial resources. In addition, the increase in the availability
of capital and financing in recent years has made it easier for both large and
small homebuilders to expand and enter new markets and has increased
competition. This competition could make it more difficult to acquire suitable
land at acceptable prices, force an increase in selling incentives or lowering
sales as dictated by local market conditions. Any of these could have an adverse
impact on the Company's financial performance or results of operations. The
Company also competes with other housing alternatives including existing homes
and rental housing. Principal competitive factors in homebuilding are home
price, design, quality, reputation, relationship with developers, accessibility
of subcontractors, availability and location of lots and availability of
customer financing.
Regulatory and Environmental Matters
- ------------------------------------
The homebuilding segment is subject to various local, state and federal laws,
ordinances, rules and regulations concerning zoning, building design,
construction and similar matters. These include local regulations, which impose
restrictive zoning and density requirements to limit the number of homes that
can be built within the boundaries of a particular area. The Company may also
experience periodic delays in homebuilding projects due to building moratoria in
any of the areas in which it operates.
The Company is also subject to a variety of local, state and federal laws,
ordinances, rules and regulations concerning the protection of health and the
environment. The Company is also subject to a variety of environmental
conditions that can affect its business and its homebuilding projects. The
particular environmental laws which apply to any given homebuilding site vary
greatly according to the site's location, environmental condition and the
present and former uses of the site, and adjoining properties. Environmental
laws and conditions may result in delays, may cause the Company to incur
substantial compliance and other costs, and can prohibit or severely restrict
homebuilding activity in certain environmentally sensitive regions or areas.
Ryland Mortgage Company is subject to the rules and regulations of HUD, FHA, VA,
FNMA, FHLMC and GNMA with respect to originating, processing, selling and
servicing mortgage loans. There are other federal and state laws and regulations
affecting these activities. These rules and regulations, among other things,
prohibit discrimination and establish underwriting guidelines which include
provisions for inspections and appraisals, require credit reports on prospective
borrowers and fix maximum loan amounts. The Company is required to submit
audited financial statements annually, and each regulatory entity has its own
financial requirements. The Company's affairs are also subject to examination by
these regulatory agencies and state agencies at all times to assure compliance
with the applicable regulations, policies and procedures. Mortgage origination
activities are subject to the Equal Credit Opportunity Act, Federal
Truth-in-Lending Act and Real Estate Settlement Procedures Act and the
associated regulations which prohibit discrimination and require the disclosure
of certain information to mortgagors concerning credit and settlement costs.
8
<PAGE> 8
Employees
- ---------
At December 31, 1999, the Company employed 2,130 people. The Company considers
its employee relations to be good. No employees are represented by a collective
bargaining agreement.
Item 2. Properties
The Company leases office space for its corporate headquarters in Woodland
Hills, California and its temporary headquarters in Columbia, Maryland. In
addition, the Company leases office space in the various markets in which it
operates.
Item 3. Legal Proceedings
Contingent liabilities may arise from the obligations incurred in the ordinary
course of business, or from the usual obligations of on-site housing producers
for the completion of contracts.
The Company is party to various legal proceedings generally incidental to its
businesses. Based on evaluation of these other matters and discussions with
counsel, management believes that liabilities to the Company arising from these
other matters will not have a material adverse effect on the financial condition
of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the year ended December 31, 1999.
9
<PAGE> 9
Executive Officers of the Company
The following sets forth certain information regarding the executive officers of
the Company:
Name Age Position (date elected to position)
Prior Business Experience
- -------------------------------------------------------------------------------
R.Chad Dreier 52 Chairman of the Board of Directors (1994), President
and Chief Executive Officer of the Company (1993).
Robert J. Cunnion,III 44 Senior Vice President, Human Resources of the
Company (1999), Vice President, Human Resources -
West Region (1993-1999).
Eric E. Elder 43 Senior Vice President, Marketing of the Company
(2000), Vice President, Marketing - West Region
(1995-1999)
David L. Fristoe 43 Senior Vice President, Controller and Chief
Accounting Officer of the Company (2000), Vice
President, Controller and Chief Accounting Officer
of the Company (1999), Vice President, Financial
Operations - West Region (1995-1999).
John M. Garrity 53 Senior Vice President of the Company (1995),
President of the South Region of Ryland Homes (1996),
President of the Southeast Region of Ryland Homes
(1994-1996).
Timothy J. Geckle 47 Senior Vice President, General Counsel and Secretary
of the Company (1997). Vice President, Deputy General
Counsel (1995-1996). Corporate Counsel (1991-1995).
Gordon A. Milne 48 Senior Vice President and Chief Financial Officer of
the Company (2000). Senior Vice President of
Finance and Chief Financial Officer of Agrium, Inc.
(1996-1999). Division President of Occidental
Petroleum Ltd. (1994-1996).
Frank J. Scardina 52 Senior Vice President of the Company (1994),
President of West Region of Ryland Homes (1996),
President of California Region of Ryland Homes
(1994-1996).
Daniel G. Schreiner 42 Senior Vice President of the Company (1999),
President, Ryland Mortgage Company (1998). President,
Kaufman and Broad Mortgage Company (1991-1998).
Kipling W. Scott 45 Senior Vice President of the Company (1995),
President of the North Region of Ryland Homes (1997),
President of Midwest Region of Ryland Homes (1994-1997).
The board of directors elects all officers.
There are no family relationships, arrangements or understandings pursuant to
which any of the officers listed were elected. For a description of employment
and severance arrangements with certain executive officers of the Company, see
page 9 of the Proxy Statement for the 2000 Annual Meeting of Stockholders.
10
<PAGE> 10
PART II
Item 5. Market for the Company's Common Stock and Related Stockholder
Matters
The information required by this item is incorporated by reference from the
section entitled "Common Stock Prices and Dividends" appearing on page 43 of the
Annual Report to Shareholders for the year ended December 31, 1999.
Item 6. Selected Financial Data
The information required by this item is incorporated by reference from the
section entitled "Selected Financial Data" appearing on page 21 of the Annual
Report to Shareholders for the year ended December 31, 1999.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The information required by this item is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Results of Operations
and Financial Condition" appearing on pages 22 through 26 of the Annual Report
to Shareholders for the year ended December 31, 1999.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information required by this item is incorporated by reference from the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations", Market Risk Summary, appearing on page 25 through 26
of the Annual Report to Shareholders for the year ended December 31, 1999.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated by reference from the
information appearing on pages 27 through 40 and from the section entitled
"Quarterly Financial Data and Common Stock Prices and Dividends" appearing on
page 43 of the Annual Report to Shareholders for the year ended December 31,
1999.
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
During the fiscal years ended December 31, 1999 and 1998, there were no
disagreements between the Company and its accountants on any matter of
accounting principle or financial statement disclosure.
11
<PAGE> 11
PART III
Item 10. Directors and Executive Officers of the Registrant
Information as to the Company's Directors is incorporated by reference from
pages 2 and 4 of the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders. Information as to the Company's executive officers is shown under
Part I as a separate item.
Item 11. Executive Compensation
The information required by this item is incorporated by reference from pages 5
through 10 of the Company's Proxy Statement for its 2000 Annual Meeting of
Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from page 3
of the Company's Proxy Statement for its 2000 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions
There are no transactions, business relationships or indebtedness required to be
reported by the Company pursuant to this Item.
12
<PAGE> 12
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) 1. Financial Statements.
The following consolidated financial statements of The Ryland Group,
Inc., and Subsidiaries, included in the Annual Report to Shareholders
for the year ended December 31, 1999, are incorporated by reference in
Item 8:
Consolidated Statements of Earnings - years ended December 31, 1999,
1998 and 1997.
Consolidated Balance Sheets - December 31, 1999 and 1998.
Consolidated Statements of Stockholders' Equity - years ended December
31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows - years ended December 31, 1999,
1998 and 1997.
Notes to Consolidated Financial Statements.
(a) 2. Financial Statement Schedules. (filed herewith) Page No.
--------
Schedule II - Valuation and Qualifying Accounts.. ...............16
Schedules not listed above have been omitted because they are either
inapplicable or the required information has been given in the
financial statements or notes thereto.
13
<PAGE> 13
(a) (a) 3. Exhibits
The following exhibits are included with this report or incorporated
herein by reference as indicated below:
Exhibit No.
3.1 Charter of The Ryland Group, Inc., as amended. (Incorporated by
reference from Form 10-K for the year ended December 31, 1989)
3.2 By-laws of The Ryland Group, Inc., as amended. (Incorporated by
reference from Form 10-K for the year ended December 31, 1996)
4.1 Rights Agreement dated as of October 18, 1996, between The Ryland
Group, Inc., and ChaseMellon Shareholder Services, L.L.C.
(Incorporated by reference from Form 8-K filed October 24, 1996)
4.2 Articles Supplementary dated as of August 31, 1989. (Incorporated
by reference from Form 8-K filed September 12, 1989)
4.3 Senior Subordinated Notes dated as of November 4, 1993.
(Incorporated by reference from Registration Statement on Form
S-3, Registration No. 33-48071)
4.4 Indenture dated as of June 28, 1996, between The Ryland Group,
Inc., and Chemical Bank, as Trustee. (Incorporated by reference
from Form 8-K filed July 2, 1996)
4.5 Senior Notes dated as of June 10, 1996. (Incorporated by
reference from Registration Statement on Form S-3, Registration
No. 333-03791)
4.6 Senior Subordinated Notes dated as of April 13, 1998.
(Incorporated by reference from Registration Statement on Form
S-3, Registration No. 33-50933 and 333-03791)
10.1 Lease Agreement between Seventy Corporate Center Limited
Partnership and The Ryland Group, Inc. dated April 17, 1990.
(Incorporated by reference from Form 10-K for the year ended
December 31, 1990)
10.2 Lease Agreement between Kilroy Realty Group and The Ryland Group,
Inc. dated December 29, 1999. (Filed herewith)
10.3* 1992 Equity Incentive Plan of The Ryland Group, Inc.
(Incorporated by reference from Form 10-Q for the quarter ended
June 30, 1992)
10.4* 1992 Non-Employee Director Equity Plan of The Ryland Group,
Inc., as amended. (Incorporated by reference from Form 10-Q for
the quarter ended June 30, 1994)
10.5 Restated Credit Agreement dated as of October 19, 1999, between
The Ryland Group, Inc., and certain banks. (Incorporated by
reference from Form 10-Q for the quarter ended September 30,
1999)
14
<PAGE> 14
(a) 3. Exhibits, continued
Exhibit No.
10.6 Restate Credit Agreement dated May 21, 1999, between Ryland
Mortgage Company; Associates Mortgage Funding Corporation;
BankOne, Texas, N.A.; and certain lenders. (Incorporated by
reference from Form 10-Q for the quarter ended June 30, 1999)
10.7* Employment Agreement dates as of April 21, 1999 between R. Chad
Dreier and The Ryland Group, Inc. (Incorporated by reference from
Form 10-Q for the quarter ended June 30, 1999)
10.8* Senior Executive Severance Agreement, between the executive
officers of the Company and The Ryland Group, Inc. (Incorporated
by reference from Form 10-K for the year ended December 31, 1996)
10.9* Amendment and Restatement of the Executive and Director
Deferred Compensation Plan Effective March 1, 1998. (Filed
herewith)
10.10* Non-Employee Directors' Stock Unit Plan between The Ryland
Group, Inc. and the Board of Directors, effective January 1,
1998. (Incorporated by reference from Form 10-K for the year
ended December 31, 1997)
11 Computation of Per Share Earnings. (Filed herewith)
13 Annual Report to Shareholders for the year ended December 31,
1999. (Filed herewith)
21 Subsidiaries of the Registrant. (Filed herewith)
23 Consent of Ernst and Young LLP, Independent Auditors.
(Filed herewith)
24 Power of Attorney. (Filed herewith)
27 Financial Data Schedule. (Filed herewith)
* Executive Compensation Plan or Arrangement
(b) There were no reports on Form 8-K filed in the fourth quarter of 1999.
15
<PAGE> 15
The Ryland Group, Inc., and Subsidiaries
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
(dollar amounts in thousands)
Balance at Charged to Charged Deductions Balance at
Beginning Costs and to Other and End of
Description of Period Expenses Accounts Transfers Period (1)
Valuation allowance:
Homebuilding inventories
1999 $ 6,233 $ 2,952 $ 0 $(5,585) $ 3,600
1998 2,967 4,188 0 (922) 6,233
1997 3,052 580 0 (665) 2,967
Valuation allowance:
Investment in and advances
to joint ventures
1999 $ 1,000 $ 0 $ 0 $ 0 $ 1,000
1998 0 1,000 0 0 1,000
1997 6,500 0 0 (6,500) 0
(1) Balances as of December 31, 1999, 1998 and 1997, represent valuation
allowances for assets to be disposed of.
16
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE RYLAND GROUP, INC.
By: /s/ R. Chad Dreier March 24, 2000
-------------------------------------
R. Chad Dreier, Chairman of the Board,
President, and Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Principal Executive Officer:
/s/ R. Chad Dreier March 24, 2000
- ----------------------------------
R. Chad Dreier
Chief Executive Officer
Principal Accounting Officer:
/s/ David L. Fristoe March 24, 2000
- ------------------------------------
David L. Fristoe
Chief Accounting Officer
Majority of the Board of Directors: R. Chad Dreier; James A. Flick, Jr.; Leslie
M. Frecon; William L. Jews; William G. Kagler; Robert E. Mellor; Charlotte St.
Martin.
By: /s/ Timothy J. Geckle March 24, 2000
---------------------
Timothy J. Geckle
As Attorney-in-Fact
17
<PAGE> 17
Page Of
Sequentially
Numbered Pages
--------------
INDEX OF EXHIBITS
10.2 Lease Agreement between Kilroy Realty Group and The Ryland 19-87
Group, Inc. dated December 29, 1999
10.11 Amendment and Restatement of the Executive and Director
Deferred Compensation Plan Effective March 1, 1998 88-109
11 Computation of Per Share Earnings 110
13 Annual Report to Shareholders for the year ended December 31, 1999 111-133
21 Subsidiaries of the Registrant 134
23 Consent of Ernst and Young LLP, Independent Auditors 135
24 Power of Attorney 136
27 Financial Data Schedule 137
18
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<PRE>
OFFICE BUILDING LEASE
BETWEEN
KILROY REALTY, L.P.,
a Delaware limited partnership
LANDLORD
AND
THE RYLAND GROUP, INC.,
a Maryland corporation
TENANT
<PAGE> 19
TABLE OF CONTENTS
-----------------
1. BASIC LEASE TERMS..........................................1
2. PREMISES AND COMMON AREAS..................................2
3. TERM.......................................................3
4. POSSESSION.................................................5
5. RENT.......................................................6
6. OPERATING EXPENSES.........................................6
7. DELETED....................................................8
8. USE........................................................8
9. NOTICES....................................................9
10. BROKERS....................................................9
11. SURRENDER; HOLDING OVER....................................9
12. TAXES ON TENANT'S PROPERTY................................10
13. ALTERATIONS...............................................10
14. REPAIRS...................................................12
15. LIENS.....................................................13
16. ENTRY BY LANDLORD.........................................13
17. UTILITIES AND SERVICES....................................14
18. ASSUMPTION OF RISK AND INDEMNIFICATION....................14
19. INSURANCE.................................................15
20. DAMAGE OR DESTRUCTION.....................................17
21. EMINENT DOMAIN............................................18
22. DEFAULTS AND REMEDIES.....................................19
23. LANDLORD'S DEFAULT. .....................................22
24. ASSIGNMENT AND SUBLETTING.................................22
25. SUBORDINATION.............................................24
26. ESTOPPEL CERTIFICATE......................................25
27. INTENTIONALLY OMITTED.....................................25
28. RULES AND REGULATIONS.....................................25
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND
LESSORS...................................................25
30. DEFINITION OF LANDLORD....................................26
31. WAIVER....................................................26
(i)
<PAGE> 20
32. PARKING...................................................26
33. FORCE MAJEURE.............................................27
34. SIGNS.....................................................28
35. LIMITATION ON LIABILITY...................................28
36. FINANCIAL STATEMENTS......................................28
37. QUIET ENJOYMENT...........................................29
38. MISCELLANEOUS.............................................29
39. EXECUTION OF LEASE........................................30
ADDENDUM
EXHIBITS:
A-I Site Plan
A-II Outline of Floor Plan of Premises
B Rentable Square Feet and Usable Square Feet
C Work Letter Agreement
Schedule 1 Description of Base Building
Schedule 2 Work Schedule
D Notice of Lease Term Dates and Tenant's Percentage
E Definition of Operating Expenses
F Standards for Utilities and Services
G Estoppel Certificate
H Rules and Regulations
(ii)
<PAGE> 21
OFFICE BUILDING LEASE
This OFFICE BUILDING LEASE ("Lease") is entered into as of the _______ day of
December, 1999 by and between Kilroy Realty, L.P., a Delaware limited
partnership ("Landlord"), and The Ryland Group, Inc., a Maryland corporation
("Tenant").
1. BASIC LEASE TERMS. For purposes of this Lease, the following terms have
the following definitions and meanings:
(a) Landlord: Kilroy Realty, L.P., a Delaware limited partnership.
(b) Landlord's Address (For Notices):
2250 East Imperial Highway, Suite 1200
El Segundo, California 90245
Attention: Chief Legal Officer
or such other place as Landlord may from time to time designate by notice to
Tenant.
(c) Tenant: The Ryland Group, Inc., a Maryland corporation.
(d) Tenant's Address (For Notices): Ryland Mortgage, 6300 Canoga Avenue,
14th Floor, Woodland Hills, California 91367, Attention: Bob Cunnion or such
other place as Tenant may from time to time designate by notice to Landlord.
(e) Development: The parcel(s) of real property located within and
consisting of a portion of Calabasas Park Centre, located in the City of
Calabasas (the "City"), County of Los Angeles (the "County"), State of
California ("State"), as shown on the site plan attached hereto as
Exhibit "A-I".
(f) Building: The four (4) story westernmost office building located within the
Development, which Building contains approximately One Hundred Thousand
(100,000) Rentable Square Feet (subject to adjustment as provided in Exhibit
"B"), with the street address of 24025 Park Sorrento, Calabasas, California.
(g) Premises: Collectively, those certain premises known as Suite 400 consisting
of approximately 25,324 Rentable Square Feet and 24,702 Usable Square Feet and
Suite 100 consisting of approximately 7,622 Rentable Square Feet and 6,686
Usable Square Feet as generally shown on the floor plans attached hereto as
Exhibit "A-II".
(h) Tenant's Percentage: Tenant's percentage of the Building on an aggregate
Rentable Square Foot basis, initially is thirty-two and 95/100ths percent
(32.95%), subject to final determination as provided in Exhibit "B" and Exhibit
"D".
(i) Original Term: Six (6) years and four (4) months, subject to Tenant's
right to extend the Term pursuant to the provisions of Paragraph 3 hereof.
(j) (i) Estimated Commencement Date: July 1, 2000
(ii) Estimated Expiration Date: October 31, 2006.
(k) Commencement Date: The date on which the Term of this Lease will
commence as determined in accordance with the provisions of Exhibit "C" and
as stated on Exhibit "D".
(l) Initial Monthly Base Rent: Two Dollars and Fifty Cents ($2.50) times the
Rentable Square Feet contained within the Premises, subject to adjustment as
provided in subparagraph 1(m) below and as otherwise provided in this Lease,
including the Addendum hereto.
(m) Adjustment to Monthly Base Rent: Intentionally omitted.
-1-
<PAGE> 22
(n) Operating Expense Allowance: Operating Expense Allowance means Tenant's
Percentage of Operating Expenses as described in Paragraph 6 below which
Landlord has included in Monthly Base Rent, which, for purposes of this
Lease, will be an amount equal to the Operating Expenses incurred for
calendar year 2000 (the "Base Year").
(o) Security Deposit: None
(p) Tenant Improvements: All tenant improvements installed or to be installed by
Landlord or Tenant within the Premises to prepare the Premises for occupancy
pursuant to the terms of the Work Letter Agreement attached hereto as Exhibit
"C".
(q) Tenant Improvement Allowance: Thirty-Five Dollars ($35) per Usable
Square Foot of the Premises, to be applied as provided in the Work Letter
Agreement attached hereto as Exhibit "C".
(r) Permitted Use: General office uses and no other use without the express
written consent of Landlord, which consent Landlord may withhold in its sole
and absolute discretion.
(s) Parking: Tenant may use a number of parking permits equal to three (3)
permits per each one thousand (1,000) Usable Square Feet within the Premises
during the Original Term, at no cost to Tenant, subject to the terms and
conditions of Paragraph 32 below and the Rules and Regulations regarding parking
contained in Exhibit "H". One-third (1/3) of Tenant's parking permits shall be
for Tenant's use in the parking space locations as depicted on Exhibit "A-I"
attached hereto; all other parking permits shall be unreserved parking permits.
(t) Broker(s): CB Richard Ellis, representing Landlord
Travers Realty, representing Tenant
(u) Guarantor(s): Intentionally omitted.
(v) Interest Rate: shall mean the greater of ten percent (10%) per annum or two
percent (2%) in excess of the prime lending or reference rate of Wells Fargo
Bank N.A. or any successor bank in effect on the twenty-fifth (25th) day of the
calendar month immediately prior to the event giving rise to the Interest Rate
imposition; provided, however, the Interest Rate will in no event exceed the
maximum interest rate permitted to be charged by applicable law.
(w) Exhibits: "A" through "H", inclusive, which Exhibits are attached to this
Lease and incorporated herein by this reference. As provided in Paragraph 3
below, a completed version of Exhibit "D" will be delivered to Tenant after
Landlord delivers possession of the Premises to Tenant.
(x) Addendum Paragraphs:
1 through 3, inclusive, which Addendum Paragraphs are attached to this Lease and
incorporated herein by this reference.
This Paragraph 1 represents a summary of the basic terms and definitions of this
Lease. In the event of any inconsistency between the terms contained in this
Paragraph 1 and any specific provision of this Lease, the terms of the more
specific provision shall prevail.
2. PREMISES AND COMMON AREAS.
(a) Premises. Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord the Premises as improved or to be improved with the Tenant Improvements
described in the Work Letter Agreement, a copy of which is attached hereto as
Exhibit "C".
(b) Mutual Covenants. Landlord and Tenant agree that the letting and hiring of
the Premises is upon and subject to the terms, covenants and conditions
contained in this Lease and each party covenants as a material part of the
consideration for this Lease to keep and perform their respective obligations
under this Lease.
-2-
<PAGE> 23
(c) Tenant's Use of Common Areas. During the Term of this Lease, Tenant shall
have the nonexclusive right to use in common with Landlord and all persons,
firms and corporations conducting business in the Development and their
respective customers, guests, licensees, invitees, subtenants, employees and
agents (collectively, "Development Occupants"), subject to the terms of this
Lease, the Rules and Regulations referenced in Paragraph 28 below and all
covenants, conditions and restrictions now or hereafter affecting the
Development, the following common areas of the Building and/or the Development
(collectively, the "Common Areas"):
(i) The Building's common entrances, hallways, lobbies, public restrooms on
multi-tenant floors, elevators, stairways and accessways, loading docks, ramps,
drives and platforms and any passageways and serviceways thereto, and the common
pipes, conduits, wires and appurtenant equipment within the Building which serve
the Premises (collectively, "Building Common Areas"); and
(ii) The parking facilities of the Development which serve the Building (subject
to the provisions of Exhibit "H"), loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways, landscaped areas, plaza
areas, fountains and similar areas and facilities situated within the
Development and appurtenant to the Building which are not reserved for the
exclusive use of any Development Occupants (collectively, "Development Common
Areas").
(d) Landlord's Reservation of Rights. Provided Tenant's use of and access to the
Premises and parking to be provided to Tenant under this Lease is not interfered
with in an unreasonable manner, Landlord reserves for itself and for all other
owner(s) and operator(s) of the Development Common Areas and the balance of the
Development, the right from time to time to: (i) install, use, maintain, repair,
replace and relocate pipes, ducts, conduits, wires and appurtenant meters and
equipment above the ceiling surfaces, below the floor surfaces, within the walls
and in the central core areas of the Building; (ii) make changes to the design
and layout of the Development, including, without limitation, changes to
buildings, driveways, entrances, loading and unloading areas, direction of
traffic, landscaped areas and walkways, and, subject to the parking provisions
contained in Paragraph 32 and Exhibit "H", parking permits and parking areas;
and (iii) use or close temporarily the Building Common Areas, the Development
Common Areas and/or other portions of the Development while engaged in making
improvements, repairs or alterations to the Building, the Development, or any
portion thereof.
3. TERM.
(a) Original Term. The term of this Lease ("Original Term") will be for the
period designated in subparagraph 1(i), commencing on the Commencement Date, and
ending on the last day of the month in which the expiration of such period
occurs, including any extensions of the Term pursuant to any provision of this
Lease or written agreement of the parties. Notwithstanding the foregoing, if the
Commencement Date falls on any day other than the first day of a calendar month
then the Term of this Lease will be measured from the first day of the month
following the month in which the Commencement Date occurs. Each consecutive
twelve (12) month period of the Term of this Lease, commencing on the
Commencement Date, will be referred to herein as a "Lease Year". Landlord's
Notice of Lease Term Dates and Tenant's Percentage ("Notice"), in the form of
Exhibit "D" attached hereto, will set forth the Commencement Date, the date upon
which the Term of this Lease shall end, the Rentable Square Feet within the
Premises and the Building, and Tenant's Percentage and will be delivered to
Tenant after Landlord delivers possession of the Premises to Tenant. The Notice
will be binding upon Tenant unless Tenant objects to the Notice in writing
within five (5) days of Tenant's receipt of the Notice.
(b) Extension. Subject to the terms of this Paragraph 3, Landlord hereby grants
to Tenant one (1) option ("Extension Option") to extend the original Term as to
the entire Premises only for an additional period of five (5) years ("Option
Term"), on the same terms, covenants and conditions as provided for in the Lease
for the original Term, except that the economic Lease terms during the Option
Term shall be as set forth in this Paragraph 3.
(c) Rent for Option Term. Monthly Base Rent at the beginning of the Option Term
shall be adjusted to equal the "fair market" determined based on the parameters
described in subparagraph 3(e) below; provided, however, in no event shall the
Monthly Base Rent be decreased after such adjustment to an amount less than the
Monthly Base Rent payable in the month immediately preceding the Option Term.
-3-
<PAGE> 24
(d) Exercise of Option. The Extension Option must be exercised, if at all, by
written notice ("Extension Notice") delivered by Tenant to Landlord no later
than the date which is four hundred twenty-five (425) days prior to the
expiration of the original Term.
(e) Determination of Monthly Base Rent. The "fair market" determination as
described in this Paragraph 3 shall mean the annual amount per square foot,
projected during the Option Term (including any applicable rent increases during
the Option Term), that a willing, comparable, renewal tenant (excluding sublease
and assignment transactions), would pay and that a willing, comparable landlord
would accept for comparable space in a comparable Class "A" building located in
the City of Calabasas or Warner Center (the "Comparison Market Area").
Comparable space shall consist of such space of comparable quality and
improvements as are located within the Building, taking into account the age,
quality, layout of the Premises, the parking rights available to Tenant and
Tenant's Authorized Users, and also taking into account items that professional
real estate brokers customarily consider, such as who is paying for taxes and
insurance, rental rates, availability, tenant size and other factors typically
considered by Landlord or lessors of similar facilities, and shall include
consideration given to tenant improvement allowance, free rent or other
concessions but only to the extent such concessions are generally available to
renewal tenants in the Comparison Market Area.
(f) Tenant Review Period and Election to Cancel Exercise of Extension Option.
Within thirty (30) days following Tenant's due and timely exercise of the
Extension Option as provided herein, Landlord shall provide Tenant with written
notice of Landlord's good faith determination of fair market for the Premises
for the applicable Option Term determined by taking into account the matters
described in subparagraph 3(e) above. Within sixty (60) days ("Negotiation
Period") after receipt of Landlord's notice of the fair market determination,
Landlord and Tenant shall meet in a good faith effort to agree upon the fair
market for the Premises for the Option Term but without any obligation to so
agree. If Landlord and Tenant fail to reach agreement on such fair market
determination prior to the expiration of the Negotiation Period (the "Outside
Agreement Date"), then Tenant, within five (5) days of the expiration of the
Negotiation Period, may cancel and nullify the Extension Option by delivering
written notice of such election to Landlord. In the event of Tenant's failure to
so elect to cancel and nullify the Extension Option within such five (5) day
period, Landlord and Tenant shall submit their respective good faith
determinations of fair market for the Premises for the relevant period of time
to appraisal in accordance with the provisions below.
(g) Appointment of Appraisers. Landlord and Tenant shall each appoint one (1)
independent, unaffiliated appraiser who is by profession a licensed real estate
broker who has been active over the five (5) year period ending on the date of
such appointment in the leasing of office space located in the Comparison Market
Area. Each such appraiser shall be appointed within fifteen (15) days after the
Outside Agreement Date. If the two (2) appraisers so appointed do not within
fifteen (15) days of the date of the appointment of the last appointed appraiser
agree upon whether Landlord's or Tenant's last submitted (on the Outside
Agreement Date) fair market determination, then said appraisers within five (5)
days thereafter shall agree upon and appoint a third appraiser who shall be
qualified under the same criteria for qualification of the initial two (2)
appraisers.
(h) Third Appraiser. The third appraiser shall determine whether the parties
shall use Landlord's or Tenant's last submitted (on the Outside Agreement Date)
fair market determination, and shall notify Landlord and Tenant thereof. The
determination of the third appraiser shall be limited solely to the issue of
whether Landlord's or Tenant's last submitted (on the Outside Agreement Date)
fair market determination is the closest to the actual fair market for such area
as solely determined by the third appraiser, taking into account the
requirements specified above. The decision of the third appraiser shall be final
and binding upon Landlord and Tenant.
(i) Failure to Appoint Appraiser. If either Landlord or Tenant fails to appoint
an appraiser within the time period specified in subparagraph 3(g) hereinabove,
the appraiser appointed by one of them shall, within fifteen (15) days following
the date on which the party failing to appoint an appraiser could have last
appointed such appraiser, reach a decision based upon the procedures set forth
above (i.e., by selecting either Landlord's or Tenant's last submitted [on the
Outside Agreement Date] fair market determination) and shall notify Landlord and
Tenant thereof, and such appraiser's decision shall be final and binding upon
Landlord and Tenant.
-4-
<PAGE> 25
(j) Failure to Appoint Third Appraiser. If the two (2) appraisers selected by
Landlord and Tenant fail to agree upon and timely appoint a third appraiser,
both appraisers shall be dismissed and the matter to be decided shall be
forthwith submitted to arbitration under the provisions of the American
Arbitration Association based upon the procedures set forth above (i.e., by
selecting either Landlord's or Tenant's last submitted [on the Outside Agreement
Date] fair market determination).
(k) Delay In Determination of Fair Market Rent. If the process described in this
Paragraph 3 has not resulted in a selection of Landlord's or Tenant's fair
market determinations by the commencement of the applicable Option Term, then
the average of the fair market determinations estimated by Landlord or Tenant
shall be used until a final decision has been reached by the appropriate
appraiser, with an appropriate rental credit and other adjustments for any
overpayments of Base Rent or other amounts if the appropriate appraiser selects
Tenant's estimate of fair market.
(l) Cost of Appraisers. The cost of each party's appraiser shall be the
responsibility of the party selecting such appraiser, and the cost of the third
appraiser (and, if necessary, arbitration) shall be shared by Landlord and
Tenant equally.
(m) Deleted.
(n) Deleted.
(o) Effect of Default. Tenant shall have no right to exercise the Extension
Option, notwithstanding any provision of the grant of the Extension Option to
the contrary, and Tenant's exercise of the Extension Option may be nullified by
Landlord and deemed of no further force or effect, if (i) Tenant shall be in
default of any monetary obligation or material non-monetary obligation under the
terms of this Lease as of Tenant's exercise of the Extension Option in question
or at any time after the exercise of such Option and prior to the commencement
of the Option Term, or (ii) Landlord has given Tenant two (2) or more notices of
default, whether or not such defaults are subsequently cured, during any twelve
(12) consecutive month period of the Lease.
4. POSSESSION.
(a) Delivery of Possession. Landlord agrees to deliver possession of the
Premises to Tenant in accordance with the terms of the Work Letter Agreement
attached hereto as Exhibit "C". Notwithstanding the foregoing, Landlord will not
be obligated to deliver possession of the Premises to Tenant (but Tenant will be
liable for rent if Landlord can otherwise deliver the Premises to Tenant) until
Landlord has received from Tenant all of the following: (i) a copy of this Lease
fully executed by Tenant and the guaranty of Tenant's obligations under this
Lease, if any, executed by the Guarantor(s); (ii) the first installment of
Monthly Base Rent; (iii) executed copies of policies of insurance or
certificates thereof as required under Paragraph 19 of this Lease; (iv) copies
of all governmental permits and authorizations, if any, required in connection
with Tenant's operation of its business within the Premises; and (v) if Tenant
is a corporation or partnership, such evidence of due formation, valid existence
and authority as Landlord may reasonably require, which may include, without
limitation, a certificate of good standing, certificate of secretary, articles
of incorporation, statement of partnership, or other similar documentation.
(b) Condition of Premises. Prior to the Commencement Date and in accordance with
the Work Letter Agreement attached hereto as Exhibit "C", Landlord and Tenant
will jointly conduct a walk-through inspection of the Premises and will jointly
prepare a punch-list ("Punch-List") of items required to be installed by
Landlord under the Work Letter Agreement which require finishing or correction.
The Punch-List will not include any items of damage to the Premises caused by
Tenant's move-in or early entry, if permitted, which damage will be corrected or
repaired by Landlord, at Tenant's expense or, at Landlord's election, by Tenant,
at Tenant's expense. Other than the items specified in the Punch-List, by taking
possession of the Premises, Tenant will be deemed to have accepted the Premises
in its condition on the date of delivery of possession and to have acknowledged
that the Tenant Improvements have been installed as required by the Work Letter
Agreement and that there are no additional items needing work or repair.
Landlord will cause all items in the Punch-List to be repaired or corrected
within thirty (30) days following the preparation of the Punch-List or as soon
as practicable after the preparation of the Punch-List. Tenant acknowledges that
neither Landlord nor any agent of Landlord has made any representation or
warranty with respect to the Premises, the Building, the Development or any
portions thereof or with respect to the suitability of same for the conduct of
Tenant's business and Tenant further acknowledges that Landlord will have no
obligation to construct or complete any additional buildings or improvements
within the Development.
-5-
<PAGE> 26
(c) Representations By Landlord. Landlord hereby represents and warrants as
follows: (i) the Building, as of the Commencement Date shall comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date; provided,
however, this warranty shall not apply to any Tenant Improvements which Tenant
shall cause to be installed within the Premises; and (ii) Landlord has not
caused any Hazardous Materials to be brought upon, stored, used, handled,
generated, released or disposed of on, in, under or about the Premises, the
Building and/or the Common Areas. In the event Tenant does not provide Landlord
with a written notice of a non-compliance with the representations and
warranties set forth in this subparagraph 4(c) within six (6) months of the
Commencement Date, Landlord's representations and warranties set forth in this
subparagraph 4(c) shall be deemed to have no further force or effect.
5. RENT.
(a) Monthly Base Rent. Tenant agrees to pay Landlord the Monthly Base Rent for
the Premises (subject to adjustment as hereinafter provided) in advance on the
first day of each calendar month during the Term without prior notice or demand,
except that Tenant agrees to pay the Monthly Base Rent for the first month of
the Term directly to Landlord concurrently with Tenant's delivery of the
executed Lease to Landlord. If the Term of this Lease commences or ends on a day
other than the first day of a calendar month, then the rent for such period will
be prorated in the proportion that the number of days this Lease is in effect
during such period bears to the number of days in such month. All rent must be
paid to Landlord, without any deduction or offset, in lawful money of the United
States of America, at the address designated by Landlord or to such other person
or at such other place as Landlord may from time to time designate in writing.
Monthly Base Rent will be adjusted during the Term of this Lease as provided in
subparagraph l(m).
(b) Additional Rent. All amounts and charges to be paid by Tenant hereunder,
including, without limitation, payments for Operating Expenses, insurance,
repairs and parking, will be considered additional rent for purposes of this
Lease, and the word "rent" as used in this Lease will include all such
additional rent unless the context specifically or clearly implies that only
Monthly Base Rent is intended.
(c) Late Payments. Late payments of Monthly Base Rent and/or any item of
additional rent will be subject to interest and a late charge as provided in
subparagraph 22(f) below.
6. OPERATING EXPENSES.
(a) Operating Expenses. In addition to Monthly Base Rent, commencing on the
first anniversary of the Commencement Date and continuing throughout the Term of
this Lease, Tenant agrees to pay Landlord as additional rent in accordance with
the terms of this Paragraph 6, Tenant's Percentage of Operating Expenses as
defined in Exhibit "E" attached hereto to the extent Tenant's Percentage of
Operating Expenses exceeds Tenant's Operating Expense Allowance.
(b) Estimate Statement. Prior to the Commencement Date and on or about March 1st
of each subsequent calendar year during the Term of this Lease, Landlord will
endeavor to deliver to Tenant a statement ("Estimate Statement") wherein
Landlord will estimate both the Operating Expenses and Tenant's Percentage of
Operating Expenses for the then current calendar year. If the estimate of
Tenant's Percentage of Operating Expenses in the Estimate Statement exceeds
Tenant's Operating Expense Allowance, Tenant agrees to pay Landlord, as
"Additional Rent", one-twelfth (1/12th) of such excess each month thereafter,
beginning with the next installment of rent due, until such time as Landlord
issues a revised Estimate Statement or the Estimate Statement for the succeeding
calendar year; except that, concurrently with the regular monthly rent payment
next due following the receipt of each such Estimate Statement, Tenant agrees to
pay Landlord an amount equal to one monthly installment of such excess (less any
applicable Operating Expenses already paid) multiplied by the number of months
from January, in the current calendar year, to the month of such rent payment
next due, all months inclusive. If at any time during the Term of this Lease,
but not more often than quarterly, Landlord reasonably determines that Tenant's
Percentage of Operating Expenses for the current calendar year will be greater
than the amount set forth in the then current Estimate Statement, Landlord may
issue a revised Estimate Statement and Tenant agrees to pay Landlord, within ten
(10) days of receipt of the revised Estimate Statement, the difference between
the amount owed by Tenant under such revised Estimate Statement and the amount
owed by Tenant under the original Estimate Statement for the portion of the then
current calendar year which has expired. Thereafter Tenant agrees to pay
Tenant's Percentage of Operating Expenses based on such revised Estimate
Statement until Tenant receives the next calendar year's Estimate Statement or a
new revised Estimate Statement for the current calendar year. In the event
Tenant's Percentage of Operating Expenses for any calendar year is less than
Tenant's Operating Expense Allowance, Tenant will not be entitled to a credit
against any rent, additional rent or Tenant's Percentage of future Operating
Expenses payable hereunder.
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(c) Actual Statement. By March 1st of each calendar year during the Term of this
Lease (commencing March 1 in the calendar year following the base year for
Operating Expenses, if applicable), Landlord will also endeavor to deliver to
Tenant a statement ("Actual Statement") which states the actual Operating
Expenses for the preceding calendar year. If the Actual Statement reveals that
Tenant's Percentage of the actual Operating Expenses is more than the total
Additional Rent paid by Tenant for Operating Expenses on account of the
preceding calendar year, Tenant agrees to pay Landlord the difference in a lump
sum within ten (10) days of receipt of the Actual Statement. If the Actual
Statement reveals that Tenant's Percentage of the actual Operating Expenses is
less than the Additional Rent paid by Tenant for Operating Expenses on account
of the preceding calendar year, Landlord will credit any overpayment toward the
next monthly installment(s) of Tenant's Percentage of the Operating Expenses due
under this Lease.
(d) Miscellaneous. Any delay or failure by Landlord in delivering any Estimate
Statement or Actual Statement pursuant to this Paragraph 6 will not constitute a
waiver of its right to require an increase in rent nor will it relieve Tenant of
its obligations pursuant to this Paragraph 6, except that Tenant will not be
obligated to make any payments based on such Estimate Statement or Actual
Statement until ten (10) days after receipt of such Estimate Statement or Actual
Statement. Even though the Term has expired and Tenant has vacated the Premises,
when the final determination is made of Tenant's Percentage of the actual
Operating Expenses for the year in which this Lease terminates, Tenant agrees to
promptly pay any increase due over the estimated expenses paid and, conversely,
any overpayment made in the event said expenses decrease shall promptly be
rebated by Landlord to Tenant. Such obligation will be a continuing one which
will survive the expiration or earlier termination of this Lease. Prior to the
expiration or sooner termination of the Lease Term and Landlord's acceptance of
Tenant's surrender of the Premises, Landlord will have the right to estimate the
actual Operating Expenses for the then current Lease Year and to collect from
Tenant prior to Tenant's surrender of the Premises, Tenant's Percentage of any
excess of such actual Operating Expenses over the estimated Operating Expenses
paid by Tenant in such Lease Year.
(e) Tenant's Audit Rights. Notwithstanding anything to the contrary contained in
this Lease, if Tenant reasonably disputes any amounts set forth in any Actual
Statement described above in this Paragraph 6, Tenant will have the right no
later than sixty (60) days following receipt of an Actual Statement to cause
Landlord's general ledger of accounts with respect to the immediately preceding
calendar year only to be audited by a nationally recognized firm of certified
public accountants reasonably approved by Landlord, at no cost or expense to
Landlord, by a certified public accountant mutually acceptable to Landlord and
Tenant and which has prior experience in the review of financial statements and
which shall not have provided primary accounting services to Tenant within the
last three (3) years and which shall not be retained by Tenant on a contingency
basis; provided, however, Tenant shall not have the right to perform any such
audit more than one (1) time for any calendar year during the Lease Term,
provided further, if any other tenant(s) shall have already initiated an audit
of the Operating Expenses during such calendar year, Landlord shall have the
right at its option to limit Tenant's audit to a review of such other audit(s)
and any reasonable and specific concerns Tenant may have with any such audit(s)
and Tenant shall not be entitled to reopen Landlord's general ledger of accounts
regarding Operating Expenses for such calendar year except with respect to such
reasonable and specific concerns of Tenant concerning such other audit(s). Any
audit conducted by or on behalf of Tenant shall be performed within ninety (90)
days and shall be conducted at Landlord's office during Landlord's normal
business hours and in the manner so as to minimize interference with Landlord's
business operations. Landlord shall have no obligation and Tenant shall have no
right to make photocopies of any of Landlord's ledgers, invoices or other items.
Tenant's audit shall be limited to an on-site review of Landlord's general
ledger of accounts. The amounts payable under this Paragraph 6 by Landlord to
Tenant or to Tenant to Landlord, as the case may be, will be appropriately
adjusted on the basis of such audit. If such audit discloses an overstatement of
Operating Expenses in excess of five percent (5%) for such calendar year, Tenant
will receive a credit against Tenant's future Operating Expense obligations for
the reasonable costs of such audit; otherwise the cost of such audit including
Landlord's costs incurred in complying with such audit shall be borne by Tenant.
Tenant agrees to keep, and to cause in its account and employee to keep, all
information revealed by any audit of Landlord's books and records strictly
confidential and not to disclose any such information or permit any such
information to be disclosed to anyone other than Landlord, unless compelled to
do so by a court of law.
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7. DELETED.
8. USE.
(a) Tenant's Use of the Premises. The Premises may be used for the use or uses
set forth in subparagraph 1(r) only, and Tenant will not use or permit the
Premises to be used for any other purpose without the prior written consent of
Landlord, which consent Landlord may withhold in its sole and absolute
discretion. Nothing in this Lease will be deemed to give Tenant any exclusive
right to such use in the Building or the Development.
(b) Compliance. At Tenant's sole cost and expense, Tenant agrees to procure,
maintain and hold available for Landlord's inspection, all governmental licenses
and permits required for the proper and lawful conduct of Tenant's business from
the Premises, if any. Tenant agrees not to use, alter or occupy the Premises or
allow the Premises to be used, altered or occupied in violation of, and Tenant,
at its sole cost and expense, agrees to use and occupy the Premises and cause
the Premises to be used and occupied in compliance with: (i) any and all laws,
statutes, zoning restrictions, ordinances, rules, regulations, orders and
rulings now or hereafter in force and any requirements of any insurer, insurance
authority or duly constituted public authority having jurisdiction over the
Premises, the Building or the Development now or hereafter in force, (ii) the
requirements of the Board of Fire Underwriters and any other similar body, (iii)
the Certificate of Occupancy issued for the Building. Tenant shall not use or
permit the Premises to be used for any purpose which would cause a violation of
any recorded covenants, conditions and restrictions and similar regulatory
agreements, if any, which affect the use, occupation or alteration of the
Premises, the Building and/or the Development. Tenant agrees to comply with the
Rules and Regulations referenced in Paragraph 28 below. Tenant agrees not to do
or permit anything to be done in or about the Premises which will in any manner
obstruct or interfere with the rights of other tenants or occupants of the
Development, or injure or unreasonably annoy them, or use or allow the Premises
to be used for any unlawful or unreasonably objectionable purpose. Tenant agrees
not to cause, maintain or permit any nuisance or waste in, on, under or about
the Premises or elsewhere within the Development. Notwithstanding anything
contained in this Lease to the contrary, all transferable development rights
related in any way to the Development are and will remain vested in Landlord,
and Tenant hereby waives any rights thereto.
(c) Hazardous Materials. Except for ordinary and general office supplies
typically used in the ordinary course of business within office buildings, such
as copier toner, liquid paper, glue, ink and common household cleaning materials
(some or all of which may constitute "Hazardous Materials" as defined in this
Lease), Tenant agrees not to cause or permit any Hazardous Materials to be
brought upon, stored, used, handled, generated, released or disposed of on, in,
under or about the Premises, the Building, the Common Areas or any other portion
of the Development by Tenant, its agents, employees, subtenants, assignees,
licensees, contractors or invitees (collectively, "Tenant's Parties"), without
the prior written consent of Landlord, which consent Landlord may withhold in
its sole and absolute discretion. Upon the expiration or earlier termination of
this Lease, Tenant agrees to promptly remove from the Premises, the Building and
the Development, at its sole cost and expense, any and all Hazardous Materials,
including any equipment or systems containing Hazardous Materials which are
installed, brought upon, stored, used, generated or released upon, in, under or
about the Premises, the Building and/or the Development or any portion thereof
by Tenant or any of Tenant's Parties. To the fullest extent permitted by law,
Tenant agrees to promptly indemnify, protect, defend and hold harmless Landlord
and Landlord's partners, officers, directors, employees, agents, successors and
assigns (collectively, "Landlord Indemnified Parties") from and against any and
all claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs (including, without limitation, clean-up,
removal, remediation and restoration costs, sums paid in settlement of claims,
attorneys' fees, consultant fees and expert fees and court costs) which arise or
result from the presence of Hazardous Materials on, in, under or about the
Premises, the Building or any other portion of the Development and which are
caused or permitted by Tenant or any of Tenant's Parties. Tenant agrees to
promptly notify Landlord of any release of Hazardous Materials at the Premises,
the Building or any other portion of the Development which Tenant becomes aware
of during the Term of this Lease, whether caused by Tenant or any other persons
or entities. In the event of any release of Hazardous Materials caused or
permitted by Tenant or any of Tenant's Parties, Landlord shall have the right,
but not the obligation, to cause Tenant to immediately take all steps Landlord
deems necessary or appropriate to remediate such release and prevent any similar
future release to the satisfaction of Landlord and Landlord's mortgagee(s). As
used in this Lease, the term "Hazardous Materials" shall mean and include any
hazardous or toxic materials, substances or wastes as now or hereafter
designated under any law, statute, ordinance, rule, regulation, order or ruling
of any agency of the State, the United States Government or any local
governmental authority, including, without limitation, asbestos, petroleum,
petroleum hydrocarbons and petroleum based products, urea formaldehyde foam
insulation, polychlorinated biphenyls ("PCBs"), and freon and other
chlorofluorocarbons. The provisions of this subparagraph 8(c) will survive the
expiration or earlier termination of this Lease.
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<PAGE> 29
9. NOTICES. Any notice required or permitted to be given hereunder must be in
writing and may be given by personal delivery (including delivery by overnight
courier or an express mailing service) or by mail, if sent by registered or
certified mail. Notices to Tenant shall be sufficient if delivered to Tenant at
the address designated in subparagraph 1(d) and notices to Landlord shall be
sufficient if delivered to Landlord at the address designated in subparagraph
1(b). Either party may specify a different address for notice purposes by
written notice to the other, except that the Landlord may in any event use the
Premises as Tenant's address for notice purposes.
10. BROKERS. The parties acknowledge that the broker(s) who negotiated this
Lease are stated in subparagraph 1(t). Each party represents and warrants to the
other, that, to its knowledge, no other broker, agent or finder (a) negotiated
or was instrumental in negotiating or consummating this Lease on its behalf, and
(b) is or might be entitled to a commission or compensation in connection with
this Lease. Landlord and Tenant each agree to promptly indemnify, protect,
defend and hold harmless the other from and against any and all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs (including attorneys' fees and court costs) resulting from
any breach by the indemnifying party of the foregoing representation, including,
without limitation, any claims that may be asserted by any broker, agent or
finder undisclosed by the indemnifying party. The foregoing mutual indemnity
shall survive the expiration or earlier termination of this Lease.
11. SURRENDER; HOLDING OVER.
(a) Surrender. The voluntary or other surrender of this Lease by Tenant, or a
mutual cancellation thereof, shall not constitute a merger, and shall, at the
option of Landlord, operate as an assignment to Landlord of any or all subleases
or subtenancies. Upon the expiration or earlier termination of this Lease,
Tenant agrees to peaceably surrender the Premises to Landlord broom clean and in
a state of first-class order, repair and condition, ordinary wear and tear and
casualty damage (if this Lease is terminated as a result thereof pursuant to
Paragraph 20) excepted, with all of Tenant's personal property and Alterations
(as defined in Paragraph 13) removed from the Premises to the extent required
under Paragraph 13 and all damage caused by such removal repaired as required by
Paragraph 13. Prior to the date Tenant is to actually surrender the Premises to
Landlord, Tenant agrees to give Landlord reasonable prior notice of the exact
date Tenant will surrender the Premises so that Landlord and Tenant can schedule
a walk-through of the Premises to review the condition of the Premises and
identify the Alterations and personal property which are to remain upon the
Premises and which items Tenant is to remove, as well as any repairs Tenant is
to make upon surrender of the Premises. The delivery of keys to any employee of
Landlord or to Landlord's agent or any employee thereof alone will not be
sufficient to constitute a termination of this Lease or a surrender of the
Premises.
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(b) Holding Over. Tenant will not be permitted to hold over possession of the
Premises after the expiration or earlier termination of the Term without the
express written consent of Landlord, which consent Landlord may withhold in its
sole and absolute discretion. If Tenant holds over after the expiration or
earlier termination of the Term, Landlord may, at its option, treat Tenant as a
tenant at sufferance only, and such continued occupancy by Tenant shall be
subject to all of the terms, covenants and conditions of this Lease, so far as
applicable, except that the Monthly Base Rent for any such holdover period shall
be equal to the greater of (i) one hundred twenty-five percent (125%) of the
Monthly Base Rent in effect under this Lease immediately prior to such holdover,
or (ii) the then currently scheduled rental rate for comparable space in the
Building, in either event prorated on a daily basis. Acceptance by Landlord of
rent after such expiration or earlier termination will not result in a renewal
of this Lease. The foregoing provisions of this Paragraph 11 are in addition to
and do not affect Landlord's right of re-entry or any rights of Landlord under
this Lease or as otherwise provided by law. If Tenant fails to surrender the
Premises upon the expiration of this Lease in accordance with the terms of this
Paragraph 11 despite demand to do so by Landlord, Tenant agrees to promptly
indemnify, protect, defend and hold Landlord harmless from all claims, damages,
judgments, suits, causes of action, losses, liabilities, penalties, fines,
expenses and costs (including attorneys' fees and costs), including, without
limitation, costs and expenses incurred by Landlord in returning the Premises to
the condition in which Tenant was to surrender it and claims made by any
succeeding tenant founded on or resulting from Tenant's failure to surrender the
Premises. The provisions of this subparagraph 11(b) will survive the expiration
or earlier termination of this Lease.
12. TAXES ON TENANT'S PROPERTY. Tenant agrees to pay before delinquency, all
taxes and assessments (real and personal) levied against (a) any personal
property or trade fixtures placed by Tenant in or about the Premises (including
any increase in the assessed value of the Premises based upon the value of any
such personal property or trade fixtures); and (b) any Tenant Improvements or
Alterations in the Premises (whether installed and/or paid for by Landlord or
Tenant) to the extent such items are assessed at a valuation higher than the
valuation at which tenant improvements conforming to Landlord's building
standard tenant improvements are assessed. If any such taxes or assessments are
levied against Landlord or Landlord's property, Landlord may, after written
notice to Tenant (and under proper protest if requested by Tenant) pay such
taxes and assessments, in which event Tenant agrees to reimburse Landlord all
amounts paid by Landlord within ten (10) business days after demand by Landlord;
provided, however, Tenant, at its sole cost and expense, will have the right,
with Landlord's cooperation, to bring suit in any court of competent
jurisdiction to recover the amount of any such taxes and assessments so paid
under protest.
13. ALTERATIONS. After installation of the initial Tenant Improvements for the
Premises pursuant to Exhibit "C", Tenant may, at its sole cost and expense, make
alterations, additions, improvements and decorations to the Premises
(collectively, "Alterations") subject to and upon the following terms and
conditions:
(a) Prohibited Alterations. Tenant may not make any Alterations which: (i)
affect any area outside the Premises; (ii) affect the Building's structure,
equipment, services or systems, or the proper functioning thereof, or Landlord's
access thereto; (iii) affect the outside appearance, character or use of the
Building or the Building Common Areas; (iv) in the reasonable opinion of
Landlord, lessen the value of the Building; or (v) will violate or require a
change in any occupancy certificate applicable to the Premises.
(b) Landlord's Approval. Before proceeding with any Alterations which are not
prohibited in subparagraph 13(a) above, Tenant must first obtain Landlord's
written approval of the plans, specifications and working drawings for such
Alterations, which approval Landlord will not unreasonably withhold or delay;
provided, however, Landlord's prior approval will not be required for any such
Alterations which are not prohibited by subparagraph 13(a) above and which cost
less than Fifty Thousand Dollars ($50,000.00) in the aggregate in any calendar
year as long as (i) Tenant delivers to Landlord notice and a copy of any final
plans, specifications and working drawings for any such Alterations at least ten
(10) days prior to commencement of the work thereof, and (ii) the other
conditions of this Paragraph 13 are satisfied, excluding any bonding
requirements, but including, without limitation, conforming to Landlord's rules,
regulations and insurance requirements which govern contractors. Landlord's
approval of plans, specifications and/or working drawings for Alterations will
not create any responsibility or liability on the part of Landlord for their
completeness, design sufficiency, or compliance with applicable permits, laws,
rules and regulations of governmental agencies or authorities. In approving any
Alterations, Landlord reserves the right to require Tenant to provide Landlord
with additional reasonable security for the removal of such Alterations by
Tenant as may be required by this Lease. Landlord reserves the right to post
Notices of Non-Responsibility with respect to any Alterations performed by
Tenant.
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(c) Contractors. Alterations may be made or installed only by contractors and
subcontractors which have been approved by Landlord, which approval Landlord
will not unreasonably withhold or delay; provided, however, Landlord reserves
the right to require that Landlord's contractor for the Building be given the
opportunity to bid for any Alteration work. Before proceeding with any
Alterations, Tenant agrees to provide Landlord with ten (10) days prior written
notice and Tenant's contractors must obtain and maintain, on behalf of Tenant
and at Tenant's sole cost and expense: (i) all necessary governmental permits
and approvals for the commencement and completion of such Alterations; and (ii)
if requested by Landlord, a completion and lien indemnity bond, or other surety,
reasonably satisfactory to Landlord for such Alterations. Throughout the
performance of any Alterations, Tenant agrees to obtain, or cause its
contractors to obtain, workers compensation insurance and general liability
insurance in compliance with the provisions of Paragraph 19 of this Lease.
(d) Manner of Performance. All Alterations must be performed: (i) in accordance
with the approved plans, specifications and working drawings; (ii) in a
lien-free and first-class and workmanlike manner; (iii) in compliance with all
applicable permits, laws, statutes, ordinances, rules, regulations, orders and
rulings now or hereafter in effect and imposed by any governmental agencies and
authorities which assert jurisdiction; (iv) in such a manner so as not to
interfere with the occupancy of any other tenant in the Building, nor impose any
additional expense upon nor delay Landlord in the maintenance and operation of
the Building; and (v) at such times, in such manner, and subject to such rules
and regulations as Landlord may from time to time reasonably designate.
(e) Ownership. The Tenant Improvements, including, without limitation, all
affixed sinks, dishwashers, microwave ovens and other fixtures, and all
Alterations will become the property of Landlord and will remain upon and be
surrendered with the Premises at the end of the Term of this Lease; provided,
however, Landlord may, by written notice delivered to Tenant concurrently with
Landlord's approval of the final working drawings for any Alterations, identify
those Alterations which Landlord will require Tenant to remove at the end of the
Term of this Lease. Landlord may also require Tenant to remove Alterations which
Landlord did not have the opportunity to approve as provided in this Paragraph
13. If Landlord requires Tenant to remove any Alterations, Tenant, at its sole
cost and expense, agrees to remove the identified Alterations on or before the
expiration or earlier termination of this Lease and repair any damage to the
Premises caused by such removal (or, at Landlord's option, Tenant agrees to pay
to Landlord all of Landlord's costs of such removal and repair).
(f) Plan Review. Tenant agrees to pay Landlord, as additional rent, the
reasonable costs of professional services and costs for general conditions of
Landlord's third party consultants if utilized by Landlord (but not Landlord's
"in-house" personnel) for review of all plans, specifications and working
drawings for any Alterations, within ten (10) business days after Tenant's
receipt of invoices either from Landlord or such consultants. In addition,
Tenant agrees to pay Landlord, within ten (10) business days after completion of
any Alterations, a fee to cover Landlord's costs of supervising and
administering the installation of any non-structural Alterations, in the amount
of three percent (3%) of the cost of such Alterations, but in no event less than
Two Hundred Fifty Dollars ($250.00).
(g) Personal Property. All articles of personal property owned by Tenant or
installed by Tenant at its expense in the Premises (including Tenant's business
and trade fixtures, furniture, movable partitions and equipment [such as
telephones, copy machines, computer terminals, refrigerators and facsimile
machines]) will be and remain the property of Tenant, and must be removed by
Tenant from the Premises, at Tenant's sole cost and expense, on or before the
expiration or earlier termination of this Lease. Tenant agrees to repair any
damage caused by such removal at its cost on or before the expiration or earlier
termination of this Lease.
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(h) Removal of Alterations. If Tenant fails to remove by the expiration or
earlier termination of this Lease all of its personal property, or any
Alterations identified by Landlord for removal, Landlord may, at its option,
treat such failure as a hold-over pursuant to subparagraph 11(b) above, and/or
Landlord may (without liability to Tenant for loss thereof) treat such personal
property and/or Alterations as abandoned and, at Tenant's sole cost and expense,
and in addition to Landlord's other rights and remedies under this Lease, at law
or in equity: (a remove and store such items; and/or (b) upon ten (10) days
prior notice to Tenant, sell, discard or otherwise dispose of all or any such
items at private or public sale for such price as Landlord may obtain or by
other commercially reasonable means. Tenant shall be liable for all costs of
disposition of Tenant's abandoned property and Landlord shall have no liability
to Tenant with respect to any such abandoned property. Landlord agrees to apply
the proceeds of any sale of any such property to any amounts due to Landlord
under this Lease from Tenant (including Landlord's attorneys' fees and other
costs incurred in the removal, storage and/or sale of such items), with any
remainder to be paid to Tenant.
14. REPAIRS.
(a) Landlord's Obligations. Landlord agrees to repair and maintain the
structural portions of the Building and the plumbing, heating, ventilating, air
conditioning, elevator and electrical systems installed or furnished by
Landlord, unless such maintenance and repairs are (i) attributable to items
installed in Tenant's Premises which are above standard interior improvements
(such as, for example, custom lighting, special HVAC and/or electrical panels or
systems, kitchen or restroom facilities and appliances constructed or installed
within Tenant's Premises) or (ii) caused in part or in whole by the act, neglect
or omission of any duty by Tenant, its agents, servants, employees or invitees,
in which case Tenant will pay to Landlord, as additional rent, the reasonable
cost of such maintenance and repairs. Landlord will not be liable for any
failure to make any such repairs or to perform any maintenance unless such
failure shall persist for an unreasonable time after written notice of the need
of such repairs or maintenance is given to Landlord by Tenant. Except as
provided in Paragraph 20, Tenant will not be entitled to any abatement of rent
and Landlord will not have any liability by reason of any injury to or
interference with Tenant's business arising from the making of any repairs,
alterations or improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances and equipment therein. Tenant waives the
right to make repairs at Landlord's expense under any law, statute, ordinance,
rule, regulation, order or ruling (including, without limitation, to the extent
the Premises are located in California, the provisions of California Civil Code
Sections 1941 and 1942 and any successor statutes or laws of a similar nature).
(b) Tenant's Obligations. Tenant agrees to keep, maintain and preserve the
Premises in first class condition and repair and, when and if needed, at
Tenant's sole cost and expense, to make all repairs to the Premises and every
part thereof. Any such maintenance and repairs will be performed by Landlord's
contractor, or at Landlord's option, by such contractor or contractors as Tenant
may choose from an approved list to be submitted by Landlord. Tenant agrees to
pay all costs and expenses incurred in such maintenance and repair within seven
(7) days after billing by Landlord or such contractor or contractors. Tenant
agrees to cause any mechanics' liens or other liens arising as a result of work
performed by Tenant or at Tenant's direction to be eliminated as provided in
Paragraph 15 below. Except as provided in subparagraph 14(a) above, Landlord has
no obligation to alter, remodel, improve, repair, decorate or paint the Premises
or any part thereof.
(c) Tenant's Failure to Repair. If Tenant refuses or neglects to repair and
maintain the Premises properly as required hereunder to the reasonable
satisfaction of Landlord, Landlord, at any time following thirty (30) days from
the date on which Landlord makes a written demand on Tenant to effect such
repair and maintenance, may enter upon the Premises and make such repairs and/or
maintenance, and upon completion thereof, Tenant agrees to pay to Landlord as
additional rent, Landlord's costs for making such repairs plus an amount not to
exceed ten percent (10%) of such costs for overhead, within thirty (30) days of
receipt from Landlord of a written itemized bill therefor. Any amounts not
reimbursed by Tenant within such thirty (30) day period will bear interest at
the Interest Rate until paid by Tenant.
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<PAGE> 33
(d) Landlord Repairs/Default. Notwithstanding anything to the contrary contained
in Paragraph 14(a) regarding repairs or Landlord's default, if Tenant provides
written notice to Landlord of an event or circumstance relative to the Premises
which requires the action of Landlord with respect to repair and/or maintenance,
and Landlord fails to provide such action within a reasonable period of time,
given the circumstances, after the receipt of such written notice, but in no
event earlier than thirty (30) days after receipt of such written notice, unless
Landlord is specifically required to act in less than thirty (30) days pursuant
to a specific provision of this Lease or because of an emergency by any
provision hereof, then Tenant may proceed to take the required action upon
delivery of an additional written notice to Landlord specifying Tenant is taking
such required action, including the date of such action to be taken, the cost of
such action, and the projected completion date, and if such action was required
under the terms of this Lease to be taken by Landlord, then Tenant shall be
entitled to prompt reimbursement by Landlord of Tenant's reasonable, actual,
documented costs and expenses in taking such action plus interest thereon at the
Interest Rate. In the event Tenant takes such action, and such work in the
Premises will affect the Building's life safety system, heating, ventilating and
air conditioning systems and elevator systems, or the structural integrity of
the Building, Tenant shall use only those contractors used by Landlord in the
Building for work on such systems or other contractors approved by Landlord.
Further, if Landlord does not deliver a detailed written objection to Tenant
within thirty (30) days after receipt of an invoice by Tenant of its costs of
taking action which Tenant claims should have been taken by Landlord, and if
such invoice from Tenant sets forth a reasonably particularized breakdown of its
costs and expenses in connection with taking such action on behalf of Landlord,
then Tenant shall be entitled to deduct from rental payable by Tenant under this
Lease, the amount set forth in such invoice. If, however, Landlord delivers to
Tenant within thirty (30) days after receipt of Tenant's invoice, a written
objection to the payment of such invoice, setting forth with reasonable
particularity Landlord's reasons for its claim that such action did not have to
be taken by Landlord pursuant to the terms of this Lease, then Tenant shall not
be entitled to such deduction from rental, but as Tenant's sole remedy, Tenant
may proceed to claim a default by Landlord or, if elected by either Landlord or
Tenant, the matter shall proceed to resolution by the selection of an arbitrator
to resolve the dispute, which arbitrator shall be selected and qualified
pursuant to the rules of the American Arbitration Association, and whose costs
shall be paid for by the losing party, unless it is not clear that there is a
"losing party," in which event the costs of arbitration shall be shared equally.
Judgment on the award rendered by the arbitrator(s) may be entered in any court
having jurisdiction thereof.
15. LIENS. Tenant agrees not to permit any mechanic's, materialmen's or other
liens to be filed against all or any part of the Development, the Building or
the Premises, nor against Tenant's leasehold interest in the Premises, by reason
of or in connection with any repairs, alterations, improvements or other work
contracted for or undertaken by Tenant or any other act or omission of Tenant or
Tenant's agents, employees, contractors, licensees or invitees. At Landlord's
request, Tenant agrees to provide Landlord with enforceable, conditional and
final lien releases (or other evidence reasonably requested by Landlord to
demonstrate protection from liens) from all persons furnishing labor and/or
materials at the Premises. Landlord will have the right at all reasonable times
to post on the Premises and record any notices of non-responsibility which it
deems necessary for protection from such liens. If any such liens are filed,
Tenant will, at its sole cost, promptly cause such liens to be released of
record or bonded so that it no longer affects title to the Development, the
Building or the Premises. If Tenant fails to cause any such liens to be so
released or bonded within ten (10) days after filing thereof, such failure will
be deemed a material breach by Tenant under this Lease without the benefit of
any additional notice or cure period described in Paragraph 22 below, and
Landlord may, without waiving its rights and remedies based on such breach, and
without releasing Tenant from any of its obligations, cause such liens to be
released by any means it shall deem proper, including payment in satisfaction of
the claims giving rise to such liens. Tenant agrees to pay to Landlord within
ten (10) days after receipt of invoice from Landlord, any sum paid by Landlord
to remove such liens, together with interest at the Interest Rate from the date
of such payment by Landlord.
16. ENTRY BY LANDLORD. Landlord and its employees and agents will at all times
have the right to enter the Premises to inspect the same, to supply janitorial
service and any other service to be provided by Landlord to Tenant hereunder, to
show the Premises to prospective purchasers or tenants, to post notices of
nonresponsibility, and/or to repair the Premises as permitted or required by
this Lease. In exercising such entry rights, Landlord will endeavor to minimize,
as reasonably practicable, the interference with Tenant's business, and will
provide Tenant with reasonable advance notice of any such entry (except in
emergency situations). Landlord may, in order to carry out such purposes, erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed. Landlord will at all times have and
retain a key with which to unlock all doors in the Premises, excluding Tenant's
vaults and safes. Landlord will have the right to use any and all means which
Landlord may reasonably deem proper to open said doors in an emergency in order
to obtain entry to the Premises. Any entry to the Premises obtained by Landlord
by any of said means, or otherwise, will not be construed or deemed to be a
forcible or unlawful entry into the Premises, or an eviction of Tenant from the
Premises. Landlord will not be liable to Tenant for any damages or losses for
any entry by Landlord.
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17. UTILITIES AND SERVICES. Throughout the Term of the Lease so long as the
Premises are occupied, Landlord agrees to furnish or cause to be furnished to
the Premises the utilities and services described in the Standards for Utilities
and Services attached hereto as Exhibit "F", subject to the conditions and in
accordance with the standards set forth therein. Landlord may require Tenant
from time to time to provide Landlord with a list of Tenant's employees and/or
agents which are authorized by Tenant to subscribe on behalf of Tenant for any
additional services which may be provided by Landlord. Any such additional
services will be provided to Tenant at Tenant's cost. Landlord will not be
liable to Tenant for any failure to furnish any of the foregoing utilities and
services if such failure is caused by all or any of the following: (i) accident,
breakage or repairs; (ii) strikes, lockouts or other labor disturbance or labor
dispute of any character; (iii) governmental regulation, moratorium or other
governmental action or inaction; (iv) inability despite the exercise of
reasonable diligence to obtain electricity, water or fuel; or (v) any other
cause beyond Landlord's reasonable control. In addition, in the event of any
stoppage or interruption of services or utilities, Tenant shall not be entitled
to any abatement or reduction of rent (except as expressly provided in
subparagraphs 20(f) or 21(b) if such failure results from a damage or taking
described therein), no eviction of Tenant will result from such failure and
Tenant will not be relieved from the performance of any covenant or agreement in
this Lease because of such failure. In the event of any failure, stoppage or
interruption thereof, Landlord agrees to diligently attempt to resume service
promptly. If Tenant requires or utilizes more water or electrical power than is
considered reasonable or normal by Landlord, Landlord may at its option require
Tenant to pay, as additional rent, the cost, as fairly determined by Landlord,
incurred by such extraordinary usage and/or Landlord may install separate
meter(s) for the Premises, at Tenant's sole expense, and Tenant agrees
thereafter to pay all charges of the utility providing service and Landlord will
make an appropriate adjustment to Tenant's Operating Expenses calculation to
account for the fact Tenant is directly paying such metered charges, provided
Tenant will remain obligated to pay its proportionate share of Operating
Expenses subject to such adjustment. Notwithstanding the provisions of this
Paragraph 17, if for more than three (3) consecutive business days following
written notice to Landlord, there is no elevator service to the Premises, or no
HVAC or electricity to the Premises, or such an interruption of other essential
utilities and building services, such as fire protection or water, so that any
portion of the Premises cannot be used by Tenant, in Tenant's judgment
reasonably exercised, then Tenant's rent shall thereafter be abated until the
Premises are again usable by Tenant in proportion to the extent to which
Tenant's use of the Premises is interfered with; provided, however, that if
Landlord is diligently pursuing the repair of such utilities or services and
Landlord provides substitute services reasonably suitable for Tenant's purposes,
as for example, bringing in portable air-conditioning equipment, then there
shall not be any abatement of rent. This provision shall not apply in case of
damage to, or destruction of, the Premises, which shall be governed by a
separate provision of this Lease.
18. ASSUMPTION OF RISK AND INDEMNIFICATION.
(a) Assumption of Risk. Tenant, as a material part of the consideration to
Landlord, hereby agrees that neither Landlord nor any Landlord Indemnified
Parties (as defined in subparagraph 8(c) above) will be liable to Tenant for,
and Tenant expressly assumes the risk of and waives any and all claims it may
have against Landlord or any Landlord Indemnified Parties with respect to, (i)
any and all damage to property or injury to persons in, upon or about the
Premises, the Building or the Development resulting from any act or omission
(except for the grossly negligent or intentionally wrongful act or omission) of
Landlord, (ii) any such damage caused by other tenants or persons in or about
the Building or the Development, or caused by quasi-public work, (iii) any
damage to property entrusted to employees of the Building, (iv) any loss of or
damage to property by theft or otherwise, or (v) any injury or damage to persons
or property resulting from any casualty, explosion, falling plaster or other
masonry or glass, steam, gas, electricity, water or rain which may leak from any
part of the Building or any other portion of the Development or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other place, or resulting from dampness. Notwithstanding anything to
the contrary contained in this Lease, neither Landlord nor any Landlord
Indemnified Parties will be liable for consequential damages arising out of any
loss of the use of the Premises or any equipment or facilities therein by Tenant
or any Tenant Parties or for interference with light or other incorporeal
hereditaments. Tenant agrees to give prompt notice to Landlord in case of fire
or accidents in the Premises or the Building, or of defects therein or in the
fixtures or equipment.
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(b) Indemnification. Except to the extent that the Indemnified Claim would be
covered by insurance coverage maintained by Landlord and would not cause an
increase to applicable premiums charged for Landlord's insurance policy(ies),
Tenant will be liable for, and agrees, to the maximum extent permissible under
applicable law, to promptly indemnify, protect, defend and hold harmless
Landlord and all Landlord Indemnified Parties, from and against, any and all
claims, damages, judgments, suits, causes of action, losses, liabilities,
penalties, fines, expenses and costs, including attorneys' fees and court costs
(collectively, "Indemnified Claims"), arising or resulting from (i) any act or
omission of Tenant or any Tenant Parties (as defined in subparagraph 8(c)
above); (ii) the use of the Premises and Common Areas and conduct of Tenant's
business by Tenant or any Tenant Parties, or any other activity, work or thing
done, permitted or suffered by Tenant or any Tenant Parties, in or about the
Premises, the Building or elsewhere within the Development; and/or (iii) any
default by Tenant of any obligations on Tenant's part to be performed under the
terms of this Lease. In case any action or proceeding is brought against
Landlord or any Landlord Indemnified Parties by reason of any such Indemnified
Claims, Tenant, upon notice from Landlord, agrees to promptly defend the same at
Tenant's sole cost and expense by counsel approved in writing by Landlord, which
approval Landlord will not unreasonably withhold.
(c) Survival; No Release of Insurers. Tenant's indemnification obligations
under subparagraph 18(b) will survive the expiration or earlier termination
of this Lease. Tenant's covenants, agreements and indemnification obligation
in subparagraphs 18(a) and 18(b) above, are not intended to and will not
relieve any insurance carrier of its obligations under policies required to
be carried by Tenant pursuant to the provisions of this Lease.
19. INSURANCE.
(a) Tenant's Insurance. On or before the earlier to occur of (i) the
Commencement Date, or (ii) the date Tenant commences any work of any type in the
Premises pursuant to this Lease (which may be prior to the Commencement Date),
and continuing throughout the entire Term hereof and any other period of
occupancy, Tenant agrees to keep in full force and effect, at its sole cost and
expense, the following insurance:
(i) "All Risks" property insurance including at least the following perils: fire
and extended coverage, smoke damage, vandalism, malicious mischief, sprinkler
leakage (including earthquake sprinkler leakage). This insurance policy must be
upon all property owned by Tenant, for which Tenant is legally liable, or which
is installed at Tenant's expense, and which is located in the Building
including, without limitation, any Tenant Improvements which satisfy the
foregoing qualification and any Alterations, and all furniture, fittings,
installations, fixtures and any other personal property of Tenant, in an amount
not less than the full replacement cost thereof. If there is a dispute as to
full replacement cost, the decision of Landlord or any mortgagee of Landlord
will be presumptive.
(ii) One (1) year insurance coverage for business interruption and loss of
income and extra expense insuring the same perils described in subparagraph
19(a)(i) above, in such amounts as will reimburse Tenant for any direct or
indirect loss of earnings attributable to any such perils including prevention
of access to the Premises, Tenant's parking areas or the Building as a result of
any such perils.
(iii) Commercial General Liability Insurance or Comprehensive General Liability
Insurance (on an occurrence form) insuring bodily injury, personal injury and
property damage including the following divisions and extensions of coverage:
Premises and Operations; Owners and Contractors protective; blanket contractual
liability (including coverage for Tenant's indemnity obligations under this
Lease); products and completed operations; liquor liability (if Tenant serves
alcohol on the Premises); and fire and water damage legal liability in an amount
sufficient to cover the replacement value of the Premises, including Tenant
Improvements, that are rented under the terms of this Lease. Such insurance must
have the following minimum limits of liability: bodily injury, personal injury
and property damage - $1,000,000 each occurrence, provided that if liability
coverage is provided by a Commercial General Liability policy the general
aggregate limit shall apply separately and in total to this location only (per
location general aggregate), and provided further, such minimum limits of
liability may be adjusted from year to year to reflect increases in coverages as
recommended by Landlord's insurance carrier as being prudent and commercially
reasonable for tenants of first class office buildings comparable to the
Building, rounded to the nearest five hundred thousand dollars.
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(iv) Comprehensive Automobile Liability insuring bodily injury and property
damage arising from all owned, non-owned and hired vehicles, if any, with
minimum limits of liability of $1,000,000 per accident.
(v) Worker's Compensation as required by the laws of the State of California
with the following minimum limits of liability: Coverage A - statutory benefits;
Coverage B - $1,000,000 per accident and disease.
(vi) Any other form or forms of insurance as Tenant or Landlord or any
mortgagees of Landlord may reasonably require from time to time in form, in
amounts, and for insurance risks against which, a prudent tenant would protect
itself, but only to the extent coverage for such risks and amounts are available
in the insurance market at commercially acceptable rates. Landlord makes no
representation that the limits of liability required to be carried by Tenant
under the terms of this Lease are adequate to protect Tenant's interests and
Tenant should obtain such additional insurance or increased liability limits as
Tenant deems appropriate.
(b) Supplemental Tenant Insurance Requirements.
(i) All policies must be in a form reasonably satisfactory to Landlord and
issued by an insurer admitted to do business in the State of California.
(ii) All policies must be issued by insurers with a policyholder rating of "A"
and a financial rating of "X" in the most recent version of Best's Key Rating
Guide.
(iii) All policies must contain a requirement to notify Landlord (and Landlord's
property manager and any mortgagees or ground lessors of Landlord who are named
as additional insureds, if any) in writing not less than thirty (30) days prior
to any material change, reduction in coverage, cancellation or other termination
thereof. Tenant agrees to deliver to Landlord, as soon as practicable after
placing the required insurance, but in any event within the time frame specified
in subparagraph 19(a) above, certificate(s) of insurance and/or if required by
Landlord, certified copies of each policy evidencing the existence of such
insurance and Tenant's compliance with the provisions of this Paragraph 19.
Tenant agrees to cause replacement policies or certificates to be delivered to
Landlord not less than thirty (30) days prior to the expiration of any such
policy or policies. If any such initial or replacement policies or certificates
are not furnished within the time(s) specified herein, Tenant will be deemed to
be in material default under this Lease without the benefit of any additional
notice or cure period provided in subparagraph 22(a)(ii) below, and Landlord
will have the right, but not the obligation, to procure such insurance as
Landlord deems necessary to protect Landlord's interests at Tenant's expense. If
Landlord obtains any insurance that is the responsibility of Tenant under this
Paragraph 19, Landlord agrees to deliver to Tenant a written statement setting
forth the cost of any such insurance and showing in reasonable detail the manner
in which it has been computed and Tenant agrees to promptly reimburse Landlord
for such costs as additional rent.
(iv) General Liability and Automobile Liability policies under subparagraphs
19(a)(iii) and 19(a)(iv) must name Landlord and Landlord's property manager (and
at Landlord's request, Landlord's mortgagees and ground lessors of which Tenant
has been informed in writing) as additional insureds and must also contain a
provision that the insurance afforded by such policy is primary insurance and
any insurance carried by Landlord and Landlord's property manager or Landlord's
mortgagees or ground lessors, if any, will be excess over and non-contributing
with Tenant's insurance.
(c) Tenant's Use. Tenant will not keep, use, sell or offer for sale in or upon
the Premises any article which may be prohibited by any insurance policy
periodically in force covering the Building or the Development Common Areas. If
Tenant's occupancy or business in, or on, the Premises, whether or not Landlord
has consented to the same, results in any increase in premiums for the insurance
periodically carried by Landlord with respect to the Building or the Development
Common Areas or results in the need for Landlord to maintain special or
additional insurance, Tenant agrees to pay Landlord the cost of any such
increase in premiums or special or additional coverage as additional rent within
ten (10) days after being billed therefor by Landlord. In determining whether
increased premiums are a result of Tenant's use of the Premises, a schedule
issued by the organization computing the insurance rate on the Building, the
Development Common Areas or the Tenant Improvements showing the various
components of such rate, will be conclusive evidence of the several items and
charges which make up such rate. Tenant agrees to promptly comply with all
reasonable requirements of the insurance authority or any present or future
insurer relating to the Premises.
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(d) Cancellation of Landlord's Policies. If any of Landlord's insurance policies
are cancelled or cancellation is threatened or the coverage reduced or
threatened to be reduced in any way because of the use of the Premises or any
part thereof by Tenant or any assignee or subtenant of Tenant or by anyone
Tenant permits on the Premises and, if Tenant fails to remedy the condition
giving rise to such cancellation, threatened cancellation, reduction of
coverage, threatened reduction of coverage, increase in premiums, or threatened
increase in premiums, within forty-eight (48) hours after notice thereof, Tenant
will be deemed to be in material default of this Lease and Landlord may, at its
option, either terminate this Lease or enter upon the Premises and attempt to
remedy such condition, and Tenant shall promptly pay Landlord the reasonable
costs of such remedy as additional rent. If Landlord is unable, or elects not to
remedy such condition, then Landlord will have all of the remedies provided for
in this Lease in the event of a default by Tenant.
(e) Waiver of Subrogation. Tenant's property insurance shall contain a clause
whereby the insurer waives all rights of recovery by way of subrogation against
Landlord. Tenant shall also obtain and furnish evidence to Landlord of the
waiver by Tenant's worker's compensation insurance carrier of all rights of
recovery by way of subrogation against Landlord.
20. DAMAGE OR DESTRUCTION.
(a) Partial Destruction. If the Premises or the Building are damaged by fire or
other casualty to an extent not exceeding twenty-five percent (25%) of the full
replacement cost thereof, and Landlord's contractor reasonably estimates in a
writing delivered to Landlord and Tenant that the damage thereto may be
repaired, reconstructed or restored to substantially its condition immediately
prior to such damage within one hundred eighty (180) days from the date of such
casualty, and Landlord will receive insurance proceeds sufficient to cover the
costs of such repairs, reconstruction and restoration (including proceeds from
Tenant and/or Tenant's insurance which Tenant is required to deliver to Landlord
pursuant to subparagraph 20(e) below to cover Tenant's obligation for the costs
of repair, reconstruction and restoration of any portion of the Tenant
Improvements and any Alterations for which Tenant is responsible under this
Lease), then Landlord agrees to commence and proceed diligently with the work of
repair, reconstruction and restoration and this Lease will continue in full
force and effect.
(b) Substantial Destruction. Any damage or destruction to the Premises or the
Building which Landlord is not obligated to repair pursuant to subparagraph
20(a) above will be deemed a substantial destruction. In the event of a
substantial destruction, Landlord may elect to either (i) repair, reconstruct
and restore the portion of the Building or the Premises damaged by such
casualty, in which case this Lease will continue in full force and effect,
subject to Tenant's termination right contained in subparagraph 20(d) below; or
(ii) terminate this Lease effective as of the date which is thirty (30) days
after Tenant's receipt of Landlord's election to so terminate.
(c) Notice. Under any of the conditions of subparagraphs 20(a) or 20(b) above,
Landlord agrees to give written notice to Tenant of its intention to repair or
terminate, as permitted in such paragraphs, within the earlier of thirty (30)
days after the occurrence of such casualty, or fifteen (15) days after
Landlord's receipt of the estimate from Landlord's contractor (the applicable
time period to be referred to herein as the "Notice Period").
(d) Tenant's Termination Rights. If Landlord elects to repair, reconstruct and
restore pursuant to subparagraph 20(b)(i) hereinabove, and if Landlord's
contractor estimates that as a result of such damage, Tenant cannot be given
reasonable use of and access to the Premises within two hundred seventy (270)
days after the date of such damage, then Tenant may terminate this Lease
effective upon delivery of written notice to Landlord within ten (10) days after
Landlord delivers notice to Tenant of its election to so repair, reconstruct or
restore.
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(e) Tenant's Costs and Insurance Proceeds. In the event of any damage or
destruction of all or any part of the Premises, Tenant agrees to immediately (i)
notify Landlord thereof, and (ii) deliver to Landlord all property insurance
proceeds received by Tenant with respect to any Tenant Improvements installed by
or at the cost of Tenant and any Alterations, but excluding proceeds for
Tenant's furniture, fixtures, equipment and other personal property, whether or
not this Lease is terminated as permitted in this Paragraph 20, and Tenant
hereby assigns to Landlord all rights to receive such insurance proceeds. If,
for any reason (including Tenant's failure to obtain insurance for the full
replacement cost of any Tenant Improvements installed by or at the cost of
Tenant and any Alterations from any and all casualties), Tenant fails to receive
insurance proceeds covering the full replacement cost of any Tenant Improvements
installed by or at the cost of Tenant and any Alterations which are damaged,
Tenant will be deemed to have self-insured the replacement cost of such items,
and upon any damage or destruction thereto, Tenant agrees to immediately pay to
Landlord the full replacement cost of such items, less any insurance proceeds
actually received by Landlord from Landlord's or Tenant's insurance with respect
to such items.
(f) Abatement of Rent. In the event of any damage, repair, reconstruction and/or
restoration described in this Paragraph 20, rent will be abated or reduced, as
the case may be, from the date of such casualty, in proportion to the degree to
which Tenant's use of the Premises is impaired during such period of repair
until such use is restored. Except for abatement of rent as provided
hereinabove, Tenant will not be entitled to any compensation or damages for loss
of, or interference with, Tenant's business or use or access of all or any part
of the Premises or for lost profits or any other consequential damages of any
kind or nature, which result from any such damage, repair, reconstruction or
restoration.
(g) Inability to Complete. Notwithstanding anything to the contrary contained in
this Paragraph 20, if Landlord is obligated or elects to repair, reconstruct
and/or restore the damaged portion of the Building or the Premises pursuant to
subparagraphs 20(a) or 20(b)(i) above, but is delayed from completing such
repair, reconstruction and/or restoration beyond the date which is sixty (60)
days after the date estimated by Landlord's contractor for completion thereof by
reason of any causes (other than delays caused by Tenant, its subtenants,
employees, agents or contractors or delays which are beyond the reasonable
control of Landlord as described in Paragraph 33 which delays in no event shall
exceed a total of ninety (90) days), then either Landlord or Tenant may elect to
terminate this Lease upon ten (10) days prior written notice given to the other
after the expiration of such sixty (60) day period.
(h) Damage Near End of Term. Landlord and Tenant shall each have the right to
terminate this Lease if any damage to the Premises occurs during the last twelve
(12) months of the Term of this Lease where Landlord's contractor estimates in a
writing delivered to Landlord and Tenant that the repair, reconstruction or
restoration of such damage cannot be completed within sixty (60) days after the
date of such casualty. If either party desires to terminate this Lease under
this subparagraph 20(h), it shall provide written notice to the other party of
such election within ten (10) days after receipt of Landlord's contractor's
repair estimates.
(i) Waiver of Termination Right. Landlord and Tenant agree that the foregoing
provisions of this Paragraph 20 are to govern their respective rights and
obligations in the event of any damage or destruction and supersede and are in
lieu of the provisions of any applicable law, statute, ordinance, rule,
regulation, order or ruling now or hereafter in force which provide remedies for
damage or destruction of leased premises (including, without limitation, to the
extent the Premises are located in California, the provisions of California
Civil Code Section 1932, Subsection 2, and Section 1933, Subsection 4 and any
successor statute or laws of a similar nature).
(j) Termination. Upon any termination of this Lease under any of the provisions
of this Paragraph 20, the parties will be released without further obligation to
the other from the date possession of the Premises is surrendered to Landlord
except for items which have accrued and are unpaid as of the date of termination
and matters which are to survive any termination of this Lease as provided in
this Lease.
21. EMINENT DOMAIN.
(a) Substantial Taking. If the whole of the Premises, or such part thereof as
shall substantially interfere with Tenant's use and occupancy of the Premises,
as contemplated by this Lease, is taken for any public or quasi-public purpose
by any lawful power or authority by exercise of the right of appropriation,
condemnation or eminent domain, or sold to prevent such taking, either party
will have the right to terminate this Lease effective as of the date possession
is required to be surrendered to such authority. Further, if more than
twenty-five percent (25%) of the parking facilities servicing the Building are
taken for public or quasi-public purposes by any lawful power or authority by
exercise of the right of appropriation, condemnation or eminent domain, and
Landlord does not provide reasonable substitute parking within ninety (90) days
of such appropriation, Tenant shall have the right to terminate this Lease
effective as of the expiration of such ninety (90) day period.
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(b) Partial Taking; Abatement of Rent. In the event of a taking of a portion of
the Premises which does not substantially interfere with Tenant's use and
occupancy of the Premises, then, neither party will have the right to terminate
this Lease and Landlord will thereafter proceed to make a functional unit of the
remaining portion of the Premises (but only to the extent Landlord receives
proceeds therefor from the condemning authority), and rent will be abated with
respect to the part of the Premises which Tenant is deprived of on account of
such taking. Notwithstanding the immediately preceding sentence to the contrary,
if any part of the Building or the Development is taken (whether or not such
taking substantially interferes with Tenant's use of the Premises), Landlord may
terminate this Lease upon thirty (30) days prior written notice to Tenant if
Landlord also terminates the leases of the other tenants of the Building which
are leasing comparably sized space for comparable lease terms.
(c) Condemnation Award. In connection with any taking of the Premises or the
Building, Landlord will be entitled to receive the entire amount of any award
which may be made or given in such taking or condemnation, without deduction or
apportionment for any estate or interest of Tenant, it being expressly
understood and agreed by Tenant that no portion of any such award will be
allowed or paid to Tenant for any so-called bonus or excess value of this Lease,
and such bonus or excess value will be the sole property of Landlord. Tenant
agrees not to assert any claim against Landlord or the taking authority for any
compensation because of such taking (including any claim for bonus or excess
value of this Lease); provided, however, if any portion of the Premises is
taken, Tenant will have the right to recover from the condemning authority (but
not from Landlord) any compensation as may be separately awarded or recoverable
by Tenant for the taking of Tenant's furniture, fixtures, equipment and other
personal property within the Premises, for Tenant's relocation expenses, and for
any loss of goodwill or other damage to Tenant's business by reason of such
taking.
(d) Temporary Taking. In the event of taking of the Premises or any part thereof
for temporary use, (i) this Lease will remain unaffected thereby and rent will
abate for the duration of the taking in proportion to the extent Tenant's use of
the Premises is interfered with, and (ii) Landlord will be entitled to receive
such portion or portions of any award made for such use provided that if such
taking remains in force at the expiration or earlier termination of this Lease,
Tenant will then pay to Landlord a sum equal to the reasonable cost of
performing Tenant's obligations under Paragraph 11 with respect to surrender of
the Premises and upon such payment Tenant will be excused from such obligations.
For purpose of this subparagraph 21(d), a temporary taking shall be defined as a
taking for a period of ninety (90) days or less.
22. DEFAULTS AND REMEDIES.
(a) Defaults. The occurrence of any one or more of the following events will be
deemed a default by Tenant:
(i) The failure by Tenant to make any payment of rent or additional rent or any
other payment required to be made by Tenant hereunder, as and when due, where
such failure continues for a period of ten (10) days after written notice
thereof from Landlord to Tenant; provided, however, that any such notice will be
in lieu of, and not in addition to, any notice required under applicable law
(including, without limitation, to the extent the Premises are located in
California, the provisions of California Code of Civil Procedure Section 1161
regarding unlawful detainer actions or any successor statute or law of a similar
nature).
(ii) The failure by Tenant to observe or perform any of the express or implied
covenants or provisions of this Lease to be observed or performed by Tenant,
other than as specified in subparagraph 22(a)(i) or above, where such failure
continues (where no other period of time is expressly provided) for a period of
thirty (30) days after written notice thereof from Landlord to Tenant. The
provisions of any such notice will be in lieu of, and not in addition to, any
notice required under applicable law (including, without limitation, to the
extent the Premises are located in California, California Code of Civil
Procedure Section 1161 regarding unlawful detainer actions and any successor
statute or similar law). If the nature of Tenant's default is such that more
than ten (10) days are reasonably required for its cure, then Tenant will not be
deemed to be in default if Tenant, with Landlord's concurrence, commences such
cure within such ten (10) day period and thereafter diligently prosecutes such
cure to completion.
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(iii) (A) The making by Tenant of any general assignment for the benefit of
creditors; (B) the filing by or against Tenant of a petition to have Tenant
adjudged a bankrupt or a petition for reorganization or arrangement under any
law relating to bankruptcy (unless, in the case of a petition filed against
Tenant, the same is dismissed within sixty (60) days); (C) the appointment of a
trustee or receiver to take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (D) the attachment,
execution or other judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this Lease where such seizure
is not discharged within thirty (30) days.
(b) Landlord's Remedies; Termination. In the event of any default by Tenant, in
addition to any other remedies available to Landlord at law or in equity under
applicable law (including, without limitation, to the extent the Premises are
located in California, the remedies of Civil Code Section 1951.4 and any
successor statute or similar law), Landlord will have the immediate right and
option to terminate this Lease and all rights of Tenant hereunder. If Landlord
elects to terminate this Lease then, to the extent permitted under applicable
law, Landlord may recover from Tenant (i) The worth at the time of award of any
unpaid rent which had been earned at the time of such termination; plus (ii) the
worth at the time of award of the amount by which the unpaid rent which would
have been earned after termination until the time of award exceeds the amount of
such rent loss that Tenant proves could have been reasonably avoided; plus (iii)
the worth at the time of award of the amount by which the unpaid rent for the
balance of the Term after the time of award exceeds the amount of such rent loss
that Tenant proves could be reasonably avoided; plus (iv) any other amount
necessary to compensate Landlord for all the detriment proximately caused by
Tenant's failure to perform its obligations under this Lease or which, in the
ordinary course of things, results therefrom including, but not limited to:
attorneys' fees and costs; brokers' commissions; the costs of refurbishment,
alterations, renovation and repair of the Premises, and removal (including the
repair of any damage caused by such removal) and storage (or disposal) of
Tenant's personal property, equipment, fixtures, Alterations, the Tenant
Improvements and any other items which Tenant is required under this Lease to
remove but does not remove, as well as the unamortized value of any reduced rent
(amortized over the Original Term, with interest thereon at the Interest Rate),
reduced rent, free parking, reduced rate parking or other costs or economic
concessions provided, paid, granted or incurred by Landlord pursuant to this
Lease. The unamortized value of such concessions shall be determined by taking
the total value of such concessions and multiplying such value by a fraction,
the numerator of which is the number of months of the Lease Term not yet elapsed
as of the date on which the Lease is terminated, and the denominator of which is
the total number of months of the Lease Term. As used in subparagraphs 22(b)(i)
and 22(b)(ii) above, the "worth at the time of award" is computed by allowing
interest at the Interest Rate. As used in subparagraph 22(b)(iii) above, the
"worth at the time of award" is computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%).
(c) Landlord's Remedies; Re-Entry Rights. In the event of any default by Tenant,
in addition to any other remedies available to Landlord under this Lease, at law
or in equity, Landlord will also have the right, with or without terminating
this Lease, to re-enter the Premises and remove all persons and property from
the Premises; such property may be removed and stored in a public warehouse or
elsewhere and/or disposed of at the sole cost and expense of and for the account
of Tenant in accordance with the provisions of subparagraph 13(h) of this Lease
or any other procedures permitted by applicable law. No re-entry or taking
possession of the Premises by Landlord pursuant to this subparagraph 22(c) will
be construed as an election to terminate this Lease unless a written notice of
such intention is given to Tenant or unless the termination thereof is decreed
by a court of competent jurisdiction.
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(d) Landlord's Remedies; Re-Letting. In the event of the vacation or abandonment
of the Premises by Tenant or in the event that Landlord elects to re-enter the
Premises or takes possession of the Premises pursuant to legal proceeding or
pursuant to any notice provided by law, then if Landlord does not elect to
terminate this Lease, Landlord may from time to time, without terminating this
Lease, either recover all rent as it becomes due or relet the Premises or any
part thereof on terms and conditions as Landlord in its sole and absolute
discretion may deem advisable with the right to make alterations and repairs to
the Premises in connection with such reletting. If Landlord elects to relet the
Premises, then rents received by Landlord from such reletting will be applied:
first, to the payment of any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to the payment of any cost of such reletting; third,
to the payment of the cost of any alterations and repairs to the Premises
incurred in connection with such reletting; fourth, to the payment of rent due
and unpaid hereunder and the residue, if any, will be held by Landlord and
applied to payment of future rent as the same may become due and payable
hereunder. Should that portion of such rents received from such reletting during
any month, which is applied to the payment of rent hereunder, be less than the
rent payable during that month by Tenant hereunder, then Tenant agrees to pay
such deficiency to Landlord immediately upon demand therefor by Landlord. Such
deficiency will be calculated and paid monthly.
(e) Landlord's Remedies; Performance for Tenant. All covenants and agreements to
be performed by Tenant under any of the terms of this Lease are to be performed
by Tenant at Tenant's sole cost and expense and without any abatement of rent.
If Tenant fails to pay any sum of money owed to any party other than Landlord,
for which it is liable under this Lease, or if Tenant fails to perform any other
act on its part to be performed hereunder, and such failure continues for ten
(10) days after notice thereof by Landlord, Landlord may, without waiving or
releasing Tenant from its obligations, but shall not be obligated to, make any
such payment or perform any such other act to be made or performed by Tenant.
Tenant agrees to reimburse Landlord upon demand for all sums so paid by Landlord
and all necessary incidental costs, together with interest thereon at the
Interest Rate, from the date of such payment by Landlord until reimbursed by
Tenant. This remedy shall be in addition to any other right or remedy of
Landlord set forth in this Paragraph 22.
(f) Late Payment. If Tenant fails to pay any installment of rent within seven
(7) days of when due or if Tenant fails to make any other payment for which
Tenant is obligated under this Lease within seven (7) days of when due, such
late amount will accrue interest at the Interest Rate and Tenant agrees to pay
Landlord as additional rent such interest on such amount from the date such
amount becomes due until such amount is paid. In addition, Tenant agrees to pay
to Landlord concurrently with such late payment amount, as additional rent, a
late charge equal to three percent (3%) of the amount due to compensate Landlord
for the extra costs Landlord will incur as a result of such late payment.
Notwithstanding the foregoing, Landlord hereby agrees to waive the late charge
applicable to the first instance in which Tenant fails to timely pay any
installment of rent or other payment for which Tenant is obligated under this
Lease during any twelve (12) month period. The parties agree that (i) it would
be impractical and extremely difficult to fix the actual damage Landlord will
suffer in the event of Tenant's late payment, (ii) such interest and late charge
represents a fair and reasonable estimate of the detriment that Landlord will
suffer by reason of late payment by Tenant, and (iii) the payment of interest
and late charges are distinct and separate in that the payment of interest is to
compensate Landlord for the use of Landlord's money by Tenant, while the payment
of late charges is to compensate Landlord for Landlord's processing,
administrative and other costs incurred by Landlord as a result of Tenant's
delinquent payments. Acceptance of any such interest and late charge will not
constitute a waiver of the Tenant's default with respect to the overdue amount,
or prevent Landlord from exercising any of the other rights and remedies
available to Landlord. If Tenant incurs a late charge more than three (3) times
in any period of twelve (12) months during the Lease Term, then, notwithstanding
that Tenant cures the late payments for which such late charges are imposed,
Landlord will have the right to require Tenant thereafter to pay all
installments of Monthly Base Rent quarterly in advance throughout the remainder
of the Lease Term.
(g) Landlord's Security Interest. Tenant hereby grants to Landlord a lien and
security interest on all property of Tenant now or hereafter placed in or upon
the Premises including, but not limited to, all fixtures, machinery, equipment,
furnishings and other articles of personal property, and all proceeds of the
sale or other disposition of such property (collectively, the "Collateral") to
secure the payment of all rent to be paid by Tenant pursuant to this Lease. Such
lien and security interest shall be in addition to any landlord's lien provided
by law. This Lease shall constitute a security agreement under the Commercial
Code of the State so that Landlord shall have and may enforce a security
interest in the Collateral. Tenant agrees to execute as debtor and deliver such
financing statement or statements and any further documents as Landlord may now
or hereafter reasonably request to protect such security interest pursuant to
such code. Landlord may also at any time file a copy of this Lease as a
financing statement. Landlord, as secured party, shall be entitled to all rights
and remedies afforded as secured party under such code, which rights and
remedies shall be in addition to Landlord's liens and rights provided by law or
by the other terms and provisions of this Lease.
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(h) Rights and Remedies Cumulative. All rights, options and remedies of Landlord
contained in this Lease will be construed and held to be cumulative, and no one
of them will be exclusive of the other, and Landlord shall have the right to
pursue any one or all of such remedies or any other remedy or relief which may
be provided by law or in equity, whether or not stated in this Lease. Nothing in
this Paragraph 22 will be deemed to limit or otherwise affect Tenant's
indemnification of Landlord pursuant to any provision of this Lease.
23. LANDLORD'S DEFAULT. Landlord will not be in default in the performance of
any obligation required to be performed by Landlord under this Lease unless
Landlord fails to perform such obligation within thirty (30) days after the
receipt of written notice from Tenant specifying in detail Landlord's failure to
perform; provided however, that if the nature of Landlord's obligation is such
that more than thirty (30) days are required for performance, then Landlord will
not be deemed in default if it commences such performance within such thirty
(30) day period and thereafter diligently pursues the same to completion. Upon
any default by Landlord, Tenant may exercise any of its rights provided at law
or in equity, subject to the limitations on liability set forth in Paragraph 35
of this Lease.
24. ASSIGNMENT AND SUBLETTING.
(a) Restriction on Transfer. Except as expressly provided in this Paragraph 24,
Tenant will not, either voluntarily or by operation of law, assign or encumber
this Lease or any interest herein or sublet the Premises or any part thereof, or
permit the use or occupancy of the Premises by any party other than Tenant (any
such assignment, encumbrance, sublease or the like will sometimes be referred to
as a "Transfer"), without the prior written consent of Landlord, which consent
Landlord will not unreasonably withhold.
(b) Corporate and Partnership Transfers. For purposes of this Paragraph 24, if
Tenant is a corporation, partnership or other entity, any transfer, assignment,
encumbrance or hypothecation of twenty-five percent (25%) or more (individually
or in the aggregate) of any stock or other ownership interest in such entity,
and/or any transfer, assignment, hypothecation or encumbrance of any controlling
ownership or voting interest in such entity, will be deemed a Transfer and will
be subject to all of the restrictions and provisions contained in this Paragraph
24. Notwithstanding the foregoing, the immediately preceding sentence will not
apply to any transfers of stock of Tenant if Tenant is a publicly-held
corporation and such stock is transferred publicly over a recognized security
exchange or over-the-counter market.
(c) Permitted Controlled Transfers. Notwithstanding the provisions of this
Paragraph 24 to the contrary, Tenant may assign this Lease or sublet the
Premises or any portion thereof ("Permitted Transfer"), without Landlord's
consent and without extending any sublease termination option to Landlord, to
any parent, subsidiary or affiliate corporation which controls, is controlled by
or is under common control with Tenant, or to any corporation resulting from a
merger or consolidation with Tenant, or to any person or entity which acquires
all the assets of Tenant's business as a going concern, provided that: (i) at
least twenty (20) days prior to such assignment or sublease, Tenant delivers to
Landlord the financial statements and other financial and background information
of the assignee or sublessee described in subparagraph 24(d) below; (ii) if an
assignment, the assignee assumes, in full, the obligations of Tenant under this
Lease (or if a sublease, the sublessee of a portion of the Premises or Term
assumes, in full, the obligations of Tenant with respect to such portion); (iii)
the financial net worth of the assignee or sublessee as of the time of the
proposed assignment or sublease equals or exceeds that of Tenant as of the date
of execution of this Lease; (iv) Tenant remains fully liable under this Lease;
and (v) the use of the Premises under Paragraph 8 remains unchanged.
(d) Transfer Notice. If Tenant desires to effect a Transfer, then at least
thirty (30) days prior to the date when Tenant desires the Transfer to be
effective (the "Transfer Date"), Tenant agrees to give Landlord a notice (the
"Transfer Notice"), stating the name, address and business of the proposed
assignee, sublessee or other transferee (sometimes referred to hereinafter as
"Transferee"), reasonable information (including references) concerning the
character, ownership, and financial condition of the proposed Transferee, the
Transfer Date, any ownership or commercial relationship between Tenant and the
proposed Transferee, and the consideration and all other material terms and
conditions of the proposed Transfer, all in such detail as Landlord may
reasonably require. If Landlord reasonably requests additional detail, the
Transfer Notice will not be deemed to have been received until Landlord receives
such additional detail, and Landlord may withhold consent to any Transfer until
such information is provided to it.
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(e) Landlord's Options. Within fifteen (15) days of Landlord's receipt of any
Transfer Notice, and any additional information requested by Landlord concerning
the proposed Transferee's financial responsibility, Landlord will elect to do
one of the following (i) consent to the proposed Transfer; (ii) refuse such
consent, which refusal shall be on reasonable grounds including, without
limitation, those set forth in subparagraph 24(f) below; or (iii) terminate this
Lease in the event of a proposed assignment of this Lease or a subletting as to
the entire Premises for substantially all of the remaining Term, and to
recapture the Premises for reletting by Landlord.
(f) Reasonable Disapproval. Landlord and Tenant hereby acknowledge that
Landlord's disapproval of any proposed Transfer pursuant to subparagraph 24(e)
will be deemed reasonably withheld if based upon any reasonable factor,
including, without limitation, any or all of the following factors: (i) if the
Building is less than seventy percent (70%) occupied, if the net effective rent
payable by the Transferee (adjusted on a rentable square foot basis) is less
than the net effective rent then being quoted by Landlord for new leases in the
Building for comparable size space for a comparable period of time; (ii) the
proposed Transferee is a governmental entity; (iii) the portion of the Premises
to be sublet or assigned is irregular in shape with inadequate means of ingress
and egress; (iv) the use of the Premises by the Transferee (A) is not permitted
by the use provisions in Paragraph 8 hereof, (B) violates any exclusive use
granted by Landlord to another tenant in the Building, or (C) otherwise poses a
risk of increased liability to Landlord; (v) the Transfer would likely result in
a significant and inappropriate increase in the use of the parking areas or
Development Common Areas by the Transferee's employees or visitors, and/or
significantly increase the demand upon utilities and services to be provided by
Landlord to the Premises; (vi) the Transferee does not have the financial
capability to fulfill the obligations imposed by the Transfer and this Lease;
(vii) the Transferee is not in Landlord's reasonable opinion consistent with
Landlord's desired tenant mix; or (viii) the Transferee poses a business or
other economic risk which Landlord deems unacceptable.
(g) Additional Conditions. A condition to Landlord's consent to any Transfer of
this Lease will be the delivery to Landlord of a true copy of the fully executed
instrument of assignment, sublease, transfer or hypothecation, and, in the case
of an assignment, the delivery to Landlord of an agreement executed by the
Transferee in form and substance reasonably satisfactory to Landlord, whereby
the Transferee assumes and agrees to be bound by all of the terms and provisions
of this Lease and to perform all of the obligations of Tenant hereunder. As a
condition for granting its consent to any assignment or sublease, Landlord may
require that the assignee or sublessee remit directly to Landlord on a monthly
basis, all monies due to Tenant by said assignee or sublessee. As a condition to
Landlord's consent to any sublease, such sublease must provide that it is
subject and subordinate to this Lease and to all mortgages; that Landlord may
enforce the provisions of the sublease, including collection of rent; that in
the event of termination of this Lease for any reason, including without
limitation a voluntary surrender by Tenant, or in the event of any reentry or
repossession of the Premises by Landlord, Landlord may, at its option, either
(i) terminate the sublease, or (ii) take over all of the right, title and
interest of Tenant, as sublessor, under such sublease, in which case such
sublessee will attorn to Landlord, but that nevertheless Landlord will not (1)
be liable for any previous act or omission of Tenant under such sublease, (2) be
subject to any defense or offset previously accrued in favor of the sublessee
against Tenant, or (3) be bound by any previous modification of any sublease
made without Landlord's written consent, or by any previous prepayment by
sublessee of more than one month's rent.
(h) Excess Rent. If Landlord consents to any assignment of this Lease, Tenant
agrees to pay to Landlord, as additional rent, fifty percent (50%) of all sums
and other consideration payable to and for the benefit of Tenant by the assignee
on account of the assignment, as and when such sums and other consideration are
due and payable by the assignee to or for the benefit of Tenant (or, if Landlord
so requires, and without any release of Tenant's liability for the same, Tenant
agrees to instruct the assignee to pay such sums and other consideration
directly to Landlord). If for any sublease, Tenant receives rent or other
consideration, either initially or over the term of the sublease, in excess of
the rent fairly allocable to the portion of the Premises which is subleased
based on square footage, Tenant agrees to pay to Landlord as additional rent
fifty percent (50%) of the excess of each such payment of rent or other
consideration received by Tenant promptly after its receipt. In calculating
excess rent or other consideration which may be payable to Landlord under this
paragraph, Tenant will be entitled to deduct commercially reasonable third party
brokerage commissions and attorneys' fees and other amounts reasonably and
actually expended by Tenant in connection with such assignment or subletting if
acceptable written evidence of such expenditures is provided to Landlord.
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(i) Termination Rights. If Tenant requests Landlord's consent to any assignment
of this Lease or a subletting of all the Premises for substantially all of the
remaining Term, Landlord will have the right, as provided in subparagraph 24(e),
to terminate this Lease effective as of the date Tenant proposes to assign this
Lease or sublet the entire Premises. Landlord will exercise such termination
right, if at all, by giving written notice to Tenant within thirty (30) days of
receipt by Landlord of the financial responsibility information required by this
Paragraph 24. Tenant understands and acknowledges that the option, as provided
in this Paragraph 24, to terminate this Lease in the event Tenant proposes to
sublet the entire Premises for substantially all of the remaining Term or
proposes to assign this Lease rather than approve such subletting or assignment
is a material inducement for Landlord's agreeing to lease the Premises to Tenant
upon the terms and conditions herein set forth.
(j) No Release. No Transfer will release Tenant of Tenant's obligations under
this Lease or alter the primary liability of Tenant to pay the rent and to
perform all other obligations to be performed by Tenant hereunder. Landlord may
require that any Transferee remit directly to Landlord on a monthly basis, all
monies due Tenant by said Transferee. However, the acceptance of rent by
Landlord from any other person will not be deemed to be a waiver by Landlord of
any provision hereof. Consent by Landlord to one Transfer will not be deemed
consent to any subsequent Transfer. In the event of default by any Transferee of
Tenant or any successor of Tenant in the performance of any of the terms hereof,
Landlord may proceed directly against Tenant without the necessity of exhausting
remedies against such Transferee or successor. Landlord may consent to
subsequent assignments of this Lease or sublettings or amendments or
modifications to this Lease with assignees of Tenant, without notifying Tenant,
or any successor of Tenant, and without obtaining its or their consent thereto
and any such actions will not relieve Tenant of liability under this Lease.
(k) Administrative and Attorneys' Fees. If Tenant effects a Transfer or requests
the consent of Landlord to any Transfer (whether or not such Transfer is
consummated), then, upon demand, Tenant agrees to pay Landlord a non-refundable
administrative fee of Two Hundred Fifty Dollars ($250.00), plus any reasonable
attorneys' and paralegal fees incurred by Landlord in connection with such
Transfer or request for consent (whether attributable to Landlord's in-house
attorneys or paralegals or otherwise) not to exceed One Hundred Dollars
($100.00) for each one thousand (1,000) rentable square feet of area contained
within the Premises or portion thereof to be assigned or sublet. Acceptance of
the Two Hundred Fifty Dollar ($250.00) administrative fee and/or reimbursement
of Landlord's attorneys' and paralegal fees will in no event obligate Landlord
to consent to any proposed Transfer.
25. SUBORDINATION. At the election of Landlord or any mortgagee or beneficiary
with a deed of trust encumbering the Building and/or the Development, or any
lessor of a ground or underlying lease with respect to the Building, this Lease
will be subject and subordinate at all times to: (i) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Building; and (ii) the lien of any mortgage or deed of trust which may now exist
or hereafter be executed for which the Building, the Development or any leases
thereof, or Landlord's interest and estate in any of said items, is specified as
security; provided, however, as a condition to the subordination of this Lease
to any ground lease, mortgage or deed of trust, the applicable ground lessor or
mortgagee shall agree that Tenant's right to possession of the Premises will not
be disturbed as long as Tenant is not in default under this Lease.
Notwithstanding the foregoing, Landlord reserves the right to subordinate any
such ground leases or underlying leases or any such liens to this Lease. If any
such ground lease or underlying lease terminates for any reason or any such
mortgage or deed of trust is foreclosed or a conveyance in lieu of foreclosure
is made for any reason, at the election of Landlord's successor in interest,
Tenant agrees to attorn to and become the tenant of such successor in which
event Tenant's right to possession of the Premises will not be disturbed as long
as Tenant is not in default under this Lease. Tenant hereby waives its rights
under any law which gives or purports to give Tenant any right to terminate or
otherwise adversely affect this Lease and the obligations of Tenant hereunder in
the event of any such foreclosure proceeding or sale. Tenant covenants and
agrees to execute and deliver, upon demand by Landlord and in the form
reasonably required by Landlord, any additional documents evidencing the
priority or subordination of this Lease and Tenant's attornment agreement with
respect to any such ground lease or underlying leases or the lien of any such
mortgage or deed of trust. If Tenant fails to sign and return any such documents
within ten (10) days of receipt, Tenant will be in default hereunder.
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26. ESTOPPEL CERTIFICATE.
(a) Tenant's Obligations. Within ten (10) days following any written request
which Landlord may make from time to time, Tenant agrees to execute and deliver
to Landlord a statement, in a form substantially similar to the form of Exhibit
"G" attached hereto or as may reasonably be required by Landlord's lender,
certifying: (i) the date of commencement of this Lease; (ii) the fact that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect, and stating the date
and nature of such modifications); (iii) the date to which the rent and other
sums payable under this Lease have been paid; (iv) that there are no current
defaults under this Lease by either Landlord or Tenant except as specified in
Tenant's statement; and (v) such other matters reasonably requested by Landlord.
Landlord and Tenant intend that any statement delivered pursuant to this
Paragraph 26 may be relied upon by any mortgagee, beneficiary, purchaser or
prospective purchaser of the Building or any interest therein.
(b) Tenant's Failure to Deliver. Tenant's failure to deliver such statement
within such time will be conclusive upon Tenant (i) that this Lease is in full
force and effect, without modification except as may be represented by Landlord,
(ii) that there are no uncured defaults in Landlord's performance, and (iii)
that not more than one (1) month's rent has been paid in advance. Without
limiting the foregoing, if Tenant fails to deliver any such statement within
such ten (10) day period, Landlord may deliver to Tenant an additional request
for such statement and Tenant's failure to deliver such statement to Landlord
within ten (10) days after delivery of such additional request will constitute a
default under this Lease. Tenant agrees to indemnify and protect Landlord from
and against any and all claims, damages, losses, liabilities and expenses
(including attorneys' fees and costs) attributable to any failure by Tenant to
timely deliver any such estoppel certificate to Landlord as required by this
Paragraph 26.
27. INTENTIONALLY OMITTED.
28. RULES AND REGULATIONS. Tenant agrees to faithfully observe and comply with
the "Rules and Regulations", a copy of which is attached hereto and incorporated
herein by this reference as Exhibit "H", and all reasonable and
nondiscriminatory modifications thereof and additions thereto from time to time
put into effect by Landlord. Landlord agrees to use reasonable efforts (but
shall not be obligated to institute or threaten to institute any litigation) to
cause other tenants of the Building and the Development to comply with the Rules
and Regulations; provided, however, that Landlord will not be responsible to
Tenant for the violation or non-performance by any other tenant or occupant of
the Building or the Development of any of the Rules and Regulations.
29. MODIFICATION AND CURE RIGHTS OF LANDLORD'S MORTGAGEES AND LESSORS.
(a) Modifications. If, in connection with Landlord's obtaining or entering into
any financing or ground lease for any portion of the Building or the
Development, the lender or ground lessor requests modifications to this Lease,
Tenant, within ten (10) days after request therefor, agrees to execute an
amendment to this Lease incorporating such modifications, provided such
modifications are reasonable and do not increase the obligations of Tenant under
this Lease or adversely affect the leasehold estate created by this Lease and
are otherwise reasonably acceptable to Tenant.
(b) Cure Rights. In the event of any default on the part of Landlord, Tenant
will give notice by registered or certified mail to any beneficiary of a deed of
trust or mortgage covering the Premises or ground lessor of Landlord whose
address has been furnished to Tenant, and Tenant agrees to offer such
beneficiary, mortgagee or ground lessor a reasonable opportunity to cure the
default (including with respect to any such beneficiary or mortgagee, time to
obtain possession of the Premises, subject to this Lease and Tenant's rights
hereunder, by power of sale or a judicial foreclosure, if such should prove
necessary to effect a cure).
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30. DEFINITION OF LANDLORD. The term "Landlord" as used in this Lease, so far as
covenants or obligations on the part of Landlord are concerned, means and
includes only the owner or owners, at the time in question, of the fee title of
the Premises or the lessees under any ground lease, if any. In the event of any
transfer, assignment or other conveyance or transfers of any such title (other
than a transfer for security purposes only), Landlord herein named (and in case
of any subsequent transfers or conveyances, the then grantor) will be
automatically relieved from and after the date of such transfer, assignment or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed, so long as the transferee assumes in writing all such covenants and
obligations of Landlord arising after the date of such transfer. Landlord and
Landlord's transferees and assignees have the absolute right to transfer all or
any portion of their respective title and interest in the Development, the
Building, the Premises and/or this Lease without the consent of Tenant, and such
transfer or subsequent transfer will not be deemed a violation on Landlord's
part of any of the terms and conditions of this Lease.
31. WAIVER. The waiver by either party of any breach of any term, covenant or
condition herein contained will not be deemed to be a waiver of any subsequent
breach of the same or any other term, covenant or condition herein contained,
nor will any custom or practice which may develop between the parties in the
administration of the terms hereof be deemed a waiver of or in any way affect
the right of either party to insist upon performance in strict accordance with
said terms. The subsequent acceptance of rent or any other payment hereunder by
Landlord will not be deemed to be a waiver of any preceding breach by Tenant of
any term, covenant or condition of this Lease, other than the failure of Tenant
to pay the particular rent so accepted, regardless of Landlord's knowledge of
such preceding breach at the time of acceptance of such rent. No acceptance by
Landlord of a lesser sum than the basic rent and additional rent or other sum
then due will be deemed to be other than on account of the earliest installment
of such rent or other amount due, nor will any endorsement or statement on any
check or any letter accompanying any check be deemed an accord and satisfaction,
and Landlord may accept such check or payment without prejudice to Landlord's
right to recover the balance of such installment or other amount or pursue any
other remedy provided in this Lease. The consent or approval of Landlord to or
of any act by Tenant requiring Landlord's consent or approval will not be deemed
to waive or render unnecessary Landlord's consent or approval to or of any
subsequent similar acts by Tenant.
32. PARKING.
(a) Grant of Parking Rights. So long as this Lease is in effect and provided
Tenant is not in default hereunder, Landlord grants to Tenant and Tenant's
Authorized Users (as defined below) a license to use the number and type of
parking permits designated in subparagraph 1(s) subject to the terms and
conditions of this Paragraph 32 and the Rules and Regulations regarding parking
contained in Exhibit "H" attached hereto. Tenant agrees to submit to Landlord
or, at Landlord's election, directly to Landlord's parking operator with a copy
to Landlord, written notice in a form reasonably specified by Landlord
containing the names, home and office addresses and telephone numbers of those
persons who are authorized by Tenant to use Tenant's parking permits on a
monthly basis ("Tenant's Authorized Users") and shall use its best efforts to
identify each vehicle of Tenant's Authorized Users by make, model and license
number. Tenant agrees to deliver such notice prior to the beginning of the Term
of this Lease and to periodically update such notice as well as upon specific
request by Landlord or Landlord's parking operator to reflect changes to
Tenant's Authorized Users or their vehicles.
(b) Visitor Parking. So long as this Lease is in effect, Tenant's visitors and
guests will be entitled to use those specific parking areas which are designated
for short term visitor parking and which are located within the surface parking
area(s), if any, and/or within the parking structure(s) which serve the
Building. During the Original Term of this Lease, visitor parking will be made
available at no charge to Tenant's visitors and guests. Tenant, at its sole cost
and expense, may elect to validate such parking for its visitors and guests. All
such visitor parking will be on a non-exclusive, in common basis with all other
visitors and guests of the Development.
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<PAGE> 47
(c) Use of Parking Permits. Tenant will not use or allow any of Tenant's
Authorized Users to use any parking permits which have been specifically
assigned by Landlord to other tenants or occupants or for other uses such as
visitor parking or which have been designated by any governmental entity as
being restricted to certain uses. Tenant will not be entitled to increase or
reduce its parking privileges applicable to the Premises during the Term of the
Lease except as follows: If at any time Tenant desires to increase or reduce the
number of parking permits allocated to it under the terms of this Lease, Tenant
must notify Landlord in writing of such desire and Landlord will have the right,
in its sole and absolute discretion, to either (a) approve such requested
increase in the number of parking permits allocated to Tenant (with an
appropriate increase to the additional rent payable by Tenant for such
additional permits based on the then prevailing parking rates), (b) approve such
requested decrease in the number of parking permits allocated to Tenant (with an
appropriate reduction in the additional rent payable by Tenant for such
eliminated parking permits based on the then prevailing parking rates), or (c)
disapprove such requested increase or decrease in the number of parking permits
allocated to Tenant. Promptly following receipt of Tenant's written request,
Landlord will provide Tenant with written notice of its decision including a
statement of any adjustments to the additional rent payable by Tenant for
parking under the Lease, if applicable.
(d) General Provisions. Except as otherwise expressly set forth in subparagraph
1(s), Landlord reserves the right to set and increase monthly fees and/or daily
and hourly rates for parking privileges from time to time during the Term of the
Lease. Landlord may assign any unreserved and unassigned parking permits and/or
make all or any portion of such spaces reserved, if Landlord reasonably
determines that it is necessary for orderly and efficient parking or for any
other reasonable reason. Failure to pay the rent for any particular parking
permits or failure to comply with any terms and conditions of this Lease
applicable to parking may be treated by Landlord as a default under this Lease
and, in addition to all other remedies available to Landlord under the Lease, at
law or in equity, Landlord may elect to recapture such parking permits for the
balance of the Term of this Lease if Tenant does not cure such failure within
the applicable cure period set forth in Paragraph 22 of this Lease. In such
event, Tenant and Tenant's Authorized Users will be deemed visitors for purposes
of parking space use and will be entitled to use only those parking areas
specifically designated for visitor parking subject to all provisions of this
Lease applicable to such visitor parking use. Except in connection with an
assignment or sublease expressly permitted under the terms of this Lease,
Tenant's parking rights and privileges described herein are personal to Tenant
and may not be assigned or transferred, or otherwise conveyed, without
Landlord's prior written consent, which consent Landlord may withhold in its
sole and absolute discretion. In any event, under no circumstances may Tenant's
parking rights and privileges be transferred, assigned or otherwise conveyed
separate and apart from Tenant's interest in this Lease.
(e) Cooperation with Traffic Mitigation Measures. Tenant agrees to use its
reasonable, good faith efforts to cooperate in traffic mitigation programs which
may be undertaken by Landlord independently, or in cooperation with local
municipalities or governmental agencies or other property owners in the vicinity
of the Building. Such programs may include, but will not be limited to,
carpools, vanpools and other ridesharing programs, public and private transit,
flexible work hours, preferential assigned parking programs and programs to
coordinate tenants within the Development with existing or proposed traffic
mitigation programs.
(f) Parking Rules and Regulations. Tenant and Tenant's Authorized Users shall
comply with all rules and regulations regarding parking set forth in Exhibit "H"
attached hereto and Tenant agrees to cause its employees, subtenants, assignees,
contractors, suppliers, customers and invitees to comply with such rules and
regulations. Landlord reserves the right from time to time to modify and/or
adopt such other reasonable and non-discriminatory rules and regulations for the
parking facilities as it deems reasonably necessary for the operation of the
parking facilities.
33. FORCE MAJEURE. If either Landlord or Tenant is delayed, hindered in or
prevented from the performance of any act required under this Lease by reason of
strikes, lock-outs, labor troubles, inability to procure standard materials,
failure of power, restrictive governmental laws, regulations or orders or
governmental action or inaction (including failure, refusal or delay in issuing
permits, approvals and/or authorizations which is not the result of the action
or inaction of the party claiming such delay), riots, civil unrest or
insurrection, war, fire, earthquake, flood or other natural disaster, unusual
and unforeseeable delay which results from an interruption of any public
utilities (e.g., electricity, gas, water, telephone) or other unusual and
unforeseeable delay not within the reasonable control of the party delayed in
performing work or doing acts required under the provisions of this Lease, then
performance of such act will be excused for the period of the delay and the
period for the performance of any such act will be extended for a period
equivalent to the period of such delay. The provisions of this Paragraph 33 will
not operate to excuse Tenant from prompt payment of rent or any other payments
required under the provisions of this Lease.
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<PAGE> 48
34. SIGNS. Prior to the Commencement Date, Landlord will designate the location
on the Premises for one "eyebrow" Tenant identification sign and one additional
Tenant identification sign on the monument sign adjacent to the Building.
Tenant's rights to such signage shall be subject to all applicable governmental
approvals. Tenant agrees to have Landlord install and maintain Tenant's
identification sign in such designated location in accordance with this
Paragraph 34 at Tenant's sole cost and expense. Tenant has no right to install
Tenant identification signs in any other location in, on or about the Premises
or the Development and will not display or erect any other signs, displays or
other advertising materials that are visible from the exterior of the Building
or from within the Building in any interior or exterior common areas. The size,
design, color and other physical aspects of any and all permitted sign(s) will
be subject to (i) Landlord's written approval prior to installation, which
approval may be withheld in Landlord's discretion, (ii) any covenants,
conditions or restrictions governing the Premises, and (iii) any applicable
municipal or governmental permits and approvals. Tenant will be solely
responsible for all costs for installation, maintenance, repair and removal of
any Tenant identification sign(s). If Tenant fails to remove Tenant's sign(s)
upon termination of this Lease and repair any damage caused by such removal,
Landlord may do so at Tenant's sole cost and expense. Tenant agrees to reimburse
Landlord for all costs incurred by Landlord to effect any installation,
maintenance or removal on Tenant's account, which amount will be deemed
additional rent, and may include, without limitation, all sums disbursed,
incurred or deposited by Landlord including Landlord's costs, expenses and
actual attorneys' fees with interest thereon at the Interest Rate from the date
of Landlord's demand until paid by Tenant. At no cost to Tenant, Landlord shall
appropriately include the name of Tenant and its principal employees on the
Building directory. Any maintenance costs of Building Directory shall constitute
an Operating Expense. Any sign rights granted to Tenant under this Lease are
personal to Tenant and may not be assigned, transferred or otherwise conveyed to
any assignee or subtenant of Tenant without Landlord's prior written consent,
which consent Landlord may withhold in its sole and absolute discretion.
35. LIMITATION ON LIABILITY. Notwithstanding anything to the contrary contained
in this Lease, in consideration of the benefits accruing hereunder, Tenant on
behalf of itself and all successors and assigns of Tenant covenants and agrees
that, in the event of any actual or alleged failure, breach or default hereunder
by Landlord: (a) Tenant's recourse against Landlord for monetary damages will be
limited to Landlord's interest in the Building, subject to the prior rights of
any Mortgagee, including, Landlord's interest in the rents of the Building and
any insurance proceeds payable to Landlord; (b) except as may be necessary to
secure jurisdiction of the partnership or company, no partner or member of
Landlord shall be sued or named as a party in any suit or action and no service
of process shall be made against any partner or member of Landlord; (c) no
partner or member of Landlord shall be required to answer or otherwise plead to
any service of process; (d) no judgment will be taken against any partner or
member of Landlord and any judgment taken against any partner or member of
Landlord may be vacated and set aside at any time after the fact; (e) no writ of
execution will be levied against the assets of any partner or member of
Landlord; (f) the obligations under this Lease do not constitute personal
obligations of the individual members, partners, directors, officers or
shareholders of Landlord, and Tenant shall not seek recourse against the
individual members, partners, directors, officers or shareholders of Landlord or
any of their personal assets for satisfaction of any liability in respect to
this Lease; and (g) these covenants and agreements are enforceable both by
Landlord and also by any partner or member of Landlord.
36. FINANCIAL STATEMENTS. Prior to the execution of this Lease by Landlord and
at any time during the Term of this Lease upon ten (10) days prior written
notice from Landlord, Tenant agrees to provide Landlord with a current financial
statement for Tenant and any guarantors of Tenant and financial statements for
the two (2) years prior to the current financial statement year for Tenant and
any guarantors of Tenant. Such statements are to be prepared in accordance with
generally accepted accounting principles and, if such is the normal practice of
Tenant, audited by an independent certified public accountant.
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<PAGE> 49
37. QUIET ENJOYMENT. Landlord covenants and agrees with Tenant that upon
Tenant paying the rent required under this Lease and paying all other charges
and performing all of the covenants and provisions on Tenant's part to be
observed and performed under this Lease, Tenant may peaceably and quietly
have, hold and enjoy the Premises in accordance with this Lease without
hindrance or molestation by Landlord or its employees or agents.
38. MISCELLANEOUS.
(a) Conflict of Laws. This Lease shall be governed by and construed solely
pursuant to the laws of the State of California, without giving effect to choice
of law principles thereunder.
(b) Successors and Assigns. Except as otherwise provided in this Lease, all of
the covenants, conditions and provisions of this Lease shall be binding upon and
shall inure to the benefit of the parties hereto and their respective heirs,
personal representatives, successors and assigns.
(c) Professional Fees and Costs. If either Landlord or Tenant should bring suit
against the other with respect to this Lease, then all costs and expenses,
including without limitation, actual professional fees and costs such as
appraisers', accountants' and attorneys' fees and costs, incurred by the party
which prevails in such action, whether by final judgment or out of court
settlement, shall be paid by the other party, which obligation on the part of
the other party shall be deemed to have accrued on the date of the commencement
of such action and shall be enforceable whether or not the action is prosecuted
to judgment. As used herein, attorneys' fees and costs shall include, without
limitation, attorneys' fees, costs and expenses incurred in connection with any
(i) postjudgment motions; (ii) contempt proceedings; (iii) garnishment, levy,
and debtor and third party examination; (iv) discovery; and (v) bankruptcy
litigation.
(d) Terms and Headings. The words "Landlord" and "Tenant" as used herein shall
include the plural as well as the singular. Words used in any gender include
other genders. The paragraph headings of this Lease are not a part of this Lease
and shall have no effect upon the construction or interpretation of any part
hereof.
(e) Time. Time is of the essence with respect to the performance of every
provision of this Lease in which time of performance is a factor.
(f) Prior Agreement; Amendments. This Lease constitutes and is intended by the
parties to be a final, complete and exclusive statement of their entire
agreement with respect to the subject matter of this Lease. This Lease
supersedes any and all prior and contemporaneous agreements and understandings
of any kind relating to the subject matter of this Lease. There are no other
agreements, understandings, representations, warranties, or statements, either
oral or in written form, concerning the subject matter of this Lease. No
alteration, modification, amendment or interpretation of this Lease shall be
binding on the parties unless contained in a writing which is signed by both
parties.
(g) Separability. The provisions of this Lease shall be considered separable
such that if any provision or part of this Lease is ever held to be invalid,
void or illegal under any law or ruling, all remaining provisions of this Lease
shall remain in full force and effect to the maximum extent permitted by law.
(h) Recording. Neither Landlord nor Tenant shall record this Lease nor a short
form memorandum thereof without the consent of the other.
(i) Counterparts. This Lease may be executed in one or more counterparts, each
of which shall constitute an original and all of which shall be one and the same
agreement.
(j) Nondisclosure of Lease Terms. Tenant acknowledges and agrees that the terms
of this Lease are confidential and constitute proprietary information of
Landlord. Disclosure of the terms could adversely affect the ability of Landlord
to negotiate other leases and impair Landlord's relationship with other tenants.
Accordingly, Tenant agrees that it, and its partners, officers, directors,
employees, agents and attorneys, shall not intentionally and voluntarily
disclose the terms and conditions of this Lease to any newspaper or other
publication or any other tenant or apparent prospective tenant of the Building
or other portion of the Development, or real estate agent, either directly or
indirectly, without the prior written consent of Landlord, provided, however,
that Tenant may disclose the terms to prospective subtenants or assignees under
this Lease.
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<PAGE> 50
(k) Non-Discrimination. Tenant acknowledges and agrees that there shall be no
discrimination against, or segregation of, any person, group of persons, or
entity on the basis of race, color, creed, religion, age, sex, marital status,
national origin, or ancestry in the leasing, subleasing, transferring,
assignment, occupancy, tenure, use, or enjoyment of the Premises, or any portion
thereof.
39. EXECUTION OF LEASE.
(a) Joint and Several Obligations. If more than one person executes this Lease
as Tenant, their execution of this Lease will constitute their covenant and
agreement that (i) each of them is jointly and severally liable for the keeping,
observing and performing of all of the terms, covenants, conditions, provisions
and agreements of this Lease to be kept, observed and performed by Tenant, and
(ii) the term "Tenant" as used in this Lease means and includes each of them
jointly and severally. The act of or notice from, or notice or refund to, or the
signature of any one or more of them, with respect to the tenancy of this Lease,
including, but not limited to, any renewal, extension, expiration, termination
or modification of this Lease, will be binding upon each and all of the persons
executing this Lease as Tenant with the same force and effect as if each and all
of them had so acted or so given or received such notice or refund or so signed.
(b) Tenant as Corporation or Partnership. If Tenant executes this Lease as a
corporation or partnership, then Tenant and the persons executing this Lease on
behalf of Tenant represent and warrant that such entity is duly qualified and in
good standing to do business in California and that the individuals executing
this Lease on Tenant's behalf are duly authorized to execute and deliver this
Lease on its behalf, and in the case of a corporation, in accordance with a duly
adopted resolution of the board of directors of Tenant, a copy of which is to be
delivered to Landlord on execution hereof, if requested by Landlord, and in
accordance with the by-laws of Tenant, and, in the case of a partnership, in
accordance with the partnership agreement and the most current amendments
thereto, if any, copies of which are to be delivered to Landlord on execution
hereof, if requested by Landlord, and that this Lease is binding upon Tenant in
accordance with its terms.
(c) Examination of Lease. Submission of this instrument by Landlord to Tenant
for examination or signature by Tenant does not constitute a reservation of or
option for lease, and it is not effective as a lease or otherwise until
execution by and delivery to both Landlord and Tenant.
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed by
their duly authorized representatives as of the date first above written.
TENANT: LANDLORD:
THE RYLAND GROUP, INC., KILROY REALTY, L.P.,
a Maryland corporation a Delaware limited partnership
By: KILROY REALTY CORPORATION,
By: /s/ Robert J. Cunnion III a Maryland corporation
------------------------- Its: General Partner
Print Name: Robert J. Cunnion III
---------------------
Print Title: Senior Vice President By: /s/ Jeffrey C. Hawken
--------------------- --------------------------------
Print Name: Jeffrey C. Hawken
By: /s/ Frank J. Scardina ------------------------
-------------------------
Print Title: Chief Operating Officer
Print Name: Frank J. Scardina -----------------------
---------------------
Print Title: Senior Vice President
---------------------
By:/s/ C. Hugh Greenup
--------------------------------
Print Name: C. Hugh Greenup
------------------------
Print Title: Executive Vice-President
------------------------
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<PAGE> 51
ADDENDUM
This LEASE ADDENDUM ("Addendum") is attached to, incorporated into and amends
and supplements that certain Office Building Lease (the "Lease") entered into as
of the _____ day of December, 1999, by and between Kilroy Realty, L.P., a
Delaware limited partnership ("Landlord"), and The Ryland Group, Inc., a
Maryland corporation ("Tenant"). Landlord and Tenant agree that notwithstanding
anything contained in the Lease to the contrary, the Lease as modified by the
provisions set forth in this Addendum represents the full negotiated agreement
of the parties, and the provisions of this Addendum will be deemed to be a part
of the Lease and will supersede any contrary or conflicting provision in the
Lease and prevail and control for all purposes. This Addendum, together with the
Lease itself, and all other Exhibits, Riders and Addenda attached thereto
represents the fully integrated and binding agreement of the parties. All
references in the Lease and in this Addendum to "Lease" are to be construed to
mean the Lease as amended and supplemented by this Addendum. All terms used in
this Addendum, unless specifically defined in this Addendum, have the same
meaning as such terms have in the Lease.
1. BUILDING. Prior to the Commencement Date, Landlord shall cause the
Building to be constructed pursuant to the specifications attached as
Schedule "1" to the Work Letter Agreement attached hereto as Exhibit "C".
2. RIGHT OF FIRST OFFER TO LEASE ADDITIONAL SPACE.
(a) Exercise of Right. Provided Tenant is not in default under this Lease at the
time Tenant attempts to exercise Tenant's right of First Offer, Tenant shall
have a continuing right of first offer to lease ("Tenant's Right of First
Offer"), any space in the first (1st) or second (2nd) floors of the Building, to
the extent such space is available, or becomes available for lease to third
parties after the expiration of any existing lease for such space during the
Lease Term, including the expiration of all renewal or extension options, and
after the existing tenant or occupant vacates such space ("First Offer Space").
Tenant's Right of First Offer is subject and subordinate to the rights of all
other existing tenants of the Building with prior expansion or lease rights
relative to any such First Offer Space.
(b) Tenant Request. Promptly following written request ("Tenant Request") by
Tenant (which may not be given more than twice in any twelve (12) consecutive
month period), Landlord will give Tenant written notice of the availability of
any First Offer Space and the date the existing tenant or occupant, if any, is
expected to vacate such space ("Landlord's Availability Notice"). Within five
(5) days following delivery of Landlord's Availability Notice, Tenant will have
the right to request from Landlord in writing a written statement setting forth
the basic economic terms, including, but not limited to, Landlord's
determination of the Monthly Base Rent, tenant improvement allowance, if any,
and all other economic terms and conditions (collectively, the "Economic
Terms"), upon which Landlord is willing to lease the First Offer Space desired
by Tenant, either to Tenant or to a third party. Such Economic Terms will
represent Landlord's reasonable determination of the fair market rental rate for
such First Offer Space. Such fair market rental rate will mean the annual amount
per rentable square foot, projected during the relevant period, that a willing,
comparable, non-equity tenant (excluding sublease and assignment transactions)
would pay, and a willing, comparable landlord of a comparable Class "A" quality
office building located in the Calabasas area would accept, at arm's length
(what Landlord is accepting in current transactions for the Building may be
considered), for space of comparable size, quality and floor height as the
leased area at issue taking into account the age, quality and layout of the
existing improvements in the leased area at issue and taking into account items
that professional real estate brokers customarily consider, including, but not
limited to, rental rates, office space availability, tenant size, tenant
improvement allowances, operating expenses and allowance, parking charges, free
rent, reduced rent, free parking, reduced parking, and any other lease
concessions, if any, then being charged or granted by Landlord or the lessors of
such similar office buildings.
(c) Within ten (10) business days after receipt of the Economic Terms from
Landlord, Tenant must give Landlord written notice pursuant to which Tenant
shall elect to either: (i) lease such First Offer Space upon such Economic Terms
and the same non-Economic Terms as set forth in the Lease with respect to the
Premises; (ii) refuse to lease such First Offer Space, specifying that such
refusal is not based upon the Economic Terms, but upon Tenant's lack of need for
such First Offer Space, in which event Landlord may at any time thereafter lease
such First Offer Space to any party upon any terms Landlord deems appropriate;
or (iii) refuse to lease the First Offer Space, specifying that such refusal is
based upon the Economic Terms, in which event Tenant will also specify revised
Economic Terms upon which Tenant is willing to lease such First Offer Space
(provided that Tenant may not specify a different lease term for the First Offer
Space). Tenant's failure to timely choose either clause 2(c)(i), clause 2(c)(ii)
or clause 2(c)(iii) above will be deemed to be Tenant's choice of clause
2(c)(ii) above.
ADDENDUM
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<PAGE> 52
(d) If Tenant gives Landlord notice pursuant to clause 2(c)(iii) above, Landlord
may elect, within five (5) days following receipt of such notice from Tenant,
either to: (i) lease such First Offer Space to Tenant upon such revised Economic
Terms proposed by Tenant, and the same other non-Economic Terms as set forth in
this Lease; or (ii) lease the First Offer Space at any time thereafter to any
third party upon terms which are not substantially more favorable to said party
than the Economic Terms originally proposed by Landlord. Landlord's failure to
timely choose either clause 2(d)(i) or clause 2(d)(ii) above will be deemed to
be Landlord's choice of clause 2(d)(ii) above.
(e) If Tenant chooses (or is deemed to have chosen) clause 2(c)(ii) above, or if
Landlord chooses (or is deemed to have chosen) clause 2(d)(ii) above, Tenant's
Right to Lease any First Offer Space will be null and void until Tenant once
again validly delivers to Landlord a Tenant Request, in which event, the
procedures and sequences set forth above will be followed. If Tenant exercises
its Right of First Offer as provided herein, the parties will promptly
thereafter execute an amendment to the Lease to include the First Offer Space in
the Premises and to document the lease terms thereof.
3. BENEFICIAL OCCUPANCY. Notwithstanding the provisions of the Lease regarding
the payment of Monthly Base Rent, Landlord hereby agrees that Tenant shall have
the beneficial use of the Premises with a fifty percent (50%) abatement of
Monthly Base Rent for a period of one hundred twenty (120) days from the
Commencement Date (the "Beneficial Occupancy Period"); provided, however, in the
event that Tenant defaults under the terms of the Lease at any time during the
Term of the Lease, and such default remains uncured following the expiration of
any applicable curative periods under the Lease, all such abated Monthly Base
Rent for the Beneficial Occupancy Period shall become immediately due and
payable by Tenant to Landlord.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum as of the day
and year of execution of the Lease.
TENANT: LANDLORD:
THE RYLAND GROUP, INC., KILROY REALTY, L.P.,
a Maryland corporation a Delaware limited partnership
By: KILROY REALTY CORPORATION,
By: /s/ Robert J. Cunnion III a Maryland corporation
------------------------- Its: General Partner
Print Name: Robert J. Cunnion III
---------------------
Print Title: Senior Vice President By: /s/ Jeffrey C. Hawken
--------------------- --------------------------------
Print Name: Jeffrey C. Hawken
By: /s/ Frank J. Scardina ------------------------
-------------------------
Print Title: Chief Operating Officer
Print Name: Frank J. Scardina -----------------------
---------------------
Print Title: Senior Vice President
---------------------
By:/s/ C. Hugh Greenup
--------------------------------
Print Name: C. Hugh Greenup
------------------------
Print Title: Executive Vice-President
------------------------
ADDENDUM
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<PAGE> 53
EXHIBIT "A-1" SITE PLAN
[Legend to Calabasas Park Centre Parking here]
EXHIBIT "A-1"
<PAGE> 54
EXHIBIT "A-1" SITE PLAN
[Site Plan here]
EXHIBIT "A-1"
<PAGE> 55
EXHIBIT "A-II" OUTLINE OF FLOOR PLAN OF PREMISES
[Outline of Floor Plan of Premises here]
EXHIBIT "A-II"
<PAGE> 56
RENTABLE SQUARE FEET AND USABLE SQUARE FEET
1. The term "Rentable Square Feet" as used in the Lease will be deemed to
include: (a) with respect to the Premises, the usable area of the Premises
determined in accordance with the Method for Measuring Floor Area in Office
Buildings, ANSI Z65.1-1996 (the "BOMA Standard"), plus a pro rata portion of the
main lobby area on the ground floor and all elevator machine rooms, electrical
and telephone equipment rooms and mail delivery facilities and other areas used
by all tenants of the Building, if any, plus (i) for single tenancy floors, all
the area covered by the elevator lobbies, corridors, special stairways,
restrooms, mechanical rooms, electrical rooms and telephone closets on such
floors, or (ii) for multiple tenancy floors, a pro-rata portion of all of the
area covered by the elevator lobbies, corridors, special stairways, restrooms,
mechanical rooms, electrical rooms and telephone closets on such floor; and (b)
with respect to the Building, the total rentable area for all floors in the
Building computed in accordance with the provisions of subparagraph 1(a) above.
In calculating the "Rentable Square Feet" of the Premises or the Building, the
area contained within the exterior walls of the Building stairs, fire towers,
vertical ducts, elevator shafts, flues, vents, stacks and major pipe shafts will
be excluded.
2. The term "Usable Square Feet" as used in Exhibit "C" with respect to the
Premises will be deemed to include the usable area of the Premises as determined
in accordance with the BOMA Standard.
3. For purposes of establishing Tenant's Percentage, Tenant's Operating Expense
Allowance, and Monthly Base Rent as shown in Paragraph 1 of the Lease, the
number of Rentable Square Feet of the Premises is deemed to be as set forth in
subparagraph 1(g) of the Lease, and the number of Rentable Square Feet of the
Building is deemed to be as set forth in subparagraph 1(f) of the Lease. For
purposes of establishing the amount of the Tenant Improvement Allowance in
Exhibit "C", the number of Usable Square Feet of the Premises is deemed to be as
set forth in subparagraph 1(g). Following the completion of the "Tenant
Improvement Work" (as defined in the Work Letter Agreement), Landlord shall
cause Landlord's architect to determine the actual number of Rentable Square
Feet of the Premises, and the Building, and the actual number of Usable Square
Feet of the Premises respectively, based upon the criteria set forth in
Paragraph 1 and Paragraph 2 above, and thereupon Tenant's Percentage, Monthly
Base Rent and the Tenant Improvement Allowance will be adjusted accordingly.
EXHIBIT "B"
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<PAGE> 57
WORK LETTER AGREEMENT
[ALLOWANCE]
This WORK LETTER AGREEMENT ("Work Letter Agreement") is entered into as of
the___ day of ___________, 1999 by and between Kilroy Realty, L.P., a
Delaware limited partnership ("Landlord"), and The Ryland Group, Inc., a
Maryland corporation ("Tenant").
R E C I T A L S :
- - - - - - - -
A. Concurrently with the execution of this Work Letter Agreement, Landlord
and Tenant have entered into that certain Office Building Lease (the "Lease")
covering certain premises (the "Premises") more particularly described in
Exhibit "A" attached to the Lease. All terms not defined herein have the same
meaning as set forth in the Lease. To the extent applicable, the provisions of
the Lease are incorporated herein by this reference.
B. In order to induce Tenant to enter into the Lease, Landlord and
Tenant hereby agree as follows:
A G R E E M E N T :
- - - - - - - - -
1. BASE BUILDING; TENANT IMPROVEMENTS. The Base Building shall be
completed by Landlord in accordance with the specifications set forth in
Schedule "1" attached hereto, on or before the date shown on the Work Schedule
attached hereto as Schedule "2", subject to Force Majeure Delays and any Tenant
Delays, and in accordance with the Work Schedule described in Paragraph 2. As
used in the Lease and this Work Letter Agreement, the term "Tenant Improvements"
or "Tenant Improvement Work" means those items of general tenant improvement
construction shown on the Final Plans (described in Paragraph 4 below).
2. WORK SCHEDULE. Attached hereto as Schedule "2" is a schedule ("Work
Schedule") which will set forth the timetable for the planning and completion of
the installation of the Base Building and Tenant Improvements. The Work Schedule
will set forth each of the various items of work to be done by Landlord for the
completion of the Base Building and shall further provide for the various items
to be done or approval to be given by Landlord and Tenant in connection with the
completion of the Tenant Improvements. The Work Schedule will become the basis
for completing the Base Building and the Tenant Improvements. All plans and
drawings required by this Work Letter Agreement and all work performed pursuant
thereto are to be prepared and performed in accordance with the Work Schedule.
3. CONSTRUCTION REPRESENTATIVES. Landlord hereby appoints the following
person(s) as Landlord's representative ("Landlord's Representative") to act for
Landlord in all matters covered by this Work Letter Agreement: Stephen Stock.
Tenant hereby appoints the following person(s) as Tenant's representative
("Tenant's Representative") to act for Tenant in all matters covered by this
Work Letter Agreement: Maggie Mandel.
All communications with respect to the matters covered by this Work Letter
Agreement are to be made to Landlord's Representative or Tenant's
Representative, as the case may be, in writing in compliance with the notice
provisions of the Lease. Either party may change its representative under this
Work Letter Agreement at any time by written notice to the other party in
compliance with the notice provisions of the Lease.
4. TENANT IMPROVEMENT PLANS
(a) Preparation of Space Plans. In accordance with the Work Schedule,
Tenant agrees to meet with Tenant's architect and/or space planner (the
"Tenant's Architect") for the purpose of promptly preparing preliminary
space plans for the layout of Premises ("Space Plans"). The Space Plans
are to be sufficient to convey the architectural design of the Premises
and layout of the Tenant Improvements therein and are to be submitted to
Landlord in accordance with the Work Schedule for Landlord's approval. If
Landlord reasonably disapproves any aspect of the Space Plans, Landlord
will advise Tenant in writing of such disapproval and the reasons therefor
in accordance with the Work Schedule. Tenant will then submit to Landlord
for Landlord's approval, in accordance with the Work Schedule, a redesign
of the Space Plans incorporating the revisions reasonably required by
Landlord.
EXHIBIT "C"
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<PAGE> 58
(b) Preparation of Final Plans. Based on the approved Space Plans,
and in accordance with the Work Schedule, Tenant's Architect will prepare
and complete architectural plans, drawings and specifications and complete
engineered mechanical, structural and electrical working drawings for all
of the Tenant Improvements for the Premises (collectively, the "Final
Plans"). The Final Plans will show: (a) the subdivision (including
partitions and walls), layout, lighting, finish and decoration work
(including carpeting and other floor coverings) for the Premises; (b) all
internal and external communications and utility facilities which will
require conduiting or other improvements from the Base Building shell work
and/or within common areas; and (c) all other specifications for the
Tenant Improvements. The Final Plans will be submitted to Landlord for
signature to confirm that they are consistent with the Space Plans. If
Landlord reasonably disapproves any aspect of the Final Plans based on any
inconsistency with the Space Plans, Landlord agrees to advise Tenant in
writing of such disapproval and the reasons therefor within the time frame
set forth in the Work Schedule. In accordance with the Work Schedule,
Tenant will then cause Tenant's Architect to redesign the Final Plans
incorporating the revisions reasonably requested by Landlord so as to make
the Final Plans consistent with the Space Plans.
(c) Requirements of Tenant's Final Plans. Tenant's Final Plans will
include locations and complete dimensions, and the Tenant Improvements, as
shown on the Final Plans, will: (i) be compatible with the Base Building
and with the design, construction and equipment of the Building; (ii) if
not comprised of the Landlord's Building standards set forth those certain
Outline Specifications for Calabasas Park Centre dated January 29, 1999
(the "Standards"), then compatible with and of at least equal quality as
the Standards and approved by Landlord; (iii) comply with all applicable
laws, ordinances, rules and regulations of all governmental authorities
having jurisdiction, and all applicable insurance regulations; (iv) not
require Building service beyond the level normally provided to other
tenants in the Building and will not overload the Building floors; and (v)
be of a nature and quality consistent with the overall objectives of
Landlord for the Building, as determined by Landlord in its reasonable but
subjective discretion.
(d) Submittal of Final Plans. Once approved by Landlord and Tenant,
Tenant's Architect will submit the Final Plans to the appropriate
governmental agencies for plan checking and the issuance of a building
permit. Tenant's architect, with Tenant's cooperation, will make any
changes to the Final Plans which are requested by the applicable
governmental authorities to obtain the building permit. After approval of
the Final Plans no further changes may be made without the prior written
approval of both Landlord and Tenant. Tenant shall pay any excess costs
resulting from the design and/or construction of such changes.
(e) Changes to Shell of Building. If the Final Plans or any amendment
thereof or supplement thereto shall require changes in the Base Building,
the increased cost of the Base Building work caused by such changes will
be paid for by Tenant or charged against the "Allowance" described in
Paragraph 5 below.
(f) Work Cost Estimate and Statement. Prior to the commencement of
construction of any of the Tenant Improvements shown on the Final Plans,
Tenant will submit to Landlord a written estimate of the cost to complete
the Tenant Improvement Work, which written estimate will be based on the
Final Plans taking into account any modifications which may be required to
reflect changes in the Final Plans required by the City or County in which
the Premises are located and based on the lowest bid submitted by
reputable tenant improvement contractors selected by Tenant and reasonably
approved by Landlord (the "Work Cost Estimate"). Submission and approval
of the Work Cost Estimate will proceed in accordance with the Work
Schedule. Upon Landlord's approval of the Work Cost Estimate (such
approved Work Cost Estimate to be hereinafter known as the "Work Cost
Statement"), Tenant will have the right to purchase materials and to
commence the construction of the items included in the Work Cost Statement
pursuant to Paragraph 6 hereof. If the total costs reflected in the Work
Cost Statement exceed the Allowance described in Paragraph 5 below, Tenant
agrees to pay such excess to Tenant's Contractor (defined below). The
contractor selected by Landlord and Tenant through the competitive bidding
process is referred to herein as "Tenant's Contractor". Tenant's written
construction agreement with Tenant's Contractor shall be subject to
Landlord's prior review and approval.
EXHIBIT "C"
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<PAGE> 59
5. PAYMENT FOR THE TENANT IMPROVEMENTS
(a) Allowance. Landlord hereby grants to Tenant a tenant improvement
allowance of Thirty-Five Dollars ($35) per Usable Square Foot of the
Premises (the "Allowance"). The Allowance shall be paid to Tenant in
accordance with Paragraph 12 below and the Allowance is to be used only
for:
(i) Payment of the cost of preparing the Space Plans and the
Final Plans, including mechanical, electrical, plumbing and
structural drawings and of all other aspects necessary to complete
the Final Plans.
(ii) The payment of plan check, permit and license fees relating
to construction of the Tenant Improvements.
(iii)Construction of the Tenant Improvements, including, without
limitation, the following:
(aa) Installation within the Premises of all partitioning,
doors, floor coverings, ceilings, wall coverings and painting,
millwork and similar items;
(bb) All electrical wiring, lighting fixtures, outlets
and switches, and other electrical work necessary for the
Premises;
(cc) The furnishing and installation of all duct work,
terminal boxes, diffusers and accessories necessary for the
heating, ventilation and air conditioning systems within the
Premises, including the cost of meter and key control for
after-hour air conditioning;
(dd) Any additional improvements to the Premises required
for Tenant's use of the Premises including, but not limited to,
odor control, special heating, ventilation and air conditioning,
noise or vibration control or other special systems or
improvements;
(ee) All fire and life safety control systems such as fire
walls, sprinklers, halon, fire alarms, including piping, wiring
and accessories, necessary for the Premises;
(ff) All plumbing, fixtures, pipes and accessories
necessary for the Premises;
(gg) Testing and inspection costs; and
(hh) Fees for Landlord's supervising of the completion of
the Tenant Improvement Work in the amount of one and one-half (1
1/2%) of the Allowance, and the cost and fees of the Tenant's
Contractor including, but not limited to, fees and costs
attributable to general conditions. Tenant may secure the
representation of third party professionals (whose fees shall be
deducted from the Allowance) to assist with project planning,
construction management, coordination of third-party
professionals and design. Parking, utilities and other building
services shall not be charged during Tenant's construction of
the Tenant Improvements or during the Beneficial Occupancy
Period (as defined in Paragraph 7 of the Addendum to the Lease).
EXHIBIT "C"
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<PAGE> 60
(b) Excess Costs. The cost of each item referenced in Paragraph 5(a)
above shall be charged against the Allowance. If the Work Cost exceeds the
Allowance, Tenant agrees to timely pay to Tenant's Contractor such excess.
In no event will the Allowance be used to pay for Tenant's furniture,
artifacts, equipment, telephone systems or any other item of personal
property which is not affixed to the Premises.
(c) Changes. If, after the Final Plans have been prepared and the
Work Cost Statement has been established, Tenant requires any changes or
substitutions to the Final Plans, any additional costs related thereto
including fees for Tenant's Contractor are to be paid by Tenant to
Tenant's Contractor prior to the commencement of construction of the
changed or substituted Tenant Improvements. Any changes to the Final Plans
will be subject to the review and approval of Landlord and Tenant in the
manner set forth in Paragraph 4 above and will, if necessary, require the
Work Cost Statement to be revised and agreed upon between Landlord and
Tenant in the manner set forth in subparagraph 4(f) above. Landlord will
have the right to decline Tenant's request for a change to the Final Plans
if such changes are inconsistent with the provisions of Paragraph 4 above,
or if the change would unreasonably delay construction of the Tenant
Improvements and the Commencement Date of the Lease. Landlord hereby
agrees to respond to Tenant's request for changes or substitutions to the
Final Plans within five (5) business days of Tenant's written request
therefor.
(d) Governmental Cost Increases. If increases in the cost of the
Tenant Improvements as set forth in the Work Cost Statement are due to
requirements of any governmental agency, Tenant agrees to pay the amount
of such increase; provided, however, that Landlord will first apply toward
any such increase any remaining balance of the Allowance.
(e) Unused Allowance Amounts. Any unused portion of the Allowance
upon completion of the Tenant Improvements will not be refunded to Tenant
or be available to Tenant as a credit against any obligations of Tenant
under the Lease unless Tenant has paid for excess costs as described in
subparagraphs 5(b), 5(c) or 5(d), in which case the unused Allowance may
be applied toward such excess cost amounts and paid to Tenant.
(f) Additional Payment By Landlord. In addition to the "Allowance"
Landlord shall reimburse Tenant for reasonable out-of-pocket costs and
expenses incurred by Tenant directly in connection with the preparation of
the Space Plans, including but not limited to, any preliminary space plans
for the Premises Tenant may have caused to be professionally prepared
prior to execution of the Lease; provided, however, Tenant must deliver to
Landlord written evidence of such costs and expenses no later than the
Commencement Date and provided further that, in no event shall Landlord's
obligation to reimburse Tenant exceed Ten One Hundredths Dollars ($0.10)
per Usable Square Foot of the Premises.
6. CONSTRUCTION OF TENANT IMPROVEMENTS. In accordance with the Work
Schedule, Tenant's Contractor will commence and diligently proceed with the
construction of the Tenant Improvements, subject to Tenant Delays (as described
in Paragraph 9 below) and Force Majeure Delays (as described in Paragraph 10
below). Tenant shall cause Tenant's Contractor to coordinate at all times with
Landlord's Contractor with respect to the completion of the Base Building.
Tenant or Tenant's Contractor's failure to do so shall constitute a Tenant Delay
for purposes of Paragraph 9 hereinbelow.
7. DELIVERY OF MATERIALS TO THE PREMISES; UTILITIES. Tenant shall cause
Tenant's Contractor to deliver construction materials to the Premises located on
the fourth (4th) floor through the Building windows which shall be "popped out"
by Landlord's contractor. Construction materials for the Premises located on the
first (1st) floor shall be delivered through the back door of the Building.
Tenant hereby acknowledges that Tenant shall be required to provide temporary
restroom facilities, and temporary power for the construction of the Tenant
Improvements, at Tenant's sole cost and expense.
EXHIBIT "C"
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8. COMMENCEMENT DATE AND SUBSTANTIAL COMPLETION
(a) Commencement Date. The Term of the Lease will commence on the
date (the "Commencement Date") which is the earlier of: (i) July 1, 2000;
(ii) the date Tenant moves into the Premises to commence operation of its
business in all or any portion of the Premises; or (iii) the date the
Tenant Improvements have been "substantially completed" (as defined
below). If substantial completion of the Tenant Improvements is delayed as
a result of Landlord's failure to deliver the Premises on or before the
date set forth in the Work Schedule (other than by reason of any Tenant
Delays), then the Commencement Date as otherwise established pursuant to
subparagraph 8(a)(i) will be extended by the number of days of such
delays. Notwithstanding the foregoing, the Commencement Date shall not be
deemed to have occurred until all parking areas to be made available for
Tenant's use as of the Commencement Date, have been completed and all
landscaping required for the issuance of a temporary Certificate of
Occupancy or equivalent approval from the local government authority
permitting Tenant's occupancy of the Premises shall have been completed.
(b) Substantial Completion; Punch-List. For purposes of subparagraph
8(a) above, the Tenant Improvements will be deemed to be "substantially
completed" when Tenant's Contractor certifies in writing to Landlord and
Tenant that : (a) Tenant has reasonable access to the Premises; (b)
Tenant's Contractor has substantially performed all of the Tenant
Improvement Work required to be performed by Tenant under this Work Letter
Agreement, other than decoration and minor "punch-list" type items and
adjustments which do not materially interfere with Tenant's access to or
use of the Premises; and (c) a temporary certificate of occupancy or other
required equivalent approval from the local governmental authority
permitting occupancy of the Premises has been issued. Tenant's
construction contract with Tenant's Contractor shall require Tenant's
Contractor to timely issue the foregoing certification. Within ten (10)
days after receipt of such certificate from Tenant's Contractor, Landlord
and Tenant will conduct a walk-through inspection of the Premises with
Tenant's Contractor and provide to Tenant's Contractor a written
punch-list specifying those decoration and other punch-list items which
require completion, which items Tenant's Contractor will thereafter
diligently complete.
(c) Delivery of Possession. Landlord agrees to deliver possession of
the Premises to Tenant to permit Tenant's Contractor to commence the
construction of the Tenant Improvements in accordance with the Work
Schedule attached hereto as "Schedule 2", subject to Force Majeure Delays
(not to exceed one hundred eighty (180) days) and any Tenant Delays. On
the date that the Premises shall be delivered to Tenant's Contractor, the
Building shall be closed in and secured.
9. TENANT DELAYS. For purposes of this Work Letter Agreement, "Tenant
Delays" means any delay in the completion of the Tenant Improvements resulting
from any or all of the following: (a) Tenant's failure or the failure of
Tenant's Architect or Tenant's Contractor to timely perform any of their
respective obligations pursuant to this Work Letter Agreement, including any
failure to complete, on or before the due date therefor, any action item which
is Tenant's responsibility pursuant to the Work Schedule delivered by Landlord
to Tenant pursuant to this Work Letter Agreement; (b) Tenant's changes to Space
Plans or Final Plans after Landlord's approval thereof; (c) Tenant's request for
materials, finishes, or installations which are not readily available or which
are incompatible with the Standards; (d) any delay of Tenant in making payment
to Landlord for Tenant's share of the Work Cost; or (e) any other act or failure
to act by Tenant, Tenant's employees, agents, Tenant's Architect, Tenant's
Contractor, independent contractors, consultants and/or any other person
performing or required to perform services on behalf of Tenant.
10. FORCE MAJEURE DELAYS. For purposes of this Work Letter, "Force Majeure
Delays" means any actual delay in the construction of the Tenant Improvements,
which is beyond the reasonable control of Landlord or Tenant, as the case may
be, as described in Paragraph 33 of the Lease.
EXHIBIT "C"
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<PAGE> 62
11. OTHER CONSTRUCTION PROVISIONS.
(a) Compliance With Paragraph 13. Tenant shall comply with the
applicable provisions of Paragraph 13 of the Lease which do not conflict
with this Work Letter Agreement, as if the Tenant Improvement Work were an
"Alteration" under Paragraph 13 of the Lease, including but not limited
to, contractor's insurance requirements and lien-free work requirements.
(b) Good and Workmanlike Construction. Tenant shall use its best
efforts to cause the Tenant Improvement Work to be constructed in a good
and workmanlike manner in substantial conformity with the Final Plans, and
in substantial compliance with all applicable laws, regulations, building
codes and governmental orders pertaining thereto.
(c) Entry For Inspection. At all times during the course of
constructing the Tenant Improvement Work, Landlord shall have the right
to enter the Premises to inspect Tenant's construction activities.
(d) Indemnity. Tenant hereby indemnifies and agrees to defend and
hold Landlord harmless from and against any and all suits, claims,
actions, losses, costs or expenses of any nature whatsoever, together with
reasonable attorneys' fees for counsel of Landlord's choice, arising out
of or in connection with the Tenant Improvement Work or the performance of
the Tenant Improvement Work (including, but not limited to, claims for
breach of warranty, personal injury or property damage).
(e) Defects. Landlord shall have no responsibility for the Tenant
Improvement Work and Tenant will remedy, at Tenant's own expense, and be
responsible for any and all defects in the Tenant Improvement Work whether
the same shall affect the Tenant Improvement Work in particular or any
parts of the Building in general.
(f) No Interference. All of Tenant's contractors, subcontractors,
employees, servants and agents must work in harmony with and shall not
interfere with any labor employed by Landlord, or Landlord's contractors
with respect to any portion of the Building.
12. DISBURSEMENT OF ALLOWANCE. Provided Tenant is not in default under the
Lease, Landlord shall disburse the Allowance (or the unexpended portion of the
Allowance as of the date of this Amendment), to Tenant to reimburse Tenant for
the actual Tenant Improvement Work Cost which Tenant incurs in connection with
the construction of the Tenant Improvements in accordance with the following:
(a) Initial Disbursements. Ninety percent (90%) of the portion of the
Allowance requested in the Draw Request (defined below) shall be disbursed
to Tenant not more frequently than monthly when Landlord has received the
following "Evidence of Completion and Payment":
(i) Tenant has delivered to Landlord a draw request ("Draw
Request") in a form satisfactory to Landlord and Landlord's lender
with respect to the Tenant Improvements specifying that the requisite
portion of the Tenant Improvement Work has been completed, together
with invoices, receipts and bills evidencing the costs and expenses
set forth in such Draw Request and evidence of payment by Tenant for
all costs which are payable in connection with such Tenant
Improvement Work covered by the Draw Request. The Draw Request shall
constitute a representation by Tenant that the Tenant Improvement
Work identified therein has been completed in a good and workmanlike
manner and in accordance with the Final Plans and the Work Schedule
and has been paid for;
(ii) The architect for the Tenant Improvements has certified to
Landlord that the Tenant Improvements have been completed to the
level indicated in the Draw Request in accordance with the Final
Plans;
(iii)Tenant has delivered to Landlord such other evidence of
Tenant's payment of Tenant's contractor and subcontractors for the
portions of the Tenant Improvement Work covered by the Draw Request
and the absence of any liens generated by such portions of the Tenant
Improvement Work as may be required by Landlord (i.e., either
unconditional lien releases in accordance with California Civil Code
Section 3262 or release bond(s) in accordance with California Civil
Code Sections 3143 and 3171);
EXHIBIT "C"
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<PAGE> 63
(iv) Landlord or Landlord's architect or construction
representative has inspected the Tenant Improvements and determined
that the portion of Tenant Improvement Work covered by the Draw
Request has been completed in a good and workmanlike manner;
(b) Final Disbursement. The final disbursement of the balance of the
Allowance shall be disbursed to Tenant only when Landlord has received
Evidence of Completion and Payment as to all of Tenant Improvement Work as
provided hereinabove and the following conditions have been satisfied:
(i) Thirty-five (35) days shall have elapsed following the
filing of a valid notice of completion by Tenant for the Tenant
Improvements, or Tenant shall have delivered to Landlord
unconditional lien releases from Tenant's Contractor and all
subcontractors, satisfactory to cause Landlord's title insurance
company to deliver an endorsement to Landlord's owner's title policy
insuring against the existence of any mechanics' liens arising from
the completion of the Tenant Improvement Work;
(ii) A certificate of occupancy for the Tenant Improvements and
the Premises has been issued by the appropriate governmental body and
such certificate of occupancy is in Landlord's possession;
(iii)Tenant shall have delivered to Landlord one set of
reproducible "As Built" plans for the Tenant Improvements;
(iv) Tenant shall have accepted possession of the Premises and
commenced business operations in the Premises in accordance with the
provisions of the Lease; and
(v) The satisfaction of any other requirements or conditions
which may be required or imposed by Landlord's lender with respect to
the construction of the Tenant Improvements.
(c) Excess Costs. All Work Costs in excess of the Allowance shall
be paid by Tenant.
EXHIBIT "C"
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<PAGE> 64
IN WITNESS WHEREOF, the undersigned Landlord and Tenant have caused this Work
Letter Agreement to be duly executed by their duly authorized representatives as
of the date of the Lease.
TENANT: LANDLORD:
THE RYLAND GROUP, INC., KILROY REALTY, L.P.,
a Maryland corporation a Delaware limited partnership
By: KILROY REALTY CORPORATION,
By: /s/ Robert J. Cunnion III a Maryland corporation
------------------------- Its: General Partner
Print Name: Robert J. Cunnion III
---------------------
Print Title: Senior Vice President By: /s/ Jeffrey C. Hawken
--------------------- --------------------------------
Print Name: Jeffrey C. Hawken
By: /s/ Frank J. Scardina ------------------------
-------------------------
Print Title: Chief Operating Officer
Print Name: Frank J. Scardina -----------------------
---------------------
Print Title: Senior Vice President
---------------------
By:/s/ C. Hugh Greenup
--------------------------------
Print Name: C. Hugh Greenup
------------------------
Print Title: Executive Vice-President
------------------------
EXHIBIT "C"
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<PAGE> 65
SCHEDULE "1"
DESCRIPTION OF BASE BUILDING
The following is a description of the Base Improvements for the Premises. Any
items not specifically identified are intended to be included with the Tenant
Improvements.
The Building shall be a four (4) story steel frame building with an exterior
finish insulation system (EFIS) providing a combination of "punched" window
openings and synthetic or lime plaster stucco wall to include the following
items:
1) Completed men's and women's restrooms to include full height ceramic tile on
wet walls and complete tile on the entire floor with a floor drain that will
coordinate with tenant's finish plans. The restrooms shall contain high
quality fixtures and mirrors, adequately sized, the countertops shall be of
man-made stone" material provided at Landlord's expense. Restrooms shall
conform to all applicable code requirements and shall include toilet
partitions, accessories (waste paper receptacles, toilet paper dispensers).
All restroom signage required by applicable building codes shall be provided
at Landlord's expense. To the extent Tenant elects to up-grade restroom
countertop material, Tenant shall receive a credit to the Allowance in the
amount of the cost attributable to the Base Building restroom countertop
material.
2) Completed telephone/electrical closets on each floor, properly vented and
lighted. Tenant's telephone and communication equipment to be located in
Tenant's lease space. Provisions for fiber optic cable brought to main
building telephone room with distribution by Tenant. Tenant electrical
panels will be located on each floor with distribution to Tenant's space by
Tenant.
3) Completed and painted stairwells to include any required lighting, excluding
exit lighting within the Premises.
4) Completed package variable volume mechanical system on the roof of the
Building, properly installed with all electrical and plumbing completed,
noise and vibration attenuated cooling capacity of approximately three (3)
tons of refrigeration for every 1,000 rentable square feet in the Building
which will enable the inside temperature to be consistent with the
mechanical design. The roof shall be penetrated with supply and return ducts
(properly insulated with sound boots or other methods where required to
attenuate noise and vibration) and the main supply duct installed on each
floor in the building shell.
5) The main building lobby shall be complete and finished with stone or tile
floor, fabric wall covering and drywall ceiling with downlights.
6) The core and stairwell vestibules and the elevator lobbies shall be
sheet-rocked throughout the Building. All sheet-rock shall be properly
taped, mudded, sanded to a smooth finish, paint ready. The perimeter of the
inside exterior walls shall have completed studs with insulation installed
prior to Tenant Improvements at Landlord's expense. Interior columns in
lease space will be left exposed. Required corridor walls will be finished
on corridor side only. 1/2 the cost of corridor and demising partitions will
be charged against the Allowance.
7) All floors shall be delivered finished smooth (wall to wall) and shall be
flat to a level of one-quarter (1/4) inch over ten (10) feet in any
direction (noncumulative). The floors shall be ready to accept floor
covering, with only minor floor-floating required.
8) The Premises shall be provided with pagers, smoke detectors, sprinkler
risers, mainlines, branch lines and heads as required by local codes for
unoccupied space. The cost of any modifications to base system shall be
deducted from the Tenant Improvement Allowance.
9) An electrical system shall be properly installed in each Building using high
quality components of between 1600 and 3000 amps, 480/277 volt, 3 phase, 4
wire service located in properly completed electrical rooms. Primary
electrical service to the Building shall be installed and wired with pad
mounted transformer in an acceptable location. Adequate power shall be
transformed for house power (to include but not be limited to exterior
lighting, landscaping controls, parking lot lighting, etc.)
SCHEDULE "1"
to
EXHIBIT "C"
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<PAGE> 66
10) The loading capacity of all "upper" floors shall be a minimum live load of
eighty (80) pounds per square foot and a minimum dead load of twenty (20)
pounds per square foot.
11) A minimum of two (2), four (4) inch empty conduits shall be installed
between the Building and the adjacent building to be developed within the
Development, for future voice and data communication connections.
12) Three (3) elevators of adequate size and capacity to serve the building will
be provided to service all four (4) floors.
SCHEDULE "1"
to
EXHIBIT "C"
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<PAGE> 67
Schedule "2"
WORK SCHEDULE
Preparation and approval of the Space Plans, Final Plans and the Work Cost
Statement shall proceed as indicated below.
ACTION RESPONSIBILITY DUE DATE
------ -------------- --------
(i) Submission of the Space Tenant 30 days after
Plans Lease execution
(ii) Delivery of written Landlord 3 days after (i)
notice approving or
disapproving Space Plans
(iii) Submission, if Tenant 5 days after (ii)
necessary, of redesign
of Space Plans
(iv) Delivery of written Landlord 1 day after (iii)
notice of final approval
of Space Plans (if (iii)
is necessary)
(v) Submission of Final Tenant 35 days after (iv)
Plans to Landlord
(vi) Delivery of written Landlord 3 days after (v)
notice approving or
disapproving Final Plans
(vii) Submission, if Tenant 5 days after (vi)
necessary, of redesign
of Final Plans
(viii) Delivery of written Landlord 1 day after (vii)
notice of final approval
of Final Plans (if (vii)
is necessary)
(ix) Submission of Work Cost Tenant 15 days after
estimate to Landlord Final Plans
submitted
(x) Delivery of written Landlord 3 days after (ix)
notice of final approval
of Work Cost Statement.
(xi) Submit for permit Tenant At time Plans
approval submitted to
Landlord
(xii) Delivery of space to Landlord 04/01/00
Tenant for commencement
of Tenant Improvements
(xiii) Completion of Base Landlord 05/18/00
Building
(xiv) Completion of Tenant Tenant 07/01/00
Improvements
SCHEDULE "2"
to
EXHIBIT "C"
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<PAGE> 68
NOTICE OF LEASE TERM DATES
AND TENANT'S PERCENTAGE
To:___________________________________
___________________________________
___________________________________
Date:_________________________________
Re: Lease dated __________________________________, 19___ (the "Lease"),
between ______________________________, Landlord, and
__________________________, Tenant, concerning Suite _________ located
at ________________________________ (the "Premises").
To Whom It May Concern:
In accordance with the subject Lease, we wish to advise and/or confirm as
follows:
1. That the Premises have been accepted by the Tenant as being substantially
complete in accordance with the subject Lease and that there is no deficiency in
construction except as may be indicated on the "Punch-List" prepared by Landlord
and Tenant, a copy of which is attached hereto.
2. That the Tenant has possession of the subject Premises and acknowledges
that under the provisions of the Lease the Commencement Date is
____________________, and the Term of the Lease will expire on
________________.
3. That in accordance with the Lease, rent commenced to accrue on __________.
4. If the Commencement Date of the Lease is other than the first day of the
month, the first billing will contain a pro rata adjustment. Each billing
thereafter will be for the full amount of the monthly installment as provided
for in the Lease.
5. Rent is due and payable in advance on the first day of each and every
month during the Term of the Lease. Your rent checks should be made payable
to ____________________________________ at___________________________________.
6. The number of Rentable Square Feet within the Premises is ____________ square
feet as determined by Landlord's architect in accordance with the terms of the
Lease.
7. The number of Rentable Square Feet within the Building is ____________ square
feet as determined by Landlord's architect in accordance with the terms of the
Lease.
8. Tenant's Percentage, as adjusted based upon the number of Rentable
Square Feet within the Premises, is _______%.
LANDLORD:
____________________________________,
a __________________________________
By: ________________________________
Print Name: ____________________
Print Title: ___________________
By: ________________________________
Print Name: ____________________
Print Title: ___________________
SAMPLE ONLY
[NOT FOR EXECUTION]
EXHIBIT "D"
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<PAGE> 69
DEFINITION OF OPERATING EXPENSES
1. Items Included in Operating Expenses. The term "Operating Expenses" as used
in the Lease to which this Exhibit "E" is attached means: all costs and expenses
of operation and maintenance of the Building and the Common Areas (as such terms
are defined in the Lease), calculated assuming the Building is ninety-five
percent (95%) occupied, including the following costs by way of illustration but
not limitation, but excluding those items specifically set forth in Paragraph 3
below:
(a) Real Property Taxes and Assessments (as defined in Paragraph 2 below)
and any taxes or assessments imposed in lieu thereof;
(b) any and all assessments imposed with respect to the Building pursuant to any
covenants, conditions and restrictions affecting the Development, the Common
Areas or the Building;
(c) water and sewer charges and the costs of electricity, heating,
ventilating, air conditioning and other utilities;
(d) utilities surcharges and any other costs, levies or assessments resulting
from statutes or regulations promulgated by any government or quasi-government
authority in connection with the use, occupancy or alteration of the Building or
the Premises or the parking facilities serving the Building or the Premises;
(e) costs of insurance obtained by Landlord;
(f) waste disposal and janitorial services;
(g) labor;
(h) costs incurred in the management of the Building, including, without
limitation: (i) supplies, (ii) wages and salaries (and payroll taxes and similar
governmental charges related thereto) of employees used in the management,
operation and maintenance of the Building, (iii) Building management office
rental, supplies, equipment and related operating expenses, and (iv) a
management/administrative fee (not to exceed prevailing market rates for
comparable buildings and developments) determined as a percentage of the annual
gross revenues of the Building exclusive of the proceeds of financing or a sale
of the Building and an administrative fee for the management of the Development
Common Area determined as a percentage of Development Common Area Operating
Expenses;
(i) supplies, materials, equipment and tools including rental of personal
property used for maintenance;
(j) repair and maintenance of the elevators and the structural portions of the
Building, including the plumbing, heating, ventilating, air-conditioning and
electrical systems installed or furnished by Landlord;
(k) maintenance, costs and upkeep of all parking and Development Common
Areas;
(l) depreciation of personal property used in maintenance;
(m) amortization of all capitalized expenditures which are: (i) reasonably
intended to produce a reduction in operating charges or energy consumption; or
(ii) required under any governmental law or regulation that was not applicable
to the Building at the time it was originally constructed; or (iii) for
replacement of any Building equipment needed to operate the Building at the same
quality levels as prior to the replacement. All such costs shall be amortized
over such reasonable period as Landlord shall determine, on a consistent basis
and in accordance with multi-story office building industry standards of
competing first-class office buildings, with a return on capital at the then
current market rate per annum on the unamortized balance, or at such higher rate
as may have reasonably been paid by Landlord on funds borrowed for the purpose
of constructing such capital improvements.
(n) costs and expenses of gardening and landscaping;
EXHIBIT "E"
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<PAGE> 70
(o) maintenance of signs;
(p) personal property taxes levied on or attributable to personal property
used in connection with the Building or the Common Areas;
(q) reasonable accounting, audit, verification, legal and other consulting
fees;
(r) costs and expenses of repairs, resurfacing, repairing, maintenance,
painting, lighting, cleaning, refuse removal, security and similar items,
including appropriate reserves; and
(s) any other costs or expenses applicable to the ownership, leasing and/or
management of the Building and/or the Development.
When calculating Operating Expenses for purposes of establishing Tenant's
Operating Expense Allowance, Operating Expenses shall not include Real Property
Taxes and Assessments attributable to special assessments, charges, costs, or
fees or due to modifications or changes in governmental laws or regulations
including, but not limited to, the institution of a split tax roll, and shall
exclude market-wide labor-rate increases due to extraordinary circumstances
including, but not limited to, boycotts and strikes and utility increases due to
extraordinary circumstances including, but not limited to, conservation
surcharges, boycotts, embargoes or other shortages. Landlord shall keep books
and records showing the Operating Expenses in accordance with a system of
accounts and accounting practices consistently maintained by Landlord on a
year-to-year basis in compliance with such provisions of this Lease as may
affect such accounts (the "Accounting Practices"). Operating Expenses applicable
to Common Areas servicing the Building and other buildings in the Development
shall be allocated to the Building on a straight pro-rata basis with the
Building bearing its share in the proportion that the Rentable Square Foot of
the Building bears to the total Rentable Square Footage of all buildings sharing
such Common Areas.
2. Real Property Taxes and Assessments. The term "Real Property Taxes and
Assessments", as used in this Exhibit "E", means: any form of assessment,
license fee, license tax, business license fee, commercial rental tax, levy,
charge, improvement bond, tax or similar imposition imposed by any authority
having the direct power to tax, including any city, county, state or federal
government, or any school, agricultural, lighting, drainage or other improvement
or special assessment district thereof, as against any legal or equitable
interest of Landlord in the Premises, Building, Common Areas or the Development
(as such terms are defined in the Lease), adjusted to reflect an assumption that
the Building is fully assessed for real property tax purposes as a completed
building ready for occupancy, including the following by way of illustration but
not limitation:
(a) any tax on Landlord's "right" to rent or "right" to other income from
the Premises or as against Landlord's business of leasing the Premises;
(b) any assessment, tax, fee, levy or charge in substitution, partially or
totally, of any assessment, tax, fee, levy or charge previously included within
the definition of real property tax, it being acknowledged by Tenant and
Landlord that Proposition 13 was adopted by the voters of the State of
California in the June, 1978 election and that assessments, taxes, fees, levies
and charges may be imposed by governmental agencies for such services as fire
protection, street, sidewalk and road maintenance, refuse removal and for other
governmental services formerly provided without charge to property owners or
occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "real property taxes" for the purposes of this Lease;
(c) any assessment, tax, fee, levy or charge allocable to or measured by the
area of the Premises or other premises in the Building or the rent payable by
Tenant hereunder or other tenants of the Building, including, without
limitation, any gross receipts tax or excise tax levied by state, city or
federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof but not on Landlord's other
operations;
(d) any assessment, tax, fee, levy or charge upon this transaction or any
document to which Tenant is a party, creating or transferring an interest or an
estate in the Premises; and/or
EXHIBIT "E"
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<PAGE> 71
(e) any assessment, tax, fee, levy or charge by any governmental agency related
to any transportation plan, fund or system (including assessment districts)
instituted within the geographic area of which the Building is a part.
Notwithstanding the foregoing, if at any time after the Commencement Date, the
amount of Real Property Taxes and Assessments decreases, then for purposes of
all subsequent Lease Years, including the Lease Year in which such decrease in
Real Property Taxes and Assessments occurs, Tenant's Operating Expense Allowance
shall be decreased by an amount equal to such decrease in Real Property Taxes
and Assessments. Further, notwithstanding the foregoing, in the event Landlord
obtains earthquake insurance coverage following the Base Year causing an
increase to Operating Expenses, then the Operating Expenses for the Base Year
shall be deemed to have been increased by the amount of the applicable premiums
attributable to such coverage.
Conversely, in the event that the amount of Operating Expenses decreases due to
Landlord's subsequent election to eliminate earthquake coverage, or in the event
of a reduction in the cost of providing utilities, security and/or other
services to the Building and/or Development for any reason, Operating Expenses
for Base Year shall be deemed to have been decreased by the amount equal to any
such decrease.
3. Items Excluded From Operating Expenses. Notwithstanding the provisions
of Paragraphs 1 and 2 above to the contrary, "Operating Expenses" will not
include:
(a) Landlord's federal or state income, franchise, inheritance or estate
taxes;
(b) any ground lease rental;
(c) costs incurred by Landlord for the repair of damage to the Building to the
extent that Landlord is reimbursed by insurance (and for this purpose Landlord
shall not be deemed to have been reimbursed with respect to any deductible), or
condemnation proceeds or by tenants, warrantors or other third persons;
(d) depreciation, amortization and interest payments, except as specifically
provided herein, and except on materials, tools, supplies and vendor-type
equipment purchased by Landlord to enable Landlord to supply services Landlord
might otherwise contract for with a third party, where such depreciation,
amortization and interest payments would otherwise have been included in the
charge for such third party's services, all as determined in accordance with the
Accounting Practices;
(e) brokerage commissions, finders' fees, attorneys' fees, space planning costs
and other costs incurred by Landlord in leasing or attempting to lease space in
the Building;
(f) costs of a capital nature, including, without limitation, capital
improvements, capital replacements, capital repairs, capital equipment and
capital tools, all as determined in accordance with the Accounting Practices;
provided, however, the capital expenditures set forth in subparagraph 1(m) above
will in any event be included in the definition of Operating Expenses;
(g) interest, principal, points and fees on debt or amortization on any
mortgage, deed of trust or other debt encumbering the Building or the
Development;
(h) costs, including permit, license and inspection costs, incurred with respect
to the installation of tenant improvements for tenants in the Building
(including the original Tenant Improvements for the Premises), or incurred in
renovating or otherwise improving, decorating, painting or redecorating space
for tenants or other occupants of the Building, including space planning and
interior design costs and fees;
(i) attorneys' fees and other costs and expenses incurred in connection with
negotiations or disputes with present or prospective tenants or other occupants
of the Building; provided, however, that Operating Expenses will include those
attorneys' fees and other costs and expenses incurred in connection with
negotiations, disputes or claims relating to items of Operating Expenses,
enforcement of rules and regulations of the Building, and such other matters
relating to the maintenance of standards required of Landlord under the Lease;
(j) except for the administrative/management fees described in
subparagraph 1(h) above, costs of Landlord's general corporate overhead;
EXHIBIT "E"
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<PAGE> 72
(k) all items and services for which Tenant or any other tenant in the Building
reimburses Landlord (other than through operating expense pass-through
provisions);
(l) electric power costs for which any tenant directly contracts with the local
public service company; provided, however, for purposes of this subparagraph
3(l), in calculating the cost of electrical power consumed by tenants of the
Building, the applicable rentable square feet occupied by tenants who separately
contract for electrical power shall be excluded from the denominator when
determining all other tenants' pro-rata share of the costs of such electrical
power.
(m) costs arising from Landlord's charitable or political contributions.
EXHIBIT "E"
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<PAGE> 73
STANDARDS FOR UTILITIES AND SERVICES
The following standards for utilities and services are in effect. Landlord
reserves the right to adopt nondiscriminatory modifications and additions
hereto.
Subject to the terms and conditions of the Lease and provided Tenant remains in
occupancy of the Premises, Landlord will provide or make available the following
utilities and services:
1. Provide non-attended automatic elevator facilities Monday through
Friday, except holidays, from 8 a.m. to 6 p.m., and have one elevator
available for Tenant's use at all other times.
2. On Monday through Friday, except holidays, from 8 a.m. to 6 p.m. and on
Saturday from 8 a.m. to 12 Noon (and other times for a reasonable additional
charge to be fixed by Landlord), ventilate the Premises and furnish air
conditioning or heating on such days and hours, when in the reasonable judgment
of Landlord it may be required for the comfortable occupancy of the Premises.
The air conditioning system achieves maximum cooling when the window coverings
are extended to the full length of the window opening and adjusted to a 45o
angle upwards. Landlord will not be responsible for room temperatures if Tenant
does not keep all window coverings in the Premises extended to the full length
of the window opening and adjusted to a 45o angle upwards whenever the system is
in operation. Tenant agrees to cooperate fully at all times with Landlord, and
to abide by all reasonable regulations and requirements which Landlord may
prescribe for the proper function and protection of said air conditioning
system. Tenant agrees not to connect any apparatus, device, conduit or pipe to
the chilled and hot water air conditioning supply lines of the Building. Tenant
further agrees that neither Tenant nor its servants, employees, agents,
visitors, licensees or contractors shall at any time enter the mechanical
installations or facilities of the Building or the Development or adjust, tamper
with, touch or otherwise in any manner affect said installations or facilities.
The cost of maintenance and service calls to adjust and regulate the air
conditioning system will be charged to Tenant if the need for maintenance work
results from either Tenant's adjustment of room thermostats or Tenant's failure
to comply with its obligations under this Exhibit, including keeping window
coverings extended to the full length of the window opening and adjusted to a
45o angle upwards. Such work will be charged at hourly rates equal to
then-current journeyman's wages for air conditioning mechanics. During the
Original Term, Landlord shall provide "after-hours" HVAC service to the Premises
at a cost equal to Thirty-Five Dollars ($35.00) per hour, per floor, subject to
adjustment based on actual increases or decreases in Landlord's applicable
rates.
3. Landlord will make available to the Premises, 24 hours per day, seven days a
week, electric current as required by the Building standard office lighting and
fractional horsepower office business machines including copiers, personal
computers and word processing equipment in an amount not to exceed four (4)
watts per square foot per normal business day. Tenant agrees, should its
electrical installation or electrical consumption be in excess of the aforesaid
quantity or extend beyond normal business hours, to reimburse Landlord monthly
for the measured consumption at the average cost per kilowatt hour charged to
the Building during the period. If a separate meter is not installed at Tenant's
cost, such excess cost will be established by an estimate agreed upon by
Landlord and Tenant, and if the parties fail to agree, such cost will be
established by an independent licensed engineer selected by Landlord and
approved by Tenant (such approval not to be unreasonably withheld, conditioned
or delayed), , whose fee shall be shared equally by Landlord and Tenant. Tenant
agrees not to use any apparatus or device in, upon or about the Premises (other
than standard office business machines, personal computers and word processing
equipment) which may in any way increase the amount of such services usually
furnished or supplied to said Premises, and Tenant further agrees not to connect
any apparatus or device with wires, conduits or pipes, or other means by which
such services are supplied, for the purpose of using additional or unusual
amounts of such services without the written consent of Landlord. Should Tenant
use the same to excess, the refusal on the part of Tenant to pay upon demand of
Landlord the amount established by Landlord for such excess charge will
constitute a breach of the obligation to pay rent under this Lease and will
entitle Landlord to the rights therein granted for such breach. Tenant's use of
electric current will never exceed the capacity of the feeders to the Building,
or the risers or wiring installation and Tenants will not install or use or
permit the installation or use of any computer or electronic data processing
equipment in the Premises (except standard office business machines, personal
computers and word processing equipment) without the prior written consent of
Landlord.
EXHIBIT "F"
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<PAGE> 74
4. Water will be available in public areas for drinking and lavatory purposes
only, but if Tenant requires, uses or consumes water for any purpose in addition
to ordinary drinking and lavatory purposes, Landlord may install a water meter
and thereby measure Tenant's water consumption for all purposes. Tenant agrees
to pay Landlord for the cost of the meter and the cost of the installation
thereof and throughout the duration of Tenant's occupancy Tenant will keep said
meter and installation equipment in good working order and repair at Tenant's
own cost and expense, in default of which Landlord may cause such meter and
equipment to be replaced or repaired and collect the cost thereof from Tenant.
Tenant agrees to pay for water consumed, as shown on such meter, as and when
bills are rendered, and on default in making such payment, Landlord may pay such
charges and collect the same from Tenant. Any such costs or expenses incurred,
or payments made by Landlord for any of the reasons or purposes hereinabove
stated will be deemed to be additional rent payable by Tenant and collectible by
Landlord as such.
5. Landlord will provide cleaning and janitorial services to the Premises Monday
through Friday in accordance with the specifications attached hereto as Schedule
1.
6. Landlord reserves the right to stop service of the elevator, plumbing,
ventilation, air conditioning and electrical systems, when necessary, by reason
of accident or emergency or for repairs, alterations or improvements, when in
the judgment of Landlord such actions are desirable or necessary to be made,
until said repairs, alterations or improvements shall have been completed.
Landlord shall use commercially reasonable efforts to minimize disruptions to
Tenant's use of the Premises, subject to the limitations hereinafter set forth.
Landlord will have no responsibility or liability for failure to supply elevator
facilities, plumbing, ventilating, air conditioning or electric service, when
prevented from so doing by strike or accident or by any cause beyond Landlord's
reasonable control, or by laws, rules, orders, ordinances, directions,
regulations or by reason of the requirements of any federal, state, county or
municipal authority or failure of gas, oil or other suitable fuel supply or
inability by exercise of reasonable diligence to obtain gas, oil or other
suitable fuel supply. It is expressly understood and agreed that any covenants
on Landlord's part to furnish any services pursuant to any of the terms,
covenants, conditions, provisions or agreements of this Lease, or to perform any
act or thing for the benefit of Tenant, will not be deemed breached if Landlord
is unable to furnish or perform the same by virtue of a strike or labor trouble
or any other cause whatsoever beyond Landlord's control.
EXHIBIT "F"
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<PAGE> 75
SCHEDULE 1 TO
STANDARDS FOR UTILITIES AND SERVICES
Landlord will provide janitor service to the Premises, provided the same are
used exclusively as offices, and are kept reasonably in order by Tenant, and
unless otherwise agreed to by Landlord and Tenant no one other than persons
approved by Landlord shall be permitted to enter the Premises for such purposes.
If the Premises are not used exclusively as offices, they will be kept clean and
in order by Tenant, at Tenant's expense, and to the satisfaction of Landlord,
and by persons approved by Landlord. Tenant agrees to pay to Landlord the cost
of removal of any of Tenant's refuse and rubbish to the extent that the same
exceeds the refuse and rubbish usually attendant upon the use of the Premises as
offices. Landlord shall perform the herein-specified cleaning and janitorial
services for the Premises, which services shall be performed under the following
terms and general conditions:
1) Keep employed skilled and competent employees to perform the services set
forth herein and provide all manpower required to maintain the Building in
a neat and clean condition. Provide that any employee who causes any
breach of peace or other disturbance or who is otherwise found to be
unacceptable to Manager shall be immediately discharged or transferred and
thereafter replaced by Contractor.
2) Require that all employees present a clean and neat appearance at all
times.
3) Report all damage, breakage and/or apparent plumbing or electrical
problems to Manager immediately.
4) Report any evidence of security breaches to Manager immediately.
5) Maintain all janitors' closets, mop sinks and storerooms in a safe and
clean condition at all times.
6) Work behind locked doors (unless otherwise requested by Manager) during
the entire cleaning operation. Only the cleaning person assigned to clean
an area and the janitorial supervisory staff shall be admitted to such
areas. The janitorial staff shall not admit anyone into such premises.
7) Turn off all lighting as soon as possible each night, lock doors and set
alarm, if such alarm is provided by Tenant.
8) All nightly services will be performed Monday through Friday, after 6:00
p.m., (52) weeks per year, except on those holidays listed below:
New Year's Day
President's Day
Martin Luther King's Birthday
Memorial Day
Independence Day
Labor Day
Thanksgiving
Christmas
Main Entrance Lobbies (Five Nights Per Week)
a. Sweep and wet mop all interior hard floor surfaces (stone, ceramic,
tile, granite, etc.). All carpeted areas to be vacuumed.
b. All glass at entry doors and fixed glass panels surrounding entry
ways shall be cleaned three (3) times per day at a minimum (once
before 8:30 a.m., the second between 10:30 a.m. and 11:00 a.m. and
the third after 1:00 p.m.).
c. Wipe down nightly with an approved chemically treated cloth all
metal surfaces within the lobby areas.
SCHEDULE "1" to
EXHIBIT "F"
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<PAGE> 76
d. All painted or vinyl covered wall surfaces are to be dusted nightly
using an approved chemically treated cloth. Remove all finger marks
and smudges nightly.
e. High dust all painted or vinyl covered wall surfaces and soots,
electrical fixtures, air conditioning outlets (supply and return)
with an approved chemically treated cloth, quarterly.
f. All trash receptacles (inside and outside) and cigarette urns
(interior and exterior) shall be cleaned nightly.
g. Contractor is responsible to install plastic liners in receptacles
(daily, nightly as required), and replace sand in cigarette urns with
clean sand (daily, nightly as required).
h. All rain mats are to be thoroughly cleaned nightly when used during
the day. Mats are to be shampooed as directed by Manager, as
required. Wet floor caution signage and rain mats will be put out on
all non-carpeted main entrances lobby areas at the first indication
of a wet condition. Floors will be constantly monitored until wet
condition no longer exists at which time mats and signs will be
removed and floors cleaned as needed.
i. Daytime staff shall continuously monitor these areas to insure that
they are clean and neat at all times. Spillage shall be cleaned as
soon as possible, cigarette urns and trash receptacles to be checked
continuously to insure no large accumulations occur, elevators shall
be vacuumed, finger marks and smudges removed.
j. Remove gum and foreign matter and mop spillage on sight as required.
k. Public telephone stations are to be damp wiped; remove all finger
marks and smudges daily.
l. Brush with a lint brush and/or detail vacuum all fabric covered
chairs, if applicable.
m. Dust all mailbox faces and remove any smudges.
n. Dust all baseboards.
Public Corridors and Elevator Lobbies (Five nights per week)
a. All painted or vinyl covered wall surfaces are to be dusted
nightly. Remove all fingerprints and smudges nightly.
b. Sweep and damp mop all hard floor surfaces (stone, terrazzo,
ceramic tile, granite pavers, etc.) and other unwaxed flooring
nightly. Sweep and dust mop all interior wood floor surfaces.
c. Resilient floor surfaces are to be damp mopped and spray buffed
nightly.
d. Resilient floor surfaces are to be machine stripped and refinished
with a non-slip floor finish monthly.
e. Stairwells, landings, handrails, and exit enclosures will be swept,
damp mopped and dusted once per week. Police nightly. Wash landings
and treads monthly.
f. Carpeted areas are to be vacuumed nightly and spot cleaned weekly,
or as necessary.
g. High dust and/or damp wash all electrical fixtures, doorframes and
air conditioning fixtures quarterly.
h. Drinking fountains are to be cleaned, sanitized and polished
nightly.
i. Public telephones are to be dusted and sanitized nightly.
SCHEDULE "1" to
EXHIBIT "F"
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<PAGE> 77
j. Cigarette urns (inside and outside) are to be cleaned nightly.
Contractor is responsible to provide clean sand, as required.
k. Fire hose and/or extinguisher cabinets are to be damp wiped (inside)
and glass polished (inside and outside) once per month.
1. Wash walls in corridors annually as directed by Manager.
m. Dust all baseboards weekly.
Elevators (Five nights per week)
a. Clean all saddles, hatch and cab doors, doorframes and
directional lights at main entry lobbies nightly. Saddles
shall be polished nightly.
b. Interior wall surfaces of cab, selector panels, bases, rails and
floor indicator panel are to be cleaned nightly with an
approved, chemically treated cloth.
c. Interior carpets (if installed) are to be vacuumed nightly and
spot cleaned as required. Carpets are to be dry shampooed
every two weeks, including spares as requested.
d. Elevator cabs, with resilient floor surfaces, are to e swept,
wet mopped and spray buffed nightly. Floors are to be machine
stripped and refinished once per month, at a minimum.
e. Clean and polish saddles and door frames on floors above main
lobby level once per week. Door tracks are to be vacuumed
nightly on floors above the main lobby level, and smudges and
hand marks removed from doors and frames.
General Office (Five nights per week)
a. Sweep and damp mop all hard floor surfaces (stone, ceramic, tile,
granite pavers, etc.), uncarpeted raised floors and other types of
unwaxed flooring. Sweep and dust mop all interior wood floor
surfaces.
b. Sweep and damp mop all vinyl, asphalt, rubber and similar types of
flooring using an approved, chemically treated cloth.
c. Vacuum all rugs and carpeted areas (including carpeted raised
floors). Sweep or vacuum all internal stairways.
d. Hand dust and wipe clean with damp or chemically treated cloth all
furniture, file cabinets, equipment and windowsills.
e. Dust and sanitize all telephones.
f. Dust all chair rails, trim, etc.
g. Remove all gum and foreign matter on sight.
h. Empty and clean all waste receptacles and remove wastepaper and
waste materials to be designated area.
i. Damp dust interiors of all waste disposal receptacles, wash as
necessary.
j. Wash clean, sanitize and polish dry all water fountains and water
coolers. Wash clean and rinse dry all chalkboards.
k. Clean all glass furniture tops. Brush with a lint brush and/or
detail vacuum all fabric-covered chairs.
l. Remove hand marks on elevator hatchway doors.
SCHEDULE "1" to
EXHIBIT "F"
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<PAGE> 78
m. Spot wash interior partition glass and door glass to remove smudge
marks weekly.
n. Wash all interior glass, both sides, monthly.
o. Adjust all window treatment to uniform standard as directed by
Manager.
p. Stairs, landings, and handrails will be dusted and swept nightly
and damp mopped once per week at night.
q. Cleaning of kitchen and serving areas excluding clean out of
refrigerators, dishwashers or washing of dishes.
r. Any area designated, as a vending area will be kept free from
spillage and damp mopped.
s. Cleaning operations are to be scheduled so that an absolute minimum
of lights are to be left on at all times. Upon completion of the
cleaning, all lights must be turned off.
t. Remove finger marks from all painted or vinyl covered surfaces near
light switches, entrance doors, etc., nightly.
u. Dust all lampshades nightly.
v. Dust all picture frames, charts, similar hangings that were not
reached in nightly cleaning, quarterly. Vacuum or dust all books in
place, quarterly.
w. Dust all vertical surfaces, such as walls, partitions, doors and
other surfaces not reached in nightly cleaning quarterly.
x. Dust exterior lighting fixtures semi-annually. Wash and dry
thoroughly all light fixtures (including reflectors, globes,
diffusers and trim) annually.
y. Dust all window treatment monthly.
z. Dust clothes closets, shelving and coat racks once per month. Dust
all storage areas (including shelves and contents in place) and damp
mop floor areas, semi-annually.
aa. Damp wash and dry thoroughly all air conditioning louvers, grills,
etc. not reach nightly cleaning, annually.
Lavatories (Five nights per week)
a. Wet mop floors using germicidal detergent, and rinse dry, being
careful to leave bases in a clean, dry condition.
b. Clean and polish mirrors.
c. Clean and polish all bright work, using non-abrasive, non
tarnishing, non-corrosive cleaners.
d. Clean all bowls and urinals using a germicide, non-injurious cleaner,
taking care to clean all surfaces of toilet seats and cleaning deep
into traps under rims.
e. Clean all basins and vanities using non-abrasive, non-tarnishing,
non-corrosive cleaners and polishing vanities dry.
f. Empty and clean sanitary disposal receptacles and provide waste
paper bag in receptacles.
g. Clean and wash waste receptacles and dispensers. Remove all waste
products to a designated area and provide plastic bag in
receptacles.
SCHEDULE "1" to
EXHIBIT "F"
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<PAGE> 79
h. Dust and clean partitions and walls, removing all finger marks and
graffiti using non-abrasive cleaners.
i. Inspect all restrooms during day and keep same in neat and clean
condition at all times. Replenish paper products and soap as
necessary.
j. Restock soap, toilet tissue, sanitary products, paper towels and
liners for receptacles.
k. Night supervisor to collect coins from all sanitary product machines
on a biweekly schedule and file a written report as to date, location
and amount of collection. Coins and report shall be delivered to
Manager as collected.
1. All lights are to be turned off when cleaning is complete.
m. Clean and wash all partitions every two (2) months.
n. Wax floors once per month.
o. Hand dust and clean all tile walls once each month, more often if
necessary or directed. Wash walls annually.
p. High dust all pipes, light fixtures and door frames quarterly. Damp
wash and dry thoroughly all louvers, grilles, etc. Quarterly. Wash
and dry thoroughly all light fixtures (including reflectors,
globes, diffusers and trim) annually.
Building Service Areas (Five nights per week)
a. Janitorial closets and other such service areas will be wet mopped
and rinsed dry once per week.
b. Janitor's sink, including bright work, will be cleaned using a
non-abrasive, non-corrosive, non-tarnishing cleaner once per week.
c. Floors in janitor's closets and other such service areas will be
swept clean nightly.
d. All service corridors, fire control room, engineering closets shall
be swept, damp mopped, spray buffed or vacuumed nightly or as
directed by Manager.
e. Trash, paper, or refuse of any kind is not to be stored or left in
janitor's closets at any time but in a designated location as
directed by Manager.
f. Mops, sponges, or washing cloths are to be rinsed thoroughly and
stored neatly. Supplies and other cleaning equipment are to be stored
neatly in designated storage areas as directed by Manager.
Lighting
Landlord shall replace building standard light bulbs which are burned out,
upon request by Tenant.
SCHEDULE "1" to
EXHIBIT "F"
-5-
<PAGE> 80
ESTOPPEL CERTIFICATE
The undersigned, __________________________________________ ("Tenant"), hereby
certifies to___________________________________________________________________,
as follows:
1. Attached hereto is a true, correct and complete copy of that certain lease
dated _____________________, 199_, between___________________________ , a
__________________________ ("Landlord") and Tenant (the "Lease"), regarding the
premises located at _________________________________________ (the "Premises").
The Lease is now in full force and effect and has not been amended, modified or
supplemented, except as set forth in Paragraph 4 below.
2. The Term of the Lease commenced on ____________________________, 19__
3. The Term of the Lease will expire on __________________________, 19__.
4. The Lease has: (Initial one)
(____) not been amended, modified, supplemented, extended, renewed or assigned.
(____) been amended, modified, supplemented, extended, renewed or assigned by
the following described terms or agreements, copies of which are attached
hereto:
______________________________________________________________________________
______________________________________________________________________________
5. Tenant has accepted and is now in possession of the Premises.
6. Tenant and Landlord acknowledge that Landlord's interest in the Lease will be
assigned to ________________________________________________ and that no
modification, adjustment, revision or cancellation of the Lease or amendments
thereto shall be effective unless written consent of is obtained, and that until
further notice, payments under the Lease may continue as heretofore.
7. The amount of Monthly Base Rent is $_________________________.
8. The amount of Security Deposit (if any) is $___________________. No other
security deposits have been made except as follows:___________________________.
9. Tenant is paying the full lease rental which has been paid in full as of the
date hereof. No rent or other charges under the Lease have been paid for more
than thirty (30) days in advance of its due date except as follows:
____________________________________________________________________________.
10. All work required to be performed by Landlord under the Lease has been
completed except as follows:
____________________________________________________________________________.
11. There are no defaults on the part of the Landlord or Tenant under the Lease
except as follows:
____________________________________________________________________________.
12. Neither Landlord nor Tenant has any defense as to its obligations under the
Lease and claims no set-off or counterclaim against the other party except as
follows:
____________________________________________________________________________.
13. Tenant has no right to any concession (rental or otherwise) or similar
compensation in connection with renting the space it occupies other than as
provided in the Lease except as follows:
____________________________________________________________________________.
EXHIBIT "G"
-1-
<PAGE> 81
All provisions of the Lease and the amendments thereto (if any) referred to
above are hereby ratified.
The foregoing certification is made with the knowledge that__________________
___________ is relying upon the representations herein made in funding a loan to
Landlord in purchasing the Premises.
IN WITNESS WHEREOF, this certificate has been duly executed and delivered by
the authorized officers of the undersigned as of________________, 19__.
TENANT:
_____________________________,
a _____________________________
By:____________________________
Print Name: _______________ SAMPLE ONLY
Title: ____________________ [NOT FOR EXECUTION]
By:____________________________
Print Name: _______________
Title: ____________________
EXHIBIT "G"
-2-
<PAGE> 82
RULES AND REGULATIONS
A. General Rules and Regulations. The following rules and regulations
govern the use of the Building and the Development Common Areas. Tenant will
be bound by such rules and regulations and agrees to cause Tenant's
Authorized Users, its employees, subtenants, assignees, contractors,
suppliers, customers and invitees to observe the same.
1. Except as specifically provided in the Lease to which these Rules and
Regulations are attached, no sign, placard, picture, advertisement, name or
notice may be installed or displayed on any part of the outside or inside of the
Building or the Development without the prior written consent of Landlord.
Landlord will have the right to remove, at Tenant's expense and without notice,
any sign installed or displayed in violation of this rule. All approved signs or
lettering on doors and walls are to be printed, painted, affixed or inscribed at
the expense of Tenant and under the direction of Landlord by a person or company
designated or approved by Landlord.
2. If Landlord objects in writing to any curtains, blinds, shades, screens or
hanging plants or other similar objects attached to or used in connection with
any window or door of the Premises, or placed on any windowsill, which is
visible from the exterior of the Premises, Tenant will immediately discontinue
such use. Tenant agrees not to place anything against or near glass partitions
or doors or windows which may appear unsightly from outside the Premises
including from within any interior common areas.
3. Tenant will not obstruct any sidewalks, halls, passages, exits, entrances,
elevators, escalators, or stairways of the Development. The halls, passages,
exits, entrances, elevators and stairways are not open to the general public,
but are open, subject to reasonable regulations, to Tenant's business invitees.
Landlord will in all cases retain the right to control and prevent access
thereto of all persons whose presence in the reasonable judgment of Landlord
would be prejudicial to the safety, character, reputation and interest of the
Development and its tenants, provided that nothing herein contained will be
construed to prevent such access to persons with whom any tenant normally deals
in the ordinary course of its business, unless such persons are engaged in
illegal or unlawful activities. No tenant and no employee or invitee of any
tenant will go upon the roof of the Building.
4. Landlord expressly reserves the right to absolutely prohibit solicitation,
canvassing, distribution of handbills or any other written material, peddling,
sales and displays of products, goods and wares in all portions of the
Development except as may be expressly permitted under the Lease. Landlord
reserves the right to restrict and regulate the use of the common areas of the
Development and Building by invitees of tenants providing services to tenants on
a periodic or daily basis including food and beverage vendors. Such restrictions
may include limitations on time, place, manner and duration of access to a
tenant's premises for such purposes. Without limiting the foregoing, Landlord
may require that such parties use service elevators, halls, passageways and
stairways for such purposes to preserve access within the Building for tenants
and the general public.
5. Landlord reserves the right to require tenants to periodically provide
Landlord with a written list of any and all business invitees which periodically
or regularly provide goods and services to such tenants at the premises.
Landlord reserves the right to preclude all vendors from entering or conducting
business within the Building and the Development if such vendors are not listed
on a tenant's list of requested vendors.
6. Landlord reserves the right to exclude from the Building between the hours of
6 p.m. and 8 a.m. the following business day, or such other hours as may be
established from time to time by Landlord, and on Sundays and legal holidays,
any person unless that person is known to the person or employee in charge of
the Building or has a pass or is properly identified. Tenant will be responsible
for all persons for whom it requests passes and will be liable to Landlord for
all acts of such persons. Landlord will not be liable for damages for any error
with regard to the admission to or exclusion from the Building of any person.
Landlord reserves the right to prevent access to the Building in case of
invasion, mob, riot, public excitement or other commotion by closing the doors
or by other appropriate action.
EXHIBIT "H"
-1-
<PAGE> 83
7. The directory of the Building or the Development will be provided exclusively
for the display of the name and location of tenants only and Landlord reserves
the right to exclude any other names therefrom.
8. All cleaning and janitorial services for the Development and the Premises
will be provided exclusively through Landlord, and except with the written
consent of Landlord, no person or persons other than those approved by Landlord
will be employed by Tenant or permitted to enter the Development for the purpose
of cleaning the same. Tenant will not cause any unnecessary labor by
carelessness or indifference to the good order and cleanliness of the Premises.
9. Landlord will furnish Tenant, free of charge, with two keys to each entry
door lock in the Premises. Landlord may make a reasonable charge for any
additional keys. Tenant shall not make or have made additional keys, and Tenant
shall not alter any lock or install any new additional lock or bolt on any door
of the Premises. Tenant, upon the termination of its tenancy, will deliver to
Landlord the keys to all doors which have been furnished to Tenant, and in the
event of loss of any keys so furnished, will pay Landlord therefor.
10. If Tenant requires telegraphic, telephonic, burglar alarm, satellite dishes,
antennae or similar services, it will first obtain Landlord's approval, and
comply with, Landlord's reasonable rules and requirements applicable to such
services, which may include separate licensing by, Landlord.
11. Freight elevator(s) will be available for use by all tenants in the
Building, subject to such reasonable scheduling as Landlord, in its discretion,
deems appropriate. No equipment, materials, furniture, packages, supplies,
merchandise or other property will be received in the Building or carried in the
elevators except between such hours and in such elevators as may be designated
by Landlord. Tenant's initial move in and subsequent deliveries of bulky items,
such as furniture, safes and similar items will, unless otherwise agreed in
writing by Landlord, be made during the hours of 6:00 p.m. to 6:00 a.m. or on
Saturday or Sunday. Deliveries during normal office hours shall be limited to
normal office supplies and other small items. No deliveries will be made which
impede or interfere with other tenants or the operation of the Building.
12. Tenant will not place a load upon any floor of the Premises which exceeds
the load per square foot which such floor was designed to carry and which is
allowed by law. Landlord will have the right to reasonably prescribe the weight,
size and position of all safes, heavy equipment, files, materials, furniture or
other property brought into the Building. Heavy objects will, if considered
necessary by Landlord, stand on such platforms as determined by Landlord to be
necessary to properly distribute the weight, which platforms will be provided at
Tenant's expense. Business machines and mechanical equipment belonging to
Tenant, which cause noise or vibration that may be transmitted to the structure
of the Building or to any space therein to such a degree as to be objectionable
to any tenants in the Building or Landlord, are to be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devises
sufficient to eliminate noise or vibration. Tenant will be responsible for all
structural engineering required to determine structural load, as well as the
expense thereof. The persons employed to move such equipment in or out of the
Building must be reasonably acceptable to Landlord. Landlord will not be
responsible for loss of, or damage to, any such equipment or other property from
any cause, and all damage done to the Building by maintaining or moving such
equipment or other property will be repaired at the expense of Tenant.
13. Tenant will not use or keep in the Premises any kerosene, gasoline or
inflammable or combustible fluid or material other than those limited quantities
necessary for the operation or maintenance of office equipment. Tenant will not
use or permit to be used in the Premises any foul or noxious gas or substance,
or permit or allow the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of noise,
odors or vibrations, nor will Tenant bring into or keep in or about the Premises
any birds or animals.
14. Tenant will not use any method of heating or air conditioning other than
that supplied by Landlord without Landlord's prior written consent.
EXHIBIT "H"
-2-
<PAGE> 84
15. Tenant will not waste electricity, water or air conditioning and agrees to
cooperate fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and to comply with any governmental
energy-saving rules, laws or regulations of which Tenant has actual notice, and
will refrain from attempting to adjust controls. Tenant will keep corridor doors
closed, and shall keep all window coverings pulled down.
16. Landlord reserves the right, exercisable without notice and without
liability to Tenant, to change the name and street address of the Building.
Without the prior written consent of Landlord, which Landlord may deny with or
without cause, Tenant will not use the name, photograph or likeness of the
Building or the Development in connection with or in promoting or advertising
the business of Tenant except as Tenant's address.
17. Tenant will close and lock the doors of its Premises and entirely shut off
all water faucets or other water apparatus, and lighting or gas before Tenant
and its employees leave the Premises. Tenant will be responsible for any damage
or injuries sustained by other tenants or occupants of the Building or by
Landlord for noncompliance with this rule.
18. The toilet rooms, toilets, urinals, wash bowls and other apparatus will not
be used for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein. The expense of
any breakage, stoppage or damage resulting from any violation of this rule will
be borne by the tenant who, or whose employees or invitees, break this rule.
Cleaning of equipment of any type is prohibited. Shaving is prohibited.
19. Tenant will not sell, or permit the sale at retail of newspapers, magazines,
periodicals, theater tickets or any other goods or merchandise to the general
public in or on the Premises. Tenant will not use the Premises for any business
or activity other than that specifically provided for in this Lease. Tenant will
not conduct, nor permit to be conducted, either voluntarily or involuntarily,
any auction upon the Premises without first having obtained Landlord's prior
written consent, which consent Landlord may withhold in its sole and absolute
discretion.
20. Tenant will not install any radio or television antenna, loudspeaker, or
other devices on the roof(s) or exterior walls of the Building or the
Development. Tenant will not interfere with radio or television broadcasting or
reception from or in the Development or elsewhere. Tenant may install a
satellite dish on the roof of the Building in a location reasonably designated
by Landlord and in conformity with conditions as Landlord may reasonably impose,
provided that Tenant complies with Landlord's reasonable rules and requirements
therefor, repairs all damages caused by the installation, servicing and/or
repair of such satellite dish and complies with all applicable governmental
requirements with respect thereto.
21. Except for the ordinary hanging of pictures and wall decorations, Tenant
will not mark, drive nails, screw or drill into the partitions, woodwork or
plaster or in any way deface the Premises or any part thereof, except in
accordance with the provisions of the Lease pertaining to alterations. Landlord
reserves the right to direct electricians as to where and how telephone and
telegraph wires are to be introduced to the Premises. Tenant will not cut or
bore holes for wires. Tenant will not affix any floor covering to the floor of
the Premises in any manner except as approved by Landlord. Tenant shall repair
any damage resulting from noncompliance with this rule.
22. Deleted.
23. Landlord reserves the right to exclude or expel from the Development any
person who, in Landlord's judgment, is intoxicated or under the influence of
liquor or drugs or who is in violation of any of the Rules and Regulations of
the Building.
24. Tenant will store all its trash and garbage within its Premises or in other
facilities provided by Landlord. Tenant will not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
is to be made in accordance with directions issued from time to time by
Landlord.
25. The Premises will not be used for lodging or for the storage of merchandise
held for sale to the general public, or for lodging or for manufacturing of any
kind, nor shall the Premises be used for any improper, immoral or objectionable
purpose. No cooking will be done or permitted on the Premises without Landlord's
consent, except the use by Tenant of Underwriters' Laboratory approved equipment
for brewing coffee, tea, hot chocolate and similar beverages shall be permitted,
and the use of a microwave oven for employees use will be permitted, provided
that such equipment and use is in accordance with all applicable federal, state,
county and city laws, codes, ordinances, rules and regulations.
EXHIBIT "H"
-3-
<PAGE> 85
26. Neither Tenant nor any of its employees, agents, customers and invitees may
use in any space or in the public halls of the Building or the Development any
hand truck except those equipped with rubber tires and side guards or such other
material-handling equipment as Landlord may approve. Tenant will not bring any
other vehicles of any kind into the Building.
27. Tenant agrees to comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. To the extent Landlord reasonably deems it necessary to exercise exclusive
control over any portions of the Common Areas for the mutual benefit of the
tenants in the Building or the Development, Landlord may do so subject to
reasonable, non-discriminatory additional rules and regulations.
30. Landlord may prohibit smoking in the Building and may require Tenant and any
of its employees, agents, clients, customers, invitees and guests who desire to
smoke, to smoke within designated smoking areas within the Development.
31. Tenant's requirements will be attended to only upon appropriate application
to Landlord's asset management office for the Development by an authorized
individual of Tenant. Employees of Landlord will not perform any work or do
anything outside of their regular duties unless under special instructions from
Landlord, and no employee of Landlord will admit any person (Tenant or
otherwise) to any office without specific instructions from Landlord.
32. These Rules and Regulations are in addition to, and will not be construed to
in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of the Lease. Landlord may waive any one or more of
these Rules and Regulations for the benefit of Tenant or any other tenant, but
no such waiver by Landlord will be construed as a waiver of such Rules and
Regulations in favor of Tenant or any other tenant, nor prevent Landlord from
thereafter enforcing any such Rules and Regulations against any or all of the
tenants of the Development.
33. Landlord reserves the right to make such other and reasonable and
non-discriminatory Rules and Regulations as, in its judgment, may from time to
time be needed for safety and security, for care and cleanliness of the
Development and for the preservation of good order therein. Tenant agrees to
abide by all such Rules and Regulations herein above stated and any additional
reasonable and non-discriminatory rules and regulations which are adopted.
Tenant is responsible for the observance of all of the foregoing rules by
Tenant's employees, agents, clients, customers, invitees and guests.
B. Parking Rules and Regulations. The following rules and regulations
govern the use of the parking facilities which serve the Building. Tenant
will be bound by such rules and regulations and agrees to cause its
employees, subtenants, assignees, contractors, suppliers, customers and
invitees to observe the same:
1. Tenant will not permit or allow any vehicles that belong to or are controlled
by Tenant or Tenant's employees, subtenants, customers or invitees to be loaded,
unloaded or parked in areas other than those designated by Landlord for such
activities. No vehicles are to be left in the parking areas overnight and no
vehicles are to be parked in the parking areas other than normally sized
passenger automobiles, motorcycles and pick-up trucks. No extended term storage
of vehicles is permitted.
2. Vehicles must be parked entirely within painted stall lines of a single
parking stall.
3. All directional signs and arrows must be observed.
EXHIBIT "H"
-4-
<PAGE> 86
4. The speed limit within all parking areas shall be five (5) miles per
hour.
5. Parking is prohibited: (a) in areas not striped for parking; (b) in aisles or
on ramps; (c) where "no parking" signs are posted; (d) in cross-hatched areas;
and (e) in such other areas as may be designated from time to time by Landlord
or Landlord's parking operator.
6. Landlord reserves the right, without cost or liability to Landlord, to tow
any vehicle if such vehicle's audio theft alarm system remains engaged for an
unreasonable period of time.
7. Washing, waxing, cleaning or servicing of any vehicle in any area not
specifically reserved for such purpose is prohibited.
8. Landlord may refuse to permit any person to park in the parking facilities
who violates these rules with unreasonable frequency, and any violation of these
rules shall subject the violator's car to removal, at such car owner's expense.
Tenant agrees to use its best efforts to acquaint its employees, subtenants,
assignees, contractors, suppliers, customers and invitees with these parking
provisions, rules and regulations.
9. Parking stickers, access cards, or any other device or form of identification
supplied by Landlord as a condition of use of the parking facilities shall
remain the property of Landlord. Parking identification devices, if utilized by
Landlord, must be displayed as requested and may not be mutilated in any manner.
The serial number of the parking identification device may not be obliterated.
Parking identification devices, if any, are not transferable and any device in
the possession of an unauthorized holder will be void. Landlord reserves the
right to refuse the sale of monthly stickers or other parking identification
devices to Tenant or any of its agents, employees or representatives who
willfully refuse to comply with these rules and regulations and all unposted
city, state or federal ordinances, laws or agreements.
10. Loss or theft of parking identification devices or access cards must be
reported to the management office in the Development immediately, and a lost or
stolen report must be filed by the Tenant or user of such parking identification
device or access card at the time. Landlord has the right to exclude any vehicle
from the parking facilities that does not have a parking identification device
or valid access card. Any parking identification device or access card which is
reported lost or stolen and which is subsequently found in the possession of an
unauthorized person will be confiscated and the illegal holder will be subject
to prosecution.
11. All damage or loss claimed to be the responsibility of Landlord must be
reported, itemized in writing and delivered to the management office located
within the Development within ten (10) business days after any claimed damage or
loss occurs. Any claim not so made is waived. Landlord is not responsible for
damage by water or fire, or for the acts or omissions of others, or for articles
left in vehicles. In any event, the total liability of Landlord, if any, is
limited to Two Hundred Fifty Dollars ($250.00) for all damages or loss to any
car. Landlord is not responsible for loss of use.
12. The parking operators, managers or attendants are not authorized to make or
allow any exceptions to these rules and regulations, without the express written
consent of Landlord. Any exceptions to these rules and regulations made by the
parking operators, managers or attendants without the express written consent of
Landlord will not be deemed to have been approved by Landlord.
13. Landlord reserves the right, without cost or liability to Landlord, to tow
any vehicles which are used or parked in violation of these rules and
regulations.
14. Landlord reserves the right from time to time to modify and/or adopt such
other reasonable and non-discriminatory rules and regulations for the parking
facilities as it deems reasonably necessary for the operation of the parking
facilities.
EXHIBIT "H"
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<PRE>
THE RYLAND GROUP, INC.
EXECUTIVE AND DIRECTOR DEFERRED
COMPENSATION PLAN
Amendment and Restatement Effective as of March 1, 1998
<PAGE> 88
THE RYLAND GROUP, INC.
EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION PLAN
Amendment and Restatement Effective as of March 1, 1998
TABLE OF CONTENTS
ARTICLE 1
---------
DEFINITIONS
-----------
1.1 ACCOUNT.....................................................1
-------
1.2 BENEFICIARY.................................................1
-----------
1.3 CODE........................................................1
----
1.4 COMPENSATION................................................1
------------
1.5 COMPENSATION DEFERRAL ACCOUNT...............................2
-----------------------------
1.6 COMPENSATION DEFERRALS......................................2
----------------------
1.7 DESIGNATION DATE............................................2
----------------
1.8 EFFECTIVE DATE..............................................2
--------------
1.9 ELIGIBLE INDIVIDUAL.........................................2
-------------------
1.10 EMPLOYER....................................................2
--------
1.11 EMPLOYER CONTRIBUTION CREDIT ACCOUNT........................2
------------------------------------
1.12 EMPLOYER CONTRIBUTION CREDITS...............................2
-----------------------------
1.13 ENTRY DATE..................................................2
----------
1.14 PARTICIPANT.................................................2
-----------
1.15 PARTICIPANT ENROLLMENT AND ELECTION FORM....................3
----------------------------------------
1.16 PLAN........................................................3
----
1.17 PLAN YEAR...................................................3
---------
1.18 TRUST.......................................................3
-----
1.19 TRUSTEE.....................................................3
-------
1.20 VALUATION DATE..............................................3
--------------
ARTICLE 2
---------
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.1 REQUIREMENTS................................................3
------------
2.2 RE-EMPLOYMENT, ETC..........................................3
------------------
2.3 CHANGE OF EMPLOYMENT CATEGORY...............................3
-----------------------------
i
<PAGE> 89
ARTICLE 3
---------
CONTRIBUTIONS AND CREDITS
-------------------------
3.1 EMPLOYER CONTRIBUTION CREDITS...............................4
-----------------------------
3.2 PARTICIPANT COMPENSATION DEFERRALS..........................5
----------------------------------
3.3 CONTRIBUTIONS TO THE TRUST..................................6
--------------------------
ARTICLE 4
---------
ALLOCATION OF FUNDS
-------------------
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS.........7
---------------------------------------------------
4.2 ACCOUNTING FOR DISTRIBUTIONS................................7
----------------------------
4.3 SEPARATE ACCOUNTS...........................................7
-----------------
4.4 INTERIM VALUATIONS..........................................7
------------------
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS................8
--------------------------------------------
4.6 EXPENSES....................................................8
--------
4.7 TAXES.......................................................9
-----
ARTICLE 5
---------
ENTITLEMENT TO BENEFITS
-----------------------
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT..............9
----------------------------------------------
5.2 HARDSHIP DISTRIBUTIONS......................................9
-----------------------
5.3 APPLICATION TO TRUSTEE.....................................10
-----------------------
5.4 RE-EMPLOYMENT OF RECIPIENT, ETC............................10
--------------------------------
ARTICLE 6
---------
DISTRIBUTION OF BENEFITS
------------------------
6.1 AMOUNT.....................................................10
------
6.2 METHOD OF PAYMENT..........................................10
-----------------
6.3 DEATH BENEFITS.............................................11
--------------
6.4 WITHHOLDING................................................11
-----------
ii
<PAGE> 90
ARTICLE 7
---------
BENEFICIARIES; PARTICIPANT DATA
-------------------------------
7.1 DESIGNATION OF BENEFICIARIES...............................11
----------------------------
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS
-------------------------------------------
AND BENEFICIARIES; INABILITY TO LOCATE
--------------------------------------
PARTICIPANTS OR BENEFICIARIES..............................12
-----------------------------
ARTICLE 8
---------
ADMINISTRATION
--------------
8.1 ADMINISTRATIVE AUTHORITY...................................12
------------------------
8.2 UNIFORMITY OF DISCRETIONARY ACTS...........................13
--------------------------------
8.3 LITIGATION.................................................13
----------
8.4 CLAIMS PROCEDURE...........................................13
----------------
ARTICLE 9
---------
AMENDMENT
---------
9.1 RIGHT TO AMEND.............................................15
--------------
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN.......15
----------------------------------------------------
ARTICLE 10
----------
TERMINATION
-----------
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN..............15
---------------------------------------------
10.2 AUTOMATIC TERMINATION OF PLAN..............................15
-----------------------------
10.3 SUSPENSION OF DEFERRALS....................................15
-----------------------
10.4 ALLOCATION AND DISTRIBUTION................................15
---------------------------
10.5 SUCCESSOR TO EMPLOYER......................................16
---------------------
ARTICLE 11
----------
THE TRUST
---------
11.1 ESTABLISHMENT OF TRUST.....................................16
-----------------------
iii
<PAGE> 91
ARTICLE 12
----------
MISCELLANEOUS
-------------
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER.......................16
------------------------------------
12.2 CONSTRUCTION...............................................16
------------
12.3 SPENDTHRIFT PROVISION......................................17
---------------------
iv
<PAGE> 92
THE RYLAND GROUP, INC.
EXECUTIVE AND DIRECTOR DEFERRED COMPENSATION PLAN
Amendment and Restatement Effective as of March 1, 1998
RECITALS
--------
This Amendment and Restatement of The Ryland Group, Inc. Executive and
Director Deferred Compensation Plan (the "Plan"), is adopted by The Ryland
Group, Inc. (the "Employer"), effective as of March 1, 1998. The Plan is
maintained for the benefit of certain of the Employer's executive employees and
Directors. When originally adopted on March 1, 1997, the Plan constituted an
amendment and restatement of each of the following plans, all of which were
merged into this Plan: The Ryland Group, Inc. Deferred Compensation Savings
Plan; The Ryland Group, Inc. Salary Deferral Plan; and The Ryland Group, Inc.
Unfunded Deferred Director Fee Plan.
The purpose of the Plan is to offer participants an opportunity to elect
to defer the receipt of compensation in order to provide deferred compensation
benefits taxable pursuant to section 451 of the Internal Revenue Code of 1986,
as amended (the "Code"), and to provide a deferred compensation vehicle to which
the Employer may credit certain amounts on behalf of participants. The Plan is
intended to be a "top-hat" plan under sections 201(2), 301(a)(3) and 401(a)(1)
of the Employee Retirement Income Security Act of 1974 ("ERISA").
The purpose of this Amendment and Restatement of the Plan is to reflect in
the Plan certain amendments to the Plan adopted since the Plan's original
effective date.
Accordingly, the following Amendment and Restatement of the Plan is
adopted.
ARTICLE 1
---------
DEFINITIONS
-----------
1.1 ACCOUNT means the balance credited to a Participant's or Beneficiary's
Plan account, including contribution credits and deemed income, gains and losses
credited thereto. A Participant's or Beneficiary's Account shall be determined
as of the date of reference.
1.2 BENEFICIARY means any person or person so designated in accordance
with the provisions of Article 7.
1.3 CODE means the Internal Revenue Code of 1986 and the regulations
thereunder, as amended from time to time.
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<PAGE> 93
1.4 COMPENSATION means the total current cash and, in the case of a member
of the Board of Directors, Stock Unit Plan remuneration and retainer fees
payable in common stock of the Employer paid by the Employer to an Eligible
Individual with respect to his or her service for the Employer.
1.5 COMPENSATION DEFERRAL ACCOUNT is defined in Section 3.2.
1.6 COMPENSATION DEFERRALS is defined in Section 3.2.
1.7 DESIGNATION DATE means the date or dates as of which a designation of
deemed investment directions by an individual pursuant to Section 4.5, or any
change in a prior designation of deemed investment directions by an individual
pursuant to Section 4.5, shall become effective. The Designation Dates in any
Plan Year shall be designated by the Employer.
1.8 EFFECTIVE DATE means the general effective date of the Plan, which
shall be March 1, 1997.
1.9 ELIGIBLE INDIVIDUAL means, for any Plan Year (or applicable portion
thereof), a person who is determined by the Employer, or its designee, to be a
member of a select group of management or highly compensated employees of the
Employer or a member of the Employer's Board of Directors and who is designated
by the Employer, or its designee, to be an Eligible Individual under the Plan.
By each December 31, the Employer, or its designee, shall notify those
individuals, if any, who will be Eligible Individuals for the next Plan Year. If
the Employer, or its designee, determines that an individual first becomes an
Eligible Individual during a Plan Year, the Employer, or its designee, shall
notify such individual of its determination and of the date during the Plan Year
on which the individual shall first become an Eligible Individual.
1.10 EMPLOYER means The Ryland Group, Inc. and its
successors and assigns unless otherwise herein provided, or any
other corporation or business organization which, with the
consent of The Ryland Group, Inc., or its successors or assigns,
assumes the Employer's obligations hereunder, or any other
corporation or business organization which agrees, with the
consent of The Ryland Group, Inc., to become a party to the Plan.
1.11 EMPLOYER CONTRIBUTION CREDIT ACCOUNT is defined in Section 3.1.
1.12 EMPLOYER CONTRIBUTION CREDITS is defined in Section 3.1.
1.13 ENTRY DATE with respect to an individual means the first day of the
pay period following the date on which the individual first becomes an Eligible
Individual.
1.14 PARTICIPANT means any person so designated in accordance with the
provisions of Article 2, including, where appropriate according to the context
of the Plan, any former employee or former member of the Board of Directors who
is or may become (or whose Beneficiaries may become) eligible to receive a
benefit under the Plan.
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<PAGE> 94
1.15 PARTICIPANT ENROLLMENT AND ELECTION FORM means the form or forms on
which a Participant elects to defer Compensation hereunder and/or on which the
Participant makes certain other designations as required thereon.
1.16 PLAN means this The Ryland Group, Inc. Executive and
Director Deferred Compensation Plan, an amendment, restatement
and consolidation of The Ryland Group, Inc. Deferred Compensation
Savings Plan, The Ryland Group, Inc. Salary Deferral Plan, and
The Ryland Group, Inc. Unfunded Deferred Director Fee Plan, as
amended from time to time.
1.17 PLAN YEAR means the twelve (12) month period ending on the December
31 of each year during which the Plan is in effect.
1.18 TRUST means the Trust established pursuant to Article 11.
1.19 TRUSTEE means the trustee of the Trust established pursuant
to Article 11.
1.20 VALUATION DATE means the last day of each Plan Year and any other
date that the Employer, in its sole discretion, designates as a Valuation Date.
ARTICLE 2
---------
ELIGIBILITY AND PARTICIPATION
-----------------------------
2.1 REQUIREMENTS. Every Eligible Individual on the Effective Date shall be
eligible to become or continue as a Participant on the Effective Date. Every
other Eligible Individual shall be eligible to become a Participant on the first
Entry Date occurring on or after the date on which he or she becomes an Eligible
Individual. No individual shall become a Participant, however, if he or she is
not an Eligible Individual on the date his or her participation is to begin.
Participation in the Participant Compensation Deferral feature of the
Plan is voluntary. In order to participate in the Participant Compensation
Deferral feature of the Plan, an otherwise Eligible Individual must make written
application in such manner as may be required by Section 3.2 and by the Employer
and must agree to make Compensation Deferrals as provided in Article 3.
2.2 RE-EMPLOYMENT, ETC. If a Participant whose employment or Director
status with the Employer is terminated is subsequently re-employed by or
subsequently becomes a Director of the Employer, he or she shall become a
Participant in accordance with the provisions of Section 2.1.
2.3 CHANGE OF EMPLOYMENT CATEGORY. During any period in which a Participant
remains in the employ of the Employer, but ceases to be an Eligible Individual,
he or she shall not be eligible to make Compensation Deferrals hereunder.
3
<PAGE> 95
ARTICLE 3
---------
CONTRIBUTIONS AND CREDITS
-------------------------
3.1 EMPLOYER CONTRIBUTION CREDITS. There shall be established and
maintained a separate Employer Contribution Credit Account in the name of each
Participant who is an employee of the Employer. Such Account shall be credited
or debited, as applicable, with (a) amounts equal to the Employer's Contribution
Credits credited to that Account, if any; (b) any deemed earnings and losses (to
the extent realized, based upon deemed fair market value of the Account's deemed
assets) allocated to that Account; and (c) expenses and/or taxes charged to that
Account.
The Employer's Contribution Credits attributable to a Participant who
is an employee of the Employer shall consist of the following:
(i) matching contribution amounts for each pay period (but contributed
with a frequency determined by the Employer) equal to the
Participant's Participant Compensation Deferral amounts for that pay
period, provided however that the total Employer matching
contribution amounts under the Employer's 401(k) plan and this Plan
for any pay period shall not exceed six percent (6%) of the
Participant's Compensation from the Employer for that pay period; and
(ii) for a particular year, any discretionary Employer contribution
amounts that the Employer wishes to contribute, but is prohibited
under applicable law from contributing, as discretionary Employer
contribution amounts, under the Employer's 401(k) plan.
Notwithstanding the foregoing, any matching contributions credited to
a Participant's Account with respect to any pay period in excess of the limit
provided in paragraph (i) above, as determined by the Employer in good faith,
shall be returned to the Employer
With respect to service credited prior to January 1, 1998, a
Participant shall become vested in amounts credited to his or her Employer
Contribution Account pursuant to the following vesting schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 2 0%
2 25%
3 50%
4 75%
5 100%
4
<PAGE> 96
With respect to service credited on or after January 1, 1998, a
Participant shall become vested in amounts credited to his or her Employer
Contribution Credit Account pursuant to the following vesting schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 1 0%
1 20%
2 40%
3 60%
4 80%
5 100%
For purposes of the foregoing, each Participant will be credited with one
Year of Service for each twelve (12) month period of his employment with, or
service as a member of the Board of Directors of, the Employer.
Notwithstanding the foregoing, a Participant will become immediately
vested in amounts credited to his or her Employer Contribution Account upon his
or her death, his or her total and permanent disability (as determined by the
Employer, in its discretion), his or her retirement from service to the Employer
on or after age sixty-five (65), or a "Change in Control" of the Employer. For
this purpose, a Change in Control shall occur upon any of the following:
(i) the acquisition by any person, other than the Employer or any
employee benefit plan(s) of the Employer, of beneficial ownership of
twenty percent (20%) or more of the combined voting power of the
Employer's then outstanding voting securities;
(ii) the first purchase under a tender offer or exchange offer, other than
an offer by the Employer or any employee benefit plan(s) of the
Employer, pursuant to which shares of common stock of the Employer
have been purchased;
(iii)during any period of two (2) consecutive years, individuals who, at
the beginning of such period constitute the Board of Directors of the
Employer cease for any reason to constitute at least a majority
thereof, unless the election or the nomination for the election by
stockholders of the Employer of each new Director was approved by a
vote of at least two-thirds (2/3rds) of the Directors then still in
office who were Directors at the beginning of the period; or
(iv) approval by stockholders of the Employer of a merger, consolidation,
liquidation or dissolution of the Employer, or the sale of all or
substantially all of the assets of the Employer.
5
<PAGE> 97
3.2 PARTICIPANT COMPENSATION DEFERRALS. In accordance with rules
established by the Employer, a Participant may elect to defer Compensation which
is not yet payable and which would otherwise be paid to the Participant. Amounts
so deferred will be considered a Participant's "Compensation Deferrals".
Ordinarily, a Participant shall make such an election with respect to a coming
twelve (12) month Plan Year during the period beginning on the December 1 and
ending on the December 31 of the prior Plan Year, or during such other period
established by the Employer.
Compensation Deferrals shall be made through regular payroll or
retainer/meeting fee deductions and/or through an election by the Participant to
defer a bonus payment not yet payable to him or her at the time of the election.
The Participant may reduce his or her regular payroll or retainer/meeting fee
deduction Compensation Deferral amount for a particular year as of, and by
written notice delivered to the Employer at least thirty (30) days prior to, the
beginning of any regular payroll period, with such reduction being first
effective for Compensation to be earned in that payroll period. In the case of
bonus payment deferrals, the Participant may reduce his or her bonus payment
deferral percentage for a particular year by giving notice to the Employer of
the reduced bonus payment Compensation Deferral amount prior to the date the
applicable bonus is first due to be paid.
Once made, a Compensation Deferral regular payroll or
retainer/meeting fee deduction election shall continue in force indefinitely,
until reduced by the Participant as aforesaid or until changed by the
Participant for a coming year on a subsequent Participant Enrollment and
Election Form provided by the Employer. A bonus payment reduction election, or a
reduction thereof pursuant to the foregoing, shall continue in force only for
the Plan Year for which the election is first effective.
Compensation Deferrals shall be deducted by the Employer from the pay
of a deferring Participant. There shall be established and maintained by the
Employer a separate Compensation Deferral Account in the name of each
Participant to which shall be credited or debited: (a) amounts equal to the
Participant's Compensation Deferrals; (b) amounts equal to any deemed earnings
or losses (to the extent realized, based upon deemed fair market value of the
Account's deemed assets) attributable or allocable thereto; and (c) expenses
and/or taxes charged to that Account.
A Participant shall at all times be 100% vested in amounts credited
to his or her Participant Compensation Deferral Account.
3.3 CONTRIBUTIONS TO THE TRUST. Amounts shall be contributed by the
Employer to the Trust maintained under Section 11.1 equal to the amounts
required to be credited to the Participant's Account under Sections 3.1 and 3.2.
The Employer shall make a good faith effort to contribute these amounts to the
Trust as soon as is practicable after such amounts are determined. Employer
contributions to the Trust shall be made in cash, Stock Unit Plan credits, or in
common stock of the Employer.
6
<PAGE> 98
ARTICLE 4
---------
ALLOCATION OF FUNDS
-------------------
4.1 ALLOCATION OF DEEMED EARNINGS OR LOSSES ON ACCOUNTS. Subject to
Section 4.5, each Participant shall have the right to direct the Employer as to
how amounts in his or her Plan Account shall be deemed to be invested. Subject
to such limitations as may from time to time be required by law, imposed by the
Employer or the Trustee or contained elsewhere in the Plan, and subject to such
operating rules and procedures as may be imposed from time to time by the
Employer, prior to the date on which a direction will become effective, the
Participant shall have the right to direct the Employer as to how amounts in his
or her Account shall be deemed to be invested.
The Employer shall direct the Trustee to invest the account
maintained in the Trust on behalf of the Participant pursuant to the deemed
investment directions the Employer properly has received from the Participant.
The value of the Participant's Account shall be equal to the value of the
account maintained under the Trust on behalf of the Participant. As of each
valuation date of the Trust, the Participant's Account will be credited or
debited to reflect the Participant's deemed investments of the Trust.
The Participant's Plan Account will be credited or debited with the
increase or decrease in the realizable net asset value or credited interest, as
applicable, of the designated deemed investments, as follows. As of each
Valuation Date, an amount equal to the net increase or decrease in realizable
net asset value or credited interest, as applicable (as determined by the
Employer or the Trustee, as applicable), of each deemed investment option within
the Account since the preceding Valuation Date shall be allocated among all
Participants' Accounts deemed to be invested in that investment option in
accordance with the ratio which the portion of the Account of each Participant
which is deemed to be invested within that investment option, determined as
provided herein, bears to the aggregate of all amounts deemed to be invested
within that investment option.
4.2 ACCOUNTING FOR DISTRIBUTIONS. As of the date of any distribution
hereunder, the distribution made hereunder to the Participant or his or her
Beneficiary or Beneficiaries shall be charged to such Participant's Account.
Such amounts shall be charged on a pro rata basis against the investments of the
Trust in which the Participant's Account is deemed to be invested.
4.3 SEPARATE ACCOUNTS. A separate account under the Plan shall be
established and maintained hereunder to reflect the Account for each Participant
with sub-accounts to show separately the applicable deemed investments of the
Account.
7
<PAGE> 99
4.4 INTERIM VALUATIONS. If it is determined by the Employer that the value
of a Participant's Account as of any date on which distributions are to be made
differs materially from the value of the Participant's Account on the prior
Valuation Date upon which the distribution is to be based, the Employer, in its
discretion, shall have the right to designate any date in the interim as a
Valuation Date for the purpose of revaluing the Participant's Account so that
the Account will, prior to the distribution, reflect its share of such material
difference in value.
4.5 DEEMED INVESTMENT DIRECTIONS OF PARTICIPANTS. Subject to such
limitations as may from time to time be required by law, imposed by the Employer
or the Trustee or contained elsewhere in the Plan, and subject to such operating
rules and procedures as may be imposed from time to time by the Employer, prior
to and effective for each Designation Date, each Participant may communicate to
the Employer a direction as to how his or her Plan Accounts should be deemed to
be invested among such categories of deemed investments as may be made available
by the Employer hereunder. Such direction shall designate the percentage (in any
whole percent multiples) of the Participant's Plan Account which is requested to
be deemed to be invested in such categories of deemed investments.
Notwithstanding any contrary provision of the Plan, Participants shall not have
the right to direct the deemed investment of deferrals of director retainer fees
that otherwise would have been payable in common stock of the Employer. Rather,
deferrals of director retainer fees that otherwise would have been payable in
common stock of the Employer shall at all times be deemed to be invested in
common stock of the Employer.
An election concerning deemed investment choices shall continue
indefinitely until changed by the Participant in a manner specified by the
Employer. If the Employer receives an initial or revised deemed investment
direction which it deems to be incomplete, unclear or improper, the
Participant's investment direction then in effect shall remain in effect (or, in
the case of a deficiency in an initial deemed investment direction, the
Participant shall be deemed to have filed no deemed investment direction) until
the next Designation Date, unless the Employer provides for, and permits the
application of, corrective action prior thereto.
If the Employer possesses (or is deemed to possess as provided above)
at any time directions as to the deemed investment of less than all of a
Participant's Account, the Participant shall be deemed to have directed that the
undesignated portion of the Account be deemed to be invested in a money market,
fixed income, stable value or similar fund made available under the Plan as
determined by the Employer in its discretion.
Each Participant hereunder, as a condition to his or her
participation hereunder, agrees to indemnify and hold harmless the Employer and
its agents and representatives from any losses or damages of any kind relating
to the deemed investment of the Participant's Account hereunder.
Each reference in this Section to a Participant shall be deemed to
include, where applicable, a reference to a Beneficiary.
8
<PAGE> 100
4.6 EXPENSES. Expenses, including Trustee fees, allocable to the
administration or operation of an Account maintained under the Plan shall be
paid by the Employer unless, in the discretion of the Employer, the Employer
elects to charge such expenses, or any portion thereof, against the appropriate
Participant's Account or Participants' Accounts. If an expense, or any portion
thereof, is charged against a Participant's Account, at the discretion of the
Employer, such expense, or portion thereof, either (i) will reduce the
contribution to the Trust under Section 3.3 next due to be made by the Employer
in respect of the Account, or (ii) will be paid from the Trust to the Employer
out of assets of the Trust corresponding to the Participant's Account hereunder.
4.7 TAXES. Any taxes generated by earnings in an Account, as determined by
the Employer, shall be paid by the Employer unless, in the discretion of the
Employer, the Employer elects to charge such taxes against the appropriate
Participant's Account or Participants' Accounts. If a tax amount is charged
against a Participant's Account, at the discretion of the Employer, such expense
either (i) will reduce the contribution to the Trust under Section 3.3 next due
to be made by the Employer in respect of the Account, or (ii) will be paid from
the Trust to the Employer out of assets of the Trust corresponding to the
Participant's Account.
ARTICLE 5
---------
ENTITLEMENT TO BENEFITS
-----------------------
5.1 FIXED PAYMENT DATES; TERMINATION OF EMPLOYMENT. On his or her
Participant Enrollment and Election Form, a Participant may select a fixed
payment date for the payment or commencement of payment of his or her vested
Account, which will be valued and payable according to the provisions of Article
6. Such payment dates may be extended to later dates so long as elections to so
extend are made by the Participant prior to the then applicable fixed date. Such
payment dates may not be accelerated.
Alternatively, on his or her Participant Enrollment and Election
Form, a Participant may select payment or commencement of payment of his or her
vested Account at his or her termination of employment or Director status with
the Employer, or at the earlier of a fixed payment date or his or her
termination of employment or Director status with the Employer. In either of
these cases, the extension and non-acceleration rules discussed above shall
apply to such fixed payment date and/or termination of employment date, as
applicable.
Any fixed payment date elected by a Participant as provided above
must be no earlier than the January 1 of the third calendar year after the
calendar year in which the election is made. If a Participant does not select a
payment date or dates as aforesaid, his or her vested account shall be
distributed or commence to be distributed, as provided in Article 6, at the
termination of his or her employment or Director status with the Employer.
5.2 HARDSHIP DISTRIBUTIONS. In the event of financial hardship of the
Participant, as hereinafter defined, the Participant may apply to the Employer
for the distribution of all or any part of his or her vested Account. The
Employer shall consider the circumstances of each such case, and the best
interests of the Participant and his or her family, and shall have the right, in
its sole discretion, if applicable, to allow such distribution, or, if
applicable, to direct a distribution of part of the amount requested, or to
refuse to allow any distribution. Upon a finding of financial hardship, the
Employer shall make the appropriate distribution to the Participant from amounts
held by the Employer in respect of the Participant's vested Account. In no event
shall the aggregate amount of the distribution exceed either the full value of
the Participant's vested Account or the amount determined by the Employer to be
necessary to alleviate the Participant's financial hardship (which financial
hardship may be considered to include any taxes due because of the distribution
occurring because of this Section), and which is not reasonably available from
other resources of the Participant. For purposes of this Section, the value of
the Participant's vested Account shall be determined as of the date of the
distribution.
9
<PAGE> 101
"Financial hardship" means (a) a severe financial hardship to the
Participant resulting from a sudden and unexpected illness or accident of the
Participant or of a dependent (as defined in Code section 152(a)) of the
Participant, (b) loss of the Participant's property due to casualty, or (c)
other similar extraordinary and unforeseeable circumstances arising as a result
of events beyond the control of the Participant, each as determined to exist by
the Employer. A distribution may be made under this Section only with the
consent of the Employer.
5.3 APPLICATION TO TRUSTEE. On the date or dates on which a Participant or
Beneficiary is entitled to payment under Section 5.1, the Participant or
Beneficiary need not make application for payment to the Employer, but instead
may make application for payment directly to the Trustee who shall pay the
Participant or Beneficiary the appropriate amount directly from the Trust
without the consent of the Employer. The Trustee shall report the amount of each
such payment, and any withholding thereon, to the Employer.
5.4 RE-EMPLOYMENT OF RECIPIENT, ETC.. If a Participant receiving
installment distributions pursuant to Section 6.2 is re-employed by the Employer
(or becomes a member of the Employer's Board of Directors), the remaining
distributions due to the Participant shall be suspended until such time as the
Participant (or his or her Beneficiary) once again becomes eligible for benefits
under Section 5.1 or 5.2, at which time such distribution shall commence,
subject to the limitations and conditions contained in this Plan.
ARTICLE 6
---------
DISTRIBUTION OF BENEFITS
------------------------
6.1 AMOUNT. A Participant (or his or her Beneficiary) shall become
entitled to receive, on or about the date or dates selected by the Participant
on his or her Participant Enrollment and Election Form or, if none, on or about
the date of the Participant's termination of employment or Director status with
the Employer (or earlier as provided in Article 5), a distribution in an
aggregate amount equal to the Participant's vested Account. Any payment due
hereunder from the Trust which is not paid by the Trust for any reason will be
paid by the Employer from its general assets.
10
<PAGE> 102
6.2 METHOD OF PAYMENT.
(a) Cash Or In-Kind Payments. Payments under the Plan shall be made
in cash or in-kind, as elected by the Participant, as permitted by the Employer
and the Trustee in their sole and absolute discretion and subject to applicable
restrictions on transfer as may be applicable legally or contractually.
Notwithstanding the foregoing, payments in respect of Stock Unit Plan credits
that are deemed to be invested in common stock of the Employer, that are held in
a Participant's Account, will be paid in the form of Employer common stock
(except as otherwise permitted by the Employer).
(b) Timing and Manner of Payment. In the case of distributions to a
Participant or his or her Beneficiary by virtue of an entitlement pursuant to
Sections 5.1, an aggregate amount equal to the Participant's vested Account will
be paid by the Trust or the Employer, as provided in Section 6.1, in a lump sum
or in five (5) or ten (10) substantially equal annual installments (adjusted for
gains and losses), as selected by the Participant as provided in Article 5.
If a Participant fails to designate properly the manner of payment of
the Participant's benefit under the Plan, such payment will be in a lump sum.
If the whole or any part of a payment hereunder is to be in
installments, the total to be so paid shall continue to be deemed to be invested
pursuant to Sections 4.1 and 4.5 under such procedures as the Employer may
establish, in which case any deemed income, gain, loss or expense or tax
allocable thereto (as determined by the Trustee, in its discretion) shall be
reflected in the installment payments, in such equitable manner as the Trustee
shall determine.
6.3 DEATH BENEFITS. If a Participant dies before terminating his or her
employment or Director status with the Employer and before the commencement of
payments to the Participant hereunder, the entire value of the Participant's
Account shall be paid, at the time(s) selected by the Participant under Article
5 and in the manner provided in Section 6.2, to the person or persons designated
in accordance with Section 7.1.
Upon the death of a Participant after payments hereunder have begun
but before he or she has received all payments to which he or she is entitled
under the Plan, the remaining benefit payments shall be paid to the person or
persons designated in accordance with Section 7.1, in the manner in which such
benefits were payable to the Participant.
6.4 WITHHOLDING. All distributions under the Plan are subject to
any applicable tax withholding, as determined by the Employer in its discretion.
ARTICLE 7
---------
BENEFICIARIES; PARTICIPANT DATA
-------------------------------
7.1 DESIGNATION OF BENEFICIARIES. Each Participant from time to time may
designate any person or persons (who may be named contingently or successively)
to receive such benefits as may be payable under the Plan upon or after the
Participant's death, and such designation may be changed from time to time by
the Participant by filing a new designation. Each designation will revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Employer, and will be effective only when filed in writing with the Employer
during the Participant's lifetime.
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<PAGE> 103
In the absence of a valid Beneficiary designation, or if, at the time
any benefit payment is due to a Beneficiary, there is no living Beneficiary
validly named by the Participant, the Employer shall pay any such benefit
payment to the Participant's spouse, if then living, but otherwise to the
Participant's then living descendants, if any, per stirpes, but, if none, to the
Participant's estate. In determining the existence or identity of anyone
entitled to a benefit payment, the Employer may rely conclusively upon
information supplied by the Participant's personal representative, executor or
administrator.
If a question arises as to the existence or identity of anyone
entitled to receive a benefit payment as aforesaid, or if a dispute arises with
respect to any such payment, then, notwithstanding the foregoing, the Employer,
in its sole discretion, may distribute such payment to the Participant's estate
without liability for any tax or other consequences which might flow therefrom,
or may take such other action as the Employer deems to be appropriate.
7.2 INFORMATION TO BE FURNISHED BY PARTICIPANTS AND BENEFICIARIES;
INABILITY TO LOCATE PARTICIPANTS OR BENEFICIARIES. Any communication, statement
or notice addressed to a Participant or to a Beneficiary at his or her last post
office address as shown on the Employer's records shall be binding on the
Participant or Beneficiary for all purposes of the Plan. The Employer shall not
be obliged to search for any Participant or Beneficiary beyond the sending of a
registered letter to such last known address. If the Employer notifies any
Participant or Beneficiary that he or she is entitled to an amount under the
Plan and the Participant or Beneficiary fails to claim such amount or make his
or her location known to the Employer within three (3) years thereafter, then,
except as otherwise required by law, if the location of one or more of the next
of kin of the Participant is known to the Employer, the Employer may direct
distribution of such amount to any one or more or all of such next of kin, and
in such proportions as the Employer determines. If the location of none of the
foregoing persons can be determined, the Employer shall have the right to direct
that the amount payable shall be deemed to be a forfeiture, except that the
dollar amount of the forfeiture, unadjusted for deemed gains or losses in the
interim, shall be paid by the Employer if a claim for the benefit subsequently
is made by the Participant or the Beneficiary to whom it was payable. If a
benefit payable to an unlocated Participant or Beneficiary is subject to escheat
pursuant to applicable state law, the Employer shall not be liable to any person
for any payment made in accordance with such law.
ARTICLE 8
---------
ADMINISTRATION
--------------
8.1 ADMINISTRATIVE AUTHORITY. Except as otherwise specifically provided
herein, the Employer, acting through its Board of Directors or the designee or
designees thereof, shall have the sole responsibility for and the sole control
of the operation and administration of the Plan, and shall have the power and
authority to take all action and to make all decisions and interpretations which
may be necessary or appropriate in order to administer and operate the Plan,
including, without limiting the generality of the foregoing, the power, duty and
responsibility to:
12
<PAGE> 104
(a) Resolve and determine all disputes or questions arising under
the Plan, and to remedy any ambiguities, inconsistencies or omissions in the
Plan.
(b) Adopt such rules of procedure and regulations as in its opinion
may be necessary for the proper and efficient administration of the Plan and as
are consistent with the Plan.
(c) Implement the Plan in accordance with its terms and the rules
and regulations adopted as above.
(d) Make determinations with respect to the eligibility of any
Eligible Individual as a Participant and make determinations concerning the
crediting of Plan Accounts.
(e) Appoint any persons or firms, or otherwise act to secure
specialized advice or assistance, as it deems necessary or desirable in
connection with the administration and operation of the Plan, and the Employer
shall be entitled to rely conclusively upon, and shall be fully protected in any
action or omission taken by it in good faith reliance upon, the advice or
opinion of such firms or persons. The Employer shall have the power and
authority to delegate from time to time by written instrument all or any part of
its duties, powers or responsibilities under the Plan, both ministerial and
discretionary, as it deems appropriate, to any person or committee, and in the
same manner to revoke any such delegation of duties, powers or responsibilities.
Any action of such person or committee in the exercise of such delegated duties,
powers or responsibilities shall have the same force and effect for all purposes
hereunder as if such action had been taken by the Employer. Further, the
Employer may authorize one or more persons to execute any certificate or
document on behalf of the Employer, in which event any person notified by the
Employer of such authorization shall be entitled to accept and conclusively rely
upon any such certificate or document executed by such person as representing
action by the Employer until such notified person shall have been notified of
the revocation of such authority.
8.2 UNIFORMITY OF DISCRETIONARY ACTS. Whenever in the administration or
operation of the Plan discretionary actions by the Employer are required or
permitted, such actions shall be consistently and uniformly applied to all
persons similarly situated, and no such action shall be taken which shall
discriminate in favor of any particular person or group of persons.
8.3 LITIGATION. Except as may be otherwise required by law, in any action
or judicial proceeding affecting the Plan, no Participant or Beneficiary shall
be entitled to any notice or service of process, and any final judgment entered
in such action shall be binding on all persons interested in, or claiming under,
the Plan.
8.4 CLAIMS PROCEDURE. Any person claiming a benefit under the Plan (a
"Claimant") shall present the claim, in writing, to the Employer or the Trustee,
and the Employer or the Trustee shall respond in writing. If the claim is
denied, the written notice of denial shall state, in a manner calculated to be
understood by the Claimant:
13
<PAGE> 105
(a) The specific reason or reasons for the denial, with specific
references to the Plan provisions on which the denial is based;
(b) A description of any additional material or information
necessary for the Claimant to perfect his or her claim and an explanation of why
such material or information is necessary; and
(c) An explanation of the Plan's claims review procedure.
The written notice denying or granting the Claimant's claim shall be
provided to the Claimant within ninety (90) days after the Employer's or
Trustee's receipt of the claim, unless special circumstances require an
extension of time for processing the claim. If such an extension is required,
written notice of the extension shall be furnished by the Employer or Trustee to
the Claimant within the initial ninety (90) day period and in no event shall
such an extension exceed a period of ninety (90) days from the end of the
initial ninety (90) day period. Any extension notice shall indicate the special
circumstances requiring the extension and the date on which the Employer or
Trustee expects to render a decision on the claim. Any claim not granted or
denied within the period noted above shall be deemed to have been denied.
Any Claimant whose claim is denied, or deemed to have been denied
under the preceding sentence (or such Claimant's authorized representative),
may, within sixty (60) days after the Claimant's receipt of notice of the
denial, or after the date of the deemed denial, request a review of the denial
by notice given, in writing, to the Employer or Trustee. Upon such a request for
review, the claim shall be reviewed by the Employer or Trustee (or its
designated representative) which may, but shall not be required to, grant the
Claimant a hearing. In connection with the review, the Claimant may have
representation, may examine pertinent documents, and may submit issues and
comments in writing.
The decision on review normally shall be made within sixty (60) days
of the Employer's receipt of the request for review. If an extension of time is
required due to special circumstances, the Claimant shall be notified, in
writing, by the Employer or Trustee, and the time limit for the decision on
review shall be extended to one hundred twenty (120) days. The decision on
review shall be in writing and shall state, in a manner calculated to be
understood by the Claimant, the specific reasons for the decision and shall
include references to the relevant Plan provisions on which the decision is
based. The written decision on review shall be given to the Claimant within the
sixty (60) day (or, if applicable, the one hundred twenty (120) day) time limit
discussed above. If the decision on review is not communicated to the Claimant
within the sixty (60) day (or, if applicable, the one hundred twenty (120) day)
period discussed above, the claim shall be deemed to have been denied upon
review. All decisions on review shall be final and binding with respect to all
concerned parties.
14
<PAGE> 106
ARTICLE 9
---------
AMENDMENT
---------
9.1 RIGHT TO AMEND. The Employer, by written instrument executed by a duly
authorized representative of the Employer, shall have the right to amend the
Plan, at any time and with respect to any provisions hereof, and all parties
hereto or claiming any interest hereunder shall be bound by such amendment;
provided, however, that no such amendment shall deprive a Participant or a
Beneficiary of a right accrued hereunder prior to the date of the amendment.
9.2 AMENDMENTS TO ENSURE PROPER CHARACTERIZATION OF PLAN. Notwithstanding
the provisions of Section 9.1, the Plan may be amended by the Employer at any
time, retroactively if required in the opinion of the Employer, in order to
ensure that the Plan is characterized as "top-hat" plan as described under ERISA
sections 201(2), 301(a)(3), and 401(a)(1), and to conform the Plan to the
provisions and requirements of any applicable law (including ERISA and the
Code). No such amendment shall be considered prejudicial to any interest of a
Participant or a Beneficiary hereunder.
ARTICLE 10
----------
TERMINATION
-----------
10.1 EMPLOYER'S RIGHT TO TERMINATE OR SUSPEND PLAN. The Employer reserves
the right to terminate the Plan and/or its obligation to make further credits to
Plan Accounts. The Employer also reserves the right to suspend the operation of
the Plan for a fixed or indeterminate period of time.
10.2 AUTOMATIC TERMINATION OF PLAN. The Plan automatically shall terminate
upon the dissolution of the Employer, or upon its merger into or consolidation
with any other corporation or business organization if there is a failure by the
surviving corporation or business organization to adopt specifically and agree
to continue the Plan.
10.3 SUSPENSION OF DEFERRALS. In the event of a suspension of the Plan,
the Employer shall continue all aspects of the Plan, other than Compensation
Deferrals and Employer Contribution Credits, during the period of the
suspension, in which event payments hereunder will continue to be made during
the period of the suspension in accordance with Articles 5 and 6.
15
<PAGE> 107
10.4 ALLOCATION AND DISTRIBUTION. This Section shall become operative on a
complete termination of the Plan. The provisions of this Section also shall
become operative in the event of a partial termination of the Plan, as
determined by the Employer, but only with respect to that portion of the Plan
attributable to the Participants to whom the partial termination is applicable.
Upon the effective date of any such event, notwithstanding any other provisions
of the Plan, no persons who were not theretofore Participants shall be eligible
to become Participants, the value of the interest of all Participants and
Beneficiaries shall be determined and, after deduction of estimated expenses in
liquidating and, if applicable, paying Plan benefits, paid to them as soon as is
practicable after such termination.
10.5 SUCCESSOR TO EMPLOYER. Any corporation or other business organization
which is a successor to the Employer by reason of a consolidation, merger or
purchase of substantially all of the assets of the Employer shall have the right
to become a party to the Plan by adopting the same by resolution of the entity's
board of directors or other appropriate governing body. If, within ninety (90)
days from the effective date of such consolidation, merger or sale of assets,
such new entity does not become a party hereto, as above provided, the Plan
automatically shall be terminated, and the provisions of Section 10.4 shall
become operative.
ARTICLE 11
----------
THE TRUST
---------
11.1 ESTABLISHMENT OF TRUST. The Employer shall establish the Trust with
the Trustee pursuant to such terms and conditions as are set forth in the Trust
agreement to be entered into between the Employer and the Trustee. The Trust is
intended to be treated as a "grantor" trust under the Code and the establishment
of the Trust is not intended to cause the Participant to realize current income
on amounts contributed thereto, and the Trust shall be so interpreted.
ARTICLE 12
----------
MISCELLANEOUS
-------------
12.1 LIMITATIONS ON LIABILITY OF EMPLOYER. Neither the establishment of
the Plan nor any modification thereof, nor the creation of any account under the
Plan, nor the payment of any benefits under the Plan shall be construed as
giving to any Participant or other person any legal or equitable right against
the Employer, or any officer or employer thereof except as provided by law or by
any Plan provision. The Employer does not in any way guarantee any Participant's
Account from loss or depreciation, whether caused by poor investment performance
of a deemed investment or the inability to realize upon an investment due to an
insolvency affecting an investment vehicle or any other reason. In no event
shall the Employer, or any successor, employee, officer, director or stockholder
of the Employer, be liable to any person on account of any claim arising by
reason of the provisions of the Plan or of any instrument or instruments
implementing its provisions, or for the failure of any Participant, Beneficiary
or other person to be entitled to any particular tax consequences with respect
to the Plan, or any credit or distribution hereunder.
16
<PAGE> 108
12.2 CONSTRUCTION. If any provision of the Plan is held to be illegal or
void, such illegality or invalidity shall not affect the remaining provisions of
the Plan, but shall be fully severable, and the Plan shall be construed and
enforced as if said illegal or invalid provision had never been inserted herein.
For all purposes of the Plan, where the context admits, the singular shall
include the plural, and the plural shall include the singular. Headings of
Articles and Sections herein are inserted only for convenience of reference and
are not to be considered in the construction of the Plan. The laws of the State
of Maryland shall govern, control and determine all questions of law arising
with respect to the Plan and the interpretation and validity of its respective
provisions, except where those laws are preempted by the laws of the United
States. Participation under the Plan will not give any Participant the right to
be retained in the service of the Employer nor any right or claim to any benefit
under the Plan unless such right or claim has specifically accrued hereunder.
The Plan is intended to be and at all times shall be interpreted and
administered so as to qualify as a top-hat plan (as aforesaid), and no provision
of the Plan shall be interpreted so as to give any individual any right in any
assets of the Employer which right is greater than the rights of a general
unsecured creditor of the Employer.
12.3 SPENDTHRIFT PROVISION. No amount payable to a Participant or a
Beneficiary under the Plan will, except as otherwise specifically provided by
law, be subject in any manner to anticipation, alienation, attachment,
garnishment, sale, transfer, assignment (either at law or in equity), levy,
execution, pledge, encumbrance, charge or any other legal or equitable process,
and any attempt to do so will be void; nor will any benefit be in any manner
liable for or subject to the debts, contracts, liabilities, engagements or torts
of the person entitled thereto. Further, (i) the withholding of taxes from Plan
benefit payments, (ii) the recovery under the Plan of overpayments of benefits
previously made to a Participant or Beneficiary, (iii) if applicable, the
transfer of benefit rights from the Plan to another plan, or (iv) the direct
deposit of benefit payments to an account in a banking institution (if not
actually part of an arrangement constituting an assignment or alienation) shall
not be construed as an assignment or alienation.
In the event that any Participant's or Beneficiary's benefits
hereunder are garnished or attached by order of any court, the Employer or
Trustee may bring an action or a declaratory judgment in a court of competent
jurisdiction to determine the proper recipient of the benefits to be paid under
the Plan. During the pendency of said action, any benefits that become payable
shall be held as credits to the Participant's or Beneficiary's Account or, if
the Employer or Trustee prefers, paid into the court as they become payable, to
be distributed by the court to the recipient as the court deems proper at the
close of said action.
IN WITNESS WHEREOF, the Employer has caused this Amendment and Restatement
of the Plan to be executed and its seal to be affixed hereto, effective as of
the 1st day of March, 1998.
ATTEST/WITNESS THE RYLAND GROUP, INC.
/S/ Kelly Elinsky By: /S/ Edward W. Gold (SEAL)
- ---------------------------------- ------------------------------
Print: Kelly Elinsky Print Name: Edward W. Gold
Date: April 13, 1999
17
<PAGE> 109
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-11
<SEQUENCE>4
<DESCRIPTION>EARNINGS PER SHARE
<TEXT>
<HTML>
<HEAD>
<TITLE>
!Earnings per Share
</TITLE>
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<pre>
Exhibit 11 Computation of Per Share Earnings
December 31, December 31, December 31,
1999 1998 1997
- ----------------------------------------------------------------------------------------------
Basic:
Net earnings before extraordinary item $66,695 $43,592 $21,882
Extraordinary item, net of tax 0 (3,326) 0
------------- ------------- ------------
Net earnings 66,695 40,266 21,882
Adjustment for dividends on convertible
preferred shares (831) (1,000) (1,630)
------------- ------------- ------------
Net earnings applicable to common stockholders $65,864 $39,266 $20,252
Weighted average common shares outstanding 14,678,925 14,709,404 15,227,829
Net earnings per share before
extraordinary item $4.49 $2.90 $1.33
Extraordinary item 0.00 (0.23) 0.00
------------- ------------- ------------
Net earnings per share $4.49 $2.67 $1.33
============= ============= ============
Diluted:
Net earnings before extraordinary item $66,695 $43,592 $21,882
Extraordinary item, net of tax 0 (3,326) 0
------------- ------------- ------------
Net earnings 66,695 40,266 21,882
Adjustment for dividends on convertible
preferred shares 0 0 (1,630)
------------- ------------- ------------
Net earnings applicable to common stockholders $66,695 $40,266 $20,252
============= ============= ============
Weighted average common shares outstanding 14,678,925 14,709,404 15,227,829
Common stock equivalents:
Stock options 292,580 316,640 69,577
Equity Incentive plan 149,622 113,894 107,661
Convertible preferred stock (1) 384,255 463,374 0
------------- ------------- ------------
Total 15,505,382 15,603,312 15,405,067
============= ============= ============
Net earnings per share before
extraordinary item $4.30 $2.79 $1.32
Extraordinary item 0.00 (0.21) 0.00
------------- ------------- ------------
Net earnings per share $4.30 $2.58 $1.32
============= ============= ============
(1) The assumed conversion of preferred shares was dilutive for the years ended
December 31, 1999 and 1998. For the year ending December 31, 1997 the net
earnings was adjusted for dividends on convertible preferred shares as the
adjustment for incremental dividends related to the assumed conversion of
convertible preferred shares would be anti-dilutive.
<PAGE> 110
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</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<DESCRIPTION>ANNUAL REPORT TO STOCKHOLDERS
<TEXT>
<HTML>
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<TITLE>
!Annual Report
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<pre>
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Selected Financial Data
(amounts in millions, except share data) unaudited 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------
ANNUAL RESULTS
Revenues
Homebuilding $ 1,959 $ 1,695 $ 1,557 $ 1,473 $ 1,458
Financial services and limited-purpose subsidiaries 50 70 93 107 127
------- ------- ------- ------- -------
Total 2,009 1,765 1,650 1,580 1,585
Cost of sales-- homebuilding 1 1,633 1,429 1,346 1,277 1,325
Selling, general and administrative expenses 239 216 211 203 211
Interest expense 28 45 57 74 91
------- ------- ------- ------- -------
Earnings (loss) from continuing operations before taxes 109 75 36 26 (42)
Tax expense (benefit) 42 32 14 10 (17)
------- ------- ------- ------- -------
Net earnings (loss) from continuing operations
before extraordinary item 67 43 22 16 (25)
Discontinued operations, net of taxes 2 0 0 0 0 22
Extraordinary item, extinguishment of debt 3 0 (3) 0 0 0
------- ------- ------- ------- -------
Net earnings (loss) $ 67 $ 40 $ 22 $ 16 $ (3)
- ------------------------------------------------------------------------------------------------------------------
YEAR-END POSITION
Assets
Housing inventories $ 823 $ 642 $ 555 $ 575 $ 538
Mortgage loans, held-for-sale 40 159 200 180 285
Mortgage-backed securities and notes receivable 99 112 153 144 113
Collateral for bonds payable of limited-purpose subsidiaries 40 92 142 214 375
Other assets 246 210 233 226 270
------- ------- ------- ------- -------
Total assets $ 1,248 $ 1,215 $ 1,283 $ 1,339 $ 1,581
- ------------------------------------------------------------------------------------------------------------------
Liabilities
Long-term debt $ 378 $ 308 $ 310 $ 354 $ 397
Short-term notes payable 157 223 341 326 367
Bonds payable of limited-purpose subsidiaries 37 88 137 207 365
Other liabilities 290 250 190 142 151
------- ------- ------- ------- -------
Total liabilities $ 862 $ 869 $ 978 $ 1,029 $ 1,280
- ------------------------------------------------------------------------------------------------------------------
Stockholders' equity $ 386 $ 346 $ 305 $ 310 $ 301
- ------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Basic
Net earnings (loss) from continuing operations
before extraordinary item $ 4.49 $ 2.90 $ 1.33 $ 0.88 $ (1.78)
Net earnings (loss) $ 4.49 $ 2.67 $ 1.33 $ 0.88 $ (0.31)
Diluted
Net earnings (loss) from continuing operations
before extraordinary item $ 4.30 $ 2.79 $ 1.32 $ 0.87 $ (1.78)
Net earnings (loss) $ 4.30 $ 2.58 $ 1.32 $ 0.87 $ (0.31)
Dividends declared $ 0.16 $ 0.16 $ 0.27 $ 0.60 $ 0.60
Stockholders' equity $ 27.22 $ 22.83 $ 20.31 $ 19.00 $ 18.69
- ------------------------------------------------------------------------------------------------------------------
1. 1995 reflects a $45 million pretax charge related to homebuilding
inventories and investments in unconsolidated joint ventures.
2. The Company sold its institutional mortgage securities administration
business in the second quarter of 1995. Results from discontinued
operations include a second-quarter gain on this sale and the results of
operations for the first half of 1995.
3. The Company reported an extraordinary after-tax charge of $3.3 million in
1998 which was related to a loss on the early extinguishment of debt.
21
<PAGE> 111
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Results of
Operations and Financial Condition
THE COMPANY
Operations of The Ryland Group and its subsidiaries ("the Company") consist of
two business segments: homebuilding and financial services. The Company's
homebuilding segment constructs and sells single-family attached and detached
homes in 21 markets. The financial services segment provides mortgage-related
products and services for retail customers and conducts investment activities.
RESULTS OF OPERATIONS
Consolidated
The Company reported record consolidated net earnings from operations of $66.7
million, or $4.49 per share ($4.30 per share diluted), for 1999, compared to
consolidated net earnings (before extraordinary item) of $43.6 million, or $2.90
per share ($2.79 per share diluted), for 1998 and consolidated net earnings of
$21.9 million, or $1.33 per share ($1.32 per share diluted), for 1997.
The homebuilding segment reported pretax earnings of $120.8 million for 1999,
compared to pretax earnings of $80.1 million for 1998 and pretax earnings of
$35.2 million for 1997. Homebuilding results in 1999 increased from 1998
primarily due to higher gross profit margins combined with increased closing
volume and lower interest expense. Homebuilding results in 1998 increased from
1997 also due to higher gross profit margins combined with increased closing
volume and lower interest expense.
The financial services segment reported pretax earnings of $11.8 million for
1999, compared to $5.7 million (excluding a $6.1 million gain on the bulk sale
of servicing rights) reported for the full year 1998 and $15.6 million reported
for 1997. The increase in 1999 from 1998, excluding the $6.1 million gain, was
due to cost-reduction initiatives and lower interest expense. The decrease in
1998 from 1997 was primarily attributable to a significant reduction in the
Company's loan servicing operations due to portfolio sales in 1997 and in the
first quarter of 1998.
Corporate expenses represent the costs of corporate functions which support the
business segments. Corporate expenses of $23.3 million for 1999 and $16.7
million for 1998 increased $6.6 million and $2.4 million, respectively, from
prior year levels, primarily resulting from increases in incentive compensation
attributable to higher earnings levels in 1999 and 1998 and charges totaling
$3.4 million in 1999, relating to the relocation of the corporate office to
California.
The Company's limited-purpose subsidiaries no longer issue mortgage-backed
securities and mortgage-participation securities, but they continue to hold
collateral for previously issued mortgage-backed bonds in which the Company
maintains a residual interest. Revenues, expenses and portfolio balances
continue to decline as mortgage collateral pledged to secure the bonds decreases
due to scheduled payments, prepayments and exercises of early redemption
provisions. Revenues have approximated expenses for the last three years.
HOMEBUILDING SEGMENT
Results of operations for the homebuilding segment are summarized as follows
(amounts in thousands, except average closing price):
1999 1998 1997
- -----------------------------------------------------------------
Revenues
Residential $1,937,387 $1,664,267 $1,527,107
Other 21,445 30,238 30,219
---------- ---------- ----------
Total 1,958,832 1,694,505 1,557,326
Gross profit 325,738 265,742 211,185
Selling, general and
administrative expenses 193,193 168,004 152,071
Interest expense 11,715 17,681 23,964
---------- ---------- ----------
Homebuilding pretax
earnings $ 120,830 $ 80,057 $ 35,150
Average closing price $ 190,000 $ 185,000 $ 182,000
- -----------------------------------------------------------------
Homebuilding revenues increased 16 percent in 1999, compared to 1998, due to a
13 percent increase in closings and an increase in the average closing price.
The increase in closings in 1999 was due to a higher backlog at the beginning of
the year and an increase in homes sold during the year. Homebuilding revenues
increased 9 percent in 1998, compared to 1997, due to a 7 percent increase in
closings and an increase in the average closing price. Homebuilding results
included pretax gains from land sales of $0.7 million, $1.2 million and $4.8
million in 1999, 1998 and 1997, respectively.
Gross profit margins from home sales averaged 16.8 percent for 1999, an increase
from the 15.9 percent for 1998 and a significant increase from the 13.5 percent
for 1997. The improvement was primarily due to increased closings from newer
communities, which had more profitable land positions and a more cost-effective
product. Sales price increases and Company initiatives to reduce direct
construction costs also contributed to improved margins.
Selling, general and administrative expenses as a percent of revenues were 9.9
percent for 1999 and 1998 and 9.8 percent for 1997. This slight increase from
1997 was primarily due to higher selling costs associated with increased
closings and a higher incentive compensation expense resulting from improved
earnings.
Interest expense decreased $6.0 million, or 34 percent in 1999, compared to
1998, due to lower effective rates paid on borrowings and an increase in the
amount of interest capitalized on land under development. Interest expense
decreased 26 percent in 1998, compared to 1997, due to lower average
homebuilding borrowings, lower effective rates paid on borrowings and an
increase in the amount of interest capitalized on land under development.
22
<PAGE> 112
HOMEBUILDING OPERATIONAL DATA
- ---------------------------------------------------------------
New Orders (Units) % Closings (Units) %
1999 1998 Change 1999 1998 Change
- ---------------------------------------------------------------
North 2,917 2,776 5 2,801 2,670 5
South 5,235 4,205 25 4,981 3,877 28
West 2,256 2,449 (8) 2,411 2,447 (1)
------ ------ ------ ------ ------ ------
Total 10,408 9,430 10 10,193 8,994 13
- ---------------------------------------------------------------
Outstanding Contracts Outstanding Contracts
December 31, 1999 December 31, 1998
- --------------------------------------------------------------------------------------
Dollars Dollars
% in Average in Average
Units Change Millions Price Units Millions Price
- --------------------------------------------------------------------------------------
North 1,211 11 $ 227 $187,000 1,095 $ 213 $194,000
South 2,068 14 361 174,000 1,814 312 172,000
West 388 (29) 103 266,000 543 128 235,000
-------- -------- -------- -------- -------- -------- --------
Total 3,667 6 $ 691 $188,000 3,452 $ 653 $189,000
- --------------------------------------------------------------------------------------
New orders increased 10 percent in 1999, compared to 1998. In the West region,
sales were down primarily due to an exit from the Portland and Salt Lake
markets. As of December 31, 1999, the Company had outstanding contracts for
3,667 units, an increase of 6 percent from year-end 1998, due to the increase in
new orders during the year. Outstanding contracts represent the Company's
backlog of sold but not closed homes, which are generally built and closed,
subject to cancellation, over the subsequent two quarters. The $691 million
value of outstanding contracts increased 6 percent from year-end 1998.
FINANCIAL SERVICES SEGMENT
Revenues and expenses of the Company's financial services segment are
summarized as follows (amounts in thousands):
1999 1998 1997
- ------------------------------------------------------------
Retail revenues:
Interest and
net origination fees $ 5,595 $ 7,524 $ 7,651
Gains on sales of mortgages
and servicing rights 17,598 22,667 21,968
Loan servicing 1,581 7,675 24,464
Title/escrow 9,036 8,723 6,394
------- ------- -------
Total retail revenues 33,810 46,589 60,477
Revenues from investment
operations 9,776 13,796 16,452
------- ------- -------
Total revenues $43,586 $60,385 $76,929
Expenses:
General and administrative 21,905 32,023 43,454
Interest 9,843 16,574 17,890
------- ------- -------
Total expenses 31,748 48,597 61,344
------- ------- -------
Pretax earnings $11,838 $11,788 $15,585
- ------------------------------------------------------------
Pretax earnings by line of business were as follows
(amounts in thousands):
1999 1998 1997
- ------------------------------------------------------------
Retail $ 9,180 $ 7,915 $10,093
Investments 2,658 3,873 5,492
------- ------- -------
Total $11,838 $11,788 $15,585
- ------------------------------------------------------------
FINANCIAL SERVICES OPERATIONAL DATA
1999 1998 1997
- -------------------------------------------------------------
Retail operations:
Number of mortgage
originations 7,106 8,412 7,248
Dollars (in millions) $1,100 $1,200 $1,005
Percent of total originations
from Ryland Homes 68% 70% 66%
Investment operations:
Portfolio average
balance (in millions) $ 98 $ 139 $ 153
- -------------------------------------------------------------
Revenues and general and administrative expenses for the financial services
segment decreased for the year ended December 31, 1999, compared with 1998. The
decreases were primarily due to a decline in loan servicing operations which
were related to loan servicing portfolio sales in the first quarter of 1998 and
a decrease in originations. An increase in profitability per loan more than
offset the effect of lower originations and reduced servicing income. Revenues
and general and administrative expenses for financial services decreased for
the year ended 1998, compared with 1997, due in part to a decline in loan
servicing operations which were related to loan servicing portfolio sales in
1997 and during the first quarter of 1998.
23
<PAGE> 113
Interest expense decreased 41 percent for the year ended December 31, 1999,
compared with 1998, primarily due to a decrease in the warehouse holding period
for mortgage loans before they were sold in the secondary market and a lower
investment portfolio balance. Interest expense decreased 7 per cent for the year
ended 1998, compared with 1997, primarily due to a decrease in the warehouse
holding period for mortgage loans before they were sold in the secondary market.
Retail operations include residential mortgage origination, loan servicing,
title, escrow and homeowners insurance services for retail customers. Retail
operations reported pretax earnings of $9.2 million for 1999, compared with $7.9
million for 1998 and $10.1 million for 1997. The Company sold the majority of
its loan servicing portfolio in the first quarter of 1998 and realized a $6.1
million pretax gain, net of expenses and liabilities related to the sale of
servicing.
Mortgage originations decreased in 1999 by 16 percent from 1998 primarily due to
a decrease in third-party originations, partially offset by a higher closing
volume from homebuilder originations. The decrease in 1999 from 1998 was
primarily attributable to the Company's decision to exit certain third-party
origination markets. The number of mortgage originations for 1998 increased by
16 percent from 1997 due to a higher closing volume from homebuilder loan
originations and higher refinancing activity.
Investment operations holds certain assets, primarily mortgage-backed
securities, which were obtained as a result of the exercise of redemption rights
on various mortgage-backed bonds previously owned by the Company's
limited-purpose subsidiaries. Pretax earnings from investment operations were
$2.7 million for 1999, compared with $3.9 million for 1998 and $5.5 million for
1997. Pretax earnings decreased $1.2 million in 1999, compared with 1998,
primarily due to a lower average portfolio balance which resulted in a decline
in interest and other income. The decline in 1998 was also due to a lower
average portfolio balance which resulted in a decline in interest income, and
due to the fact that 1997 results included $0.8 million of other income related
to the redemption of certain securities.
FINANCIAL CONDITION AND LIQUIDITY
Cash requirements for the Company's homebuilding and financial services
segments are generally provided from outside borrowings and internally generated
funds. The Company believes that its current sources of cash are sufficient to
finance its current requirements.
The homebuilding segment's borrowings include senior notes, senior subordinated
notes, an unsecured revolving credit facility and nonrecourse secured notes
payable. Senior and senior subordinated notes outstanding totaled $308 million
as of December 31, 1999 and 1998.
The Company uses its unsecured revolving credit facility to finance increases
in its homebuilding inventory and working capital. In October 1999, the Company
increased its bank revolving credit agreement from $300 million to $375 million.
This new facility will mature in October 2003. There was $70 million in
outstanding borrowings under this facility as of December 31, 1999, and no
outstanding borrowings under this facility as of December 31, 1998. The Company
had letters of credit outstanding under this facility totaling $49 million at
December 31, 1999, and $34 million at December 31, 1998. To finance land
purchases, the Company may also use seller-financed, nonrecourse secured notes
payable. At December 31, 1999 and 1998, there were no material outstanding
seller-financed notes payable.
Housing inventories increased to $823 million as of December 31, 1999, from $642
million as of December 31, 1998. This increase reflects a higher sold inventory,
related to the increase in year-end backlog, and an increase in land under
development and improved lots commensurate with growth. The increase in
inventory was funded with internally generated funds and borrowings under the
revolving credit facility.
The financial services segment uses cash generated from
operations and borrowing arrangements to finance its operations. The financial
services segment renewed its three-year bank credit facility, which provides up
to $200 million for mortgage warehouse funding and matures in May 2002. Other
borrowing arrangements as of December 31, 1999, included repurchase agreement
facilities aggregating $150 million and a $35 million revolving credit facility
used to finance investment portfolio securities. At December 31, 1999 and 1998,
combined borrowings of the financial services segment outstanding under all
agreements were $157 million and $223 million, respectively.
Mortgage loans, notes receivable and mortgage-backed
securities held by the limited-purpose subsidiaries were pledged as collateral
for previously issued mortgage-backed bonds, the terms of which provided for the
retirement of all bonds from the proceeds of the collateral. The source of cash
for the bond payments was cash received from the mortgage loans, notes
receivable and mortgage-backed securities.
The Ryland Group has not guaranteed the debt of either the financial services
segment or the limited-purpose subsidiaries.
During 1999, the Company repurchased approximately 1,188,000 shares of its
outstanding common stock at a cost of approximately $27 million. As of December
31, 1999, the Company had Board authorization to repurchase up to an additional
770,200 shares of its outstanding common stock. In addition, in February 2000,
the Board of Directors approved the repurchase of up to one million shares of
the Company's outstanding common stock. The Company's stock repurchase program
has been funded through internally generated funds.
24
<PAGE> 114
YEAR 2000 READINESS DISCLOSURE
The Company did not experience any disruptions to its systems or business
related to the Year 2000 remediation. The Company completed its Year 2000
remediation efforts, and its business systems are Year 2000 compliant. The costs
of achieving Year 2000 compliance aggregated between $1 to $2 million.
MARKET RISK SUMMARY
The following table provides information about the Company's significant
financial instruments that are sensitive to changes in interest rates. For debt
obligations, the table presents principal cash flows and related
weighted-average interest rates by expected maturity dates. Weighted-average
variable rates are based on implied forward rates as of the reporting date.
INTEREST RATE SENSITIVITY
Principal Amount by Expected Maturity
Fair Value
(dollars in thousands) 2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/99
- ------------------------------------------------------------------------------------------------------------------------------------
HOMEBUILDING
Liabilities
Long-term debt (fixed rate) $ 8,000 $100,000 $ 200,000 $308,000 $295,080
Average interest rate 10.5% 9.6% 9.4% 9.5%
Long-term debt (variable rate) $ 70,000 1 $ 70,000 $ 70,000
Average interest rate Various 2 Various 2
FINANCIAL SERVICES
Assets
Mortgage loans, held-for-sale
(fixed rate) $ 30,913 $ 30,913 $ 31,398
Average interest rate 6.2% 6.2%
Mortgage loans, held-for-sale
(variable rate) $ 9,607 $ 9,607 $ 9,758
Average interest rate 7.2% 7.2%
Mortgage-backed securities,
available-for-sale $ 6,508 $ 4,983 $ 3,824 $ 2,933 $ 2,252 $ 7,617 $ 28,117 $ 29,823
Average interest rate 9.3% 9.4% 9.4% 9.5% 9.5% 9.6% 9.5%
Mortgage-backed securities,
held-to-maturity $ 4,036 $ 2,949 $ 2,158 $ 1,582 $ 1,161 $ 3,248 $ 15,134 $ 15,911
Average interest rate 8.7% 8.7% 8.7% 8.7% 8.8% 8.8% 8.7%
Notes receivable, whole loans
and funds held by trustee $ 13,356 $10,028 $ 7,549 $ 5,689 $ 4,291 $13,379 $ 54,292 $ 57,433
Average interest rate 9.2% 9.2% 9.2% 9.3% 9.3% 9.4% 9.3%
Liabilities
Short-term notes payable
(variable rate) $ 97,234 $ 60,224 3 $157,458 $157,458
Average interest rate Various 2 Various 2 Various 2
Off balance sheet financial
instruments
Forward-delivery contracts:
Notional amount $ 30,000 $ 30,000 $ 298
Average interest rate 7.3% 7.3%
Commitments to originate
mortgage loans:
Notional amount $ 18,880 $ 18,880 $ 3,292
Average interest rate 7.7% 7.7%
- ------------------------------------------------------------------------------------------------------------------------------------
1. Includes borrowings under the unsecured revolving credit facility, which
expires in 2003. The Company does not represent that such borrowings will
be outstanding until 2003.
2. Variable interest rate available to the Company is based upon LIBOR,
Federal Funds or Prime Rate plus the specified margin over LIBOR, Federal
Funds or Prime Rate.
3. Includes borrowings under the mortgage warehouse facility. The Company does
not represent such borrowings will be outstanding until 2002.
25
<PAGE> 115
Interest rate risk is the primary market risk facing the Company. Interest rate
risk not only arises principally in the Company's financial services segment,
but also in respect to the homebuilding segment's long-term debt. The Company
enters into forward-delivery contracts and may, at times, use other hedging
contracts to mitigate its exposure to movements in interest rates on mortgage
loan commitments and mortgage loans held-for-sale. The selection of these
hedging contracts is based upon a marketing strategy which establishes a risk
tolerance level. The major factors influencing the use of hedging contracts
include general market conditions, interest rates, types of mortgages originated
and the percentage of mortgage loan commitments expected to be funded. The
market risk assumed while holding the hedging contracts generally mitigates the
market risk associated with mortgage loan commitments and mortgage loans
held-for-sale. In managing interest rate risk, the Company does not speculate on
the direction of interest rates. Although collateral for bonds payable and bonds
payable of the limited-purpose subsidiaries are subject to interest rate risk,
the Company has not guaranteed nor is otherwise obligated with respect to these
bond issues and, therefore, has no risk of loss.
Note:
Certain statements in this annual report may be "forward-looking statements"
within the meaning of the Private Securities Litigation Act of 1995.
Forward-looking statements are based on various factors and assumptions that
include risks and uncertainties, the completion and profitability of sales
reported, the market for homes generally and in areas where the Company
operates, the availability and cost of land, changes in economic conditions and
interest rates, availability and increases in raw material and labor costs,
consumer confidence, government regulations, and general competitive and
industry related factors, all or each of which may cause actual results to
differ materially.
26
<PAGE> 116
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
Year ended December 31,
(amounts in thousands, except share data) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUES
Homebuilding:
Residential revenue $ 1,937,387 $ 1,664,267 $ 1,527,107
Other revenue 21,445 30,238 30,219
------------ ------------ ------------
Total homebuilding revenue 1,958,832 1,694,505 1,557,326
Financial services 43,586 60,385 76,929
Limited-purpose subsidiaries 6,848 10,598 15,551
------------ ------------ ------------
Total revenues 2,009,266 1,765,488 1,649,806
EXPENSES
Homebuilding:
Cost of sales 1,633,094 1,428,763 1,346,141
Selling, general and administrative 193,193 168,004 152,071
Interest 11,715 17,681 23,964
------------ ------------ ------------
Total homebuilding expenses 1,838,002 1,614,448 1,522,176
Financial services:
General and administrative 21,905 32,023 43,454
Interest 9,843 16,574 17,890
------------ ------------ ------------
Total financial services expenses 31,748 48,597 61,344
Limited-purpose subsidiaries 6,848 10,598 15,551
Corporate 23,332 16,687 14,265
------------ ------------ ------------
Total expenses 1,899,930 1,690,330 1,613,336
Earnings before taxes and extraordinary item 109,336 75,158 36,470
Tax expense 42,641 31,566 14,588
------------ ------------ ------------
NET EARNINGS BEFORE EXTRAORDINARY ITEM 66,695 43,592 21,882
Extraordinary item-- loss on early extinguishment
of debt (net of taxes of $2,217) 0 (3,326) 0
------------ ------------ ------------
NET EARNINGS $ 66,695 $ 40,266 $ 21,882
- -------------------------------------------------------------------------------------------------------
Preferred dividends $ 831 $ 1,000 $ 1,630
Net earnings applicable to common stockholders $ 65,864 $ 39,266 $ 20,252
NET EARNINGS PER COMMON SHARE
Basic:
Net earnings before extraordinary item $ 4.49 $ 2.90 $ 1.33
Extraordinary item 0 (0.23) 0
------------ ------------ ------------
Net earnings per common share $ 4.49 $ 2.67 $ 1.33
Diluted:
Net earnings before extraordinary item $ 4.30 $ 2.79 $ 1.32
Extraordinary item 0 (0.21) 0
------------ ------------ ------------
Net earnings per common share $ 4.30 $ 2.58 $ 1.32
Average common shares outstanding:
Basic 14,678,925 14,709,404 15,227,829
Diluted 15,505,382 15,603,312 15,405,067
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
27
<PAGE> 117
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31,
(amounts in thousands, except share data) 1999 1998
- -----------------------------------------------------------------------------------------
ASSETS
Homebuilding:
Cash and cash equivalents $ 36,297 $ 48,100
Housing inventories:
Homes under construction 432,735 373,012
Land under development and improved lots 389,946 268,750
---------- ----------
Total inventories 822,681 641,762
Property, plant and equipment 26,619 26,818
Purchase price in excess of net assets acquired 21,710 23,473
Other assets 48,064 38,515
---------- ----------
955,371 778,668
Financial Services:
Cash and cash equivalents 33,629 1,684
Mortgage loans, held-for-sale 40,520 158,611
Mortgage-backed securities and notes receivable 99,249 111,654
Other assets 16,326 14,734
---------- ----------
189,724 286,683
Other Assets:
Collateral for bonds payable of limited-purpose subsidiaries 39,633 92,403
Net deferred taxes 32,134 31,384
Other 31,461 26,260
---------- ----------
TOTAL ASSETS $1,248,323 $1,215,398
LIABILITIES
Homebuilding:
Accounts payable and other liabilities $ 208,133 $ 173,370
Long-term debt 378,000 308,152
---------- ----------
586,133 481,522
Financial Services:
Accounts payable and other liabilities 7,211 16,473
Short-term notes payable 157,458 223,058
---------- ----------
164,669 239,531
Other Liabilities:
Bonds payable of limited-purpose subsidiaries 37,339 87,980
Other 73,645 60,082
---------- ----------
TOTAL LIABILITIES 861,786 869,115
---------- ----------
STOCKHOLDERS' EQUITY:
Convertible preferred stock, $1 par value:
Authorized-- 1,400,000 shares
Issued-- 350,137 shares (416,744 for 1998) 350 417
Common stock, $1 par value:
Authorized -- 78,600,000 shares
Issued-- 13,850,819 shares (14,751,753 for 1998) 13,851 14,752
Paid-in capital 71,730 93,193
Retained earnings 299,547 236,011
Accumulated other comprehensive income 1,059 1,910
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 386,537 346,283
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,248,323 $1,215,398
- -----------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
28
<PAGE> 118
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity
ACCUMULATED
OTHER TOTAL
PREFERRED COMMON PAID-IN RETAINED COMPREHENSIVE DUE FROM STOCKHOLDERS'
(amounts in thousands, except share data) STOCK STOCK CAPITAL EARNINGS INCOME RSOP TRUST EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT JANUARY 1, 1997 $862 $15,853 $116,652 $184,678 $2,758 $(10,354) $310,449
Comprehensive income:
Net earnings 21,882 21,882
Other comprehensive income, net of tax:
Unrealized gains/(losses) on mortgage-
backed securities,
net of taxes of $(184) (276) (276)
Total comprehensive income 21,606
Preferred stock dividends (per share $2.21) (1,630) (1,630)
Common stock dividends (per share $0.27) (4,155) (4,155)
Repurchase of common stock (1,689) (23,824) (25,513)
Conversions of preferred stock (110) 110 (1,474) (1,474)
Retirement of preferred stock and
related RSOP debt (249) (9,293) (1,850) 11,392 0
Reclassification of preferred paid-in capital
and related RSOP receivable 2,400 (6,037) (3,637)
RSOP debt repayments 4,999 4,999
Employee stock plans (248,017 shares) 248 4,041 189 4,478
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1997 503 14,522 88,502 199,114 2,482 0 305,123
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 40,266 40,266
Other comprehensive income, net of tax:
Unrealized gains/(losses) on mortgage-
backed securities,
net of taxes of $(381) (572) (572)
Total comprehensive income 39,694
Preferred stock dividends (per share $2.21) (1,000) (1,000)
Common stock dividends (per share $0.16) (2,369) (2,369)
Repurchase of common stock (353) (6,676) (7,029)
Conversions and retirements of
preferred stock (86) 73 (1,446) (1,459)
Reclassification of preferred paid-in capital 3,242 3,242
Employee stock plans (509,580 shares) 510 9,571 10,081
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1998 417 14,752 93,193 236,011 1,910 0 346,283
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net earnings 66,695 66,695
Other comprehensive income, net of tax:
Unrealized gains/(losses) on mortgage-
backed securities,
net of taxes of $(543) (851) (851)
Total comprehensive income 65,844
Preferred stock dividends (per share $2.21) (831) (831)
Common stock dividends (per share $0.16) (2,328) (2,328)
Repurchase of common stock (1,188) (25,938) (27,126)
Conversions and retirements of
preferred stock (67) 63 (896) (900)
Reclassification of preferred paid-in capital 612 612
Employee stock plans (223,800 shares) 224 4,759 4,983
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1999 $350 $13,851 $ 71,730 $299,547 $1,059 $ 0 $386,537
- ------------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
29
<PAGE> 119
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Year ended December 31,
(amounts in thousands) 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 66,695 $ 40,266 $ 21,882
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization 28,010 25,586 31,396
Loss on early extinguishment of debt 0 5,543 0
Changes in assets and liabilities, net of effects from acquisition:
(Increase) decrease in inventories (178,590) (67,828) 19,759
Net change in other assets, payables and other liabilities 34,971 95,272 31,657
Decrease (increase) in mortgage loans held-for-sale 118,091 41,246 (19,708)
Other operating activities, net (10,039) 354 (849)
--------- --------- ---------
Net cash provided by operating activities 59,138 140,439 84,137
CASH FLOWS FROM INVESTING ACTIVITIES
Net additions to property, plant and equipment (29,026) (22,734) (17,568)
Principal reduction of mortgage collateral 28,940 39,887 41,537
Net principal reduction of mortgage-backed securities, available-for-sale 11,629 10,899 11,969
Sales of mortgage-backed securities, available-for-sale 0 10,935 2,222
Net principal reduction of mortgage-backed securities, held-to-maturity 15,689 19,942 15,064
Decrease (increase) in funds held by trustee 7,843 8,796 (6,808)
Acquisition of The Regency Organization 0 (17,885) 0
Other investing activities, net (232) 767 239
--------- --------- ---------
Net cash provided by investing activities 34,843 50,607 46,655
CASH FLOWS FROM FINANCING ACTIVITIES
Cash proceeds of long-term debt 70,000 98,955 2,475
Reduction of long-term debt (152) (106,836) (46,522)
(Decrease) increase in short-term notes payable (65,600) (117,574) 14,982
Bond principal payments (51,883) (50,162) (71,009)
Common and preferred stock dividends (3,249) (3,399) (7,320)
Common stock repurchases (27,126) (7,028) (25,513)
Otherfinancing activities, net 4,171 8,651 9,538
--------- --------- ---------
Net cash used for financing activities (73,839) (177,393) (123,369)
Net increase in cash and cash equivalents 20,142 13,653 7,423
Cash and cash equivalents at beginning of year 49,784 36,131 28,708
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 69,926 $ 49,784 $ 36,131
- ---------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest (net of capitalized interest) $ 53,518 $ 50,866 $ 54,452
Cash paid for income taxes (net of refunds) $ 40,683 $ 19,143 $ 5,887
- ---------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
30
<PAGE> 120
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(amounts in thousands, except share data, unless otherwise noted)
NOTE A: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of The Ryland Group
and its wholly owned subsidiaries ("the Company"). Intercompany transactions
have been eliminated in consolidation. Certain amounts in the consolidated
statements of prior years have been reclassified to conform to the 1999
presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts re ported in the financial statements and accompanying
notes. Actual results could differ from these estimates.
Per Share Data
Basic net earnings per common share is computed by dividing net earnings, after
considering preferred stock dividend requirements, by the weighted-average
number of common shares outstanding.
Diluted net earnings per common share additionally gives effect to dilutive
common stock equivalent shares, including the assumed conversion of preferred
shares held by The Ryland Group Retirement Savings Opportunity Plan Trust ("RSOP
Trust") into common stock. The effect of the RSOP Trust was dilutive for the
years ended December 31, 1999 and 1998. For the year ended December 31, 1997,
the conversion of preferred shares was not assumed due to an anti-dilutive
effect.
Income Taxes
The Company files a consolidated federal income tax return. Certain items of
income and expense are included in one period for financial reporting purposes
and another for income tax purposes. Deferred income taxes are provided in
recognition of these differences. Deferred tax assets and liabilities are
determined based on enacted tax rates and are subsequently adjusted for changes
in these rates. A change in deferred tax assets or liabilities results in a
charge or credit to deferred tax expense.
Homebuilding Revenues
Homebuilding revenues are recognized when home sales are closed and title passes
to the customer.
Service Liabilities
Service and warranty costs are estimated and accrued at the time a home closes.
Housing Inventories
Housing inventories consist principally of homes under construction and land
under development and improved lots.
Inventories to be held and used are stated at cost, unless a community is
determined to be impaired, in which case the impaired inventories are written
down to fair value. Write-downs of impaired inventories to fair value are
recorded as adjustments to the cost basis of the respective inventory.
Inventories to be disposed of are stated at the lower of cost or fair value less
cost to sell and are reported net of valuation reserves. Valuation reserves
related to inventories to be disposed of amounted to $3.6 million at December
31, 1999, and $6.2 million at December 31, 1998. The net carrying value of the
related inventories amounted to $6.0 million and $16.2 million at December 31,
1999 and 1998, respectively.
Costs of inventory include direct costs of land, material acquisition, home
construction and related direct overhead expenses. Interest and taxes are
capitalized during the land development stage. The costs of acquiring and
developing land and constructing certain related amenities are allocated to the
parcels to which these costs relate.
The following table is a summary of capitalized interest:
1999 1998
- --------------------------------------------------------------
Capitalized interest as of January 1, $ 21,600 $ 23,644
Interest capitalized 24,397 18,601
Interest amortized to cost of sales (19,027) (20,645)
-------- --------
Capitalized interest as of December 31, $ 26,970 $ 21,600
- --------------------------------------------------------------
Property, Plant and Equipment
Property, plant and equipment, which includes model home furnishings, are
carried at cost less accumulated depreciation and amortization. Depreciation is
provided for, principally, by the straight-line method over the estimated useful
lives of the assets. Model home furnishings are amortized over the life of the
community as homes are closed.
Purchase Price in Excess of Net Assets Acquired
Costs in excess of net assets of acquired businesses (goodwill) are being
amortized on a straight-line basis over their estimated useful lives for periods
of up to 30 years. The Company periodically evaluates the businesses to which
goodwill relates, on an undiscounted cash flow method, in order to assess
whether the carrying value of goodwill has not been impaired.
31
<PAGE> 121
Mortgage Loans Held-For-Sale
Mortgage loans held-for-sale are reported net of discounts and are valued at the
lower of cost or market determined on an aggregate basis. Any gain or loss on
the sale of the loans is recognized at the time of sale.
Mortgage-Backed Securities
The Company classifies its mortgage-backed securities into two categories:
held-to-maturity and available-for-sale. Management determines the appropriate
classification of these securities at the time of purchase and re-evaluates
such designations as of each balance sheet date.
Mortgage-backed securities are classified as held-to-maturity when the Company
has the positive intent and ability to hold the securities to maturity.
Securities classified as held-to-maturity are stated at amortized cost.
Securities classified as available-for-sale are measured at fair value, with
unrealized gains and losses, net of tax, reflected as accumulated other
comprehensive income in stockholders' equity.
Loan Origination Fees, Costs and Mortgage Discounts
Loan origination fees, net of related direct origination costs, and loan
discount points are deferred as an adjustment to the carrying value of related
mortgage loans held-for-sale and are recognized in income upon the sale of the
mortgage loans.
Hedging Contracts
The Company enters into forward-delivery contracts, options on forward-delivery
contracts, futures contracts and options on futures contracts, as an end user,
for the purpose of minimizing its exposure to movements in interest rates on
mortgage loan commitments and mortgage loans held-for-sale. These contracts
primarily represent commitments or options to purchase or sell mortgages or
securities, generally within 90 days and at a specified price or yield.
Forward-delivery contracts and futures are commitments only and, as such, are
not recorded on the Company's balance sheet or statement of earnings. Option
premiums are deferred when paid and recognized as an adjustment to gains on
sales of mortgages over the lives of the options on a straight-line basis.
Changes in the fair value of contracts are deferred and included in mortgage
loans held-for-sale. Changes in fair value are recognized in income as an
adjustment to gains on sales of mortgages when the mortgages and securities are
sold.
The Company entered into an interest rate swap and collar agreement to moderate
the interest rate risks inherent in the financing of its investment securities.
During the term of the agreement, net settlements were accrued and recognized as
an adjustment to interest expense. The agreement was not required to be marked
to market and, therefore, was not recorded on the Company's balance sheet.
Mortgage Servicing Rights
Retained mortgage servicing rights on originated loans were capitalized by
allocating the total cost of the mortgage loans between the mortgage servicing
rights and the loans based on their relative fair values. Mortgage servicing
rights are amortized in proportion to and over the period of estimated net
servicing revenue. As of December 31, 1999, the Company no longer services
mortgage loans.
Stock-Based Compensation
The Company has elected to follow the intrinsic value method to account for
compensation expense which is related to the award of stock options and to
furnish the pro forma disclosures required under Statement of Financial
Accounting Standards No. 123 (FAS 123), "Accounting for Stock-based
Compensation." Since stock option awards are granted at prices no less than the
fair-market value of the shares at the date of grant, no compensation expense is
recognized.
New Accounting Pronouncements
FAS 133
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 (FAS 133), "Accounting for Derivative
Instruments and Hedging Activities." In June 1999, the Financial Accounting
Standards Board delayed, for one year, the effective date of FAS 133 to all
years beginning after June 15, 2000. FAS 133 requires all derivatives to be
recorded on the balance sheet at fair value and establishes new accounting
procedures for hedges that will effect the timing of recognition and the manner
in which hedging gains and losses are recognized in the Company's financial
statements. The Company has not completed its evaluation of FAS 133; however,
management does not anticipate that the adoption of FAS 133 will have a material
impact on the Com pany's earnings or financial position. The Company currently
expects to adopt FAS 133 on January 1, 2001.
32
<PAGE> 122
NOTE B: EARNINGS PER SHARE RECONCILIATION
The following table sets forth the computation of basic and diluted earnings per
share before extraordinary item:
1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Numerator:
Net earnings before extraordinary item $ 66,695 $ 43,592 $ 21,882
Preferred stock dividends (831) (1,000) (1,630)
------------ ------------ ------------
Numerator for basic earnings per share-- earnings
before extraordinary item available to
common stockholders 65,864 42,592 20,252
Effect of dilutive securities-- preferred stock dividends 831 1,000 0
------------ ------------ ------------
Numerator for diluted earnings per share-- earnings
before extraordinary item available to
common stockholders $ 66,695 $ 43,592 $ 20,252
Denominator:
Denominator for basic earnings per share--
weighted-average shares 14,678,925 14,709,404 15,227,829
Effect of dilutive securities:
Stock options 292,580 316,640 69,577
Conversion of preferred shares 384,255 463,374 0
Equity incentive plan 149,622 113,894 107,661
------------ ------------ ------------
Dilutive potential common shares 826,457 893,908 177,238
Denominator for diluted earnings per share--
adjusted weighted-average shares and
assumed conversions 15,505,382 15,603,312 15,405,067
BASIC EARNINGS PER COMMON SHARE
Net earnings per share before extraordinary item $ 4.49 $ 2.90 $ 1.33
DILUTED EARNINGS PER COMMON SHARE
Net earnings per share before extraordinary item $ 4.30 $ 2.79 $ 1.32
- -----------------------------------------------------------------------------------------------------------
The assumed conversion of preferred shares was dilutive for the years ended
December 31, 1999 and 1998. For the year ended December 31, 1997, the conversion
of preferred shares was not assumed due to an anti-dilutive effect.
NOTE C: SEGMENT INFORMATION
The Company is a leading national homebuilder and
mortgage-relatedfinancial servicesfirm. As one of the
largest single-family on-site homebuilders in the United States, the Company
builds homes in 21 markets. The Company's homebuilding segment specializes in
the sale and construction of single-family attached and detached housing. The
financial services segment provides mortgage-related products and services for
retail customers, including loan origination, title, escrow and homeowners
insurance services, and also conducts investment activities.
The Company evaluates performance and allocates resources based on a number of
factors, including segment pretax earnings. The accounting policies of the
segments are the same as those described in the Summary of Significant
Accounting Policies (see Note A). Certain corporate expenses are allocated to
the homebuilding and financial services segments. In addition, amounts related
to the limited-purpose subsidiaries are combined with corporate expenses and
corporate assets in the following table as "Other."
1999 1998 1997
- -----------------------------------------------------------------
Revenues
Homebuilding $ 1,958,832 $ 1,694,505 $ 1,557,326
Financial services 43,586 60,385 76,929
Other 6,848 10,598 15,551
----------- ----------- -----------
Total $ 2,009,266 $ 1,765,488 $ 1,649,806
- -----------------------------------------------------------------
Pretax Earnings
Homebuilding $ 120,830 $ 80,057 $ 35,150
Financial services 11,838 11,788 15,585
Corporate and other (23,332) (16,687) (14,265)
----------- ----------- -----------
Total $ 109,336 $ 75,158 $ 36,470
- -----------------------------------------------------------------
Depreciation and
Amortization
Homebuilding $ 23,398 $ 23,166 $ 23,479
Financial services 810 895 5,901
Corporate and other 3,802 1,525 2,016
----------- ----------- -----------
Total $ 28,010 $ 25,586 $ 31,396
- -----------------------------------------------------------------
Identifiable Assets
Homebuilding $ 955,371 $ 778,668 $ 671,229
Financial services 189,724 286,683 410,902
Corporate and other 103,228 150,047 201,278
----------- ----------- -----------
Total $ 1,248,323 $ 1,215,398 $ 1,283,409
- -----------------------------------------------------------------
33
<PAGE> 123
NOTE D: ASSETS OF FINANCIAL SERVICES AND
LIMITED-PURPOSE SUBSIDIARIES
Financial Services
Mortgage loans held-for-sale consist of loans collateralized by first mortgages
or first deeds of trust on single-family attached or detached homes.
Mortgage-backed securities and notes receivable consist of GNMA certificates,
FNMA mortgage pass-through certificates, FHLMC participation certificates,
notes receivable secured by mortgage-backed securities, whole loans and funds
held by trustee.
During the first quarter of 1998, the Company sold the majority of its loan
servicing portfolio. The Company realized a $6.1 million pre-tax gain, net of
expenses and liabilities, related to the sale of servicing. During 1999, the
Company sold the remaining portion of its loan servicing portfolio. At December
31, 1998, the loan servicing portfolio consisted of approximately 2,500 loans,
with a principal balance of $301 million.
Limited-Purpose Subsidiaries
Collateral for bonds payable consists of mortgage-backed
securities, notes receivable secured by mortgage-backed securities and mortgage
loans, fixed-rate mortgage loans, and funds held by trustee. Mortgage-backed
securities consist of GNMA certificates, FNMA mortgage pass-through
certificates and FHLMC participation certificates. All principal and interest
on collateral is remitted directly to a trustee and is available for payment on
the bonds.
The components of collateral for bonds payable at December 31 are summarized
as follows:
1999 1998
- -------------------------------------------------------------
Mortgage-backed securities $27,092 $59,915
Notes receivable 4,019 15,423
Mortgage loans 2,893 4,699
Funds held by trustee 5,838 13,681
Mortgage discounts (209) (1,315)
------- -------
Total $39,633 $92,403
- -------------------------------------------------------------
Neither the Company nor its homebuilding and financial services subsidiaries
have guaranteed or are otherwise obligated with respect to these bond issues.
Mortgage-Backed Securities: Unrealized Gains and Losses
Mortgage-backed securities are held by the financial services segment and
reported in the balance sheet caption, "Mortgage-backed securities and notes
receivable." They are also held by the limited-purpose subsidiaries and reported
in the balance sheet caption, "Collateral for bonds payable."
The following is a consolidated summary of mortgage-backed securities
classified as available-for-sale and held-to-maturity as of:
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
- ----------------------------------------------------------------------
December 31, 1999
Available-for-sale $ 28,962 $ 1,953 $ 215 $ 30,700
Held-to-maturity 41,331 2,352 0 43,683
-------- -------- -------- --------
Total $ 70,293 $ 4,305 $ 215 $ 74,383
December 31, 1998
Available-for-sale $ 40,802 $ 3,299 $ 116 $ 43,985
Held-to-maturity 56,463 4,642 0 61,105
-------- -------- -------- --------
Total $ 97,265 $ 7,941 $ 116 $105,090
- ----------------------------------------------------------------------
NOTE E: FINANCIAL SERVICES SHORT-TERM NOTES PAYABLE
Financial services had outstanding borrowings at December 31 as follows:
1999 1998
- -------------------------------------------------------------
Mortgage warehouse facility $ 60,224 $106,699
Repurchase agreements 77,619 64,320
Revolving credit agreement 19,615 52,039
-------- --------
Total outstanding borrowings $157,458 $223,058
- -------------------------------------------------------------
The financial services segment renewed its three-year bank credit facility,
which provides up to $200 million for mortgage warehouse funding and matures in
May 2002. Borrowings outstanding under this bank facility totaling $60,224 at
December 31, 1999, were collateralized by mortgage loans held-for-sale and cash
proceeds from loan sales totaling $72,876. Borrowings outstanding under this
bank facility totaling $106,699 at December 31, 1998, were collateralized by
mortgage loans held-for-sale with outstanding principal balances of $121,079.
The effective interest rates on these borrowings were 3.4 percent, 4.1 percent
and 3.0 percent for 1999, 1998 and 1997, respectively. The agreement contains
certain financial covenants, which the Company met at December 31, 1999.
34
<PAGE> 124
The repurchase agreements represent short-term borrowings of $77,619 and $64,320
in 1999 and 1998, respectively, that are collateralized by mortgage loans,
mortgage-backed securities and investments in securities issued by one of the
Company's limited-purpose subsidiaries. The outstanding collateral balances at
December 31, 1999 and 1998 were $78,554 and $64,129, respectively. As of
December 31, 1999, $30 million of the Company's variable-rate short-term
borrowings had been effectively converted by interest rate swap-and-collar
agreements to fixed-rate borrowings. The notional amount of the swap-and-collar
agreements declined to $30 million in 1999 and will expire in October 2000.
Effective interest rates on the repurchase agreements, including the effect of
the interest rate swap-and-collar agreements, were 3.7 percent, 5.9 percent and
6.0 percent for 1999, 1998 and 1997, respectively.
In March 1999, the Company renewed and extended a revolving credit facility used
to finance investment securities in the financial services segment. The
facility, previously $100 million, was renewed at $50 million and was reduced by
$5 million quarterly to a base of $35 million at December 31, 1999. The
agreement extends through March 2000, bears interest at market rates and is
collateralized by investment portfolio securities. Borrowings outstanding under
this facility, totaling $19,615 and $52,039, were collateralized by investment
portfolio securities with principal balances of $20,025 and $52,700 at December
31, 1999 and 1998, respectively.
The weighted-average interest rates at the end of the period on all short-term
borrowings were 5.6 percent and 5.3 percent for 1999 and 1998, respectively. The
weighted-average interest rates during the period on all short-term borrowings
were 3.6 percent, 5.2 percent and 4.6 percent for 1999, 1998 and 1997,
respectively.
NOTE F: OFF-BALANCE SHEET FINANCIAL INSTRUMENTS RELATED TO MORTGAGE LOAN
ORIGINATIONS
The Company is a party to financial instruments in the normal course of
business. The financial services segment uses financial instruments to meet the
financing needs of its customers and reduce its exposure to fluctuations in
interest rates. These instruments involve, to varying degrees, elements of
credit and market risk not recognized in the consolidated balance sheets. The
Company has no derivative financial instruments that are held for trading
purposes.
The contract or notional amounts of these financial instruments as of December
31 were as follows:
1999 1998
- -------------------------------------------------------------
Commitments to originate
mortgage loans $18,880 $ 33,859
Hedging contracts:
Forward-delivery contracts $30,000 $163,000
Others 5,000 4,000
- -------------------------------------------------------------
In addition, to protect against exposure to interest rate fluctuations on
mortgage loan commitments, the Company contracted with various parties to
deliver $69,286 and $12,308 in adjustable and fixed-rate mortgage loans at
December 31, 1999 and 1998, respectively, for a specified price on a
best-efforts basis.
Commitments to originate mortgage loans represent loan commitments with
customers at market rates up to 120 days before settlement. Loan commitments
have no carrying value on the balance sheet. These commitments expose the
Company to market risk as a result of increases in mortgage interest rates. The
amount of risk is limited to the difference between the contract price and
current market value, and it is mitigated by fees collected from the customer
and by the Company's hedging activities. Loan commitments had interest rates
ranging from 6.5 percent to 12.1 percent as of December 31, 1999, and 6.0
percent to 10.3 percent as of December 31, 1998.
Hedging contracts are regularly entered into by the Company for the purpose of
mitigating its exposure to movements in interest rates on mortgage loan
commitments and mortgage loans held-for-sale. The selection of these hedging
contracts is based upon the Company's secondary marketing strategy, which
establishes a risk tolerance level. The major factors influencing the use of the
various hedging contracts include general market conditions, interest rate,
types of mortgages originated and the percentage of mortgage loan commitments
expected to be funded. The market risk assumed while holding the hedging
contracts generally mitigates the market risk associated with the mortgage loan
commitments and mortgage loans held-for-sale.
The Company is exposed to credit related losses in the event of nonperformance
by counterparties to certain hedging contracts. Credit risk is limited to those
instances where the Company is in a net unrealized gain position. The Company
manages this credit risk by entering into agreements with counterparties meeting
its credit standards and by monitoring position limits.
35
<PAGE> 125
NOTE G: FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company's financial instruments, both on and off the balance sheet, are held
for purposes other than trading. The fair values of these financial instruments
are based on quoted market prices, where available, or are estimated using
present value or other valuation techniques. Estimated fair values are
significantly affected by the assumptions used, including the discount rate and
estimates of cash flows. In that regard, derived fair-value estimates cannot be
substantiated by comparison to independent markets and, in many cases, cannot be
realized in immediate settlement of the instruments.
The table below sets forth the carrying values and fair values of the Company's
financial instruments, except for those financial instruments noted below for
which the carrying values approximate fair values at the end of the year. It
excludes non-financial instruments and, accordingly, the aggregate fair-value
amounts presented do not represent the underlying value of the Company.
1999 1998
-----------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
- -----------------------------------------------------------------------------------------------------------
HOMEBUILDING
Liabilities
Senior notes $ 108,000 $ 111,080 $ 108,000 $ 116,140
Senior subordinated notes 200,000 184,000 200,000 197,000
FINANCIAL SERVICES
Assets
Mortgage loans, held-for-sale $ 40,520 $ 41,156 $ 158,611 $ 161,030
Mortgage-backed securities, available-for-sale 29,823 29,823 36,414 36,414
Mortgage-backed securities, held-to-maturity 15,134 15,911 4,826 5,147
Notes receivable, whole loans and funds held by trustee 54,292 57,433 70,414 76,224
Off-balance sheet financial instruments
Commitments to originate mortgage loans -- 3,292 -- 155
Forward-delivery contracts -- 298 -- (441)
Other hedging contracts -- (45) -- (404)
OTHER ASSETS
Collateral for bonds payable of the
limited-purpose subsidiaries $ 39,633 $ 41,605 $ 92,403 $ 98,341
OTHER LIABILITIES
Bonds payable of the limited-purpose subsidiaries $ 37,339 $ 41,045 $ 87,980 $ 97,344
- -----------------------------------------------------------------------------------------------------------
The Company used the following methods and assumptions in estimating fair
values:
o Cash and cash equivalents, secured notes payable, loan
servicing receivables, funds held by trustee, revolving credit agreements and
short-term notes payable: The carrying amounts reported in the balance sheet
approximate fair values.
o Senior notes, senior subordinated notes, mortgage loans held-for-sale,
mortgage-backed securities, notes receivable and whole loans, various hedging
contracts if settled on December 31, 1999 and 1998, and mortgage loan com
mitments: The fair values of these financial instruments are based on quoted
market prices for similar financial instruments.
36
<PAGE> 126
NOTE H: LIMITED-PURPOSE SUBSIDIARIES'
BONDS PAYABLE
The Company's limited-purpose subsidiaries no longer issue mortgage-backed bonds
and mortgage-participation securities. Previously, they issued mortgage-backed
bonds, and the Com pany retained residual interests in some of these bonds.
Payments are made on the bonds on a scheduled basis in amounts relating to
corresponding payments received on the underlying mortgage collateral.
The following table sets forth information with respect to the limited-purpose
subsidiaries' bonds payable outstanding at December 31:
1999 1998
- ---------------------------------------------------------------
Bonds payable, net of discounts:
1999--$1,276; 1998--$2,517 $37,339 $87,980
Range of interest rates 7.25%-12.625% 7.25%-12.625%
Stated maturities 2009-2019 2006-2019
- ---------------------------------------------------------------
NOTE I: LONG-TERM DEBT
Long-term debt consists of the following:
December 31,
1999 1998
- -------------------------------------------------------------
Senior subordinated notes $200,000 $200,000
Senior notes 108,000 108,000
Revolving credit facility and other 70,000 152
-------- --------
$378,000 $308,152
- -------------------------------------------------------------
During October 1999, the Company increased its unsecured revolving credit
facility from $300 million to $375 million. This new facility will mature in
October 2003. Borrowings under this agreement bear interest at variable
short-term rates. The effective interest rate was 6.8 percent for 1999 and 1998
and 7.1 percent for 1997. At December 31, 1999, the Company had $70 million of
borrowings under the credit agreement at an average rate of 7.7 percent. There
were no amounts outstanding under this agreement at December 31, 1998.
The Company has $100 million of 9.625 percent senior subordi nated notes
outstanding, due June 2004, with interest payable semiannually, which may be
redeemed at the option of the Company, in whole or in part, at any time on or
after December 1, 2000. The Company has $100 million of 8.25 percent senior
subordinated notes, due April 2008, with interest payable semiannually, which
may be redeemed at the option of the Company, in whole or in part, at any time
on or after April 1, 2003. In July 1998, the Company redeemed $100 million of
10.5 percent senior subordinated notes due 2002 at the stated call price of
103.94 percent of par. As a result, the Company recognized an extraordinary loss
on early extinguishment of debt in 1998 of $3.3 million (net of a $2.2 million
income tax benefit). Senior subordinated notes are subordinated to all existing
and future senior debt of the Company.
The Company has $100 million of 10.5 percent senior notes due July 2006, with
interest payable semiannually, which may be redeemed at the option of the
Company, in whole or in part, at any time on or after July 1, 2001. At December
31, 1999, the Company also had $8 million of senior notes bearing a fixed rate
of 10.5 percent which mature in August 2000.
Maturities of long-term debt for the nextfive years are as follows: 2000-$8,000;
2001 through 2002-$0; 2003-$70,000; 2004-$100,000.
The bank credit agreement, senior subordinated indenture agreements and senior
note agreements contain certain financial covenants. Under the loan covenants,
the Company had $93.0 million of retained earnings available for dividends at
December 31, 1999. At December 31, 1999, the Company was in compliance with its
covenants.
NOTE J: INCOME TAXES
The Company's expense for income taxes is summarized as follows:
Years Ended December 31,
1999 1998 1997
- -------------------------------------------------------------
Current:
Federal $36,633 $22,453 $14,931
State 6,335 4,491 3,167
------- ------- -------
Total current 42,968 26,944 18,098
Deferred:
Federal (279) 3,852 (2,896)
State (48) 770 (614)
------- ------- -------
Total deferred (327) 4,622 (3,510)
------- ------- -------
Total expense $42,641 $31,566 $14,588
- -------------------------------------------------------------
The following table reconciles the statutory federal income tax rate to the
Company's effective income tax rate:
Years Ended December 31,
1999 1998 1997
- ------------------------------------------------------------
Income taxes at federal
statutory rate 35.0% 35.0% 35.0%
State income taxes, net of
federal tax 4.0 4.5 4.5
Other, net 0.0 2.5 0.5
---- ---- ----
Effective rate 39.0% 42.0% 40.0%
- ------------------------------------------------------------
37
<PAGE> 127
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's deferred tax assets and liabilities as
of December 31 were as follows:
1999 1998
- -------------------------------------------------------------
Deferred tax assets:
Inventory valuation differences,
operating reserves and accruals $34,297 $35,501
Other 1,693 1,863
------- -------
Total deferred tax assets 35,990 37,364
Deferred tax liabilities:
Gross profit from sales reported
on the installment method (1,581) (2,377)
Deferred gains (519) (1,830)
Other (1,756) (1,773)
------- -------
Total deferred tax liabilities (3,856) (5,980)
------- -------
Net deferred tax asset $32,134 $31,384
- -------------------------------------------------------------
The Company has determined that no valuation allowance for the deferred tax
asset is required due to tax carrybacks currently available. The Company had a
current tax liability of $11,104 and $9,761 as of December 31, 1999 and 1998,
respectively.
NOTE K: STOCKHOLDERS' EQUITY
Preferred Stock
On August 31, 1989, the Company sold 1,267,327 shares of non-transferable
convertible preferred stock, par value $1.00, to the RSOP Trust for $31.5625 per
share, or an aggregate purchase price of approximately $40,000.
Each share of preferred stock pays an annual cumulative dividend of $2.21.
During 1999, 1998 and 1997, the Company paid $831, $1,000 and $1,630,
respectively, in dividends on the preferred stock. Each share of preferred stock
entitles the holder to a number of votes equal to the shares into which the
stock is convertible, and preferred stockholders generally vote together with
common stockholders on all matters.
Under the RSOP Trust, at the option of the trustee, the Com pany may be
obligated to redeem the preferred stock to satisfy distribution obligations to
or investment elections of its participants. For purposes of these redemptions,
the value of each share of preferred stock is determined monthly by an
independent appraiser, with a minimum guaranteed value of $25.25 per share. The
Company may issue common stock to satisfy this redemption obligation, with any
excess redemption price to be paid in cash. At December 31, 1999 and 1998, the
maximum cash obligation for such redemptions was shown outside of stockholders'
equity as part of other liabilities. This obligation was calculated assuming
that all preferred shares outstanding were submitted for redemption.
Based upon the appraised value of each share of preferred stock ($33.81 and
$39.37) and the market value of each share of common stock ($23.06 and $28.88)
at December 31, 1999 and 1998, respectively, the redemption obligation was
$3,764 and $4,376 at December 31, 1999 and 1998, respectively. During 1999 and
1998, 63,573 and 73,415 shares of preferred stock, respectively, were converted
into shares of common stock, and 3,034 and 12,674 shares of preferred stock,
respectively, were retired (see Note L).
Common Share Purchase Rights
In 1996, the Company adopted a revised shareholder rights
plan under which the Company distributed one common share purchase right for
each share of common stock outstanding on January 13, 1997. Each right entitles
the holder to purchase one share of common stock at an exercise price of $70.
The rights become exercisable 10 business days after any party acquires or
announces an offer to acquire 20 percent or more of the Company's common stock.
The rights expire January 13, 2007, and are redeemable at $0.01 per right at any
time before 10 business days following the time that any party acquires 20
percent or more of the Company's common stock.
In the event that the Company enters into a merger or other business
combination, or if a substantial amount of its assets are sold after the time
that the rights become exercisable, the holder will receive, upon exercise,
shares of the common stock of the surviving or acquiring company having a market
value of twice the exercise price. Until the earlier of the time that the rights
become exercisable, are redeemed or expire, the Company will issue one right
with each new share of common stock issued.
NOTE L: EMPLOYEE INCENTIVE AND STOCK PLANS
Retirement Savings Opportunity Plan (RSOP)
In 1989, the Company established a retirement and employee stock ownership plan
that purchased shares of preferred stock from the Company. The purchase of
preferred stock by the plan was financed by a $40,000 loan from the Company.
The interest rate on the loan was 9.99 percent and through September, 1997, the
loan was being repaid by the plan through dividends received on preferred stock
and Company contributions. On October 1, 1997, the Company purchased 248,881
shares of preferred stock at fair market value from the plan, representing
preferred shares that secured the loan and had not been released for allocation
to participants' accounts. The plan used the proceeds to pay off the related
loan balance and the Company retired the preferred shares. The RSOP Trust
incurred interest on the loan in 1997 of $930. As of December 31, 1999, 350,137
shares of preferred stock were allocated to participants' accounts. As of
January 1, 1998, participants received cash and no longer received preferred
stock in connection with Company matching contributions to their accounts.
38
<PAGE> 128
All full-time employees are eligible to participate in the RSOP beginning the
first pay period of the quarter, following 30 days of employment. Pursuant to
Section 401(k) of the Internal Revenue Code, the plan permits deferral of a
portion of a participant's income into a variety of investment options.
Compensation expense reflects the Company's matching contributions to its
employees 401(k) contributions. Total compensation expense related to this plan
amounted to $5,068, $3,549 and $4,039 in 1999, 1998 and 1997, respectively.
Equity Incentive Plan and Other Related Plans
The Company's 1992 Equity Incentive Plan permits it to provide equity incentives
in the form of stock options, stock appreciation rights, performance shares,
restricted stock and other stock-based awards to employees. Under this plan,
options are granted to purchase shares at prices not less than the fair-market
value of the shares at the date of grant. The options are exercisable at various
dates over one- to 10-year periods. Stock options granted during 1999 generally
have a maximum term of 10 years and vest over three years. At the beginning of
each year, 2.5 percent of the number of common shares outstanding at the
beginning of the year are authorized for grants of options and other equity
instruments.
Under the Company's Non-Employee Director Equity Plan, stock options are granted
to directors to purchase shares at prices not less than the fair-market value of
the shares at the date of grant. A maximum of 100,000 shares of common stock has
been reserved for issuance under this plan.
The following is a summary of transactions relating to all stock option plans
for each year ended December 31:
1999 1998 1997
-----------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ----------------------------------------------------------------------------------------------------------------------
Options outstanding at beginning of year 1,840,400 $18.17 1,932,560 $15.71 1,783,738 $16.70
Granted 690,250 24.51 637,000 23.88 619,500 13.49
Exercised (183,725) 17.08 (540,350) 16.13 (211,110) 16.33
Forfeited (108,295) 22.13 (188,810) 18.07 (252,068) 16.47
Expired 0 0 0 0 (7,500) 26.00
---------- ----- ---------- ----- ---------- -----
Options outstanding at end of year 2,238,630 20.02 1,840,400 18.02 1,932,560 15.71
Available for future grant 71,794 320,143 478,309
---------- ----- ---------- ----- ---------- -----
Total shares reserved 2,310,424 2,160,543 2,410,869
Options exercisable at December 31 1,130,805 17.18 864,795 16.61 966,065 17.39
Prices related to options exercised
during the year $11.50-$24.13 $12.88-$24.13 $13.50-$20.75
- ----------------------------------------------------------------------------------------------------------------------
A summary of stock options outstanding and exercisable as of December 31, 1999,
follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------------------------------------------------------------------------------------------------------------
Range of Weighted Weighted Weighted
Exercise Number Average Remaining Average Number Average
Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
- ----------------------------------------------------------------------------------------------------------------------
$12.75 to $15.00 770,775 6.40 $13.98 633,565 $14.14
$15.25 to $23.50 665,535 6.32 $21.30 422,575 $20.25
$23.88 to $29.94 802,320 9.01 $24.78 74,665 $25.60
- ----------------------------------------------------------------------------------------------------------------------
39
<PAGE> 129
The Company has adopted the disclosure-only provisions of FAS 123. Accordingly,
no compensation expense has been recognized for stock option plans. Had
compensation expense for these plans been determined based on fair value at the
grant date for awards, consistent with the provisions of FAS 123, in 1999, 1998
and 1997, the Company's net earnings and net earnings per share would have been
reduced to the pro-forma amounts indicated in the following table:
1999 1998 1997
- -------------------------------------------------------------
Net earnings-- as reported $66,695 $40,266 $21,882
Net earnings-- pro forma $64,471 $38,761 $20,808
Basic net earnings per
share-- as reported $ 4.49 $ 2.67 $ 1.33
Basic net earnings per
share-- pro forma $ 4.34 $ 2.57 $ 1.26
Diluted net earnings per
share-- as reported $ 4.30 $ 2.58 $ 1.32
Diluted net earnings per
share-- pro forma $ 4.20 $ 2.48 $ 1.25
- -------------------------------------------------------------
The fair value of each option grant is estimated on the grant dates, using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: a risk-free
interest rate of 5.2 percent, 5.4 percent and 6.3 percent; an expected
volatility factor for the market price of the Company's common stock of 34
percent, 35 percent and 34 percent; a dividend yield of 0.7 percent, 0.7 percent
and 1.2 percent; and an expected life of 4 years, 5 years and 5 years. The
weighted-average fair value as of the grant date for options granted in 1999,
1998 and 1997 was $7.95, $9.11 and $4.90, respectively.
NOTE M: COMMITMENTS AND CONTINGENCIES
Commitments
In the normal course of business, the Company acquires rights under option
agreements to purchase land for use in future homebuilding operations. As of
December 31, 1999, the Com pany had deposits and letters of credit outstanding
of $43,178 for options and land purchase contracts having a total purchase price
of $624,481.
Rent expense primarily relates to office facilities, model home furniture and
equipment.
1999 1998 1997
- ---------------------------------------------------------------------
Total rent expense $ 13,581 $ 14,142 $10,634
Less income from subleases (2,149) (1,447) 0
-------- -------- -------
Net rental expense $ 11,432 $ 12,695 $10,634
- ---------------------------------------------------------------------
Future minimum rental commitments under non-cancelable leases with remaining
terms in excess of one year are as follows:
- -------------------------------------------------------------
2000 $10,280
2001 9,982
2002 6,840
2003 3,478
2004 2,434
After 2004 2,044
-------
Subtotal $35,058
Less sublease income (3,385)
-------
Total lease commitments $31,673
- -------------------------------------------------------------
Contingencies
Contingent liabilities may arise from obligations incurred in
the ordinary course of business or from the usual obligations of on-site housing
producers for the completion of contracts. Some municipalities require the
Company to issue development bonds or maintain letters of credit to assure
completion of public facilities within a project. Total development bonds at
December 31, 1999, were $209,635, and total deposits and letters of credit at
December 31, 1999, were $28,287.
The Company is party to various legal proceedings generally incidental to its
businesses. Based on evaluation of these matters and discussions with counsel,
management believes that liabilities to the Company arising from these matters
will not have a material adverse effect on the financial condition of the
Company.
40
<PAGE> 130
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Report of Independent Auditors
BOARD OF DIRECTORS AND STOCKHOLDERS
THE RYLAND GROUP, INC.
We have audited the accompanying consolidated balance sheets of The Ryland
Group, Inc. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of earnings, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Ryland Group,
Inc. and subsidiaries at December 31, 1999 and 1998, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ Ernst and Young LLP
Baltimore, Maryland
January 26, 2000
41
<PAGE> 131
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Report of Management
Management of the Company is responsible for the integrity and accuracy of the
financial statements and all other annual report information. The financial
statements are prepared in conformity with generally accepted accounting
principles and include amounts based on management's judgments and estimates.
The accounting systems, which record, summarize and report financial
information, are supported by internal control systems, which are designed to
provide reasonable assurance, at an appropriate cost, that the assets are
safeguarded and that transactions recorded in accordance with Company policies
and procedures. Proper selection, training and development of personnel also
contribute to the effectiveness of the internal control systems. These systems
are the responsibility of management and are regularly tested by the Company's
internal auditors. The external auditors also review and test the effectiveness
of these systems to the extent they deem necessary to express an opinion on the
consolidated financial statements.
The Audit Committee of the Board of Directors periodically meets with
management, the internal auditors and the external auditors to review
accounting, auditing and financial matters. Both the internal auditors and the
external auditors have unrestricted access to the Audit Committee.
/s/ David L. Fristoe
David L. Fristoe
Senior Vice President,
Controller and Chief Accounting Officer
42
<PAGE> 132
THE RYLAND GROUP, INC. AND SUBSIDIARIES
Quarterly Financial Data and Common Stock Prices and Dividends
(amounts in thousands, 1999 1998
except share data) unaudited Dec. 31 Sept. 30 June 30 March 31 Dec. 31 Sept. 30 June 30 March 31
- -------------------------------------------------------------------------------------------------------------------------------
CONSOLIDATED RESULTS
Revenue $595,647 $507,175 $502,405 $404,039 $541,086 $ 462,246 $425,851 $336,305
Earnings before taxes
and extraordinary item 34,153 29,736 28,578 16,869 30,335 22,295 14,711 7,817
Income tax expense 13,320 11,597 10,976 6,748 12,783 9,772 5,884 3,127
-------- -------- -------- -------- -------- --------- -------- --------
Net earnings before
extraordinary item 20,833 18,139 17,602 10,121 17,552 12,523 8,827 4,690
Extraordinary item-- loss on
early extinguishment of debt
(net of taxes of $2,217) 0 0 0 0 0 (3,326) 0 0
-------- -------- -------- -------- -------- --------- -------- --------
Net earnings $ 20,833 $ 18,139 $ 17,602 $ 10,121 $ 17,552 $ 9,197 $ 8,827 $ 4,690
Basic net earnings per
common share $ 1.45 $ 1.21 $ 1.17 $ 0.67 $ 1.18 $ 0.61 $ 0.58 $ 0.30
Diluted net earnings per
common share $ 1.40 $ 1.15 $ 1.12 $ 0.65 $ 1.12 $ 0.59 $ 0.57 $ 0.29
Weighted average common
shares outstanding
Basic 14,198 14,856 14,851 14,810 14,691 14,667 14,758 14,713
Diluted 14,901 15,741 15,762 15,669 15,611 15,521 15,599 15,245
- -------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PRICES AND DIVIDENDS
The Ryland Group lists its common shares on the New York Stock Exchange, trading
under the symbol RYL. The table below presents high and low market prices and
dividend information for the Company. The number of common stockholders of
record as of February 17, 2000, was 13,555,560. (See Note I for dividend restrictions.)
Dividends Dividends
Declared Declared
1999 High Low Per Share 1998 High Low Per Share
- ----------------------------------------------------------------------------------------------------------------------------
First quarter $28 5/16 $22 5/8 $0.04 First quarter $29 13/16 $21 1/2 $0.04
Second quarter 30 22 7/8 0.04 Second quarter 27 11/16 19 1/2 0.04
Third quarter 30 7/16 22 1/4 0.04 Third quarter 27 5/16 19 3/4 0.04
Fourth quarter 24 1/16 19 15/16 0.04 Fourth quarter 29 1/8 20 7/8 0.04
- ----------------------------------------------------------------------------------------------------------------------------
43
<PAGE> 133
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<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<DESCRIPTION>LIST OF SUBSIDIARIES
<TEXT>
Exhibit 21 List of Subsidiaries of Registrant
Ryland Mortgage Company and subsidiaries(an Ohio Corporation)
Ryland Homes of California (a Delaware Corporation)
RH of Texas LP
RH of Indiana LP
Ryland Homes of Arizona, Inc. (a Arizona Corporation)
Ryland Homes of Florida, Inc. (a Florida Corporation)
<PAGE> 134
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-23
<SEQUENCE>7
<DESCRIPTION>CONSENT OF INDEPENDENT AUDITORS
<TEXT>
Exhibit 23 Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The Ryland Group, Inc., of our report dated January 26, 2000, included in the
1999 Annual Report to the Shareholders of The Ryland Group, Inc.
Our audits also included the financial statement schedule of The Ryland Group,
Inc., listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits. In
our opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 33-32431, Form S-3 No. 33-48071, Form S-3 No. 33-50933, Form S-8
No. 33-56905, Form S-8 No. 33-56917, Form S-3 No. 333-03791, Form S-8 No.
333-68397, Form S-3 No. 333-31034) of The Ryland Group, Inc., and in the related
Prospectuses of our report dated January 26, 2000, with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) for the year ended
December 31, 1999.
/s/Ernst & Young LLP
Baltimore, Maryland
March 20, 2000
<PAGE> 135
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-24
<SEQUENCE>8
<DESCRIPTION>POWER OF ATTORNEY
<TEXT>
Exhibit 24 Power of Attorney
KNOW ALL MEN BY THESE PRESENTS that the undersigned directors and officers of
The Ryland Group, Inc., a Maryland corporation, constitute and appoint
Timothy J. Geckle the true and lawful agent and attorney-in-fact of the
undersigned with full power and authority in said agent and attorney-in-fact
to sign for the undersigned in their respective names as directors and
officers of The Ryland Group, Inc., the Annual Report on Form 10-K of The
Ryland Group, Inc., for the fiscal year ended December 31, 1999 to be filed
with the Securities and Exchange Commission under the Securities Exchange Act
of 1934. We hereby confirm all acts taken by such agent and attorney-in-fact
as herein authorized.
DATED: March 14, 2000
/s/ Chad Dreier
Chad Dreier, Chairman of the Board,
President and Chief Executive Officer
(Principal Executive Officer)
/s/ James A. Flick, Jr.
James A. Flick, Jr., Director
/s/ Leslie M. Frecon
Leslie M. Frecon, Director
/s/ William L. Jews
William L. Jews, Director
/s/ William G. Kagler
William G. Kagler, Director
/s/ Robert E. Mellor
Robert E. Mellor, Director
/s/ Charlotte St. Martin
Charlotte St. Martin, Director
<PAGE> 136
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-27
<SEQUENCE>9
<DESCRIPTION>FDS-PERIOD ENDED DECEMBER 31, 1999 FORM 10-K
<TEXT>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE RYLAND GROUP INC. FORM 10-K FOR THE
PERIOD ENDED 12/31/99 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 69,926
<SECURITIES> 99,249
<RECEIVABLES> 40,520
<ALLOWANCES> 0
<INVENTORY> 822,681
<CURRENT-ASSETS> 0
<PP&E> 26,619
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,248,323
<CURRENT-LIABILITIES> 0
<BONDS> 194,797
<PREFERRED-MANDATORY> 0
<PREFERRED> 350
<COMMON> 13,851
<OTHER-SE> 372,336
<TOTAL-LIABILITY-AND-EQUITY> 1,248,323
<SALES> 1,958,832
<TOTAL-REVENUES> 2,009,266
<CGS> 1,633,094
<TOTAL-COSTS> 1,848,231
<OTHER-EXPENSES> 23,332
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,367
<INCOME-PRETAX> 109,336
<INCOME-TAX> 42,641
<INCOME-CONTINUING> 66,695
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,695
<EPS-BASIC> 4.49
<EPS-DILUTED> 4.30
</TABLE>
</TEXT>
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